Exhibit 10.25

SECURED NOTE

 

$2,000,000,000

   March 24, 2010

FOR VALUE RECEIVED, AMBAC ASSURANCE CORPORATION, a Wisconsin domiciled financial
guaranty insurance corporation (including successors and assigns, “Maker”),
hereby promises to pay to the SEGREGATED ACCOUNT OF AMBAC ASSURANCE CORPORATION,
a segregated account of Ambac Assurance Corporation established as of March 24,
2010 (including successors and assigns, “Payee”), by no later than March 24,
2050, the principal amount of Two Billion Dollars ($2,000,000,000) (which amount
shall be reduced to $0 at such time that the liabilities and obligations of
Payee under the Covered Policies have been paid, or otherwise satisfied, in
full), and to pay interest on the outstanding principal of this Secured Note (as
amended, restated, supplemented or otherwise modified from time to time, this
“Note”), as provided herein.

Recitals

A. Maker has established Payee pursuant to Section 611.24(2) of the Wisconsin
Statutes with the approval of the Wisconsin Office of the Commissioner of
Insurance (“OCI”) and in accordance with the Plan of Operation for the
Segregated Account of Ambac Assurance Corporation adopted by the Board of
Directors of Maker, as amended from time to time (the “Plan of Operation”).

B. In conjunction with the establishment of Payee, Maker allocated to Payee
certain insurance policy liabilities (the “Covered Policies”) and other
liabilities, as more fully described in the Plan of Operation. Maker has issued
this Note to support such liabilities.

C. In order to continue to support the liabilities associated with the Covered
Policies upon payment in full of all principal under this Note, Maker, as
reinsurer, has agreed to reinsure the liability of Payee, as ceding company,
under the Covered Policies pursuant to the terms of an Aggregate Excess of Loss
Reinsurance Agreement dated as of the date hereof between Maker and Payee (as
amended, restated, supplemented or otherwise modified from time to time, the
“Reinsurance Agreement”).

D. Immediately following the establishment of Payee and the execution of this
Note and the Reinsurance Agreement, Payee will be the subject of an order for
rehabilitation under Chapter 645 of the Wisconsin Statutes (the “Proceeding”),
whereupon the rehabilitator of Payee under the Proceeding (the “Rehabilitator”)
will assume control of the management of Payee and conduct the business of Payee
in accordance with a Plan of Rehabilitation to be approved by the rehabilitation
court pursuant to Section 645.33(5) of the Wisconsin Statutes (the “Plan of
Rehabilitation”). At all times while Payee is subject to the Proceeding, the
term “Payee” as used herein shall be deemed to include, and Payee shall act
exclusively through, the Rehabilitator, or his or her designee.

Ambac Assurance Corporation

Secured Note Payable to Segregated Account

--------------------------------------------------------------------------------

1. PAYMENTS

1(a) Principal.

Subject to the first paragraph of this Note and to clause 1(c) below, the
outstanding principal under this Note shall be payable in full on March 24, 2050
(the “Maturity Date”), subject to mandatory prepayment from time to time on
demand of Payee in an amount equal to, at the time of such demand, (A) the cash
portion of claim liabilities due and payable by the Payee under Covered
Policies, amounts due and payable by the Payee arising from other liabilities
allocated to the Payee, cash amounts due and payable under loss settlements,
cash amounts due and payable by the Payee for the commutation or purchase of
Covered Policies or the obligations insured thereby or other liabilities, and
any cash interest payment and cash principal repayment under any surplus or
contribution notes issued by the Payee in connection with any of the foregoing,
provided that in each case, such amounts due and payable are in accordance with
the Plan of Rehabilitation and not otherwise disapproved by the Rehabilitator
plus (B) amounts due and payable by the Payee in respect of Administrative
Expenses (as defined below) plus (C) any other amounts directed or ordered to be
paid by the Rehabilitator in conjunction with the Proceeding minus (D) the
amount, as calculated by Payee, of Payee’s liquid assets available to pay such
claims or other obligations at such time. Principal amounts repaid under this
Note may not be reborrowed.

As used in the above paragraph, the term “Administrative Expenses” shall include
all administrative and operating expenses of the Payee, including but not
limited to, fees, costs and expenses associated with the following:

(i) management services, including all fees and payments pursuant to the
Management Services Agreement between Maker and Payee of even date herewith.

(ii) financial advisor, consulting and legal services, including services for
OCI or the Rehabilitator regarding matters that relate to Ambac Financial Group,
Inc. (“AFGI”) or Payee regardless of whether such matters arose prior to or
arise subsequent to the establishment of Payee;

(iii) indemnification under commercially reasonable indemnification agreements
of the Payee with providers of financial, consulting, or legal services; and

(iv) amounts due, including amounts due under indemnification provisions, under
agreements executed prior to the establishment of the Payee, by AFGI or Payee
for financial, consulting or legal services provided to OCI.

1(b) Interest.

The outstanding principal under this Note shall bear interest at the rate of
4.5% per annum, computed on the basis of actual days elapsed in a 365- or
366-day year, as the case may be. Such accrued interest shall be added to the
principal balance of this Note on January 1, April 1, July 1 and October 1 of
each calendar year with respect to interest accrued and unpaid

Ambac Assurance Corporation

Secured Note Payable to Segregated Account

 

2

--------------------------------------------------------------------------------

through the calendar quarter ending on the immediately preceding day, and, in
each case, such interest added to the principal balance of this Note shall bear
interest in accordance with the first sentence of this Section 1(b). All amounts
of accrued interest added to the principal balance of this Note in accordance
with the immediately preceding sentence shall be deemed to no longer constitute
accrued and unpaid interest under this Note and shall be deemed to instead
constitute principal of this Note. Any accrued and unpaid interest as of the
date that payment in full of the principal of this Note is due (or, if earlier,
the date upon which Maker pays in full the principal of this Note) shall also be
due and payable on such date.

1(c) Limitation on Liability of Maker.

Notwithstanding any other provision of this Note to the contrary, Maker will
have no obligation to make any payment under this Note at any time that Maker’s
surplus as regards policyholders, as reflected on its statutory financial
statements (its “Surplus”), is less than $100,000,000, or such higher amount as
determined by the OCI pursuant to a prescribed accounting practice, (the
“Surplus Amount”), or to the extent that such payment would result in Maker’s
Surplus being less than the Surplus Amount, it being understood that any
principal payment deferred as a result of the foregoing shall, unless otherwise
agreed by Payee, be due and payable (together with accrued and unpaid interest
thereon at the rate provided in clause 1(b) above, accrued through but excluding
the date of payment) at such time as the payment thereof would not result in
Maker’s Surplus being less than the Surplus Amount.

1(d) Prepayments; Application of Payments.

In addition to the prepayments required pursuant to Section1(a) hereof, Maker
may at its option prepay the principal amount of this Note in whole or in part
at any time without premium or penalty. Such optional prepayments shall be
applied to such amounts as shall be directed by Maker.

2. SECURITY

2(a) Grant of Security Interest.

For value received and as collateral security for the Secured Indebtedness (as
defined below), Maker hereby grants to Payee a security interest, lien and
mortgage in and to, and agrees and acknowledges that Payee has, and shall
continue to have, a security interest, lien and mortgage in and to, Maker’s
right, title and interest in each of the following assets, wherever located,
however arising or created and whether now owned or existing or hereafter
arising, created or acquired (collectively, the “Collateral”):

(i) installment premiums received in respect of the Covered Policies;

(ii) reinsurance premiums received in respect of assumed reinsurance agreements
with respect to which the liabilities of Maker have been allocated to the Payee;

Ambac Assurance Corporation

Secured Note Payable to Segregated Account

 

3

--------------------------------------------------------------------------------

(iii) recoveries under third party reinsurance agreements in respect of the
Covered Policies;

(iv) any recoveries arising from remediation efforts or reimbursement or
collection rights with respect to policies allocated to the Segregated Account;

(v) all assets evidencing and rights relating to any of the foregoing, whether
in the form of instruments, general intangibles, investment property or
otherwise; and

(vi) all identifiable products and proceeds of any of the property described
above in any form.

2(b) Indebtedness Secured.

The security interest granted herein is granted to secure the payment and
performance of (collectively, the “Secured Indebtedness”):

(i) any and all indebtedness, obligations and liabilities of Maker to Payee
arising in connection with, or evidenced by, this Note, together with all
documents evidencing and/or securing such indebtedness, obligations and/or
liabilities, whether now existing or hereafter arising, whether direct or
indirect, absolute or contingent, due or not due, liquidated or unliquidated,
and together with all interest thereon, including all renewals, extensions and
modifications of the foregoing or any part thereof;

(ii) any and all indebtedness, obligations and liabilities of Maker to Payee
pursuant to the Reinsurance Agreement, whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising under or in
respect of the Reinsurance Agreement, including all renewals, extensions and
modifications of the foregoing or any part thereof; and

(iii) all costs and expenses incurred by Payee to obtain, preserve, perfect and
enforce the security interest granted hereby and all other liens and security
interests securing payment of the Secured Indebtedness and to maintain, preserve
and collect the Collateral, including, without limitation, taxes, assessments
and reasonable attorneys’ fees and legal expenses.

2(c) Collection and Enforcement of Collateral; Power of Attorney.

Payee shall have the right, but not the obligation, in its sole and absolute
discretion, to enforce and collect any Collateral (including, without
limitation, by the commencement of legal claims or proceedings) if Maker shall
not have commenced enforcement or collection efforts acceptable to Payee with
respect to the applicable Collateral within ten (10) business days after the
applicable obligor’s default under the applicable Collateral. In furtherance of
the foregoing, Payee may in its sole and absolute discretion, at any time after
such failure to act by Maker exercise such enforcement and collection rights of
Maker in such Collateral, and Maker hereby irrevocably appoints Payee, with full
power of substitution, its

Ambac Assurance Corporation

Secured Note Payable to Segregated Account

 

4

--------------------------------------------------------------------------------

attorney-in-fact for such purposes with full irrevocable power and authority in
the place and stead of Maker and in the name of Maker or in its own name, from
time to time in Payee’s sole and absolute discretion, to pursue and exercise
such rights in respect of such Collateral. Maker hereby confirms and ratifies
all that Payee shall lawfully do or cause to be done by virtue of this Section.
This power of attorney is a power coupled with an interest and shall be
irrevocable. Payee shall not be liable for any act or omission on the part of
Payee, its officers, agents or other representatives in connection with
exercising the rights granted hereunder. Maker hereby acknowledges and agrees
that Payee shall have no fiduciary duties to Maker and Maker hereby waives any
claims to the rights of a beneficiary or a fiduciary relationship hereunder. The
powers conferred on Payee hereunder are solely to protect the interests of Payee
in Collateral and shall not impose any duty upon Payee to exercise any such
powers. Notwithstanding the foregoing, any proceeds from Payee’s exercise of the
enforcement and collection rights of Maker pursuant to this paragraph shall
remain the property of Maker, shall be held in trust for the benefit of Maker,
and shall be turned over to Maker promptly.

2(d) Collateral Documentation.

Maker agrees to execute and deliver such agreements, instruments and other
documents, and take such actions, as are necessary and/or reasonably requested
by Payee to protect, perfect and maintain the perfection of Payee’s security
interest in the Collateral, and hereby authorizes Payee to file any Uniform
Commercial Code financing statement or other document in furtherance thereof.
Without in any way limiting the right, power or authority of Payee under the
Uniform Commercial Code or other Applicable Law (as defined below), Maker hereby
irrevocably authorizes Payee in its sole and absolute discretion, at any time
and from time to time, to file without the review or approval of Maker any and
all financing statements, modifications and continuations in respect of the
Collateral and Maker and/or the transactions contemplated by this Note and/or
any related agreement, instrument or other document to which Maker is or will be
a party, by which it is or will be bound or to which any of its property is or
will be subject (collectively, with this Note and the Reinsurance Agreement, the
“Transaction Documents”) in such jurisdictions as Payee deems necessary or
desirable.

2(e) Remedies.

In addition to the rights and remedies provided under this Note and/or any other
Transaction Document, Payee shall have all of the rights and remedies of a
secured party under the Uniform Commercial Code with respect to the Collateral.

3. REPRESENTATIONS AND WARRANTIES

Maker hereby represents and warrants to Payee as follows:

3(a) Organization, Powers, etc.

Maker: (i) is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization; (ii) has the power and authority to
carry on its business as now conducted; (iii) is duly qualified, licensed or
registered to transact its business in every

Ambac Assurance Corporation

Secured Note Payable to Segregated Account

 

5

--------------------------------------------------------------------------------

jurisdiction where such qualification, licensure or registration is necessary;
and (iv) has the power and authority to execute and deliver this Note and each
other Transaction Document and to perform all of its obligations hereunder and
thereunder.

3(b) Authorization, Conflicts and Validity.

The execution and delivery by Maker of this Note and each of the other
Transaction Documents and the performance by Maker of all of its obligations
hereunder and thereunder: (i) have been duly authorized by all requisite entity
action; (ii) will not in any material respect violate or be in conflict with any
term or provision of (A) any applicable law, including, without limitation, any
applicable: (1) federal, state, territorial, county, municipal or other
governmental or quasi-governmental law, statute, ordinance, rule, regulation,
requirement or restriction; or (2) judicial, administrative, regulatory or other
governmental, quasi-governmental or regulatory order, injunction, writ,
judgment, decree or ruling binding upon Maker; in each case (x) whether domestic
or foreign or (y) whether at law, in equity, in rem or otherwise (collectively,
“Applicable Law”) or (B) any of Maker’s organizational documents; and
(iii) except as specifically contemplated by this Note or any other Transaction
Document, will not result in the creation or imposition of any mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), charge or other security interest or other security agreement or
preferential arrangement of any kind or nature whatsoever (each, a “Lien”) upon
any of its assets and properties other than: (a) Liens for taxes, assessments
and governmental charges or levies which are not delinquent for more than ninety
(90) days or remain payable without penalty; or (b) Liens imposed by law, such
as materialmen’s, mechanics’, carriers’, workmens’ and repairmen’s Liens and
other similar Liens arising in the ordinary course of business securing
obligations that are not overdue for a period of more than sixty (60) days; or
(c) pledges or deposits to secure obligations under workers’ compensation laws
or similar legislation or to secure public or statutory obligations.

3(c) Consents, etc.

Except as already obtained and in effect, no consent, approval or authorization
of, or registration, declaration or filing with, any governmental or regulatory
authority or other person is required as a condition to or in connection with
the due and valid execution, delivery and performance by Maker of this Note or
any other Transaction Document or the legality, validity, binding effect or
enforceability of any of their respective representations, warranties, covenants
and other terms and provisions.

3(d) Legal and Enforceable Agreements.

This Note is, and each of the other Transaction Documents when executed and
delivered will be, legal, valid and binding obligations of Maker, enforceable in
accordance with their respective terms and provisions.

Ambac Assurance Corporation

Secured Note Payable to Segregated Account

 

6

--------------------------------------------------------------------------------

3(e) Document Delivery; Absence of Defaults and Certain Agreements.

Except as disclosed in writing to Payee prior to the date hereof, no act or
event has occurred and is continuing that violates, is in conflict with, results
in a breach of or constitutes a default (with or without the giving of notice or
the passage of time or both) under any term or provision of (A) this Note and/or
any other Transaction Document, (B) any agreement, contract or instrument to
which Maker is a party, by which Maker is bound or to which any substantial
portion of Maker’s property is subject, in each case the loss of which would
have a material adverse effect on Maker (each a “Material Agreement”), or
(C) any of Maker’s organizational documents.

3(f) Compliance with Applicable Law.

Maker is in compliance in all material respects with and conforms in all
material respects to all Applicable Law, the failure to comply with which would
have a material adverse effect on Maker.

3(g) Assets and Collateral.

Maker is the holder and legal and beneficial owner of, and has good title to,
the Collateral. Maker has full power and authority and the unconditional right
to grant to Payee the security interests respecting the Collateral contemplated
by this Note and/or the other Transaction Documents. Payee has received legal,
valid, binding, enforceable and perfected security interests in and to the
Collateral pursuant to this Note and the other Transaction Documents. No part of
the Collateral is subject to any Lien or any adverse claim of any kind
whatsoever, except those in favor of Payee.

4. AFFIRMATIVE COVENANTS

Maker hereby covenants and agrees with Payee as follows at all times until the
indefeasible payment in full of all of the Secured Indebtedness:

4(a) Required Notices.

Maker will give, or cause to be given, prompt written notice to Payee of:

(i) any change in the name or the jurisdiction of organization of Maker;

(ii) receipt of actual knowledge of the institution or threat of, or any adverse
determination in, any action, suit, investigation or proceeding at law, in
equity, in arbitration or by or before any other authority involving or
affecting Maker which Maker reasonably believes, if adversely determined, is
reasonably likely to have a material and adverse effect upon Maker’s ability to
(A) make payment as and when due of all or any material part of its obligations
hereunder, (B) perform in any material respect its obligations under any
Material Agreement and/or (C) perform in any material respect any of the
transactions contemplated by this Note and/or any of the other Transaction
Documents (a “Material Adverse Effect”);

Ambac Assurance Corporation

Secured Note Payable to Segregated Account

 

7

--------------------------------------------------------------------------------

(iii) receipt of actual knowledge of the occurrence of any act or event that
violates, is in conflict with, results in a breach in any material respect of,
or constitutes a material default (with or without the giving of notice or the
passage of time or both) under, any of Maker’s organizational documents or any
Material Agreement;

(iv) receipt of actual knowledge of any attachment, confiscation, detention,
levy, requisition, seizure or other taking of any material part of the
Collateral, whether through process of law or otherwise, or the filing or other
imposition of any Lien against any part of the Collateral (other than any Lien
of Payee); or

(v) receipt of actual knowledge of the occurrence of any act or event that Maker
reasonably believes has had or is reasonably likely to have a Material Adverse
Effect.

4(b) Accounts and Reports.

Maker shall provide to Payee the following:

(i) promptly following execution, copies of all loan, security and other
instruments, agreements and documents respecting indebtedness for borrowed money
of Maker in excess of $5,000,000, including commitments, lines of credit and
other credit availabilities, and of all guarantees by Maker respecting any
indebtedness or other obligation of any other person in excess of $5,000,000,
except those to which Payee also is a party;

(ii) as soon as available, notice of any acceleration and/or foreclosure of any
part of its assets and properties as a result of any default under indebtedness
for borrowed money of Maker or any of its subsidiaries in excess of $5,000,000;

(iii) as soon as available, and in any event not more than ten (10) business
days after actual receipt, a copy of any summons or complaint, or any other
notice of any action, suit, investigation or proceeding, involving or affecting
Maker or any of its subsidiaries where the damages sought exceed, or if
unspecified are reasonably likely to exceed, $5,000,000; and

(iv) as soon as available, and in any event not less than five (5) business days
prior to adoption, copies of each proposed modification, waiver, amendment or
termination of any of the terms and provisions of any of the organizational
documents of Maker;

together with such supplements to the aforementioned documents and additional
accounts, reports, certificates, statements, documents and information as Payee
from time to time may reasonably request, each in such form and substance as may
be reasonably acceptable to Payee.

Ambac Assurance Corporation

Secured Note Payable to Segregated Account

 

8

--------------------------------------------------------------------------------

4(c) Access to Premises, Records and Collateral.

At all reasonable times and upon reasonable notice and as often as Payee
reasonably may request, Maker shall permit representatives designated by Payee
to (i) have complete and unrestricted access to the premises of Maker, the books
and records of Maker and the Collateral, (ii) make copies of, or excerpts from,
those books and records and (iii) discuss the Collateral or the accounts,
assets, business, operations, properties or condition, financial or otherwise,
of Maker with its officers, directors, employees, accountants, attorneys and
agents. Payee shall treat as “confidential information” any information or
documents provided by Maker to, or obtained by, Payee, pursuant to this
paragraph. Payee agrees not to disclose or allow disclosure of confidential
information to any person provided that Payee may make such disclosure (i) to
its officers, employees, staff members, auditors, attorneys and other
professional advisors (collectively, “Representatives”), in each case only to
the extent such persons need to know the information so disclosed, and provided
that such party shall have informed each such Representative of the confidential
nature of such information; (ii) to the extent required by applicable law, rule
or regulation; (iii) in connection with any action to enforce this Note or any
provision of this Note or in connection with any proceeding, including steps
leading to a potential proceeding, that might involve this Note or any provision
of this Note, and (iv) to the extent such information shall be in the public
domain without breach by any party of its obligation hereunder.

4(d) Existence, Powers, etc.

(i) Maker shall do, or cause to be done, all things that may be necessary (A) to
maintain its due organization, valid existence and good standing under the laws
of its jurisdiction of incorporation, and (B) to preserve and keep in full force
and effect all qualifications, licenses and registrations in those jurisdictions
in which the failure to do would have a Material Adverse Effect.

(ii) Maker shall not cause, suffer to exist or permit any supplement,
modification or amendment to, or any waiver of any term or provision of, any of
its organizational documents which would have a Material Adverse Effect.

(iii) Maker shall not, and shall not cause, without Payee’s prior written
consent, any action (with respect to itself or otherwise), or offer, commit or
enter into any agreement or arrangement, that would in any material respect
restrict, limit, make subject to third-party approval or otherwise impair its
right, power or authority (A) to carry on its business in all material respects
as now conducted or (B) to execute or deliver this Note or any other Transaction
Document or any supplement, modification or amendment thereto or restatement or
replacement thereof from time to time or (C) to perform any of its obligations
hereunder or thereunder.

4(e) Compliance with Applicable Law.

Maker shall comply with any and all Applicable Law now or hereafter in effect in
all material respects to the extent the failure to so comply shall have a
Material Adverse Effect.

Ambac Assurance Corporation

Secured Note Payable to Segregated Account

 

9

--------------------------------------------------------------------------------

4(f) Preservation and Defense of Collateral, etc.

Maker shall maintain, enforce, preserve and defend on a timely basis all of the
right, title and interest of Maker and Payee in and to the Collateral.

5. NEGATIVE COVENANTS

Maker hereby covenants and agrees with Payee as follows at all times until the
indefeasible payment in full of all of the Secured Indebtedness:

5(a) Investments.

Maker shall not, directly or indirectly through one or more subsidiaries, make
any investments that do not comply with Maker’s investment guidelines and
policies in effect from time to time (the “Investments Policy”), and shall not
amend, restate, revise, supplement or otherwise modify the Investments Policy in
any manner that would have a Material Adverse Effect without Payee’s prior
written consent, such consent not to be unreasonably withheld or delayed.

5(b) Distributions to Shareholders.

Maker shall not directly or indirectly, without Rehabilitator and OCI approval:

(i) declare or make any dividend, payment or other distribution of cash, assets
or property with respect to any equity securities issued by Maker, whether now
or hereafter outstanding;

(ii) redeem, purchase or otherwise acquire any securities issued by Maker or any
option or other right to acquire any such securities;

(iii) covenant or otherwise arrange with any person (other than Payee) to
directly or indirectly limit or otherwise restrict any dividend, advance or
other payment or distribution (whether of cash or otherwise) to or for the
benefit of Maker; or

(iv) offer, commit or agree to do any of the foregoing.

5(c) Transaction Limitations.

Maker shall not, without Payee’s prior written consent (such consent not to be
unreasonably withheld or delayed), directly or indirectly, enter into any
transaction with, or use any asset or property of, any third party (including
any affiliate, but excluding Payee), other than pursuant to the reasonable
requirements of the business of Maker and which Maker reasonably believes are
fair and reasonable terms and provisions. For the avoidance of doubt,
“transaction” as used in this Section shall include, without limitation:

(i) the creation, incurrence, assumption, increase, renewal or extension of any
indebtedness for borrowed money, however evidenced;

Ambac Assurance Corporation

Secured Note Payable to Segregated Account

 

10

--------------------------------------------------------------------------------

(ii) the creation, incurrence or assumption of any Lien of any nature in, to or
against any asset or property;

(iii) the sale, transfer, exchange, abandonment or other disposition of any
asset or property;

(iv) the purchase or acquisition of any equity interest, including any
membership interest in a limit liability company or partnership interest in a
private company;

(v) any issuance, sale, transfer, pledge or other disposition or encumbrance of
any capital stock, partnership or membership interests or other equity interests
issued by Maker or any of its subsidiaries, or the issuance of any option,
warrant or other right to acquire any such securities;

(vi) any capital reorganization or reclassification of the capital stock,
partnership or membership interests or other equity interests issued by Maker or
any of its subsidiaries;

(vii) any transaction in which the capital stock, partnership or membership
interests or other equity interests issued by Maker or any of its subsidiaries
prior to the transaction would be changed into or exchanged for different
securities, whether of that or any other person, or for any other assets or
properties;

(viii) any sale, lease, assignment, conveyance, spin-off or other transfer or
disposition of all or any material part of the business or assets and properties
of Maker or any of its subsidiaries;

(ix) any merger, consolidation, dissolution, liquidation or winding up of Maker
or any of its subsidiaries;

(x) the acquisition or establishment of any new subsidiary or joint venture by
Maker or any of its subsidiaries; and

(xi) the acquisition by Maker or any of its subsidiaries of all or substantially
all of the assets and properties of any other person or any discrete division or
other business unit thereof.

6. REMEDIES

The occurrence and continuation of any of the following shall constitute an
“Event of Default” under this Note:

(a) Maker shall fail to pay any principal of this Note when the same shall be
due and payable or, within five (5) business days after when due and payable,
any other amount due and payable hereunder or under any other Transaction
Document;

Ambac Assurance Corporation

Secured Note Payable to Segregated Account

 

11

--------------------------------------------------------------------------------

(b) Any representation or warranty made by Maker herein or in any other
Transaction Document or which is contained in any certificate furnished by Maker
at any time under or in connection with this Note shall prove to have been
incorrect in any material respect when made or deemed made; or

(c) Maker shall fail to perform or observe any term, covenant or agreement
contained in Section 5 of this Note on its part to be performed or observed; or
Maker shall fail to perform or observe any other term, covenant or agreement
contained in this Note or the Reinsurance Agreement on its part to be performed
or observed if such failure shall remain unremedied for forty-five days after
written notice thereof shall have been received by Maker and, in each case, such
failure to perform or observe as contemplated in this subparagraph (c) shall
have a Material Adverse Effect.

At any time after an Event of Default shall have occurred and be continuing,
Payee shall be entitled to: (i) declare all principal, interest and other
amounts outstanding hereunder to be immediately due and payable, and
(ii) exercise or enforce any one or more of Payee’s rights, powers, privileges,
remedies and interests under this Note and/or the other Transaction Documents
and Applicable Law (including, without limitation, with respect to the
Collateral).

Notwithstanding anything herein to the contrary, no action taken or proposed to
be taken under, in connection with or pursuant to the Plan of Operation or Plan
of Rehabilitation shall be deemed to be an Event of Default.

7. WAIVERS

Except as herein provided, Maker (a) forever waives presentment, protest and
demand, notice of protest, demand and dishonor and non-payment of this Note, and
all other notices in connection with the delivery, acceptance, performance,
default or enforcement of the payment of this Note; and (b) agrees that time is
of the essence with respect to the payment of the obligations hereunder,
provided that the time of payment of the obligations hereunder or any part
thereof may be extended from time to time without modifying or releasing the
liability of Maker, the right of recourse against Maker being hereby reserved by
Payee. It is expressly agreed by Maker that no extensions of time for the
payment of this Note, nor the failure on the part of Payee to exercise any of
its rights hereunder, shall operate to release, discharge, modify, change or
affect the original liability under this Note, either in whole or in part.

8. NO WAIVER OF IMMUNITY

Nothing in this Note may be construed as waiving immunity, or as subjecting the
Rehabilitator or OCI, or the Rehabilitator’s or OCI’s employees or agents, to
liability, including contractual liability, for matters that are otherwise
subject to immunity from liability, including immunity under Wis. Stat. §
645.08(2).

Ambac Assurance Corporation

Secured Note Payable to Segregated Account

 

12

--------------------------------------------------------------------------------

9. GOVERNING LAW; SEVERABILITY

Maker agrees that this instrument and the rights and obligations of all parties
hereunder shall be governed by and construed under the internal laws of the
State of Wisconsin (without giving effect to conflict of law principles that
provide for the application of the laws of another jurisdiction). If any
provision of this Note shall be illegal or unenforceable, such provision shall
be deemed canceled to the same extent as though it had never appeared herein,
but the remaining provisions shall not be affected thereby.

10. NOTICES

All notices, requests and demands to or upon the respective parties hereto to be
effective shall be in writing (including by facsimile or e-mail), and shall be
deemed to have been duly given or made when received, addressed as follows (or
to such other address, facsimile number or e-mail address) as the applicable
party may specify to the other in accordance with this Section from time to
time):

With respect to Maker:

Ambac Assurance Corporation

One State Street Plaza

New York, New York 10004

Attention: General Counsel

With respect to Payee:

Rehabilitator of the Segregated Account of Ambac Assurance Corporation

One State Street Plaza

New York, New York 10004

with copies to:

Commissioner of Insurance

Wisconsin Office of the Commissioner of Insurance

125 South Webster Street

Madison, Wisconsin 53703

Foley & Lardner LLP

777 E. Wisconsin Ave

Milwaukee, Wisconsin 53202

Attn: Kevin G. Fitzgerald

Ambac Assurance Corporation

Secured Note Payable to Segregated Account

 

13

--------------------------------------------------------------------------------

11. SUCCESSORS AND ASSIGNS

Neither Maker nor Payee shall assign any of its rights or obligations under this
Note, and any such assignment (without the other party’s prior written consent)
shall be null and void. No party shall be a third party beneficiary of this
Note.

12. WAIVER OF JURY TRIAL

MAKER AND PAYEE HEREBY JOINTLY AND SEVERALLY WAIVE ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS INSTRUMENT, THE OBLIGATIONS
HEREUNDER, ANY COLLATERAL SECURING THE OBLIGATIONS HEREUNDER OR ANY TRANSACTION
ARISING HEREFROM OR CONNECTED HERETO. EACH OF MAKER AND PAYEE REPRESENTS TO THE
OTHER THAT THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY GIVEN.

13. LIMITATION OF LIABILITY

Maker hereby waives any right it may now or hereafter have to claim or recover
from Payee any consequential, exemplary or punitive damages.

14. EXPENSES; INDEMNITY

Maker shall pay or reimburse Payee for (i) all reasonable costs and expenses
(including, without limitation, reasonable attorneys’ fees and expenses) paid or
incurred by Payee in connection with the negotiation, preparation, execution,
delivery, administration and enforcement of this Note, each other Transaction
Document and any other document required hereunder or thereunder, including,
without limitation, any amendment, supplement, modification or waiver of or to
any of the foregoing and (ii) all reasonable costs and expenses (including,
without limitation, reasonable attorneys’ fees and expenses) paid or incurred by
Payee before and after judgment in enforcing, protecting or preserving its
rights under this Note, each other Transaction Document and any other document
required hereunder or thereunder, including, without limitation, the enforcement
of rights against, or realization on, any collateral or security therefor or in
defending against any claim made against Payee by Maker or any third party as a
result of or in any way relating to any matter referred to above in this
Section. The foregoing agreements and indemnities shall remain operative and in
full force and effect regardless of termination of this Note and/or any other
Transaction Document, the consummation of or failure to consummate either the
transactions contemplated by this Note and/or any other Transaction Document or
any amendment, supplement, modification or waiver, the repayment of any loan
made hereunder, the invalidity or unenforceability of any term or provision of
this Note or any other Transaction Document or any other document required
hereunder or thereunder, any investigation made by or on behalf of Payee or the
content or accuracy of any representation or warranty made under this Note, any
other Transaction Document or any other document required hereunder or
thereunder.

Ambac Assurance Corporation

Secured Note Payable to Segregated Account

 

14

--------------------------------------------------------------------------------

15. CONSENT TO JURISDICTION

Maker hereby consents to the jurisdiction of the state court in Wisconsin before
which the rehabilitation proceedings with respect to the Payee are pending, and
waives any objection based on lack of personal jurisdiction, improper venue or
forum non conveniens, with regard to any actions, claims, disputes or
proceedings relating to this Note, the Transaction Documents, or any other
document delivered hereunder or in connection herewith, or any transaction
arising from or connected to any of the foregoing.

16. FURTHER ASSURANCES

Maker agrees to do such further acts and things and to execute and deliver such
statements, assignments, agreements, instruments and other documents as Payee
from time to time may reasonably request in connection with the administration,
maintenance, enforcement or adjudication of this Note and the other Transaction
Documents, including, without limitation, in order to (a) evidence, confirm,
perfect or protect any security interest or other Lien granted or required to
have been granted under this Note and the other Transaction Documents, (b) give
Payee or its designee confirmation and assurance of Payee’s rights, powers,
privileges, remedies and interests under this Note and the other Transaction
Documents or (c) otherwise effectuate the purpose and the terms and provisions
of this Note and the other Transaction Documents, each in such form and
substance as may be reasonably acceptable to Payee.

17. ENTIRE AGREEMENT

This Note and the other documents referred to herein contain the entire
agreement between Maker and Payee with respect to the subject matter hereof,
superseding all previous communications and negotiations, and no representation,
undertaking, promise or condition concerning the subject matter hereof shall be
binding upon Payee unless clearly expressed in this Note or in the other
documents referred to herein.

18. MODIFICATION, AMENDMENT, ETC.

Each and every supplement or amendment to or modification or restatement of this
Note or any other Transaction Document shall be in writing and signed by all of
the parties hereto or the respective parties thereto, as the case may be, and
each and every waiver of, or consent to any departure from, any representation,
warranty, covenant or other term or provision of this Note or any other
Transaction Document shall be in writing and signed by each of the parties
hereto or thereto, respectively.

19. SETOFF

In addition to any rights and remedies of Payee provided hereunder and/or by
Applicable Law, Payee shall have the right, without prior notice to Maker, any
such notice being expressly waived by Maker to the extent permitted by
Applicable Law, upon any amount becoming due and payable by Maker hereunder
(whether at the stated maturity, by acceleration or otherwise), to set off and
appropriate and apply against such amount any and all deposits and any other
credits, indebtedness or claims, in each case whether direct or indirect,
absolute or contingent, matured or unmatured, at any time held or owing by Payee
to or for the credit or the account of Maker.

[Signature Page Follows]

Ambac Assurance Corporation

Secured Note Payable to Segregated Account

 

15

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the undersigned have signed below as of the date first set
forth above.

 

AMBAC ASSURANCE CORPORATION (“Maker”) By:   /s/ Kevin J. Doyle   Name: Kevin J.
Doyle   Title: Senior Vice President SEGREGATED ACCOUNT OF AMBAC ASSURANCE
CORPORATION (“Payee”) By:  

/s/ Kevin J. Doyle

  Name: Kevin J. Doyle   Title: Senior Vice President    

Ambac Assurance Corporation

Secured Note Payable to Segregated Account