EXHIBIT 10.33

 

EXECUTION COUNTERPART

 

U.S. $300,000,000

 

REVOLVING CREDIT AGREEMENT

 

Dated as of July 29, 2004

 

Among

 

AMBAC FINANCIAL GROUP, INC. and

AMBAC ASSURANCE CORPORATION,

as Borrowers,

 

CERTAIN COMMERCIAL LENDING INSTITUTIONS,

as Lenders,

 

CITIBANK, N.A.,

as Administrative Agent,

 

BARCLAYS BANK PLC,

as Syndication Agent,

 

THE BANK OF NEW YORK,

as Documentation Agent,

 

BARCLAYS CAPITAL and

CITIGROUP GLOBAL MARKETS INC.,

as Joint Lead Arrangers

 

and

 

CITIGROUP GLOBAL MARKETS INC.,

as Sole Book Runner

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TABLE OF CONTENTS

 

     Page

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ARTICLE I DEFINITIONS AND ACCOUNTING TERMS    1

SECTION 1.01

  

Certain Defined Terms

   1

SECTION 1.02

  

Computation of Time Periods

   12

SECTION 1.03

  

Accounting Terms

   12 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES    12

SECTION 2.01

  

The Advances

   12

SECTION 2.02

  

Making the Revolving Credit Advances

   13

SECTION 2.03

  

Fees

   14

SECTION 2.04

  

Termination or Reduction of the Commitments

   15

SECTION 2.05

  

Repayment

   15

SECTION 2.06

  

Interest

   15

SECTION 2.07

  

Interest Rate Determination

   16

SECTION 2.08

  

Optional Conversion of Advances

   16

SECTION 2.09

  

Optional Prepayments

   17

SECTION 2.10

  

Increased Costs

   17

SECTION 2.11

  

Illegality

   18

SECTION 2.12

  

Payments and Computations

   18

SECTION 2.13

  

Taxes

   19

SECTION 2.14

  

Sharing of Payments, Etc.

   22

SECTION 2.15

  

Use of Proceeds

   22

SECTION 2.16

  

Extension of Commitment Termination Date

   22

SECTION 2.17

  

Increase of Commitments

   23

SECTION 2.18

  

Right to Replace a Lender

   24

SECTION 2.19

  

Term Loan Conversion

   25

ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING

   25

SECTION 3.01

  

Conditions Precedent to Initial Borrowing

   25

SECTION 3.02

  

Conditions Precedent to Each Borrowing

   27

SECTION 3.03

  

Conditions Precedent to Term Loan Conversion

   27

ARTICLE IV REPRESENTATIONS AND WARRANTIES

   28

SECTION 4.01

  

Representations and Warranties of each Borrower

   28

ARTICLE V COVENANTS OF THE BORROWERS

   30

SECTION 5.01

  

Affirmative Covenants

   30

SECTION 5.02

  

Negative Covenants

   33

SECTION 5.03

  

Financial Covenants

   34

 

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ARTICLE VI EVENTS OF DEFAULT

   34

SECTION 6.01

  

Events of Default

   34

ARTICLE VII THE AGENTS

   36

SECTION 7.01

  

Authorization and Action

   36

SECTION 7.02

  

Agents’ Reliance, Etc.

   37

SECTION 7.03

  

Agents and Affiliates

   37

SECTION 7.04

  

Lender Credit Decision

   37

SECTION 7.05

  

Indemnification

   38

SECTION 7.06

  

Successor

   38

ARTICLE VIII MISCELLANEOUS

   39

SECTION 8.01

  

Amendments, Etc.

   39

SECTION 8.02

  

Notices, Etc.

   39

SECTION 8.03

  

No Waiver; Remedies

   41

SECTION 8.04

  

Costs and Expenses

   41

SECTION 8.05

  

Right of Set-off

   42

SECTION 8.06

  

Binding Effect

   42

SECTION 8.07

  

Assignments and Participations

   42

SECTION 8.08

  

Confidentiality

   45

SECTION 8.09

  

Governing Law

   45

SECTION 8.10

  

Execution in Counterparts

   45

SECTION 8.11

  

Waiver of Jury Trial

   45

SECTION 8.12

  

Jurisdiction, Etc.

   45

SECTION 8.13

  

Nature of Obligations

   46

 

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Schedules

 

Schedule I -   Commitments Schedule II -   List of Applicable Lending Offices
Schedule 4.01(h) -   Contingent Liabilities Schedule 5.02(a) -   Ongoing Debt

 

Exhibits

 

Exhibit A-1 -   Form of Revolving Credit Note Exhibit A-2 -   Form of Term Note
Exhibit B -   Form of Notice of Borrowing Exhibit C -   Form of Assignment and
Acceptance Exhibit D -   Form of Compliance Certificate Exhibit E -   Form of
Opinion of Anne Gill Kelly, Managing Director, Assistant General Counsel and
Secretary of Ambac Financial Exhibit F -   Form of Opinion of Kevin J. Doyle,
Managing Director and General Counsel of Ambac Assurance Exhibit G -   Form of
Opinion of DeWitt, Ross & Stevens, S.C., Wisconsin Special Counsel to Ambac
Assurance Exhibit H -   Form of Opinion of Shearman & Sterling LLP, Special New
York Counsel to the Borrowers Exhibit I -   Form of Opinion of Milbank, Tweed,
Hadley & McCloy LLP, Special New York Counsel to the Administrative Agent

 

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REVOLVING CREDIT AGREEMENT

 

Dated as of July 29, 2004

 

AMBAC FINANCIAL GROUP, INC., a Delaware corporation (“Ambac Financial”), AMBAC
ASSURANCE CORPORATION, a Wisconsin stock insurance corporation (“Ambac
Assurance” and, together with Ambac Financial, the “Borrowers”), the banks,
financial institutions and other institutional lenders listed on the signature
pages hereof (the “Initial Lenders”), BARCLAYS BANK PLC (“Barclays”), as
syndication agent (the “Syndication Agent”) and CITIBANK, N.A. (“Citibank”), as
administrative agent for the Lenders, (the “Administrative Agent”), agree as
follows:

 

ARTICLE I

 

DEFINITIONS AND ACCOUNTING TERMS

 

SECTION 1.01 Certain Defined Terms.

 

As used in this Agreement, the following terms shall have the following meanings
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined):

 

“ABC Securities” means securities issued by a Finance Trust representing an
undivided beneficial interest in assets acquired by a Finance Trust from Ambac
Assurance with the net proceeds of such issuance.

 

“Administrative Agent” has the meaning specified in the preamble.

 

“Administrative Agent’s Account” means the account of the Administrative Agent
maintained by the Administrative Agent at Citibank, N.A., 2 Penns Way, Suite
110, New Castle, Delaware 19720, Account No. 36852248, Attention: Mr. Keith
Carter (fax: 212-994-0961).

 

“Advance” means a Revolving Credit Advance or a Term Loan.

 

“Affected Person” has the meaning specified in Section 2.18.

 

“Affiliate” means, as to any Person, any other Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person or is a director or officer of such Person. For purposes of this
definition, the term “control” (including the terms “controlling”, “controlled
by” and “under common control with”) of a Person means the possession, direct or
indirect, of the power to vote 10% or more of the Voting Stock of such Person or
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of Voting Stock, by contract or otherwise.

 

“Agent” means, as the context may require, the Syndication Agent or the
Administrative Agent and “Agents” means the Syndication Agent and the
Administrative Agent.

 

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“Aleutian” means Aleutian Investments LLC, a Delaware limited liability company.

 

“Ambac Assurance” has the meaning specified in the preamble.

 

“Ambac Financial” has the meaning specified in the preamble.

 

“Applicable Lending Office” means, with respect to each Lender, such Lender’s
Domestic Lending Office in the case of a Base Rate Advance and such Lender’s
Eurodollar Lending Office in the case of a Eurodollar Rate Advance.

 

“Applicable Margin” means, as of any date, a percentage per annum determined by
reference to the Financial Strength Rating in effect on such date as set forth
below:

 

   

Financial

Strength Rating

S&P/Moody’s

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Applicable Margin

for Base Rate

Advances

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

 

Applicable Margin

for Eurodollar Rate

Advances

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Level 1

  Aaa/AAA or above   0.000%   0.180%

Level 2

  Aa1/AA+   0.000%   0.220%

Level 3

  Aa2/AA   0.000%   0.250%

Level 4

  Lower than Level 3   0.000%   0.300%

 

provided, that in the case of each Term Loan the Applicable Margin determined as
provided above shall be increased by 0.100% per annum; and provided further,
that upon the occurrence and during the continuance of any Event of Default, the
Applicable Margin determined as provided above shall be increased by 2% per
annum.

 

“Asset Disposition” has the meaning specified in Section 5.02(c).

 

“Assignment and Acceptance” means an assignment and acceptance entered into by a
Lender and an Eligible Assignee, and accepted by the Administrative Agent, in
substantially the form of Exhibit C hereto.

 

“Barclays” has the meaning specified in the preamble.

 

“Base Rate” means a fluctuating interest rate per annum in effect from time to
time, which rate per annum shall at all times be equal to the higher of:

 

(a) the rate of interest announced publicly by Citibank in New York City from
time to time as Citibank’s base rate; and

 

(b) the Federal Funds Rate plus 0.5% per annum.

 

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“Base Rate Advance” means an Advance that bears interest as provided in Section
2.06(a)(i).

 

“Borrowers” has the meaning specified in the preamble.

 

“Borrowing” means a borrowing consisting of Revolving Credit Advances of the
same Type made to a Borrower on the same day by the Lenders.

 

“Business Day” means a day of the year on which banks are not required or
authorized by law to close in New York City and, if the applicable Business Day
relates to any Eurodollar Rate Advances, on which dealings are carried on in the
London interbank market.

 

“Change of Control” means any of the following events:

 

(a) Ambac Financial shall (i) cease to own, beneficially and of record, directly
or indirectly, 51% of the shares of capital stock of Ambac Assurance (other than
directors’ qualifying shares) or (ii) cease to have the ability to elect a
majority of the board of directors of Ambac Assurance; or

 

(b) any “person” or “group” (as such terms are used for purposes of Sections
13(d) and 14(d) of the Exchange Act, whether or not applicable, except that for
purposes of this paragraph (b) such person or group shall be deemed to have
“beneficial ownership” of all shares that such person or group has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time), other than any “person” or “group” that is a wholly-owned Subsidiary
of either Borrower, is or becomes the “beneficial owner” (as such term is used
in Rule 13d-3 promulgated pursuant to the Exchange Act), directly or indirectly,
of more than 30% of the aggregate voting power of all Voting Stock of Ambac
Financial.

 

“Citibank” has the meaning specified in the preamble.

 

“Closing Date” means the first date on which the Administrative Agent notifies
each Borrower and the Initial Lenders that all of the conditions set forth in
Section 3.01 have been satisfied.

 

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

 

“Commitment” has the meaning specified in Section 2.01.

 

“Commitment Date” has the meaning specified in Section 2.17.

 

“Commitment Termination Date” means the earlier of (a) the date which is 364
days after the date hereof, as such date may be extended pursuant to Section
2.16, and (b) the date of termination in whole of the Commitments pursuant to
Section 2.04 or 6.01; provided, that if such day is not a Business Day, the
Commitment Termination Date shall be the immediately preceding Business Day.

 

3

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“Compliance Certificate” means a certificate duly completed and executed by an
Responsible Officer of Ambac Financial, substantially in the form of Exhibit D
hereto.

 

“Confidential Information” means written information that either Borrower
furnishes to either Agent or any Lender labeled or marked in a manner clearly
deeming such information as confidential, but does not include any such
information that is or becomes generally available to the public.

 

“Consolidated” refers to the consolidation of accounts in accordance with GAAP.

 

“Contingent Liability” means any agreement, undertaking or arrangement by which
any Person guarantees, endorses or otherwise becomes or is contingently liable
upon (by direct or indirect agreement, contingent or otherwise, to provide funds
for payment, to supply funds to, or otherwise to invest in, a debtor, or
otherwise to assure a creditor against loss) the Indebtedness of any other
Person (other than by endorsements of instruments in the course of collection),
or guarantees the payment of dividends or other distributions upon the shares of
any other Person. The amount of any Person’s obligation under any Contingent
Liability at any time shall (subject to any limitation set forth therein) be
deemed to be the outstanding amount at such time (or, except in the case of the
Indebtedness or obligation guaranteed thereby being unutilized credit lines for
Derivative Transactions, if larger, the maximum amount) of the Indebtedness or
obligation guaranteed thereby.

 

“Controlled Group” means all members of a controlled group of corporations and
all members of a controlled group of trades or businesses (whether or not
incorporated) under common control which, together with either Borrower, are
treated as a single employer under Section 414(b) or 414(c) of the Code or
Section 4001 of ERISA.

 

“Convert”, “Conversion” and “Converted” each refers to a conversion of Advances
of one Type into Advances of the other Type pursuant to Section 2.07 or 2.08.

 

“Debt” of any Person means, without duplication, all Indebtedness of such Person
of any type described in clause (a), (b) or (c) of the definition of
“Indebtedness” and all Contingent Liabilities of such Person in respect of any
Indebtedness of any other Person of any such type.

 

“Declining Lender” has the meaning specified in Section 2.16.

 

“Default” means any Event of Default or any event that would constitute an Event
of Default but for the requirement that notice be given or time elapse or both.

 

“Derivative Transactions” means, with respect to any Person, interest rate swap
agreements, interest rate cap agreements, interest rate collar agreements,
interest rate options, interest rate futures, foreign currency swap agreements,
foreign currency cap agreements, foreign currency collar agreements, foreign
currency options, foreign currency futures and all other similar agreements or
arrangements and all liabilities of such Person thereunder.

 

“Dollars” and “$” mean the lawful money of the United States of America.

 

4

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“Domestic Lending Office” means, with respect to any Lender, the office of such
Lender specified as its “Domestic Lending Office” opposite its name on Schedule
II hereto or in the Assignment and Acceptance pursuant to which it became a
Lender, or such other office of such Lender as such Lender may from time to time
specify to the Borrowers and the Administrative Agent.

 

“Eligible Assignee” means (a) the Federal Reserve Bank of the United States; and
(b) an Eligible Transferee; provided, however, that neither Borrower nor an
Affiliate of the Borrowers shall qualify as an Eligible Assignee.

 

“Eligible Transferee” means a commercial bank or other financial institution
having the Required Lender Rating.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time, and the regulations promulgated and rulings issued
thereunder.

 

“Eurocurrency Liabilities” has the meaning assigned to that term in Regulation D
of the Board of Governors of the Federal Reserve System, as in effect from time
to time.

 

“Eurodollar Lending Office” means, with respect to any Lender, the office of
such Lender specified as its “Eurodollar Lending Office” opposite its name on
Schedule II hereto or in the Assignment and Acceptance pursuant to which it
became a Lender (or, if no such office is specified, its Domestic Lending
Office), or such other office of such Lender as such Lender may from time to
time specify to the Borrowers and the Administrative Agent.

 

“Eurodollar Rate” means, for any Interest Period for each Eurodollar Rate
Advance comprising part of the same Borrowing, an interest rate per annum
appearing on Page 3750 of the Telerate Service (or on any successor or
substitute page of such Service, or any successor to or substitute for such
Service, providing rate quotations comparable to those currently provided on
such page of such Service, as determined by the Administrative Agent from time
to time for purposes of providing quotations of interest rates applicable to
deposits in Dollars in the London interbank market) as of 11:00 A.M. (London
time) on the date two Business Days prior to the first day of such Interest
Period as the rate for Dollar deposits having a term comparable to such Interest
Period, or in the event such offered rate is not available from said Page 3750,
the average (rounded to the nearer whole multiple of 1/16 of 1% per annum, if
such average is not such a multiple) of the rate per annum at which Dollar
deposits are offered by the principal office of each of the Reference Banks in
London, England to prime banks in the London interbank market at 11:00 A.M.
(London time) two Business Days before the first day of such Interest Period in
an amount substantially equal to such Reference Bank’s Eurodollar Rate Advance
comprising part of such Borrowing to be outstanding during such Interest Period
and for a period equal to such Interest Period.

 

“Eurodollar Rate Advance” means an Advance that bears interest as provided in
Section 2.06(a)(ii).

 

“Eurodollar Rate Reserve Percentage” means, for any Interest Period for all
Eurodollar Rate Advances comprising part of the same Borrowing, the reserve
percentage applicable two Business Days before the first day of such Interest
Period under regulations

 

5

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issued from time to time by the Board of Governors of the Federal Reserve System
(or any successor) for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal reserve
requirement) for a member bank of the Federal Reserve System in New York City
with respect to liabilities or assets consisting of or including Eurocurrency
Liabilities (or with respect to any other category of liabilities that includes
deposits by reference to which the interest rate on Eurodollar Rate Advances is
determined) having a term equal to such Interest Period.

 

“Events of Default” has the meaning specified in Section 6.01.

 

“Extending Lender” has the meaning specified in Section 2.16.

 

“Extension Request” has the meaning specified in Section 2.16.

 

“Existing Commitment Termination Date” has the meaning specified in Section
2.16.

 

“Facility Fee Rate” means, as of any date, a percentage per annum determined by
reference to the Financial Strength Rating in effect on such date as set forth
below:

 

   

Financial Strength Rating

S&P/Moody’s

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

 

Facility Fee Rate

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

Level 1

 

Aaa/AAA or above

  0.070%

Level 2

 

Aa1/AA+

  0.080%

Level 3

 

Aa2/AA

  0.100%

Level 4

 

Lower than Level 3

  0.150%

 

“Federal Funds Rate” means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day that
is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.

 

“Finance Trust” means a trust formed for the purpose of issuing ABC Securities,
using the proceeds of such issuance to purchase assets from Ambac Assurance and
entering into a Put Agreement with Ambac Assurance.

 

“Financial Strength Rating” means, as of any date, the rating that has been most
recently announced by either S&P or Moody’s, as the case may be, for the
financial strength or insurance financial strength, as the case may be, of Ambac
Assurance. For purposes of the

 

6

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foregoing, (a) if the ratings established by S&P and Moody’s shall fall within
different levels, the Applicable Margin and the Facility Fee Rate shall be based
upon the lower rating; (b) if any rating established by S&P or Moody’s shall be
changed, such change shall be effective as of the date on which such change is
first announced publicly by the rating agency making such change; and (c) if S&P
or Moody’s shall change the basis on which ratings are established, each
reference to the Financial Strength Rating announced by S&P or Moody’s, as the
case may be, shall refer to the then equivalent rating by S&P or Moody’s, as the
case may be.

 

“GAAP” has the meaning specified in Section 1.03.

 

“Increase Date” has the meaning specified in Section 2.17.

 

“Increase Request” has the meaning specified in Section 2.17.

 

“Increasing Lender” has the meaning specified in Section 2.17.

 

“Increasing Extending Lender” has the meaning specified in Section 2.16.

 

“Indebtedness” of any Person means, without duplication: (a) all obligations of
such Person for borrowed money and all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (b) all obligations,
contingent or otherwise, relative to the face amount of all letters of credit,
whether or not drawn, and banker’s acceptances issued for the account of such
Person; (c) all obligations of such Person as lessee under leases which have
been or should be, in accordance with GAAP, recorded as capitalized lease
liabilities; (d) net obligations of such Person under all Derivative
Transactions (other than Derivative Transactions that are designated by such
Person as hedges in accordance with GAAP); (e) whether or not so included as
liabilities in accordance with GAAP, all obligations of such Person to pay the
deferred purchase price of property or services (other than trade payables not
overdue by more than 60 days incurred in the ordinary course of such Person’s
business); (f) all obligations (excluding prepaid interest thereon) of any other
Person of any type described in any of clauses (a) through (e) of this
definition which is secured by a Lien on property owned by such Person
(including obligations arising under conditional sales or other title retention
agreements), even though such Person has not assumed or become liable for the
payment of such obligations of such other Person; and (g) all Contingent
Liabilities of such Person; provided, however, that the following shall not
constitute Indebtedness of either Borrower or any Subsidiary of either Borrower:
(i) obligations under securities reverse repurchase agreements of either
Borrower or any Subsidiary of either Borrower as the buyer of securities to
deliver such securities to the seller thereunder, (ii) obligations of an
insurance company under insurance policies in the nature of financial guarantees
and financial guarantees, in each case from time to time issued in the ordinary
course of such insurance company’s business, (iii) obligations of any Subsidiary
of Ambac Financial in the business of issuing investment contracts, under
Specified Investment Contracts issued by such Subsidiary, (iv) obligations of
such Person under any Specified Swaps and Specified Hedges, (v) obligations of
Ambac Assurance to pay Put Premiums pursuant to any Put Agreement and (vi)
obligations of either Borrower or any Subsidiary of either Borrower under or in
respect of any preferred stock issued, or to be issued, by such Borrower or
Subsidiary. For all purposes of this Agreement, the Indebtedness of any

 

7

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Person shall include the Indebtedness of any partnership in which such Person is
a general partner.

 

“Interest Period” means, for each Eurodollar Rate Advance, the period commencing
on (and including) the date of such Eurodollar Rate Advance or the date of the
Conversion of any Base Rate Advance into such Eurodollar Rate Advance and ending
on (but excluding) the final day of the period selected by either Borrower
pursuant to the provisions below and, thereafter, each subsequent period
commencing on the final of the next preceding Interest Period and ending on the
final day of the period selected by such Borrower pursuant to the provisions
below. The duration of each such Interest Period shall be one, two, three or six
months, as such Borrower may, upon notice received by the Administrative Agent
not later than 11:00 A.M. (New York City time) on the third Business Day prior
to the first day of such Interest Period, select; provided, however, that:

 

(a) any Interest Period with respect to any Eurodollar Rate Advance that would
otherwise end after the Commitment Termination Date or the Maturity Date shall
end on the Commitment Termination Date or the Maturity Date, as the case may be;

 

(b) whenever the final day of any Interest Period would otherwise occur on a day
other than a Business Day, the final day of such Interest Period shall be
extended to occur on the next succeeding Business Day; provided, however, that,
if such extension would cause the final day of such Interest Period to occur in
the next succeeding calendar month, the final day of such Interest Period shall
occur on the next preceding Business Day;

 

(c) whenever the first day of any Interest Period occurs on a day of an initial
calendar month for which there is no numerically corresponding day in the
calendar month that succeeds such initial calendar month by the number of months
equal to the number of months in such Interest Period, such Interest Period
shall end on the final Business Day of such succeeding calendar month; and

 

(d) neither Borrower shall be permitted to select Interest Periods to be in
effect at any one time with respect to Eurodollar Rate Advances made to such
Borrower which have expiration dates occurring on more than five different
dates.

 

“Juneau” means Juneau Investments LLC, a Delaware limited liability company.

 

“Lenders” means the Initial Lenders and each Person that shall become a party
hereto pursuant to Section 2.16, 2.17, 2.18 or 8.07.

 

“Leverage Ratio” means, at any time, the ratio of (a) the aggregate amount of
Debt of Ambac Financial and its Subsidiaries (other than Aleutian and Juneau),
on a Consolidated basis, at such time to (b) the sum of (i) the stockholders’
equity of Ambac Financial and its Subsidiaries (other than Aleutian and Juneau),
on a Consolidated basis (excluding unrealized gains on investments and
unrealized losses on investments), computed as of the end of the most recently
completed fiscal quarter (or if such time is the final day of any fiscal
quarter, as of such day) and (ii) the aggregate amount of Debt of Ambac
Financial and its Subsidiaries (other than Aleutian and Juneau), on a
Consolidated basis, at such time.

 

8

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“Lien” means any security interest, mortgage, pledge, hypothecation, assignment,
encumbrance, lien (statutory or otherwise), charge against or interest in
property to secure payment or performance of an obligation, interest of any
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement or other priority or preferential arrangement of any
kind or nature whatsoever; provided, however, that “Lien” shall not include (a)
any reserve established in respect of insurance obligations on the books of
either Borrower or any of its Subsidiaries, provided that such reserve shall not
create any preferential claim or priority on any asset of such Person and (b)
any reserve established in respect of Specified Swaps on the books of either
Borrower or any of its Subsidiaries, provided that such reserve shall not create
any preferential claim or priority on any asset of such Person.

 

“Loan Documents” means this Agreement and the Notes.

 

“Material Adverse Change” means any material adverse change in the business,
financial condition or operations of Ambac Financial and its Subsidiaries, taken
as a whole.

 

“Material Adverse Effect” means a material adverse effect (a) on the business,
financial condition or operations of Ambac Financial and its Subsidiaries, taken
as a whole, (b) on the rights and remedies of the Administrative Agent or any
Lender under any Loan Document or (c) on the ability of either Borrower to
perform its obligations under any Loan Document.

 

“Material Subsidiary” means, at any date of determination, any Subsidiary of
either Borrower that, together with its Subsidiaries, as of the end of the most
recent fiscal year, was the owner of (or, in the case of any Subsidiary that is
acquired following such fiscal year end, would have been the owner of) at least
10% of the Consolidated assets of such Borrower and its Subsidiaries at the end
of such fiscal year, all as set forth on the most recently available
Consolidated financial statements of such Borrower for such fiscal year.

 

“Maturity Date” means the second anniversary of the Commitment Termination Date;
provided, that if such day is not a Business Day, the Maturity Date shall be the
immediately preceding Business Day.

 

“Moody’s” means Moody’s Investors Service, Inc., and its successors.

 

“Notes” means, collectively, the Revolving Credit Notes and the Term Notes.

 

“Notice of Borrowing” has the meaning specified in Section 2.02.

 

“Ongoing Debt” has the meaning specified in Section 5.02(a).

 

“Other Taxes” has the meaning specified in Section 2.13(b).

 

“Pension Plan” means a “pension plan”, as such term is defined in Section 3(2)
of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan
as defined in section 4001(a) (3) of ERISA), and to which either Borrower or any
corporation, trade or business that is, along with such Borrower, a member of a
Controlled Group, may have liability, including any liability by reason of
having been a substantial employer within the meaning of

 

9

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section 4063 of ERISA at any time during the preceding five years, or by reason
of being deemed to be a contributing sponsor under section 4069 of ERISA.

 

“Permitted Liens” means: (a) Liens for taxes, assessments and governmental
charges or levies; (b) Liens imposed by law, such as materialmen’s, mechanics’,
carriers’, workmen’s 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 60 days; (c) pledges or deposits to secure obligations under
workers’ compensation laws or similar legislation or to secure public or
statutory obligations; and (d) encumbrances on title to real property that do
not render title to the property encumbered thereby unmarketable or materially
adversely affect the use of such property for its intended purposes.

 

“Person” means an individual, partnership, corporation (including a business
trust), joint stock company, trust, unincorporated association, joint venture,
limited liability company or other entity, or a government or any political
subdivision or agency thereof.

 

“Put Agreement” means an agreement between Ambac Assurance and a Finance Trust
pursuant to which Ambac Assurance has the right, at its option, to compel a
Finance Trust to purchase preferred stock issued, or to be issued, by Ambac
Assurance.

 

“Put Premium” means a premium payable by Ambac Assurance under a Put Agreement.

 

“Reference Banks” means Citibank, Barclays and The Bank of New York (and any
successors thereof).

 

“Register” has the meaning specified in Section 8.07(c).

 

“Replacement Lenders” has the meaning specified in Section 2.16.

 

“Required Lenders” means, at any time, Lenders owed at least a majority in
interest of the then aggregate outstanding principal amount of the Advances, or,
if no such principal amount is then outstanding, Lenders having at least a
majority in interest of the Commitments.

 

“Required Lender Rating” means an unsecured short-term senior debt rating of not
less than A-1 from Moody’s and P-1 from S&P.

 

“Responsible Officer” means, with respect to a Borrower, the president, chief
financial officer or treasurer of such Borrower.

 

“Revolving Credit Advance” has the meaning specified in Section 2.01.

 

“Revolving Credit Note” means a promissory note of a Borrower payable to the
order of a Lender, substantially in the form of Exhibit A-1 hereto, evidencing
the aggregate indebtedness of such Borrower to such Lender resulting from
Revolving Credit Advances made by such Lender to such Borrower.

 

10

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“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill
Companies, Inc., and its successors.

 

“Solvent” means, with respect to any Person on a particular date, that (i) the
fair value of the total assets of such Person is greater than the total amount
of the liabilities, including, without limitation, contingent liabilities, of
such Person, (ii) the present fair saleable value of the assets of such Person
is not less than the amount that will be required to pay the probable liability
of such Person on its debts as they become absolute and matured, (iii) such
Person does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person’s ability to pay such debts and liabilities as
they mature, and (iv) such Person is not engaged in business, and is not about
to engage in business, for which such Person’s property would constitute
unreasonably small capital.

 

“Specified Hedge” means any derivative transaction, securities repurchase
agreement or other similar agreement or arrangement entered into by any Person
that, in each case, is entered into as a hedge.

 

“Specified Investment Contract” means any investment contract entered into by
Ambac Assurance or any Subsidiary of Ambac Financial in the ordinary course of
Ambac Assurance’s or such Subsidiary’s respective businesses.

 

“Specified Swap” means any interest rate swap agreement or other similar
agreement or arrangement entered into by any Person, as to which interest rate
risk is substantially hedged.

 

“Subsidiary” of any Person means any corporation, partnership, joint venture,
limited liability company, trust or estate of which (or in which) more than 50%
of (a) the issued and outstanding capital stock having ordinary voting power to
elect a majority of the Board of Directors of such corporation (irrespective of
whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such limited
liability company, partnership or joint venture or (c) the beneficial interest
in such trust or estate is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person’s other Subsidiaries.

 

“Syndication Agent” has the meaning specified in the preamble.

 

“Taxes” has the meaning specified in Section 2.13(a).

 

“Term Loan” has the meaning specified in Section 2.19(a).

 

“Term Loan Conversion” has the meaning specified in Section 2.19(a).

 

“Term Loan Conversion Date” has the meaning specified in Section 2.19(a).

 

“Term Note” means a promissory note of a Borrower payable to the order of a
Lender, substantially in the form of Exhibit A-2 hereto, evidencing the Term
Loan (if any) of such Lender.

 

11

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“Type” refers to, for any Advance, its nature as a Base Rate Advance or
Eurodollar Rate Advance.

 

“Utilization Fee Rate” means, for any day, a percentage per annum determined by
reference to the Financial Strength Rating in effect on such date as set forth
below:

 

   

Financial Strength Rating

S&P/Moody’s

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

 

Utilization Fee Rate

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

Level 1

 

Aaa/AAA or above

  0.100%

Level 2

 

Aa1/AA+

  0.100%

Level 3

 

Aa2/AA

  0.100%

Level 4

 

Lower than Level 3

  0.150%

 

“Voting Stock” means capital stock issued by a corporation, or equivalent
interests in any other Person, the holders of which are ordinarily, in the
absence of contingencies, entitled to vote for the election of directors (or
persons performing similar functions) of such Person, even if the right so to
vote has been suspended by the happening of such a contingency.

 

“Welfare Plan” means a “welfare plan”, as such term is defined in section 3(1)
of ERISA.

 

SECTION 1.02 Computation of Time Periods. In this Agreement in the computation
of periods of time from a specified date to a later specified date, the word
“from” means “from and including” and the words “to” and “until” each mean “to
but excluding”.

 

SECTION 1.03 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles consistent with those applied in the preparation of the financial
statements referred to in Section 4.01(e) (“GAAP”).

 

ARTICLE II

 

AMOUNTS AND TERMS OF THE ADVANCES

 

SECTION 2.01 The Advances. (a) Each Lender severally agrees, on the terms and
conditions hereinafter set forth, to make advances to each Borrower under this
Section 2.01 (each, a “Revolving Credit Advance”) from time to time on any
Business Day during the period from the date hereof until the Commitment
Termination Date in an aggregate amount at any one time outstanding up to but
not exceeding (in the aggregate for both Borrowers) the amount set forth
opposite such Lender’s name on Schedule I or, if such Lender has entered into
any Assignment and Acceptance, set forth for such Lender in the Register
maintained by the

 

12

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Administrative Agent pursuant to Section 8.07(c), as such amount may be reduced
pursuant to Section 2.04 or increased pursuant to Section 2.16 or 2.17 (such
Lender’s “Commitment”).

 

(b) Each Borrowing of Revolving Credit Advances shall be in an aggregate amount
of $15,000,000 or an integral multiple of $1,000,000 in excess thereof and shall
consist of Revolving Credit Advances of the same Type made on the same day by
the Lenders ratably according to their respective Commitments. Within the limits
of each Lender’s Commitment, each Borrower may borrow under this Section 2.01,
prepay pursuant to Section 2.09 and reborrow under this Section 2.01.

 

(c) The Administrative Agent shall maintain a written record of each Advance
made by a Lender to a Borrower, and of each repayment of principal of, and
payment of interest on, such Advance made by such Borrower for the amount of
such Lender. Upon the prior written request of any Lender delivered by such
Lender to the Administrative Agent and the Borrowers, each of the Borrowers
shall execute and deliver to such Lender a Revolving Credit Note to the order of
such Lender.

 

SECTION 2.02 Making the Revolving Credit Advances. (a) Each Borrowing of
Revolving Credit Advances shall be made on notice, given not later than 12:00
Noon (New York City time) on the third Business Day next preceding the date of
the proposed Borrowing in the case of a Borrowing consisting of Eurodollar Rate
Advances, or 11:30 A.M. (New York City time) on the Business Day of the proposed
Borrowing in the case of a Borrowing consisting of Base Rate Advances, by either
Borrower to the Administrative Agent, which shall give to each Lender prompt
notice thereof by telecopier. Each such notice of a Borrowing (a “Notice of
Borrowing”) shall be by telephone, confirmed immediately in writing or by
telecopier, in substantially the form of Exhibit B, specifying therein the
requested (i) date of such Borrowing, (ii) Type of Advances comprising such
Borrowing, (iii) aggregate amount of such Borrowing and (iv) in the case of a
Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for
each such Advance. Each Lender shall, before 10:00 A.M. (New York City time) on
the date of such Borrowing in the case of a Borrowing consisting of Eurodollar
Rate Advances, or 1:00 P.M. (New York City time) on the date of such Borrowing
in the case of a Borrowing consisting of Base Rate Advances, make available for
the account of its Applicable Lending Office to the Administrative Agent at the
Administrative Agent’s Account, in same day funds, such Lender’s ratable portion
of such Borrowing. After the Administrative Agent’s receipt of such funds and
upon fulfillment of the applicable conditions set forth in Article III, the
Administrative Agent will, not later than 11:00 A.M. (New York City time) on the
date of such Borrowing in the case of a Borrowing consisting of Eurodollar Rate
Advances, or 2:00 P.M. (New York City time) on the date of such Borrowing in the
case of a Borrowing consisting of Base Rate Advances, make such funds available
to such Borrower at the Administrative Agent’s address referred to in Section
8.02.

 

(b) Anything in subsection (a) above to the contrary notwithstanding, neither
Borrower may select Eurodollar Rate Advances for any Borrowing if the obligation
of the Lenders to make Eurodollar Rate Advances shall then be suspended pursuant
to Section 2.07 or 2.11.

 

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(c) In the case of any Borrowing that the related Notice of Borrowing specifies
is to be comprised of Eurodollar Rate Advances, the Borrower that has requested
such Borrowing shall indemnify each Lender against any loss, cost or expense
incurred by such Lender as a result of any failure to fulfill on or before the
date specified in such Notice of Borrowing for such Borrowing the applicable
conditions set forth in Article III, including any loss (excluding loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Lender to fund the
Advance to be made by such Lender as part of such Borrowing when such Advance,
as a result of such failure, is not made on such date.

 

(d) Unless the Administrative Agent shall have received notice from a Lender
prior to the date of any Borrowing that such Lender will not make available to
the Administrative Agent such Lender’s ratable portion of such Borrowing, the
Administrative Agent may assume that such Lender has made such portion available
to the Administrative Agent on the date of such Borrowing in accordance with
subsection (a) of this Section 2.02 and the Administrative Agent may, in
reliance upon such assumption, make available to the Borrower that has requested
such Borrowing on such date a corresponding amount. If and to the extent that
such Lender shall not have so made such ratable portion available to the
Administrative Agent, such Lender and such Borrower severally agree to repay to
the Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made available
to such Borrower until the date such amount is repaid to the Administrative
Agent, at (i) in the case of such Borrower, the interest rate applicable at the
time to Advances comprising such Borrowing and (ii) in the case of such Lender,
the Federal Funds Rate. If such Lender shall repay to the Administrative Agent
such corresponding amount, such amount so repaid shall constitute such Lender’s
Advance as part of such Borrowing for purposes of this Agreement.

 

(e) The failure of any Lender to make the Revolving Credit Advance to be made by
it as part of any Borrowing shall not relieve any other Lender of its
obligation, if any, hereunder to make its Revolving Credit Advance on the date
of such Borrowing, but no Lender shall be responsible for the failure of any
other Lender to make the Revolving Credit Advance to be made by such other
Lender on the date of any Borrowing.

 

SECTION 2.03 Fees. (a) Facility Fee. The Borrowers jointly and severally agree
to pay to the Administrative Agent for the account of each Lender a facility
fee, for each day from the date hereof, if such Lender shall be a party hereto
on the date hereof, or from the effective date specified in the Assignment and
Acceptance pursuant to which it became a Lender or from the date it became a
Lender pursuant to Section 2.16, 2.17 or 2.18, if such Lender shall become a
party hereto after the date hereof, until the Commitment Termination Date,
computed at the Facility Fee Rate for such date on the amount of such Lender’s
Commitment, whether or not utilized, for such date; in each case payable in
arrears quarterly on the final day of each March, June, September and December,
commencing on the first of such dates to occur after the date hereof, and on the
Commitment Termination Date.

 

(b) Administrative Agent’s Fees. The Borrowers jointly and severally agree to
pay to the Administrative Agent for its own account such fees as may from time
to time be agreed between the Borrowers and the Administrative Agent.

 

14

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(c) Utilization Fee. The Borrowers jointly and severally agree to pay to the
Administrative Agent for the account of each Lender a utilization fee, for each
day on which the aggregate outstanding principal amount of Advances exceeds 50%
of the aggregate amount of Commitments, computed at the Utilization Fee Rate for
such date on the unpaid principal amount of the Advances made to the Borrowers
by such Lender, payable in arrears on each day on which a payment of interest is
due under Section 2.06.

 

SECTION 2.04 Termination or Reduction of the Commitments. The Borrowers shall
have the right, upon at least three Business Days’ notice signed by both
Borrowers to the Administrative Agent (which shall promptly notify each Lender),
to terminate in whole or reduce ratably in part the unused portions of the
respective Commitments of the Lenders, provided that each partial reduction
shall be in the aggregate amount of $15,000,000 or an integral multiple of
$1,000,000 in excess thereof.

 

SECTION 2.05 Repayment. Each Borrower shall repay to the Administrative Agent
for the account of each Lender (i) the full principal amount of each Revolving
Credit Advance of such Lender made to such Borrower and outstanding on the
Commitment Termination Date (subject to the provisions of Section 2.19) and (ii)
the full principal amount of the Term Loan of such Lender made to such Borrower
and outstanding on the Maturity Date.

 

SECTION 2.06 Interest. (a) Each Borrower shall pay interest on the unpaid
principal amount of each Advance made to such Borrower from the date of such
Advance until such principal amount shall be paid in full, at the following
rates per annum:

 

(i) Base Rate Advances. While such Advance is a Base Rate Advance, a rate per
annum equal at all times to the sum of the (A) Base Rate in effect from time to
time plus (B) the Applicable Margin for Base Rate Advances, payable in arrears
quarterly on the final Business Day of each March, June, September and December,
on the date such Base Rate Advance shall be Converted or paid in full and on the
Term Loan Conversion Date, if any.

 

(ii) Eurodollar Rate Advances. While such Advance is a Eurodollar Rate Advance,
a rate per annum equal at all times during each Interest Period for such Advance
to the sum of (A) the Eurodollar Rate for such Interest Period for such Advance
plus (B) the Applicable Margin for Eurodollar Rate Advances, payable in arrears
on the final day of such Interest Period and, if such Interest Period has a
duration of more than three months, on each day that occurs during such Interest
Period every three months from the first day of such Interest Period on the date
such Eurodollar Rate Advance shall be Converted or paid in full and on the Term
Loan Conversion Date, if any.

 

(b) Additional Interest on Eurodollar Rate Advances. Each Borrower shall pay to
each Lender, so long as and to the extent such Lender shall be required under
regulations of the Board of Governors of the Federal Reserve System to maintain
reserves with respect to liabilities or assets consisting of or including
Eurocurrency Liabilities, additional interest on the unpaid principal amount of
each Eurodollar Rate Advance of such Lender made to such Borrower, from the date
of such Eurodollar Rate Advance until such principal amount is paid in full, at
an interest rate per annum equal at all times to the remainder obtained by
subtracting (i)

 

15

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the Eurodollar Rate for the then existing Interest Period for such Advance from
(ii) the rate obtained by dividing such Eurodollar Rate by a percentage equal to
100% minus the Eurodollar Rate Reserve Percentage of such Lender for such
Interest Period, payable on each date on which interest is payable on such
Advance. Each Lender shall, as promptly as practicable after an authorized
officer of such Lender having direct and ongoing involvement in the decisions
made in respect of this Agreement obtains knowledge of such circumstances and
the determination of such Lender to request additional interest from such
Borrower pursuant to this Section 2.06(b), provide notice to the Administrative
Agent and such Borrower of the circumstances entitling such Lender to such
additional interest, which notice shall (A) specify the amount of any such
additional interest incurred in connection with such Eurodollar Rate Advance
made to such Borrower and/or to be incurred in connection with Eurodollar Rate
Advances made by such Lender from time to time thereafter to such Borrower and
(B) certify that such Lender’s claim for payment of such additional interest is
not inconsistent with its treatment of other borrowers that, as a credit matter,
are substantially similar to such Borrower and that are subject to comparable
provisions in the loan or other credit documentation to which such borrowers are
parties; provided, however, that no Lender shall be entitled to additional
interest on any Eurodollar Rate Advance pursuant to this Section 2.06(b) for any
Interest Period ending more than 120 days prior to the date that notice of such
additional interest is first provided by such Lender to such Borrower. A notice
delivered by any Lender to either Borrower pursuant to the terms of this Section
2.06(b) shall be conclusive and binding, absent manifest error. A Lender that
delivers a notice under this Section 2.06(b) shall promptly notify the
Administrative Agent and such Borrower if the circumstances that gave rise to
such notice no longer exist.

 

SECTION 2.07 Interest Rate Determination. (a) The Administrative Agent shall
give prompt notice to each Borrower and the Lenders of the applicable interest
rate determined by the Administrative Agent for purposes of Section 2.06(a)(i)
or (ii).

 

(b) If either Borrower shall fail to select the duration of any Interest Period
for any Eurodollar Rate Advances to be made to such Borrower in accordance with
the provisions contained in the definition of “Interest Period” in Section 1.01,
the Administrative Agent will forthwith so notify such Borrower and the Lenders
and such Advances will automatically, on the final day of the then existing
Interest Period therefor, Convert into Base Rate Advances.

 

(c) On the date on which the aggregate unpaid principal amount of Eurodollar
Rate Advances having the same Interest Period shall be reduced, by payment or
prepayment or otherwise, to less than $5,000,000, such Advances shall
automatically Convert into Base Rate Advances.

 

(d) Upon the occurrence and during the continuance of any Event of Default, (i)
each Eurodollar Rate Advance will automatically, on the final day of the then
existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the
obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate
Advances shall be suspended.

 

SECTION 2.08 Optional Conversion of Advances. Each Borrower may on any Business
Day, upon notice given to the Administrative Agent not later than 12:00 A.M.
(New York City time) on the third Business Day prior to the date of the proposed
Conversion and subject to the provisions of Sections 2.07 and 2.11, Convert all
Advances of one Type made to

 

16

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such Borrower comprising the same Borrowing into Advances of the other Type;
provided, however, that (a) any Conversion of Eurodollar Rate Advances into Base
Rate Advances shall be made only on the final day of an Interest Period for such
Eurodollar Rate Advances and (b) no Conversion of any Advances shall result in
more separate Interest Periods with respect to Eurodollar Rate Advances made to
such Borrower than permitted under the definition of the term “Interest Period”
in Section 1.01; provided, further, that no Base Rate Advance may be Converted
to a Eurodollar Rate Advance when any Event of Default has occurred and is
continuing. Each such notice of a Conversion shall, within the restrictions
specified above, specify (i) the date of such Conversion, (ii) the Advances to
be Converted, and (iii) if such Conversion is into Eurodollar Rate Advances, the
duration of the initial Interest Period for each such Advance.

 

SECTION 2.09 Optional Prepayments. Each Borrower may, in the case of Eurodollar
Rate Advances upon at least two Business Days’ notice, or, in the case of Base
Rate Advances upon same day’s prior notice, to the Administrative Agent (which
shall promptly notify each Lender) stating the proposed date and aggregate
principal amount of the prepayment, and if such notice is given, such Borrower
shall prepay the outstanding principal amount of the Advances made to such
Borrower comprising part of the same Borrowing in whole or ratably in part,
together with accrued interest to the date of such prepayment on the principal
amount prepaid; provided, however, that all such partial prepayments shall be in
an aggregate minimum amount of $10,000,000 or an integral multiple of $1,000,000
in excess thereof. Each prepayment of any Advances made pursuant to this Section
2.09 shall be without premium or penalty, subject, however, to Section 8.04(c).

 

SECTION 2.10 Increased Costs. If, due to either (a) the introduction of or any
change after the date hereof in or in the interpretation of any law or
regulation or (b) the compliance with any guideline or request promulgated after
the date hereof from any central bank or other governmental authority (whether
or not having the force of law), there shall be any increase in (i) the cost to
any Lender of agreeing to make or making, funding or maintaining Eurodollar Rate
Advances (excluding for purposes of this Section 2.10 any such increased costs
resulting from Taxes or Other Taxes or from changes in the basis or rate of
taxation of net income or gross income by the United States or by the foreign
jurisdiction or state under the laws of which such Lender is subject to tax as a
result of a present or former connection between such Lender and such foreign
jurisdiction or state) or (ii) the amount of capital required to be maintained
by such Lender or any corporation controlling such Lender based on the existence
of its Commitment hereunder, then the Borrowers jointly and severally agree from
time to time, within five Business Days after receipt by both Borrowers of a
written demand by such Lender (with a copy of such demand to the Administrative
Agent), to pay to the Administrative Agent for the account of such Lender
additional amounts as shall accrue from and after the date of demand by such
Lender to compensate such Lender for such increased cost or such increase of
capital; provided, however, that before making any such demand, each Lender
agrees to use reasonable efforts (consistent with its internal policy and legal
and regulatory restrictions) to minimize such additional amounts and to
designate a different Applicable Lending Office if the making of such a
designation would avoid the need for, or reduce the amount of, such increased
cost or such increase of capital and would not, in the reasonable judgment of
such Lender, be otherwise disadvantageous to such Lender; and provided, further,
that the Borrowers shall be required jointly and severally to pay to such Lender
only such additional amounts as shall be

 

17

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required to compensate such Lender for such increased cost or such increase of
capital as shall accrue from and after the date of demand by such Lender. In
determining such additional amounts, such Lender will act reasonably and in good
faith and will use averaging and attribution methods which are reasonable,
provided that such Lender’s determination of compensation owing under this
Section 2.10 shall be conclusive and binding, absent manifest error. Each
Lender, upon determining that any additional amounts will be payable pursuant to
this Section 2.10, will give prompt written notice thereof to the Borrowers,
which notice shall show the basis for the calculation of such additional
amounts. Notwithstanding anything herein to the contrary, either Borrower shall
have the right to unilaterally terminate the Commitment of any Lender demanding
additional amounts under this Section 2.10 sixty (60) days after providing to
such Lender a notice of termination; provided that such termination shall not
result in a reduction in amounts required to be paid pursuant to this Section
2.10. Each of the Borrowers shall, concurrent with such termination, pay or
prepay, as the case may be, to such Lender the aggregate amount, if any at such
time, of all Advances and other amounts payable by such Borrower to such Lender
under this Agreement. Notwithstanding any provision of this Agreement to the
contrary, Section 2.13 shall provide the exclusive remedy to the Lenders in
respect of Taxes and Other Taxes.

 

SECTION 2.11 Illegality. Notwithstanding any other provision of this Agreement,
if any Lender shall notify the Administrative Agent that the introduction of or
any change after the date hereof in or in the interpretation of any law or
regulation makes it unlawful, or any central bank or other governmental
authority asserts after the date hereof that it is unlawful, for any Lender or
its Eurodollar Lending Office to perform its obligations hereunder to make
Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances
hereunder, (i) each Eurodollar Rate Advance will automatically, upon such
demand, Convert into a Base Rate Advance and (ii) the obligation of the Lenders
to make, or to Convert Advances into, Eurodollar Rate Advances shall be
suspended until the Administrative Agent shall notify the Borrower that has
requested such Advance and the Lenders that the circumstances causing such
suspension no longer exist; provided, however, that before making any such
demand, each Lender agrees to use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions) to designate a different
Eurodollar Lending Office if the making of such a designation would allow such
Lender or its Eurodollar Lending Office to continue to perform its obligations
to make Eurodollar Rate Advances or to continue to fund or maintain Eurodollar
Rate Advances and would not, in the reasonable judgment of such Lender, be
otherwise disadvantageous to such Lender.

 

SECTION 2.12 Payments and Computations. (a) Each Borrower shall make each
payment to be made by it hereunder and under the Notes not later than 11:00 A.M.
(New York City time) on the day when due in Dollars to the Administrative Agent
at the Administrative Agent’s Account in same day funds and without set-off or
counterclaim. The Administrative Agent will promptly thereafter cause to be
distributed like funds relating to the payment of principal or interest ratably
(other than amounts payable pursuant to Section 2.10, 2.13 or 8.04(c)) to the
Lenders for the account of their respective Applicable Lending Offices, and like
funds relating to the payment of any other amount payable to any Lender to such
Lender for the account of its Applicable Lending Office, in each case to be
applied in accordance with the terms of this Agreement. Upon its acceptance of
an Assignment and Acceptance and recording of the information contained therein
in the Register pursuant to Section 8.07(d), from

 

18

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and after the effective date specified in such Assignment and Acceptance, the
Administrative Agent shall make all payments hereunder and under the Notes in
respect of the interest assigned thereby to the Lender assignee thereunder, and
the parties to such Assignment and Acceptance shall make all appropriate
adjustments in such payments for periods prior to such effective date directly
between themselves.

 

(b) All computations of interest based on the Base Rate, when the Base Rate is
determined by reference to Citibank’s base rate, shall be made by the
Administrative Agent on the basis of a year of 365 or 366 days, as the case may
be, and all other computations of interest and of facility fees and utilization
fees shall be made by the Administrative Agent on the basis of a year of 360
days, in each case for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such interest or
facility fees are payable. Each determination by the Administrative Agent of an
interest rate hereunder shall be conclusive and binding, absent manifest error.

 

(c) Whenever any payment hereunder or under the Notes shall be stated to be due
on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or facility fee, as the case
may be; provided, however, that, if such extension would cause payment of
interest on or principal of Eurodollar Rate Advances to be made in the next
succeeding calendar month, such payment shall be made on the next preceding
Business Day.

 

(d) Unless the Administrative Agent shall have received notice from either
Borrower prior to the date on which any payment is due to the Lenders hereunder
that such Borrower will not make such payment in full, the Administrative Agent
may assume that such Borrower has made such payment in full to the
Administrative Agent on such date and the Administrative Agent may, in reliance
upon such assumption, cause to be distributed to each Lender on such due date an
amount equal to the amount then due such Lender. If and to the extent such
Borrower shall not have so made such payment in full to the Administrative
Agent, each Lender shall repay to the Administrative Agent forthwith on demand
such amount distributed to such Lender together with interest thereon, for each
day from the date such amount is distributed to such Lender until the date such
Lender repays such amount to the Administrative Agent, at the Federal Funds
Rate.

 

SECTION 2.13 Taxes. (a) Any and all payments by each Borrower hereunder or under
the Notes shall be made, in accordance with Section 2.12, free and clear of and
without deduction for any and all present or future taxes, levies, imposts,
deductions, charges or withholdings imposed by the United States or by any
political subdivision thereof or therein with respect to such payments, and all
penalties and interest with respect thereto, excluding, in the case of each
Lender and the Administrative Agent, taxes imposed on or measured by its net
income or net profit, and branch profit taxes, franchise taxes, taxes on doing
business and taxes measured by or imposed upon its capital or net worth, in each
case imposed as a result of a present or former connection between the
Administrative Agent or such Lender and the jurisdiction imposing such tax or
any political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from the Administrative Agent or such Lender
having executed, delivered or performed its obligations or received a payment
under, or enforced

 

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this Agreement or the Notes) (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities in respect of payments
hereunder or under the Notes being hereinafter referred to as “Taxes”). If
either Borrower shall be required by law to deduct any Taxes from or in respect
of any sum payable by such Borrower hereunder or under any Note to any Lender or
the Administrative Agent, (i) the sum payable shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.13) such Lender or
the Administrative Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (ii) such Borrower
shall make such deductions and (iii) such Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law.

 

(b) In addition, the Borrowers jointly and severally agree to pay any present or
future stamp or documentary taxes or any other excise or property taxes, charges
or similar levies that arise from the execution, delivery or registration of
this Agreement or the Notes (hereinafter referred to as “Other Taxes”);
provided, however, that the Borrowers shall have no obligation to pay Other
Taxes that may arise as a result of a participation referred to in Section 2.14
or 8.07.

 

(c) Each of the Borrowers shall indemnify each Lender and the Administrative
Agent for and hold it harmless against the full amount of Taxes with respect to
payments by such Borrower hereunder or under the Notes imposed on or paid by
such Lender or the Administrative Agent (as the case may be) and any liability
for penalties, interest and expenses arising therefrom or with respect thereto.
The Borrowers shall jointly and severally indemnify each Lender and the
Administrative Agent for and hold it harmless against the full amount of Other
Taxes imposed on or paid by such Lender or the Administrative Agent (as the case
may be) and any liability for penalties, interest and expenses arising therefrom
or with respect thereto. Any indemnification under this Section 2.13(c) shall be
made within 30 days from the date such Lender or the Administrative Agent (as
the case may be) makes written demand therefor.

 

(d) Each Lender that is not a “United States person” within the meanings
specified in Section 7701 of the Code, on or prior to the date of its execution
and delivery of this Agreement or on the date of the Assignment and Acceptance
pursuant to which it becomes a Lender, as the case may be, and from time to time
thereafter as requested in writing by either Borrower (but only so long as such
Lender remains lawfully able to do so), shall provide each of the Administrative
Agent and such Borrower with (i) two accurate and complete original signed
copies of Internal Revenue Service Form W-8BEN or W-8ECI, as appropriate, or any
successor or other form prescribed by the Internal Revenue Service, certifying
to such Lender’s entitlement to a complete exemption from United States
withholding tax with respect to payments to be made under this Agreement or the
Notes on account of such Lender being entitled to benefits under an income tax
treaty or such payments being effectively connected with such Lender’s conduct
of a United States trade or business or (ii) if the Lender is not a “bank”
within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either
Internal Revenue Service Form W-8BEN or W-8ECI pursuant to clause (i) above, (A)
a certificate in form and substance satisfactory to the Administrative Agent and
such Borrower stating that such Lender is not a “person” described in Section
871(h)(3) or Section 881(c)(3) of the Code (a “Foreign Lender

 

20

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Certificate”) and (B) two accurate and complete original signed copies of
Internal Revenue Service Form W-8BEN (or successor form) certifying to such
Lender’s entitlement to a complete exemption from United States withholding tax
with respect to payments to be made under this Agreement and under any Note. In
addition, each Lender agrees that from time to time, when a lapse in time or
change in circumstances renders the previous certification obsolete or
inaccurate in any material respect, it will deliver to such Borrower and the
Administrative Agent two new accurate and complete original signed copies of
Internal Revenue Service Form W-8BEN or W-8ECI, or Form W-8BEN and a Foreign
Lender Certificate, as the case may be, and such other forms as may be required
in order to confirm or establish the entitlement of such Lender to a continued
exemption from United States withholding tax with respect to payments under this
Agreement and any Note or it shall immediately notify such Borrower and the
Administrative Agent of its inability to deliver any such form or certificate,
in which case such Lender shall not be required to deliver any such form or
certificate pursuant to this Section 2.13(d) for so long as such payments may be
made free from United States withholding tax. Notwithstanding the foregoing, no
Lender shall be required to deliver any such form or certificate described in
the immediately preceding sentence if a change in treaty, law or regulation has
occurred prior to the date on which such delivery would otherwise be required
that renders any such form or certificate inapplicable or would prevent the
Lender from duly completing and delivering any such form or certificate with
respect to it and such Lender so advises such Borrower.

 

(e) For any period with respect to which a Lender has failed to provide either
Borrower with the appropriate form described in Section 2.13(d), such Lender
shall not be entitled to indemnification under Section 2.13(a) or (c) with
respect to Taxes or Other Taxes imposed by the United States by reason of such
failure.

 

(f) Any Lender claiming additional amounts payable pursuant to this Section 2.13
agrees to use reasonable efforts (consistent with its internal policy and legal
and regulatory restrictions) to minimize such additional amounts and to change
the jurisdiction of its Applicable Lending Office if the making of such a change
would avoid the need for, or reduce the amount of, any such additional amounts
that may thereafter accrue and would not, in the reasonable determination of
such Lender, be otherwise disadvantageous to such Lender.

 

(g) If a Lender changes its Applicable Lending Office (other than pursuant to
subsection (f) above or Section 2.11 or 2.12 or otherwise at the request of
either Borrower) and the effect of such change, as of the date of such change,
would be to cause either Borrower to become obligated to pay any additional
amounts under this Section 2.13, such Borrower shall not be obligated to pay
such additional amounts.

 

(h) If either Borrower is required to pay any amounts pursuant to the provisions
of this Section 2.13 to or for the account of any Lender or the Administrative
Agent, and if thereafter such Lender or the Administrative Agent, as the case
may be, shall receive a refund of any Taxes or Other Taxes paid by or on behalf
of such Lender or the Administrative Agent, as the case may be, that such Lender
or the Administrative Agent, as the case may be, reasonably determines to relate
solely to the amounts so paid by such Borrower, such Lender or the
Administrative Agent, as the case may be, shall to the extent that it can do so
without prejudice to the retention of the amount of such refund, pay to such
Borrower within twenty days after the date on which such Lender or the
Administrative Agent, as the case may be, actually

 

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receives such refund in an amount which such Lender or the Administrative Agent,
as the case may be, determines to be the proportion of the refunded amount as
will leave it, after such remittance, in no better or worse position than it
would have been if the Taxes or Other Taxes had not been imposed and the
corresponding additional amounts or indemnification payment not been made.
Nothing in this Section 2.13(h) shall be construed as requiring any Lender or
the Administrative Agent to conduct its business or to arrange or alter in any
respect its tax or financial affairs so that it is entitled to receive such
refund. Neither a Lender nor the Administrative Agent shall be obligated to
disclose information regarding its tax affairs or computations to either
Borrower in connection with this clause (h).

 

SECTION 2.14 Sharing of Payments, Etc. If any Lender shall obtain any payment
(whether voluntary, involuntary, through the exercise of any right of set-off,
or otherwise) on account of the Advances owing to it (other than pursuant to
Section 2.10, 2.13 or 8.04(c)) in excess of its ratable share of payments on
account of the Advances obtained by all the Lenders, such Lender shall forthwith
purchase from the other Lenders such participations in the Advances owing to
them as shall be necessary to cause such purchasing Lender to share the excess
payment ratably with each of them; provided, however, that if all or any portion
of such excess payment is thereafter recovered from such purchasing Lender, such
purchase from each Lender shall be rescinded and such Lender shall repay to the
purchasing Lender the purchase price to the extent of such recovery together
with an amount equal to such Lender’s ratable share (according to the proportion
of (a) the amount of such Lender’s required repayment to (b) the total amount so
recovered from the purchasing Lender) of any interest or other amount paid or
payable by the purchasing Lender in respect of the total amount so recovered.
The Borrowers agree that any Lender so purchasing a participation from another
Lender pursuant to this Section 2.14 may, to the fullest extent permitted by
law, exercise all its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Lender were the direct
creditor of either Borrower in the amount of such participation.

 

SECTION 2.15 Use of Proceeds. Each Borrower shall use the proceeds of each
Revolving Credit Advance for working capital and general corporate or company
purposes of such Borrower and its Subsidiaries.

 

SECTION 2.16 Extension of Commitment Termination Date. (a) Not earlier than 45
nor later than 30 days prior to the then scheduled Commitment Termination Date
(the “Existing Commitment Termination Date”), the Borrowers may make a written
request (an “Extension Request”) to the Administrative Agent, who shall forward
a copy to each Lender, that the Commitment Termination Date be extended to the
date that occurs exactly 364 days after the Existing Commitment Termination
Date. Such Extension Request shall include a certification by a senior officer
of each Borrower that no Default has occurred and is continuing and all
representations and warranties contained herein are true and correct in all
material aspects on and as of the date of the Extension Request (it being
understood and agreed that any representation or warranty which expressly refers
by its terms to a specified date shall be required to be true and correct in all
material respects only as of such date). Each Lender that agrees to such
Extension Request shall so notify the Administrative Agent in writing not
earlier than 30 days nor later than 20 days prior to the Existing Commitment
Termination Date by indicating such agreement on counterparts of the Extension
Request and delivering such counterpart to the Administrative Agent and the
Borrowers; provided that any failure to so notify the Administrative Agent and
the

 

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Borrowers shall be deemed to be a disapproval by such Lender of the Borrowers’
Extension Request. The Administrative Agent shall notify the Borrowers in
writing of the Lenders’ decisions with respect to such Extension Request not
later than 15 days prior to the Existing Commitment Termination Date. The
Commitment of any Lender which does not so agree shall terminate upon the
Existing Commitment Termination Date. No Lender shall be obligated to grant any
extension pursuant to this Section 2.16 and any such extension shall be in the
sole discretion of each Lender.

 

(b) If less than all of the Lenders consent to an Extension Request (each Lender
that has not so consented being a “Declining Lender”, and each other Lender
being an “Extending Lender”), the Borrowers shall have the right to require any
Declining Lender to assign in full its rights and obligations under this
Agreement (i) to any one or more Extending Lenders designated by the Borrowers
that have offered in their returned counterpart of the Extension Request to
increase their respective Commitments in an aggregate amount at least equal to
the amount of such Declining Lender’s Commitment (each such Extending Lender
being an “Increasing Extending Lender”) and (ii) to the extent of any shortfall
in the aggregate amount of extended Commitments, to any one or more Eligible
Transferees designated by the Borrowers that agree to assume all of such rights
and obligations (each such Eligible Transferees being a “Replacement Lender”),
provided that (A) such Declining Lender shall have received payment of all
amounts owing under its Revolving Credit Note and this Agreement on the
effective date of such assignment, (B) such assignment shall otherwise have
occurred in compliance with Section 8.07 and (C) the effective date of such
assignment shall be the date specified by the Borrowers and agreed to by the
Replacement Lender or Increasing Extending Lender, as the case may be, which
date shall be on or prior to the applicable Existing Commitment Termination
Date.

 

(c) If (and only if) the sum of (i) the Commitments of the Extending Lenders and
the Replacement Lenders plus (ii) the additional Commitments of the Increasing
Extending Lenders shall be greater than 50% of the aggregate amount of the
Commitments in effect on the Existing Commitment Termination Date, then,
effective as of the Existing Commitment Termination Date, the “Commitment
Termination Date” shall be extended to the date occurring 364 days after the
Existing Commitment Termination Date (except that, if such date is not a
Business Day, such Commitment Termination Date as so extended shall be the next
preceding Business Day) and each Replacement Lender shall thereupon become a
“Lender” for all purposes of this Agreement.

 

SECTION 2.17 Increase of Commitments. (a) The Borrowers may, at any time but in
any event not more than two times during any calendar year, make a written
request (an “Increase Request”) to the Administrative Agent (who shall forward a
copy to each Lender) that the Commitments of the Lenders be increased, in
integral multiples of $15,000,000, by an aggregate amount, together with the
aggregate amount by which the Commitments of the Lenders were previously
increased pursuant to this Section 2.17, not to exceed $100,000,000 in excess of
the aggregate amount of the Commitments as of the date of this Agreement. Such
Increase Request shall include a certification by a senior officer of each
Borrower that (i) on and as of the date of the Increase Request and after giving
effect to the requested increase in Commitments, Ambac Financial’s long-term
senior unsecured non-credit-enhanced debt ratings by Moody’s and S&P are better
than or equal to Aa3 and AA-, respectively, and (ii) no Default

 

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has occurred and is continuing and all representations and warranties contained
herein are true and correct in all material respects on and as of the date of
the Increase Request (it being understood and agreed that any representation or
warranty which expressly refers by its terms to a specified date shall be
required to be true and correct in all material respects only as of such date).
Any such increase in Commitments shall be effective as of a date (the “Increase
Date”) specified in the related Increase Notice that is (i) prior to the
Commitment Termination Date and (ii) at least 10 days after the date of such
Increase Notice. Each Increase Notice shall specify the date by which Lenders
who wish to increase their Commitments must consent to such increase (the
“Commitment Date”), which date shall be no later than five Business Days prior
to the related Increase Date. Each Lender that is willing to increase its
Commitment (each an “Increasing Lender”), shall notify the Administrative Agent
on or prior to the Commitment Date of the amount by which it is willing to
increase its Commitment, which amount shall not exceed the respective amount
specified in the relevant Increase Notice. No Lender shall be obligated to
increase its Commitment pursuant to this Section 2.17 and any such increase
shall be in the sole discretion of each Lender. If the Lenders notify the
Administrative Agent that they are willing to increase the amount of their
respective Commitments by an aggregate amount that exceeds the amount of the
requested increase, the requested increase shall be allocated among the Lenders
willing to participate therein ratably in accordance with the amount by which
they offered to increase their respective Commitments on the Commitment Date.

 

(b) Promptly following each Commitment Date, the Administrative Agent shall
notify the Borrowers as to the amount, if any, by which the Lenders are willing
to participate in the requested increase. If the aggregate amount by which the
Lenders are willing to increase their Commitments on any such Commitment Date is
less than the requested amount, then any one or more Eligible Transferees
designated by the Borrowers that agree to provide Commitments for the shortfall
may become party to this Agreement by executing and delivering, together with
the Borrowers, an accession agreement pursuant to which such Eligible Transferee
shall become a party to this Agreement and, to the extent provided therein,
shall have the rights and obligations of a Lender hereunder; provided that each
such Eligible Transferee shall provide a Commitment in a minimum amount of
$10,000,000 or an integral multiple of $1,000,000 in excess thereof.

 

(c) On each Increase Date, each Eligible Transferee that accepts an offer to
participate in a requested Commitment increase in accordance with Section
2.17(b) shall become a Lender party to this Agreement as of such Increase Date
and the Commitment of each Increasing Lender shall be increased as of such
Increase Date by the amount set forth in its notice delivered to the
Administrative Agent in accordance with Section 2.17(a) (or by the amount
allocated to such Lender pursuant to the last sentence of Section 2.17(a)).

 

SECTION 2.18 Right to Replace a Lender. If either Borrower is required to make
any additional payment pursuant to Section 2.10 or 2.13 to any Lender or if any
Lender’s obligation to make, or to Convert Advances into, Eurodollar Rate
Advances shall be suspended pursuant to Section 2.11 (in each case, such Lender
being an “Affected Person”), the Borrowers may elect, if such amounts continue
to be charged or such suspension is still effective, to replace such Affected
Person as a party to this Agreement, provided that no Default shall have
occurred and be continuing at the time of such replacement and, provided,
further, that concurrently with such replacement, (i) one or more Eligible
Transferees reasonably satisfactory to the Borrowers

 

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and the Administrative Agent shall agree, as of such date, to become a Lender
for all purposes under this Agreement and to assume all obligations (including
the Commitment) of the Affected Person to be terminated as of such date and to
comply with the requirements of Section 8.07 applicable to assignments, (ii)
such Affected Person shall have received payment of all amounts then due and
owing to such Affected Person hereunder to and including the date of
termination, including without limitation payments due such Affected Person
under Section 2.10 and 2.13, and (iii) such Borrower shall pay to the
Administrative Agent an administrative fee in the amount of $3,500 for each such
replacement in the event that the replacing Lender in respect thereof is not a
Lender at the time of such replacement.

 

SECTION 2.19 Term Loan Conversion. (a) The Revolving Credit Advances of each
Lender to each Borrower outstanding at the close of business (New York City
time) on the Commitment Termination Date shall, at the option of such Borrower,
subject to clause (b) below and to Section 3.03, be converted on such date (the
“Term Loan Conversion Date”) into a term loan (each, a “Term Loan”) to such
Borrower in a principal amount equal to the aggregate outstanding principal
amount of such Revolving Credit Advances at such time (such conversion, the
“Term Loan Conversion”).

 

(b) Each Borrower shall give the Administrative Agent irrevocable notice if such
Borrower intends to convert its Revolving Credit Advances to Term Loans pursuant
to this Section 2.19 (which notice must be received by the Administrative Agent
prior to 10:00 A.M., (New York City time) (i) three Business Days prior to the
Commitment Termination Date, if all or any part of the Term Loans to such
Borrowers are to be initially Eurodollar Rate Advances or (ii) otherwise, on the
Commitment Termination Date. Such notice shall specify (i) whether the resulting
Term Loans are to be initially Eurodollar Rate Advances, Base Rate Advances or a
combination thereof and (ii) if the Term Loans are to be entirely or partly
Eurodollar Rate Advances, the respective lengths of the initial Interest Periods
therefor. Upon receipt of any such notice the Administrative Agent shall
promptly notify each Lender thereof.

 

(c) On the Term Loan Conversion Date, each Lender shall mark any Revolving
Credit Note held by it “cancelled” and deliver the same to the Administrative
Agent, which shall forward the same to the relevant Borrower. Upon the prior
written request of any Lender delivered by such Lender to the Administrative
Agent and the Borrowers, each of the Borrowers shall execute and deliver to such
Lender a Term Note to the order of such Lender, dated the Term Loan Conversion
Date and in an amount equal to such Lender’s Term Loan to such Borrower.

 

ARTICLE III

 

CONDITIONS TO EFFECTIVENESS AND LENDING

 

SECTION 3.01 Conditions Precedent to Initial Borrowing. The obligation of each
Lender to make its Revolving Credit Advance on the occasion of the initial
Borrowing shall be subject to the satisfaction, on or before July 29, 2004 of
the following conditions precedent:

 

(a) The Administrative Agent shall have received counterparts of this Agreement
executed by the parties hereto.

 

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(b) The following statements shall be true on the Closing Date and the
Administrative Agent shall have received, with a copy for each Lender, a
certificate signed by a duly authorized officer of each Borrower, dated the
Closing Date, stating that:

 

(i) the representations and warranties made by such Borrower and contained in
Section 4.01 are true and correct on and as of the Closing Date (it being
understood and agreed that any representation or warranty which expressly refers
by its terms to a specified date shall be required to be correct in all material
respects only as of such date), and

 

(ii) no Default has occurred and is continuing on and as of the Closing Date.

 

(c) The Administrative Agent shall have received the following, each dated the
Closing Date, in form and substance satisfactory to the Administrative Agent and
(except for the Notes) in sufficient copies for each Lender:

 

(i) If requested by any Lender pursuant to Section 2.01(c), a Revolving Credit
Note for the account of such Lender, duly executed by each Borrower, in the
amount of such Lender’s Commitment as in effect on the Closing Date.

 

(ii) Certified copies of the certificate of incorporation and by-laws of each
Borrower as in effect on the Closing Date.

 

(iii) Certified copies of the resolutions of the Board of Directors of each of
the Borrowers approving this Agreement and the Notes, and of all documents
evidencing other necessary corporate action, third-party and governmental
approvals and consents, if any, with respect to this Agreement and the Notes.

 

(iv) A certificate of the Secretary or an Assistant Secretary of each of the
Borrowers certifying the names and true signatures of the officers of each of
the Borrowers, respectively, authorized to sign this Agreement and the Notes and
the other documents to be delivered hereunder.

 

(v) Evidence of the termination of all the outstanding commitments and payment
in full of all outstanding obligations of the Borrowers under the Credit
Agreement dated as of August 1, 2002, as amended, among the Borrowers, the
Lenders named therein, The Bank of New York, as Syndication Agent, and The Bank
of Nova Scotia, as Administrative Agent.

 

(vi) An opinion of Anne Gill Kelly, Managing Director, Assistant General Counsel
and Secretary of Ambac Financial, substantially in the form of Exhibit E hereto.

 

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(vii) An opinion of Kevin J. Doyle, Managing Director and General Counsel of
Ambac Assurance, substantially in the form of Exhibit F hereto.

 

(viii) An opinion of DeWitt, Ross & Stevens, S.C., Wisconsin special counsel to
Ambac Assurance, substantially in the form of Exhibit G hereto.

 

(ix) An opinion of Shearman & Sterling LLP, special New York counsel for the
Borrowers, substantially in the form of Exhibit H hereto.

 

(x) An opinion of an external counsel for the Borrowers saying that neither
Borrower is an “investment company” within the meaning of the Investment Company
Act of 1940, as amended, in form and substance satisfactory to the
Administrative Agent.

 

(xi) An opinion of Milbank, Tweed, Hadley & McCloy LLP, special New York counsel
to the Administrative Agent, substantially in the form of Exhibit I hereto.

 

(d) The Administrative Agent shall have received payment of all fees, costs and
expenses due and payable by the Borrowers on the Closing Date pursuant to this
Agreement.

 

SECTION 3.02 Conditions Precedent to Each Borrowing. The obligation of each
Lender to make a Revolving Credit Advance on the occasion of each Borrowing
shall be subject to the conditions precedent that (i) the Effective Date shall
have occurred and (ii) on the date of such Borrowing the following statements
shall be true (and each of the giving of the applicable Notice of Borrowing and
the acceptance by either Borrower of the proceeds of such Borrowing shall
constitute a representation and warranty by such Borrower that on the date of
such Borrowing such statements are true):

 

(a) the representations and warranties contained in Section 4.01 (other than
subparagraphs (f) and (g) and the final sentence of subparagraph (e) thereof)
are true and correct on and as of the date of such Borrowing, before and after
giving effect to such Borrowing and to the application of the proceeds
therefrom, as though made on and as of such date (it being understood and agreed
that any representation or warranty which expressly refers by its terms to a
specified date shall be required to be true and correct in all material respects
only as of such date), and

 

(b) no Default has occurred and is continuing or would result from such
Borrowing.

 

SECTION 3.03 Conditions Precedent to Term Loan Conversion. The occurrence of a
Term Loan Conversion shall be subject to the conditions precedent that, on the
Term Loan Conversion Date, the following statements shall be true (and any
notice of a Term Loan Conversion by either Borrower shall constitute a
representation and warranty by such Borrower that on the Term Loan Conversion
Date such statements are true):

 

(a) the Commitments of the Lenders shall not have terminated prior to such date;

 

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(b) the representations and warranties contained in Section 4.01 (other than the
final sentence of subparagraph (e) thereof) shall be true and correct on and as
of the Term Loan Conversion Date, before and after giving effect to such Term
Loan Conversion, as though made on and as of such date (it being understood and
agreed that any representation or warranty which expressly refers by its terms
to a specified date shall be required to be true and correct in all material
respects only as of such date), and

 

(c) no Default shall have occurred and be continuing or would result from such
Term Loan Conversion.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES

 

SECTION 4.01 Representations and Warranties of each Borrower. Each Borrower
represents and warrants as follows:

 

(a) Each Borrower and its Material Subsidiaries (i) is a limited liability
company, corporation or partnership, as the case may be, duly formed or
organized and existing and in good standing under the laws of the jurisdiction
of its formation or organization, as the case may be, (ii) is duly registered or
qualified to do business as a foreign limited liability company, corporation or
partnership, as the case may be, in each jurisdiction where the nature of its
business requires such registration or qualification and (iii) holds all
requisite governmental licenses, permits and other approvals to own and hold
under lease its property and to conduct its business substantially as conducted
by it, except where the failure to be so qualified or hold such licenses,
permits and approvals, singly or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.

 

(b) The execution, delivery and performance by each Borrower of each Loan
Document to which it is party are within such Borrower’s corporate powers, have
been duly authorized by all necessary corporate action, and do not (i)
contravene such Borrower’s certificate of incorporation or by-laws; (ii)
contravene any contractual restriction, law or governmental regulation or court
decree or order binding on or affecting such Borrower; or (iii) result in, or
require the creation or imposition of, any Lien on any of such Borrower’s
properties.

 

(c) No authorization or approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body or other Person is required
for the due execution, delivery or performance by each Borrower of any Loan
Document to which such Borrower is a party. Neither Borrower is an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.

 

(d) Each Loan Document to which each Borrower is a party constitutes the legal,
valid and binding obligation of such Borrower, enforceable against such Borrower
in accordance with its terms.

 

(e) The Consolidated balance sheets of Ambac Financial, Ambac Assurance and
their Subsidiaries as at December 31, 2003, and the related Consolidated
statements of operations and cash flows of Ambac Financial, Ambac Assurance and
their Subsidiaries for the

 

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fiscal year ended on such date and the Consolidated balance sheet of Ambac
Financial, Ambac Assurance and their Subsidiaries as at March 31, 2004, and the
related Consolidated statements of operations and cash flows of Ambac Financial,
Ambac Assurance and their Subsidiaries for the three months then ended,
heretofore furnished to the Administrative Agent, have been prepared in
accordance with GAAP consistently applied and fairly present, subject, in the
case of such balance sheet as at March 31, 2004, and such statements of
operations and cash flows for the three months then ended, to year-end audit
adjustments, the Consolidated financial condition of Ambac Financial, Ambac
Assurance and their Subsidiaries as at the respective dates thereof and the
results of their operations for the respective periods then ended. Since
December 31, 2003, there has been no Material Adverse Change.

 

(f) There is no pending or, to the knowledge of each Borrower, threatened
litigation, action, proceedings, investigation or labor controversy affecting
such Borrower or any Material Subsidiary or any of its respective properties,
businesses, assets or revenues which may reasonably be expected to have a
Material Adverse Effect or which purports to affect the legality, validity or
enforceability of any Loan Document.

 

(g) Each of the Borrowers and its Material Subsidiaries has filed all tax
returns and reports required by law to have been filed by it and has paid all
taxes and governmental charges thereby shown to be owing, except any such taxes
or charges which are being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP (or
statutory accounting principles, as appropriate) shall have been set aside on
its books and except where the failure to file said returns or reports or to pay
such taxes or charges could not reasonably be expected to have a Material
Adverse Effect.

 

(h) During the twelve-consecutive-month period prior to the date of the
execution and delivery of this Agreement and prior to the date of any Borrowing
hereunder, except as disclosed in Schedule 4.01(h), no steps have been taken to
terminate any Pension Plan, and no contribution failure has occurred with
respect to any Pension Plan sufficient to give rise to a Lien under section
302(f) of ERISA. No condition exists or event or transaction has occurred with
respect to any Pension Plan which might result in the incurrence by either
Borrower or any member of the Controlled Group of any material liability, fine
or penalty other than a non-defaulted obligation to make a contribution under
Section 302 of ERISA. Except as disclosed in Schedule 4.01(h), neither Borrower
nor any member of the Controlled Group have any contingent liability with
respect to any post-retirement benefit under a Welfare Plan, other than
liability for continuation coverage described in Part 6 of Title I of ERISA.

 

(i) After applying the proceeds of each Advance, and on the Term Loan Conversion
Date, not more than 25% of the value of the assets of either Borrower that are
subject to Section 5.02 are margin stock (as defined in Regulation U of the
Board of Governors of the Federal Reserve System).

 

(j) The Debt of the Borrowers under this Agreement and, to the extent
applicable, the Notes issued by such Borrower, will rank at least pari passu in
priority of payment with all other unsecured and unsubordinated Debt of such
Borrower.

 

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(k) Each Borrower is and, after giving effect to each Advance and to the use of
proceeds thereof, will be Solvent.

 

ARTICLE V

 

COVENANTS OF THE BORROWERS

 

SECTION 5.01 Affirmative Covenants. So long as any principal of or interest on
any Advance or any other amount payable under this Agreement shall remain unpaid
or any Lender shall have any Commitment hereunder, each Borrower will:

 

(a) Compliance with Statutes, Etc. Comply, and cause each of its Material
Subsidiaries to comply, in all material respects with all applicable laws,
statutes, regulations and orders of, and all applicable restrictions imposed by,
all governmental bodies, domestic or foreign, including, without limitation,
ERISA and environmental laws in respect of the conduct of its business and the
ownership of its property, except where noncompliance therewith could not
reasonably be expected to have, in the aggregate, a Material Adverse Effect.

 

(b) Use of Proceeds. Apply the proceeds of each Revolving Credit Advance for
working capital and general corporate or company purposes of such Borrower and
its Subsidiaries.

 

(c) Maintenance of Insurance. Maintain, and cause each of its Material
Subsidiaries to maintain, insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as is usually
carried by companies engaged in similar businesses and owning similar properties
in the same general areas in which such Borrower or such Material Subsidiary
operates; provided, however, that each Borrower and its Material Subsidiaries
may self-insure to the same extent as other companies engaged in similar
businesses and owning similar properties in the same general areas in which such
Borrower or such Material Subsidiary operates and to the extent consistent with
prudent business practice.

 

(d) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause
each of its Material Subsidiaries to preserve and maintain, its legal existence
(except as otherwise permitted by Section 5.02(b)) and its material rights,
franchises and licenses; provided, however, that nothing in this Section 5.01(d)
shall prevent the withdrawal, lapse or termination by either Borrower or any of
its Material Subsidiaries of any right, franchise or license where such
withdrawal, lapse or termination could not reasonably be expected to have a
Material Adverse Effect.

 

(e) Keeping of Books; Visitation Rights. (i) Keep, and cause each of its
Material Subsidiaries to keep, books of record and account which accurately
reflect all of its business affairs and transactions; and (ii) permit, and cause
each of its Material Subsidiaries to permit, officers and designated
representatives of the Administrative Agent and any Lender to visit and inspect,
under guidance of officers of either Borrower or such Material Subsidiary, any
of the properties of such Borrower or such Material Subsidiary, and to examine
the books of record and account of such Borrower or such Material Subsidiary and
discuss the affairs, finances and accounts of such Borrower or such Material
Subsidiary with, and be advised as to

 

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the same by, its and their officers and its independent public accountants (and
each Borrower hereby authorizes such independent public accountant to discuss
each Borrower’s financial matters with the Administrative Agent or its
representatives), all at such reasonable times and intervals (and, prior to the
occurrence of any Default, with reasonable prior notice given to the applicable
Borrower) and to such reasonable extent as any Lender may reasonably request.

 

(f) Reporting Requirements. Furnish to the Administrative Agent:

 

(i) Quarterly Financial Statements of Ambac Financial. As soon as they are
available, but in any event within 60 days after the end of each of the first
three quarterly accounting periods in each fiscal year of Ambac Financial, the
Consolidated balance sheets of Ambac Financial and its Consolidated Subsidiaries
as at the end of such quarterly period and the related Consolidated statements
of operations and cash flows for such quarterly period and for the elapsed
portion of the fiscal year ended with the last day of such quarterly period all
of which shall be certified by the chief financial officer or treasurer of Ambac
Financial, subject to year-end audit adjustments.

 

(ii) Annual Financial Statements of Ambac Financial. As soon as they are
available, but in any event within 120 days after the end of each fiscal year of
Ambac Financial, a copy of the annual report for such fiscal year for Ambac
Financial and its Consolidated Subsidiaries, including therein the Consolidated
balance sheets of Ambac Financial and its Consolidated Subsidiaries as at the
end of such fiscal year and the related Consolidated statements of operations,
stockholders’ equity and of cash flow for such fiscal year, in each case,
certified, in the case of the Consolidated financial statements, by independent
certified public accountants of recognized national standing reasonably
acceptable to the Administrative Agent.

 

(iii) Quarterly Statutory Statements of Ambac Assurance. As soon as they are
available, but in any event within 60 days after the end of each of the first
three quarterly accounting periods in each fiscal year of Ambac Assurance, the
quarterly statement of Ambac Assurance for such quarter, as filed with the
Office of Commissioner of Insurance of the State of Wisconsin, certified as to
fairness of presentation, generally accepted statutory accounting principles and
consistency by the Responsible Officer of Ambac Assurance as at the end of such
quarterly period and the related Consolidated statements of operations and cash
flows for such quarterly period and for the elapsed portion of the fiscal year
ended with the last day of such quarterly period, all of which shall be
certified by the chief financial officer or treasurer of Ambac Assurance,
subject to year-end audit adjustments.

 

(iv) Annual Statutory Statements of Ambac Assurance. As soon as they are
available, but in any event within 120 days after the end of each fiscal year of
Ambac Assurance, a copy of the annual statement for such fiscal year for Ambac
Assurance as filed with the Office of Commissioner of Insurance of the State of
Wisconsin, certified as to fairness of presentation, generally accepted

 

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statutory accounting principles and consistency by the Responsible Officer of
Ambac Assurance.

 

(v) Occurrence of Default. As soon as possible and in any event within ten days
after a Responsible Officer of either Borrower shall obtain actual knowledge of
the occurrence of a Default continuing on the date of such statement, a
statement of the chief financial officer of such Borrower setting forth details
of such Default and the action that such Borrower has taken and proposes to take
with respect thereto.

 

(vi) Compliance Certificate. Concurrently with the delivery of the financial
information pursuant to clauses (i) and (ii) above, a Compliance Certificate,
executed by a Responsible Officer of Ambac Financial, showing compliance with
the financial covenants set forth in Section 5.03 and stating that no Default
has occurred and is continuing (or, if a Default has occurred, specifying the
details of such Default and the action that Ambac Financial has taken or
proposes to take with respect thereto).

 

(vii) Notice of Litigation. As soon as possible and in any event within 5
Business Days after a Responsible Officer of either Borrower obtains knowledge
of the filing or commencement of any material litigation, action, proceeding or
labor controversy with respect to such Borrower or any of its Material
Subsidiaries, notice thereof and, to the extent the Administrative Agent
requests, copies of all documentation relating thereto.

 

(viii) ERISA. Immediately upon becoming aware of (i) the institution of any
steps by any Person to terminate any Pension Plan, (ii) the failure to make a
required contribution to any Pension Plan if such failure is sufficient to give
rise to a Lien under Section 302(f) of ERISA, (iii) the taking of any action
with respect to a Pension Plan which could result in the requirement that either
Borrower furnish a bond or other security to the Pension Benefit Guaranty
Corporation (or any Person succeeding to any or all of its functions under
ERISA) or such Pension Plan, or (iv) the occurrence of any event with respect to
any Pension Plan which could result in the incurrence by either Borrower of any
material liability, fine or penalty, notice thereof and copies of all
documentation relating thereto.

 

(ix) Other Information. Such other financial and other information as any Lender
through the Administrative Agent may from time to time reasonably request.

 

(g) Payment of Taxes, Etc. Pay and discharge, and cause each of its Material
Subsidiaries to pay and discharge, before the same shall become delinquent, (i)
all taxes, assessments and governmental charges or levies imposed upon it or
upon its property and (ii) all lawful claims that, if unpaid, might by law
become a Lien upon its property; provided, however, that neither Borrower nor
any of its Material Subsidiaries shall be required to pay or discharge any such
tax, assessment, charge or claim that is being contested in good faith and by
proper

 

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proceedings and as to which appropriate reserves are being maintained, unless
and until any Lien resulting therefrom attaches to its property and becomes
enforceable against its other creditors.

 

(h) Maintenance of Properties. Maintain and preserve, and cause each of its
Subsidiaries to maintain and preserve, all of its properties that are used or
useful in the conduct of its business in good working order and condition,
ordinary wear and tear excepted, except where failure to do so could not
reasonably be expected to have a Material Adverse Effect.

 

SECTION 5.02 Negative Covenants. So long as any principal of or interest on any
Advance or any other amount payable under this Agreement shall remain unpaid or
any Lender shall have any Commitment hereunder, each Borrower agrees that:

 

(a) Liens. It will not, and will not permit any of its Material Subsidiaries to,
create, incur, assume or suffer to exist any Lien upon any of its property,
revenues or assets, whether now owned or hereafter acquired, to secure Debt of
such Borrower or such Material Subsidiary except: (i) Liens granted prior to the
date hereof securing Debt existing as of the date hereof which is identified in
Schedule 5.02(a) (“Ongoing Debt”); (ii) any Lien on any asset granted to secure
payment of Debt incurred or assumed for the purpose of financing the acquisition
of such asset, provided that such Lien attaches to such asset no later than the
ninetieth day after such acquisition; (iii) any Lien existing on any asset prior
to the acquisition thereof by such Borrower or any Material Subsidiary thereof
and not created in contemplation of such acquisition; (iv) any Lien arising out
of the refinancing, extension, renewal or refunding of any Debt secured by any
Lien permitted in clause (i), (ii) or (iii), provided that such Debt is not
increased and is not secured by any additional assets; (v) Permitted Liens; (vi)
any Lien consisting of a pledge by Ambac Assurance of its subrogation rights to
secure Debt for borrowed money, in the aggregate amount outstanding not to
exceed $50,000,000 at any time; and (vii) other Liens where the aggregate
principal amount of Debt secured thereby at any time outstanding does not exceed
$50,000,000 in the aggregate.

 

(b) Mergers, Etc. It will not, and will not permit any of its Material
Subsidiaries to, liquidate or dissolve, consolidate with, or merge into or with,
any other Person, except: (i) any such Material Subsidiary (other than Ambac
Assurance) may liquidate or dissolve voluntarily into, and may consolidate and
merge with and into, either Borrower or any other Material Subsidiary of either
Borrower; and (ii) so long as no Default has occurred and is continuing or would
occur after giving effect thereto, either Borrower may consolidate or merge with
and into any other Person organized under the laws of a State of the United
States if (A) such Borrower is the surviving entity and such Borrower and its
Subsidiaries, as a whole, will continue to have the financial guaranty business
as one of its principal businesses; or (B) all of the following are satisfied:
(I) such other Person and its Subsidiaries, as a whole, shall have the financial
guaranty business as one of its principal businesses, (II) such Person shall
have assumed all the obligations of such Borrower pursuant to an instrument in
form and substance reasonably satisfactory to the Required Lenders and shall
have delivered such opinions of counsel with respect thereto as the
Administrative Agent may reasonably request, (III) both immediately prior to and
after giving effect to such consolidation or merger, the ratings on such
Person’s senior unsecured debt and (if such Person is an insurer at such

 

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time) claims-paying ability shall be at least as high as the applicable Borrower
immediately prior to such consolidation or merger, and (IV) such Person meets
each Lender’s internal policies with respect to extensions of credit of the type
contemplated hereunder.

 

(c) Asset Dispositions. It will not, and will not permit any of its Material
Subsidiaries to, sell, transfer, lease, contribute or otherwise convey, or grant
options, warrants or other rights with respect to, all or any substantial part
of its property, revenues or assets (including accounts receivable and capital
stock of any of its Material Subsidiaries) to any Person (any of the foregoing,
an “Asset Disposition”); provided, however, that each Borrower and its Material
Subsidiaries may consummate (i) Asset Dispositions in the ordinary course of
their business and (ii) any Asset Disposition, to the extent that immediately
after giving effect to such Asset Disposition, the aggregate fair market value
(determined at the time of the applicable transactions) of all assets subject to
Asset Dispositions (other than those described in clause (i) consummated by the
Borrowers and their respective Subsidiaries in such fiscal year) and consummated
in such fiscal year, would not exceed 25% of the stockholders’ equity of Ambac
Financial and its Subsidiaries, on a Consolidated basis (excluding unrealized
gains on investments and unrealized losses on investments), at the end of the
next preceding fiscal year.

 

SECTION 5.03 Financial Covenants. So long as any principal of or interest on any
Advance or any other amount payable under this Agreement shall remain unpaid or
any Lender shall have any Commitment hereunder, Ambac Financial will:

 

(a) Leverage Ratio. Maintain as of the end of each fiscal quarter a Leverage
Ratio of not more than 0.3 to 1.00.

 

(b) Net Worth. Maintain at all times an excess of Consolidated total assets over
Consolidated total liabilities (in each case excluding the assets and
liabilities of Aleutian and Juneau) of not less than $2,000,000,000.

 

ARTICLE VI

 

EVENTS OF DEFAULT

 

SECTION 6.01 Events of Default. If any of the following events (“Events of
Default”) shall occur and be continuing:

 

(a) Either Borrower shall fail to pay any principal of any Advance made to such
Borrower when the same becomes due and payable; or either Borrower shall fail to
pay any interest on any Advance made to such Borrower or make any other payment
of fees or other amounts payable by such Borrower under this Agreement or any
Note within five Business Days after the same becomes due and payable by such
Borrower; or

 

(b) Any representation or warranty made by either Borrower herein or which is
contained in any certificate furnished by such Borrower at any time under or in
connection with this Agreement shall prove to have been incorrect in any
material respect when made or deemed made; or

 

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(c) Either Borrower shall fail to perform or observe any term, covenant or
agreement contained in Section 5.0l(f)(v), 5.02(b), 5.02(c) or 5.03 on its part
to be performed or observed, or either Borrower shall fail to perform or observe
any other term, covenant or agreement contained in this Agreement on its part to
be performed or observed if such failure shall remain unremedied for 30 days
after written notice thereof shall have been given to such Borrower by the
Administrative Agent or any Lender; or

 

(d) Either Borrower or any of its Material Subsidiaries shall (i) fail to pay
any principal of or premium or interest on any Debt that is outstanding in a
principal or notional amount of at least $30,000,000 in the aggregate (but
excluding Debt outstanding hereunder) of such Borrower or such Material
Subsidiary, as the case may be, when the same becomes due and payable, and such
failure shall continue after the applicable grace period, if any, specified in
the agreement or instrument relating to such Debt; or (ii) any other event shall
occur or condition shall exist under any agreement or instrument relating to any
such Debt and shall continue after the applicable grace period, if any,
specified in such agreement or instrument, if the effect of such event or
condition is to accelerate, or to permit the acceleration of, the maturity of
such Debt; or (iii) any such Debt shall be declared to be due and payable, or
required to be prepaid or redeemed (other than by a regularly scheduled required
prepayment or redemption), purchased or defeased, or an offer to prepay, redeem,
purchase or defease such Debt shall be required to be made, in each case prior
to the stated maturity thereof; or

 

(e) Either Borrower or any of its Material Subsidiaries shall generally not pay
its debts as such debts become due, or shall admit in writing its inability or
unwillingness to pay its debts generally, or shall make a general assignment for
the benefit of creditors; or

 

(f) Any proceeding shall be instituted by or against either Borrower or any of
its Material Subsidiaries seeking to adjudicate it as bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any Federal, State
or foreign law relating to bankruptcy, insolvency, receivership or
reorganization or relief of debtors, or seeking the entry of an order for relief
or the appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it), either such
proceeding shall remain undismissed or unstayed for a period of 60 days, or any
of the actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part of its
property) shall occur; or either Borrower or any of its Material Subsidiaries
shall take any corporate action to authorize any of the actions set forth above
in subsection (e) or in this subsection (f); or

 

(g) Any judgment or order for the payment of money individually or in the
aggregate in excess of $30,000,000 at any one time in effect, shall be rendered
against either Borrower or any of its Material Subsidiaries and either (i)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order or (ii) there shall be any period of 30 consecutive days
during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; provided, however, that the
amount of any such judgment or order shall not be considered in determining
whether a Default exists under this Section 6.01(f) if and to the extent that
(i) the amount of such judgment or order is covered

 

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by a valid and binding policy of insurance between the defendant and the insurer
covering payment thereof and (ii) such insurer, which shall be rated at least
“A” by A.M. Best Company, has been notified of, and has not disputed the claim
made for payment of, the amount of such judgment or order; or

 

(h) Any of the following events shall occur with respect to any Pension Plan:
(i) the institution of any steps by either Borrower, any member of its
Controlled Group or any other Person to terminate a Pension Plan if, as a result
of such termination, such Borrower or any such member could be required to make
a contribution to such Pension Plan, or could reasonably expect to incur a
liability or obligation to such Pension Plan, in excess of $20,000,000; or (ii)
a contribution failure occurs with respect to any Pension Plan sufficient to
give rise to a Lien under Section 302(f) of ERISA; or

 

(i) A Change of Control shall occur;

 

then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Required Lenders, by notice to the Borrowers,
declare the obligation of each Lender to make Revolving Credit Advances to be
terminated, whereupon the same shall forthwith terminate, and (ii) shall at the
request, or may with the consent, of the Required Lenders, by notice to the
Borrowers, declare the Notes, all interest thereon and all other amounts payable
under this Agreement to be forthwith due and payable, whereupon the Notes, all
such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by each Borrower (and in either case, if
the Term Loan Conversion has not occurred, if shall not thereafter occur);
provided, however, that in the case of any Event of Default described in
subsection (f) above, (A) the obligation of each Lender to make Revolving Credit
Advances shall automatically be terminated and (B) the Notes, all such interest
and all such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by each Borrower, and if the Term Loan Conversion has not
occurred, it shall not thereafter occur.

 

ARTICLE VII

 

THE AGENTS

 

SECTION 7.01 Authorization and Action. Each Lender hereby appoints Barclays as
the Syndication Agent and Citibank as the Administrative Agent under and for the
purposes of each Loan Document. Each Lender authorizes the Administrative Agent
to take such action as Administrative Agent on its behalf and to exercise such
powers and discretion under this Agreement as are delegated to the
Administrative Agent by the terms hereof and thereof, together with such powers
and discretion as are reasonably incidental thereto. As to any matters not
expressly provided for by this Agreement (including, without limitation,
enforcement or collection of the Notes), the Administrative Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Required Lenders or all the
Lenders if applicable, and such instructions shall be binding upon all Lenders
and all holders of Notes; provided, however, that the Administrative Agent shall
not be required

 

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to take any action that exposes the Administrative Agent to personal liability
or that is contrary to this Agreement or applicable law. The Administrative
Agent agrees to give to each Lender prompt notice of each notice given to it by
either Borrower pursuant to the terms of this Agreement. Anything in this
Agreement to the contrary notwithstanding, none of the Persons identified on the
cover page hereof as “Syndication Agent”, “Documentation Agent”, “Joint Lead
Arrangers” or “Sole Book Runner” shall have, in their capacities as such, any
responsibilities or liabilities under or in connection with this Agreement.

 

SECTION 7.02 Agents’ Reliance, Etc. Neither any Agent nor any of its directors,
officers, agents or employees shall be liable to any Lender for any action taken
or omitted to be taken by it or them under or in connection with this Agreement,
except for its or their own gross negligence or willful misconduct. Without
limitation of the generality of the foregoing: (i) the Administrative Agent may
treat the payee of any Note as the holder thereof until the Administrative Agent
receives and accepts an Assignment and Acceptance entered into by the Lender
that is the payee of such Note, as assignor, and an Eligible Assignee, as
assignee, as provided in Section 8.07; (ii) any Agent may consult with legal
counsel (including counsel for the Borrowers), independent public accountants
and other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (iii) no Agent makes any warranty or
representation to any Lender and no Agent shall be responsible to any Lender for
any statements, warranties or representations (whether written or oral) made in
or in connection with this Agreement; (iv) no Agent shall have any duty to
ascertain or to inquire as to the performance or observance of any of the terms,
covenants or conditions of this Agreement on the part of the Borrowers or to
inspect the property (including the books and records) of the Borrowers; (v) no
Agent shall be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of, this Agreement
or any other instrument or document furnished pursuant hereto; and (vi) no Agent
shall incur any liability under or in respect of this Agreement by acting upon
any notice, consent, certificate or other instrument or writing (which may be by
telecopier) believed by it to be genuine and signed or sent by the proper party
or parties.

 

SECTION 7.03 Agents and Affiliates. With respect to its Commitment, the Advances
made by it and the Note or Notes issued to it, each Agent shall have the same
rights and powers under this Agreement as any other Lender and may exercise the
same as though it were not an Agent; and the term “Lender” or “Lenders” shall,
unless otherwise expressly indicated, include each Agent in its individual
capacity. Each Agent and its Affiliates may accept deposits from, lend money to,
act as trustee under indentures of, accept investment banking engagements from
and generally engage in any kind of business with, the Borrowers, any of their
Subsidiaries and any Person who may do business with or own securities of either
Borrower or any such Subsidiaries, all as if such Agent was not an Agent and
without any duty to account therefor to the Lenders.

 

SECTION 7.04 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon any Agent or any other Lender and based
on the financial statements referred to in Section 4.01 and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Lender also acknowledges that it
will, independently and without reliance upon any Agent

 

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or any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.

 

SECTION 7.05 Indemnification. The Lenders agree to indemnify the Administrative
Agent (to the extent not reimbursed by the Borrowers), ratably according to the
respective principal amounts of the Notes then held by each of them (or if no
Notes are at the time outstanding) ratably according to the respective amounts
of their Commitments), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever that may be imposed on, incurred
by, or asserted against the Administrative Agent in any way arising out of this
Agreement or any action taken or omitted by the Administrative Agent under this
Agreement (collectively, the “Indemnified Costs”), provided that no Lender shall
be liable for any portion of the Indemnified Costs resulting from the
Administrative Agent’s gross negligence or willful misconduct. Without
limitation of the foregoing, each Lender agrees to reimburse the Administrative
Agent promptly upon demand for its ratable share of any out-of-pocket fees and
expenses (including counsel fees and expenses) incurred by the Administrative
Agent in connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, to the extent that the Administrative
Agent is not reimbursed for such fees and expenses by the Borrowers. In the case
of any investigation, litigation or proceeding giving rise to any Indemnified
Costs, this Section 7.05 applies whether any such investigation, litigation or
proceeding is brought by the Administrative Agent, any Lender or a third party.

 

SECTION 7.06 Successor. The Administrative Agent may resign at any time by
giving written notice thereof to the Lenders and the Borrowers and may be
removed at any time with or without cause by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Administrative Agent. If no successor Administrative Agent shall have
been so appointed by the Required Lenders, and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent’s giving of
notice of resignation or the Required Lenders’ removal of the retiring
Administrative Agent, then the retiring Administrative Agent may, on behalf of
the Lenders, appoint a successor Administrative Agent, which shall be a
commercial bank organized under the laws of the United States of America or of
any State thereof and having a combined capital and surplus of at least
$500,000,000. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights, powers,
discretion, privileges and duties of the retiring Administrative Agent, and the
retiring Administrative Agent shall be discharged from its duties and
obligations under this Agreement. After any retiring Administrative Agent’s
resignation or removal hereunder as Administrative Agent, the provisions of this
Article VII shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent under this Agreement.

 

38

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ARTICLE VIII

 

MISCELLANEOUS

 

SECTION 8.01 Amendments, Etc. No amendment or waiver of any provision of this
Agreement or the Notes, nor consent to any departure by either Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Required Lenders, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided, however, that no amendment, waiver or consent shall, unless in
writing and signed by all the Lenders, do any of the following: (a) waive any of
the conditions specified in Section 3.01, (b) except as provided in Sections
2.16 and 2.17, increase or extend the Commitments of the Lenders or subject the
Lenders to any additional obligations, (c) reduce the principal of, or interest
on, the Notes or other amounts payable hereunder, (d) except as a consequence of
any extension of the Commitment Termination Date as provided in Section 2.16,
postpone any date fixed for any payment of principal of, or interest on, the
Notes or any fees or other amounts payable hereunder, (e) change the percentage
of the Commitments or of the aggregate unpaid principal amount of the Notes, or
the number of Lenders, that shall be required for the Lenders or any of them to
take any action hereunder, or (f) amend this Section 8.01 or the definition of
“Required Lenders”; and provided, further, that no amendment, waiver or consent
shall, unless in writing and signed by the Administrative Agent in addition to
the Lenders required above to take such action, affect the rights or duties of
the Administrative Agent under this Agreement or any Note.

 

SECTION 8.02 Notices, Etc. (a) All notices and other communications provided for
hereunder shall be in writing (including telecopier) and mailed, telecopied or
delivered, if to either Borrower, at its address at One State Street Plaza, 19th
floor, New York, New York, 10004, Attention: Treasurer (with copy to General
Counsel at same address); if to any Lender, at its Domestic Lending Office
specified opposite its name on Schedule II hereto or at its Domestic Lending
Office specified in the Assignment and Acceptance pursuant to which it became a
Lender, as the case may be; and if to the Administrative Agent, at its address
at Citibank, N.A., 2 Penns Way, Suite 110, New Castle, Delaware 19720,
Attention: Mr. Keith Carter (fax: 212-994-0961); or, as to the Borrowers or the
Administrative Agent, at such other address as shall be designated by such party
in a written notice to the other parties and, as to each other party, at such
other address as shall be designated by such party in a written notice to the
Borrowers and the Administrative Agent. All such notices and communications
shall, when mailed or telecopied, be effective when deposited in the mails or
telecopied, respectively, except that notices and communications to the
Administrative Agent pursuant to Article II, III or VII shall not be effective
until received by the Administrative Agent. Delivery by telecopier of an
executed counterpart of any amendment or waiver of any provision of this
Agreement or the Notes or of any Exhibit hereto to be executed and delivered
hereunder shall be effective as delivery of a manually executed counterpart
thereof.

 

(b) Each Borrower hereby agrees that it will provide to the Administrative Agent
all information, documents and other materials that it is obligated to furnish
to the Administrative Agent pursuant to this Agreement, including, without
limitation, all notices, requests, financial statements, financial and other
reports, certificates and other information materials, but excluding any such
communication that (i) relates to the payment of any principal

 

39

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or other amount due under this Agreement prior to the scheduled date therefor,
(ii) provides notice of any Default under this Agreement or (iii) is required to
be delivered to satisfy any condition precedent to the occurrence of the Closing
Date and/or the Term Loan Conversion Date (all such non-excluded communications
being referred to herein collectively as “Communications”), by transmitting the
Communications in an electronic/soft medium in a format acceptable to the
Administrative Agent to oploanswebadmin@citigroup.com. In addition, each
Borrower agrees to continue to provide the Communications to the Administrative
Agent in the manner specified in this Agreement but only to the extent requested
by the Administrative Agent.

 

(c) Each Borrower further agrees that the Administrative Agent may make the
Communications available to the Lenders by posting the Communications on
Intralinks or a substantially similar electronic transmission system (the
“Platform”). THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE”. THE AGENT
PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE
COMMUNICATIONS, OR THE ADEQUACY OF THE PLATFORM AND EXPRESSLY DISCLAIM LIABILITY
FOR ERRORS OR OMISSIONS IN THE COMMUNICATIONS. NO WARRANTY OF ANY KIND, EXPRESS,
IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD
PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE AGENT
PARTIES IN CONNECTION WITH THE COMMUNICATIONS OR THE PLATFORM. IN NO EVENT SHALL
THE ADMINISTRATIVE AGENT OR ANY OF ITS AFFILIATES OR ANY OF THEIR RESPECTIVE
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ADVISORS OR REPRESENTATIVES
(COLLECTIVELY, THE “AGENT PARTIES”) HAVE ANY LIABILITY TO EITHER BORROWER, ANY
LENDER OR ANY OTHER PERSON OR ENTITY FOR DAMAGES OF ANY KIND, INCLUDING, WITHOUT
LIMITATION, DIRECT OR INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES,
LOSSES OR EXPENSES (WHETHER IN TORT, CONTRACT OR OTHERWISE) ARISING OUT OF SUCH
BORROWER’S OR THE ADMINISTRATIVE AGENT’S TRANSMISSION OF COMMUNICATIONS THROUGH
THE INTERNET, EXCEPT TO THE EXTENT THE LIABILITY OF ANY AGENT PARTY IS FOUND IN
A FINAL NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE
RESULTED PRIMARILY FROM SUCH AGENT PARTY’S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.

 

(d) The Administrative Agent agrees that the receipt of the Communications by
the Administrative Agent at its e-mail address set forth above shall constitute
effective delivery of the Communications to the Administrative Agent for
purposes of this Agreement. Each Lender agrees that notice to it (as provided in
the next sentence) specifying that the Communications have been posted to the
Platform shall constitute effective delivery of the Communications to such
Lender for purposes of the Loan Documents. Each Lender agrees (i) to provide to
the Administrative Agent in writing (including by electronic communication),
promptly after the date of this Agreement, an e-mail address to which the
foregoing notice may be sent by electronic transmission and (ii) that the
foregoing notice may be sent to such e-mail address.

 

40

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(e) Nothing herein shall prejudice the right of either Borrower, the
Administrative Agent or any Lender to give any notice or other communication
pursuant to this Agreement in any other manner specified in this Agreement.

 

SECTION 8.03 No Waiver; Remedies. No failure on the part of any Lender or the
Administrative Agent to exercise, and no delay in exercising, any right
hereunder or under any Note shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.

 

SECTION 8.04 Costs and Expenses. (a) The Borrowers jointly and severally agree
to pay on demand all out-of-pocket costs and expenses of the Administrative
Agent in connection with the preparation, execution, delivery, administration,
modification and amendment of this Agreement, the Notes and the other documents
to be delivered hereunder, including the reasonable fees and expenses of counsel
for the Administrative Agent with respect thereto and with respect to advising
the Administrative Agent as to its rights and responsibilities under this
Agreement. The Borrowers further jointly and severally agree to pay on demand
all out-of-pocket costs and expenses of the Administrative Agent and the
Lenders, if any, in connection with the enforcement of this Agreement, the Notes
and the other documents to be delivered hereunder, limited, in the case of
counsel fees and expenses, to the reasonable fees and expenses of one common
counsel for the Administrative Agent and the Lenders.

 

(b) The Borrowers jointly and severally agree to indemnify and hold harmless the
Agents and each Lender and each of their Affiliates and their officers,
directors, employees, agents and advisors (each, an “Indemnified Party”) from
and against any and all claims, damages, losses, liabilities and expenses
(including, without limitation, reasonable fees and expenses of counsel) that
may be incurred by or asserted or awarded against any Indemnified Party, in each
case arising out of or relating to the Notes, this Agreement, the transactions
contemplated hereby or the actual or proposed use of the proceeds of the
Revolving Credit Advances, whether or not such investigation, litigation or
proceeding is brought by a Borrower, any of its shareholders or creditors, an
Indemnified Party or any other Person, or an Indemnified Party is otherwise, a
party thereto, except with respect to any Indemnified Party to the extent such
claim, damage, loss, liability or expense results from such Indemnified Party’s
gross negligence or willful misconduct as determined in a final non-appealable
judgment by a court of competent jurisdiction. In no event shall any Indemnified
Party have any liability for any special, indirect, consequential or punitive
damages in connection with any matter relating hereto.

 

(c) If any payment of principal of, or Conversion of, any Eurodollar Rate
Advance is made by either Borrower to or for the account of a Lender other than
on the last day of the Interest Period for such Advance, as a result of a
payment or Conversion pursuant to Section 2.07(c), 2.09 or 2.11, prepayment,
acceleration of the maturity of the Advances on the Notes pursuant to Section
6.01 or for any other reason, or if such Borrower fails to make a prepayment of
any Eurodollar Rate Advance under Section 2.09 in accordance with a notice of
prepayment given under such Section, such Borrower shall, upon written demand by
such Lender (with a copy of such demand to the Administrative Agent), pay to the
Administrative

 

41

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

Agent for the account of such Lender any amounts required to compensate such
Lender for any additional losses, costs or expenses that it may reasonably incur
as a result of such payment or Conversion or such failure to prepay, including
any loss (excluding loss of anticipated profits), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
any Lender to fund or maintain such Advance.

 

(d) Without prejudice to the survival of any other agreement of each Borrower
hereunder, the agreements and obligations of each Borrower contained in Sections
2.10 and 2.13 and this Section 8.04 shall survive the payment in full of
principal and interest payable hereunder and under the Notes.

 

SECTION 8.05 Right of Set-off. Upon the occurrence and during the continuance of
any Default under Section 6.01(f) or any Event of Default and the making of the
request or the granting of the consent specified by Section 6.01 to authorize
the Administrative Agent to declare the Notes due and payable pursuant to the
provisions of Section 6.01, or any actual acceleration of the maturity thereof
pursuant to the proviso at the end of Section 6.01, each Lender is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Lender to or for the credit or the account of either Borrower
against any and all of the obligations of such Borrower now or hereafter
existing under this Agreement and the Note held by such Lender, whether or not
such Lender shall have made any demand under this Agreement or such Note and
although such obligations may be unmatured. Each Lender agrees promptly to
notify such Borrower after any such set-off and application, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of each Lender under this Section 8.05 are in addition
to other rights and remedies (including other rights of setoff under applicable
law or otherwise) which such Lender may have.

 

SECTION 8.06 Binding Effect. This Agreement shall become effective when it shall
have been executed by the Borrowers and the Agents and when the Administrative
Agent shall have been notified by each Lender that such Lender has executed it
and thereafter shall be binding upon and inure to the benefit of the Borrowers,
the Agents and each Lender and their respective successors and assigns, except
that the Borrowers shall not have the right to assign its rights hereunder or
any interest herein without the prior written consent of the Lenders.

 

SECTION 8.07 Assignments and Participations. (a) Each Lender may, if approved by
the Borrowers and the Administrative Agent (which approvals may not be
unreasonably withheld or delayed and which approvals of the Borrowers shall not
be required if an Event of Default has occurred and is continuing), and, if
demanded by the Borrowers in the event that at any time any Lender shall cease
to have the Required Lender Rating, upon at least 5 Business Days’ notice to
such Lender and the Administrative Agent, will assign to one or more Persons all
or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitment, the Advances owing to it
and the Note or Notes held by it); provided, however, that (i) each such
assignment shall be of a constant, and not a varying, percentage of all rights
and obligations under this Agreement, (ii) except in the case of an assignment
to a Person that, immediately prior to such assignment, was a Lender or an
assignment of all of a Lender’s rights and obligations under this Agreement, the
amount of the

 

42

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Commitment of the assigning Lender being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $10,000,000 or an
integral multiple of $1,000,000 in excess thereof, (iii) each such assignment
shall be to an Eligible Assignee and (iv) the parties to each such assignment
shall execute and deliver to the Administrative Agent, for its acceptance and
recording in the Register, an Assignment and Acceptance, together with any Note
subject to such assignment and a processing and recordation fee of $3,500. Upon
such execution, delivery, acceptance and recording, from and after the effective
date specified in each Assignment and Acceptance, (A) the assignee thereunder
shall be a party hereto and, to the extent that rights and obligations hereunder
have been assigned to it pursuant to such Assignment and Acceptance, have the
rights and obligations of a Lender hereunder and (B) the Lender assignor
thereunder shall, to the extent that rights and obligations hereunder have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its rights
and be released from its obligations under this Agreement (and, in the case of
an Assignment and Acceptance covering all or the remaining portion of an
assigning Lender’s rights and obligations under this Agreement, such Lender
shall cease to be a party hereto). Notwithstanding the foregoing, each Lender
will have the right, upon notice to the Administrative Agent and with the
approval of the Borrower (which approval may not be unreasonably withheld or
delayed and which approval shall not be required if an Event of Default has
occurred and is continuing), to assign all or part of its rights and obligations
under any Loan Document to any of its Affiliates.

 

(b) By executing and delivering an Assignment and Acceptance, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of either
Borrower or the performance or observance by either Borrower of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Administrative Agent, such assigning Lender or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement; (v) such assignee confirms that it is an Eligible
Assignee; (vi) such assignee appoints and authorizes the Administrative Agent to
take such action as agent on its behalf and to exercise such powers and
discretion under this Agreement as are delegated to the Administrative Agent by
the terms hereof, together with such powers and discretion as are reasonably
incidental thereto; and (vii) such assignee agrees that it will perform in
accordance with their terms all of the obligations that by the terms of this
Agreement are required to be performed by it as a Lender.

 

43

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(c) The Administrative Agent shall maintain at its address referred to in
Section 8.02 a copy of each Assignment and Acceptance delivered to and accepted
by it and a register for the recordation of the names and addresses of the
Lenders and the Commitment of, and principal amount of the Advances owing to,
each Lender from time to time (the “Register”). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and the
Borrowers, the Administrative Agent and the Lenders may treat each Person whose
name is recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrowers or
any Lender at any reasonable time and from time to time upon reasonable prior
notice.

 

(d) Upon its receipt of an Assignment and Acceptance executed by an assigning
Lender and an assignee representing that it is an Eligible Assignee, together
with any Note or Notes subject to such assignment, the Administrative Agent
shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit C hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to each Borrower. Within five Business Days
after its receipt of such notice, each Borrower, at its own expense, shall
execute and deliver to the Administrative Agent in exchange for the surrendered
Note a new Note to the order of such Eligible Assignee in an amount equal to the
Commitment assumed by it pursuant to such Assignment and Acceptance and, if the
assigning Lender has retained a Commitment hereunder, a new Note to the order of
the assigning Lender in an amount equal to the Commitment retained by it
hereunder. Such new Note or Notes shall be in an aggregate principal amount
equal to the aggregate principal amount of such surrendered Note or Notes, shall
be dated the effective date of such Assignment and Acceptance and shall
otherwise be in substantially the form of Exhibit A hereto.

 

(e) Each Lender may sell participations to one or more banks or other entities
(other than the Borrowers or any of their Affiliates) in or to all or a portion
of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment, the Advances owing to it and the
Note or Notes held by it); provided, however, that (i) such Lender’s obligations
under this Agreement (including, without limitation, its Commitment to the
Borrowers hereunder) shall remain unchanged, (ii) such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, (iii) such Lender shall remain the holder of any such Note for all
purposes of this Agreement, (iv) the Borrowers, the Administrative Agent and the
other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender’s rights and obligations under this Agreement and
(v) no participant under any such participation shall have any right to approve
any amendment or waiver of any provision of this Agreement or any Note, or any
consent to any departure by either Borrower therefrom, except to the extent that
such amendment, waiver or consent would reduce the principal of, or interest on,
the Notes or any fees or other amounts payable hereunder, in each case to the
extent subject to such participation, or postpone any date fixed for any payment
of principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, in each case to the extent subject to such participation.

 

(f) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 8.07, disclose to
the assignee or participant or proposed assignee or participant any information
relating to either Borrower

 

44

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furnished to such Lender by or on behalf of such Borrower; provided that, prior
to any such disclosure, the assignee or participant or proposed assignee or
participant shall agree to preserve the confidentiality of any Confidential
Information relating to such Borrower received by it from such Lender.

 

(g) Notwithstanding any other provision set forth in this Agreement, any Lender
may at any time create a security interest in all or any portion of its rights
under this Agreement (including, without limitation, the Advances owing to it
and any Note held by it) in favor of any Federal Reserve Bank in accordance with
Regulation A of the Board of Governors of the Federal Reserve System.

 

SECTION 8.08 Confidentiality. Neither an Agent nor any Lender shall disclose any
Confidential Information to any other Person without the consent of the
Borrowers, other than (a) to such Agent’s or such Lender’s Affiliates and their
officers, directors, employees, agents and advisors and, as contemplated by
Section 8.07(f), to actual or prospective assignees and participants, and then
only on a confidential basis, (b) as required by any law, rule or regulation or
judicial process and (c) as requested or required by any state, federal or
foreign authority or examiner regulating banks or banking.

 

SECTION 8.09 Governing Law. This Agreement and the Notes shall be governed by,
and construed in accordance with, the law of the State of New York.

 

SECTION 8.10 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. Delivery of an
executed counterpart of a signature page to this Agreement by telecopier shall
be effective as delivery of a manually executed counterpart of this Agreement.

 

SECTION 8.11 Waiver of Jury Trial. Each of the Borrowers, the Agents and the
Lenders hereby knowingly, voluntarily and irrevocably waives all right to trial
by jury in any action, proceeding or counterclaim (whether based on contract,
tort or otherwise) arising out of or relating to this Agreement or the Notes or
the transactions contemplated hereby.

 

SECTION 8.12 Jurisdiction, Etc. Each of the parties hereto hereby irrevocably
and unconditionally submits, for itself and its property, to the nonexclusive
jurisdiction of any New York State court or federal court of the United States
of America sitting in New York City, and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this Agreement or the
Notes, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in any such
New York State court or, to the extent permitted by law, in such federal court.
Each of the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Agreement shall affect any right that any party may otherwise have to bring any
action or proceeding relating to this Agreement or the Notes in the courts of
any jurisdiction.

 

45

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SECTION 8.13 Nature of Obligations. The obligations of the Borrowers under the
Loan Documents are several obligations, and are not joint and several
obligations, of the respective Borrowers unless otherwise expressly provided
herein.

 

46

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.

 

AMBAC FINANCIAL GROUP, INC.

By

       

Name:

   

Title:

 

AMBAC ASSURANCE CORPORATION

By

       

Name:

   

Title:

 

CITIBANK, N.A., as Administrative Agent

By

       

Name:

   

Title:

 

BARCLAYS BANK PLC, as Syndication Agent

By

       

Name:

   

Title:

 

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

LENDERS

CITIBANK, N.A.

By

       

Name:

   

Title:

 

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

BARCLAYS BANK PLC

By

       

Name:

   

Title:

 

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

THE BANK OF NEW YORK

By

       

Name:

   

Title:

 

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

KEYBANK NATIONAL ASSOCIATION

By

       

Name:

   

Title:

 

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

CAJA MADRID

By

       

Name:

   

Title:

 

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

WESTLB AG, NEW YORK BRANCH

By

       

Name:

   

Title:

 

By

       

Name:

   

Title:

 

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

SCHEDULE I

COMMITMENTS

 

LENDER

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

   COMMITMENT

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

Citibank, N.A.

   $ 60,000,000

Barclays Bank PLC

   $ 60,000,000

The Bank of New York

   $ 60,000,000

KeyBank National Association

   $ 42,500,000

Caja Madrid

   $ 42,500,000

WestLB AG, New York Branch

   $ 35,000,000     

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

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

TOTAL COMMITMENTS

   $ 300,000,000     

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

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

 

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

SCHEDULE II

AMBAC FINANCIAL GROUP, INC./

AMBAC ASSURANCE CORPORATION

REVOLVING CREDIT AGREEMENT

APPLICABLE LENDING OFFICES

 

Name of Lender

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

  

Domestic Lending Office

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

  

Eurodollar Lending Office

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

Citibank, N.A.   

2 Penns Way

Suite 110

New Castle, DE 19720

Attn: Keith Carter

  

2 Penns Way

Suite 110

New Castle, DE 19720

Attn: Keith Carter

Barclays Bank PLC   

200 Park Avenue

New York, NY 10166

Attn: Catherine Gil

  

200 Park Avenue

New York, NY 10166

Attn: Catherine Gil

The Bank of New York   

One Wall Street, 17th Floor

New York, NY 10286

Attn: David Trick,

Vice President

  

One Wall Street, 17th Floor

New York, NY 10286

Attn: David Trick,

Vice President

KeyBank National Association   

127 Public Square

Cleveland, OH 44114

Attn: Mary K. Young

  

127 Public Square

Cleveland, OH 44114

Attn: Mary K. Young

Caja Madrid   

Paseo de La Castellana 189

Torre Caja Madrid, 4th Floor

Madrid 28046

Spain

Attn: Beatriz Alvarez

  

Paseo de La Castellana 189

Torre Caja Madrid, 4th Floor

Madrid 28046

Spain

Attn: Beatriz Alvarez

WestLB AG, New York Branch   

1211 Avenue of the Americas

New York, NY 10036

Attn: Lillian Tung Lum

Executive Director

  

1211 Avenue of the Americas

New York, NY 10036

Attn: Lillian Tung Lum

Executive Director

 

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

SCHEDULE 4.01(H)

AMBAC FINANCIAL GROUP, INC./

AMBAC ASSURANCE CORPORATION

REVOLVING CREDIT AGREEMENT

CONTINGENT LIABILITIES

 

[TO BE UPDATED BY BORROWERS]

 

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

SCHEDULE 5.02(A)

AMBAC FINANCIAL GROUP, INC./

AMBAC ASSURANCE CORPORATION

REVOLVING CREDIT AGREEMENT

ONGOING SECURED DEBT

 

[TO BE UPDATED BY BORROWERS]

 

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

EXHIBIT A-1 - FORM OF

REVOLVING CREDIT NOTE

 

U.S.$                        Dated:                     , 2004

 

FOR VALUE RECEIVED, the undersigned, [AMBAC FINANCIAL GROUP, INC./AMBAC
ASSURANCE CORPORATION] (the “Borrower”), HEREBY PROMISES TO PAY on the Maturity
Date (as defined in the Credit Agreement referred to below) to the order of
                     (the “Lender”) for the account of its Applicable Lending
Office (as defined in the Credit Agreement referred to below) the aggregate
principal amount of the Revolving Credit Advances made by the Lender to the
Borrower pursuant to the Credit Agreement dated as of July 29, 2004, among the
Borrower, the Lender and certain other lenders parties thereto, and Barclays
Bank PLC, as Syndication Agent, and Citibank, N.A., as Administrative Agent for
the Lender and such other lenders (as amended or modified from time to time, the
“Credit Agreement”; the terms defined therein being used herein as therein
defined) outstanding on the Commitment Termination Date.

 

The Borrower promises to pay interest on the unpaid principal amount of each
Revolving Credit Advance from the date of such Revolving Credit Advance until
such principal amount is paid in full, at such interest rates, and payable at
such times, as are specified in the Credit Agreement.

 

Both principal and interest are payable in lawful money of the United States of
America to Citibank, N.A., as Administrative Agent, at the Administrative
Agent’s Account, in same day funds. Each Revolving Credit Advance owing to the
Lender by the Borrower pursuant to the Credit Agreement, and all payments made
on account of principal thereof, shall be recorded by the Lender and, prior to
any transfer hereof, endorsed on the grid attached hereto which is part of this
Promissory Note.

 

This Promissory Note is one of the Revolving Credit Notes referred to in, and is
entitled to the benefits of, the Credit Agreement. The Credit Agreement, among
other things, (i) provides for the making of Revolving Credit Advances by the
Lender to the Borrower from time to time in an aggregate amount not to exceed at
any time outstanding the Dollar amount first above mentioned, the indebtedness
of the Borrower resulting from each such Advance being evidenced by this
Promissory Note, and (ii) contains provisions for acceleration of the maturity
hereof upon the happening of certain stated events and also for prepayments on
account of principal hereof prior to the maturity hereof upon the terms and
conditions therein specified.

 

[AMBAC FINANCIAL GROUP INC./AMBAC ASSURANCE CORPORATION]     By            

Name:

       

Title:

 

REVOLVING CREDIT NOTE

 

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

ADVANCES AND PAYMENTS OF PRINCIPAL

 

Date

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

 

Amount of

Advance

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

 

Amount of

Principal

Paid

or Prepaid

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

  

Unpaid

Principal

Balance

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

  

Notation

Made By

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

                                                                               
                                                                               
                                                                               
                                                                               
                                                                               
                   

 

REVOLVING CREDIT NOTE

 

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

EXHIBIT A-2 - FORM OF

TERM NOTE

 

U.S.$                        Dated: [Term Loan Conversion Date]

 

FOR VALUE RECEIVED, the undersigned, [AMBAC FINANCIAL GROUP, INC./AMBAC
ASSURANCE CORPORATION] (the “Borrower”), HEREBY PROMISES TO PAY on the Maturity
Date (as defined in the Credit Agreement referred to below) to the order of
                     (the “Lender”) for the account of its Applicable Lending
Office (as defined in the Credit Agreement referred to below) the aggregate
principal amount of the Term Loan of the Lender pursuant to the Credit Agreement
dated as of July 29, 2004, among the Borrower, the Lender and certain other
lenders parties thereto, and Barclays Bank PLC, as Syndication Agent, and
Citibank, N.A., as Administrative Agent for the Lender and such other lenders
(as amended or modified from time to time, the “Credit Agreement”; the terms
defined therein being used herein as therein defined).

 

The Borrower promises to pay interest on the unpaid principal amount of the Term
Loan from the date hereof until such principal amount is paid in full, at such
interest rates, and payable at such times, as are specified in the Credit
Agreement.

 

Both principal and interest are payable in lawful money of the United States of
America to Citibank, N.A., as Administrative Agent, at the Administrative
Agent’s Account, in same day funds.

 

This Promissory Note is one of the Term Notes referred to in, and is entitled to
the benefits of, the Credit Agreement. The Credit Agreement, among other things,
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events.

 

[AMBAC FINANCIAL GROUP INC./AMBAC ASSURANCE CORPORATION]     By            

Name:

       

Title:

 

TERM NOTE

 

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

EXHIBIT B - FORM OF

NOTICE OF BORROWING

 

Citibank, N.A., as Administrative Agent

             for the Lenders parties

             to the Credit Agreement

             referred to below

 

_______________

 

_______________   

[Date]

 

Attention:                     

 

Ladies and Gentlemen:

 

The undersigned, [Ambac Financial Group, Inc./Ambac Assurance Corporation],
refers to the Credit Agreement, dated as of July 29, 2004 (as amended or
modified from time to time, the “Credit Agreement”, the terms defined therein
being used herein as therein defined), among the undersigned, [Ambac Financial
Group, Inc./Ambac Assurance Corporation], certain Lenders parties thereto,
Barclays Bank PLC, as Syndication Agent, and Citibank, N.A., as Administrative
Agent for said Lenders, and hereby gives you notice, irrevocably, pursuant to
Section 2.02 of the Credit Agreement that the undersigned hereby requests a
Borrowing under the Credit Agreement, and in that connection sets forth below
the information relating to such Borrowing (the “Proposed Borrowing”) as
required by Section 2.02(a) of the Credit Agreement:

 

(i) The Business Day of the Proposed Borrowing is                         ,
200  .

 

(ii) The Type of Advances comprising the Proposed Borrowing is [Base Rate
Advances] [Eurodollar Rate Advances].

 

(iii) The aggregate amount of the Proposed Borrowing is $                    .

 

[(iv) The initial Interest Period for each Eurodollar Rate Advance made as part
of the Proposed Borrowing is                      month[s].]

 

The undersigned hereby certifies that the following statements are true on the
date hereof, and will be true on the date of the Proposed Borrowing:

 

(A) the representations and warranties contained in Section 4.01 (other than
subparagraphs (f) and (g) and the final sentence of subparagraph (e) thereof) of
the Credit Agreement are correct, before and after giving effect to the Proposed
Borrowing and to the application of the proceeds therefrom, as though made on
and as of such date; and

 

B-1

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(B) no event has occurred and is continuing, or would result from such Proposed
Borrowing or from the application of the proceeds therefrom, that constitutes a
Default.

 

Very truly yours,

[AMBAC FINANCIAL GROUP, INC./AMBAC ASSURANCE CORPORATION]

By

       

Name:

   

Title:

 

B-2

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EXHIBIT C - FORM OF

ASSIGNMENT AND ACCEPTANCE

 

Reference is made to the Credit Agreement dated as of July 29, 2004 (as amended
or modified from time to time, the “Credit Agreement”) among Ambac Financial
Group, Inc. and Ambac Assurance Corporation (the “Borrowers”), the Lenders (as
defined in the Credit Agreement), Barclays Bank PLC, as syndication agent (the
“Syndication Agent”), and Citibank, N.A., as administrative agent for the
Lenders (the “Administrative Agent”). Terms defined in the Credit Agreement are
used herein with the same meaning.

 

The “Assignor” and the “Assignee” referred to on Schedule I hereto agree as
follows:

 

1. The Assignor hereby sells and assigns to the Assignee, and the Assignee
hereby purchases and assumes from the Assignor, an interest in and to the
Assignor’s rights and obligations under the Credit Agreement as of the date
hereof equal to the percentage interest specified on Schedule 1 hereto of all
outstanding rights and obligations under the Credit Agreement. After giving
effect to such sale and assignment, the Assignee’s Commitment and the amount of
the Advances owing to the Assignee will be as set forth on Schedule 1 hereto.

 

2. The Assignor (a) represents and warrants that it is the legal and beneficial
owner of the interest being assigned by it hereunder and that such interest is
free and clear of any adverse claim; (b) makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Credit Agreement or any other instrument or document furnished pursuant
thereto; (c) makes no representation or warranty and assumes no responsibility
with respect to the financial condition of either Borrower or the performance or
observance by either Borrower of any of its obligations under the Credit
Agreement or any other instrument or document furnished pursuant thereto; and
(d) attaches the Note held by the Assignor and requests that the Administrative
Agent exchange such Note for a new Note payable to the order of the Assignee in
an amount equal to the Commitment assumed by the Assignee pursuant hereto or new
Notes payable to the order of the Assignee in an amount equal to the Commitment
assumed by the Assignee pursuant hereto and the Assignor in an amount equal to
the Commitment retained by the Assignor under the Credit Agreement,
respectively, as specified on Schedule 1 hereto.

 

3. The Assignee (a) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements referred to in
Section 4.01 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (b) agrees that it will, independently and without
reliance upon the Administrative Agent, the Assignor or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Credit Agreement; (c) confirms that it is an Eligible Assignee;

 

C-1

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(d) appoints and authorizes the Administrative Agent to take such action as
agent on its behalf and to exercise such powers and discretion under the Credit
Agreement as are delegated to the Administrative Agent by the terms thereof,
together with such powers and discretion as are reasonably incidental thereto;
(e) agrees that it will perform in accordance with their terms all of the
obligations that by the terms of the Credit Agreement are required to be
performed by it as a Lender; and (f) attaches any U.S. Internal Revenue Service
forms required under Section 2.13 of the Credit Agreement.

 

4. Following the execution of this Assignment and Acceptance, it will be
delivered to the Administrative Agent for acceptance and recording by the
Administrative Agent. The effective date for this Assignment and Acceptance (the
“Effective Date”) shall be the date of acceptance hereof by the Administrative
Agent, unless otherwise specified on Schedule 1 hereto.

 

5. Upon such acceptance and recording by the Administrative Agent, as of the
Effective Date, (a) the Assignee shall be a party to the Credit Agreement and,
to the extent provided in this Assignment and Acceptance, have the rights and
obligations of a Lender thereunder and (b) the Assignor shall, to the extent
provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement.

 

6. Upon such acceptance and recording by the Administrative Agent, from and
after the Effective Date, the Administrative Agent shall make all payments under
the Credit Agreement and the Notes in respect of the interest assigned hereby
(including, without limitation, all payments of principal, interest and facility
fees with respect thereto) to the Assignee. The Assignor and Assignee shall make
all appropriate adjustments in payments under the Credit Agreement and the Notes
for periods prior to the Effective Date directly between themselves.

 

7. This Assignment and Acceptance shall be governed by, and construed in
accordance with, the laws of the State of New York.

 

8. This Assignment and Acceptance may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. Delivery of an executed counterpart of
Schedule 1 to this Assignment and Acceptance by telecopier shall be effective as
delivery of a manually executed counterpart of this Assignment and Acceptance.

 

IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to this
Assignment and Acceptance to be executed by their officers thereunto duly
authorized as of the date specified thereon.

 

C-2

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

Schedule 1

to

Assignment and Acceptance

 

Percentage interest assigned:

                           %

Assignee’s Commitment:

   $                        

Aggregate outstanding principal amount of Advances assigned:

   $                        

Principal amount of Note payable to Assignee:

   $                        

Principal amount of Note payable to Assignor:

   $                        

Effective Date*

                           ,        

 

[NAME OF ASSIGNOR], as Assignor By    

   

Name:

   

Title:

Dated:

 

                    ,            

[NAME OF ASSIGNEE], as Assignee

By        

Name:

   

Title:

Domestic Lending Office:
[Address]

Eurodollar Lending Office:
[Address]

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

* This date should be no earlier than five Business Days after the delivery of
this Assignment and Acceptance to the Agent.

 

C-3

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

Accepted [and Approved] this

 

                     day of                    ,            

 

                                             , as Administrative Agent

 

By

       

Name:

   

Title:

Approved this                      day

of                              ,             

 

AMBAC FINANCIAL GROUP, INC.

By        

Name:

   

Title:

 

AMBAC ASSURANCE CORPORATION

By        

Name:

   

Title:

 

C-4

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

EXHIBIT D

 

FORM OF COMPLIANCE CERTIFICATE

 

AMBAC FINANCIAL GROUP, INC.

AMBAC ASSURANCE CORPORATION

 

This certificate is delivered pursuant to clause (vi) of Section 5.01(f) of the
Credit Agreement dated as of July 29, 2004 (together with all amendments and
other modifications, if any, from time to time made thereto, the “Credit
Agreement”), among AMBAC FINANCIAL GROUP, INC (“Ambac Financial”), AMBAC
ASSURANCE CORPORATION (“Ambac Assurance”; together with Ambac Financial, the
“Borrowers”), the various commercial lending institutions as are or may become
parties (hereto collectively, the “Lenders”), BARCLAYS BANK PLC, as syndication
agent (the “Syndication Agent”), and CITIBANK, N.A., as administrative agent
(the “Administrative Agent”). Unless otherwise defined herein, terms used herein
and in the Attachment 1 hereto have the meanings provided therefor in the Credit
Agreement.

 

This Compliance Certificate relates to the              Fiscal Quarter,
commencing on                     ,              and ending on
                    ,              (such latter date being the “Computation
Date”). Ambac Financial hereby further certifies, represents and warrants that
as of the Computation Date:

 

  (1) No Default has occurred and is continuing;

 

  (2) The Leverage Ratio on the Computation Date was              to 1.00, as
computed on Attachment 1 hereto. The maximum Leverage Ratio permitted pursuant
to Section 5.03(a) of the Credit Agreement on the Computation Date is .30 to
1.00, and accordingly, Section 5.03(a) of the Credit Agreement has [not] been
complied with; and

 

  (3) The excess of Consolidated total assets over Consolidated total
liabilities (in each case excluding the assets and liabilities of Aleutian and
Juneau) is $                . The minimum amount by which Consolidated total
assets must exceed Consolidated total liabilities pursuant to Section 5.03(b) of
the Credit Agreement is $2,000,000,000, and accordingly, Section 5.03(b) of the
Credit Agreement has [not] been complied with.

 

IN WITNESS WHEREOF, the undersigned has caused this Compliance Certificate to be
delivered by its Responsible Officer this          day of                     ,
            .

 

AMBAC FINANCIAL GROUP,

INC.

By:        

Name:

   

Title:

 

D-1

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

Attachment 1

(to         /        /        

Compliance Certificate)

 

LEVERAGE RATIO

As of                    ,            

(the “Computation Date”)

 

(A)   Total Debt of Ambac Financial and its Subsidiaries (other than Aleutian
and Juneau) on a Consolidated basis as of the Computation Date

    

(1)    Borrowed money and all obligations evidenced by bonds, debentures, notes
or other similar instruments.

   $                    

(2)    All obligations, contingent or otherwise, relative to the face amount of
all letters of credit, whether or not drawn, and banker’s acceptances issued for
the account of Ambac Financial or its Subsidiaries (other than Aleutian and
Juneau) on a Consolidated basis.

   $                    

(3)    All obligations as lessees under leases which have been or should be, in
accordance with GAAP, recorded as capitalized lease liabilities.

   $                    

(4)    All Contingent Liabilities in respect of any of Items A(1), A(2) and
A(3).

   $                    

(5)    The sum of Items A(1), A(2), A(3) and A(4).

   $                    

(B)   Stockholders’ Equity: Stockholders’ equity of Ambac Financial and its
Subsidiaries (other than Aleutian and Juneau), on a Consolidated basis
(excluding unrealized gains on investments and unrealized losses on
investments).

   $                    

(C)   Leverage Ratio:

    

The ratio of Item A(5) to the sum of Item A(5) and Item B

                to 1.00

 

D-2

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

EXHIBIT E

 

FORM OF OPINION OF ANNE GILL KELLY, MANAGING DIRECTOR, ASSISTANT

GENERAL COUNSEL AND SECRETARY OF AMBAC FINANCIAL GROUP, INC.

 

July 29, 2004

 

Citibank, N.A., as the Administrative Agent

(as defined below)

 

Re: Ambac Financial Group, Inc.

$300 Million Credit Agreement

 

Ladies and Gentlemen:

 

This opinion is delivered to you pursuant to Section 3.01(c)(vi) of the Credit
Agreement dated as of July 29, 2004 (the “Credit Agreement”), among Ambac
Financial Group, Inc., a Delaware corporation (“Ambac Financial”), Ambac
Assurance Corporation, a Wisconsin stock insurance corporation, the Lenders
parties thereto and Barclays Bank PLC, as Syndication Agent, and Citibank, N.A.,
as Administrative Agent for the Lenders (the “Administrative Agent”). Unless
otherwise defined herein, terms defined in the Credit Agreement are used herein
as therein defined.

 

I am Assistant General Counsel of Ambac Financial and have acted as counsel to
Ambac Financial in connection with the preparation, execution and delivery of
the Credit Agreement. In that connection, I have examined:

 

  1. the Credit Agreement;

 

  2. the Revolving Credit Notes dated the date hereof, executed by Ambac
Financial and payable to each of you as Lenders (the “Ambac Financial Notes”);

 

  3. the Amended and Restated Certificate of Incorporation of Ambac Financial
and all amendments thereto (the “Charter”); and

 

  4. the By-laws of Ambac Financial and all amendments thereto (the “By-laws”).

 

I also have examined and am familiar with the originals, or copies certified or
otherwise identified to my satisfaction, of such documents and corporate records
of Ambac Financial, certificates of public officials and officers of Ambac
Financial and agreements, instruments and other documents, as I have deemed
necessary as a basis for the opinions expressed below. As to questions of fact
material to such opinions, I have, when relevant facts

 

E-1

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

were not independently established by me, relied, to the extent I deemed
appropriate, upon certificates of Ambac Financial or its officers, or of public
officials. In addition, I have also assumed the genuineness of all signatures,
the authenticity of all documents submitted to me as originals and the
conformity with originals of all documents submitted to me as copies thereof. I
have also assumed the due execution and delivery, pursuant to due authorization,
of the Credit Agreement by each of the Lenders and the Administrative Agent.

 

I am qualified to practice law in the State of New York. I do not purport to
express any opinion herein as to the laws of any jurisdiction other than the
laws of the State of New York, the General Corporation Law of the State of
Delaware and the Federal laws of the United States of America.

 

Based upon the foregoing and upon such investigation, as I have deemed
necessary, I am of the following opinion:

 

(1) Ambac Financial is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Ambac Financial is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction where the nature of its business requires such qualification,
except where the failure to be so qualified, singly or in the aggregate, would
not have a Material Adverse Effect.

 

(2) The execution, delivery and performance by Ambac Financial of the Credit
Agreement and the Ambac Financial Notes are within Ambac Financial’s corporate
powers, and have been duly authorized by all necessary corporate action on the
part of Ambac Financial.

 

(3) There is no pending or, to my knowledge, threatened action, suit,
investigation, litigation, proceeding or labor controversy affecting Ambac
Financial before any court, governmental agency or arbitrator which (A) purports
to affect the legality, validity or enforceability of the Credit Agreement or
any of the Ambac Financial Notes or the consummation of the transactions
contemplated thereby or (B) which could be reasonably likely to have a Material
Adverse Effect.

 

(4) The execution, delivery and performance by Ambac Financial of the Credit
Agreement and the Ambac Financial Notes do not (i) violate or contravene its
Charter or By-laws, or any contractual restriction or law applicable to Ambac
Financial or any rule or regulation applicable to Ambac Financial or (ii) result
in, or require the creation or imposition of, any Lien on any of Ambac
Financial’s properties.

 

(5) The execution, delivery and performance by Ambac Financial of the Credit
Agreement and the Ambac Financial Notes do not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default under (i)
any indenture, loan agreement, lease, guarantee, mortgage or other agreement or
instrument, or (ii) any order, writ, judgment, award, injunction or decree known
to me to which Ambac

 

E-2

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

Financial is a party or by which it is bound or to which any of its properties
or assets are subject, except for such conflicts, breaches or defaults, which
individually or in the aggregate, would not have any Material Adverse Effect,
would not have a material adverse effect on the legality, validity, binding
effect or enforceability of the Credit Agreement or the Ambac Financial Notes,
and would not subject the Administrative Agent or any Lender to any liability.

 

(6) No authorization, approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body is required for the due
execution, delivery and performance by Ambac Financial of the Credit Agreement
or any Ambac Financial Note.

 

(7) The Credit Agreement and the Ambac Financial Notes have been duly executed
and delivered on behalf of Ambac Financial.

 

A copy of this opinion letter may be delivered by each of you to any Eligible
Assignee in connection with and at the time of any assignment and delegation by
either of you as a Lender to such Eligible Assignee of a portion of your Loans
and Commitment in accordance with the provisions of the Credit Agreement, and
such Eligible Assignee may rely on the opinions expressed above with respect to
the Credit Agreement as if this opinion letter were addressed and delivered to
such Eligible Assignee on the date hereof.

 

This opinion letter speaks only as of the date hereof. I do not assume, and I
expressly disclaim, any responsibility to advise any of you or any other Person
who is permitted to rely on any opinion expressed herein as specified in the
next preceding paragraph of any or change of law or fact that may occur after
the date of this opinion letter even though such change may affect the legal
analysis, a legal conclusion or any other matter set forth in or relating to
this opinion letter.

 

This opinion is given pursuant to the Credit Agreement and in connection with
the Loan Documents and is not to be relied upon for any other purpose.

 

Very truly yours,  

Anne Gill Kelly,

Managing Director, Assistant General

Counsel and Secretary

 

E-3

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EXHIBIT F

 

FORM OF OPINION OF KEVIN J. DOYLE, MANAGING DIRECTOR AND GENERAL

COUNSEL OF AMBAC ASSURANCE CORPORATION

 

July 29, 2004

 

Citibank, N.A., as the Administrative Agent

    (as defined below)

 

Re: Ambac Assurance Corporation

   $300 Million Credit Agreement

 

Ladies and Gentlemen:

 

This opinion is delivered to you pursuant to Section 3.01(c)(vii) of the Credit
Agreement dated as of July 29, 2004 (the “Credit Agreement”), among Ambac
Financial Group, Inc., a Delaware corporation, Ambac Assurance Corporation, a
Wisconsin stock insurance corporation (“Ambac Assurance”), the Lenders parties
thereto, Barclays Bank PLC, as Syndication Agent, and Citibank, N.A., as
Administrative Agent for the Lenders (the “Administrative Agent”). Unless
otherwise defined herein, terms defined in the Credit Agreement are used herein
as therein defined.

 

I am a Managing Director and the General Counsel of Ambac Assurance and have
acted as counsel to Ambac Assurance in connection with the preparation,
execution and delivery of the Credit Agreement. In that connection, I have
examined:

 

  1. the Credit Agreement;

 

  2. the Notes dated the date hereof, executed by Ambac Assurance and payable to
each of you as Lenders (the “Ambac Assurance Notes”);

 

  3. the Restated Articles of Incorporation of Ambac Assurance and all
amendments thereto (the “Charter”); and

 

  4. the restated by-laws of Ambac Assurance and all amendments thereto (the
“By-laws”).

 

I have also examined and am familiar with originals or copies, certified or
otherwise identified to my satisfaction, of such documents and corporate records
of Ambac Assurance, certificates of public officials and officers of Ambac
Assurance and agreements, instruments and other documents, as I have deemed
necessary as a basis for the opinions expressed below. As to questions of fact
material to such opinions, I have, when relevant facts were not independently
established by me, relied, to the extent I deemed appropriate, upon certificates
of Ambac

 

F-1

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

Assurance or its officers, or of public officials. In addition, I have also
assumed the genuineness of all signatures, the authenticity of all documents
submitted to me as originals and the conformity with originals of all documents
submitted to me as copies thereof I have also assumed the due execution and
delivery, pursuant to due authorization, of the Credit Agreement by each of the
Lenders and the Administrative Agent.

 

I am qualified to practice law in the State of New York. I do not purport to
express any opinion herein as to the laws of any jurisdiction other than the
laws of the State of New York and the Federal laws of the United States of
America.

 

Based upon the foregoing and upon such investigation as I have deemed necessary,
I am of the following opinion:

 

(1) Ambac Assurance is duly qualified to do business and is in good standing as
a foreign corporation in each jurisdiction where the nature of its business
requires such qualification, except where the failure to be so qualified, singly
or in the aggregate, would not have a Material Adverse Effect.

 

(2) There is no pending or, to my knowledge, threatened action, suit,
investigation, litigation, proceeding or labor controversy affecting Ambac
Assurance before any court, governmental agency or arbitrator which (A) purports
to affect the legality, validity or enforceability of the Credit Agreement or
any of the Ambac Assurance Notes or the consummation of the transactions
contemplated thereby or (B) which could be reasonably likely to have a Material
Adverse Effect.

 

(3) All the outstanding shares of capital stock of Ambac Assurance are fully
paid and non-assessable and issued to, and held of record by, Ambac Financial.

 

(4) The execution, delivery and performance by Ambac Assurance of the Credit
Agreement and the Ambac Assurance Notes do not (i) violate or contravene its
Charter or By-laws or any contractual restriction or law applicable to Ambac
Assurance or any rule or regulation applicable to Ambac Assurance or (ii) result
in, or require the creation or imposition of, any Lien on any of Ambac
Assurance’s properties.

 

(5) The execution, delivery and performance by Ambac Assurance of the Credit
Agreement and the Ambac Assurance Notes do not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default under (i)
any indenture, loan agreement, lease, guarantee, mortgage or other agreement or
instrument, or (ii) any order, writ, judgment, award, injunction or decree known
to me to which Ambac Assurance is a party or by which it is bound or to which
any of its properties or assets are subject, except for such conflicts, breaches
or defaults, which individually or in the aggregate, would not have any Material
Adverse Effect, would not have a material adverse effect on the legality,
validity, binding effect or enforceability of the Credit Agreement or the Ambac
Assurance Notes, and would not subject the Administrative Agent or any Lender to
any liability.

 

F-2

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(6) No authorization, approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body is required for the due
execution, delivery and performance by Ambac Assurance of the Credit Agreement
or any Ambac Assurance Note.

 

(7) The Credit Agreement and the Ambac Assurance Notes have been duly executed
and delivered on behalf of Ambac Assurance.

 

A copy of this opinion letter may be delivered by each of you to any Eligible
Assignee in connection with and at the time of any assignment and delegation by
either of you as a Lender to such Eligible Assignee of a portion of your Loans
and Commitment in accordance with the provisions of the Credit Agreement and
such Eligible Assignee may rely on the opinions expressed above with respect to
the Credit Agreement, as if this opinion letter were addressed and delivered to
such Eligible Assignee on the date hereof

 

This opinion letter speaks only as of the date hereof. I do not assume, and I
expressly disclaim, any responsibility to advise any of you or any other person
who is permitted to rely on any opinion expressed herein as specified in the
next preceding paragraph of any change of law or fact that may occur after the
date of this opinion letter even though such change may affect the legal
analysis, a legal conclusion or any other matter set forth in or relating to
this opinion letter.

 

This opinion is given pursuant to the Credit Agreement and in connection with
the Loan Documents and is not to be relied upon for any other purpose.

 

Very truly yours,

 

Kevin J. Doyle,

Managing Director and General Counsel

 

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EXHIBIT G

 

FORM OF OPINION OF DEWITT ROSS & STEVENS, S.C.

 

July 29, 2004

 

Citibank, N.A., as the Administrative Agent

    (as defined below)

 

RE: Ambac Assurance Corporation

 

Ladies and Gentlemen:

 

This opinion is delivered to you pursuant to Section 3.01(c)(viii) of the Credit
Agreement dated as of July 29, 2004, (the “Credit Agreement”) among Ambac
Financial Group, Inc., a Delaware corporation (“Ambac Financial”), Ambac
Assurance Corporation, a Wisconsin stock insurance corporation (“Ambac
Assurance”; together with Ambac Financial, the “Borrowers”), the various
commercial lending institutions as are or may become parties thereto
(collectively, the “Lenders”), Barclays Bank PLC, as Syndication Agent, and
Citibank, N.A., as Administrative Agent for the Lenders (the “Administrative
Agent”). Unless otherwise defined herein, terms to which meanings are ascribed
in the Credit Agreement are used herein with such meanings.

 

We have acted as special counsel for Ambac Assurance in connection with the
preparation, execution and delivery of the Credit Agreement.

 

In that connection, we have examined:

 

  1. the Credit Agreement;

 

  2. the Revolving Credit Notes dated the date hereof, executed by Ambac
Assurance and payable to each of you as Lenders (the “Ambac Assurance Notes”);

 

  3. the Restated Articles of Incorporation of Ambac Assurance and all
amendments thereto (the “Charter”);

 

  4. the Restated Bylaws of Ambac Assurance and all amendments thereto (the
“Bylaws”); and

 

  5. the Certificate of Authority issued to Ambac Assurance by the Office of the
Commissioner of Insurance for the State of Wisconsin.

 

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We have examined the originals, or copies certified to our satisfaction, of such
other corporate records of Ambac Assurance, certificates of public officials and
of officers of Ambac Assurance and Ambac Financial and agreements, instruments
and other documents, as we have deemed necessary as a basis for the opinions
expressed below. As to questions of fact material to such opinions, we have,
when relevant facts were not independently established by us, relied, to the
extent we deemed appropriate, upon certificates of Ambac Assurance and Ambac
Financial or their respective officers, or of public officials. We have assumed
the due execution and delivery, pursuant to due authorization, of the Credit
Agreement by the Lenders and the Administrative Agent. We have assumed the due
execution and delivery of the Credit Agreement and the Ambac Assurance Notes,
the genuineness of all signatures, the authenticity of all documents submitted
to us as originals and the conformity to originals of all documents submitted to
us as copies thereof.

 

QUALIFICATIONS AND ASSUMPTIONS

 

(1) We are qualified to practice law in the State of Wisconsin and the opinions
expressed herein relate solely to the laws of the State of Wisconsin and are
limited to the presently existing statutes of the State of Wisconsin and the
published decisions of the State of Wisconsin and federal courts.

 

(2) We assume that Ambac Financial is a Delaware corporation and wholly owns the
outstanding capital stock of Ambac Assurance, which fact has been certified to
us by Ambac Financial.

 

(3) The insurance laws of the State of Wisconsin govern the activities of Ambac
Assurance and the agreements, transactions and other activities between Ambac
Assurance and its affiliates, including Ambac Financial. The opinions set forth
below are limited to the agreements and other documents specified herein and no
opinion is rendered herein regarding any agreements or transactions between
Ambac Assurance and its affiliates, including Ambac Financial.

 

OPINION

 

Based solely upon the foregoing and subject to the qualifications and
assumptions stated above, in our opinion:

 

(1) Ambac Assurance is a corporation duly organized, validly existing and in
good standing under the laws of the State of Wisconsin. Ambac Assurance is
licensed as an insurance company by the Office of the Commissioner of Insurance
of the State of Wisconsin.

 

(2) The execution, delivery and performance by Ambac Assurance of the Credit
Agreement and the Ambac Assurance Notes: (a) are within Ambac Assurance’s
corporate powers and have been duly authorized by all necessary corporate

 

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action on the part of Ambac Assurance; and (b) do not violate or contravene the
Charter or Bylaws of Ambac Assurance or any laws or regulations of the State of
Wisconsin.

 

(3) No authorization, approval or other action by and no notice to or filing
with the Office of the Commissioner of Insurance of the State of Wisconsin or
any other Wisconsin governmental authority or regulatory body is required for
the due execution, delivery and performance by either Borrower of the Credit
Agreement or any Ambac Assurance Note.

 

(4) a. The New York governing law clauses of the Credit Agreement and the Ambac
Assurance Notes to which Ambac Assurance is a party are valid under the law of
the State of Wisconsin.

 

b. Under the law of the State of Wisconsin, the law of the State of New York
will be applied to the Loan Documents to which Ambac Assurance is a party,
except to the extent that any term of such documents or any provision of the law
of the State of New York applicable to such document violates an important
public policy of the State of Wisconsin. We have no reason to believe that any
such term violates an important public policy of the State of Wisconsin.

 

(5) Assuming that the Credit Agreement and the Ambac Assurance Notes are legal,
valid, binding and enforceable under the law of the State of New York, the
Credit Agreement and the Ambac Assurance Notes constitute the legal, valid and
binding obligations of Ambac Assurance, and are enforceable against Ambac
Assurance in accordance with their respective terms.

 

The opinions set forth above are subject to the following qualifications:

 

a. Our opinion in Paragraph 5 is subject to the effect of any applicable
bankruptcy, insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or similar law affecting
creditors’ rights generally.

 

b. Our opinion in Paragraph 5 above is also subject to the effect of general
principles of equity, including (without limitation) concepts of materiality,
reasonableness, good faith and fair dealing (regardless of whether considered in
proceeding in equity or at law).

 

                    , [                                             ] of Ambac
Assurance may rely on the opinions above for the purpose of rendering his
opinion letter pursuant to Section 3.0l(c)(vii) of the Credit Agreement on the
date hereof. In addition, a copy of this opinion letter may be delivered by each
of you to any Eligible Assignee in connection with and at the time of any
assignment and delegation by either of you as a Lender to such Eligible Assignee
of a portion of your Loans and Commitment in accordance with the provisions of
the Credit Agreement, and such Eligible Assignee may rely on the opinions
expressed above with respect to the Credit Agreement as if this opinion letter
were addressed and delivered to such Eligible Assignee on the date hereof.

 

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This opinion letter speaks only as of the date hereof. We do not assume, and we
expressly disclaim, any responsibility to advise any of you or any other person
who is permitted to rely on any opinion expressed herein as specified in the
next preceding paragraph of any change of law or fact that may occur after the
date of this opinion letter even though such change may affect the legal
analysis, a legal conclusion or any other matter set forth in or relating to
this opinion letter.

 

This opinion is given pursuant to the Credit Agreement and in connection with
the Loan Documents and is not to be relied upon for any other purpose.

 

Very truly yours,

 

DEWITT ROSS & STEVENS S.C.

[                                                 ]

 

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EXHIBIT H

FORM OF OPINION OF

SHEARMAN & STERLING LLP

 

July 29, 2004

 

To each of the Lenders listed on

      Schedule I hereto and

      Citibank, N.A.,

      as Administrative Agent

 

Ambac Financial Group, Inc. and Ambac Assurance Corporation

 

Ladies and Gentlemen:

 

This opinion is furnished to you pursuant to Section 3.01(c)(ix) of the Credit
Agreement dated as of July 29, 2004 (the “Credit Agreement”), among Ambac
Financial Group, Inc. and Ambac Assurance Corporation (the “Borrowers”), the
Lenders parties thereto, Barclays Bank PLC, as Syndication Agent, and Citibank,
N.A., as Administrative Agent for said Lenders. Terms defined in the Credit
Agreement are used herein as therein defined.

 

We have acted as special New York counsel for the Borrowers in connection with
the preparation, execution and delivery of the Credit Agreement.

 

In that connection, we have examined:

 

(1) The Credit Agreement.

 

(2) The documents furnished by each Borrower pursuant to Article III of the
Credit Agreement, including the Revolving Credit Notes furnished by each
Borrower thereunder on the date hereof (for purposes of this opinion letter, the
“Notes”).

 

We have also examined the originals, or copies certified to our satisfaction, of
such certificates of officers of each Borrower and agreements, instruments and
other documents, as we have deemed necessary as a basis for the opinions
expressed below. As to questions of fact material to such opinions, we have,
when relevant facts were not independently established by us, relied upon
certificates of each Borrower.

 

In our examination of the documents, certificates and instruments referred to
above, we have assumed the authenticity of all such documents, certificates and
instruments submitted to us as originals, the genuineness of all signatures, the
due authority of the parties executing such documents, certificates and
instruments, and the conformity to authentic originals of all such documents,
certificates or instruments submitted to us as copies. We have also assumed,
without independent investigation, that (a) each Borrower (i) is a corporation
duly organized and validly existing under the laws of the state of its
organization and (ii) has full

 

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power and authority to enter into and perform its obligations under the Credit
Agreement and the Notes, (b) the execution, delivery and performance by each
Borrower of the Credit Agreement and the Notes have been duly authorized by all
necessary board, company, member, manager or officer action and do not violate
or contravene any law, rule or regulation applicable to either Borrower or any
agreement, instrument or other document binding on or affecting either Borrower
or any constituent document of either Borrower, (c) no authorization, approval
or other action by, and no notice to or filing with, any governmental authority
or regulatory body or any other Person is required for the due execution,
delivery or performance by either Borrower of the Credit Agreement or the Notes,
or if any such authorization, approval, action, notice or filing is required
therefor, it has been duly obtained or made and is in full force and effect, (d)
the Credit Agreement has been duly executed and delivered, with all necessary
power and authority (corporate and otherwise), by each party thereto, other than
the Borrowers, and is the legal, valid and binding obligation of such party,
enforceable against such party in accordance with its terms and (e) the Credit
Agreement and the Notes have been duly executed and delivered on behalf of each
Borrower.

 

Based upon the foregoing and upon such investigation as we have deemed necessary
and subject to the qualifications set forth below, we are of the opinion that
the Credit Agreement is, and if an Advance were made, each of the Notes
evidencing such Advance would be, the legal, valid and binding obligations of
each Borrower, enforceable against each Borrower in accordance with their
respective terms.

 

Our opinion above is subject to the following qualifications:

 

(a) Our opinion is subject to the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law affecting creditors’
rights generally (including, without limitation, all laws relating to fraudulent
transfers).

 

(b) Our opinion is also subject to the effect of general principles of equity,
including, without limitation, concepts of materiality, reasonableness, good
faith and fair dealing (regardless of whether considered in a proceeding in
equity or at law).

 

(c) We express no opinion as to the enforceability of the indemnification
provisions, or of release or exculpation provisions, set forth in Section
8.04(b) of the Credit Agreement to the extent enforcement thereof is contrary to
public policy regarding the indemnification against or release or exculpation of
criminal violations, intentional harm or acts of gross negligence or
recklessness.

 

(d) Our opinion is limited to Generally Applicable Law and we do not express any
opinion herein concerning any other law. “Generally Applicable Law” means the
federal law of the United States of America, and the law of the State of New
York (including the rules and regulations promulgated thereunder or pursuant
thereto), that a New York lawyer exercising customary professional diligence
would reasonably be expected to recognize as being applicable to the

 

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Credit Agreement and the Notes. Without limiting the generality of the foregoing
definition of Generally Applicable Law, the term “Generally Applicable Law” does
not include any law, rule or regulation (including, without limitation, any
insurance law, rule or regulation) that is applicable to either of the Borrowers
or to the Credit Agreement or the Notes solely because of the specific assets or
business of any party to the Credit Agreement or the Notes or any of its
affiliates.

 

A copy of this opinion letter may be delivered by each of you to any Eligible
Assignee in connection with and at the time of any assignment and delegation by
any of you as a Lender to such Eligible Assignee of a portion of your Advances
and Commitment in accordance with the provisions of the Credit Agreement, and
such Eligible Assignee may rely on the opinion expressed above with respect to
the Credit Agreement as if this opinion letter were addressed and delivered to
such Eligible Assignee on the date hereof.

 

This opinion letter is rendered to you in connection with the transactions
contemplated by the Credit Agreement. This opinion letter may not be relied upon
by you or any other Person who is permitted to rely on the opinion expressed
herein as specified in the next preceding paragraph for any other purpose
without any prior written consent.

 

This opinion letter speaks only as of the date hereof. We expressly disclaim any
responsibility to advise any of you or any other Person who is permitted to rely
on the opinion expressed herein as specified in the second preceding paragraph
of any development or circumstance of any kind, including any change of law or
fact that may occur after the date of this opinion letter even though such
development, circumstance or change may affect the legal analysis, a legal
conclusion or any other matter set forth in or relating to this opinion letter.

 

Very truly yours,

 

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EXHIBIT I

FORM OF OPINION OF

MILBANK, TWEED, HADLEY & McCLOY LLP

 

July 29, 2004

 

Each of the Lenders party to

  the Credit Agreement

  referred to below

 

Citibank, N.A.,

  as Administrative Agent

  (the “Administrative Agent”)

2 Penns Way

Suite 110

New Castle, DE 19720

 

Ladies and Gentlemen:

 

We have acted as special New York counsel to Citibank, N.A., as Administrative
Agent in connection with the Revolving Credit Agreement dated as of July 29,
2004 (the “Credit Agreement”) among Ambac Financial Group, Inc., and Ambac
Assurance Corporation (collectively, the “Borrowers”), the banks, financial
institutions and other institutional lenders party thereto and the
Administrative Agent, providing for loans to be made by said lenders to the
Borrowers in an initial aggregate principal amount at any one time outstanding
not exceeding $300,000,000. Capitalized terms used but not defined herein have
the respective meanings given to such terms in the Credit Agreement. This
opinion is being delivered pursuant to Section 3.01(c)(xi) of the Credit
Agreement.

 

In rendering the opinions expressed below, we have examined the following
agreements, instruments and other documents:

 

(i) the Credit Agreement; and

 

(ii) such other documents as we have deemed necessary as a basis for the
opinions expressed below.

 

In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
with authentic original documents of all documents submitted to us as copies,
and we have assumed that all authorizations, approvals or consents of, and all
filings and registrations with, any governmental or regulatory authority or
agency required for the making and performance by each Borrower of the Credit
Agreement have been obtained or made and are in effect. When relevant facts were

 

I-1

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not independently established, we have relied upon representations made in or
pursuant to the Credit Agreement.

 

In rendering the opinions expressed below, we have assumed, with respect to all
of the documents referred to in this opinion letter, that:

 

(i) such documents have been duly authorized by, have been duly executed and
delivered by, and (except to the extent set forth below as to the Borrowers)
constitute legal, valid, binding and enforceable obligations of, all of the
parties to such documents;

 

(ii) all signatories to such documents have been duly authorized; and

 

(iii) all of the parties to such documents are duly organized and validly
existing and have the power and authority (corporate or other) to execute,
deliver and perform such documents.

 

Based upon and subject to the foregoing and subject also to the comments and
qualifications set forth below, and having considered such questions of law as
we have deemed necessary as a basis for the opinions expressed below, we are of
the opinion that the Credit Agreement constitutes, and each of the Notes, when
duly executed and delivered in accordance with the Credit Agreement will
constitute, the legal, valid and binding obligation of each Borrower party
thereto, enforceable against each such Borrower in accordance with its terms,
except as may be limited by bankruptcy, fraudulent conveyance or transfer,
insolvency, receivership, conservatorship, reorganization, moratorium or other
similar laws relating to or affecting the rights of creditors generally, and
except as enforceability is subject to the application of general principles of
equity (regardless of whether considered in a proceeding in equity or at law),
including, without limitation, (a) the possible unavailability of specific
performance, injunctive relief or any other equitable remedy and (b) concepts of
materiality, reasonableness, good faith and fair dealing.

 

The foregoing opinions are subject to the following comments and qualifications:

 

(A) The enforceability of provisions in the Credit Agreement to the effect that
terms may not be waived or modified except in writing may be limited under
certain circumstances.

 

(B) The enforceability of Section 8.04(b) of the Credit Agreement may be limited
by (i) laws rendering unenforceable indemnification contrary to Federal or state
securities laws and the public policy underlying such laws and (ii) laws
limiting the enforceability of provisions exculpating or exempting a party from,
or requiring indemnification of a party for, liability for its own action or
inaction, to the extent the action or inaction involves gross negligence,
recklessness, willful misconduct or unlawful conduct.

 

(C) We express no opinion as to (i) the effect of the laws of any jurisdiction
in which any Lender is located (other than the State of New York) that limit the
interest, fees or other charges such Lender may impose, (ii) Section 8.05 of the
Credit Agreement or (iii) the first

 

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sentence of Section 8.12 of the Credit Agreement, insofar as such sentence
relates to the subject matter jurisdiction of the United States District Court
for the Southern District of New York to adjudicate any controversy related to
any of the Loan Documents.

 

The foregoing opinions are limited to matters involving the Federal laws of the
United States and the law of the State of New York, and we do not express any
opinion as to the laws of any other jurisdiction.

 

This opinion letter is provided to you by us in our capacity as special New York
counsel to the Administrative Agent pursuant to Section 3.01(c)(xi) of the
Credit Agreement and may not be relied upon by any Person for any purpose other
than in connection with the transactions contemplated by the Credit Agreement
without, in each instance, our prior written consent.

 

Very truly yours,

 

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