Document:

EXHIBIT 4.2

 

[Face of Certificate]

 

COMMON STOCK

 

ACA

 

[Logo]

 

SEE REVERSE FOR CERTAIN DEFINITIONS

 

CUSIP TO COME

 

ACA CAPITAL HOLDINGS, INC.

 

INCORPORATED UNDER THE LAWS OF THE STATE
OF DELAWARE

 

THIS IS TO CERTIFY THAT

 

is the owner of

 

FULLY PAID AND NON-ASSESSABLE SHARES OF
THE PAR VALUE OF $.10 EACH OF THE COMMON STOCK OF ACA CAPITAL HOLDINGS, INC.

 

transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney upon
surrender of this certificate properly endorsed.

This
certificate is not valid unless countersigned and registered by the Transfer
Agent and Registrar.

Witness the
facsimile seal of the Corporation and the facsimile signatures of its duly
authorized officers.

Dated:

 

COUNTERSIGNED AND REGISTERED:

MELLON INVESTOR SERVICES LLC

TRANSFER AGENT

AND REGISTRAR

BY:

AUTHORIZED SIGNATURE

 

[SEAL]

 

/sig/

PRESIDENT

 

/sig/

SECRETARY

 

[Reverse of Certificate]

 

ACA CAPITAL HOLDINGS, INC.

 

 

The Corporation will furnish without
charge to each stockholder who so requests a statement of the designations,
powers, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof of the Corporation and the
qualifications, limitations or restrictions of such preferences and/or rights.
Such requests shall be made to the Corporation’s Secretary or the Transfer
Agent.

 

The following abbreviations, when used in
the inscription on the face of this certificate, shall be construed as though
they were written out in full according to applicable laws or regulations:

 

TEN COM — as tenants in common

TEN ENT — as tenants by the entireties

JT TEN — as joint tenants with right of
survivorship and not as tenants in common

 

	
  UNIF GIFT MIN ACT — 

  	
   

  	
   

  	
  Custodian 

  	
   

  	
   

  	
   

  
	
   

  	
  (Cust)

  	
   

  	
   

  	
  (Minor)

  	
   

  	
   

  
	
   

  	
  under Uniform Gifts to Minors

  	
   

  	
   

  
	
   

  	
  Act 

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (State)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
									

 

Additional abbreviations may also be used
though not in the above list.

 

For Value Received, ______________ hereby
sell, assign and transfer unto

 

	
  PLEASE INSERT SOCIAL SECURITY OR OTHER
  IDENTIFYING NUMBER OF ASSIGNEE

  
	
   

  
	
   

  
	
  (PLEASE PRINT OR TYPEWRITE NAME AND
  ADDRESS OF ASSIGNEE)

  
	
   

  
	
   

  
	
   

  
	
   

  
	
   

  
	
  Shares of the capital stock represented
  by the within Certificate, and do hereby irrevocably constitute and appoint

  
	
   

  
	
   

  
	
  Attorney to transfer the said stock on
  the books of the within named Corporation with full power of substitution in
  the premises.

  
	
   

  
	
   

  	
   

  
	
  Dated

  
	
   

  
	
   

  
	
  NOTICE: The signature to this assignment
  must correspond with the name as written upon the face of the certificate in
  every particular without alteration or enlargement or any change whatever.
  The signature of the person executing this power must be guaranteed by an
  Eligible Guarantor Institution such as a Commercial Bank, Trust Company,
  Securities Broker/Dealer, Credit Union, or a Savings Association
  participating in a Medallion program approved by the Securities Transfer
  Association, Inc.

  
	
   

  
	
  Signature(s) Guaranteed

  

  
	
   

  
	
   

  

 

 

2

 

THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.

 

KEEP THIS CERTIFICATE IN A SAFE PLACE. IF
IT IS LOST, STOLEN, MUTILATED OR DESTROYED, THE CORPORATION WILL REQUIRE A BOND
OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.

 

3Exhibit 10.7

AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”),
dated as of August 3, 2006 (the “Effective Date”), between ACA CAPITAL
HOLDINGS, INC., a Delaware corporation (“Holdings”), ACA FINANCIAL
GUARANTY CORPORATION, a Maryland corporation (“Financial,” and, together
with Holdings, the “Company”) and ALAN S. ROSEMAN (the “Executive”).

The
Company and the Executive are parties to that certain Amended and Restated
Employment Agreement, dated as of September 30, 2004 (the “Former Employment
Agreement”).

Financial
desires to continue to employ the Executive and the Executive desires to
continue such employment.

Accordingly,
in consideration of the premises and mutual covenants contained herein and for
other good and valuable consideration, the receipt and adequacy of which are
mutually acknowledged, the Company and the Executive agree as follows:

1.             Definitions.  For purposes of this Agreement, the following
terms shall have the following meanings:

(a)           “Affiliate” of a Person means a Person that
directly or indirectly through one or more intermediaries controls, is
controlled by or is under common control with, the Person specified.

(b)           “Base Salary” means the salary provided for in
Section 4 or any increased salary granted to the Executive pursuant to Section
4.

(c)           “Board” means the Board of Directors of Holdings,
as constituted from time to time.

(d)           “Cause” means the Executive:

(i)            is convicted of, or pleads nolo contendere (or similar
plea) to, a felony;

(ii)           performs an action or fails to take an action that
constitutes willful misconduct (which is materially and demonstrably injurious
to the Company or any Subsidiary thereof) or fraud by the Executive in the
performance of the Executive’s duties to the Company;

(iii)          engages in independently verified (determined by a
qualified medical or mental health professional), continuing and unremedied for
a period of at least six (6) months, substance abuse involving drugs or
alcohol;

(iv)          willfully and repeatedly fails, after thirty (30) business
days notice, to materially follow the lawful instructions of the Board; or

 

 

(v)           materially breaches any written policy, rule or regulation
adopted by the Company or any of its Subsidiaries relating to compliance with
securities laws and such breach is not cured by the Executive or waived in
writing by the Company within thirty (30) days after written notice of such
breach to the Executive.

No
act, or failure to act, on Executive’s part shall be considered “willful”
unless done, or omitted to be done, without good faith and without reasonable
belief that the action or omission was in the best interest of the Company.

(e)           “Change of Control” means the occurrence of any of
the following events after the Effective Date:

(i)            any Person (other than any Person that is a stockholder
of Holdings as of the Effective Date, or other than a trustee or other
fiduciary holding securities under an employee benefit plan of Holdings, or a
corporation owned directly or indirectly by the stockholders of Holdings in
substantially the same proportions as their ownerships of stock of Holdings)
becomes the beneficial owner, directly or indirectly (in one transaction or a
series of related transactions), of securities of Holdings representing more
than fifty percent (50%) of the combined voting power of Holdings’ then
outstanding voting securities; or

(ii)           during any period of two (2) consecutive years (not
including any period prior to the Effective Date), individuals who at the
beginning of such period constitute the Board (and any new director, whose
election by Holdings’ stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was so approved), cease for any reason to constitute a majority
thereof; or

(iii)          any Person (other than any Person that is a stockholder of
Holdings as of the Effective Date, or other than a trustee or other fiduciary
holding securities under an employee benefit plan of Holdings, or a corporation
owned directly or indirectly by the stockholders of Holdings in substantially
the same proportions as their ownerships of stock of Holdings) is or becomes
able to, or acquires the power to, elect a majority of the members of the
Board; or

(iv)          a closing or completion, as applicable, of: (i) a plan or
proposal of complete liquidation or dissolution of Holdings; (ii) an agreement
for the sale or disposition of all or substantially all of Holdings’ assets; or
(iii) a merger, consolidation, or reorganization of Holdings with or involving
any other corporation or entity, other than a merger, consolidation, or
reorganization that would result in the voting securities of Holdings
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the combined voting power of
the voting securities of Holdings (or such surviving entity) outstanding
immediately after such merger, consolidation, or reorganization.

However,
in no event shall a “Change of Control” be deemed to have occurred, with
respect to the Executive, if Executive is part of a purchasing group that
consummates the Change-of-Control transaction. 
Executive shall be deemed “part of a purchasing group” for purposes of
the

 

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preceding
sentence if the Executive is an equity participant in the purchasing company or
group (except for: (i) passive ownership of less than ten percent (10%) of the
stock or equity interests of the purchasing company; or (ii) ownership of an
equity interest in the purchasing company or group that is otherwise not
significant, as determined prior to the Change of Control by a majority of the
non-employee continuing directors of Holdings).

(f)            “Claim” means any claim, demand, request,
investigation, dispute, controversy, threat, discovery request, or request for
testimony or information.

(g)           “Code” means the Internal Revenue Code of 1986, as
amended.  Any reference to a particular
section of the Code shall include any provision that modifies, replaces, or
supersedes such section.

(h)           “Common Stock” means Common Stock, par value $0.01
per share, of Holdings.

(i)            Unless the context otherwise requires, the term “control”
(including the terms “controlling,” “controlled by” and “under common control
with”) means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a person, whether through
the ownership of voting securities, by contract, or otherwise.

(j)            “Constructive Termination” means a termination by
the Executive of his employment with the Company on written notice given to the
Company within sixty (60) days following the date on which he learns of the
occurrence, without his prior written consent, of any of the following events,
if the Company shall have failed to cure such event within thirty (30) days
following receipt of written notice from the Executive:

(i)            a reduction in his then current Base Salary or in his
target Annual Incentive Award pursuant to Section 5 (other than for Cause);

(ii)           the termination of, or a reduction in, any material
employee benefit or perquisite enjoyed by him (other than for Cause);

(iii)          the failure to elect or reelect him to the position
described in Section 3 or the removal of him from such position (other than for
Cause), excluding for this purpose the hiring of a Chief Operating Officer by
the Company;

(iv)          a material change in the Executive’s positions, titles or
responsibilities with the Company (other than as a result of a promotion) as
set forth in Section 3 of this Agreement or any action by the Company which
results in a material diminution in the authority of Executive (other than for
Cause), excluding for this purpose the hiring of a Chief Operating Officer by
the Company;

(v)           the relocation of the Executive’s principal office to a
location outside of Manhattan, New York without his consent;

 

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(vi)          the consummation of a Change of Control or, at the
Executive’s sole election, Company’s failure to obtain an assumption of this
Agreement and the obligations hereunder by any successor to Holdings or
Financial in accordance with Section 12 herein; or

(vii)         the Company’s material breach of this Agreement.

(k)           “Disability” means the Executive’s inability, due
to physical or mental incapacity, to substantially perform his duties and
responsibilities under this Agreement for a period of 180 consecutive days as
determined by an approved medical doctor. 
For this purpose, an “approved medical doctor” means a medical doctor
mutually selected by the Executive and the Company.  If the Executive and the Company cannot agree
on a medical doctor, each Party shall select a medical doctor and the two
doctors shall select a third who shall be the approved medical doctor for this
purpose.

(l)            “Parties” means the Company and the Executive.

(m)          “Person” means any individual, corporation,
partnership, limited liability company, joint venture, trust, estate, board,
committee, agency, body, employee benefit plan, other person or entity or group
(within the meaning of Section 13(d) (3) or 14(d) (2) of the Securities
Exchange Act of 1934, as amended).

(n)           “Proceeding” means any threatened or actual action,
suit, or proceeding, whether civil, criminal, administrative, investigative,
appellate, or other.

(o)           “Pro-Rata Annual Incentive Award” means an amount
equal to the product obtained by multiplying (i) the Executive’s target Annual
Incentive Award set forth in Section 5 for the calendar year during which his
employment hereunder terminates (with such award deemed to be no less than the
greater of (x) the target Annual Incentive Award for such year pursuant to Section
5 or (y) the actual Annual Incentive Award of the Executive in the prior year
of employment hereunder) times (ii) a fraction, the numerator of which is the
number of days on which the Executive was employed by the Company during such
year and the denominator of which is 365.

(p)           “Severance Period” shall mean the greater of
(i) one year following the Termination Date and (ii) the period from
the Termination Date and ending on the date the then existing Term of
Employment would have expired pursuant to Section 2 had the Termination
Date not occurred, assuming that each Party would have given notice of
non-renewal on the earliest time after such date that it could give such
notice.

(q)           “Subsidiary” of any company means any corporation
of which such company beneficially owns, directly or indirectly, more than 50%
of the Voting Stock, measured either by number of shares and other voting
securities or by number of votes entitled to be cast.

(r)            “Term of Employment” means the period specified in
Section 2.

(s)           “Termination Date” means the date on which the
Executive’s employment hereunder terminates in accordance with this Agreement.

(t)            “Voting Stock” means issued and outstanding
capital stock or other securities or interests of any class or classes having
general voting power, under ordinary circumstances in the absence of
contingencies, to elect, in the case of a corporation, the directors of such
corporation and, in the case of any other entity, the corresponding governing
Person(s).

 

4

 

2.             Term of Employment.  The Company agrees to employ the Executive
under this Agreement, and the Executive accepts such employment, for the Term
of Employment.  The Term of Employment
shall commence on the Effective Date and shall end on September 30, 2009,
and on every successive one-year anniversary thereafter, the Term of Employment
shall automatically be renewed for one year unless either Party provided the
other Party with three months’ advance written notice of that Party’s desire
that the Term of Employment should terminate. 
For the avoidance of doubt, in no event shall such non-renewal by the
Company of the Term of Employment be deemed a termination by the Company of the
Executive’s employment hereunder. 
Notwithstanding the foregoing, the Term of Employment may be earlier
terminated, but only in strict accordance with the provisions of Section 9.

3.             Positions, Duties, and
Responsibilities.  (a) During the
Term of Employment, the Executive shall be employed as the President, Chief
Executive Officer and Chief Operating Officer of each of Holdings and
Financial, and shall perform such duties and exercise such powers as are
incident to such offices and as may be assigned (consistent with the
Executive’s position with the Company) from time to time by the Board.  The Executive, in carrying out his executive
duties under this Agreement, shall report to the Board.  It is the intention of the Parties that the
Executive shall be elected to and serve as a member of the Board, and Holdings
shall use its best efforts to cause its principal stockholders to cause the
election of the Executive to the Board. 
In addition, Executive shall serve as the Deputy Chair of the Board, and
the Chairman of the Board of Directors for Financial.

(b)           Notwithstanding anything herein to the contrary, nothing
shall preclude the Executive from (i) serving on the boards of directors of a
reasonable number of other corporations or the boards of a reasonable number of
trade associations and/or charitable organizations (provided that in each such
case the Executive shall give the Board at least 10 business days’ advance
written notice of the Executive’s intention to serve on any such board and, if
the Board reasonably objects thereto, the Executive agrees not to serve on such
board), (ii) engaging in charitable activities and community affairs, including
political activities, and (iii) managing his personal investments and
affairs, provided that such activities do not materially interfere with the
proper performance of his duties and responsibilities as the Company’s
President, Chief Executive Officer and Chief Operating Officer.

4.             Base Salary.  The Executive shall be paid an annual Base
Salary of $650,000.  Such Base Salary
shall be payable at intervals in accordance with the regular payroll practices
of the Company applicable to senior executives but no less frequently than
monthly.  The Base Salary shall be
reviewed no less frequently than annually during the Term of Employment for
increases.

5.             Annual Incentive Awards.  The Executive shall be eligible for an annual
incentive award (“Annual Incentive Award”) from the Company for each
fiscal year during the Term of Employment based on a range which shall be
between     % and     % of
his annualized Base Salary that is in effect at the end of such fiscal year,
and his actual Annual Incentive Award amount for each such year shall be
determined based on criteria established by the Board’s Compensation Committee
(the “Compensation Committee”).

 

5

 

The Executive shall receive
his Annual Incentive Award in respect of any fiscal year no later than the
March 1st immediately following the fiscal year to which the Annual
Incentive Award relates.

6.             Restricted Stock.  Prior to the Effective Date, the Company had
granted to Executive 55,869 restricted shares of the Company’s Series B Senior
Convertible Preferred Stock, par value $0.10 (the “Restricted Stock”).  Two-thirds of the Restricted Stock has vested
and the remaining 33.34% of the Restricted Stock will vest on September 30,
2007, provided that Executive is then employed by the Company or a Subsidiary,
except as provided in Sections 9 and 10 herein.

7.             Other Benefits.  (a) Employee Benefits.  During the Term of Employment, the Executive
shall participate in all employee benefit plans, programs, and arrangements
made available generally to the Company’s senior executives or to its
employees, including, without limitation, profit-sharing, savings (qualified
and non-qualified) and other defined contribution retirement plans or programs,
medical, dental, hospitalization, vision, short-term and long-term disability
and life insurance plans or programs, accidental death and dismemberment
protection, travel accident insurance, and any other employee welfare benefit
plans or programs that may be sponsored by the Company from time to time,
including any plans or programs that supplement the above-listed types of plans
or programs, whether funded or unfunded; provided, however, that
nothing in this Agreement shall be construed to require the Company to
establish or maintain any such plans, programs, or arrangements, except for
family medical, dental, and hospitalization insurance providing coverage, at no
cost to the Executive, which shall be required benefit plans for the Executive.

(b)           Perquisites. 
During the Term of Employment, the Executive shall participate in all
fringe benefits and perquisites generally available to senior executives of the
Company at levels, and on terms and conditions, that are commensurate with his
positions and responsibilities at the Company; provided that the Company
shall provide the Executive with an expense account in an amount not to exceed
$20,000 per annum which shall be used by the Executive for certain executive
benefits and the promotion the business of the Company and its
Subsidiaries.  The Executive shall also
receive such additional fringe benefits and perquisites as the Compensation
Committee may, in its discretion, from time-to-time provide.

(c)           Vacation. 
During the Term of Employment, the Executive shall be entitled to
vacation in accordance with the reasonable practices of the Company.

8.             Reimbursement of Business and
Other Expenses.  (a) The Executive is
authorized to incur reasonable expenses in carrying out his duties and
responsibilities under this Agreement, and the Company shall promptly reimburse
him for all such expenses, subject to documentation in accordance with
reasonable policies of the Company.

(b)           The Company shall promptly reimburse the Executive for any
and all reasonable expenses (including, without limitation, attorneys’ fees and
other charges of counsel)

 

6

 

incurred by him in connection with the negotiation
and documentation of this Agreement and the Executive’s other employment
arrangements with the Company.

9.             Termination of Employment.  The parties acknowledge that Executive’s
employment with the Company may be terminated prior to the expiration of the
Term of Employment in accordance with this Section 9 and that upon such
termination Executive shall be entitled to no further compensation or benefits
except as set forth in this Section.

(a)           Termination Due to Death.  The Executive’s employment hereunder shall be
terminated as of the date of his death. 
In the event that the Executive’s employment hereunder is terminated due
to his death, his estate or his beneficiaries (as the case may be) shall be
entitled to the following:

(i)            Base Salary through the date of his death and for an additional
90 days thereafter;

(ii)           a Pro-Rata Annual Incentive Award for the calendar year in
which his death occurs, payable in a lump sum promptly after his death;

(iii)          immediate vesting of all restricted stock held by the
Executive;

(iv)          a lump-sum payment in respect of all accrued but unused
vacation days at his Base Salary rate in effect on the Termination Date,
payment of any other amounts earned, accrued or owing to the Executive but not
yet paid, including, but not limited to, any Annual Incentive Award(s) earned
or awarded but not yet paid, and receipt of other benefits in accordance with
applicable plans and programs of the Company (the “Standard Benefit”); and

(v)           payment of COBRA premiums for the entire period of
eligibility for the Executive’s eligible dependents and continued participation
for one year for each of the Executive’s dependents in all other employee
welfare benefit plans, programs, and arrangements in which such dependent was
participating as of the date of the Executive’s death, on terns and conditions
no less favorable than those applying on such date.

(b)           Termination Due to Disability.  The Executive’s employment hereunder shall
terminate due to Disability, as of the date fifteen (15) days after the Party
terminating his employment gives written notice of such termination to the
other Party.  In the event that the
Executive’s employment hereunder is terminated due to Disability, he shall be
entitled to the following:

(i)            continuation of Base Salary until commencement of
long-term disability payments;

(ii)           a Pro-Rata Annual Incentive Award for the calendar year in
which his employment terminates, payable in a lump sum promptly following the
Termination Date;

(iii)          immediate vesting of all restricted stock held by the
Executive;

 

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(iv)          the Standard Benefit; and

(v)           payment of COBRA premiums for the entire period of
eligibility for the Executive and eligible dependents and participation for one
year for the Executive and each of his dependents in all Company life insurance
coverage and in all other Company employee welfare benefit plans, programs, and
arrangements.

(c)           Termination by the Company for Cause.

(i)            No termination of the Executive’s employment hereunder by
the Company for Cause shall be effective unless the provisions of this Section
9(c)(i) shall have been fully complied with. 
Prior to any termination by the Company for Cause, the Executive shall
be given written notice by the Board of the intention to terminate him, such
notice (A) to describe the particular circumstances that constitute the grounds
on which the proposed termination for Cause is based and (B) to be given no
later than 60 days after the Board first learns of such circumstances.  The Executive shall have 30 days after
receiving such notice in which to cure such grounds, to the extent such cure is
possible.  If, after the 30 day notice
period, a majority of the Board determines, in good faith, at a meeting of the
Board called and held for such purposes (after reasonable, but in no event,
less than 10 days’ notice to the Executive and an opportunity for the
Executive, together with his counsel, to be heard before the Board) that Cause
for Executive’s termination exists and no cure has been made or was possible, the
Board shall provide notice to Executive of his termination for Cause, which
shall be effective as of the date of the notice of termination for Cause.  In the event any court of law shall determine
that Cause did not exist for the termination of the Executive’s employment, his
employment shall be deemed to have been terminated without Cause for purposes
of determining his rights under this Agreement and any other applicable
agreements, but he shall in no event be entitled to reinstatement of his
employment.

(ii)           In the event that the Executive’s employment hereunder is
terminated by the Company for Cause in accordance with Section 9(c)(i), he
shall be entitled to the following:

(A)          Payment of Base Salary through the Termination Date; and

(B)           the Standard Benefit.

(d)           Termination Without Cause; Constructive Termination by
the Executive.  The Company may
terminate Executive’s employment hereunder without Cause at any time for any
reason.  In the event that the
Executive’s employment hereunder is terminated by the Company, other than due
to Disability in accordance with Section 9(b) or for Cause in accordance with
Section 9(c)(i), or in the event of the Executive’s termination of his
employment as a result of a Constructive Termination, the Executive shall be entitled
to:

(i)            payment of Base Salary through the Termination Date;

(ii)           the Standard Benefit; and

 

8

 

(iii)          upon execution of a release of all claims that he may have
against the Company in a form mutually acceptable to the Company and the
Executive:

(1)           a Pro-Rata Annual Incentive Award for the calendar year in
which the Executive was terminated, which shall be calculated based on the last
full year Annual Incentive Award paid by the Company to Executive, payable in a
lump sum promptly following the Termination Date;

(2)           a prompt lump-sum severance payment equal to two times the
Executive’s annual Base Salary as of the Termination Date;

(3)           (i) immediate vesting of all restricted stock and options
to purchase Common Stock of the Company (“Stock Options”) held by the Executive
and (ii) exercise Stock Options awarded to the Executive on or after the
Effective Date under any incentive stock option agreement, non-qualified stock
option agreement or similar such agreement for one year following the Termination
Date; and

(4)           payment of COBRA premiums for the entire period of
eligibility for the Executive and eligible dependents and continued
participation for the Executive and each of his dependents in all Company life
insurance coverage and all other Company welfare benefit plans, programs, and
arrangements until the earlier of (x) one year from the Termination Date or (y)
the date the Executive receives equivalent coverage and benefits from a
subsequent employer.

(e)           Voluntary Termination.  In the event that the Executive terminates
his employment with the Company on his own initiative, other than by death, for
Disability or by a Constructive Termination, he shall have the same
entitlements hereunder as provided in Section 9(c)(ii) in the case of a
termination by the Company for Cause.  A
voluntary termination under this Section 9(e) shall be effective upon written
notice to the Company and shall not be deemed a breach of this Agreement.

(f)            Benefit Plans. 
In the event that the Executive, or any of his dependents, is precluded
from continuing full participation in any employee benefit plan, program, or
arrangement as provided in Sections 9(a)(v), 9(b)(v), or 9(d)(v), the Executive
shall be provided with the after-tax economic equivalent of any benefit or
coverage foregone.  For this purpose, the
economic equivalent of any benefit or coverage foregone shall be deemed to be
the total cost to the Executive or any of his dependents of obtaining such
benefit or coverage by himself on an individual basis.  Payment of such after-tax economic equivalent
shall be made quarterly in advance, without discount.

(g)           No Mitigation; Offset.  In the event of any termination of the
Executive’s employment with the Company, the Executive shall be under no
obligation to seek other employment or otherwise mitigate the obligations of
the Company under this Agreement.  The
Company may offset against amounts due the Executive under this Agreement for
any amounts (i) borrowed by or advanced to the Executive from the Company or
any of its Subsidiaries or (ii) owed by Executive to the Company or any of its
Subsidiaries pursuant to any order, judgment, ruling, injunction, assessment,
award, decree or writ of any government or political subdivision, whether
federal, state, local, provincial or foreign, or any agency or instrumentality
of any such government or political subdivision, or any federal, state, local
or foreign court or arbitrator, in each case that has not yet then been repaid
to the Company or such Subsidiary by the Executive.

10.           Change of Control, Excise Tax
Gross-Up and Tag Along Rights.

 

9

 

(a)           Change of Control. 
In the event that a Change of Control occurs during the Term of
Employment, then all of Executive’s restricted stock and Stock Options shall
thereupon become fully vested and nonforfeitable.

(b)           Excise Tax Gross-Up.  In the event that any payment or benefit made
or provided to or for the benefit of the Executive in connection with this
Agreement and/or his employment with the Company or the termination thereof (a
“Payment” is determined to be subject to any excise tax (“Excise Tax”)
imposed by Section 4999 of the Code (or any successor to such Section), the
Company shall pay to the Executive, prior to the time any Excise Tax is payable
with respect to such Payment (through withholding or otherwise), an additional
amount (a “Gross-Up Payment”) which, after the imposition of all income,
employment, excise and other taxes, penalties and interest thereon, is equal to
the sum of (i) the Excise Tax on such Payment plus (ii) any penalty and
interest assessments associated with such Excise Tax.  The determination of whether any Payment is
subject to an Excise Tax and, if so, the amount and time of any Gross-Up
Payment pursuant to this Section 10(b) shall be made by an independent auditor
(the “Auditor”) jointly selected by the Parties and paid by the
Company.  Unless the Executive agrees
otherwise in writing, the Auditor shall be a nationally recognized United
States public accounting firm that has not, during the two years preceding the
date of its selection, acted in any way on behalf of the Company or any of its
Affiliates.  If the Parties cannot agree
on the accounting firm to serve as the Auditor, then the Parties shall each
select one accounting firm and those two accounting firms shall jointly select
the accounting firm to serve as the Auditor. 
The Parties shall cooperate with each other in connection with any
Proceeding or Claim relating to the existence or amount of any liability for
Excise Tax.  All expenses relating to any
such Proceeding or Claim (including attorneys’ fees and charges and all other
expenses incurred by the Executive in connection therewith) shall be borne and
paid by the Company.  Any payments
payable under this Section 10(b) shall be subject to a Gross-Up Payment in the
event that the Executive is subject to Excise Tax on such payment.  This Section 10(b) shall apply irrespective
of whether a Change of Control has occurred.

11.           Indemnification.  (a) The Company agrees that (i) if the
Executive is made a party, or is threatened to be made a party, to any
Proceeding by reason of the fact that he is or was a director, officer,
employee, agent, manager, consultant, or representative of the Company or is or
was serving at the request of the Company or any of its Affiliates as a
director, officer, member, employee, agent, manager, consultant, or
representative of another Person or (ii) if any Claim is made, or threatened to
be made, that arises out of or relates to the Executive’s service in any of the
foregoing capacities, then the Executive shall promptly be indemnified and held
harmless by the Company to the fullest extent permitted by applicable law
against any and all costs, expenses, liabilities, and losses (including,
without limitation, attorney’s fees, judgments, interest, expenses of
investigation, penalties, fines, ERISA excise taxes or penalties, and amounts
paid or to be paid in settlement) incurred or suffered by the Executive in
connection therewith, and such indemnification shall continue as to the
Executive even if he has ceased to be a director, member, employee, agent,
manager, consultant or representative of the Company or other Person and shall
inure to the benefit of the Executive’s heirs, executors, and
administrators.  Promptly following the
Effective Date, the Company hereby agrees that it will amend its memorandum of
association, articles of association, articles of incorporation and by-laws to
the extent necessary to provide the Executive with the broadest indemnity
permitted by applicable law and to provide the Executive with copies of such
corporate documents as the Executive may request from time

 

10

 

to time.  The Company shall advance to the Executive
all costs and expenses incurred by him in connection with any such Proceeding
or Claim within 15 days after receiving written notice requesting such an
advance.  Such notice shall include, to
the extent required by applicable law, an undertaking by the Executive to repay
the amount advanced if he is ultimately determined not to be entitled to
indemnification against such costs and expenses.

(b)           Neither the failure of the Company (including the Board,
independent legal counsel, or stockholders) to have made a determination in
connection with any request for indemnification or advancement under Section
12(a) that the Executive has satisfied any applicable standard of conduct nor a
determination by the Company (including the Board, independent legal counsel,
or stockholders) that the Executive has not met any applicable standard of
conduct, shall create a presumption that the Executive has not met an
applicable standard of conduct.

(c)           During the Term of Employment and for a period of six
years thereafter, the Company shall keep in place a directors and officers’
liability insurance policy (or policies) providing comprehensive coverage to
the Executive (or legal representative or other successor) equal to at least
the greater of (i) $5,000,000 per year and (ii) the coverage that the Company
provides for any other present or former senior executive or director of the
Company.

12.           Assignability; Binding Nature.  (a) This Agreement shall be binding upon and
inure to the benefit of the Parties and their respective successors, heirs (in
the case of the Executive), and assigns.

(b)           No rights or obligations of the Company under this
Agreement may be assigned or transferred by the Company except that such rights
or obligations may be assigned or transferred pursuant to a merger or
consolidation in which the Company is not the continuing entity, or a sale or
liquidation of all or substantially all of the assets and business of the
Company; provided, that the assignee or transferee is the successor to
all or substantially all of the assets and business of the Company and such
assignee or transferee assumes the liabilities, obligations, and duties of the
Company, as contained in this Agreement, either contractually or as a matter of
law.  In the event of any sale of assets
and business or liquidation as described in the preceding sentence, the Company
shall use its best efforts to cause such assignee or transferee to expressly
assume the liabilities, obligations and duties of the Company hereunder and
shall cause such assignee or transferee to deliver a legal, valid, and
enforceable written instrument in form and substance satisfactory to the
Executive and his counsel to such effect.

(c)           No rights or obligations of the Executive under this
Agreement may be assigned or transferred by the Executive other than his rights
to compensation and benefits, which may be transferred only by will or
operation of law, except as provided in Section 17(f).

13.           Representations.  The Company represents and warrants
that:  (a) it is fully authorized by
action of the Board of the Company (and of any other Person or body whose
action is required) to enter into this Agreement and to perform its obligations
hereunder and upon the execution and delivery of this Agreement by the Parties,
this Agreement shall be the valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.

 

11

 

(b)           Holdings and Financial are corporations, each duly
organized, validly existing, and in good standing under the laws of Bermuda and
the States of Delaware and Maryland, respectively, and each having full
corporate power and authority to conduct its business as such businesses are
presently conducted.

(c)           The execution and delivery by each of Holdings and
Financial of this Agreement and the consummation of the transactions
contemplated hereby will not result in the violation of any law, statute, rule,
regulation, order, writ, injunction, judgment, or decree of any court or
governmental authority to or by which Holdings or Financial is bound, or of any
provision of the Certificate of Incorporation (as amended) or By-Laws (as
amended) of Holdings or Financial, and will not conflict with, or result in a
breach or violation of, any of the terms or provisions of, or constitute (with
due notice or lapse of time or both) a default under, any agreement,
instrument, or document to which Holdings or Financial is a party or by which
it is bound or to which any of its properties or assets is subject, nor result
in the creation or imposition of any lien upon any of the properties or assets
of Holdings or Financial.

14.           Covenant Not to Compete;
Confidentiality; Intellectual Property, Inventions and Patents; Executive’s
Cooperation.

(a)           Covenant Not to Compete.

(i)            In further consideration of the compensation to be paid
to the Executive hereunder, the Executive acknowledges that during the course
of his employment with the Company he has and shall become familiar with the
Company’s and its Subsidiaries’ trade secrets and with other Confidential
Information concerning the Company and its Subsidiaries and that his services
shall be of special, unique and extraordinary value to the Company, and
therefore, the Executive agrees that during the Term of Employment and for a
period of (1) in the case of a termination by the Company without Cause or by
Executive as a result of a Constructive Termination, 12 months or (2) in the
case of a termination of employment for any other reason, 18 months, so long as
the Company is not in default of a material payment obligation under this
Agreement or in default of any material obligation under Section 11 (the “Noncompete
Period”), the Executive shall not directly or indirectly (whether as an
employee, consultant, investor, independent contractor, or director, but other
than as a holder of a passive investment of not in excess of 5% of the
outstanding voting shares of any publicly traded company), engage, enter into
or attempt to enter into, or manage, control, participate in, consult with,
render services for, or be employed by, a Restricted Business (as defined
below) in the United States or other jurisdictions in which the Company or any
of its Subsidiaries conducts business; provided, that this covenant (a)
shall not apply following the expiration of the Term of Employment due to
service of notice by either party in accordance with Section 2 hereof; and

(ii)           The Executive agrees that during the Noncompete Period,
the Executive shall not directly or indirectly (whether as an employee,
consultant, investor, independent contractor, or director, but other than as a
holder of a passive investment of not in excess of 5% of the outstanding voting
shares of any publicly traded company):

(A)          induce or attempt to persuade any then-current employee,
agent, manager, consultant, director, customer, counterparty or other business
relationship of the

 

12

 

Company
or any of its Subsidiaries to terminate such employment or other relationship
(including, without limitation, by making any negative or disparaging
statements or communications regarding the Company or any of its Subsidiaries);

(B)           solicit or induce any then-current customer or previously
identified prospective customers of the Company or any of its Subsidiaries of
which the Executive was aware on the Termination Date (i) to do business with
any Restricted Business in competition with the Company or (ii) to reduce its
business with the Company; or

(C)           hire any Person who was an employee of the Company or any
of its Subsidiaries within the 12 month period prior to the Termination Date.

(iii)          For the purposes of this Section 14, a “Restricted
Business” shall mean a financial guaranty insurance, specialized surety,
credit derivative and/or structured finance business, whether existing or to be
formed and without regard to its claims-paying ability, or any other business
which the Company or any of its Subsidiaries conducts during the Term of Employment
or on the Termination Date.

(iv)          The covenants of the Executive set forth in this Section
14(a) shall be null and void and without any force or effect upon the effective
date of any liquidation or dissolution of the Company, it being understood that
a merger or consolidation of the Company shall not be deemed to constitute a
liquidation or dissolution of the Company.

(v)           The covenants set forth above in this Section 14(a) shall
be construed as a series of separate covenants, one for each county in each of
the states of the United States or country outside the United States to which
such restriction applies, subject, however, to the applicable laws of such
jurisdictions.

(vi)          If, at the time of enforcement of this Section 14, any
court of competent jurisdiction shall hold that the duration, scope or area
restrictions stated herein are unreasonable under circumstances then existing,
the Parties agree that the maximum duration, scope or area reasonable under
such circumstances shall be substituted for the stated duration, scope or area
and that such arbitrator or court shall be authorized to revise the
restrictions contained herein to cover the maximum period, scope and area
permitted by applicable law.  The Executive
acknowledges that the restrictions contained in this Section 14 are reasonable
and necessary to the protection of legitimate Company interests.

(vii)         In the event of the breach or a threatened breach by the
Executive of any of the provisions of this Section 14, the Executive
acknowledges and agrees that the Company would suffer irreparable harm, and
thus, in addition and supplementary to other rights and remedies existing in
its favor, the Company shall be entitled to seek and obtain specific
performance and/or injunctive or other equitable relief in order to enforce or
prevent any violations of the provisions hereof (without posting a bond or
other security).  In addition, in the
event of a breach or violation by Executive of this Section 14, the Noncompete
Period shall be automatically extended by the amount of time between the
initial occurrence of the breach or violation and when such breach or violation
has been duly cured.

(b)           Confidentiality.

 

13

 

(i)            The Executive acknowledges that he has and will develop
and be exposed to information that is or will be proprietary to the Company and
its Subsidiaries, including, but not limited to, customer lists, marketing
plans, pricing data, product development plans, and other intangible
information, and that the information and data (including trade secrets)
obtained by him while employed by the Company concerning the business or
affairs of the Company and its Subsidiaries (“Confidential Information”)
are the property of the Company and/or one or more of its Subsidiaries.  The Executive agrees to use such information
only in connection with the performances of his duties hereunder, to forever
maintain such information in confidence and not to disclose to any Person or
use for his own purposes any Confidential Information or any confidential or
proprietary information of other Persons in the possession of the Company (“Third
Party Information”) without the prior written consent of the Board, unless
and to the extent that the Confidential Information or Third Party Information
is or becomes generally known to and available for use by the public or in the
Company’s industry other than, in each case, as a result of the Executive’s
breach of this Section; provided, however, that the Executive may
disclose such information when required to by law or subpoena from a court,
government agency or legislative body; provided  further, however,
that the Executive shall immediately notify the Company of his receipt of any
request or demand (whether through legal process or otherwise) that he provide
such disclosure, and thereafter the Executive shall cooperate fully with any
Company efforts to resist, restrict or modify any such request or demand.  The Executive shall deliver to the Company at
the Termination Date, or at any other time the Company may request, all
memoranda, notes, plans, records, reports, computer files, disks and tapes,
printouts and software and other documents and data (and all copies thereof)
embodying or relating to Third Party Information, Confidential Information,
Work Product (as defined below) or the business of the Company or any of its
Subsidiaries which he may then possess or have under his control.

(ii)           The Executive shall be prohibited in the course performing
his duties for the Company from using or disclosing any confidential
information or trade secrets that the Executive may have learned through any
prior employment.

(c)           Intellectual Property, Inventions and Patents.  The Executive acknowledges that (as
applicable) all discoveries, concepts, ideas, inventions, innovations,
improvements, developments, methods, analyses, reports, patent applications and
copyrightable work (whether or not including any confidential information) and
all registrations or applications related thereto, all other proprietary
information and all similar or related information (whether or not patentable)
which directly relate to the Company’s or any of its Subsidiaries’ actual or
anticipated business, research and development or existing or future products
or services and which are conceived, developed or made by the Executive
(whether alone or jointly with others) while employed by the Company, whether
before or after the date of this Agreement (“Work  Product”),
belong to the Company and/or one or more of its Subsidiaries.  Upon the request of the Board from time to
time, the Executive shall promptly disclose such Work Product to the Board and,
at the Company’s expense, perform all actions reasonably requested by the Board
(whether during or after the Term of Employment) to establish and confirm such
ownership (including, without limitation, assignments, consents, powers of
attorney and other instruments).  The
Executive acknowledges that all Work Product shall be deemed to constitute
“works made for hire” under the U.S. Copyright Act of 1976, as amended.

 

14

 

(d)           Executive’s Cooperation.  During the Term of Employment and thereafter,
the Executive shall cooperate with the Company in any internal investigation,
any administrative, regulatory or judicial proceeding or any dispute with a
third party as reasonably requested by the Company (including, without
limitation, the Executive being available to the Company upon reasonable notice
for interviews and factual investigations, appearing at the Company’s request
to give testimony without requiring service of a subpoena or other legal
process, volunteering to the Company all pertinent information and turning over
to the Company all relevant documents which are or may come into the
Executive’s possession, all at times and on schedules that are reasonably
consistent with Executive’s other permitted activities and commitments).  In the event the Company requires the
Executive’s cooperation in accordance with this Section 14(d), the Company
shall reimburse the Executive solely for reasonable travel expenses (including
lodging and meals) upon submission of receipts and shall compensate the
Executive for such cooperation at $250 per hour; provided, however,
that such compensation shall only be paid for Executive’s time following the
Term of Employment and, if the Executive has received a payment under Section
9(d)(iii)(2) following the Severance Period. 
Notwithstanding anything to the contrary contained herein, upon
termination of the Term of Employment hereunder, the Executive shall
automatically be deemed to have resigned as a director of the Board and of any
board of directors (or similar governing body) of any Subsidiary of the
Company.

15.           Notices.  Any notice, consent, demand, request, or
other communication given to a Person in connection with this Agreement shall
be in writing and shall be deemed to have been given to such Person (a) when
delivered personally to such Person, or (b), provided that a written
acknowledgment of receipt is obtained, two days after being sent by prepaid
certified or registered mail, or by a nationally recognized overnight courier,
to the address specified below for such Person (or to such other address as
such Person shall have specified by 10 days’ advance notice given in accordance
with this Section 15), or (c) in the case of the Company only, on the first
business day after it is sent by facsimile to the facsimile number set forth
for the Company (or to such other facsimile number as the Company shall have
specified by 10 days’ advance notice given in accordance with this Section 15),
with a confirmatory copy sent by certified or registered mail or by overnight
courier to the Company in accordance with this Section 15.

	
   

  	
  If to the Company, to:

  
	
   

  	
   

  
	
   

  	
  ACA Financial Guaranty Corporation

  
	
   

  	
  140 Broadway

  
	
   

  	
  New York, NY 10005

  
	
   

  	
  Attention: General Counsel

  
	
   

  	
  Telephone: (212) 375-2000

  
	
   

  	
  Facsimile: (212) 375-2100

  
	
   

  	
   

  

 

15

 

	
   

  	
  If to the Executive, to:

  
	
   

  	
   

  
	
   

  	
  The Executive’s principal residence as shown in
  the records of the Company

  
	
   

  	
   

  
	
   

  	
  with a copy to:

  
	
   

  	
   

  
	
   

  	
  The Executive at the Company’s address

  
	
   

  	
   

  
	
   

  	
  and

  
	
   

  	
   

  
	
   

  	
  A. Richard Susko

  
	
   

  	
  Cleary Gottlieb

  
	
   

  	
  One Liberty Plaza

  
	
   

  	
  New York New York 10006

  
	
   

  	
  Telephone: (212) 225 2410

  
	
   

  	
  Facsimile: (212) 225 3999

  

 

The
address most recently specified by the Executive or beneficiary through notice
given in accordance with this Section 15.

16.           Guarantee of Obligations.  Holdings is a beneficiary of the services
provided by Executive and hereby irrevocably and unconditionally guarantee the
performance of all obligations of Financial hereunder.

17.           Insurance.  The Company may, at its discretion, apply for
and procure in its own name and for its own benefit life and/or disability
insurance on the Executive in any amount or amounts considered advisable.  The Executive agrees to cooperate in any
medical or other examination, supply any information and execute and deliver
any applications or other instruments in writing as may be reasonably necessary
to obtain and constitute such insurance.

18.           Miscellaneous.

(a)           Entire Agreement. 
This Agreement contains the entire understanding and agreement between
the Parties concerning the subject matter hereof and, as of the Effective Date,
supersedes all prior agreements, understandings, discussions, negotiations, and
undertakings, whether written or oral, between the Parties with respect
thereto, including, but not limited to, the Former Employment Agreement.

(b)           Specific Performance.  The parties hereto recognize that it is to
the benefit of the Company and the Executive that this Agreement be carried
out; and for those and other reasons, the Executive and the Company would be
irreparably damaged if this Agreement is not specifically enforced in the event
of a breach hereof.  If this Agreement is
breached by the Company or the Executive, the parties hereto hereby agree that
remedies at law might be inadequate and that, therefore, such rights and
obligations, and this Agreement shall be enforceable by specific performance on
the part of the Company or the Executive, as applicable.  The remedy of specific performance shall not
be an exclusive remedy, but shall be cumulative of all other rights and
remedies of the parties hereto at law, in equity, or under this Agreement.

(c)           Severability. 
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this Agreement shall be unaffected thereby and
shall remain in full force and effect to the fullest extent permitted by law so
as to achieve the purposes of this Agreement.

 

16

 

(d)           Amendment or Waiver.  No provision in this Agreement may be amended
unless such amendment is set forth in a writing signed by the Parties.  No waiver by either Party of any breach of
any condition or provision contained in this Agreement shall be deemed a waiver
of any similar or dissimilar condition or provision at the same or any prior or
subsequent time.  To be effective, any
waiver must be set forth in a writing signed by the waiving Party.

(e)           Headings. 
The headings of the Sections contained in this Agreement are for
convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.

(f)            Beneficiaries/References.  The Executive shall be entitled, to the
extent permitted under any applicable law, to select and change a beneficiary
or beneficiaries to receive any compensation or benefit hereunder following the
Executive’s death by giving the Company written notice thereof.  In the event of the Executive’s death or a
judicial determination of his incompetence, reference in this Agreement to the Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate, or
other legal representative.

(g)           Survivorship. 
It is the express intention and agreement of the parties hereto that the
provisions of Sections 1, 6(c), 9, 10(c), 11, 12, 14, 15, 16, 18(b), 18(c),
18(f), 18(h), and this Section 18(g) shall survive the termination of
employment of the Executive.

(h)           Governing Law/Jurisdiction.  This Agreement shall be governed, construed,
performed, and enforced in accordance with the laws of the State of New York,
without reference to principles of conflicts of laws.

(i)            Counterparts. 
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which, when taken together, shall
constitute one and the same instrument.

[The remainder
of this page intentionally left blank.]

 

17

 

IN
WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first set forth above.

	
   

  	
  ACA CAPITAL HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  ACA FINANCIAL GUARANTY

  
	
   

  	
  CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ALAN S. ROSEMAN

  
				

 

18

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