Document:

Exhibit
10.11

 

EXECUTION COPY

 

EMPLOYMENT AGREEMENT (this “Agreement”), dated as of
September 30, 2004 (the “Effective Date”), between AMERICAN CAPITAL
ACCESS SERVICE CORPORATION, a Delaware corporation (“Service”). ACA
CAPITAL HOLDINGS, INC., a Delaware corporation (“Holdings”), ACA
FINANCIAL GUARANTY CORPORATION, a Maryland corporation (“Financial,”
and, together with Holdings and Service, the “Company”) and JAMES
ROTHMAN (the “Executive”).

 

Pursuant to that certain Management Service Agreement, dated September
24, 1997, Service provides a broad range of administrative and business
services to Financial. Financial is in the business of providing financial
guaranty insurance and specialized surety products.

 

Service desires to employ the Executive and Financial and Holdings
desire to lease from Service the Executive’s services as an officer and
employee, and the Executive desires to accept 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. 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.

 

(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 or a crime involving moral turpitude;

 

(ii)                               performs an action or fails to take an action
that, in the reasonable judgment of a majority of the members of the Board,
constitutes willful dishonesty, larceny, fraud or gross negligence by the
Executive in the performance of the Executive’s duties to the Company, or makes
a knowing or reckless misrepresentation (including by omission of any material
adverse information) to shareholders, directors or officers of the Company,
which in the

 

 

case
of gross negligence only, is material and adverse to the Company or its
business or its reputation;

 

(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 material written policies
of the Company or lawful instructions of the Board; or

 

(v)                          materially breaches this Agreement or any
written policy, rule or regulation adopted by the Company or any of its
Subsidiaries relating to compliance with securities laws or other laws, rules
or regulations 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, 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 elect a majority of the members of the Board; or

 

(iv)                             a closing or completion, as applicable, of
(i) the sale or disposition of all or substantially all of Holdings’ assets or
(ii) a merger, consolidation, or reorganization of Holdings with or involving
any other corporation, other than a merger,

 

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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 preceding sentence if the Executive
is an equity participant in the purchasing Person (except for: (i) passive
ownership of less than three percent (3%) of the stock 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)                             “Common Stock” means Common Stock, par
value $0.10 per share, of Holdings.

 

(h)                             “Constructive Termination” means a termination by the Executive of his
employment with the Company on written notice given to the Company within
thirty (30) 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 of a request to cure such event:

 

(i)                                  a reduction in his then current Base Salary
or in his current bonus level pursuant to the Company’s bonus plan;

 

(ii)                               a material breach of the Company’s
obligations under this Agreement;

 

(iii)                            the termination of, or a reduction in, any
material employee benefit or perquisite enjoyed by him (other than as part of
an across-the-board reduction applying to all executive officers of the Company
which has been approved by the Board or the Compensation Committee thereof (the
“Compensation Committee”));

 

(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, excluding for this purpose, changes to the individuals, groups,
positions, or divisions which report to the Executive or, if applicable, the
Executive’s removal as a member of the Board or as a member of any board of
directors of any Subsidiary of the Company. For the avoidance of doubt, a
change in the Person to whom the Executive reports shall not be deemed a
Constructive Termination hereunder;

 

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

 

(vi)                      the failure of the Company to obtain the
assumption in writing of its obligation to fully perform this Agreement by any
successor to all or substantially all of the assets of the Company within 15
days after a merger, consolidation, sale, or similar transaction; or

 

(vii)                    a material breach by the Company of any or
all of the representations made by the Company in Section 12(a).

 

(i)                                “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 90 consecutive
days or any 180 days out of 365 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.

 

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

 

(k)                              “Person” means any individual,
corporation, partnership, limited liability company, joint venture, trust,
estate, board, committee, agency, body, employee benefit plan, association,
joint stock company, unincorporated organization or governmental entity or any
department, agency or political subdivision thereof or other person or entity.

 

(1)                              “Proceeding” means any threatened or
actual action, suit, or proceeding, at law or in equity, whether civil,
criminal, administrative, investigative, appellate, or other.

 

(m)                            “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 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.

 

(n)                              “Subsidiary” means, with respect to
any Person, any corporation, limited liability company, partnership,
association or other business entity of which (i) if a corporation, a majority
of the total voting power of shares of stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or indirectly,
by that Person or one or more of the other Subsidiaries of that Person or a
combination thereof, or (ii) if a limited liability company, partnership,
association or other business entity, a majority of the limited liability
company, partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof.

 

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For
purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority
of limited liability company, partnership, association or other business entity
gains or losses or shall be or control any managing director or general partner
of such limited liability company, partnership, association or other business
entity.

 

(o)                          “Termination Date” means the date on which the Executive’s employment
hereunder terminates for any reason.

 

(p)                           “Voting Stock” means issued and
outstanding capital stock or other securities 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).

 

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 the third anniversary thereof. On the third anniversary of the
Effective Date, and on every successive one year anniversary thereafter, the
Term of Employment shall automatically be renewed on the same terms and
conditions set forth herein as modified from time to time by the Parties for
additional one-year periods, unless either Party gives the other Party written
notice of the election not to renew the Term of Employment at least 60 days’
prior to any such renewal date, whereupon the Executive’s employment shall
terminate on the anniversary date under the terms of this Agreement. 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 in accordance with the provisions set forth in Section
8.

 

3.                                    Positions, Duties, and Responsibilities.

 

(a)                               During the Term of Employment, the Executive
shall be employed as a Managing Director of each of Holdings, Service, and
Financial, and shall perform such normal duties, responsibilities, functions and
authority and exercise such powers as are incident to such offices. The
Executive, in carrying out his executive duties under this Agreement, shall
report to the Executive Vice President - Head of Structured Finance of such companies
and shall devote his best efforts and his full business time and attention
(except for permitted vacation periods and reasonable periods of illness or
other incapacity) to the business and affairs of the Company. The Executive
shall perform his duties and responsibilities to the Company hereunder to the
best of his abilities in a diligent, trustworthy, professional and efficient
manner and shall comply with the Company’s policies and procedures in all
material respects.

 

(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

 

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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 a
Managing Director of each of Holdings, Service, and Financial.

 

4.                                     Base Salary. Commencing as of the Effective Date, the Executive shall be paid an
annualized Base Salary of $250,000 per annum, or such higher rate as the Compensation
Committee may determine from time to time (as adjusted from time to time, the “Base
Salary”). The 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. Without
the Executive’s written consent, the Base Salary shall not be decreased at any
time, or for any purpose, during the Term of Employment (including, without
limitation, for the purpose of determining benefits due under Section 9).

 

5.                                     Annual Incentive Awards. The Executive shall be eligible for an
annual incentive bonus award from the Company in respect of each fiscal year
ending during the Term of Employment. The Executive’s target annual incentive
bonus amount for each such year shall be an amount equal to one hundred percent
(100%) of his annualized Base Salary for such year, and his actual bonus amount
for each such year shall be determined based on criteria determined by the
Chief Executive Officer of the Company and approved by the Compensation
Committee in its sole discretion, and communicated to the Executive no later than
30 days after the beginning of the fiscal year; provided, however,
that the Executive’s minimum annual incentive bonus award for fiscal year 2004
shall be no less than $210,000. The Executive shall receive his annual
incentive award payment in respect of any fiscal year no later than the 60th
day following the end of the preceding fiscal year.

 

6.                                     Other Benefits.

 

(a)                                Employee Benefits. During the Term of Employment, the
Executive shall be entitled to 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 or guarantee,
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
made available 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, maintain or retain 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.

 

6

 

(b)                            Perquisites. During the Term of Employment, the Executive shall be entitled to
participate in all fringe benefits and perquisites made generally available to
senior executives of the Company, in each case, at levels, and on terms and
conditions, that are commensurate with his positions and responsibilities at
the Company. 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 Company’s vacation policies in effect from time
to time.

 

7.                                    Reimbursement of Business and Other Expenses.

 

(a)                              The Executive shall be authorized to incur
reasonable business expenses in carrying out his duties and responsibilities
under this Agreement which are consistent with the Company’s policies in effect
from time to time with respect to travel, entertainment and other business
expenses, and the Company shall promptly reimburse him for all such expenses,
subject to his satisfaction of Company requirements with respect to reporting
and documentation of such expenses.

 

(b)                             All amounts payable to the Executive as
compensation hereunder shall be subject to all required and customary
withholding by the Company.

 

8.                                    Termination of Employment.

 

(a)                               Termination Due to 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)                                  payment of the Base Salary through the date
of his death and for an additional 90 days thereafter;

 

(ii)                               a Pro-Rata Annual Incentive Award for the
year in which his death occurs, payable in a lump sum promptly after the date
of his death in due course with such payments made to other executives of the
Company following the end of the Company’s fiscal year;

 

(iii)                             a lump-sum payment promptly after his death
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
and owing to the Executive but not yet paid and receipt of other vested
benefits in accordance with applicable plans and programs of the Company (the “Standard
Benefit”); and

 

(iv)                             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 terms
and conditions no less favorable than those applying on such date.

 

7

 

(b)                                Termination Due to Disability. 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
year in which his employment terminates, payable in a lump sum in due course
with such payments made to other executives of the Company following the end of
the Company’s fiscal year;

 

(iii)                          the Standard Benefit; and

 

(iv)                         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.

 

No
termination of the Executive’s employment for Disability shall be effective
unless the Company first gives 15 days’ written notice of such termination to
the Executive.

 

(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 8(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 state
in reasonable detail the circumstances that constitute the grounds on which the
proposed termination for Cause is based and (B) to be given no later than 180
days after the Board first learns of such circumstances. The Executive shall
have 15 days after receiving such notice in which to cure such grounds, to the
extent such cure is possible.

 

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

 

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

 

(B)                              the Standard Benefit.

 

(d)                                Termination Without Cause; Constructive Termination
of the Executive. In
the event that the Executive’s employment hereunder is terminated by the Company,
other than due to Disability in accordance with Section 8(b) or for
Cause in accordance with Section 8(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 the Base Salary through the
Termination Date;

 

8

 

(ii)                                 the Standard Benefit; and

 

(iii)                              upon execution and delivery of the General
Release substantially in the form and substance as set forth in Exhibit A
attached hereto (the “General Release”) and such General Release having
become effective:

 

(1)                              a Pro-Rata Annual Incentive Award for the
year in which the Executive was terminated, payable in a lump sum promptly
following the Termination Date;

 

(2)                              payment of severance in an amount equal to
one year of the Executive’s annual Base Salary as of the Termination Date,
which severance payment shall be payable on a “salary continuation basis” in
regular installments in accordance with the general payroll practices of the
Company (in effect from time to time) or, at the Company’s option, in one lump
sum payment; and

 

(3)                              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 8(c)(ii)  in the case of a termination by the Company
for Cause. A voluntary termination under this Section 8(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 8(a)(iv), 8(b)(iv),
or 8(d)(iii)(3), 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 on account of (A) any claim that the Company
or any of its shareholders or Affiliates may have against him or (B) any
remuneration or other benefit earned or received by the Executive after such
termination except as specifically provided in Section 8(d)(iii)(3).

 

9.                                       Change of Control. In the event that a Change of Control
occurs during the Term of Employment, then (i) all Company stock options issued
to the Executive prior to the date

 

9

 

hereof shall thereupon
become fully vested and nonforfeitable; and (ii) the Executive shall have the
continued right to exercise each outstanding vested stock option, including,
without limitation, any portion of the Executive’s stock options vesting prior
to or upon such Change of Control, to the extent permitted by the applicable
plan or, if more favorable to the Executive, grant document. In the event that
holders of Common Stock receive cash, securities, or other property in respect
of their Common Stock in connection with a Change of Control transaction, the
Company shall enable the Executive (if he so elects) to exercise any stock
option at a time and in a fashion that will entitle him to receive in exchange
for any shares thus acquired, the same consideration as is received in such
Change of Control transaction by other holders of Common Stock.

 

10.                           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 legally permitted or authorized by Holdings’ Certificate of
Incorporation, Bylaws or Board resolutions, 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. 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 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. For the avoidance of doubt, notwithstanding anything
to the contrary contained herein, the Executive shall not be entitled to
indemnification hereunder if any Proceeding or Claim is initiated by the
Executive without the prior written consent of the Company, or if the Executive
fails timely to notify the Company of his being made (or being threatened to be
made) a party to any such Proceeding contemplated by this Section 10(a)
and the Company is materially prejudiced by the Executive’s failure to so
notify it.

 

(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 10(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.

 

10

 

(c)                                 The Company shall be entitled to deduct or
withhold from any amounts owing from the Company to the Executive any federal,
state, local or foreign withholding taxes, excise tax, or employment taxes (“Taxes”)
imposed with respect to the Executive’s compensation or other payments from the
Company or the Executive’s ownership interest in the Company (including,
without limitation, wages, bonuses, dividends, the receipt or exercise of
equity options and/or the receipt or vesting of restricted equity). In the
event the Company elects, at the Executive’s request, to not make such
deductions or withholdings, the Executive shall indemnify the Company for any
amounts paid with respect to any such Taxes, together with any interest,
penalties and related expenses thereto.

 

11.                             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 commercially
reasonable efforts to cause such assignee or transferee to expressly assume the
liabilities, obligations and duties of the Company hereunder.

 

(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 applicable law, except as provided in Section 18(f).

 

12.                             Representations.

 

(a)                                 Holdings, Service and Financial, jointly and
severally, represent and warrant that:

 

(i)                                    Holdings, Service and Financial are duly
authorized to enter into this Agreement and to perform their respective
obligations hereunder and, upon the execution and delivery of this Agreement by
the Parties, this Agreement shall be the valid and binding obligation of
Holdings, Service and Financial, enforceable against Holdings, Service and
Financial in accordance with its terms;

 

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

 

11

 

(iii)                              The execution and delivery by each of
Holdings, Service, 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, Service, or Financial
is bound, or of any provision of the Certificate of Incorporation or Bylaws of
Holdings, Service 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, Service 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, Service or Financial.

 

(b)                                The Executive hereby acknowledges, represents
and warrants to the Company that:

 

(i)                                    the execution, delivery and performance of
this Agreement by the Executive do not and shall not conflict with, breach,
violate or cause a default under any contract, agreement, instrument, order,
judgment or decree to which the Executive is a party or by which he is bound;

 

(ii)                                 the Executive is not a party to or bound by
any undisclosed employment agreement, non-compete agreement or confidentiality
agreement with any other Person;

 

(iii)                              upon the execution and delivery of this
Agreement by the Company, this Agreement shall be the valid and binding
obligation of the Executive, enforceable in accordance with its terms; and

 

(iv)                             the Executive has had ample opportunity to
consult with independent legal counsel regarding his rights and obligations
under this Agreement, has so consulted to the extent desired by the Executive
in his sole discretion, and fully understands the terms and conditions
contained herein.

 

13.                              Covenant Not to Compete; Confidentiality; Intellectual
Property, Inventions and Patents.

 

(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 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
twelve (12) months thereafter (the “Noncompete Period”), the Executive
shall not directly or indirectly (whether as an employee, consultant, investor,
independent contractor, or director):

 

12

 

(A)                        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 or
is developing business or has demonstrable plans to conduct business; provided,
however, that this clause (A) shall not apply following the expiration
of the Term of Employment as a result of a notice from the Company or the
Executive pursuant to Section 2; provided, further, that
nothing herein shall prohibit the Executive from being a passive owner of not
more than five percent (5%) of the outstanding stock of any class of a
corporation that is publicly traded, so long as the Executive has no active
participation in the business of such corporation; or

 

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

 

(ii)                                 For the purposes of this Section 13, 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 or is developing or considering for development during the Term of
Employment or on the Termination Date.

 

(iii)                              The covenants of the Executive set forth in
this Section 13 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.

 

(iv)                             The covenants set forth above in this Section
13 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.

 

(v)                                If, at the time of enforcement of this Section
13, any arbitrator or 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 13 are reasonable and necessary
to the protection of legitimate Company interests.

 

(vi)                             In the event of the breach or a threatened breach
by the Executive of any of the provisions of this Section 13, the
Executive acknowledges and agrees that the

 

13

 

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 13, 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.

 

(i)                                    The Executive acknowledges that he will
develop and be exposed to non-public 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 non-public 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 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 acts or
omissions; 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 all
discoveries, concepts, ideas, inventions, innovations, improvements, developments,
methods, designs, analyses, drawings, reports, patent applications,
copyrightable work and mask 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 relate to the Company’s
or any of its Subsidiaries’ actual or anticipated business, research and
development or existing or future

 

14

 

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. 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.                             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, 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 $150.00 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 one year after the Termination
Date. Notwithstanding anything to the contrary contained herein, upon
termination of the Term of Employment hereunder, the Executive shall, if
applicable, 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.                             Resolution of Disputes. Except as specifically contemplated in this
Agreement, any Claim arising out of or relating to this Agreement, the
Executive’s employment with the Company, or the termination of such employment
shall be resolved by binding confidential arbitration, to be held in New York,
New York, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. Judgment upon the award rendered by the arbitrator may
be entered by any Party in any court having jurisdiction thereof. During the
resolution of any dispute under this Section 15, each Party shall bear
the cost of its own attorneys’ fees and expenses. If the Executive prevails in
the arbitration, then the Company shall promptly pay all reasonable costs and
expenses, including, without limitation, reasonable attorneys’ fees, incurred
by the Executive or his beneficiaries in resolving any such Claim. If the
Company prevails in the arbitration, then the arbitrator shall determine the
allocation of the costs and expenses of the arbitration, including the arbitrator’s
fee and both Parties’ attorneys’ fees and expenses, based upon the extent to which
each Party prevailed in the arbitration. In the event that any relief which is
awarded is non-monetary, then such costs and expenses shall be allocated in any
manner as may be determined by the arbitrator.

 

15

 

16.                               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 16), 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 16), with a confirmatory copy sent
by certified or registered mail or by overnight courier to the Company in
accordance with this Section 16.

 

If
to the Company, to:

 

American
Capital Access Service Corporation

140
Broadway

New
York, NY 10005

Attention:
General Counsel

Telephone:
(212) 375-2000

Facsimile:
(212) 375-2100

 

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.

 

If
to a beneficiary of the Executive, to:

 

The
address most recently specified by the Executive or beneficiary through notice
given in accordance with this Section 16.

 

17.                               Guarantee of Obligations. Financial and Holdings are each a beneficiary
of the services provided by Executive and hereby irrevocably and
unconditionally guarantee the performance of all obligations of Service
hereunder.

 

18.                               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.

 

16

 

19.                               Miscellaneous.

 

(a)                                Entire Agreement. This Agreement, including Exhibit A
hereto, represents the entire understanding and agreement between the Parties
concerning the subject matter hereof and, as of the Effective Date, supersedes
and terminates all prior agreements, understandings, discussions, negotiations,
and undertakings, whether written or oral, between the Parties with respect
thereto.

 

(b)                               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.

 

(c)                                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.

 

(d)                               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.

 

(e)                                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.

 

(f)                                  Survivorship. Except as otherwise set forth in this
Agreement, the respective rights and obligations of the Parties hereunder shall
survive the Termination Date.

 

(g)                               Governing Law/Jurisdiction. This Agreement shall be governed, construed,
performed, and enforced in accordance with the laws of the State of New York, without
giving effect to any choice of law or conflict of law rules or provisions
(whether of the State of New York or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of New
York. In furtherance of the foregoing, the internal law of the State of New
York shall control the interpretation and construction of this Agreement (and all
exhibits hereto), even though under that jurisdiction’s choice of law or
conflict of law analysis, the substantive law of some other jurisdiction would
ordinarily apply.

 

(h)                               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.

 

17

 

(i)                                   No Strict Construction. The language used in this Agreement shall
be deemed to be the language chosen by the Parties to express their mutual
intent, and no rule of strict construction shall be applied against any Party.

 

(k)                                Consent to Jurisdiction. EACH OF THE PARTIES IRREVOCABLY SUBMITS TO
THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES DISTRICT COURT LOCATED IN
NEW YORK CITY, NEW YORK, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER
PROCEEDING ARISING OUT OF THIS AGREEMENT, ANY RELATED AGREEMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY OR THEREBY. EACH OF THE PARTIES FURTHER AGREES
THAT SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY U.S. REGISTERED
MAIL TO SUCH PARTY’S RESPECTIVE ADDRESS SET FORTH ABOVE SHALL BE EFFECTIVE
SERVICE OF PROCESS FOR ANY ACTION, SUIT OR PROCEEDING IN THE STATE OF NEW YORK
WITH RESPECT TO ANY MATTERS TO WHICH IT HAS SUBMITTED TO JURISDICTION IN THIS
PARAGRAPH 18(L). EACH OF THE PARTIES IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
OBJECTION TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING ARISING OUT
OF THIS AGREEMENT, ANY RELATED DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY
AND THEREBY IN ANY UNITED STATES DISTRICT COURT LOCATED IN NEW YORK CITY, NEW
YORK, AND HEREBY AND THEREBY FURTHER IRREVOCABLY AND UNCONDITIONALLY WAIVES AND
AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION, SUIT OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

(l)                                   Waiver of Jury Trial. AS A SPECIFICALLY BARGAINED FOR INDUCEMENT
FOR EACH OF THE PARTIES TO ENTER INTO THIS AGREEMENT, EACH PARTY EXPRESSLY
WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LAWSUIT OR PROCEEDING RELATING TO OR
ARISING IN ANY WAY FROM THIS AGREEMENT OR THE MATTERS CONTEMPLATED HEREBY.

 

18

 

SIGNATURE PAGE TO EMPLOYMENT AGREEMENT

 

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

 

	
   

  	
  AMERICAN CAPITAL ACCESS SERVICE CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ALAN S. ROSEMAN

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ACA CAPITAL HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ALAN S. ROSEMAN

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ACA FINANCIAL GUARANTY CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ ALAN S. ROSEMAN

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ JAMES
  ROTHMAN

  
	
   

  	
  JAMES ROTHMAN

  

 

 

Exhibit A

 

GENERAL RELEASE

 

I, JAMES ROTHMAN, in consideration of and subject to
the performance by AMERICAN CAPITAL ACCESS SERVICE CORPORATION, a Delaware
corporation (“Service”), ACA CAPITAL HOLDINGS, INC., a Delaware
corporation (“Holdings”), ACA FINANCIAL GUARANTY CORPORATION, a Maryland
corporation (“Financial,” and, together with Holdings, Service and each
of their respective subsidiaries, the “Company”), of their respective
obligations under the Employment Agreement, dated as of September 30, 2004 (the
“Agreement”), do hereby release and forever discharge as of the date
hereof the Company and its affiliates and all present and former directors,
officers, employees, agents, representatives, attorneys, successors and assigns
of the Company and its affiliates and the Company’s direct or indirect owners
(collectively, the “Released Parties”) to the extent provided below.

 

1.                                       I understand that any payments or benefits
paid or granted to me under Section 8(d)(iii) of the Agreement represent, in
part, consideration for signing this General Release and are not salary, wages
or benefits to which I was already entitled. I understand and agree that I will
not receive the payments and benefits specified in Section 8(d)(iii) of the Agreement
unless I execute and effectuate this General Release. Such payments and benefits
will not be considered compensation for purposes of any employee benefit plan, program,
policy or arrangement maintained or hereafter established by the Company or its
affiliates. I also acknowledge and represent that I have received all payments
and benefits that I am entitled to receive (as of the date hereof) by virtue of
any employment by the Company.

 

2.                                       Except with respect to obligations to me
under my Employment Agreement that expressly survive the termination of my
employment with the Company, I knowingly and voluntarily (for myself, my heirs,
executors, administrators and assigns) release and forever discharge the
Company and the other Released Parties from any and all claims, suits,
controversies, actions, causes of action, cross-claims, counter-claims,
demands, debts, compensatory damages, liquidated damages, punitive or exemplary
damages, other damages, claims for costs and attorneys’ fees, or liabilities of
any nature whatsoever, in law and in equity, both past and present (through the
date this General Release becomes effective and enforceable) and whether known
or unknown, suspected, or claimed, against the Company or any of the Released
Parties which I, my spouse, or any of my heirs, executors, administrators or
assigns, may have, which arise out of or are connected with my employment with,
or my separation or termination from, the Company (including, but not limited
to, any allegation, claim or violation arising under: Title VII of the Civil
Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination
in Employment Act of 1967, as amended (including the Older Workers Benefit
Protection Act); the Equal Pay Act of 1963, as amended; the Americans with Disabilities
Act of 1990; the Family and Medical Leave Act of 1993; the Worker Adjustment
Retraining and Notification Act; the Employee Retirement Income Security Act of
1974; any applicable Executive Order Programs; the Fair Labor Standards Act; or
their state or local counterparts; or under any other federal, state or local
civil or human

 

 

rights
law, or under any other local, state, or federal law, regulation or ordinance;
or under any public policy, contract or tort, or under common law; or arising
under any policies, practices or procedures of the Company; or any claim for
wrongful discharge, breach of contract, infliction of emotional distress,
defamation; or any claim for costs, fees, or other expenses, including
attorneys’ fees incurred in these matters) (collectively, the “Claims”).

 

3.                                       I represent that I have made no assignment or
transfer of any right, claim, demand, cause of action, or other matter covered
by Section 2 above.

 

4.                                       In signing this General Release, I
acknowledge and intend that it shall be effective as a bar to each and every
one of the Claims hereinabove mentioned or implied. I expressly consent that this
General Release shall be given full force and effect according to each and all
of its express terms and provisions, including those relating to unknown and unsuspected
Claims (notwithstanding any state statute that expressly limits the effectiveness
of a general release of unknown, unsuspected and unanticipated Claims), if any,
as well as those relating to any other Claims hereinabove mentioned or implied.
I acknowledge and agree that this waiver is an essential and material term of
this General Release and that without such waiver the Company would not have
agreed to the terms of the Agreement. I further agree that in the event I
should bring a Claim seeking damages against the Company, or in the event I
should seek to recover against the Company in any Claim brought by a
governmental agency on my behalf, this General Release shall serve as a
complete defense to such Claims as to my rights and entitlements. I further
agree that I am not aware of any pending charge or complaint of the type
described in Section 2 as of the execution of this General Release.

 

5.                                       I agree that neither this General Release,
nor the furnishing of the consideration for this General Release, shall be
deemed or construed at any time to be an admission by the Company, any Released
Party or myself of any improper or unlawful conduct.

 

6.                                       I agree that I will (i) forfeit all amounts
payable by the Company pursuant to the Agreement and (ii) to the maximum extent
permitted by applicable law, immediately return to the Company all amounts paid
by the Company pursuant to Section 8(d)(iii), in each case, if I challenge the
validity of this General Release. I also agree that if I violate this General
Release by suing the Company or the other Released Parties, I will pay all costs
and expenses of defending against the suit incurred by the Released Parties, including
reasonable attorneys’ fees, and return all payments received by me pursuant to the
Agreement.

 

7.                                       I agree that this General Release is
confidential and agree not to disclose any information regarding the terms of
this General Release, except to my immediate family and any tax, legal or other
counsel I have consulted regarding the meaning or effect hereof or as required
by law, and I will instruct each of the foregoing not to disclose the same to anyone.

 

8.                                       Any non-disclosure provision in this General
Release does not prohibit or restrict me (or my attorney) from responding to
any inquiry about this General Release or its underlying

 

21

 

facts
and circumstances by the Securities and Exchange Commission (SEC), the National
Association of Securities Dealers, Inc. (NASD), any other self-regulatory
organization or governmental entity.

 

9.                                       I agree to reasonably cooperate with the
Company in any internal investigation, any administrative, regulatory, or
judicial proceeding or any dispute with a third party. I understand and agree
that my cooperation may include, but not be limited to, making myself 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 pertinent information;
and turning over to the Company all relevant documents which are or may come
into my possession all at times and on schedules that are reasonably consistent
with my other permitted activities and commitments. I understand that in the
event the Company asks for my cooperation in accordance with this provision,
the Company will reimburse me solely for reasonable travel expenses, (including
lodging and meals), upon my submission of receipts and shall compensate the me
for such cooperation at $150.00 per hour; provided, however, that
such compensation shall only be paid to me for my time as provided under
Section 14 of the Agreement.

 

10.                                 I agree not to disparage the Company, its
past and present investors, officers, directors or employees or its affiliates
and to keep all confidential and proprietary information about the past or
present business affairs of the Company and its affiliates confidential unless
a prior written release from the Company is obtained. I further represent that
as of the date hereof, I have returned to the Company any and all property,
tangible or intangible, relating to its business, which I possessed or had
control over at any time (including, but not limited to, company-provided
credit cards, building or office access cards, keys, computer equipment,
manuals, files, documents, records, software, customer data base and other
data) and that I have not retained any copies, compilations, extracts,
excerpts, summaries or other notes of any such manuals, files, documents,
records, software, customer data base or other data.

 

11.                                 Notwithstanding anything in this General
Release to the contrary, this General Release shall not relinquish, diminish,
or in any way affect any rights or claims arising out of any breach by the
Company or by any Released Party of the Agreement after the date hereof.

 

12.                                 Whenever possible, each provision of this
General Release shall be interpreted in, such manner as to be effective and
valid under applicable law, but if any provision of this General Release is
held to be invalid, illegal or unenforceable in any respect under any applicable
law or rule in any jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision or any other
jurisdiction, but this General Release shall be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision had never been contained herein.

 

BY
SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE THAT: 

 

1.                                       I
HAVE READ IT CAREFULLY;

 

22

 

2.                                       I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I
AM GIVING UP IMPORTANT RIGHTS, INCLUDING BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED;

 

3.                                       I VOLUNTARILY CONSENT TO EVERYTHING IN IT;

 

4.                                       I HAVE BEEN ADVISED TO CONSULT WITH AN
ATTORNEY BEFORE EXECUTING IT, I HAVE HAD THE OPPORTUNITY TO SO CONSULT, AND HAVE
AVAILED MYSELF OF SUCH ADVICE TO THE EXTENT I HAVE DEEMED NECESSARY TO MAKE A
VOLUNTARY AND INFORMED CHOICE TO EXECUTE THIS AGREEMENT;

 

5.                                       I HAVE HAD AT LEAST [21][/][45] DAYS FROM THE
DATE OF MY RECEIPT OF THIS RELEASE SUBSTANTIALLY IN ITS FINAL FORM ON                    ,
20    TO CONSIDER IT AND THE CHANGES MADE SINCE THE                       ,
20      
VERSION OF THIS RELEASE ARE NOT MATERIAL AND WILL NOT RESTART ANY REQUIRED
CONSIDERATION PERIOD;  [This section is only required if the Executive is
over the age of 40. The 45 day period is required if at least one other person
is being terminated at the same time for the same reason, i.e., a reduction in
force.]

 

6.                                       I UNDERSTAND THAT I HAVE SEVEN DAYS AFTER THE
EXECUTION OF THIS RELEASE TO REVOKE IT, SUCH REVOCATION TO BE RECEIVED IN
WRITING BY THE COMPANY BY THE END OF THE SEVENTH DAY AFTER THE DATE HEREOF, AND
THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE
REVOCATION PERIOD HAS EXPIRED;  [This section is only required if the Executive is
over the age of 40.]

 

7.                                       I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY
AND VOLUNTARILY AND WITH THE ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT
TO IT; AND

 

8.                                       I AGREE THAT THE PROVISIONS OF THIS GENERAL
RELEASE MAY NOT BE AMENDED, WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT
IN WRITING SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME.

 

	
  NAME:

  	
   

  	
   

  
	
   

  
	
  DATE:

  	
   

  	
   

  

 

23Exhibit 10.18

 

 

ACA CAPITAL
HOLDINGS, INC.

 

AMENDED AND RESTATED 2006 STOCK
INCENTIVE PLAN

 

(as amended and restated September
30, 2004

and formerly known as the American Capital Access

Holdings, Incorporated Omnibus Incentive
Compensation Plan, and as further

amended and restated August 3, 2006)

 

 

 

 

TABLE OF CONTENTS

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  1.

  	
  PURPOSE

  	
  1

  
	
  2.

  	
  DEFINITIONS

  	
  1

  
	
  3.

  	
  ADMINISTRATION OF THE PLAN

  	
  5

  
	
   

  	
  3.1.

  	
  Board

  	
  5

  
	
   

  	
  3.2.

  	
  Committee.

  	
  5

  
	
   

  	
  3.3.

  	
  Terms of Awards.

  	
  5

  
	
   

  	
  3.4.

  	
  Deferral Arrangement.

  	
  6

  
	
   

  	
  3.5.

  	
  No Liability.

  	
  6

  
	
  4.

  	
  STOCK SUBJECT TO THE PLAN

  	
  7

  
	
  5.

  	
  EFFECTIVE DATE, DURATION AND AMENDMENTS

  	
  7

  
	
   

  	
  5.1.

  	
  Effective Date.

  	
  7

  
	
   

  	
  5.2.

  	
  Term.

  	
  7

  
	
   

  	
  5.3.

  	
  Amendment and Termination of the Plan

  	
  7

  
	
  6.

  	
  AWARD ELIGIBILITY AND LIMITATIONS

  	
  7

  
	
   

  	
  6.1.

  	
  Service Providers and Other Persons

  	
  7

  
	
   

  	
  6.2.

  	
  Successive Awards.

  	
  8

  
	
   

  	
  6.3.

  	
  Limitations on Incentive Stock Options.

  	
  8

  
	
   

  	
  6.4.

  	
  Stand-Alone, Additional, Tandem, and Substitute Awards

  	
  8

  
	
  7.

  	
  AWARD AGREEMENT

  	
  8

  
	
  8.

  	
  TERMS AND CONDITIONS OF OPTIONS

  	
  9

  
	
   

  	
  8.1.

  	
  Option Price

  	
  9

  
	
   

  	
  8.2.

  	
  Vesting.

  	
  9

  
	
   

  	
  8.3.

  	
  Term.

  	
  9

  
	
   

  	
  8.4.

  	
  Termination of Service.

  	
  9

  
	
   

  	
  8.5.

  	
  Limitations on Exercise of Option.

  	
  10

  
	
   

  	
  8.6.

  	
  Method of Exercise.

  	
  10

  
	
   

  	
  8.7.

  	
  Rights of Holders of Options

  	
  10

  
	
   

  	
  8.8.

  	
  Delivery of Stock Certificates.

  	
  10

  
	
   

  	
  8.9.

  	
  Reload Options.

  	
  10

  
	
  9.

  	
  TRANSFERABILITY OF OPTIONS

  	
  11

  
	
   

  	
  9.1.

  	
  Transferability of Options

  	
  11

  
	
   

  	
  9.2.

  	
  Family Transfers.

  	
  11

  
	
  10.

  	
  RESTRICTED STOCK AND STOCK UNITS

  	
  11

  
	
   

  	
  10.1.

  	
  Grant of Restricted Stock or Stock Units.

  	
  11

  
	
   

  	
  10.2.

  	
  Restrictions.

  	
  11

  
	
   

  	
  10.3.

  	
  Restricted Stock Certificates.

  	
  12

  
	
   

  	
  10.4.

  	
  Rights of Holders of Restricted Stock.

  	
  12

  
	
   

  	
  10.5.

  	
  Rights of Holders of Stock Units.

  	
  12

  
	
   

  	
   

  	
  10.5.1.

  	
  Voting and Dividend Rights.

  	
  12

  
	
   

  	
   

  	
  10.5.2.

  	
  Creditor’s Rights.

  	
  12

  
	
   

  	
  10.6.

  	
  Termination of Service.

  	
  13

  

 

 

 

	
   

  	
  10.7.

  	
  Purchase of Restricted Stock.

  	
  13

  
	
   

  	
  10.8.

  	
  Delivery of Stock.

  	
  13

  
	
  11.

  	
  UNRESTRICTED STOCK AWARDS

  	
  13

  
	
  12.

  	
  FORM OF PAYMENT FOR OPTIONS AND RESTRICTED STOCK

  	
  13

  
	
   

  	
  12.1.

  	
  General Rule.

  	
  13

  
	
   

  	
  12.2.

  	
  Surrender of Stock.

  	
  14

  
	
   

  	
  12.3.

  	
  Cashless Exercise.

  	
  14

  
	
   

  	
  12.4.

  	
  Other Forms of Payment.

  	
  14

  
	
  13.

  	
  DIVIDEND EQUIVALENT RIGHTS

  	
  14

  
	
   

  	
  13.1.

  	
  Dividend Equivalent Rights.

  	
  14

  
	
   

  	
  13.2.

  	
  Termination of Service.

  	
  15

  
	
  14.

  	
  PERFORMANCE AND ANNUAL INCENTIVE AWARDS

  	
  15

  
	
   

  	
  14.1.

  	
  Performance Conditions

  	
   

  
	
   

  	
  14.2.

  	
  Performance or Annual Incentive Awards Granted to Designated Covered
  Employees

  	
  15

  
	
   

  	
   

  	
  14.2.1.

  	
  Performance Goals Generally.

  	
  15

  
	
   

  	
   

  	
  14.2.2.

  	
  Business Criteria.

  	
  16

  
	
   

  	
   

  	
  14.2.3.

  	
  Timing For Establishing Performance Goals.

  	
  16

  
	
   

  	
   

  	
  14.2.4.

  	
  Performance or Annual Incentive Award Pool.

  	
  16

  
	
   

  	
   

  	
  14.2.5.

  	
  Settlement of Performance or Annual Incentive Awards; Other Terms.

  	
  16

  
	
   

  	
  14.3.

  	
  Written Determinations.

  	
  16

  
	
   

  	
  14.4.

  	
  Status of Section 14.2 Awards Under Code Section 162(m)

  	
  17

  
	
  15.

  	
  PARACHUTE LIMITATIONS

  	
  17

  
	
  16.

  	
  REQUIREMENTS OF LAW

  	
  18

  
	
   

  	
  16.1.

  	
  General.

  	
  18

  
	
   

  	
  16.2.

  	
  Rule 16b-3.

  	
  18

  
	
  17.

  	
  EFFECT OF CHANGES IN CAPITALIZATION

  	
  19

  
	
   

  	
  17.1.

  	
  Changes in Stock.

  	
  19

  
	
   

  	
  17.2.

  	
  Reorganization in Which the Company Is the Surviving Entity Which does
  not Constitute a Corporate Transaction.

  	
  19

  
	
   

  	
  17.3.

  	
  Corporate Transaction.

  	
  20

  
	
   

  	
  17.4.

  	
  Adjustments.

  	
  21

  
	
   

  	
  17.5.

  	
  No Limitations on Company.

  	
  21

  
	
  18.

  	
  GENERAL PROVISIONS

  	
  21

  
	
   

  	
  18.1.

  	
  Disclaimer of Rights

  	
  21

  
	
   

  	
  18.2.

  	
  Nonexclusivity of the Plan

  	
  21

  
	
   

  	
  18.3.

  	
  Withholding Taxes

  	
  22

  
	
   

  	
  18.4.

  	
  Captions

  	
  22

  
	
   

  	
  18.5.

  	
  Other Provisions

  	
  22

  
	
   

  	
  18.6.

  	
  Number And Gender

  	
  22

  
	
   

  	
  18.7.

  	
  Severability

  	
  22

  
	
   

  	
  18.8.

  	
  Governing Law

  	
  22

  

 

 

ii

 

ACA CAPITAL
HOLDINGS, INC.

 

AMENDED AND RESTATED 2006 STOCK
INCENTIVE PLAN

 

(as amended and restated
August 3, 2006)

 

                ACA Capital Holdings,
Inc., a Delaware corporation (the “Company”), sets forth herein the terms of
its amended and restated 2006 Stock Incentive Plan (the “Plan”), as follows:

1.                                      PURPOSE

               The Plan is intended to enhance the
Company’s and its Affiliates’ (as defined herein) ability to attract and retain
highly qualified officers, directors, key employees, and other persons, and to
motivate such officers, directors, key employees, and other persons to serve
the Company and its Affiliates and to expend maximum effort to improve the
business results and earnings of the Company, by providing to such persons an
opportunity to acquire or increase a direct proprietary interest in the
operations and future success of the Company. 
To this end, the Plan provides for
the grant of stock options, restricted stock, stock units, unrestricted stock,
dividend equivalent rights and cash awards. 
Any of these awards may, but need not, be made as performance incentives
to reward attainment of annual or long-term performance goals in accordance
with the terms hereof.  Stock options
granted under the Plan may be non-qualified stock options or incentive stock
options, as provided herein.

2.                                      DEFINITIONS

               For purposes of
interpreting the Plan and related documents (including Award Agreements), the
following definitions shall apply:

 

2.1           “Affiliate” means, with respect to the Company, any
company or other trade or business that controls, is controlled by or is under
common control with the Company within the meaning of Rule 405 of Regulation C
under the Securities Act, including, without limitation, any Subsidiary.

 

2.2           “Annual Incentive Award”
means an Award made subject to attainment of performance goals (as described in
Section 14) over a performance period
of up to one year (the fiscal year, unless otherwise specified by the
Committee).

 

2.3           “Award”
means a grant of an Option, Restricted Stock, Unrestricted Stock, Stock Unit,
Dividend Equivalent Rights, or cash award under the
Plan.

 

2.4           “Award
Agreement” means the written agreement between the Company and a
Grantee that evidences and sets out the terms and conditions of an Award.

 

2.5           “Benefit
Arrangement” shall have the meaning set forth in Section 15 hereof.

 

 

1

 

2.6           “Board”
means the Board of Directors of the Company.

 

2.7           “Cause” means, as determined by the Board and unless otherwise
provided in an applicable agreement with the Company or an Affiliate, (i) gross
negligence or willful misconduct in connection with the performance of duties;
(ii) conviction of a criminal offense (other than minor traffic offenses);
or (iii) material breach of any term of any employment, consulting or
other services, confidentiality, intellectual property or non-competition
agreements, if any, between the Service Provider and the Company or an
Affiliate.

 

2.8           “Code”
means the Internal Revenue Code of 1986, as now in effect or as hereafter
amended.

 

2.9           “Committee”
means a committee of, and designated from time to time by resolution of, the
Board, which shall be constituted as provided in Section 3.2.

 

2.10         “Company”
means ACA Capital Holdings, Inc.

 

2.11         “Corporate
Transaction” shall mean the
occurrence of : (a) The consummation of a transaction, through sale, merger,
business combination, joint venture or otherwise, whether effected in a single
transaction or a series of related transactions, in which 50% or more of the voting
power of the Company is transferred to, or all or substantially all of the
Company’s business or assets are combined with or transferred to, one or more
third parties that are neither (i) Affiliates of the Company, or (ii) an
employee benefit plan (or a trust forming a part thereof) maintained by the
Company, or (b) The individuals who, as of the Effective Date, are members of
the Board (the “Incumbent Board”), cease for any reason to constitute at least
a majority of the members of the Board, or following a merger, the board of
directors of the ultimate parent corporation; provided, however, that if the
election, or nomination for election by the Company’s common stockholders, of
any new director was approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Agreement, be considered a
member of the Incumbent Board.

2.12         “Covered Employee”
means a Grantee who is a “covered employee” within the meaning of Section
162(m)(3) of the Code.

2.13         “Disability”
means the Grantee is unable to perform each of the essential duties of such
Grantee’s position by reason of a medically determinable physical or mental
impairment which is potentially permanent in character or which can be expected
to last for a continuous period of not less than 12 months; provided, however,
that, with respect to rules regarding expiration of an Incentive Stock Option
following termination of the Grantee’s Service, Disability shall mean the
Grantee is unable to engage in any substantial gainful activity by reason of a
medically determinable physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last for a continuous
period of not less than 12 months.

2.14         “Dividend Equivalent”
means a right, granted to a Grantee under Section 13
hereof, to receive cash, Stock, other Awards or other property equal in value
to

 

2

dividends
paid with respect to a specified number of shares of Stock, or other periodic
payments.

2.15         “Effective Date”
means August 3, 2006.

 

2.16         “Exchange Act”
means the Securities Exchange Act of 1934, as now in effect or as hereafter
amended.

 

2.17         “Fair
Market Value” means the
value of a share of Stock, determined as follows:  if on the Grant Date or other determination
date the Stock is listed on an established national or regional stock exchange,
is admitted to quotation on The Nasdaq Stock Market, Inc. or is publicly traded
on an established securities market, the Fair Market Value of a share of Stock
shall be the closing price of the Stock on such exchange or in such market (if
there is more than one such exchange or market the Board shall determine the
appropriate exchange or market) on the Grant Date or such other determination
date (or if there is no such reported closing price, the Fair Market Value
shall be the mean between the highest bid and lowest asked prices or between
the high and low sale prices on such trading day) or, if no sale of Stock is
reported for such trading day, on the next preceding day on which any sale
shall have been reported.  If the Stock
is not listed on such an exchange, quoted on such system or traded on such a
market, Fair Market Value shall be the value of the Stock as determined by the
Board in good faith.

2.18         “Family
Member” means a person who is a spouse, former spouse, child,
stepchild, grandchild, parent, stepparent, grandparent, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother, sister,
brother-in-law, or sister-in-law, including adoptive relationships, of the
Grantee, any person sharing the Grantee’s household (other than a tenant or
employee), a trust in
which any one or more of these persons have more than fifty percent of the
beneficial interest, a foundation in which any one or more of these persons (or
the Grantee) control the management of assets, and any other entity in which
one or more of these persons (or the
Grantee) own more than fifty percent of the voting interests.

 

2.19         “Grant Date”
means, as determined by the Board or authorized Committee, the latest to occur of (i) the date as of which the Board approves an Award, (ii)
the date on which the recipient of an Award first becomes eligible to receive
an Award under Section 6 hereof, or (iii) such other date as may be specified
by the Board.

 

2.20         “Grantee”
means a person who receives or holds an Award under the Plan.

 

2.21         “Incentive
Stock Option” means an “incentive stock option” within the meaning
of Section 422 of the Code, or the corresponding provision of any subsequently
enacted tax statute, as amended from time to time.

 

2.22         “Non-qualified
Stock Option” means an Option that is not an Incentive Stock Option.

 

2.23         “Option”
means an option to purchase one or more shares of Stock pursuant to the Plan.

 

 

3

 

2.24         “Option
Price” means the exercise price for each share of Stock subject to
an Option.

 

2.25         “Other
Agreement” shall have the meaning set forth in Section 15
hereof.

 

2.26         “Outside
Director” means a member of the Board who is not an officer or
employee of the Company.

 

2.27         “Performance Award”
means an Award made subject to the attainment of performance goals (as
described in Section 14) over a performance
period of up to ten (10) years.

2.28         “Plan”
means this ACA Capital Holdings, Inc. Amended and Restated 2004 Stock Incentive
Plan.

 

2.29         “Purchase
Price”  means
the purchase price for each share of Stock pursuant to a grant of Restricted
Stock or Unrestricted Stock.

 

2.30         “Reporting
Person” means a person who is required to file reports under
Section 16(a) of the Exchange Act.

 

2.31         “Restricted
Stock” means shares of Stock, awarded to a Grantee pursuant to Section 10 hereof.

 

2.32         “Securities
Act” means the Securities Act of 1933, as now in effect or as
hereafter amended.

 

2.33         “Service” means service as a Service Provider to
the Company or an Affiliate.  Unless
otherwise stated in the applicable Award Agreement, a Grantee’s change in
position or duties shall not result in interrupted or terminated Service, so
long as such Grantee continues to be a Service Provider to the Company or an
Affiliate.  Subject to the preceding
sentence, whether a termination of Service shall have occurred for purposes of
the Plan shall be determined by the Board, which determination shall be final,
binding and conclusive.

 

2.34         “Service
Provider” means an employee, officer or director of the Company or
an Affiliate, or a consultant or adviser currently providing services to the
Company or an Affiliate.

 

2.35         “Stock”
means the common stock, par value $.10 per share, of the Company.

 

2.36          “Stock Unit”
means a bookkeeping entry representing the equivalent of shares of Stock,
awarded to a Grantee pursuant to Section 10
hereof.

 

2.37         “Subsidiary”
means any “subsidiary corporation” of the Company within the meaning of Section
424(f) of the Code.

 

4

 

2.38         “Termination
Date” means the date upon which an Option shall terminate or expire,
as set forth in Section 8.3 hereof.

 

2.39         “Ten Percent Stockholder”
means an individual who owns more than ten percent (10%) of the total combined
voting power of all classes of outstanding stock of the Company, its parent or
any of its Subsidiaries.  In determining
stock ownership, the attribution rules of Section 424(d) of the Code shall be
applied.

2.40          “Unrestricted
Stock” means an Award pursuant to Section
11 hereof.

3.                                      ADMINISTRATION OF THE PLAN

3.1.                            Board

                The Board shall
have such powers and authorities related to the administration of the Plan as
are consistent with the Company’s certificate
of incorporation and by-laws and applicable law.  The Board shall have full power and authority
to take all actions and to make all determinations required or provided for
under the Plan, any Award or any Award Agreement, and shall have full power and
authority to take all such other actions and make all such other determinations
not inconsistent with the specific terms and provisions of the Plan that the
Board deems to be necessary or appropriate to the administration of the Plan,
any Award or any Award Agreement.  All
such actions and determinations shall be by the affirmative vote of a majority
of the members of the Board present at a meeting or by unanimous consent of the
Board executed in writing in accordance with the Company’s certificate of incorporation and
by-laws and applicable law.  The
interpretation and construction by the Board of any provision of the Plan, any
Award or any Award Agreement shall be final, binding and conclusive.

3.2.                            Committee.

               The Board from time to time may delegate
to the Committee such powers and authorities related to the administration and
implementation of the Plan, as set forth in Section 3.1
above and other applicable provisions, as the Board shall determine, consistent
with the certificate of incorporation and by-laws of the Company and applicable
law.  In the event that the Plan, any Award or any Award Agreement
entered into hereunder provides for any action to be taken by or determination
to be made by the Board, such action may be taken or such determination may be
made by the Committee if the power and authority to do so has been delegated to
the Committee by the Board as provided for in this Section.  Unless otherwise expressly determined by the
Board, any such action or determination by the Committee shall be final,
binding and conclusive.

 

3.3.                            Terms of
Awards.

                Subject to the
other terms and conditions of the Plan, the Board shall have full and final
authority to:

 

(i)            designate Grantees,

 

5

(ii)           determine the type
or types of Awards to be made to a Grantee,

(iii)          determine the number
of shares of Stock to be subject to an Award,

(iv)          establish the terms
and conditions of each Award (including, but not limited to, the exercise price
of any Option, the nature and duration of any restriction or condition (or
provision for lapse thereof) relating to the vesting, exercise, transfer, or
forfeiture of an Award or the shares of Stock subject thereto, and any terms or
conditions that may be necessary to qualify Options as Incentive Stock
Options),

(v)           prescribe the form of
each Award Agreement evidencing an Award, and

(vi)          amend, modify, or
supplement the terms of any outstanding Award. 
Such authority specifically includes the authority, in order to
effectuate the purposes of the Plan but without amending the Plan, to modify
Awards to eligible individuals who are foreign nationals or are individuals who
are employed outside the United States to recognize differences in local
law, tax policy, or custom.

The Board
shall have the right, in its discretion, to make Awards in substitution or
exchange for any other award under another plan of the Company, any Affiliate,
or any business entity to be acquired by the Company or an Affiliate.  The Company may retain the right in an Award
Agreement to cause a forfeiture of the gain realized by a Grantee on account of
actions taken by the Grantee in violation or breach of or in conflict with any employment
agreement, non-competition agreement, any agreement prohibiting solicitation of
employees or clients of the Company or any Affiliate thereof
or any confidentiality obligation with respect to the Company or any Affiliate thereof or otherwise in competition with the Company or any
Affiliate thereof, to the extent specified in such Award Agreement applicable
to the Grantee.  Furthermore, the Company
may annul an Award if the Grantee is an employee of the Company or an Affiliate
thereof and is terminated for Cause as defined in the applicable Award
Agreement or the Plan, as applicable. The grant of any Award shall be
contingent upon the Grantee executing the appropriate Award Agreement.

3.4.                            Deferral
Arrangement.

The Board may permit or require the deferral of any
award payment into a deferred compensation arrangement, subject to such rules
and procedures as it may establish, which may include provisions for the
payment or crediting of interest or dividend equivalents, including converting
such credits into deferred Stock equivalents and restricting deferrals to
comply with hardship distribution rules affecting 401(k) plans.

3.5.                            No
Liability.

               No member of the
Board or of the Committee shall be liable for any action or determination made
in good faith with respect to the Plan or any Award or Award Agreement.

 

 

6

 

4.                             STOCK
SUBJECT TO THE PLAN

               Subject to adjustment as provided
in Section 17 hereof,(i) the total
number of shares of Stock covered by the Plan, including shares of Stock
covered by existing Awards and shares of Stock remaining available for
issuance, is 1,054,662; (ii) the number of shares of Stock remaining available
for issuance as of the Effective Date under the Plan is 505,670; and (iii) the
number of shares of Stock covered by existing Awards as of the Effective Date
is 548,992.  Stock issued or to be issued
under the Plan shall be authorized but unissued shares or, to the extent permitted by applicable
law, issued shares that have been reacquired by the Company.  If any
shares covered by an Award are not purchased or are forfeited, or if an Award
is reacquired or otherwise terminates without delivery of any Stock subject
thereto, then the number of shares of Stock previously counted against the
aggregate number of shares available for issuance under the Plan with respect
to such Award shall, to the extent of any such forfeiture, reacquisitions or termination,
again be available for issuance and making Awards under the Plan.  If the Option Price of any Option granted
under the Plan, or if pursuant to Section 18.3 the
withholding obligation of any Grantee with respect to an Option, is satisfied
by tendering shares of Stock to the Company (by either actual delivery or by
attestation) or by withholding shares of Stock, the total number of shares of
Stock issued shall be deemed delivered for purposes of determining the maximum
number of shares of Stock remaining available for issuance under the Plan.

5.                                      EFFECTIVE DATE, DURATION AND AMENDMENTS

5.1.                            Effective
Date.

               The Plan was
originally effective March 1, 2001.  The
Plan was amended and restated effective September 30, 2004 and further amended
by Amendment No. 1 thereto on October 4, 2004, and further amended and restated
hereby on the Effective Date.

5.2.                            Term.

               The Plan shall
terminate automatically ten (10) years after the Amendment and Restatement Date
and may be terminated on any earlier date as provided in Section 5.3.

5.3.                            Amendment
and Termination of the Plan

               The Board may, at
any time and from time to time, amend, suspend, or terminate the Plan as to any
shares of Stock as to which Awards have not been made.  An amendment shall be contingent on approval
of the Company’s stockholders to the extent stated by the Board or required by
applicable law.  No Awards shall be made
after termination of the Plan.  No
amendment, suspension, or termination of the Plan shall, without the consent of
the Grantee, impair rights or obligations under any Award theretofore awarded
under the Plan.

 

6.                                      AWARD ELIGIBILITY AND LIMITATIONS

6.1.                            Service
Providers and Other Persons

 

7

 

               Subject to this Section 6, Awards may be made under the Plan to: (i) any
Service Provider to the Company or of any Affiliate, including any Service
Provider who is an officer or director of the Company, or of any Affiliate, as
the Board shall determine and designate from time to time, (ii) any Outside
Director, and (iii) any other individual whose participation in the Plan is
determined to be in the best interests of the Company by the Board.

 

6.2.                            Successive
Awards.

 

               An eligible person
may receive more than one Award, subject to such restrictions as are provided
herein.

 

6.3.                            Limitations
on Incentive Stock Options.

 

               An Option shall
constitute an Incentive Stock Option only (i) if the Grantee of such Option is
an employee of the Company or any Subsidiary of the Company; (ii) to the extent
specifically provided in the related Award Agreement; and (iii) to the extent
that the aggregate Fair Market Value (determined at the time the Option is
granted) of the shares of Stock with respect to which all Incentive Stock
Options held by such Grantee become exercisable for the first time during any
calendar year (under the Plan and all other plans of the Grantee’s employer and
its Affiliates) does not exceed $100,000. 
This limitation shall be applied by taking Options into account in the
order in which they were granted.

 

6.4.                            Stand-Alone,
Additional, Tandem, and Substitute Awards

 

                Awards granted under the Plan may, in the discretion
of the Board, be granted either alone or in addition to, in tandem with, or in
substitution or exchange for, any other Award or any award granted under
another plan of the Company, any Affiliate, or any business entity to be
acquired by the Company or an Affiliate, or any other right of a Grantee to
receive payment from the Company or any Affiliate.  Such additional, tandem, and substitute or
exchange Awards may be granted at any time. 
If an Award is granted in substitution or exchange for another Award,
the Board shall require the surrender of such other Award in consideration for
the grant of the new Award.  In addition,
Awards may be granted in lieu of cash compensation, including in lieu of cash
amounts payable under other plans of the Company or any Affiliate, in which the
value of Stock subject to the Award is equivalent in value to the cash
compensation (for example, Stock Units or Restricted Stock), or in which the
Option Price, grant price or purchase price of the Award in the nature of a
right that may be exercised is equal to the Fair Market Value of the underlying
Stock minus the value of the cash compensation surrendered (for example,
Options granted with an Option Price “discounted” by the amount of the cash
compensation surrendered).

7.                                      AWARD AGREEMENT

               Each Award granted
pursuant to the Plan shall be evidenced by an Award Agreement, in such form or
forms as the Board shall from time to time determine.  Award Agreements granted from time to time or
at the same time need not contain similar provisions but shall be consistent
with the terms of the Plan.  Each Award
Agreement evidencing an Award of Options shall specify whether such Options are
intended to be Non-qualified Stock Options or

 

8

 

Incentive Stock Options, and in the absence of such specification such
options shall be deemed Non-qualified Stock Options.

8.                                      TERMS AND CONDITIONS OF OPTIONS

8.1.                            Option Price

               The Option Price of
each Option shall be fixed by the Board and stated in the Award Agreement evidencing
such Option.  The Option Price of each
Option shall be at least the Fair Market Value on the Grant Date of a share of
Stock; provided, however, that in the event that a Grantee is a
Ten Percent Stockholder, the Option Price of an Option granted to such Grantee
that is intended to be an Incentive Stock Option shall be not less than 110
percent of the Fair Market Value of a share of Stock on the Grant Date.  In no case shall the Option Price of any
Option be less than the par value of a share of Stock.

8.2.                            Vesting.

Subject to Sections 8.3 and 17.3
hereof, each Option
granted under the Plan shall become exercisable at such times and under such
conditions as shall be determined by the Board and stated in the Award
Agreement.  For purposes of this Section 8.2, fractional numbers of shares of Stock
subject to an Option shall be rounded down to the next nearest whole number.
The Board may provide, for example, in the Award Agreement for
(i) accelerated exercisability of the Option in the event the Grantee’s
Service terminates on account of death, Disability or another event,
(ii) expiration of the Option prior to its term in the event of the
termination of the Grantee’s Service, (iii) immediate forfeiture of the
Option in the event the Grantee’s Service is terminated for Cause or
(iv) unvested Options to be exercised subject to the Company’s right of
repurchase with respect to unvested shares of Stock.  No Option shall be exercisable in whole or in
part prior to the date the Plan is approved by the Stockholders of the Company
as provided in Section 5.1 hereof.

8.3.                            Term.

               Each Option granted
under the Plan shall terminate, and all rights to purchase shares of Stock
thereunder shall cease, upon the expiration of ten years from the date such
Option is granted, or under such circumstances and on such date prior thereto
as is set forth in the Plan or as may be fixed by the Board and stated in the
Award Agreement relating to such Option (the “Termination Date”); provided,
however, that in the event that the Grantee is a Ten Percent
Stockholder, an Option granted to such Grantee that is intended to be an
Incentive Stock Option shall not be exercisable after the expiration of five
years from its Grant Date.

8.4.                            Termination
of Service.

Each Award
Agreement shall set forth the extent to which the Grantee shall have the right
to exercise the Option following termination of the Grantee’s Service.  Such provisions shall be determined in the
sole discretion of the Board, need not be uniform among all Options issued
pursuant to the Plan, and may reflect distinctions based on the reasons for
termination of Service.

9

8.5.                            Limitations
on Exercise of Option.

 

               Notwithstanding any
other provision of the Plan, in no event may any Option be exercised, in whole
or in part, or after ten years following the Grant Date, or after the
occurrence of an event referred to in Section 17 hereof
which results in termination of the Option.

 

8.6.                            Method of
Exercise.

 

               An Option that is
exercisable may be exercised by the Grantee’s delivery to the Company of
written notice of exercise on any business day, at the Company’s principal
office, on the form specified by the Company. 
Such notice shall specify the number of shares of Stock with respect to
which the Option is being exercised and shall be accompanied by payment in full
of the Option Price of the shares for which the Option is being exercised.  The minimum number of shares of Stock with
respect to which an Option may be exercised, in whole or in part, at any time
shall be the lesser of (i) 100 shares or such lesser number set forth in the
applicable Award Agreement and (ii) the maximum number of shares available
for purchase under the Option at the time of exercise.

 

8.7.                            Rights of
Holders of Options

 

               Unless otherwise
stated in the applicable Award Agreement, an individual holding or exercising
an Option shall have none of the rights of a stockholder (for example, the
right to receive cash or dividend payments or distributions attributable to the
subject shares of Stock or to direct the voting of the subject shares of Stock)
until the shares of Stock covered thereby are fully paid and issued to
him.  Except as provided in Section 17 hereof, no adjustment shall be made for
dividends, distributions or other rights for which the record date is prior to
the date of such issuance.

 

8.8.                            Delivery of
Stock Certificates.

 

               Promptly after the
exercise of an Option by a Grantee and the payment in full of the Option Price,
such Grantee shall be entitled to the issuance of a stock certificate or
certificates evidencing his or her ownership of the shares of Stock subject to
the Option.  Notwithstanding any other
provision of this Plan to the contrary, the Company may elect to satisfy any
requirement under this Plan for the delivery of stock certificates through the
use of book-entry.

 

8.9.                                        Reload
Options.

 

                At the discretion of the Board and subject to such
restrictions, terms and conditions as the Board may establish, Options granted
under the Plan may include a “reload” feature pursuant to which a Grantee
exercising an Option by the delivery of a number of shares of Stock in
accordance with Section 8.6 hereof would
automatically be granted an additional Option (with an Option Price equal to
the Fair Market Value of the Stock on the date the additional Option is granted
and with such other terms as the Board may provide) to purchase that number of
shares of Stock equal to the number delivered to exercise the original Option
with an Option term equal to the remainder of the original Option term

10

unless the Board
otherwise determines in the Option Award Agreement for the original grant.

9.                                      TRANSFERABILITY OF OPTIONS

9.1.                            Transferability
of Options

                Except as provided in Section 9.2, during the lifetime of a Grantee, only the
Grantee (or, in the event of legal incapacity or incompetency, the Grantee’s
guardian or legal representative) may exercise an Option.  Except as provided in Section 9.2,
no Option shall be assignable or transferable by the Grantee to whom it is
granted, other than by will or the laws of descent and distribution.

 

9.2.                            Family
Transfers.

 

                If authorized in the applicable Award Agreement, a
Grantee may transfer, not for value, all or part of an Option that is not an
Incentive Stock Option to any Family Member. 
For the purpose of this Section 9.2, a “not
for value” transfer is a transfer which is (i) a gift, (ii) a transfer under a
domestic relations order in settlement of marital property rights; or (iii) a
transfer to an entity in which more than fifty percent of the voting interests
are owned by Family Members (or the Grantee) in exchange for an interest in
that entity.  Following a transfer under
this Section 9.2, any such Option shall
continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer. 
Subsequent transfers of transferred Options are prohibited except to
Family Members of the original Grantee in accordance with this Section  9.2 or by will
or the laws of descent and distribution. 
The events of termination of Service of Section 8.4
hereof shall continue to be applied with respect to the original Grantee,
following which the Option shall be exercisable by the transferee only to the
extent, and for the periods specified, in Section 8.4.

10.                               RESTRICTED STOCK AND STOCK UNITS

10.1.                     Grant of Restricted
Stock or Stock Units.

               The Board may from
time to time grant Restricted Stock or Stock Units to persons eligible to
receive Awards under Section 6
hereof, subject to such restrictions, conditions and other terms, if any, as
the Board may determine.  Awards of
Restricted Stock may be made for no consideration (other than par value of the
shares which is deemed paid by Services already rendered).

 

10.2.                     Restrictions.

 

               At the time a grant
of Restricted Stock or Stock Units is made, the Board may, in its sole
discretion, establish a period of time (a “restricted period”) applicable to
such Restricted Stock or Stock Units. 
Each Award of Restricted Stock or Stock Units may be subject to a
different restricted period.  The Board
may, in its sole discretion, at the time a grant of Restricted Stock or Stock
Units is made, prescribe restrictions in addition to or other than the expiration
of the restricted period, including the satisfaction of corporate or individual

 

 

11

 

performance objectives, which may be applicable to all or any portion of
the Restricted Stock or Stock Units in accordance with Section 14.1
and 14.2.  Unless otherwise provided in an Award
Agreement and except for not for value transfers to Family Members neither Restricted
Stock nor Stock Units may be sold, transferred, assigned, pledged or otherwise
encumbered or disposed of during the restricted period or prior to the
satisfaction of any other restrictions prescribed by the Board with respect to
such Restricted Stock or Stock Units.

 

10.3.                     Restricted Stock
Certificates.

 

               The Company shall
issue, in the name of each Grantee to whom Restricted Stock has been granted,
stock certificates representing the total number of shares of Restricted Stock
granted to the Grantee, as soon as reasonably practicable after the Grant
Date.  The Board may provide in an Award
Agreement that either (i)  the Secretary
of the Company shall hold such certificates for the Grantee’s benefit until
such time as the Restricted Stock is forfeited to the Company or the
restrictions lapse, or (ii)  such
certificates shall be delivered to the Grantee, provided, however,
that such certificates shall bear a legend or legends that comply with the
applicable securities laws and regulations and makes appropriate reference to
the restrictions imposed under the Plan, the Award Agreement, and the
Stockholders Agreement by and among the Company and its stockholders, as in
effect from time to time.

 

10.4.                     Rights of Holders
of Restricted Stock.

 

               Unless the Board
otherwise provides in an Award Agreement, holders of Restricted Stock shall
have the right to vote such Stock and the right to receive any dividends
declared or paid with respect to such Stock. 
The Board may provide that any dividends paid on Restricted Stock must
be reinvested in shares of Stock, which may or may not be subject to the same
vesting conditions and restrictions applicable to such Restricted Stock.  All distributions, if any, received by a
Grantee with respect to Restricted Stock as a result of any stock split, stock
dividend, combination of shares, or other similar transaction shall be subject
to the restrictions applicable to the original Grant.

 

10.5.                     Rights of Holders
of Stock Units.

 

10.5.1.             Voting and Dividend Rights.

 

               Unless the Board
otherwise provides in an Award Agreement, holders of Stock Units shall have no
rights as stockholders of the Company. 
The Board may provide in an Award Agreement evidencing a grant of Stock
Units that the holder of such Stock Units shall be entitled to receive, upon
the Company’s payment of a cash dividend on its outstanding Stock, a cash
payment for each Stock Unit held equal to the per-share dividend paid on the
Stock.  Such Award Agreement may also
provide that such cash payment will be deemed reinvested in additional Stock
Units at a price per unit equal to the Fair Market Value of a share of Stock on
the date that such dividend is paid.

 

10.5.2.             Creditor’s Rights.

 

               A holder of Stock
Units shall have no rights other than those of a general creditor of the
Company.  Stock Units represent an
unfunded and unsecured obligation of the Company, subject to the terms and
conditions of the applicable Award Agreement.

 

 

12

 

10.6.                     Termination of
Service.

 

               Unless the Board
otherwise provides in an Award Agreement or in writing after the Award Agreement is issued, upon the termination of a Grantee’s Service, any
Restricted Stock or Stock Units held by such Grantee that have not vested, or
with respect to which all applicable restrictions and conditions have not
lapsed, shall immediately be deemed forfeited. 
Upon forfeiture of Restricted Stock or Stock Units, the Grantee shall
have no further rights with respect to such Award, including but not limited to
any right to vote Restricted Stock or any right to receive dividends with
respect to shares of Restricted Stock or Stock Units.

 

10.7.                     Purchase of Restricted
Stock.

 

The Grantee shall
be required, to the extent required by applicable law, to purchase the
Restricted Stock from the Company at a Purchase Price equal to the greater of
(i) the aggregate par value of the shares of Stock represented by such
Restricted Stock or (ii) the Purchase Price, if any, specified in the Award
Agreement relating to such Restricted Stock. 
The Purchase Price shall be payable in a form described in Section 12 or, in the discretion of the Board, in
consideration for past Services rendered to the Company or an Affiliate.

 

10.8.                     Delivery of Stock.

 

               Upon the expiration
or termination of any restricted period and the satisfaction of any other
conditions prescribed by the Board, the restrictions applicable to shares of
Restricted Stock or Stock Units settled in Stock shall lapse, and, unless
otherwise provided in the Award Agreement, a stock certificate for such shares
shall be delivered, free of all such restrictions, to the Grantee or the
Grantee’s beneficiary or estate, as the case may be.

 

11.                               UNRESTRICTED STOCK AWARDS

 

                The
Board may, in its sole discretion, grant (or sell at par value or such other
higher purchase price determined by the Board) an Unrestricted Stock Award to
any Grantee pursuant to which such Grantee may receive shares of Stock free of
any restrictions (“Unrestricted Stock”) under the Plan.  Unrestricted Stock Awards may be granted or
sold as described in the preceding sentence in respect of past services and
other valid consideration, or in lieu of, or in addition to, any cash
compensation due to such Grantee.

 

12.                               FORM OF PAYMENT FOR OPTIONS AND RESTRICTED STOCK

 

12.1.                     General Rule.

 

Payment of the
Option Price for the shares purchased pursuant to the exercise of an Option or
the Purchase Price for Restricted Stock shall be made in cash or in cash
equivalents acceptable to the Company.

 

13

 

12.2.                     Surrender of Stock.

To the extent the
Award Agreement so provides, payment of the Option Price for shares purchased pursuant
to the exercise of an Option or the Purchase Price for Restricted Stock may be
made all or in part through the tender to the Company of shares of Stock, which
shares, if acquired from the Company, shall have been held for at least six
months at the time of tender and which shall be valued, for purposes of
determining the extent to which the Option Price or Purchase Price has been
paid thereby, at their Fair Market Value on the date of exercise.

12.3.                     Cashless Exercise.

With respect to an
Option only (and not with respect to Restricted Stock), to the extent the Award
Agreement so provides, payment of the Option Price for shares purchased
pursuant to the exercise of an Option may be made all or in part by delivery
(on a form acceptable to the Board) of an irrevocable direction to a licensed
securities broker acceptable to the Company to sell shares of Stock and to
deliver all or part of the sales proceeds to the Company in payment of the
Option Price and any withholding taxes described in Section 18.3.

12.4.                     Other Forms of
Payment.

To the extent the Award Agreement so provides, payment of the Option
Price for shares purchased pursuant to exercise of an Option or the Purchase
Price for Restricted Stock may be made in any other form that is consistent with
applicable laws, regulations and rules.

13.                               DIVIDEND EQUIVALENT RIGHTS

13.1.                     Dividend Equivalent
Rights.

                A Dividend Equivalent Right is
an Award entitling the recipient to receive credits based on cash distributions
that would have been paid on the shares of Stock specified in the Dividend
Equivalent Right (or other award to which it relates) if such shares had been
issued to and held by the recipient.  A
Dividend Equivalent Right may be granted hereunder to any Grantee as a
component of another Award or as a freestanding award.  The terms and conditions of Dividend
Equivalent Rights shall be specified in the grant.  Dividend Equivalents credited to the holder
of a Dividend Equivalent Right may be paid currently or may be deemed to be
reinvested in additional shares of Stock, which may thereafter accrue
additional equivalents.  Any such
reinvestment shall be at Fair Market Value on the date of reinvestment.  Dividend Equivalent Rights may be settled in
cash or Stock or a combination thereof, in a single installment or
installments, all determined in the sole discretion of the Board.  A Dividend Equivalent Right granted as a
component of another Award may provide that such Dividend Equivalent Right
shall be settled upon exercise, settlement, or payment of, or lapse of
restrictions on, such other award, and that such Dividend Equivalent Right
shall expire or be forfeited or annulled under the same

 

14

conditions as such
other award.  A Dividend Equivalent Right
granted as a component of another Award may also contain terms and conditions
different from such other award.

13.2.                     Termination of
Service.

                Except as may otherwise be
provided by the Board either in the Award Agreement or in writing after the
Award Agreement is issued, a Grantee’s rights in all Dividend Equivalent Rights
or interest equivalents shall automatically terminate upon the Grantee’s
termination of Service for any reason.

14.                               PERFORMANCE AND ANNUAL INCENTIVE AWARDS

14.1.                     Performance
Conditions

                The right of a Grantee to
exercise or receive a grant or settlement of any Award, and the timing thereof,
may be subject to such performance conditions or such other criteria as may be
specified by the Board.  The Board may
use such business criteria and other measures of performance as it may deem
appropriate in establishing any performance conditions, and may exercise its
discretion to reduce the amounts payable under any Award subject to performance
conditions, except as limited under Sections 14.2 hereof
in the case of a Performance Award or Annual Incentive Award intended to
qualify under Code Section 162(m).  If
and to the extent required under Code Section 162(m), any power or authority
relating to a Performance Award or Annual Incentive Award intended to qualify
under Code Section 162(m), shall be exercised by the Committee and not the
Board.

14.2.                     Performance or
Annual Incentive Awards Granted to Designated Covered Employees

                If and to the extent that the
Committee determines that a Performance or Annual Incentive Award to be granted
to a Grantee who is designated by the Committee as likely to be a Covered
Employee should qualify as “performance-based compensation” for purposes of
Code Section 162(m), the grant, exercise and/or settlement of such Performance
or Annual Incentive Award shall be contingent upon achievement of
pre-established performance goals and other terms set forth in this Section 14.2.

14.2.1.             Performance Goals Generally.

               The performance goals for such
Performance or Annual Incentive Awards shall consist of one or more business
criteria and a targeted level or levels of performance with respect to each of
such criteria, as specified by the Committee consistent with this Section 14.2.  Performance goals shall be objective and
shall otherwise meet the requirements of Code Section 162(m) and regulations
thereunder including the requirement that the level or levels of performance
targeted by the Committee result in the achievement of performance goals being “substantially
uncertain.”  The Committee may determine
that such Performance or Annual Incentive Awards shall be granted, exercised
and/or settled

 

15

 

upon achievement
of any one performance goal or that two or more of the performance goals must
be achieved as a condition to grant, exercise and/or settlement of such
Performance or Annual Incentive Awards. 
Performance goals may differ for Performance or Annual Incentive Awards
granted to any one Grantee or to different Grantees.

 

14.2.2.             Business Criteria.

               One or more of the following
business criteria for the Company, on a consolidated basis, and/or specified
subsidiaries or business units of the Company (except with respect to the total
stockholder return and earnings per share criteria), shall be used exclusively
by the Committee in establishing performance goals for such Performance or
Annual Incentive Awards: (1) total stockholder return; (2) such total
stockholder return as compared to total return (on a comparable basis) of a publicly
available index such as, but not limited to, the Standard & Poor’s 500
Stock Index; (3) net income; (4) pretax earnings; (5) earnings before interest
expense, taxes, depreciation and amortization; (6) pretax operating earnings
after interest expense and before bonuses, service fees, and extraordinary or
special items; (7) operating margin; (8) earnings per share; (9) return on
equity; (10) return on capital; (11) return on investment; (12) operating
earnings; (13) working capital; (14) ratio of debt to stockholders’ equity and
(15) revenue.

 

14.2.3.                       Timing For
Establishing Performance Goals.

               Performance goals shall be
established not later than ninety (90) days after the beginning of any
performance period applicable to such Performance or Annual Incentive Awards,
or at such other date as may be required or permitted for “performance-based
compensation” under Code Section 162(m).

 

14.2.4.                       Performance
or Annual Incentive Award Pool.

               The Committee may establish a
Performance or Annual Incentive Award pool, which shall be an unfunded pool,
for purposes of measuring Company performance in connection with Performance or
Annual Incentive Awards.

 

14.2.5.                       Settlement
of Performance or Annual Incentive Awards; Other Terms.

               Settlement of such Performance or Annual Incentive
Awards shall be in cash, Stock, other Awards or other property, in the
discretion of the Committee.  The
Committee may, in its discretion, reduce the amount of a settlement otherwise
to be made in connection with such Performance or Annual Incentive Awards.  The Committee shall specify the circumstances
in which such Performance or Annual Incentive Awards shall be paid or forfeited
in the event of termination of Service by the Grantee prior to the end of a
performance period or settlement of Performance Awards.

14.3.                     Written
Determinations.

                All determinations by the
Committee as to the establishment of performance goals, the amount of any
Performance Award pool or potential individual Performance Awards and as to the
achievement of performance goals relating to Performance Awards,

 

16

and the amount of any
Annual Incentive Award pool or potential individual Annual Incentive Awards and
the amount of final Annual Incentive Awards, shall be made in writing in the
case of any Award intended to qualify under Code Section 162(m).  To the extent required to comply with Code
Section 162(m), the Committee may delegate any responsibility relating to such
Performance Awards or Annual Incentive Awards.

14.4.                     Status of Section 14.2
Awards Under Code Section 162(m)

                It is the intent of the Company
that Performance Awards and Annual Incentive Awards under Section 14.2
hereof granted to persons who are designated by the Committee as likely to be
Covered Employees within the meaning of Code Section 162(m) and regulations
thereunder shall, if so designated by the Committee, constitute “qualified
performance-based compensation” within the meaning of Code Section 162(m) and
regulations thereunder.  Accordingly, the
terms of Section 14.2, including the definitions
of Covered Employee and other terms used therein, shall be interpreted in a
manner consistent with Code Section 162(m) and regulations thereunder.  The foregoing notwithstanding, because the
Committee cannot determine with certainty whether a given Grantee will be a
Covered Employee with respect to a fiscal year that has not yet been completed,
the term Covered Employee as used herein shall mean only a person designated by
the Committee, at the time of grant of Performance Awards or an Annual
Incentive Award, as likely to be a Covered Employee with respect to that fiscal
year.  If any provision of the Plan or
any agreement relating to such Performance Awards or Annual Incentive Awards
does not comply or is inconsistent with the requirements of Code Section 162(m)
or regulations thereunder, such provision shall be construed or deemed amended
to the extent necessary to conform to such requirements.

15.                               PARACHUTE LIMITATIONS

               Notwithstanding any other
provision of this Plan or of any other agreement, contract, or understanding
heretofore or hereafter entered into by a Grantee with the Company or any
Affiliate, except an agreement, contract, or understanding hereafter entered
into that expressly modifies or excludes application of this paragraph (an “Other
Agreement”), and notwithstanding any formal or informal plan or other
arrangement for the direct or indirect provision of compensation to the Grantee
(including groups or classes of Grantees or beneficiaries of which the Grantee
is a member), whether or not such compensation is deferred, is in cash, or is
in the form of a benefit to or for the Grantee (a “Benefit Arrangement”), if
the Grantee is a “disqualified individual,” as defined in Section 280G(c)
of the Code, any Option, Restricted Stock or Stock Unit held by that Grantee
and any right to receive any payment or other benefit under this Plan shall not
become exercisable or vested (i) to the extent that such right to
exercise, vesting, payment, or benefit, taking into account all other rights,
payments, or benefits to or for the Grantee under this Plan, all Other
Agreements, and all Benefit Arrangements, would cause any payment or benefit to
the Grantee under this Plan to be considered a “parachute payment” within the meaning
of Section 280G(b)(2) of the Code as then in effect (a “Parachute Payment”)
and (ii) if, as a result of receiving a Parachute Payment, the
aggregate after-tax amounts received by the Grantee from the Company under this
Plan, all Other Agreements, and all Benefit Arrangements would be less than the
maximum after-tax amount that could be received by the Grantee

 

17

 

without
causing any such payment or benefit to be considered a Parachute Payment.  In the event that the receipt of any such
right to exercise, vesting, payment, or benefit under this Plan, in conjunction
with all other rights, payments, or benefits to or for the Grantee under any
Other Agreement or any Benefit Arrangement would cause the Grantee to be
considered to have received a Parachute Payment under this Plan that would have
the effect of decreasing the after-tax amount received by the Grantee as
described in clause (ii) of the preceding sentence, then the Grantee shall
have the right, in the Grantee’s sole discretion, to designate those rights,
payments, or benefits under this Plan, any Other Agreements, and any Benefit
Arrangements that should be reduced or eliminated so as to avoid having the
payment or benefit to the Grantee under this Plan be deemed to be a Parachute
Payment.

16.                               REQUIREMENTS OF LAW

16.1.                     General.

               The Company shall not be required
to sell or issue any shares of Stock under any Award if the sale or issuance of
such shares would constitute a violation by the Grantee, any other individual
exercising an Option, or the Company of any provision of any law or regulation
of any governmental authority, including without limitation any federal or
state securities laws or regulations.  If
at any time the Company shall determine, in its discretion, that the listing,
registration or qualification of any shares subject to an Award upon any
securities exchange or under any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the issuance or purchase of
shares hereunder, no shares of Stock may be issued or sold to the Grantee or
any other individual exercising an Option pursuant to such Award unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Company, and
any delay caused thereby shall in no way affect the date of termination of the
Award.  Specifically, in connection with
the Securities Act, upon the exercise of any Option or the delivery of any
shares of Stock underlying an Award, unless a registration statement under such
Act is in effect with respect to the shares of Stock covered by such Award, the
Company shall not be required to sell or issue such shares unless the Board has
received evidence satisfactory to it that the Grantee or any other individual
exercising an Option may acquire such shares pursuant to an exemption from
registration under the Securities Act. 
Any determination in this connection by the Board shall be final,
binding, and conclusive.  The Company
may, but shall in no event be obligated to, register any securities covered
hereby pursuant to the Securities Act. 
The Company shall not be obligated to take any affirmative action in
order to cause the exercise of an Option or the issuance of shares of Stock
pursuant to the Plan to comply with any law or regulation of any governmental
authority.  As to any jurisdiction that
expressly imposes the requirement that an Option shall not be exercisable until
the shares of Stock covered by such Option are registered or are exempt from
registration, the exercise of such Option (under circumstances in which the
laws of such jurisdiction apply) shall be deemed conditioned upon the
effectiveness of such registration or the availability of such an exemption.

 

16.2.                     Rule 16b-3.

 

               During any time when the Company
has a class of equity security registered under Section 12 of the Exchange Act,
it is the intent of the Company that Awards pursuant to the

 

18

 

Plan
and the exercise of Options granted hereunder will qualify for the exemption
provided by Rule 16b-3 under the Exchange Act. 
To the extent that any provision of the Plan or action by the Board does
not comply with the requirements of Rule 16b-3, it shall be deemed inoperative
to the extent permitted by law and deemed advisable by the Board, and shall not
affect the validity of the Plan.  In the
event that Rule 16b-3 is revised or replaced, the Board may exercise its
discretion to modify this Plan in any respect necessary to satisfy the
requirements of, or to take advantage of any features of, the revised exemption
or its replacement.

 

17.                               EFFECT OF CHANGES IN CAPITALIZATION

17.1.                     Changes in Stock.

               If the number of
outstanding shares of Stock is increased or decreased or the shares of Stock
are changed into or exchanged for a different number or kind of shares or other
securities of the Company on account of any recapitalization, reclassification,
stock split, reverse split, combination of shares, exchange of shares, stock
dividend or other distribution payable in capital stock, or other increase or
decrease in such shares effected without receipt of consideration by the
Company occurring after the Effective Date, the number and kinds of shares for
which grants of Options and other Awards may be made under the Plan shall be
adjusted proportionately and accordingly by the Company.  In addition, the number and kind of shares
for which Awards are outstanding shall be adjusted proportionately and accordingly
so that the proportionate interest of the Grantee immediately following such
event shall, to the extent practicable, be the same as immediately before such
event.  Any such adjustment in
outstanding Options shall not change the aggregate Option Price payable with
respect to shares that are subject to the unexercised portion of an outstanding
Option, but shall include a corresponding proportionate adjustment in the
Option Price per share.  The conversion
of any convertible securities of the Company shall not be treated as an
increase in shares effected without receipt of consideration.   Notwithstanding the foregoing, in the event
of any distribution to the Company’s stockholders of securities of any other
entity or other assets (including an extraordinary cash dividend but excluding
a non-extraordinary dividend payable in cash or in stock of the Company)
without receipt of consideration by the Company, the Company shall, in such
manner as the Company deems appropriate, adjust (i) the number and kind of
shares subject to outstanding Awards and/or (ii) the exercise price of
outstanding Options to reflect such distribution.

 

17.2.                     Reorganization
in Which the Company Is the Surviving Entity Which does not Constitute a
Corporate Transaction.

 

               Subject to Section 17.3 hereof, if the Company shall be the
surviving entity in any reorganization, merger, or consolidation of the Company
with one or more other entities which does not constitute a Corporate
Transaction, any Option theretofore granted pursuant to the Plan shall pertain
to and apply to the securities to which a holder of the number of shares of
Stock subject to such Option would have been entitled immediately following
such reorganization, merger, or consolidation, with a corresponding
proportionate adjustment of the Option Price per share so that the aggregate
Option Price thereafter shall be the same as the aggregate Option Price of the
shares remaining subject to the Option immediately prior

 

 

19

 

to such reorganization, merger, or consolidation.  Subject to any contrary language in an Award
Agreement evidencing an Award, any restrictions applicable to such Award shall
apply as well to any replacement shares received by the Grantee as a result of
the reorganization, merger or consolidation.

 

17.3.                     Corporate
Transaction.

 

                             Subject
to the exceptions set forth in the last sentence of this Section 17.3
and the last sentence of Section 17.4:

 

                             (i)
upon the occurrence of a Corporate Transaction, all outstanding shares of
Restricted Stock shall be deemed to have vested, and all restrictions and
conditions applicable to such shares of Restricted Stock shall be deemed to
have lapsed, immediately prior to the occurrence of such Corporate Transaction,
and

 

                             (ii) either
of the following two actions shall be taken:

 

                                            (A)
fifteen days prior to the scheduled consummation of a Corporate Transaction,
all Options outstanding hereunder shall become immediately exercisable and
shall remain exercisable for a period of fifteen days, or

 

                                            (B)
the Board may elect, in its sole discretion, to cancel any outstanding Awards
of Options and/or Restricted Stock, and pay or deliver, or cause to be paid or
delivered, to the holder thereof an amount in cash or securities having a value
(as determined by the Board acting in good faith), in the case of Restricted
Stock, equal to the formula or fixed price per share paid to holders of shares
of Stock and, in the case of Options, equal to the product of the number of
shares of Stock subject to the Option (the “Award Shares”) multiplied by the
amount, if any, by which (I) the formula or fixed price per share paid to
holders of shares of Stock pursuant to such transaction exceeds (II) the Option
Price applicable to such Award Shares.

 

                             With
respect to the Company’s establishment of an exercise window, (i) any exercise
of an Option during such fifteen-day period shall be conditioned upon the
consummation of the event and shall be effective only immediately before the
consummation of the event, and (ii) upon consummation of any Corporate
Transaction the Plan, and all outstanding but unexercised Options shall
terminate.  The Board shall send written
notice of an event that will result in such a termination to all individuals
who hold Options not later than the time at which the Company gives notice
thereof to its stockholders.  This Section 17.3 shall not apply to any Corporate Transaction to
the extent that provision is made in writing in connection with such Corporate
Transaction for the assumption or continuation of the Options and Restricted
Stock theretofore granted, or for the substitution for such Options and
Restricted Stock for new common stock options and new common stock restricted
stock relating to the stock of a successor entity, or a parent or subsidiary
thereof, with appropriate adjustments as to the number of shares (disregarding
any consideration that is not common stock) and option exercise prices, in
which event the Plan, Options and Restricted Stock theretofore granted shall continue
in the manner and under the terms so provided.

 

 

20

 

17.4.                     Adjustments.

               Adjustments under
this Section 17 related to shares of
Stock or securities of the Company shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive.  No fractional shares or other securities
shall be issued pursuant to any such adjustment, and any fractions resulting
from any such adjustment shall be eliminated in each case by rounding downward
to the nearest whole share. The Board shall determine the effect of a Corporate
Transaction upon Awards other than Options and Restricted Stock, and such
effect shall be set forth in the appropriate Award Agreement.  The Board may provide in the Award Agreements
at the time of grant, or any time thereafter with the consent of the Grantee,
for different provisions to apply to an Award in place of those described in Sections 17.1, 17.2 and 17.3.

 

17.5.                     No Limitations on
Company.

 

               The making of Awards
pursuant to the Plan shall not affect or limit in any way the right or power of
the Company to make adjustments, reclassifications, reorganizations, or changes
of its capital or business structure or to merge, consolidate, dissolve, or
liquidate, or to sell or transfer all or any part of its business or assets.

18.                               GENERAL PROVISIONS

18.1.                     Disclaimer of
Rights

               No provision in the
Plan or in any Award or Award Agreement shall be construed to confer upon any
individual the right to remain in the employ or service of the Company or any
Affiliate, or to interfere in any way with any contractual or other right or
authority of the Company either to increase or decrease the compensation or
other payments to any individual at any time, or to terminate any employment or
other relationship between any individual and the Company.  In addition, notwithstanding anything
contained in the Plan to the contrary, unless otherwise stated in the
applicable Award Agreement, no Award granted under the Plan shall be affected
by any change of duties or position of the Grantee, so long as such Grantee
continues to be a director, officer, consultant or employee of the Company or
an Affiliate.  The obligation of the
Company to pay any benefits pursuant to this Plan shall be interpreted as a
contractual obligation to pay only those amounts described herein, in the
manner and under the conditions prescribed herein.  The Plan shall in no way be interpreted to
require the Company to transfer any amounts to a third party trustee or
otherwise hold any amounts in trust or escrow for payment to any Grantee or
beneficiary under the terms of the Plan.

 

18.2.                     Nonexclusivity of
the Plan

 

               Neither the adoption
of the Plan nor the submission of the Plan to the stockholders of the Company
for approval shall be construed as creating any limitations upon the right and
authority of the Board to adopt such other incentive compensation arrangements
(which arrangements may be applicable either generally to a class or classes of
individuals or specifically to a particular individual or particular
individuals) as the Board in its discretion 

 

 

21

 

determines desirable, including, without limitation, the granting of
stock options otherwise than under the Plan.

 

18.3.                     Withholding Taxes

 

                The Company or an
Affiliate, as the case may be, shall have the right to deduct from payments of
any kind otherwise due to a Grantee any Federal, state, or local taxes of any
kind required by law to be withheld with respect to the vesting of or other
lapse of restrictions applicable to an Award or upon the issuance of any shares
of Stock upon the exercise of an Option or pursuant to an Award.  At the time of such vesting, lapse, or
exercise, the Grantee shall pay to the Company or the Affiliate, as the case
may be, any amount that the Company or the Affiliate may reasonably determine
to be necessary to satisfy such withholding obligation.  Subject to the prior approval of the Company
or the Affiliate, which may be withheld by the Company or the Affiliate, as the
case may be, in its sole discretion, the Grantee may elect to satisfy such
obligations, in whole or in part, (i) by causing the Company or the
Affiliate to withhold shares of Stock otherwise issuable to the Grantee or (ii) by
delivering to the Company or the Affiliate shares of Stock already owned by the
Grantee.  The shares of Stock so
delivered or withheld shall have an aggregate Fair Market Value equal to such
withholding obligations.  The Fair Market
Value of the shares of Stock used to satisfy such withholding obligation shall
be determined by the Company or the Affiliate as of the date that the amount of
tax to be withheld is to be determined. 
A Grantee who has made an election pursuant to this Section 18.3
may satisfy his or her withholding obligation only with shares of Stock that
are not subject to any repurchase, forfeiture, unfulfilled vesting, or other
similar requirements.

 

18.4.                     Captions

 

                The use of captions
in this Plan or any Award Agreement is for the convenience of reference only
and shall not affect the meaning of any provision of the Plan or such Award
Agreement.

 

18.5.                     Other Provisions

 

                Each Award granted
under the Plan may contain such other terms and conditions not inconsistent
with the Plan as may be determined by the Board, in its sole discretion.

 

18.6.                     Number And Gender

 

                With respect to
words used in this Plan, the singular form shall include the plural form, the
masculine gender shall include the feminine gender, etc., as the context
requires.

 

18.7.                     Severability

 

                If any provision of
the Plan or any Award Agreement shall be determined to be illegal or
unenforceable by any court of law in any jurisdiction, the remaining provisions
hereof and thereof shall be severable and enforceable in accordance with their
terms, and all provisions shall remain enforceable in any other jurisdiction.

 

18.8.                     Governing Law

 

The validity and
construction of this Plan and the instruments evidencing the Award hereunder
shall be governed by the laws of the State of New York, other than any

22

conflicts or
choice of law rule or principle that might otherwise refer construction or
interpretation of this Plan and the instruments evidencing the Awards granted
hereunder to the substantive laws of any other jurisdiction.

 

*    *    *

 

23

 

To record adoption of the amendment and restatement of
the Plan by the Board as of August 3, 2006, and approval of the amendment and
restatement of the Plan by the stockholders on August 3, 2006, the Company has
caused its authorized officer to execute the Plan.

 

 

 

	
   

  	
  ACA CAPITAL HOLDINGS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: Nora J. Dahlman

  
	
   

  	
   

  	
  Title: General Counsel and Secretary

  

 

24

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