Document:

Exhibit 10.1

EXECUTION VERSION

 

 

$150,000,000

CREDIT AGREEMENT

among

ACA CAPITAL HOLDINGS, INC.

as Borrower,

The Several Lenders from Time to Time Parties Hereto,

J.P. MORGAN SECURITIES INC., as Arranger and

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent

Dated as of April 26, 2007

 

Table of Contents

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE I

  
	
   

  
	
  Definitions

  
	
   

  
	
  SECTION
  1.01.

  	
   

  	
  Defined Terms

  	
   

  	
  1

  
	
  SECTION
  1.02.

  	
   

  	
  Classification of Loans and Borrowings

  	
   

  	
  17

  
	
  SECTION
  1.03.

  	
   

  	
  Terms Generally

  	
   

  	
  17

  
	
  SECTION
  1.04.

  	
   

  	
  Accounting Terms; Changes in GAAP

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  The Credits

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION
  2.01.

  	
   

  	
  Commitments

  	
   

  	
  18

  
	
  SECTION
  2.02.

  	
   

  	
  Loans and Borrowings

  	
   

  	
  18

  
	
  SECTION
  2.03.

  	
   

  	
  Requests for Revolving Borrowings

  	
   

  	
  20

  
	
  SECTION
  2.04.

  	
   

  	
  Competitive Bid Procedure

  	
   

  	
  21

  
	
  SECTION
  2.05.

  	
   

  	
  Swingline Loans

  	
   

  	
  23

  
	
  SECTION
  2.06.

  	
   

  	
  Letters
  of Credit

  	
   

  	
  24

  
	
  SECTION
  2.07.

  	
   

  	
  Funding of Borrowings

  	
   

  	
  28

  
	
  SECTION
  2.08.

  	
   

  	
  Interest Elections

  	
   

  	
  28

  
	
  SECTION
  2.09.

  	
   

  	
  Termination and Reduction of Commitments

  	
   

  	
  29

  
	
  SECTION
  2.10.

  	
   

  	
  Repayment of Loans; Evidence of Debt

  	
   

  	
  30

  
	
  SECTION
  2.11.

  	
   

  	
  Prepayment of Loans

  	
   

  	
  31

  
	
  SECTION
  2.12.

  	
   

  	
  Fees

  	
   

  	
  31

  
	
  SECTION
  2.13.

  	
   

  	
  Interest

  	
   

  	
  33

  
	
  SECTION
  2.14.

  	
   

  	
  Alternate Rate of Interest

  	
   

  	
  33

  
	
  SECTION
  2.15.

  	
   

  	
  Increased Costs

  	
   

  	
  34

  
	
  SECTION
  2.16.

  	
   

  	
  Break Funding Payments

  	
   

  	
  35

  
	
  SECTION
  2.17.

  	
   

  	
  Taxes

  	
   

  	
  36

  
	
  SECTION
  2.18.

  	
   

  	
  Payments Generally; Pro Rata Treatment; Sharing of
  Set-offs

  	
   

  	
  37

  
	
  SECTION
  2.19.

  	
   

  	
  Mitigation Obligations; Replacement of Lenders

  	
   

  	
  39

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Representations
  and Warranties

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION
  3.01.

  	
   

  	
  Organization; Powers

  	
   

  	
  40

  
	
  SECTION
  3.02.

  	
   

  	
  Authorization; Enforceability

  	
   

  	
  40

  

 

 i
 

 

	
  SECTION 3.03.

  	
   

  	
  Governmental Approvals; No Conflicts

  	
   

  	
  40

  
	
  SECTION
  3.04.

  	
   

  	
  Federal Regulations

  	
   

  	
  40

  
	
  SECTION
  3.05.

  	
   

  	
  Financial Condition; No Material Adverse Change

  	
   

  	
  41

  
	
  SECTION
  3.06.

  	
   

  	
  Properties

  	
   

  	
  41

  
	
  SECTION
  3.07.

  	
   

  	
  Litigation and Environmental Matters

  	
   

  	
  41

  
	
  SECTION
  3.08.

  	
   

  	
  Compliance with Laws and Agreements

  	
   

  	
  41

  
	
  SECTION
  3.09.

  	
   

  	
  Significant Subsidiaries

  	
   

  	
  42

  
	
  SECTION
  3.10.

  	
   

  	
  Investment and Holding Company Status, Other
  Regulations

  	
   

  	
  42

  
	
  SECTION
  3.11.

  	
   

  	
  Taxes

  	
   

  	
  42

  
	
  SECTION
  3.12.

  	
   

  	
  ERISA

  	
   

  	
  42

  
	
  SECTION
  3.13.

  	
   

  	
  Use of Proceeds and Letters of Credit

  	
   

  	
  42

  
	
  SECTION
  3.14.

  	
   

  	
  No Default

  	
   

  	
  42

  
	
  SECTION
  3.15.

  	
   

  	
  Disclosure

  	
   

  	
  42

  
	
  SECTION 3.16.

  	
   

  	
  Insurance Licenses

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Conditions

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION
  4.01.

  	
   

  	
  Effective Date

  	
   

  	
  43

  
	
  SECTION
  4.02.

  	
   

  	
  Each Credit Event

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Affirmative
  Covenants

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SECTION
  5.01.

  	
   

  	
  Financial Statements; Ratings Change and Other
  Information

  	
   

  	
  45

  
	
  SECTION
  5.02.

  	
   

  	
  Notices of Material Events

  	
   

  	
  47

  
	
  SECTION
  5.03.

  	
   

  	
  Existence; Conduct of Business

  	
   

  	
  47

  
	
  SECTION
  5.04.

  	
   

  	
  Payment of Obligations

  	
   

  	
  47

  
	
  SECTION
  5.05.

  	
   

  	
  Maintenance of Properties; Insurance

  	
   

  	
  48

  
	
  SECTION
  5.06.

  	
   

  	
  Books and Records; Inspection Rights

  	
   

  	
  48

  
	
  SECTION
  5.07.

  	
   

  	
  Compliance with Laws

  	
   

  	
  48

  
	
  SECTION 5.08.

  	
   

  	
  Compliance with Investment Guidelines

  	
   

  	
  48

  
	
  SECTION
  5.09.

  	
   

  	
  Financial Strength Rating

  	
   

  	
  48

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Negative
  Covenants

  
	
   

  
	
  SECTION
  6.01.

  	
   

  	
  Indebtedness

  	
   

  	
  49

  
	
  SECTION
  6.02.

  	
   

  	
  Liens

  	
   

  	
  50

  

 

 ii
 

 

	
  SECTION 6.03.

  	
   

  	
  Fundamental Changes; Sales of Assets

  	
   

  	
  52

  
	
  SECTION
  6.04.

  	
   

  	
  Restricted Payments

  	
   

  	
  53

  
	
  SECTION
  6.05.

  	
   

  	
  Transactions with Affiliates

  	
   

  	
  53

  
	
  SECTION
  6.06.

  	
   

  	
  Financial Covenants

  	
   

  	
  54

  
	
  SECTION
  6.07.

  	
   

  	
  Fiscal Year

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII

  
	
   

  
	
  Events of
  Default

  
	
   

  
	
  ARTICLE VIII

  
	
   

  
	
  The
  Administrative Agent

  
	
   

  
	
  ARTICLE IX

  
	
   

  
	
  Miscellaneous

  
	
   

  
	
  SECTION
  9.01.

  	
   

  	
  Notices

  	
   

  	
  58

  
	
  SECTION
  9.02.

  	
   

  	
  Waivers; Amendments

  	
   

  	
  59

  
	
  SECTION
  9.03.

  	
   

  	
  Expenses; Indemnity; Damage Waiver

  	
   

  	
  60

  
	
  SECTION
  9.04.

  	
   

  	
  Successors and Assigns

  	
   

  	
  61

  
	
  SECTION
  9.05.

  	
   

  	
  Survival

  	
   

  	
  64

  
	
  SECTION
  9.06.

  	
   

  	
  Counterparts; Integration; Effectiveness

  	
   

  	
  65

  
	
  SECTION
  9.07.

  	
   

  	
  Severability

  	
   

  	
  65

  
	
  SECTION
  9.08.

  	
   

  	
  Right of Setoff

  	
   

  	
  65

  
	
  SECTION
  9.09.

  	
   

  	
  Governing Law; Jurisdiction; Consent to Service of
  Process

  	
   

  	
  65

  
	
  SECTION
  9.10.

  	
   

  	
  WAIVER OF JURY TRIAL

  	
   

  	
  66

  
	
  SECTION
  9.11.

  	
   

  	
  Headings

  	
   

  	
  66

  
	
  SECTION
  9.12.

  	
   

  	
  Confidentiality

  	
   

  	
  66

  
	
  SECTION 9.13.

  	
   

  	
  USA Patriot Act

  	
   

  	
  67

  

 

 iii
 

SCHEDULES:

 

Schedule 2.01 — Commitments

Schedule 3.07 — Disclosed Matters

Schedule 3.09 — Significant Subsidiaries

Schedule 6.01 — Existing Indebtedness

Schedule 6.02 — Existing Liens

EXHIBITS:

Exhibit A — Form of Assignment and Assumption

Exhibit B — Form of Opinion of Borrower’s Counsel

Exhibit C — Form of New Lender Supplement

Exhibit D — Form of Section 2.17(e) Certificate

 iv

CREDIT AGREEMENT (this “Agreement”), dated as
of April 26, 2007 among ACA CAPITAL HOLDINGS, INC., a Delaware corporation (the
“Borrower”), the several banks and other financial institutions or
entities from time to time parties to this Agreement (the “Lenders”),
JPMORGAN SECURITIES INC., (the “Arranger”), and JPMORGAN CHASE BANK,
N.A. (“JPM”), as administrative agent.

The parties hereto agree as follows:

ARTICLE I

Definitions

SECTION
1.01.  Defined
Terms.  As used in this Agreement, the following
terms have the meanings specified below:

“ABR”, when used in reference to any Loan or
Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing,
are bearing interest at a rate determined by reference to the Alternate Base
Rate.

“Adjusted LIBO Rate” means, with respect to any
Eurodollar Borrowing for any Interest Period, an interest rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the
LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve
Rate.

“Adjusted Statutory Capital” means, with
respect to any incurrence of the Contingent Obligations, a sum of (x) the
Statutory Capital as of the end of the fiscal quarter immediately preceding
such incurrence, plus (y) the amount of the Contingent Capital Facility
immediately prior to such incurrence.

“Administrative Agent” means JPMorgan Chase
Bank, N.A., in its capacity as administrative agent for the Lenders hereunder.

“Administrative Questionnaire” means an
Administrative Questionnaire in a form supplied by the Administrative Agent.

“Affiliate” means, with respect to a specified
Person, another Person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with
the Person specified. For clarification purposes, any collateralized debt
obligation entity or any “bankruptcy-remote” entity whose assets are managed by
the Borrower or an Affiliate of Borrower shall not be deemed an Affiliate for
purposes of this Agreement, irrespective of whether or not Borrower owns any
equity in any such entity.

“Alternate Base Rate” means, for any day, a
rate per annum equal to the greatest of (a) the Prime Rate in effect on
such day and (b) the Federal Funds Effective Rate in effect on such day
plus 1⁄2 of 1%.  Any change in the
Alternate Base Rate due to a change in the Prime Rate or the Federal Funds
Effective Rate shall be effective from and including the effective date of such
change in the Prime Rate or the Federal Funds Effective Rate, respectively.

“Applicable Facility Fee” means, for any day,
with respect to the facility fees payable hereunder, the applicable facility
fee rate per annum set forth below under the caption “Facility Fee Rate”
corresponding to the Leverage Ratio as of the most recent Calculation Date:

	
  Leverage Ratio

  	
   

  	
  Facility Fee Rate

  	
   

  
	
  > 15%

  	
   

  	
   

  	
  0.150

  	
  %

  
	
  > 10% to < 15%

  	
   

  	
   

  	
  0.100

  	
  %

  
	
  < 10%

  	
   

  	
   

  	
  0.080

  	
  %

  

 

The “Applicable Facility Fee Rate” shall be determined
and adjusted quarterly on the date (each a “Calculation Date”) by which
the Borrower is required to provide the consolidated financial information
required by Section 5.01(a) or (b); provided, however, that the
initial Applicable Facility Fee Rate shall be based on the pricing level
referred to in the second row of the table above and shall remain at such
pricing level until the first Calculation Date occurring after the end of the
first full fiscal quarter of the Borrower subsequent to the Closing Date and,
thereafter, the Applicable Facility Fee Rate shall be based on the pricing
level (as shown above) corresponding to the Leverage Ratio as of the last day
of the most recently ended fiscal quarter or year of the Borrower preceding the
applicable Calculation Date; and provided, further, that if the Borrower does
not provide the consolidated financial information required by Section 5.01(a)
or (b) in a timely manner, the Applicable Facility Fee Rate shall be calculated
based on the highest Leverage Ratio in the table above until the provision
thereof.

“Applicable Insurance Regulatory Authority”
means, when used with respect to any Regulated Insurance Company, the insurance
department or similar administrative author­ity or agency located in (x) each
state or other jurisdiction in which such Regulated Insurance Company is
domiciled or (y) to the extent asserting regulatory jurisdiction over such
Regulated Insurance Company, the insur­ance department, authority or agency in
each state in which such Regulated Insurance Company is licensed, and shall
include any Federal or other insurance regulatory department, authority or
agency that may be created and that asserts regulatory jurisdiction over such
Regulated Insurance Company.

“Applicable Margin” means, for any day, with
respect to any ABR Loan or Eurodollar Loan, as the case may be, the applicable
margin per annum set forth below under the caption “Applicable Margin for
Eurodollar Loans” or “Applicable Margin for ABR Loans”, as the case may be,
corresponding to the Leverage Ratio as of the most recent Calculation Date:

	
  Leverage 

  Ratio

  	
   

  	
  Applicable 

  Margin for 

  Eurodollar 

  Loans

  	
   

  	
  Applicable 

  Margin for 

  ABR Loans

  	
   

  
	
  > 15%

  	
   

  	
   

  	
  0.475

  	
  %

  	
  0

  	
  %

  
	
  > 10% to < 15%

  	
   

  	
   

  	
  0.400

  	
  %

  	
  0

  	
  %

  
	
  < 10%

  	
   

  	
   

  	
  0.320

  	
  %

  	
  0

  	
  %

  

 

 2
 

The Applicable Margin shall be determined and adjusted
quarterly on the Calculation Date; provided, however, that the
initial Applicable Margin shall be based on the pricing level referred to in
the second row of the table above and shall remain at such pricing level until
the first Calculation Date occurring after the end of the first full fiscal
quarter of the Borrower subsequent to the Closing Date and, thereafter, the
Applicable Margin shall be based on the pricing level (as shown above)
corresponding to the Leverage Ratio as of the last day of the most recently
ended fiscal quarter or year of the Borrower preceding the applicable
Calculation Date and provided, further, that if the Borrower does not provide
the consolidated financial information required by Section 5.01(a) or (b) in a
timely manner, the Applicable Margin shall be calculated based on the highest
Leverage Ratio in the table above until the provision thereof.

“Applicable Percentage” means, with respect to
any Lender, the percentage of the total Commitments represented by such Lender’s
Commitment.  If the Commitments have
terminated or expired, the Applicable Percentages shall be determined based
upon the Commitments most recently in effect, giving effect to any assignments.

“Approved Fund” has the meaning assigned to
such term in Section 9.04.

“Assessment Rate” means, for any day, the
annual assessment rate in effect on such day that is payable by a member of the
Bank Insurance Fund classified as “well-capitalized” and within
supervisory subgroup “B” (or a comparable successor risk classification) within
the meaning of 12 C.F.R. Part 327 (or any successor provision) to the
Federal Deposit Insurance Corporation for insurance by such Corporation of time
deposits made in dollars at the offices of such member in the United States; provided
that if, as a result of any change in any law, rule or regulation, it is no
longer possible to determine the Assessment Rate as aforesaid, then the
Assessment Rate shall be such annual rate as shall be determined by the
Administrative Agent to be representative of the cost of such insurance to the
Lenders.

“Assignment and Assumption” means an assignment
and assumption entered into by a Lender and an assignee (with the consent of
any party whose consent is required by Section 9.04), and accepted by the
Administrative Agent, in the form of Exhibit A or any other form approved
by the Administrative Agent.

“Availability Period” means the period from and
including the Effective Date to but excluding the earlier of the Termination
Date and the date of termination of the Commitments.

“Board” means the Board of Governors of the
Federal Reserve System of the United States of America.

“Borrower” means ACA Capital Holdings, Inc., a
Delaware corporation.

“Borrowing” means (a) Revolving Loans of the
same Type, made, converted or continued on the same date and, in the case of
Eurodollar Loans, as to which a single Interest Period is in effect, (b) a
Competitive Loan or group of Competitive Loans of the same Type 

 3
 

made on the same date and as to which a single
Interest Period is in effect or (c) a Swingline Loan.

“Borrowing Request” means a request by the
Borrower for a Revolving Borrowing in accordance with Section 2.03.

“Business Day” means any day that is not a
Saturday, Sunday or other day on which commercial banks in New York City are
authorized or required by law to remain closed; provided that, when used
in connection with a Eurodollar Loan, the term “Business Day” shall also
exclude any day on which banks are not open for dealings in dollar deposits in
the London interbank market.

“Calculation Date” is defined in the definition
of “Applicable Facility Fee”.

“Capital” means, as of any date of
determination, the sum of Debt and Net Worth on such date.

“Capital Lease Obligations” of any Person means
the obligations of such Person to pay rent or other amounts under any lease of
(or other arrangement conveying the right to use) real or personal property, or
a combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.

“Capital Stock” means any and all shares,
interests, participations or other equivalents (however designated) of capital
stock of a corporation, any and all equivalent ownership interests in a Person
(other than a corporation) and any and all warrants, rights or options to
purchase any of the foregoing.

“Change in Control” means (a) occupation of a
majority of the seats (other than vacant seats) on the board of directors of
the Borrower by Persons who were neither (i) nominated by the board of
directors of the Borrower or the Permitted Holders nor (ii) appointed by
directors so nominated or the Permitted Holders or (b) if any Person or “group”
(within the meaning of Rules 13d-3 and 13d-5 under the Securities Exchange Act
of 1934, as in effect on the Effective Date), other than any combination of the
Permitted Holders, shall have acquired beneficial ownership of 35% or more on a
fully diluted basis of the voting or economic interest in the Borrower’s
capital stock and the Permitted Holders shall own, directly or indirectly, less
than such Person or “group” on a fully diluted basis of the economic and voting
interest in Borrower’s capital stock.

“Change in Law” means (a) the adoption of any
law, rule or regulation after the date of this Agreement, (b) any change in any
law, rule or regulation or in the interpretation or application thereof by any
Governmental Authority after the date of this Agreement or (c) compliance by
any Lender or the Issuing Bank (or, for purposes of Section 2.15(b), by any
lending office of such Lender or by such Lender’s or the Issuing Bank’s holding
company, if any) with any request, guideline or directive (whether or not
having the force of law) of any Governmental Authority made or issued after the
date of this Agreement.

 4
 

“Change in Tax Law” means the enactment,
promulgation, execution or ratification of, or any change in or amendment to,
any law (including the Code), treaty, regulation or rule (or in the official
application or interpretation of any law, treaty, regulation or rule, including
a holding, judgment or order by a court of competent jurisdiction) relating to
United States income taxation by a Governmental Authority.

“Class”, when used in reference to any Loan or
Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing,
are Revolving Loans, Competitive Loans or Swingline Loans.

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

“Commitment” means, with respect to each
Lender, the commitment of such Lender to make Revolving Loans and to acquire
participations in Letters of Credit and Swingline Loans hereunder, expressed as
an amount representing the maximum aggregate amount of such Lender’s Revolving
Credit Exposure hereunder, as such commitment may be (a) reduced from time to
time pursuant to Section 2.09 and (b) reduced or increased from time to time
pursuant to assignments by or to such Lender pursuant to Section 2.02(g) and
Section 9.04.  The initial amount of each
Lender’s Commitment is set forth on Schedule 2.01, or in the Assignment and
Assumption pursuant to which such Lender shall have assumed its Commitment, as
applicable.  The initial aggregate amount
of the Lenders’ Commitments is $150,000,000.

“Competitive Bid” means an offer by a Lender to
make a Competitive Loan in accordance with Section 2.04.

“Competitive Bid Rate” means, with respect to
any Competitive Bid, the Margin or the Fixed Rate, as applicable, offered by
the Lender making such Competitive Bid.

“Competitive Bid Request” means a request by
the Borrower for Competitive Bids in accordance with Section 2.04.

“Competitive Loan” means a Loan made pursuant
to Section 2.04.

“Consolidated Net Income” for any period, the
consolidated net income (or loss) of the Borrower and its Subsidiaries,
determined on a consolidated basis in accordance with GAAP; provided
that there shall be excluded (a) the income (or deficit) of any Person accrued
prior to the date it becomes a Subsidiary of the Borrower or is merged into or
consolidated with the Borrower or any of its Subsidiaries, (b) the income (or
deficit) of any Person (other than a Subsidiary of the Borrower) in which the
Borrower or any of its Subsidiaries has an ownership interest, except to the
extent that any such income is actually received by the Borrower or such
Subsidiary in the form of dividends or similar distributions, (c) the
undistributed earnings of any Subsidiary of the Borrower to the extent that the
declaration or payment of dividends or similar distributions by such Subsidiary
is not at the time permitted by the terms of any Contractual Obligation (other
than under any Loan Document) or Requirement of Law applicable to such
Subsidiary, (d) non-recurring extraordinary items, (e) the cumulative effect of
a change in accounting principles, (f) unrealized gains or losses on derivative
instruments, (g) realized gains or losses on non-collateralized debt obligation
investments, and (h) the portion of interest expense related to the principal
payments on borrowings financed with derivatives.

 5
 

“Contingent Capital Facility” means one or more
facilities issued by the Contingent Capital Facility Trust, which are
non-recourse (other than through the Contingent Obligations, if applicable) to
the Borrower or any of its Subsidiaries and the proceeds of which are
contributed to and are held by the Contingent Capital Facility Trust to finance
Contingent Obligations.

“Contingent Capital Facility Trust” means a
statutory business trust, of which the Borrower or one or more of its
Subsidiaries is a beneficiary, formed for the purpose of and that is engaged
only in one or more Contingent Capital Facilities and other activities
reasonably related thereto.

“Contingent Obligations” means long-term
obligations of a Subsidiary in the form of surplus notes or perpetual preferred
stock issued or puttable from time to time by such Subsidiary to the Contingent
Capital Facility Trust.

“Contractual Obligation” means, as to any
Person, any provision of any security issued by such Person or of any
agreement, instrument or other undertaking to which such Person is a party or
by which it or any of its property is bound.

“Control” means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ability to exercise voting power, by
contract or otherwise.  “Controlling”
and “Controlled” have meanings correlative thereto.

“Debt” means at any date, the aggregate
principal amount, without duplication, of all Indebtedness of the Borrower and
its Subsidiaries at such date, determined on a consolidated basis in accordance
with GAAP, excluding (i) obligations of a Regulated Insurance Company under
insurance policies in the nature of financial guarantees and financial
guarantees, in each case from time to time issued in the ordinary course of
such Regulated Insurance Company’s business, (ii) Indebtedness of any
Subsidiary issued in connection with, or Indebtedness of any Subsidiary issued
to refinance Indebtedness issued in connection with, the purchases of equity in
connection with, and the warehousing of assets for, collateralized debt
obligation transactions structured by and managed by any Subsidiary in the
ordinary course of such entity’s business, provided that any such
Indebtedness is not the subject of a Guarantee by the Borrower or any
Subsidiary directly or indirectly owning Capital Stock of any Regulated
Insurance Company and (iii) any Indebtedness of any special purpose vehicle
created for the purpose of issuing a collateralized debt obligation or entering
into credit default swaps which is consolidated with the Borrower or any of its
Subsidiaries.

“Default” means any event or condition which
constitutes an Event of Default or which upon notice, lapse of time or both
would, unless cured or waived, become an Event of Default.

“Disclosed Matters” means the matters that are
disclosed on Schedule 3.07 or in the public filings of the Borrower with the
SEC prior to the date hereof.

“dollars” or “$” refers to lawful money
of the United States of America.

 6
 

“Effective Date” means the date on which the
conditions specified in Section 4.01 are satisfied (or waived in
accordance with Section 9.02).

“Environmental Laws” means all laws, rules,
regulations, codes, ordinances, orders, decrees, judgments, injunctions,
notices or binding agreements issued, promulgated or entered into by any
Governmental Authority, relating to the environment, preservation or
reclamation of natural resources, the management, release or threatened release
of any Hazardous Material or to health and safety matters.

“Environmental Liability” means any liability
(including any liability for damages, costs of environmental remediation,
fines, penalties or indemnities), of the Borrower or any Subsidiary resulting
from or based upon (a) violation of any Environmental Law, (b) the
generation, use, handling, transportation, storage, treatment or disposal of
any Hazardous Materials, (c) exposure to any Hazardous Materials,
(d) the release or threatened release of any Hazardous Materials into the
environment or (e) any contract or agreement pursuant to which liability is
assumed or imposed with respect to any of the foregoing.

“Equity Interests “ means shares of capital
stock, partnership interests, membership interests in a limited liability
company, beneficial interests in a trust or other equity ownership interests in
a Person, and any warrants, options or other rights entitling the holder
thereof to purchase or acquire any such equity interest.

“ERISA” means the Employee Retirement Income
Security Act of 1974, as amended from time to time.

“ERISA Affiliate” means any trade or business
(whether or not incorporated) that, together with the Borrower, is treated as a
single employer under Section 414(b) or (c) of the Code or, solely for
purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a
single employer under Section 414 of the Code.

“ERISA Event” means (a) any “reportable
event”, as defined in Section 4043 of ERISA or the regulations issued
thereunder with respect to a Plan (other than an event for which the 30-day
notice period is waived), (b) the existence with respect to any Plan of an
“accumulated funding deficiency” (as defined in Section 412 of the Code or
Section 302 of ERISA), whether or not waived, (c) the filing pursuant
to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan, (d) the incurrence by the Borrower or any of its ERISA Affiliates of
any liability under Title IV of ERISA with respect to the termination of
any Plan, (e) the receipt by the Borrower or any ERISA Affiliate from the
PBGC or a plan administrator of any notice relating to an intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan or
(f) the incurrence by the Borrower or any of its ERISA Affiliates of any
liability with respect to the withdrawal or partial withdrawal from any Plan.

“Eurodollar”, when used in reference to any
Loan or Borrowing, refers to whether such Loan, or the Loans comprising such
Borrowing, are bearing interest at a rate determined by reference to the
Adjusted LIBO Rate (or, in the case of a Competitive Loan, the LIBO Rate).

“Event of Default” has the meaning assigned to
such term in Article VII.

 7
 

“Excluded Taxes” means, with respect to the
Administrative Agent, any Lender, the Issuing Bank or any other recipient of
any payment to be made by or on account of any obligation of the Borrower
hereunder, (a) any Taxes (other than Other Taxes) imposed, deducted or withheld
by reason of any present or former connection between the Administrative Agent
or such Lender or the Issuing Bank or other recipient (as the case may be) and
the jurisdiction imposing such Taxes (other than solely on account of the
execution and performance of, the enforcement of any right under or the receipt
of any payment under, this Agreement or any of the other Loan Documents), (b)
any branch profits taxes imposed by the United States of America or any similar
tax imposed by any other jurisdiction under the laws of which the
Administrative Agent or such Lender or the Issuing Bank or other recipient (as
the case may be) is organized or resident, in which the Administrative Agent or
such Lender or the Issuing Bank or other recipient (as the case may be) has an
office or with which the Administrative Agent or such Lender or the Issuing
Bank or other recipient (as the case may be) has any other connection (other than
solely on account of the execution and performance of, the enforcement of any
right under or the receipt of any payment under, this Agreement or any of the
other Loan Documents) and (c) in the case of a Foreign Lender (other than an
assignee pursuant to a request by the Borrower under Section 2.19(b)), any Tax
imposed, deducted or withheld on or from amounts payable to such Foreign Lender
(i) as of the time such Foreign Lender becomes a party to this Agreement or
designates a new lending office (including, for the avoidance of doubt, the
designation of a new lending office by a Lender that was an assignee pursuant
to a request by Borrower under Section 2.19) except to the extent that such
Foreign Lender (or its assignor, if any) was entitled, at the time of
designation of a new lending office (or assignment, if any), to receive
additional amounts from the Borrower with respect to such Tax pursuant to
Section 2.17(a) or (ii) that is attributable to such Foreign Lender’s failure,
inability or ineligibility at any time during which such Foreign Lender is a
party to this Agreement to deliver the Internal Revenue Service forms and the
Section 2.17(e) Certificate (as applicable) described in
Section 2.17(e) certifying that such Foreign Lender is entitled to a
reduced rate or complete exemption from United States withholding taxation with
respect to all payments to be made to it under the Loans Documents, except to
the extent such Foreign Lender’s failure is due to a Change in Tax Law
occurring after the date on which such Foreign Lender became a party to this
Agreement or the date (if any) on which such Foreign Lender designated a new
lending office.

“Existing Credit Agreement” means the Credit
Agreement, dated as of May 1, 2006, among the Borrower, the lenders from time
to time party thereto, J.P. Morgan Securities Inc., as arranger, and JPMorgan
Chase Bank, N.A., as administrative agent.

“Federal Funds Effective Rate” means, for any
day, the weighted average (rounded upwards, if necessary, to the next 1/100 of
1%) of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York, or,
if such rate is not so published for any day that is a Business Day, the
average (rounded upwards, if necessary, to the next 1/100 of 1%) of the
quotations for such day for such transactions received by the Administrative
Agent from three Federal funds brokers of recognized standing selected by it.

“Financial Officer” means the chief financial
officer, principal accounting officer, treasurer or controller of the Borrower.

 8
 

“Fixed Rate” means, with respect to any
Competitive Loan (other than a Eurodollar Competitive Loan), the fixed rate of
interest per annum specified by the Lender making such Competitive Loan in its
related Competitive Bid.

“Fixed Rate Loan” means a Competitive Loan
bearing interest at a Fixed Rate.

“Foreign Lender” means any Lender that is not a
“United States person” as defined in Section 7701(a)(30) of the Code.

“GAAP” means generally accepted accounting
principles in the United States of America.

“Governmental Authority” means the government
of the United States of America, any other nation or any political subdivision
thereof, whether state or local, and any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or functions
of or pertaining to government, including any Applicable Insurance Regulatory
Authority.

“Guarantee” of or by any Person (the “guarantor”)
means any obligation, contingent or otherwise, of the guarantor guaranteeing or
having the economic effect of guaranteeing any Indebtedness or other obligation
of any other Person (the “primary obligor”) in any manner, whether
directly or indirectly, and including any obligation of the guarantor, direct
or indirect, (a) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation or to purchase
(or to advance or supply funds for the purchase of) any security for the
payment thereof, (b) to purchase or lease property, securities or services
for the purpose of assuring the owner of such Indebtedness or other obligation
of the payment thereof, (c) to maintain working capital, equity capital or
any other financial statement condition or liquidity of the primary obligor so
as to enable the primary obligor to pay such Indebtedness or other obligation
or (d) as an account party in respect of any letter of credit or letter of
guaranty issued to support such Indebtedness or obligation; provided,
that the term Guarantee shall not include (i) endorsements for collection or
deposit in the ordinary course of business or (ii) financial guarantees made as
an incident to the conduct by any Regulated Insurance Subsidiary of its
Insurance Business and in the ordinary course of such business.

“Hazardous Materials” means all explosive or
radioactive substances or wastes and all hazardous or toxic substances, wastes
or other pollutants, including petroleum or petroleum distillates, asbestos or
asbestos containing materials, polychlorinated biphenyls, radon gas, infectious
or medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.

“Indebtedness” of any Person means, without
duplication, (a) all obligations of such Person for borrowed money or with
respect to deposits or advances of any kind, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments,
(c) all obligations of such Person under conditional sale or other title
retention agreements relating to property acquired by such Person or in respect
of the deferred purchase price of property or services (excluding current
accounts payable incurred in the ordinary course of business, including
payables under insurance contracts and reinsurance payables, and, in the case
of the 

 9
 

Borrower and its Subsidiaries, obligations under forward
purchase agreements entered into in the ordinary course of business of the
Borrower and its Subsidiaries for the purpose of accumulating asset-backed
securities for potential collateralized debt obligation transactions),
(d) all Indebtedness of others secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property owned or acquired by such Person, whether or not the
Indebtedness secured thereby has been assumed, (e) all Guarantees by such
Person of Indebtedness of others, (f) all Capital Lease Obligations of
such Person, (g) all obligations, contingent or otherwise, of such Person
as an account party in respect of letters of credit and letters of guaranty and
(h) all obligations, contingent or otherwise, of such Person in respect of
bankers’ acceptances.  The Indebtedness
of any Person shall include the Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the extent such Person
is liable therefor as a result of such Person’s ownership interest in or other
relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.

“Indemnified Taxes” means Taxes other than
Excluded Taxes.

“Information Memorandum” means the Confidential
Information Memorandum dated March 28, 2007 relating to the Borrower and the
Transactions.

“Insurance Business” means one or more aspects
of the business of selling, issuing or underwriting insurance or reinsurance
and any activities (including investment activities) reasonably related or
ancillary thereto or representing a reasonable extension thereof.

“Insurance Licenses” means, with respect to
each Regulated Insurance Company, licenses (including, without
limitation, licenses or certificates of authority from Applicable Insurance
Regulatory Authorities), permits or authorizations to transact insurance and
reinsurance business held by such Regulated Insurance Company.

“Interest Election Request” means a request by
the Borrower to convert or continue a Revolving Borrowing in accordance with
Section 2.08.

“Interest Payment Date” means (a) with
respect to any ABR Loan (other than a Swingline Loan), the last day of each
March, June, September and December, (b) with respect to any Eurodollar Loan,
the last day of the Interest Period applicable to the Borrowing of which such
Loan is a part and, in the case of a Eurodollar Borrowing with an Interest
Period of more than three months’ duration, each day prior to the last day of
such Interest Period that occurs at intervals of three months’ duration after
the first day of such Interest Period, (c) with respect to any Fixed Rate Loan,
the last day of the Interest Period applicable to the Borrowing of which such
Loan is a part and, in the case of a Fixed Rate Borrowing with an Interest
Period of more than 90 days’ duration (unless otherwise specified in the
applicable Competitive Bid Request), each day prior to the last day of such
Interest Period that occurs at intervals of 90 days’ duration after the first
day of such Interest Period, and any other dates that are specified in the
applicable Competitive Bid Request as Interest Payment Dates with respect to
such Borrowing and (d) with respect to any Swingline Loan, the day that
such Loan is required to be repaid.

 10
 

“Interest Period” means (a) with respect
to any Eurodollar Borrowing, the period commencing on the date of such
Borrowing and ending on the numerically corresponding day in the calendar month
that is one, two, three, six or, if available to the Lenders, nine or
twelve, months thereafter, as the Borrower may elect, and (b) with respect to
any Fixed Rate Borrowing, the period (which shall not be less than 3 days or
more than 270 days) commencing on the date of such Borrowing and ending on the
date specified in the applicable Competitive Bid Request; provided, that
(i) if any Interest Period would end on a day other than a Business Day, such
Interest Period shall be extended to the next succeeding Business Day unless,
in the case of a Eurodollar Borrowing only, such next succeeding Business Day
would fall in the next calendar month, in which case such Interest Period shall
end on the next preceding Business Day and (ii) any Interest Period pertaining to
a Eurodollar Borrowing that commences on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
last calendar month of such Interest Period) shall end on the last Business Day
of the last calendar month of such Interest Period.  For purposes hereof, the date of a Borrowing
initially shall be the date on which such Borrowing is made and, in the case of
a Revolving Borrowing, thereafter shall be the effective date of the most
recent conversion or continuation of such Borrowing.

“Issuing Bank” means JPMorgan Chase Bank, in
its capacity as the issuer of Letters of Credit hereunder, and its successors
in such capacity as provided in Section 2.06(i).  The Issuing Bank may, in its discretion,
arrange for one or more Letters of Credit to be issued by Affiliates of the
Issuing Bank, in which case the term “Issuing Bank” shall include any such
Affiliate with respect to Letters of Credit issued by such Affiliate.

“LC Disbursement” means a payment made by the
Issuing Bank pursuant to a Letter of Credit.

“LC Exposure” means, at any time, the sum of
(a) the aggregate undrawn amount of all outstanding Letters of Credit at such
time plus (b) the aggregate amount of all LC Disbursements that have not yet
been reimbursed by or on behalf of the Borrower at such time.  The LC Exposure of any Lender at any time
shall be its Applicable Percentage of the total LC Exposure at such time.

“Lenders” means the Persons listed on
Schedule 2.01 and any other Person that shall have become a party hereto
pursuant to an Assignment and Assumption or in accordance with 2.02(g), other
than any such Person that ceases to be a party hereto pursuant to an Assignment
and Assumption.  Unless the context otherwise
requires, the term “Lenders” includes the Swingline Lender.

“Letter of Credit” means any letter of credit
issued pursuant to this Agreement.

“Leverage Ratio” means, at any date of
determination, the ratio of Debt of any type described in clause (a), (b), (c),
(f) or (h) of the definition of “Indebtedness” to Capital at such date.

“LIBO Rate” means, with respect to any
Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750
of the Dow Jones Market Service (or on any successor 

 11
 

or substitute page of such Service, or any successor
to or substitute for such Service, providing rate quotations comparable to
those currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. 
In the event that such rate is not available at such time for any
reason, then the “LIBO Rate” with respect to such Eurodollar Borrowing
for such Interest Period shall be the rate at which dollar deposits of
$5,000,000 and for a maturity comparable to such Interest Period are offered by
the principal London office of the Administrative Agent in immediately
available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of
such Interest Period.

“Lien” means, with respect to any asset,
(a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance,
charge or security interest in, on or of such asset, (b) the interest of a
vendor or a lessor under any conditional sale agreement, capital lease or title
retention agreement (or any financing lease having substantially the same
economic effect as any of the foregoing) relating to such asset and (c) in
the case of securities, any purchase option, call or similar right of a third
party with respect to such securities.

“Loan Documents” means this Agreement and any
amendment, waiver, supplement or other modification this Agreement.

“Loans” means the loans made by the Lenders to
the Borrower pursuant to this Agreement.

“Margin” means, with respect to any Competitive
Loan bearing interest at a rate based on the LIBO Rate, the marginal rate of
interest, if any, to be added to or subtracted from the LIBO Rate to determine
the rate of interest applicable to such Loan, as specified by the Lender making
such Loan in its related Competitive Bid.

“Material Adverse Effect” means a material
adverse effect on (a) the business, assets, operations, or condition
(financial or otherwise) of the Borrower and the Subsidiaries taken as a whole,
(b) the ability of the Borrower to perform any of its obligations under
this Agreement or (c) the rights of or benefits available to the Lenders
under this Agreement.

“Material Obligations” means Debt (other than
the Loans and Letters of Credit), or obligations in respect of one or more Swap
Agreements, of any one or more of the Borrower and its Subsidiaries (other than
Subsidiaries that are collateralized debt obligation entities, credit default
swap entities or “bankruptcy-remote” entities whose assets are managed by the
Borrower or one of its Subsidiaries) in an aggregate principal amount exceeding
the Threshold Amount.  For purposes of
determining Material Obligations, the “principal amount” of the obligations of
the Borrower or any Subsidiary in respect of any Swap Agreement at any time
shall be the maximum aggregate amount (giving effect to any netting agreements)
that the Borrower or such Subsidiary would be required to pay if such Swap
Agreement were terminated at such time.

 12

“Maturity Date” means, the Termination Date, as
such date may be extended for any Lender as provided in Section 2.02(e), provided
that if the Borrower elects to extend the Maturity Date pursuant to Section
2.02(f), the Maturity Date shall be the first anniversary of the then
Termination Date.

“Net Cash Proceeds” means in connection with
any issuance or sale of Capital Stock or any incurrence of Indebtedness, the
gross cash proceeds received from such issuance or incurrence, net of attorneys’
fees, investment banking fees, accountants’ fees, underwriting discounts and
commissions and other customary fees and expenses actually incurred in
connection therewith.

“Net Worth” means, at any date of
determination, total shareholders’ equity of the Borrower and its Subsidiaries
at such date, determined on a consolidated basis in accordance with GAAP, on
such date, excluding all accumulated “other comprehensive income” in total
shareholders’ equity.

“Other Taxes” means any and all present or
future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies arising from any payment made hereunder or from the
execution, delivery or enforcement of, or otherwise with respect to, this
Agreement but excluding property or similar Taxes other than any such Taxes
imposed in such circumstances solely as a result of the Borrower being
organized or resident in, maintaining an office in, conducting business in or
maintaining property located in, the taxing jurisdiction imposing such Taxes.

“Participant” has the meaning set forth in
Section 9.04(c).

“PBGC” means the Pension Benefit Guaranty
Corporation referred to and defined in ERISA and any successor entity
performing similar functions.

“Permitted Encumbrances” means:

(a)                                  Liens
imposed by law for taxes that are not yet due or are being contested in
compliance with Section 5.04;

(b)                                 carriers’,
warehousemen’s, mechanics’, materialmen’s, repairmen’s and other like Liens
imposed by law, arising in the ordinary course of business and securing
obligations that are not overdue by more than 30 days or are being contested in
compliance with Section 5.04;

(c)                                  pledges
and deposits made in the ordinary course of business in compliance with workers’
compensation, unemployment insurance and other social security laws or
regulations;

(d)                                 deposits
to secure the performance of bids, trade contracts, leases, statutory
obligations, surety and appeal bonds, performance bonds and other obligations
of a like nature, in each case in the ordinary course of business;

 13
 

(e)                                  judgment
liens in respect of judgments that do not constitute an Event of Default under
clause (i) of Article VII;

(f)                                    easements,
zoning restrictions, rights-of-way and similar encumbrances on real property
imposed by law or arising in the ordinary course of business that do not secure
any monetary obligations and do not materially detract from the value of the
affected property or interfere with the ordinary conduct of business of the
Borrower or any Subsidiary;

(g)                                 contractual
set-off rights, rights of lessees and licensees arising in the ordinary course
of business; and

(h)                                 any
extensions, replacements, renewals or refinancings of the foregoing;

provided that the term “Permitted
Encumbrances” shall not include any Lien securing Indebtedness.

“Permitted Holders” means BSMB/ACA LLC, SF
Holding Corp (f/k/a Stephens Group, Inc.), Third Avenue Trust, on behalf of
Third Avenue Value Fund, Third Avenue Trust, on behalf of Third Avenue
Small-Cap Value Fund Series, Chestnut Hill ACA, LLC, Transamerica Life
Insurance Company, Life Investors Insurance Company of America, Insurance
Partners, L.P., Insurance Partners Offshore (Bermuda) L.P., IP/MCLP, L.L.C.,
Drawbridge Special Opportunities Fund L.P., FW ACA Investors, L.P., Banc of
America Strategic Investments Corporation and present and former members of the
Borrower’s management and their respective Affiliates.

“Person” means any natural person, corporation,
limited liability company, trust, joint venture, association, company,
partnership, Governmental Authority or other entity.

“Plan” means any employee pension benefit plan
subject to the provisions of Title IV of ERISA or Section 412 of the
Code or Section 302 of ERISA, and in respect of which the Borrower or any
ERISA Affiliate is (or, if such plan were terminated, would under
Section 4069 of ERISA be deemed to be) an “employer” as defined in
Section 3(5) of ERISA.

“Prime Rate” means the rate of interest per
annum publicly announced from time to time by JPMorgan Chase Bank, N.A., as its
prime rate in effect at its principal office in New York City; each change in
the Prime Rate shall be effective from and including the date such change is
publicly announced as being effective.

“Register” has the meaning set forth in
Section 9.04(b).

“Regulated Insurance Company” means any
Subsidiary of the Borrower, whether now owned or hereafter acquired, that is
authorized or admitted to carry on or transact Insurance Business in any
jurisdiction and is regulated by any Applicable Insurance Regulatory Authority.

“Related Parties” means, with respect to any
specified Person, such Person’s Affiliates and the respective directors,
officers, employees, agents and advisors of such Person and such Person’s
Affiliates.

 14
 

“Required Lenders” means, at any time, Lenders
having Revolving Credit Exposures and unused Commitments representing more than
50% of the sum of the total Revolving Credit Exposures and unused Commitments
at such time; provided that, for purposes of declaring the Loans to be
due and payable pursuant to Article VII, and for all purposes after the Loans
become due and payable pursuant to Article VII or the Commitments expire
or terminate, the outstanding Competitive Loans of the Lenders shall be
included in their respective Revolving Credit Exposures in determining the
Required Lenders.

“Restricted Payment” means any dividend or
other distribution (whether in cash, securities or other property) with respect
to any Equity Interests in the Borrower, or any payment (whether in cash,
securities or other property), including any sinking fund or similar deposit,
on account of the purchase, redemption, retirement, acquisition, cancellation
or termination of any such Equity Interests in the Borrower or any option,
warrant or other right to acquire any such Equity Interests in the Borrower.

“Revolving Credit Exposure” means, with respect
to any Lender at any time, the sum of the outstanding principal amount of such
Lender’s Revolving Loans, LC Exposure and Swingline Exposure at such time.

“Revolving Loan” means a Loan made pursuant to
Section 2.03.

“S&P” means Standard & Poor’s.

“SAP” means, with respect to any Regulated
Insurance Company, the account­ing procedures and practices prescribed or
permitted by the Applicable Insurance Regulatory Authority of the state in
which such Regulated Insurance Company is domiciled.

“SEC” means the U.S. Securities and Exchange
Commission or any successor agency.

“Significant Subsidiary” means (i) any
Subsidiary that would be a “significant subsidiary” as defined in Article 1,
Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act of
1933, as amended, as such Regulation is in effect on the date hereof or (ii)
any group of Subsidiaries that are not individually Significant Subsidiaries
but when taken together meet the criteria of a Significant Subsidiary.

“Statutory Capital” means policyholders’
surplus and statutory contingency reserve as such amounts are reported in the
Statutory Statements of ACA Financial Guaranty Corporation from time to time.

“Statutory Reserve Rate” means a fraction
(expressed as a decimal), the numerator of which is the number one and the
denominator of which is the number one minus the aggregate of the maximum
reserve percentages (including any marginal, special, emergency or supplemental
reserves) expressed as a decimal established by the Board to which the
Administrative Agent is subject for eurocurrency funding (currently referred to
as “Eurocurrency Liabilities” in Regulation D of the Board).  Such reserve percentages shall include those
imposed pursuant to such Regulation D. 
Eurodollar Loans shall be deemed to constitute eurocurrency funding and
to be subject to such reserve requirements without benefit of or credit for
proration, 

 15
 

exemptions or offsets that may be available from time
to time to any Lender under such Regulation D or any comparable
regulation.  The Statutory Reserve Rate
shall be adjusted automatically on and as of the effective date of any change
in any reserve percentage.

“Statutory
Statements” means, with respect to any Regulated Insurance Company for any
fiscal year, the annual or quarterly financial statements of such Regulated
Insurance Company prepared in accordance with SAP as required to be filed with
the Insurance Regulatory Authority of its juris­dic­tion of domicile and in
accordance with the laws of such jurisdiction, together with all exhibits,
schedules, certificates and actuarial opinions required to be filed or
delivered therewith.

“subsidiary” means, with respect to any Person
(the “parent”) at any date, any corporation, limited liability company,
partnership, association or other entity the accounts of which would be
consolidated with those of the parent in the parent’s consolidated financial
statements if such financial statements were prepared in accordance with GAAP
as of such date, as well as any other corporation, limited liability company,
partnership, association or other entity (a) of which securities or other
ownership interests representing more than 50% of the equity or more than 50%
of the ordinary voting power or, in the case of a partnership, more than 50% of
the general partnership interests are, as of such date, owned, controlled or
held, or (b) that is, as of such date, otherwise Controlled, by the parent
or one or more subsidiaries of the parent or by the parent and one or more
subsidiaries of the parent.

“Subsidiary” means any subsidiary of the
Borrower; provided that in no event shall (a) except for purposes of
Section 5.01 and for purposes of determining compliance with Section 6.06 (and,
in each case, related definitions) any collateralized debt obligation entity or
any “bankruptcy-remote” entity or any similar investment entity (including,
without limitation, ACA Capital Partners I Master Fund, Ltd. and similar funds)
whose assets are managed by the Borrower or an Affiliate of the Borrower or (b)
the Contingent Capital Facility Trust be deemed to constitute a Subsidiary for
purposes of this Agreement, irrespective of whether or not the Borrower or any
of its Subsidiaries owns any equity in any such entity.

“Swap Agreement” means any agreement with respect to any swap, forward, future or
derivative transaction or option or similar agreement involving, or settled by
reference to, one or more rates, currencies, commodities, equity or debt
instruments or securities, or economic, financial or pricing indices or
measures of economic, financial or pricing risk or value or any similar
transaction or any combination of these transactions; provided that
no phantom stock or similar plan providing for payments only on account of
services provided by current or former directors, officers, employees or
consultants of the Borrower or the Subsidiaries shall be a Swap Agreement.

“Swingline Exposure” means, at any time, the
aggregate principal amount of all Swingline Loans outstanding at such
time.  The Swingline Exposure of any
Lender at any time shall be its Applicable Percentage of the total Swingline
Exposure at such time.

“Swingline Lender” means JPMorgan Chase Bank,
N.A., in its capacity as lender of Swingline Loans hereunder.

 16
 

“Swingline Loan” means a Loan made pursuant to
Section 2.05.

“Tangible Net Worth” means, at any date of
determination, Net Worth minus the aggregate book value of all intangible
assets (including deferred debt issuance costs and deferred policy acquisition
costs) of the Borrower and its Subsidiaries as of such date in accordance with
GAAP.

“Taxes” means any and all present or future
taxes, levies, imposts, duties, deductions, charges or withholdings imposed by
any Governmental Authority.

“Termination Date” means that date that is
three years after the Effective Date, as such date may be extended for any
Lender as provided in Section 2.02(e).

“Threshold Amount” means $25,000,000.

“Transactions” means the execution, delivery
and performance by the Borrower of this Agreement, the borrowing of Loans, the
use of the proceeds thereof and the issuance of Letters of Credit hereunder.

“Type”, when used in reference to any Loan or
Borrowing, refers to whether the rate of interest on such Loan, or on the Loans
comprising such Borrowing, is determined by reference to the Adjusted LIBO
Rate, the Alternate Base Rate or, in the case of a Competitive Loan or
Borrowing, the LIBO Rate or a Fixed Rate.

“Variable Interest Entities” means the
following Subsidiaries of the Borrower: (a) ACA Service L.L.C., (b) ACA Risk
Solutions, L.L.C., (c) ACA Management, L.L.C., (d) ACA Financial Products,
Inc., (e) any other newly-created Subsidiary of the Borrower which is engaged
solely in the business of structuring and management of collateralized debt
obligations and the entering into of any credit default swaps and (f) all of
the subsidiaries of any of the foregoing.

SECTION
1.02.  Classification
of Loans and Borrowings.  For purposes of this Agreement, Loans may be
classified and referred to by Class (e.g., a “Revolving Loan”) or by
Type (e.g., a “Eurodollar Loan”) or by Class and Type (e.g., a “Eurodollar
Revolving Loan”).  Borrowings also may be
classified and referred to by Class (e.g., a “Revolving Borrowing”) or
by Type (e.g., a “Eurodollar Borrowing”) or by Class and Type (e.g.,
a “Eurodollar Revolving Borrowing”).

SECTION
1.03.  Terms
Generally.  The definitions of terms herein shall apply
equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including”
shall be deemed to be followed by the phrase “without limitation”.  The word “will” shall be construed to have
the same meaning and effect as the word “shall”.  Unless the context requires otherwise (a) any
definition of or reference to any agreement, instrument or other document
herein shall be construed as referring to such agreement, instrument or other
document as from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications
set forth herein), (b) any reference herein to any Person shall be construed to

 17
 

include
such Person’s successors and assigns, (c) the words “herein”, “hereof” and “hereunder”,
and words of similar import, shall be construed to refer to this Agreement in
its entirety and not to any particular provision hereof, (d) all references
herein to Articles, Sections, Exhibits and Schedules shall be construed to
refer to Articles and Sections of, and Exhibits and Schedules to, this
Agreement and (e) the words “asset” and “property” shall be construed to have
the same meaning and effect and to refer to any and all tangible and intangible
assets and properties, including cash, securities, accounts and contract
rights.

SECTION
1.04.  Accounting
Terms; Changes in GAAP.  Except as otherwise expressly provided
herein, all terms of an accounting or financial nature shall be construed in
accordance with GAAP as in effect from time to time; provided that, if
the Borrower notifies the Administrative Agent that the Borrower requests an
amendment to any provision hereof to eliminate the effect of any change
occurring after the date hereof in GAAP, or in the application thereof on the
operation of such provision, regardless of whether any such notice is given
before or after such change in GAAP, or in the application thereof, then such
provision shall be interpreted on the basis of GAAP as in effect and applied
immediately before such change shall have become effective until  such notice shall have been withdrawn or such
provision  amended in accordance
herewith.  Notwithstanding the foregoing,
it is acknowledged and agreed that the financial statements provided pursuant
to Section 5.01(a) and (b) shall be prepared in accordance with GAAP and the
financial covenants herein shall be calculated on the basis of such financial
statements.

ARTICLE
II

The Credits

SECTION
2.01.  Commitments. 
Subject to the terms and conditions set forth herein, each Lender agrees
to make Revolving Loans to the Borrower from time to time during the
Availability Period in an aggregate principal amount that will not result in
(a) such Lender’s Revolving Credit Exposure exceeding such Lender’s Commitment
or (b) the sum of the total Revolving Credit Exposures plus the aggregate
principal amount of outstanding Competitive Loans exceeding the total
Commitments.  Within the foregoing limits
and subject to the terms and conditions set forth herein, the Borrower may
borrow, prepay and reborrow Revolving Loans.

SECTION
2.02.  Loans
and Borrowings.

(a)                                   Each Revolving Loan shall be made as
part of a Borrowing consisting of Revolving Loans made by the Lenders ratably
in accordance with their respective Commitments.  Each Competitive Loan shall be made in
accordance with the procedures set forth in Section 2.04.  The failure of any Lender to make any Loan
required to be made by it shall not relieve any other Lender of its obligations
hereunder; provided that the Commitments and Competitive Bids of the
Lenders are several and no Lender shall be responsible for any other Lender’s
failure to make Loans as required.

(b)                                 Subject to Section 2.14, (i) each
Revolving Borrowing shall be comprised entirely of ABR Loans or Eurodollar
Loans as the Borrower may request in accordance herewith, 

 18
 

and (ii) each Competitive Borrowing shall be comprised entirely of
Eurodollar Loans or Fixed Rate Loans as the Borrower may request in accordance
herewith.  Each Swingline Loan shall be
an ABR Loan.  Each Lender at its option
may make any Eurodollar Loan by causing any domestic or foreign branch or
Affiliate of such Lender to make such Loan; provided that any exercise
of such option shall not affect the obligation of the Borrower to repay such
Loan in accordance with the terms of this Agreement, nor shall it increase the
Borrower’s obligations under Section 2.17.

(c)                                  At the commencement of each Interest Period
for any Eurodollar Revolving Borrowing, such Borrowing shall be in an aggregate
amount that is an integral multiple of $1,000,000 and not less than
$10,000,000.  At the time that each ABR
Revolving Borrowing is made, such Borrowing shall be in an aggregate amount
that is an integral multiple of $1,000,000 and not less than $10,000,000; provided
that an ABR Revolving Borrowing may be in an aggregate amount that is equal to
the entire unused balance of the total Commitments or that is required to
finance the reimbursement of an LC Disbursement as contemplated by Section
2.06(e).  Each Competitive Borrowing
shall be in an aggregate amount that is an integral multiple of $1,000,000 and
not less than $10,000,000.  Each
Swingline Loan shall be in an amount that is an integral multiple of $1,000,000
and not less than $10,000,000.  Borrowings
of more than one Type and Class may be outstanding at the same time; provided
that there shall not at any time be more than a total of 5 Eurodollar Revolving
Borrowings outstanding.

(d)                                 Notwithstanding any other provision of this
Agreement, the Borrower shall not be entitled to request, or to elect to
convert or continue, any Borrowing if the Interest Period requested with
respect thereto would end after the then scheduled Maturity Date.

(e)                                  Provided that no Default or Event of Default
has occurred and is continuing, the Borrower may request an extension of the
Termination Date for an additional period of one year with notice to the
Administrative Agent, to be given no more than 45 days before the Termination
Date.  The Administrative Agent shall notify
the Lenders of such request promptly upon receipt of such request from the
Borrower.  If, within 30 days of being
notified of such request by the Administrative Agent, Lenders holding a
majority of the Commitments (including any Commitments of any non-extending
Lender assumed or to be assumed by a consenting Lender as provided for herein)
consent to such extension, the Commitment of each consenting Lender shall be
extended by one year, which shall become the new Termination Date with respect
to such Commitment and the Loans made thereunder.  The Administrative Agent shall offer to the
consenting Lenders the opportunity to increase their respective Commitments on
a pro rata basis by acquiring all or part of the Commitments of the
non-extending Lenders through an Assignment and Assumption. Any Lender who does
not consent, or fails to consent within the relevant time period, to a request
from the Borrower to extend the Termination Date shall be deemed a
non-extending Lender and any Commitment of such non-extending Lender not
assumed by a consenting Lender shall terminate on the scheduled Termination
Date.

(f)                                    Provided that no Default or Event of Default
has occurred and is continuing, the Borrower shall have the right to elect that
the Maturity Date of all or any ratable portion of the Loans (other than any
Loans under Commitments then being extended pursuant to 2.02(d) above) be
extended to be due and payable on the date one year after the then scheduled 

 19
 

Termination Date, by giving notice to the Administrative Agent, which
shall promptly notify the Lender thereof, not later than five Business Days
prior to such Termination Date.

(g)                                 Provided that all conditions set forth in
Section 4.02 are then satisfied, the Borrower may request that the Lenders
and/or other entities provide additional Commitments. If such additional
Commitments are provided, the amount of the aggregate Commitments shall be
increased by the amount of such Commitments; provided that (i) the
aggregate amount of any such increase shall not exceed $100,000,000, (ii) the
aggregate amount of all Commitments, including all such increases, shall not
exceed $250,000,000 and (iii) no Lender shall have any obligation to
participate in any additional Commitment or other increase described in this
paragraph unless it agrees to do so in its sole discretion.  Any
additional bank, financial institution or other entity not otherwise a Lender
which, with the consent of the Administrative Agent (which consent shall not be
unreasonably withheld), elects to become a “Lender” under this Agreement in
connection with the making of any Loan or the making of any additional
Commitment shall execute a New Lender Supplement substantially in the form of
Exhibit C, whereupon such bank, financial institution or other entity shall
become a Lender for all purposes and to the same extent as if originally a
party hereto and shall be bound by and entitled to the benefits of this
Agreement.

SECTION
2.03.  Requests
for Revolving Borrowings.   To request a Revolving Borrowing, the Borrower
shall notify the Administrative Agent of such request by telephone (a) in the
case of a Eurodollar Borrowing, not later than 12:00 noon, New York City
time, three Business Days before the date of the proposed Borrowing or
(b) in the case of an ABR Borrowing, not later than 3:00 p.m., New
York City time, one Business Day before the date of the proposed
Borrowing; provided that any such notice of an ABR Revolving Borrowing
to finance the reimbursement of an LC Disbursement as contemplated by Section 2.06(e)
may be given not later than 10:00 a.m., New York City time, on the date of the
proposed Borrowing.  Each such telephonic
Borrowing Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Borrowing Request
in a form approved by the Administrative Agent and signed by the Borrower.  Each such telephonic and written Borrowing
Request shall specify the following information in compliance with
Section 2.02:

(i)                                     the aggregate amount of the requested
Borrowing;

(ii)                                  the date of such Borrowing, which shall be a
Business Day;

(iii)                               whether such Borrowing is to be an ABR
Borrowing or a Eurodollar Borrowing;

(iv)                              in the case of a Eurodollar Borrowing, the
initial Interest Period to be applicable thereto, which shall be a period
contemplated by the definition of the term “Interest Period”; and

(v)                                 the location and number of the Borrower’s
account to which funds are to be disbursed, which shall comply with the
requirements of Section 2.07.

 20
 

If no election as to the Type of Revolving Borrowing
is specified, then the requested Revolving Borrowing shall be an ABR
Borrowing.  If no Interest Period is
specified with respect to any requested Eurodollar Revolving Borrowing, then
the Borrower shall be deemed to have selected an Interest Period of one month’s
duration.  Promptly following receipt of
a Borrowing Request in accordance with this Section, the Administrative Agent
shall advise each Lender of the details thereof and of the amount of such Lender’s
Loan to be made as part of the requested Borrowing.

SECTION
2.04.  Competitive
Bid Procedure.  (a)  Subject to the terms and
conditions set forth herein, from time to time during the Availability Period
the Borrower may request Competitive Bids and may (but shall not have any
obligation to) accept Competitive Bids and borrow Competitive Loans; provided
that the sum of the total Revolving Credit Exposures plus the aggregate
principal amount of outstanding Competitive Loans at any time shall not exceed
the total Commitments.  To request
Competitive Bids, the Borrower shall notify the Administrative Agent of such
request by telephone, in the case of a Eurodollar Borrowing, not later than
12:00 noon, New York City time, four Business Days before the date of the
proposed Borrowing and, in the case of a Fixed Rate Borrowing, not later than
10:00 a.m., New York City time, one Business Day before the date of the
proposed Borrowing; provided that the Borrower may submit up to (but not
more than) two Competitive Bid Requests on the same day, but a Competitive Bid
Request shall not be made within five Business Days after the date of any
previous Competitive Bid Request, unless any and all such previous Competitive
Bid Requests shall have been withdrawn or all Competitive Bids received in
response thereto rejected.  Each such
telephonic Competitive Bid Request shall be confirmed promptly by hand delivery
or telecopy to the Administrative Agent of a written Competitive Bid Request in
a form approved by the Administrative Agent and signed by the Borrower.  Each such telephonic and written Competitive
Bid Request shall specify the following information in compliance with Section
2.02:

(i)                                     the aggregate amount of the requested
Borrowing;

(ii)                                  the date of such Borrowing, which shall be a
Business Day;

(iii)                               whether such Borrowing is to be a Eurodollar
Borrowing or a Fixed Rate Borrowing;

(iv)                              the Interest Period to be applicable to such
Borrowing, which shall be a period contemplated by the definition of the term “Interest
Period”; and

(v)                                 the location and number of the Borrower’s
account to which funds are to be disbursed, which shall comply with the
requirements of Section 2.07.

Promptly following receipt of a Competitive Bid
Request in accordance with this Section, the Administrative Agent shall notify
the Lenders of the details thereof by telecopy, inviting the Lenders to submit
Competitive Bids.

(b)                                 Each Lender may (but shall not have any
obligation to) make one or more Competitive Bids to the Borrower in response to
a Competitive Bid Request.  Each
Competitive Bid by a Lender must be in a form approved by the Administrative
Agent and must be received by the Administrative Agent by telecopy, in the case
of a Eurodollar Competitive Borrowing, not 

 21
 

later than 9:30 a.m., New York City time, three Business Days
before the proposed date of such Competitive Borrowing, and in the case of a
Fixed Rate Borrowing, one Business Day before the proposed date of such
Competitive Borrowing.  Competitive Bids
that do not conform substantially to the form approved by the Administrative
Agent may be rejected by the Administrative Agent, and the Administrative Agent
shall notify the applicable Lender as promptly as practicable.  Each Competitive Bid shall specify
(i) the principal amount (which shall be a minimum of $1,000,000 and an
integral multiple of $1,000,000 and which may equal the entire principal amount
of the Competitive Borrowing requested by the Borrower) of the Competitive Loan
or Loans that the Lender is willing to make, (ii) the Competitive Bid Rate
or Rates at which the Lender is prepared to make such Loan or Loans (expressed
as a percentage rate per annum in the form of a decimal to no more than four
decimal places) and (iii) the Interest Period applicable to each such Loan
and the last day thereof.

(c)                                  The Administrative Agent shall promptly
notify the Borrower by telecopy of the Competitive Bid Rate and the principal
amount specified in each Competitive Bid and the identity of the Lender that
shall have made such Competitive Bid.

(d)                                 Subject only to the provisions of this
paragraph, the Borrower may accept or reject any Competitive Bid.  The Borrower shall notify the Administrative
Agent by telephone, confirmed by telecopy in a form approved by the
Administrative Agent, whether and to what extent it has decided to accept or
reject each Competitive Bid, in the case of a Eurodollar Competitive Borrowing,
not later than 12:00 noon, New York City time, three Business Days before the
date of the proposed Competitive Borrowing, and in the case of a Fixed Rate
Borrowing, not later than 12:00 noon, New York City time, on the proposed date
of the Competitive Borrowing; provided that (i) the failure of the
Borrower to give such notice shall be deemed to be a rejection of each
Competitive Bid, (ii) the Borrower shall not accept a Competitive Bid made
at a particular Competitive Bid Rate if the Borrower rejects a Competitive Bid
made at a lower Competitive Bid Rate, (iii) the aggregate amount of the
Competitive Bids accepted by the Borrower shall not exceed the aggregate amount
of the requested Competitive Borrowing specified in the related Competitive Bid
Request, (iv) to the extent necessary to comply with clause (iii) above,
the Borrower may accept Competitive Bids at the same Competitive Bid Rate in
part, which acceptance, in the case of multiple Competitive Bids at such
Competitive Bid Rate, shall be made pro rata in accordance with the amount of
each such Competitive Bid, and (v) except pursuant to clause (iv)
above, no Competitive Bid shall be accepted for a Competitive Loan unless such
Competitive Loan is in a minimum principal amount of $1,000,000  and an integral multiple of $1,000,000; provided
further that if a Competitive Loan must be in an amount less than
$1,000,000 because of the provisions of clause (iv) above, such Competitive
Loan may be for a minimum of $1,000,000 or any integral multiple thereof, and
in calculating the pro rata allocation of acceptances of portions of multiple
Competitive Bids at a particular Competitive Bid Rate pursuant to clause (iv)
the amounts shall be rounded to integral multiples of $1,000,000 in a manner
determined by the Borrower.  A notice
given by the Borrower pursuant to this paragraph shall be irrevocable.

(e)                                  The Administrative Agent shall promptly
notify each bidding Lender by telecopy whether or not its Competitive Bid has
been accepted (and, if so, the amount and Competitive Bid Rate so accepted),
and each successful bidder will thereupon become bound, 

 22
 

subject to the terms and conditions hereof, to make the Competitive
Loan in respect of which its Competitive Bid has been accepted.

(f)                                    If the Administrative Agent shall elect to
submit a Competitive Bid in its capacity as a Lender, it shall submit such
Competitive Bid directly to the Borrower at least one quarter of an hour
earlier than the time by which the other Lenders are required to submit their
Competitive Bids to the Administrative Agent pursuant to paragraph (b) of this
Section.

SECTION
2.05.  Swingline
Loans.  (a)  Subject to the terms and
conditions set forth herein, the Swingline Lender agrees to make Swingline
Loans to the Borrower from time to time during the Availability Period, in an
aggregate principal amount at any time outstanding that will not result in
(i) the aggregate principal amount of outstanding Swingline Loans
exceeding $20,000,000 or (ii) the sum of the total Revolving Credit Exposures
plus the aggregate principal amount of outstanding Competitive Loans exceeding
the total Commitments; provided that the Swingline Lender shall not be
required to make a Swingline Loan to refinance an outstanding Swingline
Loan.  Any Swingline Loan will reduce the
availability of Loan amounts by the amount of such Swingline Loan.  Within the foregoing limits and subject to
the terms and conditions set forth herein, the Borrower may borrow, prepay and
reborrow Swingline Loans.

(b)                                 To request a Swingline Loan, the Borrower
shall notify the Administrative Agent of such request by telephone (confirmed
by telecopy), not later than 12:00 noon, New York City time on the day of a
proposed Swingline Loan.  Each such
notice shall be irrevocable and shall specify the requested date (which shall
be a Business Day) and amount of the requested Swingline Loan.  The Administrative Agent will promptly advise
the Swingline Lender of any such notice received from the Borrower.  The Swingline Lender shall make each
Swingline Loan available to the Borrower by means of a credit to the general
deposit account of the Borrower with the Swingline Lender (or, in the case of a
Swingline Loan made to finance the reimbursement of an LC Disbursement as
provided in Section 2.06(e), by remittance to the Issuing Bank) by
3:00 p.m., New York City time, on the requested date of such Swingline
Loan.

(c)                                  The Swingline Lender may by written notice
given to the Administrative Agent not later than 10:00 a.m., New York City
time, on any Business Day require the Lenders to acquire participations on such
Business Day in all or a portion of the Swingline Loans outstanding.  Such notice shall specify the aggregate
amount of Swingline Loans in which Lenders will participate.  Promptly upon receipt of such notice, the
Administrative Agent will give notice thereof to each Lender, specifying in
such notice such Lender’s Applicable Percentage of such Swingline Loan or
Loans.  Each Lender hereby absolutely and
unconditionally agrees, upon receipt of notice as provided above, to pay to the
Administrative Agent, for the account of the Swingline Lender, such Lender’s
Applicable Percentage of such Swingline Loan or Loans.  Each Lender acknowledges and agrees that its
obligation to acquire participations in Swingline Loans pursuant to this
paragraph is absolute and unconditional and shall not be affected by any circumstance
whatsoever, including the occurrence and continuance of a Default or reduction
or termination of the Commitments, and that each such payment shall be made
without any offset, abatement, withholding or reduction whatsoever.  Each Lender shall comply with its obligation
under this paragraph by wire transfer of immediately available funds, in the
same manner as provided in Section 2.07 with respect to Loans made by such
Lender (and Section 2.07 shall apply, mutatis  mutandis, to
the payment obligations of the Lenders), and the 

 23
 

Administrative Agent shall promptly pay to the Swingline Lender the
amounts so received by it from the Lenders. 
The Administrative Agent shall notify the Borrower of any participations
in any Swingline Loan acquired pursuant to this paragraph, and thereafter
payments in respect of such Swingline Loan shall be made to the Administrative
Agent and not to the Swingline Lender. 
Any amounts received by the Swingline Lender from the Borrower (or other
party on behalf of the Borrower) in respect of a Swingline Loan after receipt
by the Swingline Lender of the proceeds of a sale of participations therein
shall be promptly remitted to the Administrative Agent; any such amounts
received by the Administrative Agent shall be promptly remitted by the
Administrative Agent to the Lenders that shall have made their payments
pursuant to this paragraph and to the Swingline Lender, as their interests may
appear; provided that any such payment so remitted shall be repaid to
the Swingline Lender or to the Administrative Agent, as applicable, if and to
the extent such payment is required to be refunded to the Borrower for any
reason.  The purchase of participations
in a Swingline Loan pursuant to this paragraph shall not relieve the Borrower
of any default in the payment thereof.

SECTION 2.06.  Letters
of Credit.  (a)  General.  Subject to the terms and conditions set forth
herein, the Borrower may request the issuance of Letters of Credit for its own
account, in a form reasonably acceptable to the Administrative Agent and the
Issuing Bank, at any time and from time to time during the Availability
Period.  In the event of any
inconsistency between the terms and conditions of this Agreement and the terms
and conditions of any form of letter of credit application or other agreement
submitted by the Borrower to, or entered into by the Borrower with, the Issuing
Bank relating to any Letter of Credit, the terms and conditions of this
Agreement shall control.

(b)                                 Notice of Issuance, Amendment, Renewal,
Extension; Certain Conditions.  To request the issuance of a Letter of Credit
(or the amendment, renewal or extension of an outstanding Letter of Credit),
the Borrower shall hand deliver or telecopy (or transmit by electronic
communication, if arrangements for doing so have been approved by the Issuing
Bank) to the Issuing Bank and the Administrative Agent (not less than two
Business Days prior to the requested date of issuance, amendment, renewal or
extension) a notice requesting the issuance of a Letter of Credit, or
identifying the Letter of Credit to be amended, renewed or extended, and
specifying the date of issuance, amendment, renewal or extension (which shall
be a Business Day), the date on which such Letter of Credit is to expire (which
shall comply with paragraph (c) of this Section), the amount of such
Letter of Credit, the name and address of the beneficiary thereof and such
other information as shall be necessary to prepare, amend, renew or extend such
Letter of Credit.  If requested by the
Issuing Bank, the Borrower shall also submit a letter of credit application on
the Issuing Bank’s standard form in connection with any request for a Letter of
Credit.  A Letter of Credit shall be
issued, amended, renewed or extended only if (and upon issuance, amendment,
renewal or extension of each Letter of Credit the Borrower shall be deemed to
represent and warrant that), after giving effect to such issuance, amendment,
renewal or extension (i) the LC Exposure shall not exceed $25,000,000 and
(ii) the sum of the total Revolving Credit Exposures plus the aggregate
principal amount of outstanding Competitive Loans shall not exceed the total
Commitments.  The Borrower may request
the issuance of Letters of Credit either for its own account or for the account
of its Subsidiaries; provided that, notwithstanding that a Letter of
Credit issued or outstanding hereunder is in support of any obligations of, or
is for the account of, a Subsidiary, the Borrower shall be obligated to
reimburse 

 24
 

the Issuing Bank hereunder for any and all drawings under such Letter
of Credit as provided in Section 2.06(e) and for any other amounts payable in
respect of such Letter of Credit hereunder.

(c)                                  Expiration Date.  Each
Letter of Credit shall expire at or prior to the close of business on the
earlier of (i) the date one year after the date of the issuance of such
Letter of Credit (or, in the case of any renewal or extension thereof as
provided under the terms of any Letter of Credit or this Agreement, successive
one year periods after such renewal or extension) and (ii) the date that
is five Business Days prior to the Maturity Date.

(d)                                 Participations.  By
the issuance of a Letter of Credit (or an amendment to a Letter of Credit
increasing the amount thereof) and without any further action on the part of
the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Lender,
and each Lender hereby acquires from the Issuing Bank, a participation in such
Letter of Credit equal to such Lender’s Applicable Percentage of the aggregate
amount available to be drawn under such Letter of Credit.  In consideration and in furtherance of the
foregoing, each Lender hereby absolutely and unconditionally agrees to pay to
the Administrative Agent, for the account of the Issuing Bank, such Lender’s
Applicable Percentage of each LC Disbursement made by the Issuing Bank and not
reimbursed by the Borrower on the date due as provided in paragraph (e) of this
Section, or of any reimbursement payment required to be refunded to the
Borrower for any reason.  Each Lender
acknowledges and agrees that its obligation to acquire participations pursuant
to this paragraph in respect of Letters of Credit is absolute and unconditional
and shall not be affected by any circumstance whatsoever, including any
amendment, renewal or extension of any Letter of Credit or the occurrence and
continuance of a Default or reduction or termination of the Commitments, and
that each such payment shall be made without any offset, abatement, withholding
or reduction whatsoever.

(e)                                  Reimbursement.  If
the Issuing Bank shall make any LC Disbursement in respect of a Letter of
Credit, the Borrower shall reimburse such LC Disbursement by paying to the
Administrative Agent an amount equal to such LC Disbursement not later than
12:00 noon, New York City time, on the Business Day immediately following the
day that the Borrower receives notice of such LC Disbursement; provided
that, if such LC Disbursement is not less than $1,000,000, the Borrower may,
subject to the conditions to borrowing set forth herein, request in accordance
with Section 2.03 or 2.05 that such payment be financed with an ABR Revolving
Borrowing or Swingline Loan in an equivalent amount and, to the extent so
financed, the Borrower’s obligation to make such payment shall be discharged
and replaced by the resulting ABR Revolving Borrowing or Swingline Loan.  If the Borrower fails to make such payment
when due or if such payment obligation is not otherwise discharged as provided
herein, the Administrative Agent shall notify each Lender of the applicable LC
Disbursement, the payment then due from the Borrower in respect thereof and
such Lender’s Applicable Percentage thereof. 
Promptly following receipt of such notice, each Lender shall pay to the
Administrative Agent its Applicable Percentage of the payment then due from the
Borrower, in the same manner as provided in Section 2.07 with respect to
Loans made by such Lender (and Section 2.07 shall apply, mutatis  mutandis,
to the payment obligations of the Lenders), and the Administrative Agent shall
promptly pay to the Issuing Bank the amounts so received by it from the
Lenders.  Promptly following receipt by
the Administrative Agent of any payment from the Borrower pursuant to this
paragraph, the Administrative Agent shall distribute such payment to the
Issuing Bank or, to the extent that Lenders have made payments pursuant to this
paragraph to reimburse 

 25
 

the Issuing Bank, then to such Lenders and the Issuing Bank as their
interests may appear.  Any payment made
by a Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC
Disbursement (other than the funding of ABR Revolving Loans or a Swingline Loan
as contemplated above) shall not constitute a Loan and shall not relieve the
Borrower of its obligation to reimburse such LC Disbursement.

(f)                                    Obligations Absolute.  The
Borrower’s obligation to reimburse LC Disbursements as provided in
paragraph (e) of this Section shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement under any and all circumstances whatsoever and irrespective of
(i) any lack of validity or enforceability of any Letter of Credit or this
Agreement, or any term or provision therein, (ii) any draft or other document
presented under a Letter of Credit proving to be forged, fraudulent or invalid
in any respect or any statement therein being untrue or inaccurate in any
respect, (iii) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or other document that does not comply with the terms
of such Letter of Credit, or (iv) any other event or circumstance whatsoever,
whether or not similar to any of the foregoing, that might, but for the
provisions of this Section, constitute a legal or equitable discharge of, or
provide a right of setoff against, the Borrower’s obligations hereunder.  Neither the Administrative Agent, the Lenders
nor the Issuing Bank, nor any of their Related Parties, shall have any
liability or responsibility by reason of or in connection with the issuance or
transfer of any Letter of Credit or any payment or failure to make any payment
thereunder (irrespective of any of the circumstances referred to in the
preceding sentence), or any error, omission, interruption, loss or delay in
transmission or delivery of any draft, notice or other communication under or
relating to any Letter of Credit (including any document required to make a
drawing thereunder), any error in interpretation of technical terms or any
consequence arising from causes beyond the control of the Issuing Bank; provided
that the foregoing shall not be construed to excuse the Issuing Bank from
liability to the Borrower to the extent of any direct damages (as opposed to
consequential damages, claims in respect of which are hereby waived by the
Borrower to the extent permitted by applicable law) suffered by the Borrower
that are caused by the Issuing Bank’s failure to exercise care when determining
whether drafts and other documents presented under a Letter of Credit comply
with the terms thereof.  The parties
hereto expressly agree that, in the absence of gross negligence or willful
misconduct on the part of the Issuing Bank (as finally determined by a court of
competent jurisdiction), the Issuing Bank shall be deemed to have exercised
care in each such determination.  In
furtherance of the foregoing and without limiting the generality thereof, the
parties agree that, with respect to documents presented which appear on their
face to be in substantial compliance with the terms of a Letter of Credit, the
Issuing Bank may, in its sole discretion, either accept and make payment upon
such documents without responsibility for further investigation, regardless of
any notice or information to the contrary, or refuse to accept and make payment
upon such documents if such documents are not in strict compliance with the
terms of such Letter of Credit.

(g)                                 Disbursement Procedures.  The
Issuing Bank shall, promptly following its receipt thereof, subject to the
terms of the applicable Letter of Credit, examine all documents purporting to
represent a demand for payment under a Letter of Credit.  The Issuing Bank shall promptly notify the
Administrative Agent and the Borrower by telephone (confirmed by telecopy) of
such demand for payment and whether the Issuing Bank has made or will make an
LC Disbursement thereunder; provided that any failure to give or delay
in giving such notice 

 26
 

shall not relieve the Borrower of its obligation to reimburse the
Issuing Bank and the Lenders with respect to any such LC Disbursement.

(h)                                 Interim Interest.  If
the Issuing Bank shall make any LC Disbursement, then, unless the Borrower
shall reimburse such LC Disbursement in full on the date such LC Disbursement
is made, the unpaid amount thereof shall bear interest, for each day from and
including the date such LC Disbursement is made to but excluding the date that
the Borrower reimburses such LC Disbursement, at the rate per annum then
applicable to ABR Revolving Loans; provided that, if the Borrower fails
to reimburse such LC Disbursement when due pursuant to paragraph (e) of
this Section, then Section 2.13(d) shall apply. 
Interest accrued pursuant to this paragraph shall be for the account of
the Issuing Bank, except that interest accrued on and after the date of payment
by any Lender pursuant to paragraph (e) of this Section to reimburse the
Issuing Bank shall be for the account of such Lender to the extent of such
payment.

(i)                                     Replacement of the Issuing Bank.  The
Issuing Bank may be replaced at any time by written agreement among the
Borrower, the Administrative Agent, the replaced Issuing Bank and the successor
Issuing Bank.  The Administrative Agent
shall notify the Lenders of any such replacement of the Issuing Bank.  At the time any such replacement shall become
effective, the Borrower shall pay all unpaid fees accrued for the account of
the replaced Issuing Bank pursuant to Section 2.12(b).  From and after the effective date of any such
replacement, (i) the successor Issuing Bank shall have all the rights and
obligations of the Issuing Bank under this Agreement with respect to Letters of
Credit to be issued thereafter and (ii) references herein to the term “Issuing
Bank” shall be deemed to refer to such successor or to any previous Issuing
Bank, or to such successor and all previous Issuing Banks, as the context shall
require.  After the replacement of an
Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto
and shall continue to have all the rights and obligations of an Issuing Bank
under this Agreement with respect to Letters of Credit issued by it prior to
such replacement, but shall not be required to issue additional Letters of
Credit.

(j)                                     Cash Collateralization.  If
any Event of Default shall occur and be continuing, the Borrower shall upon
written demand by the Administrative Agent (unless an Event of Default under
Section 7(h) shall occur and be continuing) deposit in an account with the
Administrative Agent, in the name of the Administrative Agent and for the
benefit of the Lenders, and grant a security interest therein to the Administrative
Agent for the benefit of itself and the Lenders, an amount in cash equal to the
LC Exposure as of such date of demand or, if an Event of Default under Section
7(h) shall occur and be continuing, as of such date of occurrence, plus any
accrued and unpaid interest thereon. 
Such deposit shall be held by the Administrative Agent as collateral for
the payment and performance of the obligations of the Borrower under this
Agreement.  The Administrative Agent
shall have exclusive dominion and control, including the exclusive right of
withdrawal, over such account.  Other
than any interest earned on the investment of such deposits, which investments
shall be made at the option and sole discretion of the Administrative Agent and
at the Borrower’s risk and expense, such deposits shall not bear interest.  Interest or profits, if any, on such
investments shall accumulate in such account. 
Moneys in such account shall be applied by the Administrative Agent to
reimburse the Issuing Bank for LC Disbursements for which it has not been
reimbursed and, to the extent not so applied, shall be held for the
satisfaction of the reimbursement obligations of the Borrower for 

 27
 

the LC Exposure at such time or, if the maturity of the Loans has been
accelerated (but subject to the consent of Lenders with LC Exposure
representing greater than 50% of the total LC Exposure), be applied to satisfy
other obligations of the Borrower under this Agreement.  If the Borrower is required to provide an
amount of cash collateral hereunder as a result of the occurrence of an Event
of Default, such amount (to the extent not applied as aforesaid) shall be
returned to the Borrower within three Business Days after all Events of Default
have been cured or waived.

SECTION
2.07.  Funding
of Borrowings.  (a)  Each Lender shall make each
Loan to be made by it hereunder on the proposed date thereof by wire transfer
of immediately available funds by 12:00 noon, New York City time, to the
account of the Administrative Agent most recently designated by it for such
purpose by notice to the Lenders; provided that Swingline Loans shall be
made as provided in Section 2.05. 
The Administrative Agent will make such Loans available to the Borrower
by promptly crediting the amounts so received, in like funds, to an account of
the Borrower maintained with the Administrative Agent in New York City and
designated by the Borrower in the applicable Borrowing Request or Competitive
Bid Request; provided that ABR Revolving Loans made to finance the
reimbursement of an LC Disbursement as provided in Section 2.06(e) shall be
remitted by the Administrative Agent to the Issuing Bank.

(b)                                 Unless the Administrative Agent shall have
received notice from a Lender prior to the proposed date of any Borrowing that
such Lender will not make available to the Administrative Agent such Lender’s
share of such Borrowing, the Administrative Agent may assume that such Lender
has made such share available on such date in accordance with paragraph (a) of
this Section and may, in reliance upon such assumption, make available to the
Borrower a corresponding amount.  In such
event, if a Lender has not in fact made its share of the applicable Borrowing
available to the Administrative Agent, then the applicable Lender and the
Borrower severally agree to pay to the Administrative Agent forthwith on demand
such corresponding amount with interest thereon, for each day from and
including the date such amount is made available to the Borrower to but
excluding the date of payment to the Administrative Agent, at (i) in the case
of such Lender, the greater of the Federal Funds Effective Rate and a rate
determined by the Administrative Agent in accordance with banking industry
rules on interbank compensation or (ii) in the case of the Borrower, the
interest rate applicable to ABR Loans. 
If such Lender pays such amount to the Administrative Agent, then such
amount shall constitute such Lender’s Loan included in such Borrowing.

SECTION
2.08.  Interest
Elections.  (a)  Each Revolving Borrowing
initially shall be of the Type specified in the applicable Borrowing Request
and, in the case of a Eurodollar Revolving Borrowing, shall have an initial
Interest Period as specified in such Borrowing Request.  Thereafter, the Borrower may elect to convert
such Borrowing to a different Type or to continue such Borrowing and, in the
case of a Eurodollar Revolving Borrowing, may elect Interest Periods therefor,
all as provided in this Section.  The
Borrower may elect different options with respect to different portions of the
affected Borrowing, in which case each such portion shall be allocated ratably
among the Lenders holding the Loans comprising such Borrowing, and the Loans
comprising each such portion shall be considered a separate Borrowing.  This Section shall not apply to Competitive
Borrowings or Swingline Borrowings, which may not be converted or continued.

 28

(b)                                 To make an election pursuant to this Section,
the Borrower shall notify the Administrative Agent of such election by
telephone by the time that a Borrowing Request would be required under Section
2.03 if the Borrower were requesting a Revolving Borrowing of the Type
resulting from such election to be made on the effective date of such
election.  Each such telephonic Interest
Election Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Interest Election
Request in a form approved by the Administrative Agent and signed by the
Borrower.

(c)                                  Each telephonic and written Interest Election
Request shall specify the following information in compliance with
Section 2.02:

(i)                                     the Borrowing to which such Interest Election
Request applies and, if different options are being elected with respect to
different portions thereof, the portions thereof to be allocated to each
resulting Borrowing (in which case the information to be specified pursuant to
clauses (iii) and (iv) below shall be specified for each resulting Borrowing);

(ii)                                  the effective date of the election made
pursuant to such Interest Election Request, which shall be a Business Day;

(iii)                               whether the resulting Borrowing is to be an
ABR Borrowing or a Eurodollar Borrowing; and

(iv)                              if the resulting Borrowing is a Eurodollar
Borrowing, the Interest Period to be applicable thereto after giving effect to
such election, which shall be a period contemplated by the definition of the
term “Interest Period”.

If any such Interest Election Request requests a
Eurodollar Borrowing but does not specify an Interest Period, then the Borrower
shall be deemed to have selected an Interest Period of one month’s duration.

(d)                                 Promptly following receipt of an Interest
Election Request, the Administrative Agent shall advise each Lender of the
details thereof and of such Lender’s portion of each resulting Borrowing.

(e)                                  If the Borrower fails to deliver a timely
Interest Election Request with respect to a Eurodollar Revolving Borrowing
prior to the end of the Interest Period applicable thereto, then, unless such
Borrowing is repaid as provided herein, at the end of such Interest Period such
Borrowing shall be converted to an ABR Borrowing.  Notwithstanding any contrary provision
hereof, if an Event of Default has occurred and is continuing and the
Administrative Agent, at the request of the Required Lenders, so notifies the
Borrower, then, so long as an Event of Default is continuing (i) no outstanding
Revolving Borrowing may be converted to or continued as a Eurodollar Borrowing
and (ii) unless repaid, each Eurodollar Revolving Borrowing shall be converted
to an ABR Borrowing at the end of the Interest Period applicable thereto.

SECTION
2.09.  Termination
and Reduction of Commitments.  (a)  Unless previously terminated,
the Commitments shall terminate on the Maturity Date.

 29
 

(b)                                 The Borrower may at any time terminate, or
from time to time reduce, the Commitments; provided that (i) each
reduction of the Commitments shall be in an amount that is an integral multiple
of $1,000,000 and not less than $5,000,000 (unless all Commitments are
terminated in their entirety) and (ii) the Borrower shall not terminate or
reduce the Commitments if, after giving effect to any concurrent prepayment of
the Loans in accordance with Section 2.11, the sum of the Revolving Credit
Exposures plus the aggregate principal amount of outstanding Competitive Loans
would exceed the total Commitments.

(c)                                  The Borrower shall notify the Administrative
Agent of any election to terminate or reduce the Commitments under
paragraph (b) of this Section at least one Business Day prior to the
effective date of such termination or reduction, specifying such election and
the effective date thereof.  Promptly
following receipt of any notice, the Administrative Agent shall advise the
Lenders of the contents thereof.  Each
notice delivered by the Borrower pursuant to this Section shall be irrevocable;
provided that a notice of termination of the Commitments delivered by
the Borrower may state that such notice is conditioned upon the effectiveness
of other credit facilities, in which case such notice may be revoked by the
Borrower (by notice to the Administrative Agent on or prior to the specified
effective date) if such condition is not satisfied.  Any termination or reduction of the
Commitments shall be permanent.  Each
reduction of the Commitments shall be made ratably among the Lenders in
accordance with their respective Commitments.

SECTION
2.10.  Repayment of
Loans; Evidence of Debt.  (a)  The Borrower hereby
unconditionally promises to pay (i) to the Administrative Agent for the account
of each Lender the then unpaid principal amount of each Revolving Loan on the
Maturity Date, (ii) to the Administrative Agent for the account of each Lender
the then unpaid principal amount of each Competitive Loan on the last day of
the Interest Period applicable to such Loan and (iii) to the Swingline Lender
the then unpaid principal amount of each Swingline Loan on the earlier of the
Termination Date and the first date after such Swingline Loan is made that is
the 15th or last day of a calendar month and is at least seven days  after such Swingline Loan is made; provided that on
each date that a Revolving Borrowing or Competitive Borrowing is made, the
Borrower shall repay all Swingline Loans then outstanding.

(b)                                 Each Lender shall maintain in accordance with
its usual practice an account or accounts evidencing the indebtedness of the
Borrower to such Lender resulting from each Loan made by such Lender, including
the amounts of principal and interest payable and paid to such Lender from time
to time hereunder.

(c)                                  The Administrative Agent shall maintain
accounts in which it shall record (i) the amount of each Loan made
hereunder, the Class and Type thereof and the Interest Period applicable
thereto, (ii) the amount of any principal or interest due and payable or
to become due and payable from the Borrower to each Lender hereunder and
(iii) the amount of any sum received by the Administrative Agent hereunder
for the account of the Lenders and each Lender’s share thereof.

(d)                                 The entries made in the accounts maintained
pursuant to paragraph (b) or (c) of this Section shall be prima
facie evidence of the existence and amounts of the obligations recorded
therein; provided that the failure of any Lender or the Administrative
Agent 

 30
 

to maintain such accounts or any error therein shall not in any manner
affect the obligation of the Borrower to repay the Loans in accordance with the
terms of this Agreement.

(e)                                  Any Lender may request that Loans made by it
be evidenced by a promissory note.  In
such event, the Borrower shall prepare, execute and deliver to such Lender a
promissory note payable to the order of such Lender (or, if requested by such
Lender, to such Lender and its registered assigns) and in a form approved by
the Administrative Agent.  Thereafter,
the Loans evidenced by such promissory note and interest thereon shall at all
times (including after assignment pursuant to Section 9.04) be represented by
one or more promissory notes in such form payable to the order of the payee
named therein (or, if such promissory note is a registered note, to such payee
and its registered assigns).

SECTION
2.11.  Prepayment
of Loans.  (a)  The Borrower shall have the
right at any time and from time to time to prepay any Borrowing in whole or in
part, subject to prior notice in accordance with paragraph (b) of this Section;
provided that the Borrower shall not have the right to prepay any
Competitive Loan without the prior consent of the Lender thereof and provided
that any such prepayment shall not be less than $1,000,000.

(b)                                 The Borrower shall notify the Administrative
Agent (and, in the case of prepayment of a Swingline Loan, the Swingline Lender)
by telephone (confirmed by telecopy) of any prepayment hereunder (i) in the
case of prepayment of a Eurodollar Revolving Borrowing, not later than 3:00
p.m., New York City time, three Business Days before the date of prepayment,
(ii) in the case of prepayment of an ABR Revolving Borrowing, not later than
3:00 p.m., New York City time, one Business Day before the date of prepayment
or (iii) in the case of prepayment of a Swingline Loan, not later than
12:00 noon, New York City time, on the date of prepayment.  Each such notice shall be irrevocable and
shall specify the prepayment date and the principal amount of each Borrowing or
portion thereof to be prepaid; provided that, if a notice of prepayment
is given in connection with a conditional notice of termination of the
Commitments as contemplated by Section 2.09, then such notice of
prepayment may be revoked if such notice of termination is revoked in
accordance with Section 2.09. 
Promptly following receipt of any such notice relating to a Revolving
Borrowing, the Administrative Agent shall advise the Lenders of the contents
thereof.   Each partial prepayment of any
Revolving Borrowing shall be in an amount that would be permitted in the case
of an advance of a Revolving Borrowing of the same Type as provided in Section
2.02.  Each prepayment of a Revolving
Borrowing shall be applied ratably to the Loans included in the prepaid
Borrowing.  Prepayments shall be
accompanied by accrued interest to the extent required by Section 2.13.

SECTION
2.12.  Fees. 
(a)  The Borrower agrees to pay to the Administrative Agent
for the account of each Lender a facility fee, which shall accrue at the
Applicable Facility Fee Rate on the daily amount of the Commitment of such
Lender (whether used or unused) during the period from and including the date
hereof  to but excluding the date on which
such Commitment terminates; provided that, if such Lender continues to
have any Revolving Credit Exposure after its Commitment terminates, then such
facility fee shall continue to accrue on the daily amount of such Lender’s
Revolving Credit Exposure from and including the date on which its Commitment
terminates to but excluding the date on which such Lender ceases to have any
Revolving Credit Exposure.  Facility fees
accrued through and including the last day of March, June, September and
December of each year shall be payable on the third Business Day 

 31
 

following
such last day, commencing on the first such date to occur three full months
after the date hereof; provided that all such fees shall be payable on
the date on which the Commitments terminate and any such fees accruing after
the date on which the Commitments terminate shall be payable on demand.  All facility fees shall be computed on the
basis of a year of 360 days and shall be payable for the actual number of days
elapsed (including the first day but excluding the last day).

(b)                                 The Borrower agrees to pay (i) to the
Administrative Agent for the account of each Lender a participation fee with
respect to its participations in Letters of Credit, which shall accrue at the
same Applicable Margin used to determine the interest rate applicable to
Eurodollar Revolving Loans on the average daily amount of such Lender’s LC
Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements)
during the period from and including the Effective Date to but excluding the
later of the date on which such Lender’s Commitment terminates and the date on
which such Lender ceases to have any LC Exposure, and (ii) to the Issuing Bank
a fronting fee, calculated at a rate of 0.125% per annum on the average daily
amount of the total LC Exposure, as well as the Issuing Bank’s standard fees
with respect to the issuance, amendment, renewal or extension of any Letter of
Credit or processing of drawings thereunder. 
Participation fees and fronting fees accrued through and including the
last day of March, June, September and December of each year shall be payable
on the third Business Day following such last day, commencing on the first such
date to occur after the Effective Date; provided that all such fees
shall be payable on the date on which the Commitments terminate and any such
fees accruing after the date on which the Commitments terminate shall be
payable on demand.  Any other fees
payable to the Issuing Bank pursuant to this paragraph shall be payable within
10 days after demand.  All participation
fees and fronting fees shall be computed on the basis of a year of 360 days and
shall be payable for the actual number of days elapsed (including the first day
but excluding the last day).

(c)                                  The Borrower agrees to pay to the
Administrative Agent, for its own account, fees payable in the amounts and at
the times separately agreed upon between the Borrower and the Administrative
Agent.

(d)                                 All fees payable hereunder shall be paid on
the dates due, in immediately available funds, to the Administrative Agent (or
to the Issuing Bank, in the case of fees payable to it) for distribution, in
the case of facility fees and participation fees, to the Lenders.  Fees paid shall not be refundable under any
circumstances.

(e)                                  The Borrower agrees to pay to the
Administrative Agent for the account of each Lender a utilization fee (the “Utilization
Fee”), calculated at a rate of 0.125% per annum on the average daily amount
of the total Revolving Credit Exposure whenever such total Revolving Credit
Exposure exceeds 50% of the Commitments. 
Utilization fees accrued through and including the last day of March,
June, September and December of each year shall be payable on the third
Business Day following such last day, commencing on the first such date to
occur after the Effective Date; provided that all such fees shall be
payable on the date on which the Commitments terminate and any such fees
accruing after the date on which the Commitments terminate shall be payable on
demand.  All utilization fees shall be
computed on the basis of a year of 360 days and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day).

 32
 

SECTION
2.13.  Interest. 
(a)  The Loans comprising each ABR Borrowing (including
each Swingline Loan) shall bear interest at the Alternate Base Rate plus the
Applicable Margin.

(b)                                 The Loans comprising each Eurodollar
Borrowing shall bear interest (i) in the case of a Eurodollar Revolving Loan,
at the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing
plus the Applicable Margin, or (ii) in the case of a Eurodollar Competitive
Loan, at the LIBO Rate for the Interest Period in effect for such Borrowing
plus (or minus, as applicable) the Margin applicable to such Loan.

(c)                                  Each Fixed Rate Loan shall bear interest at
the Fixed Rate applicable to such Loan.

(d)                                 Notwithstanding the foregoing, if any
principal of or interest on any Loan or any fee or other amount payable by the
Borrower hereunder is not paid when due, whether at stated maturity, upon
acceleration or otherwise, such overdue amount shall bear interest, after as
well as before judgment, at a rate per annum equal to (i) in the case of overdue
principal of any Loan, 2% plus the rate otherwise applicable to such Loan as
provided in the preceding paragraphs of this Section or (ii) in the case of any
other amount, 2% plus the rate applicable to ABR Loans as provided in paragraph
(a) of this Section.

(e)                                  Accrued interest on each Loan shall be
payable in arrears on each Interest Payment Date for such Loan and, in the case
of Revolving Loans, upon termination of the Commitments; provided that
(i) interest accrued pursuant to paragraph (d) of this Section shall be payable
on demand, (ii) in the event of any repayment or prepayment of any Loan (other
than a prepayment of an ABR Revolving Loan prior to the end of the Availability
Period), accrued interest on the principal amount repaid or prepaid shall be
payable on the date of such repayment or prepayment and (iii) in the event of
any conversion of any Eurodollar Revolving Loan prior to the end of the current
Interest Period therefor, accrued interest on such Loan shall be payable on the
effective date of such conversion.

(f)                                    All interest hereunder shall be computed on
the basis of a year of 360 days, except that interest computed by reference to
the Alternate Base Rate at times when the Alternate Base Rate is based on the
Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in
a leap year), and in each case shall be payable for the actual number of days
elapsed (including the first day but excluding the last day).  The applicable Alternate Base Rate, Adjusted
LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and
such determination shall be conclusive absent manifest error.

SECTION
2.14.  Alternate
Rate of Interest.  If prior to the commencement of any Interest
Period for a Eurodollar Borrowing:

(a)                                  the Administrative Agent determines (which
determination shall be conclusive absent manifest error) that adequate and
reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the
LIBO Rate, as applicable, for such Interest Period; or

(b)                                 the Administrative Agent is advised by the
Required Lenders (or, in the case of a Eurodollar Competitive Loan, the Lender
that is required to make such Loan) that the 

 33
 

Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest
Period will not adequately and fairly reflect the cost to such Lenders (or
Lender) of making or maintaining their Loans (or its Loan) included in such
Borrowing for such Interest Period;

then the Administrative Agent shall give notice
thereof to the Borrower and the Lenders by telephone or telecopy as promptly as
practicable thereafter and, until the Administrative Agent notifies the
Borrower and the Lenders that the circumstances giving rise to such notice no
longer exist, (i) any Interest Election Request that requests the conversion of
any Revolving Borrowing to, or continuation of any Revolving Borrowing as, a
Eurodollar Borrowing shall be ineffective, (ii) if any Borrowing Request
requests a Eurodollar Revolving Borrowing, such Borrowing shall be made as an
ABR Borrowing and (iii) any request by the Borrower for a Eurodollar
Competitive Borrowing shall be ineffective; provided that (A) if the
circumstances giving rise to such notice do not affect all the Lenders, then
requests by the Borrower for Eurodollar Competitive Borrowings may be made to
Lenders that are not affected thereby and (B) if the circumstances giving rise
to such notice affect only one Type of Borrowings, then the other Type of
Borrowings shall be permitted.

SECTION
2.15.  Increased
Costs.  (a)  If any Change in Law shall:

(i)                                     impose, modify or deem applicable any
reserve, special deposit or similar requirement against assets of, deposits
with or for the account of, or credit extended by, any Lender (except any such
reserve requirement reflected in the Adjusted LIBO Rate) or the Issuing Bank;
or

(ii)                                  impose on any Lender or the Issuing Bank or
the London interbank market any other condition affecting this Agreement or
Eurodollar Loans or Fixed Rate Loans made by such Lender or any Letter of
Credit or participation therein;

and the result of any of the foregoing shall be to
increase the cost to such Lender of making or maintaining any Eurodollar Loan
or Fixed Rate Loan (or of maintaining its obligation to make any such Loan) or
to increase the cost to such Lender or the Issuing Bank of participating in,
issuing or maintaining any Letter of Credit or to reduce the amount of any sum
received or receivable by such Lender or the Issuing Bank hereunder (whether of
principal, interest or otherwise), then the Borrower will pay to such Lender or
the Issuing Bank, as the case may be, such additional amount or amounts as will
compensate such Lender or the Issuing Bank, as the case may be, for such
additional costs incurred or reduction suffered.

(b)                                 If any Lender or the Issuing Bank determines
that any Change in Law regarding capital requirements has or would have the
effect of reducing the rate of return on such Lender’s or the Issuing Bank’s
capital or on the capital of such Lender’s or the Issuing Bank’s holding
company, if any, as a consequence of this Agreement or the Loans made by, or
participations in Letters of Credit held by, such Lender, or the Letters of
Credit issued by the Issuing Bank, to a level below that which such Lender or
the Issuing Bank or such Lender’s or the Issuing Bank’s holding company could
have achieved but for such Change in Law (taking into consideration such Lender’s
or the Issuing Bank’s policies and the policies of such Lender’s or the Issuing
Bank’s holding company with respect to capital adequacy), then from time to
time the Borrower will pay to such Lender or the Issuing Bank, as the case may
be, such additional 

 34
 

amount or amounts as will compensate such Lender or the Issuing Bank or
such Lender’s or the Issuing Bank’s holding company for any such reduction
suffered.

(c)                                  A certificate of a Lender or the Issuing Bank
setting forth the amount or amounts necessary to compensate such Lender or the
Issuing Bank or its holding company, as the case may be, as specified in
paragraph (a) or (b) of this Section shall be delivered to the Borrower
and shall be conclusive absent manifest error. 
The Borrower shall pay such Lender or the Issuing Bank, as the case may
be, the amount shown as due on any such certificate within 10 days after
receipt thereof.

(d)                                 Failure or delay on the part of any Lender or
the Issuing Bank to demand compensation pursuant to this Section shall not
constitute a waiver of such Lender’s or the Issuing Bank’s right to demand such
compensation; provided that the Borrower shall not be required to
compensate a Lender or the Issuing Bank pursuant to this Section for any
increased costs or reductions incurred more than 270 days prior to the date
that such Lender or the Issuing Bank, as the case may be, notifies the Borrower
of the Change in Law giving rise to such increased costs or reductions and of
such Lender’s or the Issuing Bank’s intention to claim compensation therefor; provided
further that, if the Change in Law giving rise to such increased costs
or reductions is retroactive, then the 270-day period referred to above shall
be extended to include the period of retroactive effect thereof.

(e)                                  Notwithstanding the foregoing provisions of
this Section, a Lender shall not be entitled to compensation pursuant to this
Section in respect of any Competitive Loan if the Change in Law that would
otherwise entitle it to such compensation shall have been publicly announced
prior to submission of the Competitive Bid pursuant to which such Loan was
made.

(f)                                    Notwithstanding
anything in this Section to the contrary, this Section shall not apply to
Taxes, which shall be governed solely by Section 2.17.

SECTION
2.16.  Break
Funding Payments.  In the event of (a) the payment of any
principal of any Eurodollar Loan or Fixed Rate Loan other than on the last day
of an Interest Period applicable thereto (including as a result of an Event of
Default), (b) the conversion of any Eurodollar Loan other than on the last day
of the Interest Period applicable thereto, (c) the failure to borrow, convert,
continue or prepay any Eurodollar Loan or Fixed Rate Loan on the date specified
in any notice delivered pursuant hereto (regardless of whether such notice may
be revoked under Section 2.11(b) and is revoked in accordance therewith),
(d) the failure to borrow any Competitive Loan after accepting the
Competitive Bid to make such Loan, or (e) the assignment of any Eurodollar
Loan or Fixed Rate Loan other than on the last day of the Interest Period
applicable thereto as a result of a request by the Borrower pursuant to Section 2.19,
then, in any such event, the Borrower shall compensate each Lender for the
loss, cost and expense attributable to such event.  In the case of a Eurodollar Loan, such loss,
cost or expense to any Lender shall be deemed to include an amount determined
by such Lender to be the excess, if any, of (i) the amount of interest which
would have accrued on the principal amount of such Loan had such event not
occurred, at the Adjusted LIBO Rate that would have been applicable to such
Loan, for the period from the date of such event to the last day of the then
current Interest Period therefor (or, in the case of a failure to borrow,
convert or continue, for the period that would have been the Interest Period
for such Loan), over (ii) the amount of interest which would accrue on 

 35
 

such
principal amount for such period at the interest rate which such Lender would
bid were it to bid, at the commencement of such period, for dollar deposits of
a comparable amount and period from other banks in the eurodollar market.  A certificate of any Lender setting forth any
amount or amounts that such Lender is entitled to receive pursuant to this
Section shall be delivered to the Borrower and shall be conclusive absent
manifest error.  The Borrower shall pay
such Lender the amount shown as due on any such certificate within 10 days
after receipt thereof.

SECTION
2.17.  Taxes. 
(a)  Any and all payments by or on account of any
obligation of the Borrower hereunder shall be made free and clear of and
without deduction for any Taxes unless deduction of such Taxes is required by
law (or by the interpretation or administration thereof); provided that
if the Borrower shall be so required to deduct any Indemnified Taxes or Other
Taxes from such payments, then (i) the sum payable shall be increased as
necessary so that after making all required deductions of such Indemnified
Taxes or Other Taxes (including deductions of such Indemnified Taxes or Other
Taxes applicable to additional sums payable under this Section 2.17(a)) the
Administrative Agent, Lender or the
Issuing Bank (as the case may be) receives an amount equal to the sum it
would have received had no such deductions of such Indemnified Taxes or Other
Taxes been made, (ii) the Borrower shall make such deductions of such
Indemnified Taxes or Other Taxes and (iii) the Borrower shall pay the full
amount so deducted to the relevant Governmental Authority in accordance with
applicable law.

(b)                                 In addition, the Borrower shall pay any Other
Taxes to the relevant Governmental Authority in accordance with applicable law.

(c)                                  The
Borrower shall indemnify the Administrative Agent, each Lender and the Issuing Bank promptly after
written demand therefor, which written demand shall be made promptly after the
Administrative Agent, such Lender or
the Issuing Bank receives written demand for payment of any Indemnified
Taxes or Other Taxes from the relevant Governmental Authority, for the full
amount of such Indemnified Taxes or Other Taxes paid by the Administrative
Agent, such Lender or the Issuing Bank,
as the case may be, on or with respect to any payment by or on account of any
obligation of the Borrower hereunder (including Indemnified Taxes or Other
Taxes properly imposed or asserted on or attributable to amounts payable under
this Section 2.17(b)) and any penalties, interest and reasonable expenses
arising therefrom or with respect thereto, whether or not such Indemnified
Taxes or Other Taxes were correctly or legally imposed or asserted by the
relevant Governmental Authority.  A
certificate as to the amount of such payment or liability and, in reasonable
detail, the manner in which such amount shall have been determined, delivered
to the Borrower by a Lender or the
Issuing Bank, or by the Administrative Agent on its own behalf or on
behalf of a Lender or the Issuing Bank,
shall be conclusive absent manifest error.

(d)                                 As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority,
the Borrower shall deliver to the Administrative Agent the original or a
certified copy of a receipt issued by such Governmental Authority evidencing
such payment, a copy of the return reporting such payment or other evidence of
such payment reasonably satisfactory to the Administrative Agent.

 36
 

(e)                                  Each
Foreign Lender shall deliver to the Borrower and the Administrative Agent on or
before the date such Foreign Lender becomes a party to this Agreement and on or
before the date, if any, such Foreign Lender changes its lending office
(i) two duly executed and properly completed Internal Revenue Service
Forms W-8ECI, W-8IMY, W-8EXP, or W-8BEN (with respect to the benefit of an
income tax treaty), or other applicable forms, certifying to such Foreign
Lender’s entitlement to a complete exemption from or reduced rate of United
States withholding tax with respect to all payments to be made to it under the
Loan Documents, or (ii) if such Foreign Lender is not a “bank” within the
meaning of Section 881(c)(3)(A) of the Code, either (x) the forms referred
to in clause (i) above certifying to such Foreign Lender’s entitlement to
a complete exemption from United States withholding tax with respect to all
payments to be made to it under the Loan Documents, or (y) two duly executed
and properly completed Internal Revenue Service Forms W-8BEN (or successor
forms) and a duly executed certificate substantially in the form of Exhibit D
(any such certificate, a “Section 2.17(e) Certificate”).  In addition, each Foreign Lender shall
deliver such Internal Revenue Service forms and the Section 2.17(e) Certificate
(as applicable) to the Borrower and the Administrative Agent promptly upon the
obsolescence, inaccuracy or invalidity of any such Internal Revenue Service
forms or Section 2.17(e) Certificate previously delivered by such Foreign
Lender pursuant to this Section 2.17(e). 
Notwithstanding any other provision of this paragraph, a Foreign Lender
shall not be required to deliver any form pursuant to this paragraph that such
Foreign Lender is not legally able to deliver.

(f)                                    If the Administrative Agent or any Lender
determines in its sole discretion exercised in good faith that it has received
a refund of any Indemnified Taxes or Other Taxes as to which it has been
indemnified by the Borrower or with respect to which the Borrower has paid
additional amounts pursuant to this Section 2.17, it shall promptly pay over
such refund to the Borrower (but only to the extent of indemnity payments made,
or additional amounts paid, by the Borrower under this Section 2.17 with
respect to the Indemnified Taxes or Other Taxes giving rise to such refund)
net of all reasonable out-of-pocket
expenses of the Administrative Agent or such Lender and without interest (other
than any interest paid by the relevant Governmental Authority with respect to
such refund); provided, that the Borrower, upon the request of the
Administrative Agent or such Lender, agrees to repay the amount paid over to
the Borrower (plus any penalties, interest or other charges imposed by the
relevant Governmental Authority) to the Administrative Agent or such Lender in
the event the Administrative Agent or such Lender is required to repay such
refund to such Governmental Authority. This Section shall not be construed to
require the Administrative Agent or any Lender to make available its tax
returns (or any other information relating to its taxes which it deems
confidential) to the Borrower or any other Person.

SECTION
2.18.  Payments
Generally; Pro Rata Treatment; Sharing of Set-offs. 
(a)  The Borrower shall make each payment required to be made
by it hereunder (whether of principal, interest, fees or reimbursements of LC
Disbursements, or of amounts payable under Section 2.15, 2.16 or 2.17, or
otherwise) prior to 12:00 noon, New York City time, on the date when due, in
immediately available funds, without set-off or counterclaim.  Any amounts received after such time on any
date may, in the discretion of the Administrative Agent, be deemed to have been
received on the next succeeding Business Day for purposes of calculating
interest thereon.  All such payments
shall be made to the Administrative Agent at its offices at 270 Park Avenue,
New York, New York, except payments to be made directly to the Issuing 

 37
 

Bank
or Swingline Lender as expressly provided herein and except that payments
pursuant to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the
Persons entitled thereto.  The
Administrative Agent shall distribute any such payments received by it for the
account of any other Person to the appropriate recipient promptly following
receipt thereof.  If any payment
hereunder shall be due on a day that is not a Business Day, the date for
payment shall be extended to the next succeeding Business Day, and, in the case
of any payment accruing interest, interest thereon shall be payable for the
period of such extension.  All payments
hereunder shall be made in dollars.

(b)                                 If at any time insufficient funds are
received by and available to the Administrative Agent to pay fully all amounts
of principal, unreimbursed LC Disbursements, interest and fees then due
hereunder, such funds shall be applied (i) first, towards payment of interest
and fees then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of interest and fees then due to such parties, and
(ii) second, towards payment of principal and unreimbursed LC Disbursements
then due hereunder, ratably among the parties entitled thereto in accordance
with the amounts of principal and unreimbursed LC Disbursements then due to
such parties.

(c)                                  If any Lender shall, by exercising any right
of set-off or counterclaim or otherwise, obtain payment in respect of any
principal of or interest on any of its Revolving Loans or participations in LC
Disbursements or Swingline Loans resulting in such Lender receiving payment of
a greater proportion of the aggregate amount of its Revolving Loans and
participations in LC Disbursements and Swingline Loans and accrued interest
thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value)
participations in the Revolving Loans and participations in LC Disbursements
and Swingline Loans of other Lenders to the extent necessary so that the
benefit of all such payments shall be shared by the Lenders ratably in accordance
with the aggregate amount of principal of and accrued interest on their
respective Revolving Loans and participations in LC Disbursements and Swingline
Loans; provided that (i) if any such participations are purchased and
all or any portion of the payment giving rise thereto is recovered,  such participations shall be rescinded and
the purchase price restored to the extent of such recovery, without interest,
and (ii) the provisions of this paragraph shall not be construed to apply to
any payment made by the Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration
for the assignment of or sale of a participation in any of its Loans or
participations in LC Disbursements to any assignee or participant, other than
to the Borrower or any Subsidiary or Affiliate thereof (as to which the
provisions of this paragraph shall apply). 
The Borrower consents to the foregoing and agrees, to the extent it may
effectively do so under applicable law, that any Lender acquiring a
participation pursuant to the foregoing arrangements may exercise against the
Borrower rights of set-off and counterclaim with respect to such participation
as fully as if such Lender were a direct creditor of the Borrower in the amount
of such participation.

(d)                                 Unless the Administrative Agent shall have
received notice from the Borrower prior to the date on which any payment is due
to the Administrative Agent for the account of the Lenders or the Issuing Bank
hereunder that the Borrower will not make such payment, the Administrative
Agent may assume that the Borrower has made such payment on such date in
accordance herewith and may, in reliance upon such assumption, distribute to
the 

 38
 

Lenders or the Issuing Bank, as the case may be, the amount due.  In such event, if the Borrower has not in
fact made such payment, then each of the Lenders or the Issuing Bank, as the
case may be, severally agrees to repay to the Administrative Agent forthwith on
demand the amount so distributed to such Lender or Issuing Bank with interest
thereon, for each day from and including the date such amount is distributed to
it to but excluding the date of payment to the Administrative Agent, at the
greater of the Federal Funds Effective Rate and a rate determined by the
Administrative Agent in accordance with banking industry rules on interbank
compensation.

(e)                                  If any Lender shall fail to make any payment
required to be made by it pursuant to Section 2.05(c), 2.06(d) or (e), 2.07(b)
or 2.18(d), then the Administrative Agent may, in its discretion
(notwithstanding any contrary provision hereof), apply any amounts thereafter
received by the Administrative Agent for the account of such Lender to satisfy
such Lender’s obligations under such Sections until all such unsatisfied
obligations are fully paid.

SECTION
2.19.  Mitigation
Obligations; Replacement of Lenders.  (a)  If any Lender
requests compensation under Section 2.15, or if the Borrower is
required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.17, then
such Lender shall use reasonable efforts to designate a different lending
office for funding or booking its Loans hereunder or to assign its rights and
obligations hereunder to another of its offices, branches or affiliates, if, in
the judgment of such Lender, such designation or assignment (i) would eliminate
or reduce amounts payable pursuant to Section 2.15 or 2.17, as the case may be,
in the future and (ii) would not, in the reasonable judgment of such Lender,
require such Lender to incur an unreimbursed out-of-pocket cost or expense, or
a legal or regulatory disadvantage, determined by such Lender to be
material.  The Borrower hereby agrees to
pay all reasonable out-of-pocket costs and expenses incurred by any Lender in
connection with any such designation or assignment.

(b)                                 If any Lender requests compensation under
Section 2.15, or if the Borrower is required to pay any additional amount
or indemnity payment to any Lender or any Governmental Authority for the
account of any Lender pursuant to Section 2.17, or if any Lender defaults
in its obligation to fund Loans hereunder, or if any Lender fails to consent to
a proposed amendment or waiver which is consented to by the Required Holders
but which requires a unanimous approval of all Lenders then the Borrower may,
at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, require such Lender to assign and delegate, without
recourse (in accordance with and subject to the restrictions contained in
Section 9.04), all its interests, rights and obligations under this
Agreement (other than any outstanding Competitive Loans held by it) to an
assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); provided that (i) the
Borrower shall have received the prior written consent of the Administrative
Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall
have received payment of an amount equal to the outstanding principal of its
Loans (other than Competitive Loans) and participations in LC Disbursements and
Swingline Loans, accrued interest thereon, accrued fees and all other amounts
payable to it hereunder, from the assignee (to the extent of such outstanding
principal and accrued interest and fees) or the Borrower (in the case of all
other amounts) and (iii) in the case of any such assignment resulting from
a claim for compensation under Section 2.15 or payments required to be
made pursuant to Section 2.17, such assignment will result in a 

 39
 

reduction in such compensation or payments.  A Lender shall not be required to make any
such assignment and delegation if, prior thereto, as a result of a waiver by
such Lender or otherwise, the circumstances entitling the Borrower to require
such assignment and delegation cease to apply.

ARTICLE
III

Representations and Warranties

The Borrower represents and warrants to the Lenders
that:

SECTION
3.01.  Organization;
Powers.  Each of the Borrower and its Subsidiaries is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, has all requisite power and authority to
carry on its business as now conducted and, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect, is qualified to do business in, and is in good
standing in, every jurisdiction where such qualification is required.

SECTION
3.02.  Authorization;
Enforceability.  The Transactions are within the Borrower’s
corporate powers and have been duly authorized by all necessary corporate and,
if required, stockholder action.  This
Agreement has been duly executed and delivered by the Borrower and constitutes
a legal, valid and binding obligation of the Borrower, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors’ rights generally
and subject to general principles of equity, regardless of whether considered
in a proceeding in equity or at law.

SECTION
3.03.  Governmental
Approvals; No Conflicts.  Except as could not reasonably be expected to
result in a Material Adverse Effect, the Transactions (a) do not require any
consent or approval of, registration or filing with, or any other action by,
any Governmental Authority, except such as have been obtained or made and are
in full force and effect, (b) do not violate any applicable law or regulation
or any order of any Governmental Authority in each case applicable to the
Borrower or any of its Subsidiaries, (c) do not violate or result in a default
under any indenture, agreement or other instrument binding upon the Borrower or
any of its Subsidiaries or its assets, or give rise to a right thereunder to
require any payment to be made by the Borrower or any of its Subsidiaries, and
(d) do not result in the creation or imposition of any Lien on any asset of the
Borrower or any of its Subsidiaries.  The
Transactions do not violate the charter, by-laws or other organizational
documents of the Borrower or any of its Subsidiaries.

SECTION
3.04.  Federal
Regulations.  No part of the proceeds of any Loans, and no
other extensions of credit hereunder, will be used for “buying” or “carrying”
any “margin stock” within the respective meanings of each of the quoted terms
under Regulation U as now and from time to time hereafter in effect in any
manner that violates the provisions of the Regulations of the Board.  If requested by any Lender or the
Administrative Agent, the Borrower will furnish to the Administrative Agent and
each Lender a statement to the foregoing effect in conformity with the
requirements of FR Form G-3 or FR Form U-1, as applicable, referred to in
Regulation U.

 40

SECTION
3.05.  Financial
Condition; No Material Adverse Change.  (a)  The Borrower
has heretofore furnished to the Lenders its consolidated balance sheet and
statements of income, stockholders equity and cash flows as of and for the
fiscal year ended December 31, 2006, reported on by Deloitte & Touche LLP,
independent public accountants. Such financial statements present fairly, in
all material respects, the financial position and results of operations and
cash flows of the Borrower and each of its Subsidiaries as of such dates and
for such periods in accordance with GAAP.

(b)                                 Since December 31, 2006, there has been no
material adverse change in the business, assets, operations or condition
(financial or otherwise) of the Borrower and its Subsidiaries, taken as a
whole.

SECTION
3.06.  Properties. 
(a)  Each of the Borrower and its Subsidiaries has good title
to, or valid leasehold interests in, all its real and personal property
material to its business, except for such defects in title that could not
reasonably be expected to have a Material Adverse Effect, and none of such
property is subject to any Lien except as permitted by Section 6.02.

(b)                                 Each of the Borrower and its Subsidiaries
owns, or is licensed to use, all trademarks, tradenames, copyrights, patents
and other intellectual property material to its business, and the use thereof
by the Borrower and its Subsidiaries does not infringe upon the rights of any
other Person, except for any such infringements that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.

SECTION
3.07.  Litigation
and Environmental Matters.  (a)  There are no actions, suits or
proceedings by or before any arbitrator or Governmental Authority pending
against or, to the knowledge of the Borrower, threatened against or affecting
the Borrower or any of its Subsidiaries (i) as to which there is a
reasonable possibility of an adverse determination and that, if adversely
determined, could reasonably be expected, individually or in the aggregate, to
result in a Material Adverse Effect (other than the Disclosed Matters) or
(ii) that involve this Agreement or the Transactions.

(b)                                 Except for the Disclosed Matters and except
with respect to any other matters that, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Effect, neither the
Borrower nor any of its Subsidiaries (i) has failed to comply with any
Environmental Law or to obtain, maintain or comply with any permit, license or
other approval required under any Environmental Law, (ii) has become
subject to any Environmental Liability or (iii) has received notice of any
claim with respect to any Environmental Liability.

(c)                                  Since the Effective Date, there has been no
change in the status of the Disclosed Matters that, individually or in the
aggregate, has resulted in, or materially increased the likelihood of, a
Material Adverse Effect.

SECTION
3.08.  Compliance
with Laws and Agreements.  Each of the Borrower and its Subsidiaries is
in compliance with all laws, regulations and orders of any Governmental
Authority applicable to it or its property and all indentures, agreements and
other instruments binding upon it or its property, except where the failure to
do so, individually or in the aggregate, 

 41
 

could
not reasonably be expected to result in a Material Adverse Effect.  No Default has occurred and is continuing.

SECTION
3.09.  Significant
Subsidiaries.  Except as disclosed to the Administrative
Agent (which shall be furnished by the Administrative Agent to each Lender) by
the Borrower in writing from time to time after the Effective Date, Schedule
3.09 sets forth the name and jurisdiction of incorporation of each Significant
Subsidiary and, as to each such Significant Subsidiary, the percentage of each
class of stock owned by any party hereto.

SECTION
3.10.  Investment
and Holding Company Status, Other Regulations.  The Borrower is not an “investment
company”, or a company “controlled” by an “investment company”, within the
meaning of the Investment Company Act of 1940, as amended.  The Borrower is not subject to regulation
under any Requirement of Law (other than Regulation X of the Board) that limits
its ability to incur Indebtedness.

SECTION
3.11.  Taxes.  Each
of the Borrower and its Subsidiaries has timely filed or caused to be filed all
Tax returns and reports required to have been filed and has paid or caused to
be paid all Taxes required to have been paid by it, except (a) Taxes that
are being contested in good faith by appropriate proceedings and for which the
Borrower or such Subsidiary, as applicable, has set aside on its books adequate
reserves or (b) to the extent that the failure to do so could not
reasonably be expected to result in a Material Adverse Effect.

SECTION
3.12.  ERISA.  No
ERISA Event has occurred or is reasonably expected to occur that, when taken
together with all other such ERISA Events for which liability is reasonably
expected to occur, could reasonably be expected to result in a Material Adverse
Effect.  The present value of all
accumulated benefit obligations under each Plan (based on the assumptions used
for purposes of Statement of Financial Accounting Standards No. 87) did
not, as of the date of the most recent financial statements reflecting such
amounts, exceed the fair market value of the assets of such Plan, and the
present value of all accumulated benefit obligations of all underfunded Plans
(based on the assumptions used for purposes of Statement of Financial
Accounting Standards No. 87) did not, as of the date of the most recent
financial statements reflecting such amounts, exceed the fair market value of
the assets of all such underfunded Plans, in each case by an amount that
could reasonably be expected to result in a Material Adverse Effect.

SECTION
3.13.  Use
of Proceeds and Letters of Credit.  The proceeds of the Revolving
Loans and the Competitive Loans shall be used to finance the working capital
needs and general corporate purposes of the Borrower and its Subsidiaries.  Letters of Credit will be used to further
general corporate purposes of the Borrower and its Subsidiaries.

SECTION
3.14.  No
Default.  None of the Borrower or its Subsidiaries is
in default under or with respect to any of its material Contractual Obligations
in any respect that could reasonably be expected to have a Material Adverse
Effect.

SECTION
3.15.  Disclosure. 
Neither the Information Memorandum nor any of the other reports,
financial statements, certificates or other information (other than projected
financial information) furnished by or on behalf of the Borrower to the Lenders
in connection 

 42
 

with
the negotiation of this Agreement or delivered hereunder (as modified or
supplemented by other information so furnished) contains, when taken as a whole
as of each date on which the representation and warranty is made or deemed
made, any material misstatement of fact or omits to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided that, with respect
to projected financial information, the Borrower represents only that such
information was prepared in good faith based upon assumptions believed to be
reasonable at the time.

SECTION
3.16.  Insurance Licenses.  (a)          Each
Regulated Insurance Company has obtained and maintains in full force and effect
all licenses and permits from all regulatory authorities necessary to operate
in the jurisdictions in which such Regulated Insurance Company operates, in
each case other than such licenses and permits the failure of which to obtain
or maintain, individually or in the aggregate, would not reasonably to expected
to have a Material Adverse Effect.

(b)                                 There is (i) no Insurance License that is the
subject of a proceeding for suspension, revocation or limitation or any similar
proceedings, (ii) no sustainable basis for such a suspension, revocation or
limitation, and (iii) to the knowledge of Borrower, no such suspension,
revocation or limitation threatened by any Applicable Insurance Regulatory
Authority, that, in the each instance under (i), (ii) and (iii) above, has had,
or would reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect.  No
Regulated Insurance Company transacts any insurance business, directly or indirectly,
in any jurisdiction where such business requires any Insurance License of an
Applicable Insurance Regulatory Authority or such jurisdiction not validly
maintained by such Regulated Insurance Company, except to the extent that the
failure to so maintain has not had, or would not reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect.

ARTICLE
IV

Conditions

SECTION
4.01.  Effective
Date.  The obligations of the Lenders to make Loans
and of the Issuing Bank to issue Letters of Credit hereunder shall not become
effective until the date on which each of the following conditions is satisfied
(or waived in accordance with Section 9.02):

(a)                                  The Administrative Agent (or its counsel)
shall have received from each party hereto either (i) a counterpart of
this Agreement signed on behalf of such party or (ii) written evidence
satisfactory to the Administrative Agent (which may include telecopy
transmission of a signed signature page of this Agreement) that such party has
signed a counterpart of this Agreement.

(b)                                 The Administrative Agent shall have received
a favorable written opinion (addressed to the Administrative Agent and the
Lenders and dated the Effective Date) of 
Fried Frank Harris Shriver & Jacobson, LLP, counsel for the
Borrower, substantially in the form of Exhibit B, and covering such other
matters relating to the Borrower, this 

 43
 

Agreement
or the Transactions as the Required Lenders shall reasonably request.  The Borrower hereby requests such counsel to
deliver such opinion.

(c)                                  The Administrative Agent shall have received
such documents and certificates as the Administrative Agent or its counsel may
reasonably request relating to the organization, existence and good standing of
the Borrower, the authorization of the Transactions and any other legal matters
relating to the Borrower, this Agreement or the Transactions, all in form and
substance satisfactory to the Administrative Agent and its counsel.

(d)                                 The Administrative Agent shall have received
a certificate, dated the Effective Date and signed by the President, the
General Counsel or a Financial Officer of the Borrower, confirming compliance
with the conditions set forth in paragraphs (a) and (b) of
Section 4.02.

(e)                                  The
Existing Credit Agreement shall have been terminated.

(f)                                    The Administrative Agent shall have received
all fees and other amounts due and payable on or prior to the Effective Date,
including, to the extent invoiced, reimbursement or payment of all out-of-pocket
expenses required to be reimbursed or paid by the Borrower hereunder.

The Administrative Agent shall notify the Borrower and
the Lenders of the Effective Date, and such notice shall be conclusive and
binding.  Notwithstanding the foregoing,
the obligations of the Lenders to make Loans and of the Issuing Bank to issue
Letters of Credit hereunder shall not become effective unless each of the
foregoing conditions is satisfied (or waived pursuant to Section 9.02) at or
prior to 3:00 p.m., New York City time, on April 26, 2007 (and, in the event
such conditions are not so satisfied or waived, the Commitments shall terminate
at such time).

SECTION
4.02.  Each
Credit Event.  The obligation of each Lender to make a Loan
on the occasion of any Borrowing, and of the Issuing Bank to issue, amend,
renew or extend any Letter of Credit, is subject to the satisfaction of the
following conditions:

(a)                                  The representations and warranties of the
Borrower set forth in this Agreement shall be true and correct in all material
respects on and as of the date of such Borrowing or the date of issuance,
amendment, renewal or extension of such Letter of Credit, as applicable.

(b)                                 At the time of and immediately after giving
effect to such Borrowing or the issuance, amendment, renewal or extension of
such Letter of Credit, as applicable, no Default or Event of Default shall have
occurred and be continuing.

Each Borrowing and each issuance, amendment, renewal
or extension of a Letter of Credit shall be deemed to constitute a
representation and warranty by the Borrower on the date thereof as to the
matters specified in paragraphs (a) and (b) of this Section.

 44
 

ARTICLE V

Affirmative Covenants

Until the Commitments have expired or been terminated
and the principal of and interest on each Loan and all fees payable hereunder
shall have been paid in full and all Letters of Credit shall have expired,
terminated or cash collateralized and all LC Disbursements shall have been
reimbursed, the Borrower covenants and agrees with the Lenders that:

SECTION
5.01.  Financial
Statements; Ratings Change and Other Information.  The
Borrower will furnish to the Administrative Agent and each Lender:

(a)                                  as soon as available but in any event within
105 days  after the end of
each fiscal year of the Borrower, its audited consolidated balance sheet and
related statements of operations, stockholders’ equity and cash flows as of the
end of and for such year, setting forth in each case in comparative form the
figures for the previous fiscal year, all reported on by Deloitte & Touche
LLP or other independent public accountants of recognized national standing
(without a “going concern” or like qualification or exception and without any
qualification or exception as to the scope of such audit) to the effect that
such consolidated financial statements present fairly in all material respects
the financial condition and results of operations of the Borrower and its
consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied;

(b)                                 as soon as available but in any event within
50 days after the end of each of the first three fiscal quarters of each
fiscal year of the Borrower, its consolidated balance sheet and related
statements of operations, stockholders’ equity and cash flows as of the end of
and for such fiscal quarter and the then elapsed portion of the fiscal year,
setting forth in each case in comparative form the figures for the
corresponding period or periods of (or, in the case of the balance sheet, as of
the end of) the previous fiscal year, all certified by one of its Financial
Officers as presenting fairly in all material respects the financial condition
and results of operations of the Borrower and its consolidated Subsidiaries on
a consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments and the absence of footnotes;

(c)                                  concurrently with any delivery of financial
statements under clause (a) or (b) above, a certificate of a
Financial Officer of the Borrower (i) certifying as to whether a Default
has occurred and, if a Default has occurred, specifying the details thereof and
any action taken or proposed to be taken with respect thereto,
(ii) setting forth reasonably detailed calculations demonstrating
compliance with Sections 6.06 and (iii) stating whether any change in
GAAP or in the application thereof has occurred since the date of the audited
financial statements referred to in Section 3.05 and, if any such change
has occurred, specifying the effect of such change on the financial statements
accompanying such certificate;

(d)                                 to the extent permitted by the rules of the
American Institute of Certified Public Accountants, the Public Company
Accounting Oversight Board or any other accounting governing body, concurrently
with any delivery of financial statements under 

 45
 

clause
(a) above, a certificate of the accounting firm that reported on such
financial statements stating whether they obtained knowledge during the course
of their examination of such financial statements of any Default under Section
6.06 (which certificate may be limited to the extent required by accounting
rules or guidelines);

(e)                                  promptly after the same become publicly
available, copies of all periodic and other reports, proxy statements and other
materials filed by the Borrower or any Subsidiary with the SEC, or any
Governmental Authority succeeding to any or all of the functions of said
Commission, or with any national securities exchange, or distributed by the
Borrower to its shareholders generally, as the case may be;

(f)                                    promptly after S&P shall have announced a
change in the financial strength rating of ACA Financial Guaranty Corporation,
written notice of such rating change;

(g)                                 promptly after the filing thereof, a copy of
each Statutory Statement filed by ACA Financial Guaranty Corporation and any
other material Regulated Insurance Company with the Applicable Insurance
Regulatory Authority in the jurisdiction in which it is domiciled;

(h)                                 promptly following the delivery or receipt,
as the case may be, by any Regulated Insurance Company or any of their
respective Subsidiaries, copies of (a) each material examination and/or audit
report or other submitted to any Regulated Insurance Company by any Applicable
Insurance Regulatory Authority, (b) all material information which the Lenders
may from time to time reasonably request with respect to the nature or status
of any material deficiencies or violations reflected in any examination report
or other similar report, and (c) each registration, filing, submission, report,
order, direction, instruction, approval, authorization, license or other notice
which any Borrower or any Regulated Insurance Company may at any time make
with, or receive from, any Applicable Insurance Regulatory Authority that could
reasonably be expected to have a Material Adverse Effect; and

(i)                                     promptly following any request therefor, such
other information regarding the operations, business affairs and financial
condition of the Borrower or any Subsidiary, or compliance with the terms of
this Agreement, as the Administrative Agent or any Lender may reasonably
request.

Reports and financial statements required to be delivered by the
Borrower pursuant to paragraphs (a), (b), (e) 
and (g) of this Section 5.01 shall be deemed to have been delivered on
the date on which the Borrower posts such reports, or reports containing such
financial statements, on its website on the Internet at www.aca.com or when
such reports, or reports containing such financial statements are posted on the
SEC’s website at www.sec.gov; provided that the Borrower shall deliver paper
copies of the reports and financial statements referred to in paragraphs (a),
(b), (e) and (g) of this Section 5.01 to the Administrative Agent or any Lender
who requests it to deliver such paper copies until written notice to cease delivering
paper copies is given by the Administrative Agent or such Lender.

 46
 

SECTION
5.02.  Notices
of Material Events.  The Borrower will furnish to the
Administrative Agent and each Lender prompt written notice of the following:

(a)                                  the occurrence of any Default;

(b)                                 the filing or commencement of any action,
suit or proceeding by or before any arbitrator or Governmental Authority
against or affecting the Borrower or any Affiliate thereof that could
reasonably be expected to be adversely determined and, if so adversely
determined, could reasonably be expected to result in a Material Adverse
Effect;

(c)                                  the occurrence of any ERISA Event that, alone
or together with any other ERISA Events that have occurred, could reasonably be
expected to result in liability of the Borrower and its Subsidiaries in an
aggregate amount not to exceed the Threshold Amount;

(d)                                 promptly following notification thereof from
a Governmental Authority, notification of the suspension, limitation,
termination or non-renewal of any material Insurance License, or the taking of
any other action in respect of, any Insurance License that could reasonably be
expected to result in a Material Adverse Effect; and

(e)                                  any other development that results in, or
could reasonably be expected to result in, a Material Adverse Effect.

Each
notice delivered under this Section shall be accompanied by a statement of a
Financial Officer or other executive officer of the Borrower setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.

SECTION
5.03.  Existence;
Conduct of Business.  The Borrower will, and will cause each of its
Subsidiaries to, do or cause to be done all things necessary to preserve, renew
and keep in full force and effect its legal existence and the rights, licenses,
permits, privileges and franchises material to the conduct of its business,
including the maintenance of all permits, licenses and consents as may be required
for the conduct of its business by any state, federal or local government
agency or instrumentality; provided that the foregoing shall not
prohibit any merger, consolidation, liquidation or dissolution permitted under
Section 6.03; and provided,  further,
that the Borrower shall not be required to preserve any such right, license,
permit, privilege or franchise, if its board of directors shall determine in
good faith that the preservation thereof is no longer desirable in the conduct
of the business of the Borrower and its Subsidiaries, taken as a whole, and
that the loss thereof is not materially disadvantageous to the Lenders.

SECTION
5.04.  Payment
of Obligations.  The Borrower will, and will cause each of its
Subsidiaries to, pay its obligations, including Tax liabilities, that, if not
paid, could result in a Material Adverse Effect before the same shall become
delinquent or in default, except where (a) the validity or amount thereof is
being contested in good faith by appropriate proceedings, (b) the Borrower or
such Subsidiary has set aside on its books adequate reserves with respect
thereto in accordance with GAAP or SAP or both, as the case may be, and (c) the
failure to make 

 47
 

payment
pending such contest could not reasonably be expected to result in a Material
Adverse Effect.

SECTION
5.05.  Maintenance
of Properties; Insurance.  The Borrower will, and will cause each of its
Subsidiaries to, (a) keep and maintain all property material to the
conduct of its business in good working order and condition, ordinary wear and
tear excepted, where failure to do so could reasonably be expected to have a
Material Adverse Effect (provided that nothing herein shall prevent the
Borrower or any of its Subsidiaries to dispose of any of their respective
properties so long as such disposition is not prohibited by Section 6.03), and
(b) maintain, with financially sound and reputable insurance companies,
insurance in such amounts and against such risks as are prudent for the
business operated by the Borrower.

SECTION
5.06.  Books
and Records; Inspection Rights.
 The Borrower will, and will cause each
of its Subsidiaries to, keep proper books of record and account in which full,
true and correct entries are made of all dealings and transactions in relation
to its business and activities.  The
Borrower will, and will cause each of its Subsidiaries to, permit any
representatives designated by the Administrative Agent, upon reasonable prior
notice and under guidance of officers of either Borrower or such Subsidiary,
without interruption of business and, unless an Event of Default shall then
exist, at the sole cost and expense of the Administrative Agent, to visit and
inspect its properties, to examine and make extracts from its books and
records, and to discuss its affairs, finances and condition with its officers
and independent accountants, all at such reasonable times and as often as
reasonably requested (but, in the absence of an Event of Default, no more often
than twice each year).

SECTION
5.07.  Compliance
with Laws.  The Borrower will, and will cause each of its
Subsidiaries to, comply with all laws, rules, regulations and orders of any
Governmental Authority applicable to it or its property, as well as all of its
material Contractual Obligations, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.

SECTION 5.08.  Compliance
with Investment Guidelines. The Borrower will, and will cause each
of its Subsidiaries that is a Regulated Insurance Company to comply with the
investment guidelines established from time to time by the Board of Directors
of the Borrower.

SECTION
5.09.  Financial
Strength Rating.   The Borrower will cause ACA Financial
Guaranty Corporation to maintain a minimum financial strength rating from
S&P of A- or better.  If the rating
system of S&P (or its successor) shall change or if it (or its successors) shall
cease to be in the business of rating the financial strength of insurance
companies like the Regulated Insurance Companies, the Borrower and the Lenders
shall negotiate in good faith to amend the references to the specific S&P
rating in this Agreement to reflect such changed rating system or the
non-availability of ratings from such agency (it being understood that any such
amendment to such specific ratings shall in no event be effective without the
approval of the Required Lenders).

 48
 

ARTICLE
VI

Negative Covenants

Until the Commitments have expired or terminated and
the principal of and interest on each Loan and all fees payable hereunder have
been paid in full and all Letters of Credit have expired, terminated or cash
collateralized and all LC Disbursements shall have been reimbursed, the
Borrower covenants and agrees with the Lenders that:

SECTION
6.01.  Indebtedness.  The
Borrower will not permit any Subsidiary to create, incur, assume or permit to
exist any Indebtedness, except:

(a)                                  Indebtedness existing on the date hereof and
set forth in Schedule 6.01, but not any extensions, renewals or
replacements of any such Indebtedness, unless such extension, renewal or
replacement does not increase the outstanding principal amount thereof;

(b)                                 Indebtedness of any Subsidiary to the
Borrower or any other Subsidiary;

(c)                                  Indebtedness of any Subsidiary incurred to
finance the acquisition, construction or improvement of any fixed or capital
assets, including Capital Lease Obligations and any Indebtedness assumed in
connection with the acquisition of any such assets or secured by a Lien on any
such assets prior to the acquisition thereof, and extensions, renewals and replacements
of any such Indebtedness that do not increase the outstanding principal amount
thereof;

(d)                                 Indebtedness of any Person that becomes a
Subsidiary after the date hereof; provided that such Indebtedness exists
at the time such Person becomes a Subsidiary and is not created in
contemplation of or in connection with such Person becoming a Subsidiary;

(e)                                  Indebtedness of any Subsidiary that is
excluded from “Debt”, as defined in this Agreement;

(f)                                    (A) contingent liabilities in respect of any
indemnification, adjustment of purchase price, earn-out, non-compete,
consulting, deferred compensation and similar obligations of the Borrower and
its Subsidiaries incurred in connection with acquisitions and dispositions of
assets and (B) Indebtedness incurred by the Borrower or its Subsidiaries in
connection with an acquisition or disposition of assets in the nature of
earn-outs or the adjustment of the purchase price or similar adjustments;

(g)                                 Indebtedness owed to any Person providing
property, casualty or liability insurance to the Borrower or any Subsidiary of
the Borrower, so long as such Indebtedness shall not be in excess of the amount
of the unpaid cost of, and shall be incurred only to defer the cost of, such
insurance for the year in which such Indebtedness is incurred and such
Indebtedness shall be outstanding only during such year;

 49
 

(h)                                 Indebtedness arising from the honoring by a
bank or other financial institution of a check, draft or similar instrument
drawn against insufficient funds in the ordinary course of business; provided
that (A) such Indebtedness (other than credit or purchase cards) is
extinguished within five Business Days of its incurrence and (B) such
Indebtedness in respect of credit or purchase cards is extinguished within 60
days from its incurrence;

(i)                                     Indebtedness representing deferred
compensation to employees of any Subsidiary;

(j)                                     Indebtedness of any Subsidiary as an account
party in respect of letters of credit opened in the ordinary course of such
Subsidiary’s business and other Indebtedness of any Subsidiary incurred in the
ordinary course of its business, provided that any such Indebtedness under this
clause (j) is not the subject of any Guarantee by the Borrower or any other
Subsidiary and is otherwise non-recourse to it;

(k)                                  Guarantee by any Subsidiary of Indebtedness
of any other Subsidiary permitted under this Section 6.01 (other than under
clause(e) above);

(l)                                     Indebtedness of ACA Financial Guaranty
Corporation in the form of a guarantee of third-party Indebtedness provided in
the ordinary course of its business;

(m)                               Indebtedness of any Subsidiary to the
Contingent Capital Facility Trust pursuant to the Contingent Obligations in an
aggregate principal amount at any time outstanding for all Subsidiaries not to
exceed 20% of the Adjusted Statutory Capital; and

(n)                                 Indebtedness of any Subsidiary in an
aggregate principal amount at any time outstanding for all Subsidiaries of
$10,000,000.

SECTION
6.02.  Liens.  The
Borrower will not, and will not permit any Subsidiary to, create, incur, assume
or permit to exist any Lien on any property or asset now owned or hereafter
acquired by it, or assign or sell any income or revenues (including accounts
receivable) or rights in respect of any thereof, except:

(a)                                  Permitted Encumbrances;

(b)                                 any Lien on any property or asset of the
Borrower or any Subsidiary existing on the date hereof and set forth in
Schedule 6.02; provided that (i) such Lien shall not apply to any
other property or asset of the Borrower or any Subsidiary and (ii) such Lien shall
secure only those obligations which it secures on the date hereof;

(c)                                  any Lien existing on any property or asset
prior to the acquisition thereof by the Borrower or any Subsidiary or existing
on any property or asset of any Person that becomes a Subsidiary after the date
hereof prior to the time such Person becomes a Subsidiary; provided that
(i) such Lien is not created in contemplation of or in connection with
such acquisition or such Person becoming a Subsidiary, as the case may be,
(ii) such Lien shall not apply to any other property or assets of the
Borrower or any Subsidiary and (iii) such Lien shall secure only those
obligations which it secures on the date of such 

 50
 

acquisition
or the date such Person becomes a Subsidiary, as the case may be and
extensions, renewals and replacements thereof that do not increase the
outstanding principal amount thereof;

(d)                                 any Lien on any property securing
Indebtedness incurred to finance the acquisition, construction or improvement
of any fixed or capital assets, including Capital Lease Obligations and any
Indebtedness assumed in connection with the acquisition of any such assets; provided
that such Lien (i) applies only to such acquired property and (ii) attaches to
such property concurrently with or within 180 days after the acquisition
thereof;

(e)                                  Liens securing obligations owed by the
Borrower to any of its Subsidiaries or owed by any Subsidiary of the Borrower
to the Borrower or any Subsidiary of the Borrower, in each case solely to the
extent that such Liens are required by an Applicable Insurance Regulatory
Authority for such Person to maintain such obligations;

(f)                                    Liens consisting of deposits made by any
Regulated Insurance Company with an Applicable Insurance Regulatory Authority
or other statutory Liens or Liens or claims imposed or required by applicable
insurance laws or regulations against the assets of any Regulated Insurance
Company, in each case in favor of policyholders of such Regulated Insurance
Company or an Applicable Insurance Regulatory Authority and in the ordinary
course of such Regulated Insurance Company’s business; and

(g)                                 Liens (A) on assets of Variable Interest
Entities granted in connection with the purchases of equity issued in
connection with, and the warehousing of assets for, collateralized debt
obligation transactions structured and managed by a Variable Interest Entity in
the ordinary course of business of such Variable Interest Entities and (B) on
cash and cash equivalents securing Swap Agreements entered into for bona fide risk
management purposes and not for speculation;

(h)                                 Liens on investments and cash balances of any
Regulated Insurance Company securing obligations of such Regulated Insurance
Company in respect of trust arrangements formed in the ordinary course of
business for the benefit of cedents to secure reinsurance recoverables owed to
them by such Regulated Insurance Company;

(i)                                     Liens on investments and
cash balances of any credit default swap entity or Regulated Insurance Company
to secure obligations under or in respect of credit default swaps, provided
that in the case of any such credit default swap
entity, such investments and cash balances have been provided by a Regulated
Insurance Company supporting its obligations under such credit default swaps;

(j)                                     Liens at the Borrower on
investments and cash balances, in an aggregate value at any time of not more
than $50,000,000, securing credit default swaps; and

(k)                                  Liens not otherwise permitted by the
foregoing clauses of this Section 6.02 securing Indebtedness in an aggregate
principal or face amount at any date not to exceed 5% of Tangible Net Worth.

 51
 

SECTION
6.03.  Fundamental
Changes; Sales of Assets.
(a)  The Borrower will not, and will not permit any Subsidiary to,
merge into or consolidate with any other Person, or permit any other Person to
merge into or consolidate with it, or sell, transfer, lease or otherwise
dispose of (in one transaction or in a series of transactions) all or
substantially all of its assets or any of the capital stock of ACA Financial
Guaranty Corporation, or liquidate or dissolve, except that, if at the time
thereof and immediately after giving effect thereto no Event of Default shall
have occurred and be continuing,

(i)                                     the
Borrower may merge into or consolidate with any other Person and any other
Person may merge into or consolidate with the Borrower and the Borrower may
sell, transfer, lease or otherwise dispose of (in one transaction or in a
series of transactions) all or substantially all of its assets to any Person,
so long as (A) the surviving entity of such transaction is the Borrower and (B)
immediately after giving effect thereto no Event of Default shall have occurred
and be continuing,

(ii)                                  any Subsidiary may merge into the Borrower in
a transaction in which the Borrower is the surviving corporation,

(iii)                                any Subsidiary may merge into the Borrower
in a transaction in which the Borrower is the surviving corporation and may
sell, transfer, lease or otherwise dispose of its assets to the Borrower,

(iv)                              any Subsidiary (other than a Regulated
Insurance Company) may merge into, consolidate with, sell, transfer, lease or
otherwise dispose of its assets to any other Subsidiary or, so long as
immediately after giving effect thereto no Event of Default shall have occurred
and be continuing, any other Person, and any other Person may, so long as
immediately after giving effect thereto no Event of Default shall have occurred
and be continuing, merge into, consolidate with, sell, transfer, lease or
otherwise dispose of its assets to any Subsidiary, in each case, in a
transaction in which the surviving entity is a Subsidiary (and if a Regulated
Insurance Company is a party to such a merger, the survivor entity is a
Regulated Insurance Company),

(v)                                 any Subsidiary that is a Regulated Insurance
Company may merge into, consolidate with, sell, transfer, lease or otherwise
dispose of its assets to another Subsidiary that is a Regulated Insurance
Company or, so long as immediately after giving effect thereto no Event of
Default shall have occurred and be continuing, 
to any other Person that would have been a Regulated Insurance Company
had it been a Subsidiary of the Borrower, and, so long as immediately after
giving effect thereto no Event of Default shall have occurred and be
continuing, any such Person may merge into, consolidate with, sell, transfer,
lease or otherwise dispose of its assets to any Subsidiary that is a Regulated
Insurance Company, and

(vi)                              any Subsidiary may liquidate or dissolve if
the Borrower determines in good faith that such liquidation or dissolution is
in the best interests of the Borrower and is not materially disadvantageous to
the Lenders.

(b)                                 The Borrower will not, and will not permit
any of its Subsidiaries to, engage to any material extent in any business other
than businesses of the type conducted by the 

 52
 

Borrower and its Subsidiaries on the Effective Date and businesses
reasonably related or ancillary thereto or representing a reasonable extension
thereof.

SECTION
6.04.  Restricted
Payments.  The Borrower will not, and will not permit
any of its Subsidiaries to, declare or make, or agree to pay or make, directly
or indirectly, any Restricted Payment, except (a) the Borrower may declare and
pay dividends with respect to its Equity Interests payable solely in additional
shares of its common stock, (b) Subsidiaries may declare and pay dividends
ratably with respect to their Equity Interests, (c) the Borrower may make
Restricted Payments pursuant to and in accordance with stock option plans or
other benefit plans for management or employees of the Borrower and its
Subsidiaries, including (whether or not otherwise included therein) repurchases
or other acquisitions for value of Equity Interests of the Borrower held by any
former officer of the Borrower resulting in a net payment to such officer of up
to $2,000,000, (d) the Borrower may make any Restricted Payment in exchange
for, or out of the Net Cash Proceeds of the sale within 90 days of such payment
(other than to a Subsidiary of the Borrower) of, Equity Interests of the Borrower
or from the substantially concurrent cash contribution to the common equity
capital to the Borrower, (e) so long as no Default or Event of Default shall
have occurred and be continuing, the Subsidiaries may pay accrued but unpaid
dividends on any preferred stock issued pursuant to the Contingent Obligations
and (f) so long as no Default or Event of Default shall have occurred and be
continuing, the Borrower may make a Restricted Payment at any time so long as
the aggregate Restricted Payments made by the Borrower under this clause (f)
shall not exceed the sum of (A) 50% of the Consolidated Net Income of the
Borrower and its Subsidiaries for the period (taken as one accounting period)
from the beginning of the first fiscal quarter commencing after the Effective
Date to the end of the Borrower’s most recently ended fiscal quarter for which
internal financial statements are available at the time of such Restricted
Payment (or, if Consolidated Net Income for such period is a deficit, less 100%
of such deficit), plus (B) $15,000,000 in respect of such fiscal year.

SECTION
6.05.  Transactions
with Affiliates.  The Borrower will not, and will not permit
any of its Subsidiaries to, sell, lease or otherwise transfer any property or
assets to, or purchase, lease or otherwise acquire any property or assets from,
or otherwise engage in any other transactions with, any of its Affiliates,
except (a) transactions on terms and conditions not less favorable taken as a
whole to the Borrower or such Subsidiary than could be obtained on an arm’s-length
basis from unrelated third parties, (b) transactions between or among the
Borrower and its Subsidiaries not involving any other Affiliate, (c) any
Restricted Payment permitted by Section 6.04, (d) any collateralized debt
obligation transaction, (e) transactions disclosed in the “Certain
Relationships and Related Party Transactions” section in Form S-1 filed by the
Borrower with the SEC that was declared effective on November 9, 2006 and
similar sections of the subsequent filings made or to be made by the Borrower
with the SEC, (f) fees and expenses payable in connection with the transactions
contemplated by this Agreement, (g) payments or loans (or cancellation
of loans) to employees or consultants of the Borrower or any of its Subsidiaries
and employment agreements, stock option plans and other similar arrangements
with such employees or consultants which, in each case, are approved by the
Borrower in good faith, (h) payments of reasonable and customary fees paid to,
and indemnities provided on behalf of, officers, directors, employees or
consultants of the Borrower or any of its Subsidiaries, and (i) transactions
with the Contingent Capital Facility Trust in connection with the formation, 

 53
 

administration and
maintenance of the Contingent Capital Facility Trust and the related Contingent
Capital Facilities and the issuance of Contingent Obligations.

SECTION
6.06.  Financial
Covenants.

(a)                                  The Borrower will not permit its Net Worth at
any time to be less than the sum of (i) $400,000,000, (ii) 50% of cumulative
Consolidated Net Income for each fiscal quarter of the Borrower (beginning with
the fiscal quarter ending June 30, 2007) for which Consolidated Net Income is
positive, and (iii) 50% of the Net Cash Proceeds of any offering by the
Borrower of common equity consummated after the Closing Date.

(b)                                 The Borrower will not permit its Leverage
Ratio to be greater than 35% at any time.

SECTION
6.07.  Fiscal
Year.   Without the prior written consent of the
Administrative Agent, the Borrower will not permit the fiscal year of the
Borrower to end on a day other than December 31 or change the Borrower’s method
of determining fiscal quarters.

ARTICLE
VII

Events of Default

If any of the following events (“Events of Default”)
shall occur:

(a)                                  the Borrower shall fail to pay any principal
of any Loan or any reimbursement obligation in respect of any LC Disbursement
when and as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or otherwise;

(b)                                 the Borrower shall fail to pay any interest
on any Loan or any fee or any other amount (other than an amount referred to in
clause (a) of this Article) payable under this Agreement, when and as the
same shall become due and payable, and such failure shall continue unremedied
for a period of three Business Days;

(c)                                  any representation or warranty made or deemed
made by or on behalf of the Borrower in or in connection with this Agreement or
any amendment or modification hereof or waiver hereunder, or in any report,
certificate, or financial statement furnished pursuant to or in connection with
this Agreement or any amendment or modification hereof or waiver hereunder,
shall prove to have been incorrect in any material respect when made or deemed
made and, if the circumstances giving rise to such false or misleading
representation or warranty are susceptible to being cured in all material
respects, such false or misleading representation or warranty shall not be
cured in all material respects for five days after the earlier to occur of (i)
the date on which an officer of the Borrower shall obtain knowledge thereof, or
(ii) the date on which written notice thereof shall have been given to the
Borrower by the Administrative Agent;

 54

(d)                                 the Borrower shall fail to observe or perform
any covenant, condition or agreement contained in Section 5.02, 5.03 (with
respect to the Borrower’s existence) or 5.09 or in Article VI;

(e)                                  the Borrower shall fail to observe or perform
any covenant, condition or agreement contained in this Agreement (other than
those specified in clause (a), (b) or (d) of this Article), and such failure
shall continue unremedied for a period of 30 days after notice thereof
from the Administrative Agent to the Borrower (which notice will be given at
the request of any Lender);

(f)                                    the Borrower or any Subsidiary
shall fail to make any payment of principal or interest (regardless of
amount) in respect of any Material Obligations, when and as the same shall
become due and payable (after giving effect to any applicable period of grace);

(g)                                 any event or condition occurs and continues
beyond any applicable period of grace that results in any Material Obligations
becoming due prior to its scheduled maturity or that enables or permits (with
or without the giving of notice, to the extent required by the documents
governing such Material Obligations) the holder or holders of any Material
Obligations or any trustee or agent on its or their behalf to cause any
Material Obligations to become due, or to require the prepayment, repurchase,
redemption or defeasance thereof, prior to its scheduled maturity; provided
that this clause (g) shall not apply to secured Indebtedness that becomes
due as a result of the voluntary sale or transfer of the property or assets
securing such Indebtedness;

(h)                                 the Borrower or any of its Significant
Subsidiaries shall commence a voluntary case concerning itself under Title 11
of the United States Code entitled “Bankruptcy,” as now or here­after in
effect, or any successor thereto (the “Bankruptcy Code”); or an involuntary
case is com­menced against the Borrower or any of its Subsidiaries and the
petition is not controverted within 10 days, or is not dismissed within 60
days, after commencement of the case; or a custodian (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or substan­tially
all of the property of the Borrower or any of its Significant Subsidiaries; or
the Borrower or any of its Significant Subsidiaries commences (including by way
of applying for or consenting to the appoint­ment of, or the taking of
possession by, a rehabilitator, receiver, custodian, trustee, conserv­ator or
liquidator (collectively, a “conservator”) of itself or all or any substantial
portion of its property) any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency,
liquidation, rehabilitation, supervision, conservatorship or similar law of any
jurisdiction whether now or hereafter in effect relating to the Borrower or any
of its Significant Subsidiaries; or any such proceeding is commenced against
(a) any Regulated Insurance Company that is a Significant Subsidiary which is
engaged in the business of underwriting insurance and/or reinsurance, or (b)
the Borrower or any of its Significant Subsidiaries (other than (x) any
Regulated Insurance Company described in the immedi­ately preceding clause (a))
to the extent such proceeding is consented to by such Person, and in the case
of either clause (a) or (b) remains undismissed for a period of 60 days; or the
Borrower or any of its Significant Subsidiaries is adjudicated insolvent or
bankrupt; or any order of relief or 

 55
 

other
order approving any such case or proceeding is entered; or (a) any Regulated
Insurance Company that is a Significant Subsidiary which is engaged in the
business of underwriting insurance and/or reinsurance in the United States
suffers any appointment of any conservator or the like for it or any
substantial part of its property, or (b) the Borrower or any of its Significant
Subsidiaries (other than any Regulated Insurance Company described in the
immediately preceding clause (a)) suffers any appointment of any conservator or
the like for it or any substantial part of its property which continues
undischarged or unstayed for a period of 60 days; or the Borrower or any of its
Significant Subsidiaries makes a general assignment for the benefit of
creditors; or any corporate action is taken by the Borrower or any of its
Significant Subsidiaries for the purpose of effecting any of the foregoing;

(i)                                     one or more final judgments for the payment
of money in an aggregate amount (not paid or fully covered by insurance as to
which the relevant insurance company has not denied coverage) in excess of the
Threshold Amount shall be rendered against the Borrower, any Significant
Subsidiary or any combination thereof and the same shall remain undischarged
for a period of 60 consecutive days during which execution shall not be
effectively stayed, or any action shall be legally taken by a judgment creditor
to attach or levy upon any assets of the Borrower or any Significant Subsidiary
to enforce any such judgment; or

(j)                                     a Change in Control shall occur;

then, and in every such event (other than an event
with respect to the Borrower described in clause (h) of this Article), and at
any time thereafter during the continuance of such event, the Administrative
Agent may, and at the request of the Required Lenders shall, by notice to the
Borrower, take either or both of the following actions, at the same or
different times:  (i) terminate the Commitments, and thereupon
the Commitments shall terminate immediately, and (ii) declare the Loans
then outstanding to be due and payable in whole (or in part, in which case any
principal not so declared to be due and payable may thereafter be declared to
be due and payable), and thereupon the principal of the Loans so declared to be
due and payable, together with accrued interest thereon and all fees and other
obligations of the Borrower accrued hereunder, shall become  due and payable immediately, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower; and in case of any event with respect to the
Borrower described in clause (h) of this Article, the Commitments shall
automatically terminate and the principal of the Loans then outstanding,
together with accrued interest thereon and all fees and other obligations of
the Borrower accrued hereunder, shall automatically become due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Borrower.

ARTICLE
VIII

The Administrative Agent

Each of the Lenders and the Issuing Bank hereby
irrevocably appoints the Administrative Agent as its agent and authorizes the
Administrative Agent to take such actions 

 56
 

on its behalf and to exercise such powers as are
delegated to the Administrative Agent by the terms hereof, together with such
actions and powers as are reasonably incidental thereto.

The bank serving as the Administrative Agent hereunder
shall have the same rights and powers in its capacity as a Lender as any other
Lender and may exercise the same as though it were not the Administrative
Agent, and such bank and its Affiliates may accept deposits from, lend money to
and generally engage in any kind of business with the Borrower or any
Subsidiary or other Affiliate thereof as if it were not the Administrative
Agent hereunder.

The Administrative Agent shall not have any duties or
obligations except those expressly set forth herein.  Without limiting the generality of the
foregoing, (a) the Administrative Agent shall not be subject to any
fiduciary or other implied duties, regardless of whether a Default has occurred
and is continuing, (b) the Administrative Agent shall not have any duty to
take any discretionary action or exercise any discretionary powers, except
discretionary rights and powers expressly contemplated hereby that the
Administrative Agent is required to exercise in writing as directed by the
Required Lenders (or such other number or percentage of the Lenders as shall be
necessary under the circumstances as provided in Section 9.02), and (c) except
as expressly set forth herein, the Administrative Agent shall not have any duty
to disclose, and shall not be liable for the failure to disclose, any
information relating to the Borrower or any of its Subsidiaries that is
communicated to or obtained by the bank serving as Administrative Agent or any
of its Affiliates in any capacity.  The
Administrative Agent shall not be liable for any action taken or not taken by
it with the consent or at the request of the Required Lenders (or such other
number or percentage of the Lenders as shall be necessary under the circumstances
as provided in Section 9.02) or in the absence of its own gross negligence
or willful misconduct.  The
Administrative Agent shall be deemed not to have knowledge of any Default
unless and until written notice thereof is given to the Administrative Agent by
the Borrower or a Lender, and the Administrative Agent shall not be responsible
for or have any duty to ascertain or inquire into (i) any statement,
warranty or representation made in or in connection with this Agreement,
(ii) the contents of any certificate, report or other document delivered
hereunder or in connection herewith, (iii) the performance or observance
of any of the covenants, agreements or other terms or conditions set forth
herein, (iv) the validity, enforceability, effectiveness or genuineness of
this Agreement or any other agreement, instrument or document, or (v) the
satisfaction of any condition set forth in Article IV or elsewhere herein,
other than to confirm receipt of items expressly required to be delivered to
the Administrative Agent.

The Administrative Agent shall be entitled to rely
upon, and shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing believed
by it to be genuine and to have been signed or sent by the proper Person.  The Administrative Agent also may rely upon
any statement made to it orally or by telephone and believed by it to be made
by the proper Person, and shall not incur any liability for relying
thereon.  The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts.

 57
 

The Administrative Agent may perform any and all its
duties and exercise its rights and powers by or through any one or more
sub-agents appointed by the Administrative Agent.  The Administrative Agent and any such sub-agent
may perform any and all its duties and exercise its rights and powers through
their respective Related Parties.  The
exculpatory provisions of the preceding paragraphs shall apply to any such
sub-agent and to the Related Parties of the Administrative Agent and any such
sub-agent, and shall apply to their respective activities in connection with
the syndication of the credit facilities provided for herein as well as
activities as Administrative Agent.

Subject to the appointment and acceptance of a
successor Administrative Agent as provided in this paragraph, the
Administrative Agent may resign at any time by notifying the Lenders, the
Issuing Bank and the Borrower.  Upon any
such resignation, the Required Lenders shall have the right, in consultation
with the Borrower, to appoint a successor. 
If no successor shall have been so appointed by the Required Lenders and
shall have accepted such appointment within 30 days after the retiring
Administrative Agent gives notice of its resignation, then the retiring
Administrative Agent may, on behalf of the Lenders and the Issuing Bank,
appoint a successor Administrative Agent which shall be a bank with an office
in New York, New York, or an Affiliate of any such bank.  Upon the acceptance of its appointment as
Administrative Agent hereunder by a successor, such successor shall succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations hereunder.  The fees payable by the Borrower to a
successor Administrative Agent shall be the same as those payable to its
predecessor unless otherwise agreed between the Borrower and such successor.  After the Administrative Agent’s resignation
hereunder, the provisions of this Article and Section 9.03 shall continue
in effect for the benefit of such retiring Administrative Agent, its sub-agents
and their respective Related Parties in respect of any actions taken or omitted
to be taken by any of them while it was acting as Administrative Agent.

Each Lender acknowledges that it has, independently
and without reliance upon the Administrative Agent or any other Lender and
based on such documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement.  Each Lender also acknowledges that it will,
independently and without reliance upon the Administrative Agent or any other
Lender and based on such documents and information as it shall from time to
time deem appropriate, continue to make its own decisions in taking or not
taking action under or based upon this Agreement, any related agreement or any
document furnished hereunder or thereunder.

ARTICLE
IX

Miscellaneous

SECTION
9.01.  Notices. 
(a)  All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice,
when received, addressed as follows in the case of the Borrower, the
Administrative Agent and the Issuing Bank, and as set forth in an
Administrative Questionnaire 

 58
 

delivered
to the Administrative Agent in the case of the Lenders, or to such other
address as may be hereafter notified by the respective parties hereto:

	
  Borrower:

  	
  ACA Capital Holdings, Inc. 

  140 Broadway 

  47th Floor

  New York, NY

  Attention: Treasurer 

  Telecopy: (212) 375-2100 

  Telephone: (212) 375-2000

  
	
  with a copy to:

  	
  General Counsel at the same address

  
	
   

  	
   

  
	
  Administrative
  Agent:

  	
  JP Morgan Chase Bank, N.A. 

  1111 Fannin Street, Floor 10 

  Houston, Texas 77002

  Attention: Loan and Agency Services 

  Telecopy: (713) 427-6307 

  Telephone: (713) 750-2377

  

 

provided that any notice, request or
demand to or upon the Administrative Agent, the Issuing Bank or the Lenders
shall not be effective until received.

(b)                                 Notices and other communications to the
Lenders hereunder may be delivered or furnished by electronic communications
pursuant to procedures approved by the Administrative Agent; provided that the
foregoing shall not apply to notices pursuant to Article II unless otherwise
agreed by the Administrative Agent and the applicable Lender.  The Administrative Agent or the Borrower may,
in its discretion, agree to accept notices and other communications to it
hereunder by electronic communications pursuant to procedures approved by it;
provided that approval of such procedures may be limited to particular notices
or communications.

(c)                                  Any party hereto may change its address or
telecopy number for notices and other communications hereunder by notice to the
other parties hereto.  All notices and
other communications given to any party hereto in accordance with the
provisions of this Agreement shall be deemed to have been given on the date of
receipt.

SECTION
9.02.  Waivers;
Amendments.  (a)  No failure or delay by the Administrative
Agent, the Issuing Bank or any Lender in exercising any right or power
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power.  The rights and remedies of the Administrative
Agent, the Issuing Bank and the Lenders hereunder are cumulative and are not
exclusive of any rights or remedies that they would otherwise have.  No waiver of any provision of this Agreement
or consent to any departure by the Borrower therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) of this
Section, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given.  Without limiting the generality of the
foregoing, the making of 

 59
 

a
Loan or issuance of a Letter of Credit shall not be construed as a waiver of
any Default, regardless of whether the Administrative Agent, the Issuing Bank
or any Lender may have had notice or knowledge of such Default at the time.

(b)                                 Neither this Agreement nor any provision
hereof may be waived, amended or modified except pursuant to an agreement or
agreements in writing entered into by the Borrower and the Required Lenders or
by the Borrower and the Administrative Agent with the consent of the Required
Lenders; provided that no such agreement shall (i) increase the
Commitment of any Lender without the written consent of such Lender, (ii)
reduce the principal amount of any Loan or LC Disbursement or reduce the rate
of interest thereon, or reduce any fees payable hereunder, without the written
consent of each Lender affected thereby, (iii) postpone the scheduled date of
payment of the principal amount of any Loan or LC Disbursement, or any interest
thereon, or any fees payable hereunder, or reduce the amount of, waive or
excuse any such payment, or postpone the scheduled date of expiration of any
Commitment, without the written consent of each Lender affected thereby, (iv)
change Section 2.18(b) or (c) in a manner that would alter the pro rata sharing
of payments required thereby, without the written consent of each Lender, or
(v) change any of the provisions of this Section or the definition of “Required
Lenders” or any other provision hereof specifying the number or percentage of
Lenders required to waive, amend or modify any rights hereunder or make any
determination or grant any consent hereunder, without the  written consent of each Lender; provided
further that no such agreement shall amend, modify or otherwise affect
the rights or duties of the Administrative Agent, the Issuing Bank or the
Swingline Lender hereunder without the prior written consent of the
Administrative Agent, the Issuing Bank or the Swingline Lender, as the case may
be.

SECTION
9.03.  Expenses;
Indemnity; Damage Waiver.  (a)  The Borrower shall pay (i) all
reasonable out-of-pocket expenses incurred by the Administrative
Agent and its Affiliates, including the reasonable fees, charges and
disbursements of Simpson, Thacher & Bartlett LLP for the Administrative
Agent, in connection with the syndication of the credit facilities provided for
herein, the preparation and administration of this Agreement or any amendments,
modifications or waivers of the provisions hereof (whether or not the
transactions contemplated hereby or thereby shall be consummated), (ii) all
reasonable out-of-pocket expenses incurred by the Issuing Bank in connection
with the issuance, amendment, renewal or extension of any Letter of Credit or
any demand for payment thereunder and (iii) all reasonable out-of-pocket
expenses incurred by the Administrative Agent, the Issuing Bank or any Lender,
including the reasonable fees, charges and disbursements of any one counsel for
the Administrative Agent, the Issuing Bank or any Lender, in connection with
the enforcement or protection of its rights in connection with this Agreement,
including its rights under this Section, or in connection with the Loans made
or Letters of Credit issued hereunder, including all such reasonable out-of-pocket
expenses incurred during any workout, restructuring or negotiations in respect
of such Loans or Letters of Credit.

(b)                                 The Borrower shall indemnify the
Administrative Agent, the Issuing Bank and each Lender and each Related Party
of any of the foregoing Persons (each such Person being called an “Indemnitee”)
against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, including the reasonable fees,
charges and disbursements of one counsel for any Indemnitee, incurred by or
asserted against any Indemnitee 

 60
 

arising out of, in connection with, or as a result of (i) the
execution or delivery of this Agreement or any agreement or instrument
contemplated hereby, the performance by the parties hereto of their respective
obligations hereunder or the consummation of the Transactions or any other
transactions contemplated hereby, (ii) any Loan or Letter of Credit or the
use of the proceeds therefrom (including any refusal by the Issuing Bank to
honor a demand for payment under a Letter of Credit if the documents presented
in connection with such demand do not strictly comply with the terms of such
Letter of Credit), (iii) any actual or alleged presence or release of
Hazardous Materials on or from any property owned or operated by the Borrower
or any of its Subsidiaries, or any Environmental Liability of the Borrower or any
of its Subsidiaries, or (iv) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory and regardless of whether any Indemnitee is
a party thereto; provided that (i) such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the
gross negligence or willful misconduct of such Indemnitee, (ii) each Indemnitee
shall give the Borrower (x) prompt notice of any such action brought against
such Indemnitee in connection with a claim for which it is entitled to
indemnity under this Section and (y) an opportunity to consult from time to
time with such Indemnitee regarding defensive measures and potential settlement
and (iii) the Borrower shall not be obligated to pay the amount of any
settlement entered into without its written consent (which consent shall not be
unreasonably withheld).

(c)                                  To the extent that the Borrower fails to pay
any amount required to be paid by it to the Administrative Agent, the Issuing
Bank or the Swingline Lender under paragraph (a) or (b) of this Section, each
Lender severally agrees to pay to the Administrative Agent, the Issuing Bank or
the Swingline Lender, as the case may be, such Lender’s Applicable Percentage
(determined as of the time that the applicable unreimbursed expense or
indemnity payment is sought) of such unpaid amount; provided that the
unreimbursed expense or indemnified loss, claim, damage, liability or related
expense, as the case may be, was incurred by or asserted against the
Administrative Agent, the Issuing Bank or the Swingline Lender in its capacity
as such.

(d)                                 To the extent permitted by applicable law,
the Borrower shall not assert, and hereby waives, any claim against any
Indemnitee, on any theory of liability, for special, indirect, consequential or
punitive damages (as opposed to direct or actual damages) arising out of, in
connection with, or as a result of, this Agreement or any agreement or
instrument contemplated hereby, the Transactions, any Loan or Letter of Credit
or the use of the proceeds thereof.

(e)                                  All amounts due under this Section shall be
payable not later than ten Business Days after written demand therefor.

SECTION
9.04.  Successors
and Assigns.  (a)  The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns permitted hereby (including any
Affiliate of the Issuing Bank that issues any Letter of Credit), except that
(i) the Borrower may not assign or otherwise transfer any of its rights or
obligations hereunder without the prior written consent of each Lender (and any
attempted 

 61
 

assignment
or transfer by the Borrower without such consent shall be null and void) and
(ii) no Lender may assign or otherwise transfer its rights or obligations
hereunder except in accordance with this Section.  Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any Person (other than the parties
hereto, their respective successors and assigns permitted hereby (including any
Affiliate of the Issuing Bank that issues any Letter of Credit), Participants
(to the extent provided in paragraph (c) of this Section) and, to the extent
expressly contemplated hereby, the Related Parties of each of the
Administrative Agent, the Issuing Bank and the Lenders) any legal or equitable
right, remedy or claim under or by reason of this Agreement.

(b)                                 (i)  Subject to the conditions set
forth in paragraph (b)(ii) below, any Lender may assign to one or more
assignees all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans at the time owing
to it) with the prior written consent (such consent not to be unreasonably
withheld) of:

(A)                              the
Borrower, provided that no consent of the Borrower shall be required for
an assignment to a Lender, an Affiliate of a Lender, an Approved Fund or, if an
Event of Default under clause (a), (b), or (h) of Article VII has occurred and
is continuing, any other assignee; and

(B)                                the
Administrative Agent, provided that no consent of the Administrative Agent
shall be required for an assignment of (x) any Revolving Commitment to an
assignee that is a Lender with a Revolving Commitment immediately prior to
giving effect to such assignment; and

(C)                                the
Swingline Lender.

(ii)                                  Assignments shall be subject to the following
additional conditions:

(A)                              except
in the case of an assignment to a Lender or an Affiliate of a Lender or an
assignment of the entire remaining amount of the assigning Lender’s Commitment
or Loans of any Class, the amount of the Commitment or Loans of the assigning
Lender subject to each such assignment (determined as of the date the
Assignment and Assumption with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $5,000,000 unless each of the
Borrower and the Administrative Agent otherwise consent, provided that
no such consent of the Borrower shall be required if an Event of Default under
clause (a), (b), or (h) of Article VII has occurred and is continuing;

(B)                                each
partial assignment shall be made as an assignment of a proportionate part of
all the assigning Lender’s rights and obligations under this Agreement, provided
that this clause shall not be construed to prohibit the assignment of a
proportionate part of all the assigning Lender’s rights and obligations in
respect of one Class of Commitments or Loans;

(C)                                the
parties to each assignment shall execute and deliver to the Administrative
Agent an Assignment and Assumption, together with a processing and recordation
fee of $3,500; and

 62
 

(D)                               the
assignee, if it shall not be a Lender, shall deliver to the Administrative
Agent an Administrative Questionnaire.

For the purposes of this Section 9.04(b), the term “Approved
Fund” has the following meaning:

“Approved Fund” means any Person (other than a
natural person) that is engaged in making, purchasing, holding or investing in
bank loans and similar extensions of credit in the ordinary course of its
business and that is administered or managed by (a) a Lender, (b) an Affiliate
of a Lender or (c) an entity or an Affiliate of an entity that administers or
manages a Lender.

(iii)                               Subject to acceptance and recording thereof
pursuant to paragraph (b)(iv) of this Section, from and after the
effective date specified in each Assignment and Assumption the assignee thereunder
shall be a party hereto and, to the extent of the interest assigned by such
Assignment and Assumption, have the rights and obligations of a Lender under
this Agreement, and the assigning Lender thereunder shall, to the extent of the
interest assigned by such Assignment and Assumption, be released from its
obligations under this Agreement (and, in the case of an Assignment and
Assumption covering all of the assigning Lender’s rights and obligations under
this Agreement, such Lender shall cease to be a party hereto but shall continue
to be entitled to the benefits of Sections 2.17 and 9.03).  Any assignment or transfer by a Lender of
rights or obligations under this Agreement that does not comply with this Section
9.04 shall be treated for purposes of this Agreement as a sale by such Lender
of a participation in such rights and obligations in accordance with paragraph
(c) of this Section.

(iv)                              The Administrative Agent, acting for this
purpose as an agent of the Borrower, shall maintain at one of its offices a
copy of each Assignment and Assumption delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans and LC Disbursements owing to, each Lender
pursuant to the terms hereof from time to time (the “Register”).  The entries in the Register shall be
conclusive, and the Borrower, the Administrative Agent, the Issuing Bank and
the Lenders may treat each Person whose name is recorded in the Register
pursuant to the terms hereof as a Lender hereunder for all purposes of this
Agreement, notwithstanding notice to the contrary.  The Register shall be available for
inspection by the Borrower, the Issuing Bank and any Lender, at any reasonable
time and from time to time upon reasonable prior notice.

(v)                                 Upon its receipt of a duly completed
Assignment and Assumption executed by an assigning Lender and an assignee, the
assignee’s completed Administrative Questionnaire (unless the assignee shall
already be a Lender hereunder), the processing and recordation fee referred to
in paragraph (b) of this Section and any written consent to such
assignment required by paragraph (b) of this Section, the Administrative Agent
shall accept such Assignment and Assumption and record the information
contained therein in the Register.  No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.

(c)                                  (i)  Any Lender may, without the
consent of the Borrower, the Administrative Agent, the Issuing Bank or the
Swingline Lender, sell participations to one or 

 63
 

more banks or other entities (a “Participant”) in all or a
portion of such Lender’s rights and obligations under this Agreement (including
all or a portion of its Commitment and the Loans owing to it); provided
that (A) such Lender’s obligations under this Agreement shall remain
unchanged, (B) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations and (C) the
Borrower, the Administrative Agent, the Issuing Bank and the other Lenders
shall continue to deal solely and directly with such Lender in connection with
such Lender’s rights and obligations under this Agreement.  Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement; provided that
such agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in the first proviso to Section 9.02(b) that affects such
Participant.  Subject to paragraph
(c)(ii) of this Section, the Borrower agrees that each Participant shall be
entitled to the benefits of Sections 2.15, 2.16 and 2.17 to the same extent as
if it were a Lender and had acquired its interest by assignment pursuant to
paragraph (b) of this Section.  To the
extent permitted by law, each Participant also shall be entitled to the
benefits of Section 9.08 as though it were a Lender, provided such
Participant agrees to be subject to Section 2.18(c) as though it were a Lender.

(ii)                                  A Participant shall not be entitled to
receive any greater payment under Section 2.15 or 2.17 than the applicable
Lender would have been entitled to receive with respect to the participation
sold to such Participant, unless the sale of the participation to such
Participant is made with the Borrower’s prior written consent.  Subject to the foregoing sentence, a
Participant that would be a Foreign Lender if it were a Lender shall not be
entitled to the benefits of Section 2.17 unless the Borrower is notified
of the participation sold to such Participant and such Participant agrees, for
the benefit of the Borrower, to comply with Section 2.17(e) as though it were a
Lender.

(d)                                 Any Lender may at any time pledge or assign a
security interest in all or any portion of its rights under this Agreement to
secure obligations of such Lender, including without limitation any pledge or
assignment to secure obligations to a Federal Reserve Bank, and this Section
shall not apply to any such pledge or assignment of a security interest; provided
that no such pledge or assignment of a security interest shall release a Lender
from any of its obligations hereunder or substitute any such pledgee or
assignee for such Lender as a party hereto.

SECTION
9.05.  Survival.  All
covenants, agreements, representations and warranties made by the Borrower
herein and in the certificates or other instruments  delivered in connection with or pursuant to
this Agreement shall be considered to have been relied upon by the other
parties hereto and shall survive the execution and delivery of this Agreement
and the making of any Loans and issuance of any Letters of Credit, regardless
of any investigation made by any such other party or on its behalf and
notwithstanding that the Administrative Agent, the Issuing Bank or any Lender
may have had notice or knowledge of any Default or incorrect representation or
warranty at the time any credit is extended hereunder, and shall continue in
full force and effect as long as the principal of or any accrued interest on
any Loan or any fee or any other amount payable under this Agreement is
outstanding and unpaid or any Letter of Credit is outstanding and so long as
the Commitments have not expired or terminated. 
The provisions of 

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Sections
2.15, 2.16, 2.17 and 9.03 and Article VIII shall survive and remain in full force
and effect regardless of the consummation of the transactions contemplated
hereby, the repayment of the Loans, the expiration or termination of the
Letters of Credit and the Commitments or the termination of this Agreement or
any provision hereof.

SECTION
9.06.  Counterparts;
Integration; Effectiveness.  This Agreement may be executed in
counterparts (and by different parties hereto on different counterparts), each
of which shall constitute an original, but all of which when taken together
shall constitute a single contract.  This
Agreement and any separate letter agreements with respect to fees payable to
the Administrative Agent constitute the entire contract among the parties
relating to the subject matter hereof and supersede any and all previous agreements
and understandings, oral or written, relating to the subject matter
hereof.  Except as provided in Section
4.01, this Agreement shall become effective when it shall have been executed by
the Administrative Agent and when the Administrative Agent shall have received
counterparts hereof which, when taken together, bear the signatures of each of
the other parties hereto, and thereafter shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.  Delivery of an executed counterpart of a
signature page of this Agreement by telecopy shall be effective as delivery of
a manually executed counterpart of this Agreement.

SECTION
9.07.  Severability.  Any
provision of this Agreement held to be invalid, illegal or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such invalidity, illegality or unenforceability without affecting the validity,
legality and enforceability of the remaining provisions hereof; and the invalidity
of a particular provision in a particular jurisdiction shall not invalidate
such provision in any other jurisdiction.

SECTION
9.08.  Right
of Setoff.  If an Event of Default shall have occurred
and be continuing, each Lender and each of its Affiliates is hereby authorized
at any time and from time to time, to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other obligations at any time owing
by such Lender or Affiliate to or for the credit or the account of the Borrower
against any of and all the obligations of the Borrower now or hereafter
existing under this Agreement held by such Lender, irrespective of whether or
not such Lender shall have made any demand under this Agreement and although
such obligations may be unmatured.  Each
Lender exercising its rights of setoff hereunder shall promptly notify the
Borrower of such exercise  The rights of
each Lender under this Section are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have.

SECTION
9.09.  Governing
Law; Jurisdiction; Consent to Service of Process. 
(a)  This Agreement shall be construed in accordance with and
governed by the law of the State of New York.

(b)                                 Each party to this Agreement hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of the Supreme Court of the State of New York sitting
in New York County and of the United States District Court of the Southern
District of New York, and any appellate court from any thereof, in any action
or proceeding arising out of or relating to this Agreement, or for recognition
or enforcement of any judgment, and each of the parties hereto hereby
irrevocably and unconditionally agrees that all 

 65
 

claims in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by law, in
such Federal court.  Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law.

(c)                                  Each party to this Agreement hereby
irrevocably and unconditionally waives, to the fullest extent it may legally
and effectively do so, any objection which it may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or relating to
this Agreement in any court referred to in paragraph (b) of this Section.  Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.

(d)                                 Each party to this Agreement irrevocably
consents to service of process in the manner provided for notices in
Section 9.01.  Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.

SECTION
9.10.  WAIVER
OF JURY TRIAL.  EACH PARTY HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY). 
EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO
HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

SECTION
9.11.  Headings. 
Article and Section headings and the Table of Contents used herein are
for convenience of reference only, are not part of this Agreement and shall not
affect the construction of, or be taken into consideration in interpreting,
this Agreement.

SECTION
9.12.  Confidentiality.

(a)                                  Each of the Administrative Agent, the Issuing Bank and the Lenders
agrees to maintain the confidentiality of the Information (as defined below),
except that Information may be disclosed (i) to its and its Affiliates’
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such
disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (ii) to
the extent requested by any regulatory authority, (iii) to the extent
required by applicable laws or regulations or by any subpoena or similar legal
process, (iv) to any other party to this Agreement, (v) in connection with the
exercise of any remedies hereunder or any suit, action or proceeding relating
to this Agreement or the enforcement of rights hereunder, (vi) subject to an
agreement containing provisions substantially the same as those of this
Section, to (A) any assignee of or Participant in, 

 66
 

or any prospective assignee of or Participant in,
any of its rights or obligations under this Agreement or (B) any actual or
prospective counterparty (or its advisors) to any swap or derivative
transaction relating to the Borrower and its obligations, (vii) with the
consent of the Borrower or (viii) to the extent such Information
(A) becomes publicly available other than as a result of a breach of this
Section or (B) becomes available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis from a source other than the
Borrower.  For the purposes of this
Section, “Information” means all information received from the Borrower
relating to the Borrower or its business, other than any such information that
is available to the Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by the
Borrower; provided that, in the case of information received from the Borrower
after the date hereof, such information is clearly identified at the time of
delivery as confidential.  Any Person
required to maintain the confidentiality of Information as provided in this
Section shall be considered to have complied with its obligation to do so if
such Person has exercised the same degree of care to maintain the
confidentiality of such Information as such Person would accord to its own
confidential information.

(b)                                 Each Lender acknowledges that information
furnished to it pursuant to this Agreement may in the future include material
non-public information concerning the Borrower and its Affiliates and their
related parties or their respective securities, and confirms that it has
developed compliance procedures regarding the use of material non-public
information and that it will handle such material non-public information in
accordance with those procedures and applicable law, including Federal and
state securities laws.

(c)                                  All information, including requests for
waivers and amendments, furnished by the Borrower or the Administrative Agent
pursuant to, or in the course of administering, this Agreement will be
syndicate-level information, which may contain material non-public information
about the Borrower and its Affiliates and their related parties or their
respective securities.  Accordingly, each
Lender represents to the Borrower and the Administrative Agent that it has
identified in its administrative questionnaire a credit contact who may receive
information that may contain material non-public information in accordance with
its compliance procedures and applicable law.

SECTION 9.13.  USA
Patriot Act.
 The Administrative Agent, the Issuing
Bank and each Lender hereby notifies the Borrower that pursuant to the
requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into
law October 26, 2001)) (the “Act”), it is required to obtain, verify and record
information that identifies the Borrower, which information includes the name
and address of the Borrower and other information that will allow such Lender
to identify the Borrower in accordance with the Act.  The Borrower shall promptly provide such
information upon request by any Lender. 
In connection therewith, each Lender hereby agrees that the confidentiality
provisions set forth in Section 9.12 shall apply to any non-public information
provided to it by the Borrower and its Subsidiaries pursuant to this Section
9.13.

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

	
  

  	
  ACA CAPITAL HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  JPMORGAN CHASE BANK, N.A., individually 

  and as Administrative Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:EXHIBIT 10.1

 

EXECUTION COPY

 

GOVERNANCE AGREEMENT

This Governance Agreement (this “Agreement”),
dated as of April 30, 2007, is entered into by and among Westaff, Inc., a
Delaware corporation (the “Company”), DelStaff, LLC, a Delaware limited
liability company (“DelStaff”), and Michael T. Willis, a natural person
and a member of DelStaff (for the purposes of Articles II and IV only) and W.
Robert Stover, a natural person (for the purposes of Section 5.3 only).

A.  Pursuant to a Stock Purchase
Agreement (the “Purchase Agreement”), dated as of February 28, 2007, by
and among DelStaff on the one hand, and W. Robert Stover and other parties
thereto (collectively, “Sellers”), on the other hand, DelStaff purchased
from the Sellers an aggregate of 7,933,396 shares of common stock, par value
$0.01, of the Company (the “Common Stock”).

B.  DelStaff
subsequently acquired an additional 329,300 shares of Common Stock, and now
holds a total of 8,262,696 shares of Common Stock (the “Shares”), which
as of the date hereof constitutes 49.7% of the outstanding shares of Common
Stock and of the Total Voting Power.

C.  Section 2.2
of the Amended and Restated Bylaws of the Company (the “Bylaws”)
provides that the number of directors that shall constitute the Board shall be
five (5), subject to amendment in accordance with Article FIFTH of the Fourth
Amended and Restated Certificate of Incorporation of the Company (the “Certificate
of Incorporation”).

D.  Article
FIFTH of the Certificate of Incorporation provides that any Bylaw amendment
adopted by the Board increasing the authorized number of directors shall
require the affirmative vote of a simple majority of the total number of
directors which the Company would have if there were no vacancies.

E.  The Board
currently consists of the following five directors:  (i) Patricia M. Newman, whose term expires at
the 2007 annual meeting of stockholders of the Company (sometimes referred to
herein as the “Class II Directors” or the “Class II Directorship”);
(ii) Mr. Stover and Janet M. Brady, whose terms expire at the 2008 annual
meeting of stockholders of the Company (sometimes referred to herein as the “Class
III Directors” or the “Class III Directorship”); and (iii) Ronald D.
Stevens and Jack D. Samuelson, whose terms expire at the 2009 annual meeting of
stockholders of the Company (sometimes referred to herein as the “Class I
Directors” or the “Class I Directorship”).

F.  The Company
and DelStaff desire to establish in this Agreement, for the benefit of the
Company’s stockholders, certain terms and conditions concerning, among other
things, the expansion of the Board, the appointment of directors nominated by
DelStaff to fill the resulting vacancies, certain transfers of the securities
of the Company and the future governance of the Company.

 

NOW, THEREFORE, in consideration of the foregoing and
the mutual covenants and agreements contained herein, and intending to be
legally bound hereby, the Company and DelStaff agree as follows:

ARTICLE I

BOARD OF DIRECTORS AND RELATED MATTERS

Section 1.1             Election of Directors.  Promptly (but in no event later than ten (10)
calendar days after the Company files its Schedule 14F Information Statement
pursuant to Rule 14f-1 of the Exchange Act, as contemplated in Section 5.4
below) or as otherwise specified by below, the Company and DelStaff shall, and
shall cause their respective officers, directors, and employees, to:

(a)           Amend the Bylaws to expand the size
of the Board to nine (9) directors, adding one (1) Class I Directorship, two
(2) Class II Directorships and one (1) Class III Directorship.

(b)           On May 1, 2007, or as soon thereafter
as possible, accept the resignation of Patricia M. Newman as President and Chief
Executive Officer of the Company (the “Chief Executive Officer”) and as
a Class II Director.

(c)           Cause the Board to fill the vacancies
resulting from the actions taken in Sections 1.1(a) and (b) with Mr. Willis,
John Black, Michael Phillips, Gerald E. Wedren and John G. Ball (collectively,
the “DelStaff Directors”).

(d)           After the actions contemplated by
Section 1.1(c) above, obtain the resignations of all of the directors of the
Company who were directors on the date of this Agreement, and immediately
thereafter, (i) reassign the resulting vacancies of one Class I Directorship,
two Class II Directorships and one Class III Directorship to become vacancies
of one Class I Directorship, two Class II Directorships and one Class III
Directorship, and (ii) cause the Board to reappoint W. Robert Stover, Janet M.
Brady, Jack D. Samuelson and Ronald D. Stevens to the Board (collectively, the “Company
Directors”) as directors of the Company.

(e)           The actions contemplated in Sections
1.1(c) and 1.1(d) above shall be taken such that immediately thereafter, the
Board shall consist of the following directors in the following classes:

Class I Directors (terms to expire in 2009):

(1)           Ronald D. Stevens

(2)           Gerald E. Wedren

(3)           John G. Ball

Class II Directors (terms to expire in 2010):

(4)           Janet M. Brady

(5)           John Black

(6)           Michael Phillips

 2
 

 

Class III Directors (terms to expire in 2008):

(7)           W. Robert Stover

(8)           Michael Willis

(9)           Jack D. Samuelson

The parties agree that for purposes of this Agreement,
Ms. Brady, Mr. Samuelson, Mr. Stevens, Mr. Wedren and Mr. Ball shall each be
considered an Independent director.

(f)            Cause the Board to appoint (or
reappoint):

(i)            Mr. Stover as Chairman of the Board
(the “Chairman”);

(ii)           Ms. Brady, Mr. Black and Mr. Ball as
the members of the Compensation Committee of the Board (the “Compensation
Committee”), with Ms. Brady  serving as the
Chairperson thereof;

(iii)          Mr. Stevens, Mr. Samuelson and Mr.
Wedren as members of the Audit Committee of the Board (the “Audit Committee”),
with Ronald D. Stevens serving as Chairperson thereof; and

(iv)          Ms. Brady, Mr. Black and Mr. Wedren as
members of the Nominating and Governance Committee of the Board (the “Nominating
and Governance Committee”), with Ms. Brady serving as Chairperson thereof.

(g)           The parties hereto agree that each
director appointed in accordance with this Section 1.1 shall hold office until
the annual meeting of the Company’s stockholders at which the term of the class
to which such director has been appointed expires, and until his or her
respective successor is elected and qualified or until his or her earlier
death, resignation or removal from office.

Section 1.2             On-Going Board Composition.  Subject to compliance with any federal or
state securities laws and the Listing Requirements, after the actions
contemplated by Section 1.1 above, the Company and DelStaff shall, and shall
cause each of their respective officers, directors, and employees to, ensure
that:

(a)           The size of the Board shall remain at
nine (9) directors, with three (3) Class I Directors, three (3) Class II
Directors and three (3) Class III Directors. 
Each class of directors shall serve for a term of three years in
accordance with the Certificate of Incorporation.

(b)           A majority of the Board shall consist
of directors who are Independent.

(c)           If any of Michael Willis, John Black
or Michael Phillips (together with all directors appointed under this Section
1.2(c), the “DelStaff Affiliated Directors”) or any of their respective
replacements then serving as a director shall no longer be able to serve as a
director for any reason whatsoever, DelStaff shall have the right (and the
Company shall do all lawful things necessary and advisable) to cause the Board
to fill such vacancy with an individual 

 3
 

 

nominated by DelStaff. 
If such inability to serve occurs at the end of such DelStaff Affiliated
Director’s term, DelStaff shall provide the notice for a new director nominee
as provided in Section 1.2(e) below. If such inability to serve occurs prior to
the end of such DelStaff Affiliated Director’s term, DelStaff shall promptly
inform the Company of any replacement director and the Company shall cause such
replacement director to be appointed to the Board and any applicable committee
to fill the unexpired term of the director being replaced.

(d)           If any of Gerald E. Wedren or John G.
Ball (together with all directors appointed under this Section 1.2(d), “DelStaff
Independent Directors”) or any of their respective replacements then
serving as a director shall no longer be able to serve as a director for any
reason whatsoever, DelStaff shall have the right (and the Company shall do all
lawful things necessary and advisable) to cause the Board to fill such vacancy
with an individual nominated by DelStaff, provided that,
such nominee is Independent.  If such
inability to serve occurs at the end of such DelStaff Independent Director’s term,
DelStaff shall provide the notice for a new director nominee as provided in
Section 1.2(e) below. If such inability to serve occurs prior to the end of
such DelStaff Independent Director’s term, DelStaff shall promptly inform the
Company of any replacement director and the Company shall cause such
replacement director to be appointed to the Board and any applicable committee
to fill the unexpired term of the director being replaced.

(e)           Unless DelStaff advises the Board in
writing of one or more replacement of DelStaff Directors (subject to the
qualifications of the directors in Sections 1.2(c) and (d) above) for the
Company’s next annual or special meeting of stockholders at which directors are
to be elected and the term of one or more of the DelStaff Directors expires,
the then current DelStaff Director(s) for any such meeting shall be deemed to
be the incumbent DelStaff Director(s) to be elected at such meeting.  Such written notice by DelStaff, including
information of such new nominee director (i) sufficient for the Board to
determine whether the director qualifies under the requirements contained in
Sections 1.2(c) and (d) above and (ii) sufficient for the Company to fulfill
its disclosure obligations under the Exchange Act, shall be provided to the Board
at least twenty (20) days prior to the date of the filing with the Securities
and Exchange Commission (the “SEC”) of the proxy statement relating to
such meeting.  The Company shall provide
to DelStaff in writing the filing date of such proxy statement at least
forty-five (45) days prior to such filing date.

(f)            So long as Jack D. Samuelson, Janet
M. Brady and Ronald D. Stevens (together with all directors appointed under
this Section 1.2(f), the “Company Independent Directors”) are willing to
serve as directors of the Company, the Company and DelStaff shall do all lawful
things necessary and advisable to cause each of Mr. Samuelson, Mr. Stevens and
Ms. Brady to be elected or appointed as a director of the Company.  If any Company Independent Director shall no
longer be able to serve as a director for any reason whatsoever, such vacancy
shall be filled at the determination of a majority of the remaining Company
Independent Directors and DelStaff Independent Directors, voting as a group
(the “Super Independent Group”), in their sole discretion, in
consultation with the Nominating and Governance Committee, provided
that, the replacement director shall be Super Independent.  The Nominating and Governance Committee shall
have the exclusive authority to select and approve all director candidates that
are submitted to the Super Independent Group for approval in accordance with 

 4
 

 

this Section 1.2(f). 
If such inability to serve occurs at the end of such Company Independent
Director’s term, the replacement director selected by the Super Independent
Group shall be the director nominee to be elected at the next annual or special
meeting of stockholders at which director are to be elected. If such inability
to serve occurs prior to the end of such Company Independent Director’s term,
the Company and DelStaff shall do all lawful things necessary and advisable to
cause the replacement director selected by the Super Independent Group to be
appointed to the Board and any applicable committee to fill the unexpired term
of the director being replaced.

(g)           If the Company Director who is not a
Company Independent Director shall no longer be able to serve as a director for
any reason whatsoever (including, with respect to Mr. Stover, his resignation
in accordance with Section 5.3), such vacancy shall be filled at the
determination of a majority of the Independent directors, in their sole
discretion, in consultation with  the Nominating
and Governance Committee.  The Nominating
and Governance Committee shall have the exclusive authority to select and
approve all director candidates that are submitted to the Independent directors
for approval in accordance with this Section 1.2(g).  If such inability to serve occurs at the end
of such Company Director’s term, the replacement director selected by the
majority of the Independent directors shall be the director nominee to be
elected at the next annual or special meeting of stockholders at which
directors are to be elected. If such inability to serve occurs prior to the end
of such Company Director’s term, the Company and DelStaff shall do all lawful
things necessary and advisable to cause the replacement director selected by
the majority of the Independent directors to be appointed to the Board and any
applicable committee to fill the unexpired term of the director being replaced.

(h)           The Board shall maintain a
Compensation Committee, an Audit Committee and a Nominating and Governance
Committee, each of which shall be comprised of three (3) members.  Other than the Audit Committee, which shall
be comprised only of DelStaff Independent Directors or Company Independent
Directors, each committee shall include one (1) DelStaff Affiliated Director,
one (1) DelStaff Independent Director and one (1) Company Independent Director,
and each of their successors that are appointed in accordance with Sections
1.2(c) through (f).  Any other committees
of the Board shall consist of a majority of directors who are Independent.  At least one (1) DelStaff Affiliated Director
shall be permitted to attend all Audit Committee meetings, except that such
director shall not attend the executive sessions of the Audit Committee and
shall not have a vote on the Audit Committee.

(i)            Immediately after Mr. Stover’s
resignation as Chairman on June 29, 2007 in accordance with Section 5.3, if Mr.
Willis is then serving as the Chief Executive Officer, the Board (other than
Mr. Willis and the then current Chairman, who shall abstain) shall make a
determination regarding the appointment of Mr. Willis as Chairman.  If so appointed, Mr. Willis shall serve as
Chairman until his successor is elected and qualified or until his earlier
death, resignation or removal from office.

(j)            All directors who are not employees
of the Company shall be paid, subject to future increases upon recommendation
by the Compensation Committee, at least a $25,000 retainer per year and an
additional $6,000 annual fee for committee chairmanship, plus an additional fee
of $1,000 per Board or committee meeting attended in person or $500 for each 

 5
 

 

telephonic Board or committee meeting attended, provided, that, if a Board meeting and a committee meeting
were held on the same day, the total fee will not exceed $1,000 per day
(collectively, “Board Fees”).  All
directors who are not employees of the Company shall be promptly reimbursed for
his or her reasonable expenses in performing his or her duties as a director,
including reasonable travel expenses incurred to attend any meeting of the
Board or its committee.  In addition, the
Compensation Committee shall determine grants of equity incentive compensation
applicable to all directors who are not employees of the Company.  All Board Fees payable under this Section
1.2(j) to Mr. Black and Mr. Phillips shall be paid directly to DelStaff.

(k)           Subject to the other provisions of
this Agreement, the DelStaff Directors shall have and shall be entitled to
exercise the same powers, protections, obligations and compensation as other
directors of the Company, and shall have such rights provided to, and
obligations required by, directors of a Delaware corporation under Delaware
law.  Without limiting the foregoing,
promptly after the execution of this Agreement but in no event after the
completion of the actions contemplated in Section 1.1 above, the Company shall
add the DelStaff Directors to the Company’s existing directors’ and officers’
liability insurance policy and (if applicable) enter into indemnification
agreements (if any) entered into with other Board members (who are not also
officers or employees of the Company).

(l)            The Company shall use its reasonable
best efforts to solicit from the stockholders of the Company eligible to vote
for the election of directors proxies in favor of all nominees designated or
nominated in accordance with Section 1.1 or Section 1.2.

(m)          The Company and DelStaff shall take or
cause to be taken all lawful actions necessary to ensure at all times that the
Certificate of Incorporation and Bylaws are not, at any time, inconsistent with
the provisions of this Agreement.

Section 1.3             Conduct of the Board.  The Company and DelStaff shall take or cause
to be taken all lawful actions necessary to ensure that:

(a)           The Board shall meet no less than
quarterly.  At least 50% of the meetings
of the Board shall be held within 50 miles of San Francisco.

(b)           The Company shall obtain and maintain
in full force and effect directors’ and officers’ liability insurance and shall
pay all premiums due on such policy as they become due with a carrier and in an
amount satisfactory to the Board.  The
Company shall not cause any material diminution of the policy limits of or
coverage provided by such policy without the consent of the Board.

(c)           Notwithstanding anything to the
contrary set forth in this Article I, the Board shall be entitled to act in
accordance with its fiduciary obligations to the Company and its stockholders
under applicable law, and shall be entitled to take such actions as are
necessary to comply with applicable law, with respect to the performance of the
Company’s obligations under this Agreement; provided however,
that the Board has determined that as of the date of this Agreement, the
transactions contemplated hereby are in the best interest of the Company’s
stockholders.

 6
 

 

Section 1.4             Chief Executive Officer.  DelStaff and the Company agree that:

(a)           Immediately upon the resignation of
Ms. Newman as Chief Executive Officer on May 1, 2007, or as soon thereafter as
possible, the Company and DelStaff shall cause Mr. Willis to be appointed as
the Chief Executive Officer.

(b)           The terms of any employment or
similar agreement with the Chief Executive Officer shall be determined by a
majority of the Independent directors upon the recommendation of the
Compensation Committee.

(c)           Upon execution of this Agreement, Mr.
Willis shall be provided with access to any business information and employees
of the Company he believes necessary or desirable.

ARTICLE II

RELATED PARTY TRANSACTIONS

Section 2.1             Transactions Involving
Stockholder.  The parties hereto
agree that any transaction between the Company, on the one hand, and any of
DelStaff, Mr. Willis or any of their respective Affiliates, on the other hand,
required by the Listing Requirements to be pre-approved by the Audit Committee,
and any amendment, modification or waiver of any provisions of this Agreement,
shall be approved by the Audit Committee and a majority of the Super
Independent Group .

Section 2.2             First Look.  Each of DelStaff, Mr. Willis and their
respective Affiliates agrees and covenants, and shall use their reasonable best
efforts to ensure, that each of the DelStaff Directors shall, after receipt of
any offer or inquiry to purchase all or substantially all of the Common Stock
held by DelStaff, disclose such offer or inquiry to the remaining members of
the Board no later than five (5) business days prior to the execution of a
definitive agreement for such sale; provided however,
that the Company agrees to take no action to frustrate the sale process unless
the Board reasonably determines in good faith (after oral consultation with
outside legal counsel) that such action is required in order to comply with its
fiduciary duties to the stockholders of the Company under Delaware law or to
preserve the rights of the Company under this Agreement.

ARTICLE III

CONFIDENTIALITY

Section 3.1             Disclosure of Confidential
Information.  The Company may
disclose to DelStaff proprietary and confidential information, including but
not limited to, any and all 

 7
 

 

information, whether oral or written, relating to the
business of the Company (all such information, the “Information”).  DelStaff acknowledges that neither the
Company, nor its Affiliates, makes any express or implied representation or
warranty to it as to the accuracy or completeness of the Information.  DelStaff agrees and covenants, and shall use
its reasonable best efforts to ensure that:

(a)           All Information shall be held in
strict confidence by DelStaff and its Affiliates, officers, managers, members,
employees, financing sources, agents and financial and legal advisors
(collectively, the “Representatives”) and shall not be disclosed to any
other Person, without the Company’s prior written consent or except as may be
required by law, regulation or legal process, or to the extent such Information
is or becomes publicly available, other than as a result of a breach of this
Article III.  DelStaff also agrees that
it will direct its Representatives not to disclose to any other Person that
DelStaff has received the Information.

(b)           Until the Information is or becomes
publicly available, other than as a result of a breach of this Article III,
DelStaff shall use the Information only for monitoring and evaluating DelStaff’s
investment in the Company and not for any other purpose or in any manner that
would constitute a violation of any applicable laws or regulations.

(c)           DelStaff shall take the same degree
of care that it uses to protect its own confidential and proprietary
information of similar nature and importance (but in no event less than
reasonable care) to protect the confidentiality and avoid the unauthorized use,
disclosure, publication or dissemination of the Information.

(d)           In the event that DelStaff or any of
its Representatives is requested pursuant to, or required by, applicable law,
regulation or legal process to disclose any of the Information or any other
information concerning the Company, it will notify the Company promptly so that
the Company may (i) seek a protective order or other appropriate remedy or (ii)
consult with DelStaff to take steps to resist or narrow the scope of such
request or legal process. In the event that no such protective order or other
remedy is obtained, DelStaff and its Representatives shall furnish only that
portion of the Information which, under advise of counsel, is legally required
and will exercise reasonable best efforts to obtain reliable assurance that
confidential treatment will be accorded the Information so furnished.

Section 3.2             Insider Trading Prohibitions.  DelStaff acknowledges that it and its
Representatives are aware that the U.S. securities laws prohibit any person who
has material non-public information about a company from purchasing or selling,
directly or in indirectly, securities of such company (including entering into
hedge transactions involving such securities), or from communicating such
information to any other Person under circumstances in which it is reasonably
foreseeable that such Person is likely to purchase or sell such
securities.  Accordingly, DelStaff agrees
that it will not use or permit any third party to use, and that it will use its
reasonable best efforts to assure that none of its Representatives will use or
permit any third party to use, any of the Information the Company provides in
contravention of the U.S. securities laws and, if required by such laws, DelStaff
and its Representatives shall cease trading in the Company’s securities as
applicable.  Furthermore, DelStaff agrees
and covenants to 

 8
 

 

comply
with, and to ensure that its Affiliates comply with, the Company’s Insider
Trading Policy, a complete and accurate copy of which has been delivered to
DelStaff.

 

ARTICLE IV

STANDSTILL

Section 4.1             Standstill.  Until sixty (60) days after the date of this
Agreement (the “Standstill Termination Date”), DelStaff and Mr. Willis
covenant and agree that they and their respective Affiliates shall not acquire
beneficial ownership of any Voting Securities other than the Shares, and each
of DelStaff and Mr. Willis, severally and not jointly, represents that, as of
the date hereof, it or he does not beneficially own any shares of Common Stock
other than the Shares.  Notwithstanding
the above, in the event that the Company shall issue shares of Common Stock or
securities convertible into or exercisable for Common Stock from and after the
date of this Agreement and prior to the Standstill Termination Date, other than
pursuant to the Company’s existing equity incentive plans, the Company shall
extend to DelStaff the right to purchase its pro rata share of any such shares
or other securities.

ARTICLE V

OTHER COVENANTS

Section 5.1             Amending Certificate of
Incorporation.  Promptly after the
date of this Agreement and after completion of the actions contemplated by
Section 1.1 above, the Company and DelStaff shall, and shall cause the Company’s
officers, directors, and employees, to, take all appropriate action, and do all
things, and execute and deliver such further documents and instruments, as may
be necessary, proper or advisable to amend the Company’s certificate of
incorporation to permit any stockholder that beneficially owns twenty percent
(20%) or more of the Total Voting Power of the Company to call a special
meeting of the stockholders of the Company (the “20% Amendment”),
including, but not limited to, calling and/or holding a special meeting of
stockholders of the Company for the purpose of approving and adopting the
foregoing amendment (the “Stockholders Meeting”), but not for any
purpose in contravention to this Agreement.

Section 5.2             Satisfaction of Representation
Event.  DelStaff agrees and
covenants, for the benefit of the Sellers, that the Representation Event (as
such term is defined in the Purchase Agreement) shall be deemed to occur at the
earlier of (a) immediately after the Stockholders Meeting and (b) at the close
of business on June 29, 2007, and that on such date, (x) each Promissory Note
(as defined in the Purchase Agreement) shall mature and DelStaff shall pay the
outstanding principal amount thereof (together with any interest and other
amounts accrued thereon to the Representation Date, and without any extension
of the payment date, including without limitation, any extension pursuant to
Section 1.01(b) of such Promissory Note), (y) subject to the provisions of
Section 6.01(e) of the Purchase Agreement, the Security Interest (as defined in
the Purchase Agreement) will automatically be cancelled and cease to exist (and
DelStaff shall promptly take all lawful action, including under the Pledge
Agreement (as defined in the Purchase Agreement) and the Custody Agreement (as
defined in the Purchase Agreement), 

 9
 

 

to cause the release of the Security Interest), and
(z) the Put Option (as defined in the Purchase Agreement) shall automatically
expire and be terminated in accordance with its terms, without further action
by DelStaff or the Sellers.

Section 5.3             Resignation of Chairman.  Immediately after the Stockholders Meeting on
June 29, 2007, (a) Mr. Stover shall provide to the Company his resignation as
Chairman, as a director and as an employee of the Company, and (b) the Company
and Mr. Stover shall execute and deliver a mutual general release agreement, in
the form attached hereto as Exhibit A.

Section 5.4             Filing of Schedule 14F-1
Information Statement. The Company shall file a Schedule 14F-1 Information
Statement, required under the Exchange Act with the SEC for the actions
contemplated in this Agreement, on Tuesday, May 1, 2007, or as soon
thereafter as possible.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES

Section 6.1             Representations and Warranties
of the Company.  The Company
represents and warrants that (a) the Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power and authority to enter into this Agreement
and to carry out its obligations hereunder, (b) the execution and delivery
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company and no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or any of
the transactions contemplated hereby, and (c) this Agreement has been duly
executed and delivered by the Company and constitutes a valid and binding
obligation of the Company, and is enforceable against the Company in accordance
with its terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other laws of general
application affecting creditor rights generally and (ii) as limited by laws
relating to specific performance, injunctive relief or other equitable
remedies.

Section 6.2             Representations and Warranties
DelStaff.  DelStaff represents and
warrants to the Company that (a) DelStaff is the record holder of the Shares,
(b) it is a limited liability company duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the power and
authority to enter into this Agreement and to carry out its obligations
hereunder, (c) the execution and delivery of this Agreement by DelStaff
and the consummation by DelStaff of the transactions contemplated hereby have
been duly authorized by all necessary limited liability company action on the
part of DelStaff and no other proceedings on its part are necessary to
authorize this Agreement or any of the transactions contemplated hereby, and
(d) this Agreement has been duly executed and delivered by DelStaff and
constitutes a valid and binding obligation of DelStaff enforceable against
DelStaff in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other laws of general application affecting creditor rights generally 

 10
 

 

and (ii) as limited by laws relating to specific
performance, injunctive relief or other equitable remedies.

Section 6.3             Representations and Warranties
of Willis.  Willis represents and
warrants to the Company that he is an individual, domiciled in Houston, Texas,
with full authority to enter into this Agreement, and that this Agreement has
been duly executed and delivered by him and constitutes his valid and binding
obligation, enforceable against him in accordance with its terms, except (a) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other laws of general application affecting creditor
rights generally, and (b) as limited by laws relating to specific performance,
injunctive relief or other equitable remedies.

ARTICLE VII

DEFINITIONS

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

“Affiliate” shall, (a) with respect to Mr.
Willis and the Company, have the meaning set forth in Rule 12b-2 under the
Exchange Act (as in effect on the date of this Agreement) and, (b) with respect
to DelStaff, shall mean H.I.G. Staffing 2007, Ltd., a Cayman Islands exempted
company, H.I.G. Capital Partners III, L.P., a Delaware limited partnership,
H.I.G. Advisors III, L.L.C., a Delaware limited liability company, H.I.G.-GPII,
Inc., a Delaware corporation, Sami W. Mnaymneh, an individual, Anthony A.
Tamer, an individual, and any current or future corporation, limited liability
company, partnership, joint venture, trust, unincorporated organization or
other corporate entities where any of the above named entities or individuals
control, directly or indirectly, over 50% of the total combined voting power in
any general election of directors of that entity.

“beneficially own” or “beneficial ownership”
with respect to any securities shall mean having “beneficial ownership” of such
securities (as determined pursuant to Rule 13d-3 under the Exchange Act),
including pursuant to any agreement, arrangement or understanding, whether or
not in writing.

“Board” shall mean the board of directors of
the Company.

“Exchange Act” shall mean the Securities
Exchange Act of 1934, as amended.

“Independent” shall mean any natural person who
the Board has determined to be independent of the Company within the meaning of
the Listing Requirements.

“Listing Requirements” shall mean the listing
standards of the NASDAQ Global Markets as the same may be amended from time to
time or, if the Company’s securities are listed on another national securities
exchange having equally or more stringent requirements than such standards, the
standards applicable to such national securities exchange.

 11
 

 

“Person” shall mean any individual,
partnership, joint venture, limited liability companies, corporation, trust,
unincorporated organization, government or department or agency of a
government.

“Super Independent” shall mean any natural
person who is Independent and, in addition, who is not, and within the three
year period immediately preceding the date of making such determination shall
not have been, an officer, director, employee, partner or consultant of or to
DelStaff, Mr. Willis or any of their respective Affiliates.

“Term” of this Agreement shall commence on the
date hereof and shall end on the date on which DelStaff, Willis and their
respective Affiliates shall collectively cease to beneficially own Voting
Securities representing at least 20% of the Total Voting Power and have filed a
Schedule 13D or 13G reporting such change of beneficial ownership.

“Total Voting Power” at any time shall mean the
total combined voting power in the general election of directors of all the
Voting Securities then outstanding.

“Voting Securities” shall mean at any time
shares of any class of capital stock of the Company which are then entitled to
vote generally in the election of directors including, without limitation, the
Common Stock.

ARTICLE VIII

MISCELLANEOUS

Section 8.1             Notices.  All notices, requests and other
communications to any party hereunder shall be in writing (including telecopy)
and shall be deemed to have been duly given, delivered and received (a) if
delivered personally or (b) if sent by facsimile, registered or certified mail
(return receipt requested) postage prepaid, or by courier guaranteeing next day
delivery, in each case to the applicable party to whom it is directed at the
addresses indicated below:

	
  if to the Company, to:

  	
   

  	
  Westaff, Inc.

  
	
   

  	
   

  	
  298 North Wiget
  Lane,

  
	
   

  	
   

  	
  Walnut Creek, CA 94598

  
	
   

  	
   

  	
  Attn: Corporate
  Secretary

  
	
   

  	
   

  	
  Fax: (925)
  256-1500

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  Morrison & Foerster
  LLP

  
	
   

  	
   

  	
  425 Market Street,

  
	
   

  	
   

  	
  San Francisco, CA 94105

  
	
   

  	
   

  	
  Attn: 

  	
  John W. Campbell, Esq.

  
	
   

  	
   

  	
  Liza Mark, Esq.

  
	
   

  	
   

  	
  Fax: (415)
  268-7522

  
	
   

  	
   

  	
   

  
	
  if to DelStaff
  to:

  	
   

  	
  855 Boylston Street -
  11th Floor

  
	
   

  	
   

  	
  Boston,
  Massachusetts 02116

  

 

 12
 

 

	
  

  	
   

  	
  Attention:

  	
  John Black

  	
   

  
	
   

  	
   

  	
  Michael Phillips

  
	
   

  	
   

  	
  Fax: (617)
  262-1505

  
	
   

  	
   

  	
   

  
	
  with a copy to:

  	
   

  	
  H.I.G. Capital, L.L.C.

  
	
   

  	
   

  	
  1001 Brickell
  Bay Drive, 27th Floor

  
	
   

  	
   

  	
  Miami, Florida
  33131

  
	
   

  	
   

  	
  Attention:
  Richard H. Siegel, Esq.

  
	
   

  	
   

  	
  Fax: (305)
  500-3198

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  and

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Greenberg
  Traurig, LLP

  
	
   

  	
   

  	
  77 West Wacker
  Drive

  
	
   

  	
   

  	
  Chicago,
  Illinois 60601

  
	
   

  	
   

  	
  Attention: Paul
  Quinn

  
	
   

  	
   

  	
  Fax: (312)
  899-0333

  
	
   

  	
   

  	
   

  
	
  if to Mr. Willis
  to:

  	
   

  	
  1400 Post Oak Blvd.,
  Suite 200

  
	
   

  	
   

  	
  Houston, Texas
  77056

  
	
   

  	
   

  	
  Attention:
  Michael T. Willis

  
	
   

  	
   

  	
  Tel: (713)
  961-7310

  

 

or
such address or telecopy number as such party may hereafter specify for the
purpose by notice to the other parties hereto. 
Each such notice, request or other communication shall be effective (i)
when delivered personally, (ii) upon receipt of confirmation if telegraphed, or
telecopied, or, (iii) if mailed, five business days after the date of the
mailing.

Section
8.2             Amendments; No Waivers.

(a)           Any provision of this Agreement may
be amended or waived if, and only if, such amendment or waiver has been
approved pursuant to Section 2.1 above and is in writing and signed, in the
case of an amendment, by each of DelStaff, Mr. Willis (if the amendment is to
Articles II or IV) and the Company, or in the case of a waiver, by the party
against whom the waiver is to be effective.

(b)           No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege.  The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies
provided by law.

Section 8.3             Further Assurance.  Each of the parties hereto shall use its
reasonable best efforts to effectuate the transactions contemplated hereby as
promptly as is reasonably practicable. 
Each party hereto, at the reasonable request of another party hereto,
shall execute and deliver, or cause to be delivered, such further certificates,
instruments and other documents, 

 13
 

 

and
to take, or cause to be taken, such further actions as may be necessary or
desirable for effecting the consummation of this Agreement and the transactions
contemplated hereby.

 

Section 8.4             Successors and Assigns.  This Agreement shall not be assignable by
operation of Law or otherwise. Subject to the preceding sentence, the
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns.

Section 8.5             Entire Agreement.  This Agreement (including any exhibits
hereto) constitutes the entire agreement, and supersede all other prior
agreements, understandings, representations and warranties, both written and
oral, among the parties, with respect to the subject matter hereof.

Section 8.6             No Third Party Beneficiaries.  Except as provided in Section 5.2, this
Agreement is not intended to confer upon any Person other than the parties
hereto any legal or equitable rights or remedies hereunder.

Section 8.7             Termination and Survival.  This Agreement shall terminate at the end of
the Term.

(a)           In the event of termination of this
Agreement, this Agreement (other than this Article VIII and Article III, which
shall survive such termination (but only to the extent specified in Section
8.7(b) below in the case of Article III) shall become void and of no effect
with no liability on the part of any party hereto (or of any of its directors,
officers, employees, agents, legal and financial advisors or other
representatives); provided, however, no such
termination shall relieve any party hereto of any liability or damages
resulting from any breach of any of its representations, warranties, covenants
or agreements set forth in this Agreement.

(b)           Article III shall survive the
termination of this Agreement and shall continue until one (1) year after the
termination of this Agreement.

Section 8.8             Governing Law; Jurisdiction.  This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the conflicts of law rules of such state. 
Any suit, action or proceeding seeking to enforce any provision of, or
based on any matter arising out of or in connection with, this Agreement and
any related agreement or the transactions contemplated hereby or thereby shall
be brought exclusively in any federal or state court located in the State of
Delaware, and each of the parties hereby consents to the jurisdiction of such
courts (and of the appropriate appellate courts therefrom) in any such suit,
action or proceeding and irrevocably waives, to the fullest extent permitted by
law, any objection that it may now or hereafter have to the laying of the venue
of any such suit, action or proceeding in any such court or that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient form.  Process in any such
suit, action or proceeding may be served on any party anywhere in the world,
whether within or without the jurisdiction of any such court.  Without limiting the foregoing, each party
agrees that service of process on such party pursuant to Section 8.1 shall be
deemed effective service of process on such party.

 14
 

 

Section 8.9             WAIVER OF JURY TRIAL.  EACH
OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR ANY RELATED AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.

Section 8.10           Counterparts; Effectiveness.  This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.  This Agreement shall become effective when
each party hereto shall have received counterparts thereof signed by the other
party hereto.

Section 8.11           Specific Performance.  Each party to this Agreement acknowledges and
agrees that the parties’ respective remedies at law for a breach or threatened
breach of any of the provisions of this Agreement would be inadequate and, in
recognition of that fact, agrees that, in the event of a breach or threatened
breach of the provisions of this Agreement, in addition to any remedies at law,
each party, respectively, without posting any bond, shall be entitled to obtain
equitable relief in the form of specific performance, a temporary restraining
order, a temporary or permanent injunction or any other equitable remedy which
may then be available.

Section 8.12           Severability.  If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, provided that, the parties hereto shall negotiate in good
faith to attempt to place the parties in the same position as they would have
been in had such provision not been held to be invalid, void or unenforceable.

 15

 

IN WITNESS WHEREOF, the parties
hereto have caused this Agreement to be executed as of the date first referred
to above.

	
  WESTAFF, INC.

  	
   

  	
  DELSTAFF, LLC

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  By:

  	
  /s/ Ronald D. Stevens

  	
   

  	
   

  	
  By:

  	
  /s/ Michael Phillips

  	
   

  
	
  Name: Ronald D. Stevens

  	
   

  	
  Name: Michael Phillips

  	 

	
  Title: Director

  	
   

  	
  Title: Manager

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  For the purposes of Articles II
  and IV only:

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  MICHAEL WILLIS

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  /s/ Michael Willis

  	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  For the purposes of Section 5.3
  only:

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  W. ROBERT STOVER

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  /s/ W. Robert Stover

  	
   

  	
   

  	
   

  	
   

  	 

												

 16
 

 

EXHIBIT A

Release

 

 17

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00122-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00122-of-00352.parquet"}]]