10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Annual report pursuant to section 13 or 15(d) of the Securities

Exchange Act of 1934 for the fiscal year ended December 31, 2003.

Commission file number 1-9583

MBIA INC.

(Exact name of registrant as specified in its charter)

Connecticut	06-1185706
(State of Incorporation)	(I.R.S. Employer Identification No.)
113 King Street, Armonk, New York	10504
(Address of principal executive offices)	(Zip Code)

(914) 273-4545

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $1 per share	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    x        No    ¨.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (SS 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

Indicate by check mark whether the Registrant is an accelerated filer (as specified in Rule 12 b-2 of the Act).    Yes    x        No    ¨.

The aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 30, 2003 was $7,016,183,753.

As of March 8, 2004, 144,380,591 shares of Common Stock, par value $1 per share, were outstanding.

Documents incorporated by reference. Portions of the Definitive Proxy Statement of the Registrant, which will be filed on or before April 30, 2004, are incorporated by reference into Parts I and III.

PART I

Item 1. Business

MBIA Inc. (the “Company”) was incorporated as a business corporation under the laws of the state of Connecticut in 1986. The Company is engaged in providing financial guarantee insurance, investment management services and municipal and other services to public finance and structured finance clients on a global basis. Financial guarantee insurance provides an unconditional and irrevocable guarantee of the payment of the principal of, and interest or other amounts owing on, insured obligations when due. The Company conducts its financial guarantee business through its wholly-owned subsidiary, MBIA Insurance Corporation (“MBIA Corp.”). MBIA Corp. is the successor to the business of the Municipal Bond Insurance Association (the “Association”) which began writing financial guarantees for municipal bonds in 1974. MBIA Corp. is the parent of MBIA Insurance Corp. of Illinois (“MBIA Illinois”) and Capital Markets Assurance Corporation (“CapMAC”), both financial guarantee companies that were acquired by MBIA Corp. MBIA Corp. also owns MBIA Assurance S.A. (“MBIA Assurance), a French insurance company, which writes financial guarantee insurance in the member countries of the European Union. Generally, throughout the text, references to MBIA Corp. include the activities of its subsidiaries, MBIA Illinois, MBIA Assurance and CapMAC.

MBIA Corp. primarily insures financial obligations which are sold in the new issue and secondary markets. It also provides financial guarantees for debt service reserve funds. As a result of the Triple-A ratings assigned to insured obligations, the principal economic value of financial guarantee insurance is the lower interest cost of an insured obligation relative to the same obligation on an uninsured basis. In addition, for complex financings and for obligations of issuers that are not well-known by investors, insured obligations receive greater market acceptance than uninsured obligations.

MBIA Corp. issues financial guarantees for municipal bonds, asset-backed and mortgage-backed securities, investor-owned utility bonds, bonds backed by publicly or privately funded public purpose projects, bonds issued by sovereign and sub-sovereign entities and obligations collateralized by diverse pools of corporate loans and credit default swaps, and also pools of corporate and asset-backed bonds, both in the new issue and secondary markets. The municipal obligations that MBIA Corp. insures include tax-exempt and taxable indebtedness of states, counties, cities, utility districts and other political subdivisions, as well as airports, higher education and health care facilities and similar authorities and obligations issued by private entities that finance projects that serve a substantial public purpose. The asset-backed and structured finance obligations insured by MBIA Corp. typically consist of securities that are payable from or which are tied to the performance of a specified pool of assets that in most cases have a defined cash flow, such as residential and commercial mortgages, a variety of consumer loans, corporate loans and bonds, trade and export receivables, equipment and real property leases, and infrastructure projects.

MBIA Corp. also insures privately issued bonds used for the financing of public purpose projects which are primarily located overseas and include toll roads, bridges, airports, public transportation facilities and other types of infrastructure projects that serve a substantial public purpose. While in the United States projects of this nature are financed through the issuance of tax-exempt bonds by special purpose, government sponsored tax-exempt entities, the general absence of tax-advantaged financing, among other reasons, has led to the transfer of the operation of many such public purpose projects to the private sector. Generally, the private entities operate under a concession agreement with the sponsoring government agency, which maintains a level of regulatory oversight and control over the project.

MBIA Corp. has Triple-A financial strength ratings from Standard and Poor’s Corporation (“S&P”), which the Association received in 1974; from Moody’s Investors Service, Inc. (“Moody’s”), which the Association received in 1984; from Fitch, Inc. (“Fitch”), which MBIA Corp. received in 1995; and from Rating and Investment Information, Inc. (“RII”), which it received in 1998. Obligations which are guaranteed by MBIA Corp. are rated Triple-A primarily based on these financial strength ratings of MBIA Corp. Both S&P and Moody’s have also continued the Triple-A rating on MBIA Assurance, MBIA Illinois and CapMAC guaranteed bond issues. The Triple-A ratings are important to the operation of the Company’s business and any reduction in these ratings could have a material adverse effect on MBIA Corp.’s ability to compete and could also have a material adverse effect on the business, operations and financial results of the Company.

The Company also provides investment management products and financial services through its wholly owned subsidiary MBIA Asset Management LLC (“MBIA Asset Management”). MBIA Asset Management offers cash management, customized asset management and investment consulting services to local governments, school districts and other institutional clients. It offers fixed-income asset management services for the investment portfolios of the Company, MBIA Corp. and other affiliates and also for third-party clients, and it owns 1838 Investment Advisors, LLC (“1838”), an investment advisor to equity mutual funds and third-party clients. MBIA Asset Management raises funds for investment management through the issuance of investment agreements, which are issued by the Company and guaranteed by MBIA Corp., to states and municipalities and as part of asset-backed or structured securities for the investment of bond proceeds and other funds. It also raises funds through the

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issuance of medium-term notes (“MTNs”) which are issued by its affiliate MBIA Global Funding, LLC (“GFL”) and guaranteed by MBIA Corp. MBIA Asset Management invests the proceeds of the investment agreements and MTNs in high quality eligible investments both in the United States and abroad. MBIA Asset Management offers these services and products through MBIA Municipal Investors Service Corporation (“MBIA-MISC”), MBIA Investment Management Corp. (“IMC”), MBIA Capital Management Corp. (“CMC”), GFL and Euro Asset Acquisition Limited (“EAAL”).

MBIA Asset Management also administers three multi-seller conduit financing vehicles, Triple-A One Funding Corp., Meridian Funding Company, LLC and Polaris Funding Company, LLC (together, the “Conduits”) through MBIA Asset Finance, LLC. The Conduits provide funding for multiple customers through special purpose vehicles that issue primarily commercial paper and medium-term notes.

MBIA MuniServices Company (“MuniServices”) provides revenue enhancement services and products, such as discovery, audit, collections/recovery, enforcement and information services, to state and local governments. The Company also owns Capital Asset Holdings GP, Inc. and certain affiliated entities (collectively, “Capital Asset”). Capital Asset was in the business of acquiring and servicing tax liens. The Company has subsequently exited the tax lien business and Capital Asset’s primary activity is servicing three tax lien securitizations insured by MBIA Corp.

Statements included in this Form 10-K which are not historical or current facts are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “believe,” “anticipate,” “project,” “plan,” “expect,” “intend,” “will likely result,” or “will continue,” and similar expressions identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of their respective dates. The following are some of the factors that could cause actual results to differ materially from estimates contained in or underlying the Company’s forward-looking statements: (1) fluctuations in the economic, credit, interest rate or foreign currency environment in the United States or abroad; (2) level of activity within the national and international credit markets; (3) competitive conditions and pricing levels; (4) legislative or regulatory developments; (5) technological developments; (6) changes in tax laws; (7) the effects of mergers, acquisitions and divestitures; and (8) uncertainties that have not been identified at this time. The Company undertakes no obligation to publicly correct or update any forward-looking statement if it later becomes aware that such result is not likely to be achieved.

MBIA Corp. Insured Portfolio

At December 31, 2003, the net par amount outstanding on MBIA Corp.’s insured obligations (including insured obligations of MBIA Illinois, MBIA Assurance and CapMAC, but excluding $9.6 billion of MBIA insured investment agreements and MTNs for MBIA Asset Management) was $541.0 billion. Net insurance in force, which includes all insured debt service, at December 31, 2003 was $835.8 billion.

Because MBIA Corp. generally guarantees to the holder of the underlying obligation the timely payment of amounts due on such obligation in accordance with its original payment schedule, in the case of a default on an insured obligation, payments under the insurance policy cannot be accelerated unless MBIA Corp. consents to the acceleration. Otherwise, MBIA Corp. is required to pay principal, interest or other amounts only as originally scheduled payments come due. However, MBIA Corp. may from time to time insure obligations under credit default swaps which by their terms require that termination payments be paid at the time of the default of the underlying reference obligation(s). Termination payments are generally calculated by deducting the market value of the reference obligation on the termination date from the specified amount of the reference obligation. The Company estimates that the liquidity needs arising from future termination payments are modest due to MBIA Corp.’s strategy of insuring such obligations with high levels of subordination and credit enhancement.

MBIA Corp. seeks to maintain a diversified insured portfolio and has designed the insured portfolio to manage and diversify risk based on a variety of criteria including revenue source, issue size, type of asset, industry concentrations, type of bond and geographic area. As of December 31, 2003, MBIA Corp. had 31,002 policies outstanding (excluding 757 policies relating to MBIA Asset Management transactions guaranteed by MBIA Corp.). These policies are diversified among 10,791 “credits,” which MBIA Corp. defines as any group of issues supported by the same revenue source.

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The table below sets forth information with respect to the original par amount insured per issue in MBIA Corp.’s portfolio as of December 31, 2003:

MBIA Corp. Original Par Amount Per Issue as of December 31, 2003 (1)

Original Par Amount Written Per Issue	Number of Issues Outstanding	% of Total Number of Issues Outstanding		Net Par Amount Outstanding		% of Net Par Amount Outstanding
				(In billions)
Less than $10 million	21,822	70.4	%	$	49.9	9.2	%
$10-25 million	3,734	12.0			48.7	9.0
$25-50 million	2,287	7.4			61.1	11.3
$50-100 million	1,496	4.8			73.9	13.7
Greater than $100 million	1,663	5.4			307.4	56.8
Total	31,002	100.0	%	$	541.0	100.0	%

(1) Excludes $9.6 billion relating to investment agreements and MTNs issued by affiliates of MBIA Asset Management and guaranteed by MBIA Corp.

MBIA Corp. underwrites its policies on the assumption that the insurance will remain in force until maturity of the insured obligations. MBIA Corp. estimates that the average life (as opposed to the stated maturity) of its insurance policies in force at December 31, 2003 was 10.5 years. The average life was determined by applying a weighted-average calculation, using the remaining years to maturity of each insured obligation and weighting them on the basis of the remaining debt service insured. No assumptions were made for any future refundings of insured issues. Average annual insured debt service on the portfolio at December 31, 2003 was $67.1 billion.

MBIA Corp. writes financial guarantees for municipal issuers in the United States. Municipal bonds consist of both taxable and tax-exempt bonds and notes that are issued by states, cities, political subdivisions, utility districts, airports, health care institutions, higher educational facilities, housing authorities and other similar agencies, as well as private entities that issue obligations to fund projects that serve a substantial public purpose. These types of obligations are supported by taxes, assessments, fees or tariffs related to use of projects, lease payment or other similar types of revenue streams. MBIA Corp. also guarantees structured finance and asset-backed obligations. In general, structured finance obligations are secured by or payable from a specific pool of assets having an ascertainable future cash flow. MBIA Corp. also insures payments due under credit and other derivatives, including termination payments that may become due upon the occurrence of certain events.

MBIA Corp. also insures privately issued bonds used for the financing of public purpose projects, which are primarily located overseas and that include toll roads, bridges, airports, public transportation facilities and other types of infrastructure projects serving a substantial public purpose. While in the United States, projects of this nature are invariably financed through the issuance of tax-exempt bonds by special purpose, government sponsored tax-exempt entities, the general absence of tax-advantaged financing, among other reasons, has led to the transfer of the operation of many such public purpose projects to the private sector. Generally, the private entities operate under a concession agreement with the sponsoring government agency, which maintains a level of regulatory oversight and control over the project.

Structured finance obligations are either “pass-through” obligations, which represent undivided interests in the related assets, or “pay-through” obligations which generally are debt obligations collateralized by the related assets. Generally, structured finance obligations have the benefit of one or more forms of credit enhancement to cover credit risks such as over-collateralization, subordination, excess cash flow or first loss protection. Structured finance obligations contain certain risks including asset risk, which relates to the amount and quality of asset coverage, structural risk, which relates to the extent to which the transaction structure protects the interests of the investors from the bankruptcy of the originator of the underlying assets or the issuer of the securities, and servicer risk, which relates to problems with the transaction servicer (the entity which is responsible for collecting the cash flow from the asset pool) that could affect the servicing of the underlying assets. In general, the asset risk is addressed by sizing the asset pool and its associated protection level based on the historical and expected future performance of the assets. Structural risks primarily involve bankruptcy risks, such as whether the sale of the assets by the originator to the issuer would be upheld in the event of the bankruptcy or insolvency of the originator and whether the servicer of the assets may be required to delay the remittance of any cash collections held by it or received by it after the time it becomes subject to bankruptcy or insolvency proceedings. Structured finance transactions are usually structured to insulate the investors from the bankruptcy or insolvency of the entity that originated the underlying assets, as well as from the bankruptcy or insolvency of the servicer and to minimize the likelihood of the bankruptcy or insolvency of the issuer of the obligation. The ability of the servicer to properly service and collect on the underlying assets is also a factor in determining future asset performance. MBIA Corp. addresses these

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issues through its underwriting guidelines and its due diligence process and its formal credit review and approval process.

Outside of the United States, sovereign and sub-sovereign issuers, structured finance issuers, utilities and other issuers, including private issuers who are financing projects with a substantial public purpose, are increasingly using financial guarantee insurance to guarantee their public finance and structured finance obligations. Ongoing privatization efforts have shifted the burden of financing new projects from the government to the capital markets, where investors can benefit from the security of financial guarantee insurance. There is also growing interest in asset-backed securitization. While the principles of securitization have been increasingly applied in overseas markets, the rate of development in particular countries has varied due to the sophistication of the local capital markets and the impact of financial regulatory requirements, accounting standards and legal systems. It is expected that securitization will continue to expand internationally, at varying rates in each country. MBIA Corp. insures both structured finance and public finance obligations in selected international markets. MBIA Corp. believes that the risk profile of the international business it insures is generally the same as in the United States, but recognizes that there are particular risks related to each country and region. These risks include the legal, economic and political situation, the varying levels of sophistication of the local capital markets and currency exchange risks. MBIA Corp. evaluates and monitors these risks carefully.

The table below shows the diversification of MBIA Corp.’s insured portfolio by bond type:

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MBIA Corp. Insured Portfolio by Bond Type

as of December 31, 2003 (1)

(In billions)

Bond Type

Global Public Finance United States	Net Par Amount Outstanding		% of Net Par Amount Outstanding
General Obligation	$	126.3	23.4	%
Utilities		57.7	10.7
Special Revenue		44.9	8.3
Health Care		34.0	6.3
Transportation		27.7	5.1
Higher Education		17.9	3.3
Housing		15.5	2.9
Investor-Owned Utilities		13.1	2.4
Total United States		337.1	62.4
Non-United States
Sovereign		7.7	1.4
Transportation		6.8	1.3
Utilities		3.6	0.7
Investor-Owned Utilities		2.9	0.5
Sub-Sovereign		1.1	0.2
Health Care		0.4	0.1
Housing		0.3	—
Total Non-United States		22.8	4.2
Total Global Public Finance		359.9	66.6
Global Structured Finance
United States
Corporate Debt Obligations		37.6	6.9
Asset-Backed:
Auto		14.0	2.6
Credit Cards		9.0	1.7
Other		5.5	1.0
Leasing		1.0	0.2
Mortgage-Backed:
Home Equity		13.5	2.5
Other		9.4	1.7
First Mortgage		3.6	0.6
Pooled Corp. Obligations & Other		17.3	3.2
Financial Risk		2.0	0.4
Total United States		112.9	20.8
Non-United States
Corporate Debt Obligations		39.6	7.3
Mortgage-Backed:
First Mortgage		8.3	1.5
Other		6.4	1.2
Home Equity		0.5	0.1
Pooled Corp. Obligations & Other		7.6	1.4
Asset-Backed:
Other		3.7	0.7
Leasing		0.7	0.1
Auto		0.4	0.1
Financial Risk		1.0	0.2
Total Non-United States		68.2	12.6
Total Global Structured Finance		181.1	33.4
Total	$	541.0	100.0	%

(1) Excludes $9.6 billion relating to investment agreements and MTNs issued by affiliates of MBIA Asset Management and guaranteed by MBIA Corp.

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As of December 31, 2003, of the $541.0 billion outstanding net par amount of obligations insured, $359.9 billion, or 67%, were insured in the global public finance market and $181.1 billion, or 33%, were insured in the global structured finance market.

The table below shows the diversification by type of insurance written by MBIA Corp. in each of the last five years:

MBIA Corp. Net Par Amount Written by Bond Type (1)

(In millions)

Bond Type	1999		2000		2001		2002		2003
Global Public Finance
United States
General Obligation	$	9,981	$	9,829	$	15,848	$	23,533	$	25,802
Utilities		2,440		2,747		6,350		8,101		14,058
Special Revenue		4,627		5,746		5,567		7,307		8,057
Transportation		709		2,637		1,098		3,930		3,877
Housing		1,872		1,294		2,723		2,318		2,807
Health Care		3,529		1,276		1,244		1,655		1,928
Higher Education		1,434		1,645		2,110		2,026		1,272
Investor Owned Utilities		1,340		2,523		1,652		172		—
Total United States		25,932		27,697		36,592		49,042		57,801
Total Non-United States		692		1,437		2,923		3,280		8,938
Total Global Public Finance		26,624		29,134		39,515		52,322		66,739
Global Structured Finance
United States
Asset Backed:
Auto		5,872		10,400		14,443		7,279		6,264
Credit Cards		1,844		9,100		8,418		1,787		1,010
Other		2,149		1,576		1,958		1,132		874
Leasing		1,726		1,408		2,307		448		853
Corporate Debt Obligations		1,462		5,287		10,492		18,476		5,000
Mortgage Backed:
Home Equity		10,191		4,656		7,206		5,367		2,901
Other		10,098		1,893		2,234		1,429		1,218
First Mortgage		5,205		2,171		2,561		1,049		771
Pooled Corp. Obligations & Other		1,717		2,306		3,282		4,109		4,573
Financial Risk		1,409		1,905		149		1,256		212
Total United States		41,673		40,702		53,050		42,332		23,676
Total Non-United States		5,061		15,424		11,114		17,982		18,385
Total Global Structured Finance		46,734		56,126		64,164		60,314		42,061
Total	$	73,358	$	85,260	$	103,679	$	112,636	$	108,800

(1) Par amount insured by year, net of reinsurance.

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MBIA Corp. is licensed to write business in all 50 states, the District of Columbia, Guam, the Northern Mariana Islands, the U.S. Virgin Islands, Puerto Rico, the Kingdom of Spain, the Republic of Singapore and the Republic of France. MBIA Assurance is licensed to write business in France and in member countries of the European Union. The Company is in the process of establishing a subsidiary in the United Kingdom, which will be licensed to write business in member countries of the European Union. The following table sets forth the geographic distribution of MBIA Corp.’s net par outstanding including the ten largest states:

MBIA Corp. Insured Portfolio Outstanding by State

As of December 31, 2003 (1)

	Net Par Amount Outstanding		% of Net Par Amount Outstanding
	(In billions)
United States
California	$	58.7	10.9	%
New York		39.2	7.2
Florida		23.5	4.3
Texas		17.7	3.3
New Jersey		16.2	3.0
Illinois		15.8	2.9
Massachusetts		13.9	2.6
Pennsylvania		13.6	2.5
Washington		10.1	1.9
Michigan		9.7	1.8
Sub-Total		218.4	40.4
Other States & Territories		119.4	22.0
Nationally Diversified		112.2	20.8
Total United States		450.0	83.2
Non-United States
Regional Specific		38.5	7.1
Internationally Diversified		45.5	8.4
Other		7.0	1.3
Total International		91.0	16.8
Total	$	541.0	100.0	%

(1) Excludes $9.6 billion relating to investment agreements and MTNs issued by affiliates of MBIA Asset Management and guaranteed by MBIA Corp.

MBIA Corp. underwriting guidelines limit the net insurance in force for any one insured credit. In addition, MBIA Corp. is subject to both rating agency and regulatory single-risk limits with respect to any insured bond issue. As of December 31, 2003, MBIA Corp.’s net par amount outstanding for its ten largest insured public finance credits totaled $23.6 billion, representing 4.4% of MBIA Corp.’s total net par amount outstanding, and the net par outstanding for its ten largest structured finance credits (without aggregating common issuers), was $21.5 billion, representing 4.0% of the total.

MBIA Corp. Insurance Programs

MBIA Corp. offers financial guarantee insurance in both the new issue and secondary markets on a global basis. At present, no new financial guarantee insurance is being offered by MBIA Illinois or CapMAC, but it is possible that either of those entities may insure transactions in the future. MBIA Corp. and MBIA Assurance offer financial guarantee insurance in Europe, Asia, Latin America and other areas outside the United States.

Transactions in the new issue market are sold either through negotiated offerings or competitive bidding. In negotiated transactions, either the issuer or the underwriter purchases the insurance policy directly from MBIA Corp. For municipal bond issues involving competitive bidding, the insurance is offered as an option to the underwriters bidding on the transaction. The successful bidder would then have the option to purchase the insurance.

In the secondary market, MBIA provides credit enhancement through two programs. The “RAPSS” program (Rapid Asset Protection for Secondary Securities) guarantees the payment of principal and interest on an individual security or class of securities traded in the secondary market in response to requests from bond traders and investors. Securities insured in the RAPSS program have the benefit of MBIA Corp.’s guarantee until maturity. The “Portfolio Insurance” program

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enables an investor to insure a specific portfolio of bonds and is offered as an ongoing program with investment banks, financial service companies and conduit sponsors. For each insured portfolio, MBIA Corp. establishes specific underwriting criteria for the inclusion of new assets in the program portfolio. The Portfolio Insurance program is a “while-in-trust” program which provides the benefits of an MBIA Corp. guarantee to securities only during the time they are held in a particular insured portfolio, although in some cases, MBIA Corp. may offer insurance to maturity for an additional premium.

Operations

The worldwide insurance operations of MBIA Corp. are conducted through the Global Public Finance Division, the Global Structured Finance Division, the Risk Management Division and the Insured Portfolio Management Division. Public Finance and Structured Finance operations outside of the United States are conducted in coordination with the International Division.

The Global Public Finance Division has underwriting authority with respect to certain categories of business up to pre-determined par amounts based on a risk-ranking system. In order to ensure that the guidelines are followed, Risk Management monitors and periodically reviews underwriting decisions made by the Global Public Finance Division and also participates in many transactions depending on the risk ranking. With respect to larger, complex, or unique transactions, underwriting is performed by a division-level committee consisting of senior representatives of Global Public Finance, the Risk Management Division, the Insured Portfolio Management Division, the Company’s Finance Division and the Legal Division. Select public finance transactions may alternatively be approved at MBIA Corp.’s most senior level, the Executive Risk Committee (“ERC”), which consists of the Chief Executive Officer, the Chief Operating Officer, the Chief Risk Officer, the Chief Financial Officer and the heads of the Public Finance, Structured Finance and International new business divisions and the Insured Portfolio Management Division and the head credit officer in Public and Structured Finance.

For all transactions done by the Global Structured Finance Division, MBIA Corp.’s review and approval procedure has two stages. The first stage consists of screening, credit review and structuring by the appropriate business unit, in consultation with Risk Management officers. The second stage, consisting of the final review and approval of credit and structure, is performed by an underwriting committee consisting of the head of the applicable business unit, one officer from Risk Management and a third officer from either the Risk Management Division or the Insured Portfolio Management Division. Certain transactions, based on size, complexity, or other factors, must also be approved by a division-level committee consisting of senior representatives drawn from Global Structured Finance, the Risk Management Division, the Insured Portfolio Management Division, the Legal Division and the Company’s Finance Division. As in Public Finance, select structured finance transactions are approved by the Executive Risk Committee.

Premium rates for the both the Global Public and Global Structured Finance Divisions are established by a Pricing Committee with representation from the relevant business unit and from the Business Analysis Group, which provides pricing and other analysis.

Risk Management

MBIA Corp.’s risk culture and policies are set by the Executive Risk Committee, which includes the members of senior management listed above. The ERC periodically approves and reviews, at least annually, the Risk Management systems and processes for measuring and managing credit, market and liquidity risks. The ERC also appoints qualified voters at MBIA Corp.’s various committees focused on credit risk, market risk, liquidity exposure and portfolio management. The chairperson of the ERC is also the head of MBIA Corp.’s Risk Management Division, which is responsible for developing and implementing MBIA Corp.’s underwriting guidelines, policies and procedures to ensure an overall diversified insured portfolio with low risk characteristics.

MBIA Corp. establishes underwriting guidelines based on those aspects of credit quality that it deems important for each category of obligation considered for insurance. For public finance transactions, these aspects may include economic and social trends, debt management, financial management, adequacy of anticipated cash flow, satisfactory legal structure and other security provisions, viable tax and economic bases, adequacy of loss coverage and project feasibility, including a satisfactory consulting engineer’s report, if applicable. For structured finance transactions, MBIA Corp.’s underwriting guidelines, analysis and due diligence focus on seller/servicer credit and operational quality, the historical and projected performance of the asset pool, and the strength of the structure, including legal segregation of the assets, cash flow analysis, the size and source of first loss protection, asset performance triggers and financial covenants. Transactions involving a non-U.S. issuer, non-U.S. assets, non-U.S. sources of cash flow or which are not denominated in U.S. dollars also include an assessment of country risk. Most transactions also undergo extensive cash flow analysis and sensitivity testing using scenario-based analysis, “Monte Carlo” probability analysis or both to examine the impact of remote events on credit performance. MBIA Corp.’s underwriting guidelines are subject to periodic review by its Executive and Divisional Risk Committees, which are responsible for establishing and maintaining underwriting

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standards and criteria for all insurance products.

In addition to the risk underwriting officers, the Risk Management Group has several other units. The Credit Analysis Group analyzes and monitors MBIA Corp.’s embedded exposure to financial institutions and corporate entities in the form of seller/servicer exposure or as obligors or counterparties on investment contracts, letters of credit, swaps, liquidity and other facilities supporting MBIA Corp. insured issues, and recommends terms and conditions, as well as capacity guidelines for such exposures. The Portfolio Management Group analyzes MBIA Corp.’s insured portfolio using various quantitative tools to test for diversity, credit quality, liquidity and other portfolio characteristics and recommends guidelines for risk concentrations and for internal capital requirements. Recommendations for internal capital requirements are based on a portfolio model that measures risk-adjusted capital by transaction, by sector and for the aggregate portfolio. The Portfolio Management Group also monitors all insured exposure for obligor, country, seller/servicer and other concentrations to minimize the impact of any single risk and to ensure compliance with the applicable regulatory and internal guidelines. The Quantitative Analysis Group uses various quantitative tools to test and measure stress resistance on transactions and the Market Risk Group measures and assesses market risk factors in the investment management business and any exposure to market risk factors within the insurance business (such as structured credit derivative contracts).

Insured Portfolio Management

The Insured Portfolio Management Division (“IPM” or the “IPM Division”) is responsible for monitoring MBIA Corp.’s outstanding insured obligations. This group’s first function is to detect any deterioration in credit quality or changes in the economic or political environment which could adversely affect an MBIA Corp. insured issue, including interrupting the timely payment of debt service. If a problem is detected, the group works with the issuer, trustee, bond counsel, servicer, underwriter and other interested parties in an attempt to alleviate or remedy the problem in order to minimize potential defaults. The IPM Division works closely with Risk Management and the applicable public or structured finance business unit to analyze insured issue performance and credit risk parameters.

Once an obligation is insured, MBIA Corp. typically requires the issuer and the trustee to furnish periodic financial and asset related information, including audited financial statements, to the IPM Division for review. Potential problems uncovered through this review, such as poor financial results, low fund balances, covenant or trigger violations, trustee or servicer problems, or excessive litigation, could result in an immediate surveillance review and an evaluation of possible remedial actions. The IPM Division also monitors general economic conditions, state and municipal finances and budget developments and evaluates their impact on issuers.

During the underwriting process, each insured transaction is assigned an internal credit rating. Credits are monitored according to a frequency of review schedule that is based on risk type, internal rating, performance and credit quality. Issues that experience financial difficulties, deteriorating economic conditions, excessive litigation or covenant or trigger violations are placed on the appropriate review list and are subject to surveillance reviews at intervals commensurate to the problem which has been detected. If IPM identifies concerns with respect to the performance of an insured issue it may designate such insured issue as “Caution List-Low,” “Caution List-Medium” or “Caution List-High.” The designation of any insured issue as “Caution List-Medium” or “Caution List-High” is based on the nature and extent of these concerns and requires that an increased monitoring and, if needed, a remediation plan be implemented for the related insured issue. The Company does not establish any case basis reserves for credits that are listed as “Caution List-Low”, “Caution List-Medium” or “Caution List-High”. See “Losses and Reserves; Remediation” below.

There are two areas in the IPM Division. Each group is responsible for processing waiver and consent requests and other deal modifications within their areas of responsibility. The IPM group which supports the Global Public Finance Division handles all types of domestic and international municipal issues such as general obligation, utility and special revenue bonds, as well as project finance transactions. The IPM group which supports the Global Structured Finance Division is responsible for domestic and international structured finance transactions, including future flow transactions and collateralized debt obligations.

IPM personnel supporting the Global Public Finance Division review and report on the major credit quality factors, evaluate the impact of new developments on weaker insured credits and carry out remedial activity. In addition, this group performs analysis of financial statements and key operating data on a large-scale basis and maintains various databases for research purposes. This group is also responsible for preparing special reports which include analyses of regional economic trends, proposed tax limitations, the impact of employment trends on local economies or legal developments affecting bond security. This unit is also responsible for all health care transactions.

The IPM unit within the Global Structured Finance Division monitors insured structured finance issues, focusing on asset and servicer performance and transaction cash flows. Monitoring of insured issues typically involves review of monthly trustee, servicer and portfolio manager statements, compliance reviews with transaction documents and analysis of cash flow

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adequacy. Review of issuer and/or servicer performance can include site visits, forensic audits, management meetings and financial statement reviews. For problem credits, the team performs additional specialized cash flow analyses, conducts best practice reviews with servicers and facilitates loss mitigation strategies.

Investment Management Services

The Company also provides the following investment management products and financial services through its wholly owned subsidiary MBIA Asset Management LLC (“MBIA Asset Management”).

MBIA Asset Management offers cash management, customized asset management and investment consulting services to local governments, school districts and other institutional clients through MBIA-MISC, a Securities and Exchange Commission (“SEC”)-registered investment adviser which operates in 20 states and the Commonwealth of Puerto Rico. Certain of the pooled investment programs managed or administered by MBIA-MISC have the benefit of commitments by the Company to cover losses incurred by these investment programs as a result of a decline in program asset values below a predetermined level. MBIA-MISC had $11.2 billion in assets under management at December 31, 2003, up 10.8% from $10.1 billion at December 31, 2002.

MBIA Asset Management offers fixed-income asset management services for the investment portfolios of the Company, MBIA Corp. and other affiliates and also for third-party clients through CMC, an SEC-registered investment adviser and National Association of Securities Dealers member firm. The market value of assets related to the Company’s insurance and corporate investment portfolios managed by CMC were $9.8 billion at December 31, 2003, up 12% from $8.7 billion at December 31, 2002. In addition, CMC provides investment management services for third parties. The market value of CMC’s third-party assets under management at December 31, 2003 was $3.1 billion, compared with $2.6 billion at December 31, 2002.

MBIA Asset Management also manages equity, fixed-income and balanced portfolios for a client base comprised of municipalities, endowments, foundations, corporate employment benefit plans and high net worth individuals through 1838, an investment advisor with assets under management at December 31, 2003 of $3.7 billion, a decline of 31% from $5.4 billion at December 31, 2002.

MBIA Asset Management raises funds for investment management through guaranteed investment agreements, which are issued by the Company and guaranteed by MBIA Corp. and which are offered to states and municipalities and as part of asset-backed or structured securities for the investment of bond proceeds and other funds. MBIA Asset Management also raises funds through its affiliate GFL. GFL raises funds for management through the issuance of MTNs with varying maturities (“GFL MTNs”), which are in turn guaranteed by MBIA Corp. GFL lends the proceeds of these GFL MTN issuances to the Company (“GFL Loans”). Under an agreement between the Company and MBIA Corp., the Company invests the proceeds of the GFL Loans in eligible investments.

At December 31, 2003, principal and accrued interest outstanding on investment agreement and MTN obligations originated by MBIA Asset Management totaled $9.3 billion, compared with $7.8 billion at December 31, 2002. Assets supporting these programs had market values of $9.4 billion and $8.1 billion at December 31, 2003 and December 31, 2002, respectively. These assets are comprised of high-quality securities with an average credit quality rating of Double-A and are pledged to MBIA Corp. in support of its guarantees. MBIA Asset Management manages the programs within a number of risk and liquidity parameters monitored by the rating agencies, and maintains backup liquidity in order to ensure sufficient funds to make all payments due on the investment agreement and MTN obligations and to fund operating expenses. In addition, the Company has made a capital investment in these programs, which is available at any time to fund cash needs. In the event that the value of the assets is insufficient to repay the investment agreement and MTN obligations when due, the Company may incur a loss.

The Company manages its balance sheet to protect against a number of risks inherent in its business including liquidity risk, market risk (principally interest rate risk), credit risk, operational risk and legal risk. (See “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Market Risk” in Part II, Item 7) The assets supporting the MBIA Asset Management programs are managed with the goal of matching the duration of the invested assets, including hedges, to the duration of the investment agreement and MTN obligations in order to minimize market and liquidity risk.

MBIA Asset Management uses derivative financial instruments to manage interest rate risk and foreign currency risk. Credit default swaps are entered into as an extension of the group’s investment business. Forward delivery agreements are offered and periodically sold to clients. The Company has established policies limiting the amount, type and concentration of such instruments. A source of liquidity risk arises from the ability of some investment agreement counterparties to withdraw moneys on dates other than those specified in the related draw-down schedule. This liquidity risk is somewhat mitigated by provisions in certain of the investment agreements that limit an issuer’s ability to draw on the funds and by risk management procedures that require the regular re-evaluation and re-projection of draw down schedules. Investments are restricted to fixed-income securities

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with a credit quality such that the overall minimum average portfolio credit quality is maintained at Double-A. Based upon management’s projections, MBIA Asset Management maintains funds invested in cash and cash equivalents sufficient to meet its projected short-term liquidity needs.

Conduits

On September 30, 2003, the Company purchased the equity and acquired all controlling interests of the conduit financing vehicles it administers, Triple-A One Funding Corp., Meridian Funding Company, LLC and Polaris Funding Company, LLC (together, the “Conduits”). The Conduits, which issue primarily commercial paper and MTNs, are now reflected in the consolidated financial statements of the Company. (See “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Investment Management Services” in Part II, Item 7).

The Conduits are used by banks and other financial institutions to raise funds for their customers in the capital markets. The Conduits provide funding for multiple customers through special purpose vehicles that issue primarily commercial paper and MTNs. The proceeds from the issuance of the commercial paper or MTNs are used to either make loans to customers which are secured by certain assets or to purchase the assets from the customers. All transactions insured in the Conduits are subject to MBIA Corp.’s standard underwriting process and are rated at least investment grade by a rating agency before they can be purchased into a Conduit.

It is the Company’s policy to obtain a shadow rating from both Moody’s and S&P for each new transaction prior to the execution of such transactions within the Conduits. A shadow rating is the implied rating for the transaction without giving consideration to the MBIA Corp. guarantee. All transactions currently funded in the Conduits were shadow-rated at least investment grade by Moody’s and S&P prior to funding. The weighted average shadow ratings for transactions currently funded in the Conduits were “A” by S&P and “A2” by Moody’s at the time such transactions were funded in the Conduits. The Company estimates that the current weighted average shadow ratings of all outstanding Conduit transactions were “A-” by S&P and “A3” by Moody’s as of December 31, 2003.

As a result of having to adhere to MBIA Corp.’s underwriting standards and criteria, Conduit transactions have, in general, the same underlying shadow ratings that similar non-Conduit transactions guaranteed by MBIA Corp. have at the time they are closed. Like all credits underwritten by MBIA Corp., the shadow ratings on Conduit transactions may be downgraded by either one or both rating agencies after they are closed. In general, the underlying shadow ratings on Conduit transactions have been downgraded no more frequently than similar non-Conduit transactions guaranteed by MBIA Corp.

The Conduits enter into derivative instruments primarily as an economic hedge against interest rate and currency risks. It is expected that any change in the market value of the derivative instruments will be offset by a change in the market value of the hedged assets or liabilities. However, because the investments are accounted for as held-to-maturity, no change in market value, with the exception of the change in value of foreign currency assets due to changes in foreign currency rates, is recorded in the Company’s financial statements. Any change in the market value of derivative instruments that are not accounted for as hedges under SFAS 133 will be recorded as unrealized gains or losses in the Company’s consolidated income statement.

The consolidation of the Conduits has not impacted the Company’s liquidity requirements, because Triple-A One Funding Corp. has independently entered into liquidity agreements with third-party providers and because the assets and liabilities of Meridian and Polaris are structured on a match-funded basis. In addition, the Company does not expect the consolidation to affect any of MBIA Corp.’s financial strength ratings or statutory capital requirements. (See “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Investment Management Services” in Part II, Item 7).

At December 31, 2003, there were $6.9 billion of assets in the Conduits and $6.7 billion of liabilities issued through the Conduits.

Municipal Services

MBIA MuniServices Company (“MBIA MuniServices”) delivers revenue enhancement services and products to public-sector clients nationwide, consisting of discovery, audit, collections/recovery, enforcement and information (data) services. The municipal services operations also includes Capital Asset Holdings GP, Inc. and certain affiliated entities (“Capital Asset”), a servicer of delinquent tax certificates.

MBIA MuniServices owns Capital Asset, which is in the business of acquiring and servicing tax liens. The Company became a majority owner of Capital Asset in December 1998. MBIA MuniServices became 100% owner of Capital Asset in December 2003. During the first two quarters of 1999, the Company attempted to sell its interest in Capital Asset. At the end of the second quarter of 1999, the Company ceased these efforts and decided to limit the activities of Capital Asset primarily to the

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servicing of the portfolios then being serviced by Capital Asset. In the second quarter of 1999, the Company completed an internal evaluation of Capital Asset’s tax lien portfolio, as a result of which the Company determined that it was necessary to write down its investment in Capital Asset by $102 million. In the third quarter of 1999, Capital Asset engaged a specialty servicer of residential mortgages to help manage its business and operations and to assist in administering the tax lien portfolios serviced by Capital Asset and supporting the securitizations insured by MBIA Corp.

In the third quarter of 1999, Capital Asset also completed the refinancing of substantially all of its remaining tax liens. These liens were originally financed through a commercial paper warehouse facility that matured at the end of the third quarter of 1999, which was guaranteed by the Company. The refinancing was accomplished through a securitization transaction in which the tax liens were sold to a qualifying special purpose vehicle which in turn issued notes partially secured by those liens. The proceeds of the securitization were used primarily to extinguish the warehouse facility. This was Capital Asset’s third securitization of tax liens, and MBIA Corp. has insured all of the notes issued by these securitizations. These securitizations were structured through the sale by Capital Asset of substantially all of its tax liens to off-balance sheet qualifying special purpose vehicles that were established in connection with these securitizations. These vehicles are not included in the consolidation of the MBIA group. The first transaction, done in 1997, has a revolving bank line of credit, guaranteed by MBIA Corp., to purchase subsequent liens against already encumbered real estate if necessary to protect previous securitized lien positions. This first transaction had an original gross par insured of $285.4 million and an available credit line of $70.0 million. As of year-end 2003, gross par outstanding was $23.9 million in bonds and $16.7 million in borrowings against a reduced credit line of $30 million. The second transaction, done in 1998, also has a revolving bank line of credit, guaranteed by MBIA Corp., for the same purpose. This transaction had an original gross insured par of $175.6 million and an available credit line of $50.0 million. As of year-end 2003, the gross par outstanding was $18.7 million in bonds and $5.5 million in borrowings against a reduced credit line of $20 million. The final transaction, done in 1999, had an original gross par of $196.0 million outstanding, which has been reduced to $118 million as of year-end 2003, $5.6 million of which is included in long-term debt on the Company’s balance sheet. To date MBIA Corp. has established case reserves related to these policies based on the amount of redemptive balances of those tax liens underlying such policies that Capital Asset has decided to write-off for a variety of reasons. MBIA Corp. will continue to evaluate the performance of the tax lien portfolio and establish reserves as and when necessary based on the same methodology. Because it is difficult to estimate the ultimate collectibility of tax liens, there can be no assurance that the case reserves established to date will be sufficient to cover future losses or claims under the policies.

In 2003, Capital Asset finalized the settlement of a class action lawsuit that principally involved the rate of interest that Capital Asset could legally charge on tax and water and sewer liens in Pittsburgh. As part of the settlement, Capital Asset refunded $8.9 million in interest collected with respect to the Pittsburgh liens and the special purpose entity that held the liens wrote down $17.6 million in accrued interest on the Pittsburgh liens. Capital Asset’s reserves were sufficient to cover the full amount of any refunds due. In addition, Capital Asset has other contingent liabilities, including liabilities in connection with pending litigation in which it is involved.

Competition

The financial guarantee insurance business is highly competitive. Several other monoline insurance companies compete directly against MBIA Corp. in writing financial guarantee insurance, all of which, like MBIA Corp., have Triple-A financial strength ratings from Moody’s and S&P. In addition there are several other monoline insurance companies which compete with MBIA Corp. in writing financial guarantee insurance as a primary which have lower ratings. MBIA Corp. also competes with composite (multi-line) insurers.

Financial guarantee insurance also competes with other forms of credit enhancement, including senior-subordinated structures, over-collateralization, letters of credit and guarantees (for example, mortgage guarantees where pools of mortgages secure debt service payments) provided by banks and other financial institutions, some of which are governmental agencies or have been assigned the highest credit ratings awarded by one or more of the major rating agencies. Letters of credit are most often issued for periods of less than 10 years, although there is no legal restriction on the issuance of letters of credit having longer terms. Thus, financial institutions and banks issuing letters of credit compete directly with MBIA Corp. to guarantee short-term notes and bonds with a maturity of less than 10 years. To the extent that banks providing credit enhancement may begin to issue letters of credit with commitments longer than 10 years, the competitive position of financial guarantee insurers, such as MBIA Corp., could be adversely affected. Letters of credit are also frequently used to assure the liquidity of a short-term put option for a long-term bond issue. This assurance of liquidity effectively confers on such issues, for the short term, the credit standing of the financial institution providing the facility, thereby competing with MBIA Corp. and other financial guarantee insurers in providing interest cost savings on such issues. Other highly rated institutions, including pension funds and government sponsored entities, also offer third-party credit enhancement on asset-backed and municipal obligations. Financial guarantee insurance and other forms of credit enhancement also compete in nearly all instances with the issuer’s alternative of foregoing credit enhancement and paying a higher interest rate. If the interest savings from insurance or another form of credit enhancement are not greater than the cost of such credit enhancement, the issuer will generally choose to issue bonds without third-party enhancement.

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Certain characteristics of the Triple-A rated financial guarantee insurance business act as barriers-to-entry to potential new competitors. For example, there are minimum capital requirements imposed on a financial guarantee insurance company by the rating agencies to obtain and maintain Triple-A financial strength ratings and these capital requirements may deter other companies from entering this market. However, there can be no assurance that these capital requirements will deter potential competitors from entering this market or that the market may increasingly accept guarantees provided by Double-A or lower rated insurers who have less stringent capital requirements. In addition, under New York law, multi-line insurers are prohibited from writing financial guarantee insurance in New York State. See “Item 1. Business-Regulation.” However, there can be no assurance that major multi-line insurers or other financial institutions will not participate in financial guarantee insurance in the future, either directly or through monoline subsidiaries.

Reinsurance

State insurance laws and regulations, as well as the rating agencies who rate MBIA Corp., impose minimum capital requirements on financial guarantee companies, limiting the aggregate amount of insurance and the maximum size of any single risk exposure which may be written. MBIA Corp. decreases the insured exposure in its portfolio and increases its capacity to write new business by using treaty and facultative reinsurance to reduce its gross liabilities on an aggregate and single risk basis.

MBIA Corp.’s net retention on the policies it writes varies from time to time depending on its own business needs and the capacity available in the reinsurance market. From its reorganization in December 1986 through December 1987, MBIA Corp. reinsured a portion of each policy through quota and surplus share reinsurance treaties. Each treaty provides reinsurance protection with respect to policies written by MBIA Corp. during the term of the treaty, for the full term of the policy. Under its quota share treaty, MBIA Corp. ceded a fixed percentage of each policy insured. Since 1988, MBIA Corp. has entered into primarily surplus share treaties under which a variable percentage of risk over a minimum size is ceded, subject to a maximum percentage specified in the related treaty. Reinsurance ceded under the treaties is for the full term of the underlying policy.

MBIA Corp. also enters into facultative reinsurance arrangements from time to time primarily in connection with issues which, because of their size, require additional capacity beyond MBIA Corp.’s retention and treaty limits. Under these facultative arrangements, portions of MBIA Corp.’s liabilities are ceded on an issue-by-issue basis. MBIA Corp. may also use facultative arrangements as a means of managing its exposure to single issuers or counterparties to comply with regulatory and rating agency requirements, as well as internal underwriting and portfolio management criteria.

As a primary insurer, MBIA Corp. is required to honor its obligations to its policyholders whether or not its reinsurers perform their obligations to MBIA Corp. The financial position and financial strength rating of all its reinsurers are monitored by MBIA Corp. on a regular basis. The downgrade or default of one or more of the Company’s reinsurers is not expected to have a material adverse impact on the Company’s ratings, financial condition or results of operations.

As of December 31, 2003, MBIA Corp. has retained $541 billion or 83.1% of the gross par outstanding of all transactions insured by it, MBIA Assurance, CapMAC and MBIA Illinois, and ceded approximately $110.2 billion or 16.9% to reinsurers. The amounts of exposure ceded to reinsurers at December 31, 2003 and 2002 by bond type and by geographic location are set forth in Note 21 to the Consolidated Financial Statements of MBIA Inc. and Subsidiaries. The following table shows the percentage of ceded business ceded to, and reinsurance recoverables from, reinsurers by S&P financial strength rating levels as of December 31, 2003.

Reinsurer’s     Standard & Poor’s         Rating Range	Percent of Total Par Ceded		Reinsurance Recoverable (thousands)
AAA	32.62	%	$	11,362
AA	23.33			31,126
A	30.43			14,065
BBB	0.09			318
Non-Investment Grade	0.30			—
Not Currently Rated	13.23			4,214
Total	100.0	%	$	61,085

The top two reinsurers within the Triple-A rating category represent approximately 27.11% of total par ceded by MBIA Corp.; the top two reinsurers within the Double-A rating category represent approximately 19.77% of total par ceded by MBIA Corp.; and the top two reinsurers within the Single-A rating category represent approximately 21.42% of total par ceded by MBIA

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Corp. After giving effect to the 2004 cessions to Channel Reinsurance Ltd described below, the percentage of MBIA Corp. cessions to Triple-A rated reinsurers would have been approximately 59.9% at December 31, 2003.

The principal reinsurers of MBIA Corp., MBIA Assurance, CapMAC and MBIA Illinois accounted for 77% of the total exposure reinsured by the Company as of December 31, 2003. All of the other reinsurers reinsured approximately 23% of the total ceded insurance in force at December 31, 2003 and are diversified geographically and by lines of insurance written.

The financial strength ratings of certain of MBIA Corp.’s reinsurers have been downgraded below Triple-A. While these reinsurers continue to remain on risk for potential losses on ceded insurance exposure, the value of the reinsurance to the Company is decreased due to the increased amounts of capital that MBIA Corp. is required to hold with respect to the ceded risks as a result of the reinsurers’ downgrade. Generally, MBIA Corp. has the right to terminate a reinsurance agreement when the reinsurer is downgraded below certain agreed-upon thresholds or if the capital credit received by MBIA Corp. for the reinsurance decreases below the agreed-upon thresholds and it may elect to take back ceded business so as to more effectively deploy its capital. However, in the event that MBIA Corp. elects to take back ceded business from a downgraded reinsurer, there can be no assurance that alternative reinsurance capacity will be available or that MBIA Corp. will be able to secure reinsurance on favorable terms. In the event that MBIA Corp. is unable to obtain reinsurance with a highly rated reinsurer, the amount of capital required to maintain our Triple-A rating would increase.

The Company has launched several initiatives aimed at increasing its financial flexibility and Triple-A reinsurance capacity. In 2003, the Company invested $25 million for an 11.4% ownership interest in RAM Reinsurance Company, a Triple-A rated financial guarantee reinsurer located in Bermuda. The Company’s investment, among other things, assisted RAM Reinsurance Company in maintaining its Triple-A rating.

In February 2004, the Company, together with RennaissanceRe Holdings, Ltd., Koch Financial Re, Ltd. and Partner Reinsurance Company Ltd. (“Partner Re”), formed Channel Reinsurance Ltd. (“Channel Re”), a new Bermuda-based financial guarantee reinsurance company rated Triple-A by S&P and Moody’s. The Company invested $63.7 million for a 17.4% ownership interest in Channel Re.

In February 2004, MBIA Corp. and Channel Re entered into treaty and facultative reinsurance arrangements whereby Channel Re agreed to provide committed reinsurance capacity to MBIA Corp. at least through June 30, 2008. Under these reinsurance arrangements MBIA Corp. agreed to cede to Channel Re and Channel Re agreed to assume from MBIA Corp. varying percentages of designated policies issued by MBIA Corp. The amount of any policy subject to the committed reinsurance arrangements is based on the type of risk insured and on other factors. The reinsurance arrangements provide Channel Re with certain preferential terms, including as to ceding commissions.

In February and March 2004, MBIA Corp. reassumed approximately $32.1 billion of in force business from three of MBIA Corp.’s reinsurers whose financial strength ratings had been downgraded by the rating agencies. Total exposure ceded by MBIA Corp. to these three reinsurers under various reinsurance contracts represented 6.5% of MBIA Corp.’s gross par outstanding as of December 31, 2003. MBIA Corp. subsequently ceded approximately $26.7 billion or 83% of such reassumed exposure to Channel Re. The remaining $5.4 billion or 17% of the reassumed exposure consisted of exposure which Channel Re elected not to reinsure due to portfolio and capital considerations and was retained in MBIA Corp.’s insured portfolio, including a number of issues that have experienced rating migration below investment grade or which have higher rating agency capital charge implications. In February 2004, MBIA Corp. also reassumed a portfolio of approximately $130.4 million from Partner Re and reinsured this exposure with Channel Re.

MBIA Corp. and CapMAC have entered into a Sale and Purchase of Business Undertaking Agreement with Asian Securitization & Infrastructure Assurance (Pte) Ltd (“ASIA Ltd”), a Singapore based insurer in which the Company indirectly holds approximately 11% of the outstanding common stock. Pursuant to this agreement MBIA Corp. purchased substantially all of ASIA Ltd’s assets, which consist primarily of cash resulting from the liquidation of ASIA Ltd’s investment portfolio, and assumed ASIA Ltd’s insurance obligations. MBIA Corp. assumed a portfolio of three insured exposures from ASIA Ltd with a par balance as of February 29, 2004 of $39.6 million, and CapMAC reassumed twenty exposures it previously reinsured with ASIA Ltd with an outstanding par balance as of February 29, 2004 of $331.7 million. In connection with the assumption, MBIA Corp. and CapMAC received proceeds which included reserves associated with the assumed portfolios.

In addition to the reinsurance arrangements described above, at January 1, 2003, the Company maintained $211 million of annually renewable stop-loss reinsurance coverage with three reinsurers. At the end of the third quarter, the Company elected not to renew two of the facilities with $175 million of coverage due to the rating downgrades of the stop-loss providers. In addition, at the end of 2003, MBIA Corp. elected not to renew the remaining $35.7 million of stop-loss reinsurance coverage effective January 1, 2004,

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also due to the rating downgrade of the stop loss reinsurer.

The Company also maintained two ten-year facilities with two reinsurers maturing in 2011 and 2012 for $100 million and $50 million, respectively. These facilities allowed the Company to issue subordinated securities and could be drawn upon if the Company incurred cumulative losses (net of any recoveries) above an annually adjusted attachment point, which was $1.76 billion for 2003. However, the $50 million facility was not renewed in the fourth quarter due to a rating downgrade of the related provider, with the $100 million facility remaining in effect as of December 31, 2003.

MBIA Corp. and MBIA Assurance have entered into a reinsurance agreement providing for MBIA Corp.’s reimbursement of the losses incurred by MBIA Assurance in excess of a specified threshold and a net worth maintenance agreement in which MBIA Corp. agrees to maintain the net worth of MBIA Assurance, to remain its sole shareholder and not to pledge its shares. Under the reinsurance agreement, MBIA Corp. has agreed to reimburse MBIA Assurance on an excess-of-loss basis for losses incurred in each calendar year for net retained insurance liability, subject to certain contract limitations. Under the net worth maintenance agreement, MBIA Corp. agrees to maintain a minimum capital and surplus position in accordance with French and New York State legal requirements.

MBIA Corp. and MBIA Illinois have entered into a reinsurance agreement under which MBIA Corp. reinsured 100% of all business written by MBIA Illinois, net of cessions by MBIA Illinois to third-party reinsurers, in exchange for MBIA Illinois’ transfer of the assets underlying the related unearned premium and contingency reserves. Pursuant to such reinsurance agreement, MBIA Corp. reinsured all of the then-current net exposure of $30.9 billion, or approximately 68% of the gross debt service outstanding, of the municipal bond insurance portfolio of MBIA Illinois, the remaining 32% having been previously ceded to treaty and facultative reinsurers of MBIA Illinois. In 1990, 10% of this portfolio was ceded back to MBIA Illinois to comply with regulatory requirements. Effective January 1, 1999, MBIA Corp. and MBIA Illinois entered into a replacement reinsurance agreement whereby MBIA Corp. agreed to accept as reinsurance from MBIA Illinois 100% of the net liabilities and other obligations of MBIA Illinois, for losses paid on or after that date, thereby eliminating the 10% retrocession arrangement previously in place.

MBIA Corp. and CapMAC have entered into a reinsurance agreement, effective April 1, 1998, under which MBIA Corp. has agreed to reinsure 100% of the net liability and other obligations of CapMAC in exchange for CapMAC’s payment of a premium equal to the ceded reserves and contingency reserves. Pursuant to such reinsurance agreement with CapMAC, MBIA Corp. reinsured all CapMAC’s then-current net exposure of $31.6 billion, or approximately 78% of CapMAC’s gross debt service then outstanding, the remaining 22% having been previously ceded to treaty and facultative reinsurers of CapMAC.

Investments and Investment Policy

The Finance Committee of the Board of Directors of the Company approves the Company’s general investment objectives and policies and also reviews more specific investment guidelines. CMC manages all of MBIA Corp.’s consolidated investment portfolios and substantially all of the Company’s investment portfolios.

To continue to provide strong capital resources and claims-paying capabilities for its insurance operations, the investment objectives and policies for insurance operations set quality and preservation of capital as the primary objective, subject to an appropriate degree of liquidity. Maximization of after-tax investment income and investment returns is an important but secondary objective. The insurance operations assets are managed by CMC subject to an agreement between CMC and MBIA Corp. and its subsidiaries.

Investment objectives, policies and guidelines related to MBIA Asset Management’s investment agreement and other businesses are also subject to review and approval by the Finance Committee of the Board of Directors and the Executive Market Risk Committee, which includes various members of senior management. The primary investment objectives are to preserve capital, to achieve an investment duration that closely approximates the expected duration of related liabilities, and to maintain appropriate liquidity.

The Company’s consolidated investment portfolio as shown on its balance sheet at December 31, 2003 was $27.7 billion, of which $8.4 billion represented conduit investments. The information and tables contained below relate to the Company’s consolidated investment portfolio, excluding conduit investments (the “Investment Portfolio”).

For the year ended December 31, 2003, approximately 50% of the Company’s net income was derived from after-tax earnings on its investment portfolio (excluding the amounts on investment agreement assets that are recorded as a component of investment management services revenues). The following table sets forth investment income and related data for the years ended December 31, 2001, 2002 and 2003.

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Investment Income of the Company (1)

	2001		2002		2003
	(In thousands)
Investment income before expenses (2)	$	427,262	$	450,780	$	479,832
Investment expenses		7,600		8,405		33,136
Net investment income before income taxes		419,662		442,375		446,696
Net realized gains		8,896		15,424		80,668
Total investment income before income taxes	$	428,558	$	457,799	$	527,364
Total investment income after income taxes	$	343,788	$	369,617	$	406,102

(l) Excludes investment income from investment management services and municipal services operations.

(2) Includes taxable and tax-exempt interest income.

The tables below set forth the composition of the Company’s investment portfolios. The weighted average yields in the tables reflect the nominal yield on market value as of December 31, 2003, 2002 and 2001.

Investment Portfolio by Security Type

as of December 31, 2003

					Investment
	Insurance				Management Services
			Weighted				Weighted
	Fair Value		Average		Fair Value		Average
Investment Category	(in thousands)		Yield (1)		(in thousands)		Yield (1)
Fixed-income investments:
Long-term bonds:
Taxable bonds:
U.S. Treasury & Agency obligations	$	220,695	4.14	%	$	847,400	4.19	%
GNMAs		69,583	3.42			40,324	4.04
Other mortgage & asset-backed securities		1,050,775	4.14			3,047,620	2.97
Corporate obligations		2,043,220	4.41			3,224,035	4.75
Foreign obligations (2)		468,151	4.40			1,306,161	4.46
Total		3,852,424	4.30			8,465,540	4.01
Tax-exempt bonds:
State & municipal		4,771,740	3.55			—	—
Total long-term investments		8,624,164	3.89			8,465,540	4.01
Short-term investments (3)		975,836	2.32			897,642	1.32
Total fixed-income investments		9,600,000	3.73	%		9,363,181	3.75	%
Other investments (4)		357,346	—			—	—
Total investments	$	9,957,346	—		$	9,363,181	—

(1) Prospective market yields as of December 31, 2003. Yield on tax-exempt bonds is presented on a taxable bond equivalent basis using a 35% federal income tax rate.

(2) Consists of U.S. denominated and other foreign government and corporate securities.

(3) Taxable and tax-exempt investments, including bonds with a remaining maturity of less than one year.

(4) Consists of equity investments and other fixed-income investments; yield information not meaningful.

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Investment Portfolio by Security Type

as of December 31, 2002

					Investment
	Insurance				Management Services
			Weighted				Weighted
	Fair Value		Average		Fair Value		Average
Investment Category	(in thousands)		Yield (1)		(in thousands)		Yield (1)
Fixed-income investments:
Long-term bonds:
Taxable bonds:
U.S. Treasury & Agency obligations	$	135,370	2.75	%	$	999,808	3.48	%
GNMAs		145,844	3.82			144,930	1.25
Other mortgage & asset-backed securities		1,143,237	4.81			2,519,805	1.59
Corporate obligations		1,629,510	5.30			2,787,354	4.27
Foreign obligations (2)		307,548	5.10			608,800	4.11
Total		3,361,510	4.95			7,060,697	3.59
Tax-exempt bonds:
State & municipal		4,732,140	4.27			—	—
Total long-term investments		8,093,650	4.55			7,060,697	3.59
Short-term investments (3)		687,238	3.36			1,040,772	1.94
Total fixed-income investments		8,780,888	4.46	%		8,101,469	3.38	%
Other investments (4)		212,673	—			—	—
Total investments	$	8,993,561	—		$	8,101,469	—

(1) Prospective market yields as of December 31, 2002. Yield on tax-exempt bonds is presented on a taxable bond equivalent basis using a 35% federal income tax rate.

(4) Consists of U.S. denominated and other foreign government and corporate securities.

(5) Taxable and tax-exempt investments, including bonds with a remaining maturity of less than one year.

(4) Consists of equity investments and other fixed-income investments; yield information not meaningful.

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Investment Portfolio by Security Type

as of December 31, 2001

					Investment
	Insurance				Management Services
			Weighted				Weighted
	Fair Value		Average		Fair Value		Average
Investment Category	(in thousands)		Yield (1)		(in thousands)		Yield (1)
Fixed-income investments:
Long-term bonds:
Taxable bonds:
U.S. Treasury & Agency obligations	$	859,450	3.85	%	$	813,146	4.69	%
GNMAs		116,119	6.24			191,115	3.54
Other mortgage & asset-backed securities		423,942	5.50			2,580,908	3.12
Corporate obligations		1,430,425	5.96			2,106,481	5.17
Foreign obligations (2)		260,132	5.27			561,463	6.02
Total		3,090,068	5.26			6,253,113	4.67
Tax-exempt bonds:
State & municipal		4,330,956	4.98			—	—
Total long-term investments		7,421,023	5.10			6,253,113	4.67
Short-term investments (3)		293,791	5.36			412,868	2.61
Total fixed-income investments		7,714,814	5.11	%		6,665,981	4.54	%
Other investments (4)		135,376	—			—	—
Total investments	$	7,850,190	—		$	6,665,981	—

(1) Prospective market yields as of December 31, 2001. Yield on tax-exempt bonds is presented on a taxable bond equivalent basis using a 35% federal income tax rate.

(2) Consists of U.S. denominated foreign government and corporate securities.

(3) Taxable and tax-exempt investments, including bonds with a remaining maturity of less than one year.

(4) Consists of equity investments and other fixed-income investments; yield information not meaningful.

The duration of the insurance fixed-income portfolio as of December 31, 2003 was 5.3 years. In 2003, the Company decided to reposition the portfolio duration in order to preserve economic capital. The impact of shortening the investment portfolio duration was a reduction in 2003 after-tax net investment income. (See “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Investment Income” in Part II, Item 7). The average maturity of the insurance fixed-income portfolio, excluding short-term investments, as of December 31, 2003 was 8.36 years.

The table below sets forth the distribution by contractual maturity of the Company’s consolidated fixed-income investments:

Fixed-Income Investments by Maturity

as of December 31, 2003

					Investment
	Insurance				Management Services
	Fair Value		% of Total		Fair Value		% of Total
	(In thousands)		Fixed-Income		(In thousands)		Fixed-Income
	Maturity		Investments		Investments
Within 1 year	$	893,047	10.2	%	$	897,642	9.6	%
Beyond 1 year but within 5 years		1,616,597	24.2			2,915,497	31.1
Beyond 5 years but within 10 years		1,681,063	23.4			2,134,859	22.8
Beyond 10 years but within 15 years		2,516,820	20.8			938,962	10.0
Beyond 15 years but within 20 years		977,882	8.1			554,444	5.9
Beyond 20 years		1,914,591	13.3			1,921,777	20.6
Total fixed-income investments	$	9,600,000	100.0	%	$	9,363,181	100.0	%

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The credit quality distribution of the Company’s fixed-income investments, which is based on ratings from Moody’s is presented in the following table:

Fixed-Income Investments by Credit Quality Rating

as of December 31, 2003 (1)

					Investment
	Insurance				Management Services
	Fair Value		% of Total		Fair Value		% of Total
	(In thousands)		Fixed-Income		(In thousands)		Fixed-Income
Credit Quality Rating			Investments		Investments
Aaa(2)	$	5,574,613	62.2	%	$	1,643,160	17.6	%
Aa		1,884,272	21.0			1,230,561	13.1
A		1,443,046	16.1			6,270,359	67.0
Baa		60,981	0.7			219,101	2.3
	$	8,962,912	100.0	%	$	9,363,181	100.0	%

(1) Excludes short-term investments with an original maturity of less than one year, but includes bonds having a remaining maturity of less than one year.

(2) Includes investments that have been insured by MBIA Corp., which represent approximately 22% of the total portfolio.

The Company’s Investment Portfolio includes investments that are insured by MBIA Corp. (“MBIA Insured Investments”). As of December 31, 2003, the Investment Portfolio was approximately $19.3 billion, of which approximately $4.3 billion, or 22%, consisted of MBIA Insured Investments. Without giving effect to the MBIA Corp. guarantee of the MBIA Insured Investments in the Investment Portfolio, as of December 31, 2003, based on the actual or estimated underlying ratings (i) the weighted average rating of the Investment Portfolio would be in the Double-A range, (ii) the average weighted rating of just the MBIA Insured Investments in the Investment Portfolio would be in the Single-A range and (iii) approximately 1.6% of the Investment Portfolio would be rated below investment grade. See “Investment Management Services—Conduits.” for additional disclosure on Conduit investment credit ratings.

Regulation

MBIA Corp. is licensed to do insurance business in, and is subject to insurance regulation and supervision by, the State of New York (its state of incorporation), the 49 other states, the District of Columbia, Guam, the Northern Mariana Islands, the U.S. Virgin Islands, Puerto Rico, the Kingdom of Spain, the Republic of Singapore and the Republic of France. MBIA Assurance is licensed to do insurance business in France and is subject to regulation under the corporation and insurance laws of the Republic of France. MBIA Assurance has used the provisions of the Third Non-life Insurance Directive to operate in the United Kingdom both on a services and branch basis and is, to a limited extent, subject to supervision by the United Kingdom’s Financial Services Authority. The extent of state insurance regulation and supervision varies by jurisdiction, but New York, Illinois and most other jurisdictions have laws and regulations prescribing minimum standards of solvency, including minimum capital requirements, and business conduct which must be maintained by insurance companies. These laws prescribe permitted classes and concentrations of investments. In addition, some state laws and regulations require the approval or filing of policy forms and rates. MBIA Corp. is required to file detailed annual financial statements with the New York Insurance Department and similar supervisory agencies in each of the other jurisdictions in which it is licensed. The operations and accounts of MBIA Corp. are subject to examination by these regulatory agencies at regular intervals.

MBIA Corp. is licensed to provide financial guarantee insurance under Article 69 of the New York Insurance Law. Article 69 defines financial guarantee insurance to include any guarantee under which loss is payable upon proof of occurrence of financial loss to an insured as a result of certain events. These events include the failure of any obligor on or any issuer of any debt instrument or other monetary obligation to pay principal, interest, premium, dividend or purchase price of or on such instrument or obligation when due. Under Article 69, MBIA Corp. is licensed to transact financial guarantee insurance, surety insurance and credit insurance and such other kinds of business to the extent necessarily or properly incidental to the kinds of insurance which MBIA Corp. is authorized to transact. In addition, MBIA Corp. is empowered to assume or reinsure the kinds of insurance described above.

As a financial guarantee insurer, MBIA Corp. is required by the laws of New York, California, Connecticut, Florida, Illinois, Iowa, Maryland, New Jersey and Wisconsin to maintain contingency reserves on its municipal bond, asset-backed securities and other financial guarantee liabilities. Under New Jersey, Illinois and Wisconsin regulations, contributions by such an insurer to its contingency reserves are required to equal 50% of earned premiums on its municipal bond business. Under New York law, such an insurer is required to contribute to contingency reserves 50% of premiums as they are earned on policies written prior to July 1, 1989 (net of reinsurance), and, with respect to policies written on and after July 1, 1989, must make

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contributions over a period of 15 or 20 years (based on issue type), or until the contingency reserve for such insured issues equals the greater of 50% of premiums written for the relevant category of insurance or a percentage of the principal guaranteed, varying from 0.55% to 2.5%, depending upon the type of obligation guaranteed (net of reinsurance, refunding, refinancings and certain insured securities). California, Connecticut, Florida, Iowa and Maryland laws impose a generally similar requirement. In each of these states, MBIA Corp. may apply for release of portions of the contingency reserves in certain circumstances.

The laws and regulations of these states also limit both the aggregate and individual securities risks that MBIA Corp. may insure on a net basis based on the type of obligations insured. California, Connecticut, Florida, Illinois, Maryland and New York, among other things, limit insured average annual debt service on insured municipal bonds with respect to a single entity and backed by a single revenue source (net of qualifying collateral and reinsurance) to 10% of policyholders’ surplus and contingency reserves. California, Connecticut, Florida, Illinois, Maryland and New York also limit the net insured unpaid principal on a municipal bond issued by a single entity and backed by a single revenue source to 75% of policyholders’ surplus and contingency reserves. California, Connecticut, Maryland and New York, among other things, require that the lesser of the insured average debt service and the insured unpaid principal (reduced by the extent to which unpaid principal of the supporting assets exceeds the insured unpaid principal), divided by nine, on each issue of asset-backed securities issued by a single entity shall not exceed 10% of policyholders’ surplus and contingency reserves, while Florida limits insured unpaid principal for any one risk to 10% of policyholders’ surplus and contingency reserves. In New Jersey, Virginia and Wisconsin, the average annual debt service on any single issue of municipal bonds (net of reinsurance) is limited to 10% of policyholders’ surplus. Other states that do not explicitly regulate financial guarantee or municipal bond insurance do impose single risk limits which are similar in effect to the foregoing.

Under New York, California, Connecticut, Florida, Illinois, Maryland, New Jersey and Wisconsin law, aggregate insured unpaid principal and interest under policies insuring municipal bonds (in the case of New York, California, Connecticut, Florida, Illinois and Maryland, net of reinsurance) are limited to certain multiples of policyholders’ surplus and contingency reserves. New York, California, Connecticut, Florida, Illinois, Maryland and other states impose a 300:1 limit for insured municipal bonds, although more restrictive limits on bonds of other types do exist. For example, New York, California, Connecticut, Florida and Maryland impose a 100:1 limit for certain types of non-municipal bonds. Under New York, California, Connecticut, Florida, Maryland and New Jersey law, aggregate insured unpaid principal and interest under policies insuring asset-backed securities (again, in the case of New York, California, Connecticut, Florida and Maryland, net of reinsurance) are limited to certain multiples of policyholders’ surplus and contingency reserves. New York, Maryland, California, Connecticut, and other states impose a 150:1 limit for insured investment grade asset-backed securities, although more restrictive limits on asset-backed securities of other types exist. For example, New York, California, Connecticut, Florida and Maryland impose a 50:1 limit for non-investment grade asset-backed securities.

The Company, MBIA Corp., MBIA Illinois, and CapMAC also are subject to regulation under insurance holding company statutes of New York, Illinois and other jurisdictions in which MBIA Corp., MBIA Illinois, and CapMAC are licensed to write insurance. The requirements of holding company statutes vary from jurisdiction to jurisdiction but generally require insurance holding companies, such as the Company, and their insurance subsidiaries, to register and file certain reports describing, among other information, their capital structure, ownership and financial condition. The holding company statutes also generally require prior approval of changes in control, of certain dividends and other inter-corporate transfers of assets, and of certain transactions between insurance companies, their parents and affiliates. The holding company statutes impose standards on certain transactions with related companies, which include, among other requirements, that all transactions be fair and reasonable and those transactions not in the ordinary course of business exceeding specified limits receive prior regulatory approval.

Prior approval by the New York Insurance Department is required for any entity seeking to acquire “control” of the Company, MBIA Corp., or CapMAC. Prior approval by the Illinois Department of Insurance is required for any entity seeking to acquire “control” of the Company, MBIA Corp., MBIA Illinois, or CapMAC. In many states, including New York and Illinois, “control” is presumed to exist if 10% or more of the voting securities of the insurer are owned or controlled by an entity, although the supervisory agency may find that “control” in fact does or does not exist when an entity owns or controls either a lesser or greater amount of securities.

The laws of New York regulate the payment of dividends by MBIA Corp. and provide that a New York domestic stock property/casualty insurance company (such as MBIA Corp.) may not declare or distribute dividends except out of statutory earned surplus. New York law provides that the sum of (i) the amount of dividends declared or distributed during the preceding 12-month period and (ii) the dividend to be declared may not exceed the lesser of (a) 10% of policyholders’ surplus, as shown by the most recent statutory financial statement on file with the New York Insurance Department, or (b) 100% of adjusted net investment income for such 12-month period (the net investment income for such 12-month period plus the excess, if any, of net investment income over dividends declared or distributed during the two-year period preceding such 12-month period), unless the New York Superintendent of Insurance approves a greater dividend distribution based upon a finding that the insurer will retain sufficient surplus to support its obligations and writings. See Note 16 to the Consolidated Financial Statements of MBIA Inc. and Subsidiaries.

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The foregoing dividend limitations are determined in accordance with Statutory Accounting Practices (“SAP”), which generally produce statutory earnings in amounts less than earnings computed in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Similarly, policyholders’ surplus, computed on a SAP basis, will normally be less than net worth computed on a GAAP basis. See Note 9 to the Consolidated Financial Statements of MBIA Inc. and Subsidiaries.

MBIA Corp., MBIA Illinois, and CapMAC are exempt from assessments by the insurance guarantee funds in the majority of the states in which they do business. Guarantee fund laws in most states require insurers transacting business in the state to participate in guarantee associations, which pay claims of policyholders and third-party claimants against impaired or insolvent insurance companies doing business in the state. In most states, insurers licensed to write only municipal bond insurance, financial guarantee insurance and other forms of surety insurance are exempt from assessment by these funds and their policyholders are prohibited from making claims on these funds.

Losses and Reserves; Remediation

The Company establishes both loss and loss adjustment expense reserves to cover non-specific unallocated losses on its insured portfolio and specific case basis reserves with respect to actual and potential losses under specific insurance policies. The unallocated loss and loss adjustment expense reserve (“ULR”) and specific case basis reserves are established by the Company’s Loss Reserve Committee.

Under the method employed by the Company since 2002, unallocated loss reserves are adjusted on a quarterly basis by a formula that applies a “loss factor” (determined as set forth below) to the Company’s scheduled earned premiums for such quarter. Annually, the Loss Reserve Committee determines the appropriate loss factor for the following year based on (i) a loss reserving study that assesses the mix of MBIA Corp.’s insured portfolio and the latest industry data, including historical default and recovery experience, for the relevant sectors of the fixed-income market, (ii) rating agency studies of defaults and (iii) other relevant market factors.

When a case basis reserve is established, the Company reclassifies the required amount from its unallocated loss reserve to its case basis loss reserve. Therefore, although the Company accrues an unallocated loss reserve by applying a loss factor to scheduled earned premium, the available unallocated loss reserve will be directly impacted by case basis reserves established in the same period. At the end of each quarter, the Company evaluates the adequacy of the remaining unallocated loss reserve.

MBIA Corp. establishes new case basis reserves with respect to an insurance policy when the Loss Reserve Committee determines that (i) a claim has been made or is likely to be made in the future with respect to such policy and (ii) the amount of the ultimate loss that MBIA Corp. will incur under such policy can be reasonably estimated. The amount of the case basis reserve with respect to any policy is based on the net present value of the expected ultimate losses and loss adjustment expense payments that MBIA Corp. expects to pay with respect to such policy, net of expected recoveries under salvage and subrogation rights. The amount of the expected loss is discounted based on a discount rate equal to the actual yield of the Company’s fixed-income portfolio at the end of the preceding fiscal quarter. A number of variables are taken into account in establishing specific case basis reserves for individual policies that depend primarily on the nature of the underlying insured obligation. These variables include the nature and credit worthiness of the underlying issuer of the insured obligations, whether the obligation is secured or unsecured and the expected recovery rates on the insured obligations, the projected cash flow or market value of any assets that support the insured obligation and the historical and projected loss rates on such assets. Factors that may affect the actual ultimate realized losses for any line of business include the state of the economy, changes in interest rates, rates of inflation and the salvage values of specific collateral. MBIA believes that reasonably likely changes in any of these factors are not likely to have a material impact on its recorded level of reserves, financial results or financial position, or liquidity.

The IPM Division is responsible for monitoring MBIA Corp. insured issues. The level and frequency of MBIA Corp.’s monitoring of any insured issue depends on the type, size, rating and performance of the insured issue. If IPM identifies concerns with respect to the performance of an insured issue it may designate such insured issue as “Caution List-Low,” “Caution List-Medium” or “Caution List-High.” The designation of any insured issue as “Caution List-Medium” or “Caution List-High” is based on the nature and extent of these concerns and requires that an increased monitoring and, if needed, a remediation plan be implemented for the related insured issue.

In the event MBIA Corp. determines that it expects to pay a claim with respect to an insured issue, it places the issue on its “Classified List” and establishes a case basis reserve for that policy. A case basis reserve includes the present value of any claims MBIA Corp. expects to pay in the future less the present value of any salvage it expects to recover in respect of such insured issue, net of applicable reinsurance. As of December 31, 2003, MBIA had 48 issues on the Classified List that had $201 million in aggregate case reserves. Of the 48 policies on the Classified List, 17 policies, with an aggregate outstanding net insured

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par of approximately $831 million at December 31, 2003, had case basis reserves for expected future claims totaling $278 million and 21 policies with an aggregate outstanding net insured par of approximately $1.8 billion at December 31, 2003 had negative case basis reserves for which no further claims are expected but that for which the Company expects to receive future salvage and recoveries totaling $77 million. The Company does not expect to incur losses, net of salvage and recoveries, on the remaining 10 issues, which had an aggregate outstanding net insured par of approximately $359 million at December 31, 2003. The Company has not established any case basis reserves for credits that are listed as “Caution List-Low”, “Caution List-Medium” or “Caution List-High”.

At December 31, 2003, of the $278 million in total case basis reserves for future claims, five issues, a health care facility in Pennsylvania and four tax lien transactions, comprised $250 million. The remaining case basis reserves represent various housing financings and structured finance transactions, the largest of which is $10.2 million.

Both MBIA Illinois and CapMAC currently do not write new business. MBIA Corp. has reinsured their respective net liabilities on financial guarantee insurance business and maintains required reserves in connection therewith.

The reserves for losses and loss adjustment expenses are based on estimates, and there can be no assurance that the ultimate liability will not exceed such estimates. To the extent that actual case losses for any period are less than the unallocated portion of the total loss reserve, there will be no impact on the Company’s earnings for that period other than an addition to the reserve which results from applying the formula discussed above or except if the Loss Reserve Committee decides to make a one-time adjustment to the remaining ULR. To the extent that case losses for any period exceed the ULR, the excess will be charged against the Company’s earnings for that period.

In an effort to mitigate losses, IPM is regularly involved in the ongoing remediation of credits that may involve, among other things, waivers or renegotiations of financial covenants or triggers, waivers of contractual provisions, the granting of consents, and the taking of various other remedial actions. The nature of any remedial action is based on the type of the insured issue and the nature and scope of the event giving rise to the remediation. In most cases, as part of any such remedial activity, MBIA Corp. is able to improve its security position and to obtain concessions from the issuer of the insured bonds. Since it commenced operations, MBIA Corp. has restructured only three insured bond issues, with an aggregate insured par amount of $352 million, two of which involved the extension of the term of the insured bonds by three and eight years. In no case was the principal amount of the insured bond issue increased or decreased or the interest rate reduced. The restructuring of an insured issue will generally not affect the amount of MBIA Corp.’s case basis reserves established for the restructured issue, if any, except if as a result of such restructuring MBIA Corp.’s estimate of the amount of its ultimate loss for such policy changes. MBIA Corp. has a case basis reserve with respect to one of the insured issues that it has restructured.

To date, MBIA Corp. has had 58 insured issues requiring claim payments. There are currently four additional insured issues for which case loss reserves have been established for expected future claims but for which claims have not yet been paid. The Company’s experience is that early detection and continued involvement by IPM are crucial in avoiding or minimizing potential draws on the related insurance policy. There can be no assurance, however, that there will be no material losses in the future in respect of any issues guaranteed by MBIA Corp., MBIA Illinois, MBIA Assurance or CapMAC.

SAP Ratios

The financial statements in this Form 10-K are prepared on the basis of GAAP. For reporting to state regulatory authorities, SAP is used. See Note 9 to the Consolidated Financial Statements of MBIA Inc. and Subsidiaries.

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The SAP combined ratio is a traditional measure of underwriting profitability for insurance companies. The SAP loss ratio (which is losses incurred divided by premiums earned), SAP expense ratio (which is underwriting expenses divided by net premiums written) and SAP combined ratio (which is the sum of the loss and expense ratios) for MBIA Corp. are shown in the table below:

	Years Ended December 31,
	1999		2000		2001		2002		2003
MBIA Corp.
Loss ratio	12.3	%	6.2	%	9.3	%	9.4	%	9.2	%
Expense ratio	23.6		22.1		13.4		16.8		12.8
Combined ratio	35.9		28.3		22.7		26.2		22.0

The SAP loss ratio differs from the GAAP loss ratio because the GAAP ratio recognizes a provision for unidentified losses. The SAP expense ratio varies from the GAAP expense ratio because the GAAP ratio recognizes the deferral of policy acquisition costs. In addition, the SAP expense ratio is calculated using premiums written while the GAAP expense ratio uses premiums earned.

Net insurance in force, qualified statutory capital (which is comprised of policyholders’ surplus and the contingency reserve), and policyholders leverage ratios for MBIA Corp. are shown in the table below:

	As of December 31,
	1999		2000		2001		2002		2003
	(Dollars in millions)
MBIA Corp.
Net insurance in force	$	635,883	$	680,878	$	722,408	$	781,589	$	835,774
Qualified statutory capital		4,152		4,505		4,940		5,435		6,083
Policyholders’ leverage ratio		153:1		151:1		146:1		144:1		137:1

MBIA Corp. Insurance Policies

Virtually all of the insurance policies issued by MBIA Corp. provide an unconditional and irrevocable guarantee of the payment to a designated paying agent for the holders of the insured obligations of an amount equal to the principal of, and interest or other amounts due on, the insured obligations that have not been paid. In the event of a default in payment of principal, interest or other insured amounts by an issuer, MBIA Corp. promises to make funds available in the amount of the default generally on the next business day following notification. MBIA Corp. has a Fiscal Agency Agreement with a bank which provides for this payment upon receipt of proof of ownership of the obligations due, as well as upon receipt of instruments appointing the insurer as agent for the holders and evidencing the assignment of the rights of the holders with respect to the payments made by the insurer. Even if the holders are permitted by the terms of the insured obligations to have the full amount of principal, accrued interest or other amounts due declared due and payable immediately in the event of a default, MBIA Corp. is required to pay only the amounts scheduled to be paid, but not in fact paid, on each originally scheduled payment date. However, MBIA Corp. may from time to time insure obligations that are backed by credit default swaps which by their terms require that termination payments be paid at the time of the default of the underlying reference obligation(s). Termination payments are generally calculated by deducting the market value of the reference obligation on the termination date from the specified amount of the reference obligation. The Company estimates that the liquidity needs arising from future termination payments are modest due to MBIA Corp.’s strategy of insuring such obligations with high levels of subordination and credit enhancement.

Rating Agencies

Moody’s, S&P, Fitch and RII perform periodic reviews of MBIA Corp. and other companies providing financial guarantee insurance. Their reviews generally focus on the insurer’s operations, financial conditions, underwriting guidelines, policies and procedures and on the underlying insured portfolio. Additionally, each rating agency has its own criteria as to exposure limits and capital requirements for financial guarantors.

The rating agencies have confirmed their Triple-A financial strength ratings assigned to MBIA Corp., CapMAC, MBIA Illinois and MBIA Assurance in every year since those ratings were first assigned. The ratings for MBIA Illinois and CapMAC are based in significant part on the reinsurance agreements between MBIA Corp. and MBIA Illinois and MBIA Corp. and CapMAC, respectively. The rating of MBIA Assurance is based in significant part on the reinsurance agreement between MBIA Corp. and MBIA Assurance and the net worth maintenance agreement between the two parties. See “Item 1. Business-Reinsurance.”

Capital Facilities

MBIA Corp. is party to a Credit Agreement, dated as of December 29, 1989 (the “Credit Agreement”), with various highly-rated banks to provide MBIA Corp. with an unconditional, irrevocable line of credit to cover losses in excess of a specified amount with respect to its public finance policies. The line of credit is available to be drawn upon by MBIA Corp., in an amount up to $700 million, after MBIA Corp. has incurred, during the period commencing October 31, 2003 and ending October 31,

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2010, cumulative losses (net of any recoveries) in excess of $900 million or 5.0% of average annual debt service in respect of MBIA Corp.’s public finance policies. During 2002, MBIA Corp. replaced a portion of the amounts available under the Credit Agreement with a new capital markets facility as described below. As a result, the Credit Agreement facility amount was reduced in 2002 from $900 million to $700 million. The obligation to repay loans made under the Credit Agreement is a limited recourse obligation of MBIA Corp. payable solely from, and secured by a pledge of, recoveries realized on defaulted insured public finance obligations, from certain pledged installment premiums and other collateral. Borrowings under the Credit Agreement are repayable on the expiration date of the Credit Agreement. The current expiration date of the Credit Agreement is October 31, 2010, subject to annual extensions under certain circumstances. The Credit Agreement contains covenants that, among other things, restrict MBIA Corp.’s ability to encumber assets or merge or consolidate with another entity.

At January 1, 2003, the Company maintained $211 million of annually renewable stop-loss reinsurance coverage with three reinsurers. At the end of the third quarter, the Company elected not to renew two of the facilities with $175 million of coverage due to the rating downgrades of the stop-loss providers. In addition, at the end of 2003, MBIA Corp. elected not to renew the remaining $35.7 million of stop-loss reinsurance coverage effective January 1, 2004, also due to the rating downgrade of the stop loss reinsurer.

The Company also maintained two ten-year facilities with two reinsurers maturing in 2011 and 2012 for $100 million and $50 million, respectively. These facilities allowed the Company to issue subordinated securities and could be drawn upon if the Company incurred cumulative losses (net of any recoveries) above an annually adjusted attachment point, which was $1.76 billion for 2003. However, the $50 million facility was not renewed in the fourth quarter due to a rating downgrade of the related provider, with the $100 million facility remaining in effect as of December 31, 2003.

MBIA Corp. has access to $400 million of Money Market Committed Preferred Custodial Trust securities (“CPS Securities”) issued by eight Trusts which were created for the primary purpose of issuing CPS Securities and investing the proceeds in high quality commercial paper or short-term U.S. government obligations. MBIA Corp. has a put option to sell to the Trusts the perpetual preferred stock of MBIA Corp. If MBIA Corp. exercises its put option, the Trusts will transfer the proceeds to MBIA Corp. in exchange for the preferred stock that will be held by the Trusts. The Trusts are vehicles for providing MBIA Corp. the opportunity to access new capital at its sole discretion through the exercise of the put options. The Trusts are rated “AA” by S&P and “Aa2” by Moody’s. To date, MBIA Corp. has not exercised its put options under any of these arrangements.

The Company and MBIA Corp. also maintain bank liquidity facilities totaling $675 million. As of December 31, 2003, there were no borrowings outstanding under these agreements.

Employees

As of March 3, 2004, the Company had 701 employees. No employee is covered by a collective bargaining agreement. The Company considers its employee relations to be satisfactory.

Investment Considerations

Financial Strength Ratings

MBIA Corp.’s ability to attract new business and to compete with other Triple-A rated financial guarantors is largely dependent on the Triple-A financial strength ratings assigned to it by the major rating agencies and the financial enhancement rating assigned by S&P. MBIA Corp. intends to comply with the requirements imposed by the rating agencies to maintain such ratings; however, no assurance can be given that these requirements will not change or that, even if MBIA Corp. complies with these requirements, one or more of such rating agencies will not lower or withdraw their financial strength ratings of MBIA Corp. in the future. MBIA Corp.’s ability to attract new business and to compete with other Triple-A rated financial guarantors, and its results of operations and financial condition, would be materially adversely affected by any reduction in its ratings. See “Item 1. Business-Rating Agencies”.

Competition

The businesses engaged in by MBIA Corp. are highly competitive. MBIA Corp. faces competition from other financial guarantee insurance companies, other providers of third-party credit enhancement, such as multi-line insurance companies and banks, and alternative executions which do not employ third-party credit enhancement. To the extent that there is no increase in the dollar volume of obligations that require guarantees, increased competition, either in terms of price, alternative executions or new providers of credit enhancement, could have an adverse effect on MBIA Corp.’s business. See “Item 1. Business-Competition”.

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Potential Economic Impact of Global Hostilities

General global unrest could disrupt the economy in this country and around the world and could have a direct material adverse impact on certain industries and on general economic activity.

The Company has exposure in certain sectors that could suffer increased stress as a direct result of these types of events. The Company’s exposure to domestic airports and to domestic enhanced equipment trust certificate aircraft securitizations have experienced increased stress as a result of global events since 2001, including a downgrading of the ratings of some of the underlying issuers, and could experience further stress in the event of general global unrest in the future. Other exposures that depend on revenues from business and personal travel, such as bonds backed by hotel taxes and car rental fleet securitizations, have experienced and could experience direct increased stress. In addition, certain other sectors in which the Company has insured exposure such as consumer loan securitizations (e.g., home equity, auto loan and credit card transactions) and certain collateralized debt obligations backed by high-yield bonds have experienced increased delinquencies and defaults in the underlying pools of loans and could experience stress in the event of future global unrest.

In accordance with the Company’s underwriting criteria, transactions insured by the Company are structured to endure significant stress under various stress assumptions, including an assumed economic recession. There can be no assurance, however, that the Company will not incur material losses due to these exposures if the economic stress in certain sectors caused by global unrest, terrorism or similar events in the future is or will be more severe than the Company currently foresees and had assumed in underwriting its exposures.

Market and Other Factors

The demand for financial guarantee insurance depends upon many factors, some of which are beyond the control of MBIA Corp. While all the major financial guarantee insurers have Triple-A financial strength ratings from the major rating agencies, investors may from time to time distinguish among financial guarantors on the basis of various factors, including size, insured portfolio concentration and financial performance. These distinctions may result in differentials in trading levels for securities insured by particular financial guarantors which, in turn, may provide a competitive advantage to those financial guarantors with better trading characteristics. Conversely, various investors may, due to regulatory or internal guidelines, lack additional capacity to purchase securities insured by certain financial guarantors, which may provide a competitive advantage to guarantors with fewer insured obligations outstanding.

Prevailing interest rate levels affect demand for financial guarantee insurance to the extent that lower interest rates are accompanied by narrower spreads between insured and uninsured obligations. The purchase of insurance during periods of relatively narrower interest rate spreads will generally provide lower cost savings to the issuer than during periods of relatively wider spreads. These lower cost savings could be accompanied by a corresponding decrease in demand for financial guarantee insurance. However, historically, the level of refundings during lower interest rate periods has increased the demand for insurance.

The perceived financial strength of financial guarantee insurers also affects demand for financial guarantee insurance. Should a major financial guarantee insurer, or the industry generally, have its financial strength rating lowered, or suffer for some other reason deterioration in investors’ confidence, demand for financial guarantee insurance may be reduced significantly.

Premium rates are affected by factors such as the insurer’s appraisal of the insured credit, the spread between market interest rates on insured and uninsured obligations and capital charges associated with these exposures as determined by the rating agencies and regulators, as well as competition for such business among financial guarantee insurance providers and other forms of credit enhancement. Lower interest rates generally result in lower premium amounts to the extent that premium amounts are based on the total dollar amount of principal, interest and other amounts insured.

Regulation

The financial guarantee insurance industry has historically been and will continue to be subject to the direct and indirect effects of governmental regulation, including changes in tax laws and legal precedents affecting asset-backed and municipal obligations. No assurance can be given that future legislative regulatory or judicial changes will not adversely affect MBIA Corp.’s business. See “Business-Regulation” for a description of current insurance regulations affecting MBIA Corp.

Adequacy of Loss Reserves

The financial guarantees issued by MBIA Corp. insure the financial performance of the obligations guaranteed over an extended period of time, in some cases over 30 years, under policies that MBIA Corp. has, in most circumstances, no right to

26

cancel. As a result of the lack of statistical loss data due to the low level of losses in MBIA Corp.’s financial guarantee business and in the financial guarantee industry in general, particularly in the structured asset-backed area, MBIA Corp. does not use traditional actuarial approaches to determine its loss reserves. Instead, a general loss reserve is established in an amount deemed adequate to cover the expected levels of losses and loss adjustment expense on MBIA’s overall portfolio. The size of the general loss reserve is determined by a formula, the components of which are reviewed regularly. Management believes that the current level of general loss reserves is adequate to cover the estimated liability for claims and the related loss adjustment expenses with respect to financial guarantees issued by MBIA Corp. The establishment of the appropriate level of loss reserves is an inherently uncertain process involving numerous estimates and subjective judgments by management, and therefore there can be no assurance that losses in MBIA Corp.’s insured portfolio will not exceed the loss reserves. Losses from future defaults, depending on their magnitude, could exceed loss reserves and therefore have a material adverse effect on the results of operations and financial condition of MBIA Corp. See “Item 1. Business-Losses and Reserves; Remediation”.

Realization of Installment Premiums

Due to the installment nature of a significant percentage of its premium income, MBIA Corp. has an embedded future revenue stream. The amount of installment premiums actually realized by MBIA Corp. could be reduced in the future due to factors such as early termination of insurance contracts or accelerated prepayments of underlying obligations. Although increases in installment premium due to renewals of existing insurance contracts historically have been greater than reductions, there can be no assurance that future circumstances might not cause a net reduction overall, resulting in lower revenues.

Low Probability of Non-Negotiated Change of Control

Certain characteristics of the Triple-A rated financial guarantee insurance business may discourage non-negotiated takeover attempts or changes of control, which takeovers or changes of control some stockholders might otherwise deem to be in their interests. Given the importance of MBIA Corp.’s Triple-A ratings to the Company’s business, as a practical matter, a change of control would require confirmation in advance from the rating agencies that such transaction would not result in a downgrade of the financial strength rating assigned to MBIA Corp.

The insurance laws of New York provide that no person, other than an authorized insurer, may acquire control of the Company and thus indirect control of MBIA Corp., or any other New York-domiciled insurance subsidiary of the Company, unless it has given prior written notice to MBIA Corp. and any such subsidiary and received the prior approval of the Superintendent of Insurance of the State of New York. Furthermore, any purchaser of 10% or more of the outstanding shares of the Company’s Common Stock would be presumed to have acquired such control unless the Superintendent of Insurance determined otherwise. Therefore, any takeover of the Company effectively requires regulatory approval. This regulatory restriction may effectively reduce the probability of a takeover without the cooperation of management.

Investment Management Services Businesses

The Company’s Investment Management Services businesses have grown as a proportion of its overall business (see Item 1. Investment Management Businesses”). Events that negatively affect the performance of the Investment Management Services businesses could have a negative effect on the overall performance of the Company.

Impact of Unanticipated Catastrophic Events

The Company’s insurance operations underwrite and assess credit and other risks using internal models which are based on historical performance and default rates, as well as the Company’s reasonable expectation of future performance. Transactions insured by MBIA Corp. are structured to endure significant stress under various stress assumptions, including an assumed economic recession. The Company manages its insurance and other exposures in an attempt to minimize the severity and impact of unexpected events. There can be no assurance, however, that the Company’s internal models and portfolio management policies adequately assess and address the risk of unexpectedly catastrophic events or the impact of risks with a severity significantly higher than those previously experienced, or that the assumptions which underlie the Company’s internal models and policies are accurate. There can be no assurance that the Company will not incur material losses if such catastrophic or high severity events occur.

Available Information

The Company maintains a website at www.mbia.com. The Company is not including the information on its website as a part of, nor is it incorporating such information by reference into, this Form 10-K. The Company makes available through its website all of its SEC filings, including its annual 10-K, any of its quarterly filings on Form 10-Q and any current reports on Form 8-K, as soon as is reasonably practicable after these materials have been filed with the SEC. All such filings were timely posted to the website in 2003.

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Executive Officers

The executive officers of the Company and their present ages and positions with the Company as of March 1, 2004 are set forth below.

Name	Age	Position and Term of Office
Joseph W. Brown	55	Chairman and Chief Executive Officer (officer since January, 1999)
Gary C. Dunton	48	President (officer since January, 1998)
Richard L. Weill	61	Secretary (officer since 1989)
Neil G. Budnick	49	Vice President and Chief Financial Officer (officer since 1992)
John B. Caouette	59	Vice President (officer since February, 1998)
Ram D. Wertheim	49	Vice President and General Counsel (officer since January, 2000)
Kevin D. Silva	50	Vice President and Chief Administrative Officer (officer since 1995)
Ruth M. Whaley	47	Vice President and Chief Risk Officer (officer since 1999)
Andrea E. Randolph	51	Vice President and Chief Technology Officer (officer since January, 2004)
John S. Pizzarelli	48	Vice President (officer since November, 2000)
Mark S. Zucker	55	Vice President (officer since November, 2000)

Joseph W. Brown is Chairman and Chief Executive Officer of the Company (effective January 7, 1999) and a director of the Company. Prior to joining the Company in January 1999, Mr. Brown was Chairman of the Board of Talegen Holdings, Inc.

Gary C. Dunton is President and Chief Operating Officer of the Company and a director of the Company. Mr. Dunton was, prior to joining the Company as an officer, a director of the Company and President of the Family and Business Insurance Group, USF&G Insurance.

Richard L. Weill is Vice President and Secretary of the Company. Mr. Weill joined the Company in 1989 and since that time has held a variety of positions.

Neil G. Budnick is Vice President and Chief Financial Officer of the Company. Mr. Budnick has been primarily involved in the insurance operations area of MBIA Corp. since joining the Company in 1983.

John B. Caouette is Vice President of the Company. Mr. Caouette was, until February of 1998, the Chairman and Chief Executive Officer of CapMAC Holdings Inc.

Ram D. Wertheim is Vice President and General Counsel of the Company. From February of 1998 until January, 2000, he served in various capacities in the Structured Finance Division. Mr. Wertheim was, until February of 1998, the General Counsel of CapMAC Holdings Inc.

Kevin D. Silva is Vice President and Chief Administrative Officer of the Company. He has been in charge of the Management Services Division of MBIA Corp. since joining the Company in late 1995.

Ruth M. Whaley is Vice President and Chief Risk Officer of the Company. She was, until February of 1998, the Chief Underwriting Officer of CapMAC Holdings Inc.

Andrea E. Randolph is Vice President and Chief Technology Officer of the Company. From Prior to joining MBIA Corp. in 2000, she was Director of Information Technology – Corporate Investment Division at MetLife.

John S. Pizzarelli is Vice President of the Company and head of the Public Finance Division. Since joining MBIA Corp. in 1985, he has been primarily involved in the public finance area.

Mark D. Zucker is Vice President of the Company and head of the Structured Finance Division. Prior to joining the Company he was Chief Credit Officer—Investment Banking at Rabobank International.

In January of 2004, the Company announced that Richard L. Weill will retire in the spring of 2004. Mitchell I. Sonkin, senior partner and co-chair of the Financial Restructuring Group of the international law firm of King & Spalding, will assume Mr. Weill’s responsibility as head of MBIA Corp.’s IPM Division on April 1, 2004.

In March of 2004, the Company’s Board of Directors announced that, as part of its leadership succession plan, Gary C. Dunton, the current President of the Company, will succeed Joseph W. Brown as the Company’s Chief Executive Officer in May 2004. Mr. Dunton will continue as President of the Company in addition to serving as its Chief Executive Officer. Mr. Brown will continue to serve as executive Chairman of the Company through 2007. Neil G. Budnick will become President of MBIA Corp, responsible for new business development in the global public and structured finance markets. A successor to Mr. Budnick as Chief Financial Officer will be named by the Board of Directors.

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Item 2. Properties

MBIA Corp. owns the 265,000 square foot office building on approximately 15.5 acres of property in Armonk, New York, in which the Company and MBIA Corp. have their headquarters. The Company has over the past several years added approximately 18 additional acres adjacent to its current headquarters in order to provide an ability to expand its headquarters as needed. The Company also has rental space in New York, New York, San Francisco, California, Paris, France, Madrid, Spain, Sydney, Australia, London, England, Milan, Italy and the Republic of Singapore. The Company believes that these facilities are adequate and suitable for its current needs.

Item 3. Legal Proceedings

In the normal course of operating its businesses, the Company may be involved in various legal proceedings. Various trusts that have been insured by MBIA Corp., and that own first and second mortgages have been named in lawsuits alleging that the originator of the mortgages, together with other trusts that are not insured and other entities that own first and second mortgages, violated state and federal truth in lending laws. In most of these cases the originators of the loans are no longer in business, and the plaintiffs are alleging that the current owners of the mortgages, including the MBIA insured trusts, are liable for the alleged violations of the originator as “assignees” of the mortgages. MBIA Corp. has not been named as a defendant in any of these lawsuits. The Company believes that the insured trusts will ultimately prevail in the litigation. We do not expect there to be any material losses in the trusts as a result of these lawsuits, but no assurances can be given as to the potential outcome of these actions.

In July, 2002, MBIA Corp. filed suit against Royal Indemnity Company (“Royal”), in the United States District Court for the District of Delaware, to enforce insurance policies that Royal issued on certain vocational student loan transactions that MBIA Corp. insured. To date, claims in the amount of approximately $341 million have been made under the Royal policies with respect to loans that have defaulted. MBIA Corp. expects that there will be additional claims made under the policies with respect to student loans that may default in the future. Royal has filed an action seeking a declaration that it is not obligated to pay on its policies. If Royal does not honor its policies, MBIA Corp. will be required to make payment on the notes it insured, and will incur material losses under its policies. In October 2003, the court granted MBIA Corp.’s motion for summary judgment and ordered Royal to pay all claims under its policies. While Royal has indicated that they will appeal the order, MBIA expects that the order will be upheld on appeal. As part of the appeals process, which the Company expects to be initiated quickly, Royal has pledged $368 million of investment grade collateral to MBIA Corp. to secure the entire amount of the judgment, with interest, and has agreed to post additional security for future claims and interest. The Federal District Court has ordered Royal to comply with the pledge agreement.

MBIA Corp. believes that it will prevail in the litigation with Royal and will have no ultimate loss on these policies, although there can be no assurance that MBIA Corp. will in fact prevail. If MBIA Corp. does not prevail in the litigation and Royal does not make payments on the Royal Policies, MBIA Corp. expects to incur material losses under its policies. MBIA Corp. does not believe, however, that any such losses will have a material adverse effect on its financial condition.

There are no other material lawsuits pending or, to the knowledge of the Company, threatened, to which the Company or any of its subsidiaries is a party. See “Item 1. Business – Municipal Services—Capital Asset” for a description of certain litigation against the Company and certain of its subsidiaries related to its investment in Capital Asset and information regarding the settlement of the litigation.

Item 4. Submission of Matters to a Vote of Security Holders

Not Applicable.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s common stock is listed on the New York Stock Exchange under the symbol “MBI.” As of March 8, 2004 there were 798 shareholders of record of the Company’s Common Stock. The information concerning dividends on the Company’s Common Stock is under “Item 1. Business-Regulation” in this annual report.

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The high and low stock prices and dividends with respect to the Company’s common stock for the last two years are set forth below:

	2003						2002
	Sales Price						Sales Price
Quarter Ended	High		Low		Cash Dividends Declared		High		Low		Cash Dividends Declared
March 31	$	47.81	$	34.14	$	0.20	$	60.11	$	51.10	$	0.17
June 30		53.60		38.61		0.20		57.50		52.33		0.17
September 30		57.38		47.68		0.20		56.65		39.05		0.17
December 31		60.62		54.97		0.20		47.00		34.93		0.17

The Company expects to continue its policy of paying regular dividends, although there is no assurance as to future dividends because they depend on future earnings, capital requirement, and financial condition.

Item 6. Selected Financial Data

Selected Financial and Statistical Data

MBIA Inc. and Subsidiaries

Dollars in millions except per share amounts	2003			2002			2001			2000			1999			1998			1997			1996			1995			1994
GAAP Summary Income Statement Data:
Insurance
Gross premiums written	$	1,269		$	952		$	865		$	687		$	625		$	677		$	654		$	535		$	406		$	405
Premiums earned		733			589			524			446			443			425			351			294			244			241
Net investment income		438			433			413			394			359			332			302			265			233			204
Total insurance expenses		239			197			180			170			315			140			141			117			100			89
Insurance income		991			875			796			698			515			643			530			453			385			360
Investment management services income		50			49			63			56			41			29			17			18			11			5
Income before income taxes		1,149			793			791			715			388			565			525			448			375			347
Net income		814			579			570			529			321			433			406			348			290			270
Net income per common share:
Basic		5.67			3.95			3.85			3.58			2.15			2.91			2.79			2.45			2.14			2.00
Diluted		5.61			3.92			3.82			3.56			2.13			2.88			2.75			2.41			2.10			1.97
GAAP Summary Balance Sheet Data:
Total investments		27,707			17,095			14,516			12,233			10,694			10,080			8,908			8,008			6,937			5,069
Total assets		30,268			18,852			16,200			13,894			12,264			11,826			10,387			9,033			7,671			5,712
Deferred premium revenue		3,080			2,755			2,565			2,398			2,311			2,251			2,090			1,854			1,662			1,538
Loss and LAE reserves		560			573			518			499			467			300			105			72			50			47
Investment agreement and medium-term
note obligations		8,840			7,231			6,055			4,789			4,513			3,485			3,151			3,259			2,642			1,526
Long-term debt		1,022			1,033			805			795			689			689			489			389			389			314
Shareholders’ equity		6,259			5,493			4,783			4,223			3,513			3,792			3,362			2,761			2,497			1,881
Book value per share		43.50			37.95			32.24			28.59			23.56			25.43			22.73			19.32			18.01			13.95
Dividends declared per common share		0.800			0.680			0.600			0.547			0.537			0.527			0.513			0.483			0.437			0.380
Statutory Summary Data:
Net income		669			618			571			544			522			510			404			335			287			229
Capital and surplus		3,715			3,158			2,858			2,382			2,413			2,290			1,952			1,661			1,469			1,250
Contingency reserve		2,368			2,277			2,082			2,123			1,739			1,451			1,188			959			788			652
Capital base		6,083			5,435			4,940			4,505			4,152			3,741			3,140			2,620			2,257			1,902
Unearned premium reserve		3,067			2,774			2,607			2,465			2,376			2,324			2,193			1,971			1,768			1,640
Present value of installment premiums		2,053			1,300			1,068			886			732			644			537			443			347			249
Premium reserves		5,120			4,074			3,675			3,351			3,108			2,968			2,730			2,414			2,115			1,889
Loss and LAE reserves		200			245			211			209			204			188			15			10			7			22
Standby line of credit / stop loss		1,236			1,261			1,261			1,075			1,075			900			900			775			700			650
Total claims-paying resources		12,639			11,015			10,087			9,140			8,539			7,797			6,785			5,819			5,079			4,463
Financial Ratios:
GAAP
Loss and LAE ratio		9.9	%		10.5	%		10.8	%		11.5	%		44.8	%		8.2	%		9.1	%		6.9	%		5.6	%		3.9	%
Underwriting expense ratio		22.7			23.0			23.5			26.7			26.4			24.7			31.0			32.9			35.2			32.9
Combined ratio		32.6			33.5			34.3			38.2			71.2			32.9			40.1			39.8			40.8			36.8
Statutory
Loss and LAE ratio		9.2			9.4			9.3			6.2			12.3			8.0			1.2			1.7			0.4			8.7
Underwriting expense ratio		12.8			16.8			13.4			22.1			23.6			16.8			21.2			22.8			27.2			28.3
Combined ratio		22.0			26.2			22.7			28.3			35.9			24.8			22.4			24.5			27.6			37.0
Net debt service outstanding	$	835,774		$	781,589		$	722,408		$	680,878		$	635,883		$	595,895		$	513,736		$	434,417		$	359,175		$	315,340
Net par amount outstanding	$	541,026		$	497,343		$	452,409		$	418,443		$	384,459		$	359,472		$	303,803		$	252,896		$	201,326		$	173,760

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

MBIA Inc. (MBIA or the Company) has made statements in this report that are not historical or current facts and are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “believe,” “anticipate,” “project,” “plan,” “expect,” “intend,” “will likely result,” “looking forward” or “will continue,” and similar expressions identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. MBIA cautions readers not to place undue reliance on any such forward-looking statements, which speak only to their respective dates. The following are some of the factors that could affect the financial performance or could cause actual results to differ materially from estimates contained in or underlying the Company’s forward-looking statements:

• fluctuations in the economic, credit, interest rate or foreign currency environment in the United States and abroad;

• the level of activity within the national and international credit markets;

• competitive conditions and pricing levels;

• legislative and regulatory developments;

• technological developments;

• changes in tax laws;

• the effects of mergers, acquisitions and divestitures; and

• uncertainties that have not been identified at this time.

The Company undertakes no obligation to publicly correct or update any forward-looking statement if it later becomes aware that such results are not likely to be achieved.

OVERVIEW

MBIA is a leading provider of financial guarantee insurance, investment management services and municipal services to public finance clients and financial institutions around the world. During 2003, the Company continued to grow its global franchise resulting in record levels of business production and reported earnings. MBIA’s consistently solid performance is accomplished through its dedication to the foundation principles that guide its operations. They are: Maintain the Strongest Team, which recognizes the Company’s commitment to individual and organizational growth as well as its focus on

31

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

teamwork; No Loss Underwriting, which expresses the pursuit of perfection in the Company’s management of credit risk and reflects the Company’s core competency; Triple-A Ratings, which the Company seeks to protect at all costs as they are the business platform from which the Company operates; and Enhance Long-Term Shareholder Value, which is the result of disciplined and rigorous adherence to the first three principles.

The Company’s insurance operations experienced significant growth in both its United States (U.S.) and non-United States (non-U.S.) operations in 2003. The investment management services operations demonstrated an improving trend in the third and fourth quarters of 2003 resulting from a strong performance in the Company’s fixed-income businesses. The Company believes it is well positioned to take advantage of favorable growth prospects both inside and outside of the U.S. in all of its businesses except for the equity component of its investment management business, which has not recovered from turbulence in the U.S. equity markets.

CRITICAL ACCOUNTING ESTIMATES

The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP). The following accounting estimates are viewed by management to be critical because they require significant judgment on the part of management. Financial results could be materially different if alternate methodologies were used or if management modified its assumptions.

LOSSES AND LOSS ADJUSTMENT EXPENSES Loss and loss adjustment expense (LAE) reserves are established in an amount equal to the Company’s estimate of unallocated losses and identified or case basis reserves, including costs of settlement and other loss mitigation expenses, on obligations it has insured. The unallocated loss and loss adjustment expense reserves and specific case basis reserves are established by the Company’s Loss Reserve Committee, which is comprised of members of senior management.

Under the method employed by the Company since 2002, unallocated loss reserves are adjusted on a quarterly basis by using a formula that applies a “loss factor” (determined as set forth below) to the Company’s scheduled earned premiums for such quarter. Annually, the Loss Reserve Committee determines the appropriate loss factor for the year based on (i) a loss reserving study that assesses the mix of the Company’s insured portfolio and the latest industry data, including historical default and recovery

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MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

experience, for the relevant sectors of the fixed-income market, (ii) rating agency studies of defaults and (iii) other relevant market factors.

When a case basis reserve is established, MBIA reclassifies the required amount from its unallocated loss reserve to its case basis loss reserve. Therefore, although MBIA accrues an unallocated loss reserve by applying a loss factor to scheduled earned premium, the amount of available unallocated loss reserve is directly related to case basis reserves established in the same period. At the end of each quarter, the Company evaluates the adequacy of the remaining unallocated loss reserve.

MBIA establishes new case basis reserves with respect to an insurance policy when its Loss Reserve Committee determines that (i) a claim has been made or is likely to be made in the future with respect to such policy and (ii) the amount of the ultimate loss that MBIA will incur under such policy can be reasonably estimated. The amount of the case basis reserve with respect to any policy is based on the net present value of the expected ultimate losses and loss adjustment expense payments that the Company expects to pay with respect to such policy, net of expected recoveries under salvage and subrogation rights. The amount of the expected loss is discounted based on a discount rate equal to the actual yield of the Company’s fixed-income portfolio at the end of the preceding fiscal quarter. Various variables are taken into account in establishing specific case basis reserves for individual policies that depend primarily on the nature of the underlying insured obligation. These variables include the nature and creditworthiness of the underlying issuer of the insured obligations, whether the obligation is secured or unsecured and the expected recovery rates on the insured obligations, the projected cash flow or market value of any assets that support the insured obligation and the historical and projected loss rates on such assets. Factors that may affect the actual ultimate realized losses for any policy include the state of the economy, changes in interest rates, rates of inflation and the salvage values of specific collateral. MBIA believes that reasonably likely changes in any of these factors are not likely to have a material impact on its recorded level of reserves, financial results or financial position, or liquidity.

Although the Company has had an excellent history in estimating its loss reserving needs, its total loss reserves of $560 million represent a small fraction of the net debt service insured of $836 billion. Management believes that the reserves are adequate to cover ultimate net losses; however, because the reserves are based on estimates, there can be no assurance that the ultimate liability will not exceed such estimates. Various methodologies are

33

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

employed within the financial guarantee industry for loss reserving. Alternate methods may produce different estimates than the method used by the Company.

UPFRONT PREMIUM REVENUE RECOGNITION Upfront premiums are earned in proportion to the expiration of the related risk while installment premiums are earned over each installment period, generally one year or less. Therefore, for transactions in which the premium is received upfront, premium earnings are greater in the earlier periods when there is a higher amount of exposure outstanding. The upfront premiums are apportioned to individual sinking fund payments of a bond issue according to an amortization schedule. After the premiums are allocated to each scheduled sinking fund payment, they are earned on a straight-line basis over the period of that sinking fund payment. When an insured issue is retired early, is called by the issuer, or is in substance paid in advance through a refunding accomplished by placing U.S. Government securities in escrow, the remaining deferred premium revenue is earned at that time. If other than U.S. Government securities are placed in escrow, the Company remains contingently liable for the outstanding debt service. Accordingly, deferred premium revenue represents the portion of premiums written that is applicable to the unexpired risk of insured bonds and notes.

The effect of the Company’s upfront premium earnings policy is to recognize greater levels of upfront premiums in the earlier years of each policy insured, thus matching revenue recognition with exposure to the underlying risk. Recognizing premium revenue on a straight-line basis over the life of each policy without allocating premiums to the sinking fund payments would materially affect the Company’s financial results. Premium earnings would be more evenly recorded as revenue throughout the period of risk than under the current method, but the Company does not believe that the straight-line method would appropriately match premiums earned to the Company’s exposure to the underlying risk. Therefore, the Company believes its upfront premium earnings methodology is the most appropriate method to recognize its upfront premiums as revenue. The premium earnings methodology used by the Company is similar to that used throughout the industry.

VALUATION OF FINANCIAL INSTRUMENTS The fair market values of financial instruments held or issued by the Company are determined through the use of available market data and widely accepted valuation methods. Market data is retrieved from a variety of third-party data sources for input into the Company’s valuation systems. Valuation systems are determined based on the

34

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

characteristics of transactions and the availability of market data. The fair values of financial assets and liabilities are primarily calculated from quoted dealer market prices. However, dealer market prices may not be available for certain types of contracts that are infrequently purchased and sold. For these contracts, the Company may use alternate methods for determining fair values, such as dealer market quotes for similar contracts or cash flow modeling. Alternate valuation methods generally require management to exercise considerable judgment in the use of estimates and assumptions, and changes to certain factors may produce materially different values. In addition, actual market exchanges may occur at materially different amounts.

The Company’s financial instruments categorized as assets are mainly comprised of investments in debt and equity instruments. The majority of the Company’s debt and equity investments are accounted for in accordance with Statement of Financial Accounting Standards (SFAS) 115, “Accounting for Certain Investments in Debt and Equity Securities.” SFAS 115 requires that all debt instruments and certain equity instruments be classified in the Company’s balance sheet according to their purpose and, depending on that classification, be carried at either amortized cost or fair market value. Quoted market prices are generally available for these investments. However, if a quoted market price is not available, a price is derived from internally developed models which use available market data. Equity investments outside the scope of SFAS 115 are accounted for under cost or equity method accounting principles. Other financial assets that require fair value reporting or disclosures within the Company’s financial notes are valued based on underlying collateral or the Company’s estimate of discounted cash flows.

MBIA regularly monitors its investments in which fair value is less than amortized cost in order to assess whether such a decline in value is other than temporary and, therefore, should be reflected as a realized loss in net income. Such an assessment requires the Company to determine the cause of the decline and whether the Company possesses both the ability and intent to hold the investment to maturity or until the value recovers to an amount at least equal to amortized cost. As of December 31, 2003, MBIA determined that unrealized losses on its investments were temporary in nature because there was no material indication of credit deterioration and the Company has the ability and intent to hold the investments to maturity or until the fair value increases to an amount equal to amortized cost. This assessment requires management to exercise judgment as to whether an investment is impaired based on market conditions and trends and the availability of relevant data.

35

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

The Company’s financial instruments categorized as liabilities primarily consist of obligations related to its investment agreement, medium-term note and commercial paper programs and debt issued for general corporate purposes. The fair values of such instruments are generally not reported within the Company’s financial statements, but rather in the accompanying notes. However, financial liabilities that qualify as part of hedging arrangements under SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, are recorded at their fair values in the Company’s balance sheet. MBIA has instituted cash flow modeling techniques to estimate the value of its liabilities that qualify as hedged obligations under SFAS 133 based on current market data. Other financial liabilities that require fair value reporting or disclosures within the Company’s financial notes are valued based on underlying collateral, the Company’s estimate of discounted cash flows or quoted market values for similar transactions.

The Company’s exposure to derivative instruments is created through contracts into which it directly enters and through third-party contracts it insures. The majority of MBIA’s exposure to derivative instruments is related to certain synthetic collateralized debt obligations (CDOs). These contracts meet the definition of a derivative under SFAS 133 but effectively represent an alternate form of financial guarantee execution. The fair values of the Company’s derivative instruments are estimated using various valuation models that conform to industry standards. The Company utilizes both vendor-developed and proprietary models, based on the complexity of transactions. Dealer market quotes are typically obtained for regularly traded contracts and provide the best estimate of fair value. However, when reliable dealer market quotes are not available, the Company uses a variety of market data relative to the type and structure of contracts. Several of the more significant types of market and contract data that influence the Company’s valuation models include interest rates, credit quality ratings, credit spreads, default probabilities and diversity scores. This data is obtained from third party sources and is reviewed for reasonableness and applicability to the Company’s derivative portfolio. The fair value of the Company’s derivative portfolio may be materially affected by changes in existing market data, the availability of new or improved market data, changes in specific contract data or enhancements to the Company’s valuation models resulting from new market practices.

MBIA expects to hold all derivative instruments to their contractual maturity. Upon maturity of a contract, the unrealized value recorded in the Company’s financial statements will be zero. However, if circumstances or

36

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

events require the termination and settlement of a contract prior to maturity, any unrealized gain or loss will typically be realized.

The Company has dedicated resources to the development and ongoing review of its valuation models and has instituted procedures for the approval and control of data inputs. In addition, regular reviews are performed to ensure that the Company’s valuation models are appropriate and produce values reflective of the current market environment. See “Note 25: Fair Value of Financial Instruments” in the Notes to Consolidated Financial Statements for additional information on the various types of instruments entered into by MBIA and a comparison of carrying values as reported in the Company’s balance sheet to estimated fair values.

GOODWILL Effective January 1, 2002 the Company adopted SFAS 142, “Goodwill and Other Intangible Assets.” SFAS 142, which supersedes Accounting Principles Board Opinion No. (APB) 17, “Intangible Assets,” requires that goodwill and intangible assets with indefinite lives are no longer amortized but instead tested for impairment at least annually. The standard includes a two-step process aimed at determining the amount, if any, by which the carrying value of a reporting unit exceeds its fair value. Other intangible assets are amortized over their useful lives.

The Company completed its transitional impairment testing on its existing goodwill as of January 1, 2002 in accordance with SFAS 142. As of January 1, 2002, goodwill in the insurance reporting segment totaled $76.9 million. SFAS 142 requires a two-step approach in determining any impairment in goodwill. Step one entails evaluating whether the fair value of a reporting segment exceeds its carrying value. In performing this evaluation the Company determined that the best measure of the fair value of the insurance reporting segment is its book value adjusted for the after-tax effects of net deferred premium revenue less deferred acquisition costs and the present value of installment premiums to arrive at adjusted book value. Adjusted book value is a common measure used by analysts to determine the value of financial guarantee companies. As of January 1, 2002, the insurance reporting segment’s adjusted book value significantly exceeded its carrying value, and thus there was no impairment of its existing goodwill.

Total goodwill for the segments within the investment management services operations was $13.1 million as of January 1, 2002. In performing step one of the impairment testing, the fair values of the reporting segments were determined using a multiple of earnings before income tax, depreciation and amortization (EBITDA), as this is a common measure of fair value in the

37

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

investment management industry. The multiple was determined based on a review of current industry valuation practices. As of January 1, 2002, the fair values of the investment management services’ reporting segments exceeded their carrying values indicating that goodwill was not impaired.

The municipal services segment had goodwill of $7.7 million as of January 1, 2002. The fair value of the reporting segment was based on net assets. In comparing fair value to carrying value, it was determined that goodwill was potentially impaired. In performing step two of the impairment testing the implied fair value of goodwill was calculated by subtracting the fair value of the net assets from the fair value of the reporting segment. In comparing the implied fair value of goodwill to the carrying amount of goodwill, it was determined that the entire amount was impaired and was therefore written off as of January 1, 2002 and reported as a cumulative effect of accounting change. The per share effect of the cumulative effect of accounting change was to reduce 2002’s net income per share by five cents.

The Company performed its annual impairment testing of goodwill as of January 1, 2003 and January 1, 2004. The fair values of the insurance reporting segment and the investment management services’ segments were determined using the same valuation methods applied during the transition testing. The fair values of the reporting segments exceeded their carrying values indicating that goodwill was not impaired.

RESULTS OF OPERATIONS

SUMMARY OF CONSOLIDATED RESULTS

The following table presents highlights of the Company’s consolidated financial results for 2003, 2002 and 2001. Items listed under “Effect on net income” are items that management commonly identifies for the readers of its financial statements because they are the result of changes in accounting standards, a by-product of the Company’s operations or due to general market conditions beyond the control of the Company.

38

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

In millions except per share amounts	2003			2002			2001
Revenues:
Insurance	$	1,230		$	1,072		$	976
Investment management		423			424			442
Municipal services		27			25			27
Other		89			25			16
Net gains (losses) on derivative instruments and foreign exchange		100			(82	)		(4	)
Gross revenues		1,869			1,464			1,457
Expenses:
Insurance		239			197			180
Investment management		373			375			379
Municipal services		26			24			30
Other		82			75			77
Gross expenses		720			671			666
Net income	$	814		$	579		$	570
Net income per share information:*
Net income	$	5.61		$	3.92		$	3.82
Effect on net income:
Cumulative effect of accounting change for goodwill	$	—		$	(0.05	)	$	—
Cumulative effect of accounting change for derivatives	$	—		$	—		$	(0.09	)
Realized gains	$	0.57		$	0.33		$	0.37
Realized losses	$	(0.21	)	$	(0.26	)	$	(0.33	)
Net realized gains	$	0.36		$	0.07		$	0.04
Net gains (losses) on derivative instruments and foreign exchange	$	0.45		$	(0.36	)	$	(0.02	)
Accelerated premium earned from refunded issues	$	0.52		$	0.30		$	0.22

* All per share calculations are diluted.

Consolidated revenues for 2003 were $1.9 billion compared with $1.5 billion in 2002, a 28% increase. The increase in consolidated revenues was primarily due to an increase in insurance premium and fee revenues, net gains on insured credit derivative instruments, and net realized gains on the Company’s investment portfolio. Consolidated expenses for 2003 were $720 million compared with $671 million in 2002, a 7% increase. This increase was primarily due to an increase in insurance operations expenses and, to a lesser extent, an increase in investment management services operating expenses and interest expense from additional debt issued in the third quarter of 2002. Somewhat offsetting these increases were decreases in interest expense related to investment management services debt obligations and corporate expenses. Net income for 2003 increased 40% while net income per share increased 43%. The difference between the growth in net income and the growth in net income per share was principally the result of common stock repurchases by the Company.

39

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

Consolidated revenues for 2002 and 2001 remained flat at $1.5 billion. Insurance revenues increased 10% resulting from growth in premiums, fees and investment income, offset by net losses on insured credit derivative instruments and decreases in investment management services revenues. Consolidated expenses for 2002 were $671 million compared with $666 million in 2001, a 1% increase. The 2002 increase in consolidated expenses was due to an increase in insurance operations expenses, with smaller offsetting decreases in investment management services expenses and municipal services expenses. Net income for 2002 increased 2% while net income per share increased 3%. The difference between the growth in net income and the growth in net income per share was principally the result of common stock repurchases by the Company.

The Company’s book value at December 31, 2003 was $43.50 per share, up 15% from $37.95 at December 31, 2002. The increase was largely driven by income from operations and the increase in the unrealized appreciation of the Company’s investment portfolio. Book value per share has shown substantial growth over the past three years with a three-year compound average growth rate of 15%. The low interest rate environment had a positive effect on this growth rate.

MBIA evaluates the premium rates it receives for insurance guarantees through the use of internal and external rating agency quantitative models. These models assess the Company’s premium rates and return on capital results on a risk adjusted basis. In addition, market research data is used to evaluate pricing levels across the financial guarantee industry for comparable risks. The Company’s 2003 pricing levels indicate continued positive trends in overall portfolio profitability, and the Company believes the pricing charged for its insurance products produces results that meet its long-term return on capital targets.

When a MBIA-insured bond issue is refunded or retired early, the related deferred premium revenue is earned immediately. The level of bond refundings and calls is influenced by a variety of factors such as prevailing interest rates, the coupon rates of the bond issue, the issuer’s desire or ability to modify bond covenants and applicable regulations under the Internal Revenue Code.

Strong demand, favorable pricing and the growth opportunities in U.S. and non-U.S. markets are factors that management believes indicate strong future business production. However, driven by back-to-back years of record business production, the Company’s outlook for business production in 2004 is positive but not at the same levels of growth as in the past two years. The Company expects that the very strong levels of new business written over the last

40

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

three years, particularly in the public finance sector, will drive total earned premium growth into the 15-20% range in 2004. Assuming that interest rates rise in 2004, the Company expects refunding activity to slow down.

INSURANCE OPERATIONS

2003 revenues from insurance operations were $1.230 billion compared with $1.072 billion in 2002, a 15% increase. The growth in insurance revenues was driven by a 25% increase in premiums earned and an 18% increase in advisory fee revenues. Net scheduled premiums earned, which exclude refundings, were $607 million in 2003, up 18% from 2002. The growth in net scheduled premiums earned in 2003 reflects the increase in new business written during the last two years, as well as a lower reinsurance cession rate. Refunded premiums earned increased 69% this year when compared with last year as municipalities took advantage of the continued low interest rate environment to refinance their debt.

Insurance expenses, which consist of loss and loss adjustment expenses, amortization of deferred acquisition costs and operating expenses increased 21% in 2003. The growth rates in all three insurance expense categories are in line with the increase in insurance revenues. Gross insurance expenses were up 18% for 2003, resulting from a change in expense allocation methodology between business operations, expenses related to the formation of Toll Road Funding Plc. (TRF), and a one-time cost to replace split-dollar life insurance policies in response to prohibitions on loans to executives imposed under the Sarbanes-Oxley Act. Excluding these items, insurance operating expenses increased 6% for 2003, in line with the Company’s long-term goal of 5% to 7%. While expenses in 2003 exceeded the Company’s long-term goal due to nonrecurring items, future expense growth is expected to fall within the targeted range.

The Company’s gross premiums written (GPW), net premiums written (NPW) and scheduled premiums earned for the last three years are presented in the following table:

							Percent Change
In millions	2003		2002		2001		2003 vs. 2002		2002 vs. 2001
Gross premiums written:
U.S.	$	862	$	728	$	615	18	%	18	%
Non-U.S.	$	407	$	224	$	250	82	%	(11	)%
Total	$	1,269	$	952	$	865	33	%	10	%
Net premiums written:
U.S.	$	734	$	610	$	506	20	%	20	%
Non-U.S.	$	299	$	143	$	124	108	%	16	%
Total	$	1,033	$	753	$	630	37	%	20	%
Scheduled premiums earned:
U.S.	$	467	$	417	$	388	12	%	7	%
Non-U.S.	$	140	$	97	$	81	44	%	20	%
Total	$	607	$	514	$	469	18	%	10	%

41

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

GPW reflects premiums received and accrued for the period and does not include the present value of future cash receipts expected from installment premium policies originated during the year. GPW was $1.3 billion in 2003, up 33% over 2002, reflecting strong growth in both U.S. and non-U.S. business. Installment and upfront GPW grew 32% and 34%, respectively, from 2002.

NPW, which is gross premiums written net of premiums ceded to reinsurers, increased 37% to $1.0 billion from $753 million in 2002. The larger increase in NPW relative to GPW relates to slightly lower cession rates in 2003 compared with 2002. Premiums ceded to reinsurers from all insurance operations were $236 million, $199 million and $235 million for 2003, 2002 and 2001, respectively. Reinsurance enables the Company to cede exposure and comply with its single risk and credit guidelines, although the Company continues to be primarily liable on the policy being insured.

In 2002, insurance operations revenues increased 10% compared with 2001. The growth in revenues was due to increases in premiums earned, net investment income and advisory fees. Insurance expenses increased 10% in 2002, which is in line with the increase in insurance revenues for the same period. In 2002, GPW grew by 10% compared with 2001, reflecting strong growth in U.S. business slightly offset by a decrease in non-U.S. business. NPW grew 20% compared with 2001, resulting from increases in both U.S. and non-U.S. business. The increase in 2002 NPW relative to the increase in 2002 GPW is due to a decrease in cession rates to reinsurers.

GLOBAL PUBLIC FINANCE MARKET MBIA’s premium writings and premium earnings in both the new issue and secondary global public finance markets are shown in the following table:

							Percent Change
Global Public Finance In millions	2003		2002		2001		2003 vs. 2002		2002 vs. 2001
Gross premiums written:
U.S.	$	570	$	435	$	375	31	%	16	%
Non-U.S.	$	263	$	91	$	138	189	%	(34	)%
Total	$	833	$	526	$	513	58	%	2	%
Net premiums written:
U.S.	$	511	$	386	$	318	33	%	21	%
Non-U.S.	$	210	$	67	$	67	210	%	—
Total	$	721	$	453	$	385	59	%	18	%
Scheduled premiums earned:
U.S.	$	237	$	213	$	202	12	%	5	%
Non-U.S.	$	54	$	27	$	20	101	%	36	%
Total	$	291	$	240	$	222	22	%	8	%

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MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

Global public finance issuance remained high in 2003, largely driven by the low interest rate environment and increased issuance by municipalities due to stress on municipal budgets. New issuance in the U.S. public finance market measured by par value increased by $2 billion from $327 billion in 2002 to $329 billion in 2003. The insured portion of this market increased from 55% in 2002 to 58% in 2003. Robust refunding activity fueled this growth in the U.S. public finance market where refundings were up 2% for the year, as lower interest rates continued to prevail.

Global public finance GPW and NPW increased 58% and 59%, respectively, over 2002. This increase was due primarily to new upfront business written in the U.S. and outside the U.S. The slightly larger increase in global public finance NPW versus GPW relates to a lower cession rate in 2003 compared with 2002. Ceded premiums as a percent of gross premiums decreased from 14% in 2002 to 13% in 2003, which was largely the result of lower cession rates on deals insured outside the U.S. In 2003, global public finance scheduled earned premiums increased 22% to $291 million from $240 million in 2002. This growth reflects earnings generated from increased levels of business written over the last several years.

The credit quality of global public finance business written by the Company remained high for the past three years. Insured credits rated A or above before the Company’s guarantee accounted for 88% of the 2003 and 2002 global public finance business, while credits rated A or above in 2001 were 85%. At year-end 2003, 81% of the outstanding global public finance book of business was rated A or above before the Company’s guarantee.

In 2002, GPW and NPW increased 2% and 18%, respectively, over 2001. Solid growth in U.S. GPW offset a decrease in non-U.S. GPW, while both U.S. and non-U.S. NPW increased. Ceded premiums as a percent of gross premiums decreased from 25% in 2001 to 14% in 2002, the result of lower cession rates on deals insured outside the U.S. Premiums earned from scheduled amortization increased by 10%, driven by an increase in both U.S. and non-U.S. business. Refunded premiums earned increased 36%, reflecting the lower interest rate environment.

43

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

GLOBAL STRUCTURED FINANCE MARKET MBIA’s premium writings and premium earnings in both the new issue and secondary global structured finance markets are shown in the following table:

							Percent Change
Global Structured Finance (In millions)	2003		2002		2001		2003 vs. 2002		2002 vs. 2001
Gross premiums written:
U.S.	$	292	$	293	$	240	(1	)%	22	%
Non-U.S.	$	144	$	133	$	112	8	%	18	%
Total	$	436	$	426	$	352	2	%	21	%
Net premiums written:
U.S.	$	223	$	224	$	188	—		19	%
Non-U.S.	$	89	$	76	$	57	17	%	32	%
Total	$	312	$	300	$	245	4	%	22	%
Scheduled premiums earned:
U.S.	$	230	$	204	$	186	13	%	10	%
Non-U.S.	$	86	$	70	$	61	22	%	15	%
Total	$	316	$	274	$	247	15	%	11	%

Global structured finance worldwide securitization volume increased 27% over the prior year with most of the growth concentrated in U.S. public asset-backed and mortgage-backed securities.

Overall, MBIA’s global structured finance insured business written rated A or above before giving effect to the Company’s guarantee totaled 71% in 2003, down from 77% last year. At year-end 2003, 74% of the outstanding global structured finance book of business was rated A or above before giving effect to the Company’s guarantee, up from 68% at year-end 2002.

Global structured finance GPW increased 2% in 2003, to $436 million from $426 million last year, resulting from an increase in non-U.S. business. In 2003, installments received from business written in prior years increased 10% when compared with 2002. NPW for 2003 increased 4% due to the increase in non-U.S. business activity coupled with a lower cession rate on that business. The cession rate on global structured finance business was 28%, which declined from the 30% cession rate in 2002. The lower growth in premiums written when compared to 2002 growth was a result of the Company insuring fewer mortgage and consumer asset-backed transactions due to generally unattractive market pricing and credit terms in those sectors. In 2003, global structured finance

44

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

scheduled net earned premiums of $316 million increased 15% over 2002. This increase was primarily driven by strong levels of new business written over the last 18 months. In 2003, premiums exclude those received from Triple-A One Funding Corp. (Triple-A), Meridian Funding Company, LLC (Meridian) and Polaris Funding Company, LLC (Polaris) (collectively, the Conduits) resulting from the Company’s guarantee of assets and liabilities that are now consolidated by the Company.

In 2002, GPW increased 21% due to increases in installment business written in the U.S. and outside the U.S. NPW increased 22%, in line with the growth in GPW due to a relatively stable cession rate. The 11% growth in net scheduled premiums earned reflects increases in both U.S. and non-U.S. business.

CREDIT QUALITY Financial guarantee companies use a variety of approaches to assess the underlying credit risk profile of their insured portfolios. MBIA uses both an internally developed credit rating system as well as third-party rating sources in the analysis of credit quality measures of its insured portfolio. In evaluating credit risk, the Company obtains, when available, the underlying rating of the insured obligation before the benefit of its insurance policy from nationally recognized rating agencies (Moody’s Investors Service (Moody’s), Standard and Poor’s (S&P) and Fitch Ratings). All references to insured credit quality distributions contained herein reflect the underlying rating levels from these third-party sources. Other companies within the financial guarantee industry may report credit quality information based upon internal ratings that would not be comparable to MBIA’s presentation.

The credit quality of business insured during 2003 remained high as insured credits rated A or above before MBIA’s guarantee were 81% for each of the past two years, up from 78% in 2001. At year-end 2003, over 78% of the Company’s outstanding book of business was rated A or above before MBIA’s guarantee.

INVESTMENT INCOME The Company’s insurance-related net investment income and ending asset balances at amortized cost for the last three years are presented in the following table:

							Percent Change
(In millions)	2003		2002		2001		2003 vs. 2002		2002 vs. 2001
Pre-tax income	$	438	$	433	$	413	1	%	5	%
After-tax income	$	348	$	353	$	334	(2	)%	6	%
Ending asset balances	$	9,108	$	8,100	$	7,498	12	%	8	%

45

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

The Company’s insurance-related net investment income, excluding net realized gains, increased 1% to $438 million in 2003, up from $433 million in 2002. Despite an 11% growth in the average invested asset base at amortized cost, the continuing low-yield environment eroded most of the positive growth in investment income. After-tax net investment income decreased by 2% in 2003, as the Company increased its concentration of taxable investments. A portion of Conduit investment income has been reported as insurance-related net investment income, reflecting the inclusion of earnings on Conduit assets. Excluding Conduit investment income, after-tax insurance-related investment income in 2003 would have declined 3% compared with 2002.

During the Company’s annual risk assessment process in 2002, management identified that the extended period of low interest rates had embedded significant capital gains in its investment portfolio that would be lost under the reasonable scenario that interest rates return to more normal levels in the near future. As a result, the Company decided to forego short-term yield and, in order to realize such imbedded capital gains, reposition the portfolio duration from just below 8 years to approximately 5 years in order to preserve economic capital. The duration at December 31, 2003, 2002 and 2001 was 5.30 years, 6.89 years and 7.48 years, respectively. The impact of shortening the investment portfolio duration was a reduction in 2003 after-tax net investment income. Having substantially completed the duration adjustment, the Company forecasts that growth in both invested assets and after-tax net investment income will be in the 8-10% range for 2004.

In 2002, insurance-related net investment income was up 5% over 2001. The modest growth in 2002 was due to the low-yield environment despite a 9% growth in invested assets at cost. After-tax net investment income increased 6% in 2002, as the portfolio had significant tax-exempt investments.

ADVISORY FEES The Company collects advisory fees in connection with certain transactions. Depending upon the type of fee received, the fee is either earned when it is due or deferred and earned over the life of the related transaction. Work, waiver and consent, termination, administrative and management fees are earned when due. Structuring fees are earned on a straight-line basis over the life of the related transaction and commitment fees are earned over the period of the commitment contract.

In 2003, advisory fee revenues increased 18% to $59.7 million, from $50.7 million in 2002. This increase was driven by the Company’s emphasis on work fees for increasingly complex insurance transactions and waiver and consent fees related to the surveillance and remedial activities of the Company’s

46

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

Insured Portfolio Management Department (IPM). Similarly, the 29% increase in 2002 compared with 2001 was primarily a result of the Company’s focus on work fees and waiver and consent fees. Fees that are earned when due totaled 91% and 88% of 2003 and 2002 advisory fee income, respectively. Due to the one-time nature inherent in such fees, there can be no assurance that the growth in advisory fees will continue at past levels.

MBIA conduit administration fees represented approximately 9% of total advisory fee revenues in 2003 compared with 24% in 2002 and 28% in 2001. This decreasing trend is the result of growth in work and waiver and consent fees and the elimination of conduit fees from the date the Company purchased the Conduits.

LOSSES AND LOSS ADJUSTMENT EXPENSES (LAE) The following table shows the case-specific, reinsurance recoverable and unallocated components of the Company’s total loss and LAE reserves at the end of the last three years, as well as its loss provision and loss ratios for the last three years:

										Percent Change
In millions	2003			2002			2001			2003 vs. 2002		2002 vs. 2001
Case-specific:
Gross	$	262		$	289		$	246		(9	)%	17	%
Reinsurance recoverable on unpaid losses		61			44			35		39	%	25	%
Net case reserves	$	201		$	245		$	211		(18	)%	16	%
Unallocated		297			284			272		5	%	4	%
Net loss and LAE reserves	$	498		$	529		$	483		(6	)%	10	%
Losses and LAE	$	73		$	62		$	57		18	%	9	%
Loss ratio:
GAAP		9.9	%		10.5	%		10.8	%
Statutory		9.2	%		9.4	%		9.3	%

The Company recorded $73 million in loss and loss adjustment expenses in 2003, an 18% increase compared with $62 million in 2002. This increase was a direct result of growth in scheduled earned premiums, which is the basis of the Company’s loss reserving formula. Total case-incurred activity was $60 million for 2003, $49 million for 2002 and $43 million for 2001. 2003 case-incurred activity included additional case reserves for MBIA’s guaranteed tax lien portfolios, and losses associated with the guarantees of an older vintage CDO and a Trenwick America Corp. debt obligation.

Loss ratios are calculated by dividing losses incurred by net premiums earned and are a measurement of the Company’s underwriting performance. The

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MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

statutory loss ratio only includes case losses incurred, while the GAAP loss ratio includes case losses incurred and a provision for unallocated losses. Both the GAAP and statutory loss ratios have remained relatively consistent over the last three years.

MBIA’s IPM Division is responsible for monitoring MBIA insured issues. The level and frequency of MBIA’s monitoring of any insured issue depends on the type, size, rating and performance of the insured issue. If IPM identifies concerns with respect to the performance of an insured issue it may designate such insured issue as “Caution List-Low,” “Caution List-Medium” or “Caution List-High.” The designation of any insured issue as “Caution List-Medium” or “Caution List-High” is based on the nature and extent of these concerns and requires that an increased monitoring and, if needed, a remediation plan be implemented for the related insured issue.

In the event MBIA determines that it expects to pay a claim with respect to an insured issue, it places the issue on its “classified list” and establishes a case basis reserve for that insured issue. As of December 31, 2003, MBIA had 48 open case basis issues on its classified list that had $201 million in aggregate case reserves. Of the 48 issues on its classified list, 17 issues with an aggregate outstanding net insured par of approximately $831 million had case basis reserves of $278 million for expected future claims. In addition, 21 issues with an aggregate outstanding net insured par of approximately $1.8 billion had negative case basis reserves for which no further claims are expected but for which the Company expects to receive future salvage and recoveries totaling $77 million. The Company does not expect to incur losses, net of salvage and recoveries, on the remaining 10 issues, which had an aggregate outstanding net insured par of approximately $359 million. The Company has not established any case basis reserves for issues that are listed as “Caution List-Low,” “Caution List-Medium” or “Caution List-High.”

RISK MANAGEMENT In an effort to mitigate losses, MBIA is regularly involved in the ongoing remediations of credits that may involve, among other things, waivers or renegotiations of financial covenants or triggers, waivers of contractual provisions, the granting of consents, and the taking of various other remedial actions. The nature of any remedial action is based on the type of the insured issue and the nature and scope of the event giving rise to the remediation. In most cases, as part of any such remedial activity, MBIA is able to improve its security position and to obtain concessions from the issuer of the insured bonds. Since it commenced operations, the Company has

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MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

restructured only three insured bond issues, with an aggregate insured par amount of $352 million, two of which involved the extension of the term of the insured bonds by three and eight years, respectively. In no case was the principal amount of the insured bond issue increased or decreased or the interest rate reduced. The restructuring of an insured issue will generally not affect the amount of the Company’s case basis reserves established for the restructured issue, if any, except if as a result of such restructuring the Company’s estimate of the amount of its ultimate loss for such policy changes. MBIA has a case basis reserve with respect to one of the insured issues that it has restructured.

REINSURANCE Reinsurance enables the Company to cede exposure for purposes of increasing its capacity to write new business while complying with its single risk and credit guidelines. The rating agencies continuously review reinsurers providing coverage to the financial guarantee industry. Many of MBIA’s reinsurers have been downgraded over the past two years, and others remain under review. As of December 31, 2002, reinsurers rated Double-A and above represented 90% of MBIA’s ceded par. As a result of downgrades during 2003, this percentage as of December 31, 2003 was 56%. When a reinsurer is downgraded, less capital credit is given to MBIA under rating agency models. The reduced capital credit has not and is not expected to have a material adverse effect on the Company. The Company generally retains the right to reassume the business ceded to reinsurers under certain circumstances, including the downgrade of the reinsurers. The Company remains liable on a primary basis for all reinsured risks, and although the Company believes that its reinsurers remain capable of meeting their obligations, there can be no assurance that the reinsurers will be able to meet these obligations.

As of December 31, 2003, the aggregate amount of insured par ceded by MBIA to reinsurers was $110.2 billion. The following table shows the percentage ceded to and reinsurance recoverable from reinsurers by S&P rating levels.

Reinsurers’ S&P Rating Range	Percent of Total Par Ceded		Reinsurance Recoverable (in thousands)
AAA	32.62	%	$	11,362
AA	23.33	%		31,126
A	30.43	%		14,065
BBB	0.09	%		318
Non-investment grade	0.30	%		—
Not currently rated	13.23	%		4,214
Total	100	%	$	61,085

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MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

Two reinsurers within the AAA rating category represent approximately 27% of total par ceded by MBIA; two reinsurers within the AA rating category represent approximately 20% of total par ceded by MBIA; and two reinsurers within the A rating category represent approximately 21% of total par ceded by MBIA. After giving effect to the 2004 cessions to Channel Reinsurance Ltd. (Channel Re) described below, the percentage of cessions to AAA rated reinsurers would have been approximately 60% at December 31, 2003.

In 2003, MBIA launched several initiatives aimed at maximizing its Triple-A reinsurance capacity, including the investment of $25 million in RAM Reinsurance Company, a Triple-A rated financial guarantee reinsurer located in Bermuda. The Company’s investment, among other things, enabled RAM Reinsurance Company to maintain its Triple-A rating. In addition, on February 13, 2004, the Company announced that Channel Re, a new financial guarantee reinsurer based in Bermuda, was formed and funded. Channel Re was capitalized with total equity capital of approximately $366 million from four investors. Channel Re has received financial strength ratings of Aaa from Moody’s and AAA from S&P. MBIA has a 17.4% ownership interest in Channel Re. Channel Re has assumed a $27 billion portfolio of in-force business from MBIA and will participate in the Company’s reinsurance treaty and provide facultative reinsurance support. Following the assumption of the in-force business, Channel Re had total claims-paying resources of approximately $700 million. Business ceded to Channel Re was reassumed from various other reinsurers during February and March of 2004.

POLICY ACQUISITION COSTS AND OPERATING EXPENSES Expenses related to the production of the Company’s insurance business (policy acquisition costs) are deferred and recognized over the period in which the related premiums are earned. If an insured bond issue is refunded and the related premium is earned early, the associated acquisition costs previously deferred are also recognized early.

MBIA will recognize a premium deficiency if the sum of expected loss and loss adjustment expenses, maintenance costs and unamortized policy acquisition costs exceed the related unearned premiums. If MBIA were to have a premium deficiency that is greater than unamortized acquisition costs, the unamortized acquisition costs would be reduced by a charge to expense, and a liability (if necessary) would be established for any remaining deficiency. Although GAAP

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MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

permits the anticipation of investment income when determining a premium deficiency, MBIA currently does not include this in making its determination.

The Company’s policy acquisition costs, operating expenses and total insurance operating expenses, as well as related expense ratios, are shown in the following table:

										Percent Change
In millions	2003			2002			2001			2003 vs. 2002		2002 vs. 2001
Gross expenses	$	246		$	209		$	181		18	%	16	%
Amortization of deferred acquisition costs	$	58		$	48		$	42		21	%	12	%
Operating expenses		108			87			81		24	%	9	%
Total insurance operating expenses	$	166		$	135		$	123		23	%	10	%
Expense ratio:
GAAP		22.7	%		23.0	%		23.5	%
Statutory		12.8	%		16.8	%		13.4	%

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MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

In 2003, the amortization of deferred acquisition costs increased 21% over 2002, in line with the increase in insurance premiums earned. The amortization of deferred acquisition costs increased 12% in 2002 compared with 2001. The ratio of policy acquisition costs, net of deferrals, to earned premiums has remained steady at 8% in 2003, 2002 and 2001. In addition, during the last three years there has been a decline in the ratio of deferred expenses carried as assets on the balance sheet to deferred revenues carried as liabilities on the balance sheet plus the present value of future installment premiums. This declining ratio indicates the Company has deferred proportionately more revenues than expenses over the last three years.

Operating expenses increased 24% from $87 million in 2002 to $108 million in 2003, reflecting higher compensation costs that are primarily the result of a one-time cost related to the replacement of split-dollar life insurance policies, expenses in the second quarter of 2003 to establish TRF and a reallocation of expenses between business operations. The 9% increase in operating expenses in 2002 compared with 2001 primarily reflects the Company’s decision to expense the fair value of stock options, totaling $7 million, in accordance with the modified prospective transition method of SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” The pro forma stock option expense not included in 2001 in accordance with the modified prospective method of adoption is not materially different from the expense recognized in 2002.

Financial guarantee insurance companies use the statutory expense ratio (expenses divided by net premiums written) as a measure of expense management. The Company’s 2003 statutory expense ratio of 12.8% is below the 2002 ratio of 16.8% and the 2001 ratio of 13.4%. The decrease in the ratio from 2002 is due

52

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

to a significant increase in net premiums written. If stock option expenses had been included in the 2001 calculation, the statutory expense ratio for 2001 would have been 16.7%. The statutory expense ratios for the past three years have been considerably better than the Company’s long-term goal of 20%.

VARIABLE INTEREST ENTITIES In May 2003, the Company sponsored the formation of Toll Road Funding, Plc. (TRF), a public company incorporated in Ireland under the Irish Companies Act. TRF is a conduit established to acquire a loan participation related to the financing of an Italian toll road and, at December 31, 2003, had $1.5 billion of debt outstanding. Assets supporting the repayment of the debt were comprised of the loan participation and high-quality, liquid investments. Assets and liabilities of TRF are included within “Conduit investments held-to-maturity” and “Conduit debt obligations,” respectively, on the Company’s balance sheet. TRF is a variable interest entity (VIE), of which MBIA is the primary beneficiary. Therefore, while MBIA does not have a direct ownership interest in TRF, it is consolidated in the financial statements of the Company in accordance with Financial Accounting Standards Board Interpretation Number 46, “Consolidation of Variable Interest Entities” (FIN 46).

Under the provisions of FIN 46, MBIA must determine whether it has a variable interest in a VIE and if so, whether that variable interest would cause MBIA to be the primary beneficiary. The primary beneficiary is the entity that will absorb the majority of the expected losses, receive the majority of the expected residual returns or both of the VIE and is required to consolidate the VIE. VIEs are used in a variety of structures insured or managed by MBIA. Under FIN 46, MBIA’s guarantee of the assets or liabilities of a VIE constitute a variable interest and require MBIA to assess whether it is the primary beneficiary. Additionally, the Company’s management of VIEs under asset management agreements may subject the Company to consolidation of such entities. Consolidation of such VIEs does not increase MBIA’s exposure above that already committed to in its insurance policies. Additionally, VIE assets and liabilities that are consolidated within MBIA’s financial statements may represent amounts above MBIA’s guarantee, although such excess amounts would ultimately have no impact on MBIA’s net income. VIE assets and liabilities consolidated in the Company’s financial statements at December 31, 2003 are reported in “Variable interest entity assets” and “Variable interest entity liabilities”, respectively, on the face of the Company’s balance sheet and totaled $600.3 million.

53

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

INVESTMENT MANAGEMENT SERVICES

MBIA’s investment management operations have been consolidated under MBIA Asset Management, LLC since 1998. MBIA Asset Management, LLC owns 1838 Investment Advisors, LLC (1838), MBIA Municipal Investors Service Corp. (MBIA-MISC), MBIA Investment Management Corp. (IMC) and MBIA Capital Management Corp. (CMC), as well as the Conduits, which were consolidated in the third quarter of 2003. MBIA Global Funding, LLC (GFL) and Euro Asset Acquisition, Ltd. (EAAL), subsidiaries of the Company, also operate as part of the asset management business.

In general, the asset management businesses have had solid performances since 1998. However, in 2002, the asset management business suffered from a further weakening in the equity markets and, to a lesser extent, the low interest rate environment. The equity investment management business has not recovered from this turbulence in the U.S. equity markets while the fixed-income business showed promising results. Fixed-income results improved primarily as a result of growth in investment agreement and medium-term note activities. Investment agreement and medium-term note activities represented 59% of investment management services 2003 operating income, up from 34% in 2002 and 27% in 2001. Investment management services net revenues were up 9% over 2002, while consolidated expenses were up 14%, resulting in an operating income increase of 1% compared with 2002. If stock option expense relating to the adoption of the fair value recognition provisions of SFAS 123 had been recorded in 2001, pro forma operating income would still have declined 15% in 2002.

Ending assets under management at the end of 2003, which do not include Conduit assets, were $37.5 billion, 8% above the 2002 year-end level. Fixed-income assets increased 14%, while equity assets decreased 33%. Conduit assets are held to their contractual maturity and are originated and managed differently from those held as available-for-sale by the Company or those managed for third-parties. The following table summarizes the consolidated investment management results and assets under management over the last three years:

							Percent Change
In millions	2003		2002		2001		2003 vs. 2002		2002 vs. 2001
Revenues	$	423	$	424	$	442	—		(4	)%
Interest expense		303		313		316	(4	)%	(1	)%
Net revenues		120		111		126	9	%	(12	)%
Expenses		70		62		63	14	%	(2	)%
Operating income	$	50	$	49	$	63	1	%	(21	)%
Ending assets under management:
Fixed-income	$	34,408	$	30,280	$	28,865	14	%	5	%
Equities		3,109		4,630		10,383	(33	)%	(55	)%
Total	$	37,517	$	34,910	$	39,248	8	%	(11	)%

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MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

The following provides a summary of each of the asset management businesses:

MBIA-MISC provides investment management programs including pooled investment products, customized asset management and bond proceeds investment services. In addition, MBIA-MISC provides portfolio accounting and reporting for state and local governments including school districts. MBIA-MISC is a Securities and Exchange Commission (SEC)-registered investment adviser. MBIA-MISC had $11.2 billion in assets under management at year-end 2003, up 11% from 2002. While assets under management have increased, the low interest rate environment has had a negative impact on revenues.

IMC provides customized investments for bond proceeds and other public funds for such purposes as construction, loan origination, escrow and debt service or other reserve fund requirements. It also provides customized products for funds that are invested as part of asset-backed or structured product issuance.

GFL was formed in 2002 as an extension of the Company’s investment management business. GFL raises funds through the issuance of medium-term notes with varying maturities (GFL MTNs), which are in turn guaranteed by MBIA Insurance Corporation (MBIA Corp.). GFL lends the proceeds of these GFL MTN issuances to the Company (GFL Loans). Under an agreement between the Company and MBIA Corp., the Company invests the proceeds of the GFL Loans in eligible investments (the GFL Investments), which consist of securities with a minimum Double-A quality. The GFL Investments are pledged to MBIA Corp.

Euro Asset Acquisition Limited (EAAL) was formed in 2003 as a wholly owned subsidiary of the Company and as an extension of its asset management business. EAAL primarily purchases foreign assets as permitted under the Company’s investment guidelines.

At December 31, 2003, principal and accrued interest outstanding on IMC, GFL and EAAL investment agreements and medium-term note obligations and securities sold under agreements to repurchase totaled $9.3 billion, compared with $7.8 billion at December 31, 2002. Assets supporting these agreements had market values of $9.4 billion and $8.1 billion at December 31, 2003 and December 31, 2002, respectively. These assets are comprised of high-quality securities with an average credit quality rating of Double-A.

CMC is a SEC-registered investment adviser and National Association of Securities Dealers member firm. CMC specializes in fixed-income management for institutional funds and provides investment management services to IMC’s

55

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

investment agreement portfolio, GFL’s medium-term note and investment agreement portfolio, MBIA-MISC’s municipal cash management programs and the Company’s insurance and corporate investment portfolios. At year-end 2003, the market value of CMC’s third-party assets under management was $3.1 billion, compared with $2.6 billion at year-end 2002. The market value of assets related to the Company’s insurance and corporate investment portfolios managed by CMC were $9.8 billion at December 31, 2003, up 12% from the previous year-end.

1838 is a full-service asset management firm with an institutional focus. It manages equity, fixed-income and balanced portfolios for a client base comprised of municipalities, endowments, foundations, corporate employee benefit plans and high-net-worth individuals. 1838’s results were significantly impacted by, and have not recovered from, turbulence in the U.S. equity markets. A considerable decline in operating revenues was slightly mitigated by a reduction in operating costs. Assets under management at year-end 2003 were $3.7 billion, a decline of 31% from year-end 2002 assets of $5.4 billion.

On September 30, 2003, MBIA purchased the equity and acquired all controlling interests of the conduits it administers, Triple-A, Meridian and Polaris. These entities are now reflected in the consolidated financial statements of the Company.

MBIA has consolidated the Conduits in accordance with SFAS 94, “Consolidation of all Majority-Owned Subsidiaries” by acquiring controlling financial interests through the direct ownership of all of the voting interests of each Conduit. As a result of the consolidation of the Conduits, MBIA has included in its balance sheet the gross assets and liabilities of each Conduit, which consist primarily of various types of investments and medium- and short-term debt, and included in its income statement the gross operating revenues and expenses of the Conduits subsequent to their acquisition date. The investments and debt obligations of the Conduits, along with the investments and debt obligations of TRF, are reported separately as conduit investments and conduit debt obligations on the face of the Company’s balance sheet. Since Conduit revenues and expenses are consolidated from the date the Company purchased the Conduits, the impact on the Company’s income statement is immaterial. Certain of MBIA’s consolidated subsidiaries have invested in Conduit debt obligations or have received compensation for services provided to the Conduits. As such, MBIA has eliminated intercompany transactions with the Conduits from its balance sheet and income statement. After the elimination of such intercompany assets and liabilities, Conduit

56

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

investments and Conduit debt obligations were $8.4 billion and $7.8 billion, respectively at December 31, 2003. The difference between the investments and debt obligations is primarily the result of the elimination of Conduit debt owned by other MBIA subsidiaries. Other than the potential impact of the unrealized gains or losses from derivative instruments, MBIA does not expect its net income to change materially as a result of the consolidation of the Conduits due to the inconsequential level of residual profits of these entities.

The Conduits enter into derivative instruments primarily as an economic hedge against interest rate and currency risks. It is expected that any change in the market value of the derivative instruments will be offset by a change in the market value of the hedged assets or liabilities. However, since the investments are accounted for as held-to-maturity, the change in market value, with the exception of the change in value of foreign currency assets due to changes in foreign currency rates, is not recorded in the financial statements. Derivative instruments entered into by the Conduits are not accounted for as hedges under SFAS 133 and, therefore, changes in market value are recorded as gains or losses in MBIA’s consolidated income statement.

The consolidation of the Conduits has not impacted MBIA’s liquidity requirements since Triple-A, an MBIA-administered multi-seller commercial paper conduit, had independently entered into liquidity agreements with third-party providers and MBIA does not guarantee payment of the commercial paper, and the assets and liabilities of the other Conduits are structured on a match-funded basis. In addition, the consolidation has not affected MBIA’s credit ratings or statutory capital requirements. Each of the transactions funded through the Conduits was underwritten in accordance with the Company’s underwriting standards and has been reviewed by the rating agencies. MBIA’s guarantees of the underlying investments and/or liabilities of the Conduits have historically been included in MBIA’s reported insurance exposure. Lastly, the consolidation of the Conduits will have no adverse affect on MBIA Corp.’s ability or capacity to declare dividends to MBIA Inc.

It is MBIA’s policy to obtain a shadow rating from both Moody’s and S&P for each new transaction prior to the execution of such transactions within the Conduits. A shadow rating is the implied rating for the transaction without giving consideration to the MBIA guarantee. All transactions currently funded in the Conduits were shadow-rated at least investment grade by Moody’s and S&P prior to funding. The weighted average shadow rating for transactions currently funded in the Conduits was A by S&P and A2 by Moody’s at the time such transactions were

57

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

funded. MBIA estimates that the current weighted average shadow rating of all outstanding Conduit transactions was A- by S&P and A3 by Moody’s as of December 31, 2003.

As a result of having to adhere to MBIA’s underwriting standards and criteria, Conduit transactions have, in general, the same underlying shadow ratings that similar non-Conduit transactions guaranteed by MBIA have at the time they are closed. Like all credits underwritten by MBIA, the shadow ratings on Conduit transactions may be downgraded by either one or more rating agencies after they are closed. In general, the underlying shadow ratings on Conduit transactions have been downgraded no more frequently than similar non-Conduit transactions guaranteed by MBIA.

MUNICIPAL SERVICES

MBIA MuniServices Company (MBIA MuniServices) provides revenue enhancement services and products to public-sector clients nationwide, consisting of discovery, audit, collections/recovery, enforcement and information (data) services. The municipal services operations also include Capital Asset Holdings GP, Inc. and certain affiliated entities (Capital Asset), a servicer of delinquent tax certificates.

For 2003, the municipal services operations reported operating income of $957 thousand, compared with operating income of $402 thousand in 2002. Revenues grew slightly more than expenses, with 8% and 6% growth rates. Municipal contracts and contingency fee billings were the main drivers behind the increase in municipal services revenues.

The Company owns Capital Asset, which was in the business of acquiring and servicing tax liens. The Company became the majority owner in December 1998 when it acquired the interest of Capital Asset’s founder and acquired the remaining equity in Capital Asset in the fourth quarter of 2003. MBIA Corp. has insured three securitizations of tax liens that were originated and continue to be serviced by Capital Asset. These securitizations were structured through the sale by Capital Asset of substantially all of its tax liens to three off-balance sheet qualifying special purpose entities (QSPEs) that were established in connection with these securitizations. These QSPEs are not the MBIA conduits discussed in the investment management services section of this report and are not included in the consolidation of the MBIA group. In the third quarter of 1999, Capital Asset engaged a specialty servicer of residential mortgages to help manage its business and operations and to assist in administering the portfolios supporting the securitizations insured by MBIA Corp. As of December 31, 2003, the aggregate gross insured

58

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

amount in connection with these securitizations was approximately $179 million compared with $201 million at December 31, 2002. MBIA Corp. has established case reserves related to these policies based on the amount of redemptive balances of those tax liens underlying such policies that Capital Asset has written off for a variety of reasons. MBIA will continue to evaluate the performance of the tax lien portfolio and establish reserves as and when necessary based on the same methodology. Since the ultimate collectability of tax liens is difficult to estimate, there can be no assurance that the case reserves established to date would be sufficient to cover all future claims under these policies.

In 2003, Capital Asset finalized the settlement of a class action lawsuit that principally involved the rate of interest that Capital Asset could legally charge on tax and water and sewer liens in Pittsburgh. As part of the settlement, Capital Asset refunded $8.9 million in interest collected with respect to the Pittsburgh liens, and the special purpose entity that held the liens wrote down $17.6 million in accrued interest on the Pittsburgh liens. Capital Asset’s reserves were sufficient to cover the full amount of any refunds due.

CORPORATE

NET INVESTMENT INCOME Net investment income was $9 million in 2003 and 2002, respectively. Despite an average asset base growth at the holding company level of 16%, corporate investment income was flat over last year due to the low interest rate environment.

INTEREST EXPENSE The Company incurred $68 million of interest expense compared with $58 million last year. The 17% increase is the result of the additional $200 million of debt issued during the third quarter of 2002.

CORPORATE EXPENSES Corporate expenses decreased 14% compared with 2002. In 2003, corporate expenses benefited by $8 million due to a reallocation of expenses among MBIA’s business operations. This benefit was offset by higher legal, auditing, consulting and severance expenses.

GAINS AND LOSSES

NET REALIZED GAINS Net realized gains were $81 million in 2003, consisting of gross realized gains of $130 million and gross realized losses of $49 million. The increase in 2003’s net realized gains primarily resulted from the Company’s sale of long-term assets to reduce the duration of its investment

59

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

portfolio. In 2002, net realized gains were $15 million, consisting of gross realized gains of $74 million and gross realized losses of $59 million. Net realized gains in 2001 were $9 million, consisting of gross realized gains of $85 million and gross realized losses of $76 million. In 2002 and 2001, the gains and losses were generated from the ongoing active total return management of the investment portfolio.

NET GAINS OR LOSSES ON DERIVATIVE INSTRUMENTS AND FOREIGN EXCHANGE Net gains on derivative instruments and foreign exchange were $100 million for the year ended December 31, 2003 compared with $82 million of net losses in 2002. This change was primarily attributable to the Company’s insured synthetic CDO portfolio. MBIA’s valuation of synthetic CDOs is sensitive to, among other factors, changes in credit spreads, and, therefore, the unrealized gain reflects the impact of tighter credit spreads in the investment grade bond market in 2003. Other factors that will affect the fair value of the Company’s insured credit derivatives are underlying collateral performance, changes in interest rates and the remaining time to maturity. The requirement to fair value the Company’s synthetic CDOs can cause significant volatility in its reported results without necessarily providing any additional information regarding the likelihood of future credit losses. The Company added an additional third-party data source in 2003 for generic credit spread information used by the Company in its valuation model to avoid undue reliance on any single data vendor, as well as to enhance its assessment of fair values.

TAXES

MBIA’s tax policy is to optimize after-tax income by maintaining the appropriate mix of taxable and tax-exempt investments. However, the tax rate fluctuates from time to time as the Company manages its investment portfolio on an after-tax total return basis. In addition, the tax rate for 2003 has increased due to the net gains on derivative instruments and foreign exchange. The effective tax rate for 2003 increased to 29.2% from 26.0% in 2002 and 26.3% in 2001.

CAPITAL RESOURCES

The Company carefully manages its capital resources to minimize its cost of capital while maintaining appropriate claims-paying resources to sustain its Triple-A claims-paying ratings. At year-end 2003, total claims-paying resources for MBIA Corp. stood at $12.6 billion, a 15% increase over year-end

60

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

2002. Components of total claim-paying resources are shown in the following table:

In millions	2003		2002		Percent Change
					2003 vs. 2002
Capital and surplus	$	3,715	$	3,158	18	%
Contingency reserve		2,368		2,277	4	%
Capital base		6,083		5,435	12	%
Unearned premium reserve		3,067		2,774	11	%
Present value of installment premiums (1)		2,053		1,300	58	%
Premium resources		5,120		4,074	26	%
Loss and loss adjustment expense reserves		200		245	(18	)%
Standby line of credit / stop loss		1,236		1,261	(2	)%
Total claims-paying resources	$	12,639	$	11,015	15	%

⁽¹⁾ At March 31, June 30, September 30 and December 31, 2003 the discount rates were 5.6%, 5.3%, 5.1% and 4.7%, respectively, while 2002 was discounted at 9.0%.

61

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

Total shareholders’ equity at December 31, 2003 was $6.3 billion, with total long-term debt at $1.0 billion. The Company uses debt financing to lower its overall cost of capital. MBIA maintains debt at levels it considers to be prudent based on its cash flow and total capital. The following table shows the Company’s long-term debt and the ratio used to measure it:

	2003			2002			2001
Long-term debt (in millions)	$	1,022		$	1,033		$	805
Long-term debt to total capital		14	%		16	%		14	%

In July of 1999, the board of directors authorized the repurchase of 11.25 million shares of common stock of the Company after adjusting for the 2001 stock split. The Company began the repurchase program in the fourth quarter of 1999. As of year-end 2003, the Company had repurchased a total of 9.5 million shares at an average price of $41.71 per share.

In addition, the Company has various soft capital facilities, such as lines of credit, stop-loss facilities and other equity-based facilities at its disposal, which increase its claims-paying resources.

MBIA Corp. has a $700 million standby line of credit facility with a group of major Triple-A rated banks to provide funds for the payment of claims in excess of the greater of $900 million or 5% of average annual debt service with respect to public finance transactions. The agreement is for a seven-year term, which expires on October 31, 2010.

At January 1, 2003, the Company maintained $211 million of stop-loss reinsurance coverage with three reinsurers. At the end of the third quarter, the Company elected not to renew two of the facilities with $175 million of

62

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

coverage due to the rating downgrades of the stop-loss providers. In addition, at the end of 2003, MBIA Corp. elected not to renew the remaining $35.7 million of stop-loss reinsurance coverage effective January 1, 2004, also due to the rating downgrade of the stop loss reinsurer.

MBIA Inc. also maintained two ten-year facilities maturing in 2011 and 2012 for $100 million and $50 million, respectively. These facilities allowed the Company to issue subordinated securities and could be drawn upon if the Company incurred cumulative losses (net of any recoveries) above an annually adjusted attachment point, which was $1.76 billion for 2003. The $50 million facility was not renewed in the fourth quarter due to a rating downgrade of the related provider, however, the $100 million facility remained in effect as of December 31, 2003.

MBIA Corp. has access to $400 million of Money Market Committed Preferred Custodial Trust securities (CPS securities) issued by eight Trusts which were created for the primary purpose of issuing CPS securities and investing the proceeds in high quality commercial paper or short-term U.S. government obligations. MBIA Corp. has a put option to sell to the Trusts the perpetual preferred stock of MBIA Corp. If MBIA Corp. exercises its put option, the Trusts will transfer the proceeds to MBIA Corp. in exchange for the preferred stock that will be held by the Trusts. The Trusts are vehicles for providing MBIA Corp. the opportunity to access new capital at its sole discretion through the exercise of the put options. The Trusts are rated AA/Aa2 by S&P and Moody’s, respectively. To date, MBIA Corp. has not exercised its put options under any of these arrangements.

From time to time, MBIA accesses the capital markets to support the growth of its businesses. MBIA filed a registration statement on Form S-3 with the SEC utilizing a “shelf” registration process. Under this filing, the Company currently has in effect a shelf registration with the SEC for $500 million. The Company may issue securities described in the prospectus filed as part of the registration, namely, senior debt securities, subordinated debt securities, preferred stock and common stock of the Company.

LIQUIDITY

Cash flow needs at the parent company level are primarily for dividends to its shareholders and interest payments on its debt. Liquidity and operating cash requirements of the Company are met by its cash flows generated from operations, which were more than adequate in 2003. Management of the Company believes that cash flows from operations will be sufficient to meet the

63

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

Company’s liquidity and operating cash requirements for the foreseeable future.

Cash requirements have historically been met by upstreaming dividend payments from MBIA Corp., which generates substantial cash flow from premium writings and investment income. In 2003, the Company’s operating cash flow totaled $979 million compared with $873 million in 2002 and $722 million in 2001. The majority of net cash provided by operating activities is generated from the Company’s insurance operations.

Under New York State insurance law, without prior approval of the superintendent of the state insurance department, financial guarantee insurance companies can pay dividends from earned surplus subject to retaining a minimum capital requirement. In MBIA Corp.’s case, dividends in any 12-month period cannot be greater than 10% of policyholders’ surplus as shown on MBIA Corp.’s latest filed statutory financial statements. In 2003, MBIA Corp. declared and paid dividends of $240 million to MBIA Inc. Based upon the filing of its year-end 2003 statutory financial statement, MBIA Corp. has dividend capacity of $131.5 million for the first quarter of 2004 without special regulatory approval. Based on the projected future earnings of MBIA Corp., the Company believes MBIA Corp.’s dividend capacity will continue to be replenished each quarter. Management expects the dividend capacity of MBIA Corp. to be comparable to the current level for the foreseeable future.

The Company has significant liquidity supporting its businesses. At the end of 2003, cash equivalents and short-term investments totaled $1.2 billion. If, for any reason, significant cash flow reductions occur in any of its businesses, MBIA has alternatives for meeting ongoing cash requirements. They include selling or pledging its fixed-income investments in its investment portfolio, tapping existing liquidity facilities and new borrowings.

In addition, the Company has substantial external borrowing capacity. It maintains two short-term bank lines totaling $675 million with a group of highly rated global banks; a $225 million facility with a term of 364 days and a $450 million facility with a four-year term. At year-end 2003, there were no balances outstanding under these agreements.

64

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

The investment portfolio provides a high degree of liquidity since it is comprised of readily marketable high-quality fixed-income securities and short-term investments. At year-end 2003, the fair value of the consolidated investment portfolio was $27.7 billion, as shown below:

In millions	2003		2002		Percent Change 2003 vs. 2002
Insurance operations:
Amortized cost	$	9,247	$	8,273	12	%
Unrealized gain		533		529	1	%
Fair value	$	9,780	$	8,802	11	%
Corporate:
Amortized cost	$	173	$	183	(5	)%
Unrealized gain		4		9	(56	)%
Fair value	$	177	$	192	(8	)%
Investment agreement, medium-term note and conduit:
Amortized cost	$	17,407	$	7,727	125	%
Unrealized gain		343		374	(8	)%
Fair value	$	17,750	$	8,101	119	%
Total portfolio at fair value	$	27,707	$	17,095	62	%

The increase in insurance-related investments in 2003 was the result of positive cash flow from operations. The fair value of investments related to the investment agreement and medium-term note businesses increased to $9.4 billion from $8.1 billion at December 31, 2002. This increase was a result of growth in the GFL medium-term note program. The TRF investment portfolio and the consolidation of the Conduits at year-end 2003 contributed an additional $8.4 billion in investments.

65

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

The fixed-maturity investment portfolios are considered to be available-for-sale, with the exception of the Conduit portfolios, and the differences between fair value and amortized cost, net of applicable taxes, are reflected in accumulated other comprehensive income in shareholders’ equity. Fair value is based on quoted market prices, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Differences between fair value and amortized cost arise primarily as a result of changes in interest rates occurring after a fixed-income security is purchased, although other factors influence fair value, including credit-related actions, supply and demand forces and other market factors. The weighted-average credit quality of the Company’s fixed-income portfolios has been maintained at Double-A since its inception. The quality distribution of the Company’s fixed-maturity investment portfolios, which is based on ratings from Moody’s for year-end 2003 is presented in the following table:

	Insurance				Investment Management Services				Total
In thousands	Fair Value		% of Fixed- Income Investments		Fair Value		% of Fixed- Income Investments		Fair Value		% of Fixed- Income Investments
Aaa	$	5,980,452	62	%	$	1,643,160	18	%	$	7,623,612	40	%
Aa		2,014,391	21	%		1,230,561	13	%		3,244,952	17	%
A		1,483,588	16	%		6,270,539	67	%		7,754,127	41	%
Baa		121,569	1	%		219,101	2	%		340,670	2	%
Total	$	9,600,000	100	%	$	9,363,361	100	%	$	18,963,361	100	%

When the Company holds investments to maturity, unrealized gains or losses currently recorded in accumulated other comprehensive income in the shareholders’ equity section of the balance sheet will decrease over time as the investments approach maturity. As a result, the Company expects to realize a value substantially equal to amortized cost. The Conduit portfolios are considered held-to-maturity, as the Company has the ability and intent to hold these investments to their contractual maturity. Therefore, these portfolios are reported at amortized cost and are not adjusted to reflect unrealized changes in fair value.

MBIA’s consolidated investment portfolio, excluding conduit investments (the Investment Portfolio), includes investments that are insured by MBIA Corp. (MBIA Insured Investments). As of December 31, 2003, the Investment Portfolio was approximately $19.3 billion, of which approximately $4.3 billion, or 22%, consisted of MBIA Insured Investments. Without giving effect to the MBIA guarantee of the MBIA Insured Investments in the Investment Portfolio, as of December 31, 2003, based on the actual or estimated underlying ratings (i) the weighted average rating of the Investment Portfolio would be in the Double-A range, (ii) the average weighted rating of just the MBIA Insured Investments in the Investment Portfolio would be in the Single-A range and (iii) approximately 1.6% of the Investment Portfolio would be rated below investment grade. See the “Investment Management Services” section for additional disclosure on Conduit investment credit ratings.

66

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

The following table summarizes the Company’s contractual obligations as of December 31, 2003. For information on the Company’s financial guarantee exposure see Footnote 20 in the Notes to Consolidated Financial Statements.

	As of December 31, 2003
In thousands	Less Than One Year		1-3 Years		4-5 Years		After 5 Years		Total
Long-term debt*	$	—	$	—	$	5,550	$	1,016,072	$	1,021,622
Investment agreement and medium-term note obligations		1,591,859		3,328,431		1,086,385		2,833,450		8,840,125
Securities sold under agreements to repurchase		204,564		290,151		11,168		—		505,883
Conduit debt obligations		4,311,161		764,952		1,724,013		1,047,934		7,848,060
Total	$	6,107,584	$	4,383,534	$	2,827,116	$	4,897,456	$	18,215,690

* Does not include accrued interest.

The Company generates significant liquidity from its operations. Because of its risk management policies and procedures, diversification and reinsurance, the Company believes that the occurrence of an event that would significantly adversely affect liquidity is unlikely.

MARKET RISK

In general, market risk relates to changes in the value of financial instruments that arise from adverse movements in factors such as interest rates, credit spreads, equity prices and foreign exchange rates. MBIA is exposed mainly to changes in interest rates that affect the fair value of its financial instruments, namely investment securities, investment agreement liabilities, debentures and certain derivative transactions. The Company’s investment portfolio holdings are primarily U.S. dollar-denominated fixed-income securities including municipal bonds, U.S. government bonds, mortgage-backed securities, collateralized mortgage obligations, corporate bonds and asset-backed securities. In periods of rising and/or volatile interest rates, profitability could be adversely affected should the Company have to liquidate these securities. Some mortgage-backed securities are subject to significant pre-payment risk in periods of declining interest rates.

MBIA minimizes its exposure to interest rate risk through active portfolio management to ensure a proper mix of the types of securities held and to stagger the maturities of its fixed-income securities. In addition, the Company enters into various swap agreements that hedge the risk of loss due to interest rate and foreign currency volatility.

67

MBIA Inc. and Subsidiaries

Management’s Discussion and Analysis

of Financial Condition and Results of Operations (Continued)

Interest rate sensitivity can be estimated by projecting a hypothetical instantaneous increase or decrease in interest rates. As of December 31, 2003, a hypothetical increase in interest rates of 100 and 300 basis points would have resulted in an after-tax decrease in the net fair value of the Company’s financial instruments of approximately $215.4 million and $678.1 million, respectively. A decrease in interest rates of 100 basis points would have resulted in an after-tax increase in the net fair value of the Company’s financial instruments of approximately $204.6 million.

The Company’s earnings are also subject to changes in investment grade corporate credit spreads through fair valuing its credit derivative transactions. These transactions primarily consist of synthetic structured credit derivatives guaranteed by MBIA Corp., as well as single name credit default swaps directly entered into by the investment management services operations as part of their asset management activities. Sensitivity to changes in credit spreads for these transactions can be estimated by projecting a hypothetical instantaneous shift in credit spreads. As of December 31, 2003, a hypothetical instantaneous increase in investment grade corporate credit spreads of 25, 50 and 75 basis points would have resulted in an after-tax decrease in the net fair value of the Company’s credit derivatives of approximately $7.9 million, $17.3 million, and $30.4 million, respectively. Conversely, a hypothetical instantaneous decrease in investment grade corporate credit spreads of 25, 50 and 75 basis points would have resulted in an after-tax increase in the net fair value of the Company’s credit derivatives of approximately $6.2 million, $8.6 million, and $9.0 million, respectively. Under SFAS 133, if such hypothetical shifts in credit spreads were to occur, the resulting change in the net fair value of the Company’s credit derivatives would be recorded within the Company’s income statement.

Since the Company is able and primarily expects to hold its fixed-maturity securities and derivative transactions to maturity, it does not expect to recognize any adverse impact to income or cash flows under the above scenarios.

68

Item 7A. Quantitative and Qualitative Disclosure about Market Risk

Information concerning quantitative and qualitative disclosures about market risk appears in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” under the heading “Market Risk.”

Item 8. Financial Statements and Supplementary Data

REPORT ON MANAGEMENT’S RESPONSIBILITY AND REPORT OF INDEPENDENT AUDITORS

MBIA INC. and Subsidiaries

REPORT ON MANAGEMENT’S RESPONSIBILITY

Management is responsible for the preparation, integrity and objectivity of the consolidated financial statements and other financial information presented in this annual report. The accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, applying certain estimates and judgments as required.

MBIA’s internal controls are designed to provide reasonable assurance as to the integrity and reliability of the financial statements and to adequately safeguard, verify and maintain accountability of assets. Such controls are based on established written policies and procedures and are implemented by trained, skilled personnel with an appropriate segregation of duties. These policies and procedures prescribe that MBIA and all its employees are to maintain the highest ethical standards and that its business practices are to be conducted in a manner that is above reproach.

PricewaterhouseCoopers LLP, independent auditors, is retained to audit the Company’s financial statements. Their accompanying report is based on audits conducted in accordance with auditing standards generally accepted in the United States of America, which include the consideration of the Company’s internal controls to establish a basis for reliance thereon in determining the nature, timing and extent of audit tests to be applied.

The board of directors exercises its responsibility for these financial statements through its Audit Committee, which consists entirely of independent non-management board members. The Audit Committee meets periodically with the Company’s independent auditors, both privately and with management present, to review accounting, auditing, internal controls and financial reporting matters.

Under the Sarbanes-Oxley Act of 2002, two new certifications by a company’s CEO and CFO of periodic reports are required. Under Section 302 of the Act, and as implemented by the Securities and Exchange Commission (“SEC”), a company’s CEO and CFO are required to certify the accuracy and completeness of the information contained in each quarterly and annual report, and the maintenance and effectiveness of disclosure controls and

69

REPORT ON MANAGEMENT’S RESPONSIBILITY AND REPORT OF INDEPENDENT AUDITORS

MBIA INC. and Subsidiaries

procedures. Under Section 906 of the Act, in addition to certifying the accuracy and completeness of the information, the Company’s CEO and CFO must also certify that each report complies with the Securities Exchange Act of 1934. For all quarterly and annual reports filed with the SEC after August 2002, copies of MBIA’s certifications can be found as exhibits to those reports.

/s/    JOSEPH W. BROWN        

Joseph W. Brown

Chairman and Chief Executive Officer

/s/    NEIL G. BUDNICK        

Neil G. Budnick

Chief Financial Officer

70

REPORT ON MANAGEMENT’S RESPONSIBILITY AND REPORT OF INDEPENDENT AUDITORS

MBIA INC. and Subsidiaries

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of MBIA Inc.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, changes in shareholders’ equity and cash flows present fairly, in all material respects, the financial position of MBIA Inc. and its subsidiaries at December 31, 2003 and 2002 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 5 to the consolidated financial statements, the Company changed its method of accounting for certain variable interest entities, effective January 31, 2003 for new entities and effective December 31, 2003 for previously existing entities. As discussed in Note 2 to the consolidated financial statements, effective January 1, 2002, the Company changed its method of accounting for goodwill and for stock options compensation. In addition, as discussed in Note 2 to the consolidated financial statements, effective January 1, 2001, the Company changed its method of accounting for derivative instruments.

/s/ PricewaterhouseCoopers LLP

New York, NY

February 13, 2004

71

Consolidated Balance Sheets MBIA Inc. and Subsidiaries

In thousands except per share amounts	December 31, 2003			December 31, 2002
Assets
Investments:
Fixed-maturity securities held as available-for-sale at fair value (amortized cost $16,526,579 and $14,636,848)	$	17,390,979		$	15,527,265
Conduit investments held-to-maturity, at amortized cost		8,386,280			—
Investment securities pledged as collateral at fair value (amortized cost $581,633 and $646,287)		596,366			667,854
Short-term investments, at amortized cost (which approximates fair value)		975,836			687,238
Other investments		357,346			212,673
Total investments		27,706,807			17,095,030
Cash and cash equivalents		182,417			83,218
Accrued investment income		269,610			215,265
Deferred acquisition costs		319,728			302,222
Prepaid reinsurance premiums		535,728			521,641
Reinsurance recoverable on unpaid losses		61,085			43,828
Goodwill		90,041			90,041
Property and equipment, at cost (less accumulated depreciation of $97,618 and $86,135)		123,068			128,441
Receivable for investments sold		20,376			91,767
Derivative assets		256,744			191,755
Variable interest entity assets		600,322			—
Other assets		101,808			88,893
Total assets	$	30,267,734		$	18,852,101
Liabilities and Shareholders’ Equity
Liabilities:
Deferred premium revenue	$	3,079,851		$	2,755,046
Loss and loss adjustment expense reserves		559,510			573,275
Investment agreement and medium-term note obligations		8,840,125			7,230,562
Securities sold under agreements to repurchase		505,883			539,561
Conduit debt obligations		7,848,060			—
Short-term debt		57,337			—
Long-term debt		1,021,795			1,033,070
Current income taxes		14,554			17,648
Deferred income taxes, net		552,740			471,534
Deferred fee revenue		21,814			24,838
Payable for investments purchased		47,059			58,436
Derivative liabilities		437,683			309,749
Variable interest entity liabilities		600,322			—
Other liabilities		421,986			345,031
Total liabilities		24,008,719			13,358,750
Shareholders’ Equity:
Preferred stock, par value $1 per share; authorized shares—10,000,000; issued and outstanding—none		—			—
Common stock, par value $1 per share; authorized shares—400,000,000 issued shares — 153,551,061 and 152,555,034		153,551			152,555
Additional paid-in capital		1,295,638			1,239,313
Retained earnings		4,593,486			3,895,112
Accumulated other comprehensive income, net of deferred income tax of $337,175 and $294,160		632,623			541,250
Unallocated ESOP shares		—			(653	)
Unearned compensation — restricted stock		(12,299	)		(12,646	)
Treasury stock, at cost — 9,675,887 and 7,781,213 shares		(403,984	)		(321,580	)
Total shareholders’ equity		6,259,015			5,493,351
Total liabilities and shareholders’ equity	$	30,267,734		$	18,852,101

The accompanying notes are an integral part of the consolidated financial statements.

72

Consolidated Statements of Income MBIA Inc. and Subsidiaries

	Years ended December 31
In thousands except per share amounts	2003			2002			2001
Insurance
Revenues:
Gross premiums written	$	1,268,808		$	951,931		$	865,226
Ceded premiums		(235,736	)		(198,526	)		(235,362	)
Net premiums written		1,033,072			753,405			629,864
Increase in deferred premium revenue		(300,075	)		(164,896	)		(105,994	)
Premiums earned (net of ceded premiums of $232,644, $189,332 and $169,034)		732,997			588,509			523,870
Net investment income		437,696			432,949			412,763
Advisory fees		59,719			50,747			39,287
Total insurance revenues		1,230,412			1,072,205			975,920
Expenses:
Losses and loss adjustment		72,888			61,688			56,651
Amortization of deferred acquisition costs		57,907			47,669			42,433
Operating		108,130			87,401			80,498
Total insurance expenses		238,925			196,758			179,582
Insurance income		991,487			875,447			796,338
Investment management services
Revenues		422,655			424,434			442,156
Interest expense		302,224			313,517			316,227
Net revenues		120,431			110,917			125,929
Expenses		70,326			61,446			62,910
Investment management services income		50,105			49,471			63,019
Municipal services
Revenues		26,814			24,810			27,037
Expenses		25,857			24,408			29,951
Municipal services income (loss)		957			402			(2,914	)
Corporate
Net investment income		9,000			9,426			6,899
Interest expense		68,368			58,453			56,445
Corporate expenses		14,874			17,259			20,874
Corporate loss		(74,242	)		(66,286	)		(70,420	)
Gains and Losses
Net realized gains		80,668			15,424			8,896
Net gains (losses) on derivative instruments and foreign exchange		99,665			(81,877	)		(3,935	)
Net gains and losses		180,333			(66,453	)		4,961
Income before income taxes		1,148,640			792,581			790,984
Provision for income taxes		335,055			205,763			207,826
Income before cumulative effect of accounting changes		813,585			586,818			583,158
Cumulative effect of accounting changes		—			(7,731	)		(13,067	)
Net income	$	813,585		$	579,087		$	570,091
Income before cumulative effect of accounting changes per common share:
Basic	$	5.67		$	4.00		$	3.94
Diluted	$	5.61		$	3.98		$	3.91
Net income per common share:
Basic	$	5.67		$	3.95		$	3.85
Diluted	$	5.61		$	3.92		$	3.82
Weighted-average number of common shares outstanding:
Basic		143,449,007			146,634,204			148,190,890
Diluted		144,980,396			147,574,079			149,282,657
Gross revenues	$	1,869,214		$	1,464,422		$	1,456,973
Gross expenses	$	720,574		$	671,841		$	665,989

The accompanying notes are an integral part of the consolidated financial statements.

73

Consolidated Statements of Changes in Shareholders’ Equity MBIA Inc. and Subsidiaries

	For the years ended December 31, 2003, 2002, and 2001
	Common Stock					Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Unallocated ESOP Shares			Unearned Compensation- Restricted Stock			Treasury Stock					Total Shareholders’ Equity
In thousands except per share amounts	Shares		Amount																		Shares		Amount
Balance, January 1, 2001	151,160		$	151,160		$	1,169,200		$	2,934,608		$	85,707		$	(2,950	)	$	(10,659	)	(3,314	)	$	(103,653	)	$	4,223,413
Comprehensive income:
Net income	—			—			—			570,091			—			—			—		—			—			570,091
Other comprehensive income:
Change in unrealized appreciation of investments net of change in deferred income taxes of $39,868	—			—			—			—			74,009			—			—		—			—			74,009
Change in fair value of derivative instruments net of change in deferred income taxes of $(5,786)	—			—			—			—			(10,746	)		—			—		—			—			(10,746	)
Change in foreign currency translation	—			—			—			—			(3,649	)		—			—		—			—			(3,649	)
Other comprehensive income																											59,614
Total comprehensive income																											629,705
Treasury shares acquired	—			—			—			—			—			—			—		(203	)		(8,982	)		(8,982	)
Unallocated ESOP shares	—			—			31			—			—			967			—		—			—			998
Stock-based compensation	795			795			26,571			—			—			—			(676	)	—			—			26,690
Dividends (declared per common share $0.600, paid per common share $0.587)	(4	)		(4	)		—			(89,182	)		—			—			—		—			—			(89,186	)
Balance, December 31, 2001	151,951			151,951			1,195,802			3,415,517			145,321			(1,983	)		(11,335	)	(3,517	)		(112,635	)		4,782,638
Comprehensive income:
Net income	—			—			—			579,087			—			—			—		—			—			579,087
Other comprehensive income:
Change in unrealized appreciation of investments net of change in deferred income taxes of $222,973	—			—			—			—			414,771			—			—		—			—			414,771
Change in fair value of derivative instruments net of change in deferred income taxes of $(20,035)	—			—			—			—			(37,209	)		—			—		—			—			(37,209	)
Change in foreign currency translation	—			—			—			—			18,367			—			—		—			—			18,367
Other comprehensive income																											395,929
Total comprehensive income																											975,016
Capital issuance costs	—			—			(2,774	)		—			—			—			—		—			—			(2,774	)
Treasury shares acquired	—			—			—			—			—			—			—		(4,264	)		(208,945	)		(208,945	)
Unallocated ESOP shares	—			—			50			—			—			1,330			—		—			—			1,380
Stock-based compensation	604			604			46,235			—			—			—			(1,311	)	—			—			45,528
Dividends (declared per common share $0.680, paid per common share $0.660)	—			—			—			(99,492	)		—			—			—		—			—			(99,492	)
Balance, December 31, 2002	152,555			152,555			1,239,313			3,895,112			541,250			(653	)		(12,646	)	(7,781	)		(321,580	)		5,493,351
Comprehensive income:
Net income	—			—			—			813,585			—			—			—		—			—			813,585
Other comprehensive income:
Change in unrealized appreciation of investments net of change in deferred income taxes of $34,698	—			—			—			—			64,886			—			—		—			—			64,886
Change in fair value of derivative instruments net of change in deferred income taxes of $5,232	—			—			—			—			9,716			—			—		—			—			9,716
Change in foreign currency translation net of change in deferred income taxes of $3,085	—			—			—			—			16,771			—			—		—			—			16,771
Other comprehensive income																											91,373
Total comprehensive income																											904,958
Capital issuance costs	—			—			(4,056	)		—			—			—			—		—			—			(4,056	)
Treasury shares acquired	—			—			—			—			—			—			—		(1,895	)		(82,404	)		(82,404	)
Unallocated ESOP shares	—			—			(2	)		—			—			653			—		—			—			651
Variable interest entity equity	—			—			46			—			—			—			—		—			—			46
Stock-based compensation	996			996			60,337			—			—			—			347		—			—			61,680
Dividends (declared per common share $0.800, paid per common share $0.770)	—			—			—			(115,211	)		—			—			—		—			—			(115,211	)
Balance, December 31, 2003	153,551		$	153,551		$	1,295,638		$	4,593,486		$	632,623		$	—		$	(12,299	)	(9,676	)	$	(403,984	)	$	6,259,015

The accompanying notes are an integral part of the consolidated financial statements.

	2001			2002			2003
Disclosure of reclassification amount:
Unrealized appreciation of investments arising during the period, net of taxes	$	80,253		$	425,234		$	120,555
Reclassification adjustment, net of taxes		(6,244	)		(10,463	)		(55,669	)
Net unrealized appreciation, net of taxes	$	74,009		$	414,771		$	64,886

74

Consolidated Statements of Cash Flows MBIA Inc. and Subsidiaries

	Years ended December 31
In thousands	2003			2002			2001
Cash flows from operating activities:
Net income	$	813,585		$	579,087		$	570,091
Adjustments to reconcile net income to net cash provided by operating activities:
Increase in accrued investment income		(38,637	)		(33,281	)		(29,941	)
Increase in deferred acquisition costs		(17,506	)		(24,523	)		(3,344	)
Increase in prepaid reinsurance premiums		(14,087	)		(14,562	)		(64,457	)
Increase in deferred premium revenue		296,668			179,459			170,452
(Decrease) increase in loss and loss adjustment expense reserves		(13,765	)		54,886			19,110
Increase in reinsurance recoverable on unpaid losses		(17,257	)		(8,738	)		(3,676	)
Depreciation		11,483			14,047			10,062
Amortization of goodwill		—			—			6,550
Amortization of bond discount, net		4,018			14,377			(8,416	)
Net realized gains on sale of investments		(80,668	)		(15,424	)		(8,896	)
Current income tax benefit		(3,094	)		(4,771	)		—
Deferred income tax provision (benefit)		38,137			(4,354	)		(13,788	)
Net (gains) losses on derivative instruments and foreign exchange		(99,665	)		81,877			3,935
Stock option compensation		26,428			23,853			—
Cumulative effect of accounting changes, net		—			7,731			13,067
Other, net		73,051			23,541			60,844
Total adjustments to net income		165,106			294,118			151,502
Net cash provided by operating activities		978,691			873,205			721,593
Cash flows from investing activities:
Purchase of fixed-maturity securities, net of payable for investments purchased		(13,468,408	)		(12,356,410	)		(17,178,199	)
Sale of fixed-maturity securities, net of receivable for investments sold		11,235,246			11,527,680			16,125,642
Redemption of fixed-maturity securities, net of receivable for investments redeemed		1,597,511			529,065			431,275
(Purchase) sale of short-term investments		(104,638	)		(377,191	)		95,822
Purchase of other investments		(53,523	)		(44,402	)		(14,386	)
Purchases for investment agreement and medium-term note portfolios, net of payable for investments purchased		(12,719,373	)		(7,193,183	)		(9,518,913	)
Sales for investment agreement and medium-term note portfolios, net of receivable for investments sold		11,155,499			6,010,956			7,886,657
Purchase of conduit investments		(1,505,903	)		—			—
Acquisition of conduits		1,134			—			—
Capital expenditures		(11,089	)		(15,401	)		(6,760	)
Disposals of capital assets		1,016			206			1,209
Other, net		—			—			499
Net cash used by investing activities		(3,872,528	)		(1,918,680	)		(2,177,154	)
Cash flows from financing activities:
Net proceeds from issuance of long-term debt		—			291,300			—
Net proceeds from issuance of short-term debt		57,337			—			—
Net proceeds from issuance of conduit debt obligations		1,503,324			—			—
Net repayment from retirement of long-term debt		—			(100,000	)		(3,750	)
Net repayment from retirement of short-term debt		—			(47,751	)		(96,492	)
Other borrowings		30,000			—			—
Dividends paid		(110,999	)		(97,154	)		(87,112	)
Purchase of treasury stock		(82,404	)		(208,945	)		(8,982	)
Proceeds from issuance of investment agreement and medium-term note obligations		5,702,091			4,496,515			4,073,245
Payments for drawdowns of investment agreement and medium-term note obligations		(4,094,385	)		(3,320,699	)		(2,805,039	)
Securities sold under agreements to repurchase, net		(33,678	)		(15,935	)		380,496
Capital issuance costs		(4,056	)		(2,774	)		—
Exercise of stock options		25,806			19,096			24,273
Net cash provided by financing activities		2,993,036			1,013,653			1,476,639
Net increase (decrease) in cash and cash equivalents		99,199			(31,822	)		21,078
Cash and cash equivalents - beginning of year		83,218			115,040			93,962
Cash and cash equivalents - end of year	$	182,417		$	83,218		$	115,040
Supplemental cash flow disclosures:
Income taxes paid	$	293,695		$	211,001		$	178,455
Interest paid:
Investment agreement and medium-term note	$	271,479		$	290,349		$	304,528
Long-term debt	$	69,876		$	63,600		$	61,091

The accompanying notes are an integral part of the consolidated financial statements.

75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA INC. and Subsidiaries

NOTE 1: BUSINESS AND ORGANIZATION

MBIA Inc. (MBIA or the Company) was incorporated in the state of Connecticut on November 12, 1986 as a licensed insurer and, through a series of transactions during December 1986, became the successor to the business of the Municipal Bond Insurance Association (the Association), a voluntary unincorporated association of insurers writing municipal bond and note insurance as agent for the member insurance companies. The Company operates its insurance business primarily through its wholly owned subsidiary, MBIA Insurance Corporation (MBIA Corp.) and MBIA Corp.’s wholly owned French subsidiary, MBIA Assurance, S.A. (MBIA Assurance). MBIA Assurance writes financial guarantee insurance in the international market, and pursuant to a reinsurance agreement with MBIA Corp., a substantial amount of the risks insured by MBIA Assurance is reinsured by MBIA Corp. In addition, the Company manages books of business through two other subsidiaries wholly owned by MBIA Corp., MBIA Insurance Corp. of Illinois (MBIA Illinois), acquired in December 1989, and Capital Markets Assurance Corporation (CMAC), acquired in February 1998 when the Company merged with CapMAC Holdings, Inc. (CapMAC). The net book of business of these two subsidiaries is 100% reinsured by MBIA Corp.

The Company also provides investment services through several of its subsidiaries which are wholly owned by MBIA Asset Management, LLC (MBIA-AMC), formed in 1998 and converted to a limited liability corporation in December 2000. MBIA-AMC is a wholly owned subsidiary of MBIA Inc. MBIA Municipal Investors Service Corporation (MBIA-MISC) operates cooperative cash management programs for school districts and municipalities. In May 2000, MBIA-MISC merged with another subsidiary, American Money Management Associates, Inc. (AMMA), which provides investment and treasury management consulting services to municipal and quasi-public sector clients. This merger combined the investment expertise into a consolidated investment management business. MBIA Investment Management Corp. (IMC) provides customized investment agreements for bond proceeds and other public funds, as well as for funds that are invested as part of asset-backed or structured product issuance. MBIA Capital Management Corp. (CMC) provides fixed-income investment management services for the Company, its affiliates and third-party institutional clients. 1838 Investment Advisors, LLC (1838) manages domestic and international equity, fixed-income and balanced portfolios for

76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

high net-worth individuals, mutual funds, endowments, foundations and employee benefit plans.

The Company also provides municipal services through its municipal services operations’ subsidiaries, which are wholly owned by MBIA MuniServices Company (MBIA MuniServices) formed in 1996. Municipal Resources Consultants (MRC) is a revenue audit and information services firm and also provides tax compliance services to state and local governments. Municipal Tax Collection Bureau Inc. (MTB) provides tax compliance services to state and local governments. MTB’s activities have been transferred to MBIA MuniServices and MRC and, as of December 31, 2003, only one service contract remained in MTB. Capital Asset Holdings, Inc. and subsidiaries (Capital Asset) service and manage delinquent municipal tax liens.

TRS Funding Corporation (TRS) was formed in September 1997 to provide clients with structured financing solutions involving the use of total return swaps and credit derivatives. While MBIA does not have a direct ownership interest in TRS, it is consolidated in the financial statements of the Company on the basis that TRS is controlled by MBIA and substantially all risks and rewards are borne by MBIA. In October 2002, all remaining investments and debt obligations of TRS matured. As of December 31, 2003, TRS had two derivative contracts outstanding.

LaCrosse Financial Products, LLC (LaCrosse), formerly King Street Financial Products, LLC, was created in December 1999 to offer clients structured derivative products, such as credit default, interest rate and currency swaps. While MBIA does not have a direct ownership interest in LaCrosse, it is consolidated in the financial statements of the Company on the basis that LaCrosse is controlled by MBIA and substantially all risks and rewards are borne by MBIA.

MBIA Asset Finance, LLC (Asset Finance) was formed as a wholly owned subsidiary of the Company in April 2002 as a holding company for the purpose of consolidating MBIA-owned special purpose vehicles. As of September, 2003, it became a wholly owned subsidiary of MBIA-AMC. Assurance Funding Limited (Assurance Funding) was formed in September 2002 and is 99% owned by Asset Finance and 1% owned by MBIA Assurance. Assurance Funding was created as a special purpose vehicle to provide structured funding and credit enhancement services to global structured finance clients. Assurance Funding remained inactive as of December 31, 2003.

MBIA Global Funding, LLC (GFL) was formed as a wholly owned subsidiary of the Company in May 2002. GFL is authorized to issue medium-term notes,

77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

investment agreements and other debt obligations for the purpose of funding financial assets within the Company’s asset management business.

Euro Asset Acquisition Limited (EAAL) was formed in 2003 as a wholly owned subsidiary of the Company and as an extension of its asset management business. EAAL primarily purchases foreign assets as permitted under the Company’s investment guidelines.

In May 2003, the Company sponsored the formation of Toll Road Funding, Plc. (TRF), a public company limited by shares and incorporated in Ireland under the Irish Companies Act. TRF was established to acquire a loan participation related to the financing of an Italian toll road. TRF is a variable interest entity (VIE), of which MBIA is the primary beneficiary. Therefore, while MBIA does not have a direct ownership interest in TRF, it is consolidated in the financial statements of the Company in accordance with Financial Accounting Standards Board (FASB) Interpretation Number (FIN) 46 “Consolidation of Variable Interest Entities.”

In September 2003, MBIA purchased the equity and acquired all controlling interests of Triple-A One Funding Corporation (Triple-A), Meridian Funding Company, LLC (Meridian) and Polaris Funding Company, LLC (Polaris) (the Conduits) through Asset Finance. As such, these entities are now consolidated in the financial statements of the Company in accordance with Statement of Financial Account Standards No. (SFAS) 94, “Consolidation of All Majority-Owned Subsidiaries.” See Note 5 for additional disclosures related to the consolidation of the Conduits.

Incorporated in September 1993, Triple-A was formed to provide secured loans to borrowers, purchase participations in pools of retail, trade and other receivables and purchase investment grade securities at the time of issuance or in the secondary market. Triple-A may fund its purchases of such assets through the issuance of commercial paper or other securities. Assets funded by Triple-A primarily consist of secured loans to qualified borrowers, participations in short-term and long-term receivable pools and investment grade asset-backed securities. Debt issued principally consists of commercial paper. Triple-A may enter into various types of derivative agreements for non-trading purposes designed to hedge its exposure to interest rate and foreign currency fluctuations. In addition, Triple-A enters into 364-day or shorter term credit facilities with multiple independent third-party credit support providers as a source of liquidity in the event of a commercial paper market disruption.

78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

Meridian, formed in July 1997, issues medium-term notes in an unlimited number of series of undetermined amounts not to exceed an aggregate principal amount of $8 billion. Proceeds from the issuance of such notes are used to fund the purchase of permitted investments. Such investments primarily consist of asset-backed loans and securities issued by major global structured finance clients. Meridian may enter into various types of derivative agreements for non-trading purposes designed to hedge its exposure to interest rate and foreign currency fluctuations.

Polaris, formed in November 1997, issues medium-term notes in an unlimited number of series of undetermined amounts not to exceed an aggregate principal amount of $5 billion. Proceeds from the issuance of such notes are used to fund the purchase of permitted investments. Such investments primarily consist of debt instruments and loans issued by major national and international corporations. Polaris may enter into various types of derivative agreements for non-trading purposes designed to hedge its exposure to interest rate and foreign currency fluctuations on its assets and liabilities.

From time to time, MBIA may consolidate a VIE under the provisions of FIN 46. Consolidation of such an entity is likely to result from MBIA’s guarantee of the assets or liabilities of a VIE through a financial guarantee policy when MBIA’s interest, represented by the financial guarantee policy, meets the criteria for consolidation under FIN 46. See Note 5 for additional disclosures related to the consolidation of variable interest entities.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America (GAAP). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. As additional information becomes available or actual amounts become determinable, the recorded estimates are revised and reflected in operating results. Actual results could differ from those estimates. Significant accounting policies are as follows:

CONSOLIDATION The consolidated financial statements include the accounts of the Company, its subsidiaries and entities under its control for which the Company retains substantially all the risks and rewards. All significant intercompany balances have been eliminated. Certain amounts have been reclassified in prior years’ financial statements to conform to the current presentation. The reclassifications had no effect on net income and shareholders’ equity as previously reported.

79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

INVESTMENTS The Company’s fixed-maturity investment portfolio, excluding Conduit investments, is considered available-for-sale and is reported in the financial statements at fair value, with unrealized gains and losses, net of deferred taxes, reflected in accumulated other comprehensive income in shareholders’ equity. Bond discounts and premiums are amortized using the effective yield method over the remaining term of the securities. For pre-refunded bonds, the remaining term is determined based on the contractual refunding date. Investment income is recorded as earned. Realized gains or losses on the sale of investments are determined by specific identification and are included as a separate component of revenues.

Short-term investments are carried at amortized cost, which approximates fair value, and include all fixed-maturity securities with a remaining effective term to maturity of less than one year.

Other investments include the Company’s interest in equity-oriented and equity-method investments. The Company records its share of the unrealized gains and losses on equity-oriented investments, net of applicable deferred income taxes, in accumulated other comprehensive income in shareholders’ equity. The carrying amounts of equity-method investments are initially recorded at cost and adjusted to recognize the Company’s share of the profits or losses, net of any intercompany gains and losses, of the investee through earnings subsequent to the date of investment. Dividends are applied as a reduction of the carrying amount of the investment.

MBIA regularly monitors its investments in which fair value is less than amortized cost in order to assess whether such a decline in value is other than temporary and, therefore, should be reflected as a realized loss in net income. Such an assessment requires the Company to determine the cause of the decline and whether the Company possesses both the ability and intent to hold the investment to maturity or until the value recovers to an amount at least equal to amortized cost. This assessment requires management to

80

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

exercise judgment as to whether an investment is impaired based on market conditions and trends and the availability of relevant data.

CONDUIT INVESTMENTS AND CONDUIT DEBT OBLIGATIONS Conduit investments consist mainly of debt securities, loans, lease receivables and trade receivables. These investments are classified as held-to-maturity and as such, are recorded at amortized cost. The related debt associated with the Conduits consists mainly of short-term commercial paper and medium-term notes.

CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand and demand deposits with banks with original maturities of less than 90 days.

POLICY ACQUISITION COSTS Policy acquisition costs include only those expenses that relate primarily to, and vary with, premium production. The Company periodically conducts a study to determine which operating costs vary with, and primarily relate to, the acquisition of new insurance business and qualify for deferral. For business produced directly by MBIA Corp., such costs include compensation of employees involved in underwriting and policy issuance functions, certain rating agency fees, state premium taxes and certain other underwriting expenses, reduced by ceding commission income on premiums ceded to reinsurers. Policy acquisition costs are deferred and amortized over the period in which the related premiums are earned.

GOODWILL Goodwill represents the excess of the cost of acquiring business enterprises over the fair value of the net assets acquired. Prior to 2002, goodwill attributed to the acquisition of MBIA Corp. and MBIA-MISC was amortized using the straight-line method over 25 years. Goodwill attributed to the acquisition of MBIA Illinois was amortized in proportion to the recognition of future profits from its deferred premium revenue and installment premiums, except for a minor portion attributed to state licenses, which was amortized using the straight-line method over 25 years. Goodwill attributed to the acquisition of all other subsidiaries was amortized using the straight-line method over 15 years.

Effective January 1, 2002 the Company adopted SFAS 142, “Goodwill and Other Intangible Assets.” Under SFAS 142, goodwill is no longer amortized but rather is tested for impairment at least annually. See Note 4 for an explanation of the impact of adoption of this Statement on the Company’s financial statements.

81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

PROPERTY AND EQUIPMENT Property and equipment consists of land and buildings, furniture and fixtures, computer equipment and software, and leasehold improvements. All property and equipment is recorded at cost and depreciated over the appropriate useful life of the asset using the straight-line method. The useful lives of each class of assets are as follows:

Buildings and site improvements	15-31 years
Furniture and fixtures	8 years
Computer equipment and software	3-5 years

Leasehold improvements are depreciated over the life of the underlying lease agreement, generally seven to ten years. Maintenance and repairs are charged to current earnings as incurred.

DERIVATIVES The FASB issued, then subsequently amended, SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” which became effective for the Company on January 1, 2001. Under SFAS 133, as amended, all derivative instruments are recognized on the balance sheet at their fair value, and changes in fair value are recognized immediately in earnings unless the derivatives qualify as hedges. If the derivatives qualify as hedges, depending on the nature of the hedge, changes in the fair value of the derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings, or recognized in accumulated other comprehensive income until the hedged item is recognized in earnings. Any ineffective portion of a derivative’s change in fair value is recognized immediately in earnings.

The nature of the Company’s business activities requires the management of various financial and market risks, including those related to changes in interest rates and currency exchange rates. The Company uses derivative instruments to mitigate or eliminate certain of those risks. See Note 6 for a further discussion of the impact of the adoption of SFAS 133 on the Company’s financial statements.

LOSSES AND LOSS ADJUSTMENT EXPENSES Loss and loss adjustment expense (LAE) reserves are established in an amount equal to the Company’s estimate of identified or case basis reserves and unallocated losses, including costs of settlement, on the obligations it has insured. The unallocated loss and loss

82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

adjustment expense reserves and specific case basis reserves are established by the Company’s Loss Reserve Committee, which is comprised of members of senior management.

Beginning in 2002, the Company made a modification to the methodology it uses to record the amount of loss charged to earnings each period (losses incurred). The Company began recording losses incurred based upon a percentage of scheduled net earned premiums instead of a percentage of net debt service written. The reason for the change in methodology was that during the quarter the premiums were written, losses incurred were being recognized in advance of the related earned premium since the premium was essentially all deferred and recognized as revenue in future periods. The intent of the change was to better match the recognition of incurred losses with the related premium revenue.

Under the method employed by the Company since 2002, unallocated loss reserves are adjusted on a quarterly basis by using a formula that applies a “loss factor” (determined as set forth below) to the Company’s scheduled earned premiums for such quarter. Annually, the Loss Reserve Committee determines the appropriate loss factor for the year based on (i) a loss reserving study that assesses the mix of the Company’s insured portfolio and the latest industry data, including historical default and recovery experience, for the relevant sectors of the fixed-income market, (ii) rating agency studies of defaults and (iii) other relevant market factors. As of December 31, 2003, the Company calculates its unallocated loss reserve based on 12% of scheduled net earned premium.

When a case basis reserve is established, MBIA reclassifies the required amount from its unallocated loss reserve to its case basis loss reserve. Therefore, although MBIA accrues an unallocated loss reserve by applying a loss factor to earned premium, the available unallocated loss reserve will be directly related to case basis reserves established in the same period. At the end of each quarter the Company evaluates the adequacy of the remaining unallocated loss reserve.

MBIA establishes new case basis reserves with respect to an insurance policy when its Loss Reserve Committee determines that (i) a claim has been made or is likely to be made in the future with respect to such policy and (ii) the amount of the ultimate loss that MBIA will incur under such policy can be reasonably estimated. The amount of the case basis reserve with respect to any policy is based on the net present value of the expected ultimate losses and loss adjustment expense payments that the Company expects

83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

to pay with respect to such policy, net of expected recoveries under salvage and subrogation rights. The amount of the expected loss is discounted based on a discount rate equal to the actual yield of the Company’s fixed-income portfolio at the end of the preceding fiscal quarter. Various variables are taken into account in establishing specific case basis reserves for individual policies that depend primarily on the nature of the underlying insured obligation. These variables include the nature and creditworthiness of the underlying issuer of the insured obligations, whether the obligation is secured or unsecured and the expected recovery rates on the insured obligations, the projected cash flow or market value of any assets that support the insured obligation and the historical and projected loss rates on such assets. Factors that may affect the actual ultimate realized losses for any policy include the state of the economy, changes in interest rates, rates of inflation and the salvage values of specific collateral. MBIA believes that reasonably likely changes in any of these factors are not likely to have a material impact on its recorded level of reserves, financial results or financial position, or liquidity.

Management believes that the reserves are adequate to cover the ultimate net cost of claims. However, because the reserves are based on estimates, there can be no assurance that the ultimate liability will not exceed such estimates.

INVESTMENT AGREEMENTS AND MEDIUM-TERM NOTES Investment agreements and medium-term notes are recorded on the balance sheet at the time such agreements are executed. The liabilities for investment agreements and medium-term notes are carried at their face value plus accrued interest, whereas the related assets are recorded at fair value.

SECURITIES BORROWED OR PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES LOANED OR SOLD UNDER AGREEMENTS TO REPURCHASE Securities borrowed or purchased under agreements to resell and securities loaned or sold under agreements to repurchase are accounted for as collateralized transactions and are recorded at contract value plus accrued interest, subject to the provisions of SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.” It is the Company’s policy to take possession of securities borrowed or purchased under agreements to resell. Securities borrowed or loaned are primarily entered into to obtain securities that are repledged as part of MBIA’s collateralized investment and repurchase

84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

agreement activity and are only transacted with high quality dealer firms. In addition, securities sold under agreements to repurchase provide liquidity to the Company’s investment agreement and medium-term note programs.

PREMIUM REVENUE RECOGNITION Upfront premiums are earned in proportion to the expiration of the related risk. Therefore, for transactions in which the premium is received upfront, premium earnings are greater in the earlier periods when there is a higher amount of exposure outstanding. The upfront premiums are apportioned to individual sinking fund payments of a bond issue according to an amortization schedule. After the premiums are allocated to each scheduled sinking fund payment, they are earned on a straight-line basis over the period of that sinking fund payment. When an insured issue is retired early, is called by the issuer, or is in substance paid in advance through a refunding accomplished by placing U.S. Government securities in escrow, the remaining deferred premium revenue is earned at that time since there is no longer risk to the Company. Accordingly, deferred premium revenue represents the portion of premiums written that is applicable to the unexpired risk of insured bonds and notes. Installment premiums are earned over each installment period, generally one year or less.

ADVISORY FEE REVENUE RECOGNITION The Company collects advisory fees in connection with certain transactions. Depending upon the type of fee received, the fee is either earned when it is due or deferred and earned over the life of the related transaction. Work, waiver and consent, termination, administrative and management fees are earned when due. Structuring and commitment fees are earned on a straight-line basis over the life of the related transaction.

EMPLOYEE STOCK COMPENSATION Prior to 2002, the Company elected to follow Accounting Principles Board Opinion No. (APB) 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for its employee stock options. No stock-based employee compensation cost for stock options is reflected in net income prior to 2002 as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2002 the Company adopted the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation.” Under the modified prospective transition method selected by the Company under the provisions of SFAS 148, “Accounting for Stock-Based

85

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

Compensation – Transition and Disclosure,” compensation cost recognized in 2002 is the same as that which would have been recognized had the recognition provisions of SFAS 123 been applied from its original effective date. The following table illustrates the pro forma effect on net income and earnings per share if the fair value method had been applied to all outstanding and unvested awards in each period:

	Years ended December 31
In thousands	2003			2002			2001
Net income as reported	$	813,585		$	579,087		$	570,091
Stock-based employee compensation expense included in reported net income, net of related tax benefit		7,982			7,222			—
Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax benefit		(7,982	)		(7,222	)		(8,984	)
Pro forma net income	$	813,585		$	579,087		$	561,107
Basic earnings per share:
Reported	$	5.67		$	3.95		$	3.85
Pro forma	$	5.67		$	3.95		$	3.79
Diluted earnings per share:
Reported	$	5.61		$	3.92		$	3.82
Pro forma	$	5.61		$	3.92		$	3.76

INVESTMENT MANAGEMENT SERVICES OPERATIONS Investment management services results are comprised of the net investment income, fee income, and expenses of MBIA-AMC, MBIA-MISC, IMC, GFL, CMC, 1838, EAAL and the Conduits.

MUNICIPAL SERVICES OPERATIONS Municipal services results are comprised of the net investment income, operating revenues and expenses of MBIA MuniServices, MTB, MRC and Capital Asset.

CORPORATE Corporate consists of net investment income, interest expense and general corporate expenses.

GAINS AND LOSSES Net realized gains and losses are primarily generated as a result of sales of investments as part of the ongoing active total return management of the investment portfolio. Net gains and losses on derivative instruments and foreign exchange are the result of fair valuing the derivative assets and liabilities reported on the balance sheet and gains and losses resulting from related transactions in foreign currencies.

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INCOME TAXES Deferred income taxes are provided with respect to the temporary differences between the tax bases of assets and liabilities and the reported amounts in the financial statements that will result in deductible or taxable amounts in future years when the reported amount of the asset or liability is recovered or settled. Such temporary differences relate principally to premium revenue recognition, deferred acquisition costs, unrealized appreciation or depreciation of investments and derivatives, and the contingency reserve.

The Internal Revenue Code permits companies writing financial guarantee insurance to deduct from taxable income amounts added to the statutory contingency reserve, subject to certain limitations. The tax benefits obtained from such deductions must be invested in non-interest-bearing U.S. Government tax and loss bonds. The Company records purchases of tax and loss bonds as payments of federal income taxes. The amounts deducted must be restored to taxable income when the contingency reserve is released, at which time the Company may present the tax and loss bonds for redemption to satisfy the additional tax liability.

FOREIGN CURRENCY TRANSLATION Assets and liabilities denominated in foreign currencies are translated at year-end exchange rates. Operating results are translated at average rates of exchange prevailing during the year. Unrealized gains or losses, net of deferred taxes, resulting from translation are included in accumulated other comprehensive income in shareholders’ equity. Gains and losses resulting from transactions in foreign currencies are recorded in current income.

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NET INCOME PER COMMON SHARE Basic earnings per share excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share shows the dilutive effect of all stock options and other items outstanding during the period that could potentially result in the issuance of common stock. As of December 31, 2003, 2002 and 2001 there were 5,606,205, 5,584,810, and 4,035,843 stock options, respectively, that were not included in the diluted earnings per share calculation because they were antidilutive. A reconciliation of the denominators of the basic and diluted earnings per share for the years ended December 31, 2003, 2002 and 2001 is as follows:

	Years ended December 31
In thousands except per share amounts	2003		2002		2001
Income before cumulative effect of accounting change	$	813,585	$	586,818	$	583,158
Cumulative effect of accounting change		—		7,731		13,067
Net income	$	813,585	$	579,087	$	570,091
Basic weighted-average shares		143,449,007		146,634,204		148,190,890
Stock options		1,531,389		909,070		998,253
Unallocated ESOP shares		—		30,805		93,514
Diluted weighted-average shares		144,980,396		147,574,079		149,282,657
Income before cumulative effect of accounting change:
Basic EPS	$	5.67	$	4.00	$	3.94
Diluted EPS	$	5.61	$	3.98	$	3.91
Cumulative effect of accounting change:
Basic EPS	$	—	$	0.05	$	0.09
diluted EPS	$	—	$	0.05	$	0.09
Net income:
Basic EPS*	$	5.67	$	3.95	$	3.85
Diluted EPS*	$	5.61	$	3.92	$	3.82

* May not add due to rounding.

NOTE 3: RECENT ACCOUNTING PRONOUNCEMENTS

In December 2003, the Emerging Issues Task Force (EITF) issued EITF Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (EITF 03-01). EITF 03-01 requires the Company to disclose certain information about unrealized holding losses on its investment portfolio that have not been recognized as other-than-temporary impairments. The requirements are effective for fiscal years ending after December 15, 2003, and require the Company to make disclosures in its financial statements about investments in debt or marketable equity securities with market values below carrying values. See Note 11 for disclosures required by EITF 03-01.

In April 2003, the FASB issued SFAS 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS 133. SFAS 149 amends SFAS 133 for decisions made as part of the Derivatives Implementation Group process that effectively required amendments to SFAS 133, decisions made in connection with other FASB

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projects dealing with financial instruments and in connection with implementation issues raised in relation to the application of the definition of a derivative. SFAS 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company’s financial position and results of operations did not change as a result of the adoption of SFAS 149.

In January 2003, the FASB issued FIN 46, as revised December 2003, as an interpretation of Accounting Research Bulletin No. (ARB) 51, “Consolidated Financial Statements.” FIN 46 addresses consolidation of VIEs by business enterprises. An entity is considered a VIE subject to consolidation if the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support or if the equity investors lack one of three characteristics of a controlling financial interest. First, the equity investors lack the ability to make decisions about the entity’s activities through voting rights or similar rights. Second, they do not bear the obligation to absorb the expected losses of the entity if they occur. Lastly, they do not claim the right to receive expected returns of the entity if they occur, which is the compensation for the risk of absorbing the expected losses. MBIA determined that FIN 46 applies to entities which it sponsors and, in certain cases, unaffiliated entities that it guarantees. See Note 5 for a further discussion on the impact of adoption on the Company’s financial statements.

On December 31, 2002 the FASB issued SFAS 148, which is effective for companies with fiscal years ending after December 15, 2002 and was adopted by the Company as of January 1, 2002. This statement amends SFAS 123. SFAS 148 provides three alternative methods of transition to SFAS 123’s fair value method of accounting for stock-based compensation. The Prospective Method, originally required under SFAS 123, requires that expense be recognized in the year of adoption only for grants made in that year. In subsequent years, expense is recognized for the current year’s grant and for grants made in the years since adoption. Years prior to adoption are not restated. The Modified Prospective Method requires that stock options be expensed as if SFAS 123 had been adopted as of January 1, 1995. Thus, the fair value of any options vesting in the current year that were granted subsequent to January 1, 1995 will be included in expense. However, restatement of prior years is not required. The Retroactive Restatement Method is identical to the Modified Prospective Method in that the fair value of all options vesting in the current year for grants made after January 1, 1995 is included in

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expense. However, this method also requires that all periods presented in the financial statements be restated to reflect stock option expense. Restatement of periods prior to those presented is permitted but not required.

SFAS 148 also requires additional disclosure in the “Summary of Significant Accounting Policies” footnote of both annual and interim financial statements. MBIA has chosen to report its stock option expense under the Modified Prospective Method. See Note 2 for disclosures required by SFAS 148 and Note 23 for further information about the effect of adoption on the Company’s financial statements.

In November 2002, the FASB issued FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 outlines certain accounting guidelines, effective for fiscal years beginning after December 15, 2002, from which the Company’s insurance transactions and derivative contracts are excluded. In addition, FIN 45 expands the disclosures required by a guarantor in its interim and annual financial statements regarding obligations under certain guarantees. These disclosure requirements are effective for the year ended December 31, 2002. See Note 20 for additional disclosures. The Company’s financial position and results of operations did not change as a result of the adoption of FIN 45.

NOTE 4: GOODWILL

Effective January 1, 2002 the Company adopted SFAS 141, “Business Combinations” and SFAS 142. SFAS 141, which supercedes APB 16, “Business Combinations,” requires business combinations initiated after June 30, 2001 to be accounted for using the purchase method of accounting and provides specific criteria for initial recognition of intangible assets apart from goodwill. SFAS 142, which supercedes APB 17, “Intangible Assets,” requires that goodwill and intangible assets with indefinite lives are no longer amortized but instead tested for impairment at least annually. The standard includes a two-step process aimed at determining the amount, if any, by which the carrying value of a reporting unit exceeds its fair value. Other intangible assets are amortized over their useful lives.

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The following table contains a reconciliation of reported net income to net income adjusted for the effect of goodwill amortization for the years ended December 31, 2003, 2002 and 2001:

	Years Ended December 31
	2003		2002		2001
In thousands except per share amounts
Net income:
As reported	$	813,585	$	579,087	$	570,091
Amortization of goodwill		—		—		6,550
Adjusted net income	$	813,585	$	579,087	$	576,641
Net income per diluted shares:
As reported	$	5.61	$	3.92	$	3.82
Excluding amortization of goodwill	$	5.61	$	3.92	$	3.86

The Company completed its transitional impairment testing on its existing goodwill as of January 1, 2002 in accordance with SFAS 142.

As of January 1, 2002, goodwill in the insurance segment totaled $76.9 million. SFAS 142 requires a two-step approach in determining any impairment in goodwill. Step one entails evaluating whether the fair value of a reporting segment exceeds its carrying value. In performing this evaluation the Company determined that the best measure of the fair value of the insurance reporting segment is its book value adjusted for the after-tax effects of net deferred premium revenue less deferred acquisition costs, and the present value of installment premiums to arrive at adjusted book value. Adjusted book value is a common measure used by analysts to determine the value of financial guarantee companies. As of January 1, 2002, the insurance reporting segment’s adjusted book value significantly exceeded its carrying value, and thus there was no impairment of its existing goodwill.

Total goodwill for the segments within the investment management services operations was $13.1 million as of January 1, 2002. In performing step one of the impairment testing, the fair values of the reporting segments were determined using a multiple of earnings before income tax, depreciation and amortization (EBITDA), as this is a common measure of fair value in the investment management industry. The multiple was determined based on a review of current industry valuation practices. As of January 1, 2002, the fair value of the investment management services’ reporting segments significantly exceeded its carrying value indicating that goodwill was not impaired.

The municipal services segment had goodwill of $7.7 million as of January 1, 2002. The fair value of the reporting segment was based on net assets. In comparing fair value to carrying value, it was determined that goodwill was potentially impaired. In performing step two of the impairment testing

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the implied fair value of goodwill was calculated by subtracting the fair value of the net assets from the fair value of the reporting segment. In comparing the implied fair value of goodwill to the carrying amount of goodwill, it was determined that the entire amount was impaired and was therefore written off as of January 1, 2002 and reported as a cumulative effect of accounting change. The per share effect of the cumulative effect of accounting change was to reduce 2002’s net income per share by five cents.

The Company performed its annual impairment testing of goodwill as of January 1, 2003 and January 1, 2004. The fair values of the insurance reporting segment and the investment management services’ reporting segments were determined using the same valuation methods applied during the transition testing. The fair values of the reporting segments exceeded their carrying values indicating that goodwill was not impaired.

NOTE 5: VARIABLE INTEREST ENTITIES

The Company provides structured funding and credit enhancement services to global finance clients through the use of certain MBIA-administered, bankruptcy-remote special purpose vehicles (SPVs) and through third-party SPVs. The purpose of the MBIA-administered SPVs is to provide clients with an efficient source of funding, which may offer MBIA the opportunity to issue financial guarantee insurance policies. These SPVs purchase various types of financial instruments, such as debt securities, loans, lease receivables and trade receivables, and fund these purchases through the issuance of asset-backed short-term commercial paper or medium-term notes. The assets and liabilities within the medium-term note programs are managed primarily on a match-funded basis and may include the use of derivative hedges, such as interest rate and foreign currency swaps. By match-funding, the SPVs eliminate the risks associated with fluctuations in interest and foreign currency rates, indices and liquidity. Typically, programs involve the use of rating agencies in assessing the quality of asset purchases and in assigning ratings to the various programs. In general, asset purchases at the inception of a program are required to be at least investment grade by at least one major rating agency. The primary SPVs administered by MBIA are Triple-A, Meridian, Polaris and TRF. Third-party SPVs are used in a variety of structures guaranteed or managed by MBIA, whereby the Company has risks analogous to those of MBIA-administered SPVs. The Company has determined that such SPVs fall within the definition of a VIE under FIN 46.

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Under the provisions of FIN 46, an entity is considered a VIE subject to consolidation if the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support or if the equity investors lack one of three characteristics of a controlling financial interest. First, the equity investors lack the ability to make decisions about the entity’s activities through voting rights or similar rights. Second, they do not bear the obligation to absorb the expected losses of the entity if they occur. Lastly, they do not claim the right to receive expected returns of the entity if they occur, which is the compensation for the risk of absorbing the expected losses. A VIE is consolidated with its primary beneficiary, which is defined as the entity that will absorb the majority of the expected losses, receive the majority of the expected residual returns or both of the VIE.

In May 2003, the Company sponsored the formation of TRF, a public company incorporated in Ireland under the Irish Companies Act. TRF is a conduit established to acquire a loan participation related to the financing of an Italian toll road and, at December 31, 2003, had $1.5 billion of debt outstanding. Assets supporting the repayment of the debt were comprised of the loan participation and high-quality, liquid investments. Assets and liabilities of TRF are included within “Conduit investments held-to-maturity” and “Conduit debt obligations,” respectively, on the Company’s balance sheet. TRF is a variable interest entity, of which MBIA is the primary beneficiary. Therefore, while MBIA does not have a direct ownership interest in TRF, it is consolidated in the financial statements of the Company in accordance with FIN 46.

On September 30, 2003, prior to the applicable effective date of FIN 46, MBIA purchased the equity and acquired all controlling interests of the Conduits. These entities are reflected in the consolidated financial statements of the Company. As a result, MBIA has included in its balance sheet the gross assets and liabilities of each Conduit, which consist primarily of various types of investments and medium- and short-term debt, and included in its income statement the gross operating revenues and expenses of the Conduits subsequent to their acquisition date. Certain of MBIA’s consolidated subsidiaries have invested in Conduit debt obligations or have received compensation for services provided to the Conduits. As such, MBIA has eliminated intercompany transactions with the Conduits from its balance sheet and income statement. After the elimination of such

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intercompany assets and liabilities, Conduit investments and Conduit debt obligations were $8.4 billion and $7.8 billion, respectively, at December 31, 2003. Other than the potential impact of the unrealized gains or losses from derivative instruments, MBIA does not expect its net income to change materially as a result of the consolidation of the Conduits due to the inconsequential level of residual profits of these entities. As a result, the Company has not provided pro forma information on the acquisition of the Conduits.

The Conduits enter into derivative instruments primarily to hedge against interest rate and currency risks. It is expected that any change in the market value of the derivative instruments will be offset by a change in the market value of the hedged assets or liabilities. However, since the investments are accounted for as held-to-maturity, no change in market value, with the exception of the change in value of foreign currency assets due to changes in foreign currency rates, is recorded in the financial statements. Derivative instruments entered into by the Conduits are not accounted for as hedges under SFAS 133 and, therefore, changes in market value are recorded as gains or losses in MBIA’s consolidated income statement.

It is MBIA’s policy to obtain a shadow rating from both Moody’s Investors Service (Moody’s) and Standard & Poor’s (S&P) for each new transaction prior to the execution of such transactions within the Conduits. A shadow rating is the implied rating for the transaction without giving consideration to the MBIA guarantee. All transactions currently funded in the Conduits were shadow-rated at least investment grade by Moody’s and S&P prior to funding. The weighted-average shadow rating for transactions currently funded in the Conduits was A by S&P and A2 by Moody’s at the time such transactions were funded.

As a result of having to adhere to MBIA’s underwriting standards and criteria, Conduit transactions have, in general, the same underlying shadow ratings that similar non-Conduit transactions guaranteed by MBIA have at the time they are closed. Like all credits underwritten by MBIA, the shadow ratings on Conduit transactions may be downgraded by either one or both rating agencies after they are closed. In general, the underlying shadow ratings on Conduit transactions have been downgraded no more frequently than similar non-Conduit transactions guaranteed by MBIA.

With respect to third-party SPVs guaranteed or managed by the Company, MBIA must determine whether it has a variable interest in a VIE and if so, whether that variable interest would cause MBIA to be the primary beneficiary and,

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therefore, consolidate the VIE. VIEs are used in a variety of structures insured by MBIA. Under FIN 46, MBIA’s guarantee of the assets or liabilities of a VIE constitute a variable interest and require MBIA to assess whether it is the primary beneficiary. VIEs managed by MBIA represent collateralized debt obligations whereby CMC has been contracted as asset manager and whereby the Company may own a subordinated interest. Consolidation of such VIEs does not increase MBIA’s exposure above that already committed to in its insurance policies or investments. Additionally, VIE assets and liabilities that are consolidated within MBIA’s financial statements may represent amounts above MBIA’s guarantee, although such excess amounts would ultimately have no impact on MBIA’s net income. VIE assets and liabilities consolidated in the Company’s financial statements at December 31, 2003 are related to the Company’s guarantee of a VIE. Such assets and liabilities are reported in “Variable interest entity assets” and “Variable interest entity liabilities,” respectively, on the face of the Company’s balance sheet and totaled $600.3 million.

NOTE 6: DERIVATIVE INSTRUMENTS

Effective January 1, 2001 the Company adopted SFAS 133. SFAS 133 requires all derivative instruments to be recorded at fair value on the balance sheet. Changes in the fair value of derivatives are recorded each period in current earnings or accumulated other comprehensive income, depending on whether the derivative is designated as a hedge, and if so designated, the type of hedge.

INSURANCE The Company has entered into derivative transactions that it views as an extension of its core financial guarantee business but which do not qualify for the financial guarantee scope exception under SFAS 133 and, therefore, must be stated at fair value. The insurance operations, which represent the majority of the Company’s derivative exposure, have insured derivatives primarily consisting of pools of credit default swaps, which the Company intends to hold for the entire term of the contract. The insurance operations have also provided guarantees on the value of certain closed-end equity funds, which meet the definition of a derivative under SFAS 133. Changes in fair values of these transactions are recorded through the income statement within net gains (losses) on derivative instruments and foreign exchange.

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INVESTMENT MANAGEMENT SERVICES The Investment Management Services (IMS) operations have entered into derivative transactions primarily consisting of interest rate, cross currency, credit default and total return swaps and equity guarantee fund commitments. Interest rate swaps are entered into to hedge the risks associated with fluctuations in interest rates or fair values of certain contracts. Cross currency swaps are entered into to hedge the variability in cash flows resulting from fluctuations in foreign currency rates. A number of interest rate and cross currency swaps are treated as hedges for accounting purposes. Credit default swaps are entered into as an extension of the Company’s investment management business and are consistent with the Company’s risk objectives. Total return swaps are entered into to enable the Company to earn returns on certain obligations without directly owning the underlying obligations. The Company has also provided loss protection on certain MBIA-MISC managed municipal pools that invest in highly rated short-term fixed-income securities. Such protection is accounted for as a derivative under SFAS 133 and is included as part of the Company’s equity guarantee funds.

Some of these derivatives qualify as cash flow hedges and fair value hedges under SFAS 133. The cash flow hedges mitigate or offset fluctuations in cash flows arising from variable rate assets or liabilities. The fair value hedges are used to protect against changes in the value of the hedged assets or liabilities. The unrealized gains and losses relating to the cash flow hedges are reported in accumulated other comprehensive income and will be reclassified into earnings as interest revenue and expense are recognized on those assets and liabilities. The gains and losses relating to the fair value hedges are recorded directly in earnings. Cash flow and fair value hedges are hedging existing assets, liabilities or forecasted transactions. During 2003, most of the cash flow and fair value hedges were 100% effective for accounting purposes, due to the application of the shortcut method, or the matching of all critical terms. Therefore, the change in fair value of these derivative instruments is recorded in accumulated other comprehensive income or offset by corresponding changes in the fair value of the underlying hedged items in the income statement. During 2003, the amount of ineffectiveness on fair value and cash flow hedges recorded in the income statement was $0.8 million (net of tax) and $5 thousand (net of tax), respectively.

The Conduits enter into interest rate and foreign currency swaps primarily as economic hedges against interest rate and currency risks. The cross currency swaps qualify as fair value hedges of foreign currency risk under SFAS 133. The Company recognizes the earnings impact of cross currency swaps designated as fair value hedges upon the recognition of the foreign exchange

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gain or loss on the translation to U.S. dollars of the hedged item. During 2003, the amount of ineffectiveness recorded in the income statement was $4.0 million (net of tax). This was offset by gains of $4.4 million (net of tax) on economic hedges that did not qualify for hedge accounting treatment under SFAS 133.

Cash flow hedges for the IMS operations resulted in an aggregate unrealized loss balance of $4.3 million (net of deferred taxes) remaining in accumulated other comprehensive income at December 31, 2003. The Company expects that approximately $1.8 million (net of tax) will migrate from accumulated other comprehensive income into earnings during 2004 and the remaining amount over the term of the contracts.

The Company has entered into one master netting agreement with a specific counterparty covering derivative transactions within an investment management services total return swap program. This agreement allows the Company to mitigate the credit risk of the counterparty and, therefore, the Company has the ability to net all amounts due to and owed by the specified counterparty. For financial statement presentation purposes the Company has chosen not to net the receivable and payable balances pertaining to these derivative transactions in the balance sheet but instead report these amounts on a gross basis in both the asset and liability sections of the balance sheet.

CORPORATE The corporate operations have entered into derivatives to hedge foreign exchange risks related to the issuance of certain MBIA long-term debt in accordance with the Company’s risk management policies. As of December 31, 2003, there was one cross currency swap outstanding.

The cross currency swap has been designated as a cash flow hedge and hedges the variability arising from currency exchange rate movements on the foreign denominated fixed rate debt. Changes of the fair value of the cross currency swap are recorded as part of accumulated other comprehensive income. As the debt is revalued at the spot exchange rate in accordance with SFAS 52, “Foreign Currency Translation,” an amount that will offset the related transaction gain or loss arising from the revaluation will migrate each period from accumulated other comprehensive income into earnings. This cash flow hedge was 100% effective during 2003.

The cross currency swap designated as a cash flow hedge resulted in an aggregate unrealized loss balance of $2.4 million (net of deferred taxes) remaining in accumulated other comprehensive income at December 31, 2003. The Company expects that approximately $1.3 million (net of tax) will migrate

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from accumulated other comprehensive income into earnings during 2004 and the remaining balance over the term of the contract.

The notional values of the derivative instruments by business operations for the years ended December 31, 2003 and 2002 are as follows:

	Year ended December 31, 2003
In millions	Insurance		Investment Management Services		Corporate		Total
Credit default swaps	$	64,031	$	1,258	$	—	$	65,289
Interest rate swaps		1,465		6,472		—		7,937
Equity guarantee funds		3,039		2,931		—		5,970
Cross currency swaps		—		3,233		141		3,374
Total return swaps		364		736		—		1,100
Credit linked notes		846		50		—		896
All other		—		94		—		94
Total	$	69,745	$	14,774	$	141	$	84,660
	Year ended December 31, 2002
In millions	Insurance		Investment Management Services		Corporate		Total
Credit default swaps	$	47,778	$	1,385	$	—	$	49,163
Interest rate swaps		—		3,355		50		3,405
Total return swaps		157		741		—		898
Cross currency swaps		—		71		127		198
All other		6		94		—		100
Total	$	47,941	$	5,646	$	177	$	53,764

FINANCIAL STATEMENT IMPACT As of December 31, 2003 and 2002, the Company held derivative assets of $256.7 million and $191.8 million, respectively, and derivative liabilities of $437.7 million and $309.7 million, respectively, which are shown separately on the consolidated balance sheet. The following tables display the amount of the derivative assets and liabilities by business operations for the years ended December 31, 2003 and 2002.

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	Year ended December 31, 2003
In millions	Insurance		Investment Management Services		Corporate		Total
Derivative assets	$	55.8	$	162.3	$	38.6	$	256.7
Derivative liabilities	$	49.5	$	388.2	$	—	$	437.7
	Year ended December 31, 2002
In millions	Insurance		Investment Management Services		Corporate		Total
Derivative assets	$	96.7	$	69.1	$	26.0	$	191.8
Derivative liabilities	$	190.9	$	118.8	$	—	$	309.7

The impact for all derivative transactions for 2003 was an after-tax increase in net income of $96.7 million. The impact for all derivative transactions for 2002 and 2001 was an after-tax reduction in net income of $38.5 million and $9.9 million, respectively. In 2001, the total after-tax effect of the adoption of SFAS 133 was a $13.1 million reduction in net income. The income statement impact of derivative activity is broken down into revenues, expenses, net realized gains (losses) and net gains (losses) on derivative instruments and foreign exchange. The following tables display the impact on the 2003, 2002 and 2001 income statements by business operation of all derivative transactions.

	Year ended December 31, 2003
In millions	Insurance			Investment Management Services			Corporate			Total
Revenues*	$	47.7		$	5.5		$	0.8		$	54.0
Expenses*		(5.6	)		—			—			(5.6	)
Operating income		42.1			5.5			0.8			48.4
Gains and losses:
Net realized gains		—			0.7			—			0.7
Net gains (losses) on derivative instruments and foreign exchange		100.1			(0.4	)		—			99.7
Income before income taxes		142.2			5.8			0.8			148.8
Provision for income taxes		(49.8	)		(2.0	)		(0.3	)		(52.1	)
Net income	$	92.4		$	3.8		$	0.5		$	96.7

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	Year ended December 31, 2002
In millions	Insurance			Investment Management Services			Corporate			Total
Revenues*	$	19.1		$	(0.5	)	$	9.7		$	28.3
Expenses*		(2.2	)		—			(2.6	)		(4.8	)
Operating income (loss)		16.9			(0.5	)		7.1			23.5
Gains and losses:
Net realized losses		(0.3	)		(0.5	)		—			(0.8	)
Net losses on derivative instruments		(74.3	)		(7.6	)		—			(81.9	)
Income before income taxes		(57.7	)		(8.6	)		7.1			(59.2	)
Tax (provision) benefit		20.2			3.0			(2.5	)		20.7
Net income (loss)	$	(37.5	)	$	(5.6	)	$	4.6		$	(38.5	)
	Year ended December 31, 2001
In millions	Insurance			Investment Management Services			Corporate			Total
Revenues*	$	10.9		$	0.2		$	—		$	11.1
Expenses*		(2.9	)		—			1.8			(1.1	)
Operating income		8.0			0.2			1.8			10.0
Gains and losses:
Net realized gains (losses)		(3.0	)		1.8			—			(1.2	)
Net losses on derivative instruments		(2.4	)		(1.5	)		—			(3.9	)
Income before income taxes		2.6			0.5			1.8			4.9
Provision for income taxes		(0.9	)		(0.2	)		(0.6	)		(1.7	)
Income before cumulative effect of accounting change		1.7			0.3			1.2			3.2
Cumulative effect of accounting change		(11.1	)		(2.0	)		—			(13.1	)
Net income (loss)	$	(9.4	)	$	(1.7	)	$	1.2		$	(9.9	)

* Includes premiums earned, advisory fees and losses incurred in the insurance operations and interest income and expenses in the investment management services and corporate operations.

During 2003, an $11.0 million after-tax increase in the fair value of the cash flow hedges was recorded in other comprehensive income while $0.7 million of after-tax expense was transferred to earnings as a result of scheduled payments and receipts on the cash flow hedges. This resulted in an

100

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

ending loss position related to the cash flow hedges in other comprehensive income of $6.7 million as of December 31, 2003. At December 31, 2003, the maximum term of derivative instruments that hedge forecasted transactions was approximately 7 years.

The fair value of the Company’s derivative instruments is estimated using various valuation models that conform to industry standards. The Company utilizes both vendor-developed and proprietary models, based on the complexity of transactions. Dealer market quotes are typically obtained for regularly traded contracts and provide the best estimate of fair value. However, when reliable dealer market quotes are not available, the Company uses a variety of market and portfolio data relative to the type and structure of contracts. Several of the more significant types of data that influence the Company’s valuation models include interest rates, credit quality ratings, credit spreads, default probabilities and diversity scores. This data is obtained from highly recognized sources and is reviewed for reasonableness and applicability to the Company’s derivative portfolio.

The use of market data requires management to make assumptions on how the fair value of derivative instruments is affected by current market conditions. Therefore, results can significantly differ between models and due to changes in management assumptions. The Company has dedicated resources to the development and ongoing review of its valuation models and has instituted procedures for the approval and control of data inputs. In addition, regular reviews are performed to ensure that the Company’s valuation models are appropriate and produce values reflective of the current market environment.

In 2002, the Company revised several market data inputs used in determining the fair value of its insured credit derivatives. Market-based discount rates replaced the fixed discount rate previously established by the Company. In addition, a change in the data source received from a pricing data vendor resulted in a recalibration of credit spreads within the Company’s valuation model. This information was validated by comparisons to three independent data sources. The Company also introduced dealer collateralized debt obligations (CDO) market quotes to improve the quality of transaction-specific data. These modifications resulted in a negative change to the value of the Company’s insured credit derivative portfolio for 2002. No modifications were made to the Company’s non-insurance derivative valuation models. In 2003, the Company added an additional third-party data source for generic credit spread information used by the Company in its valuation

101

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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process to avoid undue reliance on any single data vendor, as well as to enhance its assessment of fair values.

NOTE 7: TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES

In accordance with SFAS 140, the Company does not reflect on its balance sheet financial assets involving the borrowing of securities that meet specific criteria. The Company had no security borrowing transactions at December 31, 2003. The fair value of securities received under security borrowing transactions not reflected on the balance sheet at year-end 2002 was $149 million. All of the securities borrowed were repledged for 2002. As of year-end 2002, the Company owned financial assets reflected in total investments and related to security borrowing transactions with a fair value of $126 million.

It is the Company’s policy to take possession of securities borrowed. These contracts are primarily for MBIA’s collateralized investment and repurchase agreement activity and are only transacted with high-quality dealer firms.

The Company minimizes the credit risk that counterparties to transactions might be unable to fulfill their contractual obligations by monitoring customer credit exposure and collateral value and requiring additional collateral to be deposited with the Company when deemed necessary.

SFAS 140 also requires the Company to reclassify financial assets pledged as collateral under certain agreements and to report those assets at fair value as a separate line item on the balance sheet. As of year-end 2003 and 2002, the Company had $596 million and $668 million, respectively, in financial assets pledged as collateral.

NOTE 8: SECURITIZATION OF FINANCIAL ASSETS

In September 1999, Capital Asset sold substantially all of its remaining tax lien portfolio through a securitization. This securitization was the third in a series of such securitizations. Proceeds from this transaction were used to extinguish an existing warehouse financing facility that had been guaranteed by the Company. MBIA Corp. has insured the notes issued in connection with the securitizations. Consequently, the Company recorded a servicing liability which represents the fair value of such liability based

102

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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upon the present value of projected servicing costs in excess of servicing revenues, discounted at 4.72%. The balance of the servicing liability as of December 31, 2003 is $3.8 million. Since the fourth quarter of 1999, a specialty servicing concern oversees the management of Capital Asset, whose activities consist of the administration and servicing of the assets securitized and other delinquent tax liens and related assets.

NOTE 9: STATUTORY ACCOUNTING PRACTICES

The financial statements have been prepared on the basis of GAAP, which differs in certain respects from the statutory accounting practices prescribed or permitted by the insurance regulatory authorities. Statutory accounting practices differ from GAAP in the following respects:

• upfront premiums are earned as the related risk expires rather than over the period of the risk;

• acquisition costs are charged to operations as incurred rather than deferred and amortized as the related premiums are earned;

• fixed-maturity securities are reported at amortized cost rather than fair value;

• a contingency reserve is computed on the basis of statutory requirements, and reserves for losses and LAE are established at present value for specific insured issues that are identified as currently or likely to be in default. Under GAAP, reserves are established based on the Company’s reasonable estimate of the identified and unallocated losses and LAE on the insured obligations it has written;

• tax and loss bonds purchased are reflected as admitted assets as well as payments of income taxes;

• goodwill under GAAP represents the excess of the cost of acquisitions over the fair value of the net assets acquired, while on a statutory basis, the acquisitions of MBIA Corp. and MBIA Illinois were recorded at statutory book value. Therefore no goodwill was recorded;

• derivative assets and liabilities exclude insurance guarantees, while under GAAP, guarantees that do not qualify for the financial guarantee scope exception under SFAS 133 are recorded at fair value; and

• certain assets designated as “non-admitted assets” are charged directly against surplus but are reflected as assets under GAAP.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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Consolidated net income of MBIA Corp. determined in accordance with statutory accounting practices for the years ended December 31, 2003, 2002 and 2001 was $669.2 million, $617.9 million and $571.0 million, respectively.

The following is a reconciliation of consolidated shareholders’ equity presented on a GAAP basis for the Company and its consolidated subsidiaries to statutory capital and surplus for MBIA Corp. and its subsidiaries:

	As of December 31
In thousands	2003			2002
Company’s GAAP shareholders’ equity	$	6,259,015		$	5,493,351
Contributions to MBIA Corp.		594,929			587,417
Premium revenue recognition		(643,443	)		(608,152	)
Deferral of acquisition costs		(319,728	)		(302,222	)
Unrealized gains		(831,764	)		(838,135	)
Contingency reserve		(2,368,224	)		(2,276,834	)
Unallocated loss and LAE reserves		297,741			284,547
Deferred income taxes		524,673			480,139
Tax and loss bonds		355,882			304,695
Goodwill		(76,938	)		(76,938	)
Derivative assets and liabilities		(6,263	)		94,148
Non-admitted assets		(24,291	)		(28,027	)
Other items		(46,576	)		44,020
Statutory capital and surplus	$	3,715,013		$	3,158,009

In 1998, the National Association of Insurance Commissioners (NAIC) adopted the Codification of Statutory Accounting Principles guidance (Codification), which replaced the Accounting Practices and Procedures manuals as the NAIC’s primary guidance on statutory accounting effective as of January 1, 2001. The Codification provides guidance in areas where statutory accounting had been silent and changed current statutory accounting in some areas.

The New York State Insurance Department adopted the Codification guidance effective January 1, 2001. However, the New York State Insurance Department did not adopt the Codification rules on deferred taxes until December 31, 2002. The deferred tax effect of adoption on the statutory surplus of MBIA Corp. and its subsidiaries reduced surplus by $10.8 million.

NOTE 10: PREMIUMS EARNED FROM REFUNDED AND CALLED BONDS

Premiums earned include $125.6 million, $74.4 million and $54.6 million for 2003, 2002 and 2001, respectively, related to refunded and called bonds.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

NOTE 11: INVESTMENTS

The Company’s investment objective, excluding the Conduit programs which are managed separately, is to optimize long-term, after-tax returns while emphasizing the preservation of capital through maintenance of high quality investments with adequate liquidity. The Company’s investment policies limit the amount of credit exposure to any one issuer. The fixed-maturity portfolio is comprised of high quality (average rating Double-A) taxable and tax-exempt investments of diversified maturities.

The following tables set forth the amortized cost and fair value of the available-for-sale fixed-maturity and short-term investments included in the consolidated investment portfolio of the Company as of December 31, 2003 and 2002:

In thousands	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
As of December 31, 2003
Taxable bonds:
United States Treasury and government agency	$	1,351,843	$	75,590	$	(2,180	)	$	1,425,253
Corporate and other obligations		10,372,519		462,822		(36,777	)		10,798,564
Mortgage-backed		1,573,626		39,888		(2,874	)		1,610,640
Tax-exempt bonds:
State and municipal obligations		4,786,060		345,458		(2,794	)		5,128,724
Total	$	18,084,048	$	923,758	$	(44,625	)	$	18,963,181

In thousands	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
As of December 31, 2002
Taxable bonds:
United States Treasury and government agency	$	1,391,571	$	101,054	$	(195	)	$	1,492,430
Corporate and other obligations		6,512,859		411,962		(17,744	)		6,907,077
Mortgage-backed		3,629,264		93,414		(7,105	)		3,715,573
Tax-exempt bonds:
State and municipal obligations		4,436,679		331,086		(488	)		4,767,277
Total	$	15,970,373	$	937,516	$	(25,532	)	$	16,882,357

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

Fixed-maturity investments carried at fair value of $13.9 million and $13.7 million as of December 31, 2003 and 2002, respectively, were on deposit with various regulatory authorities to comply with insurance laws.

Included in the preceding tables are investments that have been insured by MBIA Corp. At December 31, 2003, MBIA Corp. insured investments at fair value represented $4.3 billion or 22% of the total portfolio (excluding the Conduits). At December 31, 2002, MBIA Corp. insured investments at fair value represented $3.0 billion or 19% of the total portfolio.

A portion of the obligations under investment and repurchase agreements requires the Company to pledge securities as collateral. As of December 31, 2003 and 2002, the fair value of securities pledged as collateral with respect to these obligations approximated $3.3 billion.

The following table sets forth the distribution by contractual maturity of the available-for-sale fixed-maturity and short-term investments at amortized cost and fair value at December 31, 2003. Contractual maturity may differ from expected maturity because borrowers may have the right to call or prepay obligations.

In thousands	Amortized Cost		Fair Value
Within 1 year	$	1,791,287	$	1,791,287
Beyond 1 year but within 5 years		4,231,601		4,326,619
Beyond 5 years but within 10 years		3,493,008		3,671,838
Beyond 10 years but within 15 years		2,868,245		3,109,545
Beyond 15 years but within 20 years		1,307,677		1,419,866
Beyond 20 years		2,818,604		3,033,386
Mortgage-backed		1,573,626		1,610,640
Total fixed-maturity and short-term investments	$	18,084,048	$	18,963,181

The investments of the Conduits along with the investments of TRF are classified as held-to-maturity and are reported on the balance sheet at amortized cost, net of any unamortized discount and unamortized premium. These investments are primarily asset-backed securities and loans issued by major national and international corporations and other structured finance clients. The following table sets forth the distribution of the Conduit and TRF investments by contractual maturity at amortized cost at December 31, 2003.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

In thousands	Amortized Cost
Within 1 year	$	221,525
Beyond 1 year but within 5 years		2,136,257
Beyond 5 years but within 10 years		3,653,917
Beyond 10 years but within 15 years		1,845,233
Beyond 15 years but within 20 years		—
Beyond 20 years		529,348
Total Conduit investments	$	8,386,280

The following table sets forth the gross unrealized losses of the fixed-maturity and equity investments included in accumulated other comprehensive income as of December 31, 2003. The table has segregated investments that have been in a continuous unrealized loss position for less than 12 months from those that have been in a continuous unrealized loss position for twelve months or longer.

In thousands	Less than 12 Months					12 Months or Longer					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
United States Treasury and government agency	$	117,687	$	(2,180	)	$	—	$	—		$	117,687	$	(2,180	)
Corporate and other obligations		1,900,708		(26,295	)		205,084		(10,046	)		2,105,792		(36,341	)
Mortgage-backed		430,318		(2,908	)		57,842		(371	)		488,160		(3,279	)
State and municipal obligations		494,878		(2,784	)		347		(10	)		495,225		(2,794	)
Subtotal, debt securities		2,943,591		(34,167	)		263,273		(10,427	)		3,206,864		(44,594	)
Equities		—		—			2,538		(31	)		2,538		(31	)
Total	$	2,943,591	$	(34,167	)	$	265,811	$	(10,458	)	$	3,209,402	$	(44,625	)

As of December 31, 2003, the Company’s fixed-maturity and equity investment portfolio had a gross unrealized loss of $44.6 million with no securities that were rated below investment grade. There were 22 securities that were in an unrealized loss position for a continuous twelve-month period or longer. Only two of the 22 securities had unrealized losses in which its book value exceeded market value by 20%. MBIA determined that the unrealized losses on these two securities were temporary in nature because there was no deterioration of credit quality spreads or a downgrade to below investment grade.

NOTE 12: INVESTMENT INCOME AND GAINS AND LOSSES

The following table includes investment income from the insurance and corporate operations. Realized gains are generated as a result of the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

ongoing management of all the Company’s investment portfolios. However, 2003 net realized gains were mainly the result of the Company selling securities to shorten the duration of its fixed-maturity portfolio.

	Years ended December 31
In thousands	2003			2002			2001
Fixed-maturity	$	414,750		$	440,818		$	413,872
Held-to-maturity		34,623			—			—
Short-term investments		18,732			9,034			12,672
Other investments		11,727			928			718
Gross investment income		479,832			450,780			427,262
Investment expenses		33,136			8,405			7,600
Net investment income		446,696			442,375			419,662
Net realized gains (losses):
Fixed-maturity
Gains		121,651			73,819			83,529
Losses		(43,656	)		(48,710	)		(62,748	)
Net		77,995			25,109			20,781
Other investments
Gains		6,786			725			67
Losses		(4,113	)		(10,410	)		(11,952	)
Net		2,673			(9,685	)		(11,885	)
Total net realized gains		80,668			15,424			8,896
Total investment income	$	527,364		$	457,799		$	428,558

Net unrealized gains consist of:

	As of December 31
In thousands	2003			2002
Fixed-maturity:
Gains	$	923,758		$	926,963
Losses		(44,625	)		(15,914	)
Net		879,133			911,049
Other investments:
Gains		136,337			5,278
Losses		(933	)		(1,374	)
Net		135,404			3,904
Total		1,014,537			914,953
Deferred income taxes		354,680			319,982
Unrealized gains, net	$	659,857		$	594,971

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

The deferred income taxes are reflected in other accumulated comprehensive income in shareholders’ equity.

The change in net unrealized gains consists of:

	Years ended December 31
In thousands	2003			2002		2001
Fixed-maturity	$	(31,916	)	$	633,774	$	100,693
Other investments		131,500			3,970		13,184
Total		99,584			637,744		113,877
Deferred income tax		34,698			222,973		39,868
Unrealized gains, net	$	64,886		$	414,771	$	74,009

NOTE 13: INCOME TAXES

Income from operations before provision for income taxes consisted of:

	Years ended December 31
In thousands	2003		2002		2001
United States	$	1,107,140	$	767,990	$	782,326
Non-United States		41,500		24,591		8,658
Total	$	1,148,640	$	792,581	$	790,984

The Company files a consolidated tax return that includes all of its U.S. subsidiaries. The provision for income taxes is comprised of:

	Years ended December 31
In thousands	2003		2002			2001
Current taxes:
Federal	$	290,483	$	203,386		$	208,311
State		1,216		527			1,021
Foreign		5,219		6,204			5,246
Deferred taxes:
Federal		34,417		(6,434	)		(5,481	)
Foreign		3,720		2,080			(1,271	)
Provision for income taxes		335,055		205,763			207,826
Deferred SFAS 133 transition		—		—			(7,036	)
Total	$	335,055	$	205,763		$	200,790

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

The provision for income taxes gives effect to permanent differences between financial and taxable income. Accordingly, the Company’s effective income tax rate differs from the statutory rate on ordinary income. The reasons for the Company’s lower effective tax rates are as follows:

	Years ended December 31
	2003		2002		2001
Income taxes computed on pre-tax financial income at statutory rates	35.0	%	35.0	%	35.0	%
Increase (reduction) in taxes resulting from:
Tax-exempt interest	(5.6	)	(9.1	)	(8.3	)
Amortization of goodwill	—		—		0.2
Other	(0.2	)	0.1		(0.6	)
Provision for income taxes	29.2	%	26.0	%	26.3	%

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

110

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

The tax effects of temporary differences that give rise to deferred tax assets and liabilities at December 31, 2003 and 2002 are presented in the following table:

	As of December 31
In thousands	2003		2002
Deferred tax assets:
Tax and loss bonds	$	368,798	$	309,429
Loss and loss adjustment expense reserves		102,059		97,441
Other		108,239		111,963
Total gross deferred tax assets		579,096		518,833
Deferred tax liabilities:
Contingency reserve		476,899		417,530
Deferred premium revenue		114,165		114,268
Deferred acquisition costs		102,493		101,317
Unrealized gains		337,175		294,160
Contingent commissions		555		552
Other		100,549		62,540
Total gross deferred tax liabilities		1,131,836		990,367
Net deferred tax liability	$	552,740	$	471,534

The Company has determined that a valuation allowance is unnecessary in connection with the deferred tax assets.

NOTE 14: BUSINESS SEGMENTS

MBIA Inc., through its subsidiaries, is a leading provider of financial guarantee products and specialized financial services. MBIA provides innovative and cost-effective products and services that meet the credit enhancement, financial and investment needs of its public- and private-sector clients, domestically and internationally. MBIA manages its activities primarily through three principal business operations: insurance, investment management services and municipal services. The Company has defined reportable segments within its business operations based on the way management assesses the performance and resource requirements of such operations.

The insurance operations provide an unconditional and irrevocable guarantee of the payment of principal and interest on insured obligations when due. The Company views its insurance operations as a reportable segment. This segment includes all activities related to global credit enhancement services provided principally by MBIA Corp. and its subsidiaries.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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The Company’s investment management services operations provide an array of products and services to the public, not-for-profit and corporate sectors. Such products and services are provided primarily through wholly owned subsidiaries of MBIA-AMC and include cash management, discretionary asset management and fund administration services and investment agreements and medium-term notes related to the origination of assets for investment management purposes. The investment management services operations’ reportable segments are comprised of investment agreements and medium-term notes (MTNs), fixed-income advisory services, conduits and equity advisory services.

The Company’s municipal services operations provide revenue enhancement services and products to public-sector clients nationwide, consisting of discovery, audit, collections/recovery, enforcement and information services through MBIA MuniServices and its wholly owned subsidiaries. The Company views its municipal services operations as a reportable segment.

The Company’s corporate operations include investment income, interest expense and general expenses that relate to general corporate activities and not to one of the Company’s three principal business operations. The Company views its corporate operations as a reportable segment.

Reportable segment results are presented net of material intersegment transactions. The following table summarizes the Company’s operations for the years ended December 31, 2003, 2002 and 2001:

	Year ended December 31, 2003
In thousands	Insurance		Investment Management Services		Municipal Services		Corporate			Total
Revenues (a)	$	1,230,412	$	422,655	$	26,814	$	9,000		$	1,688,881
Interest expense		—		302,224		—		68,368			370,592
Net revenues		1,230,412		120,431		26,814		(59,368	)		1,318,289
Expenses		238,925		70,326		25,857		14,874			349,982
Income (loss)		991,487		50,105		957		(74,242	)		968,307
Gains and losses		148,207		16,750		139		15,237			180,333
Net income (loss) before taxes		1,139,694		66,855		1,096		(59,005	)		1,148,640
Identifiable assets	$	13,094,738	$	16,665,341	$	26,445	$	481,210		$	30,267,734

	Year ended December 31, 2002
In thousands	Insurance			Investment Management Services			Municipal Services			Corporate			Total
Revenues (a)	$	1,072,205		$	424,434		$	24,810		$	9,426		$	1,530,875
Interest expense		—			313,517			—			58,453			371,970
Net revenues		1,072,205			110,917			24,810			(49,027	)		1,158,905
Expenses		196,758			61,446			24,408			17,259			299,871
Income (loss)		875,447			49,471			402			(66,286	)		859,034
Gains and losses		(65,223	)		(3,281	)		(682	)		2,733			(66,453	)
Net income (loss) before taxes		810,224			46,190			(280	)		(63,553	)		792,581
Identifiable assets	$	10,136,338		$	8,406,011		$	41,292		$	268,460		$	18,852,101

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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	Year ended December 31, 2001
In thousands	Insurance			Investment Management Services		Municipal Services			Corporate			Total
Revenues (a)	$	975,920		$	442,156	$	27,037		$	6,899		$	1,452,012
Interest expense		—			316,227		—			56,445			372,672
Net revenues		975,920			125,929		27,037			(49,546	)		1,079,340
Expenses		179,582			62,910		29,951			20,874			293,317
Income (loss)		796,338			63,019		(2,914	)		(70,420	)		786,023
Gains and losses		(1,279	)		1,729		(1,898	)		6,409			4,961
Net income (loss) before taxes		795,059			64,748		(4,812	)		(64,011	)		790,984
Identifiable assets	$	9,015,364		$	6,958,727	$	50,057		$	175,537		$	16,199,685

^(a) Represents the sum of net premiums earned, net investment income, advisory fees, investment management fees and other fees.

The following table summarizes the segments within the investment management services operations for the years ended December 31, 2003, 2002 and 2001:

	Year ended December 31, 2003
In thousands	Investment Agreements and MTNs		Fixed-Income Advisory Services		Conduits		Equity Advisory Services		Eliminations		Total Investment Management Services
Revenues	$	350,745	$	56,123	$	21,134	$	18,665	($24,012	)	$	422,655
Interest expense		294,068		—		15,776		—	(7,620	)		302,224
Net revenues		56,677		56,123		5,358		18,665	(16,392	)		120,431
Expenses		26,966		37,257		4,984		15,321	(14,202	)		70,326
Income		29,711		18,866		374		3,344	(2,190	)		50,105
Gains and losses		14,505		1,567		678		—	—			16,750
Net income before taxes		44,216		20,433		1,052		3,344	(2,190	)		66,855
Identifiable assets	$	10,002,331	$	56,503	$	6,949,714	$	25,047	($368,254	)	$	16,665,341

	Year ended December 31, 2002
In thousands	Investment Agreements and MTNs			Fixed-Income Advisory Services			Conduits	Equity Advisory Services		Eliminations		Total Investment Management Services
Revenues	$	346,985		$	52,143		—	$	36,390	($11,084	)	$	424,434
Interest expense		313,517			—		—		—	—			313,517
Net revenues		33,468			52,143		—		36,390	(11,084	)		110,917
Expenses		16,543			32,439		—		23,548	(11,084	)		61,446
Income (loss)		16,925			19,704		—		12,842	—			49,471
Gains and losses		(2,289	)		(992	)	—		—	—			(3,281	)
Net income before taxes		14,636			18,712		—		12,842	—			46,190
Identifiable assets	$	8,322,665		$	53,055		—	$	30,291	—		$	8,406,011

	Year ended December 31, 2001
In thousands	Investment Agreements and MTNs		Fixed-Income Advisory Services			Conduits	Equity Advisory Services		Eliminations		Total Investment Management Services
Revenues	$	346,638	$	49,771		—	$	54,355	($8,608	)	$	442,156
Interest expense		316,227		—		—		—	—			316,227
Net revenues		30,411		49,771		—		54,355	(8,608	)		125,929
Expenses		13,441		29,672				28,405	(8,608	)		62,910
Income		16,970		20,099		—		25,950	—			63,019
Gains and losses		2,576		(847	)	—		—	—			1,729
Net income before taxes		19,546		19,252		—		25,950	—			64,748
Identifiable assets	$	6,888,275	$	31,548		—	$	38,904	—		$	6,958,727

An increasingly significant portion of premiums reported within the insurance segment are generated outside the United States. The following table summarizes net premiums earned by geographic location of risk for years ended December 31, 2003, 2002 and 2001.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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In thousands	2003		2002		2001
Total premiums earned:
United States	$	586	$	490	$	443
Non-United States		147		99		81
Total	$	733	$	589	$	524

NOTE 15: STOCK SPLIT

On March 15, 2001 the Company’s board of directors approved a three-for-two stock split. The three-for-two stock split was accomplished through a stock dividend distributed on April 20, 2001 to shareholders of record on April 2, 2001. All references to the number of common shares, except shares authorized, and to the per share information in the consolidated financial statements and related notes, have been adjusted to reflect the stock split on a retroactive basis.

NOTE 16: DIVIDENDS AND CAPITAL REQUIREMENTS

Under New York State insurance law, without prior approval of the superintendent of the state insurance department, financial guarantee insurance companies can pay dividends from earned surplus subject to retaining a minimum capital requirement. In the Company’s case, dividends in any 12-month period cannot be greater than 10% of policyholders’ surplus as shown on MBIA Corp.’s latest filed statutory financial statements. In 2003, MBIA Corp. declared and paid dividends of $240.0 million and, based upon the filing of its year-end 2003 statutory financial statement, has dividend capacity of $131.5 million for the first quarter of 2004 without special regulatory approval. During 2004, a similar calculation will be performed each quarter to determine the amount of dividend capacity for MBIA Corp.

The insurance departments of New York State and certain other statutory insurance regulatory authorities, and the agencies that rate the bonds insured by MBIA Corp. and its subsidiaries, have various requirements relating to the maintenance of certain minimum ratios of statutory capital and reserves to net insurance in force. MBIA Corp. and its subsidiaries were in compliance with these requirements as of December 31, 2003 and 2002.

114

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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NOTE 17: STOCK REPURCHASE PLAN

In the third quarter of 1999, the Company began acquiring shares of its common stock in connection with its stock repurchase plan. The plan authorizes the Company to repurchase up to 11.25 million of its outstanding common shares. During 2003, 2002 and 2001, the Company purchased 1.9 million, 4.2 million, and 0.2 million shares of common stock at an aggregate cost of $79.9 million, $208.1 million, and $7.8 million, respectively. As of December 31, 2003 the Company had repurchased a total of 9.5 million shares at an average price of $41.71 per share leaving approximately 1.7 million shares in the Company’s share repurchase plan. The Company will only repurchase shares under this program when it is economically attractive and within rating agency constraints, including the Triple-A claims-paying ratings of MBIA Corp. Treasury stock is carried at cost as a component of stockholders’ equity.

NOTE 18: LONG-TERM DEBT AND LINES OF CREDIT

The Company’s long-term debt consists of notes and debentures listed in the following table by maturity date:

	As of December 31
In thousands	2003		2002
1.943% Notes due 2008*	$	5,550	$	7,550
7.560% Notes due 2010		141,494		125,664
9.375% Notes due 2011		100,000		100,000
6.400% Notes due 2022**		299,578		300,000
7.000% Debentures due 2025		75,000		75,000
7.150% Debentures due 2027		100,000		100,000
6.625% Debentures due 2028		150,000		150,000
6.950% Notes due 2038***		50,000		50,000
8.000% Notes due 2040****		100,000		100,000
		1,021,622		1,008,214
Less unamortized discount		459		505
Plus unamortized premium		632		723
Plus fair value adjustment		—		24,638
Total	$	1,021,795	$	1,033,070

* These notes bear interest at three-month LIBOR plus a fixed spread. The current interest rate in effect is 1.943%.

** Callable 8/2006 @ 100.00

*** Callable 11/2003 @ 100.00

****  Callable 12/2005 @ 100.00

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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The Company’s long-term debt is subject to certain covenants, none of which significantly restricts the Company’s operating activities or dividend-paying ability.

In August of 2002, the Company completed a $300 million debt offering of 20-year senior notes, which carry a coupon rate of 6.4%. Part of the proceeds from this offering were used to redeem the Company’s $100 million 8.2% debentures due October 1, 2022. This redemption occurred on October 1, 2002. The remainder of the proceeds was used for general corporate purposes.

In November 2003 the interest rate swap associated with the 6.95% notes due 2038 was terminated. As a result, the Company reversed $310 thousand out of its derivative assets, which was offset by the reversal of the fair value adjustment on the debt being hedged.

The aggregate maturity of long-term debt obligations as of December 31, 2003 for each of the next five years and thereafter commencing in 2004 was:

In thousands	2004		2005		2006		2007		2008		After 2008		Total
Long-term obligation payments due	$	—	$	—	$	—	$	—	$	5,550	$	1,016,072	$	1,021,622

MBIA Corp. has a standby line of credit commitment in the amount of $700 million with a group of major Triple-A-rated banks to provide loans to MBIA Corp. This facility can be drawn upon if MBIA Corp. incurs cumulative losses (net of expected recoveries) on the covered portfolio (which is comprised of the Company’s insured public finance obligations, with certain adjustments) in excess of the greater of $900 million or 5.0% of average annual debt service. The obligation to repay loans made under this agreement is a limited recourse obligation payable solely from, and collateralized by, a pledge of recoveries realized on defaulted insured obligations including certain installment premiums and other collateral. This commitment has a seven-year term expiring on October 31, 2010.

At January 1, 2003, the Company maintained $211 million of stop loss reinsurance coverage with three reinsurers. At the end of the third quarter, the Company elected not to renew two of the facilities with $175 million of coverage due to the rating downgrade of the stop loss providers. In addition, at the end of 2003, MBIA Corp. elected not to renew the remaining $35.7 million of stop loss reinsurance coverage effective January 1, 2004, also due to the rating downgrade of the stop loss reinsurer.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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The Company also maintained two ten-year stop loss reinsurance facilities maturing in 2011 and 2012 for $100 million and $50 million, respectively. These facilities allowed the Company to issue subordinated securities and could be drawn upon if the Company incurred cumulative losses (net of any recoveries) above an annually adjusted attachment point, which was $1.76 billion for 2003. The $50 million facility was not renewed in the fourth quarter due to a rating downgrade of the related provider, with the remaining $100 million facility remaining in effect as of December 31, 2003.

In December 2003, MBIA Corp. had access to $400 million of Money Market Committed Preferred Custodial Trust securities (CPS securities) that were issued by eight Trusts which were created for the primary purpose of issuing CPS securities and investing the proceeds in high quality commercial paper or short-term U.S. government obligations. MBIA Corp. has a put option to sell to the Trusts the perpetual preferred stock of MBIA Corp. If MBIA Corp. exercises its put option, the Trusts will transfer the proceeds to MBIA Corp. in exchange for MBIA Corp. preferred stock. The Trusts will hold the preferred stock and distribute the preferred dividend to their holders. MBIA Corp. has the right to redeem the preferred shares, and then put the preferred stock back to the Trust again, indefinitely. Any preferred stock issued by MBIA Corp. would be non-cumulative unless MBIA Corp. pays dividends on its common stock, during which time the dividends on its preferred stock would be cumulative. Preferred stockholders would have rights that are subordinated to insurance claims, as well as to the general unsecured creditors, but senior to any common stockholders of MBIA Corp.

The trusts were created as a vehicle for providing capital support to MBIA Corp. by allowing it to obtain immediate access to new capital at its sole discretion at any time through the exercise of the put options. S&P and Moody’s rate the trusts AA/aa2, respectively. To date, MBIA Corp. has not exercised its put options under any of these arrangements.

The Company and MBIA Corp. maintain two short-term bank liquidity facilities totaling $675 million; a $225 million facility with a term of 364 days and a $450 million facility with a four-year term. As of December 31, 2003, there were no borrowings outstanding under these agreements.

As part of its structured financing program, TRS accesses the capital markets for short-term asset-backed funding through the use of Triple-A, an MBIA Conduit. TRS had no outstanding debt at December 31, 2003 and December 31, 2002 and $44 million at December 31, 2001. In October 2002, all

117

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

remaining assets, liabilities and derivative contracts of TRS matured. As of December 31, 2003, TRS remains inactive.

The Company has $19.8 million of outstanding letters of credit for MBIA-MISC that are intended to support the net asset value of certain investment pools managed by MBIA-MISC. These letters can be drawn upon in the event that the liquidation of such assets is required and the proceeds are less than the cost. In addition, the Company has issued commitments to three pooled investment programs managed or administered by MBIA-MISC and its subsidiary. These commitments cover losses in such programs should the net asset values per share decline below specified per share values. At December 31, 2003, the maximum amount of future payments that the Company would be required to make under these commitments was $2.9 billion. These commitments shall be in effect so long as MBIA-MISC and its subsidiary remain as manager or administrator and each program remains in compliance with its respective investment objectives and policies.

NOTE 19: INVESTMENT AGREEMENT, MEDIUM-TERM NOTE AND CONDUIT DEBT OBLIGATIONS

Obligations under investment agreements are recorded as liabilities on the balance sheet based upon proceeds received plus unpaid accrued interest from that date. Upon the occurrence of certain contractually agreed-upon events, some of these funds may be withdrawn at various times prior to maturity at the option of the investor. As of December 31, 2003, the annual interest rates on these agreements ranged from 0.84% to 8.02% and the weighted-average interest rate was 3.7%.

Principal payments due under these investment agreements in each of the next five years ending December 31 and thereafter, based upon expected withdrawal dates, are as follows:

In thousands	Principal Amount*
Expected withdrawal date:
2004	$	2,496,204
2005		1,151,705
2006		404,309
2007		446,644
2008		281,113
Thereafter		2,559,593
Total	$	7,339,568

* Principal amounts include transactions that reflect the principal at maturity for liabilities issued at a discount.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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IMC also provides agreements obligating it to purchase designated securities in a bond reserve fund at par value upon the occurrence of certain contractually agreed-upon events. The opportunities and risks in these agreements are analogous to those of investment agreements. The total par value of securities subject to these agreements was $21.1 million at December 31, 2003.

Medium-term note obligations are recorded as liabilities on the balance sheet based upon proceeds received plus unpaid accrued interest. In 2003, GFL issued $1.6 billion U.S. dollar and 15 billion Japanese yen floating rate medium-term notes. The rates of the medium-term notes are fixed, or are indexed to LIBOR or the effective Federal Funds rate. As of December 31, 2003 the annual interest rates of the medium-term notes ranged from 1.1% to 6.0% and the weighted average interest rate was 2.2%.

Principal payments due under these medium-term notes based on their contractual maturity dates are as follows:

In thousands	Principal Amount*
Maturity date:
2004	$	452,086
2005		677,512
2006		353,957
2007		53,910
2008		10,398
Thereafter		723,247
Total	$	2,271,110

* Principal amounts of yen denominated medium-term notes have been converted from yen into U.S. dollars. Additionally, principal amounts include transactions that reflect the principal at maturity for liabilities issued at a discount.

Conduit debt obligations, including TRF, are recorded as liabilities on the balance sheet based upon proceeds received, net of unamortized discount and unamortized premium plus unpaid accrued interest. These obligations include long-term, medium-term and commercial paper note obligations. The long-term note obligation had an interest rate of 1.6%. The rates of the medium-term note obligations are indexed to LIBOR and as of December 31, 2003 range from 1.24% to 4.31%. The commercial paper note obligations had interest rates ranging from 1.03% to 1.30% as of December 31, 2003. The weighted-average interest rate of all Conduit obligations was 2.0%.

Principal payments due under the Conduit long-term, medium-term and commercial paper note obligations based on their contractual maturity dates are as follows:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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In thousands	Principal Amount*
Maturity date:
2004	$	4,253,955
2005		158,917
2006		310,083
2007		1,305,137
2008		489,250
Thereafter		1,550,729
Total	$	8,068,071

* Principal amounts of GBP denominated medium-term notes have been converted from GBP into U.S. dollars.

Included above in the obligations maturing in 2004 are Triple-A commercial paper note obligations of $2.6 billion, which mature January 2004. Triple-A enters into 364-day or shorter term credit facilities with multiple independent third-party credit support providers as a source of liquidity in the event of a commercial paper market disruption.

NOTE 20: NET INSURANCE IN FORCE

MBIA Corp. guarantees the timely payment of principal and interest on municipal, asset-/mortgage-backed and other non-municipal securities. MBIA Corp.’s ultimate exposure to credit loss in the event of nonperformance by the insured is represented by the net insurance in force in the tables that follow.

The insurance policies issued by MBIA Corp. are unconditional commitments to guarantee timely payment on the bonds and notes to bondholders. The creditworthiness of each insured issue is evaluated prior to the issuance of insurance, and each insured issue must comply with MBIA Corp.’s underwriting guidelines. Further, the payments to be made by the issuer on the bonds or notes may be backed by a pledge of revenues, reserve funds, letters of credit, investment contracts or collateral in the form of mortgages or other assets. The right to such money or collateral would typically become MBIA Corp.’s upon the payment of a claim by MBIA Corp.

MBIA Corp. maintains underwriting guidelines based on those aspects of credit quality that it deems important for each category of obligation considered for insurance. For global public finance transactions these include economic and social trends, debt and financial management, adequacy of anticipated cash flow, satisfactory legal structure and other security

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

provisions, viable tax and economic bases, adequacy of loss coverage and project feasibility. For global structured finance transactions, MBIA Corp.’s underwriting guidelines, analysis and due diligence focus on seller/servicer credit and operational quality. MBIA also analyzes the quality of the asset pool as well as its historical and projected performance. The strength of the structure, including legal segregation of the assets, cash flow analysis, the size and source of first loss protection, asset performance triggers and financial covenants are also reviewed. Such guidelines are subject to periodic review by management, who are responsible for establishing the criteria for the Company’s underwriting standards as well as maintaining the standards in its insurance operations.

As of December 31, 2003, insurance in force, net of cessions to reinsurers, had an expected range of maturity of 1 - 46 years. The distribution of net insurance in force by geographic location, excluding $9.7 billion and $8.0 billion relating to transactions guaranteed by MBIA Corp. on behalf of various investment management services’ affiliated companies in 2003 and 2002, respectively, is set forth in the following table:

	As of December 31
	2003				2002
In billions Geographic Location	Net Insurance In Force		% of Net Insurance In Force		Net Insurance In Force		% of Net Insurance In Force
California	$	104.5	12.5	%	$	94.1	12.0	%
New York		64.8	7.7			68.6	8.8
Florida		40.6	4.9			36.1	4.6
Texas		32.3	3.9			31.1	4.0
Illinois		31.7	3.8			31.9	4.1
New Jersey		28.0	3.3			28.5	3.7
Massachusetts		23.2	2.8			23.1	3.0
Pennsylvania		22.7	2.7			22.1	2.8
Washington		17.7	2.1			15.1	1.9
Michigan		17.0	2.0			16.0	2.0
Subtotal		382.5	45.7			366.6	46.9
Nationally diversified		135.6	16.3			139.0	17.8
Other states		203.9	24.4			197.4	25.2
Total United States		722.0	86.4			703.0	89.9
Internationally diversified		48.8	5.8			39.6	5.0
Country specific		65.0	7.8			39.0	5.1
Total Non-United States		113.8	13.6			78.6	10.1
Total	$	835.8	100.0	%	$	781.6	100.0	%

The net insurance in force by type of bond is set forth in the following table.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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	As of December 31
	2003				2002
In billions Bond Type	Net Insurance In Force		% of Net Insurance In Force		Net Insurance In Force		% of Net Insurance In Force
Global Public Finance:
United States
General obligation	$	206.3	24.7	%	$	185.7	23.7	%
Utilities		98.6	11.8			89.9	11.5
Special revenue		83.9	10.0			77.1	9.9
Health care		59.5	7.1			62.3	8.0
Transportation		51.7	6.2			49.7	6.4
Higher education		32.2	3.8			33.0	4.2
Housing		29.5	3.6			28.2	3.6
Investor-owned utilities		29.4	3.5			34.4	4.4
Total United States		591.1	70.7			560.3	71.7
Non-United States
Sovereign		14.7	1.8			4.1	0.5
Transportation		10.4	1.2			4.4	0.6
Utilities		7.5	0.9			3.6	0.5
Investor-owned utilities		4.5	0.5			5.1	0.6
Sub-sovereign		1.5	0.2			1.4	0.2
Housing		0.8	0.1			0.7	0.1
Health care		0.6	0.1			2.6	0.3
Higher education		0.1	—			0.1	—
Total Non-United States		40.1	4.8			22.0	2.8
Total Global Public Finance		631.2	75.5			582.3	74.5
Global Structured Finance:
United States
CDO, CLO and CBO		41.8	5.0			38.8	5.0
Mortgage-backed:
Home equity		15.7	1.9			22.1	2.8
Other		12.4	1.5			12.0	1.5
First mortgage		5.4	0.7			6.7	0.9
Asset-backed:
Auto		14.5	1.7			16.0	2.0
Credit cards		9.8	1.2			14.1	1.8
Other		7.5	0.9			8.3	1.1
Leasing		1.0	0.1			4.4	0.6
Pooled corp. obligations & other		20.5	2.4			15.7	2.0
Financial risk		2.3	0.3			4.6	0.6
Total United States		130.9	15.7			142.7	18.3
Non-United States
CDO, CLO and CBO		40.6	4.9			33.6	4.3
Mortgage-backed:
First mortgage		8.5	1.0			5.7	0.7
Other		7.4	0.9			2.9	0.4
Home equity		0.6	0.1			—	—
Pooled corp. obligations & other		8.5	1.0			8.9	1.1
Asset-backed		5.5	0.6			2.6	0.3
Financial risk		2.6	0.3			2.9	0.4
Total Non-United States		73.7	8.8			56.6	7.2
Total Global Structured Finance		204.6	24.5			199.3	25.5
Total	$	835.8	100.0	%	$	781.6	100.0	%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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The insurance operations have entered into certain guarantees of derivative contracts, included in the preceding tables, which do not qualify for the financial guarantee scope exception under SFAS 133. These contracts are discussed further in Note 6. The maximum amount of future payments that MBIA Corp. may be required to make under these guarantees, should a full default occur, is $68.3 billion. This amount is net of cessions to reinsurers of $15.2 billion. MBIA Corp.’s guarantees of derivative contracts have a legal maximum range of maturity of 1 - 75 years. A small number of guaranteed credit derivative contracts have long maturities to satisfy regulatory requirements imposed on MBIA’s counterparties. However, the expected maturities of such contracts are much shorter due to amortizations and prepayments in the underlying collateral pools. In accordance with SFAS 133, the fair values of these guarantees at December 31, 2003 are recorded on the balance sheet as assets and liabilities, representing gross gains and losses, of $55.8 million and $49.6 million, respectively.

MBIA Corp. may hold recourse provisions with third parties in these transactions through both reinsurance and subrogation rights. MBIA Corp.’s reinsurance arrangements provide that should MBIA Corp. pay a claim under a guarantee of a derivative contract, then MBIA Corp. can collect amounts from any reinsurers that have reinsured the guarantee on either a proportional or non-proportional basis depending upon the underlying reinsurance agreement. MBIA Corp. may also have recourse through subrogation rights whereby if MBIA Corp. makes a claim payment, it is entitled to any rights of the insured counterparty, including the right to any assets held as collateral.

MBIA Corp. has also issued guarantees of certain obligations issued by its investment management affiliates that are not included in the previous tables. These guarantees take the form of insurance policies issued by MBIA Corp. on behalf of the investment management affiliates. Should one of these affiliates default on their insured obligations, MBIA Corp. will be required to pay all scheduled principal and interest amounts outstanding. As of December 31, 2003, the maximum amount of future payments that MBIA Corp. could be required to make under these guarantees, should a full default occur, is $9.7 billion. These guarantees have a maximum range of maturity of 1 - 42 years. These guarantees were entered into on an arm’s length basis and are fully collateralized by marketable securities. MBIA Corp. has both direct recourse provisions and subrogation rights in these transactions. If MBIA Corp. is required to make a payment under any of these affiliate guarantees, it would have the right to seek reimbursement from such affiliate and to

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

liquidate any collateral to recover all or a portion of the amounts paid under the guarantee.

NOTE 21: REINSURANCE

MBIA Corp. reinsures exposure to other insurance companies under various treaty and facultative reinsurance contracts, both on a pro-rata and non-proportional basis. In the event that any or all of the reinsurers were unable to meet their obligations, MBIA Corp. would be liable for such defaulted amounts.

Amounts deducted from gross insurance in force for reinsurance ceded by MBIA Corp. and its subsidiaries were $170.0 billion and $171.0 billion at December 31, 2003 and 2002, respectively. The distribution of ceded insurance in force by geographic location is set forth in the following table:

	As of December 31
	2003				2002
In billions Geographic Location	Ceded Insurance In Force		% of Ceded Insurance In Force		Ceded Insurance In Force		% of Ceded Insurance In Force
California	$	18.8	11.1	%	$	18.8	11.0	%
New York		9.7	5.7			11.1	6.5
New Jersey		6.6	3.9			6.9	4.0
Texas		6.0	3.5			6.5	3.8
Florida		5.3	3.1			4.9	2.9
Massachusetts		5.0	3.0			5.2	3.0
Illinois		4.6	2.7			4.7	2.7
Puerto Rico		4.0	2.3			4.2	2.5
Colorado		3.9	2.3			4.0	2.3
Pennsylvania		3.4	2.0			3.4	2.0
Subtotal		67.3	39.6			69.7	40.7
Nationally diversified		30.1	17.7			34.6	20.2
Other states		30.6	18.0			30.9	18.1
Total United States		128.0	75.3			135.2	79.0
Internationally diversified		16.0	9.4			11.8	6.9
Country specific		26.0	15.3			24.0	14.1
Total Non-United States		42.0	24.7			35.8	21.0
Total	$	170.0	100.0	%	$	171.0	100.0	%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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The distribution of ceded insurance in force by type of bond is set forth in the following table:

	As of December 31
	2003				2002
In billions Bond Type	Ceded Insurance In Force		% of Ceded Insurance In Force		Ceded Insurance In Force		% of Ceded Insurance In Force
Global Public Finance:
United States
General obligation	$	24.8	14.6	%	$	23.7	13.9	%
Transportation		18.4	10.8			18.5	10.8
Utilities		18.2	10.7			18.5	10.9
Health care		13.9	8.2			14.3	8.4
Special revenue		12.7	7.5			12.8	7.5
Investor-owned utilities		4.6	2.7			5.5	3.2
Higher education		3.3	1.9			3.3	1.9
Housing		2.7	1.6			2.8	1.6
Total United States		98.6	58.0			99.4	58.2
Non-United States
Transportation		7.0	4.2			5.6	3.3
Utilities		5.3	3.1			2.5	1.5
Sovereign		4.0	2.3			1.3	0.8
Investor-owned utilities		2.1	1.2			4.1	2.4
Sub-sovereign		1.0	0.6			0.9	0.5
Health care		0.2	0.2			0.6	0.3
Housing		0.1	—			0.1	—
Total Non-United States		19.7	11.6			15.1	8.8
Total Global Public Finance		118.3	69.6			114.5	67.0
Global Structured Finance:
United States
Asset-backed:
Auto		4.6	2.7			6.2	3.6
Credit cards		3.8	2.2			4.4	2.6
Other		0.7	0.4			0.8	0.5
Leasing		0.1	0.1			1.8	1.1
Mortgage-backed:
Home equity		4.0	2.4			6.6	3.8
Other		2.0	1.2			2.2	1.3
First mortgage		0.5	0.3			0.7	0.4
Pooled corp. obligation & other		7.6	4.5			6.7	3.9
CDO, CLO and CBO		6.0	3.5			6.0	3.5
Financial risk		0.1	—			0.3	0.2
Total United States		29.4	17.3			35.7	20.9
Non-United States
CDO, CLO and CBO		10.7	6.3			9.8	5.7
Pooled corp. obligations & other		3.6	2.1			5.2	3.1
Financial risk		2.4	1.4			2.5	1.4
Asset-backed		2.4	1.3			1.1	0.6
Mortgage-backed:
Other		1.7	1.0			1.0	0.6
First mortgage		1.5	1.0			1.2	0.7
Total Non-United States		22.3	13.1			20.8	12.1
Total Global Structured Finance		51.7	30.4			56.5	33.0
Total	$	170.0	100.0	%	$	171.0	100.0	%

125

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

As part of the Company’s portfolio shaping activity in 1998, the Company entered into reinsurance agreements with highly rated reinsurers that obligate the Company to cede future premiums to the reinsurers through October 1, 2004.

Components of premiums written including reinsurance assumed from and ceded to other companies is set forth in the following table:

	Years ended December 31
In thousands	2003			2002			2001
Direct	$	1,249,832		$	932,204		$	839,386
Assumed		18,976			19,727			25,840
Gross		1,268,808			951,931			865,226
Ceded		(235,736	)		(198,526	)		(235,362	)
Net	$	1,033,072		$	753,405		$	629,864

Ceding commissions received from reinsurers before deferrals were $67.9 million, $49.9 million, and $55.2 million, in 2003, 2002 and 2001, respectively.

NOTE 22: PENSION AND PROFIT-SHARING PLANS

The Company has a non-contributory, defined contribution pension plan to which the Company contributes 10% of each eligible employee’s annual compensation. Annual compensation consists of base salary, bonus and commissions, as applicable, for determining such contributions. Pension benefits vest over a five-year period with 60% vesting after three years and 20% in years four and five. Pension expense for the years ended December 31, 2003, 2002 and 2001 was $10.1 million, $10.1 million, and $7.4 million, respectively.

The Company also has a profit-sharing/401(k) plan. The plan is a voluntary contributory plan that allows eligible employees to defer compensation for federal income tax purposes under Section 401(k) of the Internal Revenue Code of 1986, as amended. Employees may contribute through payroll deductions up to 10% of eligible compensation. The Company matches employee contributions up to the first 5% of such compensation with MBIA common stock. The benefit of the Company’s contributions vests over five years with 60% vesting after three years and then 20% in years four and five. Generally, a participating employee is entitled to distributions from the plan upon termination of

126

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

employment, retirement, death or disability. Participants who qualify for distribution may receive a single lump sum, transfer the assets to another qualified plan or individual retirement account, or receive a series of specified installment payments. Company contributions to the profit-sharing/401(k) plan aggregated $5.1 million, $3.4 million, and $3.1 million for the years ended December 31, 2003, 2002 and 2001, respectively.

Amounts relating to the above plans that exceed limitations established by federal regulations are contributed to a non-qualified deferred compensation plan. These non-qualified contributions are included in the above stated pension and profit-sharing/401(k) match amounts and totaled $3.4 million, $3.9 million, and $3.0 million for the pension plan, and $1.7 million, $1.5 million, and $1.8 million for the profit-sharing/401(k) plan for the years ending December 31, 2003, 2002 and 2001, respectively.

NOTE 23: LONG-TERM INCENTIVE PLANS

On May 11, 2000, the Company’s shareholders approved the 2000 Stock Option Plan (the 2000 plan). The 2000 plan superseded the Company’s 1987 stock option plan (the 1987 plan), and shares available for grant under the 1987 plan were canceled and are no longer available for grant. Options previously granted under the 1987 plan remain outstanding in accordance with their terms and with the terms of the 1987 plan. The 2000 plan enables key employees of the Company and its subsidiaries to acquire shares of common stock of the Company or to benefit from appreciation in the price of the common stock of the Company. Options granted will either be Incentive Stock Options (ISOs), where they qualify under Section 422(a) of the Internal Revenue Code, or Non-Qualified Stock Options (NQSOs).

ISOs and NQSOs are granted at a price not less than 100% of the fair value, defined as closing price, of the Company’s common stock as determined on the date granted. Options are exercisable as specified at the time of grant and expire ten years from the date of grant (or shorter if specified or following termination of employment).

The board of directors of the Company has authorized a maximum of 7,350,000 shares of the Company’s common stock to be granted as options under the 2000 plan. As of December 31, 2003, 5,001,931 options had been granted under the 2000 plan, net of expirations and cancellations, leaving the total available for future grants at 2,348,069.

127

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

The stock option grants, which may continue to be awarded every year, provide the right to purchase shares of common stock at the fair value of the stock on the date of the grant. In 2003, 1,436,010 options were awarded under the 2000 plan. These options vest over four or five years depending on the level of the recipient. Prior option grants are not taken into account in determining the number of options granted in any year.

In December 1995, the MBIA Inc. board of directors approved the “MBIA Long-Term Incentive Program” (the incentive program). The incentive program includes a stock option component (described above) and a compensation component linked to the growth in book value per share, including certain adjustments, of the Company’s stock (modified book value) over a three-year period following the grant date. Target levels for the incentive program awards are established as a percentage of total salary and bonus, based upon the recipient’s position. Awards under the incentive program typically are granted from the vice president level up to and including the chairman and chief executive officer. Actual amounts to be paid are adjusted upward or downward depending on the growth of modified book value versus a baseline target, with a minimum growth of 8% necessary to receive any payment and an 18% growth necessary to receive the maximum payment. Awards under the incentive program are divided equally between the two components, with approximately 50% of the award to be given in stock options and approximately 50% of the award to be paid in cash or shares of Company stock. Payments are made at the end of each three-year measurement period. During 2003, 2002 and 2001, $21.8 million, $18.8 million, and $17.0 million, respectively, were recorded as an expense related to modified book value awards.

In December 1995, the Company adopted a restricted stock program whereby certain employees are granted restricted shares of the Company’s common stock. These stock awards may only be sold three, four or five years from the date of grant, at which time the awards fully vest.

In 2003 and 2002, respectively, 247,543 and 124,815 restricted shares (net of canceled shares) of the Company’s common stock were granted to certain employees and directors of the Company. The fair value of the shares awarded (net of cancellations) in 2003 and 2002, determined on the grant date, was $9.0 million and $6.7 million, respectively, which has been recorded as “Unearned compensation-restricted stock” and is shown as a separate component of shareholders’ equity. Unearned compensation is amortized to expense over the appropriate three- to five-year vesting period (except for a minor portion granted to members of the MBIA Inc. board of directors which are

128

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

amortized over a ten-year period). Compensation expense related to the restricted stock was $6.3 million, $5.4 million, and $2.9 million for the years ended December 31, 2003, 2002 and 2001, respectively.

In 1992, CapMAC adopted an Employee Stock Ownership Plan (ESOP) to provide its employees the opportunity to obtain beneficial interests in the stock of CapMAC through a trust (the ESOP Trust). The ESOP Trust purchased 525,938 shares of the Company’s stock. The ESOP Trust financed its purchase of common stock with a loan from the Company in the amount of $10 million, which was fully repaid in 2001. An amount representing unearned employee compensation, equivalent in value to the unpaid balance of the ESOP loan, is recorded as “Unallocated ESOP shares” and is shown as a separate component of shareholders’ equity.

In July 1999, the Company contributed 20,096 additional shares to the ESOP plan. Subsequent to this contribution, the ESOP plan was merged with the MBIA Inc. Employee Profit-Sharing/401(k) plan. In conjunction with the merger of the plans, released ESOP shares are used to fund the 401(k) company match obligations. During 2003, 2002 and 2001, 36,030, 62,709, and 45,611 shares, respectively, were utilized for the 401(k) company match. As of December 31, 2003, 2002 and 2001, respectively, a total of 546,034, 510,004, and 447,295 shares have been allocated to the participants. During 2003 all of the remaining unallocated ESOP shares were allocated to the participants.

Prior to 2002, the Company elected to follow APB 25 and related interpretations in accounting for its employee stock options. No stock-based employee compensation cost for stock options is reflected in net income prior to 2002 as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. Pro forma information regarding net income and earnings per share is required by SFAS 123 and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement.

Effective January 1, 2002 the Company adopted the fair value recognition provisions of SFAS 123. Under the modified prospective method of adoption selected by the Company under the provisions of SFAS 148, compensation cost recognized in 2002 is the same as that which would have been recognized had the recognition provisions of SFAS 123 been applied from its original effective date. Results for prior years have not been restated. Employee stock compensation expense for the years ended December 31, 2003 and 2002 totaled $26.4 million and $23.9 million, respectively.

129

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model. The number of significant options granted and the assumptions used for valuing such option grants during the last three years are shown in the following table:

	February 2003			October 2002			February 2002			July 2001			January 2001
Number of options granted		1,414,010			260,000			1,536,875			115,000			1,032,000
Exercise price	$	36.69		$	36.72		$	52.81		$	56.16		$	44.625
Dividend yield		2.180	%		1.852	%		1.140	%		1.120	%		1.120	%
Expected volatility		.3330			.3166			.2954			.2953			.2953
Risk-free interest rate		3.483	%		3.305	%		4.835	%		5.065	%		5.065	%
Expected option term (in years)		6.40			6.40			6.26			6.25			6.25

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility.

The following table displays the total number of options granted during the last three years. The proxy officers represent the five most highly compensated officers as disclosed in the Company’s proxy statement.

	Number of Options Granted
	2003	2002	2001
Proxy officers	669,000	780,000	649,500
Other senior officers	262,500	257,500	382,500
Senior officers	931,500	1,037,500	1,032,000
Other employees	504,510	816,104	233,374
Total	1,436,010	1,853,604	1,265,374

A summary of the Company’s stock option plan as of December 31, 2003, 2002 and 2001, and changes during the years ending on those dates, is set forth in the following table:

	2003
Options	Number of Shares	Weighted-Avg. Price per Share
Outstanding at beginning of year	9,533,766	$	42.1900
Granted	1,436,010		36.8754
Exercised	748,484		52.5683
Expired or canceled	97,944		45.1221
Outstanding at year-end	10,123,348	$	42.7479
Exercisable at year-end	2,976,626	$	39.3808
Weighted-average fair value per share of options granted during the year		$	11.3446

130

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

	2002
Options	Number of Shares	Weighted-Avg. Price per Share
Outstanding at beginning of year	8,325,780	$	39.3329
Granted	1,853,604		50.4200
Exercised	479,228		55.5400
Expired or canceled	166,390		44.7200
Outstanding at year-end	9,533,766	$	42.1900
Exercisable at year-end	3,033,711	$	34.9900
Weighted-average fair value per share of options granted during the year		$	17.1878

	2001
Options	Number of Shares	Weighted-Avg. Price per Share
Outstanding at beginning of year	7,931,193	$	36.6711
Granted	1,265,374		45.9146
Exercised	738,022		52.4755
Expired or canceled	132,765		40.8684
Outstanding at year-end	8,325,780	$	39.3329
Exercisable at year-end	2,824,744	$	31.5127
Weighted-average fair value per share of options granted during the year		$	16.1118

The following table summarizes information about the plan’s stock options at December 31, 2003:

Range of Average Exercise Price	Number Outstanding at 12/31/03	Weighted- Average Remaining Contractual Life in Years	Weighted-Average Exercise Price		Number Exercisable at 12/31/03	Weighted-Average Exercise Price
$16.71-29.71	236,284	2.02	$	22.55	222,784	$	22.29
$32.54-36.72	3,110,925	7.27	$	34.94	990,785	$	33.07
$37.42-46.89	4,355,437	5.33	$	44.54	1,134,612	$	42.99
$47.82-59.64	2,420,702	7.31	$	51.53	628,445	$	48.87
Total	10,123,348	6.32	$	42.75	2,976,626	$	39.38

NOTE 24: RELATED PARTY TRANSACTIONS

Related parties are defined as the following:

• Affiliates of the Company: An affiliate is a party that directly or indirectly controls, is controlled by or is under common control with the Company. Control is defined as having, either directly or

131

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

indirectly, the power to direct the management and policies of the Company through ownership, by contract or otherwise.

• Entities for which investments are accounted for by the equity method by the Company.

• Trusts for the benefit of employees, such as pension and profit-sharing trusts, that are managed by or under the trusteeship of management.

• Principal owners of the Company defined as owners of record or known beneficial owners of more than 10 percent of the voting interests of the Company.

• Management of the Company which includes persons who are responsible for achieving the objectives of the Company and who have the authority to establish policies and make decisions by which those objectives are to be pursued. Management normally includes members of the board of directors, the chief executive officer, chief operating officer, vice president in charge of principal business functions and other persons who perform similar policymaking functions.

• Members of the immediate families of principal owners of the Company and its management. This includes family members whom a principal owner or a member of management might control or influence or by whom they may be controlled or influenced because of the family relationship.

• Other parties with which the Company may deal if one party controls or can significantly influence the management or policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.

• Other parties that can significantly influence the management or policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to the extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

From time to time the Company may enter into transactions with related parties that the Company deems immaterial or which occur in the normal course of business and are transacted at “arms length.” Since 1989, MBIA Corp. has executed five surety bonds to guarantee the payment obligations of the members of the Association that had their S&P claims-paying rating downgraded from Triple-A on their previously issued Association policies. In the event

132

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

that they do not meet their Association policy payment obligations, MBIA Corp. will pay the required amounts directly to the paying agent. The aggregate outstanding exposure on these surety bonds as of December 31, 2003 is $340 million.

MBIA Inc., through its subsidiaries, is responsible for providing investment advisory and certain related administrative services to the MBIA Capital/Claymore Managed Duration Investment Grade Municipal Fund, the 1838 Bond-Debenture Trading Fund and the 1838 Investment Advisors Funds (collectively, the “Funds”). Additionally, MBIA, Inc., through its subsidiaries, earned investment management, accounting, administration and service fees related to the Funds, which aggregated $1.4 million and $1.7 million, for the years ended December 31, 2003 and 2002, respectively, and are included in revenues in the accompanying Consolidated Statements of Income.

The Company had no loans outstanding with any executive officers or directors during 2003, with the exception of split-dollar life insurance policies. As the Company believes such policies fall within the prohibitions on loans to executives imposed under the Sarbanes-Oxley Act, such policies were terminated in the fourth quarter of 2003.

NOTE 25: FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value amounts of financial instruments shown in the following table have been determined by the Company using available market information and appropriate valuation methodologies. However, in certain cases considerable judgment was required to interpret market data in order to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amount the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

FIXED-MATURITY SECURITIES—The fair value of fixed-maturity securities available-for-sale is based upon quoted market prices, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

133

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

CONDUIT INVESTMENTS—The Conduit investments are comprised of fixed and floating rate fixed maturity securities and short-term investments. The carrying values of the floating rate investments approximate their fair values. The fair value of the fixed rate investments is determined by calculating the net present value of estimated future cash flows assuming prepayments, defaults and discount rates that the Company believes market participants would use for similar assets. The short-term investments are carried at amortized cost, which approximates fair value.

SHORT-TERM INVESTMENTS—Short-term investments are carried at amortized cost, which approximates fair value.

OTHER INVESTMENTS—Other investments include the Company’s interest in equity-oriented and equity-method investments. The fair value of these investments is based on quoted market prices, investee financial statements or cash flow modeling.

CASH AND CASH EQUIVALENTS, RECEIVABLE FOR INVESTMENTS SOLD, SHORT-TERM DEBT, AND PAYABLE FOR INVESTMENTS PURCHASED—The carrying amounts of these items are a reasonable estimate of their fair value.

PREPAID REINSURANCE PREMIUMS—The fair value of the Company’s prepaid reinsurance premiums is based on the estimated cost of entering into an assumption of the entire portfolio with third-party reinsurers under current market conditions.

VARIABLE INTEREST ENTITY ASSETS—Variable interest entity assets consist of floating rate notes and related accrued interest. The carrying values of variable interest entity assets approximate their fair values due to the term of the applicable interest rates.

DEFERRED PREMIUM REVENUE—The fair value of the Company’s deferred premium revenue is based on the estimated cost of entering into a cession of the entire portfolio with third-party reinsurers under current market conditions.

LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES—The carrying amount is composed of the present value of the expected cash flows for specifically identified

134

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

claims combined with an estimate for unidentified claims. Therefore, the carrying amount is a reasonable estimate of the fair value of the reserve.

INVESTMENT AGREEMENTS AND MEDIUM-TERM NOTES—The fair values of investment agreements and medium-term notes are estimated using discounted cash flow calculations based upon interest rates currently being offered for similar agreements with maturities consistent with those remaining for the agreements being valued.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE—The fair value is estimated based upon the quoted market prices of the transactions’ underlying collateral.

CONDUIT DEBT OBLIGATIONS—The carrying values of Conduit debt obligations approximate their fair values primarily due to their liquidity or variability in interest rates.

LONG-TERM DEBT—The fair value is estimated based on the quoted market prices for the same or similar securities.

DERIVATIVES—The fair value derived from market information and appropriate valuation methodologies reflects the estimated amounts that the Company would receive or pay to terminate the transaction at the reporting date.

VARIABLE INTEREST ENTITY LIABILITIES—Variable interest entity liabilities consist of floating rate securities and related accrued interest. The carrying values of variable interest entity liabilities approximate their fair values due to the term of the applicable interest rates.

INSTALLMENT PREMIUMS—The fair value is derived by calculating the present value of the estimated future cash flow streams. The discount rate used is the actual yield of the Company’s insurance-related investment portfolio at the end of the preceding fiscal quarter. At March 31, June 30, September 30 and December 31, 2003 the discount rates were 5.6%, 5.3%, 5.1% and 4.7%, respectively, while 2002 was at 9.0%.

135

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

	As of December 31, 2003				As of December 31, 2002
In thousands	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
ASSETS:
Fixed-maturity securities	$	17,987,345	$	17,987,345	$	16,195,119	$	16,195,119
Conduit investments		8,386,280		8,450,587		—		—
Short-term investments		975,836		975,836		687,238		687,238
Other investments		357,346		357,346		212,673		212,673
Cash and cash equivalents		182,417		182,417		83,218		83,218
Prepaid reinsurance premiums		535,728		504,375		521,641		435,818
Reinsurance recoverable on unpaid losses		61,085		61,085		43,828		43,828
Receivable for investments sold		20,376		20,376		91,767		91,767
Derivative assets		256,744		256,744		191,755		191,755
Variable interest entity assets		600,322		600,322		—		—
LIABILITIES:
Deferred premium revenue		3,079,851		2,863,174		2,755,046		2,339,661
Loss and loss adjustment expense reserves		559,510		559,510		573,275		573,275
Investment agreement and medium-term note obligations		8,840,125		8,985,037		7,230,562		7,484,602
Securities sold under agreements to repurchase		505,883		507,835		539,561		544,907
Conduit debt obligations		7,848,060		7,848,060		—		—
Short-term debt		57,337		57,337		—		—
Long-term debt		1,021,795		1,003,266		1,033,070		1,045,614
Payable for investments purchased		47,059		47,059		58,436		58,436
Derivative liabilities		437,683		437,683		309,749		309,749
Variable interest entity liabilities		600,322		600,322		—		—
OFF-BALANCE SHEET INSTRUMENTS:
Installment premiums		—		2,052,867		—		1,300,107

NOTE 26: SUBSEQUENT EVENT

On February 13, 2004, the Company announced that Channel Reinsurance Ltd. (Channel Re), a new financial guarantee reinsurer based in Bermuda, was formed and funded. Channel Re was capitalized with total equity capital of approximately $366 million from four investors. Channel Re has received financial strength ratings of Aaa from Moody’s and AAA from S&P. MBIA has a 17.4% ownership interest in Channel Re. Channel Re will assume a $27 billion portfolio of in-force business from MBIA, participate in the Company’s reinsurance treaty and provide facultative reinsurance support. Following the assumption of the in-force business, Channel Re will have total claims-paying resources of approximately $700 million.

136

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MBIA Inc. and Subsidiaries

NOTE 27: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

A summary of selected quarterly income statement information follows:

In thousands except per share amounts

2003	First		Second		Third		Fourth			Year
Gross premiums written	$	288,147	$	327,094	$	346,052	$	307,515		$	1,268,808
Net premiums written		224,028		271,523		275,957		261,564			1,033,072
Premiums earned		161,180		185,671		194,358		191,788			732,997
Investment income and realized gains and losses		138,951		130,758		126,486		131,169			527,364
All other revenues		108,793		94,261		49,734		53,841			306,629
Income before income taxes		313,220		304,679		270,378		260,363			1,148,640
Income before cumulative effect of accounting change		223,326		217,854		190,385		182,020			813,585
Net income	$	223,326	$	217,854	$	190,385	$	182,020		$	813,585
Income per common share before cumulative effect of accounting change: *
Basic EPS	$	1.55	$	1.52	$	1.33	$	1.27		$	5.67
Diluted EPS	$	1.54	$	1.51	$	1.31	$	1.25		$	5.61
2002	First		Second		Third		Fourth			Year
Gross premiums written	$	186,772	$	205,812	$	237,753	$	321,594		$	951,931
Net premiums written		134,457		169,657		180,092		269,199			753,405
Premiums earned		139,038		137,769		154,600		157,102			588,509
Investment income and realized gains and losses		107,580		110,852		113,098		126,269			457,799
All other revenues		54,498		29,360		43,649		(22,910	)		104,597
Income before income taxes		217,222		193,385		220,159		161,815			792,581
Income before cumulative effect of accounting change		160,112		142,587		162,735		121,384			586,818
Net income	$	152,381	$	142,587	$	162,735	$	121,384		$	579,087
Income per common share before cumulative effect of accounting change: *
Basic EPS	$	1.08	$	0.97	$	1.11	$	0.84		$	4.00
Diluted EPS	$	1.07	$	0.96	$	1.10	$	0.84		$	3.98

* Due to rounding, quarterly per share amounts may not add to the totals for the years.

Due to the adoption of SFAS 148’s modified prospective transition method, the first three quarters of 2002 have been restated. The following is a reconciliation of the previously reported amounts to the restated amounts on a diluted per share basis:

2002	First			Second			Third
Net income previously reported	$	154,169		$	143,981		$	164,138
Stock option expense		(1,788	)		(1,394	)		(1,403	)
Reported net income	$	152,381		$	142,587		$	162,735
2002	First			Second			Third
Net income per share previously reported	$	1.03		$	0.97		$	1.11
Per share effect of stock option expense		(0.01	)		(0.01	)		(0.01	)
Reported net income per share	$	1.02		$	0.96		$	1.10

137

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

As of the end of the period covered by this report, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) was performed under the supervision and with the participation of the Company’s senior management, including the Chief Executive Officer and the Chief Financial Officer. Based on that evaluation, the Company’s management, including the CEO and the CFO, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

The Chief Executive Officer and Chief Financial Officer have also concluded that there were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation described in the preceding paragraph that occurred during the fiscal quarter ended December 31, 2003, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART III

Item 10. Directors and Executive Officers of the Registrant

Information regarding directors is set forth under “Election of Directors” in the Company’s Proxy Statement to be filed on or before April 30, 2004, which is incorporated by reference.

Information regarding executive officers is set forth under Item 1, “Business-Executive Officers,” included in this annual report.

Information concerning the Company’s Examining and Audit Committee will be set forth under “The Board of Directors and its Committees” in the Company’s Proxy Statement to be filed on or before April 30, 2004, which is incorporated by reference.

The Company has adopted a code of ethics that applies to all employees of the Company including its Chief Executive Officer, Chief Financial Officer and its Chief Accounting Officer. A copy of such code of ethics can be found on the Company’s internet website at www.mbia.com. The Company would intend to satisfy the disclosure requirements under Item 10 of Form 8-K

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regarding an amendment to, or waiver from, a provision of its code of ethics and that relates to a substantive amendment or material departure from a provision of the Code by posting such information on its internet website at www.mbia.com.

Item 11. Executive Compensation

Information regarding compensation of the Company’s executive officers is set forth in the “Report of the Compensation and Organization Committee on Executive Compensation” and in the five compensation tables in the Company’s Proxy Statement to be filed on or before April 30, 2004, which is incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information regarding security ownership of certain beneficial owners and management is set forth under “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Directors and Executive Officers” in the Company’s Proxy Statement to be filed on or before April 30, 2004, which is incorporated by reference.

Item 13. Certain Relationships and Related Transactions

Information regarding relationships and related transactions is set forth under “Certain Relationships and Related Transactions” in the Company’s Proxy Statement to be filed on or before April 30, 2004, which is incorporated by reference.

Item 14. Principal Accountant Fees and Services

Information concerning principal accountant fees and services will be set forth under “Report of the Audit Committee—Principal Accountant Fees and Services” in the Company’s Proxy Statement to be filed on or before April 30, 2004, which is incorporated by reference.

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a) Financial Statements and Financial Statement Schedules and Exhibits.

1. Financial Statements

The following financial statements of MBIA Inc. have been included in Item 8 hereof:

Report of independent auditors.

Consolidated balance sheets as of December 31, 2003 and 2002

Consolidated statements of income for the years ended December 31, 2003, 2002 and 2001.

Consolidated statements of changes in shareholders’ equity for the years ended December 31, 2003, 2002 and 2001.

Consolidated statements of cash flows for the years ended December 31, 2003, 2002 and 2001.

Notes to consolidated financial statements.

2. Financial Statement Schedules

The following financial statement schedules are filed as part of this report.

Schedule	Title
I.	Summary of investments, other than investments in related parties, as of December 31, 2003.
II.	Condensed financial information of Registrant for December 31, 2003, 2002 and 2001
IV.	Reinsurance for the years ended December 31, 2003, 2002 and 2001

The report of the Registrant’s independent auditors with respect to the above listed financial statement schedules is included with the schedules.

All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

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3. Exhibits

(An exhibit index immediately preceding the Exhibits indicates the page number where each exhibit filed as part of this report can be found.)

3. Articles of Incorporation and By-Laws.

3.1. Restated Certificate of Incorporation, dated August 17, 1990, incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Comm. File 1-9583) (the “1990 10-K”), as amended December 20, 1995, incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (Comm. File 1-9583) (the “2000 10-K”), as further amended September 5, 2001, incorporated by reference to Exhibit 3.1 to the 2001 10-K.

3.2. By-Laws as Amended as of March 19, 1998, incorporated by reference to Exhibit 3.2 of the 1998 10-K.

4. Instruments Defining the Rights of Security Holders, including Indentures.

4.1 Indenture, dated as of August 1, 1990, between MBIA Inc. and The First National Bank of Chicago, Trustee, incorporated by reference to Exhibit 10.72 to the 1992 10-K.

4.2 Bond Purchase and Paying Agent Agreement between MBIA Inc. and various banks, entered into as of December 12, 2000 in connection with CHF 175,000,000 4.5% Bonds, due June 15, 2010, incorporated by reference to Exhibit 4.2 to the 2000 10-K.

10. Material Contracts

10.01. Amended and Restated Tax Allocation Agreement, dated as of January 1, 1990, between the Company and MBIA Corp., incorporated by reference to Exhibit 10.66 to the 1989 10-K, as supplemented by the Amended and Restated Tax Allocation Agreement Supplement No. 1, dated as of August 31, 1999, incorporated by reference to Exhibit 10.06 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,1999 (Comm. File No. 1-9583) (the “1999 10-K”), as restated on January 1, 2002, incorporated by reference to Exhibit 10.01 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2002 (Comm. File No. 1-9583) (the “2002 10-K”).

10.02. Note Subscription Agreement and Preferred Shares Subscription Agreement, both dated as of December 27, 2001 between MBIA Inc. and certain reinsurers, incorporated by reference to Exhibit 10.02 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (Comm. File No. 1-9583) (the “2001 10-K”).

10.03 Trust Agreement, dated as of December 31, 1991, between MBIA Corp. and Fidelity Management Trust Company, incorporated by reference to Exhibit 10.64 to the 1992 10-K, as amended by the Amendment to Trust Agreement, dated as of April 1, 1993, incorporated by reference to Exhibit 10.64 to the 1993 10-K, as amended by First Amendment to Trust Agreement, dated as of January 21, 1992, as further amended by Second Amendment to Trust Agreement, dated as of March 5, 1992, as further amended by Third Amendment to Trust Agreement, dated as of April 1, 1993, as further amended by the Fourth Amendment to Trust Agreement, dated as of July 1, 1995, incorporated by reference to Exhibit 10.47 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (Comm. File No. 1-9583) (the “1995 10-K”), as amended by Fifth Amendment to Trust Agreement, dated as of November 1, 1995, as further amended by Sixth Amendment to Trust Agreement, dated as of January 1, 1996, incorporated by reference to Exhibit 10.46 to the 1996 10-K, further amended by Seventh Amendment to Trust Agreement, dated as of October 15, 1997, incorporated by reference to Exhibit 10.36 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (Comm. File No. 1-9583) (the “1997 10-K”) as further amended by the Eighth Amendment to Trust Agreement, dated as of January 1, 1998 and by the Ninth Amendment to Trust Agreement, dated as of March 1, 1999, incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (Comm. File No. 1-9583) (the “1998 10-K”).

10.04. First Restated Credit Agreement, dated as of October 1, 1993, among MBIA Corp., Credit Suisse, New York Branch, as Agent, Credit Suisse, New York Branch, Caisse Des Depots Et Consignations, Deutsche Bank AG, Bayerische Landesbank Girozentrale and Landesbank Hessen-Thuringen Girozentrale, as amended by an Assignment and Assumption Agreement, dated as of December 31, 1993, among MBIA Corp., Credit Suisse, New York Branch, as Agent and Assignor and Deutsche Bank AG, New York Branch, as further amended by a Modification Agreement, dated as of January 1, 1994, among Deutsche Bank, AG, New York Branch, MBIA Corp. and Credit Suisse, New York Branch, as Agent, as amended by a Joinder Agreement, dated December 31, 1993, among Credit Suisse, New York Branch, as Agent, Sudwestdeutsche Landesbank Girozentrale and MBIA Corp., incorporated by reference to Exhibit 10.78 to the 1993 10-K, as amended by the First Amendment

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to First Restated Credit Agreement, dated as of September 23, 1994, incorporated by reference to Exhibit 10.63 to the 1994 10-K, as further amended by the Second Amendment to the First Restated Credit Agreement, dated as of January 1, 1996, and as further amended by the Third Amendment to the First Restated Credit Agreement, dated as of October 1, 1996, incorporated by reference to Exhibit 10.57 to the 1996 10-K, as further amended and restated by the Second Amended and Restated Credit Agreement, dated as of October 1, 1997, incorporated by reference to Exhibit 10.46 to the 1997 10-K, as further amended by the First Amendment to Second Amended and Restated Credit Agreement, dated as of October 1, 1998, incorporated by reference to Exhibit 10.13 to the 1998 10-K, as further amended and restated by the Second Amendment to the Second Amended and Restated Credit Agreement, ended December 31, 2001, 2000 and 1999, dated as of October 29, 1999, incorporated by reference to Exhibit 10.13 to the 1999 10-K, as further amended and restated by the Third Amendment to the Second Amendment and Restated Credit Agreement, dated as of October 27, 2000, incorporated by reference to Exhibit 10.04 to the 2000 10-K, as further amended by the Fourth Amendment to the Second Amended and Restated Credit Agreement, dated as of October 31, 2001, incorporated by reference to Exhibit 10.04 to the 2001 10-K, as further amended and restated by the Third Amended and Restated Credit Agreement, dated as of October 31, 2002, incorporated by reference to Exhibit 10.04 to the 2002 10-K, as further amended by the First Amendment to the Third Amended and Restated Credit Agreement dated as of October 31, 2003.

10.05. Net Worth Maintenance Agreement, dated as of November 1, 1991, between MBIA Corp. and MBIA Assurance S.A., as amended by Amendment to Net Worth Agreement, dated as of November 1, 1991, incorporated by reference to Exhibit 10.79 to 1993 10-K, as further amended and restated by the Amended and Restated Net Worth Maintenance Agreement, dated as of April 1, 2002, incorporated by reference to Exhibit 10.05 to the 2002 10-K.

10.06. Reinsurance Agreement, dated as of January 1, 1993, between MBIA Assurance S.A. and MBIA Corp., incorporated by reference to Exhibit 10.80 to the 1993 10-K, as amended and restated by the Amended and Restated Reinsurance Agreement, dated as of January 1, 2002, incorporated by reference to Exhibit 10.06 to the 2002 10-K.

10.07. Investment Services Agreement, effective as of April 28, 1995, between MBIA Insurance Corporation and MBIA Securities Corp., as amended by Amendment No. 1, dated as of December 29, 1995, incorporated by reference to Exhibit 10.65 to the 1995 10-K, as further amended by Amendment No. 2 to Investment Services Agreement, dated January 14, 1997, incorporated by reference to Exhibit 10.53 to the 1997 10-K.

10.08. Investment Services Agreement, effective January 2, 1996, between MBIA Insurance Corp. of Illinois and MBIA Securities Corp., incorporated by reference to Exhibit 10.66 to the 1995 10-K.

10.09. Agreement and Plan of Merger among the Company, CMA Acquisition Corporation and CapMAC Holdings Inc. (“CapMAC”), dated as of November 13, 1997, incorporated by reference to the Company’s Form S-4 (Reg. No. 333-41633) filed on December 5, 1997.

10.10. Amendment No. 1 to Agreement and Plan of Merger among the Company, CMA Acquisition Corporation and CapMAC Holdings Inc. (“CapMAC”), dated January 16, 1998, incorporated by reference to the Company’s Post Effective Amendment No. 1 to Form S-4 (Reg. No. 333-41633) filed on January 21, 1998.

10.11. Reinsurance Agreement, dated as of April 1, 1998, between CapMAC and MBIA Corp., incorporated by reference to Exhibit 10.30 to the 1998 10-K.

10.12. Reinsurance Agreement, dated as of January 1, 1999, between MBIA Illinois and MBIA Corp., incorporated by reference to Exhibit 10.31 to the 1998 10-K.

10.13. Agreement and Plan of Merger by and among the Company, MBIA Acquisition, Inc. and 1838 Investment Advisors, Inc., dated as of June 19, 1998, incorporated by reference to Exhibit 10.32 to the 1998 10-K.

10.14. Credit Agreement (364 day agreement) among the Company, MBIA Corp., various designated borrowers, various lending institutions, Deutsche Bank AG, New York Branch, as Administrative Agent, The First National Bank of Chicago, as Syndication Agent and Fleet National Bank, as Documentation Agent, dated as of August 28, 1998, incorporated by reference to Exhibit 10.33 to the 1998 10-K, as amended by a Notice of Extension of Final Maturity Date, with various lending institutions, dated as of August 2000, incorporated by reference to Exhibit 10.14 to the 2000 10-K, as further amended by the First Amendment, dated as of February 9, 2001, the Second Amendment to the Credit Agreement, dated as of July 31, 2001, and the Third Amendment, dated as of December 7, 2001, incorporated by reference to Exhibit 10.14 to the 2001 10-K, as amended and restated by the Amended and Restated Credit Agreement, dated as of April 19, 2002, incorporated by reference to Exhibit 10.14 to the 2002 10-K, as further amended and restated by the Second Amended and Restated Credit Agreement, dated as of April 16, 2003.

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10.15. Credit Agreement (5 year agreement) among the Company, MBIA Corp., various designated borrowers, various lending institutions, Deutsche Bank AG, New York Branch, as Administrative Agent, The First National Bank of Chicago, as Syndication Agent and Fleet National Bank, as Documentation Agent, dated as of August 28, 1998, incorporated by reference to Exhibit 10.34 to the 1998 10-K, as amended by a Notice of Extension of Final Maturity Date, with various lending institutions, dated as of August 2000, incorporated by reference to Exhibit 10.15 to the 2000 10-K as further amended by the First Amendment, dated as of February 9, 2001, the Second Amendment to the Credit Agreement, dated as of July 31, 2001, and the Third Amendment, dated as of December 7, 2001, incorporated by reference to Exhibit 10.15 to the 2001 10-K, as amended and restated by the Amended and Restated Credit Agreement, dated as of April 19, 2002, incorporated by reference to Exhibit 10.15 to the 2002 10-K, as further amended and restated by the Second Amended and Restated Credit Agreement, dated as of April 16, 2003.

10.16. Advances Agreement between MBIA Corp., its affiliates and MBIA Inc., dated as of January 1, 2001, incorporated by reference to Exhibit 10.16 to the 2002 10-K.

10.17. Special Excess Of Loss Reinsurance Agreement, between MBIA Insurance Corporation and/or MBIA Assurance S.A. and/or any other insurance or reinsurance company subsidiaries of MBIA Inc. listed in Exhibit No. 1 and Muenchener Rueckversicherungs-Gesellshaft, effective September 1, 1998, incorporated by reference to Exhibit 10.49 to the 1998 10-K.

10.18. Second Special Per Occurrence Excess Of Loss Reinsurance Agreement, between MBIA Insurance Corporation and/or MBIA Assurance S.A. and/or any other insurance or reinsurance company subsidiaries of MBIA Inc. listed in Exhibit No. 1 and AXA Re Finance S.A., effective September 1, 1998, incorporated by reference to Exhibit 10.50 to the 1998 10-K.

10.19. ISDA Master Agreement, dated May 2, 2000, between Deutsche Bank AG and MBIA Inc., as supplemented by the Schedule to the ISDA Master Agreement and the Credit Support Annex, incorporated by reference to Exhibit 10.19 to the 2000 10-K.

10.53. Put Option Agreement between MBIA Insurance Corporation and North Castle Custodial Trust I, dated as of December 23, 2002, incorporated by reference to Exhibit 10.53 to the 2002 10-K.

10.54. Put Option Agreement between MBIA Insurance Corporation and North Castle Custodial Trust II, dated as of December 23, 2002, incorporated by reference to Exhibit 10.54 to the 2002 10-K.

10.55. Put Option Agreement between MBIA Insurance Corporation and North Castle Custodial Trust III, dated as of December 23, 2002, incorporated by reference to Exhibit 10.55 to the 2002 10-K.

10.56. Put Option Agreement between MBIA Insurance Corporation and North Castle Custodial Trust IV, dated as of December 23, 2002, incorporated by reference to Exhibit 10.56 to the 2002 10-K.

10.57. Put Option Agreement between MBIA Insurance Corporation and North Castle Custodial Trust V, dated as of May 14, 2003.

10.58. Put Option Agreement between MBIA Insurance Corporation and North Castle Custodial Trust VI, dated as of May 14, 2003.

10.59. Put Option Agreement between MBIA Insurance Corporation and North Castle Custodial Trust VII, dated as of May 14, 2003.

10.60. Put Option Agreement between MBIA Insurance Corporation and North Castle Custodial Trust VIII, dated as of May 14, 2003.

Executive Compensation Plans and Arrangements

The following Exhibits identify all existing executive compensation plans and arrangements:

10.20 MBIA Inc. 2000 Stock Option Plan, effective May 11, 2000, incorporated by reference to Exhibit 10.20 to the 2000 10-K.

10.21. MBIA Inc. Deferred Compensation and Excess Benefit Plan, incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1988 (Comm. File No. 1-9583) (the “1988 10-K”), as amended as of July 22, 1992, incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1992 (Comm. File No. 1-9583) (the “1992 10-K”).

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10.22. MBIA Inc. Employees Pension Plan, amended and restated effective January 1, 1987, incorporated by reference to Exhibit 10.28 of the Company’s Amendment No. 1 to the 1987 S-1, as further amended and restated as of December 12, 1991, incorporated by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991 (Comm. File No. 1-9583) (the “1991 10-K”), as further amended and restated effective January 1, 1994, incorporated by reference to Exhibit 10.16 of the Company’s Annual Report on Form 10-K for fiscal year ended December 31, 1994 (Comm. File No. 1-9583) (the “1994 10-K”)), as further amended by Amendment as of January 1, 2002, incorporated by reference to Exhibit 10.22 to the 2002 10-K.

10.23. MBIA Inc. Employees Profit Sharing Plan, as amended and restated effective January 1, 1987, incorporated by reference to Exhibit 10.29 to Amendment No. 1 to the 1987 S-1, as further amended by Amendment dated December 8, 1988, incorporated by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1989 (Comm. File No. 1-9583) (the “1989 10-K”), as further amended and restated as of December 12, 1991, incorporated by reference to Exhibit 10.19 to the 1991 10-K, as further amended and restated as of May 7, 1992, incorporated by reference to Exhibit 10.17 to the 1992 10K, as further amended and restated effective January 1, 1994, incorporated by reference to Exhibit 10.17 to the 1994 10-K, as further amended by Amendment as of January 1, 2002, incorporated by reference to Exhibit 10.23 to the 2002 10-K.

10.25. MBIA Inc. Employees Change of Control Benefits Plan, effective as of January 1, 1992, incorporated by reference to Exhibit 10.65 to the 1992 10-K.

10.26. MBIA Inc. 1996 Incentive Plan, effective as of January 1, 1996, incorporated by reference to Exhibit 10.70 to the 1995 10-K.

10.27. MBIA Inc. 1996 Directors Stock Unit Plan, effective as of December 4, 1996, incorporated by reference to Exhibit 10.70 to the 1996 10-K.

10.28. CapMAC Employee Stock Ownership Plan, incorporated by reference to Exhibit 10.18 to the CapMAC Form S-1, as Amended and Restated, effective January 1, 1999, incorporated by reference to Exhibit 10.28 to the 2000 10-K.

10.29. CapMAC Employee Stock Ownership Plan Trust Agreement, incorporated by reference to Exhibit 10.19 to the CapMAC Form S-1, as amended by Amendment No. 2 to the CapMAC Employee Stock Ownership Plan, executed December 22, 1998, incorporated by reference to Exhibit 10.25 to the 1998 10-K.

10.30. ESOP Loan Agreement by and between MBIA Inc. and the CapMAC Employee Stock Ownership Plan Trust, dated June 30, 1999, incorporated by reference to Exhibit 10.30 to the 2000 10-K.

10.31. Deferred Compensation and Restricted Stock Agreement, dated as of December 7, 1995, between John B. Caouette and CapMAC, incorporated by reference to Exhibit 10.28 of the CapMAC Annual Report on Form 10-K for the year ended December 31, 1995 (the “CapMAC 1995 10-K”).

10.32. Deferred Compensation and Restricted Stock Agreement, dated as of December 7, 1995, between Ram D. Wertheim and CapMAC, incorporated by reference to Exhibit 10.35 of the CapMAC 1995 10-K.

10.33. Retirement and Consulting Agreement, between the Company and David H. Elliott, dated as of January 7, 1999 and Summary Retirement and Consulting Agreement, between the Company and David H. Elliott, dated as of January 7, 1999, incorporated by reference to Exhibit 10.35 to the 1998 10-K.

10.34. Terms of Employment letter between MBIA and Joseph W. Brown, Jr., dated January 7, 1999, incorporated by reference to Exhibit 10.36 to the 1998 10-K.

10.35. Stock Option Agreement between MBIA Inc. and Joseph W. Brown, Jr., dated January 7, 1999, incorporated by reference to Exhibit 10.37 to the 1998 10-K.

10.36. Key Employee Employment Protection Agreement between MBIA Inc. and Joseph W. Brown, Jr., dated January 20, 1999, incorporated by reference to Exhibit 10.38 to the 1998 10-K.

10.37. Key Employee Employment Protection Agreement between MBIA Inc. and Neil G. Budnick, dated January 25, 1999, incorporated by reference to Exhibit 10.39 to the 1998 10-K.

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10.38. Key Employee Employment Protection Agreement between MBIA Inc. and W. Thacher Brown, dated January 25, 1999, incorporated by reference to Exhibit 10.40 to the 1998 10-K.

10.39. Key Employee Employment Protection Agreement between MBIA Inc. and John B. Caouette, dated January 25, 1999, incorporated by reference to Exhibit 10.41 to the 1998 10-K.

10.40. Key Employee Employment Protection Agreement between MBIA Inc. and Gary C. Dunton, dated January 25, 1999, incorporated by reference to Exhibit 10.42 to the 1998 10-K.

10.41. Key Employee Employment Protection Agreement between MBIA Inc. and Louis G. Lenzi, dated January 25, 1999, incorporated by reference to Exhibit 10.43 to the 1998 10-K.

10.42. Key Employee Employment Protection Agreement between MBIA Inc. and Kevin D. Silva, dated January 25, 1999, incorporated by reference to Exhibit 10.44 to the 1998 10-K.

10.43. Key Employee Employment Protection Agreement between MBIA Inc. and Richard L. Weill, dated January 25, 1999, incorporated by reference to Exhibit 10.45 to the 1998 10-K.

10.44. Key Employee Employment Protection Agreement between MBIA Inc. and Ruth M. Whaley, dated January 25, 1999, incorporated by reference to Exhibit 10.46 to the 1998 10-K.

10.45. Key Employee Employment Protection Agreement between MBIA Inc. and Michael J. Maguire, dated March 19, 1999, incorporated by reference to Exhibit 10.47 to the 1998 10-K.

10.46. Key Employee Employment Protection Agreement between MBIA Inc. and John S. Pizzarelli, dated March 14, 2000, incorporated by reference to Exhibit 10.46 to the 2000 10-K.

10.47. Key Employee Employment Protection Agreement between MBIA Inc. and Ram D. Wertheim, dated January 24, 2000, incorporated by reference to Exhibit 10.47 to the 2000 10-K.

10.48. Key Employee Employment Protection Agreement between MBIA Inc. and Robert T. Wheeler, dated April 17, 2000, incorporated by reference to Exhibit 10.48 to the 2000 10-K.

10.49. Key Employee Employment Protection Agreement between MBIA Inc. and Mark S. Zucker, dated March 14, 2000, incorporated by reference to Exhibit 10.49 to the 2000 10-K.

10.50. MBIA Inc. Restricted Stock Plan for Non-Employee Directors, effective as of March 21, 2002, incorporated by reference to the MBIA Inc. Form S-8 filed on March 14, 2002 (Reg. No. 333-84300) (the “2002 S-8”).

10.51. Amended and Restated Deferred Compensation and Stock Ownership Plan for Non-Employee Directors, effective as of March 21, 2002, incorporated by reference to the 2002 S-8.

10.52. MBIA Inc. Annual and Long-Term Incentive Plan, effective as of January 1, 2002, incorporated by reference to Exhibit 10.52 of the 2002 10-K, as amended by Amendment No. 1 dated as of February 10, 2004.

10.61. Form of Restricted Stock Agreement for Chief Executive Officer.

10.62. Form of Restricted Stock Agreement for Directors.

10.63. Form of Restricted Stock Agreement for Executive Officers.

10.64. Form of Stock Option Agreement for Chief Executive Officer and President.

10.65. Form of Stock Option Agreement for Executive Officers.

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21. List of Subsidiaries

23. Consent of PricewaterhouseCoopers LLP

31.1 Chief Executive Officer—Sarbanes-Oxley Act of 2002 Section 302

31.2 Chief Financial Officer—Sarbanes-Oxley Act of 2002 Section 302

32.1 Chief Executive Officer—Sarbanes-Oxley Act of 2002 Section 906

32.2 Chief Financial Officer—Sarbanes-Oxley Act of 2002 Section 906

99. Additional Exhibits—MBIA Corp. GAAP Financial Statements

(b) Reports on Form 8-K: The Company filed five reports on Form 8-K in the fourth quarter of 2003 which referenced an update on the Royal litigation, the Company’s proposed investment in Channel Re, the retirement of former Chief Technology Officer Robert Wheeler, the release of earnings as of the quarter ended September 30, 2003 and a clarification of a statement in the third quarter earnings release relating to one of MBIA Corp.’s insured issues.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

MBIA Inc.

(Registrant)

Dated: March 11, 2004	By	/s/ Joseph W. Brown
		Name: Joseph W. Brown
		Title: Chairman

Pursuant to the requirements of Instruction D to Form 10-K under the Securities Exchange Act of 1934, this Report has been signed below by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/    Joseph W. Brown	Chairman and Director	March 11, 2004
Joseph W. Brown
/s/    Douglas C. Hamilton	Assistant Vice President and Controller	March 11, 2004
Douglas C. Hamilton
/s/    C. Edward Chaplin	Director	March 11, 2004
C. Edward Chaplin
/s/    David C. Clapp	Director	March 11, 2004
David C. Clapp
/s/    Gary C. Dunton	Director	March 11, 2004
Gary C. Dunton
/s/    Claire L. Gaudiani	Director	March 11, 2004
Claire L. Gaudiani
/s/    Freda S. Johnson	Director	March 11, 2004
Freda S. Johnson
/s/    Daniel P. Kearney	Director	March 11, 2004
Daniel P. Kearney
/s/    James A. Lebenthal	Director	March 11, 2004
James A. Lebenthal
/s/    John A. Rolls	Director	March 11, 2004
John A. Rolls

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Report of Independent Auditors on

Financial Statement Schedules

To the Board of Directors of MBIA Inc.:

Our audits of the consolidated financial statements referred to in our report dated February 13, 2004 appearing in Item 8 of this Annual Report on Form 10-K also included an audit of the financial statement schedules listed in Item 15(a)(2) of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/    PricewaterhouseCoopers LLP

New York, NY

February 13, 2004

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SCHEDULE I

MBIA INC. AND SUBSIDIARIES

SUMMARY OF INVESTMENTS, OTHER THAN INVESTMENTS IN RELATED PARTIES

December 31, 2003

(In thousands)

Column A	Column B		Column C		Column D
					Amount at which
			Fair		shown in the
Type of investment	Cost		Value		balance sheet
Fixed-maturities
Bonds:
United States Treasury and Government agency obligations	$	899,910	$	973,321	$	973,321
State and municipal obligations		4,429,075		4,771,740		4,771,740
Corporate and other obligations		9,351,030		9,777,074		9,777,074
Mortgage-backed		1,530,555		1,567,568		1,567,568
Total fixed-maturities		16,210,570		17,089,703		17,089,703
Held-to-maturity		8,386,280		XXXXXXX		8,386,280
Short-term investments		1,873,478		XXXXXXX		1,873,478
Other investments		357,346		XXXXXXX		357,346
Total investments	$	26,827,674		XXXXXXX	$	27,706,807

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SCHEDULE II

MBIA INC. (PARENT COMPANY)

CONDENSED BALANCE SHEETS

(Dollars in thousands, except per share amounts)

	December 31, 2003			December 31, 2002
ASSETS
Investments:
Investment agreement and medium-term note portfolios held as available-for-sale at fair value (amortized cost $6,856,824 and $5,606,727)	$	8,004,970		$	6,898,628
Investment agreement portfolio pledged as collateral at fair value (amortized cost $576,747 and $646,287)		590,824			667,854
Fixed-maturity securities held as available-for-sale at fair value (amortized cost $111,562 and $129,979)		115,858			137,853
Short-term investments, at amortized cost (which approximates fair value)		60,770			53,006
Other investments		13,492			—
Total investments		8,785,914			7,757,341
Cash and cash equivalents		47,122			12,457
Investment in wholly owned subsidiaries		6,689,750			5,978,715
Intercompany loan receivable		652,926			—
Accrued investment income		102,946			80,876
Receivable for investments sold		17,932			51,292
Derivative assets		160,264			74,898
Other assets		94,733			25,160
Total assets	$	16,551,587		$	13,980,739
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Investment agreement obligations	$	6,515,878		$	5,835,786
Securities sold under agreements to repurchase		501,397			541,240
Long-term debt		1,016,245			1,025,520
Intercompany loan payable		1,883,456			872,875
Intercompany payables		—			2,583
Deferred income taxes, net		80,317			76,888
Payable for investments purchased		45,952			414
Dividends payable		28,824			24,612
Derivative liabilities		105,841			75,881
Other liabilities		114,662			31,589
Total liabilities		10,292,572			8,487,388
Shareholders’ Equity:
Preferred stock, par value $1 per share; authorized shares–10,000,000; issued and outstanding shares–none		—			—
Common stock, par value $1 per share; authorized shares–400,000,000; issued shares–153,551,061 and 152,555,034		153,551			152,555
Additional paid-in capital		1,295,638			1,239,313
Retained earnings		4,593,486			3,895,112
Accumulated other comprehensive income, net of deferred income tax of $337,175 and $294,160		632,623			541,250
Unallocated ESOP shares		—			(653	)
Unearned compensation–restricted stock		(12,299	)		(12,646	)
Treasury stock at cost–9,675,887 in 2003 and 7,781,213 shares in 2002		(403,984	)		(321,580	)
Total shareholders’ equity		6,259,015			5,493,351
Total liabilities and shareholders’ equity	$	16,551,587		$	13,980,739

The condensed financial statements should be read in conjunction with the

consolidated financial statements and notes thereto and the accompanying notes.

149

SCHEDULE II

MBIA INC. (PARENT COMPANY)

CONDENSED STATEMENTS OF INCOME

(In thousands)

	Years Ended December 31
	2003			2002			2001
Revenues:
Operating income	$	56,747		$	36,370		$	31,360
Net investment income		18,696			8,048			4,437
Net realized gains		26,905			6,607			11,593
Net (loss) gain on derivative instruments		(3,488	)		436			476
Total revenues		98,860			51,461			47,866
Expenses:
Interest expense		68,691			58,719			68,021
Operating expenses		22,711			17,685			15,293
Total expenses		91,402			76,404			83,314
Gain (loss) before income taxes and equity in earnings of subsidiaries		7,458			(24,943	)		(35,448	)
Income tax provision (benefit)		1,896			(22,052	)		(26,620	)
Gain (loss) before equity in earnings of subsidiaries		5,562			(2,891	)		(8,828	)
Equity in earnings of subsidiaries		808,023			581,978			581,462
Income before cumulative effect of accounting change		813,585			579,087			572,634
Cumulative effect of accounting change		—			—			(2,543	)
Net income	$	813,585		$	579,087		$	570,091

150

SCHEDULE II

MBIA INC. (PARENT COMPANY)

CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

	Years Ended December 31
	2003			2002			2001
Cash flows from operating activities:
Net income	$	813,585		$	579,087		$	570,091
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries		(568,023	)		(342,228	)		(349,062	)
Increase in accrued investment income		(22,070	)		(16,611	)		(20,966	)
Net realized gains on sale of investments		(26,905	)		(6,607	)		(11,593	)
Deferred income tax provision (benefit)		659			(1,132	)		(8,625	)
Net losses (gains) on derivative instruments		3,488			(436	)		(476	)
Cumulative effect of accounting change		—			—			2,543
Other, net		(19,791	)		55,728			(24,862	)
Total adjustments to net income		(632,642	)		(311,286	)		(413,041	)
Net cash provided by operating activities		180,943			267,801			157,050
Cash flows from investing activities:
Purchase of fixed-maturity securities		(8,488,551	)		(9,553,366	)		(13,555,970	)
Sale of fixed-maturity securities		8,521,606			9,534,367			13,534,744
(Purchase) sale of short-term investments		(6,470	)		(48,553	)		102,388
Purchases for investment agreement portfolio and affiliate loan proceeds, net of payable for investments purchased		(11,920,160	)		(7,091,531	)		(9,374,432	)
Sales from investment agreement portfolio and affiliate loan proceeds, net of receivable for investments sold		10,951,344			5,901,762			7,684,881
Contributions to subsidiaries		(27,356	)		(33,294	)		(3,003	)
Advances to subsidiaries, net		(31,729	)		(100,667	)		(29,271	)
Net cash used by investing activities		(1,001,316	)		(1,391,282	)		(1,640,663	)
Cash flows from financing activities:
Net proceeds from issuance of long-term debt		—			291,300			—
Net repayment from retirement of long-term debt		—			(100,000	)		—
Net repayment from retirement of short-term debt		—			—			(99,992	)
Dividends paid		(110,999	)		(97,154	)		(87,112	)
Purchase of treasury stock		(82,404	)		(208,945	)		(8,982	)
Other borrowings		30,000			—			—
Proceeds from affiliate loan		350,661			872,875			—
Proceeds from issuance of investment agreement and medium-term note obligations		4,125,755			3,437,435			3,857,293
Payments for drawdowns of investment agreement and medium-term note obligations		(3,443,938	)		(3,090,285	)		(2,584,400	)
Securities sold under agreements to repurchase, net		(39,843	)		(16,578	)		382,817
Exercise of stock options		25,806			16,322			24,273
Net cash provided by financing activities		855,038			1,104,970			1,483,897
Net increase (decrease) in cash and cash equivalents		34,665			(18,511	)		284
Cash and cash equivalents–beginning of year		12,457			30,968			30,684
Cash and cash equivalents–end of year	$	47,122		$	12,457		$	30,968
Supplemental cash flow disclosures:
Income taxes paid (refunded)	$	(1,110	)	$	157		$	2,151
Interest paid on long-term debt	$	69,876		$	63,318		$	60,527

The condensed financial statements should be read in conjunction with the

consolidated financial statements and notes thereto and the accompanying notes.

151

SCHEDULE II

MBIA INC. (PARENT COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

1. Condensed Financial Statements

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the Company’s consolidated financial statements and the notes thereto.

2. Significant Accounting Policies

The Parent company carries its investments in subsidiaries under the equity method.

3. Dividends from Subsidiaries

During 2003 and 2002, MBIA Corp. declared and paid dividends of $240.0 million and $236.1 million to MBIA Inc. In addition, MBIA Asset Management LLC. distributed $9.2 million to MBIA Inc. in 2002.

4. Obligations under Investment Agreement and Medium-Term Notes

The investment agreement business, as described in footnotes 2 and 19 to the consolidated financial statements of MBIA Inc. and subsidiaries is conducted by both the Registrant and its wholly owned subsidiary, MBIA Investment Management Corp.

152

SCHEDULE IV

MBIA INC. AND SUBSIDIARIES

REINSURANCE

for the Years Ended December 31, 2003, 2002 and 2001

(In thousands)

Column A	Column B	Column C	Column D	Column E	Column F
					Percentage
Insurance	Gross	Ceded to Other	Assumed from		of Amount
Premiums Written	Amount	Value	Other Companies	Net Amount	Assumed to Net
2003	$1,249,832	$235,736	$18,976	$1,033,072	1.8%
2002	$932,204	$198,526	$19,727	$753,405	2.6%
2001	$839,386	$235,362	$25,840	$629,864	4.1%

153

Securities and Exchange Commission

Washington, D.C. 20549

Exhibits

to

Form 10-K

Annual Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2003

Commission File No. 1-9583

MBIA Inc.

154

Exhibit Index

10.04. First Restated Credit Agreement, dated as of October 1, 1993, among MBIA Corp., Credit Suisse, New York Branch, as Agent, Credit Suisse, New York Branch, Caisse Des Depots Et Consignations, Deutsche Bank AG, Bayerische Landesbank Girozentrale and Landesbank Hessen-Thuringen Girozentrale, as amended by an Assignment and Assumption Agreement, dated as of December 31, 1993, among MBIA Corp., Credit Suisse, New York Branch, as Agent and Assignor and Deutsche Bank AG, New York Branch, as further amended by a Modification Agreement, dated as of January 1, 1994, among Deutsche Bank, AG, New York Branch, MBIA Corp. and Credit Suisse, New York Branch, as Agent, as amended by a Joinder Agreement, dated December 31, 1993, among Credit Suisse, New York Branch, as Agent, Sudwestdeutsche Landesbank Girozentrale and MBIA Corp., incorporated by reference to Exhibit 10.78 to the 1993 10-K, as amended by the First Amendment to First Restated Credit Agreement, dated as of September 23, 1994, incorporated by reference to Exhibit 10.63 to the 1994 10-K, as further amended by the Second Amendment to the First Restated Credit Agreement, dated as of January 1, 1996, and as further amended by the Third Amendment to the First Restated Credit Agreement, dated as of October 1, 1996, incorporated by reference to Exhibit 10.57 to the 1996 10-K, as further amended and restated by the Second Amended and Restated Credit Agreement, dated as of October 1, 1997, incorporated by reference to Exhibit 10.46 to the 1997 10-K, as further amended by the First Amendment to Second Amended and Restated Credit Agreement, dated as of October 1, 1998, incorporated by reference to Exhibit 10.13 to the 1998 10-K, as further amended and restated by the Second Amendment to the Second Amended and Restated Credit Agreement, dated as of October 29, 1999, incorporated by reference to Exhibit 10.13 to the 1999 10-K, as further amended and restated by the Third Amendment to the Second Amendment and Restated Credit Agreement, dated as of October 27, 2000, incorporated by reference to Exhibit 10.04 to the 2000 10-K, as further amended by the Fourth Amendment to the Second Amended and Restated Credit Agreement, dated as of October 31, 2001, incorporated by reference to Exhibit 10.04 to the 2001 10-K, as further amended and restated by the Third Amended and Restated Credit Agreement, dated as of October 31, 2002, as further amended by the First Amendment to the Third Amended and Restated Credit Agreement dated as of October 31, 2003.

10.14. Credit Agreement (364 day agreement) among the Company, MBIA Corp., various designated borrowers, various lending institutions, Deutsche Bank AG, New York Branch, as Administrative Agent, The First National Bank of Chicago, as Syndication Agent and Fleet National Bank, as Documentation Agent, dated as of August 28, 1998, incorporated by reference to Exhibit 10.33 to the 1998 10-K, as amended by a Notice of Extension of Final Maturity Date, with various lending institutions, dated as of August 2000, incorporated by reference to Exhibit 10.14 to the 2000 10-K, as further amended by the First Amendment, dated as of February 9, 2001, the Second Amendment to the Credit Agreement, dated as of July 31, 2001, and the Third Amendment, dated as of December 7, 2001, incorporated by reference to Exhibit 10.14 to the 2001 10-K, as amended and restated by the Amended and Restated Credit Agreement, dated as of April 19, 2002, as further amended and restated by the Second Amended and Restated Credit Agreement, dated as of April 16, 2003.

10.15. Credit Agreement (5 year agreement) among the Company, MBIA Corp., various designated borrowers, various lending institutions, Deutsche Bank AG, New York Branch, as Administrative Agent, The First National Bank of Chicago, as Syndication Agent and Fleet National Bank, as Documentation Agent, dated as of August 28, 1998, incorporated by reference to Exhibit 10.34 to the 1998 10-K, as amended by a Notice of Extension of Final Maturity Date, with various lending institutions, dated as of August 2000, incorporated by reference to Exhibit 10.15 to the 2000 10-K as further amended by the First Amendment, dated as of February 9, 2001, the Second Amendment to the Credit Agreement, dated as of July 31, 2001, and the Third Amendment, dated as of December 7, 2001, incorporated by reference to Exhibit 10.15 to the 2001 10-K, as amended and restated by the Amended and Restated Credit Agreement, dated as of April 19, 2002, as further amended and restated by the Second Amended and Restated Credit Agreement, dated as of April 16, 2003.

10.52. MBIA Inc. Annual and Long-Term Incentive Plan, effective as of January 1, 2002, incorporated by reference to Exhibit 10.52 of the 2002 10-K, as amended by Amendment No. 1 dated as of February 10, 2004.

10.57. Put Option Agreement between MBIA Insurance Corporation and North Castle Custodial Trust V, dated as of May 14, 2003.

10.58. Put Option Agreement between MBIA Insurance Corporation and North Castle Custodial Trust VI, dated as of May 14, 2003.

10.59. Put Option Agreement between MBIA Insurance Corporation and North Castle Custodial Trust VII, dated as of May 14, 2003.

10.60. Put Option Agreement between MBIA Insurance Corporation and North Castle Custodial Trust VIII, dated as of May 14, 2003.

155

10.61. Form of Restricted Stock Agreement for Chief Executive Officer.

10.62. Form of Restricted Stock Agreement for Directors.

10.63. Form of Restricted Stock Agreement for Executive Officers.

10.64. Form of Stock Option Agreement for Chief Executive Officer and President.

10.65. Form of Stock Option Agreement for Executive Officers.

21. List of Subsidiaries

23. Consent of PricewaterhouseCoopers LLP

31.1 Chief Executive Officer—Sarbanes-Oxley Act of 2002 Section 302

31.2 Chief Financial Officer—Sarbanes-Oxley Act of 2002 Section 302

32.1 Chief Executive Officer—Sarbanes-Oxley Act of 2002 Section 906

32.2 Chief Financial Officer—Sarbanes-Oxley Act of 2002 Section 906

99. Additional Exhibits—MBIA Corp. GAAP Financial Statements

156

EX-10.04

EXHIBIT 10.04

[EXECUTION COPY]

FIRST AMENDMENT

to

THIRD AMENDED AND RESTATED CREDIT AGREEMENT

among

MBIA INSURANCE CORPORATION,

THE BANKS SIGNATORY HERETO,

COÖPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.

“RABOBANK NEDERLAND”,

New York Branch,

as Administrative Agent

and

DEUTSCHE BANK AG,

New York Branch,

as Documentation Agent

Dated as of October 31, 2003

FIRST AMENDMENT

THIS FIRST AMENDMENT, dated as of October 31, 2003 (this “Amendment”), between MBIA INSURANCE CORPORATION, a New York stock insurance corporation (“MBIA”), the financial institutions which have executed this Amendment below as Banks (as defined below), COÖPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A. “RABOBANK NEDERLAND”, New York Branch (“Rabobank”), as Administrative Agent for the Banks (in such capacity, the “Administrative Agent”) and individually as a Bank, and DEUTSCHE BANK AG, New York Branch, as Documentation Agent for the Banks (in such capacity, together with the Administrative Agent, the “Agents”) and individually as a Bank;

WHEREAS, the parties hereto are parties to the Third Amended and Restated Credit Agreement, dated as of October 31, 2002 (the “Credit Agreement”); and

WHEREAS, the parties hereto desire, upon the terms and subject to the conditions hereinafter set forth, to amend the Tranche A Expiration Date definition and to otherwise modify the Credit Agreement in certain respects.

NOW, THEREFORE, in consideration of the mutual promises contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

ARTICLE 1

MODIFICATIONS TO LOAN DOCUMENTS

Section 1.1. Defined Terms. Except as otherwise specified herein, terms used in this Amendment and defined in Exhibit A of the Credit Agreement shall have the meanings provided in such Exhibit A.

Section 1.2. Amendment.

(a) The definition of the term “Tranche A Expiration Date” contained in Exhibit A to the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“‘Tranche A Expiration Date’ shall mean October 31, 2010 or, if such day is not a Business Day, on the next preceding Business Day.”

(b) The following sentence shall be inserted prior to the sentence beginning “The provisions of this Article 8…” in Section 8.1:

“Specifically, the Documentation Agent shall have no right, power, obligation, liability, responsibility or duty under any Loan Document other than those applicable to it as a Bank.”

Section 1.3. Commitments. The aggregate Commitments of the Banks are hereby amended so that, from and after October 31, 2003 until the termination or further modification thereof as provided in the Credit Agreement, such Commitments shall be as set forth on Schedule 1 to this Amendment.

Section 1.4. Additional Bank. By its execution and delivery of this Amendment, KeyBank National Association (the “Additional Bank”), hereby agrees to be bound, and shall have the rights under the Credit Agreement and the Loan Documents as a Bank having a Commitment equal to the amount specified in Schedule 1 to this Amendment, and the Agents and MBIA each hereby consent to the Additional Bank becoming a Bank. The Additional Bank acknowledges and agrees that the Agents (i) make no representation or warranty and assume no responsibility with respect to any statements, warranties and representations made in or in connection with the Credit Agreement or any of the Loan Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any of the Loan Documents or any other instrument or document furnished pursuant thereto; and (ii) make no representation or warranty and assume no responsibility with respect to the financial condition of or the performance or observance by MBIA of any of their obligations under the Credit Agreement, any of the Loan Documents or any other instrument or document furnished pursuant thereto. The Additional Bank further (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements and SEC Reports referred to therein, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into the Credit Agreement; (ii) agrees that it will, independently and without reliance upon the Agents and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) agrees to the provisions of Article 8 of the Credit Agreement and appoints and authorizes the Agents on its behalf to exercise such powers under the Credit Agreement and the other Loan Documents, as are delegated to the Agents by the terms thereof and hereof, together with such powers as are reasonably incidental thereto; and (iv) agrees that it will be bound by all of the terms and conditions of the Credit Agreement and the other Loan Documents and will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement and the other Loan Documents are required to be performed by it as a Bank.

Section 1.5. Terminating Banks. The parties acknowledge that pursuant to separate instruments, JPMorgan Chase Bank, Bank of America, N.A. and HSH Nordbank (the “Terminating Banks”), respectively, and each of MBIA and the Agents have agreed that concurrently with the effectiveness of this Amendment, each Terminating Bank’s entire Commitment and role as a Bank under the Credit Agreement is terminated and that each Terminating Bank shall have no further liabilities, obligations or rights under the Credit Agreement, except for those liabilities, obligations and rights which survive the termination of the Commitment of a Bank under the Credit Agreement.

ARTICLE 2

CONDITIONS PRECEDENT

Section 2.1. Conditions Precedent to Amendment Effective Date. The provisions of Article 1 hereof shall become effective as of October 31, 2003 when this Amendment shall have been executed and delivered by MBIA, each Agent and each Bank and when the following conditions have been fulfilled to the reasonable satisfaction of the Agents.

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(a) There shall exist no Default or Event of Default, and all representations and warranties made by MBIA herein or in any of the Loan Documents shall be true and correct with the same effect as though such representations and warranties had been made at and as of such time.

(b) The Administrative Agent shall have received each of the following, in form and substance satisfactory to the Administrative Agent:

(i) a certificate of any two of the President, Vice Chairman, Managing Director, any Vice President or the Treasurer of MBIA to the effect that the conditions set forth in Section 2.1(a) hereof have been satisfied and that no governmental filings, consents and approvals are necessary to be secured by MBIA in order to permit the borrowing under the Credit Agreement, as modified hereby, the grant of the Lien under the Security Agreement and the execution, delivery and performance in accordance with their respective terms of this Amendment and the other Loan Documents and the consummation of the transactions contemplated hereby and thereby, each of which shall be in full force and effect;

(ii) copies of the duly adopted resolutions of the Board of Directors of MBIA, or an authorized committee thereof, authorizing the execution, delivery and performance in accordance with their respective terms of this Amendment and the other documents to be executed and delivered by MBIA described herein (collectively, the “Amendment Documents”), accompanied by a certificate of the Secretary or an Assistant Secretary of MBIA stating as to (A) the effect that such resolutions are in full force and effect, (B) the incumbency and signatures of the officers signing the Amendment Documents on behalf of MBIA, and (C) the effect that, from and after December 23, 2002, there has been no amendment, modification or revocation of the articles of incorporation or by-laws of MBIA;

(iii) opinions of the General Counsel or any Assistant General Counsel of MBIA and Kutak Rock, MBIA’s counsel, each dated October 31, 2003, which are substantially to the effect set forth in the forms attached hereto as, respectively, Exhibits A and B; and

(iv) such other documents, instruments, approvals (and, if reasonably requested by the Administrative Agent or the Majority Banks, duplicates or executed copies thereof certified by an appropriate governmental official or an authorized officer of MBIA) or opinions as the Administrative Agent or the Majority Banks may reasonably request.

(c) The Administrative Agent shall have received reasonably satisfactory evidence that long-term obligations insured by MBIA are publicly assigned a rating of Aaa by Moody’s and AAA by S&P by reason of such insurance.

(d) Each Bank which is becoming a party to the Credit Agreement or which is increasing its Commitment shall have received a Note or an additional Note dated as of October 31, 2003, in a principal amount equal to the amount of its Commitment or of the increase in its Commitment, as applicable.

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(e) The currently effective Fronting Bank Supplements and related Fronting Bank Notes and fee letters shall have been modified in a manner satisfactory to MBIA, the Administrative Agent and each Fronting Bank affected by such modifications.

(f) All corporate and legal proceedings and all instruments in connection with the transactions contemplated by this Amendment and the Loan Documents shall be satisfactory in form and substance to the Administrative Agent and its counsel.

Section 2.2. Certificate as to Effective Date. A certificate of the Administrative Agent delivered to MBIA stating that the provisions of Article 1 shall have become effective shall be conclusive evidence thereof and shall be binding on MBIA, each Agent and each Bank. In delivering such certificate, and without limiting the general application of Section 8.8 or other provisions of Article 8 of the Credit Agreement to the actions of the Administrative Agent hereunder, the Administrative Agent shall be entitled to rely conclusively on the certificate of officers of MBIA delivered pursuant to Section 2.1(b)(i) as to the satisfaction of the conditions set forth in Section 2.1(a).

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

In order to induce the Agents and the Banks to enter into this Amendment and proceed with the transaction contemplated hereby, MBIA makes the following representations and warranties to the Agents and the Banks, which shall survive the execution and delivery of this Amendment and the making of any Loans:

Section 3.1. Due Authorization, Etc. The execution, delivery and performance by MBIA of the Amendment Documents and the Loan Documents as amended thereby are within its corporate powers, have been duly authorized by all necessary corporate action and do not and will not (i) violate any provision of any law, rule, regulation (including, without limitation, the New York Insurance Law, the Investment Company Act of 1940, as amended, or Regulations T, U or X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to MBIA or of the corporate charter or by-laws of MBIA, (ii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which MBIA is a party or by which it or its properties may be bound or affected, or (iii) result in, or require, the creation or imposition of any Lien upon or with respect to any of the properties now owned or hereafter acquired by MBIA (other than as contemplated by the Loan Documents), other than, in the case of clauses (ii) and (iii), breaches, defaults or Liens which could not materially and adversely affect the business, assets, operations or financial condition of MBIA or the ability of MBIA to perform its obligations under any Loan Document.

Section 3.2. Approvals. No consent, approval or other action by, or any notice to or filing with any court or administrative or governmental body is or will be necessary for the valid execution, delivery or performance by MBIA of the Amendment Documents or the Loan Documents as amended thereby.

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Section 3.3. Enforceability. Each Amendment Document and each Loan Document as amended thereby constitutes a legal, valid and binding obligation of MBIA, enforceable against MBIA in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and the availability of equitable remedies, whether such matter is heard in a court of law or a court of equity.

Section 3.4. Financial Statements, etc.

(a) MBIA has heretofore furnished to the Agents (i) the audited consolidated and unaudited consolidating balance sheets of MBIA Inc. and its subsidiaries at December 31, 2002, the related audited consolidated statements of income, changes in stockholders’ equity and financial position or cash flows, as the case may be, and unaudited consolidating statements of income for the year ended December 31, 2002, and (ii) the unaudited consolidated and consolidating balance sheets of MBIA Inc. and its subsidiaries as of March 31 and June 30, 2003, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the three months ended March 31, 2003 and the six months ended June 30, 2003. Such financial statements were prepared in accordance with generally accepted accounting principles consistently applied and present fairly the consolidated financial position and consolidated results of operations and cash flows of MBIA Inc. and its subsidiaries and the financial position and results of operations and cash flows of MBIA at the dates and for the periods indicated therein. There has been no material adverse change in the consolidated financial position or consolidated results of operations or cash flows of MBIA Inc. and its subsidiaries taken as a whole or of MBIA since June 30, 2003.

(b) MBIA has heretofore furnished to the Agents its annual statements and its financial statements as filed with the Department for the year ended December 31, 2002 and its quarterly statements and financial statements as filed with the Department for the periods ended March 31, 2003 and June 30, 2003. Such annual and quarterly statements and financial statements were prepared in accordance with the statutory accounting principles set forth in the New York Insurance Law, all of the assets described therein were the absolute property of MBIA at the dates set forth therein, free and clear of any liens or claims thereon, except as therein stated, and each such annual, quarterly and financial statement is a full and true statement of all the assets and liabilities and of the condition and affairs of MBIA as of such dates and of its income and deductions therefrom for the year or quarter ended on such dates.

(c) MBIA has heretofore furnished to the Agents a copy of the annual report on Form 10-K of MBIA Inc. for the fiscal year ended December 31, 2002, the quarterly reports on Form 10-Q of MBIA Inc. for each of the quarters ended March 31, 2003 and June 30, 2003 and each current report on Form 8-K filed by MBIA Inc. on or after January 1, 2003, each as filed with the Securities and Exchange Commission. Such annual, quarterly and current reports were prepared in accordance with the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

- 5 -

Section 3.5. Covered Portfolio. Substantially all of the Insured Obligations in the Covered Portfolio are insured by MBIA under Insurance Contracts in the form or forms heretofore supplied to the Agents in accordance with MBIA’s underwriting criteria as heretofore disclosed to the Agents, and in MBIA’s reasonable judgment such Insured Obligations represent an overall risk of loss (based on all factors including without limitation investment quality and geographical and market diversification) which is not materially greater than the risk of loss represented by all of MBIA’s Insured Obligations as of the date hereof.

Section 3.6. Confirmation of Representations and Warranties. MBIA hereby confirms that its representations and warranties set forth in the Credit Agreement are true and correct as of the date hereof.

Section 3.7. Disclosure. There is no fact known to MBIA which materially adversely affects the business, assets, operations or financial condition of MBIA or the ability of MBIA to perform its obligations under any Amendment Document or any Loan Document as amended thereby which has not been set forth in this Amendment, in the financial statements or reports required to be delivered pursuant to Section 3.4 hereof.

ARTICLE 4

MISCELLANEOUS

Section 4.1. Credit Agreement. Except as expressly modified as contemplated hereby, the Credit Agreement and the other Loan Documents are hereby confirmed to be in full force and effect in accordance with their respective terms. This Amendment is intended by the parties to constitute an amendment and modification to, and otherwise to constitute a continuation of, the Credit Agreement and the Loan Documents, and is not intended by any party and shall not be construed to constitute a novation thereof or of any Debt of MBIA hereunder.

Section 4.2. Survival. All covenants, agreements, representations and warranties made herein or in any Loan Document or in any certificate, document or instrument delivered pursuant hereto or thereto shall survive the effective date hereof, the making of any Loan and the occurrence of the Tranche A Expiration Date and shall continue in full force and effect so long as principal of or interest on any Loan, Note or Fronting Bank Note remains outstanding or unpaid, any other amount payable by MBIA under the Credit Agreement as amended hereby, any Note, Fronting Bank Note or any other Loan Document remains unpaid or any other obligation of MBIA to perform any other act hereunder or under the Credit Agreement as amended hereby, any Note, Fronting Bank Note or any other Loan Document remains unsatisfied or the Banks have any obligation to make a Loan or any other advance of moneys to MBIA under the Credit Agreement as amended hereby.

Section 4.3. Severability. Any provision of this Amendment which is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or nonauthorization without invalidating the remaining provisions hereof or affecting the validity, enforceability or legality of such provision in any other jurisdiction.

- 6 -

Section 4.4. Successors and Assigns. This Amendment is a continuing obligation and binds, and the benefits hereof shall inure to, the parties hereto and their respective successors and assigns; provided that MBIA may not transfer or assign any or all of its rights or obligations hereunder except as permitted by Section 10.8 of the Credit Agreement.

Section 4.5. Amendments. No provision of this Amendment shall be waived, amended or supplemented except as provided in Section 10.12 of the Credit Agreement.

Section 4.6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

Section 4.7. Headings. Section headings in this Amendment are included herein for convenience or reference only and shall not constitute a part of this Amendment for any other purpose.

Section 4.8. Counterparts. This Amendment may be executed in several counterparts, each of which shall be regarded as the original and all of which shall constitute one and the same Amendment.

[Remainder of Page Intentionally Left Blank.]

- 7 -

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

MBIA INSURANCE CORPORATION
By	/s/     Karen M. Wagner
	Name: Karen M. Wagner
	Title:   Vice President

[Signature Pages to MBIA First Amendment]

COÖPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A. “RABOBANK NEDERLAND,”
New York Branch, as Administrative Agent and as a Bank
By	/s/    Wing Ng
	Name: Wing Ng
	Title:   Executive Director
By	/s/    Brett Delfino
	Name: Brett Delfino
	Title:   Executive Director

[Signature Pages to MBIA First Amendment]

DEUTSCHE BANK AG, New York Branch, as Documentation Agent and as a Bank
By	/s/    Ruth Leung
	Name: Ruth Leung
	Title:   Director
By	/s/    Clinton Johnson
	Name: Clinton Johnson
	Title:   Managing Director

[Signature Pages to MBIA First Amendment]

LANDESBANK BADEN-WÜRTTEMBERG, New York Branch, as a Bank
By	/s/    Robert O’Brien
	Name: Robert O’Brien
	Title:   Vice President
By	/s/    Jennifer L Davis
	Name: Jennifer L Davis
	Title:   Vice President

[Signature Pages to MBIA First Amendment]

THE BANK OF NEW YORK, as a bank
By	/s/    Evan Glass
	Name: Evan Glass
	Title:   Vice President

[Signature Pages to MBIA First Amendment]

BAYERISCHE LANDESBANK, New York Branch, as a Bank
By	/s/    Scott M. Allison
	Name: Scott M. Allison
	Title:   First Vice President
By	/s/    Robert I. Albano
	Name: Robert I. Albano
	Title:   Vice President

[Signature Pages to MBIA First Amendment]

LANDESBANK HESSEN- THÜRINGEN GIROZENTRALE, New York Branch, as a Bank
By	/s/    Bill Dorante
	Name:  Bill Dorante
	Title:    Senior Vice President
By	/s/    Irina Rakhlis
	Name:  Irina Rakhlis
	Title:    Credit Analyst

[Signature Pages to MBIA First Amendment]

WESTLB AG, New York Branch, as a Bank
By	/s/    Lillian Tung Lum
	Name:  Lillian Tung Lum
	Title:    Executive Director
By	/s/    David Sellers
	Name:  David Sellers
	Title:    Executive Director

[Signature Pages to MBIA First Amendment]

DEKABANK DEUTSCHE GIROZENTRALE, as a Bank
By	/s/    Jurgen Schöneberg
	Name:  Jurgen Schöneberg
	Title:    Credit Manager
By	/s/    Stephan Wagner
	Name:  Stephan Wagner
	Title:    Vice President

[Signature Pages to MBIA First Amendment]

BARCLAYS BANK PLC, New York Branch, as a Bank
By	/s/    Alison A. McGuigan
	Name:  Alison A. McGuigan
	Title:    Associate Director

[Signature Pages to MBIA First Amendment]

KBC BANK, N.V., as a Bank
By	/s/    Jean-Pierre Diels
	Name: Jean-Pierre Diels
	Title:   First Vice President
By	/s/    Dennis A Graham
	Name: Dennis A Graham
	Title:   First Vice President

[Signature Pages to MBIA First Amendment]

NORDDEUTSCHE LANDESBANK GIROZENTRALE, New York Branch, as a Bank
By	/s/    Georg L. Peters
	Name: Georg L. Peters
	Title:   Vice President
By	/s/    Stephen K. Hunter
	Name: Stephen K. Hunter
	Title:   Senior Vice President

[Signature Pages to MBIA First Amendment]

THE BANK OF NOVA SCOTIA, as a Bank
By	/s/    John W. Campbell
	Name: John W. Campbell
	Title:   Managing Director

[Signature Pages to MBIA First Amendment]

FLEET NATIONAL BANK, as a Bank
By	/s/    Carla Balesano
	Name: Carla Balesano
	Title:   Director

[Signature Pages to MBIA First Amendment]

SCHEDULE 1

TO FIRST AMENDMENT

BANKS, ADDRESSES AND TRANCHE A COMMITMENTS

Name and Notice Address of Bank	Commitment
Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A., New York Branch 245 Park Avenue 37th Floor New York, NY 10167 Attn: Angela Reilly	$	150,000,000
Landesbank Baden-Württemberg, New York Branch 280 Park Avenue West Building, 31st Floor New York, NY 10017 Attn: Robert O’Brien	$	75,000,000
Landesbank Hessen-Thüringen Girozentrale, New York Branch 420 Fifth Avenue New York, NY 10018 Attn: John Sarno	$	75,000,000
Deutsche Bank AG, New York Branch 31 West 52nd Street New York, NY 10019 Attn: Clinton Johnson / Ruth Leung	$	70,000,000
The Bank of New York One Wall Street New York, NY 10286 Attn: David Trick	$	65,000,000
Bayerische Landesbank, New York Branch 560 Lexington Avenue New York, NY 10022 Attn: Robert Albano	$	50,000,000

Name and Notice Address of Bank	Commitment
WestLB AG, New York Branch 1211 Avenue of the Americas New York, NY 10036 Attn: Lillian Lum	$	50,000,000
DekaBank Deutsche Girozentrale Taunusanlage 10 D-60329 Frankfurt am Main Frankfurt, Germany Attn: Stephan Wagner	$	35,000,000
KeyBank National Association 127 Public Square, OH-01-27-0606 Cleveland, OH 44114 Attn: Mary K. Young	$	35,000,000
Barclays Bank PLC, New York Branch 200 Park Avenue New York, NY 10166 Attn: Alison Mcguigan	$	25,000,000
KBC Bank, N.V. 125 West 55th Street New York, NY 10019 Attn: Edward Eijlers	$	25,000,000
Norddeutsche Landesbank Girozentrale, New York Branch 1114 Avenue of the Americas 37th Floor New York, NY 10017 Attn: Georg Peters	$	18,000,000
The Bank of Nova Scotia One Liberty Plaza New York, NY 10006 Attn: David Schwartzbard	$	17,000,000
Fleet National Bank 777 Main Street CT MO 0250 Hartford, CT 06115 Attn: George Urbans	$	10,000,000
TOTAL:	$	700,000,000

(ii)

EXHIBIT A

TO FIRST AMENDMENT

Form of Opinion of General Counsel of MBIA

                                October 31, 2003

Each of the Banks which are parties to the Credit Agreement referred to herein

c/o Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A.

    (“Rabobank Nederland”), New York Branch

    as Administrative Agent

245 Park Avenue

New York, New York 10167-0062

Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A.

    (“Rabobank Nederland”), New York Branch,

    as Administrative Agent

245 Park Avenue

New York, New York 10167-0062

Deutsche Bank AG, New York Branch,

    as Documentation Agent

31 West 52nd Street

New York, NY 10019

Re: First Amendment, dated as of October 31, 2003, to Third Amended and Restated Credit Agreement, dated as of October 31, 2002, with MBIA Insurance Corporation

Ladies and Gentlemen:

I am [Assistant] General Counsel of MBIA Insurance Corporation, a New York stock insurance corporation (“MBIA”). This opinion is being given in connection with the First Amendment, dated as of October 31, 2003 (the “Amendment”), to the Third Amended and Restated Credit Agreement dated as of October 31, 2002 (as amended by the Amendment, the “Credit Agreement”) among MBIA, Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. “Rabobank Nederland”, New York Branch, as Administrative Agent and as a Bank, Deutsche Bank AG, New York Branch, as Documentation Agent and as a Bank, and the other Banks signatory thereto. All capitalized terms used herein and not otherwise defined shall have the respective meanings assigned thereto in the Credit Agreement.

A-1

As [Assistant] General Counsel to MBIA, I am familiar with its Restated Charter and its By-Laws, as amended to date, and I have responsibility for supervision of MBIA’s insurance regulatory compliance. I have examined such certificates of public officials, such certificates of officers of MBIA and copies certified to my satisfaction of such corporate documents and records of MBIA and of such other papers as I have deemed relevant and necessary for the opinions set forth below. In all such examinations, I have assumed the genuineness of all signatures, the authority to sign and the authenticity of all documents submitted to me as originals. I have also assumed the conformity with the originals of all documents submitted to me as copies. I have relied upon certificates of public officials and of officers of MBIA with respect to the accuracy of factual matters contained therein which were not independently established.

Based upon the foregoing, it is my opinion that:

1. MBIA is a stock insurance corporation duly incorporated and validly existing in good standing under the laws of the State of New York and has the corporate power and all requisite licenses and franchises required to carry on its insurance and other business, as now being conducted in the State of New York and in each other jurisdiction where the nature of the business transacted by it makes such qualification necessary, except any jurisdiction other than the State of New York where failure to so qualify would not have a material adverse effect on the business, assets, operations or financial condition of MBIA or the ability of MBIA to perform its obligations under the Amendment, the Credit Agreement and the additional Notes dated October 31, 2003 being issued to certain parties (the “Transaction Documents”).

2. The execution, delivery and performance of the Transaction Documents are within the corporate powers of MBIA, have been duly authorized by all necessary corporate action and do not (i) violate any provision of the Restated Charter or By-Laws of MBIA, (ii) violate any provision of law, rule, regulation (including without limitation, the New York Insurance Law, the Investment Company Act of 1940, as amended, or Regulations T, U or X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to MBIA the violation of which would affect the validity or enforceability of any of the Transaction Documents or the ability of MBIA to perform its obligations under the Transaction Documents, (iii) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which MBIA is a party or by which it or its properties may be bound or affected or (iv) result in, or require, the creation or imposition of any Lien upon or with respect to any of the properties now owned or hereafter acquired by MBIA (other than as contemplated by the Loan Documents), other than, in the case of clauses (iii) and (iv), breaches, defaults or Liens which could not materially and adversely affect the business, assets, operations or financial condition of MBIA or the ability of MBIA to perform its obligations under the Transaction Documents.

3. To the best of my knowledge, no consent, approval or other action by, or any notice to or filing with, any court or administrative or governmental body is required in connection with the execution, delivery or performance by MBIA of the Transaction Documents.

A-2

4. To the best of my knowledge, there is no action, suit, proceeding or investigation before or by any court, arbitrator or administrative or governmental body pending or threatened against MBIA, wherein an adverse decision, ruling or finding would materially and adversely affect (i) the business, assets, operations or financial condition of MBIA, (ii) the transactions contemplated by the Credit Agreement or (iii) the validity or enforceability of the Transaction Documents.

5. To the best of my knowledge, MBIA is not in violation of any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to MBIA or of the Restated Charter or By-Laws of MBIA, or in default under any material indenture, agreement, lease or instrument to which it is a party or by which it or any of its properties may be subject or bound, where such violation or default may result in a material adverse effect on the business, assets, operations or financial condition of MBIA or on its ability to perform its obligations under the Transaction Documents.

6. To the best of my knowledge, MBIA is in compliance with the New York Insurance Law and the regulations of the Department thereunder and with all other applicable federal state and other laws, rules and regulations relating to its insurance and other business, except with respect to failures, if any, to comply which singly or in the aggregate do not have a material adverse effect on the business, assets, operations or financial condition of MBIA or the ability of MBIA to perform its obligations under any of the Transaction Documents.

7. All of the issued and outstanding capital stock of MBIA is owned beneficially and of record by MBIA Inc., subject to no Liens. There are no options or similar rights of any Person to acquire any such capital stock or any other capital stock of MBIA.

This opinion is being furnished to you and your participants in connection with the execution of the Credit Agreement, and it is not to be used, circulated, quoted or otherwise referred to for any purpose without my express written consent.

Very truly yours,

[Assistant] General Counsel

A-3

EXHIBIT B

TO FIRST AMENDMENT

Form of Opinion of Kutak Rock

                                October 31, 2003

Each of the Banks which are

    parties to the Credit Agreement

    referred to herein

c/o Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A.

    (“Rabobank Nederland”), New York Branch

    as Administrative Agent

245 Park Avenue

New York, New York 10167-0062

Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A.

    (“Rabobank Nederland”), New York Branch,

    as Administrative Agent

245 Park Avenue

New York, New York 10167-0062

Deutsche Bank AG, New York Branch,

    as Documentation Agent

31 West 52nd Street

New York, NY 10019

Re: First Amendment, dated as of October 31, 2003, to Third Amended and Restated Credit Agreement, dated as of October 31, 2002, with MBIA Insurance Corporation

Ladies and Gentlemen:

This opinion is furnished to you in connection with the First Amendment, dated as of October 31, 2003 (the “Amendment”), to the Third Amended and Restated Credit Agreement dated as of October 31, 2002 (as amended by the Amendment, the “Credit Agreement”) among MBIA Insurance Corporation, a New York stock insurance corporation (“MBIA”), Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. “Rabobank Nederland”, New York Branch, as Administrative Agent and as a Bank, Deutsche Bank AG, New York Branch, as Documentation Agent and as a Bank, and the other Banks signatory thereto. All capitalized terms used herein and not otherwise defined have the meanings assigned thereto in the Credit Agreement. As used herein, “Transaction Documents” means the Amendment, the Credit Agreement and the additional Note dated October 31, 2003 being issued to a certain party.

B-1

We have acted as special counsel to MBIA in connection with the execution and delivery of the Transaction Documents. In this connection, we have examined the Transaction Documents and such certificates of public officials, such certificates of officers of MBIA, and copies certified to our satisfaction of such corporate documents and records of MBIA, and such other documents as we have deemed necessary or appropriate for the opinions set forth below. We have relied upon such certificates of public officials and of officers of MBIA with respect to the accuracy of factual matters contained therein which were not independently established.

We have also assumed (i) the due execution and delivery, pursuant to due authorization, of each document referred to in the immediately preceding paragraph by all parties other than MBIA to such document, (ii) the authenticity of all such documents submitted to us as originals, (iii) the genuineness of all signatures and (iv) the conformity to the originals of all such documents submitted to us as copies.

Based upon the foregoing and upon such investigation as we have deemed necessary, we are of the opinion that:

1. MBIA is a stock insurance corporation, duly incorporated and validly existing under the laws of the State of New York, and is licensed and authorized to carry on its business under the laws of the State of New York.

2. Each Transaction Document has been duly executed and is a valid and binding obligation of MBIA enforceable in accordance with its terms, except that such enforceability may be limited by laws relating to bankruptcy, insolvency, reorganization, moratorium, receivership and other similar laws affecting creditors’ rights generally and by general principles of equity and the enforceability as to rights to indemnity thereunder as may be subject to limitations of public policy.

3. The execution, delivery and performance of the Transaction Documents do not (a) violate any provision of the Restated Charter or Bylaws of MBIA or (b) violate any provision of law (including without limitation the New York Insurance Law or the Investment Company Act of 1940, as amended) or, to the best of our knowledge, any rule or regulation (including without limitation Regulation T, U or X of the Board of Governors of the Federal Reserve System) presently in effect having applicability to MBIA the violation of which would (i) affect the validity or enforceability of any Transaction Document or the ability of MBIA to perform its obligations thereunder, (ii) adversely affect the Banks or their rights under any Transaction Document or (iii) materially adversely affect the business, assets, operations or financial condition of MBIA.

4. To the best of our knowledge, no consent, approval or other action by or any notice to or filing with any court or administrative or governmental body is required in connection with the execution, delivery or performance by MBIA of the Transaction Documents. No consent, approval or other action by or any notice to or filing with the Department is required in connection with the execution, delivery or performance by MBIA of the Transaction Documents.

B-2

5. Except with respect to MBIA’s obligations to pay the principal of and interest on the Loans, the obligations of MBIA under the Transaction Documents will rank, under the New York Insurance Law, at least pari passu in priority of payment with all other unsecured obligations of MBIA, including without limitation MBIA’s obligation to pay claims under Insurance Contracts under the New York Insurance Law, subject, however, to statutory priorities granted to certain claims under Sections 7426 and 7435 of the New York Insurance Law.

6. The effectiveness of the Transaction Documents does not adversely affect the opinions set forth in paragraphs 6 and 7 of our opinion dated December 23, 2002, delivered in connection with the Third Amended and Restated Credit Agreement, dated as of such date, with respect to the Security Interest (as defined in such opinion) and the collateral assignment of Collateral referred to therein. No filings under the UCC are required to perfect or to continue the perfection of the Security Interest (except for the financing statements described in our December 23, 2002 opinion and subject to the matters described in the paragraph following paragraph 7 of such opinion) in favor of the Collateral Agent for the benefit of the Banks in all of MBIA’s right, title and interest in and to the Collateral, to the extent that the Security Interest can be perfected by the filing of financing statements under the UCC.

In rendering the opinions expressed herein, we express no opinion as to the laws of any jurisdiction other than the State of New York and the federal laws of the United States of America.

This opinion is being furnished to you and your participants solely in connection with the execution of the Amendment, and it is not to be used, circulated, quoted or otherwise referred to for any purpose without our express written consent.

Very truly yours,

B-3

EX-10.14

CONFORMED AS EXECUTED

EXHIBIT 10.14

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

among

MBIA INC.,

MBIA INSURANCE CORPORATION,

VARIOUS DESIGNATED BORROWERS,

VARIOUS LENDING INSTITUTIONS,

KEYBANK NATIONAL ASSOCIATION,

AS SYNDICATION AGENT,

THE BANK OF NEW YORK,

AS DOCUMENTATION AGENT

AND

BARCLAYS BANK PLC,

AS ADMINISTRATIVE AGENT

AND LEAD ARRANGER

Dated as of August 28, 1998

and

amended and restated as of April 19, 2002

and

further amended and restated as of April 16, 2003

$225,000,000

TABLE OF CONTENTS

	Page
SECTION 1. Amount and Terms of Credit	1
1.01 Commitment	1
1.02 Minimum Borrowing Amounts, etc.	2
1.03 Notice of Borrowing	2
1.04 Competitive Bid Borrowings	3
1.05 Disbursement of Funds	5
1.06 Notes	5
1.07 Conversions	6
1.08 Pro Rata Borrowings, etc.	6
1.09 Interest	6
1.10 Interest Periods	8
1.11 Increased Costs, Illegality, etc.	9
1.12 Compensation	11
1.13 Change of Lending Office	11
1.14 Replacement of Lenders	12
1.15 Recommitment; Replacement of Non-Continuing Lender	12
1.16 Additional Commitments	13
1.17 Designated Borrowers	14
1.18 Retroactivity	14
SECTION 2. Fees; Commitments	15
2.01 Fees	15
2.02 Voluntary Reduction of Commitments	15
2.03 Mandatory Reduction of Commitments	15
SECTION 3. Payments	15
3.01 Voluntary Prepayments	15
3.02 Mandatory Prepayments and Repayments	16
3.03 Method and Place of Payment	17
3.04 Net Payments	17
SECTION 4. Conditions Precedent	20
4.01 Conditions Precedent to the Second Restatement Effective Date	20
4.02 Conditions Precedent to Loans	21
SECTION 5. Representations, Warranties and Agreements	22
5.01 Corporate Existence and Power	22
5.02 Corporate and Governmental Authorization; No Contravention	22
5.03 Binding Effect	22
5.04 Financial Information	23

(i)

Table of Contents (continued)

	Page
5.05 Litigation	23
5.06 Compliance with ERISA	23
5.07 Taxes	23
5.08 Subsidiaries	23
5.09 Not an Investment Company	24
5.10 Public Utility Holding Company Act	24
5.11 Ownership of Property; Liens	24
5.12 No Default	24
5.13 Full Disclosure	24
5.14 Compliance with Laws	24
5.15 Capital Stock	24
5.16 Margin Stock	24
5.17 Insolvency	24
5.18 Ranking	25
SECTION 6. Affirmative Covenants	25
6.01 Information Covenants	25
6.02 Books, Records and Inspections	27
6.03 Maintenance of Existence	27
6.04 Compliance with Laws; Payment of Taxes	27
6.05 Insurance	27
6.06 Maintenance of Property	27
SECTION 7. Negative Covenants	27
7.01 Liens	28
7.02 Dissolution	28
7.03 Consolidations, Mergers and Sales of Assets	28
7.04 Use of Proceeds	28
7.05 Change in Fiscal Year	28
7.06 Transactions with Affiliates	29
7.07 Leverage Ratio	29
7.08 Minimum Net Worth	29
SECTION 8. Defaults	29
8.01 Events of Default	29
8.02 Notice of Default	31
SECTION 9. Definitions	32
SECTION 10. Agents, etc.	45
10.01 Appointment	45
10.02 Nature of Duties	46
10.03 Lack of Reliance on the Agents	46
10.04 Certain Rights of the Agents	46
10.05 Reliance	47

(ii)

Table of Contents (continued)

	Page
10.06 Indemnification	47
10.07 The Agents in Their Individual Capacities	47
10.08 Holders	47
10.09 Resignation by an Agent	47
10.10 Syndication Agent; Documentation Agent	48
SECTION 11. Miscellaneous	48
11.01 Payment of Expenses, etc.	48
11.02 Lender Enforceability Opinions	49
11.03 Notices	49
11.04 Benefit of Agreement	49
11.05 No Waiver; Remedies Cumulative	51
11.06 Payments Pro Rata	51
11.07 Calculations; Computations	51
11.08 Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial	52
11.09 Counterparts	53
11.10 Headings Descriptive	53
11.11 Amendment or Waiver	53
11.12 Survival	53
11.13 Domicile of Loans	53
11.14 Confidentiality	53
11.15 Lender Register	54
11.16 Judgment Currency	54
11.17 Euro	55

ANNEX I	—	Commitments
ANNEX II	—	Lender Addresses
ANNEX III	—	Subsidiaries
ANNEX IV	—	Calculation of Associated Cost Rate for Revolving Loans and Competitive Bid Loans
EXHIBIT A-1	—	Form of Notice of Borrowing
EXHIBIT A-2	—	Form of Notice of Competitive Bid Borrowing
EXHIBIT B-1	—	Form of Revolving Note
EXHIBIT B-2	—	Form of Competitive Bid Note
EXHIBIT C	—	Form of Section 3.04 Certificate
EXHIBIT D	—	Opinion of General Counsel to Borrowers
EXHIBIT E	—	Form of Officers’ Certificate
EXHIBIT F	—	Form of Financial Guaranty Insurance Policy
EXHIBIT G	—	Form of Assignment Agreement
EXHIBIT H	—	Form of Commitment Assumption Agreement
EXHIBIT I	—	Form of DB Assumption Agreement
EXHIBIT J	—	Form of Lender’s Opinions
EXHIBIT K	—	Form of Opinion of Designated Borrower’s Counsel
EXHIBIT L	—	Form of Opinion of Counsel to Corp.

(iii)

SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of August 28, 1998 and amended and restated, as of April 19, 2002 and further amended and restated as of April 16, 2003 among MBIA INC. (“Parent”), a Connecticut corporation, MBIA INSURANCE CORPORATION (“Corp.”), a New York stock insurance corporation, one or more Designated Borrowers (as hereinafter defined) from time to time party hereto, the lenders from time to time party hereto (each, a “Lender” and, collectively, the “Lenders”), BARCLAYS BANK PLC, as Administrative Agent (in such capacity, together with any successor Administrative Agent, the “Administrative Agent”), KEYBANK NATIONAL ASSOCIATION, as Syndication Agent (in such capacity, together with any successor Syndication Agent, the “Syndication Agent”) and THE BANK OF NEW YORK, as Documentation Agent (in such capacity, together with any successor Documentation Agent, the “Documentation Agent”). Unless otherwise defined herein, all capitalized terms used herein and defined in Section 9 are used herein as so defined.

W I T N E S S E T H:

WHEREAS, the Borrowers, the Existing Lenders and the Administrative Agent have entered into a Credit Agreement, dated as of August 28, 1998 and amended and restated as of April 19, 2002 (as the same has been amended, modified or supplemented to, but not including, the Second Restatement Effective Date, the “Existing Credit Agreement”); and

WHEREAS, the parties hereto wish to further amend and restate the Existing Credit Agreement in the form of this Agreement and make available to the Borrowers the respective credit facilities provided for herein;

NOW, THEREFORE, the parties hereto agree that the Existing Credit Agreement shall be and is hereby amended and restated in its entirety as follows:

SECTION 1. Amount and Terms of Credit.

1.01 Commitment. (a) Subject to and upon the terms and conditions set forth herein, each Lender severally agrees to make, at any time and from time to time on and after the Second Restatement Effective Date and prior to the Final Maturity Date, one or more additional loans (the “Revolving Loans” and each a “Revolving Loan”) to one or more of the Borrowers (on a several basis), which Revolving Loans: (i) may be made and maintained in such Approved Currency as is requested by the applicable Borrower (except in the case of Base Rate Loans, which shall only be Dollar-denominated); (ii) may be repaid and reborrowed in accordance with the provisions hereof; (iii) except as hereinafter provided, may, at the option of any Borrower, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that all Revolving Loans made as part of the same Borrowing shall, unless otherwise specified herein, consist of Revolving Loans of the same Type; and (iv) shall not exceed in aggregate Principal Amount, after adding thereto the sum of (I) the aggregate Principal Amount of all other Revolving Loans then outstanding and (II) the aggregate Principal Amount of all Competitive Bid Loans then outstanding, the Total Commitment at such time.

(b) Subject to and upon the terms and conditions set forth herein, (I) on the Second Restatement Effective Date, the Existing Competitive Bid Loans made by each Existing

-1-

Lender to any Borrower pursuant to the Existing Credit Agreement and outstanding on the Second Restatement Effective Date (immediately prior to giving effect thereto) shall be continued, and shall remain outstanding, as Borrowings of Loans hereunder to such Borrower and (II) each Lender severally agrees that one or more Borrowers may, at any time and from time to time on and after the Second Restatement Effective Date and prior to the Final Maturity Date, (on a several basis) incur a loan or loans (together with the Existing Competitive Bid Loans continued pursuant to clause (I) above, the “Competitive Bid Loans” and each, a “Competitive Bid Loan”) from one or more Bidder Lenders pursuant to a Competitive Bid Borrowing at any time and from time to time on and after the Second Restatement Effective Date and prior to the date which is the third Business Day preceding the date which is seven days prior to the Final Maturity Date, provided that after giving effect to any Competitive Bid Borrowing and the use of the proceeds thereof, the aggregate outstanding Principal Amount of Competitive Bid Loans, when combined with the then aggregate outstanding Principal Amount of all Revolving Loans, shall not exceed the Total Commitment at such time.

1.02 Minimum Borrowing Amounts, etc. The aggregate Principal Amount of each Borrowing shall not be less than the Minimum Borrowing Amount. More than one Borrowing may be incurred on any day, provided that at no time shall there be outstanding more than six Borrowings of Eurodollar Loans.

1.03 Notice of Borrowing. (a) Whenever a Borrower desires to incur Revolving Loans, it shall give the Administrative Agent at its Notice Office, (x) prior to 3:00 P.M. (New York time) at least three Business Days’ prior written notice (or telephonic notice promptly confirmed in writing) of each Borrowing of Eurodollar Loans in Dollars, (y) prior to 11:00 A.M. (New York time) at least three Business Days’ prior written notice (or telephonic notice promptly confirmed in writing) of each Borrowing of Eurodollar Loans constituting Alternate Currency Loans and (z) written notice (or telephonic notice promptly confirmed in writing) prior to 12:00 P.M. (New York time) on the date of each Borrowing of Base Rate Loans. Each such notice (each, a “Notice of Borrowing”) shall be in the form of Exhibit A-1 and shall be irrevocable and shall specify (i) the identity of the applicable Borrower, (ii) in the case of Alternate Currency Loans, the Approved Currency for such Loans, (iii) the aggregate principal amount of the Revolving Loans to be made pursuant to such Borrowing (stated in the applicable Approved Currency), (iv) the date of Borrowing (which shall be a Business Day), (v) whether the respective Borrowing shall consist of Base Rate Loans or Eurodollar Loans, (vi) if Eurodollar Loans, the Interest Period to be initially applicable thereto and (vii) if DB Loans, the DB Loan Maturity Date to be applicable thereto. The Administrative Agent shall promptly give each Lender written notice (or telephonic notice promptly confirmed in writing) of each proposed Borrowing, of the portion thereof to be funded by such Lender and of the other matters covered by the Notice of Borrowing.

(b) Without in any way limiting the obligation of any Borrower to confirm in writing any telephonic notice permitted to be given hereunder, the Administrative Agent may prior to receipt of written confirmation act without liability upon the basis of such telephonic notice, believed by it in good faith to be from an Authorized Officer of such Borrower. In each such case, each Borrower hereby waives the right to dispute the Administrative Agent’s record of the terms of such telephonic notice absent manifest error.

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1.04 Competitive Bid Borrowings. (a) Whenever any Borrower desires to incur a Competitive Bid Borrowing (excluding Existing Competitive Bid Loans continued hereunder on the Second Restatement Effective Date), it shall deliver to the Administrative Agent, prior to 11:00 A.M. (New York time) (x) at least four Business Days prior to the date of such proposed Competitive Bid Borrowing, in the case of a Spread Borrowing, and (y) at least one Business Day prior to the date of such proposed Competitive Bid Borrowing, in the case of an Absolute Rate Borrowing which is Dollar-denominated, and at least three Business Days prior to the date of such proposed Competitive Bid Borrowing, in the case of an Absolute Rate Borrowing which is an Alternate Currency Loan, a written notice substantially in the form of Exhibit A-2 hereto (a “Notice of Competitive Bid Borrowing”), which notice shall specify in each case (i) the identity of the applicable Borrower, (ii) the date (which shall be a Business Day) and the aggregate amount of the proposed Competitive Bid Borrowing, (iii) the maturity date for repayment of each and every Competitive Bid Loan to be made as part of such Competitive Bid Borrowing (which maturity date may be (A) up to six months after the date of such Competitive Bid Borrowing in the case of a Spread Borrowing and (B) no fewer than seven days and no more than 180 days after the date of such Competitive Bid Borrowing in the case of an Absolute Rate Borrowing, provided that in no event shall the maturity date of any Competitive Bid Borrowing be later than the third Business Day preceding the Final Maturity Date), (iv) the interest payment date or dates relating thereto, (v) whether the proposed Competitive Bid Borrowing is to be an Absolute Rate Borrowing or a Spread Borrowing, (vi) in the case of an Alternate Currency Loan, the Alternate Currency for such Competitive Bid Borrowing, and (vii) any other terms to be applicable to such Competitive Bid Borrowing. The Administrative Agent shall promptly notify each Bidder Lender by telephone or facsimile of each such request for a Competitive Bid Borrowing received by it from a Borrower and of the contents of the related Notice of Competitive Bid Borrowing.

(b) Each Bidder Lender shall, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more Competitive Bid Loans to the applicable Borrower as part of such proposed Competitive Bid Borrowing at a rate or rates of interest specified by such Bidder Lender in its sole discretion and determined by such Bidder Lender independently of each other Bidder Lender, by notifying the Administrative Agent (which shall give prompt notice thereof to such Borrower by facsimile), before 9:30 A.M. (New York time) on the date (the “Reply Date”) which is (x) in the case of an Absolute Rate Borrowing which is Dollar-denominated, the date of such proposed Competitive Bid Borrowing and in the case of an Absolute Rate Borrowing which is an Alternate Currency Loan, two Business Days before the date of such Competitive Bid Borrowing and (y) in the case of a Spread Borrowing, three Business Days before the date of such proposed Competitive Bid Borrowing, of the minimum amount and maximum amount of each Competitive Bid Loan which such Bidder Lender would be willing to make as part of such proposed Competitive Bid Borrowing (which amounts may, subject to the proviso contained in Section 1.01(b), exceed such Bidder Lender’s Commitment), the rate or rates of interest therefor and such Bidder Lender’s lending office with respect to such Competitive Bid Loan; provided that if the Administrative Agent in its capacity as a Bidder Lender shall, in its sole discretion, elect to make any such offer, it shall notify the respective Borrower of such offer before 9:15 A.M. (New York time) on the Reply Date. If any Bidder Lender shall elect not to make such an offer, such Bidder Lender shall so notify the Administrative Agent, before 9:30 A.M. (New York time) on the Reply Date, and such Bidder Lender shall not be obligated to, and shall not, make any Competitive Bid Loan as part of such Competitive Bid Borrowing; provided that the failure by any Bidder Lender to give such notice shall not cause such Bidder Lender to be obligated to make any Competitive Bid Loan as part of such proposed Competitive Bid Borrowing.

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(c) The applicable Borrower shall, in turn, before 10:30 A.M. (New York time) on the Reply Date, either:

(i) cancel such Competitive Bid Borrowing by giving the Administrative Agent notice to such effect (it being understood and agreed that if such Borrower gives no such notice of cancellation and no notice of acceptance pursuant to clause (ii) below, then such Borrower shall be deemed to have canceled such Competitive Bid Borrowing), or

(ii) accept one or more of the offers made by any Bidder Lender or Bidder Lenders pursuant to clause (b) above by giving notice (in writing or by telephone confirmed in writing) to the Administrative Agent of the amount of each Competitive Bid Loan (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to the applicable Borrower by the Administrative Agent on behalf of such Bidder Lender for such Competitive Bid Borrowing pursuant to clause (b) above) to be made by each Bidder Lender as part of such Competitive Bid Borrowing, and reject any remaining offers made by Bidder Lenders pursuant to clause (b) above by giving the Administrative Agent notice to that effect; provided that the acceptance of offers may only be made on the basis of ascending Absolute Rates (in the case of an Absolute Rate Borrowing) or Spreads (in the case of a Spread Borrowing), in each case commencing with the lowest rate so offered; provided further, however, that if offers are made by two or more Bidder Lenders at the same rate and acceptance of all such equal offers would result in a greater principal amount of Competitive Bid Loans being accepted than the aggregate principal amount requested by the applicable Borrower, if such Borrower elects to accept any such offers such Borrower shall accept such offers pro rata from such Bidder Lenders (on the basis of the maximum amounts of such offers) unless any such Bidder Lender’s pro rata share would be less than the minimum amount specified by such Bidder Lender in its offer, in which case such Borrower shall have the right to accept one or more such equal offers in their entirety and reject the other equal offer or offers or to allocate acceptance among all such equal offers (but giving effect to the minimum and maximum amounts specified for each such offer pursuant to clause (b) above), as such Borrower may elect in its sole discretion.

(d) If the applicable Borrower notifies the Administrative Agent that such Competitive Bid Borrowing is deemed canceled, pursuant to clause (c)(i) above, the Administrative Agent shall give prompt notice thereof to the Bidder Lenders and such Competitive Bid Borrowing shall not be made.

(e) If the applicable Borrower accepts one or more of the offers made by any Bidder Lender or Bidder Lenders pursuant to clause (c) (ii) above, the Administrative Agent shall in turn promptly notify (x) each Bidder Lender that has made an offer as described in clause (b) above, of the date and aggregate amount of such Competitive Bid Borrowing and whether or not any offer or offers made by such Bidder Lender pursuant to clause (b) above have

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been accepted by the Borrower and (y) each Bidder Lender that is to make a Competitive Bid Loan as part of such Competitive Bid Borrowing, of the amount of each Competitive Bid Loan to be made by such Bidder Lender as part of such Competitive Bid Borrowing.

1.05 Disbursement of Funds. (a) No later than 12:00 Noon (New York time) (or 3:00 P.M. (New York time) in the case of (x) a Borrowing of Base Rate Loans for which a Notice of Borrowing was given on the date of such Borrowing and (y) a Competitive Bid Borrowing) on the date specified in each Notice of Borrowing or Notice of Competitive Bid Borrowing, each Lender will make available its pro rata share, if any, of such Borrowing requested to be made on such date. All such amounts shall be made available to the Administrative Agent in the relevant Approved Currency or Other Alternate Currency, as the case may be, and immediately available funds at the Payment Office of the Administrative Agent and the Administrative Agent will promptly make available to the applicable Borrower by depositing to the account designated by such Borrower, which account shall be at an institution in the same city as the respective Payment Office, the aggregate of the amounts so made available in the type of funds received. Unless the Administrative Agent shall have been notified by any Lender participating in a Borrowing prior to the date of such Borrowing that such Lender does not intend to make available to the Administrative Agent its portion of the Borrowing or Borrowings to be made on such date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date of Borrowing, and the Administrative Agent, in reliance upon such assumption, may (in its sole discretion and without any obligation to do so) make available to the applicable Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender and the Administrative Agent has made available same to the applicable Borrower, the Administrative Agent shall be entitled to recover such corresponding amount from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent’s demand therefor, the Administrative Agent shall promptly notify the applicable Borrower, and such Borrower shall pay such corresponding amount to the Administrative Agent within three Business Days of receipt of such notice unless previously paid by such Lender. The Administrative Agent shall also be entitled to recover on demand from such Lender or such Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to such Borrower to the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to (x) if paid by such Lender, the overnight Federal Funds Effective Rate or (y) if paid by such Borrower, the then applicable rate of interest, calculated in accordance with Section 1.09, for the respective Loans.

(b) Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its commitments hereunder or to prejudice any rights which any Borrower may have against any Lender as a result of any default by such Lender hereunder.

1.06 Notes. (a) Each Borrower’s obligation to pay the principal of, and interest on, the Loans made to it by each Lender shall be evidenced (i) if Revolving Loans, by a promissory note substantially in the form of Exhibit B-1 with blanks appropriately completed (each, a “Revolving Note” and, collectively, the “Revolving Notes”) and (ii) if Competitive Bid Loans, by a promissory note substantially in the form of Exhibit B-2 with blanks appropriately completed (each a “Competitive Bid Note” and, collectively, the “Competitive Bid Notes”).

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(b) Each Lender will note on its internal records the amount of each Loan made by it and each payment in respect thereof and will, prior to any transfer of any of its Notes, endorse on the reverse side thereof the outstanding Principal Amount of Loans evidenced thereby. Failure to make any such notation shall not affect a Borrower’s obligations in respect of such Loans.

1.07 Conversions. Each Borrower shall have the option to convert on any Business Day occurring on or after the Second Restatement Effective Date, all or a portion at least equal to the applicable Minimum Borrowing Amount of its Revolving Loans denominated in a single Approved Currency and constituting Base Rate Loans or Eurodollar Loans into a Borrowing or Borrowings of Revolving Loans denominated in such Approved Currency and constituting Eurodollar Loans or Base Rate Loans, respectively, provided that (i) Eurodollar Loans denominated in a currency other than Dollars may not be converted into Base Rate Loans, (ii) no partial conversion shall reduce the outstanding principal amount of the Eurodollar Loans made pursuant to a Borrowing to less than the Minimum Borrowing Amount applicable thereto, (iii) Base Rate Loans may not be converted into Eurodollar Loans when a Default or Event of Default is then in existence if the Administrative Agent or the Required Lenders shall have determined in its or their sole discretion not to permit such conversion and (iv) Borrowings of Eurodollar Loans resulting from this Section 1.07 shall be limited in number as provided in Section 1.02. Each such conversion shall be effected by the respective Borrower giving the Administrative Agent at the Notice Office, prior to 12:00 Noon (New York time), at least three Business Days’ (or one Business Day in the case of a conversion into Base Rate Loans) prior written notice (or telephonic notice promptly confirmed in writing) (each, a “Notice of Conversion”) specifying the Revolving Loans to be so converted, the Type of Loans (as to interest option) to be converted into and, if to be converted into a Borrowing of Eurodollar Loans, the Interest Period to be initially applicable thereto. The Administrative Agent shall give each Lender prompt notice of any such proposed conversion affecting any of its Loans.

1.08 Pro Rata Borrowings, etc. All Revolving Loans incurred pursuant to a Borrowing shall be made by the Lenders pro rata on the basis of their respective Commitments. It is understood that no Lender shall be responsible for any default by any other Lender in its obligation to make Revolving Loans hereunder, and that each Lender shall be obligated to make the Revolving Loans provided to be made by it hereunder, regardless of the failure of any other Lender to fulfill its commitments hereunder and regardless of whether such Lender has made any Competitive Bid Loans hereunder.

1.09 Interest. (a) The unpaid principal amount of each Base Rate Loan shall bear interest from the date of the Borrowing thereof until the earlier of (i) maturity (whether by acceleration or otherwise) and (ii) conversion of such Base Rate Loan to a Eurodollar Loan pursuant to Section 1.07, at a rate per annum which shall at all times be equal to the sum of the Base Rate plus the Applicable Margin, each as in effect from time to time.

(b) The unpaid principal amount of each Eurodollar Loan shall bear interest from the date of the Borrowing thereof until the earlier of (i) maturity (whether by acceleration or otherwise) and (ii) conversion of such Eurodollar Loan to a Base Rate Loan pursuant to Section 1.07, 1.10 or 1.11(b), as applicable, at a rate per annum which shall, during each Interest Period applicable thereto, be equal to the sum of the relevant LIBOR for such Interest Period, plus the Applicable Margin, as in effect from time to time.

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(c) The unpaid principal amount of each Competitive Bid Loan shall bear interest from the date of the Borrowing thereof until maturity (whether by acceleration or otherwise) at a rate or rates per annum specified by a Bidder Lender or Bidder Lenders, as the case may be, pursuant to Section 1.04(b) and accepted by the respective Borrower pursuant to Section 1.04(c).

(d) All overdue principal and, to the extent permitted by law, overdue interest in respect of each Loan shall bear interest at a rate per annum equal to the greater of (x) the rate which is 2% in excess of the rate borne by the respective Loans immediately prior to the respective payment default and (y) the rate which is 2% in excess of the rate otherwise applicable to Base Rate Loans, provided that principal in respect of Eurodollar Loans and Competitive Bid Loans shall bear interest from the date same becomes due (whether by acceleration or otherwise) until the end of the Interest Period applicable thereto at a rate per annum equal to 2% plus the rate of interest applicable on the due date therefor. Interest which accrues under this Section 1.09(d) shall be payable on demand.

(e) Interest shall accrue from and including the date of any Borrowing to but excluding the date of any repayment thereof, and in the case of DB Loans, compounded as described below, and shall be payable (i) in respect of each Base Rate Loan (other than a DB Loan), quarterly in arrears on the last Business Day of each March, June, September and December, (ii) in respect of each Eurodollar Loan (other than a DB Loan), on the last day of each Interest Period applicable thereto and, in the case of an Interest Period in excess of three months, on each date occurring at three month intervals after the first day of such Interest Period, (iii) in respect of each DB Loan, on the applicable DB Loan Maturity Date, (iv) in respect of each Competitive Bid Loan, at such times as specified in the Notice of Competitive Bid Borrowing relating thereto, and (v) in respect of each Loan, on any prepayment or conversion (other than the prepayment or conversion of any Base Rate Loan) (on the amount prepaid or converted), at maturity (whether by acceleration or otherwise) and, after such maturity, on demand. Interest on any Existing Competitive Bid Loans which accrued under the Existing Credit Agreement prior to the Second Restatement Effective Date, but which remains unpaid on such date (and which was not required to be paid on or prior to such date in accordance with the terms of the Existing Credit Agreement or this Agreement) shall be payable at the times otherwise provided above (but calculated at the respective rates provided in the Existing Credit Agreement for periods occurring prior to the Second Restatement Effective Date) for the interest involved, without any change on the Second Restatement Effective Date as to the Interest Periods then in effect. Notwithstanding anything to the contrary contained in this Agreement, although interest in respect of each DB Loan shall be payable only on the DB Loan Maturity Date for such DB Loan as provided in clause (iii) of the immediately preceding sentence, interest on each DB Loan shall compound on each date on which interest thereon would have been payable pursuant to clause (i) or (ii) of such sentence if such Loan were not a DB Loan and such compounded interest shall thereafter bear interest hereunder at the same rate per annum as the principal of the DB Loan to which such compounded interest relates.

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(f) All computations of interest hereunder shall be made in accordance with Section 11.07(b).

(g) The Administrative Agent, upon determining the interest rate for any Borrowing for any Interest Period, shall promptly notify the applicable Borrower and the Lenders thereof.

1.10 Interest Periods. (a) At the time a Borrower gives a Notice of Borrowing or a Notice of Conversion in respect of the making of, or conversion into, a Borrowing of Eurodollar Loans (in the case of the initial Interest Period applicable thereto) or prior to 12:00 Noon (New York Time) on the third Business Day prior to the expiration of an Interest Period applicable to a Borrowing of Eurodollar Loans, it shall have the right to elect by giving the Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of the Interest Period applicable to such Borrowing, which Interest Period shall, at the option of such Borrower, be a one, two, three or six month period or such other period available to all Lenders. Notwithstanding anything to the contrary contained above:

(i) the initial Interest Period for any Borrowing shall commence on the date of such Borrowing (including, where relevant, the date of any conversion from a Borrowing of Base Rate Loans) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires;

(ii) if any Interest Period begins on (x) the last Business Day of a month, it shall end on the last Business Day of the month in which it is to end and (y) a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month;

(iii) if any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, provided that if any Interest Period would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day;

(iv) no Interest Period may be elected that would extend beyond the Final Maturity Date;

(v) no Interest Period in respect of a DB Loan may be elected that would extend beyond the DB Loan Maturity Date for such DB Loan;

(vi) no Interest Period may be elected at any time when a Default or an Event of Default is then in existence if the Administrative Agent or the Required Lenders shall have determined in its or their sole discretion not to permit such election; and

(vii) all Eurodollar Loans comprising a Borrowing shall at all times have the same Interest Period.

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(b) If upon the expiration of any Interest Period, the applicable Borrower has failed to (or may not) elect a new Interest Period to be applicable to the Revolving Loans subject to the expiring Interest Period as provided above, such Borrower shall be deemed to have elected, in the case of Eurodollar Loans, to convert such Borrowing into a Borrowing of Base Rate Loans effective as of the expiration date of such current Interest Period, provided that if such Eurodollar Loans are denominated in a currency other than Dollars, then such Eurodollar Loans shall not convert to Base Rate Loans but shall instead be prepaid by the applicable Borrower on the last day of such Interest Period.

1.11 Increased Costs, Illegality, etc. (a) In the event that (x) in the case of clause (i) or (iv) below, the Administrative Agent or (y) in the case of clause (ii) or (iii) below, any Lender shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto):

(i) on any date for determining any LIBOR for any Interest Period that, by reason of any changes arising after the Original Effective Date affecting the relevant interbank market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of the respective LIBOR; or

(ii) at any time, that such Lender shall actually incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Eurodollar Loans or Competitive Bid Loans (other than any increased cost or reduction in the amount received or receivable resulting from the imposition of or a change in the rate of taxes or similar charges on, or determined by reference to, the net income or net profits of such Lender by the jurisdiction in which its principal office or applicable lending office is located) because of (x) any change since the Original Effective Date (or, in the case of any Competitive Bid Loan, since the making of such Competitive Bid Loan) in any applicable law, governmental rule, regulation, guideline or order (or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, guideline or order) (such as, for example, but not limited to, a change in official reserve requirements, but, in all events, excluding amounts payable pursuant to Section 1.11(c) and those included in determining any Associated Costs Rate) and/or (y) other circumstances occurring since the Original Effective Date affecting the relevant interbank market; or

(iii) at any time since the Original Effective Date, that the making or continuance of any Eurodollar Loans or Competitive Bid Loans has become unlawful by compliance by such Lender in good faith with any law, governmental rule, regulation or guideline, or has become impracticable as a result of a contingency occurring after the Original Effective Date which materially and adversely affects the relevant interbank market; or

(iv) at any time that any Alternate Currency is not available in sufficient amounts, as determined in good faith by the Administrative Agent, to fund any Borrowing of Loans denominated in such Alternate Currency;

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then, and in any such event, such Lender (or the Administrative Agent in the case of clause (i) or (iv) above) shall (x) on such date and (y) within ten Business Days of the date on which such event no longer exists give notice (by telephone confirmed in writing) to the respective Borrower and, except in the case of clause (i) or (iv) above, to the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each of the other Lenders). Thereafter and for so long as the applicable circumstance continues to exist (w) in the case of clause (i) above, Eurodollar Loans priced in respect of the affected LIBOR (and Competitive Bid Loans constituting a Spread Borrowing priced by reference to such LIBOR) shall no longer be available until such time as the Administrative Agent notifies the respective Borrower and the Lenders that the circumstances giving rise to such notice by the Administrative Agent no longer exist in accordance with clause (y) of the preceding sentence, and any Notice of Borrowing, Notice of Competitive Bid Borrowing or Notice of Conversion given by a Borrower with respect to such Loans which have not yet been incurred shall be deemed rescinded by the relevant Borrower, (x) in the case of clause (ii) above, the applicable Borrower shall pay to such Lender, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as shall be required to compensate such Lender for such increased costs or reductions in amounts receivable hereunder (a written notice as to the additional amounts owed to such Lender, showing the basis for the calculation thereof in reasonable detail, submitted to the applicable Borrower by such Lender shall, absent manifest error, be final and conclusive and binding upon all parties hereto), (y) in the case of clause (iii) above, the applicable Borrower shall take one of the actions specified in Section 1.11(b) as promptly as possible and, in any event, within the time period required by law and (z) in the case of clause (iv) above, Loans in the affected Alternate Currency shall no longer be available until such time as the Administrative Agent notifies the respective Borrower and the Lenders that the circumstances giving rise to such notice by the Administrative Agent no longer exist in accordance with clause (y) of the preceding sentence, and any Notice of Borrowing, Notice of Competitive Bid Borrowing or Notice of Conversion given by a Borrower with respect to such Alternate Currency Loans which have not yet been incurred shall be deemed rescinded by such Borrower.

(b) At any time when any Eurodollar Loan or Competitive Bid Loan is affected by the circumstances described in Section 1.11(a)(ii) or (iii), the applicable Borrower may (and in the case of a Eurodollar Loan or Competitive Bid Loan affected pursuant to Section 1.11(a)(iii), the applicable Borrower shall) either (i) if the affected Eurodollar Loan or Competitive Bid Loan is then being made pursuant to a Borrowing, cancel said Borrowing by giving the Administrative Agent telephonic notice (confirmed promptly in writing) thereof on the same date that the respective Borrower was notified by a Lender pursuant to Section 1.11(a)(ii) or (iii), or (ii) if the affected Eurodollar Loan or Competitive Bid Loan is then outstanding, upon at least three Business Days’ notice to the Administrative Agent, (A) in the case of a Eurodollar Loan denominated in Dollars, require the affected Lender to convert each such Eurodollar Loan into a Base Rate Loan, and (B) in the case of a Eurodollar Loan denominated in a Primary Alternate Currency and in the case of a Competitive Bid Loan, repay all such Eurodollar Loans or Competitive Bid Loans in full in accordance with the applicable requirements of Section 3.01, provided that if more than one Lender is affected at any time, then all affected Lenders must be treated the same pursuant to this Section 1.11(b).

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(c) If any Lender shall have determined that after the Original Effective Date, the adoption or effectiveness of any applicable law, rule or regulation regarding capital adequacy, or any change therein after the Original Effective Date, or any change after the Original Effective Date in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency adopted or effective after the Original Effective Date, has or would have the effect of reducing the rate of return on such Lender’s or such corporation’s capital or assets as a consequence of its commitments or obligations hereunder to a level below that which such Lender or such other corporation could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Lender’s or such other corporation’s policies with respect to capital adequacy), then from time to time, within 15 days after written demand by such Lender (with a copy to the Administrative Agent), the Borrowers jointly and severally agree to pay to such Lender such additional amount or amounts as will compensate such Lender or such other corporation for such reduction. In determining such additional amounts, each Lender will act reasonably and in good faith and will use averaging and attribution methods that are reasonable. Each Lender, upon so determining that any additional amounts will be payable pursuant to this Section 1.11(c), will give prompt written notice thereof to the Borrowers, which notice shall set forth in reasonable detail the basis of the calculation of such additional amounts, although the failure to give any such notice shall not release or diminish any Borrower’s obligations to pay additional amounts pursuant to this Section 1.11(c) upon the subsequent receipt of such notice.

1.12 Compensation. Each Borrower shall compensate each Lender, upon its written request (which request shall set forth the basis for requesting such compensation), for all reasonable losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Lender to fund any Eurodollar Loans or Competitive Bid Loans made, or to be made, by it to such Borrower but excluding in any event the loss of anticipated profits) which such Lender may actually sustain: (i) if for any reason (other than a default by such Lender or the Administrative Agent) a Borrowing of Eurodollar Loans or Competitive Bid Loans does not occur on a date specified therefor in a Notice of Borrowing, a Notice of Competitive Bid Borrowing or a Notice of Conversion, given by such Borrower (whether or not withdrawn by such Borrower or deemed withdrawn pursuant to Section 1.11(a)); (ii) if any prepayment, repayment or conversion of any such Eurodollar Loans or Competitive Bid Loans occurs on a date which is not the last day of an Interest Period applicable thereto; (iii) if any prepayment of any such Eurodollar Loans or Competitive Bid Loans is not made on any date specified in a notice of prepayment given by such Borrower; (iv) if such Lender is required pursuant to Section 1.14 to assign any such Eurodollar Loans or Competitive Bid Loans as of a date which is not the last day of an Interest Period applicable thereto; or (v) as a consequence of (x) any other default by such Borrower to repay its Eurodollar Loans or Competitive Bid Loans when required by the terms of this Agreement or (y) an election made pursuant to Section 1.11(b).

1.13 Change of Lending Office. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 1.11(a)(ii) or (iii), 1.11(c) or 3.04 with respect to such Lender, it will, if requested by the applicable Borrower, use reasonable efforts (subject to

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overall policy considerations of such Lender) to designate another lending office for any Loans or Commitments affected by such event, provided that such designation is made on such terms that such Lender and its lending office suffer no economic, legal or regulatory disadvantage, with the object of avoiding or materially mitigating the consequence of the event giving rise to the operation of any such Section. Nothing in this Section 1.13 shall affect or postpone any of the obligations of any Borrower or the right of any Lender provided in Section 1.11 or 3.04.

1.14 Replacement of Lenders. (a) Upon the occurrence of any event giving rise to the operation of Section 1.11(a)(ii) or (iii), Section 1.11(c) or Section 3.04 with respect to any Lender which results in such Lender charging to any Borrower increased costs in excess of those being generally charged by the other Lenders, (b) if a Lender becomes a Defaulting Lender, (c) if a Lender becomes a Non-Continuing Lender, (d) if a Lender fails to maintain a long-term debt rating of at least BBB- as determined by Standard & Poor’s Corporation and at least Baa3 as determined by Moody’s Investors Service, Inc., (e) if a Lender fails to deliver the opinion or opinions as required pursuant to Section 11.02 and/or (f) in the case of a refusal by a Lender to consent to a proposed change, waiver, discharge or termination with respect to this Agreement which has been approved by the Required Lenders, Parent and Corp. shall have the right, if no Default or Event of Default then exists, to replace such Lender (the “Replaced Lender”), upon prior written notice to the Administrative Agent and such Replaced Lender, with one or more Person or Persons, none of whom shall constitute a Defaulting Lender at the time of such replacement (collectively, the “Replacement Lenders” and, each a “Replacement Lender”) reasonably acceptable to the Administrative Agent, provided that (i) at the time of any replacement pursuant to this Section 1.14, the Replacement Lender and the Replaced Lender shall enter into one or more Assignment Agreements pursuant to Section 11.04(b) (and with all fees payable pursuant to said Section 11.04(b) to be paid by the Replacement Lender) pursuant to which each of the Replacement Lenders shall acquire all of the Commitments and outstanding Loans of the Replaced Lender and, in connection therewith, shall pay to the Replaced Lender in respect thereof an amount equal to the sum of (A) an amount equal to the principal amount of, and all accrued but unpaid interest on, all outstanding Loans of the Replaced Lender and (B) an amount equal to all accrued, but theretofore unpaid, Fees owing to the Replaced Lender pursuant to Section 2.01, and (ii) all obligations of the Borrowers under the Credit Documents owing to the Replaced Lender (other than those specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being, paid), including without limitation all amounts owing to the Replaced Lender under Section 1.12 as a result of the assignment of its Loans under clause (i) above, shall be paid in full to such Replaced Lender concurrently with such replacement. Upon the execution of the respective Assignment Agreements, the payment of amounts referred to in clauses (i) and (ii) above and, if so requested by the Replacement Lender, delivery to the Replacement Lender of the appropriate Note or Notes executed by the relevant Borrowers, the Replacement Lender shall become a Lender hereunder and the Replaced Lender shall cease to constitute a Lender hereunder, except with respect to indemnification provisions applicable to the Replaced Lender under this Agreement, which shall survive as to such Replaced Lender.

1.15 Recommitment; Replacement of Non-Continuing Lender. Parent and Corp. may, prior to (but not less than 60 days nor more than 120 days prior to) the Final Maturity Date then in effect (each such Final Maturity Date, a “Recommitment Deadline”), by written notice to the Administrative Agent (which notice the Administrative Agent shall promptly transmit to each

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Lender), request that the Final Maturity Date then in effect be extended. Such request shall be accompanied by a certificate of an Authorized Officer of Parent stating that no Default or Event of Default has occurred and is continuing. Each Lender shall respond to such request, as promptly as practicable, by written notice to Parent, Corp. and the Administrative Agent, with the failure of any Lender to respond prior to the Recommitment Deadline being deemed to be a negative response. In the event each Lender shall consent to such request of Parent and Corp., on such Recommitment Deadline, the Final Maturity Date shall be automatically extended to the date occurring 364 days following the Final Maturity Date then in effect. If any Lender shall fail to consent to such recommitment (any such Lender, a “Non-Continuing Lender”), Parent and Corp. shall be entitled at any time prior to the Recommitment Deadline with respect to such request to replace such Lender in accordance with the requirements of Section 1.14, and in the event that the Replacement Lender with respect to each such Non-Continuing Lender shall consent to such recommitment prior to such Recommitment Deadline, such recommitment shall be effective as described in the immediately preceding sentence as if each Lender had originally consented to such request. No Lender shall be obligated to grant any recommitments pursuant to this Section 1.15 and any such recommitment shall be in the sole discretion of each such Lender. The Administrative Agent shall notify Parent, Corp. and each Lender as to the effectiveness of any such recommitment.

1.16 Additional Commitments. At any time and from time to time on and after the Second Restatement Effective Date and prior to the Final Maturity Date, Parent and Corp. may request one or more Lenders or other lending institutions to increase its Commitment (in the case of an existing Lender) or assume a Commitment (in the case of any other lending institution) and, in the sole discretion of each such Lender or other institution, any such Lender or other institution may agree to so commit; provided that (i) no Default or Event of Default then exists, (ii) the increase in the Total Commitment pursuant to any such request shall be in an aggregate amount of at least $9,000,000 and (iii) the aggregate increase in the Total Commitment pursuant to this Section 1.16 shall not exceed $75,000,000. Parent, Corp. and each such Lender or other lending institution (each, an “Assuming Lender”) which agrees to increase its existing, or assume, a Commitment shall execute and deliver to the Administrative Agent a Commitment Assumption Agreement substantially in the form of Exhibit H (with the increase in, or in the case of a new Assuming Lender, assumption of, such Lender’s Commitment to be effective on the Business Day following delivery of such Commitment Assumption Agreement to the Administrative Agent). The Administrative Agent shall promptly notify each Lender as to the occurrence of each Commitment Assumption Date. On each Commitment Assumption Date, (x) Annex I shall be deemed modified to reflect the revised Commitments of the Lenders, (y) Parent and Corp. shall pay to each such Assuming Lender such up front fee (if any) as may have been agreed between Parent, Corp. and such Assuming Lender and (z) the Borrowers will issue new Notes to the Assuming Lenders in conformity with the requirements of Section 1.06. Notwithstanding anything to the contrary contained in this Agreement, in connection with any increase in the Total Commitment pursuant to this Section 1.16, each Borrower shall, in coordination with the Administrative Agent and the Lenders, repay outstanding Revolving Loans of certain Lenders and, if necessary, incur additional Revolving Loans from other Lenders, in each case so that such Lenders participate in each Borrowing of such Revolving Loans pro rata on the basis of their Commitments (after giving effect to any increase thereof). It is hereby agreed that any breakage costs of the type described in Section 1.12 incurred by the Lenders in connection with the repayment of Revolving Loans contemplated by this Section 1.16 shall be for the account of the respective Borrowers.

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1.17 Designated Borrowers. Parent or Corp. may from time to time designate one or more Persons as a Designated Borrower (each, a “Designated Borrower” and, collectively, the “Designated Borrowers”), subject to the following terms and conditions:

(a) each such Person shall be a special purpose entity organized under the laws of the United States of America, a state thereof or the District of Columbia;

(b) each such Person shall enter into an appropriately completed DB Assumption Agreement in the form of Exhibit I hereto on or prior to the date of designation;

(c) each such Person shall furnish to each Lender its most recent historic or pro forma financial statements (which financial statements may be summary in nature and unaudited) on or prior to the date of designation;

(d) at the time of such designation, such Person shall not be subject to any bankruptcy or insolvency proceeding of the type referred to in Section 8.01(h) or (i) and shall not be subject to any material litigation;

(e) on or prior to the date of designation, such Person shall execute and deliver to each Lender requesting the same, a Revolving Note and a Competitive Bid Note to evidence the DB Loans incurred by such Person;

(f) on or prior to the date of designation, the Administrative Agent shall have received from such Person a certificate, signed by an Authorized Officer of such Person in the form of Exhibit E with appropriate insertions or deletions, together with (x) copies of its certificate of incorporation, by-laws or other organizational documents and (y) the resolutions relating to the Credit Documents which shall be satisfactory to the Administrative Agent; and

(g) on or prior to the date of designation, the Administrative Agent shall have received an opinion, addressed to each Agent and each of the Lenders and dated the date of designation, from counsel to such Person which opinion shall be substantially in the form of Exhibit K hereto.

1.18 Retroactivity. Notwithstanding anything in this Agreement to the contrary, to the extent any notice required by Section 1.11 or 3.04 is given by any Lender more than 90 days after such Lender obtained knowledge of the occurrence of the event giving rise to the additional costs of the type described in such Section, such Lender shall not be entitled to compensation under Section 1.11 or 3.04 for any amounts incurred or accruing prior to the 90th day preceding the giving of such notice to the respective Borrower.

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SECTION 2. Fees; Commitments.

2.01 Fees. (a) Parent and Corp. jointly and severally agree to pay to the Administrative Agent a facility fee (the “Facility Fee”) for the account of the Lenders pro rata on the basis of their respective Commitments for the period from and including the Second Restatement Effective Date to but excluding the date the Total Commitment has been terminated computed at a rate per annum equal to the Applicable Margin on the Total Commitment as in effect from time to time. Accrued Facility Fees shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, on the Final Maturity Date or upon such earlier date as the Total Commitment shall be terminated and, with respect to any Facility Fee owing to any Lender whose Commitment is terminated pursuant to Section 1.14, on the date on which such Lender’s Commitment is terminated.

(b) Parent and Corp. jointly and severally agree to pay to the Administrative Agent, for the account of the Administrative Agent, when and as due, such fees as have been, or are from time to time, separately agreed upon.

(c) All computations of Fees shall be made in accordance with Section 11.07(b).

2.02 Voluntary Reduction of Commitments. Upon at least three Business Days’ prior written notice (or telephonic notice confirmed in writing) to the Administrative Agent at the Notice Office (which notice shall be deemed to be given on a certain day only if given before 12:00 Noon (New York time) on such day and shall be promptly transmitted by the Administrative Agent to each of the Lenders), Parent and/or Corp. shall have the right, without premium or penalty, to terminate or partially reduce the Total Unutilized Commitment, provided that (x) any such termination shall apply to proportionately and permanently reduce the Commitment of each Lender and (y) any partial reduction pursuant to this Section 2.02 shall be in the amount of at least $10,000,000.

2.03 Mandatory Reduction of Commitments. (a) The Total Commitment shall terminate in its entirety on May 31, 2003 unless the Second Restatement Effective Date has occurred on or before such date and in the event of such termination this Agreement shall cease to be of any force or effect and the Existing Credit Agreement (and all commitments to extend credit thereunder in accordance with the terms thereof) shall continue to be effective, as the same may have been, or thereafter be, amended, modified or supplemented from time to time.

(b) The Total Commitment shall terminate in its entirety on the Final Maturity Date.

SECTION 3. Payments.

3.01 Voluntary Prepayments. Each Borrower shall have the right to prepay Revolving Loans made to it in whole or in part, without premium or penalty, from time to time on the following terms and conditions: (i) such Borrower shall give the Administrative Agent at the Payment Office written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay such Revolving Loans, the amount of such prepayment, the currency in which such Revolving Loans are denominated and the specific Borrowing(s) pursuant to which such

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Revolving Loans were made, which notice shall be given by such Borrower at least three Business Days prior to the date of such prepayment and which notice shall promptly be transmitted by the Administrative Agent to each of the Lenders; (ii) each partial prepayment of any Borrowing shall be in an aggregate principal amount of at least $1,000,000 (or the Dollar Equivalent thereof), provided that no partial prepayment of Revolving Loans made pursuant to a Borrowing shall reduce the aggregate principal amount of the Revolving Loans outstanding pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount applicable thereto; (iii) each prepayment in respect of any Revolving Loans made pursuant to a Borrowing shall be applied pro rata among such Revolving Loans; and (iv) prepayments of Eurodollar Loans made pursuant to this Section 3.01 may only be made on the last day of an Interest Period applicable thereto unless concurrently with such prepayment any payments required to be made pursuant to Section 1.12 as a result of such prepayment are made. No Borrower shall have the right under this Section 3.01 to prepay any principal amount of any Competitive Bid Loans.

3.02 Mandatory Prepayments and Repayments. (a) If on any date the sum of the aggregate outstanding Principal Amount of Revolving Loans and Competitive Bid Loans (or, in each case, the Dollar Equivalent thereof) (all the foregoing, collectively, the “Aggregate Loan Outstandings”) exceeds the Total Commitment as then in effect, the Borrowers, jointly and severally, shall repay no later than the next following Business Day the Principal Amount of Revolving Loans (but excluding DB Loans to the extent the respective DB Loan Maturity Date has not occurred) in an aggregate Principal Amount equal to such excess. If, after giving effect to the prepayment of all outstanding Revolving Loans as set forth above, the remaining Aggregate Loan Outstandings exceed the Total Commitment, the Borrowers, jointly and severally, shall repay on such date the principal of Competitive Bid Loans in an aggregate amount equal to such excess.

(b) On the maturity date specified pursuant to Section 1.04(a) with respect to each Competitive Bid Loan, the applicable Borrower shall repay such Competitive Bid Loan to the applicable Bidder Lender or Bidder Lenders.

(c) On each DB Loan Maturity Date, the respective Designated Borrower shall repay the respective DB Loans in full.

(d) Notwithstanding anything to the contrary contained elsewhere in this Agreement, all outstanding Revolving Loans and Competitive Bid Loans shall be repaid in full on the Final Maturity Date.

(e) With respect to each prepayment of Revolving Loans required by Section 3.02(a) or (b), the applicable Borrower may designate the Types of Revolving Loans which are to be prepaid and the specific Borrowing(s) pursuant to which made, provided that (i) if any prepayment of Eurodollar Loans made pursuant to a single Borrowing shall reduce the outstanding Revolving Loans made pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount applicable to such Borrowing, then all Revolving Loans outstanding pursuant to such Borrowing shall be immediately converted into Base Rate Loans and (ii) each prepayment of any Revolving Loans made pursuant to a Borrowing shall be applied pro rata among such Revolving Loans. In the absence of a designation by a Borrower as described in the preceding sentence, the Administrative Agent shall, subject to the above, make such designation in its sole discretion with a view, but no obligation, to minimize breakage costs owing under Section 1.12.

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3.03 Method and Place of Payment. Except as otherwise specifically provided herein, all payments under this Agreement shall be made to the Administrative Agent for the ratable (based on its pro rata share) account of the Lenders entitled thereto, not later than 12:00 Noon (New York Time) on the date when due and shall be made in immediately available funds at the Payment Office in: (x) Dollars, if such payment is made in respect of any obligation of the Borrowers under this Agreement except as otherwise provided in the immediately succeeding clause (y); and (y) the appropriate Alternate Currency, if such payment is made in respect of principal of or interest on Alternate Currency Loans, it being understood that written notice by a Borrower to the Administrative Agent to make a payment from the funds in such Borrower’s account at the Payment Office shall constitute the making of such payment to the extent of such funds held in such account. Any payments under this Agreement which are made later than 12:00 Noon (New York Time) shall be deemed to have been made on the next succeeding Business Day. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable during such extension at the applicable rate in effect immediately prior to such extension. The Administrative Agent will promptly make available to each Lender its pro rata share (if any) of each payment so received by the Administrative Agent in the funds and currency so received.

3.04 Net Payments. (a) All payments made by each Borrower hereunder or under any Note will be made without setoff, counterclaim or other defense. Except as provided in Section 3.04(b), all such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction (or by any political subdivision or taxing authority thereof or therein) with respect to such payments (but excluding, except as provided in the second succeeding sentence, any tax levy, impost, duty, fee, assessment or other governmental charge imposed on or measured by the net income or net profits of a Lender (including, without limitation, any franchise tax imposed on or measured by net income or net profits and any branch profits taxes) pursuant to the laws of the jurisdiction in which it is organized or the jurisdiction in which the principal office or applicable lending office of such Lender is located (or any subdivision or taxing authority thereof or therein)) and all interest, penalties or similar liabilities with respect to such non-excluded taxes, levies, imposts, duties, fees, assessments or other governmental charges (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other governmental charges being referred to collectively as “Taxes”). If any Taxes are so levied or imposed, the relevant Borrower shall pay the full amount of such Taxes to the relevant taxing authority in accordance with applicable law and shall pay to the relevant Lender such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any Note, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or in such Note. If any amounts are payable in respect of Taxes pursuant to the preceding sentence, the relevant Borrower agrees to reimburse each Lender lending to such Borrower, upon the written request of such Lender, for taxes imposed on or measured by the net income or net profits of such Lender (including, without limitation, any franchise tax imposed on or measured by net income or net profits and any branch profits taxes imposed by the United States of America or similar taxes

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imposed by any political subdivision or taxing authority thereof) pursuant to the laws of the jurisdiction in which such Lender is organized or in which the principal office or applicable lending office of such Lender is located (or of any subdivision or taxing authority therein or thereof) and for any withholding of taxes as such Lender shall determine are payable by, or withheld from, such Lender in respect of such amounts so paid to or on behalf of such Lender pursuant to the preceding sentence and in respect of any amounts paid to or on behalf of such Lender pursuant to this sentence. Each Borrower will furnish to the Administrative Agent within 45 days after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts, if any, issued by such taxing authority or other evidence reasonably acceptable to the Administrative Agent evidencing such payment by such Borrower (or, if such Borrower has not received such certified copies of tax receipts within such time period, then such Borrower shall furnish such certified copies of tax receipts to the Administrative Agent within 15 days after such Borrower has received such certified copies of tax receipts). Each Borrower agrees to indemnify and hold harmless each Lender, and reimburse such Lender upon its written request, for the amount of any Taxes so levied or imposed and paid by such Lender. Such indemnification shall be made within 30 days after the date upon which such Lender makes written demand therefor, which demand shall identify the nature and the amount of Taxes for which indemnification is sought and shall include a copy of any written assessment thereof.

(b) In the case of any Borrower that is a United States person (as such term is defined in Section 7701(a)(30) of the Code), each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes agrees to deliver to the Borrowers and the Administrative Agent on or prior to the Second Restatement Effective Date, or in the case of a Lender that assumes an interest or is an assignee or transferee of an interest under this Agreement pursuant to Section 1.14, 1.16 or 11.04 (unless the respective Lender was already a Lender hereunder immediately prior to such assumption, assignment or transfer), on the date of such assumption, assignment or transfer to such Lender, (i) two accurate and complete original signed copies of Internal Revenue Service Form W-8ECI or Form W-8BEN (with respect to a complete exemption under an income tax treaty) (or successor forms) certifying to such Lender’s entitlement to a complete exemption from United States withholding tax with respect to payments to be made by the Borrowers under this Agreement and under any Note or (ii) if the Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form W-8ECI or Form W-8BEN (with respect to a complete exemption under an income tax treaty) pursuant to clause (i) above, (x) a certificate substantially in the form of Exhibit C (any such certificate, a “Section 3.04 Certificate”) and (y) two accurate and complete original signed copies of Internal Revenue Service Form W-8BEN (with respect to the portfolio interest exemption) (or successor form) certifying to such Lender’s entitlement to a complete exemption from United States withholding tax with respect to payments of interest to be made by the Borrowers under this Agreement and under any Note. In addition, each such Lender agrees that, from time to time after the Second Restatement Effective Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the Borrowers and the Administrative Agent two new accurate and complete original signed copies of Internal Revenue Service Form W-8ECI, Form W-8BEN (with respect to the benefits of an income tax treaty) or Form W-8BEN (with respect to the portfolio interest exemption) and a Section 3.04 Certificate, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction

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in United States withholding tax with respect to payments made by the Borrowers under this Agreement and any Note, or, if legally unable to deliver such forms, it shall immediately notify the Borrowers and the Administrative Agent of its inability to deliver any such Form or Certificate in which case such Lender shall not be required to deliver any such Form or Certificate pursuant to this Section 3.04(b). Notwithstanding anything to the contrary contained in Section 3.04(a), but subject to Section 11.04(b) and the immediately succeeding sentence, (x) each Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar taxes imposed by the United States (or any political subdivision or taxing authority hereof or therein) from interest, fees or other amounts payable hereunder by such Borrower for the account of any Lender which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes to the extent that such Lender has not provided to the Borrowers Internal Revenue Service Forms that establish a complete exemption from such deduction or withholding and (y) the Borrowers shall not be obligated pursuant to Section 3.04(a) hereof to gross-up payments to be made to any such Lender in respect of income or similar taxes imposed by the United States if (I) such Lender has not provided to the Borrowers the Internal Revenue Service Forms required to be provided to the Borrowers pursuant to this Section 3.04(b) or (II) in the case of a payment, other than interest, to a Lender described in clause (ii) of the first sentence of this Section 3.04(b) above, to the extent that such Forms do not establish a complete exemption from withholding of such taxes. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 3.04 and except as set forth in Section 11.04(b), the Borrowers agree to pay additional amounts and to indemnify each Lender in the manner set forth in Section 3.04(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any Taxes deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Original Effective Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of such Taxes.

(c) If a Borrower pays any additional amount under this Section 3.04 to a Lender and such Lender determines in its sole discretion that it has actually received or realized in connection therewith any refund or any reduction of, or credit against, its Tax liabilities in or with respect to the taxable year in which the additional amount is paid, such Lender shall pay to the Borrower an amount that such Lender shall, in its sole discretion, determine is equal to the net benefit, after tax, which was obtained by the Lender in such year as a consequence of such refund, reduction or credit. Such amount shall be paid as soon as practicable after receipt or realization by such Lender of such refund, reduction or credit. Nothing in this Section 3.04(c) shall require any Lender to disclose or detail the basis of its calculation of the amount of any refund or reduction of, or credit against, its tax liabilities or any other information to any Borrower or any other Person.

(d) In the case of any Borrower that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code), each Lender shall use reasonable efforts (consistent with legal and regulatory restrictions and subject to overall policy considerations of such Lender) to file any certificate or document or to furnish any information as reasonably requested by a Borrower pursuant to any applicable treaty, law or regulation, if the making of such filing or the furnishing of such information would avoid the need for or reduce the amount of any amounts payable by a Borrower under Section 3.04(a) and would not, in the reasonable

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judgment of such Lender, be disadvantageous to such Lender provided, however, that nothing in this Section 3.04(d) shall require a Lender to disclose any confidential information (including, without limitation, its tax returns or its calculations).

SECTION 4. Conditions Precedent.

4.01 Conditions Precedent to the Second Restatement Effective Date. This Agreement shall become effective on the date (the “Second Restatement Effective Date”) on which each of the following conditions shall be satisfied:

(a) Execution of Agreement; Notes. (i) Each of Parent, Corp., each Agent and each of the Lenders shall have signed a copy hereof (whether the same or different copies) and shall have delivered the same to the Administrative Agent at its Notice Office or, in the case of the Lenders and the Agents, shall have given to the Administrative Agent telephonic (confirmed in writing), written or facsimile transmission notice (actually received) at such office that the same has been signed and mailed to it; and (ii) there shall have been delivered to the Administrative Agent for the account of each Lender requesting the same, the appropriate Notes executed by Parent and Corp., as applicable, in the amount, maturity and as otherwise provided herein.

(b) Opinion of Counsel. The Administrative Agent shall have received an opinion, addressed to each Agent and each of the Lenders and dated the Second Restatement Effective Date, from Ram D. Wertheim, General Counsel of Parent and Corp., which opinion shall be substantially in the form of Exhibit D hereto.

(c) Corporate Proceedings. (i) The Administrative Agent shall have received from each of Parent and Corp. a certificate, dated the Second Restatement Effective Date, signed by an Authorized Officer thereof in the form of Exhibit E with appropriate insertions and deletions, together with (x) copies of its certificate of incorporation, by-laws or other organizational documents and (y) the resolutions relating to the Credit Documents which shall be satisfactory to the Administrative Agent.

(ii) All corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the other Credit Documents shall be satisfactory in form and substance to the Administrative Agent, and the Administrative Agent shall have received all information and copies of all certificates, documents and papers, including good standing certificates of recent date and any other records of corporate proceedings and governmental approvals, if any, which the Administrative Agent may have requested in connection therewith, such documents and papers, where appropriate, to be certified by proper corporate or governmental authorities.

(d) Fees. The Borrowers shall have paid to the Administrative Agent and the Lenders all fees and expenses (including, without limitation, legal fees and expenses) agreed upon by such parties to be paid on or prior to such date.

(e) Existing Credit Agreement. On the Second Restatement Effective Date and concurrently with the initial incurrence of Loans hereunder, (i) all Existing Revolving Loans shall have been repaid in full in cash, together with accrued but unpaid interest thereon, it being

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understood and agreed, however, that any Existing Lender may net fund any Revolving Loans required to be made by it on the Second Restatement Effective Date by permitting the principal amount of the Existing Revolving Loans made by such Existing Lender to remain outstanding on the Second Restatement Effective Date to satisfy such Existing Lender’s obligation to fund a like principal amount of Revolving Loans to be incurred hereunder by the Borrowers on the Second Restatement Effective Date, and for purposes of this Section 4.01(e) only such outstanding principal amount shall be deemed outstanding as Revolving Loans under this Agreement and such corresponding Existing Revolving Loans shall be deemed to have been so repaid in full, and (ii) there shall have been paid in cash in full all accrued but unpaid Fees under, and as defined in, the Existing Credit Agreement (including, without limitation any Facility Fees) accrued but unpaid prior to but excluding the Second Restatement Effective Date and all other amounts, costs and expenses (including, without limitation, breakage costs, if any, with respect to Eurodollar Loans thereunder) then owing to any of the Existing Lenders and/or the Administrative Agent, as agent under the Existing Credit Agreement, in each case to the satisfaction of the Administrative Agent or the Existing Lenders, as the case may be, regardless of whether or not such amounts would otherwise be due and payable at such time pursuant to the terms of the Existing Credit Agreement and (iii) all outstanding Notes (as defined in the Existing Credit Agreement) issued by Parent or Corp. to the Existing Lenders under the Existing Credit Agreement shall be deemed canceled.

The occurrence of the Second Restatement Effective Date shall constitute a representation and warranty by each Borrower to the Agents and each of the Lenders that all the conditions specified in Section 4.01 exist as of that time. All the Notes, certificates, legal opinions and other documents and papers referred to in this Section 4.01, unless otherwise specified, shall be delivered to the Administrative Agent at the Administrative Agent’s Notice Office for the account of each of the Lenders and, except for the Notes, in sufficient counterparts for each of the Lenders and shall be satisfactory in form and substance to the Lenders. The Administrative Agent shall give Parent, Corp. and each Lender written notice that the Second Restatement Effective Date has occurred.

4.02 Conditions Precedent to Loans. The obligation of each Lender to make any Loans is subject, at the time of each such Loan, to the satisfaction of the following conditions:

(a) Second Restatement Effective Date. The Second Restatement Effective Date shall have occurred.

(b) Notice of Borrowing. The Administrative Agent shall have received a Notice of Borrowing meeting the requirements of Section 1.03(a) with respect to each incurrence of Revolving Loans and a Notice of Competitive Bid Borrowing meeting the requirements of Section 1.04(a) with respect to each incurrence of Competitive Bid Loans.

(c) No Default; Representations and Warranties. At the time of the incurrence of each Loan and also after giving effect thereto, (i) there shall exist no Default or Event of Default and (ii) all representations and warranties made by any Borrower contained herein or in the other Credit Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of such Loan.

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(d) Financial Guaranty Insurance Policy. In the case of each DB Loan, Corp. shall have issued a financial guaranty insurance policy in the form of Exhibit F attached hereto (as appropriately completed, a “Financial Guaranty Insurance Policy”), in support of the principal of and interest on such DB Loan, and such Financial Guaranty Insurance Policy shall be in full force and effect. In addition, in the case of a DB Loan which is an Alternate Currency Loan, Corp. shall be permitted to Guarantee such DB Loan under the respective Alternate Currency under applicable law.

(e) Opinion of Counsel. In the case of each DB Loan, the Administrative Agent shall have received an opinion, addressed to each Agent and each of the Lenders and dated the date of the incurrence of such DB Loan, from counsel to Corp., which opinion shall be substantially in the form of Exhibit L hereto.

The acceptance of the benefits of each Loan shall constitute a representation and warranty by the respective Borrower to the Agents and each of the Lenders that all of the applicable conditions specified in Section 4.02 exist as of that time.

SECTION 5. Representations, Warranties and Agreements. In order to induce the Lenders to enter into this Agreement and to make the Loans provided for herein, each of Parent and Corp. makes the following representations and warranties to, and agreements with, the Lenders, all of which shall survive the execution and delivery of this Agreement and the making of the Loans:

5.01 Corporate Existence and Power. Parent and Corp. are corporations duly organized, validly existing and in good standing under the laws of the jurisdiction of their incorporation, are duly qualified to transact business in every jurisdiction where, by the nature of their businesses, such qualification is necessary and where the failure to be so qualified, either individually or in the aggregate could reasonably be expected to have a Material Adverse Effect, and have all corporate powers and all governmental licenses, authorizations, consents and approvals required to carry on their businesses as now conducted and where the failure to have such governmental licenses, authorizations, consents and approvals could reasonably be expected to have a Material Adverse Effect.

5.02 Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Borrowers of this Agreement and the other Credit Documents (i) are within each of the Borrower’s corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) require no action by or in respect of, or filing with, any governmental body, agency or official, (iv) do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of each of the Borrowers or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrowers or any of their Subsidiaries, and (v) do not result in the creation or imposition of any Lien on any asset of the Borrowers or any of their Subsidiaries.

5.03 Binding Effect. This Agreement constitutes a valid and binding agreement of each of the Borrowers enforceable in accordance with its terms, and the other Credit Documents, when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of each of the Borrowers enforceable in accordance with their

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respective terms, provided that the enforceability hereof and thereof is subject in each case to general principles of equity and to bankruptcy, insolvency and similar laws affecting the enforcement of creditors’ rights generally.

5.04 Financial Information. (a) The consolidated balance sheet of Parent and its Consolidated Subsidiaries as of December 31, 2002 and the related consolidated statements of income, shareholders’ equity and cash flows for the Fiscal Year then ended, reported on by PricewaterhouseCoopers LLP, copies of which have been delivered to each of the Lenders fairly present, in conformity with GAAP or Statutory Accounting Principles, as applicable consistently applied, the consolidated financial position of Parent and its Consolidated Subsidiaries as of such dates and their consolidated results of operations and cash flows for such periods stated.

(b) Since December 31, 2002 there has been no event, act, condition or occurrence having a Material Adverse Effect.

5.05 Litigation. There is no action, suit or proceeding pending, or to the knowledge of the Borrowers threatened, against or affecting the Borrowers or any of their Subsidiaries before any court or arbitrator or any governmental body, agency or official which could have a Material Adverse Effect or which in any manner draws into question the validity or enforceability of, or could impair the ability of the Borrowers to perform their obligations under, this Agreement or any of the other Credit Documents.

5.06 Compliance with ERISA. (a) Parent, Corp. and each member of the Controlled Group have fulfilled their obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and are in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and have not incurred any liability to the PBGC or a Plan under Title IV of ERISA.

(b) Neither Parent nor Corp. nor any member of the Controlled Group is or ever has been obligated to contribute to any Multiemployer Plan.

5.07 Taxes. There have been filed on behalf of Parent and its Subsidiaries all Federal, state and local income, excise, property and other tax returns which are required to be filed by them and all taxes due pursuant to such returns or pursuant to any assessment received by or on behalf of Parent or any Subsidiary have been paid. The charges, accruals and reserves on the books of each of Parent and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of each of Parent and Corp., adequate. United States income tax returns of Parent and its Subsidiaries have been examined and closed through the Fiscal Year ended December 31, 2002.

5.08 Subsidiaries. Each of Parent’s Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, is duly qualified to transact business in every jurisdiction where, by the nature of its business, such qualification is necessary and where the failure to be so qualified, either individually or in the aggregate could reasonably be expected to have a Material Adverse Effect, and has all corporate powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted and where the failure to have such governmental licenses,

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authorizations, consents and approvals could reasonably be expected to have a Material Adverse Effect. Parent has no Subsidiaries except those Subsidiaries listed on Annex III, which accurately sets forth each such Subsidiary’s complete name and jurisdiction of incorporation.

5.09 Not an Investment Company. No Borrower is an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

5.10 Public Utility Holding Company Act. No Borrower nor any of their Subsidiaries is a “holding company”, or a “subsidiary company” of a “holding company”, or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company”, as such terms are defined in the Public Utility Holding Company Act of 1935, as amended.

5.11 Ownership of Property; Liens. Parent and its Consolidated Subsidiaries have title of their properties sufficient for the conduct of their respective businesses and none of such property is subject to any Lien except as permitted in Section 7.01.

5.12 No Default. No Default or Event of Default has occurred and is continuing.

5.13 Full Disclosure. All information heretofore furnished by the Borrowers to the Administrative Agent or any Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Borrowers to the Administrative Agent or any Lender will be, true, accurate and complete in every material respect or based on reasonable estimates on the date as of which such information is stated or certified. The Borrowers have disclosed to the Lenders in writing any and all facts which could have or cause a Material Adverse Effect.

5.14 Compliance with Laws. Parent and each of its Subsidiaries is in compliance with all applicable laws, except where any failure to comply with any such laws would not, alone or in the aggregate, have a Material Adverse Effect.

5.15 Capital Stock. All Capital Stock, debentures, bonds, notes and all other securities of each of Parent and its Subsidiaries presently issued and outstanding are validly and properly issued in accordance with all applicable laws, including, but not limited to, the “Blue Sky” laws of all applicable states and the federal securities laws. The issued shares of Capital Stock of each of Parent’s and Corp.’s Wholly-Owned Subsidiaries are owned by Parent or Corp. free and clear of any Lien or adverse claim. At least a majority of the issued shares of Capital Stock of each of Parent’s and Corp.’s other Subsidiaries (other than Wholly-Owned Subsidiaries) is owned by Parent or Corp. free and clear of any Lien or adverse claim.

5.16 Margin Stock. No Borrower nor any of their Subsidiaries are engaged principally, or as one of their important activities, in the business of purchasing or carrying any Margin Stock, and no part of the proceeds of any Loan will be used to purchase or carry any Margin Stock, or be used for any purpose which violates, or which is inconsistent with, the provisions of Regulation U or X.

5.17 Insolvency. After giving effect to the execution and delivery of the Credit Documents and the making of the Loans under this Agreement, no Borrower will be “insolvent,” within the meaning of such term as defined in § 101 of Title 11 of the United States Code or

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Section 2 of the Uniform Fraudulent Transfer Act, or any other applicable state law pertaining to fraudulent transfers, as each may be amended from time to time, or be unable to pay its debts generally as such debts become due or have an unreasonably small capital to engage in any business or transaction, whether current or contemplated.

5.18 Ranking. The Debt of each Borrower arising under or in connection with this Agreement or any other Credit Document (i) constitutes and shall constitute a senior unsecured obligation of such Borrower, (ii) ranks senior to, or pari passu with, all other existing and future senior unsecured Debt of such Borrower and (iii) ranks senior to any subordinated Debt of such Borrower.

SECTION 6. Affirmative Covenants. The Borrowers hereby covenant and agree that on and as of the Second Restatement Effective Date and thereafter until the Commitments have terminated, no Notes are outstanding and the Loans, together with interest, Fees and all other obligations (other than any indemnities described in Section 11.12 which are not then owing) incurred hereunder, are paid in full:

6.01 Information Covenants. Parent and Corp. will furnish to each Lender:

(a) as soon as available and in any event within 60 days after the end of each of the first three quarterly fiscal periods in each Fiscal Year of Parent and Corp., consolidated balance sheets of each of Parent and its Subsidiaries and Corp. and its Subsidiaries as at the end of such period and the related consolidated statements of income, changes in stockholders’ equity and cash flows of each of Parent and its Subsidiaries and Corp. and its Subsidiaries for such period and (in the case of the second and third quarterly periods) for the period from the beginning of the current Fiscal Year to the end of such quarterly period, setting forth in each case in comparative form the consolidated figures for the corresponding periods of the previous Fiscal Year, all in reasonable detail and certified by an Authorized Officer of each of Parent and Corp. as presenting fairly, in accordance with GAAP (except as specifically set forth therein; provided any exceptions or qualifications thereto must be acceptable to the Required Lenders) on a basis consistent with such prior fiscal periods, the information contained therein, subject to changes resulting from normal year-end audit adjustments;

(b) as soon as available and in any event within 120 days after the end of each Fiscal Year of Parent and Corp., consolidated balance sheets of each of Parent and its Subsidiaries and Corp. and its Subsidiaries as at the end of such year and the related consolidated statements of income, operations, changes in stockholders’ equity and cash flows of each of Parent and its Subsidiaries and Corp. and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the consolidated figures for the previous fiscal year, all in reasonable detail and accompanied by a report thereon of PricewaterhouseCoopers LLP or other independent public accountants of recognized national standing selected by Parent, which report shall state that such consolidated financial statements present fairly the consolidated financial position of each of Parent and its Subsidiaries and Corp. and its Subsidiaries as at the dates indicated and the consolidated results of their operations and cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as

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otherwise specified in such report; provided any exceptions or qualifications thereto must be acceptable to the Required Lenders) and that the audit by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards;

(c) within five Business Days after any Borrower becomes aware of the occurrence of any Default, a certificate of an Authorized Officer of each of the Borrowers setting forth the details thereof and the action which the Borrowers are taking or propose to take with respect thereto;

(d) promptly upon the mailing thereof to the security holders of the Borrowers generally, copies of all financial statements, reports and proxy statements so mailed;

(e) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and annual, quarterly or monthly reports which the Borrowers shall have filed with the Securities and Exchange Commission or any national securities exchange;

(f) if and when Parent, Corp. or any member of the Controlled Group (i) gives or is required to give notice to the PBGC of any “reportable event” (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA, a copy of such notice; or (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate or appoint a trustee to administer any Plan, a copy of such notice;

(g) promptly after any Borrower knows of the commencement thereof, notice, of any litigation, dispute or proceeding involving a claim against any of the Borrowers and/or any Subsidiary for $10,000,000 or more in excess of amounts covered in full by applicable insurance;

(h) from time to time such additional information regarding the financial position or business of the Borrowers and their Subsidiaries as the Administrative Agent, at the request of any Lender, may reasonably request;

(i) at the request of any Lender, promptly after the filing thereof, a copy of the annual statements for each calendar year and quarterly statements for each calendar quarter as filed with the New York Insurance Department or other then comparable agency of other jurisdictions and the financial statements of Corp. for each calendar year or quarter prepared in accordance with Statutory Accounting Principles accompanied by a report thereon of the independent public accountants of Parent referred to in paragraph (b) above; and

(j) at the request of any Lender, at any time when a DB Loan is outstanding, quarterly and annual summary financial statements of the applicable Designated Borrower as promptly as possible after the end of each fiscal quarter and fiscal year of such Designated Borrower.

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6.02 Books, Records and Inspections. The Borrowers will (i) keep, and will cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries in conformity with GAAP or Statutory Accounting Principles, as applicable, shall be made of all dealings and transactions in relation to its business and activities; and (ii) permit, and will cause each Subsidiary to permit, representatives of any Lender at such Lender’s expense prior to the occurrence of an Event of Default and at the Borrowers’ expense after the occurrence of an Event of Default to visit and inspect any of their respective properties, to examine their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants. The Borrowers agree to cooperate and assist in such visits and inspections, in each case at such reasonable times and as often as may reasonably be desired.

6.03 Maintenance of Existence. Each of the Borrowers shall maintain its existence and carry on its business in substantially the same manner and in substantially the same fields as such business is now carried on and maintained.

6.04 Compliance with Laws; Payment of Taxes. The Borrowers will, and will cause each of their Subsidiaries and each member of the Controlled Group to, comply with applicable laws (including but not limited to ERISA), regulations and similar requirements of governmental authorities (including but not limited to the PBGC), except where (i) the necessity of such compliance is being contested in good faith through appropriate proceedings diligently pursued; and (ii) any failure to comply with any such laws would not, alone or in the aggregate, have a Material Adverse Effect. The Borrowers will, and will cause each of their Subsidiaries to, pay promptly when due all taxes, assessments, governmental charges, claims for labor, supplies, rent and other obligations which, if unpaid, might become a lien against the property of the Borrowers or any Subsidiary, except liabilities being contested in good faith by appropriate proceedings diligently pursued.

6.05 Insurance. The Borrowers will maintain, and will cause each of their Material Subsidiaries to maintain (either in the name of the Borrowers or in such Material Subsidiary’s own name), with financially sound and reputable insurance companies, insurance on all their property in at least such amounts and against at least such risks as are usually insured against in the same general area by companies of established repute engaged in the same or similar businesses.

6.06 Maintenance of Property. The Borrowers shall, and shall cause each Material Subsidiary to, maintain all of their properties and assets in good condition, repair and working order, ordinary wear and tear excepted.

SECTION 7. Negative Covenants. The Borrowers hereby covenant and agree that on and as of the Second Restatement Effective Date and thereafter until the Commitments have terminated, no Notes are outstanding and the Loans, together with interest, Fees and all other obligations (other than any indemnities described in Section 11.12 which are not then owing) incurred hereunder, are paid in full:

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7.01 Liens. Neither Parent nor any of its Consolidated Subsidiaries will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except:

(i) Liens securing any loan to be made under the Credit Agreement among Corp., the banks signatory thereto and Credit Suisse First Boston, New York Branch, originally dated as of December 29, 1989, as amended and restated on October 1, 1997 and as may be amended thereafter from time to time;

(ii) Liens created on certain insurance premiums by a Trust Agreement effective December 31, 1989 between Municipal Bond Investors Assurance Corporation, MBIA Insurance Corp. of Illinois and the trustee thereunder, as amended on February 28, 1995 and as may be amended from time to time thereafter;

(iii) as to Corp., Liens (in addition to Liens permitted under Section 7.01(i), (iv) and (v)) in an aggregate principal amount of up to $10,000,000;

(iv) Liens not securing Debt which are incurred in the ordinary course of business;

(v) Liens securing repurchase agreements constituting a borrowing of funds by Parent or any Subsidiary of Parent in the ordinary course of business for liquidity purposes; and

(vi) Liens securing any Conduit Debt or Insured Debt (or any guaranty made by Corp. of such Conduit Debt or Insured Debt, as the case may be), provided that any such Liens attach only to the underlying assets that are the subject of such Conduit Debt or Insured Debt, as applicable.

7.02 Dissolution. No Borrower shall suffer or permit dissolution or liquidation either in whole or in part or redeem or retire any shares of their own stock, except through corporate reorganization to the extent permitted by Section 7.03.

7.03 Consolidations, Mergers and Sales of Assets. The Borrowers will not consolidate or merge with or into, or sell, lease or otherwise transfer all or any substantial part of their assets to, any other Person, provided that (a) any Borrower (other than any Designated Borrower) may merge with another Person if (i) such Person was organized under the laws of the United States of America or one of its states, (ii) one of the Borrowers is the corporation surviving such merger and (iii) immediately after giving effect to such merger, no Default shall have occurred and be continuing, and (b) Subsidiaries of the Borrowers may merge with one another.

7.04 Use of Proceeds. No portion of the proceeds of the Loans will be used by the Borrowers or any Subsidiary (i) directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any Margin Stock, or (ii) for any purpose in violation of any applicable law or regulation.

7.05 Change in Fiscal Year. Neither Parent nor Corp. shall change its Fiscal Year without the consent of the Required Lenders.

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7.06 Transactions with Affiliates. Neither Parent nor any of its Subsidiaries shall enter into, or be a party to, any transaction with any Affiliate of Parent or such Subsidiary (which Affiliate is not one of the Borrowers or a Subsidiary), except as permitted by law and in the ordinary course of business and pursuant to reasonable terms.

7.07 Leverage Ratio. Parent and Corp. will not permit the ratio of Consolidated Total Debt to Consolidated Total Capitalization at any time to exceed 0.30:1.00.

7.08 Minimum Net Worth. Parent and Corp. will not permit Consolidated Net Worth to be less than $2,500,000,000 at any time.

SECTION 8. Defaults.

8.01 Events of Default. Upon the occurrence of any of the following specified events (each, an “Event of Default”):

(a) any Borrower shall fail to pay when due any principal of any Loan, or shall fail to pay any interest on any Loan within three Business Days after such interest shall become due, or shall fail to pay any fee or other amount payable hereunder within five Business Days after such fee or other amount becomes due; or

(b) any Borrower shall fail to observe or perform any covenant contained in Sections 6.01(c), 6.02(ii), 6.03, 6.06, 7.02, 7.03, 7.04 or 7.08; or

(c) any Borrower shall fail to observe or perform any covenant contained in Section 7.01 for five days after the earlier of (i) the first day on which any Borrower has knowledge of such failure or (ii) written notice thereof has been given to any Borrower by the Administrative Agent at the request of any Lender; or

(d) any Borrower shall fail to observe or perform any covenant or agreement contained herein (other than those covered by clause (a), (b) or (c) above, but including, without limitation, any covenant contained in Section 7.07) for 30 days after the earlier of (i) the first day on which any Borrower has knowledge of such failure or (ii) written notice thereof has been given to any Borrower by the Administrative Agent at the request of any Lender; or

(e) any representation, warranty, certification or statement made or deemed made by any Borrower in Section 5 of this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect or misleading in any material respect when made (or deemed made); or

(f) Parent or any Subsidiary shall fail to make any payment in respect of Debt outstanding in an aggregate principal amount equal to or in excess of $10,000,000 (other than the Notes) when due at final stated maturity (after giving effect to any applicable grace period); or

(g) any event or condition shall occur which results in the acceleration of the maturity of Debt outstanding in an aggregate amount equal to or in excess of $10,000,000 of Parent or any Subsidiary or the mandatory prepayment or purchase of such Debt by Parent (or its designee) or such Subsidiary (or its designee) prior to the scheduled maturity thereof; or

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(h) Parent or any Material Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to themselves or their debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of them or any substantial part of their property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against them, or shall make a general assignment for the benefit of creditors, or shall fail generally, or shall admit in writing their inability, to pay their debts as they become due, or shall take any corporate action to authorize any of the foregoing, or shall become or be declared by a court of competent jurisdiction to be insolvent; or

(i) an involuntary case or other proceeding shall be commenced against Parent or any Material Subsidiary seeking liquidation, reorganization or other relief with respect to them or their debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of them or any substantial part of their property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against Parent or any Material Subsidiary under the federal bankruptcy laws as now or hereafter in effect; or

(j) Parent, Corp. or any member of the Controlled Group shall fail to pay when due any material amount which they shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any such Plan or Plans or a proceeding shall be instituted by a fiduciary of any such Plan or Plans to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed within 30 days thereafter; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any such Plan or Plans must be terminated; or

(k) one or more judgments or orders for the payment of money in an aggregate amount in excess of $25,000,000 shall be rendered against Parent or any Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; or

(l) a federal tax lien in excess of $10,000,000 shall be filed against Parent or any Subsidiary under Section 6323 of the Code or a lien in excess of $10,000,000 of the PBGC shall be filed against any Parent or any Subsidiary under Section 4068 of ERISA and in either case such lien shall remain undischarged for a period of 25 days after the date of filing; or

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(m) (i) any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Exchange Act) of 40% or more of the outstanding shares of the voting stock of Parent; or (ii) as of any date a majority of the Board of Directors of Parent consists of individuals who were not either (A) directors of Parent as of the corresponding date of the previous year, (B) selected or nominated to become directors by the Board of Directors of Parent of which a majority consisted of individuals described in clause (A), or (C) selected or nominated to become directors by the Board of Directors of Parent of which a majority consisted of individuals described in clause (A) and individuals described in clause (B); or

(n) Parent shall at any time or times and for any reason cease to own (either directly or indirectly through a wholly-owned intermediate Subsidiary) all of the Capital Stock or other ownership interests (except for director’s qualifying shares) of Corp.; or

(o) at any time when any DB Loan is outstanding, the respective Financial Guaranty Insurance Policy or any material provision thereof shall cease to be in full force or effect or Corp. shall deny or disaffirm its obligations under such Financial Guaranty Insurance Policy;

then, and in every such event, the Administrative Agent shall (i) if requested by the Required Lenders, by notice to Parent and Corp. terminate the Commitments and they shall thereupon terminate, and (ii) if requested by the Required Lenders, by notice to Parent and Corp. declare the Notes (together with accrued interest thereon) and all other amounts payable hereunder and under the other Credit Documents to be, and the Notes (together with all accrued interest thereon) and all other amounts payable hereunder and under the other Credit Documents shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrowers; provided that if any Event of Default specified in clause (h) or (i) above occurs with respect to Parent or Corp., without any notice to Parent or Corp. or any other act by the Administrative Agent or the Lenders, the Total Commitment shall thereupon automatically terminate and the Notes (together with accrued interest thereon) and all other amounts payable hereunder and under the other Credit Documents shall automatically become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrowers; provided, further, that, except in the case of an Event of Default under Section 8.01(o), the principal of and interest on DB Loans shall not become due and payable pursuant to this Section 8.01 prior to their respective DB Loan Maturity Date. Notwithstanding the foregoing, the Administrative Agent shall have available to it all other remedies at law or equity, and shall exercise any one or all of them at the request of the Required Lenders.

8.02 Notice of Default. The Administrative Agent shall give notice to the Borrowers of any Default under Sections 8.01(c) or 8.01(d) promptly upon being requested to do so by any Lender and shall thereupon notify all the Lenders thereof.

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SECTION 9. Definitions.¹ As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires. Defined terms in this Agreement shall include in the singular number the plural and in the plural the singular:

“Absolute Rate” shall mean an interest rate (rounded to the nearest .0001) expressed as a decimal.

“Absolute Rate Borrowing” shall mean a Competitive Bid Borrowing with respect to which a Borrower has requested that the Bidder Lenders offer to make Competitive Bid Loans at Absolute Rates.

“Administrative Agent” shall have the meaning provided in the first paragraph of this Agreement.

“Affiliate” shall mean, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and officers of such Person), controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power (i) to vote 10% or more of the securities having ordinary voting power for the election of directors of such corporation or (ii) to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise.

“Agents” shall mean the Administrative Agent, the Syndication Agent and the Documentation Agent.

“Aggregate Loan Outstandings” shall have the meaning provided in Section 3.02(a).

“Agreement” shall mean this Second Amended and Restated Credit Agreement, as the same may be from time to time modified, amended and/or supplemented.

“Alternate Currency” shall mean each Primary Alternate Currency and each Other Alternate Currency.

“Alternate Currency Loan” shall mean any Loan denominated in an Alternate Currency.

“Applicable Margin” shall mean, as of any date, with respect to (i) any Eurodollar Loan or Base Rate Loan, a percentage per annum set forth below under the caption “Eurodollar Rate” or “Base Rate” as applicable, determined, in each case, by reference to (x) for Revolving Loans incurred by Parent, the Applicable Public Rating in effect on such date as set forth below under the caption “Parent’s Public Rating S&P/Moody’s” and (y) for Revolving Loans incurred by Corp or a Designated Borrower, the Applicable Public Rating in effect on such date as set forth below under the caption “Corp’s Public Rating S&P/Moody’s” and (ii) any Facility Fee,

¹ All interest rate definitions (and related definitions) must be conformed to Barclays’ standard.

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the Applicable Margin per annum set forth below under the caption “Facility Fee” determined, in each case, by reference to the lower of Parent’s and Corp’s Applicable Public Rating in effect on such date as set forth below under the captions “Parent’s Public Rating S&P/Moody’s” and “Corp’s Public Rating S&P/Moody’s” respectively:

Parent’s Public Rating S&P/Moody’s	Corp’s Public Rating S&P/Moody’s	Eurodollar Rate	Base Rate	Facility Fee
Level 1 AA/Aa2 or above	Level 1 AAA/Aaa	0.18%	0%	0.07%
Level 2 AA-/Aa3	Level 2 AA+/Aa1	0.28%	0%	0.08%
Level 3 A+/ A1	Level 3 AA / Aa2	0.38%	0%	0.09%
Level 4 A / A2	Level 4 AA-/ Aa3	0.48%	0%	0.10%
Level 5 A-/A3	Level 5 A+ /A1	0.88%	0%	0.15%
Level 6 BBB+/Baa1	Level 6 A / A2	0.98%	0%	0.16%
Level 7 BBB/Baa2 or lower	Level 7 A-/A3 or lower	1.08%	0%	0.17%

provided that, (A) notwithstanding anything to the contrary set forth in the grid above (and notwithstanding the Applicable Public Rating at the time), upon the occurrence and during the continuance of any Event of Default, the Applicable Margin shall be the rate described above in Level 7; (B) for purposes of the foregoing, in the event of a split in the Applicable Public Rating from Moody’s and S&P, the applicable level shall be (1) the lower of such ratings in the event such ratings are one level apart, (2) midpoint (if any) of such levels in the event such ratings are two or more levels apart and (3) the lower of the two intermediate ratings in the event there is no midpoint rating; (C) if at any time Parent or Corp., as the case may be, does not have an Applicable Public Rating with either Moody’s or S&P (other than by reason of the circumstances referred to in the last sentence of this definition), the Applicable Margin as set forth in Level 7 will apply; (D) if at any time either Moody’s or S&P shall not have in effect an Applicable Public Rating, the Applicable Margin shall be determined solely by the Applicable Public Rating established by the rating agency that does have an Applicable Public Rating then in effect; and (E) if at any time the Applicable Public Ratings established or deemed to have been established by Moody’s and S&P shall be changed (other than as a result of a change in the rating system of Moody’s or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency. Each change in the Applicable Margin shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of Moody’s or S&P

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shall change, or if either such rating agency shall cease to be in the business of providing the Applicable Public Rating, Parent (on its own behalf and/or on behalf of Corp.) and the Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such rating agency and, pending the effectiveness of any such amendment, the Applicable Margin shall be determined by reference to the rating most recently in effect prior to such change or cessation.

“Applicable Public Rating” shall mean, as of any date, the highest rating that has been most recently announced by S&P and Moody’s (i) in respect of Parent, for its long-term senior unsecured debt and (ii) in respect of Corp., for its insurer claims paying ability.

“Approved Currency” shall mean each of Dollars and each Primary Alternate Currency.

“Assignment Agreement” shall mean the Assignment Agreement in the form of Exhibit G (appropriately completed).

“Associated Cost Rate” shall mean, for any Revolving Loan or Competitive Bid Loan (constituting a Eurodollar Loan), in each case, denominated in Pounds Sterling or Euros, the rate per annum calculated in accordance with Annex IV.

“Assuming Lender” shall have the meaning provided in Section 1.16.

“Authorized Officer” shall mean any senior officer of any Borrower designated as such in writing to the Administrative Agent by such Borrower.

“Barclays” shall mean Barclays Bank plc.

“Base Rate” shall mean, at any time, the higher of (i) the rate which is  ¹/2 of 1% in excess of the Federal Funds Effective Rate and (ii) the Prime Lending Rate.

“Base Rate Loan” shall mean each Revolving Loan denominated in Dollars designated or deemed designated as a Base Rate Loan by the respective Borrower at the time of the incurrence thereof or conversion thereof (as applicable).

“Bidder Lender” shall mean each Lender that has notified in writing (and has not withdrawn such notice) the Administrative Agent that it desires to participate generally in the bidding arrangements relating to Competitive Bid Borrowings.

“Borrowers” shall mean Parent, Corp. and each Designated Borrower, if any.

“Borrowing” shall mean (i) the incurrence by a single Borrower of Revolving Loans denominated in Dollars that are Base Rate Loans on a pro rata basis from all Lenders; (ii) the incurrence by a single Borrower of Revolving Loans of a single Approved Currency that are Eurodollar Loans on a pro rata basis from all Lenders, on a given date (or resulting from conversions on a given date), having the same Interest Period; and (iii) a Competitive Bid Borrowing, provided that (x) Base Rate Loans incurred pursuant to Section 1.11(b) shall be considered part of any related Borrowing of Eurodollar Loans and (y) each Borrowing applicable

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to each of the Existing Competitive Bid Loans outstanding on the Restatement Effective Date shall continue to be applicable thereto as if the Existing Credit Agreement had not been amended and restated as herein provided (although such Existing Competitive Bid Loans, shall constitute Competitive Bid Loans, as provided for in this Agreement).

“Business Day” shall mean (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day which shall be in the City of New York a legal holiday or a day on which banking institutions are authorized by law or other governmental actions to close, (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans and Competitive Bid Loans (made pursuant to a Spread Borrowing), any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in the London interbank Eurodollar market, (iii) with respect to any notices or determinations in respect of Euros, which is customarily a “Business Day” for such notices or determinations and (iv) with respect to any notices or determinations in respect of Japanese Yen, which is customarily a “Business Day” for such notices or determinations.

“Capital Stock” means any nonredeemable capital stock of Parent or any Consolidated Subsidiary (to the extent issued to a Person other than the Borrowers), whether common or preferred.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time and the regulations promulgated and the rulings issued thereunder. Section references to the Code are to the Code, as in effect on the Second Restatement Effective Date and any subsequent provisions of the Code, amendatory thereof, supplemental thereto or substituted therefor.

“Commitment” shall mean, with respect to each Lender, at any time, the amount set forth opposite such Lender’s name on Annex I, as the same may be increased pursuant to Section 1.16 and/or reduced pursuant to Sections 2.02, 2.03 or 8.01.

“Commitment Assumption Agreement” shall mean each Commitment Assumption Agreement in the form of Exhibit H attached hereto executed in accordance with Section 1.16.

“Commitment Assumption Date” shall mean the Business Day following the date on which each Commitment Assumption Agreement is delivered to the Administrative Agent pursuant to Section 1.16.

“Competitive Bid Borrowing” shall mean a Borrowing by a single Borrower of Competitive Bid Loans pursuant to Section 1.04.

“Competitive Bid Loan” shall have the meaning specified in Section 1.01(b).

“Competitive Bid Note” shall have the meaning provided in Section 1.06(a).

“Conduit Debt” shall mean any debt of a special purpose entity that is consolidated on Parent’s financial statements in accordance with GAAP, provided that (i) the proceeds of such debt are used by such special purpose entity to make loans to, or to purchase

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assets from, any Person that is not an Affiliate of Parent, in the ordinary course of business and (ii) such debt and/or payment with respect to accounts receivable and other assets underlying such debt are guaranteed by Corp., in the ordinary course of business.

“Consolidated Net Worth” shall mean the Net Worth of Parent and its Subsidiaries determined on a consolidated basis.

“Consolidated Subsidiary” shall mean at any date any Subsidiary or other entity the accounts of which, in accordance with GAAP, would be consolidated with those of Parent in its consolidated financial statements as of such date.

“Consolidated Total Capitalization” shall mean, as of any date of determination, the sum of (i) Consolidated Total Debt and (ii) Consolidated Net Worth.

“Consolidated Total Debt” shall mean, as of any date of determination, all Debt of Parent and its Subsidiaries on such date determined on a consolidated basis.

“Corp.” shall have the meaning provided in the first paragraph of this Agreement.

“Controlled Group” shall mean all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with either Parent or Corp., are treated as a single employer under Section 414 of the Code.

“Credit Documents” shall mean this Agreement, the Notes and each Financial Guaranty Insurance Policy delivered pursuant to Section 4.02(d).

“DB Assumption Agreement” shall mean an Assumption Agreement in the form of Exhibit I attached hereto executed in accordance with Section 1.17.

“DB Loan Maturity Date” shall mean (a) with respect to each DB Loan constituting a Revolving Loan, the maturity date selected by the respective Designated Borrower in accordance with Section 1.03(a) as being applicable to such DB Loan, which maturity date shall not be more than 180 days after the date of incurrence of such DB Loan (and in no event later than the Final Maturity Date) and (b) with respect to each DB Loan constituting a Competitive Bid Loan, the maturity of such Competitive Bid Loan selected in accordance with Section 1.04(a).

“DB Loans” shall mean any Loans incurred by a Designated Borrower.

“Debt” of any Person shall mean at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee under capital leases, (v) all obligations of such Person to reimburse any bank or other Person in respect of amounts payable under a banker’s acceptance, (vi) all Redeemable Preferred Stock of such Person (in the event such Person is a corporation), (vii) all obligations (absolute or contingent) of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or

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similar instrument, (viii) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person, (ix) all Debt of others Guaranteed by such Person and (x) solely for the purpose of determining the ratio of Consolidated Total Debt to Consolidated Total Capitalization pursuant to Section 7.07, obligations under any repurchase agreements secured by Liens constituting a borrowing of funds for a period exceeding 90 days (other than obligations under such repurchase agreements entered into by Parent or any of its Subsidiaries in the ordinary course of business in connection with the asset management business of MBIA Asset Management and its Subsidiaries); provided, that notwithstanding the foregoing, the following shall not constitute “Debt” of any Person: (I) the obligations referred to in the parenthetical in clause (x) above, (II) investment agreements entered into by Parent or any of its Subsidiaries in the ordinary course of business in connection with the asset management business of MBIA Asset Management and its Subsidiaries, (III) in the case of Corp., the Debt of others guaranteed by Corp. in the ordinary course of its business and (IV) any Conduit Debt and any Insured Debt or any guaranty thereof by Corp. in the ordinary course of business.

“Default” shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default.

“Defaulting Lender” shall mean any Lender with respect to which a Lender Default is in effect.

“Designated Borrower” shall mean each Person designated as a Designated Borrower in accordance with Section 1.17.

“Documentation Agent” shall have the meaning provided in the first paragraph of this Agreement.

“Dollar Equivalent” shall mean, at any time for the determination thereof, the amount of Dollars which could be purchased with the amount of the relevant Alternate Currency involved in such computation at the spot exchange rate therefor as quoted by the Administrative Agent as of 11:00 A.M. (London time) on the date two Business Days prior to the date of any determination thereof for purchase on such date.

“Dollars” and the sign “$” shall each mean freely transferable lawful money of the United States.

“EMU Legislation” shall mean the legislative measures of the European Council for the introduction of, changeover to or operation of a single or unified European currency.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to ERISA are to ERISA, as in effect as of the Second Restatement Effective Date and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor.

“Euro” shall mean the single currency of participating member states of the European Union.

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“Euro Equivalent” shall mean, at any time for the determination thereof, the amount of Euros which could be purchased with the amount of Dollars involved in such computation at the spot exchange rate therefor as quoted by Barclays as of 11:00 A.M. (London time) on the date two Business Days prior to the date of any determination thereof for purchase on such date.

“Euro LIBOR” shall mean, for each Interest Period applicable to any Loan denominated in Euros, the rate per annum that appears on page 3750 (or other appropriate page if such currency does not appear on such page) of the Dow Jones Telerate Screen (or any successor page) for Euro deposits with maturities comparable to such Interest Period as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period or, if such a rate does not appear on the Dow Jones Telerate Screen (or any successor page), the offered quotations to first-class banks in the London interbank market by Barclays for Euro deposits of amounts in same day funds comparable to the outstanding principal amount of such Loan with maturities comparable to such Interest Period determined as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period.

“Eurodollar Loan” shall mean each Revolving Loan that at the election of any Borrower is bearing interest by reference to LIBOR.

“Event of Default” shall have the meaning specified in Section 8.01.

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

“Existing Competitive Bid Loans” shall mean each “Competitive Bid Loan” under, and as defined in, the Existing Credit Agreement.

“Existing Credit Agreement” shall have the meaning provided in the first WHEREAS clause of this Agreement.

“Existing Lenders” shall mean each of the lenders party to the Existing Credit Agreement on the Second Restatement Effective Date.

“Existing Revolving Loan” shall mean each “Revolving Loan” under, and as defined in, the Existing Credit Agreement.

“Facility Fees” shall have the meaning specified in Section 2.01(a).

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

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“Fees” shall mean all amounts payable pursuant to, or referred to in, Section 2.01.

“Final Maturity Date” shall mean the date occurring 364 days after the Second Restatement Effective Date, or such later date to which the Final Maturity Date shall have been extended pursuant to Section 1.15.

“Financial Guaranty Insurance Policy” shall have the meaning specified in Section 4.02(d).

“Fiscal Year” means any fiscal year of the Borrowers.

“GAAP” shall mean generally accepted accounting principles in the United States of America as in effect on the date of this Agreement.

“Guarantee” by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to secure, purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to provide collateral security, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include: (i) endorsements for collection or deposit in the ordinary course of business; and (ii) in the case of Corp., Debt of others guaranteed by Corp. in the ordinary course of its business. The term “Guarantee” used as a verb has a corresponding meaning.

“Insured Debt” shall mean any debt of Parent or its Subsidiaries that is guaranteed by Corp., provided that the proceeds of such debt are used to purchase securities, instruments, notes or other obligations issued or owed by any Person that is not an Affiliate of Parent, in the ordinary course of business.

“Interest Period” shall mean (a) with respect to any Eurodollar Loan, the interest period applicable thereto, as determined pursuant to Section 1.10 and (b) with respect to any Competitive Bid Loan, the period beginning on the date of incurrence thereof and ending on the stated maturity date thereof.

“Interest Rate Basis” shall mean LIBOR and/or such other basis for determining an interest rate as the Borrowers and the Administrative Agent may agree upon from time to time.

“Japanese Yen” shall mean freely transferable lawful money of Japan.

“Japanese Yen Equivalent” shall mean, at any time for the determination thereof, the amount of Japanese Yen which could be purchased with the amount of Dollars involved in such computation at the spot exchange rate therefor as quoted by Barclays as of 11:00 A.M. (London time) on the date two Business Days prior to the date of any determination thereof for purchase on such date.

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“Japanese Yen LIBOR” shall mean, for each Interest Period applicable to any Loan denominated in Japanese Yen, the rate per annum that appears on page 3750 (or other appropriate page if such currency does not appear on such page) of the Dow Jones Telerate Screen (or any successor page) for Japanese Yen deposits with maturities comparable to such Interest Period as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period or, if such a rate does not appear on page 3750 (or such other appropriate page) of the Dow Jones Telerate Screen (or any successor page), the offered quotations to first-class banks in the London interbank market by Barclays for Japanese Yen deposits of amounts in same day funds comparable to the outstanding principal amount of such Loan with maturities comparable to such Interest Period determined as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period.

“Judgment Currency” shall have the meaning provided in Section 11.16(a).

“Judgment Currency Conversion Date” shall have the meaning provided in Section 11.16(a).

“Lender” or “Lenders” shall have the meaning provided in the first paragraph of this Agreement.

“Lender Default” shall mean (i) the refusal (which has not been retracted) of a Lender to make available its portion of any incurrence of Revolving Loans or (ii) a Lender having notified the Administrative Agent and/or any Borrower that it does not intend to comply with its obligations under Section 1.01, in the case of either clause (i) or (ii) as a result of the appointment of a receiver or conservator with respect to such Lender at the direction or request of any regulatory agency or authority.

“Lender Register” shall have the meaning provided in Section 11.15.

“LIBOR” shall mean (i) with respect to any Borrowing of Loans of an Approved Currency, the relevant interest rate, i.e., U.S. LIBOR, Euro LIBOR, Sterling LIBOR, Japanese Yen LIBOR or Swiss Franc LIBOR, and (ii) with respect to any Borrowing of Competitive Bid Loans of an Other Alternate Currency, such rate per annum as may be agreed upon by the respective Borrower and the respective Bidder Lender.

“Lien” shall mean, with respect to any asset, any mortgage, deed to secure debt, deed of trust, lien, pledge, charge, security interest, security title, preferential arrangement which has the practical effect of constituting a security interest or encumbrance, servitude or encumbrance of any kind in respect of such asset to secure or assure payment of a Debt or a Guarantee, whether by consensual agreement or by operation of statute or other law, or by any agreement, contingent or otherwise, to provide any of the foregoing. For the purposes of this Agreement, Parent or any Subsidiary shall be deemed to own subject to a Lien any asset which they have acquired or hold subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset.

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“Loan” shall mean each Revolving Loan and each Competitive Bid Loan.

“Margin Stock” shall have the meaning provided in Regulation U.

“Material Adverse Effect” shall mean, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences, whether or not related, a material adverse change in, or a material adverse effect upon, any of (a) the rights and remedies of the Administrative Agent or the Lenders under the Credit Documents, or the ability of each Borrower to perform its obligations under the Credit Documents to which it is a party, as applicable, or (b) the legality, validity or enforceability of any Credit Document.

“Material Subsidiary” shall mean any Subsidiary with a Net Worth greater than $5,000,000.

“MBIA Asset Management” shall mean MBIA Asset Management, LLC, a limited liability company organized under the laws of Delaware.

“Minimum Borrowing Amount” shall mean (i) for any Revolving Loans that are Dollar denominated, $2,500,000, (ii) for any Revolving Loans that are Alternate Currency Loans, an amount in the respective Approved Currency having a Dollar Equivalent (determined at the time a Notice of Borrowing is received or a prepayment made) of $2,500,000, (iii) for any Competitive Bid Loans that are Dollar denominated, $1,000,000 and (iv) for any Competitive Bid Loans that are Alternate Currency Loans, an amount in the respective Alternate Currency having a Dollar Equivalent (determined at the time a Notice of Competitive Bid Borrowing is received or a prepayment made) of $1,000,000.

“Multiemployer Plan” shall mean a plan within the meaning of Section 4001(a)(3) of ERISA.

“Net Worth” shall mean, as to any Person, the sum of its capital stock, capital in excess of par or stated value of shares of its capital stock, retained earnings and any other account which, in accordance with GAAP, constitutes stockholders equity, excluding any treasury stock.

“Non-Continuing Lender” shall have the meaning specified in Section 1.15.

“Non-Defaulting Lender” shall mean each Lender other than a Defaulting Lender.

“Note” shall mean each Revolving Note and each Competitive Bid Note.

“Notice of Borrowing” shall have the meaning provided in Section 1.03(a).

“Notice of Competitive Bid Borrowing” shall have the meaning provided in Section 1.04(a).

“Notice of Conversion” shall have the meaning provided in Section 1.07.

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“Notice Office” shall mean the office of the Administrative Agent at 222 Broadway, New York, New York 10038 or such other office as the Administrative Agent may designate to the Borrowers from time to time.

“Obligation Currency” shall have the meaning provided in Section 11.16(a).

“Obligations” shall mean all amounts, direct or indirect, contingent or absolute, of every type or description, and at any time existing, owing to any Agent or any Lender pursuant to the terms of this Agreement or any other Credit Document.

“Other Alternate Currency” shall mean any freely transferable currency other than any Approved Currency.

“Original Effective Date” shall mean August 28, 1998.

“Parent” shall have the meaning provided in the first paragraph of this Agreement.

“Payment Office” shall mean the office of the Administrative Agent at 222 Broadway, New York, New York 10038 or such other office as the Administrative Agent may designate to the Borrowers from time to time.

“PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto.

“Person” shall mean any individual, partnership, limited liability company, joint venture, firm, corporation, association, trust or other enterprise or business entity or any government or political subdivision or any agency, department or instrumentality thereof.

“Plan” shall mean at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (i) maintained by a member of the Controlled Group for employees of any member of the Controlled Group or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding 5 plan years made contributions.

“Pounds Sterling” shall mean freely transferable lawful money of the United Kingdom.

“Primary Alternate Currency” shall mean each of Japanese Yen, Pounds Sterling, Swiss Francs and Euros.

“Prime Lending Rate” shall mean the rate which Barclays announces from time to time as its prime lending rate, the Prime Lending Rate to change when and as such prime lending rate changes. The Prime Lending Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Barclays may make commercial loans or other loans at rates of interest at, above or below the Prime Lending Rate.

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“Principal Amount” shall mean (i) the stated principal amount of each Loan denominated in Dollars, and/or (ii) the Dollar Equivalent of the stated principal amount of each Alternate Currency Loan, as the context may require.

“Recommitment Deadline” shall have the meaning specified in Section 1.15.

“Redeemable Preferred Stock” of any Person shall mean any preferred stock issued by such Person which is at any time prior to the Final Maturity Date either (i) mandatorily redeemable (by sinking fund or similar payments or otherwise) or (ii) redeemable at the option of the holder thereof.

“Regulation U” shall mean Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing margin requirements.

“Regulation X” shall mean Regulation X of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing margin requirements.

“Relevant Currency Equivalent” shall mean the Dollar Equivalent, the Euro Equivalent, the Sterling Equivalent, the Japanese Yen Equivalent or the Swiss Franc Equivalent or the comparable equivalent of any Other Alternate Currency, as the case may be.

“Replaced Lender” shall have the meaning provided in Section 1.14.

“Replacement Lender” shall have the meaning provided in Section 1.14.

“Required Lenders” shall mean at any time Non-Defaulting Lenders having at least a majority of the aggregate Commitments of all Non-Defaulting Lenders; provided that if the Total Commitment has been terminated, then the Required Lenders shall mean Lenders whose outstanding Loans equal or exceed a majority of the aggregate outstanding Loans at such time.

“Revolving Loan” shall have the meaning specified in Section 1.01(a).

“Revolving Note” shall have the meaning provided in Section 1.06(a).

“Second Restatement Effective Date” shall have the meaning provided in Section 4.01.

“Section 3.04 Certificate” shall have the meaning provided in Section 3.04(b)(ii).

“Spread” shall mean a percentage per annum in excess of, or less than, an Interest Rate Basis.

“Spread Borrowing” shall mean a Competitive Bid Borrowing with respect to which a Borrower has requested the Bidder Lenders to make Competitive Bid Loans at a Spread over or under a specified Interest Rate Basis.

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“Statutory Accounting Principles” shall mean statutory accounting principles prescribed by the National Association of Insurance Commissioners that are to be used in making the calculations for purposes of determining compliance with the terms of this Agreement.

“Sterling Equivalent” shall mean, at any time for the determination thereof, the amount of Pounds Sterling which could be purchased with the amount of Dollars involved in such computation at the spot exchange rate therefor as quoted by Barclays as of 11:00 A.M. (London time) on the date two Business Days prior to the date of any determination thereof for purchase on such date.

“Sterling LIBOR” shall mean, with respect to each Interest Period for any Loan denominated in Pounds Sterling, (I) the rate per annum that appears on page 3750 (or other appropriate page if such currency does not appear on such page) of the Dow Jones Telerate Screen (or any successive page) with maturities comparable to such Interest Period as of 11:00 A.M. (London time) on the date which is the commencement date of such Interest Period or, if such a rate does not appear on page 3750 (or such other appropriate page) of the Dow Jones Telerate Screen (or any successor page) the offered quotations to first-class banks in the London interbank Eurodollar market by Barclays for Pounds Sterling deposits of amounts in same day funds comparable to the outstanding principal amount of such Loans with maturities comparable to such Interest Period determined as of 11:00 A.M. (London time) on the date which is the commencement of such Interest Period plus (II) the Associated Cost Rate for such Loans for such Interest Period.

“Subsidiary” of any Person shall mean and include (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries and (ii) any partnership, association, joint venture or other entity in which such Person directly or indirectly through Subsidiaries, has more than a 50% equity interest at the time. Unless otherwise expressly provided, all references herein to “Subsidiary” shall mean a Subsidiary of Parent.

“Swiss Franc Equivalent” shall mean, at any time for the determination thereof, the amount of Swiss Francs which could be purchased with the amount of Dollars involved in such computation at the spot exchange rate therefor as quoted by Barclays as of 11:00 A.M. (London time) on the date two Business Days prior to the date of any determination thereof for purchase on such date.

“Swiss Franc LIBOR” shall mean, for each Interest Period applicable to any Loan denominated in Swiss Francs, the rate per annum that appears on page 3750 (or other appropriate page if such currency does not appear on such page) of the Dow Jones Telerate Screen (or any successor page) for Swiss Franc deposits with maturities comparable to such Interest Period as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period or, if such a rate does not appear on page 3750 (or such other appropriate page) of the Dow Jones Telerate Screen (or any successor page), the offered quotations to first-class

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banks in the London interbank market by Barclays for Swiss Franc deposits of amounts in same day funds comparable to the outstanding principal amount of such Loan with maturities comparable to such Interest Period determined as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period.

“Swiss Francs” shall mean freely transferable lawful money of Switzerland.

“Syndication Agent” shall have the meaning provided in the first paragraph of this Agreement.

“Taxes” shall have the meaning provided in Section 3.04(a).

“Total Commitment” shall mean, at any time, the sum of the Commitments of each of the Lenders at such time.

“Total Unutilized Commitment” shall mean, at any time, (i) the Total Commitment at such time less (ii) the sum of the aggregate Principal Amount of all outstanding Loans at such time.

“Type” shall mean any type of Loan determined with respect to currency and the interest option applicable thereto.

“UCC” shall mean the Uniform Commercial Code.

“US LIBOR” shall mean for each Interest Period applicable to a Loan denominated in Dollars (other than a Base Rate Loan), the rate per annum that appears on page 3750 of the Dow Jones Telerate Screen (or any successor page) for Dollar deposits with maturities comparable to such Interest Period as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period or, if such a rate does not appear on page 3750 of the Dow Jones Telerate Screen (or any successor page), the offered quotations to first-class banks in the London interbank market by Barclays for Dollar deposits of amounts in same day funds comparable to the outstanding principal amount of such Dollar denominated Loan with maturities comparable to such Interest Period determined as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period.

“Wholly-Owned Subsidiary” of any Person shall mean any other Person to the extent all of the capital stock or other ownership interests in such other Person, other than directors’ qualifying shares, is owned directly or indirectly by such first Person.

“Written” or “in writing” shall mean any form of written communication or a communication by means of facsimile transmission, telegraph or cable.

SECTION 10. Agents, etc.

10.01 Appointment. The Lenders hereby designate Barclays as Administrative Agent, KeyBank National Association as Syndication Agent and The Bank of New York as Documentation Agent to act as specified herein and in the other Credit Documents. Each Lender

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hereby irrevocably authorizes, and each holder of any Note by the acceptance of such Note shall be deemed irrevocably to authorize, each Agent to take such action on its behalf under the provisions of this Agreement, the other Credit Documents and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of such Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agents may perform any of their duties hereunder by or through their respective officers, directors, agents, employees or affiliates.

10.02 Nature of Duties. No Agent shall have any duties or responsibilities except those expressly set forth in this Agreement and the other Credit Documents. No Agent or any of its respective officers, directors, agents, employees or affiliates shall be liable for any action taken or omitted by them hereunder or under any other Credit Document or in connection herewith or therewith, unless caused by their gross negligence or willful misconduct. The duties of each Agent shall be mechanical and administrative in nature; no Agent shall have by reason of this Agreement or any other Credit Document a fiduciary relationship in respect of any Lender or the holder of any Note; and nothing in this Agreement or any other Credit Document, expressed or implied, is intended to or shall be so construed as to impose upon either Agent any obligations in respect of this Agreement or any other Credit Document except as expressly set forth herein or therein with respect to such Agent.

10.03 Lack of Reliance on the Agents. Independently and without reliance upon any Agent, each Lender and the holder of each Note, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Borrowers and their Subsidiaries in connection with the making and the continuance of the Loans and the taking or not taking of any action in connection herewith and (ii) its own appraisal of the creditworthiness of the Borrowers and their Subsidiaries and, except as expressly provided in this Agreement, no Agent shall have any duty or responsibility, either initially or on a continuing basis, to provide any Lender or the holder of any Note with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. No Agent shall be responsible to any Lender or the holder of any Note for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of this Agreement or any other Credit Document or the financial condition of the Borrowers and their Subsidiaries or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Credit Document, or the financial condition of the Borrowers and their Subsidiaries or the existence or possible existence of any Default or Event of Default.

10.04 Certain Rights of the Agents. If any Agent shall request instructions from the Required Lenders with respect to any act or action (including failure to act) in connection with this Agreement or any other Credit Document, such Agent shall be entitled to refrain from such act or taking such action unless and until such Agent shall have received instructions from the Required Lenders; and no Agent shall incur liability to any Person by reason of so refraining. Without limiting the foregoing, neither any Lender nor the holder of any Note shall have any right of action whatsoever against an Agent as a result of such Agent acting or refraining from acting hereunder or under any other Credit Document in accordance with the instructions of the Required Lenders.

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10.05 Reliance. Each Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype, facsimile or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by any Person that such Agent believed to be the proper Person, and, with respect to all legal matters pertaining to this Agreement and any other Credit Document and its duties hereunder and thereunder, upon advice of counsel selected by such Agent.

10.06 Indemnification. To the extent an Agent is not reimbursed and indemnified by the Borrowers, the Lenders will reimburse and indemnify such Agent, in proportion to their respective “percentages” as used in determining the Required Lenders, for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by such Agent in performing its respective duties hereunder or under any other Credit Document, in any way relating to or arising out of this Agreement or any other Credit Document provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of such Agent.

10.07 The Agents in Their Individual Capacities. With respect to its obligation to make Loans under this Agreement, each Agent shall have the rights and powers specified herein for a “Lender” and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term “Lenders,” “Required Lenders,” “holders of Notes” or any similar terms shall, unless the context clearly otherwise indicates, include the Agents in their individual capacities. Each Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with any Borrower or any Affiliate of any Borrower as if they were not performing the duties specified herein, and may accept fees and other consideration from any Borrower for services in connection with this Agreement and otherwise without having to account for the same to the Lenders.

10.08 Holders. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Administrative Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee, assignee or indorsee, as the case may be, of such Note or of any Note or Notes issued in exchange therefor.

10.09 Resignation by an Agent. (a) The Administrative Agent may resign from the performance of all its functions and duties hereunder and/or under the other Credit Documents at any time by giving 15 Business Days’ prior written notice to the Borrowers and the Lenders. Such resignation shall take effect upon the appointment of a successor Administrative Agent pursuant to clauses (b) and (c) below or as otherwise provided below. Upon the effectiveness of such resignation, the resigning Administrative Agent shall return to Parent and/or Corp. a pro-rated portion of any administrative fee that has been paid in advance for the period following the effectiveness of its resignation.

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(b) Upon any such notice of resignation, the Required Lenders shall appoint a successor Administrative Agent hereunder who shall be a Lender, commercial bank or trust company reasonably acceptable to Parent and Corp.

(c) If a successor Administrative Agent shall not have been so appointed within such 15 Business Day period, the Administrative Agent, with the consent of Parent and Corp., shall then appoint a successor Administrative Agent who shall serve as Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided above.

(d) The Syndication Agent and the Documentation Agent may resign from the performance of all of its functions and duties hereunder and/or under the other Credit Documents in such capacity at any time by giving five Business Days’ prior written notice to the Lenders. Such resignation shall take effect at the end of such five Business Days.

10.10 Syndication Agent; Documentation Agent. Nothing in this Agreement shall impose on the Syndication Agent or the Documentation Agent, in each of their respective capacities as such, any duties or obligations.

SECTION 11. Miscellaneous.

11.01 Payment of Expenses, etc. The Borrowers jointly and severally agree to: (i) pay all reasonable out-of-pocket costs and expenses (1) of the Administrative Agent in connection with the negotiation, syndication, preparation, execution and delivery of the Credit Documents and the documents and instruments referred to therein and any amendment, waiver or consent relating thereto (including, without limitation, the reasonable fees and disbursements of White & Case LLP) and (2) of the Agents and each of the Lenders in connection with the enforcement of the Credit Documents and the documents and instruments referred to therein (including, without limitation, the reasonable fees and disbursements of counsel for each Agent and for each of the Lenders); (ii) pay and hold each of the Agents and Lenders harmless from and against any and all present and future stamp, VAT and other similar taxes with respect to the foregoing matters and/or fees and save each of the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Lender) to pay such taxes; and (iii) indemnify each Lender (including in its capacity as an Agent), its officers, directors, employees, representatives and agents from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, an investigation, litigation or other proceeding (whether or not an Agent or any Lender is a party thereto and whether or not any such investigation, litigation or other proceeding is between or among an Agent, any Lender, or any third Person or otherwise) related to the entering into and/or performance of any Credit Document or the use of the proceeds of any Loans hereunder or the consummation of any transactions contemplated in any Credit Document, and in each case, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding (but excluding any such losses, liabilities, claims, damages or expenses to the extent incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified).

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11.02 Lender Enforceability Opinions. Within 45 days following the Second Restatement Effective Date, each Lender (other then Existing Lenders) upon the request by Parent or Corp., agrees to deliver to Parent and Corp. an opinion or opinions (as applicable) of counsel to such Lender (which opinion or opinions may be from internal counsel to such Lender) substantially in the form of Exhibit J or in such other form as is reasonably acceptable to Parent and Corp. relating to the enforceability of such Lender’s obligations under the Credit Documents. Upon a Lender first becoming a party hereunder after the Second Restatement Effective Date pursuant to Section 1.14, 1.16 or 11.04, such Lender agrees to deliver to Parent and Corp. unless such opinion has been waived by Parent and Corp. an opinion or opinions (as applicable) of counsel to such Lender (which opinion or opinions may be from internal counsel to such Lender) substantially in the form of Exhibit J or in such other form as is reasonably acceptable to Parent and Corp. relating to the enforceability of such Lender’s obligations under the Credit Documents. Notwithstanding the foregoing, the failure by a Lender to provide the opinion or opinions referred to in this Section 11.02 shall not affect any of the obligations of the Borrowers hereunder or under the other Credit Documents.

11.03 Notices. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telecopier or facsimile) and mailed, telecopied, faxed or delivered, if to a Borrower, at the address specified opposite its signature below or in the other relevant Credit Documents, as the case may be; if to any Lender or the Administrative Agent, at its address specified for such Lender or the Administrative Agent on Annex II hereto; or, at such other address as shall be designated by any party in a written notice to the other parties hereto. All such notices and communications shall be mailed, telecopied or sent by overnight courier, and shall be effective when received.

11.04 Benefit of Agreement. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that no Borrower may assign or transfer any of its rights or obligations hereunder without the prior written consent of the Lenders. Each Lender may at any time grant participations in any of its rights hereunder or under any of the Notes to any Person, provided that (x) in the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Credit Documents (the participant’s rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the participant relating thereto) and all amounts payable by the Borrowers hereunder shall be determined as if such Lender had not sold such participation, except that the participant shall be entitled to the benefits of Sections 1.11 and 3.04 of this Agreement to the extent that such Lender would be entitled to such benefits if the participation had not been entered into or sold and (y) no Lender shall transfer, grant or assign any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would extend the final scheduled maturity of any Loan or Note in which such participant is participating, or reduce the rate or extend the time of payment of interest or Fees thereon (except in connection with a waiver of the applicability of any post-default increase in interest rates), or reduce the principal amount thereof, or increase such participant’s participating interest in any Commitment over the

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amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Total Commitment, or a mandatory prepayment, shall not constitute a change in the terms of any Commitment).

(b) Notwithstanding the foregoing, (x) any Lender may assign all or a portion of its Commitment and its rights and obligations hereunder to another Lender (or an Affiliate of such assigning Lender), and (y) with the consent of the Administrative Agent and, so long as no Default under Section 8.01(a) or 8.01(h) or Event of Default exists, Parent (which consent shall not be unreasonably withheld), any Lender may assign all or a portion of its Commitment and its rights and obligations hereunder to one or more Persons. No assignment pursuant to the immediately preceding sentence by a Lender (or by Lenders which are Affiliates of each other) shall to the extent such assignment represents an assignment to an institution other than one or more Lenders hereunder (or to an Affiliate of an assigning Lender), be in an aggregate amount less than $10,000,000 unless the entire Commitment of the assigning Lender (or group of Lenders which are Affiliates) is so assigned. If any Lender so sells or assigns all or a part of its rights hereunder or under the Notes, any reference in this Agreement or the Notes to such assigning Lender shall thereafter refer to such Lender and to the respective assignee to the extent of their respective interests and the respective assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights and benefits as it would if it were such assigning Lender. Each assignment pursuant to this Section 11.04(b) shall be effected by the assigning Lender and the assignee Lender executing an Assignment Agreement (appropriately completed). At the time of any such assignment, (i) either the assigning or the assignee Lender shall pay to the Administrative Agent a nonrefundable assignment fee of $3,500, (ii) Annex I shall be deemed to be amended to reflect the Commitment of the respective assignee (which shall result in a direct reduction to the Commitment of the assigning Lender) and of the other Lenders, and (iii) the Borrowers at such time will issue new Notes to the respective assignee and to the assigning Lender in conformity with the requirements of Section 1.06. To the extent any assignment pursuant to this Section 11.04(b) is to a Person which is not already a Lender hereunder and which is not a United States Person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective assignee Lender shall provide to Parent and the Administrative Agent the appropriate Internal Revenue Service Forms (and, if applicable, a Section 3.04 Certificate) described in Section 3.04(b). To the extent that an assignment of all or any portion of a Lender’s Commitments and related outstanding obligations pursuant to this Section 11.04(b) would, at the time of such assignment, result in increased costs under Section 1.11 or 3.04 from those being charged by the respective assigning bank prior to such assignment, then the Borrowers shall not be obligated to pay such increased costs (although the Borrowers shall be obligated to pay any other increased costs of the type described above resulting from changes specified in said Section 1.11 or 3.04 occurring after the date of the respective assignment). Each Lender and the Borrowers agree to execute such documents (including without limitation amendments to this Agreement and the other Credit Documents) as shall be necessary to effect the foregoing. Nothing in this clause (b) shall prevent or prohibit any Lender from pledging its Notes or Loans to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank.

(c) Notwithstanding any other provisions of this Section 11.04, no transfer or assignment of the interests or obligations of any Lender hereunder or any grant of participation therein shall be permitted if such transfer, assignment or grant would require any Borrower to file a registration statement with the Securities and Exchange Commission or to qualify the Loans under the “Blue Sky” laws of any State.

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11.05 No Waiver; Remedies Cumulative. No failure or delay on the part of any Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which any Agent or any Lender would otherwise have.

11.06 Payments Pro Rata. (a) The Administrative Agent agrees that promptly after its receipt of each payment from or on behalf of any Borrower in respect of any Obligations of such Borrower hereunder, it shall distribute such payment to the Lenders (other than any Lender that has expressly waived its right to receive its pro rata share thereof) pro rata based upon their respective shares, if any, of the Obligations with respect to which such payment was received.

(b) Each of the Lenders agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker’s lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise) which is applicable to the payment of the principal of, or interest on, the Loans or Fees, of a sum which with respect to the related sum or sums received by other Lenders is in a greater proportion than the total of such Obligation then owed and due to such Lender bears to the total of such Obligation then owed and due to all of the Lenders immediately prior to such receipt, then such Lender receiving such excess payment shall purchase for cash without recourse or warranty from the other Lenders an interest in the Obligations of the respective Borrower to such Lenders in such amount as shall result in a proportional participation by all of the Lenders in such amount, provided that if all or any portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest.

(c) Notwithstanding anything to the contrary contained herein, the provisions of the preceding Sections 11.06(a) and (b) shall be subject to the express provisions of this Agreement which require, or permit, differing payments to be made to Non-Defaulting Lenders as opposed to Defaulting Lenders.

11.07 Calculations; Computations. (a) The financial statements to be furnished to the Lenders pursuant hereto shall be made and prepared in conformity with GAAP or Statutory Accounting Principles, as the case may be, consistently applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the Borrowers to the Lenders and with respect to any interim financial statements, subject to changes resulting from audit and normal year-end audit adjustments), provided that (x) except as otherwise specifically provided herein, all computations determining compliance with Sections 7.07 and 7.08, including definitions used therein, shall utilize accounting principles and policies in effect at the time of the preparation of, and in conformity with those used to prepare, the December 31, 2002 financial statements delivered to the Lenders pursuant to Section 5.04(a) and

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(y) if at any time the computations determining compliance with Sections 7.07 and 7.08 utilize accounting principles different from those utilized in the financial statements furnished to the Lenders, such financial statements shall be accompanied by reconciliation work-sheets.

(b) All computations of interest and Fees hereunder shall be made on the actual number of days elapsed over a year of 360 days (365-366 days for interest on Base Rate Loans when the Base Rate is based on the Prime Lending Rate).

(c) For purposes of this Agreement, the Dollar Equivalent of each Loan that is an Alternate Currency Loan shall be calculated on the date when any such Loan is made, on the second Business Day of each month and at such other times as designated by the Administrative Agent at any time when a Default or an Event of Default exists. Such Dollar Equivalent shall remain in effect until the same is recalculated by the Administrative Agent as provided above and notice of such recalculation is received by the Borrowers, it being understood that until such notice is received, the Dollar Equivalent shall be that Dollar Equivalent as last reported to the Borrowers by the Administrative Agent. The Administrative Agent shall promptly notify the Borrowers and the Lenders of each such determination of the Dollar Equivalent.

11.08 Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. Any legal action or proceeding with respect to this Agreement or any other Credit Document may be brought in the courts of the State of New York or of the United States for the Southern District of New York, and, by execution and delivery of this Agreement, each Borrower hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each Borrower further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it, to the extent located outside New York City, or by hand, to the extent located within New York City, at its address for notices pursuant to Section 11.03, such service to become effective 30 days after such mailing. Nothing herein shall affect the right of any Agent or any Lender to serve process in any manner permitted by law or to commence legal proceedings or otherwise proceed against any Borrower in any other jurisdiction.

(b) Each Borrower each hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Credit Document brought in the courts referred to in clause (a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum.

(c) Each of the parties to this Agreement hereby irrevocably waives all right to a trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement, the other Credit Documents or the transactions contemplated hereby or thereby.

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11.09 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with Parent, Corp. and the Administrative Agent.

11.10 Headings Descriptive. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement.

11.11 Amendment or Waiver. Neither this Agreement nor any other Credit Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Borrowers and the Required Lenders, provided that no such change, waiver, discharge or termination shall, without the consent of each Lender (other than a Defaulting Lender) directly affected thereby, (i) extend the Final Maturity Date or reduce the rate or extend the time of payment of interest (other than as a result of waiving the applicability of any post-default increase in interest rates) or Fees or other amounts payable hereunder, or reduce the principal amount thereof, or increase the Commitment of any Lender over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Total Commitment shall not constitute a change in the terms of any Commitment of any Lender), (ii) amend, modify or waive any provision of this Section 11.11 or of Section 4.02(d), (iii) reduce the percentage specified in, or (except to give effect to any additional facilities hereunder) otherwise modify, the definition of Required Lenders, or (iv) consent to the assignment or transfer by any Borrower of any of its rights and obligations under this Agreement.

11.12 Survival. All indemnities set forth herein including, without limitation, in Section 1.11, 1.12 or 3.04 shall survive the execution and delivery of this Agreement and the making and repayment of the Loans.

11.13 Domicile of Loans. Each Lender may transfer and carry its Loans at, to or for the account of any branch office, Subsidiary or affiliate of such Lender, provided that the Borrowers shall not be responsible for costs arising under Section 1.11 or 3.04 resulting from any such transfer (other than a transfer pursuant to Section 1.13 or 1.14) to the extent not otherwise applicable to such Lender prior to such transfer.

11.14 Confidentiality. Subject to Section 11.04, the Lenders shall hold all non-public information obtained pursuant to the requirements of this Agreement in accordance with its customary procedure for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure to its Affiliates, employees, auditors, advisors or counsel or as reasonably required by any bona fide transferee or participant in connection with the contemplated transfer of any Loans or participation therein (so long as such transferee or participant agrees to be bound by the provisions of this Section 11.14) or as required or requested by any governmental agency or representative thereof or pursuant to legal process, provided that, unless specifically prohibited by applicable law or court order, each Lender shall notify Parent of any request by any governmental agency or representative thereof (other than any such request in connection with an examination of the financial condition

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of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information, and provided further that in no event shall any Lender be obligated or required to return any materials furnished by Parent or any of its Subsidiaries.

11.15 Lender Register. Each Borrower hereby designates the Administrative Agent to serve as its agent, solely for purposes of this Section 11.15, to maintain a register (the “Lender Register”) on which it will record the Commitments from time to time of each of the Lenders, the Loans made by each of the Lenders and each repayment in respect of the principal amount of the Loans of each Lender. Failure to make any such recordation, or any error in such recordation, shall not affect the Borrowers’ obligations in respect of such Loans. With respect to any Lender, the transfer of the Commitments of such Lender and the rights to the principal of, and interest on, any Loan made pursuant to such Commitments shall not be effective until such transfer is recorded on the Lender Register maintained by the Administrative Agent with respect to ownership of such Commitments and Loans and prior to such recordation all amounts owing to the transferor with respect to such Commitments and Loans shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Commitments and Loans shall be recorded by the Administrative Agent on the Lender Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Assignment Agreement pursuant to Section 11.04(b). The Borrowers jointly and severally agree to indemnify the Administrative Agent from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by the Administrative Agent in performing its duties under this Section 11.15 other than those resulting from the Administrative Agent’s willful misconduct or gross negligence.

11.16 Judgment Currency. (a) The Borrowers’ obligations hereunder and under the other Credit Documents to make payments in the applicable Approved Currency or Other Alternate Currency (the “Obligation Currency”) shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any currency other than the Obligation Currency, except to the extent that such tender or recovery results in the effective receipt by the Administrative Agent or the respective Lender of the full amount of the Obligation Currency expressed to be payable to the Administrative Agent or such Lender under this Agreement or the other Credit Documents. If, for the purpose of obtaining or enforcing judgment against any Borrowers in any court or in any jurisdiction, it becomes necessary to convert into or from any currency other than the Obligation Currency (such other currency being hereinafter referred to as the “Judgment Currency”) an amount due in the Obligation Currency, the conversion shall be made at the Relevant Currency Equivalent, and, in the case of other currencies, the rate of exchange (as quoted by the Administrative Agent or if the Administrative Agent does not quote a rate of exchange on such currency, by a known dealer in such currency designated by the Administrative Agent) determined, in each case, as of the Business Day immediately preceding the day on which the judgment is given (such Business Day being hereinafter referred to as the “Judgment Currency Conversion Date”).

(b) If there is a change in the rate of exchange prevailing between the Judgment Currency Conversion Date and the date of actual payment of the amount due, the Borrowers covenant and agree to pay, or cause to be paid, such additional amounts, if any (but in any event not a lesser amount) as may be necessary to ensure that the amount paid in the

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Judgment Currency, when converted at the rate of exchange prevailing on the date of payment, will produce the amount of the Obligation Currency which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial award at the rate of exchange prevailing on the Judgment Currency Conversion Date.

(c) For purposes of determining the Relevant Currency Equivalent or any other rate of exchange for this Section, such amounts shall include any premium and costs payable in connection with the purchase of the Obligation Currency.

11.17 Euro. (a) If at any time that an Alternate Currency Loan is outstanding, the relevant Alternate Currency is fully replaced as the lawful currency of the country that issued such Alternate Currency (the “Issuing Country”) by the Euro so that all payments are to be made in the Issuing Country in Euros and not in the Alternate Currency previously the lawful currency of such country, then such Alternate Currency Loan shall be automatically converted into a Loan denominated in Euros in a principal amount equal to the amount of Euros into which the principal amount of such Alternate Currency Loan would be converted pursuant to the EMU Legislation and thereafter no further Loans will be available in such Alternate Currency, with the basis of accrual of interest, notices requirements and payment offices with respect to such converted Loans to be that consistent with the convention and practices in the London interbank market for Euro denominated Loans.

(b) The applicable Borrowers shall from time to time, at the request of any Lender, pay to such Lender the amount of any losses, damages, liabilities, claims, reduction in yield, additional expense, increased cost, reduction in any amount payable, reduction in the effective return of its capital, the decrease or delay in the payment of interest or any other return forgone by such Lender or its affiliates as a result of the tax or currency exchange resulting from the introduction, changeover to or operation of the Euro in any applicable nation or eurocurrency market.

* * *

-55-

IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written.

MBIA Inc.	MBIA INC.,
113 King Street	as a Borrower
Armonk, NY 10504
Tel: (914) 765-3327
Fax: (914) 765-3410
Attention: Joseph Sevely
	By:	/s/ Joseph Sevely
with a copy to:		Name:	Joseph Sevely
		Title:	Treasurer
113 King Street
Armonk, NY 10504
Tel: (914) 765-3213
Fax: (914) 765-3410
Attention: Karen M. Wagner
MBIA Insurance Corporation	MBIA INSURANCE CORPORATION,
113 King Street	as a Borrower
Armonk, New York 10504
Tel: (914) 765-3327
Fax: (914) 765-3410
Attention: Joseph Sevely
	By:	/s/ Joseph Sevely
with a copy to:		Name:	Joseph Sevely
		Title:	Treasurer
113 King Street
Armonk, NY 10504
Tel: (914) 765-3213
Fax: (914) 765-3410
Attention: Karen M. Wagner

BARCLAYS BANK PLC,
Individually and as Administrative Agent
By:	/s/ Alison A. McGuigan
	Name:	Alison A. McGuigan
	Title:	Associate Director
KEYBANK NATIONAL ASSOCIATION,
Individually and as Syndication Agent
By:	/s/ Mary K. Young
	Name:	Mary K. Young
	Title:	Vice President
THE BANK OF NEW YORK,
Individually and as Documentation Agent
By:	/s/ David Trick
	Name:	David Trick
	Title:	Vice President
JPMORGAN CHASE BANK
By:	/s/ Marybeth Mullen
	Name:	Marybeth Mullen
	Title:	Vice President
FLEET NATIONAL BANK
By:	/s/ George J. Urban
	Name:	George J. Urban
	Title:	Portfolio Manager

NATIONAL AUSTRALIA BANK LIMITED
By:	/s/ Michael G. McHugh
	Name:	Michael G. McHugh
	Title:	Senior Vice President
WELLS FARGO BANK, NATIONAL ASSOCIATION
By:	/s/ Robert C. Meyer
	Name:	Robert C. Meyer
	Title:	Vice President
By:	/s/ Beth McGinnis
	Name:	Beth McGinnis
	Title:	Vice President
BANK OF AMERICA, N.A.
By:	/s/ Joan D’Amico
	Name:	Joan D’Amico
	Title:	Managing Director
DEUTSCHE BANK AG NEW YORK BRANCH
By:	/s/ Ruth Leung
	Name:	Ruth Leung
	Title:	Director
By:	/s/ Clinton Johnson
	Name:	Clinton Johnson
	Title:	Managing Director

BANK ONE, N.A.
By:	/s/ Gretchen Roetzer
	Name:	Gretchen Roetzer
	Title:	Director
COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A.,”RABOBANK INTERNATIONAL”, NEW YORK BRANCH
By:	/s/ Raymond K. Miller
	Name:	Raymond K. Miller
	Title:	Managing Director
By:	/s/ Angela R. Reilly
	Name:	Angela R. Reilly
	Title:	Executive Director
NORDDEUTSCHE LANDESBANK GIROZENTRALE NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH
By:	/s/ Georg L. Peters
	Name:	Georg L. Peters
	Title:	Vice President
By:	/s/ Jan de Jonge
	Name:	Jan de Jonge
	Title:	Vice President

CAJA MADRID
By:	/s/ Paul Barrabés
	Name:	Paul Barrabés
	Title:	Head of Industrialised Markets
By:	/s/ Enrique Tierno Pérez-Relaño
	Name:	Enrique Tierno Pérez-Relaño
	Title:	Head of International Financial Institutions

ANNEX 1

COMMITMENTS

Lender	Commitment
Barclays Bank plc	$	34,000,000
KeyBank National Association	$	33,300,000
The Bank of New York	$	29,300,000
JPMorgan Chase Bank	$	21,700,000
Fleet National Bank	$	16,700,000
National Australia Bank Limited	$	16,700,000
Wells Fargo Bank, National Association	$	16,700,000
Bank of America, N.A.	$	15,000,000
Deutsche Bank AG New York Branch and/or Cayman Islands Branch	$	10,000,000
Bank One, N.A.	$	8,300,000
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank International”, New York Branch	$	8,300,000
Norddeutsche Landesbank Girozentrale New York Branch and/or Cayman Islands Branch	$	8,300,000
Caja Madrid	$	6,700,000
Total	$	225,000,000

ANNEX II

LENDER ADDRESSES

Barclays Bank plc	200 Park Avenue New York, NY 10166 Attn:     Alison Mcguigan Tel:        (212) 412-7672 Fax:        (212) 412-5610 e-mail: alison.mcguigan@barcap.com
KeyBank National Association	127 Public Square, 6th Floor Cleveland, OH 44114 Attn:     Mary K. Young Tel:        (216) 689-4443 Fax:        (216) 689-4981 e-mail: mary_k_young@keybank.com
The Bank of New York	One Wall Street New York, NY 10286 Attn:     David Trick Tel:        (212) 635-1064 Fax:        (212) 809-9520 e-mail: dtrick@bankofny.com
JPMorgan Chase	270 Park Avenue New York, NY 10017 Attn:     Marybeth Mullen Tel:        (212) 270-5049 Fax:        (212) 270-0670 e-mail: marybeth.mullen@chase.com
Fleet National Bank	777 Main Street Hartford, CT 06115 Attn:     George Urban Tel:        (860) 952-7565 Fax:        (860) 986-1264 e-mail: george_j_urban@fleet.com
National Australia Bank Limited, New York Branch ACN 004044937	200 Park Avenue, Floor 34 New York, NY 10166 Attn:     Mike McHugh Tel:        (212) 916-9559 Fax:        (212) 983-1969 e-mail: mmchugh@nabny.com

Annex II

Page 2

Wells Fargo Bank, National Association	230 W. Monroe Street, Suite 2900 Chicago, IL 60606 Attn:     Robert Meyer Tel:        (312) 345-8623 Fax:        (312) 845-6606 e-mail: meyerrc@wellsfargo.com
Bank of America, N.A.	901 Main Street, 66th Floor Dallas, TX 75201 Attn:     Joan D’Amico Tel:        (214) 209-3307 Fax:        (214) 209-3742 e-mail: joan.damico@bankofamerica.com with a copy to: 901 Main Street, 66th Floor Dallas, TX 75201 Attn:     Jim Miller Tel:        (214) 209-0559 Fax:        (214) 209-3742 e-mail: jim.v.miller@bankofamerica.com
Deutsche Bank AG New York Branch	31 West 52nd Street, 23rd Floor New York, NY 10019 Attn:     Ruth Leung Tel:        (212) 469-8650 Fax:    (212) 469-8366 e-mail: ruth.leung@db.com
Bank One, N.A.	153 West 51st Street New York, NY 10019 Attn:     Mark Goldstein Tel:        (212) 373-1169 Fax:        (212) 373-1439 e-mail: mark_goldstein@bankone.com with a copy to: 1 Bank One Plaza, Suite IL1-0085 Chicago, IL 60670 Attn:     Gretchen K. Roetzer Tel:        (312) 732-8068 Fax:        (312) 732-4033 e-mail: gretchen_k_roetzer@bankone.com

Annex II

Page 3

Rabobank International	245 Park Avenue New York, NY 10167 Attn:     Angela Reilly Tel:        (212) 916-7919 Fax:        (212) 808-2579 e-mail: a.r.reilly@nyc.rabobank.com
Norddeutsche Landesbank Girozentrale New York Branch and/or Cayman Islands Branch	1114 Avenue of the Americas New York, NY 10036 Attn:     Georg Peters Tel:        (212) 812-6993 Fax:        (212) 812-6860 e-mail: georg.peters@nordlb.com
Caja Madrid	Torre Caja Madrid P.o de la Castellana, 189 28046 Madrid, Spain Attn:     Beatrice Alvarez Orejas Tel:        34-91-423-95-66 Fax:        34-91-423-95-93 e-mail: balvareo@cajamadrid.es

ANNEX III

SUBSIDIARIES OF MBIA INC.

NAME OF SUBSIDIARY	JURISDICTION OF INCORPORATION
MBIA Insurance Corporation	New York
Municipal Issuers Service Corporation	New York
MBIA Insurance Corp. of Illinois	Illinois
MBIA Asset Management, LLC	Delaware
MBIA Municipal Investors Service Corporation	Delaware
Colorado Investor Services Corporation	Colorado
MBIA Investment Management Corp.	Delaware
MBIA Capital Management Corp.	Delaware
1838 Investment Advisors, LLC	Delaware
1838 Delaware Holding, LLC	Delaware
MBIA Capital Corp.	Delaware
Muni Resources, LLC	Delaware
MBIA International Marketing Services, Pty. Limited	Australia
MBIA Assurance S.A.	France
MBIA Singapore Pte Ltd.	Singapore
MBIA Japan Limited	Japan
MBIA UK Limited	England and Wales
MBIA Global Funding, LLC	Delaware
MBIA Asset Finance, LLC	Delaware
Assurance Funding Limited	Jersey
MBIA Services Company	Delaware
MBIA MuniServices Company	Delaware
Municipal Tax Collection Bureau, Inc.	Pennsylvania
John T. Austin, Inc.	California
Allen W. Charkow, Inc.	California
Municipal Resource Consultants	California
Capital Asset Holdings, Ltd.	Florida
CapMAC Holdings Inc.	Delaware
Capital Markets Assurance Corporation	New York
CapMAC Investment Management, Inc.	Delaware
CapMAC Financial Services, Inc.	Delaware
CapMAC Financial Services (Europe) Ltd.	England and Wales
CapMAC Asia Ltd.	Bermuda

ANNEX IV

CALCULATION OF ASSOCIATED COST RATE FOR

REVOLVING LOANS AND COMPETITIVE BID LOANS

The Associated Cost Rate for any Revolving Loan or Competitive Bid Loan denominated in Pounds Sterling or Euros will be the rate determined by the Administrative Agent (rounded upward, if necessary, to four decimal places) in accordance with the following formula (expressed as a percentage per annum):

CL + S(L - Z) + 0.01F

100 - (C+S)

Where on the day of application of the formula:

C The amount required to be held as a non-interest bearing cash ratio deposit with the Bank of England expressed as a percentage of the Administrative Agent’s Eligible Liabilities (above any stated minimum).

F The amount of Pounds Sterling per £1,000,000 or Euros per €1,000,000, as the case may be, of the fee base of the Administrative Agent payable to the Financial Services Authority per annum (disregarding any minimum fee payable under the Fees Regulations).

L The rate of interest per annum at which Euros or Pounds Sterling deposits, as the case may be, of an amount comparable to the applicable Loan or other amount are offered by the Administrative Agent to leading banks in the London interbank market at or about 11:00 A.M. (London time) on the date of calculation for a period comparable to the period for which the Associated Cost Rate is to be calculated; or

Euro LIBOR or Sterling LIBOR, as the case may be, for the relevant day is the rate of interest (without taking into account the Applicable Margin or the Associated Cost Rate) payable on that day on the related Revolving Loan or Competitive Bid Loan, as the case may be, denominated in Euros or Pounds Sterling pursuant to Section 1.09 of this Agreement.

S The amount required to be placed as Special Deposits with the Bank of England, expressed as a percentage of the Administrative Agent’s Eligible Liabilities (above any stated minimum).

Z The lower of L and the rate of interest per annum paid by the Bank of England on Special Deposits at or about 11:00 A.M. (London time) on the date of calculation.

For the purposes of calculating the Associated Cost Rate:

(i) C, L, S and Z are included in the formula as numbers and not as percentages, e.g. if C = 0.15 percent and L = 7 percent, CL is calculated at 0.15 x 7;

Annex IV

Page 2

(ii) the formula is applied on the first day of each period for which it falls to be calculated (and the result shall apply for the duration of such period);

(iii) each amount is rounded up to the nearest four decimal places; and

(iv) if the formula produces a negative percentage, the percentage shall be taken as zero.

If alternative or additional financial requirements are imposed by the Bank of England, the Financial Services Authority or any other fiscal, monetary or governmental authority or agency (including the European Central Bank) which in the Administrative Agent’s reasonable opinion make the above formula (or any element thereof, or any defined term used therein) no longer appropriate, the Administrative Agent (following consultation with each applicable Borrower and the Required Lenders) shall be entitled by notice to the Borrower to stipulate such other formula as shall be suitable to apply in substitution for the above formulae. Any such variation shall, in the absence of manifest error, be conclusive and binding on all parties and shall apply from the date specified in such notice.

For the purposes of this Schedule:

“Bank of England Act” means the Bank of England Act 1998;

“Eligible Liabilities” has the meaning given to that term in the Cash Ratio Deposits (Eligible Liabilities) Order 1998 or the applicable substitute order made under the Bank of England Act as in force on the date of application of the formula;

“Fee Base” has the meaning given to that term in the Fees Regulations;

“Fees Regulations” means the Banking Supervision (Fees) Regulations 2001 or the applicable substitute regulations made under the Bank of England Act as are in force on the date of application of the formula; and

“Special Deposits” has the meaning given to that term by the Bank of England on the date of application of the formula.

Any reference to a provision of any statute, directive, order or regulation herein is a reference to that provision as amended or re-enacted from time to time.

EX-10.15

CONFORMED AS EXECUTED

EXHIBIT 10.15

SECOND AMENDED AND RESTATED CREDIT AGREEMENT

among

MBIA INC.,

MBIA INSURANCE CORPORATION,

VARIOUS DESIGNATED BORROWERS,

VARIOUS LENDING INSTITUTIONS,

KEYBANK NATIONAL ASSOCIATION,

AS SYNDICATION AGENT,

THE BANK OF NEW YORK,

AS DOCUMENTATION AGENT

AND

BARCLAYS BANK PLC,

AS ADMINISTRATIVE AGENT

AND LEAD ARRANGER

Dated as of August 28, 1998

and

amended and restated as of April 19, 2002

and

further amended and restated as of April 16, 2003

$450,000,000

TABLE OF CONTENTS

		Page
SECTION 1. Amount and Terms of Credit		1
1.01	Commitment	1
1.02	Minimum Borrowing Amounts, etc.	3
1.03	Notice of Borrowing	3
1.04	Competitive Bid Borrowings	4
1.05	Disbursement of Funds	6
1.06	Notes	7
1.07	Conversions	8
1.08	Pro Rata Borrowings, etc.	8
1.09	Interest	8
1.10	Interest Periods	10
1.11	Increased Costs, Illegality, etc.	11
1.12	Compensation	13
1.13	Change of Lending Office	14
1.14	Replacement of Lenders	14
1.15	Extension of Final Maturity Date; Replacement of Non-Continuing Lender	15
1.16	Additional Commitments	15
1.17	Designated Borrowers	16
1.18	Retroactivity	17
SECTION 2. Fees; Commitments		17
2.01	Fees	17
2.02	Voluntary Reduction of Commitments	17
2.03	Mandatory Reduction of Commitments	17
SECTION 3. Payments		18
3.01	Voluntary Prepayments	18
3.02	Mandatory Prepayments and Repayments	18
3.03	Method and Place of Payment	20
3.04	Net Payments	20
SECTION 4. Conditions Precedent		23
4.01	Conditions Precedent to the Second Restatement Effective Date	23
4.02	Conditions Precedent to Loans	25
SECTION 5. Representations, Warranties and Agreements		25
5.01	Corporate Existence and Power	26
5.02	Corporate and Governmental Authorization; No Contravention	26
5.03	Binding Effect	26
5.04	Financial Information	26
5.05	Litigation	26

(i)

Table of Contents (continued)

		Page
5.06	Compliance with ERISA	27
5.07	Taxes	27
5.08	Subsidiaries	27
5.09	Not an Investment Company	27
5.10	Public Utility Holding Company Act	27
5.11	Ownership of Property; Liens	27
5.12	No Default	27
5.13	Full Disclosure	27
5.14	Compliance with Laws	28
5.15	Capital Stock	28
5.16	Margin Stock	28
5.17	Insolvency	28
5.18	Ranking	28
SECTION 6. Affirmative Covenants		28
6.01	Information Covenants	28
6.02	Books, Records and Inspections	30
6.03	Maintenance of Existence	30
6.04	Compliance with Laws; Payment of Taxes	31
6.05	Insurance	31
6.06	Maintenance of Property	31
SECTION 7. Negative Covenants		31
7.01	Liens	31
7.02	Dissolution	32
7.03	Consolidations, Mergers and Sales of Assets	32
7.04	Use of Proceeds	32
7.05	Change in Fiscal Year	32
7.06	Transactions with Affiliates	32
7.07	Leverage Ratio	32
7.08	Minimum Net Worth	32
SECTION 8. Defaults		32
8.01	Events of Default	32
8.02	Notice of Default	35
SECTION 9. Definitions		35
SECTION 10. Agents, etc.		53
10.01	Appointment	53
10.02	Nature of Duties	53
10.03	Lack of Reliance on the Agents	53
10.04	Certain Rights of the Agents	53
10.05	Reliance	54
10.06	Indemnification	54

(ii)

Table of Contents (continued)

		Page
10.07	The Agents in Their Individual Capacities	54
10.08	Holders	54
10.09	Resignation by an Agent	55
10.10	Syndication Agent; Documentation Agent	55
SECTION 11. Miscellaneous		55
11.01	Payment of Expenses, etc.	55
11.02	Lender Enforceability Opinions	56
11.03	Notices	56
11.04	Benefit of Agreement	56
11.05	No Waiver; Remedies Cumulative	58
11.06	Payments Pro Rata	58
11.07	Calculations; Computations	58
11.08	Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial	59
11.09	Counterparts	60
11.10	Headings Descriptive	60
11.11	Amendment or Waiver	60
11.12	Survival	60
11.13	Domicile of Loans	60
11.14	Confidentiality	61
11.15	Lender Register	61
11.16	Judgment Currency	61
11.17	Euro	62

ANNEX I	—	Commitments
ANNEX II	—	Lender Addresses
ANNEX III	—	Subsidiaries
ANNEX IV	—	Associated Cost Rate for Revolving Loans and Competitive Bid Loans
ANNEX V	—	Associated Cost Rate for Swingline Loans
EXHIBIT A-1	—	Form of Notice of Borrowing
EXHIBIT A-2	—	Form of Notice of Swingline Borrowing
EXHIBIT A-3	—	Form of Notice of Competitive Bid Borrowing
EXHIBIT B-1	—	Form of Revolving Note
EXHIBIT B-2	—	Form of Competitive Bid Note
EXHIBIT B-3	—	Form of Swingline Note
EXHIBIT C	—	Form of Section 3.04 Certificate
EXHIBIT D	—	Opinion of General Counsel to Borrowers
EXHIBIT E	—	Form of Officers’ Certificate
EXHIBIT F	—	Form of Financial Guaranty Insurance Policy
EXHIBIT G	—	Form of Assignment Agreement
EXHIBIT H	—	Form of Commitment Assumption Agreement
EXHIBIT I	—	Form of DB Assumption Agreement
EXHIBIT J	—	Form of Lender’s Opinions
EXHIBIT K	—	Form of Opinion of Designated Borrower’s Counsel
EXHIBIT L	—	Form of Opinion of Counsel to Corp.

(iii)

SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of August 28, 1998 and amended and restated, as of April 19, 2002 and further amended and restated as of April 16, 2003 among MBIA INC. (“Parent”), a Connecticut corporation, MBIA INSURANCE CORPORATION (“Corp.”), a New York stock insurance corporation, one or more Designated Borrowers (as hereinafter defined) from time to time party hereto, the lenders from time to time party hereto (each, a “Lender” and, collectively, the “Lenders”), BARCLAYS BANK PLC, as Administrative Agent (in such capacity, together with any successor Administrative Agent, the “Administrative Agent”), KEYBANK NATIONAL ASSOCIATION, as Syndication Agent (in such capacity, together with any successor Syndication Agent, the “Syndication Agent”) and THE BANK OF NEW YORK, as Documentation Agent (in such capacity, together with any successor Documentation Agent, the “Documentation Agent”). Unless otherwise defined herein, all capitalized terms used herein and defined in Section 9 are used herein as so defined.

W I T N E S S E T H:

WHEREAS, the Borrowers, the Existing Lenders and the Administrative Agent have entered into a Credit Agreement, dated as of August 28, 1998 and amended and restated as of April 19, 2002 (as the same has been amended, modified or supplemented to, but not including, the Second Restatement Effective Date, the “Existing Credit Agreement”); and

WHEREAS, the parties hereto wish to further amend and restate the Existing Credit Agreement in the form of this Agreement and make available to the Borrowers the respective credit facilities provided for herein;

NOW, THEREFORE, the parties hereto agree that the Existing Credit Agreement shall be and is hereby amended and restated in its entirety as follows:

SECTION 1. Amount and Terms of Credit.

1.01 Commitment. (a) Subject to and upon the terms and conditions set forth herein, each Lender severally agrees to make, at any time and from time to time on and after the Second Restatement Effective Date and prior to the Final Maturity Date, one or more additional loans (the “Revolving Loans” and each a “Revolving Loan”) to one or more of the Borrowers (on a several basis), which Revolving Loans: (i) may be made and maintained in such Approved Currency as is requested by the applicable Borrower (except in the case of Base Rate Loans, which shall only be Dollar-denominated); (ii) may be repaid and reborrowed in accordance with the provisions hereof; (iii) except as hereinafter provided, may, at the option of any Borrower, be incurred and maintained as, and/or converted into, Base Rate Loans or Eurodollar Loans, provided that all Revolving Loans made as part of the same Borrowing shall, unless otherwise specified herein, consist of Revolving Loans of the same Type; and (iv) shall not exceed in aggregate Principal Amount, after adding thereto the sum of (I) the aggregate Principal Amount of all other Revolving Loans then outstanding, (II) the aggregate Principal Amount of all Competitive Bid Loans then outstanding, and (III) the aggregate Principal Amount of all Swingline Loans then outstanding, the Total Commitment at such time (exclusive of Swingline Loans which are repaid with the proceeds of, and simultaneously with the incurrence of, Revolving Loans).

(b) Subject to and upon the terms and conditions set forth herein, (I) on the Second Restatement Effective Date, the Existing Competitive Bid Loans made by each Existing Lender to any Borrower pursuant to the Existing Credit Agreement and outstanding on the Second Restatement Effective Date (immediately prior to giving effect thereto) shall be continued, and shall remain outstanding, as Borrowings of Loans hereunder to such Borrower and (II) each Lender severally agrees that one or more Borrowers may, at any time and from time to time on and after the Second Restatement Effective Date and prior to the Final Maturity Date, (on a several basis) incur a loan or loans (together with the Existing Competitive Bid Loans continued pursuant to clause (I) above, the “Competitive Bid Loans” and each, a “Competitive Bid Loan”) from one or more Bidder Lenders pursuant to a Competitive Bid Borrowing at any time and from time to time on and after the Second Restatement Effective Date and prior to the date which is the third Business Day preceding the date which is seven days prior to the Final Maturity Date, provided that after giving effect to any Competitive Bid Borrowing and the use of the proceeds thereof, the aggregate outstanding Principal Amount of Competitive Bid Loans, when combined with the then aggregate outstanding Principal Amount of all Revolving Loans and the aggregate Principal Amount of all Swingline Loans, shall not exceed the Total Commitment at such time.

(c) Subject to and upon the terms and conditions herein set forth the Swingline Lender in its individual capacity agrees to make, at any time and from time to time on and after the Second Restatement Effective Date and prior the Swingline Expiry Date a loan or loans to one or more of the Borrowers (on a several basis) (the “Swingline Loans” and, each a “Swingline Loan”), which Swingline Loans (i) may be made and maintained in such Swingline Approved Currency as is requested by the applicable Borrower; (ii) may be repaid and reborrowed in accordance with the provisions hereof; (iii) may be incurred and maintained at the applicable Swing Rate, provided that all Swingline Loans made as part of the same Borrowing shall, unless otherwise specified herein, consist of Swingline Loans of the same Type; (iv) shall not exceed in aggregate Principal Amount at any time outstanding for all Swingline Loans, the Maximum Swingline Amount; (v) shall not exceed that aggregate Principal Amount at any time outstanding (I) in the case of all Swingline Loans denominated in Euros, $300,000,000, (II) in the case of all Swingline Loans denominated in Pounds Sterling, $300,000,000, (III) in the case of all Swingline Loans denominated in Swiss Francs, $100,000,000 (IV) in the case of all Swingline Loans denominated in Hong Kong Dollars, $100,000,000, (V) in the case of all Swingline Loans denominated in Japanese Yen, $100,000,000, and (VI) in the case of all Swingline Loans denominated in Australian Dollars, $100,000,000; and (vi) shall not be made (and shall not be required to be made), if the making of such Swingline Loan would cause the Aggregate Loan Outstandings to exceed the Total Commitment at such time.

(d) The Swingline Lender shall not be obligated to make any Swingline Loans at a time when a Lender Default exists unless the Swingline Lender has entered into arrangements satisfactory to it and the applicable Borrower to eliminate the Swingline Lender’s risk with respect to each Defaulting Lender’s participation in such Swingline Loans, including by cash collateralizing each such Defaulting Lender’s ratable share (on the basis of its Commitment) of such outstanding Swingline Loans. The Swingline Lender will not make any Swingline Loan after it has received written notice from any Borrower or the Required Lenders stating that a Default or an Event of Default exists until such time as the Swingline Lender shall have received a written notice of (i) rescission of such notice from the party or parties originally delivering the same or (ii) a waiver of such Default or Event of Default from the Required Lenders.

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(e) On any Business Day, the Swingline Lender may, in its sole discretion, give notice to the Lenders that any of its outstanding Swingline Loans shall be funded with a Borrowing of Revolving Loans denominated in the same Swingline Approved Currency, as such Swingline Loans (provided that each such notice shall be deemed to have been automatically given upon the occurrence of a Default or an Event of Default under Section 8.01(h) or (i) or upon the exercise of any of the remedies provided in the last paragraph of Section 8). In each such case, a Borrowing of Revolving Loans constituting Eurodollar Loans with an initial Interest Period of one month (each such Borrowing, a “Mandatory Borrowing”) shall be made on the date occurring three Business Days following such notice by all Lenders pro rata on the basis of their Commitments, and the proceeds thereof shall be immediately applied directly to repay the Swingline Lender for each such outstanding Swingline Loan. Each Lender hereby irrevocably agrees to make Eurodollar Loans upon three Business Days’ notice from the Swingline Lender provides notice pursuant to each Mandatory Borrowing in the amounts, in the applicable Swingline Approved Currency, and in the manner specified in the preceding sentence and on the date specified in writing by the Swingline Lender, notwithstanding (i) that the amount of the Mandatory Borrowing may not comply with the applicable Minimum Borrowing Amount otherwise required hereunder, (ii) whether any conditions specified in Section 4 are then satisfied (or waived), (iii) whether a Default or an Event of Default has occurred and is continuing, (iv) the date of such Mandatory Borrowing, and (v) any reduction in the Total Commitment after any such Swingline Loans were made. In the event that any Mandatory Borrowing cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code in respect of any Borrower), each Lender (other than the Swingline Lender) hereby agrees that it shall forthwith purchase from the Swingline Lender (without recourse or warranty) such assignment of such outstanding Swingline Loans as shall be necessary to cause the Lenders to share in such Swingline Loans ratably on the basis of their Commitments, provided that all interest payable on such Swingline Loans shall be for the account of the Swingline Lender until the date the respective assignment is purchased and, to the extent attributable to the purchased assignment, shall be payable to the Lender purchasing same from and after such date of purchase.

1.02 Minimum Borrowing Amounts, etc. The aggregate Principal Amount of each Borrowing shall not be less than the Minimum Borrowing Amount. More than one Borrowing may be incurred on any day, provided that at no time shall there be outstanding more than six Borrowings of Eurodollar Loans.

1.03 Notice of Borrowing. (a) Whenever a Borrower desires to incur Revolving Loans, it shall give the Administrative Agent at its Notice Office, (x) prior to 3:00 P.M. (New York time) at least three Business Days’ prior written notice (or telephonic notice promptly confirmed in writing) of each Borrowing of Eurodollar Loans in Dollars, (y) prior to 11:00 A.M. (New York time) at least three Business Days’ prior written notice (or telephonic notice promptly confirmed in writing) of each Borrowing of Eurodollar Loans constituting Alternate Currency Loans and (z) written notice (or telephonic notice promptly confirmed in writing) prior to 12:00 P.M. (New York time) on the date of each Borrowing of Base Rate Loans. Each such notice (each, a “Notice of Borrowing”) shall be in the form of Exhibit A-1 and shall

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be irrevocable and shall specify (i) the identity of the applicable Borrower, (ii) in the case of Alternate Currency Loans, the Approved Currency for such Loans, (iii) the aggregate principal amount of the Revolving Loans to be made pursuant to such Borrowing (stated in the applicable Approved Currency), (iv) the date of Borrowing (which shall be a Business Day), (v) whether the respective Borrowing shall consist of Base Rate Loans or Eurodollar Loans, (vi) if Eurodollar Loans, the Interest Period to be initially applicable thereto and (vii) if DB Loans, the DB Loan Maturity Date to be applicable thereto. The Administrative Agent shall promptly give each Lender written notice (or telephonic notice promptly confirmed in writing) of each proposed Borrowing, of the portion thereof to be funded by such Lender and of the other matters covered by the Notice of Borrowing.

(b) Whenever a Borrower desires to incur a Borrowing of Swingline Loans, it shall give the Swingline Lender at its Notice Office (with a copy to the Administrative Agent) in the case of Swingline Loans (x) (i) denominated in Pounds Sterling or Euros, prior to 11:00 A.M. (London time), (ii) denominated in Japanese Yen, prior to 10:00 A.M. (Tokyo time), in each case, on the day (which shall be a Business Day) such Swingline Loan is to be made, written notice (or telephone notice promptly confirmed in writing) of each Swingline Loan to be made pursuant to this clause (x) and (y) denominated in Swiss Francs, Hong Kong Dollars or Australian Dollars, in each case, prior to 11:00 A.M. (London time), at least one Business Day’s prior, written notice (or telephonic notice promptly confirmed in writing) of each Swingline Loan to be made pursuant to this clause (y). Each such notice (each, a “Notice of Swingline Borrowing”) shall be in the form of Exhibit A-2 and shall be irrevocable and shall specify: (i) the identity of the applicable Borrower, (ii) the Swingline Approved Currency for such Swingline Loans, (iii) the aggregate principal amount of such Swingline Loans to be made pursuant to such Borrowing (stated in the applicable Swingline Approved Currency) and (iv) the date of such Borrowing (which shall be a Business Day). Mandatory Borrowings shall be made upon the notice specified in Section 1.01(e), with each Borrower irrevocably agreeing, by its incurrence of any Swingline Loan, to the making of Mandatory Borrowings as set forth in Section 1.01(e).

(c) Without in any way limiting the obligation of any Borrower to confirm in writing any telephonic notice permitted to be given hereunder, the Administrative Agent or the Swingline Lender (in the case of a Borrowing of Swingline Loans), may prior to receipt of written confirmation act without liability upon the basis of such telephonic notice, believed by the Administrative Agent or the Swingline Lender, as the case may be, in good faith to be from an Authorized Officer of such Borrower. In each such case, each Borrower hereby waives the right to dispute the Administrative Agent’s or the Swingline Lender’s record of the terms of such telephonic notice absent manifest error.

1.04 Competitive Bid Borrowings. (a) Whenever any Borrower desires to incur a Competitive Bid Borrowing (excluding Existing Competitive Bid Loans continued hereunder on the Second Restatement Effective Date), it shall deliver to the Administrative Agent, prior to 11:00 A.M. (New York time) (x) at least four Business Days prior to the date of such proposed Competitive Bid Borrowing, in the case of a Spread Borrowing, and (y) at least one Business Day prior to the date of such proposed Competitive Bid Borrowing, in the case of an Absolute Rate Borrowing which is Dollar-denominated, and at least three Business Days prior to the date of such proposed Competitive Bid Borrowing, in the case of an Absolute Rate Borrowing which is an Alternate Currency Loan, a written notice substantially in the form of Exhibit A-3 hereto (a

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“Notice of Competitive Bid Borrowing”), which notice shall specify in each case (i) the identity of the applicable Borrower, (ii) the date (which shall be a Business Day) and the aggregate amount of the proposed Competitive Bid Borrowing, (iii) the maturity date for repayment of each and every Competitive Bid Loan to be made as part of such Competitive Bid Borrowing (which maturity date may be (A) up to six months after the date of such Competitive Bid Borrowing in the case of a Spread Borrowing and (B) no fewer than seven days and no more than 180 days after the date of such Competitive Bid Borrowing in the case of an Absolute Rate Borrowing, provided that in no event shall the maturity date of any Competitive Bid Borrowing be later than the third Business Day preceding the Final Maturity Date), (iv) the interest payment date or dates relating thereto, (v) whether the proposed Competitive Bid Borrowing is to be an Absolute Rate Borrowing or a Spread Borrowing, (vi) in the case of an Alternate Currency Loan, the Alternate Currency for such Competitive Bid Borrowing, and (vii) any other terms to be applicable to such Competitive Bid Borrowing. The Administrative Agent shall promptly notify each Bidder Lender by telephone or facsimile of each such request for a Competitive Bid Borrowing received by it from a Borrower and of the contents of the related Notice of Competitive Bid Borrowing.

(b) Each Bidder Lender shall, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more Competitive Bid Loans to the applicable Borrower as part of such proposed Competitive Bid Borrowing at a rate or rates of interest specified by such Bidder Lender in its sole discretion and determined by such Bidder Lender independently of each other Bidder Lender, by notifying the Administrative Agent (which shall give prompt notice thereof to such Borrower by facsimile), before 9:30 A.M. (New York time) on the date (the “Reply Date”) which is (x) in the case of an Absolute Rate Borrowing which is Dollar-denominated, the date of such proposed Competitive Bid Borrowing and in the case of an Absolute Rate Borrowing which is an Alternate Currency Loan, two Business Days before the date of such Competitive Bid Borrowing and (y) in the case of a Spread Borrowing, three Business Days before the date of such proposed Competitive Bid Borrowing, of the minimum amount and maximum amount of each Competitive Bid Loan which such Bidder Lender would be willing to make as part of such proposed Competitive Bid Borrowing (which amounts may, subject to the proviso contained in Section 1.01(b), exceed such Bidder Lender’s Commitment), the rate or rates of interest therefor and such Bidder Lender’s lending office with respect to such Competitive Bid Loan; provided that if the Administrative Agent in its capacity as a Bidder Lender shall, in its sole discretion, elect to make any such offer, it shall notify the respective Borrower of such offer before 9:15 A.M. (New York time) on the Reply Date. If any Bidder Lender shall elect not to make such an offer, such Bidder Lender shall so notify the Administrative Agent, before 9:30 A.M. (New York time) on the Reply Date, and such Bidder Lender shall not be obligated to, and shall not, make any Competitive Bid Loan as part of such Competitive Bid Borrowing; provided that the failure by any Bidder Lender to give such notice shall not cause such Bidder Lender to be obligated to make any Competitive Bid Loan as part of such proposed Competitive Bid Borrowing.

(c) The applicable Borrower shall, in turn, before 10:30 A.M. (New York time) on the Reply Date, either:

(i) cancel such Competitive Bid Borrowing by giving the Administrative Agent notice to such effect (it being understood and agreed that if such Borrower gives no such notice of cancellation and no notice of acceptance pursuant to clause (ii) below, then such Borrower shall be deemed to have canceled such Competitive Bid Borrowing), or

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(ii) accept one or more of the offers made by any Bidder Lender or Bidder Lenders pursuant to clause (b) above by giving notice (in writing or by telephone confirmed in writing) to the Administrative Agent of the amount of each Competitive Bid Loan (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to the applicable Borrower by the Administrative Agent on behalf of such Bidder Lender for such Competitive Bid Borrowing pursuant to clause (b) above) to be made by each Bidder Lender as part of such Competitive Bid Borrowing, and reject any remaining offers made by Bidder Lenders pursuant to clause (b) above by giving the Administrative Agent notice to that effect; provided that the acceptance of offers may only be made on the basis of ascending Absolute Rates (in the case of an Absolute Rate Borrowing) or Spreads (in the case of a Spread Borrowing), in each case commencing with the lowest rate so offered; provided further, however, that if offers are made by two or more Bidder Lenders at the same rate and acceptance of all such equal offers would result in a greater principal amount of Competitive Bid Loans being accepted than the aggregate principal amount requested by the applicable Borrower, if such Borrower elects to accept any such offers such Borrower shall accept such offers pro rata from such Bidder Lenders (on the basis of the maximum amounts of such offers) unless any such Bidder Lender’s pro rata share would be less than the minimum amount specified by such Bidder Lender in its offer, in which case such Borrower shall have the right to accept one or more such equal offers in their entirety and reject the other equal offer or offers or to allocate acceptance among all such equal offers (but giving effect to the minimum and maximum amounts specified for each such offer pursuant to clause (b) above), as such Borrower may elect in its sole discretion.

(d) If the applicable Borrower notifies the Administrative Agent that such Competitive Bid Borrowing is deemed canceled, pursuant to clause (c)(i) above, the Administrative Agent shall give prompt notice thereof to the Bidder Lenders and such Competitive Bid Borrowing shall not be made.

(e) If the applicable Borrower accepts one or more of the offers made by any Bidder Lender or Bidder Lenders pursuant to clause (c) (ii) above, the Administrative Agent shall in turn promptly notify (x) each Bidder Lender that has made an offer as described in clause (b) above, of the date and aggregate amount of such Competitive Bid Borrowing and whether or not any offer or offers made by such Bidder Lender pursuant to clause (b) above have been accepted by the Borrower and (y) each Bidder Lender that is to make a Competitive Bid Loan as part of such Competitive Bid Borrowing, of the amount of each Competitive Bid Loan to be made by such Bidder Lender as part of such Competitive Bid Borrowing.

1.05 Disbursement of Funds. (a) (i) (x) No later than 12:00 Noon (New York time) on the date specified in each Notice of Borrowing or (y) no later than 3:00 P.M. (New York time) in the case of (I) a Borrowing of Base Rate Loans for which a Notice of Borrowing was given on the date of such Borrowing, (II) a Competitive Bid Borrowing on the date specified in each Notice of Competitive Bid Borrowing and (III) a Mandatory Borrowing on the date

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specified by the Swingline Lender pursuant to its notice to the Administrative Agent and the Lenders pursuant to Section 1.01(e), each Lender will make available its pro rata share, if any, of such Borrowing requested to be made on such date and (ii) no later than 5:00 P.M. (local time of the relevant Payment Office) or such other time as may be specified by the Swingline Lender, in the case of any Borrowing of Swingline Loans, on the date (which shall be a Business Day) specified (in accordance with Section 1.03(b)) in each Notice of Swingline Borrowing, the Swingline Lender will make available the full amount (in the Swingline Approved Currency specified by such Borrower) of each such Borrowing to be made on such date by depositing to the account designated by the applicable Borrower, which account shall be at an institution in the same city as the respective Payment Office of the Swingline Lender. All amounts in respect of the Borrowings described in clause (i) above shall be made available to the Administrative Agent in the relevant Approved Currency or Other Alternate Currency, as the case may be, and immediately available funds at the Payment Office of the Administrative Agent and the Administrative Agent will promptly make available to the applicable Borrower by depositing to the account designated by such Borrower, which account shall be at an institution in the same city as the respective Payment Office, the aggregate of the amounts so made available in the type of funds received. Unless the Administrative Agent shall have been notified by any Lender participating in a Borrowing prior to the date of such Borrowing that such Lender does not intend to make available to the Administrative Agent its portion of the Borrowing or Borrowings to be made on such date, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date of Borrowing, and the Administrative Agent, in reliance upon such assumption, may (in its sole discretion and without any obligation to do so) make available to the applicable Borrower a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender and the Administrative Agent has made available same to the applicable Borrower, the Administrative Agent shall be entitled to recover such corresponding amount from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent’s demand therefor, the Administrative Agent shall promptly notify the applicable Borrower, and such Borrower shall pay such corresponding amount to the Administrative Agent within three Business Days of receipt of such notice unless previously paid by such Lender. The Administrative Agent shall also be entitled to recover on demand from such Lender or such Borrower, as the case may be, interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to such Borrower to the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to (x) if paid by such Lender, the overnight Federal Funds Effective Rate or (y) if paid by such Borrower, the then applicable rate of interest, calculated in accordance with Section 1.09, for the respective Loans.

(b) Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its commitments hereunder or to prejudice any rights which any Borrower may have against any Lender as a result of any default by such Lender hereunder.

1.06 Notes. (a) Each Borrower’s obligation to pay the principal of, and interest on, the Loans made to it by each Lender shall be evidenced (i) if Revolving Loans, by a promissory note substantially in the form of Exhibit B-1 with blanks appropriately completed (each, a “Revolving Note” and, collectively, the “Revolving Notes”), (ii) if Competitive Bid Loans, by a promissory note substantially in the form of Exhibit B-2 with blanks appropriately

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completed (each a “Competitive Bid Note” and, collectively, the “Competitive Bid Notes”), and (iii) if Swingline Loans, by a promissory note substantially in the form of Exhibit B-3 with blanks appropriately completed (the “Swingline Note”).

(b) Each Lender will note on its internal records the amount of each Loan made by it and each payment in respect thereof and will, prior to any transfer of any of its Notes, endorse on the reverse side thereof the outstanding Principal Amount of Loans evidenced thereby. Failure to make any such notation shall not affect a Borrower’s obligations in respect of such Loans.

1.07 Conversions. Each Borrower shall have the option to convert on any Business Day occurring on or after the Second Restatement Effective Date, all or a portion at least equal to the applicable Minimum Borrowing Amount of its Revolving Loans denominated in a single Approved Currency and constituting Base Rate Loans or Eurodollar Loans into a Borrowing or Borrowings of Revolving Loans denominated in such Approved Currency and constituting Eurodollar Loans or Base Rate Loans, respectively, provided that (i) Eurodollar Loans denominated in a currency other than Dollars may not be converted into Base Rate Loans, (ii) no partial conversion shall reduce the outstanding principal amount of the Eurodollar Loans made pursuant to a Borrowing to less than the Minimum Borrowing Amount applicable thereto, (iii) Base Rate Loans may not be converted into Eurodollar Loans when a Default or Event of Default is then in existence if the Administrative Agent or the Required Lenders shall have determined in its or their sole discretion not to permit such conversion and, (iv) Borrowings of Eurodollar Loans resulting from this Section 1.07 shall be limited in number as provided in Section 1.02. Each such conversion shall be effected by the respective Borrower giving the Administrative Agent at the Notice Office, prior to 12:00 Noon (New York time), at least three Business Days’ (or one Business Day in the case of a conversion into Base Rate Loans) prior written notice (or telephonic notice promptly confirmed in writing) (each, a “Notice of Conversion”) specifying the Revolving Loans to be so converted, the Type of Loans (as to interest option) to be converted into and, if to be converted into a Borrowing of Eurodollar Loans, the Interest Period to be initially applicable thereto. The Administrative Agent shall give each Lender prompt notice of any such proposed conversion affecting any of its Loans.

1.08 Pro Rata Borrowings, etc. All Revolving Loans incurred pursuant to a Borrowing shall be made by the Lenders pro rata on the basis of their respective Commitments. It is understood that no Lender shall be responsible for any default by any other Lender in its obligation to make Revolving Loans hereunder, and that each Lender shall be obligated to make the Revolving Loans provided to be made by it hereunder, regardless of the failure of any other Lender to fulfill its commitments hereunder and regardless of whether such Lender has made any Competitive Bid Loans hereunder.

1.09 Interest. (a) The unpaid principal amount of each Base Rate Loan shall bear interest from the date of the Borrowing thereof until the earlier of (i) maturity (whether by acceleration or otherwise) and (ii) conversion of such Base Rate Loan to a Eurodollar Loan pursuant to Section 1.07, at a rate per annum which shall at all times be equal to the sum of the Base Rate plus the Applicable Margin, each as in effect from time to time.

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(b) The unpaid principal amount of each Eurodollar Loan shall bear interest from the date of the Borrowing thereof until the earlier of (i) maturity (whether by acceleration or otherwise) and (ii) conversion of such Eurodollar Loan to a Base Rate Loan pursuant to Section 1.07, 1.10 or 1.11(b), as applicable, at a rate per annum which shall, during each Interest Period applicable thereto, be equal to the sum of the relevant LIBOR for such Interest Period, plus the Applicable Margin, as in effect from time to time.

(c) The unpaid principal amount of each Competitive Bid Loan shall bear interest from the date of the Borrowing thereof until maturity (whether by acceleration or otherwise) at a rate or rates per annum specified by a Bidder Lender or Bidder Lenders, as the case may be, pursuant to Section 1.04(b) and accepted by the respective Borrower pursuant to Section 1.04(c).

(d) The unpaid principal amount of each Swingline Loan shall bear interest from the date of the Borrowing thereof until maturity (whether by acceleration or otherwise) at a rate per annum which shall at all times be equal to the sum of the relevant Swing Rate plus the Applicable Margin, each as in effect from time to time.

(e) All overdue principal and, to the extent permitted by law, overdue interest in respect of each Loan shall bear interest at a rate per annum equal to the greater of (x) the rate which is 2% in excess of the rate borne by the respective Loans immediately prior to the respective payment default and (y) the rate which is 2% in excess of the rate otherwise applicable to Base Rate Loans, provided that principal in respect of Eurodollar Loans and Competitive Bid Loans shall bear interest from the date same becomes due (whether by acceleration or otherwise) until the end of the Interest Period applicable thereto at a rate per annum equal to 2% plus the rate of interest applicable on the due date therefor. Interest which accrues under this Section 1.09(e) shall be payable on demand.

(f) Interest shall accrue from and including the date of any Borrowing to but excluding the date of any repayment thereof, and in the case of DB Loans, compounded as described below, and shall be payable (i) in respect of each Base Rate Loan (other than a DB Loan) and each Swingline Loan, quarterly in arrears on the last Business Day of each March, June, September and December, (ii) in respect of each Eurodollar Loan (other than a DB Loan), on the last day of each Interest Period applicable thereto and, in the case of an Interest Period in excess of three months, on each date occurring at three month intervals after the first day of such Interest Period, (iii) in respect of each DB Loan, on the applicable DB Loan Maturity Date, (iv) in respect of each Competitive Bid Loan, at such times as specified in the Notice of Competitive Bid Borrowing relating thereto, and (v) in respect of each Loan, on any prepayment or conversion (other than the prepayment or conversion of any Base Rate Loan) (on the amount prepaid or converted), at maturity (whether by acceleration or otherwise) and, after such maturity, on demand. Interest on any Existing Competitive Bid Loans which accrued under the Existing Credit Agreement prior to the Second Restatement Effective Date, but which remains unpaid on such date (and which was not required to be paid on or prior to such date in accordance with the terms of the Existing Credit Agreement or this Agreement) shall be payable at the times otherwise provided above (but calculated at the respective rates provided in the Existing Credit Agreement for periods occurring prior to the Second Restatement Effective Date) for the interest involved, without any change on the Second Restatement Effective Date as to the

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Interest Periods then in effect. Notwithstanding anything to the contrary contained in this Agreement, although interest in respect of each DB Loan shall be payable only on the DB Loan Maturity Date for such DB Loan as provided in clause (iii) of the immediately preceding sentence, interest on each DB Loan shall compound on each date on which interest thereon would have been payable pursuant to clause (i) or (ii) of such sentence if such Loan were not a DB Loan and such compounded interest shall thereafter bear interest hereunder at the same rate per annum as the principal of the DB Loan to which such compounded interest relates.

(g) All computations of interest hereunder shall be made in accordance with Section 11.07(b).

(h) The Administrative Agent, upon determining the interest rate for any Borrowing for any Interest Period, shall promptly notify the applicable Borrower and the Lenders thereof.

1.10 Interest Periods. (a) At the time a Borrower gives a Notice of Borrowing or a Notice of Conversion in respect of the making of, or conversion into, a Borrowing of Eurodollar Loans (in the case of the initial Interest Period applicable thereto) or prior to 12:00 Noon (New York Time) on the third Business Day prior to the expiration of an Interest Period applicable to a Borrowing of Eurodollar Loans, it shall have the right to elect by giving the Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of the Interest Period applicable to such Borrowing, which Interest Period shall, at the option of such Borrower, be a one, two, three or six month period or such other period available to all Lenders. Notwithstanding anything to the contrary contained above:

(i) the initial Interest Period for any Borrowing shall commence on the date of such Borrowing (including, where relevant, the date of any conversion from a Borrowing of Base Rate Loans) and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires;

(ii) if any Interest Period begins on (x) the last Business Day of a month, it shall end on the last Business Day of the month in which it is to end and (y) a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, such Interest Period shall end on the last Business Day of such calendar month;

(iii) if any Interest Period would otherwise expire on a day which is not a Business Day, such Interest Period shall expire on the next succeeding Business Day, provided that if any Interest Period would otherwise expire on a day which is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day;

(iv) no Interest Period may be elected that would extend beyond the Final Maturity Date;

(v) no Interest Period in respect of a DB Loan may be elected that would extend beyond the DB Loan Maturity Date for such DB Loan;

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(vi) no Interest Period may be elected at any time when a Default or an Event of Default is then in existence if the Administrative Agent or the Required Lenders shall have determined in its or their sole discretion not to permit such election; and

(vii) all Eurodollar Loans comprising a Borrowing shall at all times have the same Interest Period.

(b) If upon the expiration of any Interest Period, the applicable Borrower has failed to (or may not) elect a new Interest Period to be applicable to the Revolving Loans subject to the expiring Interest Period as provided above, such Borrower shall be deemed to have elected, in the case of Eurodollar Loans, to convert such Borrowing into a Borrowing of Base Rate Loans effective as of the expiration date of such current Interest Period, provided that if such Eurodollar Loans are denominated in a currency other than Dollars, then such Eurodollar Loans shall not convert to Base Rate Loans but shall instead be prepaid by the applicable Borrower on the last day of such Interest Period.

1.11 Increased Costs, Illegality, etc. (a) In the event that (x) in the case of clause (i) or (iv) below, the Administrative Agent or the Swingline Lender (as applicable) or (y) in the case of clause (ii) or (iii) below, any Lender shall have determined (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto):

(i) on any date for determining any LIBOR for any Interest Period or any Swing Rate that, by reason of any changes arising after the Original Effective Date affecting the relevant interbank market, adequate and fair means do not exist for ascertaining the applicable interest rate on the basis provided for in the definition of the respective LIBOR; or

(ii) at any time, that such Lender shall actually incur increased costs or reductions in the amounts received or receivable hereunder with respect to any Swingline Loans, Eurodollar Loans or Competitive Bid Loans (other than any increased cost or reduction in the amount received or receivable resulting from the imposition of or a change in the rate of taxes or similar charges on, or determined by reference to, the net income or net profits of such Lender by the jurisdiction in which its principal office or applicable lending office is located) because of (x) any change since the Original Effective Date (or, in the case of any Competitive Bid Loan, since the making of such Competitive Bid Loan) in any applicable law, governmental rule, regulation, guideline or order (or in the interpretation or administration thereof and including the introduction of any new law or governmental rule, regulation, guideline or order) (such as, for example, but not limited to, a change in official reserve requirements, but, in all events, excluding amounts payable pursuant to Section 1.11(c) and those included in determining any Associated Costs Rate) and/or (y) other circumstances occurring since the Original Effective Date affecting the relevant interbank market; or

(iii) at any time since the Original Effective Date, that the making or continuance of any Swingline Loans, Eurodollar Loans or Competitive Bid Loans has become unlawful by compliance by such Lender in good faith with any law, governmental rule, regulation or guideline, or has become impracticable as a result of a contingency occurring after the Original Effective Date which materially and adversely affects the relevant interbank market; or

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(iv) at any time that any Alternate Currency is not available in sufficient amounts, as determined in good faith by the Administrative Agent (or the Swingline Lender in the case of Swingline Loans), to fund any Borrowing of Loans denominated in such Alternate Currency;

then, and in any such event, such Lender (or the Administrative Agent in the case of clause (i) or (iv) above) shall (x) on such date and (y) within ten Business Days of the date on which such event no longer exists give notice (by telephone confirmed in writing) to the respective Borrower and, except in the case of clause (i) or (iv) above, to the Administrative Agent or Swingline Lender (as applicable) of such determination (which notice the Administrative Agent or Swingline Lender (as applicable) shall promptly transmit to each of the other Lenders). Thereafter and for so long as the applicable circumstance continues to exist (w) in the case of clause (i) above, Eurodollar Loans priced in respect of the affected LIBOR, Competitive Bid Loans constituting a Spread Borrowing priced by reference to such LIBOR and Swingline Loans priced in respect of the affected Swing Rate, shall no longer be available until such time as the Administrative Agent or Swingline Lender (as applicable) notifies the respective Borrower and the Lenders that the circumstances giving rise to such notice by the Administrative Agent or Swingline Lender (as applicable) no longer exist in accordance with clause (y) of the preceding sentence, and any Notice of Borrowing, Notice of Swingline Borrowing, Notice of Competitive Bid Borrowing or Notice of Conversion given by a Borrower with respect to such Loans which have not yet been incurred shall be deemed rescinded by the relevant Borrower, (x) in the case of clause (ii) above, the applicable Borrower shall pay to such Lender, upon written demand therefor, such additional amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as shall be required to compensate such Lender for such increased costs or reductions in amounts receivable hereunder (a written notice as to the additional amounts owed to such Lender, showing the basis for the calculation thereof in reasonable detail, submitted to the applicable Borrower by such Lender shall, absent manifest error, be final and conclusive and binding upon all parties hereto), (y) in the case of clause (iii) above, the applicable Borrower shall take one of the actions specified in Section 1.11(b) as promptly as possible and, in any event, within the time period required by law and (z) in the case of clause (iv) above, Loans in the affected Alternate Currency shall no longer be available until such time as the Administrative Agent or Swingline Lender (as applicable) notifies the respective Borrower and the Lenders that the circumstances giving rise to such notice by the Administrative Agent or Swingline Lender (as applicable) no longer exist in accordance with clause (y) of the preceding sentence, and any Notice of Borrowing, Notice of Swingline Borrowing, Notice of Competitive Bid Borrowing or Notice of Conversion given by a Borrower with respect to such Alternate Currency Loans which have not yet been incurred shall be deemed rescinded by such Borrower.

(b) At any time when any Eurodollar Loan, Swingline Loan or Competitive Bid Loan is affected by the circumstances described in Section 1.11(a)(ii) or (iii), the applicable Borrower may (and in the case of a Swingline Loan, Eurodollar Loan or Competitive Bid Loan affected pursuant to Section 1.11(a)(iii), the applicable Borrower shall) either (i) if the affected Swingline Loan, Eurodollar Loan or Competitive Bid Loan is then being made pursuant to a

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Borrowing, cancel said Borrowing by giving the Administrative Agent telephonic notice (confirmed promptly in writing) thereof on the same date that the respective Borrower was notified by a Lender pursuant to Section 1.11(a)(ii) or (iii), or (ii) if the affected Swingline Loan, Eurodollar Loan or Competitive Bid Loan is then outstanding, upon at least three Business Days’ notice to the Administrative Agent, (A) in the case of a Eurodollar Loan denominated in Dollars, require the affected Lender to convert each such Eurodollar Loan into a Base Rate Loan, and (B) in the case of a Swingline Loan or a Eurodollar Loan denominated in a Primary Alternate Currency and in the case of a Competitive Bid Loan, repay all such Swingline Loans, Eurodollar Loans or Competitive Bid Loans in full, provided that if more than one Lender is affected at any time, then all affected Lenders must be treated the same pursuant to this Section 1.11(b).

(c) If any Lender shall have determined that after the Original Effective Date, the adoption or effectiveness of any applicable law, rule or regulation regarding capital adequacy, or any change therein after the Original Effective Date, or any change after the Original Effective Date in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency adopted or effective after the Original Effective Date, has or would have the effect of reducing the rate of return on such Lender’s or such corporation’s capital or assets as a consequence of its commitments or obligations hereunder to a level below that which such Lender or such other corporation could have achieved but for such adoption, effectiveness, change or compliance (taking into consideration such Lender’s or such other corporation’s policies with respect to capital adequacy), then from time to time, within 15 days after written demand by such Lender (with a copy to the Administrative Agent), the Borrowers jointly and severally agree to pay to such Lender such additional amount or amounts as will compensate such Lender or such other corporation for such reduction. In determining such additional amounts, each Lender will act reasonably and in good faith and will use averaging and attribution methods that are reasonable. Each Lender, upon so determining that any additional amounts will be payable pursuant to this Section 1.11(c), will give prompt written notice thereof to the Borrowers, which notice shall set forth in reasonable detail the basis of the calculation of such additional amounts, although the failure to give any such notice shall not release or diminish any Borrower’s obligations to pay additional amounts pursuant to this Section 1.11(c) upon the subsequent receipt of such notice.

1.12 Compensation. Each Borrower shall compensate each Lender, upon its written request (which request shall set forth the basis for requesting such compensation), for all reasonable losses, expenses and liabilities (including, without limitation, any loss, expense or liability incurred by reason of the liquidation or reemployment of deposits or other funds required by such Lender to fund any Swingline Loans, Eurodollar Loans or Competitive Bid Loans made, or to be made, by it to such Borrower but excluding in any event the loss of anticipated profits) which such Lender may actually sustain: (i) if for any reason (other than a default by such Lender or the Administrative Agent) a Borrowing of Swingline Loans, Eurodollar Loans or Competitive Bid Loans does not occur on a date specified therefor in a Notice of Borrowing, a Notice of Swingline Borrowing, a Notice of Competitive Bid Borrowing or a Notice of Conversion, given by such Borrower (whether or not withdrawn by such Borrower or deemed withdrawn pursuant to Section 1.11(a)); (ii) if any prepayment, repayment or

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conversion of any such Eurodollar Loans or Competitive Bid Loans occurs on a date which is not the last day of an Interest Period applicable thereto; (iii) if any prepayment of any such Swingline Loan, Eurodollar Loans or Competitive Bid Loans is not made on any date specified in a notice of prepayment given by such Borrower; (iv) if such Lender is required pursuant to Section 1.14 to assign any such Eurodollar Loans or Competitive Bid Loans as of a date which is not the last day of an Interest Period applicable thereto; or (v) as a consequence of (x) any other default by such Borrower to repay its Swingline Loans, Eurodollar Loans or Competitive Bid Loans when required by the terms of this Agreement or (y) an election made pursuant to Section 1.11(b).

1.13 Change of Lending Office. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 1.11(a)(ii) or (iii), 1.11(c) or 3.04 with respect to such Lender, it will, if requested by the applicable Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans or Commitments affected by such event, provided that such designation is made on such terms that such Lender and its lending office suffer no economic, legal or regulatory disadvantage, with the object of avoiding or materially mitigating the consequence of the event giving rise to the operation of any such Section. Nothing in this Section 1.13 shall affect or postpone any of the obligations of any Borrower or the right of any Lender provided in Section 1.11 or 3.04.

1.14 Replacement of Lenders. (a) Upon the occurrence of any event giving rise to the operation of Section 1.11(a)(ii) or (iii), Section 1.11(c) or Section 3.04 with respect to any Lender which results in such Lender charging to any Borrower increased costs in excess of those being generally charged by the other Lenders, (b) if a Lender becomes a Defaulting Lender, (c) if a Lender becomes a Non-Continuing Lender, (d) if a Lender fails to maintain a long-term debt rating of at least BBB- as determined by Standard & Poor’s Corporation and at least Baa3 as determined by Moody’s Investors Service, Inc., (e) if a Lender fails to deliver the opinion or opinions as required pursuant to Section 11.02 and/or (f) in the case of a refusal by a Lender to consent to a proposed change, waiver, discharge or termination with respect to this Agreement which has been approved by the Required Lenders, Parent and Corp. shall have the right, if no Default or Event of Default then exists, to replace such Lender (the “Replaced Lender”), upon prior written notice to the Administrative Agent and such Replaced Lender, with one or more Person or Persons, none of whom shall constitute a Defaulting Lender at the time of such replacement (collectively, the “Replacement Lenders” and, each a “Replacement Lender”) reasonably acceptable to the Administrative Agent, provided that (i) at the time of any replacement pursuant to this Section 1.14, the Replacement Lender and the Replaced Lender shall enter into one or more Assignment Agreements pursuant to Section 11.04(b) (and with all fees payable pursuant to said Section 11.04(b) to be paid by the Replacement Lender) pursuant to which each of the Replacement Lenders shall acquire all of the Commitments and outstanding Loans of the Replaced Lender and, in connection therewith, shall pay to (x) the Replaced Lender in respect thereof an amount equal to the sum of (A) an amount equal to the principal amount of, and all accrued but unpaid interest on, all outstanding Loans of the Replaced Lender and (B) an amount equal to all accrued, but theretofore unpaid, Fees owing to the Replaced Lender pursuant to Section 2.01, (y) the Swingline Lender an amount equal to such Replaced Lender’s pro rata share (on the basis of such Replaced Lender’s Commitment) of any Mandatory Borrowings to the extent such amount was not theretofore funded by such Replaced Lender, and (ii) all obligations of the Borrowers under the Credit Documents owing to the Replaced Lender (other

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than those specifically described in clause (i) above in respect of which the assignment purchase price has been, or is concurrently being, paid), including without limitation all amounts owing to the Replaced Lender under Section 1.12 as a result of the assignment of its Loans under clause (i) above, shall be paid in full to such Replaced Lender concurrently with such replacement. Upon the execution of the respective Assignment Agreements, the payment of amounts referred to in clauses (i) and (ii) above and, if so requested by the Replacement Lender, delivery to the Replacement Lender of the appropriate Note or Notes executed by the relevant Borrowers, the Replacement Lender shall become a Lender hereunder and the Replaced Lender shall cease to constitute a Lender hereunder, except with respect to indemnification provisions applicable to the Replaced Lender under this Agreement, which shall survive as to such Replaced Lender.

1.15 Extension of Final Maturity Date; Replacement of Non-Continuing Lender. Parent and Corp. may, prior to (but not less than 60 days nor more than 120 days prior to) each anniversary of the Restatement Effective Date (each such anniversary, an “Extension Deadline”), by written notice to the Administrative Agent (which notice the Administrative Agent shall promptly transmit to each Lender), request that the Final Maturity Date then in effect be extended by a period of one year. Such request shall be accompanied by a certificate of an Authorized Officer of Parent stating that no Default or Event of Default has occurred and is continuing. Each Lender shall respond to such request, as promptly as practicable, by written notice to Parent, Corp. and the Administrative Agent, with the failure of any Lender to respond prior to the Extension Deadline being deemed to be a negative response. In the event each Lender shall consent to such request of Parent and Corp., on such Extension Deadline, the Final Maturity Date shall be automatically extended to the date occurring one year following the Final Maturity Date then in effect. If any Lender shall fail to consent to such extension (any such Lender, a “Non-Continuing Lender”), Parent and Corp. shall be entitled at any time prior to the Extension Deadline with respect to such request to replace such Lender in accordance with the requirements of Section 1.14, and in the event that the Replacement Lender with respect to each such Non-Continuing Lender shall consent to such extension prior to such Extension Deadline, such extension shall be effective as described in the immediately preceding sentence as if each Lender had originally consented to such request. No Lender shall be obligated to grant any extensions pursuant to this Section 1.15 and any such extension shall be in the sole discretion of each such Lender. The Administrative Agent shall notify Parent, Corp. and each Lender as to the effectiveness of any such extension.

1.16 Additional Commitments. At any time and from time to time on and after the Second Restatement Effective Date and prior to the Final Maturity Date, Parent and Corp. may request one or more Lenders or other lending institutions to increase its Commitment (in the case of an existing Lender) or assume a Commitment (in the case of any other lending institution) and, in the sole discretion of each such Lender or other institution, any such Lender or other institution may agree to so commit; provided that (i) no Default or Event of Default then exists, (ii) the increase in the Total Commitment pursuant to any such request shall be in an aggregate amount of at least $16,000,000 and (iii) the aggregate increase in the Total Commitment pursuant to this Section 1.16 shall not exceed $175,000,000. Parent, Corp. and each such Lender or other lending institution (each, an “Assuming Lender”) which agrees to increase its existing, or assume, a Commitment shall execute and deliver to the Administrative Agent a Commitment Assumption Agreement substantially in the form of Exhibit H (with the increase in, or in the case of a new Assuming Lender, assumption of, such Lender’s Commitment

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to be effective on the Business Day following delivery of such Commitment Assumption Agreement to the Administrative Agent). The Administrative Agent shall promptly notify each Lender as to the occurrence of each Commitment Assumption Date. On each Commitment Assumption Date, (x) Annex I shall be deemed modified to reflect the revised Commitments of the Lenders, (y) Parent and Corp. shall pay to each such Assuming Lender such up front fee (if any) as may have been agreed between Parent, Corp. and such Assuming Lender and (z) the Borrowers will issue new Notes to the Assuming Lenders in conformity with the requirements of Section 1.06. Notwithstanding anything to the contrary contained in this Agreement, in connection with any increase in the Total Commitment pursuant to this Section 1.16, each Borrower shall, in coordination with the Administrative Agent and the Lenders, repay outstanding Revolving Loans of certain Lenders and, if necessary, incur additional Revolving Loans from other Lenders, in each case so that such Lenders participate in each Borrowing of such Revolving Loans pro rata on the basis of their Commitments (after giving effect to any increase thereof). It is hereby agreed that any breakage costs of the type described in Section 1.12 incurred by the Lenders in connection with the repayment of Revolving Loans contemplated by this Section 1.16 shall be for the account of the respective Borrowers.

1.17 Designated Borrowers. Parent or Corp. may from time to time designate one or more Persons as a Designated Borrower (each, a “Designated Borrower” and, collectively, the “Designated Borrowers”), subject to the following terms and conditions:

(a) each such Person shall be a special purpose entity organized under the laws of the United States of America, a state thereof or the District of Columbia;

(b) each such Person shall enter into an appropriately completed DB Assumption Agreement in the form of Exhibit I hereto on or prior to the date of designation;

(c) each such Person shall furnish to each Lender its most recent historic or pro forma financial statements (which financial statements may be summary in nature and unaudited) on or prior to the date of designation;

(d) at the time of such designation, such Person shall not be subject to any bankruptcy or insolvency proceeding of the type referred to in Section 8.01(h) or (i) and shall not be subject to any material litigation;

(e) on or prior to the date of designation, such Person shall execute and deliver to each Lender requesting the same, a Revolving Note, a Swingline Note (for the Swingline Lender) and a Competitive Bid Note to evidence the DB Loans incurred by such Person;

(f) on or prior to the date of designation, the Administrative Agent shall have received from such Person a certificate, signed by an Authorized Officer of such Person in the form of Exhibit E with appropriate insertions or deletions, together with (x) copies of its certificate of incorporation, by-laws or other organizational documents and (y) the resolutions relating to the Credit Documents which shall be satisfactory to the Administrative Agent; and

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(g) on or prior to the date of designation, the Administrative Agent shall have received an opinion, addressed to each Agent and each of the Lenders and dated the date of designation, from counsel to such Person which opinion shall be substantially in the form of Exhibit K hereto.

1.18 Retroactivity. Notwithstanding anything in this Agreement to the contrary, to the extent any notice required by Section 1.11 or 3.04 is given by any Lender more than 90 days after such Lender obtained knowledge of the occurrence of the event giving rise to the additional costs of the type described in such Section, such Lender shall not be entitled to compensation under Section 1.11 or 3.04 for any amounts incurred or accruing prior to the 90th day preceding the giving of such notice to the respective Borrower.

SECTION 2. Fees; Commitments.

2.01 Fees. (a) Parent and Corp. jointly and severally agree to pay to the Administrative Agent a facility fee (the “Facility Fee”) for the account of the Lenders pro rata on the basis of their respective Commitments for the period from and including the Second Restatement Effective Date to but excluding the date the Total Commitment has been terminated computed at a rate per annum equal to the Applicable Margin on the Total Commitment as in effect from time to time. Accrued Facility Fees shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, on the Final Maturity Date or upon such earlier date as the Total Commitment shall be terminated and, with respect to any Facility Fee owing to any Lender whose Commitment is terminated pursuant to Section 1.14, on the date on which such Lender’s Commitment is terminated.

(b) Parent and Corp. jointly and severally agree to pay to the Administrative Agent, for the account of the Administrative Agent, when and as due, such fees as have been, or are from time to time, separately agreed upon.

(c) All computations of Fees shall be made in accordance with Section 11.07(b).

2.02 Voluntary Reduction of Commitments. Upon at least three Business Days’ prior written notice (or telephonic notice confirmed in writing) to the Administrative Agent at the Notice Office (which notice shall be deemed to be given on a certain day only if given before 12:00 Noon (New York time) on such day and shall be promptly transmitted by the Administrative Agent to each of the Lenders), Parent and/or Corp. shall have the right, without premium or penalty, to terminate or partially reduce the Total Unutilized Commitment, provided that (x) any such termination shall apply to proportionately and permanently reduce the Commitment of each Lender and (y) any partial reduction pursuant to this Section 2.02 shall be in the amount of at least $10,000,000.

2.03 Mandatory Reduction of Commitments. (a) The Total Commitment shall terminate in its entirety on May 31, 2003 unless the Second Restatement Effective Date has occurred on or before such date and in the event of such termination this Agreement shall cease to be of any force or effect and the Existing Credit Agreement (and all commitments to extend credit thereunder in accordance with the terms thereof) shall continue to be effective, as the same may have been, or thereafter be, amended, modified or supplemented from time to time.

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(b) The Total Commitment shall terminate in its entirety on the Final Maturity Date.

SECTION 3. Payments.

3.01 Voluntary Prepayments. Each Borrower shall have the right to prepay Revolving Loans and Swingline Loans made to it in whole or in part, without premium or penalty, from time to time on the following terms and conditions: (i) such Borrower shall give the Administrative Agent at the Payment Office written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay such Revolving Loans or Swingline Loans, the amount of such prepayment, the currency in which such Revolving Loans or Swingline Loans are denominated and the specific Borrowing(s) pursuant to which such Revolving Loans or Swingline Loans were made, which notice shall be given by such Borrower (x) at least three Business Days prior to the date of such prepayment, in the case of Revolving Loans and (y) on the date of such prepayment, in the case of Swingline Loans and which notice in each case, shall promptly be transmitted by the Administrative Agent to each of the Lenders (or the Swingline Lender as applicable); (ii) each partial prepayment of any Borrowing shall be in an aggregate principal amount of at least $1,000,000 (or, in each case, the Dollar Equivalent thereof), provided that no partial prepayment of Revolving Loans or Swingline Loans made pursuant to a Borrowing shall reduce the aggregate principal amount of the Swingline Loans or the Revolving Loans outstanding pursuant to such Borrowing to an amount less than the Minimum Borrowing Amount applicable thereto; (iii) each prepayment in respect of any Revolving Loans made pursuant to a Borrowing shall be applied pro rata among such Revolving Loans; and (iv) prepayments of Eurodollar Loans made pursuant to this Section 3.01 may only be made on the last day of an Interest Period applicable thereto unless concurrently with such prepayment any payments required to be made pursuant to Section 1.12 as a result of such prepayment are made. No Borrower shall have the right under this Section 3.01 to prepay any principal amount of any Competitive Bid Loans.

3.02 Mandatory Prepayments and Repayments. (a) If on any date the sum of the aggregate outstanding Principal Amount of Revolving Loans, Swingline Loans and Competitive Bid Loans (all the foregoing, collectively, the “Aggregate Loan Outstandings”) exceeds the Total Commitment as then in effect, the Borrowers, jointly and severally, shall repay no later than the next following Business Day the Principal Amount of Swingline Loans (in the applicable Approved Swingline Currency), and if no Swingline Loans are or remain outstanding, the Principal Amount of Revolving Loans (but excluding DB Loans to the extent the respective DB Loan Maturity Date has not occurred), in each case, in an aggregate Principal Amount equal to such excess. If, after giving effect to the prepayment of all outstanding Swingline Loans and Revolving Loans as set forth above, the remaining Aggregate Loan Outstandings exceed the Total Commitment, the Borrowers, jointly and severally, shall repay on such date the principal of Competitive Bid Loans in an aggregate amount equal to such excess.

(b) If on any date the sum of the aggregate outstanding Principal Amount of all Swingline Loans exceeds the Maximum Swingline Amount, the Borrowers, jointly and

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severally, shall repay no later than the next following Business Day, the Principal Amount of Swingline Loans in an aggregate Principal Amount equal to such excess in the applicable Approved Swingline Currency.

(c) If on any date on which Dollar Equivalents are determined, pursuant to Section 11.07(c), the Dollar Equivalent of the aggregate outstanding Principal Amount of all Swingline Loans (i) denominated in Euros exceeds $300,000,000; (ii) denominated in Pounds Sterling exceeds $300,000,000; (iii) denominated in Hong Kong Dollars exceeds $100,000,000; (iv) denominated in Japanese Yen exceeds $100,000,000; (v) denominated in Swiss Francs exceeds $100,000,000; or (vi) denominated in Australian Dollars exceeds $100,000,000, in each such case, the Borrowers, jointly and severally, shall repay no later than the next following Business Day the Principal Amount of such Swingline Loans, in each case, in an amount equal to such excess in the applicable Approved Swingline Currency.

(d) If on any date on which Dollar Equivalents are determined, pursuant to Section 11.07(c), the sum of the Dollar Equivalents of the aggregate outstanding Principal Amount of all Swingline Loans exceeds the Maximum Swingline Amount, the Borrowers, jointly and severally, shall repay no later than the next following Business Day the Principal Amount of such Swingline Loans in an amount equal to such excess in the applicable Approved Swingline Currency.

(e) Each Borrower with an outstanding Swingline Loan shall repay (in full in the applicable Approved Swingline Currency) each such outstanding Swingline Loan, so that during any period of five consecutive Business Days, there is at least one day on which there are no Swingline Loans denominated in the same currency outstanding; provided that upon the request of the applicable Borrower and the written consent of the Swingline Lender (which consent shall be in the sole discretion of the Swingline Lender), such five consecutive Business Day period may be extended for up to an additional five consecutive Business Days.

(f) On the maturity date specified pursuant to Section 1.04(a) with respect to each Competitive Bid Loan, the applicable Borrower shall repay such Competitive Bid Loan to the applicable Bidder Lender or Bidder Lenders.

(g) On each DB Loan Maturity Date, the respective Designated Borrower shall repay the respective DB Loans in full.

(h) Notwithstanding anything to the contrary contained elsewhere in this Agreement, (i) all outstanding Revolving Loans and Competitive Bid Loans shall be repaid in full on the Final Maturity Date and (ii) all outstanding Swingline Loans shall be repaid in full on the Swingline Expiry Date.

(i) With respect to each prepayment of Swingline Loans or Revolving Loans required by Section 3.02(a) through (e) above, the applicable Borrower may designate the Types of Swingline Loans or Revolving Loans which are to be prepaid and the specific Borrowing(s) pursuant to which such Swingline Loans or Revolving Loans were made, provided that (i) if any prepayment of Eurodollar Loans made pursuant to a single Borrowing shall reduce the outstanding Revolving Loans made pursuant to such Borrowing to an amount less than the Minimum

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Borrowing Amount applicable to such Borrowing, then all Revolving Loans outstanding pursuant to such Borrowing shall be immediately converted into Base Rate Loans and (ii) each prepayment of any Revolving Loans made pursuant to a Borrowing shall be applied pro rata among such Revolving Loans. In the absence of a designation by a Borrower as described in the preceding sentence, the Administrative Agent shall, subject to the above, make such designation in its sole discretion with a view, but no obligation, to minimize breakage costs owing under Section 1.12.

3.03 Method and Place of Payment. (a) Except as otherwise specifically provided herein, all payments (other than in respect of Swingline Loans) under this Agreement shall be made to the Administrative Agent for the ratable (based on its pro rata share) account of the Lenders entitled thereto, not later than 12:00 Noon (New York Time) on the date when due and shall be made in immediately available funds at the Payment Office in: (x) Dollars, if such payment is made in respect of any obligation of the Borrowers under this Agreement except as otherwise provided in the immediately succeeding clause (y); and (y) the appropriate Alternate Currency, if such payment is made in respect of principal of or interest on Alternate Currency Loans, it being understood that written notice by a Borrower to the Administrative Agent to make a payment from the funds in such Borrower’s account at the Payment Office shall constitute the making of such payment to the extent of such funds held in such account. Any payments under this Agreement which are made later than 12:00 Noon (New York Time) shall be deemed to have been made on the next succeeding Business Day. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable during such extension at the applicable rate in effect immediately prior to such extension. The Administrative Agent will promptly make available to each Lender its pro rata share (if any) of each payment so received by the Administrative Agent in the funds and currency so received.

(b) Except as otherwise specifically provided herein, all payments in respect of Swingline Loans under this Agreement shall be made to the Swingline Lender for its own account, not later than 12:00 Noon (local time of each relevant Payment Office) on the date when due and shall be made in immediately available funds at its Payment Office in the applicable Approved Swingline Currency, if such payment is made in respect of principal of or interest on Swing Line Loans, it being understood that written notice by a Borrower to the Swingline Lender and the Administrative Agent to make a payment from the funds in such Borrower’s account at the Payment Office shall constitute the making of such payment to the extent of such funds held in such account. Any payments under this Section 3.03(b) which are made later than 12:00 Noon (local time of each such Payment Office) shall be deemed to have been made on the next succeeding Business Day. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable during such extension at the applicable rate in effect immediately prior to such extension.

3.04 Net Payments. (a) All payments made by each Borrower hereunder or under any Note will be made without setoff, counterclaim or other defense. Except as provided in Section 3.04(b), all such payments will be made free and clear of, and without deduction or

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withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction (or by any political subdivision or taxing authority thereof or therein) with respect to such payments (but excluding, except as provided in the second succeeding sentence, any tax levy, impost, duty, fee, assessment or other governmental charge imposed on or measured by the net income or net profits of a Lender (including, without limitation, any franchise tax imposed on or measured by net income or net profits and any branch profits taxes) pursuant to the laws of the jurisdiction in which it is organized or the jurisdiction in which the principal office or applicable lending office of such Lender is located (or any subdivision or taxing authority thereof or therein)) and all interest, penalties or similar liabilities with respect to such non-excluded taxes, levies, imposts, duties, fees, assessments or other governmental charges (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other governmental charges being referred to collectively as “Taxes”). If any Taxes are so levied or imposed, the relevant Borrower shall pay the full amount of such Taxes to the relevant taxing authority in accordance with applicable law and shall pay to the relevant Lender such additional amounts as may be necessary so that every payment of all amounts due under this Agreement or under any Note, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or in such Note. If any amounts are payable in respect of Taxes pursuant to the preceding sentence, the relevant Borrower agrees to reimburse each Lender lending to such Borrower, upon the written request of such Lender, for taxes imposed on or measured by the net income or net profits of such Lender (including, without limitation, any franchise tax imposed on or measured by net income or net profits and any branch profits taxes imposed by the United States of America or similar taxes imposed by any political subdivision or taxing authority thereof) pursuant to the laws of the jurisdiction in which such Lender is organized or in which the principal office or applicable lending office of such Lender is located (or of any subdivision or taxing authority therein or thereof) and for any withholding of taxes as such Lender shall determine are payable by, or withheld from, such Lender in respect of such amounts so paid to or on behalf of such Lender pursuant to the preceding sentence and in respect of any amounts paid to or on behalf of such Lender pursuant to this sentence. Each Borrower will furnish to the Administrative Agent within 45 days after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts, if any, issued by such taxing authority or other evidence reasonably acceptable to the Administrative Agent evidencing such payment by such Borrower (or, if such Borrower has not received such certified copies of tax receipts within such time period, then such Borrower shall furnish such certified copies of tax receipts to the Administrative Agent within 15 days after such Borrower has received such certified copies of tax receipts). Each Borrower agrees to indemnify and hold harmless each Lender, and reimburse such Lender upon its written request, for the amount of any Taxes so levied or imposed and paid by such Lender. Such indemnification shall be made within 30 days after the date upon which such Lender makes written demand therefor, which demand shall identify the nature and the amount of Taxes for which indemnification is sought and shall include a copy of any written assessment thereof.

(b) In the case of any Borrower that is a United States person (as such term is defined in Section 7701(a)(30) of the Code), each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes agrees to deliver to the Borrowers and the Administrative Agent on or prior to the Second Restatement Effective Date, or in the case of a Lender that assumes an interest or is an assignee or transferee of an interest under this Agreement pursuant to Section 1.14, 1.16 or 11.04 (unless the respective

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Lender was already a Lender hereunder immediately prior to such assumption, assignment or transfer), on the date of such assumption, assignment or transfer to such Lender, (i) two accurate and complete original signed copies of Internal Revenue Service Form W-8ECI or Form W-8BEN (with respect to a complete exemption under an income tax treaty) (or successor forms) certifying to such Lender’s entitlement to a complete exemption from United States withholding tax with respect to payments to be made by the Borrowers under this Agreement and under any Note or (ii) if the Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form W-8ECI or Form W-8BEN (with respect to a complete exemption under an income tax treaty) pursuant to clause (i) above, (x) a certificate substantially in the form of Exhibit C (any such certificate, a “Section 3.04 Certificate”) and (y) two accurate and complete original signed copies of Internal Revenue Service Form W-8BEN (with respect to the portfolio interest exemption) (or successor form) certifying to such Lender’s entitlement to a complete exemption from United States withholding tax with respect to payments of interest to be made by the Borrowers under this Agreement and under any Note. In addition, each such Lender agrees that, from time to time after the Second Restatement Effective Date, when a lapse in time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the Borrowers and the Administrative Agent two new accurate and complete original signed copies of Internal Revenue Service Form W-8ECI, Form W-8BEN (with respect to the benefits of an income tax treaty) or Form W-8BEN (with respect to the portfolio interest exemption) and a Section 3.04 Certificate, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding tax with respect to payments made by the Borrowers under this Agreement and any Note, or, if legally unable to deliver such forms, it shall immediately notify the Borrowers and the Administrative Agent of its inability to deliver any such Form or Certificate in which case such Lender shall not be required to deliver any such Form or Certificate pursuant to this Section 3.04(b). Notwithstanding anything to the contrary contained in Section 3.04(a), but subject to Section 11.04(b) and the immediately succeeding sentence, (x) each Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar taxes imposed by the United States (or any political subdivision or taxing authority hereof or therein) from interest, fees or other amounts payable hereunder by such Borrower for the account of any Lender which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes to the extent that such Lender has not provided to the Borrowers Internal Revenue Service Forms that establish a complete exemption from such deduction or withholding and (y) the Borrowers shall not be obligated pursuant to Section 3.04(a) hereof to gross-up payments to be made to any such Lender in respect of income or similar taxes imposed by the United States if (I) such Lender has not provided to the Borrowers the Internal Revenue Service Forms required to be provided to the Borrowers pursuant to this Section 3.04(b) or (II) in the case of a payment, other than interest, to a Lender described in clause (ii) of the first sentence of this Section 3.04(b) above, to the extent that such Forms do not establish a complete exemption from withholding of such taxes. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 3.04 and except as set forth in Section 11.04(b), the Borrowers agree to pay additional amounts and to indemnify each Lender in the manner set forth in Section 3.04(a) (without regard to the identity of the jurisdiction requiring the deduction or withholding) in respect of any Taxes deducted or withheld by it as described in the immediately preceding

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sentence as a result of any changes after the Original Effective Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of such Taxes.

(c) If a Borrower pays any additional amount under this Section 3.04 to a Lender and such Lender determines in its sole discretion that it has actually received or realized in connection therewith any refund or any reduction of, or credit against, its Tax liabilities in or with respect to the taxable year in which the additional amount is paid, such Lender shall pay to the Borrower an amount that such Lender shall, in its sole discretion, determine is equal to the net benefit, after tax, which was obtained by the Lender in such year as a consequence of such refund, reduction or credit. Such amount shall be paid as soon as practicable after receipt or realization by such Lender of such refund, reduction or credit. Nothing in this Section 3.04(c) shall require any Lender to disclose or detail the basis of its calculation of the amount of any refund or reduction of, or credit against, its tax liabilities or any other information to any Borrower or any other Person.

(d) In the case of any Borrower that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code), each Lender shall use reasonable efforts (consistent with legal and regulatory restrictions and subject to overall policy considerations of such Lender) to file any certificate or document or to furnish any information as reasonably requested by a Borrower pursuant to any applicable treaty, law or regulation, if the making of such filing or the furnishing of such information would avoid the need for or reduce the amount of any amounts payable by a Borrower under Section 3.04(a) and would not, in the reasonable judgment of such Lender, be disadvantageous to such Lender provided, however, that nothing in this Section 3.04(d) shall require a Lender to disclose any confidential information (including, without limitation, its tax returns or its calculations).

SECTION 4. Conditions Precedent.

4.01 Conditions Precedent to the Second Restatement Effective Date. This Agreement shall become effective on the date (the “Second Restatement Effective Date”) on which each of the following conditions shall be satisfied:

(a) Execution of Agreement; Notes. (i) Each of Parent, Corp., each Agent and each of the Lenders shall have signed a copy hereof (whether the same or different copies) and shall have delivered the same to the Administrative Agent at its Notice Office or, in the case of the Lenders and the Agents, shall have given to the Administrative Agent telephonic (confirmed in writing), written or facsimile transmission notice (actually received) at such office that the same has been signed and mailed to it; and (ii) there shall have been delivered to the Administrative Agent for the account of each Lender requesting the same, the appropriate Notes (and to the Swingline Lender the appropriate Swingline Note), in each case, executed by Parent and Corp., as applicable, and in each case in the amount, maturity and as otherwise provided herein.

(b) Opinion of Counsel. The Administrative Agent shall have received an opinion, addressed to each Agent and each of the Lenders and dated the Second Restatement Effective Date, from Ram D. Wertheim, General Counsel of Parent and Corp., which opinion shall be substantially in the form of Exhibit D hereto.

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(c) Corporate Proceedings. (i) The Administrative Agent shall have received from each of Parent and Corp. a certificate, dated the Second Restatement Effective Date, signed by an Authorized Officer thereof in the form of Exhibit E with appropriate insertions and deletions, together with (x) copies of its certificate of incorporation, by-laws or other organizational documents and (y) the resolutions relating to the Credit Documents which shall be satisfactory to the Administrative Agent.

(ii) All corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the other Credit Documents shall be satisfactory in form and substance to the Administrative Agent, and the Administrative Agent shall have received all information and copies of all certificates, documents and papers, including good standing certificates of recent date and any other records of corporate proceedings and governmental approvals, if any, which the Administrative Agent may have requested in connection therewith, such documents and papers, where appropriate, to be certified by proper corporate or governmental authorities.

(d) Fees. The Borrowers shall have paid to the Administrative Agent and the Lenders all fees and expenses (including, without limitation, legal fees and expenses) agreed upon by such parties to be paid on or prior to such date.

(e) Existing Credit Agreement. On the Second Restatement Effective Date and concurrently with the initial incurrence of Loans hereunder, (i) all Existing Revolving Loans shall have been repaid in full in cash, together with accrued but unpaid interest thereon, it being understood and agreed, however, that any Existing Lender may net fund any Revolving Loans required to be made by it on the Second Restatement Effective Date by permitting the principal amount of the Existing Revolving Loans made by such Existing Lender to remain outstanding on the Second Restatement Effective Date to satisfy such Existing Lender’s obligation to fund a like principal amount of Revolving Loans to be incurred hereunder by the Borrowers on the Second Restatement Effective Date, and for purposes of this Section 4.01(e) only such outstanding principal amount shall be deemed outstanding as Revolving Loans under this Agreement and such corresponding Existing Revolving Loans shall be deemed to have been so repaid in full, and (ii) there shall have been paid in cash in full all accrued but unpaid Fees under, and as defined in, the Existing Credit Agreement (including, without limitation any Facility Fees) accrued but unpaid prior to but excluding the Second Restatement Effective Date and all other amounts, costs and expenses (including, without limitation, breakage costs, if any, with respect to Eurodollar Loans thereunder) then owing to any of the Existing Lenders and/or the Administrative Agent, as agent under the Existing Credit Agreement, in each case to the satisfaction of the Administrative Agent or the Existing Lenders, as the case may be, regardless of whether or not such amounts would otherwise be due and payable at such time pursuant to the terms of the Existing Credit Agreement and (iii) all outstanding Notes (as defined in the Existing Credit Agreement) issued by Parent or Corp. to the Existing Lenders under the Existing Credit Agreement shall be deemed canceled.

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The occurrence of the Second Restatement Effective Date shall constitute a representation and warranty by each Borrower to the Agents and each of the Lenders that all the conditions specified in Section 4.01 exist as of that time. All the Notes, certificates, legal opinions and other documents and papers referred to in this Section 4.01, unless otherwise specified, shall be delivered to the Administrative Agent at the Administrative Agent’s Notice Office for the account of each of the Lenders and, except for the Notes, in sufficient counterparts for each of the Lenders and shall be satisfactory in form and substance to the Lenders. The Administrative Agent shall give Parent, Corp. and each Lender written notice that the Second Restatement Effective Date has occurred.

4.02 Conditions Precedent to Loans. The obligation of each Lender to make any Loans is subject, at the time of each such Loan, to the satisfaction of the following conditions:

(a) Second Restatement Effective Date. The Second Restatement Effective Date shall have occurred.

(b) Notice of Borrowing. (i) The Administrative Agent shall have received (x) a Notice of Borrowing meeting the requirements of Section 1.03(a) with respect to each incurrence of Revolving Loans and (y) a Notice of Competitive Bid Borrowing meeting the requirements of Section 1.04(a) with respect to each incurrence of Competitive Bid Loans, and (ii) the Swingline Lender shall have received a Notice of Swingline Borrowing meeting the requirements of Section 1.03(b) with respect to each incurrence of Swingline Loans.

(c) No Default; Representations and Warranties. At the time of the incurrence of each Loan and also after giving effect thereto, (i) there shall exist no Default or Event of Default and (ii) all representations and warranties made by any Borrower contained herein or in the other Credit Documents shall be true and correct in all material respects with the same effect as though such representations and warranties had been made on and as of the date of such Loan.

(d) Financial Guaranty Insurance Policy. In the case of each DB Loan, Corp. shall have issued a financial guaranty insurance policy in the form of Exhibit F attached hereto (as appropriately completed, a “Financial Guaranty Insurance Policy”), in support of the principal of and interest on such DB Loan, and such Financial Guaranty Insurance Policy shall be in full force and effect. In addition, in the case of a DB Loan which is an Alternate Currency Loan, Corp. shall be permitted to Guarantee such DB Loan under the respective Alternate Currency under applicable law.

(e) Opinion of Counsel. In the case of each DB Loan, the Administrative Agent shall have received an opinion, addressed to each Agent and each of the Lenders and dated the date of the incurrence of such DB Loan, from counsel to Corp., which opinion shall be substantially in the form of Exhibit L hereto.

The acceptance of the benefits of each Loan shall constitute a representation and warranty by the respective Borrower to the Agents and each of the Lenders that all of the applicable conditions specified in Section 4.02 exist as of that time.

SECTION 5. Representations, Warranties and Agreements. In order to induce the Lenders to enter into this Agreement and to make the Loans provided for herein, each of

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Parent and Corp. makes the following representations and warranties to, and agreements with, the Lenders, all of which shall survive the execution and delivery of this Agreement and the making of the Loans:

5.01 Corporate Existence and Power. Parent and Corp. are corporations duly organized, validly existing and in good standing under the laws of the jurisdiction of their incorporation, are duly qualified to transact business in every jurisdiction where, by the nature of their businesses, such qualification is necessary and where the failure to be so qualified, either individually or in the aggregate could reasonably be expected to have a Material Adverse Effect, and have all corporate powers and all governmental licenses, authorizations, consents and approvals required to carry on their businesses as now conducted and where the failure to have such governmental licenses, authorizations, consents and approvals could reasonably be expected to have a Material Adverse Effect.

5.02 Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Borrowers of this Agreement and the other Credit Documents (i) are within each of the Borrower’s corporate powers, (ii) have been duly authorized by all necessary corporate action, (iii) require no action by or in respect of, or filing with, any governmental body, agency or official, (iv) do not contravene, or constitute a default under, any provision of applicable law or regulation or of the certificate of incorporation or by-laws of each of the Borrowers or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrowers or any of their Subsidiaries, and (v) do not result in the creation or imposition of any Lien on any asset of the Borrowers or any of their Subsidiaries.

5.03 Binding Effect. This Agreement constitutes a valid and binding agreement of each of the Borrowers enforceable in accordance with its terms, and the other Credit Documents, when executed and delivered in accordance with this Agreement, will constitute valid and binding obligations of each of the Borrowers enforceable in accordance with their respective terms, provided that the enforceability hereof and thereof is subject in each case to general principles of equity and to bankruptcy, insolvency and similar laws affecting the enforcement of creditors’ rights generally.

5.04 Financial Information. (a) The consolidated balance sheet of Parent and its Consolidated Subsidiaries as of December 31, 2002 and the related consolidated statements of income, shareholders’ equity and cash flows for the Fiscal Year then ended, reported on by PricewaterhouseCoopers LLP, copies of which have been delivered to each of the Lenders fairly present, in conformity with GAAP or Statutory Accounting Principles, as applicable consistently applied, the consolidated financial position of Parent and its Consolidated Subsidiaries as of such dates and their consolidated results of operations and cash flows for such periods stated.

(b) Since December 31, 2002 there has been no event, act, condition or occurrence having a Material Adverse Effect.

5.05 Litigation. There is no action, suit or proceeding pending, or to the knowledge of the Borrowers threatened, against or affecting the Borrowers or any of their Subsidiaries before any court or arbitrator or any governmental body, agency or official which could have a Material Adverse Effect or which in any manner draws into question the validity or enforceability of, or could impair the ability of the Borrowers to perform their obligations under, this Agreement or any of the other Credit Documents.

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5.06 Compliance with ERISA. (a) Parent, Corp. and each member of the Controlled Group have fulfilled their obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and are in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and have not incurred any liability to the PBGC or a Plan under Title IV of ERISA.

(b) Neither Parent nor Corp. nor any member of the Controlled Group is or ever has been obligated to contribute to any Multiemployer Plan.

5.07 Taxes. There have been filed on behalf of Parent and its Subsidiaries all Federal, state and local income, excise, property and other tax returns which are required to be filed by them and all taxes due pursuant to such returns or pursuant to any assessment received by or on behalf of Parent or any Subsidiary have been paid. The charges, accruals and reserves on the books of each of Parent and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of each of Parent and Corp., adequate. United States income tax returns of Parent and its Subsidiaries have been examined and closed through the Fiscal Year ended December 31, 2002.

5.08 Subsidiaries. Each of Parent’s Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, is duly qualified to transact business in every jurisdiction where, by the nature of its business, such qualification is necessary and where the failure to be so qualified, either individually or in the aggregate could reasonably be expected to have a Material Adverse Effect, and has all corporate powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted and where the failure to have such governmental licenses, authorizations, consents and approvals could reasonably be expected to have a Material Adverse Effect. Parent has no Subsidiaries except those Subsidiaries listed on Annex III, which accurately sets forth each such Subsidiary’s complete name and jurisdiction of incorporation.

5.09 Not an Investment Company. No Borrower is an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

5.10 Public Utility Holding Company Act. No Borrower nor any of their Subsidiaries is a “holding company”, or a “subsidiary company” of a “holding company”, or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company”, as such terms are defined in the Public Utility Holding Company Act of 1935, as amended.

5.11 Ownership of Property; Liens. Parent and its Consolidated Subsidiaries have title of their properties sufficient for the conduct of their respective businesses and none of such property is subject to any Lien except as permitted in Section 7.01.

5.12 No Default. No Default or Event of Default has occurred and is continuing.

5.13 Full Disclosure. All information heretofore furnished by the Borrowers to the Administrative Agent or any Lender for purposes of or in connection with this Agreement or

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any transaction contemplated hereby is, and all such information hereafter furnished by the Borrowers to the Administrative Agent or any Lender will be, true, accurate and complete in every material respect or based on reasonable estimates on the date as of which such information is stated or certified. The Borrowers have disclosed to the Lenders in writing any and all facts which could have or cause a Material Adverse Effect.

5.14 Compliance with Laws. Parent and each of its Subsidiaries is in compliance with all applicable laws, except where any failure to comply with any such laws would not, alone or in the aggregate, have a Material Adverse Effect.

5.15 Capital Stock. All Capital Stock, debentures, bonds, notes and all other securities of each of Parent and its Subsidiaries presently issued and outstanding are validly and properly issued in accordance with all applicable laws, including, but not limited to, the “Blue Sky” laws of all applicable states and the federal securities laws. The issued shares of Capital Stock of each of Parent’s and Corp.’s Wholly-Owned Subsidiaries are owned by Parent or Corp. free and clear of any Lien or adverse claim. At least a majority of the issued shares of Capital Stock of each of Parent’s and Corp.’s other Subsidiaries (other than Wholly-Owned Subsidiaries) is owned by Parent or Corp. free and clear of any Lien or adverse claim.

5.16 Margin Stock. No Borrower nor any of their Subsidiaries are engaged principally, or as one of their important activities, in the business of purchasing or carrying any Margin Stock, and no part of the proceeds of any Loan will be used to purchase or carry any Margin Stock, or be used for any purpose which violates, or which is inconsistent with, the provisions of Regulation U or X.

5.17 Insolvency. After giving effect to the execution and delivery of the Credit Documents and the making of the Loans under this Agreement, no Borrower will be “insolvent,” within the meaning of such term as defined in § 101 of Title 11 of the United States Code or Section 2 of the Uniform Fraudulent Transfer Act, or any other applicable state law pertaining to fraudulent transfers, as each may be amended from time to time, or be unable to pay its debts generally as such debts become due or have an unreasonably small capital to engage in any business or transaction, whether current or contemplated.

5.18 Ranking. The Debt of each Borrower arising under or in connection with this Agreement or any other Credit Document (i) constitutes and shall constitute a senior unsecured obligation of such Borrower, (ii) ranks senior to, or pari passu with, all other existing and future senior unsecured Debt of such Borrower and (iii) ranks senior to any subordinated Debt of such Borrower.

SECTION 6. Affirmative Covenants. The Borrowers hereby covenant and agree that on and as of the Second Restatement Effective Date and thereafter until the Commitments have terminated, no Notes are outstanding and the Loans, together with interest, Fees and all other obligations (other than any indemnities described in Section 11.12 which are not then owing) incurred hereunder, are paid in full:

6.01 Information Covenants. Parent and Corp. will furnish to each Lender:

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(a) as soon as available and in any event within 60 days after the end of each of the first three quarterly fiscal periods in each Fiscal Year of Parent and Corp., consolidated balance sheets of each of Parent and its Subsidiaries and Corp. and its Subsidiaries as at the end of such period and the related consolidated statements of income, changes in stockholders’ equity and cash flows of each of Parent and its Subsidiaries and Corp. and its Subsidiaries for such period and (in the case of the second and third quarterly periods) for the period from the beginning of the current Fiscal Year to the end of such quarterly period, setting forth in each case in comparative form the consolidated figures for the corresponding periods of the previous Fiscal Year, all in reasonable detail and certified by an Authorized Officer of each of Parent and Corp. as presenting fairly, in accordance with GAAP (except as specifically set forth therein; provided any exceptions or qualifications thereto must be acceptable to the Required Lenders) on a basis consistent with such prior fiscal periods, the information contained therein, subject to changes resulting from normal year-end audit adjustments;

(b) as soon as available and in any event within 120 days after the end of each Fiscal Year of Parent and Corp., consolidated balance sheets of each of Parent and its Subsidiaries and Corp. and its Subsidiaries as at the end of such year and the related consolidated statements of income, operations, changes in stockholders’ equity and cash flows of each of Parent and its Subsidiaries and Corp. and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the consolidated figures for the previous fiscal year, all in reasonable detail and accompanied by a report thereon of PricewaterhouseCoopers LLP or other independent public accountants of recognized national standing selected by Parent, which report shall state that such consolidated financial statements present fairly the consolidated financial position of each of Parent and its Subsidiaries and Corp. and its Subsidiaries as at the dates indicated and the consolidated results of their operations and cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise specified in such report; provided any exceptions or qualifications thereto must be acceptable to the Required Lenders) and that the audit by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards;

(c) within five Business Days after any Borrower becomes aware of the occurrence of any Default, a certificate of an Authorized Officer of each of the Borrowers setting forth the details thereof and the action which the Borrowers are taking or propose to take with respect thereto;

(d) promptly upon the mailing thereof to the security holders of the Borrowers generally, copies of all financial statements, reports and proxy statements so mailed;

(e) promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and annual, quarterly or monthly reports which the Borrowers shall have filed with the Securities and Exchange Commission or any national securities exchange;

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(f) if and when Parent, Corp. or any member of the Controlled Group (i) gives or is required to give notice to the PBGC of any “reportable event” (as defined in Section 4043 of ERISA) with respect to any Plan which might constitute grounds for a termination of such Plan under Title IV of ERISA, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA, a copy of such notice; or (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate or appoint a trustee to administer any Plan, a copy of such notice;

(g) promptly after any Borrower knows of the commencement thereof, notice, of any litigation, dispute or proceeding involving a claim against any of the Borrowers and/or any Subsidiary for $10,000,000 or more in excess of amounts covered in full by applicable insurance;

(h) from time to time such additional information regarding the financial position or business of the Borrowers and their Subsidiaries as the Administrative Agent, at the request of any Lender, may reasonably request;

(i) at the request of any Lender, promptly after the filing thereof, a copy of the annual statements for each calendar year and quarterly statements for each calendar quarter as filed with the New York Insurance Department or other then comparable agency of other jurisdictions and the financial statements of Corp. for each calendar year or quarter prepared in accordance with Statutory Accounting Principles accompanied by a report thereon of the independent public accountants of Parent referred to in paragraph (b) above; and

(j) at the request of any Lender, at any time when a DB Loan is outstanding, quarterly and annual summary financial statements of the applicable Designated Borrower as promptly as possible after the end of each fiscal quarter and fiscal year of such Designated Borrower.

6.02 Books, Records and Inspections. The Borrowers will (i) keep, and will cause each Subsidiary to keep, proper books of record and account in which full, true and correct entries in conformity with GAAP or Statutory Accounting Principles, as applicable, shall be made of all dealings and transactions in relation to its business and activities; and (ii) permit, and will cause each Subsidiary to permit, representatives of any Lender at such Lender’s expense prior to the occurrence of an Event of Default and at the Borrowers’ expense after the occurrence of an Event of Default to visit and inspect any of their respective properties, to examine their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants. The Borrowers agree to cooperate and assist in such visits and inspections, in each case at such reasonable times and as often as may reasonably be desired.

6.03 Maintenance of Existence. Each of the Borrowers shall maintain its existence and carry on its business in substantially the same manner and in substantially the same fields as such business is now carried on and maintained.

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6.04 Compliance with Laws; Payment of Taxes. The Borrowers will, and will cause each of their Subsidiaries and each member of the Controlled Group to, comply with applicable laws (including but not limited to ERISA), regulations and similar requirements of governmental authorities (including but not limited to the PBGC), except where (i) the necessity of such compliance is being contested in good faith through appropriate proceedings diligently pursued; and (ii) any failure to comply with any such laws would not, alone or in the aggregate, have a Material Adverse Effect. The Borrowers will, and will cause each of their Subsidiaries to, pay promptly when due all taxes, assessments, governmental charges, claims for labor, supplies, rent and other obligations which, if unpaid, might become a lien against the property of the Borrowers or any Subsidiary, except liabilities being contested in good faith by appropriate proceedings diligently pursued.

6.05 Insurance. The Borrowers will maintain, and will cause each of their Material Subsidiaries to maintain (either in the name of the Borrowers or in such Material Subsidiary’s own name), with financially sound and reputable insurance companies, insurance on all their property in at least such amounts and against at least such risks as are usually insured against in the same general area by companies of established repute engaged in the same or similar businesses.

6.06 Maintenance of Property. The Borrowers shall, and shall cause each Material Subsidiary to, maintain all of their properties and assets in good condition, repair and working order, ordinary wear and tear excepted.

SECTION 7. Negative Covenants. The Borrowers hereby covenant and agree that on and as of the Second Restatement Effective Date and thereafter until the Commitments have terminated, no Notes are outstanding and the Loans, together with interest, Fees and all other obligations (other than any indemnities described in Section 11.12 which are not then owing) incurred hereunder, are paid in full:

7.01 Liens. Neither Parent nor any of its Consolidated Subsidiaries will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except:

(i) Liens securing any loan to be made under the Credit Agreement among Corp., the banks signatory thereto and Credit Suisse First Boston, New York Branch, originally dated as of December 29, 1989, as amended and restated on October 1, 1997 and as may be amended thereafter from time to time;

(ii) Liens created on certain insurance premiums by a Trust Agreement effective December 31, 1989 between Municipal Bond Investors Assurance Corporation, MBIA Insurance Corp. of Illinois and the trustee thereunder, as amended on February 28, 1995 and as may be amended from time to time thereafter;

(iii) as to Corp., Liens (in addition to Liens permitted under Section 7.01(i), (iv) and (v)) in an aggregate principal amount of up to $10,000,000;

(iv) Liens not securing Debt which are incurred in the ordinary course of business;

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(v) Liens securing repurchase agreements constituting a borrowing of funds by Parent or any Subsidiary of Parent in the ordinary course of business for liquidity purposes; and

(vi) Liens securing any Conduit Debt or Insured Debt (or any guaranty made by Corp. of such Conduit Debt or Insured Debt, as the case may be), provided that any such Liens attach only to the underlying assets that are the subject of such Conduit Debt or Insured Debt, as applicable.

7.02 Dissolution. No Borrower shall suffer or permit dissolution or liquidation either in whole or in part or redeem or retire any shares of their own stock, except through corporate reorganization to the extent permitted by Section 7.03.

7.03 Consolidations, Mergers and Sales of Assets. The Borrowers will not consolidate or merge with or into, or sell, lease or otherwise transfer all or any substantial part of their assets to, any other Person, provided that (a) any Borrower (other than any Designated Borrower) may merge with another Person if (i) such Person was organized under the laws of the United States of America or one of its states, (ii) one of the Borrowers is the corporation surviving such merger and (iii) immediately after giving effect to such merger, no Default shall have occurred and be continuing, and (b) Subsidiaries of the Borrowers may merge with one another.

7.04 Use of Proceeds. No portion of the proceeds of the Loans will be used by the Borrowers or any Subsidiary (i) directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of purchasing or carrying any Margin Stock, or (ii) for any purpose in violation of any applicable law or regulation.

7.05 Change in Fiscal Year. Neither Parent nor Corp. shall change its Fiscal Year without the consent of the Required Lenders.

7.06 Transactions with Affiliates. Neither Parent nor any of its Subsidiaries shall enter into, or be a party to, any transaction with any Affiliate of Parent or such Subsidiary (which Affiliate is not one of the Borrowers or a Subsidiary), except as permitted by law and in the ordinary course of business and pursuant to reasonable terms.

7.07 Leverage Ratio. Parent and Corp. will not permit the ratio of Consolidated Total Debt to Consolidated Total Capitalization at any time to exceed 0.30:1.00.

7.08 Minimum Net Worth. Parent and Corp. will not permit Consolidated Net Worth to be less than $2,500,000,000 at any time.

SECTION 8. Defaults.

8.01 Events of Default. Upon the occurrence of any of the following specified events (each, an “Event of Default”):

(a) any Borrower shall fail to pay when due any principal of any Loan, or shall fail to pay any interest on any Loan within three Business Days after such interest shall become due, or shall fail to pay any fee or other amount payable hereunder within five Business Days after such fee or other amount becomes due; or

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(b) any Borrower shall fail to observe or perform any covenant contained in Sections 6.01(c), 6.02(ii), 6.03, 6.06, 7.02, 7.03, 7.04 or 7.08; or

(c) any Borrower shall fail to observe or perform any covenant contained in Section 7.01 for five days after the earlier of (i) the first day on which any Borrower has knowledge of such failure or (ii) written notice thereof has been given to any Borrower by the Administrative Agent at the request of any Lender; or

(d) any Borrower shall fail to observe or perform any covenant or agreement contained herein (other than those covered by clause (a), (b) or (c) above, but including, without limitation, any covenant contained in Section 7.07) for 30 days after the earlier of (i) the first day on which any Borrower has knowledge of such failure or (ii) written notice thereof has been given to any Borrower by the Administrative Agent at the request of any Lender; or

(e) any representation, warranty, certification or statement made or deemed made by any Borrower in Section 5 of this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect or misleading in any material respect when made (or deemed made); or

(f) Parent or any Subsidiary shall fail to make any payment in respect of Debt outstanding in an aggregate principal amount equal to or in excess of $10,000,000 (other than the Notes) when due at final stated maturity (after giving effect to any applicable grace period); or

(g) any event or condition shall occur which results in the acceleration of the maturity of Debt outstanding in an aggregate amount equal to or in excess of $10,000,000 of Parent or any Subsidiary or the mandatory prepayment or purchase of such Debt by Parent (or its designee) or such Subsidiary (or its designee) prior to the scheduled maturity thereof; or

(h) Parent or any Material Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to themselves or their debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of them or any substantial part of their property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against them, or shall make a general assignment for the benefit of creditors, or shall fail generally, or shall admit in writing their inability, to pay their debts as they become due, or shall take any corporate action to authorize any of the foregoing, or shall become or be declared by a court of competent jurisdiction to be insolvent; or

(i) an involuntary case or other proceeding shall be commenced against Parent or any Material Subsidiary seeking liquidation, reorganization or other relief with

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respect to them or their debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of them or any substantial part of their property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against Parent or any Material Subsidiary under the federal bankruptcy laws as now or hereafter in effect; or

(j) Parent, Corp. or any member of the Controlled Group shall fail to pay when due any material amount which they shall have become liable to pay to the PBGC or to a Plan under Title IV of ERISA; or the PBGC shall institute proceedings under Title IV of ERISA to terminate or to cause a trustee to be appointed to administer any such Plan or Plans or a proceeding shall be instituted by a fiduciary of any such Plan or Plans to enforce Section 515 or 4219(c)(5) of ERISA and such proceeding shall not have been dismissed within 30 days thereafter; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any such Plan or Plans must be terminated; or

(k) one or more judgments or orders for the payment of money in an aggregate amount in excess of $25,000,000 shall be rendered against Parent or any Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days; or

(l) a federal tax lien in excess of $10,000,000 shall be filed against Parent or any Subsidiary under Section 6323 of the Code or a lien in excess of $10,000,000 of the PBGC shall be filed against any Parent or any Subsidiary under Section 4068 of ERISA and in either case such lien shall remain undischarged for a period of 25 days after the date of filing; or

(m) (i) any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Exchange Act) of 40% or more of the outstanding shares of the voting stock of Parent; or (ii) as of any date a majority of the Board of Directors of Parent consists of individuals who were not either (A) directors of Parent as of the corresponding date of the previous year, (B) selected or nominated to become directors by the Board of Directors of Parent of which a majority consisted of individuals described in clause (A), or (C) selected or nominated to become directors by the Board of Directors of Parent of which a majority consisted of individuals described in clause (A) and individuals described in clause (B); or

(n) Parent shall at any time or times and for any reason cease to own (either directly or indirectly through a wholly-owned intermediate Subsidiary) all of the Capital Stock or other ownership interests (except for director’s qualifying shares) of Corp.; or

(o) at any time when any DB Loan is outstanding, the respective Financial Guaranty Insurance Policy or any material provision thereof shall cease to be in full force or effect or Corp. shall deny or disaffirm its obligations under such Financial Guaranty Insurance Policy;

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then, and in every such event, the Administrative Agent shall (i) if requested by the Required Lenders, by notice to Parent and Corp. terminate the Commitments and they shall thereupon terminate, and (ii) if requested by the Required Lenders, by notice to Parent and Corp. declare the Notes (together with accrued interest thereon) and all other amounts payable hereunder and under the other Credit Documents to be, and the Notes (together with all accrued interest thereon) and all other amounts payable hereunder and under the other Credit Documents shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrowers; provided that if any Event of Default specified in clause (h) or (i) above occurs with respect to Parent or Corp., without any notice to Parent or Corp. or any other act by the Administrative Agent or the Lenders, the Total Commitment shall thereupon automatically terminate and the Notes (together with accrued interest thereon) and all other amounts payable hereunder and under the other Credit Documents shall automatically become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrowers; provided, further, that, except in the case of an Event of Default under Section 8.01(o), the principal of and interest on DB Loans shall not become due and payable pursuant to this Section 8.01 prior to their respective DB Loan Maturity Date. Notwithstanding the foregoing, the Administrative Agent shall have available to it all other remedies at law or equity, and shall exercise any one or all of them at the request of the Required Lenders.

8.02 Notice of Default. The Administrative Agent shall give notice to the Borrowers of any Default under Sections 8.01(c) or 8.01(d) promptly upon being requested to do so by any Lender and shall thereupon notify all the Lenders thereof.

SECTION 9. Definitions. As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires. Defined terms in this Agreement shall include in the singular number the plural and in the plural the singular:

“Absolute Rate” shall mean an interest rate (rounded to the nearest .0001) expressed as a decimal.

“Absolute Rate Borrowing” shall mean a Competitive Bid Borrowing with respect to which a Borrower has requested that the Bidder Lenders offer to make Competitive Bid Loans at Absolute Rates.

“Administrative Agent” shall have the meaning provided in the first paragraph of this Agreement.

“Affiliate” shall mean, with respect to any Person, any other Person directly or indirectly controlling (including but not limited to all directors and officers of such Person), controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power (i) to vote 10% or more of the securities having ordinary voting power for the election of directors of such corporation or (ii) to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise.

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“Agents” shall mean the Administrative Agent, the Syndication Agent and the Documentation Agent.

“Aggregate Loan Outstandings” shall have the meaning provided in Section 3.02(a).

“Agreement” shall mean this Second Amended and Restated Credit Agreement, as the same may be from time to time modified, amended and/or supplemented.

“Alternate Currency” shall mean (i) each Primary Alternate Currency, (ii) each Other Alternate Currency and (iii) each Swingline Alternate Currency.

“Alternate Currency Loan” shall mean any Loan denominated in an Alternate Currency.

“Applicable Margin” shall mean, as of any date, with respect to (i) any Eurodollar Loan, Base Rate Loan, or Swingline Loan, a percentage per annum set forth below under the caption “Eurodollar Rate”, “Base Rate” or “Swing Rate”, as applicable, determined, in each case, by reference to (x) for Revolving Loans and Swingline Loans incurred by Parent, the Applicable Public Rating in effect on such date as set forth below under the caption “Parent’s Public Rating S&P/Moody’s” and (y) for Revolving Loans and Swingline Loans incurred by Corp or a Designated Borrower, the Applicable Public Rating in effect on such date as set forth below under the caption “Corp’s Public Rating S&P/Moody’s” and (ii) any Facility Fee, the Applicable Margin per annum set forth below under the caption “Facility Fee” determined, in each case, by reference to the lower of Parent’s and Corp’s Applicable Public Rating in effect on such date as set forth below under the captions “Parent’s Public Rating S&P/Moody’s” and “Corp’s Public Rating S&P/Moody’s” respectively:

Parent’s Public Rating S&P/Moody’s	Corp’s Public Rating S&P/Moody’s	Eurodollar Rate		Base Rate		Swing Rate		Facility Fee
Level 1 AA/Aa2 or above	Level 1 AAA/ Aaa	0.13	%	0	%	0.13	%	0.12	%
Level 2 AA-/Aa3	Level 2 AA+/ Aa1	0.23	%	0	%	0.23	%	0.13	%
Level 3 A+/ A1	Level 3 AA / Aa2	0.33	%	0	%	0.33	%	0.14	%
Level 4 A / A2	Level 4 AA-/ Aa3	0.43	%	0	%	0.43	%	0.15	%
Level 5 A-/A3	Level 5 A+ / A1	0.83	%	0	%	0.83	%	0.20	%
Level 6 BBB+/Baa1	Level 6 A / A2	0.93	%	0	%	0.93	%	0.21	%
Level 7 BBB/Baa2 or lower	Level 7 A-/A3 or lower	1.03	%	0	%	1.03	%	0.22	%

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provided that, (A) notwithstanding anything to the contrary set forth in the grid above (and notwithstanding the Applicable Public Rating at the time), upon the occurrence and during the continuance of any Event of Default, the Applicable Margin shall be the rate described above in Level 7; (B) for purposes of the foregoing, in the event of a split in the Applicable Public Rating from Moody’s and S&P, the applicable level shall be (1) the lower of such ratings in the event such ratings are one level apart, (2) midpoint (if any) of such levels in the event such ratings are two or more levels apart and (3) the lower of the two intermediate ratings in the event there is no midpoint rating; (C) if at any time Parent or Corp., as the case may be, does not have an Applicable Public Rating with either Moody’s or S&P (other than by reason of the circumstances referred to in the last sentence of this definition), the Applicable Margin as set forth in Level 7 will apply; (D) if at any time either Moody’s or S&P shall not have in effect an Applicable Public Rating, the Applicable Margin shall be determined solely by the Applicable Public Rating established by the rating agency that does have an Applicable Public Rating then in effect; and (E) if at any time the Applicable Public Ratings established or deemed to have been established by Moody’s and S&P shall be changed (other than as a result of a change in the rating system of Moody’s or S&P), such change shall be effective as of the date on which it is first announced by the applicable rating agency. Each change in the Applicable Margin shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of Moody’s or S&P shall change, or if either such rating agency shall cease to be in the business of providing the Applicable Public Rating, Parent (on its own behalf and/or on behalf of Corp.) and the Lenders shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such rating agency and, pending the effectiveness of any such amendment, the Applicable Margin shall be determined by reference to the rating most recently in effect prior to such change or cessation.

“Applicable Public Rating” shall mean, as of any date, the highest rating that has been most recently announced by S&P and Moody’s (i) in respect of Parent, for its long-term senior unsecured debt and (ii) in respect of Corp., for its insurer claims paying ability.

“Approved Currency” shall mean (i) each of Dollars, (ii) each Primary Alternate Currency and (iii) solely for the purpose of the incurrence of Revolving Loans pursuant to a Mandatory Borrowing in accordance with Section 1.01(e), each Swingline Alternate Currency.

“Assignment Agreement” shall mean the Assignment Agreement in the form of Exhibit G (appropriately completed).

“Associated Cost Rate” shall mean, (i) for any Revolving Loan or Competitive Bid Loan (constituting a Eurodollar Loan), in each case, denominated in Pounds Sterling or

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Euros, the rate per annum calculated in accordance with Annex IV and (ii) for any Swingline Loan denominated in Pounds Sterling or Euros, the rate per annum calculated in accordance with Annex V.

“Assuming Lender” shall have the meaning provided in Section 1.16.

“Australian Dollar” shall mean freely transferable lawful money of Australia.

“Australian Dollar Equivalent” shall mean, at any time for the determination thereof, the amount of Australian Dollars which could be purchased with the amount of Dollars involved in such computation at the spot exchange rate therefor as quoted by Barclays as of 11:00 A.M. (London time) on the date two Business Days prior to the date of any determination thereof for purchase on such date.

“Australian Dollar LIBOR” shall mean, for each Interest Period applicable to any Loan denominated in Australian Dollars, the rate per annum that appears on page 3750 (or other appropriate page if such currency does not appear on such page) of the Dow Jones Telerate Screen (or any successor page) for Australian Dollar deposits with maturities comparable to such Interest Period as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period or, if such a rate does not appear on page 3750 (or such other appropriate page) of the Dow Jones Telerate Screen (or any successor page), the offered quotations to first-class banks in the London interbank market by Barclays for Australian Dollar deposits of amounts in same day funds comparable to the outstanding principal amount of such Loan with maturities comparable to such Interest Period determined as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period.

“Australian Dollar Swing Rate” shall mean a fluctuating rate per annum equal at all times to the Swingline Lender’s publicly announced “same day Australian Dollar rate”, provided, that in the event the Swingline Lender has made any determination pursuant to Section 1.11(a)(i) in respect of Australian Dollar denominated Swingline Loans, or in the circumstances described in clause (i) to the proviso to Section 1.11(b) in respect of Australian Dollar denominated Swingline Loans, the Australian Dollar Swing Rate determined pursuant to this definition shall instead be the rate determined by the Swingline Lender as the all-in-cost of funds for the Swingline Lender to fund such Australian Dollar denominated Swingline Loan.

“Authorized Officer” shall mean any senior officer of any Borrower designated as such in writing to the Administrative Agent by such Borrower.

“Bankruptcy Code” shall mean Title 11 of the United States Code entitled “Bankruptcy”, as now and hereafter in effect, any successors to such Statute and any other applicable insolvency or other similar law of any jurisdiction.

“Barclays” shall mean Barclays Bank plc.

“Base Rate” shall mean, at any time, the higher of (i) the rate which is ½ of 1% in excess of the Federal Funds Effective Rate and (ii) the Prime Lending Rate.

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“Base Rate Loan” shall mean each Revolving Loan denominated in Dollars designated or deemed designated as a Base Rate Loan by the respective Borrower at the time of the incurrence thereof or conversion thereof (as applicable).

“Bidder Lender” shall mean each Lender that has notified in writing (and has not withdrawn such notice) the Administrative Agent that it desires to participate generally in the bidding arrangements relating to Competitive Bid Borrowings.

“Borrowers” shall mean Parent, Corp. and each Designated Borrower, if any.

“Borrowing” shall mean (i) the incurrence by a single Borrower of Revolving Loans denominated in Dollars that are Base Rate Loans on a pro rata basis from all Lenders; (ii) the incurrence by a single Borrower of Revolving Loans of a single Approved Currency that are Eurodollar Loans on a pro rata basis from all Lenders, on a given date (or resulting from conversions on a given date), having the same Interest Period; (iii) a Competitive Bid Borrowing, provided that (x) Base Rate Loans incurred pursuant to Section 1.11(b) shall be considered part of any related Borrowing of Eurodollar Loans and (y) each Borrowing applicable to each of the Existing Competitive Bid Loans outstanding on the Restatement Effective Date shall continue to be applicable thereto as if the Existing Credit Agreement had not been amended and restated as herein provided (although such Existing Competitive Bid Loans, shall constitute Competitive Bid Loans, as provided for in this Agreement); and (iv) a borrowing by a single Borrower of Swingline Loans denominated in a single currency.

“Business Day” shall mean (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day which shall be in the City of New York a legal holiday or a day on which banking institutions are authorized by law or other governmental actions to close, (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Swingline Loans, Eurodollar Loans and Competitive Bid Loans (made pursuant to a Spread Borrowing), any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in the London interbank Eurodollar market, (iii) with respect to any notices or determinations in respect of Euros, which is customarily a “Business Day” for such notices or determinations and (iv) with respect to any notices or determinations in respect of Japanese Yen, which is customarily a “Business Day” for such notices or determinations.

“Capital Stock” means any nonredeemable capital stock of Parent or any Consolidated Subsidiary (to the extent issued to a Person other than the Borrowers), whether common or preferred.

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time and the regulations promulgated and the rulings issued thereunder. Section references to the Code are to the Code, as in effect on the Second Restatement Effective Date and any subsequent provisions of the Code, amendatory thereof, supplemental thereto or substituted therefor.

“Commitment” shall mean, with respect to each Lender, at any time, the amount set forth opposite such Lender’s name on Annex I, as the same may be increased pursuant to Section 1.16 and/or reduced pursuant to Sections 2.02, 2.03 or 8.01.

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“Commitment Assumption Agreement” shall mean each Commitment Assumption Agreement in the form of Exhibit H attached hereto executed in accordance with Section 1.16.

“Commitment Assumption Date” shall mean the Business Day following the date on which each Commitment Assumption Agreement is delivered to the Administrative Agent pursuant to Section 1.16.

“Competitive Bid Borrowing” shall mean a Borrowing by a single Borrower of Competitive Bid Loans pursuant to Section 1.04.

“Competitive Bid Loan” shall have the meaning specified in Section 1.01(b).

“Competitive Bid Note” shall have the meaning provided in Section 1.06(a).

“Conduit Debt” shall mean any debt of a special purpose entity that is consolidated on Parent’s financial statements in accordance with GAAP, provided that (i) the proceeds of such debt are used by such special purpose entity to make loans to, or to purchase assets from, any Person that is not an Affiliate of Parent, in the ordinary course of business and (ii) such debt and/or payment with respect to accounts receivable and other assets underlying such debt are guaranteed by Corp., in the ordinary course of business.

“Consolidated Net Worth” shall mean the Net Worth of Parent and its Subsidiaries determined on a consolidated basis.

“Consolidated Subsidiary” shall mean at any date any Subsidiary or other entity the accounts of which, in accordance with GAAP, would be consolidated with those of Parent in its consolidated financial statements as of such date.

“Consolidated Total Capitalization” shall mean, as of any date of determination, the sum of (i) Consolidated Total Debt and (ii) Consolidated Net Worth.

“Consolidated Total Debt” shall mean, as of any date of determination, all Debt of Parent and its Subsidiaries on such date determined on a consolidated basis.

“Corp.” shall have the meaning provided in the first paragraph of this Agreement.

“Controlled Group” shall mean all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with either Parent or Corp., are treated as a single employer under Section 414 of the Code.

“Credit Documents” shall mean this Agreement, the Notes and each Financial Guaranty Insurance Policy delivered pursuant to Section 4.02(d).

“DB Assumption Agreement” shall mean an Assumption Agreement in the form of Exhibit I attached hereto executed in accordance with Section 1.17.

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“DB Loan Maturity Date” shall mean (a) with respect to each DB Loan constituting a Revolving Loan, the maturity date selected by the respective Designated Borrower in accordance with Section 1.03(a) as being applicable to such DB Loan, which maturity date shall not be more than 180 days after the date of incurrence of such DB Loan (and in no event later than the Final Maturity Date) and (b) with respect to each DB Loan constituting a Competitive Bid Loan, the maturity of such Competitive Bid Loan selected in accordance with Section 1.04(a).

“DB Loans” shall mean any Loans incurred by a Designated Borrower.

“Debt” of any Person shall mean at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee under capital leases, (v) all obligations of such Person to reimburse any bank or other Person in respect of amounts payable under a banker’s acceptance, (vi) all Redeemable Preferred Stock of such Person (in the event such Person is a corporation), (vii) all obligations (absolute or contingent) of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (viii) all Debt of others secured by a Lien on any asset of such Person, whether or not such Debt is assumed by such Person, (ix) all Debt of others Guaranteed by such Person and (x) solely for the purpose of determining the ratio of Consolidated Total Debt to Consolidated Total Capitalization pursuant to Section 7.07, obligations under any repurchase agreements secured by Liens constituting a borrowing of funds for a period exceeding 90 days (other than obligations under such repurchase agreements entered into by Parent or any of its Subsidiaries in the ordinary course of business in connection with the asset management business of MBIA Asset Management and its Subsidiaries); provided, that notwithstanding the foregoing, the following shall not constitute “Debt” of any Person: (I) the obligations referred to in the parenthetical in clause (x) above, (II) investment agreements entered into by Parent or any of its Subsidiaries in the ordinary course of business in connection with the asset management business of MBIA Asset Management and its Subsidiaries, (III) in the case of Corp., the Debt of others guaranteed by Corp. in the ordinary course of its business and (IV) any Conduit Debt and any Insured Debt or any guaranty thereof by Corp. in the ordinary course of business.

“Default” shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default.

“Defaulting Lender” shall mean any Lender with respect to which a Lender Default is in effect.

“Designated Borrower” shall mean each Person designated as a Designated Borrower in accordance with Section 1.17.

“Documentation Agent” shall have the meaning provided in the first paragraph of this Agreement.

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“Dollar Equivalent” shall mean, at any time for the determination thereof, the amount of Dollars which could be purchased with the amount of the relevant Alternate Currency involved in such computation at the spot exchange rate therefor as quoted by the Administrative Agent as of 11:00 A.M. (London time) on the date two Business Days prior to the date of any determination thereof for purchase on such date.

“Dollars” and the sign “$” shall each mean freely transferable lawful money of the United States.

“EMU Legislation” shall mean the legislative measures of the European Council for the introduction of, changeover to or operation of a single or unified European currency.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to ERISA are to ERISA, as in effect as of the Second Restatement Effective Date and any subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor.

“Euro” shall mean the single currency of participating member states of the European Union.

“Euro Equivalent” shall mean, at any time for the determination thereof, the amount of Euros which could be purchased with the amount of Dollars involved in such computation at the spot exchange rate therefor as quoted by Barclays as of 11:00 A.M. (London time) on the date two Business Days prior to the date of any determination thereof for purchase on such date.

“Euro LIBOR” shall mean, for each Interest Period applicable to any Loan denominated in Euros, the rate per annum that appears on page 3750 (or other appropriate page if such currency does not appear on such page) of the Dow Jones Telerate Screen (or any successor page) for Euro deposits with maturities comparable to such Interest Period as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period or, if such a rate does not appear on the Dow Jones Telerate Screen (or any successor page), the offered quotations to first-class banks in the London interbank market by Barclays for Euro deposits of amounts in same day funds comparable to the outstanding principal amount of such Loan with maturities comparable to such Interest Period determined as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period.

“Eurodollar Loan” shall mean each Revolving Loan that at the election of any Borrower is bearing interest by reference to LIBOR and each Revolving Loan incurred pursuant to a Mandatory Borrowing.

“Euro Swing Rate” shall mean with respect to each Swingline Loan denominated in Euros, the rate per annum equal to the rate on overnight Euro deposits in the London interbank market as such rates are quoted on Dow Jones Markets (Telerate) Page 3750 (or any successor page) or, if such rate is not available, the overnight rate in effect as quoted by the Swingline Lender at its principal office in London, in each case, plus (i) applicable reserve costs and (ii) the

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applicable Associated Cost Rate for such Euro-denominated Swingline Loans, provided, that in the event the Swingline Lender has made any determination pursuant to Section 1.11(a)(i) in respect of Euro-denominated Swingline Loans, or in the circumstances described in clause (i) to the proviso to Section 1.11(b) in respect of Euro denominated Swingline Loans, the Euro Swing Rate determined pursuant to this definition shall instead be the rate determined by the Swingline Lender as the all-in-cost of funds for the Swingline Lender to fund such Euro denominated Swingline Loan.

“Event of Default” shall have the meaning specified in Section 8.01.

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

“Existing Competitive Bid Loans” shall mean each “Competitive Bid Loan” under, and as defined in, the Existing Credit Agreement.

“Existing Credit Agreement” shall have the meaning provided in the first WHEREAS clause of this Agreement.

“Existing Lenders” shall mean each of the lenders party to the Existing Credit Agreement on the Second Restatement Effective Date.

“Existing Revolving Loan” shall mean each “Revolving Loan” under, and as defined in, the Existing Credit Agreement.

“Extension Deadline” shall have the meaning specified in Section 1.15.

“Facility Fees” shall have the meaning specified in Section 2.01(a).

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

“Fees” shall mean all amounts payable pursuant to, or referred to in, Section 2.01.

“Final Maturity Date” shall mean the fourth anniversary of the Second Restatement Effective Date, or such later date to which the Final Maturity Date shall have been extended pursuant to Section 1.15.

“Financial Guaranty Insurance Policy” shall have the meaning specified in Section 4.02(d).

“Fiscal Year” means any fiscal year of the Borrowers.

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“GAAP” shall mean generally accepted accounting principles in the United States of America as in effect on the date of this Agreement.

“Guarantee” by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to secure, purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to provide collateral security, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include: (i) endorsements for collection or deposit in the ordinary course of business; and (ii) in the case of Corp., Debt of others guaranteed by Corp. in the ordinary course of its business. The term “Guarantee” used as a verb has a corresponding meaning.

“Hong Kong Dollar” shall mean freely transferable lawful money of Hong Kong.

“Hong Kong Dollar Equivalent” shall mean, at any time for the determination thereof, the amount of Hong Kong Dollars which could be purchased with the amount of Dollars involved in such computation at the spot exchange rate therefor as quoted by Barclays as of 11:00 A.M. (London time) on the date two Business Days prior to the date of any determination thereof for purchase on such date.

“Hong Kong LIBOR” shall mean, for each Interest Period applicable to any Loan denominated in Hong Kong Dollars, the rate per annum that appears on page 3750 (or other appropriate page if such currency does not appear on such page) of the Dow Jones Telerate Screen (or any successor page) for Hong Kong Dollar deposits with maturities comparable to such Interest Period as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period or, if such a rate does not appear on page 3750 (or such other appropriate page) of the Dow Jones Telerate Screen (or any successor page), the offered quotations to first-class banks in the London interbank market by Barclays for Hong Kong deposits of amounts in same day funds comparable to the outstanding principal amount of such Loan with maturities comparable to such Interest Period determined as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period.

“Hong Kong Dollar Swing Rate” shall mean a fluctuating rate per annum equal at all times to the Swingline Lender’s publicly announced “same day Hong Kong Dollar rate”, provided, that in the event the Swingline Lender has made any determination pursuant to Section 1.11(a)(i) in respect of Hong Kong Dollar denominated Swingline Loans, or in the circumstances described in clause (i) to the proviso to Section 1.11(b) in respect of Hong Kong Dollar denominated Swingline Loans, the Hong Kong Dollar Swing Rate determined pursuant to this definition shall instead be the rate determined by the Swingline Lender as the all-in-cost of funds for the Swingline Lender to fund such Hong Kong Dollar denominated Swingline Loan.

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“Insured Debt” shall mean any debt of Parent or its Subsidiaries that is guaranteed by Corp., provided that the proceeds of such debt are used to purchase securities, instruments, notes or other obligations issued or owed by any Person that is not an Affiliate of Parent, in the ordinary course of business.

“Interest Period” shall mean (a) with respect to any Eurodollar Loan, the interest period applicable thereto, as determined pursuant to Section 1.10 and (b) with respect to any Competitive Bid Loan, the period beginning on the date of incurrence thereof and ending on the stated maturity date thereof.

“Interest Rate Basis” shall mean LIBOR and/or such other basis for determining an interest rate as the Borrowers and the Administrative Agent may agree upon from time to time.

“Japanese Yen” shall mean freely transferable lawful money of Japan.

“Japanese Yen Equivalent” shall mean, at any time for the determination thereof, the amount of Japanese Yen which could be purchased with the amount of Dollars involved in such computation at the spot exchange rate therefor as quoted by Barclays as of 11:00 A.M. (London time) on the date two Business Days prior to the date of any determination thereof for purchase on such date.

“Japanese Yen LIBOR” shall mean, for each Interest Period applicable to any Loan denominated in Japanese Yen, the rate per annum that appears on page 3750 (or other appropriate page if such currency does not appear on such page) of the Dow Jones Telerate Screen (or any successor page) for Japanese Yen deposits with maturities comparable to such Interest Period as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period or, if such a rate does not appear on page 3750 (or such other appropriate page) of the Dow Jones Telerate Screen (or any successor page), the offered quotations to first-class banks in the London interbank market by Barclays for Japanese Yen deposits of amounts in same day funds comparable to the outstanding principal amount of such Loan with maturities comparable to such Interest Period determined as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period.

“Japanese Yen Swing Rate” shall mean a fluctuating rate per annum equal at all times to the Swingline Lender’s publicly announced “same day Yen rate”, provided, that in the event the Swingline Lender has made any determination pursuant to Section 1.11(a)(i) in respect of Japanese Yen denominated Swingline Loans, or in the circumstances described in clause (i) to the proviso to Section 1.11(b) in respect of Japanese Yen denominated Swingline Loans, the Japanese Yen Swing Rate determined pursuant to this definition shall instead be the rate determined by the Swingline Lender as the all-in-cost of funds for the Swingline Lender to fund such Japanese Yen denominated Swingline Loan.

“Judgment Currency” shall have the meaning provided in Section 11.16(a).

“Judgment Currency Conversion Date” shall have the meaning provided in Section 11.16(a).

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“Lender” or “Lenders” shall have the meaning provided in the first paragraph of this Agreement.

“Lender Default” shall mean (i) the refusal (which has not been retracted) of a Lender to make available its portion of any Borrowing (including any Mandatory Borrowing) or (ii) a Lender having notified the Administrative Agent and/or any Borrower that it does not intend to comply with its obligations under Section 1.01, in the case of either clause (i) or (ii) as a result of the appointment of a receiver or conservator with respect to such Lender at the direction or request of any regulatory agency or authority.

“Lender Register” shall have the meaning provided in Section 11.15.

“LIBOR” shall mean (i) with respect to any Borrowing of Loans of an Approved Currency, the relevant interest rate, i.e., U.S. LIBOR, Australian Dollar LIBOR, Hong Kong Dollar LIBOR, Euro LIBOR, Sterling LIBOR, Japanese Yen LIBOR or Swiss Franc LIBOR, and (ii) with respect to any Borrowing of Competitive Bid Loans of an Other Alternate Currency, such rate per annum as may be agreed upon by the respective Borrower and the respective Bidder Lender.

“Lien” shall mean, with respect to any asset, any mortgage, deed to secure debt, deed of trust, lien, pledge, charge, security interest, security title, preferential arrangement which has the practical effect of constituting a security interest or encumbrance, servitude or encumbrance of any kind in respect of such asset to secure or assure payment of a Debt or a Guarantee, whether by consensual agreement or by operation of statute or other law, or by any agreement, contingent or otherwise, to provide any of the foregoing. For the purposes of this Agreement, Parent or any Subsidiary shall be deemed to own subject to a Lien any asset which they have acquired or hold subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset.

“Loan” shall mean each Revolving Loan, each Swingline Loan and each Competitive Bid Loan.

“Mandatory Borrowing” shall have the meaning provided in Section 1.01(e).

“Margin Stock” shall have the meaning provided in Regulation U.

“Material Adverse Effect” shall mean, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences, whether or not related, a material adverse change in, or a material adverse effect upon, any of (a) the rights and remedies of the Administrative Agent or the Lenders under the Credit Documents, or the ability of each Borrower to perform its obligations under the Credit Documents to which it is a party, as applicable, or (b) the legality, validity or enforceability of any Credit Document.

“Material Subsidiary” shall mean any Subsidiary with a Net Worth greater than $5,000,000.

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“Maximum Swingline Amount” shall mean $300,000,000.

“MBIA Asset Management” shall mean MBIA Asset Management, LLC, a limited liability company organized under the laws of Delaware.

“Minimum Borrowing Amount” shall mean (i) for any Revolving Loans that are Dollar denominated, $2,500,000, (ii) for any Revolving Loans that are Alternate Currency Loans, an amount in the respective Approved Currency having a Dollar Equivalent (determined at the time a Notice of Borrowing is received or a prepayment made) of $2,500,000, (iii) for any Swingline Loans, an amount in the respective Approved Swingline Currency having a Dollar Equivalent (determined at the time a Notice of Swingline Borrowing is received or a prepayment made) of $2,500,000, (iv) for any Competitive Bid Loans that are Dollar denominated, $1,000,000 and (v) for any Competitive Bid Loans that are Alternate Currency Loans, an amount in the respective Alternate Currency having a Dollar Equivalent (determined at the time a Notice of Competitive Bid Borrowing is received or a prepayment made) of $1,000,000.

“Multiemployer Plan” shall mean a plan within the meaning of Section 4001(a)(3) of ERISA.

“Net Worth” shall mean, as to any Person, the sum of its capital stock, capital in excess of par or stated value of shares of its capital stock, retained earnings and any other account which, in accordance with GAAP, constitutes stockholders equity, excluding any treasury stock.

“Non-Continuing Lender” shall have the meaning specified in Section 1.15.

“Non-Defaulting Lender” shall mean each Lender other than a Defaulting Lender.

“Note” shall mean each Revolving Note, each Swingline Note and each Competitive Bid Note.

“Notice of Borrowing” shall have the meaning provided in Section 1.03(a).

“Notice of Competitive Bid Borrowing” shall have the meaning provided in Section 1.04(a).

“Notice of Swingline Borrowing” shall have the meaning specified in Section 1.01(c).

“Notice of Conversion” shall have the meaning provided in Section 1.07.

“Notice Office” shall mean (x) with respect to the Administrative Agent, the office of the Administrative Agent at 222 Broadway New York, New York 10038 or such other office as the Administrative Agent may designate to the Borrowers from time to time, (y) with respect to the Swingline Lender in connection with any Swingline Loans (i) denominated in Pounds Sterling, Swiss Francs, Hong Kong Dollars, Australian Dollars or Euros, the office of the Swingline Lender at 5 The North Colonnade, Canary Wharf, London E14 4BB, United Kingdom and (ii) denominated in Japanese Yen, the office of the Swingline Lender at 2-2-2 Otemachi, Chiyoda ku, Tokyo, Japan 100-0004.

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“Obligation Currency” shall have the meaning provided in Section 11.16(a).

“Obligations” shall mean all amounts, direct or indirect, contingent or absolute, of every type or description, and at any time existing, owing to any Agent or any Lender pursuant to the terms of this Agreement or any other Credit Document.

“Other Alternate Currency” shall mean any freely transferable currency other than any Approved Currency.

“Original Effective Date” shall mean August 28, 1998.

“Parent” shall have the meaning provided in the first paragraph of this Agreement.

“Payment Office” (x) with respect to the Administrative Agent, the office of the Administrative Agent at 222 Broadway New York, New York 10038 or such other office as the Administrative Agent may designate to the Borrowers from time to time, (y) with respect to the Swingline Lender in connection with any Swingline Loans (i) denominated in Pounds Sterling, Swiss Francs, Hong Kong Dollars, Australian Dollars or Euros, the office of the Swingline Lender at 5 The North Colonnade, Canary Wharf, London E14 4BB, United Kingdom and (ii) denominated in Japanese Yen, the office of the Swingline Lender at 2-2-2 Otemachi, Chiyoda ku, Tokyo, Japan 100-0004.

“PBGC” shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto.

“Person” shall mean any individual, partnership, limited liability company, joint venture, firm, corporation, association, trust or other enterprise or business entity or any government or political subdivision or any agency, department or instrumentality thereof.

“Plan” shall mean at any time an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code and is either (i) maintained by a member of the Controlled Group for employees of any member of the Controlled Group or (ii) maintained pursuant to a collective bargaining agreement or any other arrangement under which more than one employer makes contributions and to which a member of the Controlled Group is then making or accruing an obligation to make contributions or has within the preceding 5 plan years made contributions.

“Pounds Sterling” shall mean freely transferable lawful money of the United Kingdom.

“Primary Alternate Currency” shall mean each of Japanese Yen, Pounds Sterling, Swiss Francs and Euros.

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“Prime Lending Rate” shall mean the rate which Barclays announces from time to time as its prime lending rate, the Prime Lending Rate to change when and as such prime lending rate changes. The Prime Lending Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Barclays may make commercial loans or other loans at rates of interest at, above or below the Prime Lending Rate.

“Principal Amount” shall mean (i) the stated principal amount of each Loan denominated in Dollars, and/or (ii) the Dollar Equivalent of the stated principal amount of each Alternate Currency Loan, as the context may require.

“Redeemable Preferred Stock” of any Person shall mean any preferred stock issued by such Person which is at any time prior to the Final Maturity Date either (i) mandatorily redeemable (by sinking fund or similar payments or otherwise) or (ii) redeemable at the option of the holder thereof.

“Regulation U” shall mean Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing margin requirements.

“Regulation X” shall mean Regulation X of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing margin requirements.

“Relevant Currency Equivalent” shall mean the Dollar Equivalent, the Hong Kong Dollar Equivalent, the Euro Equivalent, the Sterling Equivalent, the Australian Dollar Equivalent, the Japanese Yen Equivalent or the Swiss Franc Equivalent or the comparable equivalent of any Other Alternate Currency, as the case may be.

“Replaced Lender” shall have the meaning provided in Section 1.14.

“Replacement Lender” shall have the meaning provided in Section 1.14.

“Required Lenders” shall mean at any time Non-Defaulting Lenders having at least a majority of the aggregate Commitments of all Non-Defaulting Lenders; provided that if the Total Commitment has been terminated, then the Required Lenders shall mean Lenders whose outstanding Loans equal or exceed a majority of the aggregate outstanding Loans at such time.

“Revolving Loan” shall have the meaning specified in Section 1.01(a).

“Revolving Note” shall have the meaning provided in Section 1.06(a).

“Second Restatement Effective Date” shall have the meaning provided in Section 4.01.

“Section 3.04 Certificate” shall have the meaning provided in Section 3.04(b)(ii).

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“Spread” shall mean a percentage per annum in excess of, or less than, an Interest Rate Basis.

“Spread Borrowing” shall mean a Competitive Bid Borrowing with respect to which a Borrower has requested the Bidder Lenders to make Competitive Bid Loans at a Spread over or under a specified Interest Rate Basis.

“Statutory Accounting Principles” shall mean statutory accounting principles prescribed by the National Association of Insurance Commissioners that are to be used in making the calculations for purposes of determining compliance with the terms of this Agreement.

“Sterling Equivalent” shall mean, at any time for the determination thereof, the amount of Pounds Sterling which could be purchased with the amount of Dollars involved in such computation at the spot exchange rate therefor as quoted by Barclays as of 11:00 A.M. (London time) on the date two Business Days prior to the date of any determination thereof for purchase on such date.

“Sterling LIBOR” shall mean, with respect to each Interest Period for any Loan denominated in Pounds Sterling, (I) the rate per annum that appears on page 3750 (or other appropriate page if such currency does not appear on such page) of the Dow Jones Telerate Screen (or any successive page) with maturities comparable to such Interest Period as of 11:00 A.M. (London time) on the date which is the commencement date of such Interest Period or, if such a rate does not appear on page 3750 (or such other appropriate page) of the Dow Jones Telerate Screen (or any successor page) the offered quotations to first-class banks in the London interbank Eurodollar market by Barclays for Pounds Sterling deposits of amounts in same day funds comparable to the outstanding principal amount of such Loans with maturities comparable to such Interest Period determined as of 11:00 A.M. (London time) on the date which is the commencement of such Interest Period plus (II) the Associated Cost Rate for such Loans for such Interest Period.

“Sterling Swing Rate” shall mean the rate per annum equal to the rate on overnight Pounds Sterling deposits in the London interbank market as such rates are quoted on Dow Jones Markets (Telerate) Page 3750 (or any successor page) or, if such rate is not available, the overnight offer rate in effect as quoted by the Swingline Lender at its principal office in London, in each case plus the sum of (x) the applicable reserve costs and (y) the applicable Associated Cost Rate for such Swingline Loan, provided, that in the event the Swingline Lender has made any determination pursuant to Section 1.11(a)(i) in respect of Pounds Sterling denominated Swingline Loans, or in the circumstances described in clause (i) to the proviso to Section 1.11(b) in respect of Pounds Sterling denominated Swingline Loans, the Pounds Sterling Swing Rate determined pursuant to this definition shall instead be the rate determined by the Swingline Lender as the all-in-cost of funds for the Swingline Lender to fund such Pounds Sterling denominated Swingline Loan.

“Subsidiary” of any Person shall mean and include (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time

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stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries and (ii) any partnership, association, joint venture or other entity in which such Person directly or indirectly through Subsidiaries, has more than a 50% equity interest at the time. Unless otherwise expressly provided, all references herein to “Subsidiary” shall mean a Subsidiary of Parent.

“Swingline Alternate Currency” shall mean each of Australian Dollars and each of Hong Kong Dollars.

“Swingline Approved Currency” shall mean each Swingline Alternate Currency and each Primary Alternate Currency.

“Swingline Expiry Date” shall mean the date which is two Business Days prior to the Final Maturity Date.

“Swingline Lender” shall mean (i) Barclays Bank plc, in its individual capacity acting through itself or any of its affiliates or subsidiaries or (ii) any other Lender which agrees in its sole discretion and with at least 15 days prior written notice delivered to the Administrative Agent and the then existing Swingline Lender to become the Swingline Lender hereunder.

“Swingline Loan” shall have the meaning provided in Section 1.01(c).

“Swingline Note” shall have the meaning provided in Section 1.06(a).

“Swing Rate” shall mean with respect to any Borrowing of Swingline Loans of a Swingline Approved Currency, the relevant interest rate, i.e., Euro Swing Rate, Sterling Swing Rate, Japanese Yen Swing Rate, Swiss Franc Swing Rate, Hong Kong Dollar Swing Rate, and Australian Dollar Swing Rate.

“Swiss Francs” shall mean freely transferable lawful money of Switzerland.

“Swiss Franc Equivalent” shall mean, at any time for the determination thereof, the amount of Swiss Francs which could be purchased with the amount of Dollars involved in such computation at the spot exchange rate therefor as quoted by Barclays as of 11:00 A.M. (London time) on the date two Business Days prior to the date of any determination thereof for purchase on such date.

“Swiss Franc LIBOR” shall mean, for each Interest Period applicable to any Loan denominated in Swiss Francs, the rate per annum that appears on page 3750 (or other appropriate page if such currency does not appear on such page) of the Dow Jones Telerate Screen (or any successor page) for Swiss Franc deposits with maturities comparable to such Interest Period as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period or, if such a rate does not appear on page 3750 (or such other appropriate page) of the Dow Jones Telerate Screen (or any successor page), the offered quotations to first-class banks in the London interbank market by Barclays for Swiss Franc deposits of amounts in same day funds comparable to the outstanding principal amount of such Loan with maturities comparable to such Interest Period determined as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period.

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“Swiss Franc Swing Rate” shall mean a fluctuating rate per annum equal at all times to the Swingline Lender’s publicly announced “same day Swiss Franc rate”, provided, that in the event the Swingline Lender has made any determination pursuant to Section 1.11(a)(i) in respect of Swiss Franc denominated Swingline Loans, or in the circumstances described in clause (i) to the proviso to Section 1.11(b) in respect of Swiss Franc denominated Swingline Loans, the Swiss Franc Swing Rate determined pursuant to this definition shall instead be the rate determined by the Swingline Lender as the all-in-cost of funds for the Swingline Lender to fund such Swiss Franc denominated Swingline Loan.

“Syndication Agent” shall have the meaning provided in the first paragraph of this Agreement.

“Taxes” shall have the meaning provided in Section 3.04(a).

“Total Commitment” shall mean, at any time, the sum of the Commitments of each of the Lenders at such time.

“Total Unutilized Commitment” shall mean, at any time, (i) the Total Commitment at such time less (ii) the sum of the aggregate Principal Amount of all outstanding Loans at such time.

“Type” shall mean any type of Loan determined with respect to currency and the interest option applicable thereto.

“UCC” shall mean the Uniform Commercial Code.

“US LIBOR” shall mean for each Interest Period applicable to a Loan denominated in Dollars (other than a Base Rate Loan), the rate per annum that appears on page 3750 of the Dow Jones Telerate Screen (or any successor page) for Dollar deposits with maturities comparable to such Interest Period as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period or, if such a rate does not appear on page 3750 of the Dow Jones Telerate Screen (or any successor page), the offered quotations to first-class banks in the London interbank market by Barclays for Dollar deposits of amounts in same day funds comparable to the outstanding principal amount of such Dollar denominated Loan with maturities comparable to such Interest Period determined as of 11:00 A.M. (London time) on the date which is two Business Days prior to the commencement of such Interest Period.

“Wholly-Owned Subsidiary” of any Person shall mean any other Person to the extent all of the capital stock or other ownership interests in such other Person, other than directors’ qualifying shares, is owned directly or indirectly by such first Person.

“Written” or “in writing” shall mean any form of written communication or a communication by means of facsimile transmission, telegraph or cable.

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SECTION 10. Agents, etc.

10.01 Appointment. The Lenders hereby designate Barclays as Administrative Agent, KeyBank National Association as Syndication Agent and The Bank of New York as Documentation Agent to act as specified herein and in the other Credit Documents. Each Lender hereby irrevocably authorizes, and each holder of any Note by the acceptance of such Note shall be deemed irrevocably to authorize, each Agent to take such action on its behalf under the provisions of this Agreement, the other Credit Documents and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of such Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Agents may perform any of their duties hereunder by or through their respective officers, directors, agents, employees or affiliates.

10.02 Nature of Duties. No Agent shall have any duties or responsibilities except those expressly set forth in this Agreement and the other Credit Documents. No Agent or any of its respective officers, directors, agents, employees or affiliates shall be liable for any action taken or omitted by them hereunder or under any other Credit Document or in connection herewith or therewith, unless caused by their gross negligence or willful misconduct. The duties of each Agent shall be mechanical and administrative in nature; no Agent shall have by reason of this Agreement or any other Credit Document a fiduciary relationship in respect of any Lender or the holder of any Note; and nothing in this Agreement or any other Credit Document, expressed or implied, is intended to or shall be so construed as to impose upon either Agent any obligations in respect of this Agreement or any other Credit Document except as expressly set forth herein or therein with respect to such Agent.

10.03 Lack of Reliance on the Agents. Independently and without reliance upon any Agent, each Lender and the holder of each Note, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Borrowers and their Subsidiaries in connection with the making and the continuance of the Loans and the taking or not taking of any action in connection herewith and (ii) its own appraisal of the creditworthiness of the Borrowers and their Subsidiaries and, except as expressly provided in this Agreement, no Agent shall have any duty or responsibility, either initially or on a continuing basis, to provide any Lender or the holder of any Note with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. No Agent shall be responsible to any Lender or the holder of any Note for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of this Agreement or any other Credit Document or the financial condition of the Borrowers and their Subsidiaries or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Credit Document, or the financial condition of the Borrowers and their Subsidiaries or the existence or possible existence of any Default or Event of Default.

10.04 Certain Rights of the Agents. If any Agent shall request instructions from the Required Lenders with respect to any act or action (including failure to act) in connection

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with this Agreement or any other Credit Document, such Agent shall be entitled to refrain from such act or taking such action unless and until such Agent shall have received instructions from the Required Lenders; and no Agent shall incur liability to any Person by reason of so refraining. Without limiting the foregoing, neither any Lender nor the holder of any Note shall have any right of action whatsoever against an Agent as a result of such Agent acting or refraining from acting hereunder or under any other Credit Document in accordance with the instructions of the Required Lenders.

10.05 Reliance. Each Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, telex, teletype, facsimile or telecopier message, cablegram, radiogram, order or other document or telephone message signed, sent or made by any Person that such Agent believed to be the proper Person, and, with respect to all legal matters pertaining to this Agreement and any other Credit Document and its duties hereunder and thereunder, upon advice of counsel selected by such Agent.

10.06 Indemnification. To the extent an Agent is not reimbursed and indemnified by the Borrowers, the Lenders will reimburse and indemnify such Agent, in proportion to their respective “percentages” as used in determining the Required Lenders, for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by such Agent in performing its respective duties hereunder or under any other Credit Document, in any way relating to or arising out of this Agreement or any other Credit Document provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of such Agent.

10.07 The Agents in Their Individual Capacities. With respect to its obligation to make Loans under this Agreement, each Agent shall have the rights and powers specified herein for a “Lender” and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term “Lenders,” “Required Lenders,” “holders of Notes” or any similar terms shall, unless the context clearly otherwise indicates, include the Agents in their individual capacities. Each Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with any Borrower or any Affiliate of any Borrower as if they were not performing the duties specified herein, and may accept fees and other consideration from any Borrower for services in connection with this Agreement and otherwise without having to account for the same to the Lenders.

10.08 Holders. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Administrative Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee, assignee or indorsee, as the case may be, of such Note or of any Note or Notes issued in exchange therefor.

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10.09 Resignation by an Agent. (a) The Administrative Agent may resign from the performance of all its functions and duties hereunder and/or under the other Credit Documents at any time by giving 15 Business Days’ prior written notice to the Borrowers and the Lenders. Such resignation shall take effect upon the appointment of a successor Administrative Agent pursuant to clauses (b) and (c) below or as otherwise provided below. Upon the effectiveness of such resignation, the resigning Administrative Agent shall return to Parent and/or Corp. a pro-rated portion of any administrative fee that has been paid in advance for the period following the effectiveness of its resignation.

(b) Upon any such notice of resignation, the Required Lenders shall appoint a successor Administrative Agent hereunder who shall be a Lender, commercial bank or trust company reasonably acceptable to Parent and Corp.

(c) If a successor Administrative Agent shall not have been so appointed within such 15 Business Day period, the Administrative Agent, with the consent of Parent and Corp., shall then appoint a successor Administrative Agent who shall serve as Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided above.

(d) The Syndication Agent and the Documentation Agent may resign from the performance of all of its functions and duties hereunder and/or under the other Credit Documents in such capacity at any time by giving five Business Days’ prior written notice to the Lenders. Such resignation shall take effect at the end of such five Business Days.

10.10 Syndication Agent; Documentation Agent. Nothing in this Agreement shall impose on the Syndication Agent or the Documentation Agent, in each of their respective capacities as such, any duties or obligations.

SECTION 11. Miscellaneous.

11.01 Payment of Expenses, etc. The Borrowers jointly and severally agree to: (i) pay all reasonable out-of-pocket costs and expenses (1) of the Administrative Agent in connection with the negotiation, syndication, preparation, execution and delivery of the Credit Documents and the documents and instruments referred to therein and any amendment, waiver or consent relating thereto (including, without limitation, the reasonable fees and disbursements of White & Case LLP) and (2) of the Agents and each of the Lenders in connection with the enforcement of the Credit Documents and the documents and instruments referred to therein (including, without limitation, the reasonable fees and disbursements of counsel for each Agent and for each of the Lenders); (ii) pay and hold each of the Agents and Lenders harmless from and against any and all present and future stamp, VAT and other similar taxes with respect to the foregoing matters and/or fees and save each of the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Lender) to pay such taxes; and (iii) indemnify each Lender (including in its capacity as an Agent), its officers, directors, employees, representatives and agents from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, an investigation, litigation or other proceeding (whether or not an Agent or any Lender is a party

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thereto and whether or not any such investigation, litigation or other proceeding is between or among an Agent, any Lender, or any third Person or otherwise) related to the entering into and/or performance of any Credit Document or the use of the proceeds of any Loans hereunder or the consummation of any transactions contemplated in any Credit Document, and in each case, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding (but excluding any such losses, liabilities, claims, damages or expenses to the extent incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified).

11.02 Lender Enforceability Opinions. Within 45 days following the Second Restatement Effective Date, each Lender (other then Existing Lenders) upon the request by Parent or Corp., agrees to deliver to Parent and Corp. an opinion or opinions (as applicable) of counsel to such Lender (which opinion or opinions may be from internal counsel to such Lender) substantially in the form of Exhibit J or in such other form as is reasonably acceptable to Parent and Corp. relating to the enforceability of such Lender’s obligations under the Credit Documents. Upon a Lender first becoming a party hereunder after the Second Restatement Effective Date pursuant to Section 1.14, 1.16 or 11.04, such Lender agrees to deliver to Parent and Corp. unless such opinion has been waived by Parent and Corp. an opinion or opinions (as applicable) of counsel to such Lender (which opinion or opinions may be from internal counsel to such Lender) substantially in the form of Exhibit J or in such other form as is reasonably acceptable to Parent and Corp. relating to the enforceability of such Lender’s obligations under the Credit Documents. Notwithstanding the foregoing, the failure by a Lender to provide the opinion or opinions referred to in this Section 11.02 shall not affect any of the obligations of the Borrowers hereunder or under the other Credit Documents.

11.03 Notices. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telecopier or facsimile) and mailed, telecopied, faxed or delivered, if to a Borrower, at the address specified opposite its signature below or in the other relevant Credit Documents, as the case may be; if to any Lender or the Administrative Agent, at its address specified for such Lender or the Administrative Agent on Annex II hereto; or, at such other address as shall be designated by any party in a written notice to the other parties hereto. All such notices and communications shall be mailed, telecopied or sent by overnight courier, and shall be effective when received.

11.04 Benefit of Agreement. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, provided that no Borrower may assign or transfer any of its rights or obligations hereunder without the prior written consent of the Lenders. Each Lender may at any time grant participations in any of its rights hereunder or under any of the Notes to any Person, provided that (x) in the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Credit Documents (the participant’s rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the participant relating thereto) and all amounts payable by the Borrowers hereunder shall be determined as if such Lender had not sold such participation, except that the participant shall be entitled to the benefits of Sections 1.11 and 3.04 of this Agreement to the extent that such Lender would be entitled to such benefits if the participation had not been entered into or sold and (y) no Lender shall transfer, grant or assign any participation under which the

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participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would extend the final scheduled maturity of any Loan or Note in which such participant is participating, or reduce the rate or extend the time of payment of interest or Fees thereon (except in connection with a waiver of the applicability of any post-default increase in interest rates), or reduce the principal amount thereof, or increase such participant’s participating interest in any Commitment over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Total Commitment, or a mandatory prepayment, shall not constitute a change in the terms of any Commitment).

(b) Notwithstanding the foregoing, (x) any Lender may assign all or a portion of its Commitment and its rights and obligations hereunder to another Lender (or an Affiliate of such assigning Lender), and (y) with the consent of the Administrative Agent and, so long as no Default under Section 8.01(a) or 8.01(h) or Event of Default exists, Parent (which consent shall not be unreasonably withheld), any Lender may assign all or a portion of its Commitment and its rights and obligations hereunder to one or more Persons. No assignment pursuant to the immediately preceding sentence by a Lender (or by Lenders which are Affiliates of each other) shall to the extent such assignment represents an assignment to an institution other than one or more Lenders hereunder (or to an Affiliate of an assigning Lender), be in an aggregate amount less than $10,000,000 unless the entire Commitment of the assigning Lender (or group of Lenders which are Affiliates) is so assigned. If any Lender so sells or assigns all or a part of its rights hereunder or under the Notes, any reference in this Agreement or the Notes to such assigning Lender shall thereafter refer to such Lender and to the respective assignee to the extent of their respective interests and the respective assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights and benefits as it would if it were such assigning Lender. Each assignment pursuant to this Section 11.04(b) shall be effected by the assigning Lender and the assignee Lender executing an Assignment Agreement (appropriately completed). At the time of any such assignment, (i) either the assigning or the assignee Lender shall pay to the Administrative Agent a nonrefundable assignment fee of $3,500, (ii) Annex I shall be deemed to be amended to reflect the Commitment of the respective assignee (which shall result in a direct reduction to the Commitment of the assigning Lender) and of the other Lenders, and (iii) the Borrowers at such time will issue new Notes to the respective assignee and to the assigning Lender in conformity with the requirements of Section 1.06. To the extent any assignment pursuant to this Section 11.04(b) is to a Person which is not already a Lender hereunder and which is not a United States Person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective assignee Lender shall provide to Parent and the Administrative Agent the appropriate Internal Revenue Service Forms (and, if applicable, a Section 3.04 Certificate) described in Section 3.04(b). To the extent that an assignment of all or any portion of a Lender’s Commitments and related outstanding obligations pursuant to this Section 11.04(b) would, at the time of such assignment, result in increased costs under Section 1.11 or 3.04 from those being charged by the respective assigning bank prior to such assignment, then the Borrowers shall not be obligated to pay such increased costs (although the Borrowers shall be obligated to pay any other increased costs of the type described above resulting from changes specified in said Section 1.11 or 3.04 occurring after the date of the respective assignment). Each Lender and the Borrowers agree to execute such documents (including without limitation amendments to this Agreement and the other Credit Documents) as shall be necessary to effect the foregoing. Nothing in this clause (b) shall prevent or prohibit any Lender from pledging its Notes or Loans to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank.

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(c) Notwithstanding any other provisions of this Section 11.04, no transfer or assignment of the interests or obligations of any Lender hereunder or any grant of participation therein shall be permitted if such transfer, assignment or grant would require any Borrower to file a registration statement with the Securities and Exchange Commission or to qualify the Loans under the “Blue Sky” laws of any State.

11.05 No Waiver; Remedies Cumulative. No failure or delay on the part of any Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which any Agent or any Lender would otherwise have.

11.06 Payments Pro Rata. (a) The Administrative Agent agrees that promptly after its receipt of each payment from or on behalf of any Borrower in respect of any Obligations of such Borrower hereunder, it shall distribute such payment to the Lenders (other than (i) payments in respect of any Swingline Loans which shall be for the account of the Swingline Lender and (ii) any Lender that has expressly waived its right to receive its pro rata share thereof) pro rata based upon their respective shares, if any, of the Obligations with respect to which such payment was received.

(b) Each of the Lenders agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker’s lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise) which is applicable to the payment of the principal of, or interest on, the Loans or Fees, of a sum which with respect to the related sum or sums received by other Lenders is in a greater proportion than the total of such Obligation then owed and due to such Lender bears to the total of such Obligation then owed and due to all of the Lenders immediately prior to such receipt, then such Lender receiving such excess payment shall purchase for cash without recourse or warranty from the other Lenders an interest in the Obligations of the respective Borrower to such Lenders in such amount as shall result in a proportional participation by all of the Lenders in such amount, provided that if all or any portion of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest.

(c) Notwithstanding anything to the contrary contained herein, the provisions of the preceding Sections 11.06(a) and (b) shall be subject to the express provisions of this Agreement which require, or permit, differing payments to be made to Non-Defaulting Lenders as opposed to Defaulting Lenders.

11.07 Calculations; Computations. (a) The financial statements to be furnished to the Lenders pursuant hereto shall be made and prepared in conformity with GAAP or Statutory Accounting Principles, as the case may be, consistently applied throughout the periods

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involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the Borrowers to the Lenders and with respect to any interim financial statements, subject to changes resulting from audit and normal year-end audit adjustments), provided that (x) except as otherwise specifically provided herein, all computations determining compliance with Sections 7.07 and 7.08, including definitions used therein, shall utilize accounting principles and policies in effect at the time of the preparation of, and in conformity with those used to prepare, the December 31, 1997 financial statements delivered to the Lenders pursuant to Section 5.04(a) and (y) if at any time the computations determining compliance with Sections 7.07 and 7.08 utilize accounting principles different from those utilized in the financial statements furnished to the Lenders, such financial statements shall be accompanied by reconciliation work-sheets.

(b) All computations of interest and Fees hereunder shall be made on the actual number of days elapsed over a year of 360 days (365-366 days for interest on Base Rate Loans when the Base Rate is based on the Prime Lending Rate).

(c) For purposes of this Agreement, the Dollar Equivalent of each Loan that is an Alternate Currency Loan shall be calculated on the date when any such Loan is made, on the second Business Day of each month and at such other times as designated by the Administrative Agent (or the Swingline Lender, in respect of Swingline Loans) at any time when a Default or an Event of Default exists. Such Dollar Equivalent shall remain in effect until the same is recalculated by the Administrative Agent (or the Swingline Lender, in respect of Swingline Loans) as provided above and notice of such recalculation is received by the Borrowers, it being understood that until such notice is received, the Dollar Equivalent shall be that Dollar Equivalent as last reported to the Borrowers by the Administrative Agent (or the Swingline Lender, in respect of Swingline Loans). The Administrative Agent (or the Swingline Lender, in respect of Swingline Loans) shall promptly notify the Borrowers and the Lenders of each such determination of the Dollar Equivalent.

11.08 Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. Any legal action or proceeding with respect to this Agreement or any other Credit Document may be brought in the courts of the State of New York or of the United States for the Southern District of New York, and, by execution and delivery of this Agreement, each Borrower hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each Borrower further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it, to the extent located outside New York City, or by hand, to the extent located within New York City, at its address for notices pursuant to Section 11.03, such service to become effective 30 days after such mailing. Nothing herein shall affect the right of any Agent or any Lender to serve process in any manner permitted by law or to commence legal proceedings or otherwise proceed against any Borrower in any other jurisdiction.

(b) Each Borrower each hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings

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arising out of or in connection with this Agreement or any other Credit Document brought in the courts referred to in clause (a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum.

(c) Each of the parties to this Agreement hereby irrevocably waives all right to a trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement, the other Credit Documents or the transactions contemplated hereby or thereby.

11.09 Counterparts. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with Parent, Corp. and the Administrative Agent.

11.10 Headings Descriptive. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement.

11.11 Amendment or Waiver. Neither this Agreement nor any other Credit Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Borrowers and the Required Lenders, provided that no such change, waiver, discharge or termination shall, (x) without the consent of each Lender (other than a Defaulting Lender) directly affected thereby, (i) extend the Final Maturity Date or reduce the rate or extend the time of payment of interest (other than as a result of waiving the applicability of any post-default increase in interest rates) or Fees or other amounts payable hereunder, or reduce the principal amount thereof, or increase the Commitment of any Lender over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Total Commitment shall not constitute a change in the terms of any Commitment of any Lender), (ii) amend, modify or waive any provision of this Section 11.11 or of Section 4.02(d), (iii) reduce the percentage specified in, or (except to give effect to any additional facilities hereunder) otherwise modify, the definition of Required Lenders, or (iv) consent to the assignment or transfer by any Borrower of any of its rights and obligations under this Agreement and (y) without the consent of the Swingline Lender, alter its rights or obligations with respect to Swingline Loans.

11.12 Survival. All indemnities set forth herein including, without limitation, in Section 1.11, 1.12 or 3.04 shall survive the execution and delivery of this Agreement and the making and repayment of the Loans.

11.13 Domicile of Loans. Each Lender may transfer and carry its Loans at, to or for the account of any branch office, Subsidiary or affiliate of such Lender, provided that the Borrowers shall not be responsible for costs arising under Section 1.11 or 3.04 resulting from any such transfer (other than a transfer pursuant to Section 1.13 or 1.14) to the extent not otherwise applicable to such Lender prior to such transfer.

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11.14 Confidentiality. Subject to Section 11.04, the Lenders shall hold all non-public information obtained pursuant to the requirements of this Agreement in accordance with its customary procedure for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure to its Affiliates, employees, auditors, advisors or counsel or as reasonably required by any bona fide transferee or participant in connection with the contemplated transfer of any Loans or participation therein (so long as such transferee or participant agrees to be bound by the provisions of this Section 11.14) or as required or requested by any governmental agency or representative thereof or pursuant to legal process, provided that, unless specifically prohibited by applicable law or court order, each Lender shall notify Parent of any request by any governmental agency or representative thereof (other than any such request in connection with an examination of the financial condition of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information, and provided further that in no event shall any Lender be obligated or required to return any materials furnished by Parent or any of its Subsidiaries.

11.15 Lender Register. Each Borrower hereby designates the Administrative Agent to serve as its agent, solely for purposes of this Section 11.15, to maintain a register (the “Lender Register”) on which it will record the Commitments from time to time of each of the Lenders, the Loans made by each of the Lenders and each repayment in respect of the principal amount of the Loans of each Lender. Failure to make any such recordation, or any error in such recordation, shall not affect the Borrowers’ obligations in respect of such Loans. With respect to any Lender, the transfer of the Commitments of such Lender and the rights to the principal of, and interest on, any Loan made pursuant to such Commitments shall not be effective until such transfer is recorded on the Lender Register maintained by the Administrative Agent with respect to ownership of such Commitments and Loans and prior to such recordation all amounts owing to the transferor with respect to such Commitments and Loans shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Commitments and Loans shall be recorded by the Administrative Agent on the Lender Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Assignment Agreement pursuant to Section 11.04(b). The Borrowers jointly and severally agree to indemnify the Administrative Agent from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by the Administrative Agent in performing its duties under this Section 11.15 other than those resulting from the Administrative Agent’s willful misconduct or gross negligence.

11.16 Judgment Currency. (a) The Borrowers’ obligations hereunder and under the other Credit Documents to make payments in the applicable Swingline Approved Currency, Approved Currency or Other Alternate Currency (the “Obligation Currency”) shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any currency other than the Obligation Currency, except to the extent that such tender or recovery results in the effective receipt by the Administrative Agent, the Swingline Lender or the respective Lender of the full amount of the Obligation Currency expressed to be payable to the Administrative Agent, the Swingline Lender or such Lender under this Agreement or the other Credit Documents. If, for the purpose of obtaining or enforcing judgment against any Borrowers in any court or in any jurisdiction, it becomes necessary to convert into or from any currency other than the Obligation Currency (such other currency being hereinafter referred

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to as the “Judgment Currency”) an amount due in the Obligation Currency, the conversion shall be made at the Relevant Currency Equivalent, and, in the case of other currencies, the rate of exchange (as quoted by the Administrative Agent or if the Administrative Agent does not quote a rate of exchange on such currency, by a known dealer in such currency designated by the Administrative Agent) determined, in each case, as of the Business Day immediately preceding the day on which the judgment is given (such Business Day being hereinafter referred to as the “Judgment Currency Conversion Date”).

(b) If there is a change in the rate of exchange prevailing between the Judgment Currency Conversion Date and the date of actual payment of the amount due, the Borrowers covenant and agree to pay, or cause to be paid, such additional amounts, if any (but in any event not a lesser amount) as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the rate of exchange prevailing on the date of payment, will produce the amount of the Obligation Currency which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial award at the rate of exchange prevailing on the Judgment Currency Conversion Date.

(c) For purposes of determining the Relevant Currency Equivalent or any other rate of exchange for this Section, such amounts shall include any premium and costs payable in connection with the purchase of the Obligation Currency.

11.17 Euro. (a) If at any time that an Alternate Currency Loan is outstanding, the relevant Alternate Currency is fully replaced as the lawful currency of the country that issued such Alternate Currency (the “Issuing Country”) by the Euro so that all payments are to be made in the Issuing Country in Euros and not in the Alternate Currency previously the lawful currency of such country, then such Alternate Currency Loan shall be automatically converted into a Loan denominated in Euros in a principal amount equal to the amount of Euros into which the principal amount of such Alternate Currency Loan would be converted pursuant to the EMU Legislation and thereafter no further Loans will be available in such Alternate Currency, with the basis of accrual of interest, notices requirements and payment offices with respect to such converted Loans to be that consistent with the convention and practices in the London interbank market for Euro denominated Loans.

(b) The applicable Borrowers shall from time to time, at the request of any Lender, pay to such Lender the amount of any losses, damages, liabilities, claims, reduction in yield, additional expense, increased cost, reduction in any amount payable, reduction in the effective return of its capital, the decrease or delay in the payment of interest or any other return forgone by such Lender or its affiliates as a result of the tax or currency exchange resulting from the introduction, changeover to or operation of the Euro in any applicable nation or eurocurrency market.

* * *

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IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written.

MBIA Inc. 113 King Street Armonk, NY 10504 Tel: (914) 765-3327 Fax: (914) 765-3410 Attention: Joseph Sevely	MBIA INC.,   as a Borrower
	By:	/s/ Joseph Sevely
with a copy to:		Name:	Joseph Sevely
		Title:	Treasurer
113 King Street Armonk, NY 10504 Tel: (914) 765-3213 Fax: (914) 765-3410 Attention: Karen M. Wagner
MBIA Insurance Corporation 113 King Street Armonk, New York 10504 Tel: (914) 765-3327 Fax: (914) 765-3410 Attention: Joseph Sevely	MBIA INSURANCE CORPORATION,   as a Borrower
	By:	/s/ Joseph Sevely
with a copy to:		Name:	Joseph Sevely
		Title:	Treasurer
113 King Street Armonk, NY 10504 Tel: (914) 765-3213 Fax: (914) 765-3410 Attention: Karen M. Wagner

BARCLAYS BANK PLC,   Individually and as Administrative Agent
By:	/s/ Alison A. McGuigan
	Name:	Alison A. McGuigan
	Title:	Associate Director
KEYBANK NATIONAL ASSOCIATION,   Individually and as Syndication Agent
By:	/s/ Mary K. Young
	Name:	Mary K. Young
	Title:	Vice President
THE BANK OF NEW YORK,   Individually and as Documentation Agent
By:	/s/ David Trick
	Name:	David Trick
	Title:	Vice President
JPMORGAN CHASE BANK
By:	/s/ Marybeth Mullen
	Name:	Marybeth Mullen
	Title:	Vice President
FLEET NATIONAL BANK
By:	/s/ George J. Urban
	Name:	George J. Urban
	Title:	Portfolio Manager

NATIONAL AUSTRALIA BANK LIMITED
By:	/s/ Michael G. McHugh
	Name:	Michael G. McHugh
	Title:	Senior Vice President
WELLS FARGO BANK, NATIONAL ASSOCIATION
By:	/s/ Robert C. Meyer
	Name:	Robert C. Meyer
	Title:	Vice President
By:	/s/ Beth McGinnis
	Name:	Beth McGinnis
	Title:	Vice President
BANK OF AMERICA, N.A.
By:	/s/ Joan D’Amico
	Name:	Joan D’Amico
	Title:	Managing Director
DEUTSCHE BANK AG NEW YORK BRANCH
By:	/s/ Ruth Leung
	Name:	Ruth Leung
	Title:	Director
By:	/s/ Clinton Johnson
	Name:	Clinton Johnson
	Title:	Managing Director

BANK ONE, N.A.
By:	/s/ Gretchen Roetzer
	Name:	Gretchen Roetzer
	Title:	Director
COOPERATIEVE CENTRALE RAIFFEISEN- BOERENLEENBANK B.A.,”RABOBANK INTERNATIONAL”, NEW YORK BRANCH
By:	/s/ Raymond K. Miller
	Name:	Raymond K. Miller
	Title:	Managing Director
By:	/s/ Angela R. Reilly
	Name:	Angela R. Reilly
	Title:	Executive Director
NORDDEUTSCHE LANDESBANK GIROZENTRALE NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH
By:	/s/ Georg L. Peters
	Name:	Georg L. Peters
	Title:	Vice President
By:	/s/ Jan de Jonge
	Name:	Jan de Jonge
	Title:	Vice President

CAJA MADRID
By:	/s/ Paul Barrabés
	Name:	Paul Barrabés
	Title:	Head of Industrialised Markets
By:	/s/ Enrique Tierno Pérez-Relaño
	Name:	Enrique Tierno Pérez-Relaño
	Title:	Head of International Financial Institutions

ANNEX I

COMMITMENTS

Lender	Commitment
Barclays Bank plc	$	68,000,000
KeyBank National Association	$	66,700,000
The Bank of New York	$	58,700,000
JPMorgan Chase Bank	$	43,300,000
Fleet National Bank	$	33,300,000
National Australia Bank Limited	$	33,300,000
Wells Fargo Bank, National Association	$	33,300,000
Bank of America, N.A.	$	30,000,000
Deutsche Bank AG New York Branch and/or Cayman Islands Branch	$	20,000,000
Bank One, N.A.	$	16,700,000
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., “Rabobank International”, New York Branch	$	16,700,000
Norddeutsche Landesbank Girozentrale New York Branch and/or Cayman Islands Branch	$	16,700,000
Caja Madrid	$	13,300,000
Total	$	450,000,000

ANNEX II

LENDER ADDRESSES

Barclays Bank plc	200 Park Avenue New York, NY 10166 Attn: Alison Mcguigan Tel: (212) 412-7672 Fax: (212) 412-5610 e-mail: alison.mcguigan@barcap.com
KeyBank National Association	127 Public Square, 6th Floor Cleveland, OH 44114 Attn: Mary K. Young Tel: (216) 689-4443 Fax: (216) 689-4981 e-mail: mary_k_young@keybank.com
The Bank of New York	One Wall Street New York, NY 10286 Attn: David Trick Tel: (212) 635-1064 Fax: (212) 809-9520 e-mail: dtrick@bankofny.com
JPMorgan Chase	270 Park Avenue New York, NY 10017 Attn: Marybeth Mullen Tel: (212) 270-5049 Fax: (212) 270-0670 e-mail: marybeth.mullen@chase.com
Fleet National Bank	777 Main Street Hartford, CT 06115 Attn: George Urban Tel: (860) 952-7565 Fax: (860) 986-1264 e-mail: george_j_urban@fleet.com
National Australia Bank Limited, New York Branch ACN 004044937	200 Park Avenue, Floor 34 New York, NY 10166 Attn: Mike McHugh Tel: (212) 916-9559 Fax: (212) 983-1969 e-mail: mmchugh@nabny.com

Annex II

Page 2

Wells Fargo Bank, National Association	230 W. Monroe Street, Suite 2900 Chicago, IL 60606 Attn: Robert Meyer Tel: (312) 345-8623 Fax: (312) 845-6606 e-mail: meyerrc@wellsfargo.com
Bank of America, N.A.	901 Main Street, 66th Floor Dallas, TX 75201 Attn: Joan D’Amico Tel: (214) 209-3307 Fax: (214) 209-3742 e-mail: joan.damico@bankofamerica.com with a copy to: 901 Main Street, 66th Floor Dallas, TX 75201 Attn: Jim Miller Tel: (214) 209-0559 Fax: (214) 209-3742 e-mail: jim.v.miller@bankofamerica.com
Deutsche Bank AG New York Branch	31 West 52nd Street, 23rd Floor New York, NY 10019 Attn: Ruth Leung Tel: (212) 469-8650 Fax: (212) 469-8366 e-mail: ruth.leung@db.com
Bank One, N.A.	153 West 51st Street New York, NY 10019 Attn: Mark Goldstein Tel: (212) 373-1169 Fax: (212) 373-1439 e-mail: mark_goldstein@bankone.com with a copy to: 1 Bank One Plaza, Suite IL1-0085 Chicago, IL 60670 Attn: Gretchen K. Roetzer Tel: (312) 732-8068 Fax: (312) 732-4033 e-mail: gretchen_k_roetzer@bankone.com

Annex II

Page 3

Rabobank International	245 Park Avenue New York, NY 10167 Attn: Angela Reilly Tel: (212) 916-7919 Fax: (212) 808-2579 e-mail: a.r.reilly@nyc.rabobank.com
Norddeutsche Landesbank Girozentrale New York Branch and/or Cayman Islands Branch	1114 Avenue of the Americas New York, NY 10036 Attn: Georg Peters Tel: (212) 812-6993 Fax: (212) 812-6860 e-mail: georg.peters@nordlb.com
Caja Madrid	Torre Caja Madrid P.o de la Castellana, 189 28046 Madrid, Spain Attn: Beatrice Alvarez Orejas Tel: 34-91-423-95-66 Fax: 34-91-423-95-93 e-mail: balvareo@cajamadrid.es

ANNEX III

SUBSIDIARIES OF MBIA INC.

NAME OF SUBSIDIARY	JURISDICTION OF INCORPORATION
MBIA Insurance Corporation	New York
Municipal Issuers Service Corporation	New York
MBIA Insurance Corp. of Illinois	Illinois
MBIA Asset Management, LLC	Delaware
MBIA Municipal Investors Service Corporation	Delaware
Colorado Investor Services Corporation	Colorado
MBIA Investment Management Corp.	Delaware
MBIA Capital Management Corp.	Delaware
1838 Investment Advisors, LLC	Delaware
1838 Delaware Holding, LLC	Delaware
MBIA Capital Corp.	Delaware
Muni Resources, LLC	Delaware
MBIA International Marketing Services, Pty. Limited	Australia
MBIA Assurance S.A.	France
MBIA Singapore Pte Ltd.	Singapore
MBIA Japan Limited	Japan
MBIA UK Limited	England and Wales
MBIA Global Funding, LLC	Delaware
MBIA Asset Finance, LLC	Delaware
Assurance Funding Limited	Jersey
MBIA Services Company	Delaware
MBIA MuniServices Company	Delaware
Municipal Tax Collection Bureau, Inc.	Pennsylvania
John T. Austin, Inc.	California
Allen W. Charkow, Inc.	California
Municipal Resource Consultants	California
Capital Asset Holdings, Ltd.	Florida
CapMAC Holdings Inc.	Delaware
Capital Markets Assurance Corporation	New York
CapMAC Investment Management, Inc.	Delaware
CapMAC Financial Services, Inc.	Delaware
CapMAC Financial Services (Europe) Ltd.	England and Wales
CapMAC Asia Ltd.	Bermuda

ANNEX IV

CALCULATION OF ASSOCIATED COST RATE FOR

REVOLVING LOANS AND COMPETITIVE BID LOANS

The Associated Cost Rate for any Revolving Loan or Competitive Bid Loan denominated in Pounds Sterling or Euros will be the rate determined by the Administrative Agent (rounded upward, if necessary, to four decimal places) in accordance with the following formula (expressed as a percentage per annum):

CL + S(L - Z) + 0.01F

l00 - (C+S)

Where on the day of application of the formula:

C The amount required to be held as a non-interest bearing cash ratio deposit with the Bank of England expressed as a percentage of the Administrative Agent’s Eligible Liabilities (above any stated minimum).

F The amount of Pounds Sterling per £1,000,000 or Euros per €1,000,000, as the case may be, of the fee base of the Administrative Agent payable to the Financial Services Authority per annum (disregarding any minimum fee payable under the Fees Regulations).

L The rate of interest per annum at which Euros or Pounds Sterling deposits, as the case may be, of an amount comparable to the applicable Loan or other amount are offered by the Administrative Agent to leading banks in the London interbank market at or about 11:00 A.M. (London time) on the date of calculation for a period comparable to the period for which the Associated Cost Rate is to be calculated; or

Euro LIBOR or Sterling LIBOR, as the case may be, for the relevant day is the rate of interest (without taking into account the Applicable Margin or the Associated Cost Rate) payable on that day on the related Revolving Loan or Competitive Bid Loan, as the case may be, denominated in Euros or Pounds Sterling, pursuant to Section 1.09 of this Agreement.

S The amount required to be placed as Special Deposits with the Bank of England, expressed as a percentage of the Administrative Agent’s Eligible Liabilities (above any stated minimum).

Z The lower of L and the rate of interest per annum paid by the Bank of England on Special Deposits at or about 11:00 A.M. (London time) on the date of calculation.

Annex IV

Page 2

For the purposes of calculating the Associated Cost Rate:

(i) C, L, S and Z are included in the formula as numbers and not as percentages, e.g. if C = 0.15 percent and L = 7 percent, CL is calculated at 0.15 x 7;

(ii) the formula is applied on the first day of each period for which it falls to be calculated (and the result shall apply for the duration of such period);

(iii) each amount is rounded up to the nearest four decimal places; and

(iv) if the formula produces a negative percentage, the percentage shall be taken as zero.

If alternative or additional financial requirements are imposed by the Bank of England, the Financial Services Authority or any other fiscal, monetary or governmental authority or agency (including the European Central Bank) which in the Administrative Agent’s reasonable opinion make the above formula (or any element thereof, or any defined term used therein) no longer appropriate, the Administrative Agent (following consultation with each applicable Borrower and the Required Lenders) shall be entitled by notice to the Borrower to stipulate such other formula as shall be suitable to apply in substitution for the above formulae. Any such variation shall, in the absence of manifest error, be conclusive and binding on all parties and shall apply from the date specified in such notice.

For the purposes of this Schedule:

“Bank of England Act” means the Bank of England Act 1998;

“Eligible Liabilities” has the meaning given to that term in the Cash Ratio Deposits (Eligible Liabilities) Order 1998 or the applicable substitute order made under the Bank of England Act as in force on the date of application of the formula;

“Fee Base” has the meaning given to that term in the Fees Regulations;

“Fees Regulations” means the Banking Supervision (Fees) Regulations 2001 or the applicable substitute regulations made under the Bank of England Act as are in force on the date of application of the formula; and

“Special Deposits” has the meaning given to that term by the Bank of England on the date of application of the formula.

Any reference to a provision of any statute, directive, order or regulation herein is a reference to that provision as amended or re-enacted from time to time.

ANNEX V

CALCULATION OF ASSOCIATED COST RATE FOR

SWINGLINE LOANS

The Associated Cost Rate for Swingline Loans denominated in Euros or Pounds Sterling shall be the rate determined by the Swingline Lender (rounded upward, if necessary, to four decimal places) in accordance with the following formula:

E x 0.0l

    300                percent, per annum

Where:

E is the rate of charge payable by the Swingline Lender to the Financial Services Authority pursuant to the Fees Rules (calculated for this purpose by the Administrative Agent as being the fee tariff applicable to the Swingline Lender as specified in the Fees Rules under the activity group A. 1 Deposit acceptors, ignoring any minimum fee or zero related fee required pursuant to the Fees Rules) and expressed in pounds per £1,000,000 of the Tariff Base of the Swingline Lender.

1. For purposes of this Schedule:

(a) “Fees Rules” means the rules on supervision fees contained in the FSA Supervision Manual or such other law or regulation as may be in force from time to time in respect of the payment of fees for the acceptance of deposits; and

(b) “Tariff Base” has the meaning given to it, and will be calculated in accordance with the Fees Rules.

2. Any determination by the Swingline Lender pursuant to this Schedule V in relation to a formula, the Associated Cost Rate or any amount payable to the Swingline Lender shall, in the absence of manifest error, be conclusive and binding on all parties.

3. The Swingline Lender may from time to time, after consultation with the applicable Borrower and the Administrative Agent, determine and notify to all parties any amendments which are required to be made to this Schedule V in order to comply with any change in law, regulation or any requirements from time to time imposed by the Bank of England, the Financial Services Authority or the European Central Bank (or, in any case, any other authority which replaces all or any of its functions) and any such determination shall, in the absence of manifest error, be conclusive and binding on all parties.

EX-10.52

Exhibit 10.52

AMENDMENT NO. 1 TO THE

2002 MBIA INC. ANNUAL AND LONG-TERM INCENTIVE PLAN

This AMENDMENT NO.1 to the 2002 MBIA, INC. ANNUAL AND LONG-TERM INCENTIVE PLAN (the “Plan”), is hereby adopted by MBIA Inc., effective as of February 10, 2004. Capitalized terms used, but not defined, herein shall have the meanings assigned to such terms in the Plan.

WHEREAS, the Plan was established to enable the Company and its Subsidiaries to attract, retain, motivate and reward the best qualified executive officers and key employees by providing them with the opportunity to earn competitive compensation directly linked to the Company’s performance;

WHEREAS, Section 4(d) of the Plan provides that the Committee may grant annual and long-term incentive awards without regard to the other generally applicable provisions of the Plan to a Participant who will not be a Covered Employee for the year in which the amount paid under such award would be deductible by the Company for federal income tax purposes (an “Unrestricted Participant”) so long as such awards do not exceed the maximum limits otherwise specified in the Plan;

WHEREAS, the Committee has determined that it is in the best interests of the Company to be able to grant annual and long-term equity-based awards to one or more Unrestricted Participants in amounts that exceed the otherwise applicable dollar limits (but not share limits) under the Plan;

WHEREAS, Section 7(b) of the Plan authorizes the Committee to amend the Plan;

NOW, THEREFORE, the Plan shall be amended, effective as of the date hereof, as follows:

Section 4(d) of the Plan is hereby amended in its entirety to read as follows:

“Affirmative Discretion. Notwithstanding any other provision in the Plan to the contrary (including, without limitation, the maximum amounts payable under Section 4(b)), but subject to the maximum number of shares available for issuance under Section 6 of the Plan, (i) the Committee shall have the right, in its discretion, to grant any annual or long-term bonus in cash, in shares of the Company’s Common Stock or in any combination thereof to any Participant who is not a Covered Employee for the year in which the amount paid would ordinarily be deductible by the Company for federal income tax purposes, based on individual performance or any other criteria that the Committee deems

appropriate and (ii) in connection with the hiring of any person who is or becomes a Covered Employee, the Committee may provide for a minimum bonus amount in any Performance Period, regardless of whether performance objectives are attained.”

IN WITNESS WHEREOF, a duly authorized officer of MBIA Inc. has caused this Amendment No. 1 to the Plan, to be executed as the date written above.

MBIA INC.
By:	/s/ Kevin Silva
Its:	Vice President

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EX-10.57

EXECUTION COPY

EXHIBIT 10.57

PUT OPTION AGREEMENT

between

MBIA INSURANCE CORPORATION

and

NORTH CASTLE CUSTODIAL TRUST V

Dated May 14, 2003

Preamble

This Put Option Agreement, dated as of May 14, 2003 (this “Agreement”), is by and between MBIA Insurance Corporation, a New York domestic stock insurance corporation (“MBIA Insurance”), and North Castle Custodial Trust V (the “Custodial Trust”), a Delaware statutory trust.

Recitals

WHEREAS, MBIA Insurance is authorized to issue 500.01 shares of non-cumulative, redeemable, perpetual preferred stock, par value $1,000 per share, designated as “Series E Perpetual Preferred Shares,” which shares have not been and will not be registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Preferred Stock”); and

WHEREAS, MBIA Insurance and the Custodial Trust desire to enter into a binding agreement pursuant to which MBIA Insurance will have the right to sell, at its option, the Preferred Stock to the Custodial Trust, and the Custodial Trust will have an obligation to purchase the Preferred Stock upon MBIA Insurance’s exercise of its option and upon the other terms and conditions agreed upon by the parties.

NOW, THEREFORE, the parties hereto agree as follows:

1. Definitions; Interpretation

1.1 The words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, clause or other subdivision, and references to “Sections” refer to Sections of this Agreement except as otherwise expressly provided.

1.2 In this Agreement:

“Agreement” has the meaning set forth above in the Preamble.

“Auction Date” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Auction Rate” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Broker-Dealer” has the meaning set forth in the Declaration.

“Business Day” has the meaning set forth in the Declaration.

“CPS Securities” has the meaning set forth in the Declaration.

“Custodial Trust” has the meaning set forth above in the Preamble.

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“Declaration” means the Amended and Restated Declaration of Trust governing the Custodial Trust, dated as of the date hereof, as the same may be amended or restated from time to time.

“Delayed Auction” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Delayed Auction Date” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Delayed Auction Period” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Delayed Auction Rate” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Delayed Put Option Premium” has the meaning set forth in Section 5.1.

“Delayed Put Option Premium Certificate” has the meaning set forth in Section 5.2.

“Distribution Payment Date” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Distribution Period” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Dividend” has the meaning set forth in the Restated Charter.

“Eligible Assets” has the meaning set forth in the Declaration.

“Expense Reimbursement Agreement” has the meaning set forth in Section 3.1.

“Federal Funds Effective Rate” has the meaning set forth in the Declaration.

“Fixed Rate Distribution Event” has the meaning set forth in the Restated Charter.

“Fixed Rate Election” means an election by MBIA Insurance to pay Dividends on the Preferred Stock at the rate described in clause (iii) of the definition of “Dividend Rate” set forth in the Restated Charter.

“Holder” has the meaning set forth in the Declaration.

“Liquidation Preference” has the meaning set forth in the Restated Charter.

“Maximum Rate” has the meaning set forth in the Restated Charter.

“MBIA Insurance” has the meaning set forth above in the Preamble.

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“Overnight Rate of Return” means the rate earned on the interest and on the principal of the Eligible Assets during the period from each Auction Date until the related Distribution Payment Date and during any Delayed Auction Period, which shall be equal to the Federal Funds Effective Rate then in effect.

“Preferred Stock” has the meaning set forth above in the Recitals.

“Preferred Stock Payment Date” has the meaning set forth in Section 3.2(a).

“Preferred Stock Purchase Price” has the meaning set forth in Section 4.1.

“Put Notice” means a written notice substantially in the form attached hereto as Annex A.

“Put Option Premium” has the meaning set forth in Section 5.1.

“Put Option Premium Certificate” has the meaning set forth in Section 5.2.

“Redemption Price” has the meaning set forth in the Restated Charter.

“Redemption Proceeds” has the meaning set forth in Section 3.3(d).

“Restated Charter” means the Restated Charter of MBIA Insurance, a copy of which is attached hereto as Annex C.

“Stated Yield” means all amounts of interest (including accreted interest) and other payments due and payable (upon maturity or otherwise) on the principal amount of the Eligible Assets (excluding any repayment of principal) held by the Custodial Trust during a Distribution Period, plus the amount of interest to be earned based on the Overnight Rate of Return, as calculated on or prior to 11:00 a.m. on the Auction Date for each respective Distribution Period.

“Tax Matters Partner” has the meaning set forth in the Declaration.

“Trustee” has the meaning set forth in the Declaration.

In this Agreement, any reference to a “company” shall be construed so as to include any corporation, trust, partnership, limited liability company or other legal entity, wheresoever incorporated or established.

1.3 In this Agreement, save where the contrary is indicated, any reference to:

(a) this Agreement or any other agreement or document shall be construed as a reference to this Agreement or, as the case may be, such other agreement or document as the same may have been, or may from time to time be, amended, varied, novated or supplemented in accordance with its terms; and

(b) a statute shall be construed as a reference to such statute as the same may have been, or may from time to time be, amended or re-enacted.

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1.4 In this Agreement, any definition shall be equally applicable to both the singular and plural forms of the defined terms.

2. Put Option; Term

2.1 In consideration of the payment of the Put Option Premium, the Custodial Trust hereby grants to MBIA Insurance the right to cause the Custodial Trust to purchase the Preferred Stock on the terms set forth in this Agreement.

2.2 The put option created hereby shall remain in effect and be exercisable at any time except:

(a) during any period when the Preferred Stock that has been put to the Custodial Trust pursuant to this Agreement is held by the Custodial Trust; or

(b) after this Agreement has been terminated pursuant to Section 2.3.

2.3 This Agreement shall terminate upon the earliest to occur of:

(a) MBIA Insurance delivers a written notice to the Custodial Trust while the Custodial Trust is holding Eligible Assets, stating that MBIA Insurance is electing not to pay the Put Option Premium for the next succeeding Distribution Period that follows the notice by at least three (3) Business Days and indicating the Distribution Payment Date on which the termination shall become effective (delivery of such a termination notice by MBIA Insurance shall be irrevocable);

(b) MBIA Insurance fails to pay the Put Option Premium or the Delayed Put Option Premium, if any, for a Distribution Period on the related Distribution Payment Date, and such failure has not been cured within five (5) Business Days;

(c) MBIA Insurance makes a Fixed Rate Election;

(d) MBIA Insurance fails to pay Dividends on the Preferred Stock, or the fees and expenses of the Custodial Trust pursuant to the Expense Reimbursement Agreement, for a Distribution Period on the related Distribution Payment Date;

(e) MBIA Insurance fails to pay the Redemption Price and such failure has not been cured within five (5) Business Days; and

(f) the aggregate face amount of the Custodial Trust’s CPS Securities is less than $20,000,000;

3. Exercise of Put Option; Redemption.

3.1 The Custodial Trust agrees that it shall, upon exercise of the put option as provided in Section 3.2, purchase the Preferred Stock from MBIA Insurance for a purchase price equal to the Preferred Stock Purchase Price, which Preferred Stock Purchase Price shall be payable on the Preferred Stock Payment Date in accordance with Section 4.

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3.2     (a) MBIA Insurance may exercise the put option at any time by delivering (i) a Put Notice to the Trustee, specifying a payment date (the “Preferred Stock Payment Date”), which shall be the next succeeding Distribution Payment Date after the date on which the Put Notice is delivered to the Trustee and (ii) the Expense Reimbursement Agreement to the Custodial Trust in the form attached hereto as Annex D (the “Expense Reimbursement Agreement”), in either case not more than fifteen (15) days but not less than ten (10) days prior to the next succeeding Distribution Payment Date.

(b) On the Preferred Stock Payment Date, after payment of the Put Option Premium by MBIA Insurance to the Custodial Trust and payment of the distribution amount by the Custodial Trust to the Holders of the CPS Securities, in each case for the immediately preceding Distribution Period, MBIA Insurance shall issue and deliver to the Custodial Trust, or its designee, Preferred Stock with an aggregate Liquidation Preference equal to the proceeds attributable to principal received upon the maturity of the Custodial Trust’s Eligible Assets (and, if applicable, liquidation of defaulted Eligible Assets), net of fees and expenses of the Custodial Trust and after any principal is returned to Holders of the CPS Securities pursuant to Section 6.01(g) of the Declaration and Section 6(b) of the General Terms of the CPS Securities attached thereto. The Preferred Stock shall be delivered free and clear of any defect in title, together with all transfer and registration documents (or all notices, instructions or other communications) as are necessary to convey title to the Preferred Stock to the Custodial Trust (or its nominee).

(c) For the avoidance of doubt, (1) any cash received by the Custodial Trust as interest or other payments earned on the principal amount of the Eligible Assets (net of fees and expenses and excluding any repayment of principal) and not previously distributed to the Holders of CPS Securities shall be distributed to the Holders of CPS Securities prior to payment by the Custodial Trust of the Preferred Stock Purchase Price, and shall not be used to purchase shares of Preferred Stock; and (2) the aggregate Liquidation Preference of Preferred Stock purchased from MBIA Insurance shall be reduced by the amount, if any, by which the aggregate face amount of CPS Securities is reduced as a result of losses of principal of or interest on Eligible Assets as required by Section 6.01(g) of the Declaration and Section 6(b) of the General Terms of the CPS Securities attached thereto.

(d) MBIA Insurance shall have the right to redeem all or a portion of the Preferred Stock on any Distribution Payment Date upon payment of the Redemption Price for the shares to be redeemed (the “Redemption Proceeds”). Notwithstanding the foregoing, MBIA Insurance shall redeem all of the Preferred Stock if after giving effect to a partial redemption, the aggregate Liquidation Preference of the Preferred Stock outstanding immediately after such partial redemption would be less than $20,000,000. Payment of the Redemption Price will be made on the first Distribution Payment Date after MBIA Insurance properly elects to redeem the Preferred Stock.

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(e) Notice of any redemption of Preferred Stock shall be mailed to the holders of the Preferred Stock not less than ten (10) days nor more than fifteen (15) days prior to the date fixed for such redemption. At any time before or after a notice of redemption has been given, MBIA Insurance shall deposit the aggregate Redemption Price of the Preferred Stock to be redeemed with any bank or trust company in New York, New York, with directions to pay the holders of the Preferred Stock being redeemed the Redemption Proceeds in exchange for the Preferred Stock.

(f) Upon a partial redemption of Preferred Stock held by the Custodial Trust, the Redemption Proceeds shall be allocated pro rata among the Holders of CPS Securities.

(g) Upon a complete redemption of all Preferred Stock held by the Custodial Trust prior to a Fixed Rate Distribution Event, the Custodial Trust shall apply the Redemption Proceeds to the purchase of a portfolio of Eligible Assets.

(h) For the avoidance of doubt, there is no limitation on the number of times MBIA Insurance may put the Preferred Stock to the Custodial Trust pursuant to and in accordance with the terms of this Agreement.

(i) MBIA Insurance may not redeem the Preferred Stock from the holders thereof for a period of two years following a Fixed Rate Distribution Event.

4. Payments

4.1 On the Preferred Stock Payment Date, after payment of the Put Option Premium by MBIA Insurance to the Custodial Trust and payment of the distribution amount by the Custodial Trust to the Holders of the CPS Securities, in each case for the immediately preceding Distribution Period, the Custodial Trust will deliver to MBIA Insurance the proceeds attributable to principal received upon the maturity of the Custodial Trust’s Eligible Assets (and, if applicable, liquidation of defaulted Eligible Assets), net of fees and expenses of the Custodial Trust and after any principal is returned to Holders of CPS Securities pursuant to Section 6.01(g) of the Declaration and Section 6(b) of the General Terms of the CPS Securities attached thereto (the “Preferred Stock Purchase Price”).

4.2 Payment by the Custodial Trust of the Preferred Stock Purchase Price shall be made on or prior to 3:00 p.m. on the Preferred Stock Payment Date and to the account of MBIA Insurance specified in the Put Notice.

4.3 Payment of the Preferred Stock Purchase Price by the Custodial Trust shall be made as provided in Section 4.1 and Section 4.2 without setoff, claim, recoupment, deduction or counterclaim; provided, however, that if MBIA Insurance exercises its put option under Section 3 hereof at any time that it has failed to pay all or a portion of the Put Option Premium, and such failure has not been cured on or before the Preferred Stock Payment Date, the Custodial Trust shall be entitled to setoff against the Preferred Stock Purchase Price of such unpaid portion of the Put Option Premium.

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5. Put Option Premium

5.1 In consideration for the Custodial Trust’s agreement to purchase the Preferred Stock in accordance with the terms of this Agreement, MBIA Insurance will pay to the Custodial Trust, in US dollars, on each Distribution Payment Date during which the put option remains in effect and is exercisable as set forth in Section 2.2 hereof, the “Put Option Premium,” in an amount equal to the product of (A) the Auction Rate on the CPS Securities for the respective Distribution Period less the excess of (i) the Stated Yield for such Distribution Period over (ii) the expenses of the Custodial Trust for such Distribution Period, provided that such amount shall be annualized and expressed as an annual rate with respect to the face amount of the CPS Securities outstanding on the date the Put Option Premium is determined, (B) the aggregate face amount of the CPS Securities outstanding at the time the Put Option Premium is calculated and (C) a fraction, the numerator of which will be the actual number of calendar days in the respective Distribution Period, and the denominator of which will be 360 days.

The Put Option Premium for each Distribution Period will be calculated on the Auction Date.

If as a result of losses of principal of or interest on Eligible Assets there is a Delayed Auction, MBIA Insurance will pay to the Custodial Trust, in US dollars, on each Distribution Payment Date during which the put option remains in effect and is exercisable as set forth in Section 2.2 hereof, the “Delayed Put Option Premium,” in an amount equal to the product of (A) the Delayed Auction Rate on the CPS Securities for the Delayed Auction Period less the excess of (i) the Stated Yield for such Delayed Auction Period over (ii) the expenses of the Custodial Trust for such Delayed Auction Period, provided that such amount shall be annualized and expressed as an annual rate with respect to the face amount of the CPS Securities outstanding on the date the Put Option Premium is determined, (B) the aggregate face amount of the CPS Securities outstanding at the time the Delayed Put Option Premium is calculated and (C) a fraction, the numerator of which will be the actual number of calendar days in the respective Delayed Auction Period, and the denominator of which will be 360 days.

The Delayed Put Option Premium for each Delayed Auction Period will be calculated on the Delayed Auction Date.

5.2 The amount of the Put Option Premium shall be calculated by the Trustee and delivered in writing (the “Put Option Premium Certificate”) to MBIA Insurance prior to 5:00 p.m. on each Auction Date. The amount of the Delayed Put Option Premium shall be calculated by the Trustee and delivered in writing (the “Delayed Put Option Premium Certificate”) to MBIA Insurance prior to 5:00 p.m. on the Delayed Auction Date. The Put Option Premium Certificate, and any Delayed Put Option Premium Certificate, also shall set forth the Eligible Assets held by the Custodial Trust, the Stated Yield on each Eligible Asset, any fees to be incurred or accrued by the Trustee on behalf of the Custodial Trust and the computation of the Put Option Premium, or the Delayed Put Option Premium, as the case may be, in each case for the respective Distribution Period and the Delayed Auction Period, respectively, and shall be in the form attached hereto as Annex B.

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5.3 MBIA Insurance has five (5) days to cure any failure to pay when due the Put Option Premium or Delayed Put Option Premium, if any; provided that the Put Option Premium during such cure period will be set at the Maximum Rate then in effect.

5.4 MBIA Insurance has five (5) days to cure any failure to pay when due the Redemption Price; provided that the Put Option Premium during such cure period will be set at the Maximum Rate then in effect.

6. Obligations Absolute

6.1 The Custodial Trust acknowledges that, provided MBIA Insurance has complied with the terms of this Agreement, the obligations of the Custodial Trust undertaken under this Agreement are absolute, irrevocable and unconditional irrespective of any circumstances whatsoever, including any defense otherwise available to the Custodial Trust, in equity or at law, including, without limitation, the defense of fraud, any defense based on the failure of MBIA Insurance to disclose any matter, whether or not material, to the Custodial Trust or any other person, and any defense of breach of warranty or misrepresentation, and irrespective of any other circumstance which might otherwise constitute a legal or equitable discharge or defense of an insurer, surety or guarantor under any and all circumstances. The enforceability and effectiveness of this Agreement and the liability of the Custodial Trust, and the rights, remedies, powers and privileges of MBIA Insurance under this Agreement shall not be affected, limited, reduced, discharged or terminated, and the Custodial Trust hereby expressly waives, to the fullest extent permitted by applicable law, any defense now or in the future arising by reason of:

(a) the illegality, invalidity or unenforceability of all or any part of the Declaration;

(b) any action taken by MBIA Insurance;

(c) any change in the direct or indirect ownership or control of MBIA Insurance or of any shares or ownership interests thereof; and

(d) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of or for the Custodial Trust;

provided, however, that, notwithstanding the provisions of this Section 6.1, the Custodial Trust shall have no further obligations under this Agreement after the termination of this Agreement. In addition, the breach of any covenant made in this Agreement by the Custodial Trust shall not terminate this Agreement or limit the rights of MBIA Insurance hereunder.

6.2 For the avoidance of doubt, no failure or delay by MBIA Insurance in exercising its rights hereunder shall operate as a waiver of its rights hereunder (except as specifically provided in this Agreement, including, without limitation, in respect of the notice periods and payment dates set forth in Section 3.2(a)) and, subject to the termination of this Agreement not having occurred, MBIA Insurance may continue to exercise its rights hereunder at any time.

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7. Covenants

7.1 MBIA Insurance hereby covenants and agrees that, at all times prior to the earlier of the termination of this Agreement or completion of the sale of the Preferred Stock to the Custodial Trust pursuant to this Agreement it shall not amend, restate, revise or otherwise alter the rights, terms and preferences of the Preferred Stock, whether by operation of merger, reorganization or otherwise, without the prior consent of the Custodial Trust, and it will not register the Preferred Stock with the Securities and Exchange Commission under the Securities Act of 1933, as amended, on or before the Put Option Payment Date.

7.2 The Custodial Trust hereby covenants and agrees that, at all times prior to the earlier of the termination of this Agreement or completion of the sale of the Preferred Stock to the Custodial Trust pursuant to this Agreement it shall not amend, restate, revise or otherwise alter the rights, terms and preferences of the CPS Securities, whether by operation of merger, reorganization or otherwise, and it will not register the CPS Securities with the Securities and Exchange Commission under the Securities Act of 1933, as amended.

7.3 MBIA Insurance hereby covenants and agrees that any Preferred Stock delivered to the Custodial Trust shall rank, at the time of delivery, (a) senior to the common stock of MBIA Insurance and (b) senior to or pari passu with the most senior preferred shares of MBIA Insurance then authorized by its Restated Charter or then issued and outstanding; provided that this covenant may be amended with the consent of MBIA Insurance and at least a majority of the face amount of the CPS Securities.

7.4 MBIA Insurance hereby covenants and agrees that if MBIA Insurance’s financial strength rating is lowered while this Agreement remains effective, MBIA Insurance shall provide written notice to the Trustee, on behalf of the Custodial Trust, of such lowered rating.

8. This Agreement to Govern

If there is any inconsistency between any provision of this Agreement and any other agreement, the provisions of this Agreement shall prevail to the extent of such inconsistency but not otherwise.

9. Representations and Warranties

9.1 The Custodial Trust represents and warrants to MBIA Insurance that, as of the date hereof:

(a) the Custodial Trust is duly organized and validly existing under the Delaware Statutory Trust Act and has the power and authority to own its assets and to conduct the activities which it conducts;

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(b) its entry into, exercise of its rights and/or performance of or compliance with its obligations under this Agreement do not and will not violate (1) any law to which it is subject, (2) any of its constitutional documents or (3) any agreement to which it is a party or which is binding on it or its assets;

(c) it has the power to enter into, exercise its rights and perform and comply with its obligations under this Agreement and has taken all necessary action to authorize the execution, delivery and performance of this Agreement;

(d) it will obtain and maintain in effect and comply with the terms of all necessary consents, registrations and the like of or with any government or other regulatory body or authority applicable to this Agreement;

(e) its obligations under this Agreement are valid, binding and enforceable at law;

(f) it is not in default under any agreement to which it is a party or by which it or its assets is or are bound and no litigation, arbitration or administrative proceedings are current or pending, which default, litigation, arbitration or administrative proceedings are material in the context of this Agreement;

(g) it is not necessary or advisable in order to ensure the validity, effectiveness, performance or enforceability of this Agreement that any document be filed, registered or recorded in any public office or elsewhere;

(h) each of the above representations and warranties will be correct and complied with in all respects during the term of this Agreement;

(i) no consent, approval, authorization or order of any court or governmental authority, agency, commission or commissioner or other regulatory authority is required for the consummation by the Custodial Trust of the transactions contemplated by this Agreement; and

(j) assuming compliance with the transfer restrictions with respect to the CPS Securities set forth in the Declaration, the Custodial Trust is not required to register with the Securities and Exchange Commission as an investment company under the Investment Company Act of 1940, as amended.

9.2 MBIA Insurance represents and warrants to the Custodial Trust that, as of the date hereof:

(a) it is duly organized and validly existing as a domestic stock insurance corporation under the laws of the State of New York and has the power and authority to own its assets and to conduct its activities;

(b) its entry into, exercise of its rights and/or performance of or compliance with its obligations under this Agreement do not and will not violate (1) any law to which it is subject, (2) any of its constitutional documents or (3) any agreement to which it is a party or which is binding on it or its assets;

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(c) it has the power to enter into, exercise its rights and perform and comply with its obligations under this Agreement and has taken all necessary action to authorize the execution, delivery and performance of this Agreement;

(d) it will obtain and maintain in effect and comply with the terms of all necessary consents, registrations and the like of or with any government or other regulatory body or authority applicable to this Agreement;

(e) its obligations under this Agreement are valid, binding and enforceable at law;

(f) it is not in default under any agreement to which it is a party or by which it or its assets is or are bound and no litigation, arbitration or administrative proceedings are current or pending, which default, litigation, arbitration or administrative proceedings are material in the context of this Agreement;

(g) it is not necessary or advisable in order to ensure the validity, effectiveness, performance or enforceability of this Agreement that any document be filed, registered or recorded in any public office or elsewhere;

(h) each of the above representations and warranties will be correct and complied with in all respects during the term of this Agreement;

(i) no consent, approval, authorization or order of any court or governmental authority, agency, commission or commissioner or other regulatory authority is required for the consummation by MBIA Insurance of the transactions contemplated by this Agreement and the sale of the Preferred Stock to the Custodial Trust, pursuant to the terms hereof, need not be registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended; and

(j) as of the Put Option Payment Date, the Preferred Stock will be duly authorized for issuance and sale to the Custodial Trust, pursuant to this Agreement, and, when issued and delivered by MBIA Insurance, pursuant to this Agreement, against payment of the Preferred Stock Purchase Price, will be validly issued, fully paid and nonassessable; the Preferred Stock will conform in all respects to the terms of the Preferred Stock set forth in the Restated Charter of MBIA Insurance attached hereto as Annex C; and the Preferred Stock will not be subject to preemptive or other similar rights.

10. Severability

10.1 Any provision of this Agreement which is or becomes illegal, invalid or unenforceable in any jurisdiction may be severed from the other provisions of this Agreement without invalidating the remaining provisions hereof, and any such illegality, invalidity or unenforceability shall not invalidate or render illegal or unenforceable such provision in any other jurisdiction.

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11. Notices

11.1 Each communication to be made hereunder shall be deemed to have been given (i) five (5) days after deposit of such communication with a reputable national courier service addressed to such party at its address specified below (or at such other address as such party shall specify to the other party hereto in writing) or (ii) when transmitted by facsimile to such party at its facsimile number specified below (or at such other facsimile number as such party shall specify to the other party hereto in writing):

If to MBIA Insurance at:

MBIA Insurance Corporation

113 King Street

Armonk, New York 10552

Attention: Joseph Sevely, Treasurer

Facsimile: (914) 765-3410

Copy to: Ram Wertheim, General Counsel

If to the Custodial Trust at:

The Bank of New York (Delaware)

P.O. Box 6973

White Clay Center

Route 273

Newark, Delaware 19714

Attention: Kristine Gullo

Facsimile: (302) 283-8279

Copies to:

The Bank of New York

Corporate Trust Division

100 Church Street, 8^th Floor

New York, New York 10286

Attention: Dealing and Trading Group

Facsimile: (212) 437-6155

In the case of any event under Sections 2.3, 7.3 or 14 of the Agreement, MBIA Insurance shall give notice to:

Standard & Poor’s Ratings Services at:

Standard & Poor’s Ratings Services

55 Water Street

New York, New York 10041

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Moody’s Investors Services, Inc. at:

Moody’s Investors Services, Inc.

99 Church Street

New York, New York 10007

12. Counterparts

This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts each of which when executed and delivered shall constitute an original, but all the counterparts shall together constitute but one and the same instrument.

13. Benefit of Agreement and Disclaimer

13.1 This Agreement shall enure to the benefit of each party hereto and its successors and assigns and transferees; provided that neither party hereto may transfer its rights and obligations hereunder, by operation of law or otherwise, without the prior written consent of the other party.

14. Amendment and Assignment

14.1 This Agreement may not be amended or modified in any respect, nor may any provision be waived, without the written agreement of both parties. No waiver by one party of any obligation of the other hereunder shall be considered a waiver of any other obligation of such party.

14.2 Neither the Custodial Trust nor MBIA Insurance may assign its rights or obligations under this Agreement to any other person, except that MBIA Insurance may assign its rights and obligations under this Agreement to another person as a result of a merger of MBIA Insurance with another person or as a result of a sale of all or substantially all of the assets of MBIA Insurance to another person if the other person expressly assumes all of the rights and obligations of MBIA Insurance under this Agreement; and immediately following the merger or sale of substantially all of its assets, the rating of the substitute preferred stock or the unsecured debt obligations of the other person is at least as high as the credit rating of the Preferred Stock or the general unsecured debt obligations of MBIA Insurance, as the case may be (or if no such ratings exist, the financial strength rating of MBIA Insurance) immediately prior to the merger or sale.

15. Governing Law

15.1 THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.

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16. Jurisdiction

16.1 Each of the parties hereto irrevocably submits to the non-exclusive jurisdiction of the courts of the State of New York in respect of any action or proceeding arising out of or in connection with this Agreement (“Proceedings”). Each of the parties hereto irrevocably waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of any such Proceedings in the courts of the State of New York and any claim that any Proceeding brought in any such court has been brought in an inconvenient forum. Each of the Custodial Trust and MBIA Insurance agrees that it shall at all times have an authorized agent in the State of New York upon whom process may be served in connection with any Proceedings, and each of the Custodial Trust and MBIA Insurance hereby authorizes and appoints the Trustee to accept service of all legal process arising out of or connected with this Agreement in the State of New York and service on such person (or substitute) shall be deemed to be service on the Custodial Trust or MBIA Insurance, as the case may be. Except upon such a substitution, the Custodial Trust and MBIA Insurance shall not revoke any such authority or appointment and shall at all times maintain an agent for service of process in the State of New York. If for any reason such person shall cease to act as agent for the service of process, the Custodial Trust and MBIA Insurance shall promptly appoint another such agent, and shall forthwith notify each other of such appointment. The submission to jurisdiction reflected in this paragraph shall not (and shall not be construed so as to) limit the right of any person to take Proceedings in any court of competent jurisdiction, nor shall the taking of Proceedings in any one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not) if and to the extent permitted by law.

17. Limitation of Liability

17.1 It is expressly understood that (a) this Agreement is executed and delivered by The Bank of New York (Delaware), not individually or personally but solely as Trustee, in the exercise of the powers and authority conferred and vested in it under the Declaration, (b) each of the representations, undertakings and agreements herein made on the part of the Custodial Trust, is made and intended not as personal representations, undertakings and agreements by The Bank of New York (Delaware), but is made and intended for the purpose of binding only the Custodial Trust, and (c) under no circumstances shall The Bank of New York (Delaware) be personally liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Custodial Trust, under this Agreement or the other related documents.

18. Tax Confidentiality Waiver

18.1 Notwithstanding anything to the contrary contained in this Agreement all persons may disclose to any and all persons, without limitation of any kind, the federal income tax treatment of the CPS Securities, any fact relevant to understanding the federal tax treatment of the CPS Securities, and all materials of any kind (including opinions or other tax analyses) relating to such federal tax treatment other than the name of any of the parties referenced herein or information that would permit identification of any of the parties referenced herein.

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IN WITNESS WHEREOF the parties hereto have caused this Put Option Agreement to be duly executed as of the day and year first above written.

NORTH CASTLE CUSTODIAL TRUST V,
By:	The Bank of New York (Delaware), not in its individual capacity but solely as Trustee
By:	/s/    Patrick Burns
	Name:  Patrick Burns
	Title:    Senior Vice President
MBIA INSURANCE CORPORATION
By:	/s/    Joseph Sevely
	Name:  Joseph Sevely
	Title:    Managing Director and Treasurer

ANNEX A

Form of Put Notice

To: North Castle Custodial Trust V

c/o Bank of New York (Delaware)

P.O. Box 6973

502 White Clay Center Route

273 Newark, Delaware 19714

with a copy to:

The Bank of New York

100 Church Street, 8^th Floor

New York, New York 10286

Attention: Dealing and Trading Group

Date:

Ladies and Gentlemen:

We refer to the put option agreement dated May 14, 2003 (as heretofore amended, the “Put Option Agreement”) entered into between us and you. Terms defined therein shall have the same respective meanings herein.

This notice is the notice for the purposes of Section 3.2(a) of the Put Option Agreement. We hereby require you to pay the Preferred Stock Purchase Price on the Preferred Stock Payment Date which shall be [    ], to the following account:

[            ]

Yours faithfully,

for and on behalf of

MBIA INSURANCE CORPORATION

ANNEX B

Put Option Premium Certificate/

Delayed Put Option Premium Certificate

MBIA Insurance Corporation

Put Option Premium/Delayed Put Option Premium for the

Non-Cumulative Redeemable Perpetual

Preferred Stock of MBIA Insurance Corporation

1.	Distribution Period: [first day of Period]-[last day of Period]: [number of days in period – generally 28]
2.	Auction Rate determined for the Distribution Period on [insert Auction Date].			0.000000%	$	(0	)
3.	Eligible Assets:
	Issuer	Ratings	Purchase Price	Yield to Maturity	Interest
4.	Applicable Federal Funds Effective Rate: 0.00%			0.0%	$	0.0
5.	Broker-Dealer Fees			0.0%	$	0.0
6.	Trustee and Custodian Fees			0.0%	$	0.0
7.	Investment Manager Fee			0.0%	$	0.0

8.	Tax Matters Partner Fee	0.0%	$	0.0
9.	Servicing Agent Fee	0.0%	$	0.0
10.	Rating Agency Fees	0.0%	$	0.0
11.	Tax Fees. Including preparation of returns
12.	Other Fees and Expenses for the Distribution Period, if any	0.0%	$	0.0
13.	Computation of Put Premium Due on [insert Distribution Payment Date] by 11:00 a.m. New York Time:	0.0%	$	0.0
14.	The Investment Manager is in compliance with the Investment Management Agreement.

ANNEX C

Restated Charter of

MBIA Insurance Corporation

ANNEX D

Expense Reimbursement Agreement

EX-10.58

EXECUTION COPY

EXHIBIT 10.58

PUT OPTION AGREEMENT

between

MBIA INSURANCE CORPORATION

and

NORTH CASTLE CUSTODIAL TRUST VI

Dated May 14, 2003

Preamble

This Put Option Agreement, dated as of May 14, 2003 (this “Agreement”), is by and between MBIA Insurance Corporation, a New York domestic stock insurance corporation (“MBIA Insurance”), and North Castle Custodial Trust VI (the “Custodial Trust”), a Delaware statutory trust.

Recitals

WHEREAS, MBIA Insurance is authorized to issue 500.01 shares of non-cumulative, redeemable, perpetual preferred stock, par value $1,000 per share, designated as “Series F Perpetual Preferred Shares,” which shares have not been and will not be registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Preferred Stock”); and

WHEREAS, MBIA Insurance and the Custodial Trust desire to enter into a binding agreement pursuant to which MBIA Insurance will have the right to sell, at its option, the Preferred Stock to the Custodial Trust, and the Custodial Trust will have an obligation to purchase the Preferred Stock upon MBIA Insurance’s exercise of its option and upon the other terms and conditions agreed upon by the parties.

NOW, THEREFORE, the parties hereto agree as follows:

1. Definitions; Interpretation

1.1 The words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, clause or other subdivision, and references to “Sections” refer to Sections of this Agreement except as otherwise expressly provided.

1.2 In this Agreement:

“Agreement” has the meaning set forth above in the Preamble.

“Auction Date” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Auction Rate” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Broker-Dealer” has the meaning set forth in the Declaration.

“Business Day” has the meaning set forth in the Declaration.

“CPS Securities” has the meaning set forth in the Declaration.

“Custodial Trust” has the meaning set forth above in the Preamble.

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“Declaration” means the Amended and Restated Declaration of Trust governing the Custodial Trust, dated as of the date hereof, as the same may be amended or restated from time to time.

“Delayed Auction” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Delayed Auction Date” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Delayed Auction Period” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Delayed Auction Rate” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Delayed Put Option Premium” has the meaning set forth in Section 5.1.

“Delayed Put Option Premium Certificate” has the meaning set forth in Section 5.2.

“Distribution Payment Date” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Distribution Period” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Dividend” has the meaning set forth in the Restated Charter.

“Eligible Assets” has the meaning set forth in the Declaration.

“Expense Reimbursement Agreement” has the meaning set forth in Section 3.1.

“Federal Funds Effective Rate” has the meaning set forth in the Declaration.

“Fixed Rate Distribution Event” has the meaning set forth in the Restated Charter.

“Fixed Rate Election” means an election by MBIA Insurance to pay Dividends on the Preferred Stock at the rate described in clause (iii) of the definition of “Dividend Rate” set forth in the Restated Charter.

“Holder” has the meaning set forth in the Declaration.

“Liquidation Preference” has the meaning set forth in the Restated Charter.

“Maximum Rate” has the meaning set forth in the Restated Charter.

“MBIA Insurance” has the meaning set forth above in the Preamble.

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“Overnight Rate of Return” means the rate earned on the interest and on the principal of the Eligible Assets during the period from each Auction Date until the related Distribution Payment Date and during any Delayed Auction Period, which shall be equal to the Federal Funds Effective Rate then in effect.

“Preferred Stock” has the meaning set forth above in the Recitals.

“Preferred Stock Payment Date” has the meaning set forth in Section 3.2(a).

“Preferred Stock Purchase Price” has the meaning set forth in Section 4.1.

“Put Notice” means a written notice substantially in the form attached hereto as Annex A.

“Put Option Premium” has the meaning set forth in Section 5.1.

“Put Option Premium Certificate” has the meaning set forth in Section 5.2.

“Redemption Price” has the meaning set forth in the Restated Charter.

“Redemption Proceeds” has the meaning set forth in Section 3.3(d).

“Restated Charter” means the Restated Charter of MBIA Insurance, a copy of which is attached hereto as Annex C.

“Stated Yield” means all amounts of interest (including accreted interest) and other payments due and payable (upon maturity or otherwise) on the principal amount of the Eligible Assets (excluding any repayment of principal) held by the Custodial Trust during a Distribution Period, plus the amount of interest to be earned based on the Overnight Rate of Return, as calculated on or prior to 11:00 a.m. on the Auction Date for each respective Distribution Period.

“Tax Matters Partner” has the meaning set forth in the Declaration.

“Trustee” has the meaning set forth in the Declaration.

In this Agreement, any reference to a “company” shall be construed so as to include any corporation, trust, partnership, limited liability company or other legal entity, wheresoever incorporated or established.

1.3 In this Agreement, save where the contrary is indicated, any reference to:

(a) this Agreement or any other agreement or document shall be construed as a reference to this Agreement or, as the case may be, such other agreement or document as the same may have been, or may from time to time be, amended, varied, novated or supplemented in accordance with its terms; and

(b) a statute shall be construed as a reference to such statute as the same may have been, or may from time to time be, amended or re-enacted.

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1.4 In this Agreement, any definition shall be equally applicable to both the singular and plural forms of the defined terms.

2. Put Option; Term

2.1 In consideration of the payment of the Put Option Premium, the Custodial Trust hereby grants to MBIA Insurance the right to cause the Custodial Trust to purchase the Preferred Stock on the terms set forth in this Agreement.

2.2 The put option created hereby shall remain in effect and be exercisable at any time except:

(a) during any period when the Preferred Stock that has been put to the Custodial Trust pursuant to this Agreement is held by the Custodial Trust; or

(b) after this Agreement has been terminated pursuant to Section 2.3.

2.3 This Agreement shall terminate upon the earliest to occur of:

(a) MBIA Insurance delivers a written notice to the Custodial Trust while the Custodial Trust is holding Eligible Assets, stating that MBIA Insurance is electing not to pay the Put Option Premium for the next succeeding Distribution Period that follows the notice by at least three (3) Business Days and indicating the Distribution Payment Date on which the termination shall become effective (delivery of such a termination notice by MBIA Insurance shall be irrevocable);

(b) MBIA Insurance fails to pay the Put Option Premium or the Delayed Put Option Premium, if any, for a Distribution Period on the related Distribution Payment Date, and such failure has not been cured within five (5) Business Days;

(c) MBIA Insurance makes a Fixed Rate Election;

(d) MBIA Insurance fails to pay Dividends on the Preferred Stock, or the fees and expenses of the Custodial Trust pursuant to the Expense Reimbursement Agreement, for a Distribution Period on the related Distribution Payment Date;

(e) MBIA Insurance fails to pay the Redemption Price and such failure has not been cured within five (5) Business Days; and

(f) the aggregate face amount of the Custodial Trust’s CPS Securities is less than $20,000,000;

3. Exercise of Put Option; Redemption.

3.1 The Custodial Trust agrees that it shall, upon exercise of the put option as provided in Section 3.2, purchase the Preferred Stock from MBIA Insurance for a purchase price equal to the Preferred Stock Purchase Price, which Preferred Stock Purchase Price shall be payable on the Preferred Stock Payment Date in accordance with Section 4.

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3.2     (a) MBIA Insurance may exercise the put option at any time by delivering (i) a Put Notice to the Trustee, specifying a payment date (the “Preferred Stock Payment Date”), which shall be the next succeeding Distribution Payment Date after the date on which the Put Notice is delivered to the Trustee and (ii) the Expense Reimbursement Agreement to the Custodial Trust in the form attached hereto as Annex D (the “Expense Reimbursement Agreement”), in either case not more than fifteen (15) days but not less than ten (10) days prior to the next succeeding Distribution Payment Date.

(b) On the Preferred Stock Payment Date, after payment of the Put Option Premium by MBIA Insurance to the Custodial Trust and payment of the distribution amount by the Custodial Trust to the Holders of the CPS Securities, in each case for the immediately preceding Distribution Period, MBIA Insurance shall issue and deliver to the Custodial Trust, or its designee, Preferred Stock with an aggregate Liquidation Preference equal to the proceeds attributable to principal received upon the maturity of the Custodial Trust’s Eligible Assets (and, if applicable, liquidation of defaulted Eligible Assets), net of fees and expenses of the Custodial Trust and after any principal is returned to Holders of the CPS Securities pursuant to Section 6.01(g) of the Declaration and Section 6(b) of the General Terms of the CPS Securities attached thereto. The Preferred Stock shall be delivered free and clear of any defect in title, together with all transfer and registration documents (or all notices, instructions or other communications) as are necessary to convey title to the Preferred Stock to the Custodial Trust (or its nominee).

(c) For the avoidance of doubt, (1) any cash received by the Custodial Trust as interest or other payments earned on the principal amount of the Eligible Assets (net of fees and expenses and excluding any repayment of principal) and not previously distributed to the Holders of CPS Securities shall be distributed to the Holders of CPS Securities prior to payment by the Custodial Trust of the Preferred Stock Purchase Price, and shall not be used to purchase shares of Preferred Stock; and (2) the aggregate Liquidation Preference of Preferred Stock purchased from MBIA Insurance shall be reduced by the amount, if any, by which the aggregate face amount of CPS Securities is reduced as a result of losses of principal of or interest on Eligible Assets as required by Section 6.01(g) of the Declaration and Section 6(b) of the General Terms of the CPS Securities attached thereto.

(d) MBIA Insurance shall have the right to redeem all or a portion of the Preferred Stock on any Distribution Payment Date upon payment of the Redemption Price for the shares to be redeemed (the “Redemption Proceeds”). Notwithstanding the foregoing, MBIA Insurance shall redeem all of the Preferred Stock if after giving effect to a partial redemption, the aggregate Liquidation Preference of the Preferred Stock outstanding immediately after such partial redemption would be less than $20,000,000. Payment of the Redemption Price will be made on the first Distribution Payment Date after MBIA Insurance properly elects to redeem the Preferred Stock.

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(e) Notice of any redemption of Preferred Stock shall be mailed to the holders of the Preferred Stock not less than ten (10) days nor more than fifteen (15) days prior to the date fixed for such redemption. At any time before or after a notice of redemption has been given, MBIA Insurance shall deposit the aggregate Redemption Price of the Preferred Stock to be redeemed with any bank or trust company in New York, New York, with directions to pay the holders of the Preferred Stock being redeemed the Redemption Proceeds in exchange for the Preferred Stock.

(f) Upon a partial redemption of Preferred Stock held by the Custodial Trust, the Redemption Proceeds shall be allocated pro rata among the Holders of CPS Securities.

(g) Upon a complete redemption of all Preferred Stock held by the Custodial Trust prior to a Fixed Rate Distribution Event, the Custodial Trust shall apply the Redemption Proceeds to the purchase of a portfolio of Eligible Assets.

(h) For the avoidance of doubt, there is no limitation on the number of times MBIA Insurance may put the Preferred Stock to the Custodial Trust pursuant to and in accordance with the terms of this Agreement.

(i) MBIA Insurance may not redeem the Preferred Stock from the holders thereof for a period of two years following a Fixed Rate Distribution Event.

4. Payments

4.1 On the Preferred Stock Payment Date, after payment of the Put Option Premium by MBIA Insurance to the Custodial Trust and payment of the distribution amount by the Custodial Trust to the Holders of the CPS Securities, in each case for the immediately preceding Distribution Period, the Custodial Trust will deliver to MBIA Insurance the proceeds attributable to principal received upon the maturity of the Custodial Trust’s Eligible Assets (and, if applicable, liquidation of defaulted Eligible Assets), net of fees and expenses of the Custodial Trust and after any principal is returned to Holders of CPS Securities pursuant to Section 6.01(g) of the Declaration and Section 6(b) of the General Terms of the CPS Securities attached thereto (the “Preferred Stock Purchase Price”).

4.2 Payment by the Custodial Trust of the Preferred Stock Purchase Price shall be made on or prior to 3:00 p.m. on the Preferred Stock Payment Date and to the account of MBIA Insurance specified in the Put Notice.

4.3 Payment of the Preferred Stock Purchase Price by the Custodial Trust shall be made as provided in Section 4.1 and Section 4.2 without setoff, claim, recoupment, deduction or counterclaim; provided, however, that if MBIA Insurance exercises its put option under Section 3 hereof at any time that it has failed to pay all or a portion of the Put Option Premium, and such failure has not been cured on or before the Preferred Stock Payment Date, the Custodial Trust shall be entitled to setoff against the Preferred Stock Purchase Price of such unpaid portion of the Put Option Premium.

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5. Put Option Premium

5.1 In consideration for the Custodial Trust’s agreement to purchase the Preferred Stock in accordance with the terms of this Agreement, MBIA Insurance will pay to the Custodial Trust, in US dollars, on each Distribution Payment Date during which the put option remains in effect and is exercisable as set forth in Section 2.2 hereof, the “Put Option Premium,” in an amount equal to the product of (A) the Auction Rate on the CPS Securities for the respective Distribution Period less the excess of (i) the Stated Yield for such Distribution Period over (ii) the expenses of the Custodial Trust for such Distribution Period, provided that such amount shall be annualized and expressed as an annual rate with respect to the face amount of the CPS Securities outstanding on the date the Put Option Premium is determined, (B) the aggregate face amount of the CPS Securities outstanding at the time the Put Option Premium is calculated and (C) a fraction, the numerator of which will be the actual number of calendar days in the respective Distribution Period, and the denominator of which will be 360 days.

The Put Option Premium for each Distribution Period will be calculated on the Auction Date.

If as a result of losses of principal of or interest on Eligible Assets there is a Delayed Auction, MBIA Insurance will pay to the Custodial Trust, in US dollars, on each Distribution Payment Date during which the put option remains in effect and is exercisable as set forth in Section 2.2 hereof, the “Delayed Put Option Premium,” in an amount equal to the product of (A) the Delayed Auction Rate on the CPS Securities for the Delayed Auction Period less the excess of (i) the Stated Yield for such Delayed Auction Period over (ii) the expenses of the Custodial Trust for such Delayed Auction Period, provided that such amount shall be annualized and expressed as an annual rate with respect to the face amount of the CPS Securities outstanding on the date the Put Option Premium is determined, (B) the aggregate face amount of the CPS Securities outstanding at the time the Delayed Put Option Premium is calculated and (C) a fraction, the numerator of which will be the actual number of calendar days in the respective Delayed Auction Period, and the denominator of which will be 360 days.

The Delayed Put Option Premium for each Delayed Auction Period will be calculated on the Delayed Auction Date.

5.2 The amount of the Put Option Premium shall be calculated by the Trustee and delivered in writing (the “Put Option Premium Certificate”) to MBIA Insurance prior to 5:00 p.m. on each Auction Date. The amount of the Delayed Put Option Premium shall be calculated by the Trustee and delivered in writing (the “Delayed Put Option Premium Certificate”) to MBIA Insurance prior to 5:00 p.m. on the Delayed Auction Date. The Put Option Premium Certificate, and any Delayed Put Option Premium Certificate, also shall set forth the Eligible Assets held by the Custodial Trust, the Stated Yield on each Eligible Asset, any fees to be incurred or accrued by the Trustee on behalf of the Custodial Trust and the computation of the Put Option Premium, or the Delayed Put Option Premium, as the case may be, in each case for the respective Distribution Period and the Delayed Auction Period, respectively, and shall be in the form attached hereto as Annex B.

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5.3 MBIA Insurance has five (5) days to cure any failure to pay when due the Put Option Premium or Delayed Put Option Premium, if any; provided that the Put Option Premium during such cure period will be set at the Maximum Rate then in effect.

5.4 MBIA Insurance has five (5) days to cure any failure to pay when due the Redemption Price; provided that the Put Option Premium during such cure period will be set at the Maximum Rate then in effect.

6. Obligations Absolute

6.1 The Custodial Trust acknowledges that, provided MBIA Insurance has complied with the terms of this Agreement, the obligations of the Custodial Trust undertaken under this Agreement are absolute, irrevocable and unconditional irrespective of any circumstances whatsoever, including any defense otherwise available to the Custodial Trust, in equity or at law, including, without limitation, the defense of fraud, any defense based on the failure of MBIA Insurance to disclose any matter, whether or not material, to the Custodial Trust or any other person, and any defense of breach of warranty or misrepresentation, and irrespective of any other circumstance which might otherwise constitute a legal or equitable discharge or defense of an insurer, surety or guarantor under any and all circumstances. The enforceability and effectiveness of this Agreement and the liability of the Custodial Trust, and the rights, remedies, powers and privileges of MBIA Insurance under this Agreement shall not be affected, limited, reduced, discharged or terminated, and the Custodial Trust hereby expressly waives, to the fullest extent permitted by applicable law, any defense now or in the future arising by reason of:

(a) the illegality, invalidity or unenforceability of all or any part of the Declaration;

(b) any action taken by MBIA Insurance;

(c) any change in the direct or indirect ownership or control of MBIA Insurance or of any shares or ownership interests thereof; and

(d) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of or for the Custodial Trust;

provided, however, that, notwithstanding the provisions of this Section 6.1, the Custodial Trust shall have no further obligations under this Agreement after the termination of this Agreement. In addition, the breach of any covenant made in this Agreement by the Custodial Trust shall not terminate this Agreement or limit the rights of MBIA Insurance hereunder.

6.2 For the avoidance of doubt, no failure or delay by MBIA Insurance in exercising its rights hereunder shall operate as a waiver of its rights hereunder (except as specifically provided in this Agreement, including, without limitation, in respect of the notice periods and payment dates set forth in Section 3.2(a)) and, subject to the termination of this Agreement not having occurred, MBIA Insurance may continue to exercise its rights hereunder at any time.

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7. Covenants

7.1 MBIA Insurance hereby covenants and agrees that, at all times prior to the earlier of the termination of this Agreement or completion of the sale of the Preferred Stock to the Custodial Trust pursuant to this Agreement it shall not amend, restate, revise or otherwise alter the rights, terms and preferences of the Preferred Stock, whether by operation of merger, reorganization or otherwise, without the prior consent of the Custodial Trust, and it will not register the Preferred Stock with the Securities and Exchange Commission under the Securities Act of 1933, as amended, on or before the Put Option Payment Date.

7.2 The Custodial Trust hereby covenants and agrees that, at all times prior to the earlier of the termination of this Agreement or completion of the sale of the Preferred Stock to the Custodial Trust pursuant to this Agreement it shall not amend, restate, revise or otherwise alter the rights, terms and preferences of the CPS Securities, whether by operation of merger, reorganization or otherwise, and it will not register the CPS Securities with the Securities and Exchange Commission under the Securities Act of 1933, as amended.

7.3 MBIA Insurance hereby covenants and agrees that any Preferred Stock delivered to the Custodial Trust shall rank, at the time of delivery, (a) senior to the common stock of MBIA Insurance and (b) senior to or pari passu with the most senior preferred shares of MBIA Insurance then authorized by its Restated Charter or then issued and outstanding; provided that this covenant may be amended with the consent of MBIA Insurance and at least a majority of the face amount of the CPS Securities.

7.4 MBIA Insurance hereby covenants and agrees that if MBIA Insurance’s financial strength rating is lowered while this Agreement remains effective, MBIA Insurance shall provide written notice to the Trustee, on behalf of the Custodial Trust, of such lowered rating.

8. This Agreement to Govern

If there is any inconsistency between any provision of this Agreement and any other agreement, the provisions of this Agreement shall prevail to the extent of such inconsistency but not otherwise.

9. Representations and Warranties

9.1 The Custodial Trust represents and warrants to MBIA Insurance that, as of the date hereof:

(a) the Custodial Trust is duly organized and validly existing under the Delaware Statutory Trust Act and has the power and authority to own its assets and to conduct the activities which it conducts;

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(b) its entry into, exercise of its rights and/or performance of or compliance with its obligations under this Agreement do not and will not violate (1) any law to which it is subject, (2) any of its constitutional documents or (3) any agreement to which it is a party or which is binding on it or its assets;

(c) it has the power to enter into, exercise its rights and perform and comply with its obligations under this Agreement and has taken all necessary action to authorize the execution, delivery and performance of this Agreement;

(d) it will obtain and maintain in effect and comply with the terms of all necessary consents, registrations and the like of or with any government or other regulatory body or authority applicable to this Agreement;

(e) its obligations under this Agreement are valid, binding and enforceable at law;

(f) it is not in default under any agreement to which it is a party or by which it or its assets is or are bound and no litigation, arbitration or administrative proceedings are current or pending, which default, litigation, arbitration or administrative proceedings are material in the context of this Agreement;

(g) it is not necessary or advisable in order to ensure the validity, effectiveness, performance or enforceability of this Agreement that any document be filed, registered or recorded in any public office or elsewhere;

(h) each of the above representations and warranties will be correct and complied with in all respects during the term of this Agreement;

(i) no consent, approval, authorization or order of any court or governmental authority, agency, commission or commissioner or other regulatory authority is required for the consummation by the Custodial Trust of the transactions contemplated by this Agreement; and

(j) assuming compliance with the transfer restrictions with respect to the CPS Securities set forth in the Declaration, the Custodial Trust is not required to register with the Securities and Exchange Commission as an investment company under the Investment Company Act of 1940, as amended.

9.2 MBIA Insurance represents and warrants to the Custodial Trust that, as of the date hereof:

(a) it is duly organized and validly existing as a domestic stock insurance corporation under the laws of the State of New York and has the power and authority to own its assets and to conduct its activities;

(b) its entry into, exercise of its rights and/or performance of or compliance with its obligations under this Agreement do not and will not violate (1) any law to which it is subject, (2) any of its constitutional documents or (3) any agreement to which it is a party or which is binding on it or its assets;

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(c) it has the power to enter into, exercise its rights and perform and comply with its obligations under this Agreement and has taken all necessary action to authorize the execution, delivery and performance of this Agreement;

(d) it will obtain and maintain in effect and comply with the terms of all necessary consents, registrations and the like of or with any government or other regulatory body or authority applicable to this Agreement;

(e) its obligations under this Agreement are valid, binding and enforceable at law;

(f) it is not in default under any agreement to which it is a party or by which it or its assets is or are bound and no litigation, arbitration or administrative proceedings are current or pending, which default, litigation, arbitration or administrative proceedings are material in the context of this Agreement;

(g) it is not necessary or advisable in order to ensure the validity, effectiveness, performance or enforceability of this Agreement that any document be filed, registered or recorded in any public office or elsewhere;

(h) each of the above representations and warranties will be correct and complied with in all respects during the term of this Agreement;

(i) no consent, approval, authorization or order of any court or governmental authority, agency, commission or commissioner or other regulatory authority is required for the consummation by MBIA Insurance of the transactions contemplated by this Agreement and the sale of the Preferred Stock to the Custodial Trust, pursuant to the terms hereof, need not be registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended; and

(j) as of the Put Option Payment Date, the Preferred Stock will be duly authorized for issuance and sale to the Custodial Trust, pursuant to this Agreement, and, when issued and delivered by MBIA Insurance, pursuant to this Agreement, against payment of the Preferred Stock Purchase Price, will be validly issued, fully paid and nonassessable; the Preferred Stock will conform in all respects to the terms of the Preferred Stock set forth in the Restated Charter of MBIA Insurance attached hereto as Annex C; and the Preferred Stock will not be subject to preemptive or other similar rights.

10. Severability

10.1 Any provision of this Agreement which is or becomes illegal, invalid or unenforceable in any jurisdiction may be severed from the other provisions of this Agreement without invalidating the remaining provisions hereof, and any such illegality, invalidity or unenforceability shall not invalidate or render illegal or unenforceable such provision in any other jurisdiction.

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11. Notices

11.1 Each communication to be made hereunder shall be deemed to have been given (i) five (5) days after deposit of such communication with a reputable national courier service addressed to such party at its address specified below (or at such other address as such party shall specify to the other party hereto in writing) or (ii) when transmitted by facsimile to such party at its facsimile number specified below (or at such other facsimile number as such party shall specify to the other party hereto in writing):

If to MBIA Insurance at:

MBIA Insurance Corporation

113 King Street

Armonk, New York 10552

Attention: Joseph Sevely, Treasurer

Facsimile: (914) 765-3410

Copy to: Ram Wertheim, General Counsel

If to the Custodial Trust at:

The Bank of New York (Delaware)

P.O. Box 6973

White Clay Center

Route 273

Newark, Delaware 19714

Attention: Kristine Gullo

Facsimile: (302) 283-8279

Copies to:

The Bank of New York

Corporate Trust Division

100 Church Street, 8^th Floor

New York, New York 10286

Attention: Dealing and Trading Group

Facsimile: (212) 437-6155

In the case of any event under Sections 2.3, 7.3 or 14 of the Agreement, MBIA Insurance shall give notice to:

Standard & Poor’s Ratings Services at:

Standard & Poor’s Ratings Services

55 Water Street

New York, New York 10041

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Moody’s Investors Services, Inc. at:

Moody’s Investors Services, Inc.

99 Church Street

New York, New York 10007

12. Counterparts

This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts each of which when executed and delivered shall constitute an original, but all the counterparts shall together constitute but one and the same instrument.

13. Benefit of Agreement and Disclaimer

13.1 This Agreement shall enure to the benefit of each party hereto and its successors and assigns and transferees; provided that neither party hereto may transfer its rights and obligations hereunder, by operation of law or otherwise, without the prior written consent of the other party.

14. Amendment and Assignment

14.1 This Agreement may not be amended or modified in any respect, nor may any provision be waived, without the written agreement of both parties. No waiver by one party of any obligation of the other hereunder shall be considered a waiver of any other obligation of such party.

14.2 Neither the Custodial Trust nor MBIA Insurance may assign its rights or obligations under this Agreement to any other person, except that MBIA Insurance may assign its rights and obligations under this Agreement to another person as a result of a merger of MBIA Insurance with another person or as a result of a sale of all or substantially all of the assets of MBIA Insurance to another person if the other person expressly assumes all of the rights and obligations of MBIA Insurance under this Agreement; and immediately following the merger or sale of substantially all of its assets, the rating of the substitute preferred stock or the unsecured debt obligations of the other person is at least as high as the credit rating of the Preferred Stock or the general unsecured debt obligations of MBIA Insurance, as the case may be (or if no such ratings exist, the financial strength rating of MBIA Insurance) immediately prior to the merger or sale.

15. Governing Law

15.1 THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.

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16. Jurisdiction

16.1 Each of the parties hereto irrevocably submits to the non-exclusive jurisdiction of the courts of the State of New York in respect of any action or proceeding arising out of or in connection with this Agreement (“Proceedings”). Each of the parties hereto irrevocably waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of any such Proceedings in the courts of the State of New York and any claim that any Proceeding brought in any such court has been brought in an inconvenient forum. Each of the Custodial Trust and MBIA Insurance agrees that it shall at all times have an authorized agent in the State of New York upon whom process may be served in connection with any Proceedings, and each of the Custodial Trust and MBIA Insurance hereby authorizes and appoints the Trustee to accept service of all legal process arising out of or connected with this Agreement in the State of New York and service on such person (or substitute) shall be deemed to be service on the Custodial Trust or MBIA Insurance, as the case may be. Except upon such a substitution, the Custodial Trust and MBIA Insurance shall not revoke any such authority or appointment and shall at all times maintain an agent for service of process in the State of New York. If for any reason such person shall cease to act as agent for the service of process, the Custodial Trust and MBIA Insurance shall promptly appoint another such agent, and shall forthwith notify each other of such appointment. The submission to jurisdiction reflected in this paragraph shall not (and shall not be construed so as to) limit the right of any person to take Proceedings in any court of competent jurisdiction, nor shall the taking of Proceedings in any one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not) if and to the extent permitted by law.

17. Limitation of Liability

17.1 It is expressly understood that (a) this Agreement is executed and delivered by The Bank of New York (Delaware), not individually or personally but solely as Trustee, in the exercise of the powers and authority conferred and vested in it under the Declaration, (b) each of the representations, undertakings and agreements herein made on the part of the Custodial Trust, is made and intended not as personal representations, undertakings and agreements by The Bank of New York (Delaware), but is made and intended for the purpose of binding only the Custodial Trust, and (c) under no circumstances shall The Bank of New York (Delaware) be personally liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Custodial Trust, under this Agreement or the other related documents.

18. Tax Confidentiality Waiver

18.1 Notwithstanding anything to the contrary contained in this Agreement all persons may disclose to any and all persons, without limitation of any kind, the federal income tax treatment of the CPS Securities, any fact relevant to understanding the federal tax treatment of the CPS Securities, and all materials of any kind (including opinions or other tax analyses) relating to such federal tax treatment other than the name of any of the parties referenced herein or information that would permit identification of any of the parties referenced herein.

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IN WITNESS WHEREOF the parties hereto have caused this Put Option Agreement to be duly executed as of the day and year first above written.

NORTH CASTLE CUSTODIAL TRUST VI,
By:	The Bank of New York (Delaware), not in its individual capacity but solely as Trustee
By:	/s/    Patrick Burns
	Name:  Patrick Burns
	Title:    Senior Vice President
MBIA INSURANCE CORPORATION
By:	/s/    Joseph Sevely
	Name:  Joseph Sevely
	Title:    Managing Director and Treasurer

ANNEX A

Form of Put Notice

To: North Castle Custodial Trust VI

c/o Bank of New York (Delaware)

P.O. Box 6973

502 White Clay Center Route

273 Newark, Delaware 19714

with a copy to:

The Bank of New York

100 Church Street, 8^th Floor

New York, New York 10286

Attention: Dealing and Trading Group

Date:

Ladies and Gentlemen:

We refer to the put option agreement dated May 14, 2003 (as heretofore amended, the “Put Option Agreement”) entered into between us and you. Terms defined therein shall have the same respective meanings herein.

This notice is the notice for the purposes of Section 3.2(a) of the Put Option Agreement. We hereby require you to pay the Preferred Stock Purchase Price on the Preferred Stock Payment Date which shall be [    ], to the following account:

[            ]

Yours faithfully,

for and on behalf of

MBIA INSURANCE CORPORATION

ANNEX B

Put Option Premium Certificate/

Delayed Put Option Premium Certificate

MBIA Insurance Corporation

Put Option Premium/Delayed Put Option Premium for the

Non-Cumulative Redeemable Perpetual

Preferred Stock of MBIA Insurance Corporation

1.	Distribution Period: [first day of Period]-[last day of Period]: [number of days in period – generally 28]
2.	Auction Rate determined for the Distribution Period on [insert Auction Date].			0.000000%	$	(0	)
3.	Eligible Assets:
	Issuer	Ratings	Purchase Price	Yield to Maturity	Interest
4.	Applicable Federal Funds Effective Rate: 0.00%			0.0%	$	0.0
5.	Broker-Dealer Fees			0.0%	$	0.0
6.	Trustee and Custodian Fees			0.0%	$	0.0
7.	Investment Manager Fee			0.0%	$	0.0

8.	Tax Matters Partner Fee	0.0%	$	0.0
9.	Servicing Agent Fee	0.0%	$	0.0
10.	Rating Agency Fees	0.0%	$	0.0
11.	Tax Fees. Including preparation of returns
12.	Other Fees and Expenses for the Distribution Period, if any	0.0%	$	0.0
13.	Computation of Put Premium Due on [insert Distribution Payment Date] by 11:00 a.m. New York Time:	0.0%	$	0.0
14.	The Investment Manager is in compliance with the Investment Management Agreement.

ANNEX C

Restated Charter of

MBIA Insurance Corporation

ANNEX D

Expense Reimbursement Agreement

EX-10.59

EXECUTION COPY

EXHIBIT 10.59

PUT OPTION AGREEMENT

between

MBIA INSURANCE CORPORATION

and

NORTH CASTLE CUSTODIAL TRUST VII

Dated May 14, 2003

Preamble

This Put Option Agreement, dated as of May 14, 2003 (this “Agreement”), is by and between MBIA Insurance Corporation, a New York domestic stock insurance corporation (“MBIA Insurance”), and North Castle Custodial Trust VII (the “Custodial Trust”), a Delaware statutory trust.

Recitals

WHEREAS, MBIA Insurance is authorized to issue 500.01 shares of non-cumulative, redeemable, perpetual preferred stock, par value $1,000 per share, designated as “Series G Perpetual Preferred Shares,” which shares have not been and will not be registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Preferred Stock”); and

WHEREAS, MBIA Insurance and the Custodial Trust desire to enter into a binding agreement pursuant to which MBIA Insurance will have the right to sell, at its option, the Preferred Stock to the Custodial Trust, and the Custodial Trust will have an obligation to purchase the Preferred Stock upon MBIA Insurance’s exercise of its option and upon the other terms and conditions agreed upon by the parties.

NOW, THEREFORE, the parties hereto agree as follows:

1. Definitions; Interpretation

1.1 The words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, clause or other subdivision, and references to “Sections” refer to Sections of this Agreement except as otherwise expressly provided.

1.2 In this Agreement:

“Agreement” has the meaning set forth above in the Preamble.

“Auction Date” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Auction Rate” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Broker-Dealer” has the meaning set forth in the Declaration.

“Business Day” has the meaning set forth in the Declaration.

“CPS Securities” has the meaning set forth in the Declaration.

“Custodial Trust” has the meaning set forth above in the Preamble.

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“Declaration” means the Amended and Restated Declaration of Trust governing the Custodial Trust, dated as of the date hereof, as the same may be amended or restated from time to time.

“Delayed Auction” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Delayed Auction Date” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Delayed Auction Period” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Delayed Auction Rate” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Delayed Put Option Premium” has the meaning set forth in Section 5.1.

“Delayed Put Option Premium Certificate” has the meaning set forth in Section 5.2.

“Distribution Payment Date” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Distribution Period” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Dividend” has the meaning set forth in the Restated Charter.

“Eligible Assets” has the meaning set forth in the Declaration.

“Expense Reimbursement Agreement” has the meaning set forth in Section 3.1.

“Federal Funds Effective Rate” has the meaning set forth in the Declaration.

“Fixed Rate Distribution Event” has the meaning set forth in the Restated Charter.

“Fixed Rate Election” means an election by MBIA Insurance to pay Dividends on the Preferred Stock at the rate described in clause (iii) of the definition of “Dividend Rate” set forth in the Restated Charter.

“Holder” has the meaning set forth in the Declaration.

“Liquidation Preference” has the meaning set forth in the Restated Charter.

“Maximum Rate” has the meaning set forth in the Restated Charter.

“MBIA Insurance” has the meaning set forth above in the Preamble.

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“Overnight Rate of Return” means the rate earned on the interest and on the principal of the Eligible Assets during the period from each Auction Date until the related Distribution Payment Date and during any Delayed Auction Period, which shall be equal to the Federal Funds Effective Rate then in effect.

“Preferred Stock” has the meaning set forth above in the Recitals.

“Preferred Stock Payment Date” has the meaning set forth in Section 3.2(a).

“Preferred Stock Purchase Price” has the meaning set forth in Section 4.1.

“Put Notice” means a written notice substantially in the form attached hereto as Annex A.

“Put Option Premium” has the meaning set forth in Section 5.1.

“Put Option Premium Certificate” has the meaning set forth in Section 5.2.

“Redemption Price” has the meaning set forth in the Restated Charter.

“Redemption Proceeds” has the meaning set forth in Section 3.3(d).

“Restated Charter” means the Restated Charter of MBIA Insurance, a copy of which is attached hereto as Annex C.

“Stated Yield” means all amounts of interest (including accreted interest) and other payments due and payable (upon maturity or otherwise) on the principal amount of the Eligible Assets (excluding any repayment of principal) held by the Custodial Trust during a Distribution Period, plus the amount of interest to be earned based on the Overnight Rate of Return, as calculated on or prior to 11:00 a.m. on the Auction Date for each respective Distribution Period.

“Tax Matters Partner” has the meaning set forth in the Declaration.

“Trustee” has the meaning set forth in the Declaration.

In this Agreement, any reference to a “company” shall be construed so as to include any corporation, trust, partnership, limited liability company or other legal entity, wheresoever incorporated or established.

1.3 In this Agreement, save where the contrary is indicated, any reference to:

(a) this Agreement or any other agreement or document shall be construed as a reference to this Agreement or, as the case may be, such other agreement or document as the same may have been, or may from time to time be, amended, varied, novated or supplemented in accordance with its terms; and

(b) a statute shall be construed as a reference to such statute as the same may have been, or may from time to time be, amended or re-enacted.

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1.4 In this Agreement, any definition shall be equally applicable to both the singular and plural forms of the defined terms.

2. Put Option; Term

2.1 In consideration of the payment of the Put Option Premium, the Custodial Trust hereby grants to MBIA Insurance the right to cause the Custodial Trust to purchase the Preferred Stock on the terms set forth in this Agreement.

2.2 The put option created hereby shall remain in effect and be exercisable at any time except:

(a) during any period when the Preferred Stock that has been put to the Custodial Trust pursuant to this Agreement is held by the Custodial Trust; or

(b) after this Agreement has been terminated pursuant to Section 2.3.

2.3 This Agreement shall terminate upon the earliest to occur of:

(a) MBIA Insurance delivers a written notice to the Custodial Trust while the Custodial Trust is holding Eligible Assets, stating that MBIA Insurance is electing not to pay the Put Option Premium for the next succeeding Distribution Period that follows the notice by at least three (3) Business Days and indicating the Distribution Payment Date on which the termination shall become effective (delivery of such a termination notice by MBIA Insurance shall be irrevocable);

(b) MBIA Insurance fails to pay the Put Option Premium or the Delayed Put Option Premium, if any, for a Distribution Period on the related Distribution Payment Date, and such failure has not been cured within five (5) Business Days;

(c) MBIA Insurance makes a Fixed Rate Election;

(d) MBIA Insurance fails to pay Dividends on the Preferred Stock, or the fees and expenses of the Custodial Trust pursuant to the Expense Reimbursement Agreement, for a Distribution Period on the related Distribution Payment Date;

(e) MBIA Insurance fails to pay the Redemption Price and such failure has not been cured within five (5) Business Days; and

(f) the aggregate face amount of the Custodial Trust’s CPS Securities is less than $20,000,000;

3. Exercise of Put Option; Redemption.

3.1 The Custodial Trust agrees that it shall, upon exercise of the put option as provided in Section 3.2, purchase the Preferred Stock from MBIA Insurance for a purchase price equal to the Preferred Stock Purchase Price, which Preferred Stock Purchase Price shall be payable on the Preferred Stock Payment Date in accordance with Section 4.

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3.2     (a) MBIA Insurance may exercise the put option at any time by delivering (i) a Put Notice to the Trustee, specifying a payment date (the “Preferred Stock Payment Date”), which shall be the next succeeding Distribution Payment Date after the date on which the Put Notice is delivered to the Trustee and (ii) the Expense Reimbursement Agreement to the Custodial Trust in the form attached hereto as Annex D (the “Expense Reimbursement Agreement”), in either case not more than fifteen (15) days but not less than ten (10) days prior to the next succeeding Distribution Payment Date.

(b) On the Preferred Stock Payment Date, after payment of the Put Option Premium by MBIA Insurance to the Custodial Trust and payment of the distribution amount by the Custodial Trust to the Holders of the CPS Securities, in each case for the immediately preceding Distribution Period, MBIA Insurance shall issue and deliver to the Custodial Trust, or its designee, Preferred Stock with an aggregate Liquidation Preference equal to the proceeds attributable to principal received upon the maturity of the Custodial Trust’s Eligible Assets (and, if applicable, liquidation of defaulted Eligible Assets), net of fees and expenses of the Custodial Trust and after any principal is returned to Holders of the CPS Securities pursuant to Section 6.01(g) of the Declaration and Section 6(b) of the General Terms of the CPS Securities attached thereto. The Preferred Stock shall be delivered free and clear of any defect in title, together with all transfer and registration documents (or all notices, instructions or other communications) as are necessary to convey title to the Preferred Stock to the Custodial Trust (or its nominee).

(c) For the avoidance of doubt, (1) any cash received by the Custodial Trust as interest or other payments earned on the principal amount of the Eligible Assets (net of fees and expenses and excluding any repayment of principal) and not previously distributed to the Holders of CPS Securities shall be distributed to the Holders of CPS Securities prior to payment by the Custodial Trust of the Preferred Stock Purchase Price, and shall not be used to purchase shares of Preferred Stock; and (2) the aggregate Liquidation Preference of Preferred Stock purchased from MBIA Insurance shall be reduced by the amount, if any, by which the aggregate face amount of CPS Securities is reduced as a result of losses of principal of or interest on Eligible Assets as required by Section 6.01(g) of the Declaration and Section 6(b) of the General Terms of the CPS Securities attached thereto.

(d) MBIA Insurance shall have the right to redeem all or a portion of the Preferred Stock on any Distribution Payment Date upon payment of the Redemption Price for the shares to be redeemed (the “Redemption Proceeds”). Notwithstanding the foregoing, MBIA Insurance shall redeem all of the Preferred Stock if after giving effect to a partial redemption, the aggregate Liquidation Preference of the Preferred Stock outstanding immediately after such partial redemption would be less than $20,000,000. Payment of the Redemption Price will be made on the first Distribution Payment Date after MBIA Insurance properly elects to redeem the Preferred Stock.

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(e) Notice of any redemption of Preferred Stock shall be mailed to the holders of the Preferred Stock not less than ten (10) days nor more than fifteen (15) days prior to the date fixed for such redemption. At any time before or after a notice of redemption has been given, MBIA Insurance shall deposit the aggregate Redemption Price of the Preferred Stock to be redeemed with any bank or trust company in New York, New York, with directions to pay the holders of the Preferred Stock being redeemed the Redemption Proceeds in exchange for the Preferred Stock.

(f) Upon a partial redemption of Preferred Stock held by the Custodial Trust, the Redemption Proceeds shall be allocated pro rata among the Holders of CPS Securities.

(g) Upon a complete redemption of all Preferred Stock held by the Custodial Trust prior to a Fixed Rate Distribution Event, the Custodial Trust shall apply the Redemption Proceeds to the purchase of a portfolio of Eligible Assets.

(h) For the avoidance of doubt, there is no limitation on the number of times MBIA Insurance may put the Preferred Stock to the Custodial Trust pursuant to and in accordance with the terms of this Agreement.

(i) MBIA Insurance may not redeem the Preferred Stock from the holders thereof for a period of two years following a Fixed Rate Distribution Event.

4. Payments

4.1 On the Preferred Stock Payment Date, after payment of the Put Option Premium by MBIA Insurance to the Custodial Trust and payment of the distribution amount by the Custodial Trust to the Holders of the CPS Securities, in each case for the immediately preceding Distribution Period, the Custodial Trust will deliver to MBIA Insurance the proceeds attributable to principal received upon the maturity of the Custodial Trust’s Eligible Assets (and, if applicable, liquidation of defaulted Eligible Assets), net of fees and expenses of the Custodial Trust and after any principal is returned to Holders of CPS Securities pursuant to Section 6.01(g) of the Declaration and Section 6(b) of the General Terms of the CPS Securities attached thereto (the “Preferred Stock Purchase Price”).

4.2 Payment by the Custodial Trust of the Preferred Stock Purchase Price shall be made on or prior to 3:00 p.m. on the Preferred Stock Payment Date and to the account of MBIA Insurance specified in the Put Notice.

4.3 Payment of the Preferred Stock Purchase Price by the Custodial Trust shall be made as provided in Section 4.1 and Section 4.2 without setoff, claim, recoupment, deduction or counterclaim; provided, however, that if MBIA Insurance exercises its put option under Section 3 hereof at any time that it has failed to pay all or a portion of the Put Option Premium, and such failure has not been cured on or before the Preferred Stock Payment Date, the Custodial Trust shall be entitled to setoff against the Preferred Stock Purchase Price of such unpaid portion of the Put Option Premium.

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5. Put Option Premium

5.1 In consideration for the Custodial Trust’s agreement to purchase the Preferred Stock in accordance with the terms of this Agreement, MBIA Insurance will pay to the Custodial Trust, in US dollars, on each Distribution Payment Date during which the put option remains in effect and is exercisable as set forth in Section 2.2 hereof, the “Put Option Premium,” in an amount equal to the product of (A) the Auction Rate on the CPS Securities for the respective Distribution Period less the excess of (i) the Stated Yield for such Distribution Period over (ii) the expenses of the Custodial Trust for such Distribution Period, provided that such amount shall be annualized and expressed as an annual rate with respect to the face amount of the CPS Securities outstanding on the date the Put Option Premium is determined, (B) the aggregate face amount of the CPS Securities outstanding at the time the Put Option Premium is calculated and (C) a fraction, the numerator of which will be the actual number of calendar days in the respective Distribution Period, and the denominator of which will be 360 days.

The Put Option Premium for each Distribution Period will be calculated on the Auction Date.

If as a result of losses of principal of or interest on Eligible Assets there is a Delayed Auction, MBIA Insurance will pay to the Custodial Trust, in US dollars, on each Distribution Payment Date during which the put option remains in effect and is exercisable as set forth in Section 2.2 hereof, the “Delayed Put Option Premium,” in an amount equal to the product of (A) the Delayed Auction Rate on the CPS Securities for the Delayed Auction Period less the excess of (i) the Stated Yield for such Delayed Auction Period over (ii) the expenses of the Custodial Trust for such Delayed Auction Period, provided that such amount shall be annualized and expressed as an annual rate with respect to the face amount of the CPS Securities outstanding on the date the Put Option Premium is determined, (B) the aggregate face amount of the CPS Securities outstanding at the time the Delayed Put Option Premium is calculated and (C) a fraction, the numerator of which will be the actual number of calendar days in the respective Delayed Auction Period, and the denominator of which will be 360 days.

The Delayed Put Option Premium for each Delayed Auction Period will be calculated on the Delayed Auction Date.

5.2 The amount of the Put Option Premium shall be calculated by the Trustee and delivered in writing (the “Put Option Premium Certificate”) to MBIA Insurance prior to 5:00 p.m. on each Auction Date. The amount of the Delayed Put Option Premium shall be calculated by the Trustee and delivered in writing (the “Delayed Put Option Premium Certificate”) to MBIA Insurance prior to 5:00 p.m. on the Delayed Auction Date. The Put Option Premium Certificate, and any Delayed Put Option Premium Certificate, also shall set forth the Eligible Assets held by the Custodial Trust, the Stated Yield on each Eligible Asset, any fees to be incurred or accrued by the Trustee on behalf of the Custodial Trust and the computation of the Put Option Premium, or the Delayed Put Option Premium, as the case may be, in each case for the respective Distribution Period and the Delayed Auction Period, respectively, and shall be in the form attached hereto as Annex B.

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5.3 MBIA Insurance has five (5) days to cure any failure to pay when due the Put Option Premium or Delayed Put Option Premium, if any; provided that the Put Option Premium during such cure period will be set at the Maximum Rate then in effect.

5.4 MBIA Insurance has five (5) days to cure any failure to pay when due the Redemption Price; provided that the Put Option Premium during such cure period will be set at the Maximum Rate then in effect.

6. Obligations Absolute

6.1 The Custodial Trust acknowledges that, provided MBIA Insurance has complied with the terms of this Agreement, the obligations of the Custodial Trust undertaken under this Agreement are absolute, irrevocable and unconditional irrespective of any circumstances whatsoever, including any defense otherwise available to the Custodial Trust, in equity or at law, including, without limitation, the defense of fraud, any defense based on the failure of MBIA Insurance to disclose any matter, whether or not material, to the Custodial Trust or any other person, and any defense of breach of warranty or misrepresentation, and irrespective of any other circumstance which might otherwise constitute a legal or equitable discharge or defense of an insurer, surety or guarantor under any and all circumstances. The enforceability and effectiveness of this Agreement and the liability of the Custodial Trust, and the rights, remedies, powers and privileges of MBIA Insurance under this Agreement shall not be affected, limited, reduced, discharged or terminated, and the Custodial Trust hereby expressly waives, to the fullest extent permitted by applicable law, any defense now or in the future arising by reason of:

(a) the illegality, invalidity or unenforceability of all or any part of the Declaration;

(b) any action taken by MBIA Insurance;

(c) any change in the direct or indirect ownership or control of MBIA Insurance or of any shares or ownership interests thereof; and

(d) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of or for the Custodial Trust;

provided, however, that, notwithstanding the provisions of this Section 6.1, the Custodial Trust shall have no further obligations under this Agreement after the termination of this Agreement. In addition, the breach of any covenant made in this Agreement by the Custodial Trust shall not terminate this Agreement or limit the rights of MBIA Insurance hereunder.

6.2 For the avoidance of doubt, no failure or delay by MBIA Insurance in exercising its rights hereunder shall operate as a waiver of its rights hereunder (except as specifically provided in this Agreement, including, without limitation, in respect of the notice periods and payment dates set forth in Section 3.2(a)) and, subject to the termination of this Agreement not having occurred, MBIA Insurance may continue to exercise its rights hereunder at any time.

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7. Covenants

7.1 MBIA Insurance hereby covenants and agrees that, at all times prior to the earlier of the termination of this Agreement or completion of the sale of the Preferred Stock to the Custodial Trust pursuant to this Agreement it shall not amend, restate, revise or otherwise alter the rights, terms and preferences of the Preferred Stock, whether by operation of merger, reorganization or otherwise, without the prior consent of the Custodial Trust, and it will not register the Preferred Stock with the Securities and Exchange Commission under the Securities Act of 1933, as amended, on or before the Put Option Payment Date.

7.2 The Custodial Trust hereby covenants and agrees that, at all times prior to the earlier of the termination of this Agreement or completion of the sale of the Preferred Stock to the Custodial Trust pursuant to this Agreement it shall not amend, restate, revise or otherwise alter the rights, terms and preferences of the CPS Securities, whether by operation of merger, reorganization or otherwise, and it will not register the CPS Securities with the Securities and Exchange Commission under the Securities Act of 1933, as amended.

7.3 MBIA Insurance hereby covenants and agrees that any Preferred Stock delivered to the Custodial Trust shall rank, at the time of delivery, (a) senior to the common stock of MBIA Insurance and (b) senior to or pari passu with the most senior preferred shares of MBIA Insurance then authorized by its Restated Charter or then issued and outstanding; provided that this covenant may be amended with the consent of MBIA Insurance and at least a majority of the face amount of the CPS Securities.

7.4 MBIA Insurance hereby covenants and agrees that if MBIA Insurance’s financial strength rating is lowered while this Agreement remains effective, MBIA Insurance shall provide written notice to the Trustee, on behalf of the Custodial Trust, of such lowered rating.

8. This Agreement to Govern

If there is any inconsistency between any provision of this Agreement and any other agreement, the provisions of this Agreement shall prevail to the extent of such inconsistency but not otherwise.

9. Representations and Warranties

9.1 The Custodial Trust represents and warrants to MBIA Insurance that, as of the date hereof:

(a) the Custodial Trust is duly organized and validly existing under the Delaware Statutory Trust Act and has the power and authority to own its assets and to conduct the activities which it conducts;

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(b) its entry into, exercise of its rights and/or performance of or compliance with its obligations under this Agreement do not and will not violate (1) any law to which it is subject, (2) any of its constitutional documents or (3) any agreement to which it is a party or which is binding on it or its assets;

(c) it has the power to enter into, exercise its rights and perform and comply with its obligations under this Agreement and has taken all necessary action to authorize the execution, delivery and performance of this Agreement;

(d) it will obtain and maintain in effect and comply with the terms of all necessary consents, registrations and the like of or with any government or other regulatory body or authority applicable to this Agreement;

(e) its obligations under this Agreement are valid, binding and enforceable at law;

(f) it is not in default under any agreement to which it is a party or by which it or its assets is or are bound and no litigation, arbitration or administrative proceedings are current or pending, which default, litigation, arbitration or administrative proceedings are material in the context of this Agreement;

(g) it is not necessary or advisable in order to ensure the validity, effectiveness, performance or enforceability of this Agreement that any document be filed, registered or recorded in any public office or elsewhere;

(h) each of the above representations and warranties will be correct and complied with in all respects during the term of this Agreement;

(i) no consent, approval, authorization or order of any court or governmental authority, agency, commission or commissioner or other regulatory authority is required for the consummation by the Custodial Trust of the transactions contemplated by this Agreement; and

(j) assuming compliance with the transfer restrictions with respect to the CPS Securities set forth in the Declaration, the Custodial Trust is not required to register with the Securities and Exchange Commission as an investment company under the Investment Company Act of 1940, as amended.

9.2 MBIA Insurance represents and warrants to the Custodial Trust that, as of the date hereof:

(a) it is duly organized and validly existing as a domestic stock insurance corporation under the laws of the State of New York and has the power and authority to own its assets and to conduct its activities;

(b) its entry into, exercise of its rights and/or performance of or compliance with its obligations under this Agreement do not and will not violate (1) any law to which it is subject, (2) any of its constitutional documents or (3) any agreement to which it is a party or which is binding on it or its assets;

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(c) it has the power to enter into, exercise its rights and perform and comply with its obligations under this Agreement and has taken all necessary action to authorize the execution, delivery and performance of this Agreement;

(d) it will obtain and maintain in effect and comply with the terms of all necessary consents, registrations and the like of or with any government or other regulatory body or authority applicable to this Agreement;

(e) its obligations under this Agreement are valid, binding and enforceable at law;

(f) it is not in default under any agreement to which it is a party or by which it or its assets is or are bound and no litigation, arbitration or administrative proceedings are current or pending, which default, litigation, arbitration or administrative proceedings are material in the context of this Agreement;

(g) it is not necessary or advisable in order to ensure the validity, effectiveness, performance or enforceability of this Agreement that any document be filed, registered or recorded in any public office or elsewhere;

(h) each of the above representations and warranties will be correct and complied with in all respects during the term of this Agreement;

(i) no consent, approval, authorization or order of any court or governmental authority, agency, commission or commissioner or other regulatory authority is required for the consummation by MBIA Insurance of the transactions contemplated by this Agreement and the sale of the Preferred Stock to the Custodial Trust, pursuant to the terms hereof, need not be registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended; and

(j) as of the Put Option Payment Date, the Preferred Stock will be duly authorized for issuance and sale to the Custodial Trust, pursuant to this Agreement, and, when issued and delivered by MBIA Insurance, pursuant to this Agreement, against payment of the Preferred Stock Purchase Price, will be validly issued, fully paid and nonassessable; the Preferred Stock will conform in all respects to the terms of the Preferred Stock set forth in the Restated Charter of MBIA Insurance attached hereto as Annex C; and the Preferred Stock will not be subject to preemptive or other similar rights.

10. Severability

10.1 Any provision of this Agreement which is or becomes illegal, invalid or unenforceable in any jurisdiction may be severed from the other provisions of this Agreement without invalidating the remaining provisions hereof, and any such illegality, invalidity or unenforceability shall not invalidate or render illegal or unenforceable such provision in any other jurisdiction.

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11. Notices

11.1 Each communication to be made hereunder shall be deemed to have been given (i) five (5) days after deposit of such communication with a reputable national courier service addressed to such party at its address specified below (or at such other address as such party shall specify to the other party hereto in writing) or (ii) when transmitted by facsimile to such party at its facsimile number specified below (or at such other facsimile number as such party shall specify to the other party hereto in writing):

If to MBIA Insurance at:

MBIA Insurance Corporation

113 King Street

Armonk, New York 10552

Attention: Joseph Sevely, Treasurer

Facsimile: (914) 765-3410

Copy to: Ram Wertheim, General Counsel

If to the Custodial Trust at:

The Bank of New York (Delaware)

P.O. Box 6973

White Clay Center

Route 273

Newark, Delaware 19714

Attention: Kristine Gullo

Facsimile: (302) 283-8279

Copies to:

The Bank of New York

Corporate Trust Division

100 Church Street, 8^th Floor

New York, New York 10286

Attention: Dealing and Trading Group

Facsimile: (212) 437-6155

In the case of any event under Sections 2.3, 7.3 or 14 of the Agreement, MBIA Insurance shall give notice to:

Standard & Poor’s Ratings Services at:

Standard & Poor’s Ratings Services

55 Water Street

New York, New York 10041

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Moody’s Investors Services, Inc. at:

Moody’s Investors Services, Inc.

99 Church Street

New York, New York 10007

12. Counterparts

This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts each of which when executed and delivered shall constitute an original, but all the counterparts shall together constitute but one and the same instrument.

13. Benefit of Agreement and Disclaimer

13.1 This Agreement shall enure to the benefit of each party hereto and its successors and assigns and transferees; provided that neither party hereto may transfer its rights and obligations hereunder, by operation of law or otherwise, without the prior written consent of the other party.

14. Amendment and Assignment

14.1 This Agreement may not be amended or modified in any respect, nor may any provision be waived, without the written agreement of both parties. No waiver by one party of any obligation of the other hereunder shall be considered a waiver of any other obligation of such party.

14.2 Neither the Custodial Trust nor MBIA Insurance may assign its rights or obligations under this Agreement to any other person, except that MBIA Insurance may assign its rights and obligations under this Agreement to another person as a result of a merger of MBIA Insurance with another person or as a result of a sale of all or substantially all of the assets of MBIA Insurance to another person if the other person expressly assumes all of the rights and obligations of MBIA Insurance under this Agreement; and immediately following the merger or sale of substantially all of its assets, the rating of the substitute preferred stock or the unsecured debt obligations of the other person is at least as high as the credit rating of the Preferred Stock or the general unsecured debt obligations of MBIA Insurance, as the case may be (or if no such ratings exist, the financial strength rating of MBIA Insurance) immediately prior to the merger or sale.

15. Governing Law

15.1 THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.

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16. Jurisdiction

16.1 Each of the parties hereto irrevocably submits to the non-exclusive jurisdiction of the courts of the State of New York in respect of any action or proceeding arising out of or in connection with this Agreement (“Proceedings”). Each of the parties hereto irrevocably waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of any such Proceedings in the courts of the State of New York and any claim that any Proceeding brought in any such court has been brought in an inconvenient forum. Each of the Custodial Trust and MBIA Insurance agrees that it shall at all times have an authorized agent in the State of New York upon whom process may be served in connection with any Proceedings, and each of the Custodial Trust and MBIA Insurance hereby authorizes and appoints the Trustee to accept service of all legal process arising out of or connected with this Agreement in the State of New York and service on such person (or substitute) shall be deemed to be service on the Custodial Trust or MBIA Insurance, as the case may be. Except upon such a substitution, the Custodial Trust and MBIA Insurance shall not revoke any such authority or appointment and shall at all times maintain an agent for service of process in the State of New York. If for any reason such person shall cease to act as agent for the service of process, the Custodial Trust and MBIA Insurance shall promptly appoint another such agent, and shall forthwith notify each other of such appointment. The submission to jurisdiction reflected in this paragraph shall not (and shall not be construed so as to) limit the right of any person to take Proceedings in any court of competent jurisdiction, nor shall the taking of Proceedings in any one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not) if and to the extent permitted by law.

17. Limitation of Liability

17.1 It is expressly understood that (a) this Agreement is executed and delivered by The Bank of New York (Delaware), not individually or personally but solely as Trustee, in the exercise of the powers and authority conferred and vested in it under the Declaration, (b) each of the representations, undertakings and agreements herein made on the part of the Custodial Trust, is made and intended not as personal representations, undertakings and agreements by The Bank of New York (Delaware), but is made and intended for the purpose of binding only the Custodial Trust, and (c) under no circumstances shall The Bank of New York (Delaware) be personally liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Custodial Trust, under this Agreement or the other related documents.

18. Tax Confidentiality Waiver

18.1 Notwithstanding anything to the contrary contained in this Agreement all persons may disclose to any and all persons, without limitation of any kind, the federal income tax treatment of the CPS Securities, any fact relevant to understanding the federal tax treatment of the CPS Securities, and all materials of any kind (including opinions or other tax analyses) relating to such federal tax treatment other than the name of any of the parties referenced herein or information that would permit identification of any of the parties referenced herein.

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IN WITNESS WHEREOF the parties hereto have caused this Put Option Agreement to be duly executed as of the day and year first above written.

NORTH CASTLE CUSTODIAL TRUST VII,
By:	The Bank of New York (Delaware), not in its individual capacity but solely as Trustee
By:	/s/    Patrick Burns
	Name:  Patrick Burns
	Title:    Senior Vice President
MBIA INSURANCE CORPORATION
By:	/s/    Joseph Sevely
	Name:  Joseph Sevely
	Title:    Managing Director and Treasurer

ANNEX A

Form of Put Notice

To: North Castle Custodial Trust VII

c/o Bank of New York (Delaware)

P.O. Box 6973

502 White Clay Center Route

273 Newark, Delaware 19714

with a copy to:

The Bank of New York

100 Church Street, 8^th Floor

New York, New York 10286

Attention: Dealing and Trading Group

Date:

Ladies and Gentlemen:

We refer to the put option agreement dated May 14, 2003 (as heretofore amended, the “Put Option Agreement”) entered into between us and you. Terms defined therein shall have the same respective meanings herein.

This notice is the notice for the purposes of Section 3.2(a) of the Put Option Agreement. We hereby require you to pay the Preferred Stock Purchase Price on the Preferred Stock Payment Date which shall be [    ], to the following account:

[            ]

Yours faithfully,

for and on behalf of

MBIA INSURANCE CORPORATION

ANNEX B

Put Option Premium Certificate/

Delayed Put Option Premium Certificate

MBIA Insurance Corporation

Put Option Premium/Delayed Put Option Premium for the

Non-Cumulative Redeemable Perpetual

Preferred Stock of MBIA Insurance Corporation

1.	Distribution Period: [first day of Period]-[last day of Period]: [number of days in period – generally 28]
2.	Auction Rate determined for the Distribution Period on [insert Auction Date].			0.000000%	$	(0	)
3.	Eligible Assets:
	Issuer	Ratings	Purchase Price	Yield to Maturity	Interest
4.	Applicable Federal Funds Effective Rate: 0.00%			0.0%	$	0.0
5.	Broker-Dealer Fees			0.0%	$	0.0
6.	Trustee and Custodian Fees			0.0%	$	0.0
7.	Investment Manager Fee			0.0%	$	0.0

8.	Tax Matters Partner Fee	0.0%	$	0.0
9.	Servicing Agent Fee	0.0%	$	0.0
10.	Rating Agency Fees	0.0%	$	0.0
11.	Tax Fees. Including preparation of returns
12.	Other Fees and Expenses for the Distribution Period, if any	0.0%	$	0.0
13.	Computation of Put Premium Due on [insert Distribution Payment Date] by 11:00 a.m. New York Time:	0.0%	$	0.0
14.	The Investment Manager is in compliance with the Investment Management Agreement.

ANNEX C

Restated Charter of

MBIA Insurance Corporation

ANNEX D

Expense Reimbursement Agreement

EX-10.60

EXECUTION COPY

EXHIBIT 10.60

PUT OPTION AGREEMENT

between

MBIA INSURANCE CORPORATION

and

NORTH CASTLE CUSTODIAL TRUST VIII

Dated May 14, 2003

Preamble

This Put Option Agreement, dated as of May 14, 2003 (this “Agreement”), is by and between MBIA Insurance Corporation, a New York domestic stock insurance corporation (“MBIA Insurance”), and North Castle Custodial Trust VIII (the “Custodial Trust”), a Delaware statutory trust.

Recitals

WHEREAS, MBIA Insurance is authorized to issue 500.01 shares of non-cumulative, redeemable, perpetual preferred stock, par value $1,000 per share, designated as “Series H Perpetual Preferred Shares,” which shares have not been and will not be registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Preferred Stock”); and

WHEREAS, MBIA Insurance and the Custodial Trust desire to enter into a binding agreement pursuant to which MBIA Insurance will have the right to sell, at its option, the Preferred Stock to the Custodial Trust, and the Custodial Trust will have an obligation to purchase the Preferred Stock upon MBIA Insurance’s exercise of its option and upon the other terms and conditions agreed upon by the parties.

NOW, THEREFORE, the parties hereto agree as follows:

1. Definitions; Interpretation

1.1 The words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular section, clause or other subdivision, and references to “Sections” refer to Sections of this Agreement except as otherwise expressly provided.

1.2 In this Agreement:

“Agreement” has the meaning set forth above in the Preamble.

“Auction Date” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Auction Rate” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Broker-Dealer” has the meaning set forth in the Declaration.

“Business Day” has the meaning set forth in the Declaration.

“CPS Securities” has the meaning set forth in the Declaration.

“Custodial Trust” has the meaning set forth above in the Preamble.

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“Declaration” means the Amended and Restated Declaration of Trust governing the Custodial Trust, dated as of the date hereof, as the same may be amended or restated from time to time.

“Delayed Auction” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Delayed Auction Date” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Delayed Auction Period” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Delayed Auction Rate” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Delayed Put Option Premium” has the meaning set forth in Section 5.1.

“Delayed Put Option Premium Certificate” has the meaning set forth in Section 5.2.

“Distribution Payment Date” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Distribution Period” has the meaning set forth in the General Terms of the CPS Securities attached to the Declaration as Appendix A.

“Dividend” has the meaning set forth in the Restated Charter.

“Eligible Assets” has the meaning set forth in the Declaration.

“Expense Reimbursement Agreement” has the meaning set forth in Section 3.1.

“Federal Funds Effective Rate” has the meaning set forth in the Declaration.

“Fixed Rate Distribution Event” has the meaning set forth in the Restated Charter.

“Fixed Rate Election” means an election by MBIA Insurance to pay Dividends on the Preferred Stock at the rate described in clause (iii) of the definition of “Dividend Rate” set forth in the Restated Charter.

“Holder” has the meaning set forth in the Declaration.

“Liquidation Preference” has the meaning set forth in the Restated Charter.

“Maximum Rate” has the meaning set forth in the Restated Charter.

“MBIA Insurance” has the meaning set forth above in the Preamble.

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“Overnight Rate of Return” means the rate earned on the interest and on the principal of the Eligible Assets during the period from each Auction Date until the related Distribution Payment Date and during any Delayed Auction Period, which shall be equal to the Federal Funds Effective Rate then in effect.

“Preferred Stock” has the meaning set forth above in the Recitals.

“Preferred Stock Payment Date” has the meaning set forth in Section 3.2(a).

“Preferred Stock Purchase Price” has the meaning set forth in Section 4.1.

“Put Notice” means a written notice substantially in the form attached hereto as Annex A.

“Put Option Premium” has the meaning set forth in Section 5.1.

“Put Option Premium Certificate” has the meaning set forth in Section 5.2.

“Redemption Price” has the meaning set forth in the Restated Charter.

“Redemption Proceeds” has the meaning set forth in Section 3.3(d).

“Restated Charter” means the Restated Charter of MBIA Insurance, a copy of which is attached hereto as Annex C.

“Stated Yield” means all amounts of interest (including accreted interest) and other payments due and payable (upon maturity or otherwise) on the principal amount of the Eligible Assets (excluding any repayment of principal) held by the Custodial Trust during a Distribution Period, plus the amount of interest to be earned based on the Overnight Rate of Return, as calculated on or prior to 11:00 a.m. on the Auction Date for each respective Distribution Period.

“Tax Matters Partner” has the meaning set forth in the Declaration.

“Trustee” has the meaning set forth in the Declaration.

In this Agreement, any reference to a “company” shall be construed so as to include any corporation, trust, partnership, limited liability company or other legal entity, wheresoever incorporated or established.

1.3 In this Agreement, save where the contrary is indicated, any reference to:

(a) this Agreement or any other agreement or document shall be construed as a reference to this Agreement or, as the case may be, such other agreement or document as the same may have been, or may from time to time be, amended, varied, novated or supplemented in accordance with its terms; and

(b) a statute shall be construed as a reference to such statute as the same may have been, or may from time to time be, amended or re-enacted.

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1.4 In this Agreement, any definition shall be equally applicable to both the singular and plural forms of the defined terms.

2. Put Option; Term

2.1 In consideration of the payment of the Put Option Premium, the Custodial Trust hereby grants to MBIA Insurance the right to cause the Custodial Trust to purchase the Preferred Stock on the terms set forth in this Agreement.

2.2 The put option created hereby shall remain in effect and be exercisable at any time except:

(a) during any period when the Preferred Stock that has been put to the Custodial Trust pursuant to this Agreement is held by the Custodial Trust; or

(b) after this Agreement has been terminated pursuant to Section 2.3.

2.3 This Agreement shall terminate upon the earliest to occur of:

(a) MBIA Insurance delivers a written notice to the Custodial Trust while the Custodial Trust is holding Eligible Assets, stating that MBIA Insurance is electing not to pay the Put Option Premium for the next succeeding Distribution Period that follows the notice by at least three (3) Business Days and indicating the Distribution Payment Date on which the termination shall become effective (delivery of such a termination notice by MBIA Insurance shall be irrevocable);

(b) MBIA Insurance fails to pay the Put Option Premium or the Delayed Put Option Premium, if any, for a Distribution Period on the related Distribution Payment Date, and such failure has not been cured within five (5) Business Days;

(c) MBIA Insurance makes a Fixed Rate Election;

(d) MBIA Insurance fails to pay Dividends on the Preferred Stock, or the fees and expenses of the Custodial Trust pursuant to the Expense Reimbursement Agreement, for a Distribution Period on the related Distribution Payment Date;

(e) MBIA Insurance fails to pay the Redemption Price and such failure has not been cured within five (5) Business Days; and

(f) the aggregate face amount of the Custodial Trust’s CPS Securities is less than $20,000,000;

3. Exercise of Put Option; Redemption.

3.1 The Custodial Trust agrees that it shall, upon exercise of the put option as provided in Section 3.2, purchase the Preferred Stock from MBIA Insurance for a purchase price equal to the Preferred Stock Purchase Price, which Preferred Stock Purchase Price shall be payable on the Preferred Stock Payment Date in accordance with Section 4.

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3.2     (a) MBIA Insurance may exercise the put option at any time by delivering (i) a Put Notice to the Trustee, specifying a payment date (the “Preferred Stock Payment Date”), which shall be the next succeeding Distribution Payment Date after the date on which the Put Notice is delivered to the Trustee and (ii) the Expense Reimbursement Agreement to the Custodial Trust in the form attached hereto as Annex D (the “Expense Reimbursement Agreement”), in either case not more than fifteen (15) days but not less than ten (10) days prior to the next succeeding Distribution Payment Date.

(b) On the Preferred Stock Payment Date, after payment of the Put Option Premium by MBIA Insurance to the Custodial Trust and payment of the distribution amount by the Custodial Trust to the Holders of the CPS Securities, in each case for the immediately preceding Distribution Period, MBIA Insurance shall issue and deliver to the Custodial Trust, or its designee, Preferred Stock with an aggregate Liquidation Preference equal to the proceeds attributable to principal received upon the maturity of the Custodial Trust’s Eligible Assets (and, if applicable, liquidation of defaulted Eligible Assets), net of fees and expenses of the Custodial Trust and after any principal is returned to Holders of the CPS Securities pursuant to Section 6.01(g) of the Declaration and Section 6(b) of the General Terms of the CPS Securities attached thereto. The Preferred Stock shall be delivered free and clear of any defect in title, together with all transfer and registration documents (or all notices, instructions or other communications) as are necessary to convey title to the Preferred Stock to the Custodial Trust (or its nominee).

(c) For the avoidance of doubt, (1) any cash received by the Custodial Trust as interest or other payments earned on the principal amount of the Eligible Assets (net of fees and expenses and excluding any repayment of principal) and not previously distributed to the Holders of CPS Securities shall be distributed to the Holders of CPS Securities prior to payment by the Custodial Trust of the Preferred Stock Purchase Price, and shall not be used to purchase shares of Preferred Stock; and (2) the aggregate Liquidation Preference of Preferred Stock purchased from MBIA Insurance shall be reduced by the amount, if any, by which the aggregate face amount of CPS Securities is reduced as a result of losses of principal of or interest on Eligible Assets as required by Section 6.01(g) of the Declaration and Section 6(b) of the General Terms of the CPS Securities attached thereto.

(d) MBIA Insurance shall have the right to redeem all or a portion of the Preferred Stock on any Distribution Payment Date upon payment of the Redemption Price for the shares to be redeemed (the “Redemption Proceeds”). Notwithstanding the foregoing, MBIA Insurance shall redeem all of the Preferred Stock if after giving effect to a partial redemption, the aggregate Liquidation Preference of the Preferred Stock outstanding immediately after such partial redemption would be less than $20,000,000. Payment of the Redemption Price will be made on the first Distribution Payment Date after MBIA Insurance properly elects to redeem the Preferred Stock.

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(e) Notice of any redemption of Preferred Stock shall be mailed to the holders of the Preferred Stock not less than ten (10) days nor more than fifteen (15) days prior to the date fixed for such redemption. At any time before or after a notice of redemption has been given, MBIA Insurance shall deposit the aggregate Redemption Price of the Preferred Stock to be redeemed with any bank or trust company in New York, New York, with directions to pay the holders of the Preferred Stock being redeemed the Redemption Proceeds in exchange for the Preferred Stock.

(f) Upon a partial redemption of Preferred Stock held by the Custodial Trust, the Redemption Proceeds shall be allocated pro rata among the Holders of CPS Securities.

(g) Upon a complete redemption of all Preferred Stock held by the Custodial Trust prior to a Fixed Rate Distribution Event, the Custodial Trust shall apply the Redemption Proceeds to the purchase of a portfolio of Eligible Assets.

(h) For the avoidance of doubt, there is no limitation on the number of times MBIA Insurance may put the Preferred Stock to the Custodial Trust pursuant to and in accordance with the terms of this Agreement.

(i) MBIA Insurance may not redeem the Preferred Stock from the holders thereof for a period of two years following a Fixed Rate Distribution Event.

4. Payments

4.1 On the Preferred Stock Payment Date, after payment of the Put Option Premium by MBIA Insurance to the Custodial Trust and payment of the distribution amount by the Custodial Trust to the Holders of the CPS Securities, in each case for the immediately preceding Distribution Period, the Custodial Trust will deliver to MBIA Insurance the proceeds attributable to principal received upon the maturity of the Custodial Trust’s Eligible Assets (and, if applicable, liquidation of defaulted Eligible Assets), net of fees and expenses of the Custodial Trust and after any principal is returned to Holders of CPS Securities pursuant to Section 6.01(g) of the Declaration and Section 6(b) of the General Terms of the CPS Securities attached thereto (the “Preferred Stock Purchase Price”).

4.2 Payment by the Custodial Trust of the Preferred Stock Purchase Price shall be made on or prior to 3:00 p.m. on the Preferred Stock Payment Date and to the account of MBIA Insurance specified in the Put Notice.

4.3 Payment of the Preferred Stock Purchase Price by the Custodial Trust shall be made as provided in Section 4.1 and Section 4.2 without setoff, claim, recoupment, deduction or counterclaim; provided, however, that if MBIA Insurance exercises its put option under Section 3 hereof at any time that it has failed to pay all or a portion of the Put Option Premium, and such failure has not been cured on or before the Preferred Stock Payment Date, the Custodial Trust shall be entitled to setoff against the Preferred Stock Purchase Price of such unpaid portion of the Put Option Premium.

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5. Put Option Premium

5.1 In consideration for the Custodial Trust’s agreement to purchase the Preferred Stock in accordance with the terms of this Agreement, MBIA Insurance will pay to the Custodial Trust, in US dollars, on each Distribution Payment Date during which the put option remains in effect and is exercisable as set forth in Section 2.2 hereof, the “Put Option Premium,” in an amount equal to the product of (A) the Auction Rate on the CPS Securities for the respective Distribution Period less the excess of (i) the Stated Yield for such Distribution Period over (ii) the expenses of the Custodial Trust for such Distribution Period, provided that such amount shall be annualized and expressed as an annual rate with respect to the face amount of the CPS Securities outstanding on the date the Put Option Premium is determined, (B) the aggregate face amount of the CPS Securities outstanding at the time the Put Option Premium is calculated and (C) a fraction, the numerator of which will be the actual number of calendar days in the respective Distribution Period, and the denominator of which will be 360 days.

The Put Option Premium for each Distribution Period will be calculated on the Auction Date.

If as a result of losses of principal of or interest on Eligible Assets there is a Delayed Auction, MBIA Insurance will pay to the Custodial Trust, in US dollars, on each Distribution Payment Date during which the put option remains in effect and is exercisable as set forth in Section 2.2 hereof, the “Delayed Put Option Premium,” in an amount equal to the product of (A) the Delayed Auction Rate on the CPS Securities for the Delayed Auction Period less the excess of (i) the Stated Yield for such Delayed Auction Period over (ii) the expenses of the Custodial Trust for such Delayed Auction Period, provided that such amount shall be annualized and expressed as an annual rate with respect to the face amount of the CPS Securities outstanding on the date the Put Option Premium is determined, (B) the aggregate face amount of the CPS Securities outstanding at the time the Delayed Put Option Premium is calculated and (C) a fraction, the numerator of which will be the actual number of calendar days in the respective Delayed Auction Period, and the denominator of which will be 360 days.

The Delayed Put Option Premium for each Delayed Auction Period will be calculated on the Delayed Auction Date.

5.2 The amount of the Put Option Premium shall be calculated by the Trustee and delivered in writing (the “Put Option Premium Certificate”) to MBIA Insurance prior to 5:00 p.m. on each Auction Date. The amount of the Delayed Put Option Premium shall be calculated by the Trustee and delivered in writing (the “Delayed Put Option Premium Certificate”) to MBIA Insurance prior to 5:00 p.m. on the Delayed Auction Date. The Put Option Premium Certificate, and any Delayed Put Option Premium Certificate, also shall set forth the Eligible Assets held by the Custodial Trust, the Stated Yield on each Eligible Asset, any fees to be incurred or accrued by the Trustee on behalf of the Custodial Trust and the computation of the Put Option Premium, or the Delayed Put Option Premium, as the case may be, in each case for the respective Distribution Period and the Delayed Auction Period, respectively, and shall be in the form attached hereto as Annex B.

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5.3 MBIA Insurance has five (5) days to cure any failure to pay when due the Put Option Premium or Delayed Put Option Premium, if any; provided that the Put Option Premium during such cure period will be set at the Maximum Rate then in effect.

5.4 MBIA Insurance has five (5) days to cure any failure to pay when due the Redemption Price; provided that the Put Option Premium during such cure period will be set at the Maximum Rate then in effect.

6. Obligations Absolute

6.1 The Custodial Trust acknowledges that, provided MBIA Insurance has complied with the terms of this Agreement, the obligations of the Custodial Trust undertaken under this Agreement are absolute, irrevocable and unconditional irrespective of any circumstances whatsoever, including any defense otherwise available to the Custodial Trust, in equity or at law, including, without limitation, the defense of fraud, any defense based on the failure of MBIA Insurance to disclose any matter, whether or not material, to the Custodial Trust or any other person, and any defense of breach of warranty or misrepresentation, and irrespective of any other circumstance which might otherwise constitute a legal or equitable discharge or defense of an insurer, surety or guarantor under any and all circumstances. The enforceability and effectiveness of this Agreement and the liability of the Custodial Trust, and the rights, remedies, powers and privileges of MBIA Insurance under this Agreement shall not be affected, limited, reduced, discharged or terminated, and the Custodial Trust hereby expressly waives, to the fullest extent permitted by applicable law, any defense now or in the future arising by reason of:

(a) the illegality, invalidity or unenforceability of all or any part of the Declaration;

(b) any action taken by MBIA Insurance;

(c) any change in the direct or indirect ownership or control of MBIA Insurance or of any shares or ownership interests thereof; and

(d) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of or for the Custodial Trust;

provided, however, that, notwithstanding the provisions of this Section 6.1, the Custodial Trust shall have no further obligations under this Agreement after the termination of this Agreement. In addition, the breach of any covenant made in this Agreement by the Custodial Trust shall not terminate this Agreement or limit the rights of MBIA Insurance hereunder.

6.2 For the avoidance of doubt, no failure or delay by MBIA Insurance in exercising its rights hereunder shall operate as a waiver of its rights hereunder (except as specifically provided in this Agreement, including, without limitation, in respect of the notice periods and payment dates set forth in Section 3.2(a)) and, subject to the termination of this Agreement not having occurred, MBIA Insurance may continue to exercise its rights hereunder at any time.

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7. Covenants

7.1 MBIA Insurance hereby covenants and agrees that, at all times prior to the earlier of the termination of this Agreement or completion of the sale of the Preferred Stock to the Custodial Trust pursuant to this Agreement it shall not amend, restate, revise or otherwise alter the rights, terms and preferences of the Preferred Stock, whether by operation of merger, reorganization or otherwise, without the prior consent of the Custodial Trust, and it will not register the Preferred Stock with the Securities and Exchange Commission under the Securities Act of 1933, as amended, on or before the Put Option Payment Date.

7.2 The Custodial Trust hereby covenants and agrees that, at all times prior to the earlier of the termination of this Agreement or completion of the sale of the Preferred Stock to the Custodial Trust pursuant to this Agreement it shall not amend, restate, revise or otherwise alter the rights, terms and preferences of the CPS Securities, whether by operation of merger, reorganization or otherwise, and it will not register the CPS Securities with the Securities and Exchange Commission under the Securities Act of 1933, as amended.

7.3 MBIA Insurance hereby covenants and agrees that any Preferred Stock delivered to the Custodial Trust shall rank, at the time of delivery, (a) senior to the common stock of MBIA Insurance and (b) senior to or pari passu with the most senior preferred shares of MBIA Insurance then authorized by its Restated Charter or then issued and outstanding; provided that this covenant may be amended with the consent of MBIA Insurance and at least a majority of the face amount of the CPS Securities.

7.4 MBIA Insurance hereby covenants and agrees that if MBIA Insurance’s financial strength rating is lowered while this Agreement remains effective, MBIA Insurance shall provide written notice to the Trustee, on behalf of the Custodial Trust, of such lowered rating.

8. This Agreement to Govern

If there is any inconsistency between any provision of this Agreement and any other agreement, the provisions of this Agreement shall prevail to the extent of such inconsistency but not otherwise.

9. Representations and Warranties

9.1 The Custodial Trust represents and warrants to MBIA Insurance that, as of the date hereof:

(a) the Custodial Trust is duly organized and validly existing under the Delaware Statutory Trust Act and has the power and authority to own its assets and to conduct the activities which it conducts;

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(b) its entry into, exercise of its rights and/or performance of or compliance with its obligations under this Agreement do not and will not violate (1) any law to which it is subject, (2) any of its constitutional documents or (3) any agreement to which it is a party or which is binding on it or its assets;

(c) it has the power to enter into, exercise its rights and perform and comply with its obligations under this Agreement and has taken all necessary action to authorize the execution, delivery and performance of this Agreement;

(d) it will obtain and maintain in effect and comply with the terms of all necessary consents, registrations and the like of or with any government or other regulatory body or authority applicable to this Agreement;

(e) its obligations under this Agreement are valid, binding and enforceable at law;

(f) it is not in default under any agreement to which it is a party or by which it or its assets is or are bound and no litigation, arbitration or administrative proceedings are current or pending, which default, litigation, arbitration or administrative proceedings are material in the context of this Agreement;

(g) it is not necessary or advisable in order to ensure the validity, effectiveness, performance or enforceability of this Agreement that any document be filed, registered or recorded in any public office or elsewhere;

(h) each of the above representations and warranties will be correct and complied with in all respects during the term of this Agreement;

(i) no consent, approval, authorization or order of any court or governmental authority, agency, commission or commissioner or other regulatory authority is required for the consummation by the Custodial Trust of the transactions contemplated by this Agreement; and

(j) assuming compliance with the transfer restrictions with respect to the CPS Securities set forth in the Declaration, the Custodial Trust is not required to register with the Securities and Exchange Commission as an investment company under the Investment Company Act of 1940, as amended.

9.2 MBIA Insurance represents and warrants to the Custodial Trust that, as of the date hereof:

(a) it is duly organized and validly existing as a domestic stock insurance corporation under the laws of the State of New York and has the power and authority to own its assets and to conduct its activities;

(b) its entry into, exercise of its rights and/or performance of or compliance with its obligations under this Agreement do not and will not violate (1) any law to which it is subject, (2) any of its constitutional documents or (3) any agreement to which it is a party or which is binding on it or its assets;

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(c) it has the power to enter into, exercise its rights and perform and comply with its obligations under this Agreement and has taken all necessary action to authorize the execution, delivery and performance of this Agreement;

(d) it will obtain and maintain in effect and comply with the terms of all necessary consents, registrations and the like of or with any government or other regulatory body or authority applicable to this Agreement;

(e) its obligations under this Agreement are valid, binding and enforceable at law;

(f) it is not in default under any agreement to which it is a party or by which it or its assets is or are bound and no litigation, arbitration or administrative proceedings are current or pending, which default, litigation, arbitration or administrative proceedings are material in the context of this Agreement;

(g) it is not necessary or advisable in order to ensure the validity, effectiveness, performance or enforceability of this Agreement that any document be filed, registered or recorded in any public office or elsewhere;

(h) each of the above representations and warranties will be correct and complied with in all respects during the term of this Agreement;

(i) no consent, approval, authorization or order of any court or governmental authority, agency, commission or commissioner or other regulatory authority is required for the consummation by MBIA Insurance of the transactions contemplated by this Agreement and the sale of the Preferred Stock to the Custodial Trust, pursuant to the terms hereof, need not be registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended; and

(j) as of the Put Option Payment Date, the Preferred Stock will be duly authorized for issuance and sale to the Custodial Trust, pursuant to this Agreement, and, when issued and delivered by MBIA Insurance, pursuant to this Agreement, against payment of the Preferred Stock Purchase Price, will be validly issued, fully paid and nonassessable; the Preferred Stock will conform in all respects to the terms of the Preferred Stock set forth in the Restated Charter of MBIA Insurance attached hereto as Annex C; and the Preferred Stock will not be subject to preemptive or other similar rights.

10. Severability

10.1 Any provision of this Agreement which is or becomes illegal, invalid or unenforceable in any jurisdiction may be severed from the other provisions of this Agreement without invalidating the remaining provisions hereof, and any such illegality, invalidity or unenforceability shall not invalidate or render illegal or unenforceable such provision in any other jurisdiction.

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11. Notices

11.1 Each communication to be made hereunder shall be deemed to have been given (i) five (5) days after deposit of such communication with a reputable national courier service addressed to such party at its address specified below (or at such other address as such party shall specify to the other party hereto in writing) or (ii) when transmitted by facsimile to such party at its facsimile number specified below (or at such other facsimile number as such party shall specify to the other party hereto in writing):

If to MBIA Insurance at:

MBIA Insurance Corporation

113 King Street

Armonk, New York 10552

Attention: Joseph Sevely, Treasurer

Facsimile: (914) 765-3410

Copy to: Ram Wertheim, General Counsel

If to the Custodial Trust at:

The Bank of New York (Delaware)

P.O. Box 6973

White Clay Center

Route 273

Newark, Delaware 19714

Attention: Kristine Gullo

Facsimile: (302) 283-8279

Copies to:

The Bank of New York

Corporate Trust Division

100 Church Street, 8^th Floor

New York, New York 10286

Attention: Dealing and Trading Group

Facsimile: (212) 437-6155

In the case of any event under Sections 2.3, 7.3 or 14 of the Agreement, MBIA Insurance shall give notice to:

Standard & Poor’s Ratings Services at:

Standard & Poor’s Ratings Services

55 Water Street

New York, New York 10041

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Moody’s Investors Services, Inc. at:

Moody’s Investors Services, Inc.

99 Church Street

New York, New York 10007

12. Counterparts

This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts each of which when executed and delivered shall constitute an original, but all the counterparts shall together constitute but one and the same instrument.

13. Benefit of Agreement and Disclaimer

13.1 This Agreement shall enure to the benefit of each party hereto and its successors and assigns and transferees; provided that neither party hereto may transfer its rights and obligations hereunder, by operation of law or otherwise, without the prior written consent of the other party.

14. Amendment and Assignment

14.1 This Agreement may not be amended or modified in any respect, nor may any provision be waived, without the written agreement of both parties. No waiver by one party of any obligation of the other hereunder shall be considered a waiver of any other obligation of such party.

14.2 Neither the Custodial Trust nor MBIA Insurance may assign its rights or obligations under this Agreement to any other person, except that MBIA Insurance may assign its rights and obligations under this Agreement to another person as a result of a merger of MBIA Insurance with another person or as a result of a sale of all or substantially all of the assets of MBIA Insurance to another person if the other person expressly assumes all of the rights and obligations of MBIA Insurance under this Agreement; and immediately following the merger or sale of substantially all of its assets, the rating of the substitute preferred stock or the unsecured debt obligations of the other person is at least as high as the credit rating of the Preferred Stock or the general unsecured debt obligations of MBIA Insurance, as the case may be (or if no such ratings exist, the financial strength rating of MBIA Insurance) immediately prior to the merger or sale.

15. Governing Law

15.1 THIS AGREEMENT SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.

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16. Jurisdiction

16.1 Each of the parties hereto irrevocably submits to the non-exclusive jurisdiction of the courts of the State of New York in respect of any action or proceeding arising out of or in connection with this Agreement (“Proceedings”). Each of the parties hereto irrevocably waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of any such Proceedings in the courts of the State of New York and any claim that any Proceeding brought in any such court has been brought in an inconvenient forum. Each of the Custodial Trust and MBIA Insurance agrees that it shall at all times have an authorized agent in the State of New York upon whom process may be served in connection with any Proceedings, and each of the Custodial Trust and MBIA Insurance hereby authorizes and appoints the Trustee to accept service of all legal process arising out of or connected with this Agreement in the State of New York and service on such person (or substitute) shall be deemed to be service on the Custodial Trust or MBIA Insurance, as the case may be. Except upon such a substitution, the Custodial Trust and MBIA Insurance shall not revoke any such authority or appointment and shall at all times maintain an agent for service of process in the State of New York. If for any reason such person shall cease to act as agent for the service of process, the Custodial Trust and MBIA Insurance shall promptly appoint another such agent, and shall forthwith notify each other of such appointment. The submission to jurisdiction reflected in this paragraph shall not (and shall not be construed so as to) limit the right of any person to take Proceedings in any court of competent jurisdiction, nor shall the taking of Proceedings in any one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not) if and to the extent permitted by law.

17. Limitation of Liability

17.1 It is expressly understood that (a) this Agreement is executed and delivered by The Bank of New York (Delaware), not individually or personally but solely as Trustee, in the exercise of the powers and authority conferred and vested in it under the Declaration, (b) each of the representations, undertakings and agreements herein made on the part of the Custodial Trust, is made and intended not as personal representations, undertakings and agreements by The Bank of New York (Delaware), but is made and intended for the purpose of binding only the Custodial Trust, and (c) under no circumstances shall The Bank of New York (Delaware) be personally liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Custodial Trust, under this Agreement or the other related documents.

18. Tax Confidentiality Waiver

18.1 Notwithstanding anything to the contrary contained in this Agreement all persons may disclose to any and all persons, without limitation of any kind, the federal income tax treatment of the CPS Securities, any fact relevant to understanding the federal tax treatment of the CPS Securities, and all materials of any kind (including opinions or other tax analyses) relating to such federal tax treatment other than the name of any of the parties referenced herein or information that would permit identification of any of the parties referenced herein.

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IN WITNESS WHEREOF the parties hereto have caused this Put Option Agreement to be duly executed as of the day and year first above written.

NORTH CASTLE CUSTODIAL TRUST VIII,
By:	The Bank of New York (Delaware), not in its individual capacity but solely as Trustee
By:	/s/    Patrick Burns
	Name:  Patrick Burns
	Title:    Senior Vice President
MBIA INSURANCE CORPORATION
By:	/s/    Joseph Sevely
	Name:  Joseph Sevely
	Title:    Managing Director and Treasurer

ANNEX A

Form of Put Notice

To: North Castle Custodial Trust VIII

c/o Bank of New York (Delaware)

P.O. Box 6973

502 White Clay Center Route

273 Newark, Delaware 19714

with a copy to:

The Bank of New York

100 Church Street, 8^th Floor

New York, New York 10286

Attention: Dealing and Trading Group

Date:

Ladies and Gentlemen:

We refer to the put option agreement dated May 14, 2003 (as heretofore amended, the “Put Option Agreement”) entered into between us and you. Terms defined therein shall have the same respective meanings herein.

This notice is the notice for the purposes of Section 3.2(a) of the Put Option Agreement. We hereby require you to pay the Preferred Stock Purchase Price on the Preferred Stock Payment Date which shall be [        ], to the following account:

[        ]

Yours faithfully,

for and on behalf of

MBIA INSURANCE CORPORATION

ANNEX B

Put Option Premium Certificate/

Delayed Put Option Premium Certificate

MBIA Insurance Corporation

Put Option Premium/Delayed Put Option Premium for the

Non-Cumulative Redeemable Perpetual

Preferred Stock of MBIA Insurance Corporation

1.	Distribution Period: [first day of Period]-[last day of Period]: [number of days in period – generally 28]
2.	Auction Rate determined for the Distribution Period on [insert Auction Date].			0.000000%	$	(0	)
3.	Eligible Assets:
	Issuer	Ratings	Purchase Price	Yield to Maturity	Interest
4.	Applicable Federal Funds Effective Rate: 0.00%			0.0%	$	0.0
5.	Broker-Dealer Fees			0.0%	$	0.0
6.	Trustee and Custodian Fees			0.0%	$	0.0
7.	Investment Manager Fee			0.0%	$	0.0

8.	Tax Matters Partner Fee	0.0%	$	0.0
9.	Servicing Agent Fee	0.0%	$	0.0
10.	Rating Agency Fees	0.0%	$	0.0
11.	Tax Fees. Including preparation of returns
12.	Other Fees and Expenses for the Distribution Period, if any	0.0%	$	0.0
13.	Computation of Put Premium Due on [insert Distribution Payment Date] by 11:00 a.m. New York Time:	0.0%	$	0.0
14.	The Investment Manager is in compliance with the Investment Management Agreement.

ANNEX C

Restated Charter of

MBIA Insurance Corporation

ANNEX D

Expense Reimbursement Agreement

EX-10.61

Exhibit 10.61

FORM OF RESTRICTED STOCK AGREEMENT

CHIEF EXECUTIVE OFFICER

Date

Chief Executive Officer

Address

AWARD OF RESTRICTED STOCK

Dear                         :

We are pleased to confirm to you that, subject to the restrictions described below, you have been awarded              shares (“Shares”) of the Common Stock of MBIA Inc. (the “Company”), par value $1.00 per share (the “Restricted Shares”), such award having been approved by the action of the Committee (as defined below) on             . This letter will confirm the following agreement between you and the Company with respect to this award of Restricted Shares.

1. Restriction on Transfer. Except as provided in Section 7 or as the Compensation and Organization Committee of the Company’s Board of Directors (the “Committee”) shall otherwise determine, none of the Restricted Shares may be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered (the “Transfer Restriction”) until the Restriction Lapse Date (as defined below) or until such earlier date as the Transfer Restriction shall otherwise lapse under the terms of this letter. If the Restriction Lapse Date occurs after                                                      , any Restricted Shares then still subject to the Transfer Restrictions shall be forfeited and revert back to the Company without any payment to you. For purposes of this letter, the period during which the Restricted Shares remain subject to the transfer restrictions set forth in this Section 1 shall be called the “Restricted Period.”

As used herein (i) “Market Price”, when used with respect to the price of Shares on a particular day, shall mean the closing price for which a Share is purchased that day (or, if such day is not a Trading Day, on the most recent preceding Trading Day on which such a purchase occurred) on the principal national securities exchange or national market system on which Shares are then listed or eligible for sale; (ii) “Restriction Lapse Date” shall mean the last day of a period of ten consecutive Trading Days on which a Share has traded at least $             at any point during each such Trading Day, provided that the last day of such ten day period occurs on or before                                     ; and (iii) “Trading Day” shall mean a day on which the principal national securities exchange or national market system on which Shares are then listed or eligible for sale is open for buying and selling Shares (or, if Shares are not listed or eligible for sale on any such exchange or market system, any day that is not a Saturday, a Sunday, or a legal holiday in New York City).

2. Forfeiture of Restricted Stock Upon Voluntary Termination or Termination for Cause. Except as provided in paragraph 3 below or as the Committee shall otherwise determine, if (i) you voluntarily terminate your employment with the Company and each of its subsidiaries or (ii) your employment is terminated by the Company for Cause (as hereinafter defined) prior to the end of the Restricted Period, any Restricted Shares then still subject to the transfer restrictions set forth in Section 1 shall be forfeited and revert back to the Company without any payment to you. For

(1)  The Company does not guarantee that the value of the restricted stock will be maintained.

Page 1 of 5

purposes of this letter, “Cause” means (i) your willful failure to perform substantially your duties as an employee of the Company (other than due to physical or mental illness) after reasonable notice to you of such failure, (ii) your engaging in serious misconduct that is injurious to the Company or any of its subsidiaries in any way, including, but not limited to, by way of damage to their respective reputations or standings in their respective industries, (iii) your being convicted of, or your entry of a plea of nolo contendere to, a crime that constitutes a felony or (iv) your breach of any written covenant or agreement with the Company or any Subsidiary not to disclose or misuse any information pertaining to, or misuse any property of, the Company or any Subsidiary or not to compete or interfere with the Company or any Subsidiary.

3.    Vesting Upon Death, Disability, Termination by the Company Without Cause. If your employment with the Company and its subsidiaries terminates due to (i) your death, (ii) your long-term disability (as determined in accordance with the Company’s applicable policies pertaining to long-term disability), (iii) a termination by the Company other than for Cause or (iv) a Voluntary Termination for Good Reason (as defined below), the Restricted Period shall immediately and automatically lapse, without further action by the Company, on the date of such termination as to any Restricted Shares then still subject to the transfer restrictions set forth in Section 1. A “Voluntary Termination for Good Reason” shall mean any voluntary resignation by you within 120 days following the occurrence of any of the following events without your prior written consent: (i) a significant reduction in your duties, responsibilities or title; (ii) a material reduction in your annual base salary, other than a reduction which is part of an overall reduction in the base salaries of all senior officers of the Company and such reduction is proportionate to that imposed on such other officers; (iii) the relocation of your principal place of employment to a location other than the Company’s corporate headquarters.

4.    Change of Control. Notwithstanding any other provision of this letter to the contrary, the Restricted Period shall lapse upon the occurrence of a Change in Control. For purposes of this Agreement, a Change in Control shall mean the occurrence of any of the following events:

(i) any person (within the meaning of Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), including any group (within the meaning of Rule 13d-5(b) under the Exchange Act)), but excluding any of the Company, any Subsidiary or any employee benefit plan sponsored or maintained by the Company or any Subsidiary, acquires “beneficial ownership” (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined Voting Power (as defined below) of the Company’s securities; or

(ii) within any 24-month period, the persons who were directors of the Company at the beginning of such period (the “Incumbent Directors”) shall cease to constitute at least a majority of the Board or the board of directors of any successor to the Company; provided, however, that any director elected to the Board, or nominated for election, by a majority of the Incumbent Directors then still in office shall be deemed to be an Incumbent Director for purposes of this subclause (ii); or

(iii) upon the consummation of a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of the Company which has been approved by the shareholders of the Company (a “Corporate Event”), and immediately following the consummation of which the stockholders of the Company immediately prior to such Corporate Event do not hold, directly or indirectly, a majority of the Voting Power of (x) in the case of a merger or consolidation, the surviving or resulting corporation, (y) in the case of a share exchange, the acquiring corporation or (z) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant Corporate Event, holds

Page 2 of 5

more than 25% of the consolidated assets of the Company immediately prior to such Corporate Event; or

(iv) any other event occurs which the Board declares to be a Change of Control.

In order to avoid any confusion, the Company hereby acknowledges that Section 7(c)(iii) of the Key Employee Protection Agreement (the “Key Employee Agreement”) between you and the Company is not intended to prevent the lapsing of the Restricted Period upon a Change of Control as provided for in this Section 4.

5.    Rights as a Shareholder. Except for the transfer restriction, you shall have all the rights of a stockholder with respect to your Restricted Shares, including the right to vote the shares and to receive dividends.

6.    Conversions and Property Distributions. In the event your Restricted Shares are exchanged for or converted into securities other than Common Stock or in the event that any distribution is made with respect to such Restricted Shares either in Common Stock or in other property, the securities or other property that you receive shall be subject to the same restrictions as apply to your Restricted Shares.

7.    Transfers of Restricted Stock to Family Members. Nothing in this letter (including, without limitation, Section 1) shall preclude you from transferring any of the Restricted Shares to any member of your immediate family, to a trust the only beneficiaries of which are you and/or members of your immediate family or to a partnership the sole partners of which are you and/or members of your immediate family, provided that in each case (i) you notify the Company of the transfer (you must sign and deliver to the Secretary of MBIA a completed Restricted Stock Transfer Form attached as Exhibit A hereto), (ii) the transferee must acknowledge in writing that the restrictions set forth in this letter shall continue to apply to such shares in accordance with the terms hereof and (iii) the Company may impose such reasonable conditions on such transfer as it shall deem necessary or appropriate to preserve its rights under this letter.

8.    Withholding. As a condition of receiving a share certificate without legend, you shall be required to comply with any applicable Federal, state or local tax withholding requirements.

9.    No Right to Continued Employment. Nothing in this Agreement shall be deemed to confer on you any right to continue in the employ of the Company or any of its subsidiaries, or to interfere with or limit in any way the right of the Company or any of its subsidiaries to terminate such employment at any time.

10.    Governing Law. This Agreement shall be construed and enforced in accordance with, and governed by, the laws of the State of New York.

Please sign one of the two copies of this letter where indicated below and return it to me at your earliest convenience. Please retain the other copy of this letter for your records.

MBIA INC.

By:

ACCEPTED AND AGREED TO:

Page 3 of 5

Date:

Page 4 of 5

EXHIBIT A

RESTRICTED STOCK TRANSFER FORM

Pursuant to the terms of the letter agreement dated                                          pursuant to which the undersigned was awarded restricted stock, the undersigned hereby transfers (#)                 shares of restricted stock from the restricted stock granted on                      to (insert name of transferee)                                                                                  .

Family member (transferee) information:

Relationship of transferee to the undersigned:                                                                                                                          

Transferee Address:    

Transferee Social Security #:                                                                                                                                                               

Transferee Phone #:                                                                                                                                                                                 

Date:                                                                                                      Signed:                                                                                         

The undersigned transferee acknowledges that he/she has read the restricted stock letter Agreement and agrees to abide by its terms.

Transferee Signature:                                                          

Transferee Name (print):                                                   

Date:                                                                                             

RETURN TO THE SECRETARY OF MBIA INC.

Page 5 of 5

EX-10.62

Exhibit 10.62

FORM OF RESTRICTED STOCK AGREEMENT

DIRECTOR

Date

NAME

ADDRESS

AWARD OF RESTRICTED STOCK FOR DIRECTORS

Dear             :

We are pleased to confirm to you that in consideration for your services as a non-employee member (a “Director”) of the board of directors (the “Board”) of MBIA Inc. (the “Company”), you have been awarded              shares of the Common Stock of MBIA Inc., par value $1.00 per share (the “Restricted Shares”) of the Company under the Directors Restricted Stock Plan of MBIA Inc., such award having been approved by the action of the Committee (as defined below) on             . The Restricted Shares are subject to the restrictions described below. This letter will confirm the following agreement between you and the Company with respect to this award of Restricted Shares.

1. Restriction on Transfer. Except as provided in Section 7 or as the Compensation and Organization Committee (the “Committee”) of the Board shall otherwise determine, none of the Restricted Shares may be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered (the “Transfer Restriction”) until the Transfer Restriction with respect to such Shares lapse as determined pursuant to the following schedule or at such earlier date as such restrictions shall otherwise lapse under the terms of this letter:

Restriction Lapse Number of Shares Dollar Value as of [1] [                ]

For purposes of this letter, the period during which the Restricted Shares remain subject to the transfer restrictions set forth in this Section 1 shall be called the “Restricted Period.”

2. Forfeiture of Restricted Stock Upon Voluntary Termination or Termination for Cause. Except as provided in paragraph 3 below or as the Committee shall otherwise determine, if (i) you voluntarily resign as a Director or (ii) you are removed as a Director for cause (as determined by a majority of the board of directors in accordance with the by-laws of the Company) prior to the end of the Restricted Period, any Restricted Shares then still subject to the transfer restrictions set forth in Section 1 shall be forfeited and revert back to the Company without any payment to you.

Page 1 of 4

[1] The company does not guarantee that the value of the restricted stock will be maintained

3. Accelerated Vesting Upon Certain Events, . If your are no longer able to serve as a Director due to (i) your death, or (ii) your long-term disability (as determined in accordance with the Company’s applicable policies pertaining to long-term disability) the Restricted Period shall immediately and automatically lapse, without further action by the Company, on the date of such termination as to any Restricted Shares then still subject to the transfer restrictions set forth in Section 1. In addition, if (i) you are not nominated by the Company for re-election as a Director (other than a failure to nominate you for cause, as determined by a majority of the board of directors in accordance with the by-laws of the Company) at any meeting of the shareholders of the Company held for the purpose of electing directors or (ii) if you are not elected as a Director by the shareholders of the Company at any meeting of the shareholders of the Company held for the purpose of electing directors and for which you are nominated for re-election as a Director, the Restricted Period shall immediately and automatically lapse, without further action by the Company, on the date of such shareholders meeting as to any Restricted Shares then still subject to the transfer restrictions set forth in Section 1.

4. Change of Control. Notwithstanding any other provision of this letter to the contrary, the Restricted Period shall lapse upon the occurrence of a Change in Control. For purposes of this Agreement, a Change in Control shall mean the occurrence of any of the following events:

(i) any person (within the meaning of Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), including any group (within the meaning of Rule 13d-5(b) under the Exchange Act)), but excluding any of the Company, any Subsidiary or any employee benefit plan sponsored or maintained by the Company or any Subsidiary, acquires “beneficial ownership” (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined Voting Power (as defined below) of the Company’s securities; or

(ii) within any 24-month period, the persons who were directors of the Company at the beginning of such period (the “Incumbent Directors”) shall cease to constitute at least a majority of the Board or the board of directors of any successor to the Company; provided, however, that any director elected to the Board, or nominated for election, by a majority of the Incumbent Directors then still in office shall be deemed to be an Incumbent Director for purposes of this subclause (ii); or

(iii) upon the consummation of a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of the Company which has been approved by the shareholders of the Company (a “Corporate Event”), and immediately following the consummation of which the stockholders of the Company immediately prior to such Corporate Event do not hold, directly or indirectly, a majority of the Voting Power of (x) in the case of a merger or consolidation, the surviving or resulting corporation, (y) in the case of a share exchange, the acquiring corporation or (z) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant Corporate Event, holds more than 25% of the consolidated assets of the Company immediately prior to such Corporate Event; or

Page 2 of 4

(iv) any other event occurs which the Board declares to be a Change of Control.

5. Rights as a Shareholder. Except for the transfer restriction, you shall have all the rights of a stockholder with respect to your Restricted Shares, including the right to vote the shares and to receive dividends.

6. Conversions and Property Distributions. In the event your Restricted Shares are exchanged for or converted into securities other than Common Stock or in the event that any distribution is made with respect to such Restricted Shares either in Common Stock or in other property, the securities or other property that you receive shall be subject to the same restrictions as apply to your Restricted Shares.

7. Transfers of Restricted Stock to Family Members. Nothing in this letter (including, without limitation, Section 1) shall preclude you from transferring any of the Restricted Shares to any member of your immediate family, to a trust the only beneficiaries of which are you and/or members of your immediate family or to a partnership the sole partners of which are you and/or members of your immediate family, provided that in each case (i) you notify the Company of the transfer (you must sign and deliver to the Secretary of MBIA a completed Restricted Stock Transfer Form attached as Exhibit A hereto), (ii) the transferee must acknowledge in writing that the restrictions set forth in this letter shall continue to apply to such shares in accordance with the terms hereof and (iii) the Company may impose such reasonable conditions on such transfer as it shall deem necessary or appropriate to preserve its rights under this letter.

8. Withholding. As a condition of receiving a share certificate without legend, you shall be required to comply with any applicable Federal, state or local tax withholding requirements.

9. Governing Law. This Agreement shall be construed and enforced in accordance with, and governed by, the laws of the State of New York.

MBIA INC.

By:

Page 3 of 4

EXHIBIT A

RESTRICTED STOCK TRANSFER FORM

Pursuant to the terms of the letter agreement dated March 12, 2003 pursuant to which the undersigned was awarded restricted stock, the undersigned hereby transfers (#)              shares of restricted stock from the restricted stock granted on                                          to [insert name of transferee]                                     .

Family member (transferee) information:

Relationship of transferee to the undersigned:                                                                                                                                     

Transferee Address:                                                                                                                                                                                       

Transferee Social Security #:                                                                                                                                                                     

Transferee Phone #:                                                                                                                                                                                      

Date: Signed:

The undersigned transferee acknowledges that he/she has read the restricted stock letter Agreement and agrees to abide by its terms.

Transferee Signature:                                                              

Transferee Name (print):                                                        

Date:                                                                                              

RETURN TO THE SECRETARY OF MBIA INC.

Page 4 of 4

EX-10.63

Exhibit 10.63

FORM OF RESTRICTED STOCK AGREEMENT

EXECUTIVE OFFICERS

Date

Employee

Address

AWARD OF RESTRICTED STOCK

Dear             :

We are pleased to confirm to you that, subject to the restrictions described below, you have been awarded              shares of the Common Stock of MBIA Inc. (the “Company”), par value $1.00 per share (the “Restricted Shares”), such award having been approved by the action of the Committee (as defined below) on             . This letter will confirm the following agreement between you and the Company with respect to this award of Restricted Shares.

1. Restriction on Transfer. Except as provided in Section 7 or as the Compensation and Organization Committee of the Company’s Board of Directors (the “Committee”) shall otherwise determine, none of the Restricted Shares may be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered (the “Transfer Restriction”) until the Transfer Restriction with respect to such Shares lapse as determined pursuant to the following schedule or at such earlier date as such restrictions shall otherwise lapse under the terms of this letter:

Restriction Lapse Number of Shares Dollar Value as of [1] [                    ]

For purposes of this letter, the period during which the Restricted Shares remain subject to the transfer restrictions set forth in this Section 1 shall be called the “Restricted Period.”

2. Forfeiture of Restricted Stock Upon Voluntary Termination or Termination for Cause. Except as provided in paragraph 3 below or as the Committee shall otherwise determine, if (i) you voluntarily terminate your employment with the Company and each of its subsidiaries or (ii) your employment is terminated by the Company for Cause (as hereinafter defined) prior to the end of the Restricted Period, any Restricted Shares then still subject to the transfer restrictions set forth in Section 1 shall be forfeited and revert back to the Company without any payment to you. For purposes of this letter, “Cause” means (i) your willful failure to perform substantially your duties as an employee of the Company (other than due to physical or mental illness) after reasonable notice to you of such failure, (ii) your engaging in serious misconduct that is injurious to the Company or any of its subsidiaries in any way, including, but

[1] The company not guarantee that the value of the restricted stock will be maintained.

1

not limited to, by way of damage to their respective reputations or standings in their respective industries, (iii) your being convicted of, or your entry of a plea of nolo contendere to, a crime that constitutes a felony or (iv) your breach of any written covenant or agreement with the Company or any Subsidiary not to disclose or misuse any information pertaining to, or misuse any property of, the Company or any Subsidiary or not to compete or interfere with the Company or any Subsidiary.

3. Vesting Upon Death, Disability, Termination by the Company Without Cause. If your employment with the Company and its subsidiaries terminates due to (i) your death, (ii) your long-term disability (as determined in accordance with the Company’s applicable policies pertaining to long-term disability), (iii) a termination by the Company other than for Cause or (iv) a Voluntary Termination for Good Reason (as defined below), the Restricted Period shall immediately and automatically lapse, without further action by the Company, on the date of such termination as to any Restricted Shares then still subject to the transfer restrictions set forth in Section 1. A “Voluntary Termination for Good Reason” shall mean any voluntary resignation by you within 120 days following the occurrence of any of the following events without your prior written consent: (i) a significant reduction in your duties, responsibilities or title; (ii) a material reduction in your annual base salary, other than a reduction which is part of an overall reduction in the base salaries of all senior officers of the Company and such reduction is proportionate to that imposed on such other officers; (iii) the reassignment of your reporting responsibilities so that you do not report either to the Company’s Chief Executive Officer or to an individual who reports directly to the Company’s Chief Executive Officer; or (iv) the relocation of your principal place of employment to a location other than the Company’s corporate headquarters.

4. Change of Control. Notwithstanding any other provision of this letter to the contrary, the Restricted Period shall lapse upon the occurrence of a Change in Control. For purposes of this Agreement, a Change in Control shall mean the occurrence of any of the following events:

(i) any person (within the meaning of Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), including any group (within the meaning of Rule 13d-5(b) under the Exchange Act)), but excluding any of the Company, any Subsidiary or any employee benefit plan sponsored or maintained by the Company or any Subsidiary, acquires “beneficial ownership” (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined Voting Power (as defined below) of the Company’s securities; or

(ii) within any 24-month period, the persons who were directors of the Company at the beginning of such period (the “Incumbent Directors”) shall cease to constitute at least a majority of the Board or the board of directors of any successor to the Company; provided, however, that any director elected to the Board, or nominated for election, by a majority of the Incumbent Directors then still in office shall be deemed to be an Incumbent Director for purposes of this subclause (ii); or

(iii) upon the consummation of a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of the Company which has been approved by the shareholders of the Company (a “Corporate Event”), and immediately following the consummation of which the stockholders of the Company immediately prior to such Corporate Event do not hold, directly or indirectly, a majority of the Voting Power of (x) in the case of a merger or consolidation, the surviving or resulting corporation, (y) in the case of a share exchange, the acquiring corporation or (z) in the case of a division or a sale or other

2

disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant Corporate Event, holds more than 25% of the consolidated assets of the Company immediately prior to such Corporate Event; or

(iv) any other event occurs which the Board declares to be a Change of Control.

In order to avoid any confusion, the Company hereby acknowledges that Section 7(c)(iii) of the Key Employee Protection Agreement (the “Key Employee Agreement”) between you and the Company is not intended to prevent the lapsing of the Restricted Period upon a Change of Control as provided for in this Section 4.

5. Rights as a Shareholder. Except for the transfer restriction, you shall have all the rights of a stockholder with respect to your Restricted Shares, including the right to vote the shares and to receive dividends.

6. Conversions and Property Distributions. In the event your Restricted Shares are exchanged for or converted into securities other than Common Stock or in the event that any distribution is made with respect to such Restricted Shares either in Common Stock or in other property, the securities or other property that you receive shall be subject to the same restrictions as apply to your Restricted Shares.

7. Transfers of Restricted Stock to Family Members. Nothing in this letter (including, without limitation, Section 1) shall preclude you from transferring any of the Restricted Shares to any member of your immediate family, to a trust the only beneficiaries of which are you and/or members of your immediate family or to a partnership the sole partners of which are you and/or members of your immediate family, provided that in each case (i) you notify the Company of the transfer (you must sign and deliver to the Secretary of MBIA a completed Restricted Stock Transfer Form attached as Exhibit A hereto), (ii) the transferee must acknowledge in writing that the restrictions set forth in this letter shall continue to apply to such shares in accordance with the terms hereof and (iii) the Company may impose such reasonable conditions on such transfer as it shall deem necessary or appropriate to preserve its rights under this letter.

8. Withholding. As a condition of receiving a share certificate without legend, you shall be required to comply with any applicable Federal, state or local tax withholding requirements.

9. No Right to Continued Employment. Nothing in this Agreement shall be deemed to confer on you any right to continue in the employ of the Company or any of its subsidiaries, or to interfere with or limit in any way the right of the Company or any of its subsidiaries to terminate such employment at any time.

10. Governing Law. This Agreement shall be construed and enforced in accordance with, and governed by, the laws of the State of New York.

Please sign one of the two copies of this letter where indicated below and return it to me at your earliest convenience. Please retain the other copy of this letter for your records.

MBIA INC.

3

By:

ACCEPTED AND AGREED TO:

Date:

4

EXHIBIT A

RESTRICTED STOCK TRANSFER FORM

Pursuant to the terms of the letter agreement dated              pursuant to which the undersigned was awarded restricted stock on             , the undersigned hereby transfers (#)             shares of restricted stock from the restricted stock granted on              to (insert name of transferee)            .

Family member (transferee) information:

Relationship of transferee to the undersigned:                                                                                                                                                                              

Transferee Address:                                                                                                                                                                                                                               

Transferee Social Security #:                                                                                                                                                                                                              

Transferee Phone #:                                                                                                                                                                                                                               

Date:                                                                                                                   Signed:                                                                                                              

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

The undersigned transferee acknowledges that he/she has read the restricted stock letter Agreement and agrees to abide by its terms.

Transferee Signature:                                                                                                       

Transferee Name (print):                                                                                                 

Date:                                                                                                                                       

RETURN TO THE SECRETARY OF MBIA INC.

5

EX-10.64

March 12, 2003

Exhibit 10.64

FORM OF

STOCK OPTION AGREEMENT

(CHIEF EXECUTIVE OFFICER/PRESIDENT)

AGREEMENT made between MBIA Inc., a Connecticut corporation (the “Company”), and                          (the “Optionee”).

WITNESSETH:

WHEREAS, the Company has established the MBIA Inc. 2000 Stock Option Plan (the “Plan”) providing for the granting of options to purchase shares (“Stock Options”) of Common Stock, par value $1 per share, of the Company (“Shares”) to key employees of the Company and certain wholly-owned subsidiaries of the Company; and

WHEREAS, the Optionee is a key employee of the Company and the Company has determined it to be in the interest of the Company and its shareholders for the Optionee to be granted a stock option (the “Option”) under the Plan as an inducement for him to remain in the service of the Company and as an incentive for continuing effort during such service; and

WHEREAS, the Compensation and Organization Committee (the “Committee”) of the Board of Directors of the Company has determined to grant to the Optionee this Option, subject to the terms set forth herein;

NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, and for other good and valuable consideration, receipt of which is hereby acknowledged, the Company and the Optionee (together, the “Parties”) do hereby agree as follows:

1. Grant. Pursuant to the terms and provisions of the Plan, and the action of the Committee on                          approving the grant, the Company hereby grants to the Optionee, such grant effective as of                         , the right and option to purchase, on the terms and conditions hereinafter set forth,                          (                        ) Shares.

2. Option Price. The purchase price of each of the Shares subject to the Option (the “Option Price”) is $             per share, which is the Market Price (as defined in Section 19) of a Share on                         .

3. Term of Option. Subject to the terms and provisions of the Plan and this Stock Option Agreement (the “Agreement”), this Option may be exercised during the periods set forth in Sections 4 and 5 below but no later than 11:59 p.m. on                          (the “Option Period”). The Optionee’s rights during the Option Period shall be subject to limitations as hereinafter provided and shall be subject to sooner termination as provided in Section 5.

4. Exercisability.

Page 1 of 10

(a) General Rule. One hundred percent (100%) of the Shares subject to the Option may be exercised, in whole or in part, and from time to time, on or after the earlier to occur of (i)                          or (ii) the later to occur of (1)                          and (2) the last day of a period of ten consecutive Trading Days on which a Share has traded at least $     at any point during each such Trading Day, subject to exercise at an earlier date in the event of certain terminations of the Optionee’s employment, as provided in Section 5. Upon the Option’s becoming exercisable under this Agreement, it shall, except as expressly provided herein, be treated as fully vested and nonforfeitable in all respects.

(b) Change of Control. Notwithstanding anything herein to the contrary, including, without limitation, Sections 4(a), 4(b) and 5, this Option shall upon any Change of Control (as defined in Section 19) immediately become fully exercisable.

5. Termination of Employment.

(a) Death. In the event that the Optionee dies while employed by the Company, this Option shall immediately become fully exercisable and the estate or other legal representative of the Optionee, or his successors and assigns as permitted under this Agreement, as the case may be, shall be entitled, during the period ending on the earlier of (i) the third anniversary of the Optionee’s death and (ii)                         , to exercise this Option with respect to all of the Shares then subject to this Option. To the extent any portion of this Option is not exercised on or before such earlier date, such unexercised portion of this Option shall expire. Notwithstanding any other provision of this Section 5, in the event the Optionee dies subsequent to the termination of his employment with the Company, but at a time at which all or a portion of this Option is exercisable pursuant to the provisions of this Section 5, the estate or other legal representative of the Optionee, or his successors and assigns as permitted under this Agreement, as the case may be, shall be entitled to exercise the portion of this Option that is exercisable at the date of the Optionee’s death for the period otherwise specified in this Section 5 or, if longer, until the earlier of the first anniversary of the Optionee’s death or                         .

(b) Disability. In the that event the Optionee’s employment with the Company is terminated by either Party due to Disability (as defined in Section 19), this Option shall immediately become fully exercisable and the Optionee shall be entitled, during the period ending on the earlier of (i) the third anniversary of the date of his termination of employment due to Disability and (ii)                         , to exercise this Option with respect to all of the Shares then subject to this Option. To the extent any portion of this Option is not exercised on or before such earlier date, such unexercised portion of this Option shall expire.

(c) Retirement. In the event that the Optionee’s employment with the Company is terminated by his Retirement, the Optionee shall be entitled, during the period ending on the earlier of (i) the third anniversary of the date of his termination of employment due to Retirement and (ii)                         , to exercise the Option with respect to the sum of (1) that number of Shares with respect to which the Optionee could have exercised the Option on the date of his Retirement, determined in accordance with Section 4 above, and (2) his Pro-Rata Percentage of any Shares as to which this Option is not exercisable at the date of his Retirement. To the extent any portion of this Option is not exercised on or before such earlier date, such unexercised portion of this Option shall expire. For this purpose, “Retirement” shall mean termination of the Optionee’s employment, other than a termination by the Company for Cause or a termination to

Page 2 of 10

which Section 5(a), 5(b) or 5(d) applies, within the meaning of the Company’s Pension Plan; and “Pro Rata Percentage” shall mean the percentage determined by dividing (i) the number of whole and partial months of the Optionee’s award from                          to the date of his Retirement by (ii)                         .

(d) Termination Without Cause. In the event that the Optionee’s employment is terminated by the Company for any reason other than due to death or Disability or for Cause (as each such term is defined in Section 19), this Option shall immediately become fully exercisable and the Optionee shall be entitled, during the period ending on the earlier of (x) the fifth anniversary of the date of his termination of employment and (y)                        , to exercise this Option with respect to all of the Shares then subject to this Option. To the extent any portion of this Option is not exercised on or before such earlier date, such unexercised portion of this Option shall expire.

(e) Voluntary Termination. In the event that the Optionee terminates his employment with the Company voluntarily and none of Sections 5(a) through 5(d) apply, then the Optionee shall be entitled during the period ending on the earlier of (i) the first anniversary of his termination of employment and (ii)                        , to exercise the Option with respect to the number of Shares as to which the Option was exercisable by the Optionee at the date of such termination of employment. To the extent any portion of this Option is not exercised on or before such earlier date, such unexercised portion of this Option shall expire.

(f) Other Termination. In the event the Optionee’s employment with the Company is terminated for any reason other than those described in subsection (a), (b), (c), (d), and (e) above, then the Optionee shall be entitled during the period ending on the earlier of (i) the three month anniversary of his termination of employment and (ii)                         , to exercise the Option with respect to the number of Shares as to which the Option was exercisable by the Optionee at the date of such termination of employment. To the extent any portion of this Option is not exercised on or before such earlier date, such unexercised portion of this Option shall expire.

(g) Committee Discretion. Without limiting the generality of the foregoing, the Committee shall have the authority in its discretion to provide terms and conditions with respect to the exercisability of the Option before or after termination of employment that are more favorable to the Optionee than those set forth in Section 4 or Section 5.

6. No Rights of Shareholder or Continued Employment. The Optionee shall not, by virtue hereof, be entitled to any rights of a shareholder of the Company, either at law or in equity. Neither the grant of this Option nor the exercise of such Option shall be construed as granting to the Optionee any right of continued employment, and the right of the Company to terminate the Optionee’s employment at any time at will (whether by dismissal, discharge or otherwise) is specifically reserved.

7. Exercise of Option.

(a) Method of Exercise. In order to exercise this Option, in whole or in part, the Optionee (or any other person entitled to exercise this Option in accordance with the terms hereof) shall submit to the Company an instrument in writing (which shall be substantially in the form of Exhibit A hereto or in another form which shall contain the data required by such form) specifying the whole number of Shares in respect of which the Option is being exercised and accompanied by payment in full (or an arrangement

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for payment in full in accordance with Section 7(b)) of the aggregate Option Price for the Shares in respect of which the Option is being exercised. The number of Shares for which the Option has thus been exercised shall then promptly be issued by the Company (the “Option Shares”) and a certificate promptly delivered to the Optionee (or such other person as shall be exercising this Option); provided, however, that the Company shall not be obligated to issue any Option Shares hereunder if the issuance of such Option Shares would violate any provisions of any applicable law or regulation of any governmental authority.

(b) Method of Payment. Payment of the aggregate Option Price for Option Shares may be made (i) by delivery to the Company of cash or a check to the order of the Company in an amount equal to the aggregate Option Price of such Shares; (ii) by delivery to the Company of Shares then owned by the Optionee having an aggregate Market Price on the date of delivery equal to the aggregate Option Price of the Shares for which the Option is being exercised; (iii) through reasonable cashless exercise procedures that are from time to time established by the Company (which procedures the Company agrees to establish if requested by the Optionee) and that afford the Optionee the opportunity to sell immediately some or all of the Shares underlying the exercised portion of the Option in order to generate sufficient cash to pay the aggregate Option Price of such Shares or (iv) by any combination of (i), (ii) or (iii).

(c) Delivery of Shares in Payment of Option Price. Payment by delivery of Shares may be effected by delivering one or more stock certificates or otherwise by delivering Shares to the Company’s reasonable satisfaction (including, without limitation, through an “attestation” procedure that is reasonably acceptable to the Company) in each case accompanied by such endorsements, stock powers, signature guarantees or other documents or assurances as may reasonably be required by the Company. If a certificate or certificates or other documentation representing Shares in excess of the amount required are delivered, a certificate (or other satisfactory evidence of ownership) representing the excess number of Shares shall be returned by the Company. The Company need not accept fractional Shares.

(d) Additional Company Obligations. The Company shall, upon and to the extent of any written request from the Optionee, use its reasonable commercial best efforts to assure that all Option Shares shall be, and shall remain, (i) fully registered (at the Company’s expense) for issuance under the Securities Act of 1933, as amended; (ii) fully registered or qualified (at the Company’s request) under such state securities laws as the Optionee may reasonably request, both for issuance and resale, (iii) listed on a national securities exchange or eligible for sale on the NASDAQ National Market; and (iv) validly issued, fully paid and nonassessable. The Company shall at all times reserve and keep available sufficient Shares to satisfy the requirements of this Agreement and shall pay all original issue taxes with respect to the issuance of Option Shares and all other fees and expenses incurred in connection therewith.

8. Adjustments for Changes in Structure and Special Transactions. In the event of any merger, consolidation, reorganization, recapitalization, spin-off, split-up, combination, share exchange, liquidation, dissolution, stock split, extraordinary cash dividend, stock dividend, distribution of stock or other property in respect of the Shares or other securities of the Company, or other change in corporate structure or capitalization affecting the Shares, appropriate adjustment(s) will be made in the number and kind of equity securities subject to this Option, the Market Price specified in Section 4(a)(i)(2), the number of Shares specified in Section 4(b) and/or in the Option Price or

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other terms and conditions of this Option and/or appropriate provision shall be made for supplemental payments of cash or other property, so as to avoid dilution or enlargement of the rights of the Optionee and of the economic opportunity and value represented by this Option. The Company will use its reasonable commercial best efforts to obtain the agreement of any successor in interest to provide the opportunity for the Optionee to receive options for its common equity in substitution for this Option, but shall not have any obligation to take any action that would be detrimental to the interests of the Company’s shareholders.

9. Deferral of Option Gains. The Optionee shall have the right, by furnishing written notice to the Company at least six months prior to any exercise of this Option, to elect to defer any gains realized upon such exercise. Any such deferral, including the manner of exercise of this Option in connection with such deferral, shall be made in such manner as may reasonably be required by the Company, including such requirements as may apply in order to defer such gains for Federal income tax purposes and as the independent public accountants for the Company reasonably advise are necessary in order that such gains not result in a charge against the earnings of the Company. At the time the Optionee elects to defer such gains, such gains shall be deferred into any non-qualified deferral plan of the Company that accepts such deferrals on terms and conditions that satisfy the requirements of the preceding sentence. If no such plan is available, the Optionee may make an irrevocable written election to defer such gains into Share Units (with each Share Unit representing a Share, including the right to be credited with any dividends or other distributions that may be declared or made thereon during the period of the deferral). Amounts deferred under this Section 10 shall be paid out under the terms of the Optionee’s election to defer.

10. Confidential Information; Nonsolicitation. (a) Confidential Information. Without the prior written consent of the Company, and except to the extent required in the performance of his duties as an officer or employee of the Company or as compelled by an order of a court having competent jurisdiction or under subpoena from an appropriate government agency, the Optionee shall not disclose to any third person any trade secrets, customer lists, product development, marketing plans, sales plans, management organization, operating policies and manuals, business plans, financial records, any information related to any of the foregoing or other financial, commercial, business or technical information related to the Company or any of its subsidiaries unless such information has been previously disclosed to the public by the Company or has become public knowledge other than by Optionee’s breach of the covenant contained in this Section 10(a).

(b) Nonsolicitation. The Optionee agrees that, in consideration of the grant of this Option, during his period of employment with the Company or any of its affiliates and for the period following the termination of such employment ending on the first anniversary thereof, the Optionee will not hire or seek to hire (whether on his own behalf or on behalf of some other person or entity) any person who is at that time (or was at any time during the three preceding months) an employee of the Company and/or its affiliates. The Optionee will not, directly or indirectly, induce or encourage any employee of the Company and/or any of its affiliates to leave the Company and/or such affiliate’s employ.

11. Nonassignability of Option. This Option is personal and no rights granted hereunder may be transferred, assigned, pledged, hypothecated in any way (whether by operation of law or otherwise) nor shall any such rights be subject to execution,

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attachment or similar process, except that this Option may be transferred, in whole or in part, (i) by will or the laws of descent and distribution; (ii) to any organization that is exempt from Federal income taxation pursuant to Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”) or any private foundation that is exempt for Federal income taxation under Section 509 of the Code, provided that such organization or foundation agrees to be bound by the terms of this Agreement and any reasonable conditions that the Company may impose in order to assure compliance with its obligations under the Federal securities laws; and (iii) to any Immediate Family Member or to any trust, the sole beneficiaries of which are the Optionee and/or his Immediate Family Members, or to any entity (including, without limitation, any corporation, partnership or limited liability company) in which the Optionee, his Immediate Family Members or trusts solely for the benefits of such persons hold all the beneficial interests, provided that such Immediate Family Members and/or trusts and/or other entities (and upon distribution their beneficiaries) are bound by the provisions of this Agreement. For purposes of this Agreement, the term “Immediate Family Member” shall mean the Optionee’s parents and spouse and any of the lineal descendants of the Optionee, his spouse or either of his parents (including, without limitation, descendants by adoption). Any person or entity to whom this Option has been transferred in whole or in part in part in accordance with this Section 12 shall to the extent of the transfer, succeed to the rights of the Optionee under Sections 3, 4(a), 4(c), 5, 7, 8, 16 and 17.

12. Restrictions on Transfer of Option Shares. Neither Option Shares acquired on exercise of the Option, nor any interest in such Option Shares may be sold, assigned, pledged, hypothecated, encumbered or in any other manner transferred or disposed of, in whole or in part, except in compliance with the terms, conditions and restrictions as set forth in the Certificate of Incorporation or By-Laws of the Company, applicable federal and state securities laws or any other applicable laws or regulations, and the terms and conditions hereof.

13. Withholding. The Optionee agrees to make appropriate arrangements with the Company for satisfaction of any applicable tax withholding requirements (“tax obligations”) arising out of this Agreement. Such tax obligations may be satisfied in any of the manners provided in Section 7(b) for payment of the purchase price of the Option Shares or, at the election of the Optionee, by authorizing the Company to withhold up to the greatest number of whole Shares that would otherwise would be delivered to the Optionee and that have an aggregate Market Price on the date of exercise equal to the amount of taxes required to be withheld.

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

15. References and Headings. References herein to rights and obligations of the Optionee shall apply, where appropriate, to the estate or other legal representative of the Optionee or his successors and assigns as permitted under this Agreement, as the case may be, without regard to whether specific reference to such estate or other legal representative or his successors and assigns is contained in a particular provision of this Agreement. The headings of Sections contained in this Agreement are for convenience

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only and shall not control or affect the meaning or construction of any provision of this Agreement.

16. Notices. Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given (i) when delivered directly to the person concerned or (ii) three business days after being sent by postage-prepaid certified or registered mail or by nationally recognized overnight carrier, return receipt requested, duly addressed to the person concerned at the location indicated below (or to such changed address as such party may subsequently by similar process give notice of): If to the Company, at the Company’s headquarters and to the attention of the Office of the Secretary. If to the Optionee, at the Company’s headquarters and to the attention of the Optionee. If to a transferee permitted under Section 12, to the address (if any) supplied by the Optionee to the Company.

17. Resolution of Disputes  Any dispute or controversy arising out of or relating to this Agreement, the Optionee’s employment with the Company, or the termination thereof, shall be resolved by binding confidential arbitration, to be held in New York City before three arbitrators in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Each of the Parties shall be entitled to appoint one of the three arbitrators and the third arbitrator shall be appointed by the arbitrators appointed by the Parties. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. The Company shall promptly pay all costs and expenses, including without limitation reasonable attorneys’ fees, incurred by the Optionee (or his permitted successors and assigns) in resolving any claim raised in such an arbitration, other than any claim brought by the Optionee (or the Optionee’s permitted successors and assigns) that the arbitrator(s) determine to have been brought (i) in bad faith or (ii) without any reasonable basis. In the event that there is a dispute regarding the Optionee’s rights under this Agreement, the Optionee shall have the right at any time and from time to time to deliver to the Company a written conditional exercise and sales notice with respect to all or any portion of this Option, the effect of which shall be to establish the Optionee’s damages in the event that any proceeding is resolved in his favor assuming that he would have exercised the Option to the extent provided in such notice on the date of such notice and immediately sold the Option Shares related to such deemed exercise on such date at the Market Price. In the event that any such proceeding is resolved favorably to the Company and against the Optionee, any such conditional exercise and sales notice shall be deemed void and without effect, but the period during which the Option shall remain exercisable as otherwise specified in Section 5 shall in no event expire earlier than the earlier of (i) February 12, 2013 and (ii) 30 days after the arbitrator’s decision is rendered in writing in favor of the Company.

18. The Company’s Representations. The Company represents and warrants that (i) sufficient shares are available under the Plan for the grant of the Option hereunder; (ii) it is fully authorized by action of the Board and of the Committee (and of any other person or body whose action is required) to enter into this Agreement and to perform its obligations hereunder; (iii) the grant of this Option and this Agreement have been approved in accordance with Rule 16b-3(d)(1) promulgated under the 1934 Act; (iv) the execution, delivery and performance of this Agreement by the Company does not violate any applicable law, regulation, order, judgment or decree or any agreement, plan or corporate governance document of the Company; and (v) upon the execution and delivery of this Agreement by the Company and the Optionee, this Agreement shall be the valid and binding obligation of the Company, enforceable in accordance with its

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terms, except to the extent enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally.

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

(a) “Change of Control” shall mean the occurrence of any of the following events:

(i) any “person”, as such term is currently used is Section 13(d) or 14(d) of the 1934 Act, other than the Company, its majority owned subsidiaries, or any employee benefit plan of the Company or any of its majority-owned subsidiaries, becomes a “beneficial owner” (as such term is currently used in Rule 13d-3, as promulgated under the 1934 Act) of 25% or more of the Voting Power of the Company;

(ii) a majority of the Board consists of individuals other than Incumbent Directors, which term means the members of the Board who were serving on the Board on the date hereof, provided that any individual who becomes a director subsequent to that date whose election or nomination for election was supported by two-thirds of the directors who then comprised the Incumbent Directors shall be considered to be an Incumbent Director for purposes of this subsection 19(a)(ii);

(iii) the Board adopts any plan of liquidation providing for the distribution of all or substantially all of the Company’s assets;

(iv) the stockholders of the Company approve a merger, consolidation, share exchange, division, sale or other disposition of substantially all of the assets of the Company (a “Corporate Event”), as a result of which the shareholders of the Company immediately prior to such Corporate Event (the “Company Shareholders”) shall not hold, directly or indirectly, immediately following such Corporate Event a majority of the Voting Power of (x) in the case of a merger or consolidation, the surviving or resulting corporation, (y) in the case of a share exchange, the acquiring corporation or (z) in the case of a division or a sale or other disposition of substantially all of the Company’s assets, each surviving, resulting or acquiring corporation; provided that, such a division or sale shall not be a Change of Control for purposes of this Agreement to the extent that, following such Corporate Event, the Optionee continues to be employed by a surviving, resulting or acquiring entity with respect to which the Company Shareholders hold, directly or indirectly, a majority of the Voting Power immediately following such Corporate Event.

(b) “Cause” shall mean: (i) the Optionee is convicted of a felony involving moral turpitude or (ii) the Optionee engages in conduct that constitutes willful gross neglect or willful gross misconduct in carrying out his duties for the Company, resulting, in either case, in material economic harm to the Company, unless the Optionee believed in good faith that such conduct was in, or not opposed to, the best interests of the Company.

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

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(d) “Market Price”, when used with respect to the price of Shares on a particular day, shall mean the closing price for which a Share is purchased that day (or, if such day is not a Trading Day, on the most recent preceding Trading Day on which such a purchase occurred) on the principal national securities exchange or national market system on which Shares are then listed or eligible for sale (or, if Shares are not listed or eligible for sale on any such exchange or market system, the price as determined by agreement between the Parties or, in the absence of such agreement, the price as determined in accordance with Section 17).

(e) “Person”, when used in the definition of a Change of Control, shall have the meaning ascribed to such term in Section 3(a)(9) of the 1934 Act, as supplemented by Section 13(d)(3) of the 1934 Act; provided, however, that Person shall not include (i) the Company or any subsidiary of the Company or (ii) any employee benefit plan sponsored by the Company or any subsidiary of the Company.

(f) “Trading Day” shall mean a day on which the principal national securities exchange or national market system on which Shares are then listed or eligible for sale is open for buying and selling Shares (or, if Shares are not listed or eligible for sale on any such exchange or market system, any day that is not a Saturday, a Sunday, or a legal holiday in New York City).

(g) When used in the definition of a Change of Control, a specified percentage of “Voting Power” of a company shall mean such number of the Voting Securities as shall enable the holders thereof to cast such percentage of all the votes which could be cast in an annual election of directors and “Voting Securities” shall mean all securities of a company entitling the holders thereof to vote in an annual election of directors.

20. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Connecticut without regard to the principles of conflict of laws.

21. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which, when taken together, shall constitute one document.

22. Survival. The provisions of Sections 9, 16, 17, and 18 shall survive the exercise or expiration of this Option.

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

MBIA INC.

By:

OPTIONEE

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EXHIBIT A

MBIA INC. 2000 STOCK OPTION PLAN

OPTION EXERCISE FORM

Name:                                                                                                                                                                                                                 

Address:                                                                                                                                                                                                            

Social Security Number:                                                                                                                                                                              

Office Telephone Number:                                                                                                                                                                         

Pursuant to the terms of the MBIA Inc. 2000 Stock Option Plan, I hereby exercise the Option granted pursuant for the number of shares listed below:

1.     Number of shares as to which the option is being exercised:                                                                                               

2.     Per share exercise price: $

3.     Method of payment:                                                                                                                                                                            

4.     If a cashless exercise, to be executed by (provide name, phone and fax number):                                                        

I understand that the amount by which the aggregate fair market value of the shares that I am purchasing exceeds the aggregate exercise price is subject to applicable income and employment tax withholding. I agree that the Company shall calculate the amount required by law to be withheld. The amount required to be withheld shall be satisfied as follows:                                                                                                                                                                                      

Date:                                                                                                  Signed :                                                                                               

DO NOT WRITE BELOW THIS LINE

Date Received:                                                                            Fair Market Value:                                                                           

RETURN TO THE SECRETARY OF MBIA INC.

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EX-10.65

Exhibit 10.65

FORM OF

MBIA INC. 2000 STOCK OPTION PLAN

NONQUALIFIED STOCK OPTION AGREEMENT

EXECUTIVE OFFICERS

NONQUALIFIED STOCK OPTION AGREEMENT, between MBIA Inc., a Connecticut corporation (the “Company”) and                                          (the “Agreement”), under the Company’s 2000 Stock Option Plan, as the same may be amended from time to time (the “Plan”).

1. Confirmation of Grant; Option Price. The Company hereby confirms the grant to you, effective as of                                          (the “Grant Date”), of options (the “Options”) to purchase              shares of the Company’s Common Stock, par value $1.00 per share (“Common Stock”) at an option price of $         per share (the “Option Price”). The Options are not intended to be incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended. This Agreement is subject in all respects to the terms of the Plan, which are made a part of and incorporated into this Agreement. Terms used in this Agreement with initial capital letters, but not defined herein, shall have the same meanings as under the Plan.

2. Exercisability. Except as otherwise provided in this Agreement, the Options shall become exercisable, subject to the provisions hereof, as follows: 40% of the Options shall become exercisable on the second anniversary of the Grant Date and the remaining 60% of the Options shall become exercisable in equal 20% installments on each of the third, fourth and fifth anniversaries of the Grant Date. Unless an earlier termination date is specified in accordance with Section 4, the Options shall terminate on the tenth anniversary of the Grant Date (the “Normal Expiration Date”).

3. Method of Exercise and Payment. You may exercise any portion of the Options that has become exercisable by (i) written notice of exercise to the Company’s Secretary in the form attached as Exhibit A hereto and (ii) either (A) paying the exercise price in full in cash or cash equivalents, including by personal check, or (B) entering into other arrangements with the Company to ensure payment of the exercise price. The exercise price may also be paid in whole or in part in shares of Common Stock held by you for at least six months, based on the Fair Market Value of such Common Stock on the date of exercise. As soon as practicable after receipt of a written exercise notice and payment of the exercise price of any exercisable Options, the Company shall deliver to you a certificate or certificates representing the shares of Common Stock acquired upon the exercise thereof. In the event that the Committee shall determine that any certificates issued under this Section 3 must bear a legend restricting the transfer of such Common Stock, such certificates shall bear the appropriate legend.

4. Termination of Employment.

(a) Death or Disability. In the event that your employment with the Company or any of its Subsidiaries terminates by reason of your death or Disability, then 100% of the Options shall be exercisable as of the date of such termination, and such Options may be exercised by you or your beneficiary as designated in accordance with Section 8, at any time on or before the earlier to occur of (i) the Normal Expiration Date or (ii) the first anniversary of your death or termination of employment due to Disability.

(b) Termination for Cause. In the event that your employment with the Company or any of its Subsidiaries is terminated for Cause, all of your unexercised Options (whether or not then exercisable) shall terminate and be canceled immediately upon such termination of employment. Your right to exercise any Options hereunder shall be suspended during any period in which the Company is conducting any investigation to determine whether Cause exists for the termination of your employment. In the event that such

1

investigation results in a determination that Cause exists for a termination of your employment, all of your unexercised Options (whether or not then exercisable) shall terminate and be canceled immediately upon such determination.

(c) Other Termination of Employment. Unless otherwise determined by the Committee, in the event that your employment with the Company or any of its Subsidiaries terminates for any reason other than (i) your death or Disability or (ii) for Cause, then all of your Options that are exercisable at the date of your termination of employment may be exercised at any time prior to the expiration of the term of the Options or the ninetieth day following your termination of employment, whichever period is shorter, and any Options that are not exercisable at the time of your termination of employment shall be immediately forfeited.

(d) Forfeiture of Options. If, after your termination of employment, the Committee determines that, either during or after your employment by the Company or any of its Subsidiaries, you engaged in conduct that (i) would have permitted the Company or any of its Subsidiaries to terminate your employment for Cause had you still been employed or (ii) otherwise results in damage to the business or reputation of the Company or any of its Subsidiaries, all of the Options that are still outstanding at the time of such determination shall immediately terminate and be canceled immediately upon such determination by the Committee. Upon such a determination by the Committee, the Company may disregard any attempted exercise of the Options by notice delivered prior to such determination, if, at such time, the Company had not completed the steps necessary to effect such exercise. In such case, the Company shall only be obligated to return to you any amounts or shares of Common Stock remitted in order to exercise such Options.

5. Change of Control.

(a) Accelerated Vesting and Payment. Unless the Committee shall otherwise determine in the manner set forth in Section 5(b), in the event of a Change of Control each Option shall become fully exercisable (regardless of whether such Options are at such time otherwise exercisable) and the Committee may, in its discretion, provide that each Option shall be canceled in exchange for a payment in cash of an amount equal to the excess, if any, of the Change of Control Price over the Option Price.

(b) Alternative Awards. Notwithstanding Section 5(a), no cancellation, acceleration of exercisability, vesting or cash settlement or other payment shall occur with respect to any Option if the Committee reasonably determines in good faith, prior to the occurrence of a Change of Control, that such Option shall be honored or assumed, or new rights substituted therefore (such honored, assumed or substituted award being hereinafter referred to as an “Alternative Award”), provided that any such Alternative Award must:

(i) be based on stock which is traded on an established securities market, or that the Committee reasonably believes will be so traded within 60 days after the Change of Control;

(ii) provide you with rights and entitlements substantially equivalent to or better than the rights, terms and conditions applicable under such Option, including, but not limited to, an identical or better exercise and vesting schedule and identical or better timing and methods of payment;

(iii) have substantially equivalent economic value to such Option (determined at the time of the Change of Control); and

(iv) have terms and conditions which provide that in the event that your employment is involuntarily or constructively terminated within two years following a Change of Control, except if your employment is terminated for Cause, any conditions on your rights under, or any restrictions on transfer or exercisability applicable to, each such Alternative Award shall be waived or shall lapse.

(c) Key Employee Agreement. Notwithstanding anything contained herein or in the Plan to the contrary, to the extent that you are entitled to receive the severance benefits described in Section 7(c) of the Key Employee Protection Agreement (the “Key Employee Agreement”) between you and the company, (i) the Options granted hereunder (unless such Options shall already have become exercisable pursuant to Section

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5(a) above upon a Change of Control, in which case such Options shall be so exercisable as of such Change of Control), or any Alternative Award, shall automatically be and become fully exercisable on the Date of Termination (as defined in the Key Employee Agreement) without any further action on anyone’s part and (ii) you shall the right to exercise any such Option or any such Alternative Award until the earlier to occur of the expiration of the term of the Options or the expiration of the term of such Alternative Award and the fifth anniversary of such Date of Termination.

For purposes of this Section 5(b), a “constructive termination” shall mean a termination of employment by you following a material reduction in your base salary or your incentive compensation opportunity or a material reduction in your responsibilities, in either case without your written consent.

6. Tax Withholding. Whenever Common Stock is to be issued pursuant to the exercise of an Option, the Company shall have the power to withhold, or require you to remit, an amount sufficient to satisfy Federal, state, and local withholding tax requirements relating to such transaction, and the Company may defer payment of cash or issuance of Common Stock until such requirements are satisfied. The Committee may permit you to elect, subject to such conditions as the Committee shall impose, (i) to have shares of Common Stock otherwise issuable upon the exercise of an Option withheld or (ii) to deliver to the Company previously acquired shares of Common Stock having a Fair Market Value as of the date of exercise sufficient to satisfy the estimated total Federal, state, and local tax obligation associated with the transaction.

7. Nontransferability of Awards. No Options granted hereby may be sold, transferred, pledged, assigned, encumbered or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution; provided, however, that you may transfer the Options to any of your Family Members (including, without limitation, pursuant to a domestic relations order). In order to transfer any options to any Family Member, you must sign and deliver to the Secretary of MBIA a completed Stock Option Transfer Form attached as Exhibit B hereto. Following your death, all rights with respect to Options shall be exercised by your designated beneficiary (or, if applicable, your estate).

8. Beneficiary Designation. You may from time to time name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid or by whom any right under this Agreement is to be exercised in case of your death. Each designation will revoke all prior designations, shall be in a form reasonably acceptable to the Company, and will be effective only when filed in writing with the Secretary of the Company during your lifetime.

9. Adjustment of the Number of Option Shares. The number, class and exercise price of any outstanding Options (and the number of shares of Common Stock subject to outstanding Options), shall be adjusted by the Committee if, in its sole discretion, it shall deem such an adjustment to be necessary or appropriate to reflect any Common Stock dividend, stock split or share combination or any recapitalization, merger, consolidation, exchange of shares, liquidation or dissolution of the Company.

10. Requirements of Law. The granting of Options and the issuance of shares of Common Stock pursuant to the Options shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. No shares of Common Stock shall be issued upon exercise of any Options granted hereunder, if such exercise would result in a violation of applicable law, including the federal securities laws and any applicable state securities laws.

11. No Guarantee of Employment. Nothing in this Agreement shall interfere with or limit in any way the right of the Company or any of its Subsidiaries to terminate your employment at any time, nor confer upon you any right to continue in the employ of the Company or any Subsidiary.

12. No Voting Rights. You shall have no right, in respect of Options granted hereby, to vote on any matter submitted to the Company stockholders until such time as the shares of Common Stock issuable upon exercise of such Options have been so issued.

13. Interpretation; Construction. Any determination or interpretation by the Committee under or pursuant to the Plan and this Agreement shall be final and conclusive on all persons affected hereby. In the

3

event of a conflict between any term of this Agreement and the terms of the Plan, the terms of the Plan shall control.

14. Amendments. The Committee shall have the right, in its sole discretion, to amend this Agreement, from time to time, provided that no such amendment shall impair your rights under this Agreement without your consent. Subject to the preceding sentence, any alteration or amendment of this Agreement by the Committee shall, upon adoption thereof by the Committee, become and be binding and conclusive on all persons affected thereby without requirement for consent or other action with respect thereto by any such person. The Company shall give written notice to you of any such alteration or amendment of this Agreement as promptly as practicable after the adoption thereof. This agreement may also be amended in a written document signed by both you and the Company.

15. Miscellaneous.

(a) Notices. All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given if delivered personally or sent by certified mail, return receipt requested, postage prepaid, or by any recognized international equivalent of such mail delivery, to the Company or you, as the case may be, at the following addresses or to such other address as the Company or you shall specify by notice to the other party:

(i) if to the Company, to:

     MBIA Inc.

     113 King Street

     Armonk, NY 10504

     Attn: General Counsel

(ii) if to you, to the address recorded on the books and records of the Company.

All such notices and communications shall be deemed to have been received on the date of delivery or on the third business day after the mailing thereof.

(b) Applicable Law. This Agreement shall be governed by and construed in accordance with the law of the State of Connecticut, regardless of the law that might be applied under principles of conflict of laws.

(c) Section and Other Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

IN WITNESS WHEREOF, the Company and you have duly executed this Agreement as of the date first above written.

MBIA INC.

By:

EMPLOYEE

4

EXHIBIT A - CASHLESS EXERCISE

MBIA INC. 2000 STOCK OPTION PLAN

OPTION EXERCISE FORM

Name:

Address:

Social Security Number:

Office Telephone Number:

Pursuant to the terms of the MBIA Inc. 2000 Stock Option Plan, I hereby exercise the Option granted to me on                      for the number of shares listed below subject to the cashless exercise procedures in the Plan.

1. Number of shares as to which the option is being exercised:
2. Per share exercise price:	$
3. To be executed by (please specify name, telephone number and fax number):

4. Sell instructions: (            ) Sell at Market Price (            ) Sell at $                                 or higher

I understand that the amount by which the aggregate fair market value of the shares that I am purchasing exceeds the aggregate exercise price is subject to applicable income and employment tax withholding. I agree that the Company shall calculate the amount required to be withheld and such amount will be subtracted from the net proceed of the sale.

Date:                                                                                    Signed:                                                                                   

DO NOT WRITE BELOW THIS LINE

Date Received:                                                                   Fair Market Value:                                                             

RETURN TO THE SECRETARY OF MBIA INC.

5

EXHIBIT B

OPTION TRANSFER FORM

Pursuant to the terms of the MBIA Inc. 2000 Stock Option Plan, the undersigned hereby transfers (#)             options from the options granted on                              to (insert name of transferee)                                                                      .

Family member (transferee) information:

Relationship of transferee to the undersigned:

Transferee Address:

Transferee Social Security #:

Transferee Phone #:

Date:                                                                           Signed:                                                                          

The undersigned transferee acknowledges that he/she has read the non-qualified Stock Option Agreement and agrees to abide by its terms.

Transferee Signature:

Transferee Name (print):

Date:

RETURN TO THE SECRETARY OF MBIA INC.

6

EX-21

Exhibit 21

SUBSIDIARIES OF MBIA INC.

NAME OF SUBSIDIARY	STATE OF INCORPORATION
MBIA Insurance Corporation	New York
Municipal Issuers Service Corporation	New York
MBIA Insurance Corp. of Illinois	Illinois
MBIA Asset Management, LLC	Delaware
MBIA Municipal Investors Service Corporation	Delaware
Colorado Investor Services Corporation	Colorado
MBIA Investment Management Corp.	Delaware
MBIA Capital Management Corp.	Delaware
1838 Investment Advisors, LLC	Delaware
1838 Delaware Holding, LLC	Delaware
MBIA Capital Corp.	Delaware
Muni Resources, LLC	Delaware
MBIA International Marketing Services, Pty. Limited	Australia
MBIA Assurance S.A.	France
MBIA UK Insurance Limited	England and Wales
MBIA Singapore Pte Ltd.	Singapore
MBIA Japan Limited	Japan
MBIA Global Funding, LLC	Delaware
MBIA Asset Finance, LLC	Delaware
Triple-A One Funding Corporation	Delaware
Assurance Funding Limited	Jersey
Polaris Funding Company, LLC	Delaware
Meridian Funding Company, LLC	Delaware
Asia Credit Services (PTE) Ltd.	Singapore
Asian Securitization & Infrastructure Assurance (PTE) Ltd.	Singapore
Euro Asset Acquisition Limited	England and Wales
MBIA Services Company	Delaware
MBIA MuniServices Company	Delaware
Municipal Tax Collection Bureau, Inc.	Pennsylvania
John T. Austin, Inc.	California
Allen W. Charkow, Inc.	California
Municipal Resource Consultants	California
Capital Asset Holdings, Ltd. .	Florida
CapMAC Holdings Inc.	Delaware
Capital Markets Assurance Corporation	New York
CapMAC Investment Management, Inc.	Delaware
CapMAC Financial Services, Inc.	Delaware
CapMAC Financial Services (Europe) Ltd.	United Kingdom
CapMAC Asia Ltd.	Bermuda

EX-23

Exhibit 23

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration Statements of MBIA Inc. on Forms S-3 (No. 333-105980) and S-8 (Nos. 333-84300, 033-46062 and 333-34101) of:

(1) Our report dated February 13, 2004 relating to the consolidated financial statements of MBIA Inc., which appears in Item 8 of this Annual Report on Form 10-K. We also consent to the inclusion of our report dated February 13, 2004 relating to the financial statement schedules, which appears in this Form 10-K.

(2) Our report dated February 13, 2004 relating to the consolidated financial statements of MBIA Insurance Corporation as of December 31, 2003 and 2002, and for each of the three years in the period ended December 31, 2003, which is included in Exhibit 99 to this Annual Report on Form 10-K.

/s/ PricewaterhouseCoopers LLP

New York, NY

February 13, 2004

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph W. Brown, certify that:

1. I have reviewed the Annual Report of MBIA Inc. (the “Company”) on Form 10-K for the period ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”);

2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Report;

4. The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

(b) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

(c) disclosed in this Report that there were no change in the Company’s internal control over financial reporting that occurred during the Company’s fourth quarter of 2003 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5 The Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and to the audit committee of the board of directors:

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

/s/ Joseph W. Brown

Joseph W. Brown

Chief Executive Officer

March 12, 2004

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Neil G. Budnick, certify that:

1. I have reviewed the Annual Report of MBIA Inc. (the “Company”) on Form 10-K for the period ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”);

2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;

3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this Report;

4. The Company’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have:

(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

(b) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

(c) disclosed in this Report that there were no change in the Company’s internal control over financial reporting that occurred during the Company’s fourth quarter of 2003 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5 The Company’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and to the audit committee of the board of directors:

(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

/s/ Neil G. Budnick

Neil G. Budnick

Chief Financial Officer

March 12, 2004

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of MBIA Inc. (the “Company”) on Form 10-K for the period ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph W. Brown, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Joseph W. Brown

Joseph W. Brown

Chief Executive Officer

March 12, 2004

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of MBIA Inc. (the “Company”) on Form 10-K for the period ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Neil G. Budnick, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Neil G. Budnick

Neil G. Budnick

Chief Financial Officer

March 12, 2004

EX-99

EXHIBIT 99

MBIA INSURANCE CORPORATION

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2003 and 2002

and for the years ended

December 31, 2003, 2002 and 2001

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholder of

MBIA Insurance Corporation:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, changes in shareholder’s equity and cash flows present fairly, in all material respects, the financial position of MBIA Insurance Corporation and subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 4 to the consolidated financial statements, the Company changed its method of accounting for certain variable interest entities, effective January 31, 2003 for new entities and effective December 31, 2003 for previously existing entities. As discussed in Note 2 to the consolidated financial statements, effective January 1, 2002, the Company changed its method of accounting for goodwill and for stock options compensation. In addition, as discussed in Note 2 to the consolidated financial statements, effective January 1, 2001, the Company changed its method of accounting for derivative instruments.

/s/    PricewaterhouseCoopers LLP

New York, NY

February 13, 2004

MBIA INSURANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands except per share amounts)

	December 31, 2003		December 31, 2002
Assets
Investments:
Fixed-maturity securities held as available-for-sale at fair value (amortized cost $7,615,494 and $6,945,059)	$	8,136,740	$	7,446,035
Fixed-maturity securities pledged as collateral at fair value (amortized cost $365,205 and $485,124)		376,211		512,961
Short-term investments, at amortized cost (which approximates fair value)		906,883		628,033
Investments held-to-maturity, at amortized cost		1,505,906		—
Other investments		252,098		151,967
Total investments		11,177,838		8,738,996
Cash and cash equivalents		57,322		17,538
Securities purchased under agreements to resell		383,398		492,280
Accrued investment income		128,803		116,354
Deferred acquisition costs		319,728		302,222
Prepaid reinsurance premiums		535,728		521,641
Reinsurance recoverable on unpaid losses		61,085		43,828
Goodwill		76,938		76,938
Property and equipment, at cost (less accumulated depreciation of $72,996 and $63,926)		106,408		109,817
Receivable for investments sold		2,099		39,464
Derivative assets		55,806		96,733
Variable interest entity assets		600,322		—
Other assets		53,165		32,185
Total assets	$	13,558,640	$	10,587,996
Liabilities and Shareholder’s Equity
Liabilities:
Deferred premium revenue	$	3,079,851	$	2,755,046
Loss and loss adjustment expense reserves		559,510		573,275
Securities sold under agreements to repurchase		383,398		492,280
Medium-term note obligations		1,503,324		—
Short-term debt		57,337		—
Deferred income taxes, net		468,036		384,132
Deferred fee revenue		16,869		19,739
Payable for investments purchased		—		56,971
Derivative liabilities		49,549		190,881
Variable interest entity liabilities		600,322		—
Other liabilities		238,264		207,047
Total liabilities		6,956,460		4,679,371
Shareholder’s Equity:
Preferred stock, par value $1,000 per share; authorized shares - 4,000.08, issued and outstanding - none		—		—
Common stock, par value $150 per share; authorized, issued and outstanding - 100,000 shares		15,000		15,000
Additional paid-in capital		1,636,422		1,610,574
Retained earnings		4,512,765		3,943,341
Accumulated other comprehensive income, net of deferred income tax of $232,445 and $185,706		437,993		339,710
Total shareholder’s equity		6,602,180		5,908,625
Total liabilities and shareholder’s equity	$	13,558,640	$	10,587,996

The accompanying notes are an integral part of the consolidated financial statements.

-2-

MBIA INSURANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands)

	Years ended December 31
	2003			2002			2001
Revenues:
Gross premiums written	$	1,280,028		$	951,931		$	865,226
Ceded premiums		(239,432	)		(198,526	)		(235,362	)
Net premiums written		1,040,596			753,405			629,864
Increase in deferred premium revenue		(300,074	)		(164,896	)		(105,994	)
Premiums earned (net of ceded premiums of $236,340, $189,332 and $169,034)		740,522			588,509			523,870
Net investment income		421,226			431,090			412,756
Net realized gains		50,746			17,362			11,142
Net gains (losses) on derivative instruments		100,404			(74,664	)		(2,435	)
Advisory fees		65,580			46,577			35,468
Other		330			549			12,151
Total revenues		1,378,808			1,009,423			992,952
Expenses:
Losses and loss adjustment		72,888			61,688			56,651
Amortization of deferred acquisition costs		57,907			47,669			42,433
Operating		119,527			86,045			78,574
Total expenses		250,322			195,402			177,658
Income before income taxes		1,128,486			814,021			815,294
Provision for income taxes		319,062			212,477			210,951
Income before cumulative effect of accounting change		809,424			601,544			604,343
Cumulative effect of accounting change		—			—			(11,082	)
Net income	$	809,424		$	601,544		$	593,261

The accompanying notes are an integral part of the consolidated financial statements.

-3-

MBIA INSURANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY

For the years ended December 31, 2003, 2002, and 2001

(in thousands except per share amounts)

				Additional Paid-in Capital						Accumulated Other Comprehensive Income (Loss)			Total Shareholder’s Equity
	Common Stock						Retained Earnings
	Shares	Amount
Balance, January 1, 2001	100,000	$	15,000	$	1,540,071		$	3,191,536		$	60,999		$	4,807,606
Comprehensive income:
Net income	—		—		—			593,261			—			593,261
Other comprehensive income:
Change in unrealized appreciation of investments net of change in deferred income taxes of $7,390	—		—		—			—			13,694			13,694
Change in foreign currency translation	—		—		—			—			(3,679	)		(3,679	)
Other comprehensive income														10,015
Comprehensive income														603,276
Dividends declared (per common share $2,124.00)	—		—		—			(212,400	)		—			(212,400	)
Tax reduction related to tax sharing agreement with MBIA Inc.	—		—		27,407			—			—			27,407
Balance, December 31, 2001	100,000		15,000		1,567,478			3,572,397			71,014			5,225,889
Comprehensive income:
Net income	—		—		—			601,544			—			601,544
Other comprehensive income:
Change in unrealized appreciation of investments net of change in deferred income taxes of $134,406	—		—		—			—			250,289			250,289
Change in foreign currency translation	—		—		—			—			18,407			18,407
Other comprehensive income														268,696
Comprehensive income														870,240
Dividends declared (per common share $2,306.00)	—		—		—			(230,600	)		—			(230,600	)
Tax reduction related to tax sharing agreement with MBIA Inc.	—		—		25,643			—			—			25,643
Stock-based compensation	—		—		20,227			—			—			20,227
Capital issuance costs	—		—		(2,774	)		—			—			(2,774	)
Balance, December 31, 2002	100,000		15,000		1,610,574			3,943,341			339,710			5,908,625
Comprehensive income:
Net income	—		—		—			809,424			—			809,424
Other comprehensive income:
Change in unrealized appreciation of investments net of change in deferred income taxes of $43,831	—		—		—			—			81,728			81,728
Change in foreign currency translation net of change in deferred income taxes of $2,908	—		—		—			—			16,555			16,555
Other comprehensive income														98,283
Comprehensive income														907,707
Dividends declared (per common share $2,400.00)	—		—		—			(240,000	)		—			(240,000	)
Stock-based compensation	—		—		29,858			—			—			29,858
Variable interest entity equity	—		—		46			—			—			46
Capital issuance costs	—		—		(4,056	)		—			—			(4,056	)
Balance, December 31, 2003	100,000	$	15,000	$	1,636,422		$	4,512,765		$	437,993		$	6,602,180

	2003			2002			2001
Disclosure of reclassification amount:
Unrealized appreciation of investments arising during the period, net of taxes	$	119,605		$	256,284		$	23,290
Reclassification adjustment, net of taxes		(37,877	)		(5,995	)		(9,596	)
Net unrealized appreciation, net of taxes	$	81,728		$	250,289		$	13,694

The accompany notes are an integral part of the consolidated financial statements.

-4-

MBIA INSURANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Years ended December 31
	2003			2002			2001
Cash flows from operating activities:
Net income	$	809,424		$	601,544		$	593,261
Adjustments to reconcile net income to net cash provided by operating activities:
Increase in accrued investment income		(12,449	)		(6,090	)		(3,442	)
Increase in deferred acquisition costs		(17,506	)		(24,523	)		(3,344	)
Increase in prepaid reinsurance premiums		(14,087	)		(14,562	)		(64,457	)
Increase in deferred premium revenue		314,161			179,459			170,452
(Decrease) increase in loss and loss adjustment expense reserves		(13,765	)		54,886			19,110
Increase in reinsurance recoverable on unpaid losses		(17,257	)		(8,738	)		(3,676	)
Depreciation		9,070			10,307			10,540
Goodwill		—			—			4,658
Amortization of bond discount, net		(12,981	)		(10,687	)		(8,184	)
Net realized gains on sale of investments		(50,746	)		(17,362	)		(11,142	)
Deferred income tax provision (benefit)		36,248			259			(11,491	)
Net (gains) losses on derivative instruments		(100,404	)		74,664			2,435
Stock option compensation		22,403			20,227			—
Cumulative effect of accounting change, net		—			—			11,082
Other, net		88,177			36,269			145,083
Total adjustments to net income		230,864			294,109			257,624
Net cash provided by operating activities		1,040,288			895,653			850,885
Cash flows from investing activities:
Purchase of fixed-maturity securities, net of payable for investments purchased		(4,993,225	)		(2,788,599	)		(3,621,172	)
Sale of fixed-maturity securities, net of receivable for investments sold		2,703,029			2,006,228			2,602,967
Redemption of fixed-maturity securities, net of receivable for investments redeemed		1,597,511			529,065			431,275
Purchase of short-term investments, net		(97,670	)		(328,651	)		(14,423	)
Purchase of other investments, net		(16,863	)		(82,024	)		(18,742	)
Purchase of investments held-to-maturity		(1,505,906	)		—			—
Capital expenditures		(8,890	)		(8,144	)		(7,736	)
Disposals of capital assets		849			206			1,209
Net cash used by investing activities		(2,321,165	)		(671,919	)		(626,622	)
Cash flows from financing activities:
Net proceeds from issuance of short-term debt		57,337			—			—
Net proceeds from issuance of medium-term note obligations		1,503,324			—			—
Dividends paid		(240,000	)		(230,600	)		(212,400	)
Net cash provided (used) by financing activities		1,320,661			(230,600	)		(212,400	)
Net increase (decrease) in cash and cash equivalents		39,784			(6,866	)		11,863
Cash and cash equivalents - beginning of year		17,538			24,404			12,541
Cash and cash equivalents - end of year	$	57,322		$	17,538		$	24,404
Supplemental cash flow disclosures:
Income taxes paid	$	280,456		$	192,398		$	158,862

The accompanying notes are an integral part of the consolidated financial statements.

-5-

MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business and Organization

MBIA Insurance Corporation (MBIA Corp.) is a wholly owned subsidiary of MBIA Inc. MBIA Inc. was incorporated in Connecticut on November 12, 1986 as a licensed insurer and, through a series of transactions during December 1986, became the successor to the business of the Municipal Bond Insurance Association (the Association), a voluntary unincorporated association of insurers writing municipal bond and note insurance as agent for the member insurance companies.

MBIA Corp. provides an unconditional and irrevocable guarantee of the payment of principal and interest on insured obligations when due. MBIA Corp. writes business both in the United States and outside of the United States. Business outside of the United States is generally written through MBIA Assurance, S.A. (MBIA Assurance), a wholly owned French subsidiary that provides insurance for public infrastructure financings, structured finance transactions and certain obligations of financial institutions. Pursuant to a reinsurance agreement with MBIA Corp., a substantial amount of the risk insured by MBIA Assurance is reinsured by MBIA Corp.

MBIA Corp. also manages books of business through two other subsidiaries, MBIA Insurance Corp. of Illinois (MBIA Illinois), acquired in December 1989, and Capital Markets Assurance Corporation (CMAC), acquired in February 1998 when MBIA Inc. merged with CapMAC Holdings, Inc. (CapMAC). The net book of business of these two subsidiaries is 100% reinsured by MBIA Corp.

TRS Funding Corporation (TRS) was formed in September 1997 to provide clients with structured financing solutions involving the use of total return swaps and credit derivatives. While MBIA Corp. does not have a direct ownership interest in TRS, it is consolidated in the financial statements of MBIA Corp. on the basis that TRS is controlled by MBIA Corp. and substantially all risks and rewards are borne by MBIA Corp. In October 2002, all remaining investments and debt obligations of TRS matured. As of December 31, 2003, TRS had two derivative contracts outstanding.

LaCrosse Financial Products, LLC (LaCrosse), formerly King Street Financial Products, LLC, was created in December 1999 to offer clients structured derivative products, such as credit default, interest rate and currency swaps. While MBIA Corp. does not have a direct ownership interest in LaCrosse, it is consolidated in the financial statements of

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MBIA Corp. on the basis that LaCrosse is controlled by MBIA Corp. and substantially all risks and rewards are borne by MBIA Corp.

In May 2003, the Company sponsored the formation of Toll Road Funding, Plc. (TRF), a public company limited by shares and incorporated in Ireland under the Irish Companies Act. TRF was established to acquire a loan participation related to the financing of an Italian toll road. TRF is a variable interest entity (VIE), of which MBIA Corp. is the primary beneficiary. Therefore, while MBIA Corp. does not have a direct ownership interest in TRF, it is consolidated in the financial statements of MBIA Corp. in accordance with Financial Accounting Standards Board (FASB) Interpretation Number (FIN) 46 “Consolidation of Variable Interest Entities.” See Note 4 for additional disclosures related to the consolidation of variable interest entities.

2. Significant Accounting Policies

The consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America (GAAP). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. As additional information becomes available or actual amounts become determinable, the recorded estimates are revised and reflected in operating results. Actual results could differ from those estimates. Significant accounting policies are as follows:

Consolidation

The consolidated financial statements include the accounts of MBIA Corp., its wholly owned subsidiaries, and entities under its control for which MBIA Corp. retains substantially all the risks and rewards. All intercompany balances have been eliminated. Certain amounts have been reclassified in prior years’ financial statements to conform to the current presentation. These reclassifications had no effect on net income and shareholder’s equity as previously reported.

Investments

MBIA Corp.’s fixed-maturity investment portfolio, excluding investments held-to-maturity, is considered available-for-sale and is

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reported in the financial statements at fair value with unrealized gains and losses, net of deferred taxes, reflected in accumulated other comprehensive income in shareholder’s equity. Bond discounts and premiums are amortized using the effective-yield method over the remaining term of the securities. For pre-refunded bonds, the remaining term is determined based on the contractual refunding date. Investment income is recorded as earned. Realized gains or losses on the sale of investments are determined by specific identification and are included as a separate component of revenues.

Short-term investments are carried at amortized cost, which approximates fair value, and include all fixed-maturity securities with a remaining effective term to maturity of less than one year.

Investments held-to-maturity consist of TRF investments, which include a loan participation and other high-quality liquid investments. Held-to-maturity investments are classified at amortized cost.

Other investments include MBIA Corp.’s interest in equity-oriented and equity-method investments. MBIA Corp. records its share of the unrealized gains and losses on these equity-oriented investments, net of applicable deferred income taxes, in accumulated other comprehensive income in shareholder’s equity. The carrying amounts of equity-method investments are initially recorded at cost and adjusted to recognize MBIA Corp.’s share of the profits or losses, net of any intercompany gains and losses, of the investee through earnings subsequent to the date of investment. Dividends are applied as a reduction of the carrying amount of the investment.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and demand deposits with banks with original maturities of less than 90 days.

Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase

Securities purchased under agreements to resell and securities sold under agreements to repurchase are accounted for as collateralized transactions and are recorded at contract value plus accrued interest, subject to the provisions of Statement of Financial Accounting Standards No. (SFAS) 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”

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These transactions are entered into with IMC in connection with IMC’s collateralized municipal investment activity. It is MBIA Corp.’s policy to take possession of securities used to collateralize such transactions.

MBIA Corp. minimizes the credit risk that IMC might be unable to fulfill its contractual obligations by monitoring IMC’s credit exposure and collateral value and requiring additional collateral to be deposited with MBIA Corp. when deemed necessary.

SFAS 140 also requires MBIA Corp. to reclassify financial assets pledged as collateral under certain agreements and to report those assets at fair value as a separate line item on the balance sheet with a corresponding adjustment to other comprehensive income. As of year-end 2003 and 2002, the Company had $376 million and $513 million, respectively, in financial assets pledged as collateral.

Deferred Acquisition Costs

Policy acquisition costs include only those expenses that relate primarily to, and vary with, premium production. MBIA Corp. periodically conducts a study to determine which operating costs vary with and are primarily related to the acquisition of new insurance business and qualify for deferral. For business produced directly by MBIA Corp., such costs include compensation of employees involved in underwriting and policy issuance functions, certain rating agency fees, state premium taxes and certain other underwriting expenses, reduced by ceding commission income on premiums ceded to reinsurers. Policy acquisition costs are deferred and amortized over the period in which the related premiums are earned.

Goodwill

Goodwill represents the excess of the cost of acquiring business enterprises over the fair value of the net assets acquired. Prior to 2002, goodwill attributed to the acquisition of MBIA Corp. was amortized using the straight-line method over 25 years. Goodwill attributed to the acquisition of MBIA Illinois was amortized according to the recognition of future profits from its deferred premium revenue and installment premiums, except for a minor portion attributed to state licenses, which was amortized by the straight-line method over 25 years.

Effective January 1, 2002, MBIA Corp. adopted SFAS 142, “Goodwill and Other Intangible Assets.” Under SFAS 142, goodwill is no longer

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

amortized but rather is tested for impairment at least annually. See Note 3 for an explanation of the impact of adoption of SFAS 142 on MBIA Corp.’s financial statements.

Property and Equipment

Property and equipment consists of land and buildings, furniture and fixtures, computer equipment and software, and leasehold improvements. All property and equipment is recorded at cost and depreciated over the appropriate useful life of the asset using the straight-line method. The useful lives of each class of assets are as follows:

Buildings and site improvements	15-31 years
Furniture and fixtures	8 years
Computer equipment and software	3-5 years

Leasehold improvements are depreciated over the life of the underlying lease agreement, generally seven to ten years. Maintenance and repairs are charged to current earnings as incurred.

Derivatives

The FASB issued, then subsequently amended, SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” which became effective for MBIA Corp. on January 1, 2001. Under SFAS 133, as amended, all derivative instruments are recognized on the balance sheet at their fair value and changes in fair value are recognized immediately in earnings unless the derivatives qualify as hedges. If the derivatives qualify as hedges, depending on the nature of the hedge, changes in the fair value of the derivatives are either offset against the change in fair value of assets, liabilities, or firm commitments through earnings or recognized in accumulated other comprehensive income until the hedged item is recognized in earnings. Any ineffective portion of a derivative’s change in fair value is recognized immediately in earnings.

The nature of MBIA Corp.’s business activities requires the management of various financial and market risks, including those related to changes in interest rates and currency exchange rates. MBIA Corp. uses derivative financial instruments to mitigate or eliminate certain of those risks. See Note 5 for a further discussion of the impact of the adoption of SFAS 133 on the financial statements.

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Losses and Loss Adjustment Expenses

Loss and loss adjustment expense (LAE) reserves are established in an amount equal to MBIA Corp.’s estimate of unallocated losses and identified or case basis reserves and unallocated losses, including costs of settlement, on the obligations it has insured. The unallocated loss and loss adjustment expense reserves and specific case basis reserves are established by MBIA Corp.’s Loss Reserve Committee, which is comprised of members of senior management.

Beginning in 2002, MBIA Corp. made a modification to the methodology it uses to record the amount of loss charged to earnings each period (losses incurred). MBIA Corp. began recording losses incurred based upon a percentage of scheduled net earned premiums instead of a percentage of net debt service written. The reason for the change in methodology was that during the quarter the premiums were written, losses incurred were being recognized in advance of the related earned premium since the premium was essentially all deferred and recognized as revenue in future periods. The intent of the change was to better match the recognition of incurred losses with the related premium revenue.

Under the method employed by MBIA Corp. since 2002, unallocated loss reserves are adjusted on a quarterly basis by using a formula that applies a “loss factor” (determined as set forth below) to MBIA Corp.’s scheduled earned premiums for such quarter. Annually, the Loss Reserve Committee determines the appropriate loss factor for the year based on (i) a loss reserving study that assesses the mix of MBIA Corp.’s insured portfolio and the latest industry data, including historical default and recovery experience, for the relevant sectors of the fixed-income market, (ii) rating agency studies of defaults and (iii) other relevant market factors. As of December 31, 2003, MBIA Corp. calculated its unallocated loss reserve as 12% of scheduled net earned premium.

When a case basis reserve is established, MBIA Corp. reclassifies the required amount from its unallocated loss reserve to its case basis loss reserve. Therefore, although MBIA Corp. accrues an unallocated loss reserve by applying a loss factor to scheduled earned premium, the available unallocated loss reserve will be directly related to case basis reserves established in the same period. At the end of each quarter, MBIA Corp. evaluates the adequacy of the remaining unallocated loss reserve.

MBIA Corp. establishes new case basis reserves with respect to an insurance policy when its Loss Reserve Committee determines that (i) a claim has been made or is likely to be made in the future with respect to such policy and (ii) the amount of the ultimate loss that MBIA Corp. will incur under such policy can be reasonably estimated. The amount of the case basis reserve with respect to any policy is based on the net present value of the expected ultimate losses and loss adjustment expense payments that MBIA Corp. expects to pay with respect to such policy, net of expected recoveries under salvage and subrogation rights. The amount of the expected loss is discounted based on a discount rate equal to the actual yield of MBIA Corp.’s fixed-income portfolio at the end of the preceding fiscal quarter. Various variables are taken into

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account in establishing specific case basis reserves for individual policies that depend primarily on the nature of the underlying insured obligation. These variables include the nature and creditworthiness of the underlying issuer of the insured obligations, whether the obligation is secured or unsecured and the expected recovery rates on the insured obligations, the projected cash flow or market value of any assets that support the insured obligation and the historical and projected loss rates on such assets. Factors that may affect the actual ultimate realized losses for any policy include the state of the economy, changes in interest rates, rates of inflation and the salvage values of specific collateral. MBIA Corp. believes that reasonably likely changes in any of these factors are not likely to have a material impact on its recorded level of reserves, financial results or financial position, or liquidity.

Management believes that the reserves are adequate to cover the ultimate net losses; however, because the reserves are based on estimates, there can be no assurance that the ultimate liability will not exceed such estimates. Various methodologies are employed within the financial guarantee industry for loss reserving. Alternate methods may produce different estimates than the method used by the Company.

Premium Revenue Recognition

Upfront premiums are earned in proportion to the expiration of the related risk. Therefore, for transactions in which the premiums are received upfront, premium earnings are greater in the earlier periods when there is a higher amount of exposure outstanding. The upfront premiums are apportioned to individual sinking fund payments of a bond issue according to an amortization schedule. After the premiums are allocated to each scheduled sinking fund payment, they are earned on a straight-line basis over the period of that sinking fund payment. When an insured issue is retired early, is called by the issuer, or is in substance paid in advance through a refunding accomplished by placing U.S. Government securities in escrow, the remaining deferred premium revenue is earned at that time since there is no longer risk to MBIA Corp. Accordingly, deferred premium revenue represents the portion of premiums written that is applicable to the unexpired risk of insured bonds and notes. Installment premiums are earned over each installment period, generally one year or less.

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Medium-Term Note Obligations

Medium-term note obligations consist of the debt obligations of TRF and are carried at face value plus unpaid accrued interest.

Advisory Fee Revenue Recognition

MBIA Corp. collects various advisory fees in connection with certain transactions. Depending upon the type of fee received, the fee is either earned when it is due or deferred and earned over the life of the related transaction. Work, waiver and consent, termination, administrative and management fees are earned when due. Structuring and commitment fees are earned on a straight-line basis over the life of the related insured transaction.

Employee Stock Compensation

MBIA Corp. participates in MBIA Inc.’s Stock Option Plan. Prior to 2002, MBIA Inc. elected to follow Accounting Principles Board Opinion No. (APB) 25, “Accounting for Stock Issued to Employees” and related interpretations in accounting for its employee stock options. No stock-based employee compensation cost for stock options is reflected in net income prior to 2002 as all options granted had an exercise price equal to the market value of the underlying common stock on the date of grant. Effective January, 1, 2002, MBIA Inc. adopted the fair value recognition provisions of SFAS 123, “Accounting for Stock-Based Compensation.” Under the modified prospective transition method selected by MBIA Inc. under the provisions of SFAS 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” compensation cost recognized in 2002 is the same as that which would have been recognized had the recognition provisions of SFAS 123 been applied from its original effective date.

Income Taxes

MBIA Corp. is included in the consolidated tax return of MBIA Inc. The tax provision for MBIA Corp. for financial reporting purposes is determined on a stand-alone basis. Any benefit derived by MBIA Corp. as a result of the tax sharing agreement with MBIA Inc. and its subsidiaries is reflected directly in shareholder’s equity for financial reporting purposes.

Deferred income taxes are provided with respect to the temporary differences between the tax bases of assets and liabilities and the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

reported amounts in the financial statements that will result in deductible or taxable amounts in future years when the reported amount of the asset or liability is recovered or settled. Such temporary differences relate principally to premium revenue recognition, deferred acquisition costs, unrealized appreciation or depreciation of investments and derivatives and the statutory contingency reserve.

The Internal Revenue Code permits companies writing financial guarantee insurance to deduct from taxable income amounts added to the statutory contingency reserve, subject to certain limitations. The tax benefits obtained from such deductions must be invested in non-interest-bearing U.S. Government tax and loss bonds. MBIA Corp. records purchases of tax and loss bonds as payments of federal income taxes. The amounts deducted must be restored to taxable income when the contingency reserve is released, at which time MBIA Corp. may present the tax and loss bonds for redemption to satisfy the additional tax liability.

Foreign Currency Translation

Assets and liabilities denominated in foreign currencies are translated at year-end exchange rates. Operating results are translated at average rates of exchange prevailing during the year. Unrealized gains or losses resulting from translation are included, net of deferred taxes, in accumulated other comprehensive income in shareholder’s equity. Gains and losses resulting from transactions in foreign currencies are recorded in current income.

3. New Accounting Pronouncements

In December 2003, the Emerging Issues Task Force (EITF) issued EITF Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (EITF 03-01). EITF 03-01 requires MBIA Corp. to disclose certain information about unrealized holding losses on its investment portfolio that have not been recognized as other-than-temporary impairments. The requirements are effective for fiscal years ending after December 15, 2003, and require MBIA Corp. to make disclosures in its financial statements about investments in debt or marketable equity securities with market values below carrying values. See Note 8 for disclosures required by EITF 03-01.

In April 2003, the FASB issued SFAS 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS 149 amends and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS 133. SFAS 149 amends SFAS 133 for decisions made as part of the Derivatives Implementation Group process that effectively required amendments to SFAS 133, decisions made in connection with other FASB projects dealing with financial instruments and in connection with implementation issues raised in relation to the application of the definition of a derivative. SFAS 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. MBIA Corp.’s financial position and results of operations did not change as a result of the adoption of SFAS 149.

In January 2003, the FASB issued FIN 46, as revised December 2003, as an interpretation of Accounting Research Bulletin No. (ARB) 51, “Consolidated Financial Statements.” FIN 46 addresses consolidation of variable interest entities by business enterprises. An entity is considered a VIE subject to consolidation if the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support or if the equity investors lack one of three characteristics of a controlling financial interest. First, the equity investors lack the ability to make decisions about the entity’s activities through voting rights or similar rights. Second, they do not bear the obligation to absorb the expected losses of the entity if they occur. Lastly, they do not claim the right to receive expected returns of the entity if they occur, which is the compensation for the risk of absorbing the expected losses. MBIA Corp. determined that FIN 46 applies to entities which it sponsors and, in certain cases, unaffiliated entities that it guarantees. See Note 4 for a further discussion on the impact of adoption on MBIA Corp’s financial statements.

On December 31, 2002, the FASB issued SFAS 148 which was effective for companies with fiscal years ending after December 15, 2002 and was adopted by MBIA Corp. as of January 1, 2002. This statement amends SFAS 123. SFAS 148 provided three alternative methods of transition to SFAS 123’s fair value method of accounting for stock-based compensation. The Prospective Method, originally required under SFAS 123, requires that expense be recognized in the year of adoption only for grants made in that year. In subsequent years, expense is recognized for the current year’s grant and for grants made in the years since adoption. Years

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prior to adoption are not restated. The Modified Prospective Method requires that stock options be expensed as if SFAS 123 had been adopted as of January 1, 1995. Thus, the fair value of any options vesting in the current year that were granted subsequent to January 1, 1995 will be included in expense. However, restatement of prior years is not required. The Retroactive Restatement Method is identical to the Modified Prospective Method in that the fair value of all options vesting in the current year for grants made after January 1, 1995 is included in expense. However, this method also requires that all periods presented in the financial statements be restated to reflect stock option expense. Restatement of periods prior to those presented is permitted but not required.

SFAS 148 also requires additional disclosure in the “Summary of Significant Accounting Policies” footnote of both annual and interim financial statements. MBIA Corp. has chosen to report its stock option expense under the Modified Prospective Method. See Note 15 for further information about the effect of adoption on the Company’s financial statements.

In November 2002, the FASB issued FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others.” FIN 45 outlines certain accounting guidelines, effective for fiscal years beginning after December 15, 2002, from which MBIA Corp.’s insurance transactions and derivative contracts are excluded. In addition, FIN 45 expands the disclosures required by a guarantor in its interim and annual financial statements regarding obligations under certain guarantees. These disclosure requirements are effective for the year ended December 31, 2002. See Note 13 for additional disclosures. MBIA Corp.’s financial position and results of operations did not change as a result of the adoption of FIN 45.

Effective January 1, 2002, MBIA Corp. adopted SFAS 141, “Business Combinations” and SFAS 142, “Goodwill and Other Intangible Assets.” SFAS 141, which supersedes APB 16, “Business Combinations,” requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 and provides specific criteria for initial recognition of intangible assets apart from goodwill. SFAS 142 supersedes APB 17, “Intangible Assets,” and requires that goodwill and intangible assets with indefinite lives no longer be amortized but be subject to impairment tests at least annually. The standard includes a two-step process aimed at determining the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

amount, if any, by which the carrying value of a reporting unit exceeds its fair value. Other intangible assets are to be amortized over their useful lives.

The following table contains a reconciliation of reported net income to net income adjusted for the effect of goodwill amortization for the years ended December 31, 2003, 2002 and 2001:

	Years Ended December 31,
In millions	2003		2002		2001
Net income:
As reported	$	809	$	602	$	593
Amortization of goodwill		—		—		5
Adjusted net income	$	809	$	602	$	598

MBIA Corp. completed its transitional impairment testing on its existing goodwill as of January 1, 2002 in accordance with SFAS 142. As of January 1, 2002, goodwill totaled $76.9 million. SFAS 142 requires a two-step approach in determining any impairment in goodwill. Step one entails evaluating whether the fair value of a reporting segment exceeds its carrying value. In performing this evaluation MBIA Corp. determined that the best measure of the fair value of the insurance reporting segment was its book value adjusted for deferred premium revenue, prepaid reinsurance premiums, deferred acquisition costs and the present value of installments to arrive at adjusted book value. Adjusted book value is a common measure used by analysts to determine the value of financial guarantee companies. As of January 1, 2002, MBIA Corp.’s adjusted book value exceeded its carrying value, and thus there was no impairment of its existing goodwill.

MBIA Corp. performed its annual impairment testing of goodwill as of January 1, 2003 and January 1, 2004. The fair value of MBIA Corp. was determined using the same valuation method applied during the transition testing. The fair value of MBIA Corp. exceeded its carrying value indicating that goodwill was not impaired.

4. Variable Interest Entities

MBIA Corp. provides structured funding and credit enhancement services to global finance clients through the use of certain bankruptcy-remote special purpose vehicles (SPVs) administered by subsidiaries of MBIA

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Inc. and through third-party SPVs. The purpose of the MBIA-administered SPVs is to provide clients with an efficient source of funding, which may offer MBIA Corp. the opportunity to issue financial guarantee insurance policies. These SPVs purchase various types of financial instruments, such as debt securities, loans, lease receivables and trade receivables, and fund these purchases primarily through the issuance of asset-backed short-term commercial paper or medium-term notes. The assets and liabilities within the medium-term note programs are managed primarily on a match-funded basis and may include the use of derivative hedges, such as interest rate and foreign currency swaps. By match-funding, the SPVs eliminate the risks associated with fluctuations in interest and foreign currency rates, indices and liquidity. Typically, programs involve the use of rating agencies in assessing the quality of asset purchases and in assigning ratings to the various programs. In general, asset purchases at the inception of a program are required to be at least investment grade by at least one major rating agency. The primary SPV administered by MBIA Corp. is TRF. Third-party SPVs are used in a variety of structures insured by MBIA Corp., whereby MBIA Corp. has risks analogous to those of MBIA-administered SPVs. MBIA Corp. has determined that such SPVs fall within the definition of a VIE under FIN 46.

Under the provisions of FIN 46, an entity is considered a VIE subject to consolidation if the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support or if the equity investors lack one of three characteristics of a controlling financial interest. First, the equity investors lack the ability to make decisions about the entity’s activities through voting rights or similar rights. Second, they do not bear the obligation to absorb the expected losses of the entity if they occur. Lastly, they do not claim the right to receive expected returns of the entity if they occur, which is the compensation for the risk of absorbing the expected losses. A VIE is consolidated with its primary beneficiary, which is defined as the entity that will absorb the majority of the expected losses, receive the majority of the expected residual returns or both of the VIE.

TRF is a VIE established to acquire a loan participation related to the financing of an Italian toll road and, at December 31, 2003, had $1.5 billion of medium-term note obligations outstanding. Assets supporting the repayment of the medium-term notes were comprised of the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

loan participation and high-quality, liquid investments. Assets and liabilities of TRF are included within “Investments held-to-maturity” and “Medium-term note obligations”, respectively, on MBIA Corp.’s balance sheet. TRF is a variable interest entity, of which MBIA Corp. is the primary beneficiary. Therefore, while MBIA Corp. does not have a direct ownership interest in TRF, it is consolidated in the financial statements of MBIA Corp. in accordance with FIN 46.

With respect to third-party SPVs, MBIA Corp. must determine whether it has a variable interest in a VIE and if so, whether that variable interest would cause MBIA Corp. to be the primary beneficiary. The primary beneficiary is the entity that will absorb the majority of the expected losses, receive the majority of the expected residual returns or both of the VIE and is required to consolidate the VIE. VIEs are used in a variety of structures insured by MBIA Corp. Under FIN 46, MBIA Corp.’s guarantee of the assets or liabilities of a VIE constitute a variable interest and require MBIA Corp. to assess whether it is the primary beneficiary. Consolidation of such VIEs do not increase MBIA Corp.’s exposure above that already committed to in its insurance policies. Additionally, VIE assets and liabilities that are consolidated within MBIA Corp.’s financial statements may represent amounts above MBIA Corp.’s guarantee, although such excess amounts would ultimately have no impact on MBIA Corp.’s net income. Third-party VIE assets and liabilities consolidated in MBIA Corp.’s financial statements at December 31, 2003 are reported in “Variable interest entity assets” and “Variable interest entity liabilities”, respectively, on the face of MBIA Corp.’s balance sheet and totaled $600.3 million.

5. Derivative Instruments

All derivative instruments are recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or accumulated other comprehensive income, depending on whether a derivative is designated as a hedge, and if so designated, the type of hedge.

MBIA Corp. has entered into derivative transactions that it views as an extension of its core financial guarantee business but which do not qualify for the financial guarantee scope exception under SFAS 133 and, therefore, must be stated at fair value. MBIA Corp has insured derivatives primarily consisting of pools of credit default swaps, which MBIA Corp. intends to hold for the entire term of the contract. MBIA Corp. has also provided guarantees on the value of certain closed-end

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equity funds, which meet the definition of a derivative under SFAS 133. Also, TRF has entered into an interest rate swap to economically hedge certain cash flows, which did not qualify for hedge treatment under SFAS 133. Changes in the fair value of these transactions are recorded through the income statement within net gains (losses) on derivative instruments.

The notional values of the derivative instruments for the years ended December 31, 2003 and 2002 were as follows:

In millions	December 31, 2003		December 31, 2002
Credit default swaps	$	64,031	$	47,778
Equity guarantee funds		3,039		—
Interest rate swaps		1,465		—
Credit linked notes		846		6
Total return swaps		364		157
Total	$	69,745	$	47,941

As of December 31, 2003 and 2002, MBIA Corp. held derivative assets of $55.8 million and $96.7 million, respectively, and derivative liabilities of $49.5 million and $190.9 million, respectively.

The impact on earnings of all derivative transactions was an after-tax increase in net income of $92.4 million for the year ended December 31, 2003 and an after-tax reduction in net income of $37.5 million for the year ended December 31, 2002.

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The following table displays the impact on the income statement for all derivative transactions related to MBIA Corp. The income statement impact of derivative activity is broken down into revenues, expenses, net realized gains (losses) and net gains or losses on derivative instruments.

	Years ended December 31
In millions	2003			2002			2001
Revenues*	$	47.7		$	19.1		$	10.9
Expenses**		(5.6	)		(2.2	)		(2.9	)
Operating income		42.1			16.9			8.0
Gains and losses:
Net realized losses		—			(0.3	)		(3.0	)
Net gains (losses) on derivative instruments		100.1			(74.3	)		(2.4	)
Income (loss) before income taxes		142.2			(57.7	)		2.6
Tax (provision) benefit		(49.8	)		20.2			(0.9	)
Income (loss) before cumulative effect of accounting change		92.4			(37.5	)		1.7
Cumulative effect of accounting change		—			—			(11.1	)
Net income (loss)	$	92.4		$	(37.5	)	$	(9.4	)

* Includes premiums earned.

**  Includes formula provision for losses.

The fair value of MBIA Corp.’s derivative instruments is estimated using various valuation models that conform to industry standards. MBIA Corp. utilizes both vendor-developed and proprietary models, based on the complexity of transactions. When available, dealer market quotes are obtained for each contract and provide the best estimate of fair value. However, when dealer market quotes are not available, MBIA Corp. uses a variety of market and portfolio data relative to the type and structure of contracts. Several of the more significant types of data that influence MBIA Corp.’s valuation models include interest rates, credit quality ratings, credit spreads, default probabilities and diversity scores. This data is obtained from highly recognized sources and is reviewed for reasonableness and applicability to MBIA Corp.’s derivative portfolio.

The use of market data requires management to make assumptions on how the fair value of derivative instruments is affected by current market conditions. Therefore, results can significantly differ between models and due to changes in management assumptions. MBIA Corp. has dedicated resources to the development and ongoing review of its valuation models

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and has instituted procedures for the approval and control of data inputs. In addition, regular reviews are performed to ensure that MBIA Corp.’s valuation models are appropriate and produce values reflective of the current market environment.

In 2002, MBIA Corp. revised several market data inputs used in determining the fair value of its insured credit derivatives. Market-based discount rates replaced the fixed discount rate previously established by MBIA Corp. In addition, a change in the data source received from a pricing data vendor resulted in a recalibration of credit spreads within MBIA Corp.’s valuation model. This information was validated by comparisons to three independent data sources. MBIA Corp. also introduced dealer collateralized debt obligations (CDOs) market quotes to improve the quality of transaction-specific data. These modifications resulted in a negative change in the value of MBIA Corp.’s insured credit derivative portfolio for 2002. No modifications were made to MBIA Corp.’s non-insurance derivative valuation models. In 2003, MBIA Corp. added an additional third-party data source for generic credit spread information used by MBIA Corp. in its valuation process to avoid undue reliance on any single data vendor, as well as to enhance its assessment of fair values.

6. Statutory Accounting Practices

The financial statements have been prepared on the basis of GAAP, which differs in certain respects from the statutory accounting practices prescribed or permitted by the insurance regulatory authorities. Statutory accounting practices differ from GAAP in the following respects:

• upfront premiums are earned on a basis proportionate to the scheduled periodic maturity of principal and payment of interest (“debt service”) to the original total principal and interest insured;

• acquisition costs are charged to operations as incurred, rather than deferred and amortized as the related premiums are earned;

• fixed-maturity securities are reported at amortized cost rather than fair value;

• a contingency reserve is computed on the basis of statutory requirements, and reserves for case basis losses and LAE are established, at present value, for specific insured issues that are

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identified as currently or likely to be in default. Under GAAP, reserves are established based on MBIA Corp.’s reasonable estimate of the identified and unallocated losses and LAE on the insured obligations it has written;

• tax and loss bonds purchased are reflected as admitted assets as well as payments of income taxes; and

• goodwill under GAAP represents the excess of the cost of acquisitions over the fair value of the net assets acquired, while on a statutory basis, acquisitions of MBIA Corp. and MBIA Illinois were recorded at statutory book value. Thus no goodwill was recorded;

• derivative assets and liabilities exclude insurance guarantees, while under GAAP, guarantees that do not quality for the financial guarantee scope exception under SFAS 133 are recorded at fair value; and

• certain assets designated as “non-admitted assets” are charged directly against surplus but are reflected as assets under GAAP.

Aggregate net income of MBIA Corp. and its subsidiaries determined in accordance with statutory accounting practices for the years ended December 31, 2003, 2002 and 2001 was $669.2 million, $617.9 million and $571.0 million, respectively.

The following is a reconciliation of consolidated shareholder’s equity presented on a GAAP basis to statutory capital and surplus for MBIA Corp. and its subsidiaries:

	As of December 31
In thousands	2003			2002
GAAP shareholder’s equity	$	6,602,180		$	5,908,625
Premium revenue recognition		(643,443	)		(608,152	)
Deferral of acquisition costs		(319,728	)		(302,222	)
Unrealized gains		(532,923	)		(528,268	)
Contingency reserve		(2,368,224	)		(2,276,834	)
Unallocated loss and LAE reserves		297,741			284,547
Deferred income taxes		420,122			371,686
Tax and loss bonds		355,882			304,695
Goodwill		(76,938	)		(76,938	)
Derivative assets and liabilities		(6,263	)		94,148
Non-admitted assets and other items		(13,393	)		(13,278	)
Statutory capital and surplus	$	3,715,013		$	3,158,009

In 1998, the National Association of Insurance Commissioners (NAIC) adopted the Codification of Statutory Accounting Principles guidance

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Codification), which replaced the Accounting Practices and Procedures manuals as the NAIC’s primary guidance on statutory accounting effective as of January 1, 2001. The Codification provides guidance where statutory accounting had been silent and changed current statutory accounting in some areas.

The New York State Insurance Department adopted the Codification guidance, effective January 1, 2001. The New York State Insurance Department did not adopt the Codification rules on deferred income taxes until December 31, 2002. Upon adoption, the deferred tax effect on the statutory surplus of MBIA Corp. and subsidiaries reduced surplus by $10.8 million.

7. Premiums Earned from Refunded and Called Bonds

Premiums earned include $125.6 million, $74.4 million and $54.6 million for 2003, 2002 and 2001, respectively, related to refunded and called bonds.

8. Investments

MBIA Corp.’s investment objective, excluding TRF which is managed separately, is to optimize long-term, after-tax returns while emphasizing the preservation of capital through maintenance of high-quality investments with adequate liquidity. MBIA Corp.’s investment policies limit the amount of credit exposure to any one issuer. The fixed-maturity portfolio is comprised of high-quality (average rated Double-A) taxable and tax-exempt investments of diversified maturities.

The following tables set forth the amortized cost and fair value of the available-for-sale fixed-maturity and short-term investments included in the consolidated investment portfolio of MBIA Corp. as of December 31, 2003 and 2002:

In thousands	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
As of December 31, 2003
Taxable bonds:
United States Treasury and government agency	$	136,868	$	1,820	($230	)	$	138,458
Corporate and other obligations		2,990,585		179,965	(13,868	)		3,156,682
Mortgage-backed		974,068		24,109	(2,209	)		995,968
Tax-exempt bonds:
State and municipal obligations		4,786,061		345,459	(2,794	)		5,128,726
Total	$	8,887,582	$	551,353	($19,101	)	$	9,419,834

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In thousands	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
As of December 31, 2002
Taxable bonds:
United States Treasury and government agency	$	90,466	$	4,731	$	—		$	95,197
Corporate and other obligations		2,558,375		162,144		(15,409	)		2,705,110
Mortgage-backed		972,697		46,750		(3	)		1,019,444
Tax-exempt bonds:
State and municipal obligations		4,436,678		331,086		(486	)		4,767,278
Total	$	8,058,216	$	544,711		($15,898	)	$	8,587,029

Fixed-maturity investments carried at fair value of $ 13.9 million and $13.7 million as of December 31, 2003 and 2002, respectively, were on deposit with various regulatory authorities to comply with insurance laws.

Included in the tables above are investments that have been insured by MBIA Corp. At December 31, 2003, MBIA Corp. insured investments at fair value represented $1.6 billion or 16% of the total portfolio.

The following table sets forth the distribution by contractual maturity of the available-for-sale fixed-maturity and short-term investments at amortized cost and fair value at December 31, 2003. Contractual maturity may differ from expected maturity because borrowers may have the right to call or prepay obligations.

In thousands	Amortized Cost		Fair Value
Within 1 year	$	832,951	$	832,951
Beyond 1 year but within 5 years		1,471,606		1,523,906
Beyond 5 years but within 10 years		1,481,316		1,600,795
Beyond 10 years but within 15 years		2,092,982		2,278,968
Beyond 15 years but within 20 years		838,376		893,782
Beyond 20 years		1,196,283		1,293,464
		7,913,514		8,423,866
Mortgage-backed		974,068		995,968
Total fixed-maturity and short-term investments	$	8,887,582	$	9,419,834

The investments of TRF are classified as held-to-maturity and are reported on the balance sheet at amortized cost, net of unamortized discount and unamortized premium. At December 31, 2003 the contractual

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

maturity of held-to-maturity investments at amortized cost is between ten and fifteen years.

The following table sets forth the gross unrealized losses of the available-for-sale fixed-maturity and equity investments included in accumulated other comprehensive income as of December 31, 2003. The table has segregated investments that have been in a continuous unrealized loss position for less than 12 months from those that have been in a continuous unrealized loss position for twelve months or longer.

In thousands	Less than 12 Months					12 Months or Longer					Total
Description of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
United States Treasury and government agency	$	2,027	$	(230	)	$	—	$	—		$	2,027	$	(230	)
Corporate and other obligations		347,157		(4,207	)		41,735		(9,255	)		388,892		(13,462	)
Mortgage-backed		233,691		(2,243	)		57,842		(372	)		291,533		(2,615	)
State and municipal obligations		494,878		(2,783	)		347		(11	)		495,225		(2,794	)
Subtotal, debt securities		1,077,753		(9,463	)		99,924		(9,638	)		1,177,677		(19,101	)
Common stock		—		—			—		—			—		—
Total	$	1,077,753	$	(9,463	)	$	99,924	$	(9,638	)	$	1,177,677	$	(19,101	)

As of December 31, 2003, MBIA Corp.’s available-for-sale fixed-maturity and equity investment portfolio had a gross unrealized loss of $19.1 million with no securities that were rated below investment grade. There were twelve securities that were in an unrealized loss position for a continuous twelve-month period or longer. Only two of the twelve securities had unrealized losses in which its book value exceeded market value by 20%. MBIA Corp. determined that the unrealized losses on these two securities were temporary in nature because there was no deterioration of credit quality spreads or a downgrade to below investment grade and MBIA Corp. has the ability and intent to hold these securities to maturity.

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9. Investment Income and Gains and Losses

The following table includes investment income from MBIA Corp. Realized gains are generated as a result of the ongoing management of all of MBIA Corp.’s investment portfolios. However, 2003 net realized gains were mainly the result of MBIA Corp. selling securities to shorten the duration of its fixed-maturity portfolio.

	Years ended December 31
In thousands	2003			2002			2001
Fixed-maturity	$	409,213		$	431,715		$	408,981
Held-to-maturity		34,623			—			—
Short-term investments		2,844			8,495			10,536
Other investments		6,695			(1,111	)		715
Gross investment income		453,375			439,099			420,232
Investment expenses		32,149			8,009			7,476
Net investment income		421,226			431,090			412,756
Net realized gains (losses):
Fixed-maturity:
Gains		59,612			39,562			42,694
Losses		(13,976	)		(21,487	)		(31,552	)
Net		45,636			18,075			11,142
Other investments:
Gains		5,110			—			—
Losses		—			(713	)		—
Net		5,110			(713	)		—
Total net realized gains		50,746			17,362			11,142
Total investment income	$	471,972		$	448,452		$	423,898

Net unrealized gains consist of:

	As of December 31
In thousands	2003			2002
Fixed-maturity:
Gains	$	551,353		$	543,777
Losses		(19,101	)		(15,899	)
Net		532,252			527,878
Other investments:
Gains		124,798			3,791
Losses		(183	)		(361	)
Net		124,615			3,430
Total		656,867			531,308
Deferred income tax provision		229,537			185,706
Unrealized gains, net	$	427,330		$	345,602

The deferred income taxes are reflected in other accumulated comprehensive income in shareholder’s equity.

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The change in net unrealized gains consists of:

	Years ended December 31
In thousands	2003		2002		2001
Fixed-maturity	$	4,374	$	381,404	$	20,832
Other investments		121,185		3,291		252
Total		125,559		384,695		21,084
Deferred income taxes		43,831		134,406		7,390
Unrealized gains, net	$	81,728	$	250,289	$	13,694

10. Income Taxes

The provision for income taxes is composed of:

	Years ended December 31
In thousands	2003		2002		2001
Current taxes:
Federal	$	277,878	$	211,977	$	216,102
Foreign		4,936		241		373
Deferred taxes:
Federal		35,744		227		(5,281	)
Foreign		504		32		(243	)
Provision for income taxes		319,062		212,477		210,951
Deferred SFAS 133 transition		—		—		(5,967	)
Total	$	319,062	$	212,477	$	204,984

MBIA Corp.’s effective income tax rate differs from the statutory rate on ordinary income due to the tax effect of permanent differences. The reasons for MBIA Corp.’s lower effective tax rates are as follows:

	Years ended December 31
	2003		2002		2001
Income taxes computed on pre-tax financial income at statutory rates	35.0	%	35.0	%	35.0	%
Reduction in taxes resulting from:
Tax-exempt interest	(5.7	)	(8.9	)	(8.1	)
Amortization of goodwill	—		—		0.2
Other	(1.0	)	—		(1.2	)
Provision for income taxes	28.3	%	26.1	%	25.9	%

MBIA Corp. recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

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The tax effects of temporary differences that give rise to deferred tax assets and liabilities at December 31, 2003 and 2002 are presented below:

In thousands	2003		2002
Deferred tax assets:
Tax and loss bonds	$	368,798	$	309,429
Loss and loss adjustment expense reserves		102,058		97,441
Other		85,569		87,574
Total gross deferred tax assets		556,425		494,444
Deferred tax liabilities:
Contingency reserve		476,899		417,530
Deferred premium revenue		110,622		110,726
Deferred acquisition costs		102,493		101,317
Unrealized gains		232,445		185,706
Other		102,002		63,297
Total gross deferred tax liabilities		1,024,461		878,576
Net deferred tax liability	$	468,036	$	384,132

MBIA Corp. believes that the deferred tax assets are more likely than not to be recognized in the future. Thus no valuation allowance is necessary.

11. Dividends and Capital Requirements

Under New York State insurance law, without prior approval of the superintendent of the state insurance department, financial guarantee insurance companies can pay dividends from earned surplus subject to retaining a minimum capital requirement. In MBIA Corp. and CMAC’s case, dividends in any 12-month period cannot be greater than 10% of policyholders’ surplus as shown on MBIA Corp.’s latest filed statutory financial statements. In 2003, MBIA Corp. declared and paid dividends of $240 million and, based upon the filing of its year-end 2003 statutory financial statements, has dividend capacity of $131.5 million for the first quarter of 2004 without special regulatory approval. During 2004, a similar calculation will be performed each quarter to determine the amount of dividend capacity for MBIA Corp. CMAC did not declare or pay any dividends in 2003. CMAC had dividend capacity of $5.1 million as of December 31, 2003.

Under Illinois Insurance Law, MBIA Illinois may pay a dividend from unassigned surplus. Dividends in any 12-month period may not exceed the greater of 10% of policyholders’ surplus (total capital and surplus) at the end of the preceding calendar year or the net income of the preceding calendar year without the approval of the Illinois State Insurance Department.

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In accordance with such restrictions on the amount of dividends that can be paid in any 12-month period, MBIA Illinois had $16.1 million available for the payment of dividends as of December 31, 2003. The insurance departments of New York State and certain other statutory insurance regulatory authorities, and the agencies that rate the bonds insured by MBIA Corp. and its subsidiaries, have various requirements relating to the maintenance of certain minimum ratios of statutory capital and reserves to net insurance in force. MBIA Corp. and its subsidiaries were in compliance with these requirements as of December 31, 2003 and 2002.

12. Lines of Credit

MBIA Corp. has a standby line of credit commitment in the amount of $700 million with a group of major Triple-A-rated banks to provide loans to MBIA Corp. This facility can be drawn upon if MBIA Corp. incurs cumulative losses (net of expected recoveries) on the covered portfolio (which is comprised of the Company’s insured public finance obligations, with certain adjustments) in excess of the greater of $900 million or 5.0% of average annual debt service. The obligation to repay loans made under this agreement is a limited recourse obligation payable solely from, and collateralized by, a pledge of recoveries realized on defaulted insured obligations including certain installment premiums and other collateral. This commitment has a seven-year term expiring on October 31, 2010.

At January 1, 2003, MBIA Corp. maintained $211 million of stop loss reinsurance coverage with three reinsurers. At the end of the third quarter, MBIA Corp. elected not to renew two of the facilities with $175 million of coverage due to the rating downgrades of the stop loss providers. In addition, at the end of 2003, MBIA Corp. elected not to renew the remaining $35.7 million of stop loss reinsurance coverage effective January 1, 2004, also due to the rating downgrade of the stop loss reinsurer.

At December 31, 2003, MBIA Corp. had access to $400 million of Money Market Committed Preferred Custodial Trust securities (CPS securities) that were issued by eight Trusts which were created for the primary purpose of issuing CPS securities and investing the proceeds in high quality commercial paper or short-term U.S. government obligations. MBIA Corp. has a put option to sell to the Trusts the perpetual

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preferred stock of MBIA Corp. If MBIA Corp. exercises its put option, the Trusts will transfer the proceeds to MBIA Corp. in exchange for MBIA Corp. preferred stock. The Trusts will hold the preferred stock and distribute the preferred dividend to their holders. MBIA Corp. has the right to redeem the preferred shares, and then put the preferred stock back to the Trust again, indefinitely. Any preferred stock issued by MBIA Corp. would be non-cumulative unless MBIA Corp. pays dividends on its common stock, during which time the dividends on its preferred stock would be cumulative. Preferred stockholders would have rights that are subordinated to insurance claims, as well as to the general unsecured creditors, but senior to any common stockholders of MBIA Corp.

The trusts were created as a vehicle for providing capital support to MBIA Corp. by allowing it to obtain immediate access to new capital at its sole discretion at any time through the exercise of the put options. Standard & Poor’s (S&P) and Moody’s Investor Service (Moody’s) rate the trusts AA/aa2, respectively. To date, MBIA Corp. has not exercised its put options under any of these arrangements.

MBIA Corp. and MBIA Inc. maintain two short-term bank liquidity facilities totaling $675 million; a $225 million facility with a term of 364 days and a $450 million facility with a four-year term. As of December 31, 2003, there were no borrowings outstanding under these agreements.

13. Net Insurance In Force

MBIA Corp. guarantees the timely payment of principal and interest on municipal, asset-/mortgage-backed and other non-municipal securities. MBIA Corp.’s ultimate exposure to credit loss in the event of nonperformance by the insured is represented by the insurance in force in the tables that follow.

The insurance policies issued by MBIA Corp. are unconditional commitments to guarantee timely payment on the bonds and notes to bondholders. The creditworthiness of each insured issue is evaluated prior to the issuance of insurance and each insured issue must comply with MBIA Corp.’s underwriting guidelines. Further, the payments to be made by the issuer on the bonds or notes may be backed by a pledge of revenues, reserve funds, letters of credit, investment contracts or collateral in the form of mortgages or other assets. The right to such

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

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money or collateral would typically become MBIA Corp.’s upon the payment of a claim by MBIA Corp.

MBIA Corp. maintains underwriting guidelines based on those aspects of credit quality that it deems important for each category of obligation considered for insurance. For global public finance transactions these include economic and social trends, debt and financial management, adequacy of anticipated cash flow, satisfactory legal structure and other security provisions, viable tax and economic bases, adequacy of loss coverage and project feasibility. For global structured finance transactions, MBIA Corp.’s underwriting guidelines, analysis, and due diligence focus on seller/servicer credit and operational quality. MBIA Corp. also analyzes the quality of the asset pool as well as its historical and projected performance. The strength of the structure, including legal segregation of the assets, cash flow analysis, the size and source of first loss protection, asset performance triggers and financial covenants is also reviewed. Such guidelines are subject to periodic review by management, who are responsible for establishing and maintaining underwriting standards and criteria for maintaining underwriting standards in the insurance operations.

As of December 31, 2003, insurance in force, net of cessions to reinsurers, had an expected range of maturity of 1-46 years. The distribution of net insurance in force by geographic location, including $9.7 billion and $8.0 billion relating to transactions guaranteed by MBIA Corp. on behalf of various investment management services’ affiliated companies in 2003 and 2002, respectively, is set forth in the following table:

	As of December 31
In billions	2003				2002
Geographic Location	Net Insurance In Force		% of Net Insurance In Force		Net Insurance In Force		% of Net Insurance In Force
California	$	104.5	12.4	%	$	94.1	11.9	%
New York		74.4	8.8			76.6	9.7
Florida		40.6	4.9			36.1	4.6
Texas		32.3	3.8			31.1	3.9
Illinois		31.7	3.7			31.9	4.1
New Jersey		28.0	3.3			28.5	3.6
Massachusetts		23.2	2.7			23.1	2.9
Pennsylvania		22.7	2.7			22.1	2.8
Washington		17.7	2.1			15.1	1.9
Michigan		17.0	2.0			16.0	2.0
Subtotal		392.1	46.4			374.6	47.4
Nationally diversified		135.6	16.0			139.0	17.6
Other states		203.9	24.1			197.4	25.0
Total United States		731.6	86.5			711.0	90.0
Internationally diversified		48.8	5.8			39.6	5.0
Country specific		65.0	7.7			39.0	5.0
Total Non-United States		113.8	13.5			78.6	10.0
Total	$	845.4	100.0	%	$	789.6	100.0	%

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The distribution of net insurance in force by type of bond is set forth in the following table:

	As of December 31
In billions	2003				2002
Bond Type	Net Insurance In Force		% of Net Insurance In Force		Net Insurance In Force		% of Net Insurance In Force
Global Public Finance:
United States
General obligation	$	206.3	24.4	%	$	185.7	23.5	%
Utilities		98.6	11.7			89.9	11.4
Special revenue		83.9	10.0			77.1	9.7
Healthcare		59.5	7.0			62.3	7.9
Transportation		51.7	6.1			49.7	6.3
Higher education		32.2	3.8			33.0	4.2
Housing		29.5	3.5			28.2	3.6
Investor-owned utilities		29.4	3.5			34.4	4.3
Total United States		591.1	70.0			560.3	70.9
Non-United States
Sovereign		14.7	1.7			4.1	0.5
Transportation		10.4	1.2			4.4	0.6
Utilities		7.5	0.9			3.6	0.5
Investor-owned utilities		4.5	0.5			5.1	0.6
Sub-sovereign		1.5	0.2			1.4	0.2
Housing		0.8	0.1			0.7	0.1
Healthcare		0.6	0.1			2.6	0.3
Higher education		0.1	—			0.1	—
Total Non-United States		40.1	4.7			22.0	2.8
Total Global Public Finance		631.2	74.7			582.3	73.7
Global Structured Finance:
United States
CDO, CLO, and CBO		41.8	4.9			38.8	4.9
Mortgage-backed:
Home equity		15.7	1.9			22.1	2.8
Other		12.4	1.5			12.0	1.5
First mortgage		5.4	0.6			6.7	0.8
Asset-backed:
Auto		14.5	1.7			16.0	2.0
Credit cards		9.8	1.1			14.1	1.8
Other		7.5	0.9			8.3	1.1
Leasing		1.0	0.1			4.4	0.6
Pooled corp. obligations & other		20.5	2.4			23.7	3.0
Financial risk		11.9	1.4			4.6	0.6
Total United States		140.5	16.5			150.7	19.1
Non-United States
CDO, CLO, and CBO		40.6	4.8			33.6	4.3
Mortgage-backed:
First mortgage		8.5	1.0			5.7	0.7
Other		7.4	0.9			2.9	0.4
Home equity		0.6	0.1			—	—
Pooled corp. obligations & other		8.5	1.0			8.9	1.1
Asset-backed		5.5	0.7			2.6	0.3
Financial risk		2.6	0.3			2.9	0.4
Total Non-United States		73.7	8.8			56.6	7.2
Total Global Structured Finance		214.2	25.3			207.3	26.3
Total	$	845.4	100.0	%	$	789.6	100.0	%

MBIA Corp. has entered into certain guarantees of derivative contracts, included in the above tables, which do not qualify for the financial guarantee scope exception under SFAS 133. These contracts are discussed further in Note 5. The maximum amount of future payments that

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

MBIA Corp. may be required to make under these guarantees, should a full default occur, is $68.3 billion. This amount is net of cessions to reinsurers of $15.2 billion. MBIA Corp.’s guarantees of derivative contracts have a legal maximum range of maturity of 1 – 75 years. A small number of guaranteed credit derivative contracts have long maturities to satisfy regulatory requirements imposed on MBIA Corp.’s counterparties. However, the expected maturities of such contracts are much shorter due to amortizations and prepayments in the underlying collateral pools. In accordance with SFAS 133, the fair values of these guarantees at December 31, 2003 are recorded on the balance sheet as assets and liabilities, representing gross gains and losses, of $55.8 million and $49.6 million, respectively.

MBIA Corp. may hold recourse provisions with third parties in these transactions through both reinsurance and subrogation rights. MBIA Corp.’s reinsurance arrangements provide that should MBIA Corp. pay a claim under a guarantee of a derivative contract, then MBIA Corp. can collect amounts from any reinsurers that have reinsured the guarantee on either a proportional or non-proportional basis depending upon the underlying reinsurance agreement. MBIA Corp. may also have recourse through subrogation rights whereby if MBIA Corp. makes a claim payment, it is entitled to any rights of the insured counterparty, including the right to any assets held as collateral.

MBIA Corp. has also issued guarantees of certain obligations issued by its investment management affiliates that are included in the previous tables. These guarantees take the form of insurance policies issued by MBIA Corp. on behalf of the investment management affiliates. Should one of these affiliates default on their insured obligations, MBIA Corp. will be required to pay all scheduled principal and interest amounts outstanding. As of December 31, 2003, the maximum amount of future payments that MBIA Corp. could be required to make under these guarantees, should a full default occur, is $9.7 billion. These guarantees have a maximum range of maturity of 1- 42 years. These guarantees were entered into on an arm’s length basis and are fully collateralized by marketable securities. MBIA Corp. has both direct recourse provisions and subrogation rights in these transactions. If MBIA Corp. is required to make a payment under any of these affiliate guarantees, it would have the right to seek reimbursement from such affiliate and to liquidate any collateral to recover all or a portion of the amounts paid under the guarantee.

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Reinsurance

MBIA Corp. reinsures exposure with other insurance companies under various treaty and facultative reinsurance contracts, both on a pro rata and non-proportional basis. In the event that any or all of the reinsurers were unable to meet their obligations, MBIA Corp. would be liable for such defaulted amounts.

Amounts deducted from gross insurance in force for reinsurance ceded by MBIA Corp. and its subsidiaries were $170.0 billion and $171.0 billion, at December 31, 2003 and 2002, respectively. The distribution of ceded insurance in force by geographic location is set forth in the following table:

	As of December 31
	2003				2002
In billions Geographic Location	Ceded Insurance In Force		% of Ceded Insurance In Force		Ceded Insurance In Force		% of Ceded Insurance In Force
California	$	18.8	11.1	%	$	18.8	11.0	%
New York		9.7	5.7			11.1	6.5
New Jersey		6.6	3.9			6.9	4.0
Texas		6.0	3.5			6.5	3.8
Florida		5.3	3.1			4.9	2.9
Massachusetts		5.0	3.0			5.2	3.0
Illinois		4.6	2.7			4.7	2.7
Puerto Rico		4.0	2.3			4.2	2.5
Colorado		3.9	2.3			4.0	2.3
Pennsylvania		3.4	2.0			3.4	2.0
Subtotal		67.3	39.6			69.7	40.7
Nationally diversified		30.1	17.7			34.6	20.2
Other states		30.6	18.0			30.9	18.1
Total United States		128.0	75.3			135.2	79.0
Internationally diversified		16.0	9.4			11.8	6.9
Country specific		26.0	15.3			24.0	14.1
Total Non-United States		42.0	24.7			35.8	21.0
Total	$	170.0	100.0	%	$	171.0	100.0	%

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The distribution of ceded insurance in force by type of bond is set forth in the following table:

	As of December 31
	2003				2002
In billions Type of Bond	Ceded Insurance In Force		% of Ceded Insurance In Force		Ceded Insurance In Force		% of Ceded Insurance In Force
Global Public Finance:
United States
General obligation	$	24.8	14.6	%	$	23.7	13.9	%
Transportation		18.4	10.8			18.5	10.9
Utilities		18.2	10.7			18.5	10.8
Health care		13.9	8.2			14.3	8.4
Special revenue		12.7	7.5			12.8	7.5
Investor-owned utilities		4.6	2.7			5.5	3.2
Higher education		3.3	1.9			3.3	1.9
Housing		2.7	1.6			2.8	1.6
Total United States		98.6	58.0			99.4	58.2
Non-United States
Transportation		7.0	4.2			5.6	3.3
Utilities		5.3	3.1			2.5	1.5
Sovereign		4.0	2.3			1.3	0.8
Investor-owned utilities		2.1	1.2			4.1	2.4
Sub-sovereign		1.0	0.6			0.9	0.5
Health care		0.2	0.2			0.6	0.3
Housing		0.1	—			0.1	—
Total Non-United States		19.7	11.6			15.1	8.8
Total Global Public Finance		118.3	69.6			114.5	67.0
Global Structured Finance:
United States
Asset-backed:
Auto		4.6	2.7			6.2	3.6
Credit cards		3.8	2.2			4.4	2.6
Other		0.7	0.4			0.8	0.5
Leasing		0.1	0.1			1.8	1.1
Mortgage-backed:
Home equity		4.0	2.4			6.6	3.8
Other		2.0	1.2			2.2	1.3
First mortgage		0.5	0.3			0.7	0.4
Pooled corp. obligations & other		7.6	4.5			6.7	3.9
CDO, CLO, and CBO		6.0	3.5			6.0	3.5
Financial risk		0.1	—			0.3	0.2
Total United States		29.4	17.3			35.7	20.9
Non-United States
CDO, CLO, and CBO		10.7	6.3			9.8	5.7
Pooled corp. obligations & other		3.6	2.1			5.2	3.1
Financial risk		2.4	1.4			2.5	1.4
Asset-backed		2.4	1.3			1.1	0.6
Mortgage-backed:
First mortgage		1.5	1.0			1.2	0.7
Other		1.7	1.0			1.0	0.6
Total Non- United States		22.3	13.1			20.8	12.1
Total Global Structured Finance		51.7	30.4			56.5	33.0
Total	$	170.0	100.0	%	$	171.0	100.0	%

As part of MBIA Corp’s portfolio shaping activity in 1998, MBIA Corp. entered into reinsurance agreements with highly rated reinsurers that obligate it to cede future premiums to the reinsurers through October 1, 2004.

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Components of premiums written including reinsurance assumed from and ceded to other companies is set forth in the following table:

	Years ended December 31
In thousands	2003			2002			2001
Direct	$	1,261,053		$	932,204		$	839,386
Assumed		18,975			19,727			25,840
Gross		1,280,028			951,931			865,226
Ceded		(239,432	)		(198,526	)		(235,362	)
Net	$	1,040,596		$	753,405		$	629,864

Ceding commissions received from reinsurers before deferrals were $67.9 million, $49.9 million and $55.2 million in 2003, 2002 and 2001, respectively.

15. Employee Benefits

MBIA Corp. participates in MBIA Inc.’s pension plan, which covers substantially all employees. The pension plan is a non-contributory, defined contribution pension plan to which MBIA Corp. contributes 10% of each eligible employee’s annual compensation. Annual compensation consists of base salary, bonus and commissions, as applicable, for determining such contributions. Pension benefits vest over a five-year period with 60% vesting after three years and 20% in years four and five. Pension expense for the years ended December 31, 2003, 2002 and 2001, was $7.9 million, $7.5 million and $4.9 million, respectively.

MBIA Inc. also has a profit-sharing/401(k) plan in which MBIA Corp. participates. The plan is a voluntary contributory plan that allows eligible employees to defer compensation for federal income tax purposes under Section 401(k) of the Internal Revenue Code of 1986, as amended. Employees may contribute through payroll deductions up to 10% of eligible compensation. MBIA Corp. matches employee contributions up to the first 5% of total compensation with MBIA, Inc. common stock. MBIA Corp.’s contributions vest over five years with 60% vesting after three years and then 20% in years four and five. Generally, a participating employee is entitled to distributions from the plan upon termination of employment, retirement, death or disability. Participants who qualify for distribution may receive a single lump sum, transfer the assets to another qualified plan or individual retirement account, or receive a series of specified installment payments. MBIA Corp. contributions to the profit-sharing/401(k) plan aggregated $3.6 million, $2.2 million and

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

$1.9 million for the years ended December 31, 2003, 2002 and 2001, respectively.

Amounts relating to the above plans that exceed limitations established by federal regulations are contributed to a non-qualified deferred compensation plan. The non-qualified contributions included in the pension plan were $3.4 million, $3.9 million and $3.0 million for the years ending December 31, 2003, 2002 and 2001, respectively. The non-qualified contributions for the profit-sharing 401(k) plan were $1.2 million, $0.9 million and $1.0 million for the years ending December 31, 2003, 2002 and 2001, respectively.

MBIA Corp. participates in the “MBIA Long-Term Incentive Program” (the incentive program). The incentive program includes a stock option component and a compensation component linked to the growth in book value per share, including certain adjustments, of MBIA Inc.’s stock (modified book value) over a three-year period following the grant date. Target levels for the incentive program awards are established as a percentage of total salary and bonus, based upon the recipient’s position. Awards under the incentive program typically are granted from the vice president level up to and including the Chairman and Chief Executive Officer. Actual amounts to be paid are adjusted upward or downward depending on the growth of modified book value versus a baseline target, with a minimum growth of 8% necessary to receive any payment and an 18% growth necessary to receive the maximum payment. Awards under the incentive program are divided equally between the two components, with 50% of the award to be given in stock options and 50% of the award to be paid in cash or shares of MBIA Inc. stock. Payments are made at the end of each three-year measurement period. During 2003, 2002 and 2001, $19.6 million, $16.8 million and $14.6 million, respectively, were recorded as an expense related to modified book value awards.

MBIA Corp. also participates in MBIA Inc.’s restricted stock program whereby key executive officers are granted restricted shares of MBIA Inc.’s common stock. These stock awards may only be sold three, four or five years from the date of grant, at which time the awards fully vest. Compensation expense related to the restricted stock was $5.5 million, $4.2 million and $3.3 million for the years ended December 31, 2003, 2002 and 2001, respectively.

MBIA Corp. also participates in MBIA Inc.’s Stock Option Plan. Effective January 1, 2002 MBIA Inc. adopted the expense recognition

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

provisions of SFAS 123, “Accounting for Stock-Based Compensation.” Under the modified prospective method of adoption selected by MBIA Inc. under the provisions of SFAS 148 compensation cost recognized in 2002 is the same as that which would have been recognized had the recognition provisions of SFAS 123 been applied from its original effective date. Results for prior years have not been restated. Employee stock compensation for the years ended December 31, 2003, and 2002 totaled $22.3 million and $20.2 million, respectively. In accordance with SFAS 123 the Company valued all stock options granted in 2003 using an option-pricing model. The value is recognized as an expense over the period in which the options vest.

The following is a reconciliation of net income before stock option expense to the net income amounts reported in the financial statements:

	Years Ended December 31,
In thousands	2003			2002			2001
Net income
Net income before stock option	$	814,825		$	606,411		$	593,261
After-tax stock option expense		(5,401	)		(4,867	)		—
As reported	$	809,424		$	601,544		$	593,261

16. Related Party Transactions

Related parties are defined as the following:

• Affiliates of MBIA Corp.: An affiliate is a party that directly or indirectly controls, is controlled by or is under common control with MBIA Corp. Control is defined as having, either directly or indirectly, the power to direct the management and policies of MBIA Corp. through ownership, by contract or otherwise.

• Entities for which investments are accounted for by the equity method by MBIA Corp.

• Trusts for the benefit of employees, such as pension and profit-sharing trusts, that are managed by or under the trusteeship of management.

• Principal owners of MBIA Corp. defined as owners of record or known beneficial owners of more than 10 percent of the voting interests of MBIA Corp.

• Management of MBIA Corp. which includes persons who are responsible for achieving the objectives of MBIA Corp. and who have the authority to establish policies and make decisions by which those objectives are to be pursued. Management normally

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

includes members of the board of directors, the chief executive officer, chief operating officer, vice president in charge of principal business functions and other persons who perform similar policymaking functions.

• Members of the immediate families of principal owners of MBIA Corp. and its management. This includes family members whom a principal owner or a member of management might control or influence or by whom they may be controlled or influenced because of the family relationship.

• Other parties with which MBIA Corp. may deal if one party controls or can significantly influence the management or policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.

• Other parties that can significantly influence the management or policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to the extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

From time to time MBIA Corp. may enter into transactions with related parties, which MBIA Corp. deems immaterial or which occur in the normal course of business and which are transacted at “arms length.” Since 1989, MBIA Corp. has executed five surety bonds to guarantee the payment obligations of the members of the Association who had their Standard & Poor’s Corporation claims-paying rating downgraded from Triple-A on their previously issued Association policies. In the event that they do not meet their Association policy payment obligations, MBIA Corp. will pay the required amounts directly to the paying agent. The aggregate outstanding exposure on these surety bonds as of December 31, 2003 is $340 million.

MBIA Corp. had no loans outstanding with any executive officers or directors during 2003, with the exception of split-dollar life insurance policies. As MBIA Corp. believes such policies fall within the prohibitions on loans to executives imposed under the Sarbanes-Oxley Act, such policies were terminated in the fourth quarter of 2003.

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Included in other assets at December 31, 2003 and December 31, 2002 were $6.1 million and $0.8 million of net receivables from MBIA Inc. and other subsidiaries.

MBIA Corp.’s investment portfolio is managed by MBIA Capital Management Corp. (CMC), a wholly owned subsidiary of MBIA Inc., which provides fixed-income investment management services for MBIA Inc. and its affiliates, as well as third-party institutional clients. CMC charges a fee to MBIA Corp. based on the performance of its investment portfolio.

MBIA Corp. insures outstanding investment agreement liabilities for MBIA Investment Management Corp. (IMC), a wholly owned subsidiary of MBIA Inc. that provides customized investment agreements for bond proceeds and other public funds, as well as for funds which are invested as part of asset-backed or structured product issuance.

MBIA Corp. entered into an agreement with MBIA Inc. and IMC whereby MBIA Corp. held securities subject to agreements to resell of $383.4 million and $492.3 million as of December 31, 2003 and 2002, respectively. MBIA Corp. also transferred securities subject to agreements to repurchase of $383.4 million and $492.3 million as of December 31, 2003 and 2002. These agreements have a term of less than one year. The interest expense relating to these agreements was $4.5 million and $7.6 million, respectively, for the years ended December 31, 2003 and 2002. The interest income relating to these agreements was $4.9 million and $7.8 million, respectively, for the years ended December 31, 2003 and 2002.

MBIA Corp. insures assets and/or liabilities of the Conduits, which are MBIA-administered SPVs and are consolidated in the financial statements of MBIA Inc. and Subsidiaries. Certain of MBIA’s consolidated subsidiaries have invested in Conduit debt obligations or have received compensation for services provided to the Conduits. As such, appropriate intercompany transactions have been eliminated from its balance sheet and income statement.

17. Fair Value of Financial Instruments

The estimated fair value amounts of financial instruments shown in the following table have been determined by MBIA Corp. using available market information and appropriate valuation methodologies. However, in certain cases considerable judgment is necessarily required to interpret market data to develop estimates of fair value. Accordingly, the

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

estimates presented herein are not necessarily indicative of the amount MBIA Corp. could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Fixed-maturity securities—The fair value of fixed-maturity securities available-for-sale is based upon quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Investments held-to-maturity—Investments held-to-maturity are comprised of fixed and floating rate fixed-maturity securities and short-term investments. The carrying values of the floating rate investments approximate their fair values. The fair value of the fixed rate investments is determined by calculating the net present value of estimated future cash flows assuming prepayments, defaults and discount rates that the Company believes market participants would use for similar assets. The short-term investments are carried at amortized cost, which approximates fair value.

Short-term investments—Short-term investments are carried at amortized cost, which approximates fair value.

Other investments—Other investments include MBIA Corp.’s interest in equity-oriented and equity-method investments. The fair value of these investments is based on quoted market prices, investee financial statements or cash flow modeling.

Cash and cash equivalents, receivable for investments sold, short-term debt and payable for investments purchased—The carrying amounts of these items are a reasonable estimate of their fair value.

Securities purchased under agreements to resell—The fair value is estimated based upon the quoted market prices of the transactions’ underlying collateral.

Prepaid reinsurance premiums—The fair value of MBIA Corp.’s prepaid reinsurance premiums is based on the estimated cost of entering into an

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

assumption of the entire portfolio with third-party reinsurers under current market conditions.

Variable interest entity assets and liabilities—Variable interest entity assets consist of floating rate notes and related accrued interest. The carrying values of variable interest entity assets approximate their fair values due to the term of the applicable interest rates.

Deferred premium revenue—The fair value of MBIA Corp.’s deferred premium revenue is based on the estimated cost of entering into a cession of the entire portfolio with third-party reinsurers under current market conditions.

Loss and loss adjustment expense reserves—The carrying amount is composed of the present value of the expected cash flows for specifically identified claims combined with an estimate for unidentified claims. Therefore, the carrying amount is a reasonable estimate of the fair value of the reserve.

Securities sold under agreements to repurchase—The fair value is estimated based upon the quoted market prices of the transactions’ underlying collateral.

Installment premiums—The fair value is derived by calculating the present value of the estimated future cash flow streams. The discount rate is based on the actual yield of MBIA Corp.’s investment portfolio at the end of the preceding fiscal quarter. At March 31, June 30, September 30 and December 31, 2003 the discount rates were 5.6%, 5.3%, 5.1% and 4.7%, respectively, while 2002 was at 9.0%.

Medium-term note obligations—The carrying value approximates the fair value primarily due to their liquidity or variability in interest rates.

Derivatives—The fair value derived from market information and appropriate valuation methodologies reflects the estimated amounts that MBIA Corp. would receive or pay to terminate the transaction at the reporting date.

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MBIA INSURANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	As of December 31, 2003				As of December 31, 2002
In thousands	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Fixed-maturity securities	$	8,512,951	$	8,512,951	$	7,958,996	$	7,958,996
Short-term investments		906,883		906,883		628,033		628,033
Investments held-to-maturity		1,505,906		1,505,906		—		—
Other investments		252,098		252,098		151,967		151,967
Cash and cash equivalents		57,322		57,322		17,538		17,538
Securities purchased under agreements to resell		383,398		383,398		492,280		492,280
Prepaid reinsurance premiums		535,728		504,375		521,641		435,818
Reinsurance recoverable on unpaid losses		61,085		61,085		43,828		43,828
Receivable for investments sold		2,099		2,099		39,464		39,464
Derivative assets		55,806		55,806		96,733		96,733
Variable interest entity assets		600,322		600,322		—		—
Liabilities:
Deferred premium revenue		3,079,851		2,863,174		2,755,046		2,339,661
Loss and loss adjustment expense reserves		559,510		559,510		573,275		573,275
Securities sold under agreements to repurchase		383,398		383,398		492,280		492,280
Medium-term note obligations		1,503,324		1,503,324		—		—
Short-term debt		57,337		57,337		—		—
Payable for investments purchased		—		—		56,971		56,971
Derivative liabilities		49,549		49,549		190,881		190,881
Variable interest entity liabilities		600,322		600,322		—		—
Off-balance sheet instruments:
Installment premiums		—		2,052,867		—		1,300,107

18. Subsequent Event

On February 13, 2004, MBIA Corp. announced that Channel Reinsurance Ltd. (Channel Re), a new financial guarantee reinsurer based in Bermuda, was formed and funded. Channel Re was capitalized with total equity capital of approximately $366 million from four investors. Channel Re has received financial strength ratings of Aaa from Moody’s and AAA from S&P. MBIA Corp. has a 17.4% ownership interest in Channel Re. Channel Re will assume a $27 billion portfolio of in-force business from MBIA Corp., participate in MBIA Corp.’s reinsurance treaty and provide facultative reinsurance support. Following the assumption of the in-force business, Channel Re will have total claims-paying resources of approximately $700 million.

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