Exhibit 10.40

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”), by and between Ambac Assurance
Corporation, a Wisconsin corporation (the “Company”), and Diana Adams (the
“Employee”), is dated as of February 27, 2012 (the “Effective Date”).

WHEREAS, the Company and the Employee wish to enter into an agreement setting
forth certain terms and conditions of the Employee’s continued employment with
the Company.

NOW THEREFORE, in consideration of the mutual covenants contained herein and
other valid consideration, the sufficiency of which is acknowledged, the parties
hereto agree as follows:

1. Salary. Subject to the Employee’s continued employment, during the period
beginning on the Effective Date and ending on March 31, 2013, the Employee’s
base salary shall be $750,000.

2. Termination Payments.

(a) Termination Payments. In the event of the Employee’s termination of
employment by the Company prior to March 31, 2013 for any reason other than
pursuant to Section 2(b), the Employee shall be entitled to the following
termination payments (the “Termination Payments”):

 

  (i) the Company shall pay the Employee a termination payment in an amount
equal to $750,000 in a single lump sum on a scheduled payroll date that occurs
within sixty (60) days of the date of such termination; and

 

  (ii) if the Employee elects to continue coverage under the Company’s group
health plans in accordance with the COBRA continuation coverage requirements
(where applicable), the Company will reimburse the Employee for the portion of
the premiums for COBRA coverage paid by the Employee during the first 12 months
of COBRA coverage following the date the Employee’s employment terminates, with
the portion of the premiums to be paid by the Company being the same as the
amount paid by the Company for the same group health insurance coverage for
active employees; provided, that the Company receives proof of payment for the
monthly COBRA premiums within thirty (30) days from the date such premium is
due; and provided, further, that if COBRA is not applicable, the Company may,
subject to the approval of the insurer and the scheme rules in effect from time
to time, continue to provide coverage for the Employee under the private medical
insurance plan (if any) in which the Employee participates immediately prior to
the date the Employee’s employment terminates for a period of three months
following the date the Employee’s employment terminates;

provided, however, that the Company will require that, prior to payment of any
portion of the Termination Payments, the Employee shall within sixty (60) days
following the Employee’s termination of employment have executed with all
periods of revocation expired a complete release of the Company and its
affiliates and related parties in such form as is reasonably required by the
Company.

 

1

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

(b) Termination by the Company for Cause. If the Employee’s employment is
terminated by the Company for Cause, then no Termination Payments shall be paid.
“Cause” means (i) any act or omission by the Employee resulting or intended to
result in personal gain at the expense of the Company or any of its affiliates;
(ii) the improper disclosure by the Employee of proprietary or confidential
information or trade secrets of the Company or any of its affiliates; or
(iii) misconduct by the Employee, including, but not limited to, fraud,
intentional violation of or negligent disregard for the rules and procedures of
the Company or its affiliates (including a violation of the business code of
conduct), theft, violent acts or threats of violence, or possession of
controlled substances on the property of the Company or any of its affiliates.
The determination of whether Cause exists shall be made by the Company in its
sole and absolute discretion.

(c) Termination by the Employee. If the Employee voluntarily terminates the
Employee’s employment for any reason, then no Termination Payments shall be
paid.

3. No Other Termination Payments; Severance Pay Plan. The Employee is not
eligible to participate in the Ambac Severance Pay Plan during the term of this
agreement, and the payments provided for in this Agreement shall be the only
payments to which the Employee is entitled upon a termination of employment.
Upon the expiration of the term of this Agreement, the Employee shall become
eligible to participate in the Ambac Severance Pay Plan as in effect from time
to time if such Plan would otherwise then cover such Employee.

4. Notice of Resignation. Given the strategic importance of the position the
Employee holds and irreparable harm to the Company and its business
opportunities that the Employee’s abrupt resignation or other voluntary
departure would likely cause, in consideration of the compensation commitments
set forth in Section 2 of this Agreement, the Employee agrees to provide the
Company with thirty (30) days prior written notice of resignation, retirement or
other voluntary termination of the Employee’s employment. The Employee also
agrees that because the Employee’s services will be personal and unique and
because the Employee will have access to and will be acquainted with Company
confidential information, to the fullest extent permitted by law, this notice
provision will be enforceable by injunction, specific performance or other
equitable relief, without bond and without prejudice to any other rights or
remedies that the Company may have for breach of this notice provision. The
Company reserves the right to exercise its discretion with respect to the
duration of this notice period (or any portion of the notice period) but not to
extend the applicable notice period beyond the period specified, to change or
remove any of the Employee’s duties, and/or require the Employee to remain away
from the Company’s premises, and/or take such other action as determined by the
Company to aid and assist in the transition process associated with the
Employee’s departure. During this notice period the Employee must continue to
act in a manner consistent with the Employee’s obligations as a Company
employee, including but not limited to the Employee’s duty of loyalty. The
Employee understands and agrees that during the thirty (30) day period after the
Employee provides the Company with written notice of resignation, the Employee
remains an employee of the Company and is not free to begin employment with
another company, absent the Company’s authorized and written consent. The
Company also retains the

 

2

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

discretion to waive the notice period (or any portion of the notice period) and
consider the Employee’s resignation effective immediately, or some date prior to
the end of the notice period. In this instance, the Company will continue to pay
the Employee’s then current base salary for the entire notice period (not to
exceed the applicable notice period) pursuant to its regular payroll practices.

5. Miscellaneous.

(a) No Right of Continued Employment. Nothing in this Agreement shall confer
upon the Employee any right to continue as an employee of the Company or any of
its affiliates or to interfere in any way with any right of the Company to
terminate the Employee’s employment at any time. This Agreement does not create
a guarantee to the Employee of any compensation or benefits, including without
limitation, any bonus payment, other than the amounts specified in this
Agreement.

(b) Withholding. All amounts paid to the Employee under this Agreement shall be
subject to withholding and other employment taxes imposed by applicable law. The
Employee shall be solely responsible for the payment of all taxes imposed on the
Employee relating to the payment or provision of any amounts or benefits
hereunder.

(c) Governing Law. This Agreement is to be governed by and interpreted in
accordance with the laws of the State of New York.

6. 409A. If the Employee is a “specified employee” within the meaning of
Section 409A of the Internal Revenue Code of 1986, as amended, and the
Regulations promulgated thereunder (“Section 409A”), then if any payments due
upon a “separation from service” within the meaning of 409A would be considered
“deferred compensation” under Section 409A, all payments of such amounts shall
not be paid or commence to be paid on any date prior to the first business day
after the date that is six months following the Employee’s separation from
service.

The provisions of this Agreement and any payments made herein are intended to
comply with, and should be interpreted consistent with, the requirements of
Section 409A.

7. Termination. Unless the Employee’s employment shall terminate prior to
March 31, 2013, this Agreement shall terminate on March 31, 2013. Subsequent to
that date, the Employee’s employment shall continue to be “at will” and will be
subject to such terms and conditions as determined by the Company in its
discretion.

 

3

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

IN WITNESS WHEREOF, the Employee and the Company have executed this Agreement as
of the date first written above.

 

AMBAC ASSURANCE CORPORATION

LOGO [g272123ex10_40pg004a.jpg]

Name: Michael Reilly Title: Senior Managing Director

LOGO [g272123ex10_40pg004b.jpg]

Diana Adams

 

4