Exhibit 10.3

AMBAC FINANCIAL GROUP, INC.
PERFORMANCE STOCK UNIT AGREEMENT
FOR LONG-TERM INCENTIVE COMPENSATION AWARD
(Executive Officers with Employment Agreements)

Effective as of [Date], 2018 (the “Grant Date”), [Name] (the “Participant”) has
been granted an Award under the Ambac Financial Group, Inc. Incentive
Compensation Plan (the “Incentive Plan”) and in accordance with the Ambac
Financial Group, Inc. Long-Term Incentive Compensation Plan (the “LTIP”), which
is a subplan to the Incentive Plan. This Agreement evidences the Award, which
shall consist of a Full Value Award in the form of performance stock units
(“Performance Stock Units”). In addition to the terms and conditions of the
Incentive Plan and the LTIP, the Award shall be subject to the following terms
and conditions (sometimes referred to as this “Agreement”).
1.Defined Terms. Capitalized terms used in this Agreement which are not
otherwise defined herein shall have the meaning specified in the Incentive Plan
or the LTIP, as applicable.
2.    Grant of Performance Stock Units. Subject to the terms of this Agreement,
the Incentive Plan and the LTIP, effective as of the Grant Date the Participant
is hereby granted [Number] Performance Stock Units (the “Target Performance
Units”). This Award contains the right to dividend equivalent units (“Dividend
Equivalent Units”) with respect to Earned Performance Units (as defined in
Section 3(a)) as described in Section 4. Each Performance Stock Unit awarded
hereunder shall become earned and vested as described in Section 3 and each
Earned Performance Unit (and associated Earned Dividend Equivalent Units thereon
as described in Section 4) shall be settled in accordance with Section 5.
3.    Earning, Vesting and Forfeiture of Performance Stock Units. The
Performance Stock Units shall become earned and vested in accordance with the
following:
(a)
All Performance Stock Units shall be unearned and unvested unless and until they
become earned and vested and nonforfeitable in accordance with this Section 3.
The Participant shall have the ability to earn between 0% and 200% of the Target
Performance Units, as determined by the Committee, based on the continuing
employment of the Participant during the period beginning on January 1, 2018 and
ending on the December 31, 2020 (the “Performance Period”) and satisfaction of
the Performance Goals set forth in Exhibit A hereto (which is incorporated into
and forms part of this Agreement). Any Performance Stock Units granted pursuant
to this Agreement that become earned in accordance with this Agreement shall be
referred to herein as “Earned Performance Units”. Except as provided in Section
3(b), if the Participant’s termination of employment or service with the Company
(the “Termination Date”) occurs for any reason prior to the last day of the
Performance Period, the Participant’s right to all Performance Stock Units (and
any associated Dividend Equivalent Units) awarded or credited to the Participant
pursuant to this Agreement shall expire and be forfeited immediately and the
Participant shall have no further rights with respect to any of the Performance
Stock Units (or associated Dividend Equivalent Units). The Earned Performance
Units (and any associated Earned Dividend Equivalent Units) shall be settled in
accordance with Section 5 hereof.

(b)
Notwithstanding the provisions of Section 3(a), if the Participant’s Termination
Date occurs prior to the last day of the Performance Period by reason of death,
Disability (as defined in Section 3(c)), involuntary termination by the Company
other than for Cause (as defined in Section 3(c)), as a result of the Company’s
failure to extend the term of the Employment Agreement between Ambac, AAC and
the Participant, dated as of [Date] (the “Employment Agreement”), pursuant to
Section 2 thereof, termination by the Participant for Good Reason (as defined in
Section 3(c)) or Retirement (as defined in Section 3(c), the Participant (or, in
the event of his death, his beneficiary) shall be entitled to receive the number
of Earned Performance Units (and any associated Earned Dividend Equivalent
Units) that the Participant would have been entitled to receive had his
Termination Date not occurred prior to the end of the Performance Period based
on actual satisfaction of the Performance Goals; pro-rated to reflect the
Participant’s actual service plus twelve (12) months during the Performance
Period; determined by a fraction, (i) the numerator of which is the number of
days during the Performance Period prior to and including the Termination Date
plus the number of days in the next twelve (12) months, and (ii) the denominator
of which is the total number of days in the Performance Period. The pro-rated
service period fraction shall not exceed 100%.

(c)
For purposes of the Award evidenced by this Agreement, (i) the terms “Cause,”
“Disability” and “Good Reason” shall have the meanings specified in the
Employment Agreement, and (ii) the Participant’s Termination Date shall be
considered to occur on account of Retirement if the Participant’s Termination
Date occurs on or after the date on which the Participant has attained age 55
and such termination date does not occur for any other reason.

4.    Dividend Equivalent Units. The Participant shall be credited with Dividend
Equivalent Units as follows:
(a)
If, during the Performance Period, a dividend with respect to shares of Common
Stock is paid in cash, then as of the dividend payment date, the Participant
shall be credited with that number of Dividend Equivalent Units equal to (i) the
cash dividend paid with respect to a share of Common Stock, multiplied by (ii)
200% of the Target Performance Units (the “Maximum Performance Units”) plus the
number of previously credited Dividend Equivalent Units with respect to such
Performance Stock Units, if any, divided by (iii) the Fair Market Value of a
share of Common Stock on the dividend payment date, rounded down to the nearest
whole number.

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(b)
If, during the Performance Period, a dividend with respect to shares of Common
Stock is paid in shares of Common Stock, then as of the dividend payment date
the Participant shall be credited with that number of Dividend Equivalent Units
equal to (i) the number of shares of Common Stock distributed in the dividend
with respect to a share of Common Stock, multiplied by (ii)(A) the number of
Maximum Performance Units plus (B) the number of previously credited Dividend
Equivalent Units with respect to such Performance Stock Units, if any, rounded
down to the nearest whole number.

Dividend Equivalent Units shall be earned on the same basis and to the same
extent that the Performance Stock Units to which they relate become Earned
Performance Units. Therefore, the Participant shall only earn Dividend
Equivalent Units with respect to Earned Performance Units and, to the extent
that any Dividend Equivalent Units are credited to the Participant pursuant to
this Section 4 and are not earned in accordance with this Agreement, they shall
be forfeited and the Participant shall have no further rights with respect
thereto under this Agreement or otherwise. Any Dividend Equivalent Units
credited to the Participant pursuant to this Section 4 that become earned in
accordance with this Agreement are sometimes referred to as “Earned Dividend
Equivalent Units”.

5.    Settlement. Subject to the terms and conditions of this Agreement, the
Earned Performance Units (and associated Earned Dividend Equivalent Units) shall
be settled as soon as practically possible, but not later than seventy-five (75)
days following the end of the Performance Period (the “Settlement Date”).
Settlement of the Earned Performance Units and Earned Dividend Equivalent Units
on the Settlement Date shall be made in the form of shares of Common Stock with
one share of Common Stock being issued in settlement of each Earned Performance
Unit and each Earned Dividend Equivalent Unit, with any fractional shares of
Common Stock being rounded up to the nearest whole number. Upon the settlement
of any Earned Performance Unit and associated Earned Dividend Equivalent Units,
such Earned Performance Unit and Earned Dividend Equivalent Units shall be
cancelled. Any Performance Stock Units and associated Dividend Equivalent Units
outstanding as of the last day of the Performance Period that do not become
Earned Performance Units and associated Earned Dividend Equivalent Units shall
be automatically cancelled as of the last day of the Performance Period.
6.    Withholding. The Award and settlement thereof are subject to withholding
of all applicable taxes. Such withholding obligations shall be satisfied through
amounts that the Participant is otherwise to receive upon settlement.
7.    Transferability. The Award is not transferable except as designated by the
Participant by will or by the laws of descent and distribution.
8.    Heirs and Successors. If any benefits deliverable to the Participant under
this Agreement have not been delivered at the time of the Participant’s death,
such rights shall be delivered to the Participant’s estate.
9.    Administration. The authority to administer and interpret this Agreement
shall be vested in the Committee, and the Committee shall have all the powers
with respect to this Agreement as it has with respect to the Incentive Plan and
the LTIP. Any interpretation of the Agreement by the Committee and any decision
made by it with respect to the Agreement is final and binding on all persons.
10.    Adjustment of Award. In the event of a stock dividend, stock split,
reverse stock split, extraordinary cash dividend, recapitalization,
reorganization, merger, consolidation, split-up, spin-off, exchange of shares,
sale of assets or subsidiaries, combination, or other corporate transaction that
affects the Common Stock, the Committee shall, in order to preserve the benefits
or prevent the enlargement of benefits of this Award, and in the manner it
determines equitable in its sole discretion, (a) adjust the number and kind of
shares subject to this Award and (b) make any other adjustments that the
Committee determines to be equitable (which may include, without limitation, (i)
replacement of this Award with other Awards which the Committee determines have
comparable value and which are based on stock of a company resulting from the
transaction, and (ii) cancellation of this Award in return for cash payment of
the current value of this Award, determined as though this Award is fully vested
at the time of payment).
11.    Notices. Any notice required or permitted under this Agreement shall be
deemed given when delivered personally, through Ambac’s stock compensation
administration system or when deposited in a United States Post Office, postage
prepaid, addressed, as appropriate, to Ambac at its principal offices, to the
Participant at the Participant’s address as last known by the Company or, in
either case, such other address as one party may designate in writing to the
other.
12.    Governing Law. The validity, construction and effect of this Agreement
shall be determined in accordance with the laws of the State of New York and
applicable federal law.
13.    Amendments. The Board of Directors may, at any time, amend or terminate
the Incentive Plan, and the Board of Directors or the Committee may amend this
Agreement or the LTIP, provided that no amendment or termination may, in the
absence of written consent to the change by the affected Participant (or, if the
Participant is not then living, the affected beneficiary), adversely affect the
rights of any Participant or beneficiary under this Agreement prior to the date
such amendment or termination is adopted by the Board of Directors or the
Committee, as the case may be.
14.    Award Not Contract of Employment. The Award does not constitute a
contract of employment or continued service, and the grant of the Award will not
give the Participant the right to be retained in the employ or service of the
Company, nor any right or claim to any benefit under the Incentive Plan, the
LTIP or this Agreement, unless such right or claim has specifically accrued
under the terms of the Incentive Plan and this Agreement.

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15.    Severability. If a provision of this Agreement is held invalid by a court
of competent jurisdiction, the remaining provisions will nonetheless be
enforceable according to their terms. Further, if any provision is held to be
overbroad as written, that provision shall be amended to narrow its application
to the extent necessary to make the provision enforceable according to
applicable law and enforced as amended.
16.    Incentive Plan and LTIP Govern. The Award evidenced by this Agreement is
granted pursuant to the Incentive Plan, and the Performance Stock Units and this
Agreement are in all respects governed by the Incentive Plan (including the
LTIP) and subject to all of the terms and provisions thereof, whether such terms
and provisions are incorporated in this Agreement by reference or are expressly
cited.
17.    Special Section 409A Rules. To the fullest extent possible, amounts and
other benefits payable under the Agreement are intended to comply with or be
exempt from the provisions of section 409A of the Code. This Agreement will be
interpreted and administered to the extent possible in a manner consistent with
the foregoing statement of intent; provided, however, that the Company does not
guarantee the tax treatment of the Award. Notwithstanding any other provision of
this Agreement to the contrary, if any payment or benefit hereunder is subject
to section 409A of the Code, and if such payment or benefit is to be paid or
provided on account of the Participant’s termination of employment (or other
separation from service):
(a)
and if the Participant is a specified employee (within the meaning of section
409A(a)(2)(B) of the Code) and if any such payment or benefit is required to be
made or provided prior to the first day of the seventh month following the
Participant’s separation from service or termination of employment, such payment
or benefit shall be delayed until the first day of the seventh month following
the Participant’s separation from service; and

(b)
the determination as to whether the Participant has had a termination of
employment (or separation from service) shall be made in accordance with the
provisions of section 409A of the Code and the guidance issued thereunder
without application of any alternative levels of reductions of bona fide
services permitted thereunder.

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EXHIBIT A
PERFORMANCE GOALS

Weight of Award between AAC and AFG Performance:

AAC Percentage: 85%
AFG Percentage: 15%

Performance Goals

All AAC and AFG metrics are neutralized to the effects of changes to US GAAP

The Award evidenced by the Agreement shall be earned based on the satisfaction
of the Performance Goals described in this Exhibit A determined based on the
rating calculated pursuant to the following table:

 
 
AAC
AFG
Rating
Payout Multiple
Adjusted Net Asset Value
($mm)
WLACC Outstanding ($bn)
Cumulative EBITDA ($mm)
1
2.00
$(300)
$15.50
$30
2
1.00
$(500)
$16.60
$17
3
0.00
$(650)
$18.80
$0

With respect to the AAC Performance Goal, the applicable rating shall be
determined (i) 50% based on the Adjusted Net Asset Value and (ii) 50% based on
WLACC Outstanding at the end of the Performance Period. Linear interpolation
between payout multiples of Adjusted Net Asset Value and the WLACC Outstanding,
as applicable, will result in a proportionate number of the Target Performance
Units (and associated Dividend Equivalent Units) becoming Earned Performance
Units (and Earned Dividend Equivalent Units).

With respect to the AFG Performance Goal, the applicable rating shall be
determined based on Cumulative EBITDA over the performance period. Linear
interpolation between payout multiples of Cumulative EBITDA will result in a
proportionate number of the Target Performance Units (and associated Dividend
Equivalent Units) becoming Earned Performance Units (and Earned Dividend
Equivalent Units).

All metrics noted in this table shall be neutral to the effects of changes to US
GAAP.

All determinations as to whether the Performance Goals have been satisfied will
be determined by the Committee in accordance with the provisions of the LTIP,
including Section 3(f) thereof.

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For purposes of the foregoing table, the following definitions shall apply:

AAC: Ambac Assurance Corporation.

WLACC Outstanding: The remaining net par outstanding for watch list and
adversely classified credits as identified at the beginning of the Performance
Period (“WLACC”) by AFG and its subsidiaries, including Ambac Assurance UK,
Limited (“Ambac UK”). For purposes of this award, WLACC amounts will exclude new
credits added during the Performance Period, including those through reinsurance
recaptures. For non-U.S. exposures, the currency exchange rates to be used shall
be those beginning on the first day of the Performance Period.

Adjusted Net Asset Value: The value determined by reducing Assets by
Liabilities, determined as of the last day of the Performance Period.
Additionally, Adjusted Net Asset Value will:
•
neutralize the effects of claim payments, loss expense payments, advisor
payments and the establishment of loss and loss expense reserves for credits
that do not have a GCL, as defined below, at the beginning of the Performance
Period;

•
measure AAC’s foreign subsidiaries utilizing the foreign exchange rate at the
beginning of the Performance Period;

•
add back costs related to AAC restructuring or ongoing OCI oversight during
performance period; and

•
add back direct costs of risk remediation activities with respect to credits
within WLACC.

AFG: Ambac Financial Group, Inc.

Assets: The sum of the following relating to the Included Entities: cash,
invested assets at fair value (except for Ambac-insured investments which will
be measured at amortized cost and excluding the Secured Note issued in 2018 in
connection with AAC’s restructuring as it is included below in liabilities),
loans, investment income due and accrued, net receivables (payables) for
security sales (purchases), tax tolling payments or dividends made by AAC to
AFG, cash and securities pledged as collateral to counterparties and other
receivables.

Cumulative EBITDA: AFG’s earnings before interest, taxes, depreciation,
amortization, and non-controlling interests (as determined under current US
GAAP) through the Performance Period. This includes all of AFG’s subsidiaries
excluding AAC and AAC’s subsidiaries. Cumulative EBITDA shall be adjusted for
the effects of:
•
advisor and deal/transaction related costs related to AFG and AAC capital and/or
M&A transactions above or below budgeted amounts (1);

•
cost of post-employment guarantees;

•
cost and impact of AAC and AFG share repurchase (direct and synthetic) (2);

•
changes to Board fees and Board imposed expenses;

•
litigation and defense costs and any potential litigation gains in excess of
damages incurred;

•
(cost)/benefit of performance based compensation (above) or below target
amounts; and

•
any other costs as determined in the sole discretion of the Board.

Included Entities: AAC and its subsidiaries, and may include any other entities
that the Committee shall determine.

Liabilities: The sum of the following relating to the Included Entities: the
present value of future probability weighted financial guarantee claims and CDS
payments reduced by recoveries, including probability weighted estimated
subrogation recoveries and reinsurance recoverables, using discount rates in
accordance with GAAP (“GCL”), fair value of interest rate derivatives (prior to
any AAC credit valuation adjustments), par value and accrued interest on all
outstanding surplus notes of AAC (including junior surplus notes), par value and
accrued interest on the Ambac Note and Tier 2 debt issued in 2018 in connection
with AAC’s restructuring (net of par value and accrued interest on AAC’s
holdings of the Secured Note), the liquidation value of outstanding preferred
stock and the GAAP carrying value of RMBS secured borrowings. Liabilities will
also include the par and accrued interest on any new debt obligations issued in
the future.

1) 
EBITDA from new business operations during the performance period will be
recognized net of any excluded advisor and/or deal costs incurred during such
period.

2) 
Cost to be calculated based on (i) the amount of capital allocated to share
repurchase multiplied by (ii) LIBOR + the average spread earned on AFG
investments from the time of such allocation through the end of the performance
period. For the avoidance of doubt, gains or losses from repurchases are also
excluded from the EBITDA calculation.

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