Exhibit 10.08

AMBAC FINANCIAL GROUP, INC.

1997 NON-EMPLOYEE DIRECTORS EQUITY PLAN

(as amended as of December 31, 2008)

1. Purpose

The purpose of the Ambac Financial Group, Inc. 1997 Non-Employee Directors
Equity Plan (the “Plan”) is to promote the long-term growth and financial
success of the Company by attracting, motivating and retaining non-employee
directors of outstanding ability and assisting the Company in promoting a
greater identity of interest between the Company’s non-employee directors and
its stockholders.

The Plan replaces the AMBAC Inc. 1991 Non-Employee Directors Stock Plan (the
“Predecessor Plan”). From and after the effective date of the Plan as provided
in Section 11 below, no further awards shall be made under the Predecessor Plan.

2. Definitions

For purposes of the Plan, the following terms shall be defined as follows:

“Annual Award” means an Award of Director Options (made in respect of Annual
Meetings up to and including the 2003 Annual Meeting) or Director Annual Stock
Units (made in respect of Annual Meetings beginning with the 2004 Annual
Meeting), in each case as provided in Section 7 below.

“Annual Meeting” means an annual meeting of the Company’s stockholders.

“Award” means any or all (as the context requires) of Director Annual Stock
Units, Director Five-Year Stock Units and Director Options.

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

“Change in Control” means:

(i) the acquisition by any Person of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the Common
Stock then outstanding, but shall not include any such acquisition by:

(A) the Company;

(B) any Subsidiary of the Company;

(C) any employee benefit plan of the Company or of any Subsidiary of the
Company;

(D) any Person or entity organized, appointed or established by the Company for
or pursuant to the terms of any such plan;

(E) any Person who as of January 31, 1996 was the beneficial owner of 15% or
more of the shares of Common Stock outstanding on such date unless and until
such Person, together with all affiliates and associates of such Person, becomes
the beneficial owner of 25% or more of the shares of Common Stock then
outstanding whereupon a Change in Control shall be deemed to have occurred; or

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(F) any Person who becomes the beneficial owner of 20% or more, or, with respect
to a Person described in clause (E) above, 25% or more, of the shares of Common
Stock then outstanding as a result of a reduction in the number of shares of
Common Stock outstanding due to the repurchase of shares of Common Stock by the
Company unless and until such Person, after becoming aware that such Person has
become the beneficial owner of 20% or more, or 25% or more, as the case may be,
of the then outstanding shares of Common Stock, acquires beneficial ownership of
additional shares of Common Stock representing 1% or more of the shares of
Common Stock then outstanding, whereupon a Change in Control shall be deemed to
have occurred or

(ii) individuals who, as of the date this Plan is approved by the Board,
constitute the Board, and subsequently elected members of the Board whose
election is approved or recommended by at least a majority of such current
members or their successors whose election was so approved or recommended (other
than any subsequently elected members whose initial assumption of office occurs
as a result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a person other than the Board), cease for
any reason to constitute at least a majority of such Board; or

(iii) approval by the stockholders of the Company of (A) a merger or
consolidation of the Company with any other corporation, (B) the issuance of
voting securities of the Company in connection with a merger or consolidation of
the Company (or any Subsidiary) pursuant to applicable stock exchange
requirements, or (C) sale or other disposition of all or substantially all of
the assets of the Company or the acquisition of assets of another corporation
(each, a “Business Combination”), unless, in each case, immediately following
such Business Combination, all or substantially all of the individuals and
entities who were the beneficial owners of the Common Stock outstanding
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 70% of the then outstanding shares of common stock and 70%
of the combined voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction owns the Company
or all or substantially all of the Company’s assets either directly or through
one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination, of the Common Stock.

“Common Stock” means the Common Stock of the Company, par value $.01 per share,
or such other class or kind of shares or other securities as may be applicable
under Section 13 below.

“Company” means Ambac Financial Group, Inc., a Delaware corporation, or any
successor to substantially all its business.

“Director Account” means the bookkeeping record established for each
Non-Employee Director. A Director Account is established only for purposes of
measuring the value of the Company’s obligation to a Non-Employee Director in
respect of Director Stock Units and earnings thereon and not to segregate assets
or to identify assets that may be used to settle Director Stock Units.

“Director Annual Phantom Stock Unit” means a phantom stock unit granted to a
Non-Employee Director pursuant to Section 7 hereof.

“Director Annual Restricted Stock Unit” means a restricted stock unit granted to
a Non-Employee Director pursuant to Section 7 hereof.

“Director Annual Stock Unit” means either a Director Annual Phantom Stock Unit
or a Director Annual Restricted Stock Unit.

 

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“Director Five-Year Phantom Stock Unit” means a phantom stock unit granted to a
Non-Employee Director pursuant to Section 6 hereof.

“Director Five-Year Restricted Stock Unit” means a restricted stock unit granted
to a Non-Employee Director pursuant to Section 6 hereof.

“Director Five-Year Stock Unit” means either a Director Five-Year Phantom Stock
Unit or a Director Five-Year Restricted Stock Unit.

“Director Option” means a right to purchase shares of Common Stock granted to a
Non-Employee Director pursuant to Section 7 hereof.

“Director Phantom Stock Unit” means either a Director Five-Year Phantom Stock
Unit or a Director Annual Phantom Stock Unit. A Director Phantom Stock Unit
shall represent the right to receive a cash payment equal to the Fair Market
Value of one share of Common Stock upon satisfaction of the conditions to
vesting and settlement specified in the Plan. Director Phantom Stock Units shall
be settled exclusively in cash.

“Director Restricted Stock Unit” means either a Director Five-Year Restricted
Stock Unit or a Director Annual Restricted Stock Unit. A Director Restricted
Stock Unit shall represent the right to receive one share of Common Stock upon
satisfaction of the conditions to vesting and settlement specified in the Plan.
Director Restricted Stock Units shall be settled exclusively in Common Stock.

“Director Stock Unit” means either a Director Phantom Stock Unit or a Director
Restricted Stock Unit.

“Effective Date” means the effective date of the Plan provided for in Section 11
below.

“Fair Market Value” means, with respect to a share of Common Stock, the fair
market value thereof as of the relevant date of determination, as determined in
accordance with a valuation methodology approved by the Committee. In the
absence of any alternative valuation methodology approved by the Committee, the
Fair Market Value of a share of Common Stock shall equal the closing price of a
share of Common Stock as reported on the composite tape for securities listed on
the New York Stock Exchange, or such other national securities exchange as may
be designated by the Committee, or in the event that the Common Stock is not
listed for trading on a national securities exchange but is quoted on an
automated quotation system, on such automated quotation system, in any such case
on the valuation date (or if there were no sales on the valuation date, the
closing price as reported on such composite tape or automated quotation system
for the most recent day during which a sale occurred).

“Non-Employee Director” means a member of the Board who is not an employee of
the Company or any of its subsidiaries.

“Permanent Disability” means a physical or mental impairment rendering a
Non-Employee Director substantially unable to function as a member of the Board
for any period of six consecutive months. Any dispute as to whether a
Non-Employee Director is Permanently Disabled shall be resolved by a physician
mutually acceptable to the Non-Employee Director and the Company, whose decision
shall be final and binding upon the Non-Employee Director and the Company.

“Person” means any individual, firm, corporation, partnership or other entity.

“Predecessor Plan” has the meaning set forth in Section 1 above.

“Section 409A” means Section 409A of the Internal Revenue Code of 1986, as
amended, and the rules, regulations and guidance thereunder.

 

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“Section 409A Change in Control” means a Change in Control that also constitutes
a “change in ownership” or “change in the effective control” (as such terms are
defined for purposes of Section 409A) of the Company.

“Subsidiary” means (i) a corporation or other entity with respect to which the
Company, directly or indirectly, has the power, whether through the ownership of
voting securities, by contract or otherwise, to elect at least a majority of the
members of such corporation’s board of directors or analogous governing body, or
(ii) any other corporation or other entity in which the Company, directly or
indirectly, has an equity or similar interest and which the Committee designates
as a Subsidiary for purposes of the Plan.

3. Administration

(a) Administration by the Board. The Plan shall be administered by the Board,
which may adopt rules and regulations it considers necessary or appropriate to
carry out the Plan’s purposes. The Board’s interpretation and construction of
any Plan provision shall be final and conclusive. The Board may, but need not,
from time to time delegate some or all of its authority under the Plan to a
committee consisting of one or more members of the Board, any such delegation to
be subject to the restrictions and limits that the Board specifies at the time
of such delegation or thereafter. References in the Plan to the “Board” shall,
to the extent consistent with the terms and limitations of any such delegation,
be deemed to include a reference to any such committee to which the Board’s
authority hereunder has been delegated.

(b) Award Certificate. The terms and conditions of each grant of Director Stock
Units and Director Options under the Plan shall be embodied in an award
agreement or award certificate which shall incorporate the Plan by reference,
shall indicate the date on which the Director Stock Units or Director Options
were granted and the number of Director Stock Units or Director Options granted
on such date. Beginning with Awards of Director Stock Units made in 2009, the
award agreement or award certificate shall specify whether an award of Director
Stock Units shall consist of Director Phantom Stock Units, Director Restricted
Stock Units or a combination thereof.

4. Shares Available

Subject to the provisions of Section 13 below, the maximum number of shares of
Common Stock which may be issued under the Plan (the “Section 4 Limit”) shall be
560,000 shares plus the number of shares of Common Stock that remain available
for issuance under the Predecessor Plan as of the date the Plan is approved by
the stockholders of the Company (increased by any shares of Common Stock subject
to any Award (or portion thereof) outstanding under the Predecessor Plan on such
date which lapses, expires or is otherwise terminated without the issuance of
such shares or is settled by the delivery of consideration other than shares).
Subject to Section 13 below, of the shares of Common Stock available for
issuance under the Plan, no more than 425,000 shares may be issued upon
settlement of Director Stock Units. For purposes of determining the number of
shares of Common Stock that remain available for issuance, there shall be added
back to the Section 4 Limit and again be available under the Plan any shares of
Common Stock tendered to pay the exercise price of a Director Option. Either
authorized and unissued shares of Common Stock or treasury shares may be
delivered pursuant to the Plan. For the avoidance of doubt, it is noted that
because they do not result in the issuance of shares of Common Stock, Director
Phantom Stock Units are not counted against the Section 4 limit.

5. Eligibility

Director Stock Units and Director Options shall be granted only to Non-Employee
Directors.

6. Director Five-Year Stock Units

(a) Grants of Director Five-Year Stock Units. Director Five-Year Stock Units
shall be awarded under the Plan as follows:

 

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(i) On the date of the Annual Meeting coincident with or first succeeding a
Non-Employee Director’s initial election to the Board (or re-election to the
Board after a period during which the Non-Employee Director did not serve on the
Board), the Non-Employee Director shall receive a grant of a number of Director
Five-Year Stock Units calculated by dividing (x) $210,000, by (y) the Fair
Market Value of one share of Common Stock on the date of the relevant Annual
Meeting. All Awards of Director Five-Year Stock Units made before the 2009
Annual Meeting have consisted exclusively of Director Five-Year Restricted Stock
Units. Beginning with Awards made at the 2009 Annual Meeting, the Board shall
specify on or before the date of grant whether an Award of Director Five-Year
Stock Units shall consist of Director Five-Year Phantom Stock Units, Director
Five-Year Restricted Stock Units or a combination thereof.

(ii) As of the date of the Annual Meeting that is closest in time to the
applicable vesting date of any Director Five-Year Stock Units in accordance with
Section 6(b)(i) below, or the vesting date of any restricted shares under the
Predecessor Plan in accordance with Section 6(c)(i) thereof, a Non-Employee
Director shall receive an additional grant of Director Five-Year Stock Units (an
“Additional Grant”), provided that (A) the Annual Meeting as of which the
Additional Grant is to be made occurs during the term of the Plan as set forth
in Section 11 below, and (B) the Non-Employee Director is standing for
re-election at such Annual Meeting. The number of Director Five-Year Stock Units
included in such Additional Grant shall be calculated by dividing (x) $210,000,
by (y) the Fair Market Value of one share of Common Stock on the date of the
relevant Annual Meeting in connection with which the Additional Grant is made.
All Additional Grants made before the 2009 Annual Meeting have consisted
exclusively of Director Five-Year Restricted Stock Units. Beginning with any
Additional Grants made in 2009, the Board shall specify on or before the date of
grant whether the Additional Grant shall consist of Director Five-Year Phantom
Stock Units, Director Five-Year Restricted Stock Units or a combination thereof.

(b) Vesting; Accelerated Vesting; Deferral.

(i) Director Five-Year Stock Units granted in respect of a given Annual Meeting,
and any additional Director Five-Year Stock Units credited to a Director Account
in respect of earnings or other distributions on such Director Five-Year Stock
Units as provided in Section 6(c), shall vest on the fifth anniversary of the
date of grant and shall be settled within 15 days thereafter, provided that the
Non-Employee Director shall have remained a member of the Board continuously
from the date of grant until the earlier of (A) such fifth anniversary or (B) if
the Non-Employee Director declines to stand for re-election to the Board at the
Annual Meeting held in the fifth calendar year following the date of grant, the
date of such Annual Meeting.

(ii) Notwithstanding the provisions of Section 6(b)(i) above, all Director
Five-Year Stock Units granted to a Non-Employee Director shall immediately vest
upon the first to occur of (A) a Non-Employee Director ceasing to be a member of
the Board as a result of retirement from the Board in accordance with the
retirement policy then applicable to Board members, (B) a Non-Employee Director
ceasing to be a member of the Board as a result of death or Permanent Disability
or (C) subject to the following sentence, a Change in Control, and shall be
settled within 15 days thereafter, provided, however, that in the case of any
Director Five-Year Stock Units or other Awards that are deemed to provide for a
deferral of compensation within the meaning of Section 409A, the foregoing
clause (C) shall apply only if the Change in Control is also a Section 409A
Change in Control. Notwithstanding the preceding sentence, if any Person
commences a tender offer for shares of Common Stock which, if successfully
completed, would result in a Change in Control, then all Director Five-Year
Restricted Stock Units granted to a Non-Employee Director shall vest and be
settled immediately prior to the scheduled expiration of such tender offer, and
the Company shall have instituted procedures to enable the Non-Employee
Director, if he so desires, to tender the shares issued upon settlement of such
Director Five-Year Restricted Stock Units into such offer, provided, however,
that in the case of any Director Five-Year Restricted Stock Units or other
Awards that are deemed to provide for a deferral of compensation within the
meaning of Section 409A, such accelerated settlement shall be made only (i) if
such Change in Control constitutes a Section 409A Change in Control and (ii) to
the extent (and only to the extent) that such accelerated payment is permitted
by Section 409A and would not result in the Non-

 

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Employee Director being required to recognize income for United States federal
income tax purposes prior to settlement or incurring additional tax or interest
under Section 409A.

(c) Forfeiture of Grant. Except as provided in Section 6(b)(ii) above, all
Director Five-Year Stock Units shall be forfeited, and all rights of the
Non-Employee Director to or with respect to such Director Stock Units shall
terminate without any obligation on the part of the Company, upon the
termination of a Non-Employee Director’s service as a member of the Board prior
to the date on which such Director Five-Year Stock Units vest in accordance with
Section 6(b)(i) above.

7. Annual Awards

(a) General. As of the date of each Annual Meeting, commencing with the 1997
Annual Meeting, each Non-Employee Director shall automatically receive an Award
of Director Options or Director Annual Stock Units as provided in this
Section 7. A Director Option shall entitle a Non-Employee Director to purchase a
specified number of shares of Common Stock during a specified period at an
exercise price per share of Common Stock determined as provided below. All
Director Options provided for herein shall have the general terms and conditions
set forth in Section 9 below.

(b) Grants of Director Options. As of the date of each Annual Meeting,
commencing with the 1997 Annual Meeting, each Non-Employee Director shall
automatically receive Director Options to purchase 3,750 shares of Common Stock
provided that the Non-Employee Director shall continue to serve as a director of
the Company after such Annual Meeting, provided, however, that beginning with
the 2004 Annual Meeting, no further Awards of Director Options shall be made.
The exercise price per share of Common Stock of each Director Option provided
for in this Section 7(b) shall be the Fair Market Value of one share of Common
Stock on the date of the relevant Annual Meeting.

(c) Grants of Director Annual Stock Units. As of the date of each Annual
Meeting, commencing with the 2004 Annual Meeting, each Non-Employee Director
shall automatically receive a number of Director Annual Stock Units determined
by dividing (i) $100,000 by (ii) the Fair Market Value of one share of Common
Stock on the date of the relevant Annual Meeting. All Awards of Director Annual
Stock Units made before the 2009 Annual Meeting have consisted exclusively of
Director Annual Restricted Stock Units. Beginning with Awards made at the 2009
Annual Meeting, the Board shall specify on or before the date grant whether an
Award of Director Annual Stock Units shall consist of Director Annual Phantom
Stock Units, Director Annual Restricted Stock Units or a combination thereof.

(d) Grants to New Directors. A Non-Employee Director who is initially elected or
appointed to the Board other than in connection with an Annual Meeting shall
receive, as of the date of such initial election or appointment, (i) if such
appointment is made prior to the 2004 Annual Meeting, Director Options to
purchase a number of shares determined by multiplying 3,750 by a fraction (the
“Proration Fraction”), the numerator of which is the number of full months
remaining until the next Annual Meeting (starting with the month following the
date of election or appointment and counting the month in which the next Annual
Meeting is scheduled to occur as a full month) and the denominator of which is
12 and (ii) if such appointment is made after the 2004 Annual Meeting, a number
of Director Annual Stock Units calculated by multiplying (x) the number of
Director Annual Stock Units that were awarded to each Non-Employee Director in
connection with the immediately preceding Annual Meeting, times (y) the
Proration Fraction. (If the date of the next Annual Meeting has not been
scheduled at the time of the Non-Employee Director’s initial election or
appointment, it shall be assumed that the next Annual Meeting will occur in the
same month as the immediately preceding Annual Meeting.) The exercise price per
share of Common Stock of each Director Option provided for in this Section 7(d)
shall be the Fair Market Value of one share of Common Stock on the date of the
Non-Employee Director’s election or appointment to the Board. All Awards of
Director Annual Stock Units made pursuant to this Section 7(d) before 2009 have
consisted exclusively of Director Annual Restricted Stock Units. For Awards of
Director Annual Stock Units made pursuant to this Section 7(d) on or after
January 1, 2009, the Board shall specify on or before the date grant whether
such Award shall consist of Director Annual Phantom Stock Units, Director Annual
Restricted Stock Units or a combination thereof

 

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(e) Vesting. Annual Awards shall vest as of the first anniversary of the date of
grant, assuming that the Non-Employee Director has continued to serve as a
member of the Board until the earlier of (A) such first anniversary or (B) if
the Non-Employee Director declines to stand for reelection to the Board at the
Annual Meeting held in the calendar year following the date of grant, the date
of such Annual Meeting. Notwithstanding the preceding sentence, all Annual
Awards shall be considered fully vested upon the earlier to occur of
(X) termination of the Non-Employee Director’s service on the Board by reason of
death or Permanent Disability or (Y) subject to the following sentence, a Change
in Control, and, in the case of Director Annual Stock Units, shall be settled
within 15 days thereafter, provided, however, that in the case of any Director
Annual Stock Units that are deemed to provide for a deferral of compensation
within the meaning of Section 409A, the foregoing clause (Y) shall apply only if
the Change in Control is also a Section 409A Change in Control. Notwithstanding
the preceding sentence, if any Person commences a tender offer for shares of
Common Stock which, if successfully completed, would result in a Change in
Control, then all Annual Awards granted to a Non-Employee Director shall vest
and, in the case of Director Annual Restricted Stock Units, be settled
immediately prior to the scheduled expiration of such tender offer, and the
Company shall have instituted procedures to enable the Non-Employee Director, if
he so desires, to tender the shares issued upon the exercise of Director Option
or settlement of Director Annual Restricted Stock Units into such offer;
provided, however, that in the case of any Director Annual Restricted Stock
Units that are deemed to provide for a deferral of compensation within the
meaning of Section 409A, such accelerated settlement shall be made only (i) if
such Change in Control constitutes a Section 409A Change in Control and (ii) to
the extent (and only to the extent) that such accelerated payment is permitted
by Section 409A and would not result in the Non-Employee Director being required
to recognize income for United States federal income tax purposes prior to
settlement or incurring additional tax or interest under Section 409A.

8. General Terms and Conditions of Director Stock Units

(a) Accounts. As of any date as of which a Non-Employee Director is granted
Director Stock Units, the Director Account of such Non-Employee Director will be
credited with the number of Director Stock Units so granted. In the event that
the Company pays any cash or other dividend or makes any other distribution in
respect of the Common Stock, each Director Account will be credited with an
additional number of Director Stock Units (including fractions thereof)
determined by dividing (A) the amount of cash, or the value (as determined by
the Board) of any securities or other property, paid or distributed in respect
of one outstanding share of Common Stock by (B) the Fair Market Value of a share
of Common Stock for the date of such payment or distribution, and multiplying
the result of such division by (C) the number of Director Stock Units that were
credited to the Director Account immediately prior to the date of the dividend
or other distribution. Credits shall be made effective as of the date of the
dividend or other distribution in respect of the Common Stock.

(b) Deferral Election. Notwithstanding the provisions of Sections 6(b)(i),
6(b)(ii) and 7(e) above, a Non-Employee Director may elect to defer settlement
of any or all Director Stock Units to a date subsequent to the vesting date of
such Director Stock Units, provided that no such deferral may extend beyond the
earlier of (i) the Non-Employee Director’s termination of service on the Board
or (ii) the Non-Employee’s death. Settlement of any deferred Director Stock
Units shall be made within 15 days following the date specified by the
Non-Employee Director in the relevant deferral election or, if applicable, the
earlier of the dates specified in clauses (i) and (ii) of the preceding
sentence.

(c) Settlement of Director Stock Units.

(i) Settlement of Director Restricted Stock Units. Within 15 days following the
vesting of Director Restricted Stock Units as provided in Sections 6(b)(i),
6(b)(ii) or 7(e) above, or the date for deferred settlement as provided in
Section 8(b) above, Director Restricted Stock Units shall be settled either by:
(i) delivery to the Non-Employee Director of a share certificate for the number
of shares corresponding to such Director Restricted Stock Units (any fractional
Director Restricted Stock Unit shall be rounded

 

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up to the next whole Director Restricted Stock Unit) or (ii) the transfer of the
corresponding number of shares equal to the number of Director Restricted Stock
Units being settled (any fractional Director Restricted Stock Unit shall be
rounded up to the next whole Director Restricted Stock Unit) to the brokerage
account designated by the Non-Employee Director to the Company in writing prior
to settlement. Shares delivered in settlement of Director Restricted Stock Units
shall be free of all such restrictions, except any that may be imposed under
applicable law or the Company’s trading policy.

(ii) Settlement of Director Phantom Stock Units. Within 15 days following the
vesting of Director Phantom Stock Units as provided in Sections 6(b)(i),
6(b)(ii) or 7(e) above, or the date for deferred settlement as provided in
Section 8(b) above, Director Phantom Stock Units shall be settled by cash
payment to the Non-Employee Director in an amount equal to the product of
(x) Fair Market Value of a share of Common Stock as of the date of vesting and
(y) the number of Director Phantom Stock Units being settled (including any
fractional Director Phantom Stock Unit).

(d) No Stockholder Rights. The crediting of Director Stock Units to a Director
Account shall not confer on the relevant Non-Employee Director any rights as a
stockholder of the Company.

9. General Terms and Conditions Director Options

(a) Option Term. Each Director Option shall expire on the date of the Annual
Meeting held in the seventh calendar year following the date of grant, subject
to earlier expiration as provided herein, provided, however, that Director
Options granted to a Non-Employee Director whose initial election occurs other
than in connection with an Annual Meeting shall be treated for this purpose as
though they had been granted at the first Annual Meeting following such initial
election.

(b) Vesting; Accelerated Vesting; Effect of Termination of Service.

(i) Exercisability. Director Options shall become exercisable upon vesting.

(ii) Exercise Following Termination of Service. Following termination of a
Non-Employee Director’s service on the Board, the former Non-Employee Director
(or the former Non-Employee Directors’ estate, personal representative or
beneficiary, as the case may be) shall have the right, subject to the other
terms and conditions hereof, to exercise all Director Options that had vested as
of or in connection with the termination of service:

(A) at any time within three years after the date of termination of service, if
such termination was by reason of death, Permanent Disability or retirement from
the Board in accordance with the retirement policy then in effect for Board
members, or

(B) in all other cases, at any time within one year after the date of
termination of service; subject, in all case, to earlier expiration of the
Director Option pursuant to Section 9(a) above.

(c) Notice of Exercise. Subject to the other terms and conditions of the Plan, a
Non-Employee Director may exercise all or any portion of a vested Director
Option by giving written notice of exercise to the Company or its designated
agent, provided, however, that no fewer than 10 shares of Common Stock may be
purchased upon any exercise of a Director Option unless the number of shares
purchased at such time is the total number of shares in respect of which the
Director Option is then exercisable, and provided, further, that in no event
shall the Option be exercisable for a fractional share. The date of exercise of
an Option shall be the later of (i) the date on which the Company or its agent
receives such written notice or (ii) the date on which the conditions provided
in Sections 9(d) and 9(e) below are satisfied.

(d) Payment. The exercise price of a Director Option may be paid in cash or
previously owned shares or a combination thereof or by any other method approved
by the Board.

 

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(e) Limitation on Exercise. A Director Option shall not be exercisable unless
the Common Stock subject thereto has been registered under the Securities Act of
1933, as amended (the “1933 Act”), and qualified under applicable state “blue
sky” laws in connection with the offer and sale thereof, or the Company has
determined that an exemption from registration under the 1933 Act and from
qualification under such state “blue sky” laws is available.

(f) Issuance of Shares. Subject to the foregoing conditions, as soon as is
reasonably practicable after its receipt of a proper notice of exercise and
payment of the exercise price for the number of shares with respect to which a
Director Option is exercised, the Company shall deliver to the exercising
Non-Employee Director, at the principal office of the Company or at such other
location as may be acceptable to the Company and the Non-Employee Director, one
or more stock certificates for the appropriate number of shares of Common Stock
issued in connection with such exercise. Such shares shall be fully paid and
nonassessable and shall be issued in the name of the Non-Employee Director.

10. Transferability

Director Stock Units (including interests in a Director Account) and Director
Options may not be transferred, pledged, assigned or otherwise disposed of
except by will or the laws of descent and distribution or pursuant to a domestic
relations order, provided, however, that Director Options may be transferred to
a member or members of a Non-Employee Director’s immediate family (as defined
below) or to one or more trusts or partnerships established in whole or in part
for the benefit of one or more of such immediate family members (collectively as
“Permitted Transferees”), subject to such rules and procedures as may from time
to time be adopted or imposed by the Board. If a Director Stock Option is
transferred to a Permitted Transferee, it shall be further transferable only by
will or the laws of descent and distribution or, for no consideration, to
another Permitted Transferee of the Non-Employee Director. A Non-Employee
Director shall notify the Company in writing prior to any proposed transfer of a
Director Option to a Permitted Transferee and shall furnish the Company, upon
request, with information concerning such Permitted Transferee’s financial
condition and investment experience. For purposes of the Plan, a Non-Employee
Director’s “immediate family” means any child, stepchild, grandchild, spouse,
son-in-law or daughter-in-law and shall include adoptive relationships;
provided, however, that if the Company adopts a different definition of
“immediate family” (or similar term) in connection with the transferability of
employee stock options awarded to employees of the Company, such definition
shall apply, without further action of the Board, to the Plan.

11. Term

(a) Effective Date; Expiration. The Effective Date shall be the date of the 1997
Annual Meeting, assuming the Plan is approved by the stockholders of the Company
at such Annual Meeting. Unless earlier terminated in accordance with Section 12
below, the Plan shall expire on the date of the Annual Meeting held in 2013.
Grants of Director Five-Year Stock Units and Director Annual Stock Units shall
be made in connection with the Annual Meeting held in 2013, and shall be the
last grants made under the Plan. Expiration of the Plan in connection with the
Annual Meeting held in 2013 shall not affect Awards made prior to such Annual
Meeting, which Awards shall remain outstanding subject to the terms hereof.

(b) Coordination with Predecessor Plan. Awards of “Directors Shares” (as such
term is defined in the Predecessor Plan) shall be made under the Predecessor
Plan in connection with the 1997 Annual Meeting. Assuming the Plan is approved
by the stockholders of the Company at the 1997 Annual Meeting, no further Awards
shall be made under the Predecessor Plan after the Effective Date. Awards
outstanding under the Predecessor Plan (including Awards made in connection with
the 1997 Annual Meeting) shall remain outstanding after the Effective Date
subject to the terms thereof.

 

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12. Amendments

Subject to the requirements of Section 13, the Board or any committee of the
Board may at any time and from time to time alter, amend, suspend or terminate
the Plan in whole of in part, including without limitation to amend the
provisions for determining the amount of Director Stock Units or Directors
Options to be issued to a Non-Employee Director, provided, however, that:

(i) any amendment which under the requirements of applicable law or stock
exchange rule must be approved by the stockholders of the Company shall not be
effective unless and until such stockholder approval has been obtained in
compliance with such law or rule;

(ii) except as provided in Section 13 below, neither the Board nor any committee
of the Board may, without the approval of the Company’s stockholders, increase
the number of shares available for issuance under the Plan pursuant to Section 4
above or the number of Director Restricted Stock Units or Director Options to be
issued to any Non-Employee Director pursuant to Section 6 or Section 7 above or
reduce the exercise price of a Director Option.

No termination or amendment of the Plan that would adversely affect a
Non-Employee Director’s rights under the Plan with respect to any Award made
prior to such action shall be effective as to such Non-Employee Director unless
he or she consents thereto; provided, however, that such consent shall not be
required for any amendment that the Board or any committee of the Board
considers necessary or advisable (i) to comply with any law, regulation, ruling,
judicial decision, accounting standard, regulatory guidance or other legal
requirement or (ii) to ensure that a Non-Employee Director is not subject to
United States federal, state or local income tax or any equivalent taxes in
territories outside the United States prior to the settlement of Director Stock
Units or the exercise of Director Options.

13. Adjustment of and Changes in Shares

In the event of any merger, consolidation, recapitalization, reclassification,
stock split, stock dividend, distribution of property, special cash dividend,
split-up, spin-off or other transaction or change in corporate structure
affecting the shares, the Board or any committee of the Board shall make
(i) such equitable adjustments as it considers appropriate in the number and
kind of shares authorized for issuance hereunder in order to preserve, but not
increase, the benefits or potential benefits intended to be made available
hereunder and/or (ii) such other adjustments as it deems appropriate. The
Board’s or such committee’s determination as to what, if any, adjustments shall
be made shall be final and binding on the Company and all Non-Employee Directors
who receive grants under the Plan.

14. No Right to Re-election

Nothing in the Plan shall be deemed to create any obligation on the part of the
Board to nominate any of its members for re-election by the Company’s
stockholders, nor confer upon any Non-Employee Director the right to remain a
member of the Board for any period of time, or at any particular rate of
compensation.

15. Governing Law

The Plan and all agreements entered into under the Plan shall be construed in
accordance with and governed by the laws of the State of Delaware.

16. No Restriction on Right of Company to Effect Corporate Changes

The Plan shall not affect in any way the right or power of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company’s capital structure or its
business, or any merger or consolidation of the Company, or any issue of stock
or of options, warrants or rights to purchase stock or of bonds, debentures,
preferred or prior preference stocks whose rights are superior to or affect the
Common Stock or the rights thereof or which are convertible into or exchangeable
for Common Stock, or the dissolution or liquidation of the Company, or any sale
or transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.

 

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17. Unfunded Plan

The Plan is unfunded. Prior to the payment or settlement of any Award of
Director Stock Units or the exercise of any Director Options, nothing contained
herein shall give any non-Employee Director any rights that are greater than
those of a general creditor of the Company. In its sole discretion, the Board
may authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver Common Stock with respect to
Awards hereunder.

 

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