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                                                                   EXHIBIT 10.03

                             AMBAC 1997 EQUITY PLAN
                        (amended as of December 12, 2000)

1.  Purposes

    The purposes of the Ambac 1997 Equity Plan (the "Plan") are to attract,
retain and motivate key employees of the Company, to compensate them for their
contributions to the growth and profits of the Company and to encourage
ownership by them of Common Stock.

2.  Definitions

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

    "Administrator" means the individual or individuals to whom the Committee
delegates authority under the Plan in accordance with Section 3(d).

    "Ambac" means Ambac Financial Group, Inc., a Delaware corporation.

    "Award" means an award made pursuant to the terms of the Plan to an Eligible
Individual in the form of Stock Options, Stock Appreciation Rights, Stock
Awards, Restricted Stock Units, Performance Units or Other Awards.

    "Award Agreement" means a written document approved in accordance with
Section 3 which sets forth the terms and conditions of the Award to the
Participant. An Award Agreement may be in the form of (i) an agreement between
Ambac or one of its Subsidiaries which is executed by an officer on behalf of
Ambac or such Subsidiary and is signed by the Participant or (ii) a certificate
issued by Ambac or one of its Subsidiaries which is executed by an officer on
behalf of Ambac or such Subsidiary but does not require the signature of the
Participant.

    "Board" means the Board of Directors of the Company.

    "Code" means the Internal Revenue Code of 1986, as amended, and the
applicable rulings and regulations (including any proposed regulations)
thereunder.

    "Committee" means the Compensation and Organization Committee of the Board,
any successor committee thereto or any other committee appointed from time to
time by the Board to administer the Plan. The Committee shall consist of at
least two individuals and shall serve at the pleasure of the Board.

    "Common Stock" means the Common Stock, par value $.01 per share, of the
Company.

    "Company" means Ambac and its Subsidiaries.

    "Eligible Individuals" means the individuals described in Section 6 who are
eligible for Awards under the Plan.

    "Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the applicable rulings and regulations thereunder.

    "Excluded Individual" means (i) any individual who is designated by the
Company at the time of hire as not eligible to participate in the Plan or (ii)
any individual who is treated or designated by the Company as an independent
contractor, leased employee (including, without limitation, a "leased employee"
as defined in Section 414(n) of the Code) or consultant. Excluded Individuals
are not eligible to participate in or receive benefits under the Plan. If any
Excluded Individual pursuant to the preceding clauses (i) or

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(ii) shall be determined by a court or federal, state or local regulatory or
administrative authority to have served as a common law employee of the Company,
such determination shall not alter such person's status as an Excluded
Individual for purposes of the Plan

    "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 average of the
highest and the lowest quoted selling 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 system, on such
automated system, in any such case on the valuation date (or, if there were no
sales on the valuation date, the average of the highest and the lowest quoted
selling prices as reported on said composite tape or automated system for the
most recent day during which a sale occurred).

    "Incentive Stock Option" means a Stock Option which is an "incentive stock
option" within the meaning of Section 422 of the Code and designated by the
Committee as an Incentive Stock Option in an Award Agreement.

    "Nonqualified Stock Option" means a Stock Option which is not an Incentive
Stock Option.

    "Other Award" means any other form of award authorized under Section 13 of
the Plan.

    "Participant" means an Eligible Individual to whom an Award has been granted
under the Plan.

    "Performance Unit" means a performance unit granted to an Eligible
Individual pursuant to Section 12 hereof.

    "Predecessor Plan" means the Ambac Inc. 1991 Stock Incentive Plan, as
amended.

    "Restoration Option" means a Stock Option that is awarded upon the exercise
of a Stock Option earlier awarded under the Plan or the Predecessor Plan (an
"Underlying Option") for which the exercise price is paid in whole or in party
by tendering shares of Common Stock previously owned by the Participant, where
such Restoration Option (i) covers a number of shares of Common Stock no greater
than the number of previously owned shares tendered in payment of the exercise
price of the Underlying Option plus the number of shares withheld to pay taxes
arising upon such exercise, (ii) the expiration date of the Restoration Option
is no later than the expiration date of the Underlying Option and (iii) the
exercise price per share of the Restoration Option is no less than the Fair
Market Value per share of Common Stock on the date of exercise of the Underlying
Option.

    "Restricted Stock Unit" means a restricted stock unit granted to an Eligible
Individual pursuant to Section 11 hereof.

    "Stock Appreciation Right" means a right to receive all or some portion of
the appreciation on shares of Common Stock granted to an Eligible Individual
pursuant to Section 9 hereof.

    "Stock Award" means a share of Common Stock granted to an Eligible
Individual for no consideration other than the provision of services or offer
for sale to an Eligible Employee at a purchase price determined by the
Committee, in either case pursuant to Section 10 hereof.

    "Stock Option" means an Award to purchase shares of Common Stock granted to
an Eligible Individual pursuant to Section 8 hereof, which Award may be either
an Incentive Stock Option or a Nonqualified Stock Option.

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    "Subsidiary" means (i) a corporation or other entity with respect to which
Ambac, 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 Ambac, directly or
indirectly, has an equity or similar interest and which the Committee designates
as a Subsidiary for purposes of the Plan.

    "Substitute Award" means an Award granted upon assumption of, or in
substitution for, outstanding awards previously granted by a company or other
entity in connection with a corporate transaction, such as a merger,
combination, consolidation or acquisition of property or stock.

3.  Administration of the Plan

    (a) Power and Authority of the Committee. The Plan shall be administered by
the Committee, which shall have full power and authority, subject to the express
provisions hereof:

        (i) to select Participants from the Eligible Individuals;

        (ii) to make Awards in accordance with the Plan;

        (iii) to determine the number of shares of Common Stock subject to each
    Award or the cash amount payable in connection with an Award;

        (iv) to determine the terms and conditions of each Award, including,
    without limitation, those related to vesting, forfeiture, payment and
    exercisability, and the effect, if any, of a Participant's termination of
    employment with the Company, and including the authority to amend the terms
    and conditions of an Award after the granting thereof to a Participant in a
    manner that is not, without the consent of the Participant, prejudicial to
    the rights of such Participant in such Award;

        (v) to specify and approve the provisions of the Award Agreements
    delivered to Participants in connection with their Awards;

        (vi) to construe and interpret any Award Agreement delivered under the
    Plan;

        (vii) to prescribe, amend and rescind rules and procedures relating to
    the Plan;

        (viii) to vary the terms of Awards to take account of tax, securities
    law and other regulatory requirements of foreign jurisdictions;

        (ix) subject to the provisions of the Plan and subject to such
    additional limitations and restrictions as the Committee may impose, to
    delegate to one or more officers of the Company some or all of its authority
    under the Plan;

        (x) to employ such legal counsel, independent auditors and consultants
    as it deems desirable for the administration of the Plan and to rely upon
    any opinion or computation received therefrom; and

        (xi) to make all other determinations and to formulate such procedures
    as may be necessary or advisable for the administration of the Plan.

    (b) Plan Construction and Interpretation. The Committee shall have full
power and authority, subject to the express provisions hereof, to construe and
interpret the Plan.

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    (c) Determinations of Committee Final and Binding. All determinations by the
Committee in carrying out and administering the Plan and in construing and
interpreting the Plan shall be final, binding and conclusive for all purposes
and upon all persons interested herein.

    (d) Delegation of Authority. The Committee may, but need not, from time to
time delegate some or all of its authority under the Plan to an Administrator
consisting of one or more members of the Committee or of one or more officers of
the Company; provided, however, that the Committee may not delegate its
authority (i) to make Awards to Eligible Individuals who are officers of the
Company who are delegated authority by the Committee hereunder, or (ii) under
Sections 3(b) and 16 of the Plan. Any delegation hereunder shall be subject to
the restrictions and limits that the Committee specifies at the time of such
delegation or thereafter. Nothing in the Plan shall be construed as obligating
the Committee to delegate authority to an Administrator, and the Committee may
at any time rescind the authority delegated to an Administrator appointed
hereunder or appoint a new Administrator. At all times, the Administrator
appointed under this Section 3(d) shall serve in such capacity at the pleasure
of the Committee. Any action undertaken by the Administrator in accordance with
the Committee's delegation of authority shall have the same force and effect as
if undertaken directly by the Committee, and any reference in the Plan to the
Committee shall, to the extent consistent with the terms and limitations of such
delegation, be deemed to include a reference to the Administrator.

    (e) Liability of Committee. No member of the Committee shall be liable for
any action nor determination made in good faith, and the members of the
Committee shall be entitled to indemnification and reimbursement in the manner
provided in Ambac's Certificate of Incorporation as it may be amended from time
to time. In the performance of its responsibilities with respect to the Plan,
the Committee shall be entitled to rely upon information and advice furnished by
the Company's officers, the Company's accountants, the Company's counsel and any
other party the Committee deems necessary, and no member of the Committee shall
be liable for any action taken or not taken in reliance upon any such advice.

    (f) Action by the Board. Anything in the Plan to the contrary
notwithstanding, any authority or responsibility which, under the terms of the
Plan, may be exercised by the Committee may alternatively be exercised by the
Board.

4.  Effective Date and Term

    The Plan shall become effective upon its adoption by the Board subject to
its approval by the stockholders of Ambac. Prior to such stockholder approval,
the Committee may grant Awards conditioned on stockholder approval. If such
stockholder approval is not obtained at or before the first annual meeting of
stockholders to occur after the adoption of the Plan by the Board (including any
adjournment or adjournments thereof), the Plan and any Awards made thereunder
shall terminate ab initio and be of no further force and effect. In no event
shall any Awards be made under the Plan after the seventh anniversary of the
date of stockholder approval.

5.  Shares of Common Stock Subject to the Plan

    (a) General. Subject to adjustment as provided in Section 15(b) hereof, the
number of shares of Common Stock that may be issued pursuant to Awards under the
Plan (the "Section 5 Limit") shall not exceed, in the aggregate:

        (I) 8,250,000 shares; plus

        (II) the number of shares of Common Stock that remain available for
    issuance under the Predecessor Plan as of the date this 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

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    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).

Shares issued under this Plan may be either authorized but unissued shares,
treasury shares or any combination thereof.

    (b) Rules Applicable to Determining Shares Available for Issuance. For
purposes of determining the number of shares of Common Stock that remain
available for issuance, the following shares shall be added back to the Section
5 Limit and again be available for Awards:

        (x) The number of shares tendered to pay the exercise price of a Stock
    Option or other Award; and

        (y) The number of shares withheld from any Award to satisfy a
    Participant's tax withholding obligations or, if applicable, to pay the
    exercise price of a Stock Option or other Award.

In addition, any shares underlying Substitute Awards shall not be counted
against the Section 5 Limit and shall not be subject to Section 5(c) below.

    (c) Special Limits. Anything to the contrary in Section 5(a) above
notwithstanding, but subject to Section 15(b) below, the following special
limits shall apply to shares of Common Stock available for Awards under the
Plan:

        (i) The maximum number of shares that may be issued in the form of Stock
    Awards, or issued upon settlement of Restricted Stock Units or Other Awards,
    shall equal 2,400,000 shares, of which no more than a number of shares equal
    to 10% of the Section 5 Limit shall be in the form of Other Awards,
    provided, however, that any such Stock Awards, Restricted Stock Units or
    Other Awards that are issued in lieu of cash compensation that otherwise
    would be paid to a Participant, or in satisfaction of any other obligation
    owed by the Company to a Participant, shall not be counted against such
    limitation; and

        (ii) The maximum number of shares of Common Stock that may be subject to
    Stock Options or Stock Appreciation Rights granted to any Eligible
    Individual in any fiscal year of the Company shall equal 600,000 shares plus
    any shares which were available under this Section 5(c) (ii) for Awards of
    Stock Options or Stock Appreciation Rights to such Eligible Individual in
    any prior fiscal year but which were not covered by such Awards.

    (d) No Further Awards under Predecessor Plan. From and after the date this
Plan is approved by the stockholders of the Company, no further awards shall be
made under the Predecessor Plan.

6.  Eligible Individuals

    Awards may be granted by the Committee to individuals ("Eligible
Individuals") who are: (i) officers or other key employees of the Company; (ii)
employees of joint ventures, partnerships or similar business organizations in
which the Company has a direct or indirect equity interest; (iii) employees of
MBIA Insurance Corporation or any of its subsidiaries or affiliates who provide
services to MBIAo Ambac International, an unincorporated joint venture, or its
successor; and individuals who provide services to any similar joint ventures or
business organizations in which the Company may participate in the future.
Excluded Individuals are not eligible to receive Awards under the Plan. Members
of the Committee will not be eligible to receive Awards under the Plan. An
individual's status as an Administrator will not affect his or her eligibility
to participate in the Plan.

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7.  Awards in General

    (a) Types of Award and Award Agreement. Awards under the Plan may consist of
Stock Options, Stock Appreciation Rights, Stock Awards, Restricted Stock Units,
Performance Units or Other Awards. Any Award described in Sections 8 through 13
of the Plan may be granted singly or in combination or tandem with any other
Award, as the Committee may determine. Awards may be made in combination with,
in replacement of, or as alternatives to grants of rights under any other
employee compensation plan of the Company, including the plan of any acquired
entity, or may be granted in satisfaction of the Company's obligations under any
such plan.

    (b) Terms Set Forth in Award Agreement. The terms and provisions of an Award
shall be set forth in a written Award Agreement approved by the Committee and
delivered or made available to the Participant as soon as practicable following
the date of the award. The vesting, exercisability, payment and other
restrictions applicable to an Award (which may include, without limitation,
restrictions on transferability or provision for mandatory resale to the
Company) shall be determined by the Committee and set forth in the applicable
Award Agreement. Notwithstanding the foregoing, the Committee may accelerate (i)
the vesting or payment of any Award, (ii) the lapse of restrictions on any Award
or (iii) the date on which any Stock Option, Stock Appreciation Right or other
Award first becomes exercisable.

    (c) Termination of Employment and Change in Control. The Committee shall
also have full authority to determine and specify in the applicable Award
Agreement the effect, if any, that a Participant's termination of employment for
any reason will have on the vesting, exercisability, payment or lapse of
restrictions applicable to an Award. The date of a Participant's termination of
employment for any reason shall be determined in the sole discretion of the
Committee. Similarly, the Committee shall have full authority to determine the
effect, if any, of a change in control of Ambac on the vesting, exercisability,
payment or lapse of restrictions applicable to an Award, which effect may be
specified in the applicable Award Agreement or determined at a subsequent time.

    (d) Dividends and Dividend Equivalents. The Committee may provide
Participants with the right to receive dividends or payments equivalent to
dividends or interest with respect to an outstanding Awards, which payments can
either be paid currently or deemed to have been reinvested in shares of Common
Stock, and can be made in Common Stock, cash or a combination thereof, as the
Committee shall determine.

8.  Stock Options

    (a) Terms of Stock Options Generally. A Stock Option shall entitle the
Participant to whom the Stock Option was granted to purchase a specified number
of shares of Common Stock during a specified period at a price that is
determined in accordance with Section 8(b) below. Stock Options may be either
Nonqualified Stock Options or Incentive Stock Options. The Committee will fix
the vesting and exercisability conditions applicable to a Stock Option, provided
that no Stock Option shall vest sooner than one year from the date of grant
(subject to early vesting, if so provided by the Committee, upon death,
disability, termination of employment or a change in control of the Company),
but provided, further, that such minimum vesting period shall not apply to any
Restoration Option.

    (b) Exercise Price. The exercise price per share of Common Stock purchasable
under a Stock Option shall be fixed by the Committee at the time of grant or,
alternatively, shall be determined by a method specified by the Committee at the
time of grant; provided, however, that the exercise price per share shall be no
less than 100% of the Fair Market Value per share on the date of grant (or it
the exercise price is not fixed on the date of grant, then on such date as the
exercise price is fixed); and provided further, that, except as provided in
Section 15(b) below, the exercise price per share of Common Stock applicable to
a Stock Option may not be adjusted or amended, including by means of amendment,
cancellation or the replacement of such Stock Option with a subsequently awarded
Stock Option. Notwithstanding the

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foregoing, the exercise price per share of a Stock Option that is a Substitute
Award may be less than the Fair Market Value per share on the date of award,
provided that the excess of:

        (i) the aggregate Fair Market Value (as of the date such Substitute
    Award is granted) of the shares of Common Stock subject to the Substitute
    Award, over

        (ii) the aggregate exercise price thereof,

does not exceed the excess of:

        (iii) the aggregate fair market value (as of the time immediately
    preceding the transaction giving rise to the Substitute Award, such fair
    market value to be determined by the Committee) of the shares of the
    predecessor entity that were subject to the award assumed or substituted for
    by the Company, over

        (iv) the aggregate exercise price of such shares.

    (c) Option Term. The term of each Stock Option shall be fixed by the
Committee and shall not exceed ten years from the date of grant.

    (d) Method of Exercise. Subject to the provisions of the applicable Award
Agreement, the exercise price of a Stock Option may be paid in cash or
previously owned shares or a combination thereof and, if the applicable Award
Agreement so provides, in whole or in part through the withholding of shares
subject to the Stock Option with a value equal to the exercise price. In
accordance with the rules and procedures established by the Committee for this
purpose, the Stock Option may also be exercised through a "cashless exercise"
procedure approved by the Committee involving a broker or dealer approved by the
Committee, that affords Participants the opportunity to sell immediately some or
all of the shares underlying the exercised portion of the Stock Option in order
to generate sufficient cash to pay the Stock Option exercise price and/or to
satisfy withholding tax obligations related to the Stock Option.

9.  Stock Appreciation Rights

    (a) General. A Stock Appreciation Right shall entitle a Participant to
receive, upon satisfaction of the conditions to the payment specified in the
applicable Award Agreement, an amount equal to the excess, if any, of the Fair
Market Value on the exercise date of the number of shares of Common Stock for
which the Stock Appreciation Right is exercised, over the exercise price for
such Stock Appreciation Right specified in the applicable Award Agreement. The
exercise price per share of Common Stock covered by a Stock Appreciation Right
shall be fixed by the Committee at the time of grant or, alternatively, shall be
determined by a method specified by the Committee at the time of grant;
provided, however, that, except as provided in Section 9(b) below, the exercise
price per share shall be no less than 100% of the Fair Market Value per share on
the date of grant (or if the exercise price is not fixed on the date of grant,
then on such date as the exercise price is fixed); and provided further, that,
except as provided in Section 15(b) below, the exercise price per share of
Common Stock subject to a Stock Appreciation Right may not be adjusted or
amended, including by means of amendment, cancellation or the replacement of
such Stock Appreciation Right with a subsequently awarded Stock Appreciation
Right. Notwithstanding the foregoing, the exercise price per share of a Stock
Appreciation Right that is a Substitute Award may be less than the Fair Market
Value per share on the date of award, provided, that such exercise price is not
less than the minimum exercise price that would be permitted for an equivalent
Stock Option as determined in accordance with Section 8(b) above. At the sole
discretion of the Committee, payments to a Participant upon exercise of a Stock
Appreciation Right may be made in cash, in shares of Common Stock having an
aggregate Fair Market Value as of the date of exercise equal to such amount, or
in a combination of cash and shares having an aggregate value as of the date of
exercise equal to such amount.

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    (b) Stock Appreciation Rights in Tandem with Stock Options. A Stock
Appreciation Right may be granted alone or in addition to other Awards, or in
tandem with a Stock Option. A Stock Appreciation Right granted in tandem with a
Stock Option may be granted either at the same time as such Stock Option or
subsequent thereto. If granted in tandem with a Stock Option, a Stock
Appreciation Right shall cover the same number of shares of Common Stock as
covered by the Stock Option (or such lesser number of shares as the Committee
may determine) and shall be exercisable only at such time or times and to the
extent the related Stock Option shall be exercisable, and shall have the same
term and exercise price as the related Stock Option (which, in the case of a
Stock Appreciation Right granted after the grant of the related Stock Option,
may be less than the Fair Market Value per share on the date of grant of the
tandem Stock Appreciation Right). Upon exercise of a Stock Appreciation Right
granted in tandem with a Stock Option, the related Stock Option shall be
canceled automatically to the extent of the number of shares covered by such
exercise; conversely, if the related Stock Option is exercised as to some or all
of the shares covered by the tandem grant, the tandem Stock Appreciation Right
shall be canceled automatically to the extent of the number of shares covered by
the Stock Option exercise.

10.  Stock Awards

    (a) General. A Stock Award shall consist of one or more shares of Common
Stock granted to a Participant for no consideration other than the provision of
services (or, if required by applicable law in the reasonable judgment of the
Company, for payment of the par value of such shares). Stock Awards shall be
subject to such restrictions (if any) on transfer or other incidents of
ownership for such periods of time, and shall be subject to such conditions of
vesting, as the Committee may determine and as shall be set forth in the
applicable Award Agreement.

    (b) Distributions. Any shares of Common Stock or other securities of the
Company received by a Participant to whom a Stock Award has been granted as a
result of a stock distribution to holders of Common Stock or as a stock dividend
on Common Stock shall be subject to the same terms, conditions and restrictions
as such Stock Award.

11.  Restricted Stock Units

    An Award of Restricted Stock Units shall consist of a grant of units, each
of which represents the right of the Participant to receive one share of Common
Stock, subject to the terms and conditions established by the Committee in
connection with the Award and set forth in the applicable Award Agreement. Upon
satisfaction of the conditions to vesting and payment specified in the
applicable Award Agreement, Restricted Stock Units will be payable in Common
Stock, equal to the Fair Market Value of the shares subject to such Restricted
Stock Units. Restricted Stock Units that are granted in respect to individual or
corporate performance shall vest no sooner than one year from the date of grant,
and Restricted Stock Units that are granted in connection with hiring or
retention arrangements between the Company and a Participant shall vest no
sooner than three years from the date of grant (subject, in either case, to
early vesting, if so provided by the Committee, upon death, disability,
termination of employment or a change in control of the Company).

12.  Performance Units

    Performance units may be granted as fixed or variable share- or
dollar-denominated units subject to such conditions of vesting and time of
payment as the Committee may determine and as shall be set forth in the
applicable Award Agreement relating to such Performance Units. Performance Units
may be paid in Common Stock, cash or a combination of Common Stock and cash, as
the Committee may determine.

13.  Other Awards

    The Committee shall have the authority to specify the terms and provisions
of other forms of equity-based or equity-related Awards not described above
which the Committee determines to be consistent with

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the purpose of the Plan and the interests of the Company, which Awards may
provide for cash payments based in whole or in part on the value or future value
of Common Stock, for the acquisition or future acquisition of Common Stock, or
any combination thereof. Other Awards shall also include cash payments
(including the cash payment of dividend equivalents) under the Plan which may be
based on one or more criteria determined by the Committee which are unrelated to
the value of Common Stock and which may be granted in tandem with, or
independent of, other Awards under the Plan.

14.  Certain Restrictions

    (a) Transfers. Unless the Committee determines otherwise, no Award shall be
transferable other than by will or by the laws of descent and distribution or
pursuant to a domestic relations order; provided, however, that the Committee
may, in its discretion and subject to such terms and conditions as it shall
specify, permit the transfer of an Award for no consideration to a Participant's
family members or to one or more trusts or partnerships established in whole or
in part for the benefit of one or more of such family members (collectively,
"Permitted Transferees"). Any Award transferred to a Permitted Transferee shall
be further transferable only by will or the laws of descent and distribution or,
for no consideration, to another Permitted Transferee of the Participant. The
Committee may in its discretion permit transfers of Awards other than those
contemplated by this Section.

    (b) Exercise. During the lifetime of the Participant, a Stock Option, Stock
Appreciation Right or similar-type Other Award shall be exercisable only by the
Participant or by a Permitted Transferee to whom such Stock Option, Stock
Appreciation Right or Other Award has been transferred in accordance with
Section 14(a).

15.  Recapitalization or Reorganization

    (a) Authority of the Company and Stockholders. The existence of the Plan,
the Award Agreements and the Awards granted hereunder shall not affect or
restrict in any way the right or power of the Company or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, 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.

    (b) Change in Capitalization. Notwithstanding any provision of the Plan or
any Award Agreement, the number and kind of shares authorized for issuance under
Section 5(a) above, including the maximum number of shares available under the
special limits provided for in Section 5(c) above, may be equitably adjusted in
the sole discretion of the Committee in the event of a stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, extraordinary
dividend, split-up, spin-off, combination, exchange of shares, warrants or
rights offering to purchase Common Stock at a price substantially below Fair
Market Value or other similar corporate event affecting the Common Stock in
order to preserve, but not increase, the benefits or potential benefits intended
to be made available under the Plan. In addition, upon the occurrence of any of
the foregoing events, the number of outstanding Awards and the number and kind
of shares subject to any outstanding Award and the purchase price per share, if
any, under any outstanding Award may be equitably adjusted (including by payment
of cash to a Participant) in the sole discretion of the Committee in order to
preserve the benefits or potential benefits intended to be made available to
Participants granted Awards. Such adjustments shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final. Unless otherwise determined by the Committee, such
adjusted Awards shall be subject to the same vesting schedule and restrictions
to which the underlying Award is subject.

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16.  Amendments

    The Board or Committee may at any time and from time to time alter, amend,
suspend or amend the Plan in whole or in part; provided, however, that any
amendment which under the requirements of any 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; and provided further, that, except as contemplated by Section
15(b) above, the Board or Committee may not, without the approval of the
Company's stockholders, increase the maximum number of shares issuable under the
Plan or reduce the exercise price of a Stock Option or Stock Appreciation Right.
No termination or amendment of the Plan may, without the consent of the
Participant to whom an Award has been granted, adversely affect the rights of
such Participant under such Award. Notwithstanding any provision herein to the
contrary, the Board or Committee shall have broad authority to amend the Plan or
any Award under the Plan to take into account changes in applicable tax laws,
securities laws, accounting rules and other applicable state and federal laws.

17.  Miscellaneous

    (a) Tax Withholding. The Company may require any individual entitled to
receive a payment in respect of an Award to remit to the Company, prior to such
payment, an amount sufficient to satisfy any Federal, state or local tax
withholding requirements. The Company shall also have the right to deduct from
all cash payments made pursuant to or in connection with any Award any Federal,
state or local taxes required to be withheld with respect to such payments. In
the case of an Award payable in shares of Common Stock, the Company may permit
such individual to satisfy, in whole or in part, such obligation to remit taxes
by directing the Company to withhold shares of Common Stock that would otherwise
be received by such individual, pursuant to such rules as the Committee may
establish from time to time.

    (b) No Right to Grants or Employment. No Eligible Individual or Participant
shall have any claim or right to receive grants of Awards under the Plan.
Nothing in the Plan or in any Award or Award Agreement shall confer upon any
employee of the Company any right to continued employment with the Company or
interfere in any way with the right of the Company to terminate the employment
of any of its employees at any time, with or without cause.

    (c) Other Compensation. Nothing in this Plan shall preclude or limit the
ability of the Company to pay any compensation to a Participant under the
Company's other compensation and benefit plans and programs.

    (d) Other Employee Benefit Plans. Payments received by a Participant under
any Award made pursuant to the Plan shall not be included in, nor have any
effect on, the determination of benefits under any other employee benefit plan
or similar arrangement provided by the Company, unless otherwise specifically
provided for under the terms of such plan or arrangement or by the Committee.

    (e) Unfunded Plan. The Plan is intended to constitute an unfunded plan for
incentive compensation. Prior to the payment or settlement of any Award, nothing
contained herein shall give any Participant any rights that are greater than
those of a general creditor of the Company. In its sole discretion, the
Committee may authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver Common Stock or payments in lieu
thereof with respect to awards hereunder.

    (f) Securities Law Restrictions. The Committee may require each Eligible
Individual purchasing or acquiring shares of Common Stock pursuant to a Stock
Option or other Award under the Plan to represent to and agree with the Company
in writing that such Eligible Individual is acquiring the shares for investment
and not with a view to the distribution thereof. All certificates for shares of
Common Stock delivered under the Plan shall be subject to such stock-transfer
orders and other restrictions as the Committee may deem advisable under the
rules, regulations, and other requirements of the Securities and

                                       10

<PAGE>

Exchange Commission, any exchange upon which the Common Stock is then listed,
and any applicable federal or state securities law, and the Committee may cause
a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions. No shares of Common Stock shall be issued
hereunder unless the Company shall have determined that such issuance is in
compliance with, or pursuant to an exemption from, all applicable federal and
state securities laws.

    (g) Compliance with Rule 16b-3. Notwithstanding anything contained in the
Plan or in any Award Agreement to the contrary, if the consummation of any
transaction under the Plan would result in the possible imposition of liability
on a Participant pursuant to Section 16(b) of the Exchange Act, the Committee
shall have the right, in its sole discretion, but shall not be obligated, to
defer such transaction or the effectiveness of such action to the extent
necessary to avoid such liability, but in no event for a period longer than six
months.

    (h) Award Agreement. In the event of any conflict or inconsistency between
the Plan and any Award Agreement, the Plan shall govern, and the Award Agreement
shall be interpreted to minimize or eliminate any such conflict or
inconsistency.

    (i) Expenses. The costs and expenses of administering the Plan shall be
borne by the Company.

    (j) Application of Funds. The proceeds received from the Company from the
sale of Common Stock or other securities pursuant to Awards will be used for
general corporate purposes.

    (k) Applicable Law. Except as to matters of federal law, the Plan and all
actions taken thereunder shall be governed by and construed in accordance with
the laws of the State of Delaware without giving effect to conflicts of law
principles.

                                       11<PAGE>

                                                                   EXHIBIT 10.05

                           AMBAC FINANCIAL GROUP, INC.
                     1997 NON-EMPLOYEE DIRECTORS EQUITY PLAN
                     (as amended through December 12, 2000)

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 10 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 Meeting" means an annual meeting of the Company's stockholders.

    "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

        (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

<PAGE>

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

    "Director Stock Unit" means a restricted stock unit granted to a
Non-Employee Director pursuant to Section 6 hereof.

    "Effective Date" means the effective date of the Plan provided for in
Section 10 below.

    "Fair Market Value" means the average of the highest and the lowest quoted
selling price of Common Stock as reported on the composite tape for securities
listed on the New York Stock Exchange on the applicable valuation date or, if
there were no sales on such valuation date, the average of the highest and the
lowest quoted selling prices on said composite tape for the preceding business
day.

    "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

                                       2

<PAGE>

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.

    "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 Directors
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.

4.  Shares Available

    Subject to the provisions of Section 12 below, the maximum number of shares
of Common Stock which may be issued under the Plan (the "Section 4 Limit") shall
be 210,000 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 12 below, of the shares of
Common Stock available for issuance under the Plan, no more than 75,000 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.

5.  Eligibility

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

6.  Director Stock Units

    (a) General. A Director 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 Stock Units will be settled
exclusively in Common Stock.

                                       3

<PAGE>

        (b) Grants of Director Stock Units. Director Stock Units shall be
    awarded under the Plan as follows:

        (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 3,000 Director Stock Units.

        (ii) As of the date of the Annual Meeting that is closest in time to the
    applicable vesting date of any Director Stock Units in accordance with
    Section 6(d)(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 3,000 Director
    Stock Units, provided that (A) the Annual Meeting as of which such
    additional grant is to be made occurs during the term of the Plan as set
    forth in Section 10 below, and (B) the Non-Employee Director is standing for
    re-election at such Annual Meeting.

        (c) Accounts. As of the date of each Annual Meeting as of which a
    Non-Employee Director is granted Director Stock Units, the Director Account
    of such Non-Employee Director will be credited with 3,000 Director Stock
    Units. 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.

        (d) Vesting; Accelerated Vesting; Deferral.

        (i) Director Stock Units granted in respect of a given Annual Meeting,
    and any additional Director Stock Units credited to a Director Account in
    respect of earnings or other distributions on such Director Stock Units as
    provided in Section 6(c), shall vest on the fifth anniversary of the date of
    grant and shall be settled as soon as practicable 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(d)(i) above, all
    Director 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 of the Company, and shall be settled as soon as
    practicable thereafter. 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 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 Directors Stock Units into such offer

        (iii) Notwithstanding the provisions of Sections 6(d)(i) and 6(d)(ii)
    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

                                       4

<PAGE>

    earlier of (A) the Non-Employee Director's termination of service on the
    Board or (B) the Non-Employee's death. Settlement of any deferred Director
    Stock Units shall be made on or as soon as practicable 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 (A) and (B) of
    the preceding sentence.

        (e) Forfeiture of Grant. Except as provided in Section 6(d)(ii) above,
    all Director Stock Units shall be forfeited, and all rights of the
    Non-Employee Director to or with respect to such Director 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 Stock Units vest in accordance with
    Section 6(d)(i) above.

        (f) Delivery of Share Certificates. As soon as practicable following the
    vesting of Director Stock Units as provided in Sections 6(d)(i) and 6(d)(ii)
    above, or the date for deferred settlement as provided in Section 6(d)(iii)
    above, Director Stock Units shall be settled by delivery to the Non-Employee
    Director of a share certificate for the number of shares corresponding to
    such Director Units. Shares delivered in settlement of Director Stock Units
    shall be free of all such restrictions, except any that may be imposed under
    applicable law or the Company's trading policy.

        (g) 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.

7.  Grants of Director Options

        (a) General. 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 8 below.

        (b) Annual 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. 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 Options 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, Director Options to purchase a number of shares
    determined by multiplying 3,750 by a 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. (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.

8.  General Terms and Conditions of Directors 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

                                       5

<PAGE>

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) Vesting Generally. Director Options shall vest and become
    exercisable 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 Director Options
    shall be considered fully vested and exercisable 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) a Change in Control,
    provided, however, that 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 Options granted to a Non-Employee Director shall
    vest 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
    such stock options into such offer.

        (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 8(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 8(d) and 8(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.

    (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-

                                       6

<PAGE>

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.
Notwithstanding the foregoing, the Board in its discretion may, subject to rules
and procedures as it may adopt or impose from time to time, provide Non-Employee
Directors with the opportunity to defer receipt of shares of Common Stock
issuable upon exercise of Director Options.

9.  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.

10.  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 11 below, the Plan shall expire on the date of the Annual Meeting held
in 2004. Grants of Director Stock Units and Director Options shall be made in
connection with the Annual Meeting held in 2004, and shall be the last grants
made under the Plan. Expiration of the Plan in connection with the Annual
Meeting held in 2004 shall not affect awards of Director Stock Units and
Director Options 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.

11.  Amendments

    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:

                                       7

<PAGE>

        (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 12 below, the Board may not, 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 Stock Units to be issued to any Non-Employee Director
    pursuant to Section 6 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 of
Directors Stock Units or Director Options made prior to such action shall be
effective as to such Non-Employee Director unless he or she consents thereto.

12.  Adjustment of and Changes in Shares

    In the event of any merger, consolidation, recapitalization,
reclassification, stock dividend, distribution of property, special cash
dividend or other change in corporate structure affecting the shares, the Board,
in its discretion, may make (i) such proportionate 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 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.

13.  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.

14.  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.

15.  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.

16.  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.

                                       8

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