Document:

Ex. 10.1 AmbacLong-TermIncentivePlan2014-Final

AMBAC FINANCIAL GROUP, INC. LONG-TERM INCENTIVE PLAN
1.Purpose. The purpose of this Ambac Financial Group, Inc. Long-Term Incentive Plan (the “LTIP”) is to set forth the terms and conditions of the long-term incentive program of Ambac Financial Group, Inc. (“Ambac”) as it applies to the employees participating herein and to assist Ambac and its affiliates in attracting, retaining, motivating and rewarding employees of Ambac and its affiliates by providing for awards that will incentivize retention and performance by employees who contribute to the success of Ambac and its affiliates.  The LTIP authorizes cash incentive awards and stock-based awards that, in each case and to the extent applicable, are intended to qualify as “performance-based compensation” that is tax deductible without limitation under section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”) (“Performance-Based Compensation”); provided, however, that awards that are not Performance-Based Compensation may also be awarded hereunder.  To the extent that any Performance Awards granted hereunder are intended to constitute Performance-Based Compensation, such Performance Awards shall be considered to be Cash Incentive Awards or Full Value Awards, as applicable, granted pursuant to the Ambac Financial Group, Inc. Incentive Compensation Plan (the “Incentive Plan”).
2.    Definitions. In addition to the terms defined in Section 1 above and elsewhere in the LTIP, the following capitalized terms used in the LTIP have the following meanings:
(a)    “AAC” means Ambac Assurance Corporation, an affiliate of Ambac.
(b)    “Award Agreement” means the agreement or other written documentation evidencing the grant of a Target Award Opportunity under the Plan, which agreement or written documentation shall set forth the terms and conditions of the Target Award Opportunity and the Performance Award which are not inconsistent with the terms of the Incentive Plan or the LTIP.
(c)    “Board” means Ambac’s Board of Directors.
(d)    “Committee” means the Compensation Committee of the Board; provided, however, that with respect to any award under the Plan that is intended to constitute Performance-Based Compensation, the Committee shall consist solely of two or more “outside directors” within the meaning of Section 162(m) of the Code.  The Committee shall have the same authorities and duties with respect to this LTIP as it has with respect to the Incentive Plan.
(e)    “Common Stock” means Ambac’s common stock, $.01 par value per share, or any other security into which such common stock shall be changed as contemplated by the adjustment provisions of Section 10 of the Incentive Plan.
(f)    “Covered Employee” means a person who is a “covered employee,” within the meaning of section 162 of the Code.  
(g)    “Participant” means a person who has been granted a Target Award Opportunity or Performance Award under the LTIP which remains outstanding.
(h)    “Performance Award” means, with respect to any Participant, for any Performance Period, the amount of the Target Award Opportunity for that Participant for the Performance Period that has been earned and that is payable with respect to the Participant in accordance with the terms of the LTIP. 
(i)    “Performance Measures” has the meaning specified in the Incentive Plan.
(j)    “Performance Period” means the period of at least twelve months established by the Committee which is the measurement period for determining the Target Award Opportunity.
(k)    “Target Award Opportunity” means, with respect to any Participant, the amount of a Performance Award that the Participant potentially may earn in respect of a specified Performance Period determined by the Committee in accordance with Section 162(m) of the Code.  A Target Award Opportunity constitutes a conditional right to receive a Performance Award.
3.    Granting of Target Award Opportunities and Earning of Performance Awards.
(a)    Granting of Target Award Opportunities.  The Committee shall select the employees of Ambac and its affiliates who will be eligible to participate in the LTIP for each Performance Period.  The intent is that, for each Performance Period, Ambac’s Chief Executive Officer, any other employee of Ambac or its affiliates who is or who is reasonably expected to be or become a Covered Employee for the Performance Period and any other employee of Ambac who the Committee selects for participation in the LTIP for the Performance Period will participate in the LTIP for such Performance Period.  No later than the date which is the earlier of (i) ninety (90) days after the beginning of the applicable Performance Period or (ii) the time twenty-five percent (25%) of such Performance Period has elapsed (as scheduled in good faith at the time the Target Award Opportunity is established), and in any event provided that the outcome is substantially uncertain at the time the Target Award Opportunity is established, the Committee will specify, for each Participant, the Participant’s Target Award Opportunity.  Target Award Opportunities will be denominated in cash and or Common Stock and Performance Awards will be payable in cash and/or Common Stock as designated in the Target Award Opportunity and subject to the terms and conditions of the Incentive Plan.  
(b)    Additional Participants and Granting of Target Award Opportunity During a Performance Period.  At any time during a Performance Period, the Committee may select a newly hired or additional employee who was not eligible to participate in the LTIP as of the first day of the Performance Period to participate in the LTIP for that Performance Period and/or grant to any such Participant a Target Award Opportunity (or additional Target Award Opportunity) for such Performance Period or a future Performance Period.  In determining the amount of the Target Award Opportunity for such Participant under this subsection 3(b), the Committee, in its sole and absolute discretion, may take into account the portion of the Performance Period already elapsed, the performance achieved during such elapsed portion of the Performance Period, and such other considerations as the Committee may deem relevant.
(c)Determination of Performance Award. Following a Performance Period, within a reasonable time after the end of such Performance Period and after financial results for the Performance Period have become available (but not later than March 15th of the year following the year in which the Performance Period ends for any portion of a Performance Award for which the substantial risk of forfeiture lapsed during the Performance Period), the Committee will determine the extent to which each Participant’s Target Award Opportunity for the Performance Period has been earned and the amount of the Performance Award payable with respect to such Participant related to the Target Award Opportunity for such Performance Period.  The Committee may, in its sole and absolute discretion, reduce (including to zero) the amount of a Performance Award that would otherwise be earned based on the satisfaction of the Performance Measures applicable to the Target Award Opportunity upon which such Performance Award is based or cancel a Target Award Opportunity or Performance Award, but may not exercise discretion to increase any such amount payable to a Covered Employee if such increase would cause the amount payable under the related Target Award Opportunity to exceed the amount actually earned based on satisfaction of the applicable Performance Measures and satisfaction of performance targets applicable to such Target Award Opportunity.  Unless otherwise specifically determined by the Committee (or as otherwise specifically provided under a separate agreement, plan or policy conferring rights on the Participant, including an Award Agreement), the Performance Award shall be deemed earned and vested only at the time, and to the extent, that the Committee makes the determination pursuant to this subsection 3(c) and only with respect to a Participant who remains employed by Ambac or any of its affiliates through the last day of the Performance Period and no Participant has a legal right to receive a Performance Award until such determination has been made.
(d)Written Determinations. Determinations by the Committee under this Section 3, including Target Award Opportunities and the amount of any Performance Award earned shall be recorded in writing. With regard to Performance Awards to Covered Employees, the Committee will certify, in a manner conforming to applicable regulations and other applicable guidance under section 162(m) of the Code, prior to payment of each such Performance Award granted to a Covered Employee, that the Performance Award (and any related Target Award Opportunity) has been earned and other material terms upon which earning of the Performance Award was conditioned, including certification that the applicable Performance Measures and performance targets have been satisfied.
(e)Other Terms of Target Award Opportunities and Performance Awards. Subject to the terms of this LTIP and the Incentive Plan, the Committee may specify (whether in the terms of the Award Agreement or otherwise) the circumstances under which Target Award Opportunities and Performance Awards shall be paid or forfeited in the event of a change in control, termination of employment or other event prior to the end of a Performance Period or payment of a Performance Award, taking into account the requirements of section 162(m) of the Code, if applicable.  All Performance Awards under the LTIP are subject to Ambac’s recoupment or clawback policies as in effect from time to time.
(f)Adjustments. The Committee, in its sole and absolute discretion, is authorized to make adjustments in the terms and conditions of, and the criteria included in, Target Award Opportunities to exclude any of the following events that occurs during a Performance Period:  the impact of unusual, non-recurring or extraordinary items or expenses; items relating to financing activities; charges for restructurings or productivity initiatives; other non-operating items; discontinued operations; items related to the disposal of a business or segment of a business; the cumulative effect of changes in accounting treatment; items related to a change in accounting principle; items related to changes in applicable laws or business conditions; any impact of impairment of tangible or intangible assets; any impact of the issuance or repurchase of equity securities and or other changes in the number of outstanding shares of any class of Ambac equity securities; any gain, loss, income or expense attributable to acquisitions or dispositions of stock or assets; items attributable to the business operations of any entity acquired by Ambac during a Performance Period; stock-based compensation expense; in-process research and development expense; gain or loss from all or certain claims and/or litigation and insurance recoveries; items that are outside the scope of Ambac’s core, on-going business activities; and any other items, each determined in accordance with GAAP and as identified in Ambac’s audited financial statements, including the notes thereto; provided, however, that no such adjustments shall be made or authorized if and to the extent that the existence or exercise of such authority would cause a Target Award Opportunity or Performance Award under the LTIP to fail to qualify as Performance-Based Compensation.  
4.    Payment of Performance Awards.
(a)    Payment of Performance Award. Any Performance Award shall be paid by Ambac or its one of its affiliates promptly after the date of determination by the Committee under subsection 3(c) hereof but in no event later than March 15th of the year following the last day of the Performance Period to which the Performance Award relates, except that, in the case of any Performance Award or portion thereof subject to a substantial risk of forfeiture extending into that following year, the Performance Award may be paid at any time during such following year.  Any payment or other event that would change the time of payment of such Performance Award from that originally specified shall be implemented in a manner such that the Performance Award does not, solely for that reason, fail to qualify as Performance-Based Compensation or violate section 409A of the Code.
(b)    Tax Withholding.  All Performance Awards under the Plan are subject to applicable withholding taxes.  Any such withholding taxes shall be paid by the Participant as reflected in the Award Agreement; provided, however, that if the Participant does not make satisfactory arrangements to pay such withholding taxes, Ambac and its affiliates shall deduct from any payment of a Participant’s Performance Award or from any other payment to the Participant, including wages, any Federal, state, or local withholding or other tax or charge which is then required to be deducted under applicable law with respect to the Performance Award.  
(c)    Non-Transferability. A Target Award Opportunity, any resulting Performance Award, and any other right hereunder shall be non-assignable and nontransferable, and shall not be pledged, encumbered, or hypothecated to or in favor of any party or subject to any lien, obligation or liability of the Participant to any party other than Ambac or an affiliate of Ambac.
5.    General Provisions.
(a)Amendment and Termination. The Committee may at any time amend, alter, suspend, discontinue or terminate this LTIP, and such action shall not be subject to the approval of Ambac’s stockholders or Participants; provided, however, that (i) any amendment to the LTIP beyond the scope of the Compensation Committee’s authority shall be subject to the approval of the Board; (ii) any amendment to the LTIP shall be subject to stockholder approval if and to the extent required so that Target Award Opportunities and Performance Awards under Section 3 can continue to qualify as Performance-Based Compensation; and (iii) without the consent of the Participant, no such action shall materially impair the rights of a Participant with respect to a Performance Award as to which the Committee no longer retains a right to exercise downward (negative) discretion to eliminate the payment of the Performance Award.
(b)Section 162(m). Unless otherwise determined by the Committee, the provisions of this LTIP shall be administered and interpreted in accordance with the applicable requirements of section 162(m) of the Code so as to provide for the deductibility by Ambac of payments of Performance Awards to Covered Employees.
(c)Nonexclusivity of the LTIP. The adoption of this LTIP shall not be construed as creating any limitations on the power of Ambac, the Board, the Committee or any affiliate of Ambac to adopt such other compensation arrangements as it may deem desirable for any Participant or employee, including authorization of annual incentives under other plans and arrangements.
(d)No Right to Continued Employment. Neither the LTIP, its adoption, its operation, nor any action taken under the LTIP shall be construed as giving any employee the right to be retained or continued in the employ of Ambac or any of its affiliates, nor shall it interfere in any way with the right and power of Ambac or any of its affiliates to dismiss or discharge any employee or take any action that has the effect of terminating any employee’s employment at any time.
(e)AAC Involvement.  In making any determinations under the LTIP, the Committee shall consult with the Board of Directors of AAC (or a committee thereof); provided, however, that the Committee shall have the sole authority to make any final determinations under the Plan with respect to Covered Employees and/or with respect to the issuance of Common Stock pursuant to the Incentive Plan.
(f)Severability. The invalidity of any provision of the LTIP or a document hereunder shall not be deemed to render the remainder of this LTIP or such document invalid.
(g)Successors. The LTIP shall be binding and inure to the benefit of any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise, and whether or not the corporate existence of Ambac continues) to Ambac or to the successor to all or substantially all of the business and/or assets of Ambac.
(h)Governing Law. The validity, construction, and effect of the LTIP and any rules and regulations or document hereunder, to the extent not otherwise governed by the Code or the laws of the United States, shall be determined in accordance with the laws of the State of New York, without giving effect to conflict of law principles.
(i)Effective Date of LTIP. The LTIP is effective as of March 31, 2014.102LTIPAgreementforDA-FINAL

AMBAC FINANCIAL GROUP, INC.
LONG-TERM INCENTIVE COMPENSATION AGREEMENT

Effective as of May 9, 2014 (the “Grant Date”), Diana Adams (the “Participant”) has been granted Awards under Ambac Financial Group, Inc. Incentive Compensation Plan (the “Incentive Plan”) and in accordance with the Ambac Financial Group, Inc. Long-Term Incentive Compensation Plan (the “LTIP”) which is a subplan to the Incentive Plan.  This Agreement evidences the Awards which shall consist of (a) a Full Value Award in the form of performance stock units (“Performance Stock Units”) and (b) a Cash Incentive Award.  In addition to the terms and conditions of the Incentive Plan and the LTIP, the Awards shall be subject to the following terms and conditions (sometimes referred to as this “Agreement”). 

1.Defined Terms.  Capitalized terms used in this Agreement which are not otherwise defined herein shall have the meaning specified in the Incentive Plan or the LTIP, as applicable. 
2.    Grant of Performance Stock Units.  Subject to the terms of this Agreement, the Incentive Plan and the LTIP, effective as of the Grant Date the Participant is hereby granted 12,593 Performance Stock Units (the “Target Performance Units”).  This Award contains the right to dividend equivalent units (“Dividend Equivalent Units”) with respect to Earned Performance Units (as defined in paragraph 4) as described in paragraph 5.  Each Performance Stock Unit awarded hereunder shall become earned and vested as described in paragraph 4 and each Earned Performance Unit (and associated Earned Dividend Equivalent Units thereon as described in paragraph 5) shall be settled in accordance with paragraph 6.
3.    Grant of Cash Incentive Award.  Subject to the terms of this Agreement, the Incentive Plan and the LTIP, effective as of the Grant Date the Participant is hereby granted a Cash Incentive Award in the amount of $375,000 (the “Target Cash Award”).  The Cash Incentive Award shall become earned and vested as described in paragraph 4 and the Earned Cash Award (as defined in paragraph 4) shall be paid in accordance with paragraph 6.
4.    Earning, Vesting and Forfeiture of Performance Stock Units and Cash Incentive Award.  The Performance Stock Units and the Cash Incentive Award shall become earned and vested in accordance with the following: 
		
	(a)
	All Performance Stock Units shall be unearned and unvested unless and until they become earned and vested and nonforfeitable in accordance with this subparagraph 4(a).  The Participant shall have the ability to earn between 0% and 200% of the Target Performance Units, as determined by the Committee, on the third anniversary of the Grant Date based on the continuing employment of the Participant during the period beginning on March 31, 2014 and ending on the March 31, 2017 (the “Performance Period”) and satisfaction of the Performance Goals set forth in Exhibit A hereto (which is incorporated into and forms part of this Agreement).  Any Performance Stock Units granted pursuant to this Agreement that become earned in accordance with this Agreement shall be referred to herein as “Earned Performance Units”.  Except as provided in subparagraph 4(c), if the Participant’s termination of employment or service with the Company (the “Termination Date”) occurs for any reason prior to the last day of the Performance Period, the Participant’s right to all Performance Stock Units (and any associated Dividend Equivalent Units) awarded or credited to the Participant pursuant to this Agreement shall expire and be forfeited immediately and the Participant shall have no further rights with respect to any of the Performance Stock Units (or associated Dividend Equivalent Units).  The Earned Performance Units (and any associated Earned Dividend Equivalent Units) shall be settled in accordance with paragraph 6 hereof.

		
	(b)
	The Cash Incentive Award shall be unearned and unvested unless and until it becomes earned and vested and nonforfeitable in accordance with this subparagraph 4(b).  The Participant shall have the ability to earn between 0% and 200% of the Target Cash Award, as determined by the Committee, on the third anniversary of the Grant Date based on the continuing employment of the Participant during the Performance Period and satisfaction of the Performance Goals set forth in Exhibit A hereto.  Any portion of the Cash Incentive Award granted pursuant to this Agreement that becomes earned in accordance with this Agreement shall be referred to herein as “Earned Cash Incentive Award”.  Except as provided in subparagraph 4(c), if the Participant’s Termination Date occurs for any reason prior to the last day of the Performance Period, the Participant’s right to the entire Cash Incentive Award awarded to the Participant pursuant to this Agreement shall expire and be forfeited immediately and the Participant shall have no further rights with respect to any portion of the Cash Incentive Award. The Earned Cash Award shall be paid in accordance with paragraph 6 hereof.

		
	(c)
	Notwithstanding the provisions of subparagraphs 4(a) and 4(b), if the Participant’s Termination Date occurs on or after April 1, 2015 and prior to the last day of the Performance Period by reason of death, Disability (as defined in subparagraph 4(d)) or involuntary termination other than for Cause (as defined in subparagraph 4(d)), the Participant (or, in the event of his death, his beneficiary) shall be entitled to (i) that number of Earned Performance Units (and any associated Earned Dividend Equivalent Units thereon) and (ii) that portion of the Earned Cash Award equal to the product of (A) the number of Earned Performance Units (and any associated Earned Dividend Equivalent Units) or Earned Cash Award, as applicable, that the Participant would have been entitled to receive had his Termination Date not occurred prior to the end of the Performance Period based on actual satisfaction of the Performance Goals, multiplied by (B) a fraction (1) the numerator of which is the number days during the Performance Period prior to and including the Termination Date and (2) the denominator of which is the total number of days in the Performance Period.  

		
	(d)
	For purposes of the Awards evidenced by this Agreement, (i) a Participant’s Termination Date  shall be considered to occur by reason of Disability if his Termination Date occurs on or after the date on which he is entitled to long-term disability benefits under the Company’s long-term disability plan (or, if the Participant is not eligible for such plan, if the Participant would be entitled to benefits under such plan if he were eligible) and such Termination Date does not occur for any other reason, and (ii) the Participant’s Termination Date shall be considered to occur by reason of an involuntary termination other than for Cause if the Participant’s Termination Date occurs by reason of termination by the Company and is on account of (A) any act or omission by the Participant resulting in, or intending to result in, personal gain at the expense of the Company; (B) the improper disclosure by the Participant of proprietary or confidential information of the Company; or (C) misconduct by the Participant, including, but not limited to, fraud, intentional violation of, or negligent disregard for, the rules and procedures of the Company (including the code of business conduct), theft, violent acts or threats of violence, or possession of controlled substances on the property of the Company; provided, however, that the meaning of “Cause” shall be (1) expanded to include any additional grounds for cause-based termination specified in any contract, policy or plan applicable to the Participant or (2) superseded to the extent expressly provided in such contract, policy or plan.

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

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

Dividend Equivalent Units shall be earned on the same basis and to the same extent that the Performance Stock Units to which they relate become Earned Performance Units.  Therefore, the Participant shall only earn Dividend Equivalent Units with respect to Earned Performance Units and, to the extent that any Dividend Equivalent Units are credited to the Participant pursuant to this paragraph 5 and are not earned in accordance with this Agreement, they shall be forfeited and the Participant shall have no further rights with respect thereto under this Agreement or otherwise.  Any Dividend Equivalent Units credited to the Participant pursuant to this paragraph 5 that become earned in accordance with this Agreement are sometimes referred to as “Earned Dividend Equivalent Units”. 

6.    Settlement and Payment.  Subject to the terms and conditions of this Agreement, the Earned Performance Units (and associated Earned Dividend Equivalent Units) shall be settled and the Earned Cash Award shall be paid in accordance with the following:
		
	(a)
	The Earned Performance Units (and associated Earned Dividend Equivalent Units shall be settled within sixty (60) days following the end of the Performance Period (the “Settlement Date”).  Settlement of the Earned Performance Units and Earned Dividend Equivalent Units on the Settlement Date shall be made in the form of shares of Common Stock with one share of Common Stock being issued in settlement of each Earned Performance Unit and each Earned Dividend Equivalent Unit (and cash equal to any fractional share).  Upon the settlement of any Earned Performance Unit and associated Earned Dividend Equivalent Units, such Earned Performance Unit and Earned Dividend Equivalent Units shall be cancelled.  Any Performance Stock Units and associated Dividend Equivalent Units outstanding as of the last day of the Performance Period that do not become Earned Performance Units and associated Earned Dividend Equivalent Units shall be automatically cancelled as of the last day of the Performance Period.

		
	(b)
	The Earned Cash Award shall be paid on the Settlement Date in a lump sum cash payment.  Any portion of the Cash Incentive Award that does not become part of the Earned Cash Award shall be automatically cancelled as of the last day of the Performance Period.

7.    Withholding.  All Awards and payments under this Agreement are subject to withholding of all applicable taxes.  At the election of the Participant, such withholding obligations may be satisfied through (a) amounts that the Participant is otherwise to receive upon settlement, (b) payment of the Awards or by a cash payment from the Participant to the Company, or (c) otherwise as agreed between the Participant and the Company; provided, however, that Ambac or any officer thereof, other than with respect to his or her own award may determine that withholding may not be satisfied through the method described in paragraph subparagraph 7(a).  In no event will the Participant be permitted to elect to withhold amounts in excess of the minimum tax withholding requirements.
8.    Transferability.  The Awards are not transferable except as designated by the Participant by will or by the laws of descent and distribution.
9.    Heirs and Successors.  If any benefits deliverable to the Participant under this Agreement have not been delivered at the time of the Participant’s death, such rights shall be delivered to the Participant’s estate. 
10.    Administration.  The authority to administer and interpret this Agreement shall be vested in the Committee, and the Committee shall have all the powers with respect to this Agreement as it has with respect to the Incentive Plan and the LTIP.  Any interpretation of the Agreement by the Committee and any decision made by it with respect to the Agreement is final and binding on all persons.
11.    Adjustment of Awards.  The number of Performance Stock Units (and any associated Dividend Equivalent Units) awarded or credited to the Participant pursuant to this Agreement may be adjusted by the Committee in accordance with the terms of the Incentive Plan to reflect certain corporate transactions which affect the number, type or value of the Performance Stock Units (and associated Dividend Equivalent Units).  
12.    Notices.  Any notice required or permitted under this Agreement shall be deemed given when delivered personally, or when deposited in a United States Post Office, postage prepaid, addressed, as appropriate, to Ambac at its principal offices, to the Participant at the Participant’s address as last known by the Company or, in either case, such other address as one party may designate in writing to the other.
13.    Governing Law.  The validity, construction and effect of this Agreement shall be determined in accordance with the laws of the State of New York and applicable federal law.
14.    Amendments.  The Board of Directors may, at any time, amend or terminate the Incentive Plan, and the Board of Directors or the Committee may amend this Agreement or the LTIP, provided that no amendment or termination may, in the absence of written consent to the change by the affected Participant (or, if the Participant is not then living, the affected beneficiary), adversely affect the rights of any Participant or beneficiary under this Agreement prior to the date such amendment or termination is adopted by the Board of Directors or the Committee, as the case may be.  
15.    Awards Not Contract of Employment.  The Awards do not constitute a contract of employment or continued service, and the grant of the Awards will not give the Participant the right to be retained in the employ or service of the Company, nor any right or claim to any benefit under the Incentive Plan, the LTIP or this Agreement, unless such right or claim has specifically accrued under the terms of the Incentive Plan and this Agreement.  
16.    Severability.  If a provision of this Agreement is held invalid by a court of competent jurisdiction, the remaining provisions will nonetheless be enforceable according to their terms.  Further, if any provision is held to be overbroad as written, that provision shall be amended to narrow its application to the extent necessary to make the provision enforceable according to applicable law and enforced as amended.
17.    Incentive Plan and LTIP Govern.  The Awards evidenced by this Agreement are granted pursuant to the Incentive Plan, and the Performance Stock Units and this Agreement are in all respects governed by the Incentive Plan (including the LTIP) and subject to all of the terms and provisions thereof, whether such terms and provisions are incorporated in this Agreement by reference or are expressly cited.
18.    Special Section 409A Rules.  To the fullest extent possible, amounts and other benefits payable under the Agreement are intended to comply with or be exempt from the provisions of section 409A of the Code.  This Agreement will be interpreted and administered to the extent possible in a manner consistent with the foregoing statement of intent; provided, however, that the Company does not guarantee the tax treatment of the Awards.  Notwithstanding any other provision of this Agreement to the contrary, if any payment or benefit hereunder is subject to section 409A of the Code, and if such payment or benefit is to be paid or provided on account of the Participant’s termination of employment (or other separation from service):
		
	(a)
	and if the Participant is a specified employee (within the meaning of section 409A(a)(2)(B) of the Code) and if any such payment or benefit is required to be made or provided prior to the first day of the seventh month following the Participant’s separation from service or termination of employment, such payment or benefit shall be delayed until the first day of the seventh month following the Participant’s separation from service; and 

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

EXHIBIT A
PERFORMANCE GOALS

Participant Name:  Diana Adams

Weight of Awards Between Ambac Assurance Corporation (“AAC”) and Ambac Financial Group, Inc. (“AFG”) Performance:    

AAC Percentage : 80%    
AFG Percentage: 20%

AAC Focused Performance Goals:

For purposes of applying the AAC Focused Performance Goals, the Target Performance Units and the Target Cash Award shall each first be multiplied by the AAC Percentage.  The number of Target Performance Units determined pursuant the preceding sentence shall be referred to as the “AAC Target Performance Units” and the value of the Target Cash Award determined pursuant to the preceding sentence shall be referred to as the “AAC Target Cash Award”.  The Participant shall have the ability to earn between 0% and 200% of each of the AAC Target Performance Units and the AAC Target Cash Award based on the Asset Liability Ratio (“ALR”), determined as of the last day of the Performance Period as described below, in accordance with the following:
	
		
	ALR
	Percentage of AAC Target Performance Units and AAC Target Cash Award Earned

	100.0%
	200%

	95.0%
	175%

	90.0%
	150%

	85.0%
	125%

	80.0%
	100%

	75.0%
	50%

	70.0%
	0%

Linear interpolation between levels of ALR will result in a proportionate number of the AAC Target Performance Units becoming Earned Performance Units and a proportionate amount of the AAC Cash Incentive Award becoming the Earned Cash Award.

Calculation of ALR:

For purposes of the foregoing, the ALR shall be equal to the ratio determined by dividing (a) the fair value (determined in accordance with U. S. generally accepted accounting principles (“GAAP”)) of the Assets (as defined below) by (b) the Liabilities (as defined below) of the following entities: AAC, Everspan Financial Guarantee Corp., Ambac Credit Products LLC, Orient Bay LLC, Ambac Financial Services LLC, and any other entities that the Committee shall determine.

For purposes of the foregoing calculations, “Assets” means the total cash, invested assets and net receivables (payables).

For purposes of the foregoing calculation, “Liabilities” means the sum of the following: (i) the present value of future probability weighted financial guarantee claims and CDS payments reduced by recoveries, including probability weighted estimated subrogation recoveries and reinsurance recoverables, using discount rates in accordance with GAAP, (ii) face value of unpaid claims and accrued interest, (iii) fair value of all interest rate swaps, (iv) par value and accrued interest of all outstanding surplus notes of AAC (including surplus notes of the Segregated Account of AAC (including junior surplus notes)), and (v) the face value of outstanding preferred stock.   

The Assets and Liabilities shall be increased for the amount of representation and warranty litigation receipts that were subsequently used to settle Liabilities over the Performance Period. 

AFG Focused Performance Goals:

For purposes of applying the AFG Focused Performance Goals, the Target Performance Units and the Target Cash Award shall each first be multiplied by the AFG Percentage.  The number of Target Performance Units determined pursuant the preceding sentence shall be referred to as the “AFG Target Performance Units” and the value of the Target Cash Award determined pursuant to the preceding sentence shall be referred to as the “AFG Target Cash Award”.  The Participant shall have the ability to earn between 0% and 200% of each of the AFG Target Performance Units and the AFG Target Cash Award based AFG’s Cumulative EBITDA, determined as of the last day of the Performance Period as described below, in accordance with the following:
	
		
	AFG’s Cumulative EBITDA ($MM)
	Percentage of AFG Target Performance Units and AFG Target Cash Award Earned

	$19
	200%

	$16
	175%

	$13
	150%

	$9
	125%

	$6
	100%

	$3
	50%

	$0
	0%

Linear interpolation between levels of Cumulative EBITDA will result in a proportionate number of the AFG Target Performance Units becoming Earned Performance Units and a proportionate amount of the AFG Cash Incentive Award becoming the Earned Cash Award.

Calculation of AFG EBITDA:

For purposes of the foregoing, AFG’s Cumulative EBITDA means AFG’s earnings before interest, taxes, depreciation, amortization, and non-controlling interests (as determined under GAAP) generated after March 31, 2014 and unrelated to any AFG assets existing as of March 31, 2014, including AAC, unless recapitalized by AFG.

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

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