Document:

Ambac Financial Group,  Inc. 1997 Equity Plan, amended as of July 24, 2006

 EXHIBIT 10.38 
 AMBAC 1997 EQUITY PLAN 
 (amended as of July 24, 2006) 
 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 them to own 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 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 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 (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 owned by the Participant, where such Restoration Option
(i) covers a number of shares of Common Stock no greater than the number of 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 in connection with a corporate transaction, such as a merger, combination,
consolidation or acquisition of property or stock upon assumption of, or in substitution for, outstanding awards previously granted by a company or other entity. 
 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. 
 (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. 
  

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 (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 Section 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 and the By-laws as they 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 became effective on May 15, 1997 after approval by the Board and the stockholders of Ambac in 1997. Upon recommendation by the Board, the
stockholders of Ambac adopted certain amendments to the Plan, including extending the term of the Plan by seven years to May 6, 2011. 
 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) 14,000,000 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 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. 
  

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 (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 4,000,000 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; and individuals who provide services to any 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. 
 (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 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 
  

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 (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 or the Committee otherwise so determines, 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. 
 (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 

  

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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 or, if the Committee so determines, in cash, equal to the Fair Market Value of the shares subject to such Restricted Stock Units. Restricted Stock Units that are granted to an
Eligible Individual in respect of 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 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 

  

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(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 qualified 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, shall be equitably adjusted by 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 shall 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. All adjustments provided for in this
Section 15(b) 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. The Company will not
exercise this right in circumstances where the participant’s employment is located outside of the United States at the time of exercise or settlement, the participant is subject to income tax in that foreign jurisdiction, and there is no legal
requirement on the Company to withhold tax and remit it to the revenue authority in that foreign jurisdiction. 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 

  

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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 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.

  

 11Ambac Financial Group, Inc. 1997 Director's Equity Plan

 EXHIBIT 10.39 
 AMBAC FINANCIAL GROUP, INC. 
 1997 NON-EMPLOYEE DIRECTORS EQUITY PLAN 
 (as amended through October 24, 2006) 
 1.
Purpose 
 The purpose of the Ambac Financial Group, Inc. 1997 Non-Employee Directors Equity Plan (the “Plan”) is
to promote the long-term growth and financial success of the Company by attracting, motivating and retaining non-employee directors of outstanding ability and assisting the Company in promoting a greater identity of interest between the
Company’s non-employee directors and its stockholders. 
 The Plan replaces the AMBAC Inc. 1991 Non-Employee Directors Stock Plan (the
“Predecessor Plan”). From and after the effective date of the Plan as provided in Section 11 below, no further awards shall be made under the Predecessor Plan. 
 2. Definitions 
 For purposes of the Plan, the
following terms shall be defined as follows: 
 “Annual Award” means an Award of Director Options (made in respect of
Annual Meetings up to and including the 2003 Annual Meeting) or Director Annual Stock Units (made in respect of Annual Meetings beginning with the 2004 Annual Meeting), in each case as provided in Section 7 below. 
 “Annual Meeting” means an annual meeting of the Company’s stockholders. 
 “Award” means any or all (as the context requires) of Director Annual Stock Units, Director Five-Year Stock Units and Director
Options. 
 “Board” means the Board of Directors of the Company. 
 “Change in Control” means: 
 (i) the acquisition by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the Common Stock then outstanding, but shall not include any such acquisition by: 

(A) the Company; 
 (B) any Subsidiary of the Company; 
 (C) any employee benefit plan of the Company or of any Subsidiary of the
Company; 
 (D) any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any
such plan; 
 (E) any Person who as of January 31, 1996 was the beneficial owner of 15% or more of the shares of Common
Stock outstanding on such date unless and until such Person, together with all affiliates and associates of such Person, becomes the beneficial owner of 25% or more of the shares of Common Stock then outstanding whereupon a Change in Control shall
be deemed to have occurred; or 

 (F) any Person who becomes the beneficial owner of 20% or more, or, with respect to a
Person described in clause (E) above, 25% or more, of the shares of Common Stock then outstanding as a result of a reduction in the number of shares of Common Stock outstanding due to the repurchase of shares of Common Stock by the Company
unless and until such Person, after becoming aware that such Person has become the beneficial owner of 20% or more, or 25% or more, as the case may be, of the then outstanding shares of Common Stock, acquires beneficial ownership of additional
shares of Common Stock representing 1% or more of the shares of Common Stock then outstanding, whereupon a Change in Control shall be deemed to have occurred or 
 (ii) individuals who, as of the date this Plan is approved by the Board, constitute the Board, and subsequently elected members of the Board whose election is approved or recommended by at least a majority of such
current members or their successors whose election was so approved or recommended (other than any subsequently elected members whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board), cease for any reason to constitute at least a majority of such Board; or 
 (iii) approval by the stockholders of the Company of (A) a merger or consolidation of the Company with any other corporation, (B) the issuance
of voting securities of the Company in connection with a merger or consolidation of the Company (or any Subsidiary) pursuant to applicable stock exchange requirements, or (C) sale or other disposition of all or substantially all of the
assets of the Company or the acquisition of assets of another corporation (each, a “Business Combination”), unless, in each case, immediately following such Business Combination, all or substantially all of the individuals
and entities who were the beneficial owners of the Common Stock outstanding immediately prior to such Business Combination beneficially own, directly or indirectly, more than 70% of the then outstanding shares of common stock and 70% of the combined
voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as
a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such
Business Combination, of the Common Stock. 
 “Common Stock” means the Common Stock of the Company, par value $.01
per share, or such other class or kind of shares or other securities as may be applicable under Section 13 below. 
 “Company” means Ambac Financial Group, Inc., a Delaware corporation, or any successor to substantially all its business. 
 “Director Account” means the bookkeeping record established for each Non-Employee Director. A Director Account is established only for purposes of measuring the value of the Company’s
obligation to a Non-Employee Director in respect of Director Stock Units and earnings thereon and not to segregate assets or to identify assets that may be used to settle Director Stock Units. 
 “Director Annual Stock Unit” means a restricted stock unit granted to a Non-Employee Director pursuant to Section 7
hereof. 
 “Director Five-Year Stock Unit” means a restricted stock unit granted to a Non-Employee
Director pursuant to Section 6 hereof. 
 “Director Option” means a right to purchase shares of Common Stock
granted to a Non-Employee Director pursuant to Section 7 hereof. 
  

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 “Director Stock Unit” means either a Director Five-Year Stock Unit or a Director
Annual Stock Unit. 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 shall be settled exclusively in Common
Stock. 
 “Effective Date” means the effective date of the Plan provided for in Section 11 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 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 Director Stock Units and Director Options under the Plan shall be embodied in an award agreement or award certificate which shall incorporate the Plan by reference, shall indicate the
date on which the Director Stock Units or Director Options were granted and the number of Director Stock Units or Director Options granted on such date. 
  

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 4. Shares Available 
 Subject to the provisions of Section 13 below, the maximum number of shares of Common Stock which may be issued under the Plan (the “Section 4 Limit”) shall be 360,000 shares plus the
number of shares of Common Stock that remain available for issuance under the Predecessor Plan as of the date the Plan is approved by the stockholders of the Company (increased by any shares of Common Stock subject to any Award (or portion thereof)
outstanding under the Predecessor Plan on such date which lapses, expires or is otherwise terminated without the issuance of such shares or is settled by the delivery of consideration other than shares). Subject to Section 13 below, of the
shares of Common Stock available for issuance under the Plan, no more than 225,000 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 Five-Year Stock
Units 
 (a) Grants of Director Five-Year Stock Units. Director Five-Year Stock Units shall be awarded under the Plan as
follows: 
 (i) On the date of the Annual Meeting coincident with or first succeeding a Non-Employee Director’s initial
election to the Board (or re-election to the Board after a period during which the Non-Employee Director did not serve on the Board), the Non-Employee Director shall receive a grant of a number of Director Five-Year Stock Units calculated by
dividing (x) $210,000, by (y) the Fair Market Value of one share of Common Stock on the date of the relevant Annual Meeting. 
 (ii) As of the date of the Annual Meeting that is closest in time to the applicable vesting date of any Director Five-Year Stock Units in accordance with Section 6(b)(i) below, or the vesting date of any
restricted shares under the Predecessor Plan in accordance with Section 6(c)(i) thereof, a Non-Employee Director shall receive an additional grant of Director Five-Year Stock Units (an “Additional Grant”),
provided that (A) the Annual Meeting as of which the Additional Grant is to be made occurs during the term of the Plan as set forth in Section 11 below, and (B) the Non-Employee Director is standing for re-election at such
Annual Meeting. The number of Director Five-Year Stock Units included in such Additional Grant shall be calculated by dividing (x) $210,000, by (y) the Fair Market Value of one share of Common Stock on the date of the relevant Annual
Meeting in connection with which the Additional Grant is made. 
 (b) Vesting; Accelerated Vesting;
Deferral. 
 (i) Director Five-Year Stock Units granted in respect of a given Annual Meeting, and any
additional Director Five-Year Stock Units credited to a Director Account in respect of earnings or other distributions on such Director Five-Year Stock Units as provided in Section 6(c), shall vest on the fifth anniversary of the date of grant
and shall be settled 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. 
  

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 (ii) Notwithstanding the provisions of Section 6(b)(i) above, all Director Five-Year
Stock Units granted to a Non-Employee Director shall immediately vest upon the first to occur of (A) a Non-Employee Director ceasing to be a member of the Board as a result of retirement from the Board in accordance with the retirement policy
then applicable to Board members, (B) a Non-Employee Director ceasing to be a member of the Board as a result of death or Permanent Disability or (C) subject to the following sentence, a Change in Control 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 Five-Year
Stock Units granted to a Non-Employee Director shall vest and be settled immediately prior to the scheduled expiration of such tender offer, and the Company shall have instituted procedures to enable the Non-Employee Director, if he so desires, to
tender the shares issued upon settlement of such Director Five-Year Stock Units into such offer. 
 (c) Forfeiture of
Grant. Except as provided in Section 6(b)(ii) above, all Director Five-Year Stock Units shall be forfeited, and all rights of the Non-Employee Director to or with respect to such Director Stock Units shall terminate without any
obligation on the part of the Company, upon the termination of a Non-Employee Director’s service as a member of the Board prior to the date on which such Director Five-Year Stock Units vest in accordance with Section 6(b)(i) above.

 7. Annual Awards 
 (a) General. As of the date of each Annual Meeting, commencing with the 1997 Annual Meeting, each Non-Employee Director shall automatically receive an Award of Director Options or Director Annual Stock Units as provided in
this Section 7. A Director Option shall entitle a Non-Employee Director to purchase a specified number of shares of Common Stock during a specified period at an exercise price per share of Common Stock determined as provided below. All Director
Options provided for herein shall have the general terms and conditions set forth in Section 9 below. 
 (b) Grants
of Director Options. As of the date of each Annual Meeting, commencing with the 1997 Annual Meeting, each Non-Employee Director shall automatically receive Director Options to purchase 3,750 shares of Common Stock provided that the
Non-Employee Director shall continue to serve as a director of the Company after such Annual Meeting, provided, however, that beginning with the 2004 Annual Meeting, no further Awards of Director Options shall be made. The exercise
price per share of Common Stock of each Director Option provided for in this Section 7(b) shall be the Fair Market Value of one share of Common Stock on the date of the relevant Annual Meeting. 
 (c) Grants of Director Annual Stock Units. As of the date of each Annual Meeting, commencing with the 2004 Annual Meeting,
each Non-Employee Director shall automatically receive a number of Director Annual Stock Units determined by dividing (i) $60,000 by (ii) the Fair Market Value of one share of Common Stock on the date of the relevant Annual Meeting.

 (d) Grants to New Directors. A Non-Employee Director who is initially elected or appointed to the Board other
than in connection with an Annual Meeting shall receive, as of the date of such initial election or appointment, (i) if such appointment is made prior to the 2004 Annual Meeting, Director Options to purchase a number of shares determined by
multiplying 3,750 by a fraction (the “Proration Fraction”), the numerator of which is the number of full months remaining until the next Annual Meeting (starting with the month following the date of election or appointment
and counting the month in which the next Annual Meeting is scheduled to occur as a full month) and the denominator of which is 12 and (ii) if such appointment is made after the 2004 Annual Meeting, a number of Director Annual Stock Units
calculated by multiplying (x) the number of Director Annual Stock Units that were awarded to each Non-Employee Director in connection with the immediately preceding Annual Meeting, times 

  

 5 

 
(y) the Proration Fraction. (If the date of the next Annual Meeting has not been scheduled at the time of the Non-Employee Director’s initial election
or appointment, it shall be assumed that the next Annual Meeting will occur in the same month as the immediately preceding Annual Meeting.) The exercise price per share of Common Stock of each Director Option provided for in this Section 7(d)
shall be the Fair Market Value of one share of Common Stock on the date of the Non-Employee Director’s election or appointment to the Board. 
 (e) Vesting. Annual Awards shall vest as of the first anniversary of the date of grant, assuming that the Non-Employee Director has continued to serve as a member of the Board until the earlier of
(A) such first anniversary or (B) if the Non-Employee Director declines to stand for reelection to the Board at the Annual Meeting held in the calendar year following the date of grant, the date of such Annual Meeting. Notwithstanding the
preceding sentence, all Annual Awards shall be considered fully vested upon the earlier to occur of (X) termination of the Non-Employee Director’s service on the Board by reason of death or Permanent Disability or (Y) 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 Annual Awards granted to a Non-Employee Director shall
vest and, in the case of Director Annual Stock Units, be settled, immediately prior to the scheduled expiration of such tender offer, and the Company shall have instituted procedures to enable the Non-Employee Director, if he so desires, to tender
the shares issued upon the exercise of Director Options or upon the settlement of Director Annual Stock Units into such offer. 
 8. General Terms and
Conditions of Director Stock Units 
 (a) Accounts. As of any date as of which a Non-Employee Director is
granted Director Stock Units, the Director Account of such Non-Employee Director will be credited with the number of Director Stock Units so granted. In the event that the Company pays any cash or other dividend or makes any other distribution in
respect of the Common Stock, each Director Account will be credited with an additional number of Director Stock Units (including fractions thereof) determined by dividing (A) the amount of cash, or the value (as determined by the Board) of any
securities or other property, paid or distributed in respect of one outstanding share of Common Stock by (B) the Fair Market Value of a share of Common Stock for the date of such payment or distribution, and multiplying the result of such
division by (C) the number of Director Stock Units that were credited to the Director Account immediately prior to the date of the dividend or other distribution. Credits shall be made effective as of the date of the dividend or other
distribution in respect of the Common Stock. 
 (b) Notwithstanding the provisions of Sections 6(b)(i), 6(b)(ii)
and 7(e) above, a Non-Employee Director may elect to defer settlement of any or all Director Stock Units to a date subsequent to the vesting date of such Director Stock Units, provided that no such deferral may extend beyond the earlier of
(i) the Non-Employee Director’s termination of service on the Board or (ii) the Non-Employee’s death. Settlement of any deferred Director Stock Units shall be made 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 (i) and (ii) of the preceding sentence. 
 (c) Delivery of Share Certificates. As soon as practicable following the vesting of Director Stock Units as provided in
Sections 6(b)(i), 6(b)(ii) or 7(e) above, or the date for deferred settlement as provided in Section 8(b) above, Director Stock Units shall be settled either by: (i) delivery to the Non-Employee Director of a share certificate for the
number of shares corresponding to such Director Stock Units (any fractional Director Stock Unit shall be rounded up to the next whole Director Stock Unit) or (ii) the transfer of the corresponding number of shares equal to the number of
Director Stock Units being settled (any fractional Director Stock Unit shall be rounded up to the next whole Director Stock Unit) to the brokerage account designated by the Non-Employee Director to the Company in writing prior to settlement. Shares
delivered in settlement of Director Stock Units shall be free of all such restrictions, except any that may be imposed under applicable law or the Company’s trading policy. 
  

 6 

 (d) No Stockholder Rights. The crediting of Director Stock Units to
a Director Account shall not confer on the relevant Non-Employee Director any rights as a stockholder of the Company. 
 9. General Terms and Conditions
Director Options 
 (a) Option Term. Each Director Option shall expire on the date of the Annual Meeting held in the seventh
calendar year following the date of grant, subject to earlier expiration as provided herein, provided, however, that Director Options granted to a Non-Employee Director whose initial election occurs other than in connection with an Annual Meeting
shall be treated for this purpose as though they had been granted at the first Annual Meeting following such initial election. 
 (b)
Vesting; Accelerated Vesting; Effect of Termination of Service. 
 (i) Exercisability. Director Options shall
become exercisable upon vesting. 
 (ii) Exercise Following Termination of Service. Following termination of a
Non-Employee Director’s service on the Board, the former Non-Employee Director (or the former Non-Employee Directors’ estate, personal representative or beneficiary, as the case may be) shall have the right, subject to the other terms and
conditions hereof, to exercise all Director Options that had vested as of or in connection with the termination of service: 
 (A) at any time within three years after the date of termination of service, if such termination was by reason of death, Permanent Disability or retirement from the Board in accordance with the retirement policy then in effect for Board
members, or 
 (B) in all other cases, at any time within one year after the date of termination of service; subject, in all
case, to earlier expiration of the Director Option pursuant to Section 9(a) above. 
 (c) Notice of Exercise. Subject to
the other terms and conditions of the Plan, a Non-Employee Director may exercise all or any portion of a vested Director Option by giving written notice of exercise to the Company or its designated agent, provided, however, that no fewer than
10 shares of Common Stock may be purchased upon any exercise of a Director Option unless the number of shares purchased at such time is the total number of shares in respect of which the Director Option is then exercisable, and provided,
further, that in no event shall the Option be exercisable for a fractional share. The date of exercise of an Option shall be the later of (i) the date on which the Company or its agent receives such written notice or (ii) the date on
which the conditions provided in Sections 9(d) and 9(e) below are satisfied. 
 (d) Payment. The exercise price of a Director
Option may be paid in cash or previously owned shares or a combination thereof or by any other method approved by the Board. 
 (e)
Limitation on Exercise. A Director Option shall not be exercisable unless the Common Stock subject thereto has been registered under the Securities Act of 1933, as amended (the “1933 Act”), and qualified under
applicable state “blue sky” laws in connection with the offer and sale thereof, or the Company has determined that an exemption from registration under the 1933 Act and from qualification under such state “blue sky” laws is
available. 
 (f) Issuance of Shares. Subject to the foregoing conditions, as soon as is reasonably practicable after its
receipt of a proper notice of exercise and payment of the exercise price for the number of shares with respect to which a Director Option is exercised, the Company shall deliver to the exercising Non-Employee Director, at the principal office of the
Company or at such other location as may be acceptable to the Company and the Non-Employee Director, one or more stock certificates for the appropriate number of shares of Common Stock issued in connection with such exercise. Such shares shall be
fully paid and nonassessable and shall be issued in the name of the Non-Employee Director. 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. 
  

 7 

 10. Transferability 
 Director Stock Units (including interests in a Director Account) and Director Options may not be transferred, pledged, assigned or otherwise disposed of except by will or the laws of descent and distribution or
pursuant to a domestic relations order, provided, however, that Director Options may be transferred to a member or members of a Non-Employee Director’s immediate family (as defined below) or to one or more trusts or partnerships
established in whole or in part for the benefit of one or more of such immediate family members (collectively as “Permitted Transferees”), subject to such rules and procedures as may from time to time be adopted or imposed by
the Board. If a Director Stock Option is transferred to a Permitted Transferee, it shall be further transferable only by will or the laws of descent and distribution or, for no consideration, to another Permitted Transferee of the Non-Employee
Director. A Non-Employee Director shall notify the Company in writing prior to any proposed transfer of a Director Option to a Permitted Transferee and shall furnish the Company, upon request, with information concerning such Permitted
Transferee’s financial condition and investment experience. For purposes of the Plan, a Non-Employee Director’s “immediate family” means any child, stepchild, grandchild, spouse, son-in-law or daughter-in-law and shall include
adoptive relationships; provided, however, that if the Company adopts a different definition of “immediate family” (or similar term) in connection with the transferability of employee stock options awarded to employees of the
Company, such definition shall apply, without further action of the Board, to the Plan. 
 11. Term 
 (a) Effective Date; Expiration. The Effective Date shall be the date of the 1997 Annual Meeting, assuming the Plan is approved by the
stockholders of the Company at such Annual Meeting. Unless earlier terminated in accordance with Section 12 below, the Plan shall expire on the date of the Annual Meeting held in 2011. Grants of Director Five-Year Stock Units and Director
Annual Stock Units shall be made in connection with the Annual Meeting held in 2011, and shall be the last grants made under the Plan. Expiration of the Plan in connection with the Annual Meeting held in 2011 shall not affect Awards made prior to
such Annual Meeting, which Awards shall remain outstanding subject to the terms hereof. 
 (b) Coordination with Predecessor
Plan. Awards of “Directors Shares” (as such term is defined in the Predecessor Plan) shall be made under the Predecessor Plan in connection with the 1997 Annual Meeting. Assuming the Plan is approved by the stockholders of the
Company at the 1997 Annual Meeting, no further Awards shall be made under the Predecessor Plan after the Effective Date. Awards outstanding under the Predecessor Plan (including Awards made in connection with the 1997 Annual Meeting) shall remain
outstanding after the Effective Date subject to the terms thereof. 
 12. Amendments 
 Subject to the requirements of section 13, the Board may at any time and from time to time alter, amend, suspend or terminate the Plan in whole of in
part, including without limitation to amend the provisions for determining the amount of Director Stock Units or Directors Options to be issued to a Non-Employee Director, provided, however, that: 
 (i) any amendment which under the requirements of applicable law or stock exchange rule must be approved by the stockholders of the
Company shall not be effective unless and until such stockholder approval has been obtained in compliance with such law or rule; 
 (ii) except as provided in Section 13 below, 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 or Director Options to be issued to any Non-Employee Director pursuant to Section 6 or Section 7 above or reduce the exercise price of a Director Option. 
  

 8 

 No termination or amendment of the Plan that would adversely affect a Non-Employee Director’s rights
under the Plan with respect to any Award made prior to such action shall be effective as to such Non-Employee Director unless he or she consents thereto. 
 13. 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 , shall 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. 
 14. No Right to Re-election 
 Nothing in the Plan shall be deemed to create any obligation on the part of the Board to
nominate any of its members for re-election by the Company’s stockholders, nor confer upon any Non-Employee Director the right to remain a member of the Board for any period of time, or at any particular rate of compensation. 
 15. Governing Law 
 The Plan and all agreements
entered into under the Plan shall be construed in accordance with and governed by the laws of the State of Delaware. 
 16. No Restriction on Right of
Company to Effect Corporate Changes 
 The Plan shall not affect in any way the right or power of the Company or its stockholders to make
or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issue of stock or of options, warrants or rights
to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. 
 17. Unfunded Plan 
 The Plan is unfunded. Prior to the payment or settlement of any Award of Director
Stock Units or the exercise of any Director Options, nothing contained herein shall give any non-Employee Director any rights that are greater than those of a general creditor of the Company. In its sole discretion, the Board may authorize the
creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Common Stock with respect to Awards hereunder. 
  

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