Document:

Exhibit
4.07

    

    AMBAC
1997 EQUITY PLAN

    (amended
as of June 3, 2008)

    

    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.

    

    “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.

    

    (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.  No Awards may be granted under the
Plan after May 6, 2013.

    

    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)
20,000,000 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.

    

    (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
6,400,000 shares, of which no more than a number of shares equal to 10% of the
Section 5 Limit shall be in the form of Other Awards, provided, however, that any
such Stock Awards, Restricted Stock Units or Other Awards that are issued in
lieu of cash compensation that otherwise would be paid to a Participant, or in
satisfaction of any other obligation owed by the Company to a Participant, shall
not be counted against such limitation; and

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

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

    

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

    

    6.  Eligible
Individuals

    

    Awards
may be granted by the Committee to individuals (“Eligible
Individuals”) who are: (i) officers or other key employees of the
Company;  (ii) employees of joint ventures, partnerships or similar
business organizations in which the Company has a direct or indirect equity
interest; 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.

    

    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

    

    
      (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 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 (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.

    

    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 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.Exhibit
4.08

    

    

    AMBAC
FINANCIAL GROUP, INC.

    1997
NON-EMPLOYEE DIRECTORS EQUITY PLAN

    (as
amended through June 3, 2008)

    

    

    1.  Purpose

    

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

    

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

    

    2.  Definitions

    

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

    

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

    

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

    

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

    

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

    

    “Change in
Control” means:

    

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

    

    (A) the
Company;

    

    (B) any
Subsidiary of the Company;

    

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

    

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

    

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

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (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.

    

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

    

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

    

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

    

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

    

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

    

    “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.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    4.  Shares
Available

    

    Subject
to the provisions of Section 13 below, the maximum number of shares of Common
Stock which may be issued under the Plan (the “Section 4
Limit”) shall be 560,000 shares plus the number of shares of Common Stock
that remain available for issuance under the Predecessor Plan as of the date the
Plan is approved by the stockholders of the Company (increased by any shares of
Common Stock subject to any Award (or portion thereof) outstanding under the
Predecessor Plan on such date which lapses, expires or is otherwise terminated
without the issuance of such shares or is settled by the delivery of
consideration other than shares). Subject to Section 13 below, of the shares of
Common Stock available for issuance under the Plan, no more than 425,000 shares
may be issued upon settlement of Director Stock Units.  For purposes
of determining the number of shares of Common Stock that remain available for
issuance, there shall be added back to the Section 4 Limit and again be
available under the Plan any shares of Common Stock tendered to pay the exercise
price of a Director Option. Either authorized and unissued shares of Common
Stock or treasury shares may be delivered pursuant to the Plan.

    

    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.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (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) $100,000 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 (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.

    

    (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.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    10.  Transferability

    

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

    

    11.  Term

    

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

    

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

    

    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.

    

    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
split, stock dividend, distribution of property, special cash dividend,
split-up, spin-off or other transaction or change in corporate structure
affecting the shares, the Board, shall make (i) such equitable adjustments as it
considers appropriate in the number and kind of shares authorized for issuance
hereunder in order to preserve, but not increase, the benefits or potential
benefits intended to be made available hereunder and/or (ii) such other
adjustments as it deems appropriate. The Board’s 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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