AMBC DEF 14A Report ended April 15, 2020

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Please note, we are actively monitoring the public health and travel concerns relating to the coronavirus (COVID-19) and the protocols that federal, state, and local governments have imposed. In the event it is not possible or advisable to hold the Annual Meeting in person, we will announce alternative arrangements for the meeting, which may include a change in venue or holding the meeting solely by means of remote communication. Please monitor the Company’s website at www.ambac.com under the heading “Investor Relations” for updated information. If you are planning to attend the meeting, please check the website one week prior to the meeting date.

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(1)	Adjusted Book Value is a non-GAAP measure. A reconciliation of this non-GAAP financial measure and the most directly comparable GAAP financial measure is presented in Appendix A. In this Proxy Statement, we refer to Total Ambac Financial Group, Inc. Stockholders' Equity as "Book Value."

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(1)	Reductions in Watch List and Adversely Classified Credits as of December 31, 2019 under the STIP were measured against Watch List and Adversely Classified Credits identified as of January 1, 2019.

(2)	Gross Operating Run Rate Expenses is measured by comparing actual gross operating run rate expenses for the fourth quarter of a fiscal year to performance goals established against budgeted amounts.

(3)	Net Asset Value is calculated by reducing Assets by Liabilities, determined as of December 31, 2019. See the definitions of Assets and Liabilities set forth in the CD&A under under "Pay Mix -- AAC LTIP Metric".

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(1)	Linear interpolation between levels results in a proportionate amount of the Ambac LTIP Target Award becoming earned and vested.

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*

Reductions in Gross Operating Run Rate Expense is measured by comparing actual gross operating run rate expenses for the fourth quarter of a fiscal year to performance goals established against budgeted amounts. Reductions in Watch List and Adversely Classified Credits as of December 31, 2019 under the STIP were measured against Watch List and Adversely Classified Credits as of January 1, 2019. Net Asset Value is calculated by reducing Assets by Liabilities, determined as of December 31, 2019. See the definitions of Assets and Liabilities set forth in the CD&A under under "Pay Mix -- AAC LTIP Metric".

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•	During the fourth quarter of 2019, Ambac reduced its corporate footprint by consolidating its New York headquarters from approximately 103,000 square feet to 47,000 square feet and moved into a LEEDs Certified, energy-efficient building at One World Trade Center.

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One World Trade Center has been awarded a Leadership in Energy and Environmental Design (LEED) gold certification.  LEED is a green building certification program developed by the non-profit U.S. Green Building Council and is a designation recognized worldwide. LEED certified buildings are designed and constructed to: save energy, use less water, reduce emissions and provide healthier indoor environmental quality.

•	In conjunction with our move to One World Trade Center, we have adopted the following sustainability practices which contribute to the circular economy:

◦	Green Cleaning Policy; promotes the use of green cleaning products, equipment, and strategies;

◦	Electronic Waste Recycling;

◦	Office furniture reuse program for unwanted and discarded furniture and fixtures;

◦	Organic Collection Program; designed to reduce the amount of greenhouse gas emissions associated with conventional organic waste disposal.

•	Ambac pays all policy claims on time and in full.

•	Ambac is committed to making sure that our services comply with applicable data privacy laws.

•	The Ambac privacy statement (found at www.ambac.com) explains what personal data we collect from our business partners and visitors to our website and how we use it.  Ambac has not, and has no current intention to sell personal data that it collects and utilizes for its business .

•	Ambac’s policies, management oversight, accountability structures and technology are designed to protect privacy and personal data. Our data security program is governed by a senior management committee that meets regularly and reports to the Board at least annually.

•	Ambac has implemented and tested a business continuity and disaster recovery plan designed to ensure the safety of Ambac’s personnel, facilities and the continuity of critical business functions in case of natural disasters or other extraordinary events that could impact operations.

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•	Ambac supports many community charities, including Children’s Village, a non-profit organization focused on children in need, which we have supported for close to 20 years through financial and event support.

•	Beginning in 2019, Ambac instituted a paid time off employee volunteering program, promoting and providing opportunities for employees to volunteer for causes that benefit our communities.

•	Leadership training from Level Up Leader for senior and executive management.

•	A mentoring program was introduced during 2019 to foster upward mobility and enrich employee development. This program is intended to help drive positive cultural behavior by cultivating the healthy growth of Ambac employees through the connection of staff members with senior level managers.

•	Conducted financial planning seminars for employees to promote financial wellness and assist our employees to meet near- and long-term financial goals.

•	Health and Wellness programs

◦	Nutrition seminars

◦	Meditation classes

◦	Stress management workshops

◦	WWWellness program

•	Corporate tuition reimbursement provided to employees seeking to further their education.

•	Company sponsored annual health fair with free flu shots and biometric screenings provided by medical health care practitioners.

•	Corporate and departmental events are held throughout the year to promote Company cohesion and facilitate strategic and business planning.

•	In 2018, certain rising employees were identified and appointed to a Senior Advisory Team, the goal of which is to promote, retain, and incentivize talented individuals within the Company. Selected senior managers provide input and lead initiatives related to improving work environment/culture and corporate efficiencies, fostering better communication and team building.

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Beginning in 2018, we deployed some of our investment portfolio into a minority and women-owned investment fund which maintains internal social responsibility and diversity initiative guidelines, including a pledge to consider environmental, public health, safety, and social issues with potential investments. Additionally, the fund donates a percentage of its profits to mission-driven organizations that promote diversity.

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•	Our Proxy Statement for the 2020 Annual Meeting of Stockholders;

•	Our 2019 Annual Report to Stockholders, which includes our Annual Report on Form 10-K for the fiscal year ended December 31, 2019; and

•	The proxy card or a voting instruction card for the Annual Meeting.

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•	View our Proxy Materials for the Annual Meeting on the internet and vote your shares; and

•	Instruct us to send our future Proxy Materials to you electronically by email.

•	The election of seven directors to our Board of Directors.

•	To approve, on an advisory basis, the compensation of our named executive officers.

•	The ratification of the appointment of KPMG LLP as Ambac’s independent registered public accounting firm for the fiscal year ending December 31, 2020 .

•	The approval of Ambac's 2020 Incentive Compensation Plan.

ü	"FOR” each of its nominees to the Board of Directors.

ü	"FOR” the approval, on an advisory basis, of the compensation of our named executive officers.

ü	"FOR” the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for the 2020 fiscal year.

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ü	"FOR” the approval of Ambac's 2020 Incentive Compensation Plan.

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You may submit your proxy by using the internet. The address of the website for submitting your proxy via the Internet is www.proxyvote.com for both registered holders and beneficial owners of our common stock holding in street name. Internet proxy submission is available 24 hours a day and will be accessible until 11:59 p.m. Eastern Time on June 1, 2020. Easy-to-follow instructions allow you to submit your proxy and confirm that your instructions have been properly recorded.

•	You may submit your proxy by calling . The phone number for submitting your proxy by phone is 1-800-690-6903. Submitting your proxy by phone is available 24 hours a day and will be accessible until 11:59 p.m. Eastern Time on June 1, 2020.

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You may submit your proxy by mail . As a result of implementing “Notice and Access,” you may request to receive printed copies of Proxy Materials by mail or electronically by email by following the instructions provided in the Internet Notice. You may submit your request in writing to our Corporate Secretary at Ambac Financial Group, Inc., One World Trade Center, New York, New York 10007 (or you can send an email to corporatesecretary@ambac.com). Once you receive your Proxy Materials, simply mark your proxy card, date and sign it, and return it in the postage-paid envelope.

•	As necessary to meet applicable legal requirements;

•	To allow for the tabulation and certification of votes; or

•	To facilitate a proxy solicitation.

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•	vote “FOR” all seven nominees for director;

•	vote “FOR” some of the nominees; or

•	“WITHHOLD” from voting with respect to one or more of the nominees for director.

•	vote “FOR” the approval of the non-binding resolution regarding executive compensation;

•	vote “AGAINST” the approval of the non-binding resolution regarding executive compensation; or

•	"ABSTAIN” from voting on the proposal.

•	vote “FOR” the ratification of the accounting firm;

•	vote “AGAINST” the ratification of the accounting firm; or

•	“ABSTAIN” from voting on the proposal.

•	vote “FOR” the proposal to approve Ambac's 2020 Incentive Compensation Plan;

•	vote “AGAINST” the proposal to approve Ambac's 2020 Incentive Compensation Plan; or

•	“ABSTAIN” from voting on the proposal.

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•	Appointing, compensating, retaining, and overseeing the work performed by our independent registered public accounting firm's engagement.

•	Approving the audit, non-audit and tax services to be performed by our independent registered public accounting firm.

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•	Evaluating the experience, performance, qualifications, and independence of our independent registered public accounting firm.

•	Reviewing the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters.

•	Reviewing with management the design, operation and effectiveness of our internal controls over financial reporting and our critical accounting policies.

•	Reviewing with management our annual audited financial statements, quarterly financial statements, earnings releases and any other material press releases related to accounting or financial matters announcements.

•	Reviewing with management our major financial risk exposures and the steps that management has taken to monitor and control such exposures.

•	Reviewing and approving the Audit Committee report for inclusion in our annual proxy statement.

•	Reviewing our Regulation FD Policy.

•	Establishing procedures for the confidential and anonymous receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters.

•	Reviewing the overall compensation principles governing the compensation and benefits of our executive officers and other employees.

•	Evaluating the performance of our Chief Executive Officer.

•	Reviewing the procedures for the evaluation of our executive officers, other than our Chief Executive Officer.

•	Reviewing and approving the selection of our peer companies to use as a reference in determining competitive compensation packages.

•	Determining all executive officer compensation (including but not limited to salary, bonus, incentive compensation, equity awards, benefits and perquisites).

•	Reviewing and approving the terms of any employment agreements and severance arrangements, change-in-control agreements, and any special or supplemental compensation and benefits for our executive officers and individuals who formerly served as executive officers.

•	Acting as the administering committee for our stock and bonus plans and for any equity compensation arrangements that may be adopted by Ambac from time to time.

•	Making and approving grants of equity based awards to directors under Ambac’s compensation plans.

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•	Reviewing and discussing with management the annual Compensation Discussion and Analysis (CD&A) disclosure, and, based on this review and discussion, making a recommendation to include the CD&A disclosure in our annual proxy statement.

•	Preparing the annual Compensation Committee Report for inclusion in our annual proxy statement.

•	Evaluating the composition, size, organization, and governance of our Board of Directors and its committees, determining future requirements, and making recommendations regarding future planning, the appointment of directors to our committees, and the selection of chairs of these committees.

•	Periodically reviewing the standards for director independence and providing the Board with an assessment of which directors should be deemed independent.

•	Determining the criteria for Board membership.

•	Evaluating the participation of members of the Board in continuing education.

•	Reviewing and recommending to our Board of Directors the compensation of our non-employee directors.

•	Reviewing plans for the succession of our executive officers.

•	Reviewing and approving related party transactions according to our Related Party Transaction Policy.

•	Administering a procedure to consider stockholder recommendations for director nominees.

•	Evaluating and recommending candidates for election or re-election to our Board of Directors, including nominees recommended by stockholders.

•	Reviewing periodically Ambac’s Code of Business Conduct and compliance therewith.

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•	Reviewing and making recommendations to the Board regarding strategic plans and initiatives, including potential material investments in joint ventures, mergers, acquisitions and other business combinations.

•	Reviewing, evaluating and making recommending to the Board regarding solicited or unsolicited strategic transactions, opportunities and alternatives involving the Company or the interest of the Company in any direct or indirect subsidiary.

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•	the effectiveness of discussion and debate at Board and committee meetings;

•	the effectiveness of Board and committee processes and in interacting with management;

•	the quality and timeliness of Board and committee agendas, and preparation of reference materials to inform the Board and committees and support effective decision making; and

•	the composition of the Board and each committee, focusing on the blend of skills, experience, independence and knowledge of the group and its diversity.

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•	An annual cash retainer of $100,000, paid in monthly installments and a grant of $200,000 of stock-based compensation, comprised of restricted stock units of Ambac (rounded up to the nearest whole unit), as permitted under Ambac’s 2013 Incentive Compensation Plan;

•	As a non-employee director, our Chairman of the Board received an additional fee of $125,000; the Audit Committee Chair received an additional fee of $35,000; the Compensation Committee Chair received an additional fee of $25,000; and the chairs of each of the Governance and Nominating Committee and the Strategy Committee received an additional fee of $15,000; and

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In addition, each non-employee director was also entitled to receive a fee of $2,000 (A) for each Board meeting attended, which only applied after he or she attended eight Board meetings in a calendar year, and (B) for each committee meeting attended as a committee member, which applied with respect to each committee after he or she attended eight meetings of such committee in a calendar year. These Board and committee meeting fees have been eliminated for fiscal years 2020 and 2021.

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(1)	Fees earned or paid in cash include an annual cash retainer, chairman or committee chair fees and individual meeting fees for Board and committee meetings attended in excess of eight meetings for each of the Board or any of its committees.

(2)

The value of the restricted stock units (“RSUs”) received in 2019 and reported in the table above is based on the grant date fair value of awards computed in accordance with FASB ASC Topic 718. The number and grant date fair value of RSUs granted on April 30, 2019 (based on the closing price of our common stock on the NASDAQ Stock Market at the time of the grant) were as follows: Mr. Greene, 10,696 RSUs valued at $200,000; Mr. Haft, 10,696 RSUs valued at $200,000; Mr. Herzog, 10,696 RSUs valued at $200,000; Ms. Lamm-Tennant, 10,696 RSUs valued at $200,000; Mr. Prieur, 10,696 RSUs valued at $200,000; and Mr. Stein, 10,696 RSUs valued at $200,000. The total number of RSUs held by each of the non-employee directors as of December 31, 2019 was as follows: Mr. Greene, 59,824; Mr. Haft, 49,580; Mr. Herzog, 49,580; Ms. Lamm-Tennant, 24,649; Mr. Prieur, 54,190; and Mr. Stein, 85,466.

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*	Beneficial ownership representing less than 1% is denoted with an asterisk (*).

(1)

The share ownership listed in the table includes shares of our common stock that are subject to issuance in the future with respect to deferred stock units (“DSUs”), RSUs and vested stock options, in the following aggregate amounts: Mr. Barranco, 5,915 shares; Mr. Ksenak, 7,393 shares; Mr. LeBlanc, 35,609 shares; and Mr. Trick, 9,714 shares; Ms. Smith, 5,674 shares; Mr. Greene, 59,824 shares; Mr. Haft, 49,580 shares; Mr. Herzog, 49,580 shares; Ms. Lamm-Tennant, 24,649 shares; Mr. Prieur, 54,190 shares; and Mr. Stein, 102,133 shares. The RSUs granted to each of our non-executive directors shall not settle and convert into shares of common stock until such director resigns from, or otherwise ceases to be a member of, the Board of Directors of the Company. Each DSU and RSU represents a contingent right to receive one share of the Company’s common stock. RSUs granted to our named executive officers, and RSUs and stock options granted to the directors, that vest more than 60 days after the Record Date for voting at the Annual Meeting

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(2)

In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares of common stock subject to options, DSUs, RSUs or warrants held by that person that are currently exercisable or exercisable within 60 days of the Record Date. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Each holder of common stock as of the record date is entitled to one vote per share of common stock on all matters submitted to our stockholders for a vote.

(3)	According to the Schedule 13G filed on February 4, 2020, BlackRock Inc. beneficially owned 6,431,985 shares of our Common Stock. BlackRock Inc. reported sole voting power with respect to 6,318,690 shares and sole dispositive power with respect to 6,431,985 shares. The address of BlackRock Inc. is 55 East 52nd Street, New York, New York 10055.

(4)

According to the Schedule 13G/A filed on February 12, 2020, The Vanguard Group beneficially owned 4,420,597 shares of our Common Stock. The Vanguard Group reported sole voting power with respect to 45,002 shares, shared voting power with respect to 8,200 shares, sole dispositive power with respect to 4,375,010 shares, and shared dispositive power with respect to 45,587 shares. The address of The Vanguard Group is 100 Vanguard Blvd., Malvern, Pennsylvania 19355.

(5)

See Note 1 to the Consolidated Financial Statements in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for description of the limitations on voting and transfer of Ambac’s common stock pursuant to Ambac’s Amended and Restated Certificate of Incorporation.  Ambac has determined that the holdings described above do not violate the restrictions set forth in its Amended and Restated Certificate of Incorporation.

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•	Competitive compensation levels and practices;

•	Performance-based incentive plans (annual STIP awards and three year LTIP PSU awards) that are based on quantitative goals and objectives, and aligned with our key business strategies;

•	Greater weighting on equity-based compensation as a component of total compensation, and the existence of an Executive Stock Ownership Policy; and

•	Policies to manage compensation-related risk and support good governance, including a Recoupment Policy.

•	Active runoff of AAC and its subsidiaries through transaction terminations, policy commutations, reinsurance, settlements and restructurings, with a focus on our watch list credits and known and potential future adversely classified credits, that we believe will improve our risk profile, and maximizing the risk-adjusted return on invested assets;

•	Ongoing rationalization of Ambac's capital and liability structures;

•	Loss recovery through active litigation management and exercise of contractual and legal rights;

•	Ongoing review and adjustments focused on improving the effectiveness and efficiency of Ambac's operating platform; and

•	Evaluation of opportunities in certain business sectors that meet acceptable criteria that will generate long-term stockholder value with attractive risk-adjusted returns.

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(1)	Adjusted Book Value is a non-GAAP measure. A reconciliation of this non-GAAP financial measure and the most directly comparable GAAP financial measure is presented in Appendix A. In this Proxy Statement, we refer to Total Ambac Financial Group, Inc. stockholders' equity as "Book Value."

•	Link short-term incentives to Company performance;

•	Use long-term incentives to further align the interests of our executives with stockholders by providing that all LTIP awards are denominated in stock units that are earned based on Company performance; and

•	Support the retention and attraction of key executive talent.

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(1)	Assets include $6,199 of assets relating to Variable Interest Entities for which Ambac or its subsidiaries are required to consolidate as a result of its financial guarantee insurance policies.

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For purposes of the Net Asset Value calculation, “Assets” shall mean the sum of the following: (i) cash and cash equivalents , (ii) invested assets at fair value (except for Ambac-insured investments which will be measured at amortized cost and excluding the Secured Note issued in 2018 in connection with AAC's restructuring as it is included in liabilities), (iii) loans, (iv) investment income due and accrued, (v) net receivables (payables) for security sales (purchases), (vi) tax tolling payments or dividends made by AAC to Ambac during the Performance Period, (vii) cash, cash equivalents and securities pledged as collateral to counterparties, and (viii) other receivables.

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“Liabilities” shall mean the sum of the following: (i) the present value of future probability weighted financial guarantee claims and CDS payments reduced by recoveries, including probability weighted estimated subrogation recoveries and reinsurance recoverables, using discount rates in accordance with GAAP ("Gross Claim Liability" or "GCL"), (ii) fair value of interest rate derivatives (prior to any AAC credit valuation adjustments), (iii) par value and accrued interest of all outstanding surplus notes of AAC (including junior surplus notes), (iv) par value and accrued interest on the Ambac Note and Tier 2 debt issued in 2018 in connection with AAC's restructuring (net of par value and accrued interest on AAC's holdings of the Secured Note), (v) accreted value of Ambac Assurance UK Limited debt, (vi) the liquidation value of outstanding preferred stock, and (vii) any other debt. Liabilities will also include the par and accrued interest on any new debt obligations issued in the future.

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Additionally, the Net Asset Value will: (i) neutralize the effects of claim payments, ART Transaction payments, loss expense payments, advisor payments and the establishment of loss and loss expense reserves for credits that do not have a GCL at the beginning of the performance period, (ii) measure AAC's foreign subsidiaries utilizing the foreign exchange rate at the beginning of the performance period, (iii) add back capital restructuring and ongoing oversight costs of the Office of the Commissioner of Insurance of Wisconsin (" OCI") during performance period, and (iv) add back direct costs of risk remediation activities (including ART Transactions, and any sale of AUK or other disposition which has been structured as an ART Transaction) with respect to credits within Watch List or Adversely Classified Credits.

*	Upon the execution of a material transaction or acquisition by Ambac, revised Cumulative EBITDA metrics will be established by the Compensation Committee to incorporate performance goals for such material transaction or acquisition.

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•	Active derisking and ongoing rationalization of Ambac's and its subsidiaries' capital and liability structures;

•	Effective management of loss recovery through active litigation and exercise of contractual and legal rights;

•	Continue to increase organizational effectiveness, efficiency of the operating platform and simplification of business controls, policies and procedures without increasing operational risk; and

•	Develop structured process to pursue opportunities in certain business sectors; source and evaluate potential new business opportunities for Ambac.

•	Successful runoff of AAC and its subsidiaries through active and material transaction terminations, policy commutations, execution of reinsurance transactions, settlements and restructurings;

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•	Shepherded through the COFINA Plan of Adjustment, including certain related commutation transactions, and subsequent distributions, which became effective on February 12, 2019, and subsequent redemptions of obligations of the COFINA Class 2 Trust materially reducing Ambac’s Puerto Rico exposure;

•	Completed the Ballantyne restructuring and commutation, one our largest credit exposures in Ambac UK, significantly reducing our Adversely Classified Credit exposure and strengthening Ambac UK’s Solvency II capital position to near required levels;

•	Materially decreased our insured portfolio by 19% to $38.0 billion at December 31, 2019;

•	Watch List and Adversely Classified Credit reduction of 28% in 2019 to $14.3 billion as of December 31, 2019; and

•	Executed additional headcount and other cost reductions including the consolidation of space for the New York headquarters.

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•	Executive officers and Board members are prohibited from engaging in transactions (such as trading in options) designed to hedge against the value of the Ambac common stock, which would eliminate or limit the risks and rewards of the common stock ownership;

•	Executive officers and Board members are prohibited from short-selling Ambac common stock, buying or selling puts and calls on Ambac common stock, or engaging in any other transaction that reflects speculation about the price of Ambac common stock or that might place their financial interests against the financial interests of the Company;

•	Executive officers and Board members are prohibited from entering into securities trading plans pursuant to SEC Rule 10b5-1 without pre-approval; further, no Board member or executive officer may trade in our Common Stock without pre-approval; and

•	Executive officers and Board members may trade in Common Stock only during open window periods, and only after they have pre-cleared transactions.

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(1)

In 2019 and 2018, each of our NEOs received DSUs pursuant to the Short Term Incentive Plan (the "STIP") and received performance stock units (“PSUs”) and restricted stock units ("RSUs") pursuant to Ambac’s Long Term Incentive Plan (the "LTIP"). The LTIP and STIP are sub-plans of the 2013 Incentive Compensation Plan. In addition, in May of 2018, in recognition of the executive management team's efforts to successfully execute a holistic restructuring transaction, including the exit of the Segregated Account of AAC from rehabilitation, a special off-cycle RSU award was granted to each of our NEOs. In 2017, each of our NEOs received DSUs granted pursuant to the STIP, and Messrs. Trick, Barranco, and Ksenak also received PSUs granted pursuant to the LTIP. As required by Item 402(c)(2) of Regulation S-K, the value of the DSUs, PSUs and RSUs reported in the Summary Compensation Table is based on the grant date fair value of awards in the fiscal year actually granted and computed in accordance with FASB ASC Topic 718 based on the probable outcome of performance conditions being achieved, including the value of the rTSR multiplier, if any, without regard to estimated forfeitures. For a discussion of the assumptions made in the valuation, see footnote 2, Basis of Presentation and Significant Accounting Policies, to Ambac’s consolidated financial statements for the year-ended December 31, 2019. Each of our NEOs received DSUs in 2019 as part of their STIP award grant as follows: for Mr. LeBlanc, 19,394 DSUs valued at $390,000; for Mr. Trick, 7,186 DSUs valued at $144,500; for Mr. Barranco, 4,476 DSUs valued at $90,000; for Mr. Ksenak, 4,948 DSUs valued at $99,500; and for Ms. Smith, 3,941 DSUs valued at $79,250; in 2018 DSUs were issued as part of their STIP in the following amounts: for Mr. LeBlanc, 23,924 DSUs valued at $361,000; for Mr. Trick, 9,394 DSUs valued at $141,750; for Mr. Barranco, 5,700 DSUs valued at $86,000; for Mr. Ksenak, 6,826 DSUs valued at $103,000; and for Ms. Smith, 16,602 DSUs valued at $250,500; and in 2017 DSUs were issued as part of the STIP in the following amounts: for Mr. Trick, 6,712 DSUs valued at $150,000; for Mr. Barranco, 2,797 DSUs valued at $62,500; and for Mr. Ksenak, 4,475 DSUs valued at $100,000. DSUs represent vested common stock units of Ambac with a deferred settlement provision. These DSUs will settle and convert into Ambac common stock annually over a two-year period; 50% on the first anniversary of the grant date and the remaining 50% on the second anniversary of the grant date (unless settled earlier due to an executive’s departure from the Company). The value of PSUs awarded in 2019 to each of our NEOs, assuming the maximum payout level of 220% and a share price of $20.11 would have been as follows: for Mr. LeBlanc, $3,979,789; for Mr. Trick, $700,174; for Mr. Barranco, $700,174; for Mr. Ksenak, $589,613; and for Ms. Smith, $589,613. The value of PSUs awarded in 2018 to each of our NEOs, assuming the maximum payout level of 200% and a share price of $15.09 would have been as follows: for Mr. LeBlanc, $3,600,000; for Mr. Trick, $533,340; for Mr. Barranco, $400,006; for Mr. Ksenak, $433,324; and for Ms. Smith, $400,006. The value of PSUs awarded in 2017 to Messrs. Trick, Barranco and Ksenak assuming the maximum payout level of 200% and a share price of $22.35 would have been as follows: for Mr. Trick, $600,008; for Mr. Barranco, $400,020; and for Mr. Ksenak, $500,014. Each of our NEOs received RSUs on March 4, 2019 as part of their 2019 LTIP award grant. These RSUs vest in three equal annual installments on January 2 nd , 2020, 2021, and 2022. Each of our NEOs received RSUs on March 2, 2018 as part of their 2018 LTIP award grant. These RSUs vest in three equal annual installments on March 2 nd , 2019, 2020, and 2021.

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(2)

The amount included in the "Non-Equity Incentive Plan Compensation " column above includes cash incentive award payments pursuant to the Company's year-end 2019, 2018 and 2017 STIP program and cash incentive award payments pursuant to the settlement of 2014, 2015 and 2016 LTIP awards, in each case, as approved by the Compensation Committee following the conclusion of the relevant performance period for each award.

(3)

"All Other Compensation” for each of our named executive officers in 2019 includes, among other things, contributions by Ambac to the AAC Savings Incentive Plan, the cost of executive physicals, as well as a portion of the life insurance premiums paid. In addition for Mr. LeBlanc and Ms. Smith, the amount reported also includes reimbursement from Ambac for certain commuting expenses, and for Messrs. Trick and Barranco, includes payments for tax preparation services received as a result of services rendered to Ambac Assurance UK Limited ("Ambac UK").

(1)

STIP target annual incentives are set as a percentage of base salary for each of our NEOs as follows: 100% for the Chief Executive Officer; 55% for the Chief Financial Officer; and 50% for each of the other NEOs. Actual incentive payouts can range from 0% to 200% of target for the Chief Executive Officer, and from 0% to 150% of target for the other NEOs based on the Compensation Committee’s review of overall corporate performance and individual and business unit achievement relative to the pre-established goals and objectives.

(2)	Each of our NEOs received PSUs and RSUs on March 4, 2019 pursuant to Ambac’s LTIP. The RSUs granted as part of the 2019 LTIP award will vest in three equal annual installments on each of January 2, 2020, January 2, 2021, and January 2, 2022.

(3)	DSUs were granted to each of the NEOs on March 4, 2019 and constituted 25% of their year-end STIP award. Of these DSUs, 50% settled and converted into Ambac common stock on March 4, 2020, and the remaining 50% will settle and convert into Ambac common stock on March 4, 2021 (unless settled earlier due to an executive’s departure from the Company).

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(4)	As required under SEC rules for compensation disclosure, the value of the PSUs, RSUs and DSUs reported in the table above is based on the grant date fair value of awards and computed in accordance with FASB ASC Topic 718.

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(1)

The DSUs held by each of our NEOs vest in two equal annual installments on the first and second anniversaries of their grant date. Of the DSUs granted on March 4, 2019, 50% vested on March 4, 2020 and the remaining 50% vest on March 4, 2021. With respect to the DSU granted on March 2, 2018, 50% vested on March 2, 2019 and the remaining 50% vested on March 2, 2020. RSUs granted to our NEOs on May 16, 2018 vested 50% on May 16, 2019, and the remaining 50% will vest on May 16, 2020. RSUs granted on March 4, 2019, vest in three equal annual installments on January 2, 2020, 2021, and 2022. RSUs granted on March 2, 2018, vest in three equal annual installments on March 2, 2019, 2020, and 2021.

(2)

PSUs granted to our NEOs under Ambac's LTIP Plan on, March 2, 2017, March 2, 2018, and March 4, 2019 have a three year Performance Period and will vest within 75 days after the last day of the respective Performance Period occurring on December 31 of 2019, 2020, and 2021, respectively. The number of PSUs reported assumes that a target level of performance will be achieved over the Performance Period.

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(1)	Amounts reported in this column are also included in the “Stock Awards” column in the 2019 Summary Compensation Table.

(2)	Amounts reported in this column include the aggregate value of DSUs as of their grant date that were awarded in 2019 and 2018 that have not settled and converted into shares of Ambac common stock.

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(1)

Pursuant to the employment agreements between Ambac and each of Messrs. LeBlanc, Trick and Ksenak, each of Messrs. LeBlanc, Trick and Ksenak are entitled to receive the severance payments listed above if terminated “without cause”, or if they resign for “good reason.” See "Agreement with Claude LeBlanc," and “Agreements with Other Executive Officers.” Pursuant to Ambac's Severance Pay Plan, as described below, each of Mr. Barranco, and Ms. Smith is entitled to receive the severance payments listed above if terminated “without cause” (or “Just Cause,” as that term is used in the Severance Pay Plan).

(2)

Each of our named executive officers received RSUs grants on March 2, 2018, May 16, 2018, and March 4, 2019. The remainder of the March 2, 2018, RSU awards will vest and settle on March 2, 2020, and 2021. The remainder of the May 16, 2018, RSU awards will vest and settle on May 16, 2020; provided, that if the recipient’s employment with the Company is terminated for any reason, all of the remaining RSUs granted on May 16, 2018 would vest and settle immediately. The March 4, 2019, RSU awards vest and settle in three equal annual installments on January 2, 2020, 2021 and 2022. Valuation of all RSU awards is based upon the closing price of our common stock on December 31, 2019.

(3)	DSUs awards settle and convert into Ambac common stock annually over a two-year period; 50% on the first anniversary of the grant date and the remaining 50% on the second anniversary of the grant date (unless settled earlier due to an executive’s departure from the Company). Valuation of all DSU awards is based upon the closing price of our common stock on December 31, 2019.

(4)

With respect to the 2019 PSU awards only, if a termination occurred prior to the last day of the performance period by reason of death, the beneficiaries of the named executive officer would be entitled to receive the number of PSUs that the named executive officer would have been entitled to receive at a 100% overall payout multiple regardless of the outcome of any of the performance conditions. No amounts are include above with respect to 2019 PSUs for a termination by reason of disability nor involuntary termination without "Cause" or by Executive for "Good Reason", because any required payout can not be determined until the end of the relevant performance period. No amounts are included here with respect to the 2017 and 2018 LTIP awards because any required payout can not be determined until the end of the relevant performance period.

(5)

Pursuant to the terms of the employment agreements for each of Messrs. LeBlanc, Trick, and Ksenak, each of these executive officers is entitled receive a pro-rated portion of the annual STIP award that he would have received in the absence of such termination. Assuming a December 31, 2019 termination, each of Messrs. LeBlanc, Trick and Ksenak were assumed to have received their target STIP award for 2019 (annual cash incentive award plus value of DSU award) as set forth in their respective employment agreements.

(6)

Messrs. LeBlanc, Trick and Ksenak and their eligible dependents will be entitled to continue to participate in such basic medical and life insurance programs of the Company as are in effect from time to time, on the same terms and conditions as applicable to active senior executives of the Company, for twelve months or, if earlier, until the date said executive becomes eligible to receive coverage from another employer or is otherwise no longer eligible to receive COBRA continuation coverage. Pursuant to Ambac's Severance Pay Plan, in addition to the severance payments listed, Mr. Barranco and Ms. Smith would be entitled to receive reimbursement for a portion of the premiums paid for COBRA continuation coverage in the same amount as was previously paid by the Company for the same group health insurance coverage under the Company's group health plan for the first twelve months following their termination of employment. The amounts included in the table reflect the cost of COBRA benefit continuation coverage under the plan in which the particular executive is enrolled, less the monthly active employee cost of these benefits, as well as for Messrs. LeBlanc, Trick and Ksenak the cost of continued life insurance coverage for the 12 month severance period.

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(1)	Audit fees consisted of audit work performed in connection with the annual and quarterly financial statements, as well as work generally only the independent registered public accounting firm can reasonably be expected to provide, such as statutory audits, consents, comfort letters and attestation services.

(2)

Audit related fees are for services traditionally performed by the independent registered public accounting firm, including due diligence related to mergers and acquisitions, employee benefit plan audits, agreed upon procedures and certain consultation regarding financial accounting and/or reporting standards. In 2019 and 2018 , these fees consisted principally of (i) audits of employee benefit plans and (ii) accounting and consultations regarding accounting standards. In 2019, these fees also included due diligence related to potential acquisitions.

(3)

Tax fees consist principally of tax compliance services and tax advice to Ambac. Of the total amount of tax fees for 2019, $89,632 related to tax compliance and $38,879 related to tax advice. Of the total amount of tax fees for 2018, $70,833 related to tax compliance and $0 related to tax advice. Compliance-related tax fees were for professional services rendered in connection with the preparation of the federal and foreign tax returns.

(4)	Other fees are those associated with services not captured in the other categories. Ambac generally does not request such services from the independent registered public accounting firm.

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•	a “related party” means:

◦	a member of the Board of Directors (or a nominee to the Board of Directors);

◦	an executive officer;

◦	any person who is known by Ambac to be the beneficial owner of more than 5% of our common stock; or

◦	any person known by Ambac to be an immediate family member of any of the persons listed above; and

•	a “related party transaction” means a transaction (and/or amendment thereto) with a related party occurring since the beginning of our last fiscal year, or any currently proposed transaction, involving Ambac where the amount exceeds $120,000 and in which any related party had or will have a direct or indirect interest.

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•	whether the terms of the related party transaction are fair to Ambac and on the same basis as would apply if the transaction did not involve a related party;

•	whether there are business reasons for Ambac to enter into the related party transaction;

•	whether the related party transaction would impair the independence of an outside director; and

•

whether the related party transaction would present an improper conflict of interests for any director or executive officer of Ambac, taking into account the size of the transaction, the overall financial position of the director, executive officer or other related party, the direct or indirect nature of the director's, executive officer's or other related party's interest in the transaction and the ongoing nature of any proposed relationship, and any other factors the Governance and Nominating Committee deems relevant.

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•	the length of time KPMG has been engaged;

•	KPMG’s independence and objectivity;

•	KPMG’s capability and expertise in handling the unique issues involving Ambac’s operations in our industry;

•	historical and recent performance, including the extent and quality of KPMG’s communications with the Audit Committee, and feedback from management regarding KPMG’s overall performance;

•	recent PCAOB inspection reports on the firm; and

•	the appropriateness of KPMG’s fees.

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•	Our burn rate is reasonable . As detailed in the table below, our three-year average burn rate, which we define as the number of shares subject to time-based and performance-based equity awards granted in a fiscal year divided by the weighted average basic common shares outstanding for that fiscal year, is 1.07%.

•	Dilution . Dilution is commonly measured by “overhang,” which generally refers to the amount of total potential dilution to current shareholders that could result from future issuance of the shares reserved under an

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•	The 2020 Plan follows best market practices . We have designed the 2020 Plan to include a number of features that reinforce and promote alignment of equity compensation arrangements for employees, officers, consultants and non-employee directors with the interests of stockholders and the Company. These features include, but are not limited to, the following:

◦	No “evergreen” provision. No automatic increase in the number of shares available for issuance without shareholder approval.

◦	Individual Annual Award Limits. No participant may be granted within any calendar year:

–	Options or SARs which in the aggregate cover more than 500,000 shares;

–	Full Value Awards (as described below) which in the aggregate cover more than 500,000 shares; or

–	Cash Incentive Awards (as described below) which could result in such participant receiving more than $10,000,000 (pro rated for performance periods that are greater or less than twelve months).

◦	No Discounted Stock Options or Stock Appreciation Rights (SARs) . Stock options and SARs may not be granted with exercise prices lower than the fair market value of the underlying shares on the grant date.

◦	Prohibition on Repricing and Cash Buyouts . The exercise price of a stock option or SAR may not be reduced, directly or indirectly, without the prior approval of stockholders, including by a cash repurchase of “underwater” awards.

◦	No Liberal Share Recycling with respect to Stock Options or SARs . Shares retained by or delivered to the Company to pay the exercise price of a stock option or SAR or to satisfy tax withholding obligations in connection with the exercise of a stock option or SAR count against the number of shares remaining available under the 2020 Plan.

◦

Minimum Vesting Requirement . Awards may not become exercisable or vested prior to the one-year anniversary of the grant date of the award (provided that the committee administering the 2020 Plan may provide for vesting upon or after a termination of employment or service or otherwise), except that up to 5% of the share reserve under the 2020 Plan may be subject to awards that do not meet such minimum vesting requirement.

◦	No Single-Trigger Acceleration . The 2020 Plan does not provide for automatic acceleration of vesting of equity awards upon a change in control of the Company, unless awards are not assumed, substituted for or otherwise replaced in connection with the change in control.

◦	No Dividends on Unvested Awards . The 2020 Plan prohibits the current payment of dividends or dividend equivalent rights on unvested awards.

◦	No Automatic Grants. The 2020 Plan does not provide for “reload” or other automatic grants to participants.

◦	Awards Subject to Clawback Policy . Awards granted pursuant to the 2020 Plan will be subject to mandatory repayment to the Company to the extent the participant is, or in the future becomes, subject to (x) any Company “clawback” or recoupment policy that is adopted, or (y) any law, rule, requirement or regulation which imposes mandatory recoupment.

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◦	No Tax Gross-Ups . The 2020 Plan does not provide for any tax gross-ups.

(1)	No stock appreciation rights were outstanding as of March 31, 2020.

(2)	Includes 1,808,663 shares underlying outstanding unvested performance stock unit awards, and 640,633 shares underlying outstanding unvested (or vesting and deferred for future settlement) restricted stock unit awards. The number of outstanding unvested performance stock unit awards assumes payout at maximum performance.

(3)	Assumes performance stock unit awards are paid at maximum performance. No further awards will be made under the 2013 Plan after the Effective Date of the 2020 Plan. Any shares remaining available for grants under the 2013 Plan as of the Effective Date will be transferred to the 2020 Plan’ and available for future grants under the 2020 Plan.

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•	Immediately prior to the occurrence of such Change in Control, in each case with the exception of Performance-Based Awards, all outstanding Options, SARs and Full Value Awards will be deemed to have vested, and all shares of Common Stock and/or cash subject to such Awards will be delivered; and either or both of the following two actions will be taken:

◦

At least 15 days prior to the scheduled consummation of such Change in Control, all outstanding Options and SARs will become immediately exercisable and will remain exercisable for a period of 15 days, any exercise of an Option or SAR during the 15-day period will be conditioned upon the consummation of the Change in Control and will be effective only immediately before such consummation, and upon consummation of such Change in Control, all outstanding but unexercised Options and SARs will terminate; and/or

◦

The Committee may elect to cancel any outstanding Options, SARs, and/or Full Value Awards and pay or deliver, or cause to be paid or delivered, to the holder of the award an amount in cash or securities having a value (as determined by the Committee acting in good faith), in the case of Full Value Awards (for shares of Common Stock subject thereto), equal to the formula or fixed price per share paid to holders of shares of Common Stock pursuant to such Change in Control and, in the case of Options or SARs, equal to the product of the number of shares of Common Stock subject to such Options or SARs multiplied by the amount, if any, by which (x) the formula or fixed price per share paid to holders of shares of Common Stock pursuant to such transaction exceeds (y) the exercise price applicable to such Options or SARs.

•	For Performance-Based Awards, (i) if less than half of the performance period has elapsed, then such Performance-Based Awards will be treated as though target performance has been achieved, and (ii) if at least half of the performance period has elapsed, then actual performance to date will be determined as of a date

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•	Cash Incentive Awards will be governed by the terms of the applicable award agreement.

•

The 2020 Plan and the awards granted under the 2020 Plan will continue in the manner and under the terms so provided in the event of any Change in Control to the extent that provision is made in writing in connection with such Change in Control for the assumption or continuation of such awards, or for the substitution for such awards of new stock options, stock appreciation rights, phantom stock, restricted stock, restricted stock units, performance shares, performance share units or deferred share units relating to the securities of a successor entity, or a parent or subsidiary thereof, with appropriate adjustments as to the number of shares and exercise prices of options and stock appreciation rights.

•

In the event a Participant’s award is assumed, continued, or substituted upon the consummation of any Change in Control and the Participant’s employment is terminated by the Company (or its successor) without Cause (as defined in the 2020 Plan) within the 12-month period following the consummation of such Change in Control, the Participant’s award will become fully vested as of such termination and may be exercised in full, to the extent applicable, beginning on the date of such termination and for the one-year period immediately following such termination or for such longer period as the Committee will determine (but in no event later than the original expiration date of the award).

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(1)	Our 2013 Incentive Compensation Plan was approved by the stockholders of Ambac on December 18, 2013. The total number of shares of Ambac common stock available for issuance under the 2013 Incentive Compensation Plan is 4,000,000.

(2)

Represents, as of December 31, 2019, the number of outstanding restricted stock unit awards, stock options and the maximum number of performance stock units that may be issued if certain performance goals are achieved. Refer to Note 15 to the Consolidated Financial Statements in Part II, Item 8 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for a description of the grants made under the 2013 Incentive Compensation Plan. This amount includes 702,579 restricted stock units, 16,667 options and 1,345,904 performance stock units which are based on the maximum number of shares potentially payable under the awards. There are 650,212 performance stock units outstanding based on the target number of shares potentially payable under such awards.

(3)

Each restricted stock unit, stock option and performance stock unit awarded under our 2013 Incentive Compensation Plan was granted at no cost to the persons receiving them. Restricted stock units represent the contingent right to receive the equivalent number of shares of Ambac common stock and may vest after the passage of time. Stock options represent the right to acquire an equivalent number of shares of Ambac common stock at a specified exercise price. Performance stock units granted pursuant to the Company’s Long Term Incentive Plan represent the contingent right to receive a number of shares of Ambac common stock ranging from 0% to 220% of the number of units granted depending upon the achievement of certain company-wide performance goals at the end of a specified performance period.

(4)	Reflects the weighted-average price of all outstanding options that had been granted but not forfeited, expired or exercised. Performance shares and restricted stock units are not included in determining the weighted-average price as they have no exercise price.

(5)	The number of securities remaining available for future issuance under compensation plans considering the target number of performance stock units are 2,079,181.

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1.	Purpose of the Plan

2.	Definitions

(a)	“AAC” means Ambac Assurance Corporation, an affiliate of Ambac.

(b)	“AAC Board” means the Board of Directors of AAC.

(c)	“Ambac” means Ambac Financial Group, Inc., a Delaware corporation.

(d)	“Award” means any Option, SAR, Full Value Award or Cash Incentive Award granted under the Plan.

(e)	“Benefit Arrangement” means any formal or informal plan or other arrangement for the direct or indirect provision of compensation to a Participant (including groups or classes of Participants or beneficiaries of which the Participant is a member), whether or not such compensation is deferred, is in cash, or is in the form of a benefit to or for the Participant.

(f)	“Board of Directors” means the Board of Directors of Ambac.

(g)	“Cash Incentive Award” means an Award granted pursuant to Section 8 of the Plan.

(h)

“Cause” shall have the meaning set forth in an applicable agreement between a Participant and the Company, and in the absence of any such agreement, shall mean, with respect to any Participant and as determined by the Committee, (i) any act or omission by the Participant resulting in, or intending to result in, personal gain at the expense of the Company; (ii) the improper disclosure by the Participant of proprietary or confidential information of the Company; (iii) misconduct by the Participant, including, but not limited to, fraud, intentional violation of, or negligent disregard for, the rules and procedures of the Company (including the code of business conduct), theft, violent acts or threats of violence, or possession of controlled substances on the property of the Company; or (iv) poor performance or other reasons under which the Participant terminates not in good standing.

(i)

“Change in Control” means the occurrence of one or more of the following events, for either AAC or Ambac: (i) any “person” (as such term is used in Sections 3(a)(9) and 13(d) of the Securities Exchange) or “group” (as such term is used in Section 13(d)(3) of the Securities Act) is or becomes a “beneficial owner” (as such term is used in Rule 13d-3 promulgated under the Securities Act) of more than thirty percent (30%) of the Voting Stock of AAC or Ambac; (ii) within any twenty-four (24) month period the majority of the AAC Board or Board of Directors consists of individuals other than “Incumbent Directors,” which term means the members of the

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(j)	“Code” means the Internal Revenue Code of 1986, as amended from time to time, and all regulations, interpretations and administrative guidance issued thereunder.

(k)

“Committee” means the Compensation Committee of the Board of Directors or such other committee as the Board of Directors shall appoint from time to time to administer the Plan and to otherwise exercise and perform the authority and functions assigned to the Committee under the terms of the Plan as described in Section 4. With respect to any Award granted, or to be granted, to a member of the Board of Directors, “Committee” means the Governance and Nominating Committee of the Board of Directors.

(l)	“Common Stock” means Ambac’s common stock, $0.01 par value per share, or any other security into which such common stock shall be changed as contemplated by the adjustment provisions of Section 11 of the Plan.

(m)	“Company” means Ambac and all of its Subsidiaries, collectively.

(n)	“Deferred Compensation Plan” means any plan, agreement or arrangement maintained by the Company from time to time that provides opportunities for deferral of compensation.

(o)	“Disqualified Individual” shall have the meaning set forth in Code Section 280G(c).

(p)	“Effective Date” means June 2, 2020, subject to approval of the Plan by Ambac’s stockholders on such date, the Plan having been adopted by the Board of Directors on February 27, 2020.

(q)	“Exchange Act” means the Securities Exchange Act of 1934, as amended.

(r)	“Fair Market Value” means, with respect to a share of Common Stock:

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(i)	If the Common Stock is at the time listed or admitted to trading on any stock exchange, then the Fair Market Value shall be the closing price per share of Common Stock on such date on the principal exchange on which the Common Stock is then listed or admitted to trading or, if no such sale is reported on that date, on the last preceding date on which a sale was so reported.

(ii)

If the Common Stock is not at the time listed or admitted to trading on a stock exchange, the Fair Market Value shall be the closing average of the closing bid and asked price of a share of Common Stock on the date in question in the over-the-counter market, as such price is reported in a publication of general circulation selected by the Committee and regularly reporting the market price of Common Stock in such market.

(iii)	If the Common Stock is not listed or admitted to trading on any stock exchange or traded in the over-the-counter market, the Fair Market Value shall be as determined by the Committee in good faith and, to the extent necessary for an Award to be exempt from Section 409A of the Code, in accordance with the requirements of Section 409A of the Code.

(s)	“Full Value Award” means an Award granted to a Participant pursuant to Section 7 of the Plan, including Awards in the form phantom stock, restricted stock, restricted stock units, performance shares or performance share units, or deferred share units.

(t)	“ISO” shall mean any Option, or portion thereof, awarded to a Participant pursuant to the Plan which is designated by the Committee as an incentive stock option and also meets the applicable requirements of an incentive stock option pursuant to Section 422 of the Code.

(u)

“Option” means an Award under the Plan that entitles the Participant to purchase shares of Common Stock at an exercise price established by the Committee at the time the Option is granted. Options granted under the Plan may be either Incentive Stock Options or non-qualified stock options, as determined in the discretion of the Committee; provided, however, that Incentive Stock Options may only be granted to employees of Ambac or a Subsidiary. An Option will be deemed to be an Incentive Stock Option only if it is specifically designated by the Committee as an Incentive Stock Option.

(v)	“Other Agreement” means any agreement, contract, or understanding heretofore or hereafter entered into by a Participant with the Company, except an agreement, contract, or understanding that expressly addresses Code Section 280G and/or Code Section 4999.

(w)	“Parachute Payment” means a “parachute payment” within the meaning of Code Section 280G(b)(2).

(x)

“Participant” means an employee or consultant of the Company or a member of the Board of Directors who is eligible to participate in the Plan pursuant to the terms and conditions hereof and to whom one or more Awards have been granted pursuant to the Plan that have not been fully settled or cancelled and, following the death of any such Person, his or her successors, heirs, executors and administrators, as the case may be.

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(y)	“Performance-Based Award” means an Award made subject to the achievement of performance conditions over a Performance Period specified by the Committee, as described in Section 9 of the Plan.

(z)	“Performance Period” means the period of time, up to ten (10) years, during or over which the performance goals under Performance-Based Awards must be met in order to determine the degree of payout and/or vesting with respect to any such Performance-Based Awards.

(aa)	“Person” means a “person” as such term is used in Section 13(d) and 14(d) of the Exchange Act, including any “group” within the meaning of Section 13(d)(3) under the Exchange Act.

(bb)	“Plan” means this Plan, as it may be amended from time to time.

(cc)	“Prior Plan” means the Ambac Financial Group, Inc. Incentive Compensation Plan.

(dd)	“Securities Act” means the Securities Act of 1933, as amended.

(ee)

“Stock Appreciation Right” or “SAR” means an Award under the Plan that entitles the Participant to receive, in cash or shares of Common Stock (as determined in accordance with the terms of the Plan), value equal to the excess of: (i) the Fair Market Value of a specified number of shares of Common Stock at the time of exercise; over (ii) an exercise price established by the Committee at the time of grant.

(ff)	“Subsidiary” means any “subsidiary” within the meaning of Rule 405 under the Securities Act; provided, however, that for purposes of granting ISOs under the Plan, “Subsidiary” means a corporation that is a subsidiary of Ambac within the meaning of Section 424(f) of the Code.

3.	Stock Subject to the Plan and Limitations on Cash Incentive Awards

(a)	Stock Subject to the Plan

(i)

Overall Limit . Subject to the provisions of Section 11, the maximum number of shares of Common Stock that may be covered by Awards granted under the Plan shall not exceed the sum of (A) 1,475,000 shares of Common Stock plus (B) the number of shares of Common Stock reserved for purposes of the Prior Plan on the Effective Date that is in excess of the number of shares of Common Stock then subject to outstanding awards granted under the Prior Plan plus (C) the number of shares of Common Stock subject to outstanding awards granted under the Prior Plan as of the Effective Date that thereafter terminate by expiration or forfeiture, cancellation, or otherwise without the issuance of such shares of Common Stock and become available for issuance under the Plan (the “Share Limit”). Shares of Common Stock issued under the Plan may be either shares that are currently authorized and unissued shares or shares currently held or subsequently acquired by Ambac as treasury shares, including shares purchased in the open market or in private transactions.

(ii)

Counting of Shares . Shares of Common Stock covered by an Award shall be counted as used as of the applicable grant date for purposes of calculating the number of shares of Common Stock available for issuance under Section 3(a)(i). Any shares of Common Stock that are subject to Awards shall be counted against the Share Limit as one (1) share of Common Stock for every one (1) share of Common Stock subject to the Award. A number of shares of Common Stock equal to the maximum number of shares issuable under a Performance-Based Award shall be counted against the Share Limit as of the applicable grant date, but such number shall be adjusted to equal the actual number of shares issued upon settlement of the Performance-Based Award to the extent different

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(iii)	Replacement Awards . Shares of Common Stock covered by Awards granted pursuant to the Plan in connection with the conversion, replacement, or adjustment of outstanding equity-based awards to reflect a merger or acquisition shall not count as used under the Plan for purposes of this Section 3 (including for purposes of the individual limits set forth in Section 3(b) below).

(iv)	ISO Limit . The maximum number of shares of Common Stock that may be covered by Options granted under the Plan that are intended to be ISOs shall not exceed 1,475,000 shares of Common Stock in the aggregate.

(v)

Future Issuances . Except as expressly provided by the terms of this Plan, the issuance by Ambac of stock of any class, or securities convertible into shares of stock of any class, for cash or property or for labor or services, either upon direct sale, upon the exercise of rights or warrants to subscribe therefor or upon conversion of stock or obligations of Ambac convertible into such stock or other securities, shall not affect, and no adjustment by reason thereof, shall be made with respect to Awards then outstanding hereunder.

(vi)	Settlement in Other Form . To the extent provided by the Committee, any Award may be settled in cash rather than in Common Stock.

(b)	Individual Award Limits

(i)

Options and SARs . The maximum number of shares of Common Stock that may be covered by Options or SARs that are granted to any one Participant during any one calendar-year period shall be 500,000 shares. For purposes of this Section 3(b)(i), if an Option is in tandem with an SAR, such that the exercise of the Option or SAR with respect to a share of Common Stock cancels the tandem SAR or Option right, respectively, with respect to such share, the tandem Option and SAR rights with respect to each share of Common Stock shall be counted as covering only one share of Common Stock for purposes of applying the limitations of this Section 3(b)(i).

(ii)	Full Value Awards . For Full Value Awards, no more than 500,000 shares of Common Stock may be delivered pursuant to such Awards granted to any one Participant during

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(1)	If the Awards are denominated in Common Stock but an equivalent amount of cash is delivered in lieu of delivery of shares of Common Stock, the foregoing limit shall be applied based on the methodology used by the Committee to convert the number of shares of Common Stock into cash.

(2)	If delivery of Common Stock or cash is deferred until after the Common Stock has been earned, any adjustment in the amount delivered to reflect actual or deemed investment experience after the date the Common Stock is earned shall be disregarded.

(iii)	Cash Incentive Awards . For Cash Incentive Awards, the maximum amount payable to any Participant with respect to any twelve month Performance Period shall equal $10,000,000 (pro rated for Performance Periods that are greater or lesser than twelve months); provided that Awards described in this Section 3(b)(iii) shall be subject to the following:

(1)	If the Awards are denominated in cash but an equivalent amount of Common Stock is delivered in lieu of delivery of cash, the foregoing limit shall be applied to the cash based on the methodology used by the Committee to convert the cash into Common Stock.

(2)	If delivery of Common Stock or cash is deferred until after cash has been earned, any adjustment in the amount delivered to reflect actual or deemed investment experience after the date the cash is earned shall be disregarded.

4.	Administration of the Plan

(a)

General . The Plan shall be administered by a Committee of the Board of Directors which, for so long as Ambac is subject to Section 16 of the Exchange Act, shall consist of two or more persons, each of whom qualifies as a “non-employee director” (within the meaning of Rule 16b-3 promulgated under Section 16 of the Exchange Act) and as “independent” within the meaning of any applicable stock exchange listing rules or similar regulatory authority. The Committee shall, consistent with the terms of the Plan, from time to time designate those employees and consultants of the Company and members of the Board of Directors who shall be granted Awards under the Plan and the amount, type and other terms and conditions of such Awards. All of the powers and responsibilities of the Committee under the Plan may be delegated by the Committee to any subcommittee thereof and the Committee may from time to time authorize a subcommittee consisting of one or more members of the Board of Directors (including members who are employees of the Company) or employees of the Company to grant Awards, subject to such restrictions and limitation as the Committee may specify and to the requirements of Delaware General Corporation Law Section 157.

(b)

Authority . The Committee shall have full discretionary authority to administer the Plan, including discretionary authority to interpret and construe any and all provisions of the Plan and the terms of any Award (and any agreement evidencing the grant of any Award) granted hereunder and to adopt and amend from time to time such rules and regulations for the administration of the Plan as the Committee may deem necessary or appropriate. The Committee shall have the authority, in its discretion, to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations related to sub-plans established for the purpose of satisfying applicable

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(c)	Deferrals . The Company shall pay any amount payable with respect to an Award in accordance with the terms of such Award, provided that the Committee may, in its discretion, defer the payment of amounts payable with respect to an Award subject to and in accordance with the terms of a Deferred Compensation Plan.

(d)

Indemnification . No member or authorized delegate of the Committee shall be liable to any person for any action taken or omitted in connection with the administration of the Plan unless attributable to his or her own fraud or willful misconduct; nor shall the Company be liable to any person for any such action unless attributable to fraud or willful misconduct on the part of a Director or employee of the Company. The Committee, the individual members thereof, and persons acting as the authorized delegates of the Committee under the Plan, shall be indemnified by Ambac against any and all liabilities, losses, costs and expenses (including legal fees and expenses) of whatsoever kind and nature which may be imposed on, incurred by or asserted against the Committee or its members or authorized delegates by reason of the performance of a Committee function if the Committee or its members or authorized delegates did not act dishonestly or in willful violation of the law or regulation under which such liability, loss, cost or expense arises. This indemnification shall not duplicate but may supplement any coverage available under any applicable insurance.

5.	Eligibility

6.	Options and Stock Appreciation Rights

(a)	Exercise Price . The exercise price per share of Common Stock covered by any Option or SAR shall be not less than 100% of the Fair Market Value of a share of Common Stock on the date on which such Option or SAR is granted.

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(b)	Term and Exercise of Options and SARs .

(i)

Vesting . Each Option or SAR shall become vested and exercisable on such date or dates, during such period and for such number of shares of Common Stock as shall be determined by the Committee on or after the date such Option or SAR is granted and set forth in the agreement evidencing the grant of such Option or SAR; provided, however, that no Option or SAR shall be exercisable after the expiration of ten (10) years from the date such Option or SAR is granted; and, provided, further, that each Option or SAR shall be subject to earlier termination, expiration or cancellation as provided in the Plan or in the agreement evidencing the grant of such Option or SAR.

(ii)

Exercise . The terms and conditions relating to exercise of an Option or SAR shall be established by the Committee to the extent not inconsistent with the Plan. Except as provided by the Committee, and Option or SAR may be exercised in whole or in part. The partial exercise of an Option or SAR shall not cause the expiration, termination or cancellation of the remaining portion thereof. No Option or SAR may be exercised by a Participant prior to the date on which it is exercisable (or vested) or after the expiration date applicable thereto. An Option or SAR shall be exercised by such methods and procedures as the Committee determines from time to time, including without limitation through net physical settlement or other method of cashless exercise.

(c)	Effect of Termination of Employment or Other Relationship . The agreement evidencing the grant of each Option or SAR shall specify the consequences with respect to such Option or SAR of the termination of the employment or other service between the Company and the Participant holding the Option or SAR.

(d)

Additional Terms for ISOs . The aggregate Fair Market Value (determined as of the date of grant of the ISOs) of the number of shares of Common Stock with respect to which ISOs are exercisable for the first time by any Participant during any calendar year under all plans of the Company shall not exceed $100,000, or such other maximum amount as is then applicable under Section 422 of the Code. Any Option or a portion thereof that is designated as an ISO that for any reason fails to meet the requirements of an ISO shall be treated hereunder as a non-qualified Option. No ISO may be granted to a Person who, at the time of the proposed grant, owns (or is deemed to own under the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of common stock of the Company unless (i) the exercise price of such ISO is at least one hundred ten percent (110%) of the Fair Market Value of a share of Common Stock at the time such ISO is granted and (ii) such ISO is not exercisable after the expiration of five years from the date it is granted. ISOs may not be granted under the Plan more than ten (10) years after the date of the adoption of the Plan by the Board of Directors.

(e)

No Re-Pricing . Except for either adjustments pursuant to Section 11 (relating to the adjustment of shares), or reductions of the exercise price approved by Ambac’s stockholders, the exercise price for any outstanding Option or SAR may not be decreased after the date of grant nor may an outstanding Option or SAR granted under the Plan be surrendered to Ambac as consideration for the grant of a replacement Option or SAR with a lower exercise price or a Full Value Award. Except as approved by Ambac’s stockholders, in no event shall any Option or SAR granted under the Plan be surrendered to Ambac in consideration for a cash payment if, at the time of such surrender, the exercise price of the Option or SAR is greater than the then current Fair Market Value of a share of Common Stock. In addition, no repricing of an Option or SAR shall be permitted without the approval of Ambac’s stockholders if such approval is required under the rules of any stock exchange on which Common Stock is listed.

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(f)	No Obligation to Exercise . The grant to a Participant of an Award shall impose no obligation upon such Participant to exercise such Award.

7.	Full Value Awards

8.	Cash Incentive Awards

9.	Performance-Based Awards

10.	Minimum Vesting Requirements

11.	Adjustment Upon Certain Changes

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12.	Change in Control in which Awards are not Assumed

(a)	Immediately prior to the occurrence of such Change in Control, in each case with the exception of Performance-Based Awards, which are subject to Section 12(b), all outstanding Options, SARs and Full Value Awards shall be deemed to have vested, and all shares of Common Stock and/or cash subject to such Awards shall be delivered; and either or both of the following two (2) actions shall be taken:

(i)

At least fifteen (15) days prior to the scheduled consummation of such Change in Control, all Options and SARs outstanding hereunder shall become immediately exercisable and shall remain exercisable for a period of fifteen (15) days. Any exercise of an Option or SAR during this fifteen (15)-day period shall be conditioned upon the consummation of the applicable Change in Control and shall be effective only immediately before the consummation thereof, and upon consummation of such Change in Control, all outstanding but unexercised Options and SARs shall terminate, with or without consideration (including, without limitation, consideration in accordance with clause (ii) below) as determined by the Committee in its sole discretion. The Committee shall send notice of an event that shall result in such a termination to all Persons who hold Options and SARs not later than the time at which the Company gives notice thereof to its stockholders; and/or

(ii)

The Committee may elect, in its sole discretion, to cancel any outstanding Options, SARs, and/or Full Value Awards and pay or deliver, or cause to be paid or delivered, to the holder thereof an amount in cash or securities having a value (as determined by the Committee acting in good faith), in the case of Full Value Awards (for shares of Common Stock subject thereto), equal to the formula or fixed price per share paid to holders of shares of Common Stock pursuant to such Change in Control and, in the case of Options or SARs, equal to the product of the number of shares of Common Stock subject to such Options or SARs multiplied by the amount, if any, by which (x) the formula or fixed price per share paid to holders of shares of Common Stock pursuant to such transaction exceeds (y) the exercise price applicable to such Options or SARs.

(b)	For Performance-Based Awards, (i) if less than half of the Performance Period has elapsed, then such Performance-Based Awards shall be treated as though target performance has been achieved, and (ii) if at least half of the Performance Period has elapsed, then actual performance to date shall be determined as of a date reasonably proximal to the date of the consummation of the

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(c)	Cash Incentive Awards shall be governed by the terms of the applicable award agreement.

13.	Change in Control in which Awards are Assumed

(a)

The Plan and the Awards granted under the Plan shall continue in the manner and under the terms so provided in the event of any Change in Control to the extent that provision is made in writing in connection with such Change in Control for the assumption or continuation of such Awards, or for the substitution for such Awards of new stock options, stock appreciation rights, phantom stock, restricted stock, restricted stock units, performance shares, performance share units or deferred share units relating to the securities of a successor entity, or a parent or subsidiary thereof, with appropriate adjustments as to the number of shares (disregarding any consideration that is not common stock) and exercise prices of options and stock appreciation rights.

(b)

In the event a Participant’s Award is assumed, continued, or substituted upon the consummation of any Change in Control and the Participant’s employment is terminated by the Company (or its successor) without Cause within the twelve (12)-month period following the consummation of such Change in Control, the Participant’s Award will become fully vested as of such termination and may be exercised in full, to the extent applicable, beginning on the date of such termination and for the one-year period immediately following such termination or for such longer period as the Committee shall determine (but in no event later than the original expiration date of the Award).

14.	Rights Under the Plan

(a)

Rights as Stockholder . No Person shall have any rights as a stockholder with respect to any shares of Common Stock covered by or relating to any Award until the date of the issuance of such shares on the books and records of Ambac. Except as otherwise expressly provided in Section 11 hereof, no adjustment of any Award shall be made for dividends or other rights for which the record date occurs prior to the date of such issuance. Nothing in this Section 14 is intended, or should be construed, to limit the authority of the Committee to cause the Company to make payments based on the dividends that would be payable with respect to any share of Common Stock if it were issued or outstanding, or from granting rights related to such dividends, subject to Section 4(b).

(b)	No Separate Fund . The Company shall not have any obligation to establish any separate fund or trust or other segregation of assets to provide for payments under the Plan. To the extent any person acquires any rights to receive payments hereunder from the Company, such rights shall be no greater than those of an unsecured creditor.

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15.	No Special Employment Rights; No Right to Award

16.	Securities Matters

(a)

No Registration Obligation . Ambac shall be under no obligation to effect the registration pursuant to the Securities Act of any shares of Common Stock to be issued hereunder or to effect similar compliance under any state or local laws. Notwithstanding anything herein to the contrary, Ambac shall not be obligated to cause to be issued any shares of Common Stock pursuant to the Plan unless and until Ambac is advised by its counsel that the issuance of such shares is in compliance with all applicable laws, regulations of governmental authority and the requirements of any securities exchange on which shares of Common Stock are traded. The Committee may require, as a condition to the issuance of shares of Common Stock pursuant to the terms hereof, that the recipient of such shares make such covenants, agreements and representations, and that any certificates representing such shares bear such legends, as the Committee deems necessary or desirable.

(b)

Compliance with Securities Laws . The exercise of any Option or SAR granted hereunder or the settlement of any other Award granted hereunder shall only be effective at such time as counsel to Ambac shall have determined that the issuance of shares of Common Stock pursuant to such exercise or settlement is in compliance with all applicable laws, regulations of governmental authority and the requirements of any securities exchange on which shares of Common Stock are traded. Ambac may, in its sole discretion, defer the effectiveness of an exercise of an Option or SAR or the issuance of shares of Common Stock pursuant to any Award pending or to ensure compliance under federal, state or local securities laws. Ambac shall inform the Participant in writing of its decision to defer the effectiveness of the exercise of an Option or SAR or the issuance of shares of Common Stock pursuant to any Award. During the period that the effectiveness of the exercise of an Option or SAR has been deferred, the Participant may, by written notice, withdraw such exercise and obtain the refund of any amount paid with respect thereto.

17.	Withholding Taxes

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18.	Amendment or Termination of the Plan

19.	Clawback/Recoupment

20.	Section 409A

(a)

The Plan and Awards granted thereunder are intended to be exempt from Code Section 409A or to comply with Code Section 409A to the extent subject thereto, and, accordingly, to the maximum extent permitted, the Plan will be interpreted and administered to be exempt from or in compliance with Code Section 409A. Notwithstanding any provision of the Plan to the contrary, to the extent required to avoid accelerated taxation and tax penalties under Code Section 409A, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to the Plan during the six (6)-month period immediately following the Participant’s “separation from service” (as defined for purposes of Code Section 409A) will instead be paid on the first

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(b)

Notwithstanding anything in the Plan to the contrary, in the case of an Award that is characterized as deferred compensation under Code Section 409A, and pursuant to which settlement and delivery of the cash or shares of Common Stock subject to the Award is triggered based on a Change in Control, in no event will a Change in Control be deemed to have occurred for purposes of such settlement and delivery of cash or shares of Stock if the transaction is not also a “change in the ownership or effective control of” AAC or Ambac, or “a change in the ownership of a substantial portion of the assets of” AAC or Ambac, as determined under Treasury Regulation Section 1.409A-3(i)(5) (without regard to any alternative definition thereunder). If an Award characterized as deferred compensation under Code Section 409A is not settled and delivered on account of the provision of the preceding sentence, the settlement and delivery shall occur on the next succeeding settlement and delivery triggering event that is a permissible triggering event under Code Section 409A. No provision of this paragraph shall in any way affect the determination of a Change in Control for purposes of vesting in an Award that is characterized as deferred compensation under Code Section 409A.

(c)

To the extent that the Board of Directors determines that a Participant would be subject to the additional twenty percent (20%) tax imposed on certain nonqualified deferred compensation plans pursuant to Code Section 409A as a result of any provision of any Award granted under the Plan, such provision shall be deemed amended to the minimum extent necessary to avoid application of such additional tax. The nature of any such amendment shall be determined by the Board of Directors. Notwithstanding the foregoing, neither the Company nor the Board of Directors or the Committee will have any obligation to take any action to prevent the assessment of any excise tax or penalty on any Participant under Code Section 409A, and neither the Company nor the Board of Directors or the Committee will have any liability to any Participant for such tax or penalty.

21.	Parachute Limitations

(a)	to the extent that such right to exercise, vesting, payment, or benefit, taking into account all other rights, payments, or benefits to or for the Participant under the Plan, all Other Agreements, and all Benefit Arrangements, would cause any exercise, vesting, payment, or benefit to the Participant under the Plan to be considered a Parachute Payment; and

(b)	if, as a result of receiving such Parachute Payment, the aggregate after-tax amounts received by the Participant from the Company under the Plan, all Other Agreements, and all Benefit Arrangements would be less than the maximum after-tax amount that could be received by the Participant without causing any such payment or benefit to be considered a Parachute Payment.

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22.	Transferability

23.	Expenses and Receipts

24.	Governing Law

25.	Effective Date and Term of Plan

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