Equity Plan [Amended 2003] (2003)Full Document 

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                             AMBAC 1997 EQUITY PLAN
                           (amended as of May 6, 2003)

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

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

    "Company" means Ambac and its Subsidiaries.

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

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

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

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