<SEC-DOCUMENT>0001193125-11-256924.txt : 20110927
<SEC-HEADER>0001193125-11-256924.hdr.sgml : 20110927
<ACCEPTANCE-DATETIME>20110927093444
ACCESSION NUMBER:		0001193125-11-256924
CONFORMED SUBMISSION TYPE:	8-K
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20110921
ITEM INFORMATION:		Entry into a Material Definitive Agreement
ITEM INFORMATION:		Financial Statements and Exhibits
FILED AS OF DATE:		20110927
DATE AS OF CHANGE:		20110927

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			AMBAC FINANCIAL GROUP INC
		CENTRAL INDEX KEY:			0000874501
		STANDARD INDUSTRIAL CLASSIFICATION:	SURETY INSURANCE [6351]
		IRS NUMBER:				133621676
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		8-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-10777
		FILM NUMBER:		111108650

	BUSINESS ADDRESS:	
		STREET 1:		ONE STATE ST PLZ
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10004
		BUSINESS PHONE:		2126680340

	MAIL ADDRESS:	
		STREET 1:		ONE STATE ST PLZ
		CITY:			NEW YORK
		STATE:			NY
		ZIP:			10004

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	AMBAC INC /DE/
		DATE OF NAME CHANGE:	19930328
</SEC-HEADER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>d236740d8k.htm
<DESCRIPTION>FORM 8-K
<TEXT>
<HTML><HEAD>
<TITLE>Form 8-K</TITLE>
</HEAD>
 <BODY BGCOLOR="WHITE">

 <P STYLE="line-height:0px;margin-top:0px;margin-bottom:0px;border-bottom:0.5pt solid #000000">&nbsp;</P>
<P STYLE="line-height:3px;margin-top:0px;margin-bottom:2px;border-bottom:0.5pt solid #000000">&nbsp;</P> <P STYLE="margin-top:4px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="5"><B>SECURITIES AND EXCHANGE
COMMISSION </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="3"><B>Washington, D.C. 20549 </B></FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center>
<P STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="5"><B>FORM 8-K </B></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center>
<P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center> <P STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="4"><B>CURRENT REPORT
</B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="3"><B>PURSUANT TO SECTION 13 OR 15(d) OF THE </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="3"><B>SECURITIES EXCHANGE ACT OF 1934 </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="3"><B>Date of Report (Date of earliest event
reported): September&nbsp;27, 2011 (September 21, 2011) </B></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center>
<P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center> <P STYLE="margin-top:6px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="6"><B>AMBAC
FINANCIAL GROUP, INC. </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>(Exact name of Registrant as specified in its charter) </B></FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="34%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="32%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="32%"></TD></TR>


<TR>
<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Delaware</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>1-10777</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>13-3621676</B></FONT></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>(State of incorporation)</B></FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>(Commission</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="1"><B>file number)</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>(I.R.S. employer</B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="1"><B>identification no.)</B></FONT></P></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>One State Street Plaza, New York, New York 10004 </B></FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>(Address of principal executive offices) (Zip Code) </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>(212) 668-0340 </B></FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>(Registrant&#146;s telephone number, including area code)
</B></FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P><center> <P STYLE="line-height:6px;margin-top:0px;margin-bottom:2px;border-bottom:1pt solid #000000;width:21%">&nbsp;</P></center>
<P STYLE="margin-top:6px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the
following provisions: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><FONT STYLE="FONT-FAMILY:WINGDINGS">&#168;</FONT></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><FONT STYLE="FONT-FAMILY:WINGDINGS">&#168;</FONT></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><FONT STYLE="FONT-FAMILY:WINGDINGS">&#168;</FONT></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><FONT STYLE="FONT-FAMILY:WINGDINGS">&#168;</FONT></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4c)) </FONT></TD></TR></TABLE>
<P STYLE="font-size:8px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="line-height:0px;margin-top:0px;margin-bottom:0px;border-bottom:0.5pt solid #000000">&nbsp;</P>
<P STYLE="line-height:3px;margin-top:0px;margin-bottom:2px;border-bottom:0.5pt solid #000000">&nbsp;</P>

<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="10%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Item&nbsp;1.01</B></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Entry into a Material Definitive Agreement. </B></FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">On September&nbsp;21, 2011, Ambac Financial Group, Inc. (&#147;<U>AFGI</U>&#148;) entered into a Mediation Agreement (the &#147;<U>Mediation Agreement</U>&#148;) with Ambac Assurance Corporation
(&#147;AAC&#148;), the Segregated Account of Ambac Assurance Corporation (the &#147;<U>Segregated Account</U>&#148;), the Wisconsin Office of the Commissioner of Insurance (&#147;<U>OCI</U>&#148;), the court-appointed rehabilitator of the Segregated
Account (the &#147;<U>Rehabilitator</U>&#148;) and the Official Committee of Unsecured Creditors of Ambac Financial Group, Inc. (the &#147;<U>Creditors Committee</U>&#148;). A copy of the Mediation Agreement is filed as Exhibit 10.1 to this Form 8-K
and is incorporated by reference herein. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Pursuant to the Mediation Agreement, AFGI and AAC agreed to enter into an amended
and restated tax sharing agreement (the &#147;<U>TSA</U>&#148;), which is intended to be effective on the later of (a)&nbsp;the date on which an order is entered by the Bankruptcy Court for the Southern District of New York (the &#147;<U>Bankruptcy
Court</U>&#148;) confirming AFGI&#146;s chapter 11 plan of reorganization (the &#147;<U>Bankruptcy Plan</U>&#148;) and (b)&nbsp;the date on which a non-stayed order is entered by the Dane County Wisconsin Circuit Court (the &#147;<U>Rehabilitation
Court</U>&#148;) approving the transactions contemplated by the Mediation Agreement (such date, the &#147;<U>Effective Date</U>&#148;). The Mediation Agreement provides that the TSA will address certain issues, including, but not limited to, the
allocation and use of net operating losses (&#147;<U>NOLs</U>&#148;) by AFGI, AAC and their respective subsidiaries. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Under
the TSA, as provided for in the Mediation Agreement, AAC, together with its indirect and direct subsidiaries (the &#147;<U>AAC Subgroup</U>&#148;), is treated as a separate affiliated group for purposes of the allocation and utilization of certain
NOLs. The Mediation Agreement contemplates that the TSA will provide that any NOLs generated by the AAC Subgroup determined on a separate company tax basis after September&nbsp;30, 2011 (the &#147;<U>Determination Date</U>&#148;) will be available
for use by the AAC Subgroup at no cost. In general, the Mediation Agreement contemplates that, under the TSA, any NOLs generated by AFGI&#146;s affiliated group (including AAC) for federal tax purposes on or prior to, and existing on, the
Determination Date shall be available for use by the AAC Subgroup subject to certain tolling payments by AAC to AFGI provided for in the TSA. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">In general, the Mediation Agreement contemplates that pursuant to the TSA, unless and until an event occurs that results in AAC no longer being characterized as a member of AFGI&#146;s affiliated group
for federal tax purposes (a &#147;<U>Deconsolidation Event</U>&#148;), a specified amount of NOLs generated by AFGI&#146;s affiliated group for federal tax purposes prior to the Determination Date (&#147;<U>Pre-Determination Date NOLs</U>&#148;)
shall be available for use by the AAC Subgroup (the &#147;<U>Allocated NOL Amount</U>&#148;). The Allocated NOL Amount generally will be equal to the lesser of (a)&nbsp;$3.8 billion and (b)&nbsp;the total amount of Pre-Determination Date NOLs less
certain amounts of cancellation of indebtedness realized and interest disallowed for federal tax purposes in connection with the consummation of the Bankruptcy Plan. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">1 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Under the terms of the TSA, as contemplated by the Mediation Agreement, the AAC Subgroup
generally may utilize the Allocated NOL Amount in exchange for certain NOL usage tolling payments that are calculated using a notional federal tax amount based on the amount of federal tax liability that would have been imposed on the AAC Subgroup
if such NOLs were not available for its use. The amounts due from AAC to AFGI for the use of such NOLs are determined as a percentage of this notional federal tax liability. The applicable percentage varies based on the amount of NOLs utilized by
the AAC Subgroup and is reflected in the following table: </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="92%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="11%"></TD>
<TD VALIGN="bottom" WIDTH="9%"></TD>
<TD WIDTH="70%"></TD>
<TD VALIGN="bottom" WIDTH="9%"></TD>
<TD></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP ALIGN="center"> <P STYLE="border-bottom:1px solid #000000;width:56pt" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>NOL&nbsp;Usage&nbsp;Tier</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"> <P STYLE="border-bottom:1px solid #000000;width:113pt" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Allocated NOL
Amount&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Applicable&nbsp;Percentage</B></FONT></TD></TR>


<TR BGCOLOR="#cceeff">
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-left:1.00em; text-indent:-1.00em" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">A</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">The first $0.5 billion</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">15%</FONT></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-left:1.00em; text-indent:-1.00em" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">B</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">The next $1.1 billion after</FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2">NOL Usage Tier A</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">40%</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-left:1.00em; text-indent:-1.00em" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">C</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">The next $1.1 billion after</FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2">NOL Usage Tier B</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">10%</FONT></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-left:1.00em; text-indent:-1.00em" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">D</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">The next $1.1 billion after</FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2">NOL Usage Tier C</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">15%</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Mediation Agreement further provides that the AAC Subgroup generally may utilize Pre-Determination
Date NOLs in excess of the Allocated NOL Amount beginning on the fifth anniversary of the Effective Date in exchange for tolling payments pursuant to the TSA in an amount equal to 25% multiplied by the aggregate amount of the AAC Subgroup&#146;s
federal income tax liability for the taxable year in which the NOLs are utilized that otherwise would have been paid by the AAC Subgroup if such NOLs were not available for its use. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Mediation Agreement also contemplates that, under the TSA, AFGI and its subsidiaries, other those included in the AAC subgroup (the
&#147;<U>AFGI Subgroup</U>&#148;), generally may utilize NOLs otherwise allocable to the AAC Subgroup in exchange for payments to AAC in an amount equal to a specified percentage of the tax liability that would have been imposed on the AFGI Subgroup
but for the use of such NOLs. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Pursuant to the Mediation Agreement, the TSA will provide for similar tolling payments from AAC
to AFGI for the use of NOLs used to determine the AAC Subgroup&#146;s alternative minimum tax (&#147;<U>AMT</U>&#148;) liability using the same schedule provided for the use of the Allocated NOL Amount. However, the tolling payments for the use of
NOLs for AMT purposes shall be subject to certain credits that may be used to offset the amounts due from AAC for the use of such AMT NOLs under the TSA. These credits may be carried forward into future taxable periods to offset future payments
under the TSA. The sum of such credits used by the AAC Subgroup to offset tolling payments for AMT NOLs during the term of the TSA may not exceed, in the aggregate, $60 million. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">2 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Upon the occurrence of a Deconsolidation Event, the Mediation Agreement generally provides
that AFGI generally is required to take all actions permitted by law such that the NOLs of the AAC Subgroup that exist immediately following the Deconsolidation Event will be equal to the NOLs generated and unutilized by the AAC Subgroup following
the Determination Date and a specified amount of Pre-Determination Date NOLs allocated to the AAC Subgroup pursuant to the TSA. In addition, AFGI is required to take all actions permitted by law such that no reduction in the tax basis of any asset
of the AAC Subgroup will be required pursuant to Treasury Regulation Section&nbsp;1.1502-36(d)(4)(i)(D), and no reduction in the amount of any deferred deduction will be required pursuant to Treasury Regulation Section&nbsp;1.1502-36(d)(4)(i)(C). A
copy of the form of TSA will be filed when the document is available. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In addition, pursuant to the terms of the Mediation
Agreement, AFGI, AAC and their affiliates will enter into an Expense Sharing and Cost Allocation Agreement (the &#147;<U>Cost Allocation Agreement</U>&#148;), which agreement will become effective on the Effective Date. Under the Cost Allocation
Agreement, until (and including) the fifth anniversary of the Effective Date, AAC will pay all reasonable operating expenses of AFGI annually in arrears, subject to a $5 million per annum cap. Following the fifth anniversary of the Effective Date,
AAC will, only with the approval of the Rehabilitator, pay all reasonable operating expenses of AFGI in arrears, subject to a $4 million per annum cap. AAC&#146;s obligation to reimburse operating expenses of AFGI will terminate upon the earlier to
occur of the following events: (i)&nbsp;the conversion of the bankruptcy case to a case under Chapter 7 of the Bankruptcy Code, or the confirmation of a plan of reorganization that entails the liquidation of all or substantially all of AFGI&#146;s
assets and the subsequent distribution of the proceeds of such assets to AFGI&#146;s creditors, (ii)&nbsp;the filing of a new petition for relief under chapter 7 or chapter 11 of title 11 of the Bankruptcy Code by AFGI, (iii)&nbsp;AFGI&#146;s taking
or refraining from taking any action which impairs the ability of AAC to continue to use NOLs made available for use by AAC as set forth in AFGI&#146;s bankruptcy plan, (iv)&nbsp;the imposition, under Section&nbsp;382(a) of the Internal Revenue Code
of 1986 (the &#147;Code&#148;), of an annual &#147;section 382 limitation&#148; (within the meaning of Section&nbsp;382(b) of the Code) of $37.5 million or less on the use of NOLs available to the AAC Subgroup, (v)&nbsp;AFGI&#146;s material breach
of, or its noncompliance with material obligations under, the Mediation Agreement, the Cost Allocation Agreement, the TSA or the Cooperation Agreement Amendment (as defined below), (vi)&nbsp;a condition to the Closing Date (as defined below) not
being able to be satisfied, (vii)&nbsp;at the option of AAC, to the extent that none of the NOLs included in the Allocated NOL Amount remains available for use by the AAC Subgroup, or (vii)&nbsp;the Rehabilitator declining to approve the payment by
AAC or the Segregated Account to AFGI of reasonable operating expenses at any time after (but excluding) the fifth anniversary of the Effective Date. In addition, AAC may elect to terminate its obligation to reimburse operating expenses of AFGI to
the extent that none of the NOLs included in the Allocated NOL Amount remains available for use by the AAC Subgroup. Until AAC&#146;s obligation to reimburse operating expenses of AFGI has terminated as described above, AFGI may not make any cash
distributions to common stockholders if, following such </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">3 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
distribution, AFGI would have total unrestricted cash and other liquid assets of less than $5 million. A copy of the form of Cost Allocation Agreement is filed as Exhibit 10.2 to this Form 8-K
and is incorporated by reference herein. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Pursuant to the Mediation Agreement, effective on September&nbsp;21, 2011, AAC and
AFG will share all reasonable litigation fees and expenses incurred by AFGI in the adversary proceeding initiated by AFGI in the bankruptcy case against the Internal Revenue Service (the &#147;IRS Dispute&#148;) on the basis of 85% to AAC and 15% to
AFGI. In addition, on or about September&nbsp;27, 2011, AAC will pay to AFGI an amount equal to 85% of all expenses incurred by AFGI from November&nbsp;1, 2010 (subject to a $2 million credit for amounts already paid by AAC in connection with the
IRS Dispute). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Pursuant to the terms of the Mediation Agreement, AFGI, AAC, the Segregated Account and the Rehabilitator will
enter into an amendment to the Cooperation Agreement, dated March&nbsp;24, 2010, between the Segregated Account and AAC (the &#147;<U>Cooperation Agreement Amendment</U>&#148;). Under the Cooperation Agreement Amendment, AFG will grant the
Rehabilitator certain rights with respect to tax positions set forth in the filing of federal tax returns. In addition, AAC will provide the Rehabilitator the opportunity to participate in all meetings with AAC management to discuss loss reserves to
be included in any statutory financial report and provide all reports provided to AAC management relating thereto. If AAC proposes to make any changes in the assumptions or vendors utilized in determining statutory loss reserves from the prior
year&#146;s statutory loss reserves, which changes would cause the difference between (x)&nbsp;AAC statutory reserves determined without such proposed changes to exceed the lesser of (i)&nbsp;$200 million and (ii)&nbsp;10% of AAC&#146;s statutory
reserves determined without such proposed changes, AAC will seek and obtain the approval of its loss reserves from the Rehabilitator. AAC will also submit any changes to its investment policy to the Rehabilitator for approval. The Rehabilitator will
also be provided with periodic reports of investment transactions in the ordinary course. The Rehabilitator may recommend changes to the Investment Policy and AAC will consider such recommendations in good faith. In the event that AAC&#146;s
rejection of any proposed changes is not reasonable and fair to the interests of AAC and the Segregated Account, or is not protective or equitable to the interests of AAC and the Segregated Account policyholders generally, the Rehabilitator may
direct AAC to transfer investment management functions relating to the investment portfolio to a third party jointly chosen by the Rehabilitator and AAC. A copy of the form of Cooperation Agreement Amendment is filed as Exhibit 10.3 to this Form 8-K
and is incorporated by reference herein. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">On the Effective Date, AAC will transfer to an escrow account $30 million (the
&#147;<U>Cash Grant</U>&#148;). On the Closing Date, the Cash Grant will be transferred to AFGI. Under the terms of the TSA, to the extent that AAC makes any payments to AFGI for NOL use, AAC will receive a credit against the first $5 million in
payments due under each of NOL Usage Tier A, B and C, as described above, provided that the sum of the credits for all tiers will not exceed $15 million. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">4 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">On the Closing Date, the Segregated Account will issue $350 million of junior surplus notes
to AFGI. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Effective as of the Closing Date, AFG and the members of the Creditors Committee (the &#147;<U>AFG
Interests</U>&#148;) will provide an unconditional, full and complete release of OCI, the Rehabilitator, AAC and the Segregated Account, and each of their respective current and former members, shareholders, affiliates, officers, directors,
employees and agents, from any and all claims or causes of action of any nature whatsoever that the AFG Interests ever had, now has or can, shall or may have, by reason of any matter, cause or thing occurring prior to the Closing Date. Effective as
of the Closing Date, AAC, OCI, the Segregated Account and the Rehabilitator will provide an unconditional, full and complete release of AFG and the members of the Creditors Committee, and each of their current and former members, shareholders,
affiliates, officers, directors, employees and agents, from, without limitation, any and all claims or causes of action of any nature whatsoever that such parties ever had, now has or can, shall or may have, by reason of any matter, cause or thing
occurring prior to the Closing Date. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Closing Date will occur no later than 10 business days following the date on which
each of the following conditions has been satisfied or waived by each of the parties to the Mediation Agreement: </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(i)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">entry of a final, non-appealable order by the Rehabilitation Court approving the transactions contemplated by the Mediation Agreement; </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(ii)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">entry of a final, non-appealable order by the Bankrtupcy Court confirming AFGI&#146;s bankruptcy plan; </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(iii)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">resolution of the IRS Dispute that does not (a)&nbsp;require the AAC Subgroup to make a payment to the Internal Revenue Service of more than $100 million or
(b)&nbsp;reduce the Allocated NOL Amount by more than 10%; and </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">(iv)</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">the earliest to occur of the following: (a)&nbsp;the Bankruptcy Court determining that neither an &#147;ownership change&#148; (within the meaning of Section&nbsp;382
of the Code) (an &#147;<U>Ownership Change</U>&#148;) with respect to AAC nor a Deconsolidation Event occurred during the 2010 taxable year; (b)&nbsp;AFGI and the Internal Revenue Service enter into a pre-filing agreement, prior to the filing of
AFGI&#146;s 2011 tax return, by which the Internal Revenue Service agrees that no such Deconsolidation Event or Ownership Change occurred during the 2010 taxable year; or (c)&nbsp;AFGI and the Internal Revenue Service enter into a closing agreement,
by which the Internal Revenue Service agrees that no such Deconsolidation Event or Ownership Change occurred during the 2010 taxable year. </FONT></TD></TR></TABLE> <P STYLE="font-size:18px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="10%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Item&nbsp;9.01.</B></FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Financial Statements and Exhibits. </B></FONT></TD></TR></TABLE> <P STYLE="margin-top:6px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">(c)
Exhibits </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">5 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">


<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD WIDTH="94%"></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP ALIGN="center"> <P STYLE="border-bottom:1px solid #000000;width:25pt" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Exhibit<BR>No.</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"> <P STYLE="border-bottom:1px solid #000000;width:39pt" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Description</B></FONT></P></TD></TR>


<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT STYLE="font-family:Times New Roman" SIZE="2">10.1</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Mediation Agreement, dated as of September 21, 2011, by and among Ambac, Financial Group, Inc., Ambac Assurance Corporation, the Segregated Account of Ambac Assurance Corporation,
the Rehabilitator of the Segregated Account of Ambac Assurance Corporation, the Wisconsin Office of the Commissioner of Insurance and the Official Committee of Unsecured Creditors of Ambac Financial Group, Inc.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT STYLE="font-family:Times New Roman" SIZE="2">10.2</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Form of Expense Sharing and Cost Allocation Agreement.</FONT></TD></TR>
<TR>
<TD HEIGHT="8"></TD>
<TD HEIGHT="8" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top" NOWRAP><FONT STYLE="font-family:Times New Roman" SIZE="2">10.3</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Form of Amendment No. 1 to Cooperation Agreement.</FONT></TD></TR>
</TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">6 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>SIGNATURES </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. </FONT></P>
<P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE">


<TR>
<TD WIDTH="46%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="4%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="2%"></TD>
<TD VALIGN="bottom" WIDTH="1%"></TD>
<TD WIDTH="45%"></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom" COLSPAN="3"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Ambac Financial Group, Inc.</B></FONT></TD></TR>


<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top" COLSPAN="3"><FONT STYLE="font-family:Times New Roman" SIZE="2">(Registrant)</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Dated: September 27, 2011</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT SIZE="">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT SIZE="">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="2">/s/ Stephen M. Ksenak</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Stephen M. Ksenak</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">General Counsel</FONT></TD></TR>
</TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">7 </FONT></P>

</BODY></HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>d236740dex101.htm
<DESCRIPTION>MEDIATION AGREEMENT
<TEXT>
<HTML><HEAD>
<TITLE>Mediation Agreement</TITLE>
</HEAD>
 <BODY BGCOLOR="WHITE">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Exhibit 10.1 </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>MEDIATION AGREEMENT </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">On November&nbsp;8, 2010, Ambac Financial Group, Inc.
(&#147;AFG&#148;) filed for Chapter 11 bankruptcy protection (the &#147;Bankruptcy Case&#148;) in the United States Bankruptcy Court for the Southern District of New York (the &#147;Bankruptcy Court&#148;). This mediation agreement sets forth those
terms and conditions of a possible restructuring of AFG in the Bankruptcy Case that impact Ambac Assurance Corporation (&#147;AAC&#148;) and the Segregated Account of Ambac Assurance Corporation (the &#147;Segregated Account&#148;) which is subject
to a Rehabilitation proceeding pending before the Dane County Circuit Court (the &#147;Rehabilitation Court&#148;), and are, therefore, relevant to the Wisconsin Office of the Commissioner of Insurance (&#147;OCI&#148;), the court-appointed
rehabilitator of the Segregated Account (the &#147;Rehabilitator&#148;), and the Official Committee of Unsecured Creditors of AFG (the &#147;Creditors Committee&#148;). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">This mediation agreement represents an agreement in principle among the parties to resolve and settle certain disputes, as follows: </FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">1.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Except as otherwise approved by the Rehabilitator, AFG shall use its best efforts to preserve the use of net operating losses as defined in Section&nbsp;172 of the
Internal Revenue Code of 1986, as amended (the &#147;Code&#148;), realized by the Group (&#147;NOLs&#148;) for the benefit of the AAC Subgroup as contemplated herein, including but not limited to, refraining from taking any action that would result
in, and taking such affirmative steps as are appropriate to avoid, any Deconsolidation Event (as defined below). In furtherance of the foregoing, AFG shall, effective on the date on which this agreement is signed by all parties (the &#147;Signing
Date&#148;), use its best efforts to obtain a confirmation order from the Bankruptcy Court which (i)&nbsp;memorializes the parties&#146; intent to preserve the use of NOLs for the benefit of the AAC Subgroup and AFG as contemplated herein,
(ii)&nbsp;approves the adoption by reorganized AFG of an NOL-preservation plan to remain in effect so long as NOLs remain for the benefit of AAC as contemplated herein and vests continuing jurisdiction in the Bankruptcy Court to enforce restrictions
adopted in connection with such plan, and (iii)&nbsp;memorializes the parties&#146; intent that any subsequent bankruptcy filing by reorganized AFG with the intent of rejecting this agreement and/or seeking additional value from the AAC Subgroup for
its use of the NOLs is a per se bad faith filing. For purposes of this agreement, a &#147;Deconsolidation Event&#148; is any event that results in neither AAC nor any entity that, pursuant to Section&nbsp;381 of the Code, succeeds to the tax
attributes of AAC described in Section&nbsp;381(b) of the Code, being characterized as an includible corporation with the affiliated group of corporations of which AFG (or any successor thereto) is the common parent, all within the meaning of
Section&nbsp;1504 of the Code. </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">2.</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">AFG and AAC shall, and shall cause their affiliates to, enter into an Amended and Restated Tax Sharing Agreement (the &#147;TSA&#148;), which agreement
shall become effective on the later of (a)&nbsp;the date on which an order is entered pursuant to Section&nbsp;1129 of chapter 11 of title 11 of the United States Bankruptcy Code by the Bankruptcy Court confirming AFG&#146;s chapter 11 plan of
reorganization, as amended, supplemented or modified (the &#147;Bankruptcy Plan&#148;), and (b)&nbsp;the date on which a non-stayed order is </FONT></P></TD></TR></TABLE>

<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">
entered by the Rehabilitation Court approving the transactions contemplated by this agreement (such date, the &#147;<U>Effective Date</U>&#148;), except, once the TSA becomes effective, the NOL
tolling provisions shall have effect as of October&nbsp;1, 2011 (and the portion of the taxable year beginning on October&nbsp;1, 2011 and ending on December&nbsp;31, 2011 shall be considered a separate taxable period for purposes of determining
amounts payable pursuant to the TSA). The TSA shall replace, supersede and nullify in its entirety the existing tax-sharing agreement and related amendments among AFG, AAC and certain of their affiliates. The TSA shall address certain issues
including, but not limited to, the following: </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">a.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Any NOLs generated by the Group (as defined in the TSA) on or prior to, and existing on, September&nbsp;30, 2011 (the &#147;Determination Date&#148;), not taking into
account the consequences of any settlement with respect to the IRS Dispute (defined below) (&#147;Pre-Determination Date NOLs&#148;), shall be available for use by the AAC Subgroup as set forth below. </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">b.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Any NOLs generated by the AAC Subgroup (as defined in the TSA) determined on a separate company tax basis after the Determination Date (the &#147;Post-Determination
Date NOLs&#148;) shall be available for use by the AAC Subgroup at no cost. </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">c.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">The portion of any NOLs generated by the AAC Subgroup during the taxable year 2011 shall be allocated to either the Pre-Determination Date NOLs or the
Post-Determination Date NOLs on the basis of a deemed closing of the books and records of the AAC Subgroup as of the end of the Determination Date. AAC and the other members of the AAC Subgroup agree not to enter into any transaction resulting in
taxable income or loss on or prior to the Determination Date other than in the ordinary course of business and consistent with past practices. For purposes of determining the amount of any NOLs or taxable income pursuant to this agreement,
(i)&nbsp;the surplus notes issued by AAC in June 2010 will be considered indebtedness issued by AAC for federal income tax purposes, (ii)&nbsp;the aggregate issue price, for federal income tax purposes, of the surplus notes issued by AAC in June
2010 and subject to a call option letter agreement shall be treated as equal to $232 million and (iii)&nbsp;the aggregate issue price, for federal income tax purposes, of the remaining surplus notes issued by AAC in June 2010 shall be treated as
equal to $1,060 million. </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">d.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Unless and until there has been a Deconsolidation Event, the amount of Pre-Determination Date NOLs allocated to, and available for use by, the AAC Subgroup to offset
income for federal income tax purposes (the &#147;Allocated NOLs&#148;) shall be an amount (such amount being hereinafter referred to as the &#147;Allocated NOL Amount&#148;) equal to the lesser of: </FONT></TD></TR></TABLE>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(1) $3.8 billion; and </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">(2) the total amount of Pre-Determination Date NOLs, MINUS the sum of (A)&nbsp;the amount of cancellation of indebtedness income realized within the meaning of
</FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">2 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">
Section&nbsp;108 of the Code by AFG pursuant to the consummation of the Bankruptcy Plan and (B)&nbsp;the amount of interest disallowed pursuant to Section&nbsp;382(l)(5)(B) of the Code upon the
consummation of the Bankruptcy Plan. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The AAC Subgroup may utilize the Allocated NOL Amount to offset income for federal income
tax purposes in exchange for a payment pursuant to the TSA in an amount determined pursuant to the table attached hereto as Appendix A, with the applicable percentage for the particular usage tier shown in such table being multiplied by the
aggregate amount of the AAC Subgroup&#146;s federal income tax liability (for the taxable year in which the NOLs within the respective tier are used) that otherwise would have been paid by the AAC Subgroup if such NOLs within the respective tier
were not available for the AAC Subgroup&#146;s use. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Any amounts due from AAC to AFG pursuant to the TSA shall be paid no later
than the date on which the applicable tax return is filed, provided that any such amounts due and owing prior to the Closing Date (as defined in Section&nbsp;11) shall be deposited in an escrow account established under Section&nbsp;6, which will be
transferred to AFG on the Closing Date. The parties shall cooperate with each other and, upon reasonable request, provide information with respect to the tax matters set forth in this agreement. A reduction in the Pre-Determination Date NOLs as a
result of a resolution of the IRS Dispute shall be allocated between the Allocated NOLs and the AFG Allocated NOLs (as defined below) in a manner to be agreed upon by the parties. The same allocation methodology shall be utilized to the greatest
extent possible with respect to the Allocated AAC AMT NOL Amount (as defined below). </FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">e.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Beginning on the fifth anniversary of the Effective Date, prior to the occurrence of a Deconsolidation Event, and subject to AFG&#146;s consent not to be unreasonably
withheld, the AAC Subgroup may utilize Pre-Determination Date NOLs in excess of the Allocated NOL Amount (the &#147;AFG Allocated NOLs&#148;) in exchange for a payment pursuant to the TSA in an amount equal to 25% multiplied by the aggregate amount
of the AAC Subgroup&#146;s federal income tax liability for the taxable year in which the NOLs are used that otherwise would have been paid by the AAC Subgroup if such NOLs were not available for its use. </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">f.</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Following the occurrence of a Deconsolidation Event, pursuant to the election set forth in Section&nbsp;2.i., (1)&nbsp;the amount of Pre-Determination
Date NOLs allocated to, and owned by, the AAC Subgroup (the &#147;Post-Deconsolidation Allocated NOLs&#148;) shall be an amount (such amount being hereinafter referred to as the &#147;Post-Deconsolidation Allocated NOL Amount&#148;) equal to the
(A)&nbsp;the Allocated NOL Amount less (B)&nbsp;the AAC Pre-Deconsolidation Utilized NOL Amount (as defined below) and (2)&nbsp;all Post-Determination Date NOLs (to the extent not previously utilized by the AAC Subgroup) shall be allocated to, and
owned by, the AAC Subgroup. AFG, in its sole discretion, may allocate incremental NOLs to the AAC Subgroup to increase the Post-Deconsolidation Allocated NOLs. AAC shall compensate AFG for the use of the Post-Deconsolidation Allocated NOLs to offset
income for federal income tax purposes in an amount determined pursuant </FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">3 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">
to the table attached hereto as Appendix A, with the applicable percentage for the particular usage tier shown in such table being multiplied by the aggregate amount of the AAC Subgroup&#146;s
federal income tax liability (for the taxable year in which the NOLs within the respective tier are used) that otherwise would have been paid by the AAC Subgroup if such NOLs within the respective tier were not available for the AAC Subgroup&#146;s
use. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">&#147;AAC Pre-Deconsolidation Utilized NOL Amount&#148; is the portion of the Allocated NOL Amount that for purposes of
Section&nbsp;2.d is utilized to offset income for federal income tax purposes as provided herein by AAC following the Determination Date and prior to a Deconsolidation Event. </FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">g.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">It is understood that to the extent that the AAC Subgroup has any available Post-Determination Date NOLs, solely for purposes of determining the amounts payable under
this agreement, such Post-Determination Date NOLs shall be treated as being used prior to utilization of any Allocated NOL Amount or Post-Deconsolidation Allocated NOL Amount. </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">h.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">It is understood that AFG shall be able to utilize the AFG Allocated NOLs. Solely for purposes of determining the amounts payable under this agreement, AFG shall be
treated as using the AFG Allocated NOLs and any NOLs generated by the AFG Subgroup (as defined in the TSA) after the Determination Date (determined on a separate company tax basis without inclusion of the AAC Subgroup) prior to utilization of any
Allocated NOLs or Post-Determination Date NOLs. If and to the extent that AFG utilizes (i)&nbsp;any Pre-Determination Date NOLs in excess of the AFG Allocated NOLs or (ii)&nbsp;any Post-Determination Date NOLs, AFG shall make a payment pursuant to
the TSA in an amount equal to 50% of the aggregate amount of the AFG Subgroup&#146;s federal income tax liability for the taxable year in which the NOLs are used that otherwise would have been paid by AFG if such NOLs were not available for its use.
</FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">i.</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">With respect to any taxable year that includes a Deconsolidation Event, AFG shall, subject to the prior review and approval of the Rehabilitator, make
valid and timely elections pursuant to Treasury Regulation Section&nbsp;1.1502-36 to the extent permitted thereunder such that (i)&nbsp;the NOLs of the AAC Subgroup that exist immediately following a Deconsolidation Event will be an amount equal to
the sum of the Post-Determination Date NOLs existing as of the Deconsolidation Event (to the extent not previously utilized by the AAC Subgroup) and the Post-Deconsolidation Allocated NOL Amount, and (ii)&nbsp;no reduction in the tax basis of any
asset of the AAC Subgroup will be required pursuant to Treasury Regulation Section&nbsp;1.1502-36(d)(4)(i)(D), and no reduction in the amount of any deferred deduction will be required pursuant to Treasury Regulation
Section&nbsp;1.1502-36(d)(4)(i)(C). Any such elections approved by the Rehabilitator shall not be revoked or modified, whether by amended return or otherwise, without the consent of the Rehabilitator. With respect to any taxable year that includes
any event resulting in the application of Treasury Regulation Section&nbsp;1.1502-36 to AAC or the AAC Subgroup other than a Deconsolidation Event (an &#147;Adjustment </FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">4 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">
Event&#148;), AFG shall, subject to the prior review and approval of the Rehabilitator, make valid and timely elections pursuant to Treasury Regulation Section&nbsp;1.1502-36 to the extent
permitted thereunder such that (X)&nbsp;the NOLs of the AAC Subgroup that exist immediately following such Adjustment Event will be an amount equal to the sum of the Post-Determination Date NOLs existing as of the Adjustment Event (to the extent not
previously utilized by the AAC Subgroup prior to such Adjustment Event) and the Allocated NOL Amount less the AAC Pre-Deconsolidation Utilized NOL Amount determined as if the date of the Adjustment Event were a Deconsolidation Event, (Y)&nbsp;the
AMT NOLs of the AAC Subgroup that exist immediately following such Adjustment Event will be an amount equal to the sum of the Post-Determination Date AMT NOLs (as defined in Section&nbsp;2.m below) existing as of the Adjustment Event (to the extent
not previously utilized by the AAC Subgroup prior to such Adjustment Event) and the Allocated AMT NOL Amount (as defined in Section&nbsp;2.m below) less the AAC Pre-Deconsolidation Utilized AMT NOL Amount (as defined in Section&nbsp;2.m below)
determined as if the date of the Adjustment Event were a Deconsolidation Event, and (Z)&nbsp;no reduction in the tax basis of any asset of the AAC Subgroup will be required pursuant to Treasury Regulation Section&nbsp;1.1502-36(d)(4)(i)(D), and no
reduction in the amount of any deferred deduction will be required pursuant to Treasury Regulation Section&nbsp;1.1502-36(d)(4)(i)(C). </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">j.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">With respect to each taxable year of the Group, if AAC or the Rehabilitator notifies AFG, at least 30 days before the Group tax return is filed, that AAC or the
Rehabilitator has reasonably determined that there exists uncertainty as to whether or not a Deconsolidation Event or Adjustment Event has occurred during such taxable year, AFG shall, subject to the prior approval of the Rehabilitator, make such
protective elections or take other similar actions so that if such a Deconsolidation Event or Adjustment Event were determined subsequently to have occurred during such taxable year, the results contemplated by Section&nbsp;2.i would be achieved to
the maximum extent possible. Any such elections or other actions approved by the Rehabilitator shall not be revoked or modified, whether by amended return or otherwise, without the consent of the Rehabilitator. </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">k.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">If a Deconsolidation Event occurs on a date other than the last day of a taxable year of AFG, no election under Treasury Regulation Sections 1.1502-76(b)(2)(ii) or
(iii)&nbsp;(a so-called &#147;ratable allocation&#148; election) shall be made in connection with determining the allocation of the items of the AAC Subgroup between the portion of such taxable year that ends on the date of the Deconsolidation Event
and the remaining portion of such taxable year. </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">l.</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Notwithstanding any provision of this agreement, the provisions of this Section&nbsp;2 shall apply equally and separately with respect to any NOLs that
are utilized in any taxable period with respect to the determination of (a)&nbsp;any tax payable pursuant to Section&nbsp;55 of the Code or any other similar provision of state or local law (&#147;AMT&#148;) by the AAC Subgroup (the &#147;AAC
AMT&#148;) or (b)&nbsp;any federal income tax payable by the AAC Subgroup as provided herein. The amount due and payable from AAC to AFG pursuant to the TSA shall be the sum of (i)&nbsp;the AAC
</FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">5 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">
AMT, (ii)&nbsp;any federal income tax owed by the AAC Subgroup as provided in the TSA (the &#147;AAC Federal Tax&#148;) (reduced by any available tax credits previously generated by payment of
the AAC AMT, including prior to the Effective Date, and not used in any prior taxable year), (iii)&nbsp;the sum of the amounts due and payable under Sections 2.d, 2.e and 2.f (the &#147;Federal Tax Usage Amount&#148;) and (iv)&nbsp;the excess of the
AAC AMT Usage Amount determined under Section&nbsp;2.o over the Federal Tax Usage Amount. For the avoidance of doubt, amounts shall be due and payable from AAC to AFG pursuant to clauses (iii)&nbsp;and (iv)&nbsp;of this Section&nbsp;2.l irrespective
of whether the Federal Tax Usage Amount or the AAC AMT Usage Amount arises prior or subsequent to a Deconsolidation Event. </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">m.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Prior to a Deconsolidation Event and subject to Section&nbsp;2.o, the AAC Subgroup shall, for purposes of determining the AAC AMT pursuant to Section&nbsp;2.l, be
permitted to utilize (subject to any restrictions imposed under the Code or the Treasury Regulations promulgated thereunder) the NOLs of the Group available for use to offset AMT (&#147;AMT NOLs&#148;) in an aggregate amount (the &#147;Allocated AMT
NOL Amount&#148;) equal to the product of (i)&nbsp;the AMT NOLs of the Group and (ii)&nbsp;the percentage (expressed as a decimal) determined by dividing (x)&nbsp;the Allocated NOL Amount by (y)&nbsp;the total NOLs of the Group, in each case, such
NOLs to be determined as of the Determination Date. In addition, any AMT NOL generated by the AAC Subgroup determined on a separate company tax basis after the Determination Date (the &#147;Post-Determination Date AMT NOLs&#148;) shall be available
for use by the AAC Subgroup at no cost. Further, it is understood that to the extent that the AAC Subgroup has any available Post-Determination Date AMT NOLs, solely for purposes of determining the amounts payable under this agreement, such
Post-Determination Date AMT NOLs shall be treated as being used prior to utilization of any Allocated AMT NOL Amount or any Post-Deconsolidation Allocated AMT NOL Amount. </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">n.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Upon a Deconsolidation Event and subject to Section&nbsp;2.o, AFG shall take all actions permitted by law necessary to allocate to AAC an amount of AMT NOLs equal to
(i)&nbsp;the Allocated AMT NOL Amount MINUS the Pre-Deconsolidation AAC Utilized AMT NOL Amount (as defined below), (the &#147;Post-Deconsolidation Allocated AMT NOL Amount&#148;), and (ii)&nbsp;the Post-Determination Date AMT NOLs existing as of
the Deconsolidation Event (to the extent not previously utilized by the AAC Subgroup) and (iii)&nbsp;the amount of any unused AMT credits allocable to any AAC AMT. &#147;AAC Pre-Deconsolidation Utilized AMT NOL Amount&#148; is the portion of the
Allocated AMT NOL Amount that for purposes of Section&nbsp;2.l were utilized to offset income for AMT purposes by the AAC Subgroup following the Determination Date and prior to a Deconsolidation Event (including any AMT NOLs to the extent that they
were not subject to the payment requirement of Section&nbsp;2.l). </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">o.</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">The AAC Subgroup may utilize (i)&nbsp;prior to a Deconsolidation Event, the Allocated AMT NOL Amount or (ii)&nbsp;following a Deconsolidation event,
the Post-Deconsolidation Allocated AMT NOL Amount, in each case, to offset income for AMT purposes (the &#147;AAC AMT NOLs&#148;). The AAC AMT Usage Amount shall </FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">6 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">
be equal to the product of (a)&nbsp;the applicable percentages set forth on the table attached hereto as Appendix A, multiplied by (b)&nbsp;(X)&nbsp;the aggregate amount of the AAC
Subgroup&#146;s AMT liability for the taxable year that otherwise would have been paid by the AAC Subgroup if such AAC AMT NOLs were not available for its use MINUS (Y)&nbsp;the Annual AMT NOL Usage Credit (as defined below).
</FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">p.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">During the taxable year (or portion thereof) beginning January&nbsp;1st, 2011 (the &#147;Initial AMT NOL Period&#148;), the Annual AMT NOL Usage Credit shall be $3
million (the &#147;Initial Period AMT NOL Usage Credit Carry-Over Amount&#148;) with the utilization of such Annual AMT NOL Usage Credit not to exceed the amount that reduces the AAC AMT Usage Amount to equal the Federal Tax Usage Amount to the
extent sufficient credits are available. During the second through seventh taxable years (or portions thereof), the Annual AMT NOL Usage Credit shall be equal to the sum of (i)&nbsp;$3 million and (ii)&nbsp;the excess of $3 million over the lesser
of (A)&nbsp;the portion of the Annual AMT NOL Usage Credit actually utilized in the immediately prior taxable year (or portion thereof) or (B)&nbsp;$3 million, with the utilization of the Annual AMT NOL Usage Credit not to exceed the amount that
reduces the AAC AMT Usage Amount to equal the Federal Tax Usage Amount to the extent sufficient credits are available. During the eighth taxable year beginning after the Initial AMT NOL Period, the Annual AMT NOL Usage Credit shall be equal to the
sum of (i)&nbsp;$10 million and (ii)&nbsp;the excess of $3 million over the lesser of (A)&nbsp;the portion of the Annual AMT NOL Usage Credit actually utilized in the immediately prior taxable year (or portion thereof) or (B)&nbsp;$3 million, with
the utilization of the Annual AMT NOL Usage Credit not to exceed the amount that reduces the AAC AMT Usage Amount to equal the Federal Tax Usage Amount to the extent sufficient credits are available. During all succeeding taxable years (or portions
thereof), the Annual AMT NOL Usage Credit shall be equal to the sum of (i)&nbsp;$10 million and (ii)&nbsp;the excess of $10 million over lesser of (A)&nbsp;the portion of the Annual AMT NOL Usage Credit actually utilized in the immediately prior
taxable year (or portion thereof) or (B)&nbsp;$10 million (the &#147;Subsequent Period AMT NOL Usage Credit Carry-Over Amount&#148;), with the utilization of the Annual AMT NOL Usage Credit not to exceed the amount that reduces the AAC AMT Usage
Amount to equal the Federal Tax Usage Amount to the extent sufficient credits are available. </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">q.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Notwithstanding any other provision of this agreement, (i)&nbsp;any AMT NOL carryover amounts described in Section&nbsp;2.p above, attributable to any specific taxable
year may only be carried to the next succeeding taxable year and may not be carried into any other taxable year, (ii)&nbsp;the sum of Annual AMT NOL Usage Credits utilized by the AAC Subgroup shall not exceed in the aggregate $60 million throughout
the term of the TSA and (iii)&nbsp;the Annual AMT NOL Usage Credit shall not be utilized in the event that the Federal Tax Usage Amount exceeds the AAC AMT Usage Amount (as calculated before giving effect to such Annual AMT NOL Usage Credit).
</FONT></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">7 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">3.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">AFG and AAC shall, and shall cause their affiliates to, enter into an Expense Sharing and Cost Allocation Agreement, which agreement shall become effective on the
Effective Date. The Expense Sharing and Cost Allocation Agreement shall provide for the following: </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">a.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Until (and including) the fifth anniversary of the Effective Date, AAC shall promptly pay all reasonable AFG operating expenses annually in arrears, subject to a $5
million per annum cap. Following the fifth anniversary of the Effective Date, AAC shall, only with the approval of the Rehabilitator, pay all reasonable AFG operating expenses in arrears subject to a $4 million per annum cap. In the event that the
Rehabilitator declines to approve AAC&#146;s request to pay reasonable AFG operating expenses in any such year, AFG shall have no further obligations under this agreement. </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">b.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">AFG shall prepare in good faith an annual operating expense budget (based on reasonable assumptions) for the forthcoming fiscal year, in a form reasonably satisfactory
to the Rehabilitator (each, an &#147;Annual Budget&#148;). As soon as available, and in any event within 30 days prior to the commencement of each calendar year, AFG shall provide each Annual Budget to the Rehabilitator. Within 45 days after each
March&nbsp;31,&nbsp;June&nbsp;30 and September&nbsp;30, AFG shall provide the Rehabilitator with a comparison (in form reasonably satisfactory to the Rehabilitator) of (a)&nbsp;actual expenses incurred through such date, and expenses expected to be
incurred from such date until the end of the then-current fiscal year, to (b)&nbsp;the projected expenses as set forth on the Annual Budget. AFG&#146;s actual operating expenses shall not exceed the amounts set forth in the Annual Budget unless such
excess expenses are reasonable. </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">c.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">AAC&#146;s obligation to reimburse AFG operating expenses shall terminate upon the earlier to occur of the following events: (i)&nbsp;a breach by AFG of any material
term of this agreement (including, but not limited to, filing for a new bankruptcy or taking any action which impairs the ability of AAC and/or the Rehabilitator to continue to use NOLs in accordance with this agreement); and (ii)&nbsp;the
imposition under Section&nbsp;382(a) of the Code of an annual &#147;section 382 limitation&#148; (within the meaning of Section&nbsp;382(b) of the Code) of $37.5 million or less on the use of NOLs available to the AAC Subgroup under this agreement.
In addition, AAC may elect to terminate its obligation to reimburse AFG operating expenses to the extent that none of the NOLs included in the Allocated NOL Amount remains available for use by the AAC Subgroup. </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">d.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Until AAC&#146;s obligation to reimburse AFG operating expenses shall have terminated as provided in Section&nbsp;3.c, AFG shall not make any cash distributions to
common stockholders if, following such distribution, AFG would have total unrestricted cash and other liquid assets of less than $5 million. </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">4.</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Notwithstanding any existing agreement between AAC and AFG and subject to the following sentence, effective on the Signing Date, AAC and AFG will share
all reasonable litigation fees and expenses incurred by AFG on or after November&nbsp;1, 2010, in the adversary proceeding (including appeals, if any) initiated by AFG as debtor in the Bankruptcy Case against the Internal Revenue Service
(&#147;IRS&#148;) (captioned Ambac </FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">8 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">
Financial Group, Inc. vs. United States of America, Case No.&nbsp;10-04210) (the &#147;IRS Dispute&#148;), on the basis of 85% to AAC and 15% to AFG. Furthermore, AAC agrees to pay AFG
(a)&nbsp;on the Signing Date, or as soon as practicable thereafter, an amount equal to 85% of all expenses incurred by AFG on or after November&nbsp;1, 2010 and through the Signing Date in relation to the IRS Dispute (subject to a $2 million credit
for amounts already paid by AAC in connection with the IRS Dispute) and (b)&nbsp;on a monthly basis following the Signing Date an amount equal to 85% of all reasonable expenses incurred by AFG on or after the Signing Date in relation to the IRS
Dispute. AFG shall not settle or offer to settle the IRS Dispute, incur any defense costs or otherwise assume any contractual obligation, admit any liability, voluntarily make any payment or otherwise agree to any judgment with respect to the IRS
Dispute without the written consent of each of AAC, which shall not be unreasonably withheld, and the Rehabilitator in its sole and absolute discretion. Each of AAC and the Rehabilitator hereby consents to the defense costs incurred by AFG and AAC
(i)&nbsp;prior to the Signing Date with respect to the IRS Dispute, the invoices for which have been provided to AAC and the Rehabilitator, and (ii)&nbsp;in implementing the litigation strategy that AFG is currently pursuing in connection with the
IRS Dispute. AAC and the Rehabilitator shall be entitled to full cooperation and all information and particulars they or either of them may request from AFG in relation to the IRS Dispute and any other issues that AAC may have relative to the IRS,
including, without limitation, express authorization to engage with IRS directly on matters arising under the plan of rehabilitation with respect to the Segregated Account and any amendment or subsequent iteration thereof (the &#147;Plan of
Rehabilitation&#148;) (including any efforts to obtain a private letter ruling, pre-filing agreement or other form of guidance or clarification). </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">5.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">AFG, AAC, the Segregated Account and the Rehabilitator shall enter into an Amendment No.&nbsp;1 to Cooperation Agreement, which shall become effective on the Effective
Date. Amendment No.&nbsp;1 to the Cooperation Agreement shall provide for the following: </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">a.</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Following each taxable year during any part of which AAC is a member of the Group, AFG shall, no later than April&nbsp;1 of such subsequent year,
provide the Rehabilitator with a summary of the material provisions of AFG&#146;s expected tax position and the expected differences between AAC&#146;s statutory financial statements and AFG&#146;s expected tax positions. The Rehabilitator shall
notify AFG and AAC in writing of any concerns of the Rehabilitator with respect to any such expected tax positions no later than May&nbsp;1 of such year. Promptly thereafter, AFG and AAC shall meet with the Rehabilitator to resolve in good faith
such concerns. In the event that the Rehabilitator is unable to resolve a dispute with AFG and AAC concerning an expected tax position by July&nbsp;1 of such year, the parties shall immediately submit such dispute to expedited arbitration before a
single arbitrator with the requisite tax expertise whose decision shall be issued no later than August&nbsp;31 of such year and shall be final and binding upon the parties. The parties shall agree to such further procedures as are necessary and
prudent to permit the arbitrator to issue a decision by August&nbsp;31 of such year. If the expected tax position relates to the AAC Group, the sole issue before the arbitrator shall be whether the tax position advocated by the Rehabilitator is more
likely than not to be upheld by a court of competent jurisdiction in a subsequent </FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">9 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">
challenge to such position by the IRS. If the expected tax position does not relate to the AAC Group, the sole issue before the arbitrator shall be whether the tax position advocated by AFG is
more likely than not to be upheld by a court of competent jurisdiction in a subsequent challenge to such position by the IRS. In the event that the arbitrator rules that the tax position advocated by the Rehabilitator (where the expected tax
position relates to the AAC Group) or the tax position advocated by AFG (where the expected tax position does not relate to the AAC Group) is more likely than not to be upheld by a court of competent jurisdiction in a subsequent challenge to such
position by the IRS, AFG shall file its return on the basis of such advocated tax position, which position may be disclosed in such return. In the event that the arbitrator does not rule that a tax position advocated by either the Rehabilitator or
AFG, as the case may be, is more likely than not to be upheld by a court of competent jurisdiction in a subsequent challenge to such position by the IRS, such party shall be precluded from advocating for such tax position in any subsequent year
absent any change or changes in facts or circumstances that would support such tax position. The cost of the arbitrator will be split between AFG and AAC. The Rehabilitator represents that it is not presently aware of any fact, including, without
limitation, any plan of rehabilitation for the Segregated Account that is presently being considered, upon which it would seek to change (under this Section&nbsp;5.a) the method of realization or accrual of deductions for interest and original issue
discount on the surplus notes issued by AAC in June 2010, including the application of Sections 163(e)(5) and 163(i) of the Code. </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">b.</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">AAC shall (i)&nbsp;provide the Rehabilitator the opportunity to participate in all meetings with AAC management to discuss loss reserves to be included
in any statutory financial report; (ii)&nbsp;provide the Rehabilitator with all reports provided to AAC management (when so provided) concerning the assumptions and vendors utilized or to be utilized in arriving at statutory loss reserves, together
with any related reports or materials requested by the Rehabilitator; and (iii)&nbsp;obtain the approval of the Rehabilitator prior to accepting repayment of any intercompany loan in an amount in excess of $50,000,000 per annum or any modification
to or deemed repayment of any intercompany loan in an amount that would result in AAC recognizing income or a reduction in issue price in excess of $50,000,000 per annum. No later than February&nbsp;1</FONT><FONT
STYLE="font-family:Times New Roman" SIZE="1"><SUP STYLE="vertical-align:baseline; position:relative; bottom:.8ex">st</SUP></FONT><FONT STYLE="font-family:Times New Roman" SIZE="2"> of each year (or more frequently if requested by AAC), if AAC
proposes to make any changes in the assumptions or vendors utilized in determining statutory loss reserves from the prior year&#146;s statutory loss reserves (or, with respect to 2011, the statutory loss reserves for the period from
September&nbsp;30, 2011 to December&nbsp;31, 2011), which changes would cause the difference (whether positive or negative) between (w)&nbsp;AAC&#146;s statutory reserves determined with such proposed changes and (x)&nbsp;AAC&#146;s statutory
reserves determined without such proposed changes to exceed the lesser of (y)&nbsp;$200,000,000 or (z)&nbsp;10% of AAC&#146;s statutory reserves determined without such proposed changes, AAC shall seek and obtain the approval of its loss reserves
from the Rehabilitator, which approval shall not be unreasonably withheld or delayed. In the event that the Rehabilitator disputes AAC&#146;s loss reserves and does not provide such approval, then, unless OCI prescribes an accounting practice
</FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">10 </FONT></P>



<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">
requiring AAC to follow the position of the Rehabilitator, the parties shall (i)&nbsp;immediately submit such dispute to expedited arbitration before a single arbitrator with requisite expertise
to decide which of the positions most appropriately reflects expected claim payments or (ii)&nbsp;jointly agree to an alternative method of dispute resolution. The decision of an arbitrator shall be final and binding upon the parties, and shall be
rendered in such form and substance as shall be necessary to permit AAC to reasonably rely thereon for purposes of filing its statutory financial statements. The parties shall agree to such procedures as are necessary and prudent to permit the
arbitrator to issue a decision by no later than ten business days before the date that the annual financial reports are required to be filed (the &#147;Filing Date&#148;). If the differences of the parties are not resolved in a manner described
above at least ten business days before the Filing Date, then AAC shall request an extension of the Filing Date from OCI. If OCI agrees to such an extension, it will cooperate with AAC to secure extensions in other jurisdictions as necessary. If
such extension (or subsequent extension) is not granted, AAC shall be entitled to file its financial reports on the basis of its own loss reserving positions. </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">c.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Any changes to AAC&#146;s existing Investment Policy (dated November&nbsp;18, 2010) shall be submitted to the Rehabilitator for approval, which approval shall not be
unreasonably withheld. The Rehabilitator shall meet with AAC management (including the CFO) semi-annually to discuss the Investment Policy and any changes appropriate thereto. The Rehabilitator may recommend changes to the Investment Policy and AAC
shall consider such recommendations in good faith. The Rehabilitator shall also be provided with periodic reports of investment transactions in the ordinary course. Notwithstanding anything to the contrary in the Management Services Agreement or any
other agreement, in the event that AAC&#146;s rejection of any proposed changes are not reasonable and fair to the interests of AAC and the Segregated Account, or are not protective or equitable to the interests of AAC and the Segregated Account
policyholders generally, the Rehabilitator may direct AAC to transfer investment management functions relating to the investment portfolio to a third party jointly chosen by the Rehabilitator and AAC. With respect to any subsequent transfers to
third parties of investment management functions relating to the investment portfolio, such third parties shall be jointly chosen by the Rehabilitator and AAC. If the investment management function is transferred in accordance with the foregoing,
the parties shall agree to provisions similar to those contained in Section&nbsp;2.05 of the Cooperation Agreement with respect to such replacement investment manager. </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">6.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">On the Effective Date, AAC shall transfer to an escrow account $30 million (the &#147;Cash Grant&#148;). On the Closing Date, the Cash Grant shall be transferred to
AFG. The TSA shall provide that in consideration of AAC&#146;s payment of the Cash Grant, to the extent that AAC makes any payments to AFG for NOL use as set forth in Section&nbsp;2 of this agreement and memorialized in the TSA, AAC shall receive a
credit against the first $5 million in payments due under each of NOL Usage Tier A, B, and C shown in Section&nbsp;2 of this agreement provided that the sum of the credits for all tiers shall not exceed $15 million. </FONT></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">11 </FONT></P>



<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">7.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Effective as of the Signing Date, the Rehabilitator shall, in conjunction with its petition to the Rehabilitation Court for prompt approval of the transactions
contemplated by this agreement pursuant to Section&nbsp;11, seek an order providing that in the event that any obligations of AAC under this agreement become subject to the authority of the Rehabilitation Court or any other court of competent
jurisdiction overseeing any delinquency proceeding of AAC or any of its assets or liabilities, the obligations of AAC to (i)&nbsp;make payments to AFG for NOL use pursuant to the TSA, (ii)&nbsp;reimburse reasonable AFG operating expenses pursuant to
the Expense Sharing and Cost Allocation Agreement (as provided in Section&nbsp;3 of this agreement), (iii)&nbsp;pay the Cash Grant (as provided in Section&nbsp;6 of this agreement), (iv)&nbsp;make all payments described in Section&nbsp;2.l and
(v)&nbsp;make all payments described in Section&nbsp;4, in each case, shall be provided administrative-expense status in any such insurer delinquency proceeding. The junior surplus notes to be issued pursuant to Section&nbsp;8 of this Agreement
shall not be entitled to administrative-expense priority. The priority level of any claim by AFG for damages arising from AAC&#146;s breach of any other obligation under this agreement (including such other obligations as memorialized in the TSA,
the Expense Sharing and Cost Allocation Agreement or the Cooperation Agreement) shall be a matter of further proceedings before the Rehabilitation Court, with each party herein reserving its rights in that regard. The Rehabilitator, OCI and AAC
acknowledge that the phrase &#147;the July&nbsp;18, 1991 Tax Sharing Agreement, as amended&#148; in Amendment No.&nbsp;1 to the Plan of Operation does not include the TSA and, that the TSA, once executed, will not be allocated to the Segregated
Account by operation of Amendment No.&nbsp;1 to the Plan of Operation. Other than the foregoing, nothing herein shall be interpreted to limit the authority of the Rehabilitator over AAC in the event that AAC becomes subject to a delinquency
proceeding under Chapter 645 of the Wisconsin Statutes. </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">8.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Segregated Account shall issue, on the Closing Date, $350 million of junior surplus notes to AFG, the terms of which shall be mutually agreed and no less favorable
to AFG than those extended to any other recipient of junior surplus notes as a creditor described by subsections (5)&nbsp;or (6)&nbsp;of Section&nbsp;645.68 of the Wisconsin Statutes. </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">9.</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">Effective as of the Closing Date, AFG, and the members of the Creditors Committee (the &#147;AFG Interests&#148;) shall provide an unconditional, full
and complete release of OCI, the Rehabilitator, AAC and the Segregated Account, and each of their respective current and former members, shareholders, affiliates, officers, directors, employees and agents (including any attorneys, financial
advisors, investment bankers, consultants and other professionals retained by such persons, and any other advisors or experts with whom OCI, the Rehabilitator, AAC or the Segregated Account consults), from any and all claims or causes of action of
any nature whatsoever that the AFG Interests (and/or any person claiming by or through the AFG Interests) ever had, now has or can, shall or may have, by reason of any matter, cause or thing occurring prior to the Closing Date, including but not
limited to (i)&nbsp;any preference, fraudulent conveyance or constructive trust claims AFG may have against AAC and (ii)&nbsp;any liability to AFG pertaining to any possible misallocation of up to $38,485,850 of tax refunds received by AAC in
</FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">12 </FONT></P>



<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">
September 2009 and February 2010. Effective as of the Closing Date, AAC, OCI, the Segregated Account, and the Rehabilitator shall provide an unconditional, full and complete release of AFG and
the members of the Creditors Committee, and each of their current and former members, shareholders, affiliates, officers, directors, employees and agents (including any attorneys, financial advisors, investment bankers, consultants and other
professionals retained by such persons, and any other advisors or experts with which it consults), from, without limitation, any and all claims or causes of action of any nature whatsoever that such parties (and/or any person claiming by or through
such parties) ever had, now has or can, shall or may have, by reason of any matter, cause or thing occurring prior to the Closing Date. </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">10.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Upon the reasonable request of AFG at any time on or after the Signing Date, AAC commits to undertake commercially reasonable efforts to transfer to AFG a more than
insignificant amount of an active trade or business, subject to (i)&nbsp;OCI&#146;s determination that such a transfer does not violate the law, is reasonable and fair to the interests of AAC and the Segregated Account, and protects and is equitable
to the interests of AAC and the Segregated Account policyholders generally, and (ii)&nbsp;AFG&#146;s receipt of a tax opinion stating that it is at least more likely than not that such transfer satisfies the requirements of Section&nbsp;269 of the
Code. </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">11.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">The Closing Date shall occur no later than ten business days following the date on which each of the following conditions has been satisfied or waived by each of the
parties hereto: </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">a.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">entry of a final, non-appealable order by the Rehabilitation Court approving the transactions contemplated by this agreement, such approval to be sought within 30 days
of the filing of the Bankruptcy Plan; </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">b.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">entry of a final, non-appealable order by the Bankruptcy Court confirming the Bankruptcy Plan, including the transactions contemplated by this agreement;
</FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">c.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">resolution of the IRS Dispute, either by settlement as contemplated by Section&nbsp;4 or by judgment of a court of competent jurisdiction that does not (i)&nbsp;require
the AAC Subgroup to make a payment to the IRS of more than $100 million in connection with the IRS&#146;s claim for the recovery of certain federal tax refunds that were received prior to November&nbsp;7, 2010 by AFG, AAC or their affiliates or
(ii)&nbsp;reduce the Allocated NOL Amount by more than 10%; and </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">d.</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">the earliest to occur of the following: (i)&nbsp;the United States Bankruptcy Court for the Southern District of New York enters a final,
non-appealable order determining that neither an &#147;ownership change&#148; (within the meaning of Section&nbsp;382 of the Code) (an &#147;Ownership Change&#148;) with respect to AAC nor a Deconsolidation Event occurred during the 2010 taxable
year; in a form reasonably acceptable to the Rehabilitator with respect to such matters only, or (ii)&nbsp;AFG (on behalf of itself, AAC, and the other members of the Group) and the IRS enter into a pre-filing agreement with the IRS, prior to the
filing of AFG&#146;s 2011 tax return, by which the IRS agrees that no such Deconsolidation Event or </FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">13 </FONT></P>



<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="8%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">
Ownership Change occurred during the 2010 taxable year; or (iii)&nbsp;AFG (on behalf of itself, AAC, and the other members of the Group) and the IRS enter into a closing agreement, by which the
IRS agrees that no such Deconsolidation Event or Ownership Change occurred during the 2010 taxable year. </FONT></TD></TR></TABLE>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Promptly following the Signing Date, the Rehabilitator shall petition the Rehabilitation Court for approval of the transactions
contemplated by this agreement, and AFG shall petition the Bankruptcy Court approval of the transactions contemplated by this agreement. AFG and the Rehabilitator shall use their best efforts to ensure that such orders are upheld on any appeal. The
Creditors Committee shall support AFG&#146;s application for Bankruptcy Court approval of this agreement. The approval from the Bankruptcy Court shall memorialize the parties&#146; intent to preserve use of NOLs for the benefit of AAC and AFG as
contemplated herein. The parties shall use their best efforts to ensure that the order contemplated by subsection (i)&nbsp;of Section&nbsp;11.d is obtained, and if such an order cannot be obtained, the parties shall use their commercially reasonable
efforts to obtain the pre-filing agreement contemplated by section (ii)&nbsp;of Section&nbsp;11.d. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">In the event that a
condition to the Closing Date cannot be satisfied, each of the TSA, Amendment No.&nbsp;1 to Cooperation Agreement, and the reimbursement of AFGI operating expenses set forth in Section&nbsp;3 shall terminate and be of no further force or effect, the
Cash Grant shall be released from escrow to AAC, any other amounts held in escrow pursuant to Section&nbsp;2.d shall be released to AAC, and the parties hereto shall have no further obligations hereunder. </FONT></P>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">12.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Upon the reasonable request of AAC at any time on or after the Closing Date, OCI commits to allow AAC to repurchase surplus notes, preferred stock or other securities
or other consideration issued pursuant to the Plan of Rehabilitation (whether issued by AAC or the Segregated Account) subject to OCI&#146;s determination in its sole and absolute discretion that such repurchases do not violate the law, are
reasonable and fair to the interests of AAC and the Segregated Account, and protect and are equitable to the interests of AAC and the Segregated Account policyholders generally. </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">13.</FONT></TD>
<TD ALIGN="left" VALIGN="top"> <P ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">In the event that AFG believes AAC, OCI or the Rehabilitator to be, or in the event that the Rehabilitator believes AFG to be, in material breach of,
or otherwise not complying with their respective material obligations under, this agreement, such party shall provide the alleged breaching or non-complying party with a written notice (copied to their last known legal counsel) describing, in
reasonable detail, the nature of the alleged breach or non-compliance. Following delivery of such written notice, the parties shall attempt, in good faith, to resolve their dispute. The party served with a notice of breach or non-compliance shall
have 30 days to cure the alleged breach or non-compliance. In the event that there is no cure and the parties are unable to resolve their dispute, any party alleging such breach or non-compliance may, not less than 45 days following delivery of such
written notice, seek a judgment from the Rehabilitation Court that the other party has breached this agreement. Solely for purposes of resolving such dispute, AFG shall consent to the jurisdiction of the Rehabilitation Court. In the event that the
Rehabilitation Court enters a final, non-appealable order in favor of any party alleging such breach or non-compliance, such party may ask the court to grant such further relief as the court
</FONT></P></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">14 </FONT></P>



<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">


<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">
deems appropriate in light of the nature and severity of the breach or non-performance, including specific performance, termination of the parties&#146; obligations under this agreement and/or
monetary damages. </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">14.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">The agreements, modifications to agreements and other transactions described herein shall be structured, to the extent practicable, to comply with the Plan of
Rehabilitation and with the Settlement Agreement among AFG, AAC and Ambac Credit Products, LLP (&#147;ACP&#148;), on the one hand, and certain counterparties to outstanding credit-default swaps with ACP that were guaranteed by AAC, on the other,
effective as of June&nbsp;7, 2010. </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">15.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">Except as provided in Section&nbsp;9, releases shall be as set forth in the Bankruptcy Plan. </FONT></TD></TR></TABLE>
<P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">16.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">This agreement shall be governed by the law of the State of New York. </FONT></TD></TR></TABLE> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE STYLE="BORDER-COLLAPSE:COLLAPSE" BORDER="0" CELLPADDING="0" CELLSPACING="0" WIDTH="100%">
<TR>
<TD WIDTH="4%" VALIGN="top" ALIGN="left"><FONT STYLE="font-family:Times New Roman" SIZE="2">17.</FONT></TD>
<TD ALIGN="left" VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">The parties acknowledge and agree that this agreement is intended to create a binding agreement among the parties. </FONT></TD></TR></TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">15 </FONT></P>



<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">IN WITNESS WHEREOF, the parties hereto have caused this agreement to be duly executed and delivered as of
this 21st day of September, 2011. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><DIV ALIGN="right">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE">


<TR>
<TD WIDTH="6%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD WIDTH="92%"></TD></TR>


<TR>
<TD VALIGN="top" COLSPAN="3"><FONT STYLE="font-family:Times New Roman" SIZE="2">AMBAC FINANCIAL GROUP, INC.</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="2">/s/ Diana Adams</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Name: Diana Adams</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Title: President and CEO</FONT></TD></TR>
<TR>
<TD HEIGHT="16" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT STYLE="font-family:Times New Roman" SIZE="2">AMBAC ASSURANCE CORPORATION</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="2">/s/ David Trick</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Name: David Trick</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Title: Chief Financial Officer</FONT></TD></TR>
<TR>
<TD HEIGHT="16" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT STYLE="font-family:Times New Roman" SIZE="2">THE SEGREGATED ACCOUNT OF AMBAC ASSURANCE CORPORATION</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="2">/s/ Roger Peterson</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Name: Roger Peterson</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Title: Special Deputy Commissioner</FONT></TD></TR>
<TR>
<TD HEIGHT="16" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">REHABILITATOR OF THE</FONT></P>
<P STYLE="margin-top:0px;margin-bottom:1px"><FONT STYLE="font-family:Times New Roman" SIZE="2">SEGREGATED ACCOUNT OF AMBAC ASSURANCE CORPORATION</FONT></P></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="2">/s/ Theodore K. Nickel</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Name: Theodore K. Nickel</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Title: Commissioner</FONT></TD></TR>
<TR>
<TD HEIGHT="16" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT STYLE="font-family:Times New Roman" SIZE="2">THE WISCONSIN OFFICE OF THE COMMISSIONER OF INSURANCE</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="2">/s/ Theodore K. Nickel</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Name: Theodore K. Nickel</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Title: Commissioner</FONT></TD></TR>
</TABLE></DIV>

<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <DIV ALIGN="right">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE">


<TR>
<TD WIDTH="100%"></TD></TR>


<TR>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">OFFICIAL COMMITTEE OF</FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">UNSECURED CREDITORS OF AMBAC</FONT></P> <P STYLE="margin-top:0px;margin-bottom:1px"><FONT STYLE="font-family:Times New Roman" SIZE="2">FINANCIAL GROUP,
INC.</FONT></P></TD></TR>
<TR>
<TD HEIGHT="16"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">By its counsel, Morrison&nbsp;&amp; Foerster, LLP</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD></TR>
<TR>
<TD VALIGN="top" STYLE="BORDER-BOTTOM:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="2">/s/ Anthony Princi, Esq.</FONT></TD></TR>
<TR>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Name: Anthony Princi, Esq.</FONT></TD></TR>
</TABLE></DIV>

<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2">Appendix A </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>NOL USAGE TABLE </B></FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="76%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="9%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD WIDTH="77%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD WIDTH="8%"></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP ALIGN="center"> <P STYLE="border-bottom:1px solid #000000;width:39pt" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>NOL&nbsp;Usage<BR>Tier</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center">
<P STYLE="border-bottom:1px solid #000000;width:134pt" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Allocated NOLs&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center" STYLE="border-bottom:1px solid #000000"> <P STYLE="margin-top:0px;margin-bottom:1px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Applicable<BR>Percentage</B></FONT></P></TD></TR>


<TR BGCOLOR="#cceeff">
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-left:1.00em; text-indent:-1.00em" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">A</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">The first $0.5 billion</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">15%</FONT></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-left:1.00em; text-indent:-1.00em" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">B</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">The next $1.1 billion after Tier A</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">40%</FONT></TD></TR>
<TR BGCOLOR="#cceeff">
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-left:1.00em; text-indent:-1.00em" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">C</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">The next $1.1 billion after Tier B</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">10%</FONT></TD></TR>
<TR>
<TD VALIGN="top" ALIGN="center"> <P STYLE="margin-left:1.00em; text-indent:-1.00em" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">D</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">The next $1.1 billion after Tier C</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">15%</FONT></TD></TR>
</TABLE> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">In the event that the Allocated NOL Amount or Allocated AMT NOL Amount is less than $3.8 billion, the size of each usage
tier will be reduced proportionally. Such proportionate reduction shall be applied separately to the Allocated NOL Amount and the Allocated AMT NOL Amount. For the avoidance of doubt, if the Allocated NOL Amount is 10% less than $3.8 billion and the
Allocated AMT NOL Amount is 20% less than $3.8 billion, then the size of each usage tier within the Allocated NOL Amount will be reduced by 10% as compared to the representative usage tiers shown above and the size of each usage tier within the
Allocated AMT NOL Amount will be reduced by 20% as compared to the representative usage tiers shown above. </FONT></P>
</BODY></HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>d236740dex102.htm
<DESCRIPTION>FORM OF EXPENSES SHARING AND COST ALLOCATION AGREEMENT
<TEXT>
<HTML><HEAD>
<TITLE>Form of Expenses Sharing and Cost Allocation Agreement</TITLE>
</HEAD>
 <BODY BGCOLOR="WHITE">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Exhibit 10.2 </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>EXPENSE SHARING AND COST ALLOCATION AGREEMENT </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">Expense Sharing and Cost
Allocation Agreement (this &#147;Agreement&#148;), effective as of the later of (a)&nbsp;the date on which an order is entered pursuant to Section&nbsp;1129 of chapter 11 of title 11 of the United States Bankruptcy Code by the United States
Bankruptcy Court for the Southern District of New York confirming Ambac Financial Group, Inc.&#146;s (&#147;AFGI&#148;) chapter 11 plan of reorganization, as amended, supplemented or modified, and (b)&nbsp;the date on which a non-stayed order is
entered by the Dane County Circuit Court (the &#147;Rehabilitation Court&#148;) approving this Agreement (such date, the &#147;Effective Date&#148;), by and among Ambac Assurance Corporation, a Wisconsin stock insurance corporation
(&#147;Ambac&#148;), AFGI and their respective subsidiaries and affiliates (other than Ambac Assurance UK Limited) as listed on Schedule A attached hereto and made a part hereof, as such Schedule A may be amended from time to time (together with
Ambac and AFGI, the &#147;Affiliates&#148;). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">WHEREAS, certain of the Affiliates incur costs and expenses in support of
certain service departments or functions, which service departments or functions are necessary or beneficial for certain other Affiliates; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">WHEREAS, the costs and expenses incurred in support of each service department or function should be allocated among the Affiliates benefiting from such service department or function according to a
defined allocation methodology; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">WHEREAS, this Agreement terminates and supersedes all prior expense sharing and cost
allocation agreements among the Affiliates, including, but not limited to, that certain Expense Sharing and Cost Allocation Agreement effective as of January&nbsp;1, 1997 and that certain Expense Sharing And Cost Allocation Agreement dated as of
January&nbsp;1, 2007; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">WHEREAS, the Wisconsin Office of the Commissioner of Insurance (&#147;OCI&#148;) commenced a
rehabilitation proceeding with respect to the Segregated Account of Ambac Assurance Corporation in the Wisconsin Circuit Court for Dane County on March&nbsp;24, 2010 (the &#147;Rehabilitation Proceeding&#148;) in which the Wisconsin Commissioner of
Insurance was appointed Rehabilitator of the Segregated Account (the &#147;Rehabilitator&#148;); and </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">WHEREAS, AFGI filed a
voluntary petition for relief under chapter 11 of title 11 of the United States Bankruptcy Code (the &#147;Bankruptcy Code&#148;) in the United States Bankruptcy Court for the Southern District of New York (the &#147;Bankruptcy Court&#148;) on
November&nbsp;8, 2010 (the &#147;Bankruptcy Case&#148;), and continues to manage and operate its business as debtor in possession pursuant to Section&nbsp;1107(a) and 1108 of the Bankruptcy Code. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as follows: </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">1. <U>Direct Expenses</U>. To the extent feasible, each of Ambac
and AFGI shall pay all of its own direct expenses, other than expenses in a <I>de minimis</I> amount incurred by it, including, but not limited to, compensation expenses (consisting of base salary, bonus and other compensation expenses), severance
expenses, payroll taxes and third-party expenses, including travel, legal and </FONT></P>

<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
consulting expenses. Notwithstanding anything to the contrary in this Agreement, amounts owed by AFGI to Ambac pursuant to this Agreement for the actual and necessary costs and expenses of
preserving AFGI&#146;s bankruptcy estate shall be allowed as administrative expenses pursuant to Section&nbsp;503 of the Bankruptcy Code. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">2. <U>Expense Allocation and Methodology</U>. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(a) Compensation costs and
accruals for compensation costs (including, but not limited to, base compensation, bonuses, severance and payroll taxes) for each shared services department shall be allocated among all Affiliates benefiting from such service department based on the
percentage of time spent supporting the activities of each Affiliate. Shared services departments include, but are not limited to, legal, treasury, tax, financial control, risk management, internal audit, investment portfolio management and
executive officers. The percentage of time spent supporting the activities of the Segregated Account of Ambac Assurance Corporation (the &#147;Segregated Account&#148;), Ambac and its subsidiaries, on the one hand, and AFGI and its subsidiaries
(other than Ambac and its subsidiaries) on the other, shall be determined on the basis of individual time sheets. Individual time sheets shall be completed by each shared services department employee who supports the activities of the Segregated
Account, Ambac and its subsidiaries, on the one hand, and AFGI and its subsidiaries (other than Ambac and its subsidiaries) on the other, as mutually determined by the parties. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(b) Overhead department costs (including, but not limited to, premises, depreciation and corporate insurance other than D&amp;O
insurance, as well as the total expenses of overhead departments) shall be allocated among all Affiliates based on the percentage of time spent by the shared services departments supporting the activities of each Affiliate. Overhead departments
include, but are not limited to, administration, technology and human resources. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(c) Notwithstanding Sections 2(a) and 2(b)
above, expenses incurred by any Affiliate relating to public disclosure and fresh start accounting in connection with the Bankruptcy Case (including compensation costs and all expenses arising from AFGI&#146;s disclosure obligations as a publicly
traded company, including but not limited to operational and accounting expenses arising from the preparation of financial statements and other reporting requirements), D&amp;O insurance, and director fees shall be allocated among all Affiliates
benefiting from such matters in accordance with the methodologies set forth in Schedule B attached hereto. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(d) The expense
allocation and methodology set forth in this Section&nbsp;2 shall be implemented by the Affiliates no later than one hundred and twenty (120)&nbsp;days following the Effective Date. During this period, the Affiliates shall use reasonable efforts to
implement the processes set forth in this Agreement while the necessary IT systems are modified to operate according to the expense allocation and methodology set forth in this Section&nbsp;2. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">3. <U>Interim Payments by AFGI</U>. Within twenty (20)&nbsp;days of the end of each month, Ambac shall provide to AFGI (i)&nbsp;an
estimate of the amount of AFGI&#146;s expense allocation, which estimate may be based on AFGI&#146;s actual expense allocation for the immediately prior quarter, and (ii)&nbsp;the amount of any direct expenses of AFGI paid directly by Ambac during
such month, which amounts contemplated by both clauses (i)&nbsp;and (ii)&nbsp;shall be paid by AFGI to Ambac within five (5)&nbsp;days of receipt. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">2 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">4. <U>Interim Payments by Ambac</U>. Within twenty (20)&nbsp;days of the end of each month,
AFGI shall provide to Ambac (i)&nbsp;an estimate of the amount of Ambac&#146;s expense allocation, which estimate may be based on Ambac&#146;s actual expense allocation for the immediately prior quarter, (ii)&nbsp;the amount of Ambac&#146;s expense
allocation relating to the adversary proceeding initiated by AFGI as debtor in the Bankruptcy Case against the Internal Revenue Service (captioned Ambac Financial Group, Inc. vs. United States of America, Case No.&nbsp;10-04210) (the &#147;IRS
Dispute&#148;) pursuant to Section&nbsp;4 of the Mediation Agreement, and (iii)&nbsp;the amount of any direct expenses of Ambac paid directly by AFGI during such month, which amounts contemplated by clauses (i), (ii)&nbsp;and (iii)&nbsp;shall be
paid by Ambac to AFGI within five (5)&nbsp;days of receipt. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">5. <U>Quarterly Actual Cost</U>. Within fifty-five (55)&nbsp;days
after the end of each quarter during the term of this Agreement, each of AFGI and Ambac shall calculate each Affiliate&#146;s expense allocation for each service department or function (including fees and expenses relating to the IRS Dispute
pursuant to Section&nbsp;4 of the Mediation Agreement), and prepare reports which provide the individual and aggregate expense allocation to each Affiliate (including AFGI and Ambac) for all service departments and functions for such quarter. The
expense allocation for each Affiliate will be recorded to each Affiliate&#146;s intercompany account. All intercompany account balances, taking into account amounts paid pursuant to Sections 3 and 4, will be settled within sixty (60)&nbsp;days after
the end of each quarter; provided, that any balance owed from the Segregated Account shall automatically reduce the principal amount of that certain Secured Note, dated as of March&nbsp;24, 2010, by and between Ambac and the Segregated Account, in
accordance with the terms thereof. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">6. <U>Reimbursement of AFGI Operating Expenses</U>. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(a) Within fifty-five (55)&nbsp;days of the first day of the month in which the Effective Date occurs (the &#147;Anniversary Date&#148;)
and in which this Section&nbsp;6 is in effect, beginning in the calendar year following the year in which the Effective Date occurs, AFGI shall provide to Ambac a report of the amount of expenses incurred by AFGI (pursuant to Sections 1 and 2)
during the twelve months preceding such Anniversary Date. Within five (5)&nbsp;days of the receipt of such report, Ambac shall reimburse AFGI for such expenses to the extent that such amount does not exceed the per annum cap set forth in subsection
(b)&nbsp;below. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(b) Until (and including) the fifth anniversary of the Anniversary Date, Ambac&#146;s obligation to reimburse
reasonable operating expenses incurred by AFGI pursuant to subsection (a)&nbsp;shall be subject to a $5 million per annum cap. Following the fifth anniversary of the Anniversary Date, Ambac shall, only with the approval of the Rehabilitator,
reimburse such expenses incurred by AFGI pursuant to subsection (a), subject to a $4 million per annum cap. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(c) AFGI shall
prepare in good faith an annual operating expense budget (based on reasonable assumptions) for the forthcoming fiscal year, in a form reasonably satisfactory to the Rehabilitator (each, an &#147;Annual Budget&#148;). As soon as available, and in any
event within 30 days prior to the commencement of each calendar year, AFGI shall provide each Annual Budget to the Rehabilitator. Within forty-five (45)&nbsp;days after each March&nbsp;31,&nbsp;June&nbsp;30 and September&nbsp;30, AFGI shall provide
the Rehabilitator with a comparison (in form reasonably satisfactory to the Rehabilitator) of (a)&nbsp;actual expenses incurred through such date, and expenses </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">3 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">
expected to be incurred from such date until the end of the then-current fiscal year, to (b)&nbsp;the projected expenses as set forth on the Annual Budget. AFGI&#146;s actual operating expenses
shall not exceed the amounts set forth in the Annual Budget unless such excess expenses are reasonable. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(d) The provisions of
this Section&nbsp;6 shall have no further force or effect, upon the occurrence of any of the following: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(i)
the conversion of the Bankruptcy Case to a case under Chapter 7 of the Bankruptcy Code, or the confirmation of a plan of reorganization that entails the liquidation of all or substantially all of AFGI&#146;s assets and the subsequent distribution of
the proceeds of such assets to AFGI&#146;s creditors; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(ii) the filing of a new petition for relief under
chapter 7 or chapter 11 of title 11 of the Bankruptcy Code by AFGI; </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(iii) AFGI&#146;s taking or refraining
from taking any action which impairs the ability of Ambac to continue to use net operating loss carryovers (&#147;NOLs&#148;) made available for use by Ambac as set forth in AFGI&#146;s Plan of Reorganization filed in the Bankruptcy Case (the
&#147;Plan of Reorganization&#148;); </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(iv) the imposition, under Section&nbsp;382(a) of the Internal Revenue
Code of 1986 (the &#147;Code&#148;), of an annual &#147;section 382 limitation&#148; (within the meaning of Section&nbsp;382(b) of the Code) of $37.5 million or less on the use of NOLs available to the AAC Subgroup (as defined in the Amended and
Restated Tax Sharing Agreement, effective on the Effective Date, by and among Ambac, AFGI and the other parties thereto (the &#147;Tax Sharing Agreement&#148;); </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">(v) AFGI&#146;s material breach of, or its noncompliance with material obligations under, this Section&nbsp;6 determined in accordance with procedures set forth in Section&nbsp;9(b), or its material
breach of, or its noncompliance with material obligations under the Mediation Agreement (as defined below), the Tax Sharing Agreement or the Cooperation Agreement (as amended by Amendment No.&nbsp;1 to Cooperation Agreement), determined in
accordance with procedures set forth in each respective agreement; provided, however, that any noncompliance by AFGI with its material obligations under this Section&nbsp;6 or the aforementioned agreements which is primarily the result of any
material breach of this Agreement or such other agreements by Ambac shall be excepted from the provisions of this subsection (d)(v); </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">(vi) A condition to the Closing Date (as defined in Section&nbsp;11 of the Mediation Agreement) not being able to be satisfied; </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(vii) at the option of Ambac, to the extent that none of the NOLs included in the Allocated NOLs Amount (as defined in the
Tax Sharing Agreement) remains available for use by the AAC Subgroup; or </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">4 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(viii) the Rehabilitator declining to approve the payment by Ambac or the
Segregated Account to AFGI of reasonable operating expenses at any time after (but excluding) the fifth anniversary of the Effective Date. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">7. <U>Right of Offset</U>. Notwithstanding Section&nbsp;362 of the Bankruptcy Code or any other provisions of the Bankruptcy Code to the contrary, (i)&nbsp;Ambac will have the right to offset any amounts
due from AFGI against cash or other assets owed to AFGI (in each case solely with respect to expenses incurred subsequent to November&nbsp;8, 2010) without notice or further order of the Bankruptcy Court and AFGI will have the right to offset any
amounts due from Ambac against cash or other assets owed to Ambac (in each case solely with respect to expenses incurred subsequent to November&nbsp;8, 2010) without notice or further order of the Bankruptcy Court and (ii)&nbsp;Ambac will have the
right to offset any amounts due from AFGI against cash or other assets owed to AFGI (in each case solely with respect to expenses incurred prior to November&nbsp;8, 2010) without notice or further order of the Bankruptcy Court and AFGI will have the
right to offset any amounts due from Ambac against cash or other assets owed to Ambac (in each case solely with respect to expenses incurred prior to November&nbsp;8, 2010) without notice or further order of the Bankruptcy Court. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">8. <U>Binding Effect: Successors</U>. This Agreement shall be binding upon the Affiliates and each Affiliate consents to the terms hereof
and guarantees the performance of the agreements contained herein. Ambac and AFGI shall cause each of their future affiliates or subsidiaries to assent to the terms of this Agreement promptly after becoming an affiliate or subsidiary. Each Affiliate
hereby assents to each new affiliate or subsidiary becoming a party to this Agreement and to each new affiliate or subsidiary being deemed to be an Affiliate hereunder. This Agreement shall inure to the benefit of and be binding upon any successors
or assigns of the parties hereto. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">9. <U>Termination and Enforcement</U>. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(a) This Agreement shall be terminated on the happening of any of the following events: </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(i) If each of Ambac and AFGI agree, in writing, to terminate this Agreement; </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(ii) With respect to any Affiliate, if such Affiliate ceases to be an affiliate or subsidiary of Ambac for any reason; or
</FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(iii) Upon the receipt of written direction from the Rehabilitator following (x)&nbsp;conversion of the
Bankruptcy Case to a case under Chapter 7 of the Bankruptcy Code, or (y)&nbsp;confirmation of a plan of reorganization that entails the liquidation of all or substantially all of AFGI&#146;s assets and the subsequent distribution of the proceeds of
such assets to AFGI&#146;s creditors. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Notwithstanding the termination of this Agreement, its provisions will remain in effect with respect to
amounts outstanding under this Agreement prior to its termination. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">5 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:8%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(b) In the event that AFGI believes Ambac or the Rehabilitator to be, or in the event that
Ambac or the Rehabilitator believes AFGI to be, in material breach of, or otherwise not complying with their respective material obligations under, this agreement, such party shall provide the alleged breaching or non-complying party with a written
notice (copied to their last known legal counsel) describing, in reasonable detail, the nature of the alleged breach or non-compliance. Following delivery of such written notice, the parties shall attempt, in good faith, to resolve their dispute.
The party served with a notice of breach or non-compliance shall have 30&nbsp;days to cure the alleged breach or non-compliance. In the event that there is no cure and the parties are unable to resolve their dispute, any party alleging such breach
or non-compliance may, not less than 45 days following delivery of such written notice, seek a judgment from the Rehabilitation Court that the other party has breached this agreement. Solely for purposes of resolving such dispute, AFGI shall consent
to the jurisdiction of the Rehabilitation Court. In the event that the Rehabilitation Court enters a final, non-appealable order in favor of any party alleging such breach or non-compliance, such party may ask the court to grant such further relief
as the court deems appropriate in light of the nature and severity of the breach or non-performance, including specific performance, termination of the parties&#146; obligations under this agreement and/or monetary damages. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">10. <U>Severability</U>. If any one or more of the covenants, agreements, provisions or terms of this Agreement shall be for any reason
whatsoever held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions and terms and shall in no way affect the validity or enforceability of the other provisions
of this Agreement. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">11. <U>Transfers and Assigns</U>. Neither this Agreement nor any interest or obligation in or under this
Agreement may be transferred or assigned by any Affiliate without the prior written consent of both Ambac and AFGI. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">12.
<U>Amendments</U>. This Agreement, including any schedules, appendices and exhibits hereto, may be amended from time to time; provided, however, that any amendment shall not be effective unless it is in writing and signed by Ambac and AFGI.
</FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">13. <U>Governing Law</U>. This Agreement will be governed by and construed in accordance with the laws of the State of
Wisconsin (without reference to choice of law doctrine). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">14. <U>Counterparts</U>. This Agreement may be executed in more than
one counterpart, each of which shall be deemed to be an original and all of which shall, together, constitute one and the same instrument. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">6 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">15. <U>Notices</U>. Any notice or communication in respect of this Agreement shall be
sufficiently given to a party if in writing and delivered in person, sent by recorded delivery or registered post or the equivalent (with return receipt requested) or by overnight courier or given by facsimile transmission, at the address or
facsimile number set out in Schedule C attached hereto, or to such other address or facsimile number as shall be notified in writing by one party to the other. A notice or communication shall be deemed to be given: </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(i) if delivered by hand or sent by overnight courier, on the day and at the time it is delivered or, if that day is not a
business day, or if delivered after the close of business on a business day, at 9:00 a.m. (local time to the recipient) on the immediately following business day; </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(ii) if sent by facsimile transmission or email, on the day and at the time the transmission is received or, if that is
not a business day, or if received after the close of business on a business day, at 9:00 a.m. (local time to the recipient) on the immediately following business day; or </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(iii) if sent by recorded delivery or registered post or the equivalent (return receipt requested), three business days
after being sent. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">16. <U>Parties to this Agreement.</U> Nothing herein shall in any manner create any obligations or
establish any rights against any party to this Agreement in favor of any person not a party to this Agreement; provided, however, that the Rehabilitator shall be an express third party beneficiary of Section&nbsp;2(c), subsections (b), (c)&nbsp;and
(d)&nbsp;of Section&nbsp;6 and Section&nbsp;9 of this Agreement to the same extent as if it were a party to this Agreement. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">17. <U>Other Agreements</U>. In the event of any conflict or inconsistency between this Agreement and the provisions of the Mediation
Agreement, dated as of September&nbsp;21, 2011 (the &#147;Mediation Agreement&#148;), by and among AFGI, Ambac, the Segregated Account, the Rehabilitator, the OCI and the Official Committee of Unsecured Creditors of Ambac Financial Group, Inc., the
provisions of this Agreement shall govern. This Agreement supersedes all prior expense sharing and cost allocation agreements among the Affiliates, including, but not limited to, that certain Expense Sharing and Cost Allocation Agreement effective
as of January&nbsp;1, 1997 and that certain Expense Sharing And Cost Allocation Agreement dated as of January&nbsp;1, 2007, and such prior agreements are hereby terminated. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><I>[Remainder of page intentionally left blank. Signatures to follow] </I></FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">7 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">IN WITNESS WHEREOF, the Affiliates have caused this Agreement to be duly executed and
delivered as of the day and year first above written. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><DIV ALIGN="right">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE">


<TR>
<TD WIDTH="6%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD WIDTH="92%"></TD></TR>


<TR>
<TD VALIGN="top" COLSPAN="3"><FONT STYLE="font-family:Times New Roman" SIZE="2">AMBAC ASSURANCE CORPORATION</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Name:</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Title:</FONT></TD></TR>
<TR>
<TD HEIGHT="16" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT STYLE="font-family:Times New Roman" SIZE="2">AMBAC FINANCIAL GROUP, INC.</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Name:</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Title:</FONT></TD></TR>
<TR>
<TD HEIGHT="16" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>[Add Signature Blocks for other Affiliates]</B></FONT></TD></TR>
</TABLE></DIV>

<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>SCHEDULE A </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>AFFILIATES </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ambac Financial Group, Inc. </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ambac Bermuda, Ltd. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ambac Assurance
Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Segregated Account of Ambac Assurance Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Connie Lee Holdings, Inc. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Everspan Financial Guarantee Corp. </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ambac Credit Products, LLC </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ambac Financial
Services, LLC </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ambac Capital Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Ambac Capital Funding, Inc. </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ambac Investments, Inc. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ambac Conduit Funding, LLC </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Aleutian
Investments, LLC </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Juneau Investments, LLC </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">Ambac Private Holdings, LLC </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ambac Capital Services, LLC </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Contingent Capital Company, LLC </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">SP Note
Investor I, LLC </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">AE Global Holding, LLC </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">AE Global Asset Funding, LLC </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">AE Global Investments, LLC </FONT></P>
<P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">AME Holdings, LLC </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">AME Asset Funding, LLC
</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">AME Investments, LLC </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ambac Asset
Funding Corporation </FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Ambac AII Corp. </FONT></P>

<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>SCHEDULE B </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>NON-COMPENSATION EXPENSE ALLOCATION METHODOLOGY </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">The expenses incurred by
any Affiliate with respect to the matters set forth below shall be allocated among the Affiliates benefitting from such matter as follows, with calculations made as of the first business day of the applicable quarter: </FONT></P>
<P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="25%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD WIDTH="72%"></TD></TR>
<TR>
<TD VALIGN="bottom" NOWRAP> <P STYLE="border-bottom:1px solid #000000;width:23pt"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Matter</B></FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom" ALIGN="center"> <P STYLE="border-bottom:1px solid #000000;width:54pt" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="1"><B>Allocation Basis</B></FONT></P></TD></TR>


<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Public Disclosure Costs</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">50% allocated to Ambac and 50% allocated to AFGI for any such costs incurred following the Signing Date (as defined in the Mediation Agreement)</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Fresh Start Accounting Costs</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">50% allocated to Ambac (but not to exceed $1 million) and 50% allocated to AFGI (but in any event all amounts in excess of $2 million) for any such costs incurred, whether before
or after the Signing Date</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">D&amp;O Insurance</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">82.5% allocated to Ambac and 17.5% allocated to AFGI for the policy ending on July 18, 2012.</FONT></P>
<P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">For all subsequent policies, Ambac shall request an independent broker to estimate
pricing for:</FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2.00em; text-indent:-2.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">(i)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a policy for Ambac directors and officers solely in their capacity as Ambac
directors and officers, and</FONT></P> <P STYLE="font-size:6px;margin-top:0px;margin-bottom:0px">&nbsp;</P>
<P STYLE="margin-top:0px;margin-bottom:0px; margin-left:2.00em; text-indent:-2.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">(ii)&nbsp;&nbsp;&nbsp;&nbsp;a policy for Ambac and AFGI directors and officers in their respective capacities as
both Ambac and AFGI directors and officers, as applicable.</FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">To the extent
that pricing for (ii) exceeds the pricing for (i), such excess shall be allocated to AFGI.</FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">In the event that such pricing is not available for any policy year, costs shall be allocated on the same percentage basis as the prior policy year.</FONT></P>
<P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="margin-top:0px;margin-bottom:1px"><FONT STYLE="font-family:Times New Roman" SIZE="2">Any D&amp;O tail insurance or other insurance policy required by the Bankruptcy
Court or by the plan of reorganization in the Bankruptcy case shall be 50% allocated to Ambac (but not to exceed $2.5 million) and 50% allocated to AFGI (but in any event all amounts in excess of $5 million) for any such costs incurred following the
Signing Date.</FONT></P></TD></TR></TABLE>

<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">


<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="100%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE" ALIGN="center">


<TR>
<TD WIDTH="25%"></TD>
<TD VALIGN="bottom" WIDTH="3%"></TD>
<TD WIDTH="72%"></TD></TR>

<TR>
<TD VALIGN="top"> <P STYLE="margin-left:1.00em; text-indent:-1.00em"><FONT STYLE="font-family:Times New Roman" SIZE="2">Director Fees</FONT></P></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;&nbsp;</FONT></TD>
<TD VALIGN="bottom"> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT STYLE="font-family:Times New Roman" SIZE="2">With respect to the annual retainer, (i) for Ambac directors who do not serve on the board of AFGI, 100% allocated to Ambac and, (ii)
for Ambac directors who serve on the board of AFGI, 50% allocated to Ambac and 50% allocated to AFGI.</FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="margin-top:0px;margin-bottom:0px"><FONT
STYLE="font-family:Times New Roman" SIZE="2">With respect to meeting fees, each of Ambac and AFGI shall pay the fees relating to its respective board and committee meetings; provided, that in the case of a joint meeting of the boards or committees
of Ambac and AFGI, (i) for Ambac directors who do not serve on the board of AFGI, 100% allocated to Ambac and, (ii) for Ambac directors who serve on the board of AFGI, 50% allocated to Ambac and 50% allocated to AFGI.</FONT></P>
<P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P> <P STYLE="margin-top:0px;margin-bottom:1px"><FONT STYLE="font-family:Times New Roman" SIZE="2">With respect to committee chair fees, (i) for joint committee chair fees between
Ambac and AFGI, 50% allocated to Ambac and 50% allocated to AFGI, (ii) for Ambac-only committee chair fees, 100% allocated to Ambac, and (iii) for AFGI-only committee chair fees, 100% allocated to AFGI.</FONT></P></TD></TR>
</TABLE>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">11 </FONT></P>



<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>SCHEDULE C </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>NOTICES </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>[Add notice information for each Affiliate listed in Schedule
A] </B></FONT></P>
</BODY></HTML>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>4
<FILENAME>d236740dex103.htm
<DESCRIPTION>FORM OF AMENDMENT NO. 1 TO COOPERATION AGREEMENT
<TEXT>
<HTML><HEAD>
<TITLE>Form of Amendment No. 1 to Cooperation Agreement</TITLE>
</HEAD>
 <BODY BGCOLOR="WHITE">

 <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="right"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>Exhibit 10.3 </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT
STYLE="font-family:Times New Roman" SIZE="2"><B>AMENDMENT NO.&nbsp;1 TO COOPERATION AGREEMENT </B></FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">AMENDMENT NO. 1 TO
COOPERATION AGREEMENT (this &#147;Amendment&#148;), effective as of the later of (a)&nbsp;the date on which an order is entered pursuant to Section&nbsp;1129 of chapter 11 of title 11 of the United States Bankruptcy Code (the &#147;Bankruptcy
Code&#148;) by the United States Bankruptcy Court for the Southern District of New York (the &#147;Bankruptcy Court&#148;) confirming Ambac Financial Group, Inc.&#146;s (&#147;AFGI&#148;) chapter 11 plan of reorganization, as amended, supplemented
or modified, and (b)&nbsp;the date on which a non-stayed order is entered by the Dane County Circuit Court (the &#147;Rehabilitation Court&#148;) approving this Agreement (such date, the &#147;Effective Date&#148;), by and between the Segregated
Account of Ambac Assurance Corporation (the &#147;Segregated Account&#148;), Ambac Assurance Corporation (&#147;Ambac&#148;), AFGI and the Commissioner of Insurance of the State of Wisconsin, as the court-appointed Rehabilitator of the Segregated
Account (the &#147;Rehabilitator&#148;). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">WHEREAS, Ambac and the Segregated Account entered into the Cooperation Agreement on
March&nbsp;24, 2010 (the &#147;Agreement&#148;). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">WHEREAS, AFGI filed a voluntary petition for relief under chapter 11 of
title 11 of the Bankruptcy Code in the Bankruptcy Court on November&nbsp;8, 2010. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">WHEREAS, Ambac and the Segregated Account
desire to amend the Cooperation Agreement to reflect certain terms and provisions of that certain Mediation Agreement (the &#147;Mediation Agreement&#148;) by and among Ambac, the Segregated Account, AFGI, the Wisconsin Office of the Commissioner of
Insurance (&#147;OCI&#148;), the Rehabilitator, and the Official Committee of Unsecured Creditors of AFGI, entered into as of September&nbsp;21, 2011, and to expressly add AFGI and the Rehabilitator as parties to the Agreement. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2"><B>NOW, THEREFORE</B>, in consideration of the mutual covenants and agreements set forth herein, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto hereby agree as follows: </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">1. AFGI and the Rehabilitator shall become parties to the
Agreement. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">2. The following shall be added to Article I of the Agreement: </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">SECTION 1.05 <U>Preservation of Net Operating Losses</U>. Except as otherwise approved by the Rehabilitator, AFGI shall use its best
efforts to preserve the use of NOLs realized by the Group for the benefit of the AAC Subgroup, including but not limited to, refraining from taking any action that would result in, and taking such affirmative steps as are appropriate to avoid, any
Deconsolidation Event. In furtherance of the foregoing, AFGI shall use its best efforts to obtain a confirmation order from the Bankruptcy Court which (i)&nbsp;memorializes the parties&#146; intent to preserve the use of NOLs for the benefit of the
AAC Subgroup and AFGI as contemplated by the Amended and Restated Tax Sharing Agreement, dated as of the Effective Date, by and among Ambac, </FONT></P>

<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">
AFGI and the other parties thereto (the &#147;Tax Sharing Agreement&#148;), (ii)&nbsp;approves the adoption by reorganized AFGI of an NOL-preservation plan to remain in effect so long as NOLs
remain for the benefit of Ambac as contemplated by the Mediation Agreement and the Tax Sharing Agreement and vests continuing jurisdiction in the Bankruptcy Court to enforce restrictions adopted in connection with such plan, and
(iii)&nbsp;memorializes the parties&#146; intent that any subsequent bankruptcy filing by reorganized AFGI with the intent of rejecting this Agreement, the Mediation Agreement or the Tax Sharing Agreement and/or seeking additional value from the AAC
Subgroup for its use of the NOLs is a per se bad faith filing. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%;padding-bottom:0px;"><FONT STYLE="font-family:Times New Roman" SIZE="2">SECTION 1.06 <U>Loss Reserving</U>. Ambac
shall (i)&nbsp;provide the Rehabilitator the opportunity to participate in all meetings with Ambac management to discuss loss reserves to be included in any statutory financial report; (ii)&nbsp;provide the Rehabilitator with all reports provided to
Ambac management (when so provided) concerning the assumptions and vendors utilized or to be utilized in arriving at statutory loss reserves, together with any related reports or materials requested by the Rehabilitator; and (iii)&nbsp;obtain the
approval of the Rehabilitator prior to accepting repayment of any intercompany loan in an amount in excess of $50,000,000 per annum or any modification to or deemed repayment of any intercompany loan in an amount that would result in Ambac
recognizing income or a reduction in issue price in excess of $50,000,000 per annum. No later than
February&nbsp;1</FONT><FONT STYLE="font-family:Times New Roman" SIZE="1"><SUP STYLE="vertical-align:baseline; position:relative; bottom:.8ex">st</SUP></FONT><FONT STYLE="font-family:Times New Roman" SIZE="2"> of each year (or more frequently if
requested by Ambac), if Ambac proposes to make any changes in the assumptions or vendors utilized in determining statutory loss reserves from the prior year&#146;s statutory loss reserves (or, with respect to 2011, the statutory loss reserves for
the period from September&nbsp;30, 2011 to December&nbsp;31, 2011), which changes would cause the difference (whether positive or negative) between (w)&nbsp;Ambac&#146;s statutory reserves determined with such proposed changes and
(x)&nbsp;Ambac&#146;s statutory reserves determined without such proposed changes to exceed the lesser of (y)&nbsp;$200,000,000 or (z)&nbsp;10% of Ambac&#146;s statutory reserves determined without such proposed changes, Ambac shall seek and obtain
the approval of its loss reserves from the Rehabilitator, which approval shall not be unreasonably withheld or delayed. In the event that the Rehabilitator disputes Ambac&#146;s loss reserves and does not provide such approval, then, unless OCI
prescribes an accounting practice requiring Ambac to follow the position of the Rehabilitator, the parties shall (i)&nbsp;immediately submit such dispute to expedited arbitration before a single arbitrator with requisite expertise to decide which of
the positions most appropriately reflects expected claim payments or (ii)&nbsp;jointly agree to an </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">2 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">
alternative method of dispute resolution. The decision of an arbitrator shall be final and binding upon the parties, and shall be rendered in such form and substance as shall be necessary to
permit Ambac to reasonably rely thereon for purposes of filing its statutory financial statements. The parties shall agree to such procedures as are necessary and prudent to permit the arbitrator to issue a decision by no later than ten business
days before the date that the annual financial reports are required to be filed (the &#147;Filing Date&#148;). If the differences of the parties are not resolved in a manner described above at least ten business days before the Filing Date, then
Ambac shall request an extension of the Filing Date from OCI. If OCI agrees to such an extension, it will cooperate with Ambac to secure extensions in other jurisdictions as necessary. If such extension (or subsequent extension) is not granted,
Ambac shall be entitled to file its financial reports on the basis of its own loss reserving positions. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">SECTION 1.07
<U>Investment Portfolio Management</U>. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(a) Any changes to Ambac&#146;s existing Investment Policy (dated November&nbsp;18,
2010) shall be submitted to the Rehabilitator for approval, which approval shall not be unreasonably withheld. The Rehabilitator shall meet with Ambac management (including the CFO) semi-annually to discuss the Investment Policy and any changes
appropriate thereto. The Rehabilitator may recommend changes to the Investment Policy and Ambac shall consider such recommendations in good faith. The Rehabilitator shall also be provided with periodic reports of investment transactions in the
ordinary course. Notwithstanding anything to the contrary in the Management Services Agreement or any other agreement, in the event that Ambac&#146;s rejection of any proposed changes are not reasonable and fair to the interests of Ambac and the
Segregated Account, or are not protective or equitable to the interests of Ambac and the Segregated Account policyholders generally, the Rehabilitator may direct Ambac to transfer investment management functions relating to the investment portfolio
to a third party jointly chosen by the Rehabilitator and Ambac. With respect to any subsequent transfers to third parties of investment management functions relating to the investment portfolio, such third parties shall be jointly chosen by the
Rehabilitator and Ambac. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(b) The parties hereto acknowledge and agree that, if the investment management function is
transferred in accordance with the foregoing (a &#147;Change of Investment Manager Event&#148;), the parties&#146; respective obligations under Section&nbsp;1.07 and elsewhere set forth in this Agreement shall remain in effect without alteration
</FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">3 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">
or diminishment. In furtherance of the foregoing, (i)&nbsp;the parties shall consult with each other in order to facilitate the uninterrupted provision of the information and other benefits
required to be provided hereunder by each party to the other party, (ii)&nbsp;the parties shall ensure that any new provider of investment management services as a result of a Change of Investment Manager Event (each a &#147;Replacement Investment
Manager&#148;) has the capacity to perform the investment management services formerly provided by Ambac, including without limitation either maintaining an annual Type II SAS 70 internal control letter reasonably acceptable to AFGI or providing
AFGI with copies of such Replacement Investment Manager&#146;s current documentation of control procedures (such as policies and procedures, process models and process flowcharts) which record the design of internal controls and (iii)&nbsp;the
Segregated Account shall at all times following a Change of Investment Manager Event maintain appropriate internal controls and systems to ensure that Ambac will be able to meet its financial reporting, disclosure and legal obligations as described
in Section&nbsp;2.01(H) below and as may be necessary for the Segregated Account to fulfill its obligations under this Agreement. Further, the Segregated Account shall immediately disclose to AFGI any instance of fraud or any significant change to
the internal control environment. In addition, the Rehabilitator shall cooperate with Ambac in causing each Replacement Investment Manager to permit Ambac and its affiliates, through Ambac&#146;s employees and representatives (including, for the
avoidance of doubt, independent auditors of AFGI), the right to audit the Replacement Investment Manager&#146;s internal control structure and to examine and make copies of any books and records pertaining to the Segregated Account, and to furnish
Ambac with such financial and reporting data and other information as Ambac may from time to time request. If a deficiency or control issue is noted, the Segregated Account will work with AFGI&#146;s representatives (including, for the avoidance of
doubt, independent auditors of AFGI) to develop and implement an effective remediation strategy. In the event of any breach or threatened breach by any party of any of its obligations as set forth or described in this Agreement following a Change of
Investment Manager Event, the parties hereto agree that monetary damages would be an insufficient remedy for any such breach, and in addition to all other remedies available under applicable law, the non-breaching party shall be entitled to specific
performance and to injunctive or other equitable relief as a remedy for any such breach. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">4 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">SECTION 1.08 <U>IRS Dispute</U>. Ambac and the Rehabilitator shall be entitled to full
cooperation and all information and particulars they or either of them may request from AFGI in relation to the IRS Dispute and any other issues that Ambac may have relative to the IRS, including, without limitation, express authorization to engage
with the IRS directly on matters arising under the Plan of Rehabilitation in connection with the rehabilitation proceeding with respect to the Segregated Account and any amendment or subsequent iteration thereof (including any efforts to obtain a
private letter ruling, pre-filing agreement or other form of guidance or clarification). </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">3. Section&nbsp;3.01 of the
Agreement shall be deleted and replaced with the following: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">SECTION 3.01 Following each taxable year during any part of which
Ambac is a member of the Group, AFGI shall, no later than April&nbsp;1 of such subsequent year, provide the Rehabilitator with a summary of the material provisions of AFGI&#146;s expected tax position and the expected differences between
Ambac&#146;s statutory financial statements and AFGI&#146;s expected tax positions. The Rehabilitator shall notify AFGI and Ambac in writing of any concerns of the Rehabilitator with respect to any such expected tax positions no later than
May&nbsp;1 of such year. Promptly thereafter, AFGI and Ambac shall meet with the Rehabilitator to resolve in good faith such concerns. In the event that the Rehabilitator is unable to resolve a dispute with AFGI and Ambac concerning an expected tax
position by July&nbsp;1 of such year, the parties shall immediately submit such dispute to expedited arbitration before a single arbitrator with the requisite tax expertise whose decision shall be issued no later than August&nbsp;31 of such year and
shall be final and binding upon the parties. The parties shall agree to such further procedures as are necessary and prudent to permit the arbitrator to issue a decision by August&nbsp;31 of such year. If the expected tax position relates to the AAC
Subgroup, the sole issue before the arbitrator shall be whether the tax position advocated by the Rehabilitator is more likely than not to be upheld by a court of competent jurisdiction in a subsequent challenge to such position by the IRS. If the
expected tax position does not relate to the AAC Subgroup, the sole issue before the arbitrator shall be whether the tax position advocated by AFGI is more likely than not to be upheld by a court of competent jurisdiction in a subsequent challenge
to such position by the IRS. In the event that the arbitrator rules that the tax position advocated by the Rehabilitator (where the expected tax position relates to the AAC Subgroup) or the tax position advocated by AFGI (where the expected tax
position does not relate to the AAC Subgroup) is more likely than not to be upheld by a court of competent jurisdiction in a subsequent challenge to such position by the IRS, AFGI shall file </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">5 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">
its return on the basis of such advocated tax position, which position may be disclosed in such return. In the event that the arbitrator does not rule that a tax position advocated by either the
Rehabilitator or AFGI, as the case may be, is more likely than not to be upheld by a court of competent jurisdiction in a subsequent challenge to such position by the IRS, such party shall be precluded from advocating for such tax position in any
subsequent year absent any change or changes in facts or circumstances that would support such tax position. The cost of the arbitrator will be split between AFGI and Ambac. The Rehabilitator represents that it is not presently aware of any fact,
including, without limitation, any plan of rehabilitation for the Segregated Account that is presently being considered, upon which it would seek to change (under this Section&nbsp;3.01) the method of realization or accrual of deductions for
interest and original issue discount on the surplus notes issued by Ambac in June 2010, including the application of Sections 163(e)(5) and 163(i) of the Code. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">4. Section&nbsp;6.06 of the Agreement shall be deleted and replaced with the following: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">SECTION 6.06 <U>Consent to Jurisdiction</U>. AFGI and Ambac hereby consent to the jurisdiction of the state court in Wisconsin before which the rehabilitation proceedings with respect to the Segregated
Account are pending, and waive any objection based on lack of personal jurisdiction, improper venue or forum non conveniens, with regard to any actions, claims, disputes or proceedings relating to this Agreement or any other document delivered
hereunder or in connection herewith, or any transaction arising from or connected to any of the foregoing. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">5.
Section&nbsp;6.10 of the Agreement shall be deleted and replaced with the following: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">SECTION 6.10. <U>Parties to this
Agreement</U>. Nothing herein shall in any manner create any obligations or establish any rights against the Rehabilitator, Ambac, the Segregated Account or AFGI in favor of any person or entity not a party to this Agreement. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">6. The following shall be added to Article VI of the Agreement: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">SECTION 6.11 <U>Interpretation</U>. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Tax Sharing Agreement. </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">6 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">SECTION 6.12 <U>Dispute Resolution</U>. In the event that AFGI believes Ambac or the
Rehabilitator to be, or in the event that Ambac or the Rehabilitator believes AFGI to be, in material breach of, or otherwise not complying with Sections 1.05, 1.06, 1.07, 1.08, and 3.01 of this Agreement, such party shall provide the alleged
breaching or non-complying party with a written notice (copied to their last known legal counsel) describing, in reasonable detail, the nature of the alleged breach or non-compliance. Following delivery of such written notice, the parties shall
attempt, in good faith, to resolve their dispute. The party served with a notice of breach or non-compliance shall have 30&nbsp;days to cure the alleged breach or non-compliance. In the event that there is no cure and the parties are unable to
resolve their dispute, any party alleging such breach or non-compliance may, not less than 45 days following delivery of such written notice, seek a judgment from the Rehabilitation Court that the other party has breached this Agreement. Solely for
purposes of resolving such dispute, AFGI shall consent to the jurisdiction of the Rehabilitation Court. In the event that the Rehabilitation Court enters a final, non-appealable order in favor of any party alleging such breach or non-compliance,
such party may ask the court to grant such further relief as the court deems appropriate in light of the nature and severity of the breach or non-performance, including specific performance, termination of the parties&#146; obligations under this
Agreement and/or monetary damages. </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">SECTION 6.13 <U>Other Agreements</U>. In the event of any conflict or inconsistency between
this Agreement and the provisions of the Mediation Agreement, the provisions of this Agreement shall govern. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">7.
<U>Termination</U>. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(a) The provisions of Section&nbsp;3.01 shall have no further force or effect after the due date
(including extensions) of the Group&#146;s consolidated federal tax return for any Taxable Period if: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(i) all
of the following conditions are met as of the beginning of the immediately following Taxable Period: </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(1) no
Pre-Determination Date NOLs remain available for use by the AAC Subgroup to offset income for Federal Tax purposes pursuant to subparagraphs 3(c)(i)(1) and (2)&nbsp;of the Tax Sharing Agreement; </FONT></P>
<P STYLE="margin-top:6px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(2) no Pre-Determination Date AMT NOLs remain available for use by the AAC Subgroup to offset income for AMT purposes
pursuant to the provisions contained in subparagraph 3(c)(iii) of the Tax Sharing Agreement, and </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">7 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; margin-left:8%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(3) no AFGI NOLs exist regardless of whether AFGI has consented to the use
of such AFGI NOLs by the AAC Subgroup to offset income for Federal Tax purposes pursuant to subparagraph 3(c)(i)(3) of the Tax Sharing Agreement; </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT
STYLE="font-family:Times New Roman" SIZE="2">or </FONT></P> <P STYLE="margin-top:6px;margin-bottom:0px; margin-left:4%; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(ii) a Deconsolidation Event has occurred prior to the
beginning of such Taxable Period. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">(b) The provisions of this Amendment shall have no further force or effect to the extent
that a condition to the Closing Date (as defined in the Mediation Agreement) cannot be satisfied. </FONT></P> <P STYLE="margin-top:12px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">8. <U>Counterparts</U>.
This Amendment may be executed in more than one counterpart, each of which shall be deemed to be an original and all of which shall, together, constitute one and the same instrument. </FONT></P>
<P STYLE="margin-top:12px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">[Remainder of page intentionally left blank. Signatures to follow] </FONT></P>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">8 </FONT></P>


<p Style='page-break-before:always'>
<HR  SIZE="3" style="COLOR:#999999" WIDTH="100%" ALIGN="CENTER">

 <P STYLE="margin-top:0px;margin-bottom:0px; text-indent:4%"><FONT STYLE="font-family:Times New Roman" SIZE="2">IN WITNESS WHEREOF, AFGI, Ambac, the Segregated Account and the Rehabilitator have caused
this Amendment to be duly executed and delivered as of the day and year first above written. </FONT></P> <P STYLE="font-size:12px;margin-top:0px;margin-bottom:0px">&nbsp;</P><DIV ALIGN="right">
<TABLE CELLSPACING="0" CELLPADDING="0" WIDTH="40%" BORDER="0" STYLE="BORDER-COLLAPSE:COLLAPSE">


<TR>
<TD WIDTH="6%"></TD>
<TD VALIGN="bottom" WIDTH="2%"></TD>
<TD WIDTH="92%"></TD></TR>


<TR>
<TD VALIGN="top" COLSPAN="3"><FONT STYLE="font-family:Times New Roman" SIZE="2">AMBAC FINANCIAL GROUP, INC.</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Name:</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Title:</FONT></TD></TR>
<TR>
<TD HEIGHT="16" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT STYLE="font-family:Times New Roman" SIZE="2">AMBAC ASSURANCE CORPORATION</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Name:</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Title:</FONT></TD></TR>
<TR>
<TD HEIGHT="16" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT STYLE="font-family:Times New Roman" SIZE="2">SEGREGATED ACCOUNT OF AMBAC ASSURANCE CORPORATION by Ambac Assurance Corporation, as Management Services Provider</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Name:</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Title:</FONT></TD></TR>
<TR>
<TD HEIGHT="16" COLSPAN="3"></TD></TR>
<TR>
<TD VALIGN="top" COLSPAN="3"><FONT STYLE="font-family:Times New Roman" SIZE="2">THE COMMISSIONER OF INSURANCE OF THE STATE OF WISCONSIN, AS THE COURT-APPOINTED REHABILITATOR OF THE SEGREGATED ACCOUNT</FONT></TD></TR>
<TR>
<TD HEIGHT="16"></TD>
<TD HEIGHT="16" COLSPAN="2"></TD></TR>
<TR>
<TD VALIGN="top"><FONT STYLE="font-family:Times New Roman" SIZE="2">By:</FONT></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="top"> <P STYLE="margin-top:0px;margin-bottom:1px;border-bottom:1px solid #000000"><FONT STYLE="font-family:Times New Roman" SIZE="2">&nbsp;</FONT></P></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Name: Roger A. Peterson</FONT></TD></TR>
<TR>
<TD VALIGN="top"></TD>
<TD VALIGN="bottom"><FONT SIZE="1">&nbsp;</FONT></TD>
<TD VALIGN="bottom"><FONT STYLE="font-family:Times New Roman" SIZE="2">Title: Special Deputy Commissioner</FONT></TD></TR>
</TABLE></DIV>
 <p STYLE="margin-top:0px;margin-bottom:0px"><FONT SIZE="1">&nbsp;</FONT></P> <P STYLE="margin-top:0px;margin-bottom:0px" ALIGN="center"><FONT STYLE="font-family:Times New Roman" SIZE="2">9 </FONT></P>

</BODY></HTML>
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
