REHABILITATION EXIT SUPPORT AGREEMENT

This REHABILITATION EXIT SUPPORT AGREEMENT (as amended, supplemented or otherwise modified from time to time, and including the exhibits hereto, this “Agreement”), dated as of July 19, 2017, is entered into by and among Ambac Assurance Corporation (the “Company”), Ambac Financial Group, Inc. (“Parent” and, together with the Company, the “Ambac Parties”) and the undersigned holders (each, a “Holder,” and such Holders together, the “Group”) of a material portion of outstanding unpaid policy claims of the Segregated Account of Ambac Assurance Corporation (the “Segregated Account”) and a material portion of the outstanding surplus notes of the Company. Each of the Ambac Parties, each Holder, and any subsequent person or entity that becomes a party hereto in accordance with the terms hereof are referred to herein as the “Parties” and each individually as a “Party.”

A.The Holders are beneficial owners of the Senior Surplus Notes and Holder Deferred Amounts, each as defined herein, in the respective aggregate principal and accrued amounts previously provided to the Company by Group’s Counsel and as set forth on each Holder’s signature page to this Agreement.

B.Exhibit A hereto (the “Rehabilitation Exit Term Sheet”) and the provisions hereof set forth the key terms of a settlement of the Deferred Amounts and the Segregated Account’s exit from rehabilitation that are expected to be realized through an amendment or modification (the “Rehabilitation Plan Amendment”) to the Existing Plan, as defined herein, by the Rehabilitator, as defined herein.

C.Exhibit B hereto (the “Exchange Offer Term Sheet”) and the provisions hereof set forth the key terms of the exchange offer by the Company of Deferred Amounts for Senior Surplus Notes (the “DPO Offer”) and the exchange offer by the Company of New Secured Notes and cash for Senior Surplus Notes (the “AAC Offer” and, together with the DPO Offer, the “Exchange Offers” and, collectively with the other transactions contemplated by the Rehabilitation Exit Term Sheet or this Agreement, the “Rehabilitation Exit Transactions”), to be conducted pursuant to transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”).

D.Exhibit C hereto (the “Secured Notes Term Sheet” and, together with the Rehabilitation Exit Term Sheet and the Exchange Offer Term Sheet, the “Term Sheets”) sets forth the key terms of new secured notes (the “New Secured Notes”) or, in specified events, cash in lieu of secured notes to be offered, along with the other consideration specified in the Rehabilitation Exit Term Sheet and Exchange Offer Term Sheet, to eligible holders of Holder Deferred Amounts and Senior Surplus Notes pursuant to the Rehabilitation Exit Transactions.

E.Effective as of the Effective Date, the Parties intend to enter into a waiver and amendment to the Settlement Agreement, dated as of June 7, 2010 between the Company, Parent, Ambac Credit Products, LLC, and the other signatories thereto (the “Settlement Agreement”), substantially in the form attached as Exhibit D hereto (the “Waiver and Amendment”).

F.Exhibit E hereto sets forth the illustrative transaction mechanics for effectuating the Rehabilitation Exit Transactions (the “Transaction Mechanics”).

G.The Parties have agreed to the terms and conditions of the Rehabilitation Exit Transactions set forth herein and in the Term Sheets.

H.The Company intends to launch the Exchange Offers no less than 20 Business Days, as defined herein, prior to the Effective Date. The Closing Date and the Effective Date are intended to occur concurrently.

NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

Section 1.Definitions. In addition to the terms defined above, as used in this Agreement, the following terms shall have the meanings specified below:

a.“Agent’s Message” means a message, transmitted by The Depository Trust Company to, and received by, the exchange agent and forming a part of a book-entry confirmation, stating that The Depository Trust Company has received from the tendering participant an express acknowledgment stating: (i) the aggregate principal amount of Holder Deferred Amounts or Senior Surplus Notes validly tendered by such participant, (ii) that such participant has received a copy of the offering document and letter of transmittal with respect to the Exchange Offer and agrees to be bound by the terms and conditions of the Exchange Offer as described in the offering document and letter of transmittal with respect to the Exchange Offer, and (iii) that the Company may enforce the terms and conditions of the letter of transmittal with respect to the Exchange Offer against such participant.

b.“Approval Order” means the entry of an order by the Rehabilitation Court, which order is not subject to a stay of execution, approving the Rehabilitation Plan Amendment.

c.“Business Day” means any day other than Saturday, Sunday, and any day that is a legal holiday or a day on which banking institutions in New York, New York are required or authorized by law or governmental action to close.

d.“Closing” means the closing of the Exchange Offer.

e.“Closing Date” means the date on which the Closing occurs.

f.“Definitive Documents” means the final documentation of the Rehabilitation Plan Amendment substantially on the terms and conditions set forth in the Rehabilitation Exit Term Sheet, documentation of the Exchange Offer substantially on the terms and conditions set forth in the Exchange Offer Term Sheet, documentation of the New Secured Notes substantially on the terms and conditions set forth in the New Secured Notes Term Sheet, the Waiver and Amendment, and any other documents contemplated hereby and/or ancillary or incidental to the Term Sheets.

g.“Deferred Amounts” shall have the meaning given to such term under the Existing Plan.

h.“Group’s Counsel” means a nationally recognized firm with experience in the matters described in this Agreement reasonably acceptable to the Company; provided that, for the avoidance of doubt, the Company hereby acknowledges that Schulte, Roth & Zabel LLP and White & Case LLP are acceptable to the Company as Group’s Counsel.

i.“Holder Deferred Amounts” shall mean the beneficial interest in the Deferred Amounts held by the Holders.

j.“Effective Date” has the meaning given such term in the Rehabilitation Exit Term Sheet.

k.“Existing Plan” means that certain Plan of Rehabilitation, as amended, effective as of June 12, 2014, as further amended and/or clarified from time to time.

l.“Fiscal Agency Agreement” means that certain Fiscal Agency Agreement, dated as of June 7, 2010, between the Company, as Issuer, and the Bank of New York Mellon, as Fiscal Agent (as amended, modified, or otherwise supplemented from time to time prior to the date hereof) relating to the Senior Surplus Notes.

m.“Joining Holder Agent” means any third party agent reasonably satisfactory to the Holders appointed by AAC to track transfers of Senior Surplus Notes and Holder Deferred Amounts that are subject to this Agreement.

n. “OCI” means the Wisconsin Office of the Commissioner of Insurance.

o.“Regulator” means each of (i) the Rehabilitator, (ii) OCI, (iii) the Rehabilitation Court and (iv) a regulatory authority with jurisdiction over the operations of a Party.

p.“Rehabilitation Court” means the Circuit Court for Dane County, Wisconsin.

q.“Rehabilitation Proceeding” means the rehabilitation proceeding commenced in the Rehabilitation Court on March 24, 2010 with respect to the Segregated Account titled In the matter of: Segregated Account of Ambac Assurance Corporation, Case No. 10 CV 1576.

r.“Rehabilitator” means the Commissioner of Insurance of the State of Wisconsin, as court-appointed rehabilitator of the Segregated Account.

s.“Remaining Senior Surplus Notes” means the Senior Surplus Notes and the Segregated Account Surplus Notes that remain outstanding immediately following the consummation of the Rehabilitation Exit Transactions.

t. “Representatives” means a person’s or entity’s former and current officers, former and current directors, former and current principals, employees, agents, financial advisors, attorneys, accountants, investment bankers, consultants, and other professionals, each solely in its capacity as such.

u. “SEC” means United States Securities and Exchange Commission.

v.“Segregated Account Senior Surplus Notes” means the 5.1% Surplus Notes due June 7, 2020, issued by the Segregated Account pursuant to that certain Fiscal Agency Agreement, dated as of July 19, 2010, between the Segregated Account, as Issuer, and the Bank of New York Mellon, as Fiscal Agent (as amended, modified, or otherwise supplemented from time to time prior to the date hereof) relating to the Segregated Account Senior Surplus Notes, and held by the Ambac Parties at the date hereof.

w. “Senior Surplus Notes” means the 5.1% Surplus Notes due June 7, 2020, issued by the Company pursuant to the Fiscal Agency Agreement.

x.“Signing Date” means the date of the execution of this Agreement.

Section 2.    Term Sheets. The Term Sheets are expressly incorporated herein and made a part of this Agreement. The key terms and conditions of the Rehabilitation Exit Transactions are set forth in the Term Sheets.

Section 3.    Definitive Documents; Good Faith Cooperation.

(a)    The Parties hereby covenant and agree to cooperate with each other in good faith in connection with, and shall exercise reasonable best efforts with respect to, the pursuit, approval, implementation, and consummation of the Rehabilitation Exit Transactions, as well as the negotiation, drafting, execution, and delivery of the Definitive Documents.

(b)    The Parties hereby covenant and agree to use commercially reasonable efforts to complete the negotiation and drafting of the forms of the Definitive Documents, which shall be reasonably satisfactory to each Party, on or prior to the date the Rehabilitator files a motion in the Rehabilitation Court seeking entry of the Approval Order.

(c)    The Parties hereby covenant and agree not to (i) object to, delay, impede, or commence any proceeding pertaining to, or take any other action to interfere, directly or indirectly, in any material respect with the acceptance or implementation of, the Rehabilitation Exit Transactions; (ii) encourage or support any person or entity to do any of the foregoing, or (iii) in the case of any Holder, exercise any rights under any agreement with the Company or the Segregated Account, including, but not limited to, the Fiscal Agency Agreement, or instruct any other party to exercise any such rights, except as consistent with this Agreement.

(d)    Following the consummation of the Rehabilitation Exit Transactions and until the earlier of (i) June 8, 2020 and (ii) the date on which at least 25% of the principal amount of Remaining Senior Surplus Notes are no longer outstanding, Parent shall hold and not sell Remaining Senior Surplus Notes which, as of June 30, 2017, have an aggregate of $60 million of principal amount and accrued and unpaid interest outstanding. This Section 3(d) shall survive consummation of the Rehabilitation Exit Transactions.

(e)    The Parties hereby covenant and agree to use commercially reasonable efforts to cooperate with and facilitate any reasonable procedures adopted by the Joining Holder Agent to track transfers of Deferred Amounts and Senior Surplus Notes and collect signature pages to joinder agreements pursuant to Section 6 hereof.

Section 4.    Support for the Rehabilitation Exit Transactions.

(a)    So long as this Agreement has not been terminated in accordance with its terms, each of Parent and the Company agrees and covenants that it will use commercially reasonable efforts to take or cause to be taken all actions commercially reasonable, necessary and appropriate in furtherance of the Rehabilitation Exit Transactions (provided that commercially reasonable efforts shall not require Parent to purchase or sell any securities, incur any material expense, give up any material rights, incur any material obligation or support any transaction, except as expressly set forth in this Agreement), including:

(1)    to prepare the solicitation materials relating to the Exchange Offers (the “Solicitation Materials”) in form and substance consistent with the Term Sheets, except to the extent otherwise consented to by the Group in accordance with Section 12 below;

(2)    to commence the Exchange Offers and disseminate the Solicitation Materials in a manner customary for comparable transactions;

(3)    to the extent within the Ambac Parties’ control, to assist the Rehabilitator in seeking satisfaction of all conditions precedent to the Rehabilitation Plan Amendment, as fully described in the Rehabilitation Exit Term Sheet;

(4)    to defend in good faith any suit or other legal or administrative proceeding (other than the Rehabilitation Proceeding) seeking to interfere with, impair, or impede the Rehabilitation Exit Transactions;

(5)    to promptly amend the Solicitation Materials as necessary and as may be required by applicable law and promptly distribute such amended Solicitation Materials to the Group;

(6)    to not directly or indirectly seek, solicit, support or encourage others to formulate any plan, sale, proposal, offer of winding up, liquidation, reorganization, merger, consolidation, dissolution, restructuring of the Company or the Segregated Account, or any tender offer, settlement offer, exchange offer, or alternative transaction for or involving the Senior Surplus Notes and Deferred Amounts other than the Exchange Offers and Rehabilitation Plan Amendment;

(7)    to not object to, nor otherwise commence any proceeding to oppose, the Rehabilitation Exit Transactions or any portion thereof;

(8)    subject to the satisfaction or waiver, in the Company’s or Parent’s (as the case may be) sole discretion, of any conditions precedent to the Exchange Offers, to consummate the Exchange Offers, including delivery of all securities required to be issued thereunder concurrently with effectiveness of the Rehabilitation Plan Amendment; and

(9)    to the extent within the Ambac Parties’ control, to assist the Rehabilitator in filing the Rehabilitation Plan Amendment to effectuate the Rehabilitation Exit Transactions with the Rehabilitation Court, along with a motion for entry of the Approval Order.

(b)    So long as this Agreement has not been terminated in accordance with its terms, each Holder (including, for the avoidance of doubt, any Joining Party) and, solely with respect to subsection (2) below, Parent, agrees and covenants that:

(1)    on or prior to the fifteenth (15th) Business Days preceding the scheduled expiration of the Exchange Offers, it shall deposit into an escrow account specified by the Rehabilitator, which account shall be for the benefit of the depositing Holders (the “Escrow Account”), its pro rata share of Senior Surplus Notes with an aggregate principal amount outstanding, which when taken together with accrued and unpaid interest thereon (together, “Total Value”), equal the amount required to be deposited into the Escrow Account by the Holders as set forth in the version of the Transaction Mechanics agreed upon following the Approval Order (the “Sponsoring Holder Notes”) and (ii) Parent shall deposit Notes with a Total Value equal to the amount required to be deposited into the Escrow Account by Parent as set forth in the version of the Transaction Mechanics agreed upon following the Approval Order;

(2)    it shall tender and not withdraw all Senior Surplus Notes beneficially owned by it, together with properly completed and duly executed letter(s) of transmittal or Agent’s Message(s) with respect to the Senior Surplus Notes it owns as required by the Solicitation Materials pursuant to and in accordance with the Exchange Offers;

(3)    it shall, upon the Closing Date, accept the consideration offered pursuant to the Rehabilitation Plan Amendment in full satisfaction of the Holder Deferred Amounts beneficially owned by it;

(4)    it shall not vote for, consent to, provide any support for, participate in the formulation of, or solicit or encourage others to formulate any tender offer, settlement offer, exchange offer, or any alternative transaction for or involving the outstanding Senior Surplus Notes and Holder Deferred Amounts other than the Exchange Offers and the Rehabilitation Plan Amendment;

(5)    it shall not object to, nor otherwise commence any proceeding to oppose, the Rehabilitation Exit Transactions, it being understood and agreed that each Holder shall not directly or indirectly seek, solicit, support, or encourage any other plan, sale, proposal, or offer of winding up, liquidation, reorganization, merger, consolidation, dissolution, or restructuring of the Company or the Segregated Account;

(6)    by signing this Agreement (or Joinder, as applicable), each Holder hereby authorizes the Group’s Counsel to, if requested by the Company or the Rehabilitator, provide to the Company for submission to or filing with the Rehabilitation Court or the Rehabilitator, as the case may be, (i) an affidavit from Group’s Counsel describing the support of the Holders for the Rehabilitation Plan Amendment and related transactions or (ii) a statement of the Holders’ support of the Rehabilitation Plan Amendment and related transactions, in each case in form and substance reasonably acceptable to AAC and the Holders; provided, however, that Holders will not be required to incur material expenses in connection with such filing, and neither the Holders nor Group’s Counsel will be required to or make an appearance in the Rehabilitation Court in support of the Rehabilitation Plan Amendment;

(7)    it shall, with respect to all Holder Deferred Amounts beneficially owned by the Holder, deliver a letter of support to the trustee(s) of the trusts holding such Holder Deferred Amounts (each a “Trustee”) requesting that the Trustee not to object to the Rehabilitation Plan Amendment; and

(8)    it shall deliver to the Company an executed signature page to the Waiver and Amendment on or prior to the Effective Date of the Plan Amendment, which signature page shall be held in escrow by the Company until the earlier of the termination of this Agreement (in which event it will be returned to the Holder) or immediately prior to the occurrence of the Closing (in which case it will be deemed released to the Company, thus making the Holder a signatory to the Waiver and Amendment, bound by its terms).

(c)    Each of the Parties agree that the tendered Senior Surplus Notes accepted by the Company shall be deemed to include all Senior Surplus Notes beneficially owned by the Holder that were the subject of call agreements entered into on June 7, 2010 with the Company.

Section 5.    Representations and Warranties.

(a)    Each of the Parties, severally and not jointly, represents and warrants to each of the other Parties that the following statements are true and correct as of the date hereof:

(1)    Power and Authority. It has all requisite power and authority to enter into this Agreement and to carry out the transactions contemplated by, and perform its respective obligations under, this Agreement and the Term Sheets.

(2)    Authorization. The execution and delivery of this Agreement and the performance of its obligations hereunder have been duly authorized by all necessary action on its part.

(3)    No Conflicts. The execution, delivery, and performance by it of this Agreement do not and shall not (i) violate any provision of law, rule, or regulation applicable to it or its certificate of incorporation or by-laws (or other organizational documents) or (ii) conflict with, result in a

breach of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation to which it is a party, subject to satisfaction of the conditions set forth in the Term Sheets.

(4)    Governmental Consents. The execution, delivery, and performance by it of this Agreement do not and shall not require any registration or filing with, consent or approval of, notice to, or other action to, with, or by, any federal, state, or other governmental authority or regulatory body, except filings made, or such consents or approvals obtained, prior to the date hereof or as may be necessary or required (a) to comply with such Party’s disclosure obligations under relevant securities laws or (b) for approval by OCI or the Rehabilitation Court (including satisfaction of the conditions set forth in the Term Sheets).

(5)    Binding Obligation. This Agreement is the legally valid and binding obligation of it, enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium, or other similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability.

(6)    Proceedings. No litigation or proceeding before any court, arbitrator, or administrative or governmental body is pending against it that would adversely affect its ability to enter into this Agreement or perform its obligations under this Agreement and the Term Sheets.

(b)    Each Holder represents and warrants, severally and not jointly, to each of the other Parties that the following statements are true, correct, and complete as of the date hereof:

(1)    Ownership. It is the sole legal and beneficial owner of the Senior Surplus Notes and/or Holder Deferred Amounts in the respective aggregate principal amounts previously provided to the Company by Group’s Counsel and as set forth on its signature page to this Agreement, free and clear of any pledge, lien, security interest, charge, claim, proxy, voting restriction, right of first refusal or other limitation on disposition of any kind and has made no prior assignment, sale or other transfer of, and has not entered into any other agreement to assign, sell or otherwise transfer, in whole or in part, any portion of its rights, title or interests in such Senior Surplus Notes and/or Holder Deferred Amounts. It is entitled to all of the rights and economic benefits of such Senior Surplus Notes and/or Holder Deferred Amounts and has full power and authority to act on behalf of, vote and consent to matters concerning such Senior Surplus Notes and/or Holder Deferred Amounts, including with respect to matters relating to the transactions contemplated by this Agreement and the Term Sheets and dispose of, exchange, assign and transfer and accept satisfaction of such Senior Surplus Notes and/or Holder Deferred Amounts pursuant to the transactions contemplated by this Agreement and the Term Sheets.

(2)    Transfers. It has made no prior assignment, sale, participation, grant, conveyance, or other transfer of, and has not entered into any other agreement to assign, sell, participate, grant, or otherwise transfer, in whole or in part, any right, title, or interests in (or portion thereof) the Senior Surplus Notes and Holder Deferred Amounts referred to in Subsection 5(b)(1), except as permitted by Section 6 hereof.

(3)    Laws. It (i) is a sophisticated investor with respect to the transactions described herein with knowledge and experience in financial and business matters sufficient to evaluate the merits and risks of owning and investing in

securities similar to the Senior Surplus Notes and Holder Deferred Amounts (including any securities that may be issued in connection with the Rehabilitation Exit Transactions), making an informed decision with respect thereto, and evaluating properly the terms and conditions of this Agreement, and it has made its own analysis and decision to enter in this Agreement, (ii) is (A) either (x) an “institutional accredited investor” within the meaning of Rule 501(a)(1), (2), (3) or (7) of the Securities Act, (y) a “qualified institutional buyer” within the meaning of Rule 144A of the Securities Act, or (z) a non-U.S. person within the meaning of Rule 902 of the Securities Act, and (B) a “qualified purchaser” within the meaning of Section 2(a)(51) of the Investment Company Act of 1940, as amended, and (iii) it has had the opportunity to meet with management of the Company and to ask questions and review information with respect to the Company’s and the Segregated Account’s business, financial condition, results of operations and financial and operational outlook, and it has obtained all information it deems necessary or appropriate in order to enter into this Agreement and make the investment decision contemplated hereby.

Section 6.    Transfer of Senior Surplus Notes and Holder Deferred Amounts.

(a)    Each Holder covenants and agrees that, so long as this Agreement has not terminated in accordance with its terms, it shall not, directly or indirectly, sell, pledge, hypothecate, or otherwise transfer any of its Senior Surplus Notes or Holder Deferred Amounts, or any right or interest (voting or otherwise) in any of its Senior Surplus Notes or Holder Deferred Amounts (including, without limitation, any participation therein) (any of the foregoing, an “Ambac Securities Trade”), except in accordance with applicable law, and, in the case of a sale, transfer, assignment or other disposition, to a party that (a) is a Holder, (b) executes and delivers to the Company, concurrently or prior to any binding commitment with respect to such transfer, assignment or other disposition, an agreement in writing, the form of which is attached hereto as Exhibit G, to be bound by all the terms of this Agreement with respect to the relevant Senior Surplus Notes, Holder Deferred Amounts, or other interests being transferred to such purchaser (which agreement shall include the representations and warranties set forth in Section 5 hereof) (a “Joining Party”) or (c) acquires any Senior Surplus Notes or Holder Deferred Amounts as a Qualified Marketmaker (as defined herein) in accordance with Section 6(b). In the event a Holder sells, pledges, hypothecates, or otherwise transfers any Senior Surplus Notes or Holder Deferred Amounts, the Holder shall promptly notify the Joining Holder Agent of such sale, pledge, hypothecation or other transfer. The Joining Holder Agent shall report to the Company upon request the then-current holdings of Holder Deferred Amounts and Senior Surplus Notes of any Holder or Joining Party.

(b)    This Agreement shall in no way be construed to preclude any Holder from acquiring additional Senior Surplus Notes or Holder Deferred Amounts. Any additional Senior Surplus Notes or Holder Deferred Amounts acquired by a Holder shall automatically be deemed to be Senior Surplus Notes or Holder Deferred Amounts of such Holder and shall be subject to all of the terms of this Agreement. In the event a Holder purchases or otherwise acquires any Senior Surplus Notes or Holder Deferred Amounts, the Holder shall promptly notify the Joining Holder Agent of such purchase. The Joining Holder Agent shall report to the Company upon request the then-current holdings of Holder Deferred Amounts and Senior Surplus Notes of any Holder or Joining Party. Notwithstanding anything else herein to the contrary, no acquisition of Senior Surplus Notes may be made by any Party within five (5) Business Days of any expiration date of the Exchange Offers without the Company’s prior written consent and contemporaneous notice to counsel for the Company. Notwithstanding anything to the contrary herein, a Qualified Marketmaker that acquires Senior Surplus Notes or Holder Deferred Amounts, subject to Section 6(a), with the purpose and intent of acting as a Qualified Marketmaker for such Senior Surplus Notes or Holder Deferred Amounts will be required to either (A) agree to be bound

by this Agreement (but solely with respect to such securities so acquired) and to validly and timely tender its Senior Surplus Notes or Holder Deferred Amounts in accordance with the terms and conditions hereof, by executing and delivering to the Company a signature page to this Agreement in the form attached as Exhibit G hereto; notwithstanding anything to the contrary herein, the execution and delivery of such a signature page shall not result in the Qualified Marketmaker being subject to this Agreement or any of the terms hereof with respect to any other Senior Surplus Notes or Holder Deferred Amounts then held or controlled (or subsequently held or controlled) in any way whatsoever by such Qualified Marketmaker, or (B) contemporaneously transfer such Senior Surplus Notes or Holder Deferred Amounts (by purchase, sale, assignment, participation, or otherwise) to a Holder or to a Joining Party in accordance with the consent requirements of Section 6(a) above; provided that such transfer shall permit such Holder or Joining Party, as applicable, sufficient time to validly and timely tender such Senior Surplus Notes or Holder Deferred Amounts prior to any expiration date of the Exchange Offers; provided further that, to the extent any Holder is acting solely in its capacity as a Qualified Marketmaker and not with respect to any securities it owns for its own investment purposes that are unrelated to its activities as a Qualified Marketmaker, it may in its capacity as a Qualified Marketmaker transfer any ownership interests in Senior Surplus Notes or Holder Deferred Amounts that it acquires as a Qualified Marketmaker from a holder that is not a Holder or Joining Party to any transferee that is not a Holder or Joining Party without the requirement that such transferee be or become a Holder or Joining Party. As used herein, the term “Qualified Marketmaker” means an entity that (a) holds itself out to the public or the applicable private markets as standing ready in the ordinary course of business to purchase from customers and sell to customers claims of a Party (or enter with customers into long and short positions in claims against a Party), in its capacity as a dealer or market maker in claims against a Party and (b) is, in fact, regularly in the business of making a market in claims against issuers or borrowers (including debt or other securities).

(c)    Notwithstanding anything to the contrary herein, any acquisition or transfer of Senior Surplus Notes or Holder Deferred Amounts by a Holder that does not comply with the procedures set forth in this Agreement shall be null and void ab initio without the need for further action and the Company shall have the right to enforce the voiding of such transfer.

Section 7.    Termination by the Group. This Agreement may be terminated by Holders that, in the aggregate, beneficially own at least (i) 66 2/3% of the principal amount outstanding under the Senior Surplus Notes and (ii) 66 2/3% of the principal amount of the Holder Deferred Amounts, held by the Group as a whole, subject to the terms of this Agreement, upon the occurrence of any of the following events (each a “Group Termination Event”), by delivering written notice of the occurrence of such event in accordance with Section 15 below to the other Parties:

(a)    (i) within 75 days of the Signing Date, the Rehabilitator has not filed a motion in the Rehabilitation Court seeking entry of the Approval Order, (ii) the Confirmation Hearing (as defined in the Rehabilitation Exit Term Sheet) has not commenced within 180 days of the Signing Date, (iii) the Rehabilitation Exit Transactions have not been consummated within 270 days of the Signing Date, or (iv) the Parties have not satisfied the requirements of Section 3(b) above; provided that if the Rehabilitation Exit Transactions have not been consummated within 365 days of signing the Agreement, each Holder shall have the right to terminate the Agreement with respect to itself; or

(b)    the Rehabilitation Exit Transactions or the final Definitive Documents do not conform in all material respects to the Term Sheets with respect to the Rehabilitation Plan Amendment, Exchange Offers or the New Secured Notes, except as approved by the Group in accordance with Section 12 hereof; or

(c)    the Rehabilitator seeks an order or other relief from the Rehabilitation Court or other court of competent jurisdiction (including approval of an amendment to the Existing Plan) inconsistent in any material respect with the Term Sheets, or the Rehabilitation Court or other court of competent jurisdiction issues an order or grants relief (including approval of an amendment to the Existing Plan) inconsistent in any material respect with the Term Sheets; or

(d)    a material breach of any of the undertakings, representations, warranties, or covenants set forth in this Agreement by the Ambac Parties that is not, by its terms, curable or that is, by its terms, curable and is not cured by the 25^th day after notice of such breach.

Notwithstanding anything herein to the contrary, a Holder may not seek to terminate this Agreement based upon a Group Termination Event arising out of its own actions or omissions in violation of this Agreement.

Section 8.    Termination by the Company. Parent and the Company shall have the right to terminate this Agreement on the occurrence of any of the following events (each a “Company Termination Event”) by giving written notice in accordance with Section 15 below to the other Parties:

(a)    the Rehabilitation Exit Transactions have not been consummated within 365 days of the Signing Date; or

(b)    the Rehabilitator seeks an order or other relief from the Rehabilitation Court or other court of competent jurisdiction (including approval of an amendment to the Existing Plan) inconsistent in any material respect with the Term Sheets, or the Rehabilitation Court or other court of competent jurisdiction issues an order or grants relief (including approval of an amendment to the Existing Plan) inconsistent in any material respect with the Term Sheets; or

(c)    a material breach of any of the undertakings, representations, warranties, or covenants set forth in this Agreement by any Holder that is not, by its terms, curable or that is, by its terms, curable and is not cured by the 25^th day after notice of such breach.

Section 9.    Termination of Agreement. Each Party shall have the right to terminate this Agreement on the occurrence of any of the following events by giving written notice in accordance with Section 15 below to the other Parties:

(a)    any court of competent jurisdiction has entered a final, non-appealable judgment or order (i) declaring this Agreement or any material portion hereof to be illegal or unenforceable or (ii) restricting, preventing or prohibiting in any material respect the Rehabilitation Exit Transactions in a way that cannot reasonably be remedied by the Parties within the time periods set forth in Sections 7 and 8 hereof; or

(b)    the Parties mutually agree to do so upon the receipt of written notice delivered in accordance with Section 15 hereof.

Notwithstanding anything to the contrary in this Agreement, the Term Sheets, or any other agreement, this Agreement shall terminate on the earlier of (a) the election of the Holders to terminate this Agreement upon the occurrence of a Group Termination Event after expiration of any cure periods and satisfaction of any conditions set forth in Section 7 hereof; (b) the election of the Company or AFG to terminate this Agreement upon the occurrence of a Company Termination Event after expiration of any cure periods and satisfaction of any conditions set forth in Section 8 hereof and (c) the consummation of the Rehabilitation Exit Transactions.

Section 10.    Effect of Termination and of Waiver of Termination Event. On the delivery of the written notice referred to in Sections 7, 8, or 9 in connection with the valid termination of this Agreement, the obligations of each of the Parties hereunder shall thereupon terminate and be of no further force and effect (subject to the last sentence of this paragraph). Prior to the delivery of such notice the Group may waive the occurrence of a Group Termination Event and the Company may waive the occurrence of a Company Termination Event. No such waiver shall affect any subsequent termination event or impair any right consequent thereon. Upon termination of this Agreement, no Party shall have any continuing liability or obligation to the other Parties hereunder except as expressly provided otherwise herein; provided, however, that no such termination shall relieve any Party from liability for its breach or non-performance of its obligations hereunder prior to the date of such termination.

Section 11.    Disclosure; Publicity. The Company shall submit to Group’s Counsel drafts of any press releases, public documents and the portion of any and all filings with the SEC that constitute disclosure of the existence or terms of this Agreement or any amendment to the terms of this Agreement or any Rehabilitation Exit Transactions at least two (2) Business Days prior to making any such disclosure. Except as required by applicable law or otherwise permitted under the terms of any other agreement between the Company and any Holder, no Party or its Representatives shall disclose to any person or entity (including, for the avoidance of doubt, any other Holder), other than Representatives to the Company, the principal amount or percentage of any Senior Surplus Notes and/or Holder Deferred Amounts held by any Holder, in each case, without such Holder’s prior written consent; provided that any Party may disclose information requested by a Regulator to the Regulator without limitation or notice to any Party or other person; provided further that (x) a Party may not disclose the holdings of any individual Holder to a Regulator if disclosure in the aggregate would be sufficient and (y) if such disclosure is required by law, subpoena, or other legal process or regulation or requested by a Regulator, the disclosing Party shall (A) if legally permissible, afford the relevant Holder a reasonable opportunity to review and comment in advance of such disclosure and shall take all reasonable measures to limit such disclosure and (B) seek to have such disclosure made under seal or pursuant to confidentiality restrictions acceptable to such Holder. The Company shall be permitted to disclose the aggregate principal amount or percentage of Senior Surplus Notes and/or Holder Deferred Amounts held by the Group. Notwithstanding the provisions in this Section 11, any Party may disclose, to the extent consented to in writing by a Holder, such Holder’s individual holdings.

Section 12.    Amendments. This Agreement may be modified, amended, or supplemented by a written agreement executed by the Company and the Holders that own, in the aggregate, (i) 66 2/3% of the principal amount outstanding under the Senior Surplus Notes and (ii) 66 2/3% of the principal amount of the Holder Deferred Amounts, held by the Group as a whole; provided, however that any modification, amendment or supplement to Section 7, this Section 12, the terms described under the headings “The DPO Offer” and “The AAC Offer” in the Exchange Offer Term Sheet, the terms described under the headings “Initial Exchange,” “Pre-Record Date Deferred Amounts” and “Post-Record Date Deferred Amounts” in the Rehabilitation Exit Term Sheet and the terms described under the headings “Secured Notes,” “Secured Notes Collateral,” “Ambac Note,” “Ambac Note Collateral,” “Maturity,” “Coupon,” Mandatory Prepayment,” “Principal and Interest Payments” and “Payment Preference” in the Secured Notes Term Sheet shall require the prior written consent of each Holder and the Ambac Parties. For the avoidance of doubt, without the prior consent of the Holders, the Company may modify, amend or supplement the Transaction Mechanics to the extent reasonably necessary to mechanically effectuate the economic terms of this Agreement; provided that such modification, amendment or supplement does not impact the economic terms or substantive requirements of this Agreement or the Rehabilitation Exit Transactions.

Section 13.    Further Assurances. Each of the Parties hereby further covenants and agrees to cooperate in good faith to execute and deliver all further documents and agreements and take all further action that may be commercially reasonably necessary or desirable in order to enforce and effectively implement the terms and conditions of this Agreement. Each Holder acknowledges that the Ambac Parties and the Segregated Account will continue their ongoing remediation, bond purchase and deleveraging efforts, including, but not limited to, through separate transactions with any of the Holders including, without limitation, those that have occurred since January 1, 2017 that are listed on Schedule A attached hereto. Each Holder agrees that it will not directly or indirectly engage in discussions regarding the RMBS Litigations (as defined in the Exchange Offer Term Sheet) with any litigant that is adverse to the Company or the Segregated Account in the RMBS Litigations or otherwise take any action, directly or indirectly, that could reasonably be expected to interfere with the RMBS Litigations, provided however, that this sentence shall not prohibit in any way whatsoever, the Holder from exercising any right it has or may have as a named party or directing holder in any litigation.¹ 

Section 14.    Governing Law; Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. By its execution and delivery of this Agreement, each of the Parties hereby irrevocably and unconditionally agrees for itself that any legal action, suit, or proceeding against it with respect to any matter under or arising out of or in connection with this Agreement or for recognition or enforcement of any judgment rendered in any such action, suit, or proceeding, shall be brought in a federal court of competent jurisdiction in the Southern District of New York. By execution and delivery of this Agreement, each of the Parties hereto hereby irrevocably accepts and submits to the jurisdiction of such court, generally and unconditionally, with respect to any such action, suit, or proceeding.

Section 15.    Notices. All demands, notices, requests, consents, and communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or by courier service, messenger, facsimile, telecopy, or if duly deposited in the mails, by certified or registered mail, postage prepaid-return receipt requested, and shall be deemed to have been duly given or made (i) upon delivery, if delivered personally or by courier service, or messenger, in each case with record of receipt, (ii) upon transmission with confirmed delivery, if sent by facsimile or telecopy, or (iii) two (2) Business Days after being sent by certified or registered mail, postage pre-paid, return receipt requested, to the following addresses, or such other addresses as may be furnished hereafter by notice in writing, to the following parties:

____________________

If to Parent, the Company, or any of their subsidiaries, to:

Ambac Assurance Corporation
One State Street Plaza
New York, NY 10004
Facsimile: (212) 208-3414
Attn:    Stephen M. Ksenak, Esq.

with a copy to:

Debevoise & Plimpton LLP
919 Third Avenue
New York, NY 10022
Facsimile: (212) 521-7036
Attn:    Steven J. Slutzky, Esq.

with a copy to:

Weil, Gotshal & Manges LLP

767 Fifth Avenue

New York, NY 10153

Facsimile: (212) 310-8007

Attn:    Gary T. Holtzer, Esq.

Joseph T. Verdesca, Esq.

If to the Group, or any Holder, to:

Houlihan Lokey Howard & Zukin
245 Park Avenue, 20^th Floor
New York, NY 10167
Facsimile: (612) 338-2938
Attn:    Fred Vescio

with a copy to:

Schulte Roth & Zabel LLP
919 Third Avenue
New York, NY 10022
Facsimile: (212) 593-5955
Attn:    Brian D. Pfeiffer, Esq.

If to the Joining Holder Agent, to the contact information to be posted on the Ambac Parties’ website at www.ambac.com.

Section 16.    Entire Agreement; Survival. This Agreement constitutes the full and entire understanding and agreement among the Parties with regard to the subject matter hereof, and supersedes all prior agreements with respect to the subject matter hereof; except that the Parties acknowledge that any confidentiality agreements executed between the Company and any Holder prior to the execution of this Agreement shall continue in full force and effect. Except as expressly provided otherwise herein, none of the covenants or agreements of the Parties contained in this Agreement shall survive consummation of the Rehabilitation Exit Transactions.

Section 17.    Settlement Discussions. This Agreement and the Term Sheet are part of a proposed settlement of matters that could otherwise be the subject of litigation among the Parties. Pursuant to Rule 408 of the Federal Rules of Evidence, any applicable state rules of evidence and any other applicable law, foreign or domestic, this Agreement and all negotiations relating thereto shall not be admissible into evidence in any proceeding other than a proceeding to enforce its terms.

Section 18.    Headings. The headings of the paragraphs and subparagraphs of this Agreement are inserted for convenience only and shall not affect the interpretation hereof.

Section 19.    Successors and Assigns. This Agreement is intended to bind and inure to the benefit of the Parties and their respective permitted successors and assigns, provided, however, that nothing contained in this paragraph shall be deemed to permit sales, assignments, or transfers other than in accordance with Section 6.

Section 20.    Specific Performance. Each Party hereto recognizes and acknowledges that a breach by it of any covenants or agreements contained in this Agreement will cause other parties to sustain damages for which such parties would not have an adequate remedy at law for money damages, and therefore each Party hereto agrees that in the event of any such breach, such other parties shall be entitled to the remedy of specific performance of such covenants and agreements and injunctive and other equitable relief in addition to any other remedy to which such parties may be entitled, at law or in equity.

Section 21.    Several, Not Joint, Obligations. The agreements, representations, and obligations of the Parties under this Agreement are, in all respects, several and not joint.

Section 22.    Remedies Cumulative. All rights, powers, and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise of any right, power, or remedy thereof by any Party shall not preclude the simultaneous or later exercise of any other such right, power, or remedy by such Party.

Section 23.    No Waiver. The failure of any Party hereto to exercise any right, power, or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other Party hereto with its obligations hereunder, and any custom or practice of the Parties at variance with the terms hereof, shall not constitute a waiver by such Party of its right to exercise any such or other right, power, or remedy or to demand such compliance.

Section 24.    Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which shall constitute one and the same Agreement. Delivery of an executed signature page of this Agreement by telecopier or email shall be as effective as delivery of a manually executed signature page of this Agreement.

Section 25.    Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.

Section 26.    No Third-Party Beneficiaries. Unless expressly stated herein, this Agreement shall be solely for the benefit of the Parties, and no other person or entity shall be a third party beneficiary hereof.

Section 27.    Additional Parties. Without in any way limiting the provisions hereof, additional holders of Senior Surplus Notes and/or Holder Deferred Amounts may elect to become Parties

by executing and delivering to the Company a counterpart hereof. Each such additional holder shall become a Party to this Agreement as a Holder in accordance with the terms of this Agreement.

Section 28.    No Solicitation. This Agreement is not intended to be, and each signatory to this Agreement acknowledges that this Agreement is not, a solicitation with respect to the Exchange Offers or the other transactions contemplated by the Rehabilitation Exit Transactions.

Section 29.    Consideration. It is hereby acknowledged by the Parties hereto that, other than as described or permitted herein and in the Term Sheets, no consideration shall be due or paid to the Holders for their agreement to tender their Holder Deferred Amounts and/or Senior Surplus Notes in the Exchange Offers, cast a vote in favor of the Waiver and Amendment or not object to the Rehabilitation Plan Amendment in accordance with the terms and conditions of this Agreement.

Section 30.    Receipt of Adequate Information; Representation by Counsel. Each Party acknowledges that it has received adequate information to enter into this Agreement and that it has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of law or any legal decision that would provide any Party with a defense to the enforcement of the terms of this Agreement against such Party shall have no application and is expressly waived. The provisions of the Agreement shall be interpreted in a reasonable manner to effect the intent of the Parties.

Section 31.    Interpretation. Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”. The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The parties hereto have participated jointly in the negotiation and drafting of this Agreement and, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as jointly drafted by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provision of this Agreement.

IN WITNESS WHEREOF, the Parties hereto have duly executed and delivered this Agreement as of the date first above written.

By: /s/ Claude LeBlanc            

Name:     Claude LeBlanc

Title:     President and Chief Executive Officer

By: /s/ Claude LeBlanc            

Name:     Claude LeBlanc

Title:     President and Chief Executive Officer

The undersigned’s holdings have been separately certified to the Ambac Parties by the Group’s Counsel.

The undersigned’s holdings have been separately certified to the Ambac Parties by the Group’s Counsel.

The undersigned’s holdings have been separately certified to the Ambac Parties by the Group’s Counsel.

The undersigned’s holdings have been separately certified to the Ambac Parties by the Group’s Counsel.

The undersigned’s holdings have been separately certified to the Ambac Parties by the Group’s Counsel.

The undersigned’s holdings have been separately certified to the Ambac Parties by the Group’s Counsel.

The undersigned’s holdings have been separately certified to the Ambac Parties by the Group’s Counsel.

Notwithstanding anything to the contrary set forth in the foregoing Rehabilitation Exit Support Agreement (“RESA”), (A) this signature page only applies to AXONIC CREDIT OPPORTUNITIES MASTER FUND, LP (the “Fund”) ’s Senior Surplus Notes in an original principal amount of $[intentionally omitted] (current face amount of $[intentionally omitted]) (the “Affected Amount”) and does not apply to any of its other holdings of Senior Surplus Notes or its Holder Deferred Amounts and (B) in order to allow the Fund’s existing financing of the Affected Amount of the Senior Surplus Notes to continue until it terminates in accordance with its terms or at the earlier election of the Fund, the Fund will have no liability under its representations and warranties under Sections 5(b)(1) or (2) or 6 of the RESA concerning its existing financing of the Affected Amount of the Senior Surplus Notes until August 8, 2017.

By: /s/ Jamshed Engineer        

Name: JAMSHED ENGINEER

Title: AUTHORIZED SIGNATORY

Address: 390 PARK AVE., 15^TH FLR., New York New York 10022
Attn.: DIRECTOR OF OPERATIONS

This Term Sheet¹ sets forth the principal terms of the Amendment (the “Plan Amendment”) to the Plan of Rehabilitation (as amended or modified before the date of this Term Sheet, the “Plan”) of the Segregated Account of Ambac Assurance Corporation (“AAC”) to be filed in the Circuit Court for Dane County, State of Wisconsin (the “Court”) in the Rehabilitation Proceeding. As reflected in the rehabilitation exit support agreement dated July 19, 2017 (the “Rehabilitation Exit Support Agreement”), by and among AAC, AFG, and certain of the Segregated Account’s policyholders, creditors, and other claimants (the “Consenting Creditors”), to which the Term Sheet is an exhibit, this Plan Amendment is supported by AAC, AFG, and the Consenting Creditors.

THIS TERM SHEET DOES NOT CONSTITUTE (NOR SHALL IT BE CONSTRUED AS) AN OFFER WITH RESPECT TO ANY SECURITIES OR A SOLICITATION OF ACCEPTANCES OR REJECTIONS AS TO ANY PLAN OF REHABILITATION, IT BEING UNDERSTOOD THAT SUCH A SOLICITATION, IF ANY, WILL BE MADE ONLY IN COMPLIANCE WITH APPLICABLE PROVISIONS OF SECURITIES OR OTHER APPLICABLE LAWS.

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For purposes herein: “Third Party DPO Amount” shall be equal to the outstanding principal amount of DPOs, plus accretion thereon, held by parties other than AFG or AAC as of the Record Date (as defined in the Rehabilitation Exit Term Sheet); “AFG SSN Amount” shall be equal to the principal amount of Notes, plus accrued and unpaid interest thereon, held by AFG as of the Record Date; “AFG Held DPO Amount” shall be equal to the principal amount of DPOs, plus accretion thereon, held by AFG as of the Record Date; “AAC Held DPO Amount” shall be equal to the principal amount, plus accretion thereon, of DPOs held by AAC as of the Record Date; and “Sponsoring Holder SSN Amount” shall be equal to the outstanding principal of Notes, plus accrued and unpaid interest thereon, held by the Holders as of the Record Date.

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Effective as of the Effective Date (as defined in the Plan Amendment), the following provisions of the BSA shall be amended (the “Amendment”) without further action of the Parties in the manner set forth below:

AAC will not, and will cause each of its Subsidiaries not to, issue, incur or assume any Surplus Notes or Indebtedness that are pari passu with or senior to the AAC Surplus Notes (including, without limitation, debt instruments of Affiliates that are structurally senior to the AAC Surplus Notes), other than (subject to Section 3.04(f)) (i) any other Surplus Notes that satisfy the OCI Approval Standard, (ii) Surplus Notes or Indebtedness in connection with the RMBS Remediation Plan, the SA Remediation Plan, the SL Remediation Plan or any GA Remediation Action, (iii) Surplus Notes or Indebtedness issued to AAC or any of its wholly-owned Subsidiaries (other than Ambac UK) that satisfy the OCI Approval Standard, (iv) as permitted pursuant to the provisions of Section 3.04(h), (v) Permitted Indebtedness, or (vi) any refinancing of any of the foregoing in (i) through (v) (excluding the refinancing of any Surplus Notes (other than by way of a new issuance under (i))). For the avoidance of doubt, any refinancing under (vi) shall not involve the incurrence of Indebtedness in an amount greater than the aggregate principal and accrued interest of the Indebtedness being refinanced. In addition, the provisions of this Section 3.04(e) shall not apply to the issuance of a financial guaranty insurance policy or surety bond pursuant to a contractual commitment in effect on June 7, 2010.

“Indebtedness” means, with respect to any Person, without duplication, (a) all indebtedness of such Person for borrowed money; (b) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments or upon which interest payments are customarily made; (c) all obligations and

liabilities, contingent or otherwise, of such Person, in respect of letters of credit, acceptances and similar facilities; (d) all monetary obligations under any receivables factoring, receivable sales or similar transactions and all monetary obligations under any synthetic lease, tax ownership/Synthetic Lease; and (e) guarantees and other contingent obligations in respect of any of the foregoing Indebtedness (but without duplication). The Indebtedness of any Person shall include the Indebtedness of any partnership of or joint venture in which such Person is a general partner or a joint venturer (save as outstanding on the Effective Date of the Plan Amendment). Notwithstanding anything to the contrary herein, “Indebtedness” shall not include (i) any obligations or liabilities (or any guarantee or similar obligation in respect thereof) in respect of equipment leases, real estate leases, and other operational leases, (ii) any ordinary intercompany payables among AAC and its Affiliates or Subsidiaries, and (iii) any derivatives and hedging activities. For the avoidance of doubt, “Indebtedness” shall also exclude any guarantee, contingent obligation, letter of credit, or similar obligation in respect of any item which is, of itself, and already included as, Indebtedness hereunder.

“Permitted Indebtedness” means (i) the senior secured notes to be issued conditioned upon the Effective Date of the Plan Amendment, (ii) the note(s) to be issued by AAC that will serve as collateral for such senior secured notes, (iii) any Surplus Notes, (iv) any financial guarantees or surety bonds issued by AAC or any of its Subsidiaries, and (v) any other Indebtedness of AAC in an aggregate principal amount outstanding (only with respect to this Indebtedness described in this clause (v)) not exceeding $400,000,000 (excluding for purposes of clarity any payment-in-kind interest or other interest on such Indebtedness).

“Plan Amendment” means the Second Amended Plan of Rehabilitation of the Segregated Account filed in the Circuit Court for Dane County, State of Wisconsin in the rehabilitation proceeding commenced on March 24, 2010 with respect to the Segregated Account titled In re Segregated Account of Ambac Assurance Corporation, Case No. 10 CV 1576.

“Synthetic Lease” means, as to any Person, any lease (including a lease that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) (a) that is accounted for as an operating lease under GAAP and (b) in respect of which the lessee retains or obtains ownership of the property so leased for U.S. federal income tax purposes, other than any such lease under which such Person is the lessor.

“Permitted Liens” means (a) Liens for taxes not yet due and payable or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been established on the financial statements of AAC or the Segregated Account in accordance with GAAP or SAP, as applicable, (b) statutory Liens of landlords, (c) Liens of carriers, warehousemen, mechanics, materialmen and repairmen incurred in the ordinary course of business consistent with past practice, (d) in the case of real property, zoning, building, or other restrictions, variances, covenants, rights of way, encumbrances, easements and

other minor irregularities in title, none of which, individually or in the aggregate, (i) interfere in any material respect with the present use of or occupancy of the affected parcel by the Ambac Parties, (ii) have more than an immaterial effect on the value thereof or its use, or (iii) would impair the ability of such parcel to be sold for its present use, (e) Liens securing obligations arising as a result of any actions under or pursuant to the RMBS Remediation Plan, the SL Remediation Plan, the SA Remediation Plan or any GA Remediation Action, (f) Liens incurred directly in connection with AAC’s and Ambac Capital Funding, Inc.’s obligations under the guaranteed investment contracts entered into by Ambac Capital Funding, Inc. and in connection with futures contracts and swap agreements entered into by Ambac Financial Services, LLC, (g) Liens incurred pursuant to the Secured Note, (h) Liens existing on the date hereof, (i) other Liens (X) incurred in the ordinary course of business, (Y) securing obligations (other than Surplus Notes) not prohibited under this Agreement and (Z) on property posted as collateral having an aggregate fair market value of not more than $50,000,000 (disregarding any property posted as collateral on the date hereof (so long as the relevant collateral arrangement continues to exist)), (j) Liens in favor of wholly-owned Subsidiaries granted in the ordinary course of business, (k) Liens that satisfy the OCI Approval Standard, (l) Liens by Affiliates in favor of AAC, (m) Liens securing Permitted Indebtedness (and Liens incurred in connection with refinancings permitted under Section 3.04(e); provided, however, in the case of a refinancing of the notes described in clauses (i) and (ii) of the definition of “Permitted Indebtedness” above, such Liens may involve only the collateral or proceeds of the collateral that originally supported such notes) and (n) Liens in favor of financial institutions in which accounts are held in the name of the Ambac Parties and that are opened in the ordinary course of business.

All Surplus Notes shall rank pari passu with or junior to the AAC Surplus Notes. No Surplus Note issued by AAC shall have a scheduled maturity or scheduled principal payment prior to the 10th anniversary of June 7, 2010, have an interest rate in excess of 5.1% per annum, or otherwise be on terms materially more favorable to the holders of such Surplus Notes than the AAC Surplus Notes; provided, that (a) the existence or absence of transfer restrictions pursuant to section 3(a)(10) or section 4(a)(2) of the Securities Act shall not be considered a more or less favorable term for the purpose of this subsection and (b) the clause pertaining to the interest rate in excess of 5.1% per annum shall not apply to any Surplus Notes that may be issued by AAC that are junior to the AAC Surplus Notes; provided, that such Surplus Notes shall not (i) mature earlier than August 28, 2039, (ii) be issued in an aggregate amount (together with any other such junior Surplus Notes having an interest rate in excess of 5.1%) in excess of $150,000,000, (iii) be issued earlier than December 31, 2018, and (iv) accrue interest at a rate exceeding 8.1% per annum. Notwithstanding anything in this Agreement to the contrary, (x) no principal or interest payment (other than PIK interest) on any indebtedness ranking junior to the Surplus Notes shall be made until all of the Surplus Notes have been paid in full, repurchased or redeemed or otherwise provided for to the satisfaction of OCI and (y) all Surplus Notes shall be approved by OCI.

solely with respect to AAC, merge, consolidate or amalgamate with any other Person (except for where AAC is the surviving entity, between AAC and its wholly-owned Subsidiaries); and solely with respect to Everspan Financial Guarantee Corp., merge, consolidate or amalgamate with any Person other than AAC or a wholly-owned Subsidiary thereof unless such merger meets with the OCI Approval Standard.

The undersigned represents and warrants that it is a Qualified Marketmaker as defined in Section 6(b) of this Agreement. The undersigned represents and warrants that it has acquired the securities listed below solely in its capacity as a Qualified Marketmaker and acknowledges that it is a Holder only with respect to those Holder Deferred Amounts and/or Senior Surplus Notes listed below.

[●], as a Holder ³⁶ and Qualified Marketmaker pursuant to Section 6(b), solely with respect to the Holder Deferred Amounts and/or Senior Surplus Notes set forth below

By:        
    Name:
    Title:

Address: [●]
Fax: [●]
E-mail: [●]

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