8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): February 12, 2007 (February 7, 2007)

AMBAC FINANCIAL GROUP, INC.

(Exact name of Registrant as specified in its charter)

Delaware	1-10777	13-3621676
(State of incorporation)	(Commission file number)	(I.R.S. employer identification no.)

One State Street Plaza, New York, New York 10004

(Address of principal executive offices) (Zip Code)

(212) 668-0340

(Registrant’s telephone number, including area code)

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:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4c))

Item 1.01 Entry into a Material Definitive Agreement

On February 7, 2007, Ambac Financial Group, Inc. (the “Registrant”) entered into an accelerated share buyback agreement (“ASB Agreement”) with Goldman, Sachs & Co. (“Goldman Sachs”) to repurchase $400 million of the Registrant’s common stock on an accelerated basis. The accelerated share repurchase is part of a previously announced repurchase program authorized by the Registrant’s board of directors to repurchase up to 24 million shares of the Registrant’s common shares.

Under the ASB Agreement, the Registrant will repurchase a number of shares to be determined based on the average of the daily volume weighted average share prices of the Registrant’s common stock during a specified period of time, subject to certain provisions that establish a minimum number of shares that may be repurchased by the Registrant. The minimum number of shares the Registrant will repurchase under the ASB Agreement will be determined by dividing $400 million by 104.5% of the average of the daily volume weighted average share prices of the Registrant’s common stock over a period of up to approximately one month following execution of the ASB Agreement. Goldman Sachs will deliver the minimum number of shares to the Registrant within this time period, and the Registrant understands that Goldman Sachs will borrow all or a portion of the minimum number of shares to be delivered. Over the term of the ASB Agreement, which is expected to terminate approximately one to four months following this minimum share delivery, Goldman Sachs is expected to purchase shares in the open market. At the end of the one- to four-month period, the Registrant may receive additional shares from Goldman Sachs depending on the average of the daily volume weighted average prices of the shares during that period.

The Registrant will prepay the $400 million to Goldman Sachs on February 12, 2007. Thereafter, the Registrant has no other obligations under the ASB Agreement to pay additional amounts or deliver shares to Goldman Sachs in connection with the accelerated share repurchase. Shares repurchased under the ASB Agreement will be held in the Registrant’s treasury and may be reissued for various corporate purposes.

From time to time the Registrant engages Goldman Sachs in investment banking and other advisory services for which Goldman Sachs receives customary fees and expenses.

In addition, the disclosure provided in item 2.03 below regarding the Registrant’s entry into certain other agreements is hereby incorporated into this Item 1.01 by reference.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant

On February 12, 2007, the Registrant completed the public offering of $400 million aggregate principal amount of Directly-Issued Subordinated Capital Securities (DISCS^SM) pursuant to an Underwriting Agreement and Terms Agreement, each dated February 7, 2007, by and among the Registrant, and Citigroup Global Markets Inc., Goldman, Sachs & Co. and J.P. Morgan Securities Inc. as representatives of the several underwriters named therein. Each of the Underwriting Agreement and the Terms Agreement are attached to this Current Report on Form 8-K as Exhibits 1.01 and 1.02, respectively.

The DISCS were registered by means of a Registration Statement on Form S-3, (Registration No. 333-131888) (as amended to date, the “Registration Statement”). A prospectus supplement, dated February 7, 2007 (the “Prospectus Supplement”), relating to the DISCS and supplementing the base prospectus dated February 6, 2007 (together with the Prospectus Supplement, the “Prospectus”) was filed with the Securities and Exchange Commission on February 8, 2007.

The DISCS were issued as a separate series of junior subordinated debt securities under a junior subordinated indenture, dated as of February 12, 2007 (the “Base Indenture”), as supplemented by a supplemental indenture, dated as of February 12, 2007 (the “First Supplemental Indenture” and, together with the Base Indenture, the “Indenture”) each between the Registrant and The Bank of New York. The Base Indenture and the First Supplemental Indenture are attached to this Current Report on Form 8-K as exhibits 4.11 and 4.12, respectively, and are incorporated herein by reference.

The DISCS will be unsecured, subordinated and junior in right of payment upon the Registrant’s liquidation, including to all of the Registrant’s existing and future senior indebtedness, but will rank equally in right of payment upon liquidation with debt that by its terms does not rank senior upon the Registrant’s liquidation to the DISCS and with the Registrant’s trade creditors, and will be effectively subordinated to all liabilities of the Registrant’s subsidiaries.

The DISCS were priced at 99.335% of their principal amount. The DISCS will mature on February 15, 2037, or if that day is not a business day, the following business day, (the “Scheduled Maturity Date”), provided that the Registrant is required to repay the DISCS on the Scheduled Maturity Date only to the extent that it has raised sufficient net proceeds from the issuance of certain “replacement capital securities” specified in the Replacement Capital Covenant discussed below. The Registrant has agreed to use its

DISCS^SM is a service mark of Citigroup Global Markets Inc. Citigroup Global Markets Inc. has applied for patent protection for certain aspects of the DISCS^SM structure described in the Prospectus Supplement.

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commercially reasonable efforts, subject to the occurrence of certain “market disruption events” specified in the First Supplemental Indenture to raise sufficient net proceeds from such qualifying capital securities. Any unpaid principal amount of the DISCS will mature on February 7, 2087 or if that day is not a business day, the following business day (referred to in the First Supplemental Indenture as the “Final Maturity Date”) or upon acceleration following an event of default, regardless of the amount of qualifying capital securities the Registrant has issued and sold by that time.

Interest on the DISCS will accrue from February 12, 2007. Until February 15, 2037 the DISCS will bear interest at the annual rate of 6.15% payable semi-annually in arrears on February 15 and August 15 of each year beginning on August 15, 2007. If any DISCS remain outstanding after February 15, 2037, they will bear interest at an annual rate equal to one-month LIBOR plus 1.835%, reset and payable monthly until repaid.

The Registrant has the right to elect to defer the payment of interest on the DISCS as described in the Indenture, provided, however, that subject to certain conditions and exclusions, if the Registrant defers interest on the DISCS, it will be required, commencing on the earlier of (i) the first interest payment date on which it pays current interest (which it may do from any source of funds) or (ii) the fifth anniversary of the commencement of the deferral period, if on such date such deferral period has not ended, to continuously use its commercially reasonable efforts to issue certain specified securities described in Section 2.6 of the First Supplemental Indenture, until it has raised an amount of eligible proceeds at least equal to the aggregate amount of accrued and unpaid deferred interest, including compounded interest thereon, on the DISCS. The Registrant may defer interest for up to ten consecutive years without giving rise to an event of default. Deferred interest will accumulate additional interest at an annual rate equal to the annual interest rate then applicable to the DISCS. In the event of the Registrant’s bankruptcy, holders of the DISCS may have a limited claim for deferred interest.

The Registrant may elect to redeem any or all of the DISCS on or after February 15, 2037 at a redemption price equal to 100% of the principal amount of the DISCS being redeemed plus any accrued and unpaid interest and before February 15, 2037 (i) in whole at any time or in part from time to time, or (ii) in whole, but not in part, if certain changes occur relating to the tax treatment of or rating agency equity credit accorded to the DISCS, in each case at a redemption price equal to the greater of (x) 100% of the principal amount of the DISCS being redeemed and (y) the applicable treasury-based make-whole amount (calculated as described under “Description of the DISCS—Redemption,” in the Prospectus Supplement) in each case plus any accrued and unpaid interest. A description of the terms of the DISCS is included under the caption “Description of the DISCS” in the Prospectus Supplement and under the caption “Description of Debt Securities” in the Prospectus, and such descriptions are incorporated in this Current Report by reference to the Prospectus Supplement, which is attached as Exhibit 99.11 hereto.

The foregoing summary is qualified in its entirety by reference to the text of the Base Indenture and the First Supplemental Indenture, copies of which are filed as exhibits and are incorporated herein by reference. The form of the DISCS is attached to this Current Report on Form 8-K as Exhibit 4.13.

In addition, on February 12, 2007, in connection with the completion of the offering of the DISCS, the Registrant entered into a replacement capital covenant (the “Replacement Capital Covenant”), whereby the Registrant agreed for the benefit of holders of certain series of the Registrant’s long-term indebtedness designated by the Registrant in accordance with the terms of the Replacement Capital Covenant from time to time ranking senior to the DISCS that the DISCS will not be repaid, redeemed or purchased by the Registrant, on or before February 7, 2067, unless such repayment, redemption or purchase is made from the proceeds of the issuance of certain replacement capital securities and pursuant to the other terms and conditions set forth in the Replacement Capital Covenant. The Replacement Capital Covenant is attached hereto as Exhibit 4.14 and incorporated herein by reference.

The foregoing summary is qualified in its entirety by reference to the text of the Replacement Capital Covenant, a copy of which is filed as an exhibit and is incorporated herein by reference.

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Item 9.01 Financial Statements and Exhibits

(c) Exhibits.

Exhibit Number	Item
1.01	Underwriting Agreement dated February 7, 2007 among the Registrant, Citigroup Global Markets Inc., Goldman, Sachs & Co. and J.P. Morgan Securities Inc. acting as representatives of the several underwriters.
1.02	Terms Agreement dated February 7, 2007 among the Registrant, Citigroup Global Markets Inc., Goldman, Sachs & Co. and J.P. Morgan Securities Inc. acting as representatives of the several underwriters.
4.11	Junior Subordinated Indenture dated as of February 12, 2007 between Ambac Financial Group, Inc. and The Bank of New York.
4.12	First Supplemental Indenture dated as of February 12, 2007 between Ambac Financial Group, Inc. and The Bank of New York.
4.13	Form of the DISCS.
4.14	Replacement Capital Covenant dated as of February 12, 2007.
99.11	Prospectus Supplement.

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SIGNATURES

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.

	Ambac Financial Group, Inc. (Registrant)
Dated: February 12, 2007	By:	/s/ Sean T. Leonard
		Sean T. Leonard
		Senior Vice President and Chief Financial Officer

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INDEX TO EXHIBITS

Exhibit Number	Item
1.01	Underwriting Agreement dated February 7, 2007 among the Registrant, Citigroup Global Markets Inc., Goldman, Sachs & Co. and J.P. Morgan Securities Inc. acting as representatives of the several underwriters.
1.02	Terms Agreement dated February 7, 2007 among the Registrant, Citigroup Global Markets Inc., Goldman, Sachs & Co. and J.P. Morgan Securities Inc. acting as representatives of the several underwriters.
4.11	Junior Subordinated Indenture dated as of February 12, 2007 between Ambac Financial Group, Inc. and The Bank of New York.
4.12	First Supplemental Indenture dated as of February 12, 2007 between Ambac Financial Group, Inc. and The Bank of New York.
4.13	Form of the DISCS.
4.14	Replacement Capital Covenant dated as of February 12, 2007.
99.11	Prospectus Supplement.

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EX-1.01

EXHIBIT 1.01

EXECUTION COPY

AMBAC FINANCIAL GROUP, INC.

(a Delaware corporation)

UNDERWRITING AGREEMENT

Dated: February 7, 2007

TABLE OF CONTENTS

		Page
SECTION 1.	Representations and Warranties	5
(a)	Representations and Warranties by the Company	5
(b)	Officers’ Certificates	13
SECTION 2.	Sale and Delivery to Underwriters; Closing	13
(a)	Underwritten Securities	13
(b)	Payment	13
(c)	Denominations; Registration	13
SECTION 3.	Covenants of the Company	13
(a)	Compliance with Securities Regulations and Commission Requests	13
(b)	Final Term Sheets	14
(c)	Disclosure Package	14
(d)	Issuer Free Writing Prospectuses	14
(e)	Delivery of Registration Statements	15
(f)	Delivery of Prospectuses	15
(g)	Continued Compliance with Securities Laws	15
(h)	Blue Sky Qualifications	16
(i)	Rule 158	16
(j)	Use of Proceeds	16
(k)	Restriction on Sale of Securities	16
(l)	Reporting Requirements	16
(m)	Sarbanes-Oxley Act	16
(n)	Absence of Manipulation	16
SECTION 4.	Payment of Expenses	17
(a)	Expenses	17
(b)	Termination of Agreement	17
SECTION 5.	Conditions of Underwriters’ Obligations	17
(a)	Filing of Prospectus and Effectiveness of Registration Statement	17
(b)	Opinion of Counsel for Company	18
(c)	Opinion of Counsel for Underwriters	18
(d)	Officers’ Certificate	19
(e)	Accountant’s Comfort Letter	19
(f)	Bring-down Comfort Letter	19
(g)	Maintenance of Ratings	19
(h)	Lock-up Agreements	19
(i)	Additional Documents	20
(j)	Termination of Terms Agreement	20

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SECTION 6.	Indemnification. (a)	20
(a)	Indemnification of Underwriters	20
(b)	Indemnification of Company, Directors and Officers	21
(c)	Actions against Parties; Notification	21
(d)	Settlement without Consent if Failure to Reimburse	22
SECTION 7.	Contribution	22
SECTION 8.	Representations, Warranties and Agreements to Survive Delivery	23
SECTION 9.	Termination	23
(a)	Terms Agreement	23
(b)	Liabilities	24
SECTION 10.	Default by One or More of the Underwriters	24
SECTION 11.	Notices	25
SECTION 12.	Parties	25
SECTION 13.	No fiduciary duty	25
SECTION 14.	Integration	26
SECTION 15.	GOVERNING LAW AND TIME	26
SECTION 16.	Effect of Headings	26

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AMBAC FINANCIAL GROUP, INC.

(a Delaware corporation)

Junior Subordinated Debt Securities

UNDERWRITING AGREEMENT

February 7, 2007

Ladies and Gentlemen:

Ambac Financial Group, Inc., a Delaware corporation (the “Company”), proposes to issue and sell up to $400,000,000 aggregate initial public offering price of its junior subordinated debt securities (“Debt Securities”), or any combination thereof, from time to time, in or pursuant to one or more offerings on terms to be determined at the time of sale.

Unless otherwise specified in the applicable Terms Agreement (as defined below), the Debt Securities will be issued in one or more series under an indenture, to be dated as of February 12, 2007, as amended and supplemented through the Closing Date (as defined below) (the “Indenture”), between the Company and The Bank of New York, as trustee (the “Trustee”). Each series of Debt Securities may vary, as applicable, as to title, aggregate principal amount, rank, interest rate or formula and timing of payments thereof, stated maturity date, redemption and/or repayment provisions, sinking fund requirements and any other variable terms established by or pursuant to the Indenture. Whenever the Company determines to make an offering of Debt Securities, the Company will enter into an agreement (each, a “Terms Agreement”) providing for the sale of such Debt Securities to, and the purchase and offering thereof by the underwriters named in Schedule I to the Terms Agreement (the “Underwriters”, which term shall include any Underwriter substituted pursuant to Section 10 hereof). The Terms Agreement relating to the offering of Debt Securities shall specify the aggregate principal amount of Debt Securities to be issued (the “Underwritten Securities”), the name of each Underwriter participating in such offering (subject to substitution as provided in Section 10 hereof) and the name of any Underwriter acting as manager or co-manager in connection with such offering, the aggregate principal amount of Underwritten Securities which each such Underwriter severally agrees to purchase, whether such offering is on a fixed or variable price basis and, if on a fixed price basis, the initial offering price, the price at which the Underwritten Securities are to be purchased by the Underwriters, the form, time, date and place of delivery and payment of the Underwritten Securities and any other material variable terms of the Underwritten Securities. The Terms Agreement, which shall be substantially in the form of Exhibit A hereto, may take the form of an exchange of any standard form of written telecommunication between the Company and one or more of the Underwriters, acting for themselves and, if applicable, as representative(s) of any other Underwriters. Each offering of Underwritten Securities will be governed by this Underwriting Agreement, as supplemented by the applicable Terms Agreement. As used herein, the term “Representative(s)” means, with respect to any offering of Debt Securities, any

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Underwriter specified as the representative of the Underwriters of such offering in the applicable Terms Agreement and if none is so designated, it means the Underwriters.

The Company has filed with the Securities and Exchange Commission (the “Commission”) an automatic shelf registration statement as defined under Rule 405 (“Rule 405”) of the Securities Act of 1933, as amended (the “1933 Act”) on Form S-3 (File No. 333-131888), as amended by any amendments, for the registration of the Debt Securities and other securities of the Company under the 1933 Act, and the offering thereof from time to time in accordance with Rule 415 (“Rule 415”) of the rules and regulations of the Commission under the 1933 Act (the “1933 Act Regulations”). Such registration statement, and any amendments thereto filed prior to the Execution Time (as defined below), became effective on filing, and the Indenture has been duly qualified under the Trust Indenture Act of 1939, as amended (the “1939 Act”). Such registration statement, including all exhibits and financial statements and any prospectus supplement relating to the offering of the Underwritten Securities that is filed with the Commission pursuant to Rule 424(b) of the 1933 Act Regulations (“Rule 424(b)”) and deemed part of such registration statement pursuant to Rule 430B of the 1933 Act Regulations (the “Rule 430B Information”), as amended on each Effective Date (as defined below), and including any post-effective amendment thereto that becomes effective prior to the Closing Date, is referred to herein as the “Registration Statement”; the base prospectus filed as part of the Registration Statement, in the form in which it has most recently been filed with the Commission on or prior to the time of execution of the applicable Terms Agreement (the “Execution Time”) is referred to herein as the “Base Prospectus”; the Base Prospectus, together with any preliminary prospectus supplement relating to the offering of the Underwritten Securities which is used prior to the filing of the Prospectus (as defined below) filed with the Commission pursuant to Rule 424(b) is referred to herein as the “Preliminary Prospectus”; the Base Prospectus, together with the final prospectus supplement relating to the offering of the Underwritten Securities first filed with the Commission pursuant to Rule 424(b) after the Execution Time is referred to herein as the “Prospectus.” Each date and time that the Registration Statement, and any post-effective amendments thereto, became effective is referred to herein as the “Effective Date.”

Any reference herein to the Registration Statement, the Base Prospectus, any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 which were filed under the Securities Exchange Act of 1934 (the “1934 Act”) on or before the Effective Date of the Registration Statement or the date of the Base Prospectus, any Preliminary Prospectus or the Prospectus, as the case may be; and any reference herein to the terms “amend,” “amendment” or “supplement” with respect to the Registration Statement, the Base Prospectus, any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include the filing of any document under the 1934 Act after the Effective Date of the Registration Statement or the date of the Base Prospectus, any Preliminary Prospectus or the Prospectus, as the case may be, deemed to be incorporated therein by reference.

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SECTION 1. Representations and Warranties.

(a) Representations and Warranties by the Company. The Company represents and warrants to each Underwriter named in the applicable Terms Agreement, as of the date thereof and as of the Closing Time (as defined in Section 2(b) herein) (in each case, a “Representation Date”), as follows:

(i) Compliance with Registration Requirements. (A) The Company meets the requirements for use of Form S-3 under the 1933 Act and has prepared and filed with the Commission an automatic shelf registration statement, as defined in Rule 405, on Form S-3, including a related Base Prospectus, for registration under the 1933 Act of the offering and sale of the Underwritten Securities and other securities of the Company. Such Registration Statement, including any amendments thereto filed before Execution Time, became effective on filing and no stop order suspending the effectiveness of the Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or, to the knowledge of the Company, are contemplated by the Commission, no notice of objection of the Commission to the use of the Registration Statement or any post-effective amendments thereto pursuant to Rule 401(g)(2) of the 1933 Act Regulations has been received by the Company, and any request on the part of the Commission for additional information has been complied with. The Company may have filed with the Commission, as part of an amendment or pursuant to Rule 424(b), one or more preliminary prospectus supplements relating to the Underwritten Securities, each of which has previously been furnished to the Representative(s). The Company will file with the Commission a final prospectus supplement relating to the Underwritten Securities in accordance with Rule 424(b). As filed, such final prospectus supplement, except to the extent the Representative(s) shall agree in writing to a modification, shall be in all substantive respects in the form furnished to the Representative(s) prior to the Execution Time or, to the extent not completed prior to the Execution Time, shall contain only such specific additional information and other changes (beyond that contained in the Base Prospectus and any Preliminary Prospectus) as the Company has advised the Representative(s), prior to the Execution Time, will be included or made therein. The Registration Statement, at the Execution Time, meets the requirements set forth in Rule 415(a)(1)(x) of the 1933 Act Regulations.

(B) On each Effective Date, the Registration Statement including any amendments thereto did or will, and when the Prospectus is first filed in accordance with Rule 424(b) and on the Closing Date, the Prospectus (and any supplement thereto) will, comply in all material respects with the applicable requirements of the 1933 Act and the 1933 Act Regulations and the 1939 Act and the respective rules thereunder (the “1939 Act Regulations”); on each Effective Date and at the Execution Time, the Registration Statement did not and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; on the Effective Date and on the Closing Date the Indenture did or will comply in all material respects with the applicable requirements of the 1939 Act and the rules thereunder; and on the date of any filing pursuant to Rule 424(b) and at the Closing Time, the Prospectus (together with any supplement thereto) did not and will not include any untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided,

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however, that the representations or warranties in this subsection shall not apply to (i) that part of the Registration Statement which shall constitute the Statement of Eligibility and Qualification (Form T-1) under the 1939 Act of the Trustee or (ii) the information contained in or omitted from the Registration Statement or the Prospectus (or any supplement thereto) in reliance upon and in conformity with information furnished to the Company in writing by or on behalf of any Underwriter through the Representative(s) specifically for inclusion in the Registration Statement or the Prospectus (or any supplement thereto).

(C)(i) The Disclosure Package (as defined below) and (ii) each electronic road show, if any, when taken together as a whole with the Disclosure Package, does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The preceding sentence does not apply to statements in or omissions from the Disclosure Package based upon and in conformity with written information furnished to the Company by any Underwriter through the Representative(s) specifically for use therein. The term “Disclosure Package” means the Base Prospectus, the Preliminary Prospectus used most recently prior to the Execution Time, the Issuer Free Writing Prospectuses (as defined in Rule 433 of the 1933 Act Regulations), if any, identified in Schedule II of the applicable Terms Agreement, and any other Free Writing Prospectus (as defined in Rule 405 of the 1933 Act) that the parties hereto shall hereafter expressly agree in writing to treat as part of the Disclosure Package.

(D)(i) At the time of filing the Registration Statement, (ii) at the time of the most recent amendment thereto for the purposes of complying with Section 10(a)(3) of the 1933 Act (whether such amendment was by post-effective amendment, incorporated report filed pursuant to Sections 13 or 15(d) of the 1934 Act or form of prospectus), (iii) at the time the Company or any person acting on its behalf (within the meaning, for this clause only, of Rule 163(c) of the 1933 Act Regulations) made any offer relating to the Underwritten Securities in reliance on the exemption in Rule 163 of the 1933 Act Regulations, and (iv) at the Execution Time (with such time being used as the determination time for purposes of this clause (iv)), the Company was or is (as the case may be) a “well-known seasoned issuer” as defined in Rule 405. The Company agrees to pay the fees required by the Commission relating to the Underwritten Securities within the time required by Rule 456(b)(1) of the 1933 Act Regulations without regard to the proviso therein relating to the four business day extension to the payment deadline and otherwise in accordance with Rules 456(b) and 457(r) of the 1933 Act Regulations.

(E)(i) At the earliest time after the filing of the Registration Statement that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the 1933 Act) of the Underwritten Securities and (ii) as of the Execution Time (with such date being used as the determination date for purposes of this clause (ii)), the Company was not and is not an Ineligible Issuer (as defined in Rule 405), without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an Ineligible Issuer.

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(F)(i) Each Issuer Free Writing Prospectus does not include any information that conflicts with the information contained in the Registration Statement, including any document incorporated therein by reference and any prospectus supplement deemed to be a part thereof that has not been superseded or modified and each such Issuer Free Writing Prospectus, as supplemented by and taken together with the Disclosure Package, did not include any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The foregoing sentence does not apply to statements in or omissions from any Issuer Free Writing Prospectus based upon and in conformity with written information furnished to the Company by any Underwriter through the Representative(s) specifically for use therein.

(ii) Incorporated Documents. The documents incorporated or deemed to be incorporated by reference in the Registration Statement, any Preliminary Prospectus and the Prospectus, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission thereunder (the “1934 Act Regulations”) and, when read together with the other information in the Prospectus and any Preliminary Prospectus, at the date of any Preliminary Prospectus and the Prospectus and at the Closing Time, did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

(iii) Independent Accountants. The accounting firm that certified the financial statements and supporting schedules included in the Registration Statement, any Preliminary Prospectus and the Prospectus, and has audited the Company’s internal control over financial reporting and management’s assessment thereof, is an independent registered public accounting firm as required by the 1933 Act and the 1933 Act Regulations.

(iv) Financial Statements. The financial statements of the Company and its consolidated subsidiaries included in the Registration Statement, any Preliminary Prospectus and the Prospectus, together with the related schedules and notes, present fairly the financial position of the Company and its consolidated subsidiaries at the dates indicated and the statement of operations, stockholders’ equity and cash flows of the Company and its consolidated subsidiaries for the periods specified; except as otherwise stated in the Registration Statement, said financial statements have been prepared in conformity with generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods involved. The supporting schedules, if any, included in the Registration Statement present fairly in accordance with GAAP the information required to be stated therein. The selected consolidated financial data of the Company and its consolidated subsidiaries and the summary financial information of the Company and its consolidated subsidiaries included in any Preliminary Prospectus and the Prospectus present fairly the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included in the Registration Statement, any Preliminary Prospectus and the Prospectus. In addition, any pro forma financial statements of the Company and its subsidiaries and the related notes thereto

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included in the Registration Statement, any Preliminary Prospectus and the Prospectus present fairly the information shown therein, have been prepared in accordance with the Commission’s rules and guidelines with respect to pro forma financial statements and have been properly compiled on the bases described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein.

(v) No Material Adverse Change in Business. Since the respective dates as of which information is given in the Registration Statement, any Preliminary Prospectus and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise (a “Material Adverse Effect”), (B) there have been no transactions entered into by the Company or any of its subsidiaries, other than those arising in the ordinary course of business, which are material with respect to the Company and its subsidiaries considered as one enterprise, and (C) except for regular quarterly dividends on the common stock, par value $.01 per share, of the Company in amounts per share that are consistent with past practice, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock.

(vi) Good Standing of the Company. The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Disclosure Package and the Prospectus and to enter into and perform its obligations under this Underwriting Agreement and the applicable Terms Agreement. The Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify or be in good standing would not result in a Material Adverse Effect.

(vii) Good Standing of Subsidiaries. Each subsidiary of the Company that is a “significant subsidiary” as defined in Rule 1-02 of Regulation S-X (each, a “Subsidiary” and, collectively, the “Subsidiaries”) has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Disclosure Package and the Prospectus and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify or to be in good standing would not result in a Material Adverse Effect; except as otherwise disclosed in the Registration Statement, the Disclosure Package and the Prospectus, all of the issued and outstanding capital stock of each such Subsidiary has been duly authorized and validly issued and is fully paid and non-assessable; each such Subsidiary is wholly owned by the Company, directly or through subsidiaries; all of the outstanding capital stock of such Subsidiaries which is owned by the Company, directly or through subsidiaries, is owned free and clear of any security interest, mortgage, pledge, lien,

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encumbrance, claim or equity, and none of the outstanding shares of capital stock of any Subsidiary was issued in violation of the preemptive or similar rights of any securityholder of such Subsidiary.

(viii) Capitalization. If any Preliminary Prospectus and the Prospectus contains a “Capitalization” section, the authorized and issued capital stock of the Company is as set forth in any Preliminary Prospectus and the Prospectus in the column entitled “Actual” under such section (except for subsequent issuances thereof, if any, contemplated under this Underwriting Agreement, pursuant to reservations, agreements or employee benefit plans referred to in any Preliminary Prospectus and the Prospectus or otherwise as contemplated by the Disclosure Package and the Prospectus).

(ix) Authorization of this Underwriting Agreement and Terms Agreement. This Underwriting Agreement has been, and the applicable Terms Agreement as of the date thereof will have been, duly authorized, executed and delivered by the Company.

(x) Authorization of Debt Securities. The Underwritten Securities have been, or as of the date of the applicable Terms Agreement will have been, duly authorized by the Company for issuance and sale pursuant to this Underwriting Agreement and such Terms Agreement. At the Closing Time, the Underwritten Securities will have been duly executed by the Company and, when authenticated by the Trustee in the manner provided for in the Indenture and delivered against payment of the purchase price therefor specified in such Terms Agreement, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except (a) as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors’ rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law); and (b) the waiver contained in Section 514 of the Indenture may be deemed unenforceable, and will be in the form contemplated by, and entitled to the benefits of, the Indenture.

(xi) Authorization of the Indenture. The Indenture has been duly authorized by the Company and qualified under the 1939 Act and duly executed and delivered by the Company and (assuming the due authorization, execution and delivery by the Trustee) constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except (a) as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors’ rights generally and except as enforcement thereof is subject to general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law) and (b) the waiver contained in Section 514 of the Indenture may be deemed unenforceable.

(xii) Descriptions of the Underwritten Securities and the Indenture. The Underwritten Securities and the Indenture, as of each Representation Date, will conform in all material respects to the respective statements relating thereto contained in the Disclosure Package and the Prospectus and will be in substantially the respective forms filed or incorporated by reference, as the case may be, as exhibits to the Registration Statement.

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(xiii) Absence of Defaults and Conflicts. The performance by the Company of its obligations under this Underwriting Agreement, the applicable Terms Agreement, the Indenture and the Underwritten Securities (including the issuance and sale of the Underwritten Securities) will not violate, conflict with, result in a breach of, or constitute a default (or an event which with the giving of notice or the lapse of time or both would be reasonably likely to constitute a default) under (a) the charter or by-laws of the Company or any of the Subsidiaries, (b) any order, law, treaty, rule, regulation, judgment or determination applicable to the Company or any of the Subsidiaries of any court, governmental agency or body (including, without limitation, any insurance regulatory agency or body) or arbitrator having jurisdiction over the Company or any of the Subsidiaries (other than any violation of or conflict with any such order, law, treaty, rule, regulation, judgment or determination that would not adversely affect the performance by the Company of its obligations under this Underwriting Agreement, the applicable Terms Agreement, the Indenture or the Underwritten Securities (including the issuance and sale of the Underwritten Securities) and would not have, singly or in the aggregate with all such other violations or conflicts, a Material Adverse Effect) or (c) the terms of any bond, debenture, note, other evidence of indebtedness, agreement, indenture, lease or other instrument to which the Company or any of the Subsidiaries is a party or by which any of them is bound or by which any of their respective properties is subject, or result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of the Company or any of the Subsidiaries pursuant to the terms of any such bond, debenture, note, other evidence of indebtedness, agreement, indenture, lease or other instrument (other than any conflict, breach or default or lien, charge or encumbrance that would not adversely affect the performance by the Company of its obligations under this Underwriting Agreement, the applicable Terms Agreement, the Indenture or the Underwritten Securities (including the issuance and sale of the Underwritten Securities) and would not result in a Material Adverse Effect).

(xiv) Absence of Proceedings. Except as described in the Disclosure Package and the Prospectus, there is no pending or, to the best knowledge of the Company, threatened action, suit, proceeding or investigation before any court, governmental agency or body (including, without limitation, any insurance regulatory agency or body) or arbitrator having jurisdiction over the Company or any of the subsidiaries, involving any of them that (a) would adversely affect the execution by the Company of this Underwriting Agreement, the applicable Terms Agreement, the Indenture or the Underwritten Securities or the performance by the Company of its obligations hereunder or thereunder (including the issuance and sale of the Underwritten Securities), or (b) would have, singly or in the aggregate with all such actions, suits, proceedings or investigations, a Material Adverse Effect or (c) is of a character required to by disclosed in the Registration Statement, the Disclosure Package or the Prospectus.

(xv) Exhibits. There are no contracts or documents which are required to be described in the Registration Statement, the Disclosure Package (or any part thereof) or

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the Prospectus or the documents incorporated by reference therein or to be filed as exhibits thereto which have not been so described or filed as required.

(xvi) Absence of Further Requirements. No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental agency or body (including, without limitation, any insurance regulatory agency or body) is required for the execution by the Company of this Underwriting Agreement or the applicable Terms Agreement or for the performance by the Company of its obligations under this Underwriting Agreement, such Terms Agreement, the Indenture or the Underwritten Securities (including the issuance and sale of the Underwritten Securities), except as disclosed in the Disclosure Package and the Prospectus and such as have been already obtained or as may be required under the 1933 Act or the 1933 Act Regulations or state securities laws and except for the qualification of the Indenture under the 1939 Act.

(xvii) Possession of Licenses and Permits. The Company and its subsidiaries possess such permits, licenses, approvals, consents and other authorizations (collectively, “Governmental Licenses”) issued by the appropriate federal, state, local or foreign regulatory agencies or bodies (including, without limitation, any Governmental Licenses from any insurance regulatory agencies or bodies) necessary to own their respective properties or to conduct the business now operated by them, except such as would not have, singly or in the aggregate with all such other Governmental Licenses that have not been obtained, a Material Adverse Effect; the Company and its subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate, have a Material Adverse Effect; all of the Governmental Licenses (including, without limitation, any Governmental Licenses from any insurance regulatory agencies or bodies) are valid and in full force and effect, except when the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not have a Material Adverse Effect; and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses (including, without limitation, any Governmental Licenses from any insurance regulatory agencies or bodies) which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect.

(xviii) Compliance with Cuba Act. The Company has complied with, and is and will be in compliance with, the provisions of that certain Florida act relating to disclosure of doing business with Cuba, codified as Section 517.075 of the Florida statutes, and the rules and regulations thereunder (collectively, the “Cuba Act”) or is exempt therefrom.

(xix) Investment Company Act. The Company is not, and upon the issuance and sale of the Underwritten Securities as contemplated herein and in the applicable Terms Agreement and the application of the net proceeds therefrom as described in the Disclosure Package and the Prospectus will not be, an “investment company” within the meaning of the Investment Company Act of 1940, as amended (the “1940 Act”).

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(xx) Reinsurance Treaties and Arrangements. All reinsurance treaties and arrangements to which Ambac Assurance Corporation, a Wisconsin stock insurance corporation and a wholly owned subsidiary of the Company (“Ambac Assurance”), is a party are in full force and effect and Ambac Assurance is not in violation of, or in default in the performance, observance or fulfillment of, any obligation, agreement, covenant or condition contained therein, except to the extent that any such violation or default would not have, singly or in the aggregate with all such other violations or defaults, a Material Adverse Effect; Ambac Assurance has not received any notice from any of the other parties to such treaties, contracts or agreements that such other party intends not to perform in any material respect such treaty, contract or agreement, and, to the best knowledge of the Company, Ambac Assurance has no reason to believe that any of the other parties to such treaties or arrangements will be unable to perform such treaty or arrangement.

(xxi) Absence of Dividend Restrictions. Other than as described in the Disclosure Package and the Prospectus, there are no restrictions upon the declaration or payment of any dividend or distribution on any shares of capital stock of any Subsidiary pursuant to the charter or by-laws of any of them, any agreement or other instrument to which any of them is a party or by which any of them is bound, or any order, law, rule, regulation, judgment or determination of any court, governmental agency or body (including, without limitation, any insurance regulatory agency or body) or arbitrator having jurisdiction over any of them.

(xxii) Internal Controls. The Company maintains a system of internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the 1934 Act Regulations) that complies with the requirements of the 1934 Act and has been designed by the Company’s principal executive officer and principal financial officer, or under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting is effective and the Company is not aware of any material weaknesses in its internal control over financial reporting.

(xxiii) No Changes in Internal Controls. Since the date of the latest audited financial statements included or incorporated by reference in any Preliminary Prospectus and the Prospectus, there has been no change in the Company’s internal control over financial reporting that has materially adversely affected, or is reasonably likely to materially adversely affect, the Company’s internal control over financial reporting.

(xxiv) Disclosure Controls and Procedures. The Company maintains disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the 1934 Act Regulations) that comply with the requirements of the 1934 Act; such disclosure controls and procedures have been designed to ensure that material information relating to the Company and its subsidiaries is made known to the Company’s principal executive officer and principal financial officer by others within those entities; such disclosure controls and procedures are effective.

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(b) Officers’ Certificates. Any certificate signed by any officer of the Company or any subsidiary and delivered to the Representative(s) or to counsel for the Underwriters in connection with the offering of the Underwritten Securities shall be deemed a representation and warranty by the Company to each Underwriter as to the matters covered thereby and not a personal representation and warranty by any such officer.

SECTION 2. Sale and Delivery to Underwriters; Closing.

(a) Underwritten Securities. The several commitments of the Underwriters to purchase the Underwritten Securities pursuant to the applicable Terms Agreement shall be deemed to have been made on the basis of the representations, warranties and agreements herein contained and shall be subject to the terms and conditions herein set forth.

(b) Payment. Payment of the purchase price and the amount referred to in Section 4(a) hereof for, and delivery of, the Underwritten Securities shall be made at the offices of Shearman & Sterling LLP or at such other place as shall be agreed upon by the Representative(s) and the Company, at 9:00 A.M. (Eastern time) on the third business day after the date of the applicable Terms Agreement (unless postponed in accordance with the provisions of Section 10 hereof), or such other time not later than ten business days after such date as shall be agreed upon by the Representative(s) and the Company (such date of payment and delivery being herein called “Closing Date”).

Payment shall be made to the Company by wire transfer of immediately available funds to the Company, against delivery to the Representative(s) for the respective accounts of the Underwriters of the Underwritten Securities to be purchased by them. It is understood that each Underwriter has authorized the Representative(s), for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Underwritten Securities which it has severally agreed to purchase. Any Representative, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Underwritten Securities to be purchased by any Underwriter whose funds have not been received by the Closing Time, but such payment shall not relieve such Underwriter from its obligations hereunder.

(c) Denominations; Registration. The certificates for the Underwritten Securities shall be in such denominations and registered in such names as the Representative(s) may request in writing at least one full business day prior to the Closing Time. The certificates for the Underwritten Securities shall be made available for examination and packaging by the Representative(s) in The City of New York not later than 9:00 A.M. (Eastern Time) on the business day prior to the Closing Time.

SECTION 3. Covenants of the Company. The Company covenants with each Underwriter participating in the offering of Underwritten Securities, as follows:

(a) Compliance with Securities Regulations and Commission Requests. Prior to the termination of the offering of the Underwritten Securities, the Company will not file any amendment of the Registration Statement or supplement (including the Prospectus or any Preliminary Prospectus) to the Base Prospectus unless the Company has furnished the

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Representative(s) a copy for review prior to filing and will not file any such proposed amendment or supplement to which the Representative(s) reasonably object. The Company will cause the Prospectus and any supplement thereto to be filed in a form approved by the Representative(s) with the Commission pursuant to the applicable paragraph of Rule 424(b) within the time period prescribed. The Company will promptly advise the Representative(s) (i) when the Prospectus, and any supplement thereto, shall have been filed (if required) with the Commission pursuant to Rule 424(b), (ii) when, prior to termination of the offering of the Underwritten Securities, any amendment to the Registration Statement shall have been filed or become effective, (iii) of any request by the Commission or its staff for any amendment of the Registration Statement, or for any supplement to the Prospectus or for any additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any notice objecting to its use or the institution or threatening of any proceeding for that purpose and (v) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Underwritten Securities for sale in any jurisdiction or the institution or threatening of any proceeding for such purpose. The Company will make every reasonable effort to prevent the issuance of any such stop order or the occurrence of any such suspension or objection to the use of the Registration Statement and, upon such issuance, occurrence or notice of objection, to obtain as soon as possible the withdrawal of such stop order or relief from such occurrence or objection, including, if necessary, by filing an amendment to the Registration Statement or a new registration statement and making every reasonable effort, if such amendment or new registration does not become automatically effective, to have such amendment or new registration statement declared effective as soon as practicable.

(b) Final Term Sheets. The Company will prepare a final term sheet, containing solely a description of final terms of the Securities and the offering thereof, in the form approved by the Representative(s) and attached as Schedule II to the applicable Terms Agreement and to file such term sheet pursuant to Rule 433(d) within the time required by such Rule.

(c) Disclosure Package. If, at any time prior to the filing of the Prospectus pursuant to Rule 424(b), any event occurs as a result of which the Disclosure Package would include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein in the light of the circumstances under which they were made or the circumstances then prevailing not misleading, the Company will (i) notify promptly the Representative(s) so that any use of the Disclosure Package may cease until it is amended or supplemented; (ii) amend or supplement the Disclosure Package to correct such statement or omission; and (iii) supply any amendment or supplement to the Representative(s) in such quantities as the Representative(s) may reasonably request.

(d) Issuer Free Writing Prospectuses. The Company agrees that, unless it has or shall have obtained the prior written consent of the Representative(s), and each Underwriter, severally and not jointly, agrees with the Company that, unless it has or shall have obtained, as the case may be, the prior written consent of the Company and the Representative(s), it has not made and will not make any offer relating to the Underwritten Securities that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a “free writing prospectus” (as defined in Rule 405) required to be filed by the Company with the Commission or retained by the Company under Rule 433, other than one or more term sheets relating to the Underwritten

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Securities containing substantially the information set forth in the final term sheet referred to in Section 3(b) and conveyed to purchasers of Underwritten Securities; provided that the prior written consent of the parties hereto shall be deemed to have been given in respect of the Free Writing Prospectuses included in Schedule II to the applicable Terms Agreement. Any such free writing prospectus consented to by the Representative(s) or the Company is hereinafter referred to as a “Permitted Free Writing Prospectus.” The Company agrees that (x) it has treated and will treat, as the case may be, each Permitted Free Writing Prospectus as an Issuer Free Writing Prospectus and (y) it has complied and will comply, as the case may be, with the requirements of Rules 164 and 433 of the 1933 Act Regulations applicable to any Permitted Free Writing Prospectus, including in respect of timely filing with the Commission, legending and record keeping.

(e) Delivery of Registration Statements. The Company has furnished or will deliver to the Representative(s) and counsel for the Underwriters, without charge, conformed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein and documents incorporated or deemed to be incorporated by reference therein) and conformed copies of all consents and certificates of experts.

(f) Delivery of Prospectuses. The Company will as soon as practicable deliver to each Underwriter, without charge, as many copies of each Preliminary Prospectus as such Underwriter may reasonably request, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will furnish to each Underwriter, without charge, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act (including in circumstances where such requirement may be satisfied pursuant to Rule 172), such number of copies of each Preliminary Prospectus, each Issuer Free Writing Prospectus and the Prospectus (as amended or supplemented) as such Underwriter may reasonably request.

(g) Continued Compliance with Securities Laws. If at any time when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Debt Securities (including in circumstances where such requirement may be satisfied pursuant to Rule 172), any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to amend the Registration Statement or to amend or supplement the Prospectus in order that the Prospectus will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(a), such amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement or the Prospectus comply with such requirements, and the Company will furnish to the Underwriters, without charge, such number of copies of such amendment or supplement as the Underwriters may reasonably request.

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(h) Blue Sky Qualifications. The Company will use its best efforts, in cooperation with the Underwriters, to qualify the Underwritten Securities for offering and sale under the applicable securities laws of such states and other jurisdictions of the United States as the Representative(s) may designate and to maintain such qualifications in effect for a period of not less than one year from the date of the applicable Terms Agreement; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. In each jurisdiction in which the Underwritten Securities have been so qualified, the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for a period of not less than one year from the date of such Terms Agreement.

(i) Rule 158. The Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its security holders as soon as practicable an earnings statement for the purposes of, and to provide the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act.

(j) Use of Proceeds. The Company will use the net proceeds received by it from the sale of the Underwritten Securities in the manner specified in the Disclosure Package and the Prospectus under “Use of Proceeds”.

(k) Restriction on Sale of Securities. Between the date of the applicable Terms Agreement and the Closing Time or such other date specified in such Terms Agreement, the Company will not, without the prior written consent of the Representative(s), directly or indirectly, issue, sell, offer or contract to sell, grant any option for the sale of, or otherwise dispose of, the securities specified in such Terms Agreement.

(l) Reporting Requirements. The Company, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and the 1934 Act Regulations.

(m) Sarbanes-Oxley Act. The Company will comply with all applicable securities and other laws, rules and regulations, including, without limitation, the Sarbanes-Oxley Act, and use its best efforts to cause the Company’s directors and officers, in their capacities as such, to comply with such laws, rules and regulations, including, without limitation, the provisions of the Sarbanes-Oxley Act, unless any failure to comply would not, singly or in the aggregate, have a Material Adverse Effect and provided that any non-compliance would not adversely affect the performance by the Company of its obligations under this Underwriting Agreement, the applicable Terms Agreement, the Indenture or the Underwritten Securities (including the issuance and sale of the Underwritten Securities).

(n) Absence of Manipulation. The Company will not take, directly or indirectly, any action designed to or that would constitute or that might reasonably be expected to cause or result in, under the 1934 Act or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Underwritten Securities.

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SECTION 4. Payment of Expenses.

(a) Expenses. The Company will pay all expenses incident to the performance of its obligations under this Underwriting Agreement or the applicable Terms Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of this Underwriting Agreement, any Terms Agreement, any Agreement among Underwriters, the Indenture and such other documents as may be required in connection with the offering, purchase, sale and delivery of the Underwritten Securities, (iii) the preparation, issuance and delivery of the certificates for the Underwritten Securities to the Underwriters, including any transfer taxes or other duties payable upon the sale, issuance or delivery of the Underwritten Securities to the Underwriters, (iv) the fees and disbursements of the Company’s counsel, accountants and other advisors or agents, (v) the qualification of the Underwritten Securities under state securities laws in accordance with the provisions of Section 3(f) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of any Blue Sky Survey, any supplement thereto and any Legal Investment Survey, (vi) the printing and delivery to the Underwriters of copies of each Preliminary Prospectus, any Issuer Free Writing Prospectus, and the Prospectus and any amendments or supplements thereto, (vii) the preparation, printing and delivery to the Underwriters of copies of any Blue Sky Survey, any supplement thereto and any Legal Investment Survey, (viii) the fees and expenses of the Trustee, including the fees and disbursements of counsel for the Trustee in connection with the Indenture and the Debt Securities, (ix) the fees charged by nationally recognized statistical rating organizations for the rating of the Underwritten Securities, if applicable and (x) the fees and expenses incurred with respect to the listing of the Underwritten Securities, if applicable. Notwithstanding the foregoing or any other provision in this Underwriting Agreement (except for Sections 5 and 9 hereof), the Underwriters have agreed to reimburse the Company $400,000 for expenses of the Company in connection with the offering of the Underwritten Securities.

(b) Termination of Agreement. If the applicable Terms Agreement is terminated by the Representative(s) in accordance with the provisions of Section 5 or Section 9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters.

SECTION 5. Conditions of Underwriters’ Obligations. The obligations of the Underwriters to purchase and pay for the Underwritten Securities pursuant to the applicable Terms Agreement are subject to the accuracy of the representations and warranties of the Company contained in Section 1 hereof, to the accuracy of the statements made in certificates of any officer of the Company delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions:

(a) Filing of Prospectus and Effectiveness of Registration Statement. The Prospectus, and any supplement thereto, have been filed in the manner and within the time period required by Rule 424(b); the final term sheet contemplated by Section 3(b) hereof and any other material required to be filed by the Company pursuant to Rule 433(d) under the Act, shall have been filed with the Commission within the applicable time periods prescribed for such filings by Rule 433;

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and no stop order suspending the effectiveness of the Registration Statement or any notice objecting to its use shall have been issued and no proceedings for that purpose shall have been instituted or threatened.

(b) Opinion of Counsel for Company. At Closing Time, the Representative(s) shall have received (i) the favorable opinion, dated as of Closing Time, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Company, in form and substance reasonably satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters, to the effect set forth in Exhibits B-1, B-2 and B-3 hereto and to such further effect as counsel to the Underwriters may reasonably request; (ii) the favorable opinion, dated as of Closing Time, of Anne Gill Kelly, Esq., Assistant General Counsel of the Company, in form and substance reasonably satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters, to the effect set forth in Exhibit C hereto and to such further effect as counsel to the Underwriters may reasonably request; (iii) the favorable opinion, dated as of Closing Time, of Kevin J. Doyle, Esq., General Counsel of Ambac Assurance, in form and substance reasonably satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters, to the effect set forth in Exhibit D hereto and to such further effect as counsel to the Underwriters may reasonably request; and (iv) the favorable opinion, dated as of the Closing Time, of Cadwalader, Wickersham & Taft LLP, special counsel for the Company, in form and substance reasonably satisfactory to counsel for the Underwriters, together with reproduced copies of such letter for each of the other Underwriters, to the effect that the Company is not an “investment company,” as such term is defined in the 1940 Act. In rendering such opinion, such counsel may rely (A) as to matters involving the application of the laws other than the laws of the State of New York, the corporate laws of the State of Delaware or the federal laws of the United States of America, to the extent such counsel deems proper and specified in such opinion, upon the opinion of other counsel whom such counsel believes to be reliable, provided that such counsel furnishes copies thereof to the Representative(s) and states that such opinion of such local counsel is satisfactory in form and substance and the Underwriters and counsel for the Underwriters are entitled to rely thereon, and (B) as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Company, its subsidiaries and public officials.

(c) Opinion of Counsel for Underwriters. At Closing Time, the Representative(s) shall have received the favorable opinion, dated as of Closing Time, of Shearman & Sterling LLP, counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters, with respect to the matters set forth in (iii), (iv), (v) (solely as to the statements in the Prospectus under the heading “Description of Debt Securities” and any other heading purporting to describe the Underwritten Securities), and the fifth paragraph of Exhibit B-2 hereto. In giving such opinion, such counsel may rely, as to all matters governed by the laws of jurisdictions other than the law of the State of New York, the federal law of the United States and the General Corporation Law of the State of Delaware, upon the opinions of counsel satisfactory to the Representative(s). Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and its subsidiaries and certificates of public officials.

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(d) Officers’ Certificate. At Closing Time, there shall not have been, since the date of the applicable Terms Agreement or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, and the Representative(s) shall have received a certificate of the President, a Vice Chairman or an Executive or Senior Vice President of the Company and of the chief financial or chief accounting officer of the Company, dated as of Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties in Section 1(a) hereof are true and correct with the same force and effect as though expressly made at and as of the Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or, to the best of their knowledge, are pending or are contemplated by the Commission.

(e) Accountant’s Comfort Letter. At the time of the execution of the applicable Terms Agreement, the Representative(s) shall have received from the Company’s independent accountants a letter dated such date, in form and substance satisfactory to the Representative(s), together with signed or reproduced copies of such letter for each of the other Underwriters, containing statements and information of the type ordinarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement, the Disclosure Package and the Prospectus.

(f) Bring-down Comfort Letter. At Closing Time, the Representative(s) shall have received from the Company’s independent accountants a letter, dated as of Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (e) of this Section 5, except that the specified date referred to shall be a date not more than three business days prior to the Closing Time.

(g) Maintenance of Ratings. At Closing Time, if and as specified in the applicable Terms Agreement, the Underwritten Securities shall have the ratings accorded by any “nationally recognized statistical rating organization”, as defined by the Commission for purposes of Rule 436(g)(2) of the 1933 Act Regulations, and the Company shall have delivered to the Representative(s) a letter, dated as of such date, from each such rating organization, or other evidence satisfactory to the Representative(s), confirming that the Underwritten Securities have such ratings. Since the time of execution of such Terms Agreement, there shall not have occurred a downgrading in or withdrawal of the rating assigned to the Underwritten Securities or any of the Company’s other debt securities or the Company’s financial strength or claims paying ability by any such rating organization, and no such rating organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of the Underwritten Securities or any of the Company’s other debt securities or the Company’s financial strength or claims paying ability.

(h) Lock-up Agreements. On the date of the applicable Terms Agreement, the Representative(s) shall have received, in form and substance reasonably satisfactory to them, each lock-up agreement, if any, specified in such Terms Agreement as being required to be delivered by the persons listed therein.

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(i) Additional Documents. At Closing Time, counsel for the Underwriters shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Underwritten Securities as contemplated herein and in the applicable Terms Agreement, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, contained herein; and all proceedings taken by the Company in connection with the issuance and sale of the Underwritten Securities as contemplated herein and in the applicable Terms Agreement shall be reasonably satisfactory in form and substance to the Representative(s) and counsel for the Underwriters.

(j) Termination of Terms Agreement. If any condition specified in this Section 5 shall not have been fulfilled when and as required to be fulfilled, the applicable Terms Agreement may be terminated by the Representative(s) by notice to the Company at any time at or prior to the Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 1, 6 and 7 shall survive any such termination and remain in full force and effect.

SECTION 6. Indemnification. (a) Indemnification of Underwriters. The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:

(1) against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the 1933 Act, the 1934 Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, or in the Base Prospectus, any Preliminary Prospectus or any other preliminary prospectus supplement relating to the Underwritten Securities, the Prospectus, or any Issuer Free Writing Prospectus or the information contained in the final term sheet, or in any amendment thereof or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading;

(2) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any of claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, referred to under (i) above; provided that (subject to Section 6(d) below) any such settlement is effected with the prior written consent of the Company; and

(3) against any and all expense whatsoever, as incurred including the fees and disbursements of counsel chosen by the Representative(s)), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, referred to under (1) above, to the extent that any such expense is not paid under (1) or (2) above;

20

provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission contained in or omitted from the Registration Statement, the Disclosure Package or the Prospectus (or any supplement thereto) in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Underwriter through the Representative(s) specifically for inclusion in the Registration Statement, any Preliminary Prospectus or any other preliminary prospectus supplement relating to the Underwritten Securities, the Prospectus, or any Issuer Free Writing Prospectus or the information contained in the final term sheet, or in any amendment thereof or supplement thereto.

(b) Indemnification of Company, Directors and Officers. Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the documents referred to in the foregoing indemnity in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of such Underwriter through the Representative(s) specifically for inclusion in the documents referred to in the foregoing indemnity.

(c) Actions against Parties; Notification. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 6(a) above, counsel to the indemnified parties shall be selected by the Representative(s), and, in the case of parties indemnified pursuant to Section 6(b) above, counsel to the indemnified parties shall be selected by the Company. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.

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(d) Settlement without Consent if Failure to Reimburse. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a)(2) effected without its written consent if (i) such settlement is entered into more than 60 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 45 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement; provided, however, that an indemnifying party shall not be liable for any such settlement effected without its consent if such indemnifying party (x) reimburses such indemnified party in accordance with such request to the extent it considers such request to be reasonable and (y) provides written notice to the indemnified party substantiating the unpaid balance as unreasonable, in each case prior to the date of such settlement.

SECTION 7. Contribution. If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Underwriters, on the other hand, from the offering of the Underwritten Securities pursuant to the applicable Terms Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and the Underwriters, on the other hand, in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations.

The relative benefits received by the Company, on the one hand, and the Underwriters, on the other hand, in connection with the offering of the Underwritten Securities pursuant to the applicable Terms Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of such Underwritten Securities (before deducting expenses) received by the Company and the total underwriting discount received by the Underwriters, in each case as set forth on the cover of the Prospectus.

The relative fault of the Company, on the one hand, and the Underwriters, on the other hand, shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation

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which does not take account of the equitable considerations referred to above in this Section 7. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission.

Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Underwritten Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of any such untrue or alleged untrue statement or omission or alleged omission.

No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

For purposes of this Section 7, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. The Underwriters’ respective obligations to contribute pursuant to this Section 7 are several in proportion to the principal amount of Underwritten Securities set forth opposite their respective names in the applicable Terms Agreement, and not joint.

SECTION 8. Representations, Warranties and Agreements to Survive Delivery. All representations, warranties and agreements contained in this Underwriting Agreement or the applicable Terms Agreement or in certificates of officers of the Company submitted pursuant hereto or thereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or controlling person, or by or on behalf of the Company, and shall survive delivery of the Underwritten Securities to the Underwriters.

SECTION 9. Termination.

(a) Terms Agreement. The Representative(s) may terminate the applicable Terms Agreement, by notice to the Company, at any time at or prior to the Closing Time, (i) if there has been, since the time of execution of such Terms Agreement or since the respective dates as of which information is given in the Disclosure Package and the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, or (ii) if there has occurred any material adverse change in the financial markets in the United States or, if the Underwritten Securities are denominated or payable in, or indexed to, one or more foreign or composite currencies, in the international financial markets (including currency exchange rates and controls), or any outbreak of hostilities or escalation thereof or other calamity or crisis or any

23

change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the reasonable judgment of the Representative(s), impracticable or inadvisable to market the Underwritten Securities or to enforce contracts for the sale of the Underwritten Securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission or the New York Stock Exchange, or if trading generally on the New York Stock Exchange or the American Stock Exchange or in the Nasdaq National Market has been suspended or limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by either of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other governmental authority, or (iv) if a banking moratorium has been declared by either Federal or New York authorities or, if the Underwritten Securities are denominated or payable in, or indexed to, one or more foreign or composite currencies, by the relevant authorities in the related foreign country or countries or a material disruption in commercial banking or securities settlement or clearance services in the United States has occurred or (v) if there shall have occurred a downgrading in or withdrawal of the rating assigned to the Underwritten Securities or any of the Company’s other debt securities or the Company’s financial strength or claims paying ability by any “nationally recognized statistical rating organization” (as defined for purposes of Rule 436(g) under the 1933 Act), or any such statistical rating organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of the Underwritten Securities or any of the Company’s other debt securities or the Company’s financial strength or claims paying ability.

(b) Liabilities. If this Underwriting Agreement or the applicable Terms Agreement is terminated pursuant to this Section 9, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 6 and 7 shall survive such termination and remain in full force and effect.

SECTION 10. Default by One or More of the Underwriters. If one or more of the Underwriters shall fail at the Closing Time to purchase the Underwritten Securities which it or they are obligated to purchase under the applicable Terms Agreement (the “Defaulted Securities”), then the Representative(s) shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representative(s) shall not have completed such arrangements within such 24-hour period, then:

(a) if the aggregate principal amount of Defaulted Securities does not exceed 10% of the aggregate principal amount of Underwritten Securities to be purchased on such date pursuant to such Terms Agreement, the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations under such Terms Agreement bear to the underwriting obligations of all non-defaulting Underwriters, or

(b) if the aggregate principal amount of Defaulted Securities exceeds 10% of the aggregate principal amount of Underwritten Securities to be purchased on such date

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pursuant to such Terms Agreement, such Terms Agreement shall terminate without liability on the part of any non-defaulting Underwriter.

No action taken pursuant to this Section 10 shall relieve any defaulting Underwriter from liability in respect of its default.

In the event of any such default which does not result in a termination of the applicable Terms Agreement, either the Representative(s) or the Company shall have the right to postpone the Closing Time for a period not exceeding seven days in order to effect any required changes in the Registration Statement or the Prospectus or in any other documents or arrangements.

SECTION 11. Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representative(s) at the address specified in the applicable Terms Agreement; and notices to the Company shall be directed to it at One State Street Plaza, New York, New York 10004, attention: General Counsel.

SECTION 12. Parties. This Underwriting Agreement shall inure to the benefit of and be binding upon the Company and, upon execution of the applicable Terms Agreement, upon the Company and any other Underwriters and their respective successors. Nothing expressed or mentioned in this Underwriting Agreement or such Terms Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters and the Company and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Underwriting Agreement or such Terms Agreement or any provision herein or therein contained. This Underwriting Agreement and such Terms Agreement and all conditions and provisions hereof and thereof are intended to be for the sole and exclusive benefit of the parties hereto and thereto and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Underwritten Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase.

SECTION 13. No Fiduciary Duty. The Company hereby acknowledges that (a) the purchase and sale of the Underwritten Securities pursuant to this Underwriting Agreement and the related Terms Agreement is an arm’s-length commercial transaction between the Company, on the one hand, and the Underwriters and any affiliate through which it may be acting, on the other, (b) the Underwriters are acting as principal and not as an agent or fiduciary of the Company and (c) the Company’s engagement of the Underwriters in connection with the offering and the process leading up to the offering is as independent contractors and not in any other capacity. Furthermore, the Company agrees that it is solely responsible for making its own judgments in connection with the offering (irrespective of whether any of the Underwriters has advised or is currently advising the Company on related or other matters). The Company agrees that it will not claim that the Underwriters have rendered advisory services of any nature or respect, or owe an agency, fiduciary or similar duty to the Company, in connection with such transaction or the process leading thereto.

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SECTION 14. Integration. This Underwriting Agreement and the related Terms Agreement supersedes all prior agreements and understandings (whether written or oral) between the Company and the Underwriters, or any of them, with respect to the subject matter hereof.

SECTION 15. GOVERNING LAW AND TIME. THIS UNDERWRITING AGREEMENT AND ANY APPLICABLE TERMS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.

SECTION 16. Effect of Headings. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this Underwriting Agreement, along with all counterparts, will become a binding agreement between the Representative(s) and the Company in accordance with its terms.

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Very truly yours,
AMBAC FINANCIAL GROUP, INC.
By:	/s/ David Trick
	Name: David Trick
	Title: Managing Director and Treasurer

CONFIRMED AND ACCEPTED,     as of the date first above written:
CITIGROUP GLOBAL MARKETS INC.
By:	/s/ Meir Lewis
	Authorized Signatory
GOLDMAN, SACHS & CO.
By:	/s/ Goldman, Sachs & Co.
	(Goldman, Sachs & Co.)
J.P. MORGAN SECURITIES INC.
By:	/s/ John Purcell
	Authorized Signatory
Acting on behalf of themselves and as Representatives of the other named Underwriters.

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EXHIBIT A

FORM OF TERMS AGREEMENT

AMBAC FINANCIAL GROUP, INC.

(a Delaware corporation)

TERMS AGREEMENT

February 7, 2007

To: Ambac Financial Group, Inc.

One State Street Plaza

New York, New York 10004

Ladies and Gentlemen:

We understand that Ambac Financial Group, Inc., a Delaware corporation (the “Company”), proposes to issue and sell to the several underwriters named in Schedule I hereto (the “Underwriters”) up to $400,000,000 aggregate principal amount of its Directly-Issued Subordinated Capital Securities (the “DISCS^SM” and, for purposes of the Underwriting Agreement, dated February 7, 2007 (the “Underwriting Agreement”), the terms of which are incorporated herein by reference, are also referred to as the “Underwritten Securities”). The DISCS will be issued by the Company pursuant to an Indenture, to be dated as of February 12, 2007 between the Company and The Bank of New York, as trustee (the “Trustee”) (the “Base Indenture”), as supplemented by the First Supplemental Indenture, to be dated as of February 12, 2007 between the Company and the Trustee (together with the Base Indenture, the “Indenture”). Subject to the terms and conditions set forth or incorporated by reference herein, the Underwriters offer to purchase, severally and not jointly, the principal amount of Underwritten Securities set forth opposite their names in Schedule I hereto at the purchase price set forth such Schedule I.

The Underwritten Securities shall have the terms that are further described in the final term sheet specified in Schedule II hereto. For purposes of this Terms Agreement only, the “Applicable Time” is 5:05 p.m. (Eastern time) on the date of this Terms Agreement. For purposes of this Terms Agreement only, the “Closing Date” is 10:00 AM (Eastern time) on February 12, 2007.

DISCS^SM is a service mark of Citigroup Global Markets Inc. Citigroup Global Markets Inc. has applied for patent protection for certain aspects of the DISCS^SM structure described in the prospectus supplement.

Notices to the Underwriters shall be directed to the Representatives c/o Citigroup Global Markets Inc., 388 Greenwich Street, New York, New York 10013, Attention: General Counsel.

All of the provisions contained in the Underwriting Agreement are hereby incorporated by reference in their entirety herein and shall be deemed to be a part of this Terms Agreement to the same extent as if such provisions had been set forth in full herein. Terms defined in the Underwriting Agreement are used herein as therein defined.

For a period of 30 days after the date of this Terms Agreement, neither the Company, nor any of its subsidiaries or other affiliates over which the Company exercises management or voting control, nor any person acting on their behalf will, without the prior written consent of Citigroup Global Markets Inc., offer, sell, contract to sell or otherwise dispose of any securities that are substantially similar to the DISCS.

This Terms Agreement shall be governed by the laws of the State of New York applicable to agreements made and to be performed wholly within such State.

If the foregoing is in accordance with your understanding of the agreement among the Underwriters and the Company, please sign and return to the undersigned a counterpart hereof, whereupon this instrument, along with all counterparts and together with the Underwriting Agreement, shall be a binding agreement among the Underwriters named herein and the Company in accordance with its terms and the terms of the Underwriting Agreement.

This document may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same document.

Very truly yours,
Citigroup Global Markets Inc.
By:
	Authorized Signatory
Goldman, Sachs & Co.
By:
	(Goldman, Sachs & Co.)
J.P. Morgan Securities Inc.
By:
	Authorized Signatory
Acting on behalf of itself and as Representative of the other named Underwriters.

Accepted:
AMBAC FINANCIAL GROUP, INC.
By
	Name:
	Title:

SCHEDULE I

TO TERMS AGREEMENT

Underwriter	Principal Amount of Underwritten Securities
Citigroup Global Markets Inc.	$	140,000,000
Goldman, Sachs & Co.		80,000,000
J.P. Morgan Securities Inc.		80,000,000
HSBC Securities (USA) Inc.		20,000,000
Lehman Brothers Inc.		20,000,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated		20,000,000
UBS Securities LLC		20,000,000
Wachovia Capital Markets, LLC		20,000,000
Total	$	400,000,000

SCHEDULE II

TO TERMS AGREEMENT

Materials other than the Base Prospectus and the Preliminary Prospectus used most recently prior to the Execution Time that comprise the Disclosure Package:

Free Writing Prospectus

Filed pursuant to Rule 433

Registration Number 333- 131888

AMBAC FINANCIAL GROUP, INC.

FINAL TERM SHEET

Issuer:	Ambac Financial Group, Inc. (Ticker: ABK)
Title of Security:	Directly-Issued Subordinated Capital SecuritiesSM (“DISCS”)
Scheduled Maturity Date:	February 15, 2037 or, if such date is not a business day, the following business day.
Principal Amount:	$400,000,000
Final Maturity Date:	February 7, 2087 or, if such date is not a business day, the following business day.
Interest Rates:	6.15% per annum until the Scheduled Maturity Date and One-month LIBOR + 183.5 bp per annum thereafter until the Final Maturity Date, unless redeemed or repaid earlier.
Interest Payment Dates:	15th of each February and August until the Scheduled Maturity Date and monthly thereafter until the Final Maturity Date, unless redeemed or repaid earlier.
First Interest Payment Date:	August 15, 2007
Trade Date:	February 7, 2007
Settlement Date (T+3):	February 12, 2007
Applicable Spread for the Purposes of Calculating Redemption Price:	+ 50 bp if the redemption is within 90 days after the occurrence of a tax event or rating agency event, and + 20 bp in other cases.
Benchmark:	UST 4.50% due February 15, 2036
Benchmark Yield:	4.849%
Reoffer Spread:	+ 135 bp
Reoffer Yield:	6.199%
Price to Public:	99.335%
CUSIP:	023139AF5
Expected Ratings:	Aa3 by Moody’s Investors Services, A+ by Standard & Poor’s. A securities rating is not a recommendation to buy, sell or hold securities and may be subject to review, revision, suspension, reduction or withdrawal at any time by the assigning rating agency.

DISCS^SM is a service mark of Citigroup Global Markets Inc. Citigroup Global Markets Inc. has applied for patent protection for the DISCS^SM structure described in the related prospectus.

Joint Book-Runner and Sole Structuring Advisor:	Citigroup Global Markets Inc.
Joint Book-Runners:	Goldman, Sachs & Co. J.P. Morgan Securities Inc.
Co-Managers:	HSBC Securities (USA) Inc. Lehman Brothers Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated UBS Securities LLC Wachovia Capital Markets, LLC

The issuer has filed a registration statement, including a prospectus, with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about the issuer and this offering. You may get these documents for free by visiting EDGAR on the SEC Web site at www.sec.gov. Alternatively, the issuer, any underwriter or any dealer participating in the offering will arrange to send you the prospectus if you request it by calling toll-free 1-877-858-5407.

EXHIBIT B-1

FORM OF OPINION OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP

TO BE DELIVERED PURSUANT TO SECTION 5(b)(i)

February 12, 2007

CITIGROUP GLOBAL MARKETS INC.

GOLDMAN, SACHS & CO.

J.P. MORGAN SECURITIES INC.

    as Representatives of the several Underwriters

c/o Citigroup Global Markets Inc.

388 Greenwich Street

New York, New York 10013

Re: Ambac Financial Group, Inc.

Directly-Issued Subordinated Capital Securities

Ladies and Gentlemen:

We have acted as special counsel to Ambac Financial Group, Inc., a Delaware corporation (the “Company”), in connection with the Underwriting Agreement and the related Terms Agreement, each dated February 7, 2007 (collectively, the “Underwriting Agreement”), between you, as representatives of the several Underwriters named therein (the “Underwriters”), and the Company, relating to the sale by the Company to the Underwriters of $400,000,000 aggregate principal amount of the Company’s Directly-Issued Subordinated Capital Securities (the “Securities”) to be issued under the Junior Subordinated Indenture, dated as of February 12, 2007, between the Company and The Bank of New York (the “Trustee”) (the “Base Indenture”), as supplemented by the Supplemental Indenture, dated as of February 12, 2007, between the Company and the Trustee (the “Supplemental Indenture” and, together with the Base Indenture, the “Junior Subordinated Indenture”).

This opinion is being furnished to you pursuant to Section 5(b)(i) of the Underwriting Agreement.

Citigroup Global Markets Inc., et al.

February 12, 2007

Page 2

In our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as facsimile, electronic, certified or photostatic copies, and the authenticity of the originals of such copies. In making our examination of executed documents, we have assumed that the parties thereto, other than the Company, had the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and the execution and delivery by such parties of such documents and the validity and binding effect thereof on such parties. As to any facts material to the opinions expressed herein that we did not independently establish or verify, we have relied upon statements and representations of officers and other representatives of the Company and others and of public officials, including the facts set forth in the Company’s Certificate (as defined below).

In rendering the opinions set forth herein, we have examined and relied on originals or copies of the following:

(a) the registration statement on Form S-3 (File No. 333-131888) of the Company relating to the Securities and other securities of the Company filed with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933 (the “Securities Act”) allowing for delayed offerings pursuant to Rule 415 under the Securities Act and Post-Effective Amendment No. 1 thereto including information deemed to be a part of the registration statement pursuant to Rule 430B of the General Rules and Regulations under the Securities Act (the “Rules and Regulations”) (such registration statement, as so amended, being hereinafter referred to as the “Registration Statement”);

(b) the prospectus, dated February 6, 2007 (the “Base Prospectus”), which forms a part of and is included in the Registration Statement;

(c) the preliminary prospectus supplement, dated February 7, 2007 (together with the Base Prospectus and the Incorporated Documents (as defined below), the “Preliminary Prospectus”), relating to the offering of the Securities, in the form filed by the Company pursuant to Rule 424(b) of the Rules and Regulations;

(d) the issuer free writing prospectus, dated February 7, 2007, in the form filed by the Company pursuant to Rule 433 of the Rules and Regulations on February 7, 2007 (together with the Preliminary Prospectus, the “General Disclosure Package”);

(e) the prospectus supplement, dated February 7, 2007 (the “Prospectus Supplement” and, together with the Base Prospectus and the Incorporated Documents, the “Prospectus”), relating to the offering of the Securities, in the form filed by the Company pursuant to Rule 424(b) of the Rules and Regulations;

(f) the documents identified on Schedule A hereto filed by the Company with the Commission pursuant to the Securities Exchange Act of 1934 and incorporated by reference into the Preliminary Prospectus and the Prospectus as of the date hereof (collectively, the “Incorporated Documents”);

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(g) executed copies of the Underwriting Agreement;

(h) the global note evidencing the Securities registered in the name of Cede & Co. (the “Note”);

(i) an executed copy of the Junior Subordinated Indenture;

(j) the certificate of Sean T. Leonard, Senior Vice President and Chief Financial Officer of the Company, and Robert W. Starr, Managing Director and Treasurer of the Company, dated the date hereof, delivered to the Trustee pursuant to Sections 102, 301 and 303 of the Junior Subordinated Indenture;

(k) the Statement of Eligibility and Qualification under the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”), on Form T-1, of the Trustee (the “Form T-1”) related to the Junior Subordinated Indenture, filed as an exhibit to the Registration Statement;

(l) the certificate of incorporation of the Company, as amended to date, as certified by the Secretary of State of the State of Delaware (as so amended, the “Certificate of Incorporation”);

(m) the By-laws of the Company, as certified by Anne Gill Kelly, Managing Director, Secretary and Assistant General Counsel of the Company (the “By-laws”);

(n) resolutions of the Board of Directors of the Company, adopted January 24, 2006 and October 24, 2006, and resolutions of the Pricing Committee thereof, adopted February 7, 2007, each as certified by Anne Gill Kelly, Managing Director, Secretary and Assistant General Counsel of the Company;

(o) the certificate of Sean T. Leonard, Senior Vice President and Chief Financial Officer the Company, and Anne Gill Kelly, Managing Director, Secretary and Assistant General Counsel of the Company, dated the date hereof, a copy of which is attached as Exhibit A hereto (the “Company Certificate”);

(p) the certificate of Anne Gill Kelly, Managing Director, Secretary and Assistant General Counsel of the Company, dated the date hereof; and

(q) a certificate, dated February 7, 2007, and a facsimile bringdown thereof, dated February 12, 2007, from the Secretary of State of the State of Delaware as to the Company’s existence and good standing in such jurisdiction (the “Delaware Certificates”).

We have also examined originals or copies, certified or otherwise identified to our satisfaction, of such records of the Company and such agreements, certificates and

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receipts of public officials, certificates of officers or other representatives of the Company and others, and such other documents as we have deemed necessary or appropriate as a basis for the opinions set forth below.

The Underwriting Agreement, the Note and the Junior Subordinated Indenture are referred to herein collectively as the “Transaction Documents.” As used herein: (i) “Applicable Laws” means the General Corporation Law of the State of Delaware (the “DGCL”) and those laws, rules and regulations of the State of New York and the federal laws, rules and regulations of the United States of America, in each case, that, in our experience, are normally applicable to transactions of the type contemplated by the Underwriting Agreement and the other Transaction Documents (other than the United States federal securities laws, state and foreign securities or blue sky laws, antifraud laws and the rules and regulations of the National Association of Securities Dealers, Inc.), but without our having made any special investigation as to the applicability of any specific law, rule or regulation, (ii) “Governmental Authorities” means any court, regulatory body, administrative agency or governmental body of the State of New York, the State of Delaware or the United States of America having jurisdiction over the Company under Applicable Laws and (iii) “Governmental Approval” means any consent, approval, license, authorization or validation of, or filing, qualification or registration with, any Governmental Authority required to be made or obtained by the Company pursuant to Applicable Laws, other than any consent, approval, license, authorization, validation, filing, qualification or registration that may have become applicable as a result of the involvement of any party (other than the Company) in the transactions contemplated by the Underwriting Agreement and the other Transaction Documents or because of such parties’ legal or regulatory status or because of any other facts specifically pertaining to such parties.

The opinions set forth below are subject to the following further qualifications, assumptions and limitations:

(a) the opinion set forth in paragraph 1 below is based solely upon the Delaware Certificates;

(b) we do not express any opinion as to the effect on the opinions expressed herein of (i) the compliance or noncompliance of any party to each of the Transaction Documents (other than with respect to the Company to the extent necessary to render the opinions set forth herein) with any state, federal or other laws or regulations applicable to it or them or (ii) the legal or regulatory status or the nature of the business of any party (other than with respect to the Company to the extent necessary to render the opinions set forth herein);

(c) we have assumed that the execution and delivery by the Company of each of the Transaction Documents and the performance by the Company of its obligations thereunder do not and will not violate, conflict with or constitute a default under (i) any agreement or instrument to which the Company or any of its properties is subject (except that we do not make the assumption set forth in this clause (i) with respect

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to the Company’s Certificate of Incorporation or By-laws), (ii) any law, rule, or regulation to which the Company or any of its properties is subject (except that we do not make the assumption set forth in this clause (ii) with respect to the DGCL and those laws, rules and regulations of the State of New York and the federal laws, rules and regulations of the United States of America, in each case that, in our experience, are normally applicable to transactions of the type contemplated by the Underwriting Agreement and the other Transaction Documents but without our having made any special investigation as to the applicability of any specific law, rule or regulation), (iii) any judicial or regulatory order or decree of any governmental authority or (iv) any consent, approval, license, authorization or validation of, or filing, recording or registration with any Governmental Authority;

(d) the validity or enforcement of any agreements or instruments may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and by general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law);

(e) we do not express any opinion as to the applicability or effect of any fraudulent transfer, preference or similar law on each of the Transaction Documents or any transactions contemplated thereby; and

(f) we note that Section 2.2 of the Supplemental Indenture provides that, under certain circumstances, the Company will be obligated to use its commercially reasonable efforts to sell shares of its common stock, warrants to purchase its common stock or preferred stock and to apply the proceeds from such sales of such common stock, warrants to purchase its common stock or preferred stock to pay interest on the Securities that was deferred in accordance with Section 2.5 or 3.2 of the Supplemental Indenture, and that the Company shall be deemed not to have used its commercially reasonable efforts if it determines not to effect such sale solely due to pricing, dividend rate or dilution considerations. Because the DGCL reserves to boards of directors the exclusive authority to issue stock and to determine the price at which such stock is to be issued and, since the Board has not yet approved the issuance of such shares of common stock, warrants to purchase its common stock or preferred stock or determined the per share price thereof, we are not rendering any opinion as to the authorization, issuance or validity of the common stock, warrants to purchase its common stock or preferred stock pursuant to Section 2.2 of the Supplemental Indenture; in addition, for purposes of the opinions set forth below we have assumed that the Board will approve such issuance.

We do not express any opinion as to any laws other than Applicable Laws. Insofar as the opinions expressed herein relate to matters governed by laws other than those set forth in the preceding sentence, we have assumed, without having made any independent investigation, that such laws do not affect any of the opinions set forth herein. The opinions expressed herein are based on laws in effect on the date hereof, which laws are subject to change with possible retroactive effect.

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Based upon the foregoing and subject to the limitations, qualifications, exceptions and assumptions set forth herein, we are of the opinion that:

1. The Company has been duly incorporated and is validly existing and in good standing under the laws of the State of Delaware.

2. The Underwriting Agreement has been duly authorized, executed and delivered by the Company.

3. The Junior Subordinated Indenture has been duly authorized, executed and delivered by the Company and is a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms.

4. The execution and delivery by the Company of each of the Transaction Documents and the consummation by the Company of the transactions contemplated thereby, including the issuance and sale of the Securities, did not and will not (i) conflict with the Certificate of Incorporation or By-laws or (ii) violate or conflict with, or result in any contravention of, any Applicable Law. We do not express any opinion, however, as to whether the execution, delivery or performance by the Company of each of the Transaction Documents did constitute or will constitute a violation of, or a default under, any covenant, restriction or provision with respect to financial ratios or tests or any aspect of the financial condition or results of operations of the Company or any of its subsidiaries.

5. The Note has been duly authorized and executed by the Company, and when duly authenticated by the Trustee and issued and delivered by the Company against payment therefor in accordance with the terms of the Underwriting Agreement and the Junior Subordinated Indenture, the Note will constitute a valid and binding obligation of the Company entitled to the benefits of the Junior Subordinated Indenture and enforceable against the Company in accordance with its terms.

6. No Governmental Approval, which has not been obtained or taken and is not in full force and effect, is required to authorize, or is required for, the execution or delivery of each of the Transaction Documents by the Company or the consummation by the Company of the transactions contemplated thereby.

7. The statements in the Base Prospectus under the caption “Description of the Debt Securities” and in the General Disclosure Package and the Prospectus Supplement under the caption “Description of the DISCS,” other than “—Book-Entry System,” insofar as such statements purport to summarize certain provisions of the Junior Subordinated Indenture and the Note, fairly summarize such provisions in all material respects.

This opinion is furnished only to you as representatives of the Underwriters and is solely for your and the other Underwriters’ benefit in connection with the closing occurring today and the offering of Securities, in each case pursuant to the Underwriting

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Agreement. Without our prior written consent, this opinion may not be used, circulated, quoted or otherwise referred to for any other purpose or relied upon by, or assigned to, any other person for any purpose (including any other person that acquires any Securities or that seeks to assert your and the other Underwriters’ rights in respect of this opinion (other than an Underwriter’s successor in interest by means of merger, consolidation, transfer of a business or other similar transaction).

Very truly yours,

SCHEDULE A

INCORPORATED DOCUMENTS

1. Ambac Financial Group, Inc.’s (the “Company”) Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (filed with the Commission on March 13, 2006);

2. The Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2006 (filed with the Commission on May 10, 2006), June 30, 2006 (filed with the Commission on August 9, 2006) and September 30, 2006 (filed with the Commission on October 8, 2006);

3. The Company’s Current Reports on Form 8-K filed with the Commission on January 25, 2006, January 27, 2006, April 26, 2006, July 26, 2006, August 22, 2006, September 25, 2005, October 25, 2006, October 27, 2006, December 8, 2006, January 31, 2007 and February 2, 2007;

4. Portions of the Company’s Definitive Proxy Statement on Schedule 14A filed on May 2, 2006 that are incorporated by reference into Part III of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005;

5. The Company’s Registration Statements on Form 8-A dated June 12, 1991 and February 28, 1996; and

6. The Company’s Annual Report of Employee Stock Purchase Plans on Form 11-K (filed with the Commission on June 27, 2006).

EXHIBIT B-2

FORM OF NEGATIVE ASSURANCE LETTER OF SKADDEN, ARPS,

SLATE, MEAGHER & FLOM LLP TO BE DELIVERED PURSUANT TO SECTION 5(b)(i)

February 12, 2007

CITIGROUP GLOBAL MARKETS INC.

GOLDMAN, SACHS & CO.

J.P. MORGAN SECURITIES INC.

    as Representatives of the several Underwriters

c/o Citigroup Global Markets Inc.

388 Greenwich Street

New York, New York 10013

Re: Ambac Financial Group, Inc.

Directly-Issued Subordinated Capital Securities

Ladies and Gentlemen:

We have acted as special counsel to Ambac Financial Group, Inc., a Delaware corporation (the “Company”), in connection with the Underwriting Agreement and the related Terms Agreement, each dated February 7, 2007 (collectively, the “Underwriting Agreement”), between you, as representatives of the several Underwriters named therein (the “Underwriters”), and the Company, relating to the sale by the Company to the Underwriters of $400,000,000 aggregate principal amount of the Company’s Directly-Issued Subordinated Capital Securities (the “Securities”) to be issued under the Junior Subordinated Indenture, dated as of February 12, 2007, between the Company and The Bank of New York (the “Trustee”), as supplemented by the Supplemental Indenture, dated as of February 12, 2007 between the Company and the Trustee (as so supplemented, the “Junior Subordinated Indenture”). between the Company, the Prior Trustee and The Bank of New York, as successor Trustee (the “Trustee”).

This letter is being furnished to you pursuant to Section 5(b)(i) of the Underwriting Agreement.

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In the above capacity, we have reviewed the registration statement on Form S-3 (File No. 333-131888) of the Company relating to the Securities and other securities of the Company filed on February 16, 2006 with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933 (the “Securities Act”) allowing for delayed offerings pursuant to Rule 415 under the Securities Act, and Post-Effective Amendment No. 1 thereto, including the Incorporated Documents (as defined below)and the information deemed to be a part of the registration statement pursuant to Rule 430B of the General Rules and Regulations under the Securities Act (the “Rules and Regulations”), (such registration statement, as so amended, being hereinafter referred to as the “Registration Statement”), and (i) the prospectus, dated February 6, 2007 (the “Base Prospectus”), which forms a part of and is included in the Registration Statement, (ii) the preliminary prospectus supplement, dated February 7, 2007 (together with the Base Prospectus and the Incorporated Documents, the “Preliminary Prospectus”), relating to the offering of the Securities in the form filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations and (iii) the prospectus supplement, dated February 7, 2007 (the “Prospectus Supplement” and, together with the Base Prospectus and the Incorporated Documents, the “Prospectus”), relating to the offering of the Securities in the form filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations. We also have reviewed the documents identified on Schedule A hereto filed by the Company pursuant to the Securities Exchange Act of 1934 and incorporated by reference into the Prospectus as of the date hereof (collectively, the “Incorporated Documents”), the issuer free writing prospectus, dated February 7, 2007, in the form filed by the Company pursuant to Rule 433 of the Rules and Regulations on February 7, 2007 (the “Issuer General Use Free Writing Prospectus”) and such other documents as we deemed appropriate. Assuming the accuracy of the representations and warranties of the Company set forth in Section 1(a)(i)(D) of the Underwriting Agreement, the Registration Statement became effective upon filing with the Commission pursuant to Rule 462 of the Securities Act and, pursuant to Section 309 of the Trust Indenture Act, the Junior Subordinated Indenture has been qualified under the Trust Indenture Act . We have also been orally advised by the Commission that no stop order suspending the effectiveness of the Registration Statement has been issued and, to our knowledge, no proceedings for that purpose have been instituted or are pending or threatened by the Commission.

In addition, we have participated in conferences with officers and other representatives of the Company, counsel for the Company, representatives of the independent registered public accountants of the Company and representatives of the Underwriters and counsel for the Underwriters at which the contents of the

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Registration Statement, the Prospectus and the General Disclosure Package (as defined below) and related matters were discussed. We did not participate in the preparation of the Incorporated Documents but have, however, reviewed such documents and discussed the business and affairs of the Company with officers and other representatives of the Company. We do not pass upon, or assume any responsibility for, the accuracy, completeness or fairness of the statements contained or incorporated by reference in the Registration Statement or the Prospectus and have made no independent check or verification thereof (except to the limited extent referred to in paragraph 7 of our opinion to you dated the date hereof and in our tax opinion to you dated the date hereof).

On the basis of the foregoing, (i) the Registration Statement, at February 6, 2007 and at February 7, 2006 and the Prospectus, as of the date of the Prospectus Supplement, appeared on their face to be appropriately responsive in all material respects to the requirements of the Securities Act and the Rules and Regulations (except that in each case we do not express any view as to the financial statements, schedules and other financial information included or incorporated by reference therein or excluded therefrom or the Statement of Eligibility on Form T-1 related to the Junior Subordinated Indenture (the “Form T-1”)) and (ii) no facts have come to our attention that have caused us to believe that the Registration Statement, at February 6, 2007 and at February 7, 2007, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus, as of the date of the Prospectus Supplement and as of the date hereof contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (except that in each case we do not express any view as to the financial statements, schedules and other financial information included or incorporated by reference therein or excluded therefrom or the statements contained in the exhibits to the Registration Statement, including the Form T-1). In addition, on the basis of the foregoing, no facts have come to our attention that have caused us to believe that the General Disclosure Package, as of the Applicable Time (as defined below), contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (except that we do not express any view as to the financial statements, schedules and other financial information included or incorporated by reference therein or excluded therefrom or the statements contained in the exhibits to the Registration Statement, including the Form T-1).

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As used herein, (i) “Applicable Time” means 5:05 p.m. (Eastern time) on February 7 2007 and (ii) “General Disclosure Package” means the issuer free writing prospectus, dated February 7, 2007, in the form filed by the Company pursuant to Rule 433 of the Rules and Regulations on February 7, 2007, and the Preliminary Prospectus, all considered together.

In addition, based on the foregoing, we confirm to you that (i) the Prospectus has been filed with the Commission within the time period required by Rule 424 of the Rules and Regulations and (ii) the Issuer General Use Free Writing Prospectuses has been filed with the Commission within the time period required by Rule 433(d) of the Rules and Regulations.

This letter is furnished only to you as representatives of the Underwriters and is solely for you and the other Underwriters’ benefit in connection with the closing occurring today and the offering of the Securities, in each case pursuant to the Underwriting Agreement. Without our prior written consent, this letter may not be used, circulated, quoted or otherwise referred to for any other purpose or relied upon by, or assigned to, any other person for any purpose, including any other person that acquires any Securities or that seeks to assert your and the other Underwriters’ rights in respect of this letter (other than an Underwriter’s successor in interest by means of merger, consolidation, transfer of a business or other similar transaction).

Very truly yours,

SCHEDULE A

INCORPORATED DOCUMENTS

1. Ambac Financial Group, Inc.’s (the “Company”) Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (filed with the Securities and Exchange Commission (the “Commission”) on March 13, 2006);

2. The Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2006 (filed with the Commission on May 10, 2006), June 30, 2006 (filed with the Commission on August 9, 2006) and September 30, 2006 (filed with the Commission on October 8, 2006);

3. The Company’s Current Reports on Form 8-K filed with the Commission on January 25, 2006, January 27, 2006, April 26, 2006, July 26, 2006, August 22, 2006, September 25, 2005, October 25, 2006, October 27, 2006, December 8, 2006, January 31, 2007 and February 2, 2007;

4. Portions of the Company’s Definitive Proxy Statement on Schedule 14A filed on May 2, 2006 that are incorporated by reference into Part III of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005;

5. The Company’s Registration Statements on Form 8-A dated June 12, 1991 and February 28, 1996; and

6. The Company’s Annual Report of Employee Stock Purchase Plans on Form 11-K (filed with the Commission on June 27, 2006).

EXHIBIT B-3

FORM OF TAX OPINION OF SKADDEN, ARPS,

SLATE, MEAGHER & FLOM LLP TO BE DELIVERED PURSUANT TO SECTION 5(b)(i)

February 12, 2007

CITIGROUP GLOBAL MARKETS INC.

GOLDMAN, SACHS & CO.

J.P. MORGAN SECURITIES INC.

    as Representatives of the several Underwriters

c/o Citigroup Global Markets Inc.

388 Greenwich Street

New York, New York 10013

Re: Ambac Financial Group, Inc.

Directly-Issued Subordinated Capital Securities

Ladies and Gentlemen:

We have acted as special counsel to Ambac Financial Group, Inc., a Delaware corporation (the “Company”), in connection with the Underwriting Agreement and the related Terms Agreement, each dated February 7, 2007 (collectively, the “Underwriting Agreement”), between you, as representatives of the several Underwriters named therein (the “Underwriters”), and the Company, relating to the sale by the Company to the Underwriters of $400,000,000 aggregate principal amount of the Company’s Directly-Issued Subordinated Capital Securities (the “Securities”) to be issued under the Junior Subordinated Indenture, dated as of February 12, 2007, between the Company and The Bank of New York (the “Trustee”) (the “Base Indenture”), as supplemented by the Supplemental Indenture, dated as of February 12, 2007, between the Company and the Trustee (the “Supplemental Indenture” and, together with the Base Indenture, the “Junior Subordinated Indenture”).

This opinion is being furnished to you pursuant to Section 5(b)(i) of the Underwriting Agreement.

In rendering the opinions set forth herein, we have examined and relied on originals or copies of the following:

(a) the registration statement on Form S-3 (File No. 333-131888) of the Company relating to the Securities and other securities of the Company filed with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933 (the “Securities Act”) allowing for delayed offerings pursuant to Rule 415 under the Securities Act and Post-Effective Amendment No. 1 thereto including information deemed to be a part of the registration statement pursuant to Rule 430B of the General Rules and Regulations under the Securities Act (the “Rules and Regulations”) (such registration statement, as so amended, being hereinafter referred to as the “Registration Statement”);

(b) the prospectus, dated February 6, 2007 (the “Base Prospectus”), which forms a part of and is included in the Registration Statement;

(c) the preliminary prospectus supplement, dated February 7, 2007 (together with the Base Prospectus, the “Preliminary Prospectus”), relating to the offering of the Securities, in the form filed by the Company pursuant to Rule 424(b) of the Rules and Regulations;

(d) the issuer free writing prospectus, dated February 7, 2007, in the form filed by the Company pursuant to Rule 433 of the Rules and Regulations on February 7, 2007 (together with the Preliminary Prospectus, the “General Disclosure Package”);

(c) the prospectus supplement, dated February 7, 2007 (the “Prospectus Supplement” and, together with the Base Prospectus, the “Prospectus”), relating to the offering of the Securities, in the form filed by the Company pursuant to Rule 424(b) of the Rules and Regulations;

(d) an executed copy of the Underwriting Agreement; and

(e) such other documents, certificates and records as we have deemed necessary or appropriate as a basis for the opinion set forth herein.

We have also relied upon oral and written statements and representations made to us by representatives of the Company and have assumed that such statements and the facts set forth in such statements and representations are true, correct and complete without regard to any qualification as to knowledge or belief. We have also examined originals or copies, certified or otherwise identified to our satisfaction, of such records of the Company and such agreements, certificates and receipts of public officials, certificates of officers or other representatives of the Company and others, and such other documents as we have deemed necessary or appropriate as a basis for the opinions set forth below. We have assumed that the transactions related to the offering of the Securities will be consummated in the manner contemplated by the Prospectus.

In our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, conformity to original documents of all documents submitted to us as certified, conformed, photostatic, electronic or facsimile copies, and the authenticity of the originals of such latter documents. In making our examination of documents executed, or to be executed, by the parties indicated therein, we have assumed that each party has, or will have, the power, corporate or other, to enter into and perform all obligations thereunder, and we have also assumed the due authorization by all requisite action, corporate or other, and execution and delivery by each party indicated in the documents and that such documents constitute, or will constitute, valid and binding obligations of each party.

In rendering our opinion, we have considered the applicable provisions of the Internal Revenue Code of 1986, as amended, Treasury Department regulations promulgated thereunder, pertinent judicial authorities, interpretive rulings of the Internal Revenue Service and such other authorities as we have considered relevant. It should be noted that statutes, regulations, judicial decisions and administrative interpretations are subject to change or differing interpretations, possibly with retroactive effect. There can be no assurance, moreover, that the opinion expressed herein will be accepted by the Internal Revenue Service or, if challenged, by a court of law. A change in the authorities or the accuracy or completeness of any of the information, documents, certificates, records, statements, representations or assumptions on which our opinion is based could affect our conclusions.

Based upon the foregoing and in reliance thereon, and subject to the qualifications, exceptions, assumptions and limitations contained herein or in the Prospectus, we are of the opinion that, under current United States federal income tax law:

1. Although the matter is not free from doubt, the Securities will be classified for United States federal income tax purposes as indebtedness of the Company.

2. Although the discussion set forth in the General Disclosure Package and the Prospectus under the heading “CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES” does not purport to discuss all possible United States federal income tax consequences of the purchase, ownership and disposition of the Securities, such discussion constitutes, in all material respects, a fair and accurate summary of the United States federal income tax consequences described therein subject to the qualifications set forth therein.

Except as set forth above, we express no opinion to any party as to any tax consequences, whether federal, state, local or foreign, of the Securities or of any transaction related thereto. This opinion is delivered to you solely for your benefit in connection with the transaction referred to herein and may not be relied upon by any other person. This opinion is expressed as of the date hereof, and we are under no obligation to supplement or revise our opinion to reflect any legal developments or factual matters arising subsequent to the date hereof or the impact of any information, document, certificate, record, statement, representation or assumption relied upon herein that becomes incorrect or untrue.

Very truly yours,

EXHIBIT C

FORM OF OPINION OF ANNE GILL KELLY, ESQ., ASSISTANT GENERAL

COUNSEL OF THE COMPANY

TO BE DELIVERED PURSUANT TO

SECTION 5(b)(ii)

February 12, 2006

CITIGROUP GLOBAL MARKETS INC.

GOLDMAN, SACHS & CO.

J.P. MORGAN SECURITIES INC.

    as Representatives of the several Underwriters

c/o Citigroup Global Markets Inc.

388 Greenwich Street

New York, New York, 10013

Ladies and Gentlemen:

I am Managing Director, Secretary and Assistant General Counsel of Ambac Financial Group, Inc., a corporation organized under the laws of the State of Delaware (the “Company”), and have acted as its counsel in connection with the Underwriting Agreement and related Terms Agreement, each dated February 7, 2007 (together, the “Underwriting Agreement”), among the Company and each of the several underwriters named therein (the “Underwriters”), relating to the sale by the Company to you of $400,000,000 aggregate principal amount of the Company’s Directly-Issued Subordinated Capital Securities (the “DISCS”). The DISCS are to be issued under the Indenture (the “Base Indenture”), dated as of February 12, 2007, between the Company and The Bank of New York (the “Trustee”), as supplemented by Supplemental Indenture, between the Company and the Trustee (the “Supplemental Indenture”), dated as of February 12, 2007 establishing the terms of the DISCS (such Base Indenture, as so supplemented, the “Junior Subordinated Indenture”).

This opinion is being furnished to you pursuant to Section 5(b)(ii) of the Underwriting Agreement. Capitalized terms used and not otherwise defined herein shall have the respective meanings set forth in the Underwriting Agreement.

In connection with this opinion, I have examined (i) the registration statement on Form S-3 (File No. 333-131888) relating to the junior subordinated debt securities and other securities of the Company filed with the Securities and Exchange Commission (the “Commission”) on February

C-1

16, 2006 under the Securities Act of 1933, as amended (the “Securities Act”), allowing for offerings from time to time pursuant to Rule 415 under the Securities Act and Post-Effective Amendment No. 1 thereto (such registration statement, as amended and including all documents incorporated therein by reference, being herein after referred to as the “Registration Statement”); (ii) the base prospectus, dated February 6, 2007, which forms a part of and is included in the Registration Statement (iii) and the preliminary prospectus supplement, dated February 7, 2007, in the form filed with the Commission pursuant to Rule 424(b) of the General Rules and Regulations promulgated under the Securities Act (such preliminary prospectus supplement, together with the base prospectus and including all documents incorporated therein by reference, the “Preliminary Prospectus”), (iv) and the final prospectus supplement, dated February 7, 2007 (the “Prospectus Supplement”), in the form filed with the Commission pursuant to Rule 424(b) of the General Rules and Regulations promulgated under the Securities Act (such Prospectus Supplement, together with the base prospectus and including all documents incorporated therein by reference, the “Prospectus”); (v) an executed copy of the Base Indenture; (vi) an executed copy of the Supplemental Indenture, (vii) the resolutions of the Board of Directors of the Company adopted to date relating to the Registration Statement, the Underwriting Agreement, the Junior Subordinated Indenture and the DISCS; (viii) a specimen certificate representing the DISCS; (ix) an executed copy of the Underwriting Agreement; (x) the Amended and Restated Certificate of Incorporation of the Company, as certified by the Secretary of State of Delaware and the Certificate of Amendment to the Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”); (xii) the By-Laws of the Company, as presently in effect (the “By-Laws”); (xiii) the Certificate, dated February 12, 2007, of the Managing Director and Treasurer of the Company, Managing Director, Secretary and Assistant General Counsel of the Company pursuant to Sections 102, 301 and 303 of the Junior Subordinated Indenture dated the date hereof (the “Officers’ Certificate”); and (xiv) the Statement of Eligibility and Qualification under the Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”), on Form T-1 of the Trustee related to the Junior Subordinated Indenture (the “Form T-1”).

I also have examined originals or copies, certified or otherwise identified to my satisfaction, of all such records of the Company and others, and such other documents, certificates and corporate or other records as I have deemed necessary or appropriate as a basis for the opinions set forth herein.

In rendering the opinions expressed herein, I have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to me as originals, the conformity to original documents of all documents submitted to me as certified or photostatic or facsimile copies and the authenticity of the originals of such latter documents. In making my examination of documents executed or to be executed by parties other than the Company, I have assumed that such parties had the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and execution and delivery by such parties of such documents and the validity and binding effect thereof. As to any facts material to the opinions expressed herein which I did not independently establish or verify, I have relied upon oral or written statements and representations of officers and other representatives of the Company and others.

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I am admitted to the Bar of the State of New York and express no opinion as to the laws of any other jurisdiction other than the General Corporation Law of the State of Delaware and the federal securities laws of the United States of America.

Based on and subject to the foregoing and to the other qualifications and limitations set forth herein, I am of the opinion that:

(i) The Company has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the General Disclosure Package (as defined below) and the Prospectus and to enter into and perform its obligations under the Underwriting Agreement.

(ii) The Company is duly qualified to transact business as a foreign corporation and is in good standing under the laws of the State of New York, which is the only state in which the Company owns or leases property or conducts material business.

(iii) Ambac Capital Funding, Inc. (“ACFI”) has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the General Disclosure Package and the Prospectus; ACFI is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify or be in good standing would not have a Material Adverse Effect.

(iv) All of the outstanding shares of capital stock of ACFI have been duly and validly authorized and issued and are fully paid and nonassessable; the Company owns all of the outstanding shares of capital stock of ACFI directly or indirectly, free and clear of any perfected security interest and, to the best of my knowledge, after due inquiry, any other pledges, liens, security interests, charges, equities or encumbrances.

(v) To the best of my knowledge, there is no pending or threatened action, suit, proceeding or investigation before any court, governmental agency or body (except that I express no opinion with respect to any insurance regulatory agency or body) or arbitrator having jurisdiction over the Company or ACFI, involving either of them that (a) would affect the execution by the Company of the Underwriting Agreement, the Indenture or the DISCS, or the performance by the Company of its obligations thereunder (including the issuance and sale of the DISCS), or (b) would have, singly or in the aggregate with all such actions, suits, proceedings or investigations, a Material Adverse Effect or (c) is of a character required to be disclosed in the Registration Statement, the Preliminary Prospectus or the Prospectus; to the best of my knowledge, after due inquiry, there are no contracts or other documents to which the Company or ACFI is a party or by which either of them is bound of a character required to be described in the Registration Statement or the Prospectus, or to be filed as exhibits, which are not described or filed as required.

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(vi) The performance by the Company of its obligations under the Underwriting Agreement, the Indenture and the DISCS (including the issuance and sale of the DISCS) will not violate, conflict with, result in a breach of, or constitute a default (or an event which with the giving of notice or the lapse of time or both would be reasonably likely to constitute a default) under (a) the charter or bylaws of ACFI or (b) to the best of my knowledge without any independent investigation, under the terms of any bond, debenture, note, other evidence of indebtedness, agreement, indenture, lease or other instrument to which the Company or ACFI is a party or by which any of them is bound or by which any of their respective properties is subject, and would not result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of the Company or ACFI pursuant to the terms of any such bond, debenture, note, other evidence of indebtedness, agreement, indenture, lease or other instrument or (c) any order, judgment or determination of any federal or New York court, governmental agency or body or arbitrator known by me to be applicable to the Company or ACFI, except in the case of clauses (b) and (c) to the extent that any such violation, conflict, breach or default would not adversely affect the performance by the Company of its obligations under the Underwriting Agreement, the Indenture or the DISCS (including the issuance and sale of the DISCS).

(vii) To the best of my knowledge, each of the Company and ACFI has such permits, licenses, certificates, franchises and authorizations of governmental agencies or bodies (except that I express no opinion with respect to any insurance regulatory agencies or bodies) as are necessary to own its properties and to conduct its business, except such as would not have, singly or in the aggregate with all such other permits, licenses, certificates, franchises and authorizations that have not been obtained, a Material Adverse Effect; and, to the best of my knowledge, there is no pending or threatened action, suit, proceeding or investigation that may lead to the revocation, termination or suspension of any such permit, license, certificate, franchise or authorization (except that I express no opinion with respect to any permit, license, certificate, franchise or authorization from any insurance regulatory agency or body), the revocation, termination or suspension of which would have, singly or in the aggregate with all other such revocations, terminations or suspensions, a Material Adverse Effect.

(viii) Each of the Company and ACFI owns, or has valid and adequate rights to use, all items of real and personal property which are material to the business of the Company and its subsidiaries considered as one enterprise, free and clear of all liens, encumbrances and claims that may materially interfere with the conduct of the business of the Company and its subsidiaries considered as one enterprise.

(ix) Other than as described in the General Disclosure Package and the Prospectus, there are no restrictions upon the declaration or payment of any dividend or distribution on any shares of capital stock of ACFI pursuant to their respective certificates of incorporation or bylaws, any agreement or other instrument to which either of them is a party or by which either of them is bound, or any order, law, rule, regulation or determination of any court, governmental agency or body (including, without limitation, any insurance regulatory agency or body) or arbitrator having jurisdiction over either of them.

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(x) The documents incorporated by reference in the Preliminary Prospectus and the Prospectus (other than the financial statements, supporting schedules and other financial data included therein or omitted therefrom, as to which I render no opinion), at the time they were filed with the Commission, complied as to form in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission thereunder.

In addition, I have participated in the preparation of the Registration Statement, the General Disclosure Package and the Prospectus and have participated in conferences with officers and other representatives of the Company, outside counsel for the Company, representatives of the independent registered public accountants of the Company and representatives of the Underwriters and counsel for the Underwriters at which the contents of the Registration Statement, the Prospectus and the General Disclosure Package and related matters were discussed. I do not pass upon, or assume any responsibility for, the accuracy, completeness or fairness of the statements contained or incorporated by reference in the Registration Statement or the Prospectus and have made no independent check or verification thereof.

On the basis of the foregoing, no facts have come to my attention that would lead me to believe that the Registration Statement (except for financial statements and schedules and other financial data included or incorporated by reference therein or omitted therefrom and the Form T-1, as to which I make no statement), at February 6, 2007 and at February 7, 2007, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus (except for financial statements and schedules and other financial data included or incorporated by reference therein or omitted therefrom and the Form T-1, as to which I make no statement), as of the date of the Prospectus Supplement and as of the date hereof included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. In addition, on the basis of the foregoing, no facts have come to my attention that have caused me to believe that the General Disclosure Package (except for financial statements and schedules and other financial data included or incorporated by reference therein or omitted therefrom and the Form T-1, as to which I make no statement), as of the Applicable Time (as defined below), contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

As used herein, (i) “Applicable Time” means 5:05 p.m (Eastern time) on February 7, 2007 and (ii) “General Disclosure Package” means the issuer free writing prospectus, dated February 7, 2007, in the form filed by the Company pursuant to Rule 433 of the Rules and Regulations on February 7, 2007, and the Preliminary Prospectus, all considered together.

This opinion is furnished to the Underwriters solely for their benefit in connection with the sale of DISCS under the Underwriting Agreement occurring today and is not to be used, circulated, quoted or otherwise referred to for any other purpose or relied upon by, or assigned to, any other person for any purpose, including any other person that acquires DISCS or that seeks to assert your rights in respect of this letter (other than an Underwriter’s successor in interest by means of merger, consolidation, transfer of a business or other similar transaction) without my express written permission.

Very truly yours,

Anne Gill Kelly, Esq.

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EXHIBIT D

FORM OF OPINION OF KEVIN J. DOYLE, ESQ., GENERAL COUNSEL

OF AMBAC ASSURANCE

TO BE DELIVERED PURSUANT TO

SECTION 5(b)(iii)

February 12, 2007

CITIGROUP GLOBAL MARKETS INC.

GOLDMAN, SACHS & CO.

J.P. MORGAN SECURITIES INC.

    as Representatives of the several Underwriters

c/o Citigroup Global Markets Inc.

388 Greenwich Street

New York, New York, 10013

Ladies and Gentlemen:

I have acted as General Counsel for Ambac Assurance Corporation, a Wisconsin stock insurance corporation (“Ambac Assurance”), in connection with the transactions contemplated by (i) the Registration Statement on Form S-3 (File No. 333 131888), filed by Ambac Financial Group, Inc., a Delaware Corporation (the “Company”), under the Securities Act of 1933 (such act and the rules and regulations promulgated thereunder being hereinafter referred to as the “1933 Act”) with the Securities and Exchange Commission (the “Commission”) on February 16, 2006, as amended by Post-Effective Amendment No. 1 thereto (the Registration Statement, as so amended and including all documents incorporated therein by reference but excluding the Statement of Eligibility on Form T-1 of the Trustee related to the Junior Subordinated Indenture (defined below), being herein after referred to as the “Registration Statement”), (ii) the base prospectus, dated February 6, 2007, which forms a part of and is included in the Registration Statement (ii) the preliminary prospectus supplement dated February 7, 2007, in the form filed with the Commission, pursuant to Rule 424(b) of the General Rules and Regulations promulgated under the Act (such preliminary prospectus supplement, together with the base prospectus and including all documents incorporated therein by reference, the “Preliminary Prospectus”), (iii) the final prospectus supplement dated February 7, 2007 (the “Prospectus Supplement”), in the form filed with the Commission, pursuant to Rule 424(b) of the General Rules and Regulations promulgated under the Act (such Prospectus Supplement, together with the base prospectus, and including all documents incorporated therein by reference, being hereinafter referred to as the “Prospectus”) and (iv) the Indenture (the “Base Indenture”), dated as of February 12, 2007, between Ambac Financial Group, Inc. (the “Company”) and The Bank of New York (the “Trustee”), as

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supplemented by Supplemental Indenture, between the Company and the Trustee (the “Supplemental Indenture”), dated as of February 12, 2007, establishing the terms of the Underwritten Securities (such Base Indenture, as so supplemented by the Supplemental Indenture, the “Junior Subordinated Indenture”). This opinion is furnished to you pursuant to Section 5(b)(iii) of the Underwriting Agreement, dated February 7, 2007, incorporated by reference in the Terms Agreement, dated February 7, 2007 (the “Terms Agreement” and, together with such Underwriting Agreement, the “Underwriting Agreement”), among the Company and Citigroup Global Markets Inc., Goldman, Sachs & Co. and J.P. Morgan Securities Inc., as representatives of the several underwriters named therein. Unless otherwise defined herein, terms to which meanings are ascribed in the Underwriting Agreement are used herein with such meanings.

In connection with this opinion, I have examined and am familiar with originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and officers of the Company and Ambac Assurance and such other instruments as I have deemed necessary or appropriate in connection with the opinions hereinafter set forth and have relied thereon as to matters of fact, including, without limitation, the Registration Statement, the Prospectus, the Underwriting Agreement and the Junior Subordinated Indenture. In such examination, I have assumed the genuineness of all signatures, the authenticity of all documents submitted to me as originals and the conformity with originals of all documents submitted to me as copies. I have assumed the due authorization, execution and delivery of all of the above documents by the parties thereto other than Ambac Assurance. Based upon the foregoing and having regard to legal considerations that I deem relevant, and subject to the qualifications set forth below, I am of the opinion that:

(i) Ambac Assurance has been duly incorporated and is validly existing as a stock insurance corporation in good standing under the laws of the jurisdiction in which it is chartered or organized, with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus; Ambac Assurance is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify or be in good standing would not have a Material Adverse Effect; all of the outstanding shares of capital stock of Ambac Assurance have been duly and validly authorized and issued and are fully paid and nonassessable; Ambac Assurance is wholly owned, directly or indirectly, by the Company; all of the outstanding shares of capital stock of Ambac Assurance are free and clear of any perfected security interest and, to the best of my knowledge, after due inquiry, any other pledges, liens, security interests, charges, equities or encumbrances.

(ii) To the best of my knowledge, there is no pending or threatened action, suit, proceeding or investigation before any court, governmental agency or body (including, without limitation, any insurance regulatory agency or body) (except that, as this opinion relates to the Company, I express no opinion with respect to any action, suit, proceeding or investigation other than an action, suit, proceeding

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or investigation relating to insurance matters) or any arbitrator having jurisdiction over the Company or Ambac Assurance, involving either of them that (a) would affect the execution by the Company of the Underwriting Agreement, the Terms Agreement, the Junior Subordinated Indenture or the Underwritten Securities or the performance by the Company of its obligations thereunder (including the issuance and sale of the Underwritten Securities), or (b) would have, singly or in the aggregate with all such actions, suits, proceedings or investigations, a Material Adverse Effect or (c) is of a character required to be disclosed in the Registration Statement, the Preliminary Prospectus or the Prospectus (except that, as this opinion relates to the Company, I express no opinion with respect to any action, suit, proceeding or investigation other than an action, suit, proceeding or investigation relating to insurance matters); to the best of my knowledge, after due inquiry, there are no contracts or other documents to which Ambac Assurance is a party or by which it is bound of a character required to be described in the Registration Statement, the Prospectus, or to be filed as exhibits to the Registration Statement, which are not described or filed as required.

(iii) The performance by the Company of its obligations under the Underwriting Agreement, the Terms Agreement, the Junior Subordinated Indenture and the Underwritten Securities (including the issuance and sale of the Underwritten Securities) will not violate, conflict with, result in a breach of, or constitute a default (and I know of no event which with the giving of notice or the lapse of time or both would be reasonably likely to constitute a default) under (a) the restated articles of incorporation or bylaws of Ambac Assurance or (b) to the best of my knowledge without any independent investigation, under the terms of any bond, debenture, note, other evidence of indebtedness, agreement, indenture, lease or other instrument to which Ambac Assurance is a party or by which it is bound or by which any of its properties is subject, and would not result in the creation or imposition of any lien, charge or encumbrance upon any of the assets of Ambac Assurance pursuant to the terms of any such bond, debenture, note, other evidence of indebtedness, agreement, indenture, lease or other instrument or (c) any order, judgment or determination of any federal or New York court, governmental agency or body or arbitrator known by me to be applicable to Ambac Assurance, except in the case of clause (b) or (c) to the extent that any such violation, conflict, breach or default would not adversely affect the performance by the Company of its obligations under the Underwriting Agreement, the Terms Agreement, the Junior Subordinated Indenture or the Underwritten Securities (including the issuance and sale of the Underwritten Securities).

(iv) To the best of my knowledge, each of the Company and Ambac Assurance has such permits, licenses, certificates, franchises and authorizations of governmental agencies or bodies (including, without limitation, any insurance regulatory agencies or bodies) as are necessary to own its properties and to conduct its business, except such as would not have, singly or in the aggregate with all such other permits, licenses, certificates, franchises and authorizations that have not been obtained, a Material Adverse Effect (for purposes of this opinion, as it relates to the Company, I express no opinion with respect to any regulatory

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agencies or bodies other than insurance regulatory agencies or bodies); and, to the best of my knowledge, there is no pending or threatened action, suit, proceeding or investigation that may lead to the revocation, termination or suspension of any such permit, license, certificate, franchise or authorization (including, without limitation, any permit, license, certificate, franchise or authorization from any insurance regulatory agency or body), the revocation, termination or suspension of which would have, singly or in the aggregate with all other such revocations, terminations or suspensions, a Material Adverse Effect.

(v) All reinsurance treaties and arrangements to which Ambac Assurance is a party are in full force and effect and, to the best of my knowledge, Ambac Assurance is not in violation of, or in default in the performance, observance or fulfillment of, any obligation, agreement, covenant or condition contained therein, except to the extent that any such violation or default would not have, singly or in the aggregate with all such other violations or defaults, a Material Adverse Effect; to the best of my knowledge, Ambac Assurance has not received any notice from any of the other parties to such treaties, contracts or agreements that such other party intends not to perform in any material respect such treaty, contract or agreement.

(vi) Except as described in the General Disclosure Package (as defined below) and the Prospectus, no filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any insurance regulatory agency or body in the State of New York or Wisconsin is required for the execution by the Company of the Underwriting Agreement, the Terms Agreement, the Junior Subordinated Indenture or the Underwritten Securities (including the issuance and sale of the Underwritten Securities) or the performance by the Company of its obligations thereunder.

(vii) The performance by the Company of its obligations under the Underwriting Agreement, the Terms Agreement, the Junior Subordinated Indenture and the Underwritten Securities (including the issuance and sale of the Underwritten Securities) will not violate or conflict with any order, law, treaty, rule, regulation, judgment or determination of any insurance regulatory agency or body in the State of New York or Wisconsin, except for any violation or conflict that would not adversely affect the performance by the Company of its obligations under the Underwriting Agreement, the Terms Agreement, the Junior Subordinated Indenture or the Underwritten Securities.

(viii) The statements under the headings “Business—Insurance Regulatory Matters” and “Business — Business Segments — Reinsurance” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005 and incorporated by reference in the Prospectus, insofar as they summarize provisions of documents, matters of law or legal conclusions, fairly summarize such provisions of documents, matters of law and legal conclusions in all material respects and include the information called for with respect thereto by Form S-3 under the 1933 Act.

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(ix) Other than as described in the General Disclosure Package and the Prospectus, there are no restrictions upon the declaration or payment of any dividend or distribution on any shares of capital stock of Ambac Assurance pursuant to its restated articles of incorporation or bylaws, any agreement or other instrument to which Ambac Assurance is a party or by which it is bound, or any order, law, rule, regulation or determination of any court, governmental agency or body (including, without limitation, any insurance regulatory agency or body) or arbitrator having jurisdiction over Ambac Assurance.

In addition, I have participated in conferences with officers and other representatives of the Company, outside counsel for the Company, representatives of the independent registered public accountants of the Company and representatives of the Underwriters and counsel for the Underwriters at which the contents of the Registration Statement, the Prospectus and the General Disclosure Package and related matters were discussed. I do not pass upon, or assume any responsibility for, the accuracy, completeness or fairness of the statements contained or incorporated by reference in the Registration Statement or the Prospectus and have made no independent check or verification thereof (other than as described in paragraph (viii) of this opinion).

Based upon and subject to, the foregoing, no facts have come to my attention that have led me to believe that the Registration Statement, at February 6, 2007 and at February 7, 2007, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus, as of the date of the Prospectus Supplement and as of the date hereof, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (except for the financial statements, schedules and other financial data included therein or omitted therefrom or the exhibits to the Registration Statements, including the Form T-1, as to which I express no opinion). In addition, on the basis of the foregoing, no facts have come to my attention that have caused me to believe that the General Disclosure Package, as of the Applicable Time (as defined below), contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading (except for the financial statements, schedules and other financial data included therein or omitted therefrom or the exhibits to the Registration Statements, including the Form T-1, as to which I express no opinion).

As used herein, (i) “Applicable Time” means 5:05 p.m (Eastern time) on February 7, 2007 and (ii) “General Disclosure Package” means the issuer free writing prospectus, dated February 7, 2007, in the form filed by the Company pursuant to Rule 433 of the Rules and Regulations on February 7, 2007, and the Preliminary Prospectus, all considered together.

I do not express any opinion as to any matter governed by any laws other than federal laws of the United States of America, the laws of the State of New York, the corporate laws of the State of Delaware or the corporate and insurance laws of the State of

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Wisconsin. To the extent this opinion speaks as to corporate and insurance laws of the State of Wisconsin, I have relied, with your consent, on the opinion of DeWitt Ross & Stevens S.C., which opinion is satisfactory in form and substance to me and which you and your counsel are entitled to rely thereon.

This opinion is solely for your information and is not to be quoted in whole or in part, summarized or otherwise referred to, nor is it to be filed with or supplied to any governmental agency or other person without my written consent, except with respect to the preparation of a closing memorandum. I specifically disclaim any responsibility to update this opinion to reflect any events or state of facts which may hereafter occur.

Very truly yours,

Kevin J. Doyle, Esq.

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EX-1.02

EXHIBIT 1.02

EXECUTION COPY

AMBAC FINANCIAL GROUP, INC.

(a Delaware corporation)

TERMS AGREEMENT

February 7, 2007

To: Ambac Financial Group, Inc.

One State Street Plaza

New York, New York 10004

Ladies and Gentlemen:

We understand that Ambac Financial Group, Inc., a Delaware corporation (the “Company”), proposes to issue and sell to the several underwriters named in Schedule I hereto (the “Underwriters”) up to $400,000,000 aggregate principal amount of its Directly-Issued Subordinated Capital Securities (the “DISCS^SM” and, for purposes of the Underwriting Agreement, dated February 7, 2007 (the “Underwriting Agreement”), the terms of which are incorporated herein by reference, are also referred to as the “Underwritten Securities”). The DISCS will be issued by the Company pursuant to an Indenture, to be dated as of February 12, 2007 between the Company and The Bank of New York, as trustee (the “Trustee”) (the “Base Indenture”), as supplemented by the First Supplemental Indenture, to be dated as of February 12, 2007 between the Company and the Trustee (together with the Base Indenture, the “Indenture”). Subject to the terms and conditions set forth or incorporated by reference herein, the Underwriters offer to purchase, severally and not jointly, the principal amount of Underwritten Securities set forth opposite their names in Schedule I hereto at the purchase price set forth such Schedule I.

The Underwritten Securities shall have the terms that are further described in the final term sheet specified in Schedule II hereto. For purposes of this Terms Agreement only, the “Applicable Time” is 5:05 p.m. (Eastern time) on the date of this Terms Agreement. For purposes of this Terms Agreement only, the “Closing Date” is 10:00 AM (Eastern time) on February 12, 2007.

Notices to the Underwriters shall be directed to the Representatives c/o Citigroup Global Markets Inc., 388 Greenwich Street, New York, New York 10013, Attention: General Counsel.

DISCS^SM is a service mark of Citigroup Global Markets Inc. Citigroup Global Markets Inc. has applied for patent protection for certain aspects of the DISCS^SM structure described in the prospectus supplement.

All of the provisions contained in the Underwriting Agreement are hereby incorporated by reference in their entirety herein and shall be deemed to be a part of this Terms Agreement to the same extent as if such provisions had been set forth in full herein. Terms defined in the Underwriting Agreement are used herein as therein defined.

For a period of 30 days after the date of this Terms Agreement, neither the Company, nor any of its subsidiaries or other affiliates over which the Company exercises management or voting control, nor any person acting on their behalf will, without the prior written consent of Citigroup Global Markets Inc., offer, sell, contract to sell or otherwise dispose of any securities that are substantially similar to the DISCS.

This Terms Agreement shall be governed by the laws of the State of New York applicable to agreements made and to be performed wholly within such State.

If the foregoing is in accordance with your understanding of the agreement among the Underwriters and the Company, please sign and return to the undersigned a counterpart hereof, whereupon this instrument, along with all counterparts and together with the Underwriting Agreement, shall be a binding agreement among the Underwriters named herein and the Company in accordance with its terms and the terms of the Underwriting Agreement.

This document may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same document.

Very truly yours,
Citigroup Global Markets Inc.
By:	/s/ Meir Lewis
	Authorized Signatory
Goldman, Sachs & Co.
By:	/s/ Goldman, Sachs & Co.
	(Goldman, Sachs & Co.)
J.P. Morgan Securities Inc.
By:	/s/ John Purcell
	Authorized Signatory
Acting on behalf of itself and as Representative of the other named Underwriters.

Accepted:
AMBAC FINANCIAL GROUP, INC.
By	/s/ David Trick
	Name: David Trick
	Title:   Managing Director and Treasurer

SCHEDULE I

TO TERMS AGREEMENT

Underwriter	Principal Amount of Underwritten Securities
Citigroup Global Markets Inc.	$	140,000,000
Goldman, Sachs & Co.		80,000,000
J.P. Morgan Securities Inc.		80,000,000
HSBC Securities (USA) Inc.		20,000,000
Lehman Brothers Inc.		20,000,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated		20,000,000
UBS Securities LLC		20,000,000
Wachovia Capital Markets, LLC		20,000,000
Total	$	400,000,000

SCHEDULE II

TO TERMS AGREEMENT

Materials other than the Base Prospectus and the Preliminary Prospectus used most recently prior to the Execution Time that comprise the Disclosure Package:

Free Writing Prospectus

Filed pursuant to Rule 433

Registration Number 333- 131888

AMBAC FINANCIAL GROUP, INC.

FINAL TERM SHEET

Issuer:	Ambac Financial Group, Inc. (Ticker: ABK)
Title of Security:	Directly-Issued Subordinated Capital SecuritiesSM (“DISCS”)
Scheduled Maturity Date:	February 15, 2037 or, if such date is not a business day, the following business day.
Principal Amount:	$400,000,000
Final Maturity Date:	February 7, 2087 or, if such date is not a business day, the following business day.
Interest Rates:	6.15% per annum until the Scheduled Maturity Date and One-month LIBOR + 183.5 bp per annum thereafter until the Final Maturity Date, unless redeemed or repaid earlier.
Interest Payment Dates:	15th of each February and August until the Scheduled Maturity Date and monthly thereafter until the Final Maturity Date, unless redeemed or repaid earlier.
First Interest Payment Date:	August 15, 2007
Trade Date:	February 7, 2007
Settlement Date (T+3):	February 12, 2007
Applicable Spread for the Purposes of Calculating Redemption Price:	+ 50 bp if the redemption is within 90 days after the occurrence of a tax event or rating agency event, and + 20 bp in other cases.
Benchmark:	UST 4.50% due February 15, 2036
Benchmark Yield:	4.849%
Reoffer Spread:	+ 135 bp
Reoffer Yield:	6.199%
Price to Public:	99.335%
CUSIP:	023139AF5
Expected Ratings:	Aa3 by Moody’s Investors Services, A+ by Standard & Poor’s. A securities rating is not a recommendation to buy, sell or hold securities and may be subject to review, revision, suspension, reduction or withdrawal at any time by the assigning rating agency.

DISCS^SM is a service mark of Citigroup Global Markets Inc. Citigroup Global Markets Inc. has applied for patent protection for the DISCS^SM structure described in the related prospectus.

Joint Book-Runner and Sole Structuring Advisor:	Citigroup Global Markets Inc.
Joint Book-Runners:	Goldman, Sachs & Co. J.P. Morgan Securities Inc.
Co-Managers:	HSBC Securities (USA) Inc. Lehman Brothers Inc. Merrill Lynch, Pierce, Fenner & Smith Incorporated UBS Securities LLC Wachovia Capital Markets, LLC

The issuer has filed a registration statement, including a prospectus, with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about the issuer and this offering. You may get these documents for free by visiting EDGAR on the SEC Web site at www.sec.gov. Alternatively, the issuer, any underwriter or any dealer participating in the offering will arrange to send you the prospectus if you request it by calling toll-free 1-877-858-5407.

EX-4.11

Exhibit 4.11

AMBAC FINANCIAL GROUP, INC.

TO

THE BANK OF NEW YORK

Trustee

JUNIOR SUBORDINATED INDENTURE

Dated as of February 12, 2007

Reconciliation and tie between Trust Indenture Act of 1939, as amended, and Indenture, dated as of February     , 2007.

Trust Indenture Act Section	Indenture Section
§ 310(a)(1)	608
(a)(2)	608
(b)	609
§ 312(a)	703
§ 312(c)	701
§ 313(a)	702
§ 314(a)	703
(c)(1)	102
(c)(2)	102
(e)	102
§ 315(b)	601
§ 316(a)	101
	(“Outstanding”	)
(a)(1)(A)	502
	512
(a)(1)(B)	513
(b)	508
§ 317(a)(1)	503
(a)(2)	504
§ 318(a)	111
§ 317(b)	1003

NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be a part of this Indenture.

TABLE OF CONTENTS¹

PAGE

RECITALS OF THE COMPANY

ARTICLE ONE

DEFINITIONS AND OTHER PROVISIONS

OF GENERAL APPLICATION

SECTION 101.	Definitions.	1
	Act	2
	Affiliate	2
	Authenticating Agent	2
	Board of Directors	2
	Board Resolution	2
	Business Day	2
	Commission	2
	Company	2
	Company Request	2
	Company Order	2
	Corporate Trust Office	2
	corporation	3
	Currency	3
	Defaulted Interest	3
	Depositary	3
	Dollar	3
	$	3
	Exchange Rate Agent	3
	Event of Default	3
	Global Security	3
	Holder	3
	Indenture	3
	Interest Payment Date	3
	Managing Director	3
	Maturity	3
	Mortgage	4
	Officers’ Certificates	4
	Opinion of Counsel	4
	Original Issue Discount Security	4
	Outstanding	4
	Paying Agent	4
	Person	5
	Place of Payment	5
	Predecessor Security	5
	Redemption Date	5

¹ This table of contents shall not, for any purpose, be deemed to be a part of the Junior Subordinated Indenture.

i

	Redemption Price	5
	Regular Record Date	5
	Responsible Officer	5
	Restricted Subsidiary	5
	Securities	5
	Security Register	5
	Security Registrar	5
	Senior Indebtedness	5
	Special Record Date	6
	Stated Maturity	6
	Subsidiary	6
	Trustee	6
	Trust Indenture Act	6
	U.S. Government Obligations	7
	Vice President	7
	Voting Stock	7
SECTION 102.	Compliance Certificates And Opinions.	7
SECTION 103.	Form Of Documents Delivered To Trustee.	8
SECTION 104.	Acts Of Holders.	8
SECTION 105.	Notices, Etc., To Trustee And Company.	9
SECTION 106.	Notice To Holders; Waiver.	9
SECTION 107.	Immunity of Incorporators, Stockholders, Officers and Directors.	9
SECTION 108.	Conflict with Trust Indenture Act.	10
SECTION 109.	Effect Of Headings And Table Of Contents.	10
SECTION 110.	Successors And Assigns.	10
SECTION 111.	Separability Clause.	10
SECTION 112.	Benefits Of Indenture.	10
SECTION 113.	Governing Law.	10
SECTION 114.	Legal Holidays.	10
SECTION 115.	Force Majeure	11
SECTION 116.	Waiver of Jury Trial	11
SECTION 117.	Securities in Foreign Currencies.	11

ARTICLE TWO

SECURITY FORMS

SECTION 201.	Forms Generally.	11
SECTION 202.	Additional Provisions In Global Securities.	12
SECTION 203.	Form Of Trustee’s Certificate Of Authentication.	12

ARTICLE THREE

THE SECURITIES

SECTION 301.	Amount Unlimited; Issuable In Series.	13
SECTION 302.	Denominations.	15
SECTION 303.	Execution, Authentication, Delivery And Dating.	15
SECTION 304.	Temporary Securities.	17
SECTION 305.	Registration, Registration Of Transfer And Exchange.	17
SECTION 306.	Mutilated, Destroyed, Lost And Stolen Securities.	19
SECTION 307.	Payment Of Interest; Interest Rights Preserved.	19
SECTION 308.	Persons Deemed Owners.	20
SECTION 309.	Cancellation.	21
SECTION 310.	Computation Of Interest.	21
SECTION 311.	CUSIP Numbers	21

ii

ARTICLE FOUR

SATISFACTION AND DISCHARGE

SECTION 401.	Satisfaction And Discharge Of Indenture.	21
SECTION 402.	Application Of Trust Money.	23

ARTICLE FIVE

REMEDIES

SECTION 501.	Events Of Default.	23
SECTION 502.	Acceleration Of Maturity; Rescission And Annulment.	24
SECTION 503.	Collection Of Indebtedness And Suits For Enforcement By Trustee.	25
SECTION 504.	Trustee May File Proofs Of Claim.	26
SECTION 505.	Trustee May Enforce Claims Without Possession Of Securities.	26
SECTION 506.	Application Of Money Collected.	27
SECTION 507.	Limitation On Suits.	27
SECTION 508.	Unconditional Right Of Holders To Receive Principal, Premium And Interest.	28
SECTION 509.	Restoration Of Rights And Remedies.	28
SECTION 510.	Rights And Remedies Cumulative.	28
SECTION 511.	Delay Or Omission Not Waiver.	29
SECTION 512.	Control By Holders.	29
SECTION 513.	Waiver Of Past Defaults.	29
SECTION 514.	Waiver Of Stay Or Extension Laws.	30

ARTICLE SIX

THE TRUSTEE

SECTION 601.	Certain Duties and Responsibilities.	30
SECTION 602.	Notice Of Defaults.	30
SECTION 603.	Certain Rights Of Trustee.	31
SECTION 604.	Not Responsible For Recitals Or Issuance Of Securities.	32
SECTION 605.	May Hold Securities.	32
SECTION 606.	Money Held In Trust.	32
SECTION 607.	Compensation, Indemnity And Reimbursement.	32
SECTION 608.	Corporate Trustee Required; Different Trustees For Different Series; Eligibility.	33
SECTION 609.	Resignation And Removal; Appointment Of Successor.	34
SECTION 610.	Acceptance Of Appointment By Successor.	35
SECTION 611.	Merger, Conversion, Consolidation Or Succession To Business.	36
SECTION 612.	Appointment Of Authenticating Agent.	36

ARTICLE SEVEN

HOLDERS’ LISTS AND REPORTS BY TRUSTEE AND COMPANY

SECTION 701.	Disclosure Of Names And Addresses Of Holders.	37
SECTION 702.	Reports By Trustee.	38
SECTION 703.	Reports By Company And Holders’ Lists.	38

iii

ARTICLE EIGHT

CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

SECTION 801.	Company May Consolidate, Etc., Only On Certain Terms.	39
SECTION 802.	Successor Corporation Substituted.	39

ARTICLE NINE

SUPPLEMENTAL INDENTURES

SECTION 901.	Supplemental Indentures Without Consent Of Holders.	40
SECTION 902.	Supplemental Indentures With Consent Of Holders.	41
SECTION 903.	Execution Of Supplemental Indentures.	42
SECTION 904.	Effect Of Supplemental Indentures.	42
SECTION 905.	Conformity With Trust Indenture Act.	43
SECTION 906.	Reference In Securities To Supplemental Indentures.	43

ARTICLE TEN

COVENANTS

SECTION 1001.	Payment Of Principal, Premium And Interest.	43
SECTION 1002.	Maintenance Of Office Or Agency.	43
SECTION 1003.	Money For Securities Payments To Be Held In Trust.	44
SECTION 1004.	Corporate Existence.	45
SECTION 1005.	Maintenance Of Properties.	45
SECTION 1006.	Payment Of Taxes And Other Claims.	45
SECTION 1007.	Intentionally Omitted.	46
SECTION 1008.	Intentionally Omitted.	46
SECTION 1009.	Statement As To Compliance.	46
SECTION 1010.	Waiver Of Certain Covenants.	46
SECTION 1011.	Statement by Officers as to Default	46

ARTICLE ELEVEN

REDEMPTION OF SECURITIES

SECTION 1101.	Applicability Of Article.	47
SECTION 1102.	Election To Redeem; Notice To Trustee.	47
SECTION 1103.	Selection By Trustee Of Securities To Be Redeemed.	47
SECTION 1104.	Notice Of Redemption.	47
SECTION 1105.	Deposit Of Redemption Price.	48
SECTION 1106.	Securities Payable On Redemption Date.	48
SECTION 1107.	Securities Redeemed In Part.	49

ARTICLE TWELVE

SINKING FUNDS

SECTION 1201.	Applicability Of Article.	49
SECTION 1202.	Satisfaction Of Sinking Fund Payments With Securities.	49
SECTION 1203.	Redemption Of Securities For Sinking Fund.	50

iv

ARTICLE THIRTEEN

REPAYMENT AT OPTION OF HOLDERS

SECTION 1301.	Applicability Of Article.	51
SECTION 1302.	Repayment Of Securities.	51
SECTION 1303.	Exercise Of Option.	51
SECTION 1304.	When Securities Presented For Repayment Become Due And Payable.	51
SECTION 1305.	Securities Repaid In Part.	52

ARTICLE FOURTEEN

DEFEASANCE AND COVENANT DEFEASANCE

SECTION 1401.	Applicability Of Article; Company’s Option To Effect Defeasance Or Covenant Defeasance.	52
SECTION 1402.	Defeasance And Discharge.	52
SECTION 1403.	Covenant Defeasance.	53
SECTION 1404.	Conditions To Defeasance Or Covenant Defeasance.	53
SECTION 1405.	Application Of Trust Money.	54
SECTION 1406.	Reinstatement.	54

ARTICLE FIFTEEN

SUBORDINATION OF SECURITIES

SECTION 1501.	Securities Subordinate to Senior Indebtedness.	55
SECTION 1502.	Payments to Securityholders.	55
SECTION 1503.	Subrogation to Rights of Holders of Senior Indebtedness	56
SECTION 1504.	Relative Rights	57
SECTION 1505.	Trustee to Effectuate Subordination	58
SECTION 1506.	Subordination May Not Be Impaired	58
SECTION 1507.	Notice to Trustee	58
SECTION 1508.	Reliance on Certificate of Liquidating Agent	59
SECTION 1509.	Trustee Not Fiduciary for Holders of Senior Indebtedness	59
SECTION 1510.	Rights of Trustee as Holder of Senior Indebtedness	59
SECTION 1511.	Article Applicable to Paying Agent	59
SECTION 1512.	Payment Permitted if No Event Specified in Section 1502.	60

v

JUNIOR SUBORDINATED INDENTURE, dated as of February 12, 2007, between Ambac Financial Group, Inc., a corporation duly organized and existing under the laws of the State of Delaware (the “Company“), having its principal office at One State Street Plaza, New York, New York 10004, and The Bank of New York, a New York banking corporation, as Trustee (the “Trustee“).

RECITALS OF THE COMPANY

The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsecured, junior subordinated debentures, notes or other evidences of unsecured, junior subordinated indebtedness (the “Securities“), to be issued in one or more series as in this Indenture provided.

This Indenture is subject to the provisions of the Trust Indenture Act of 1939, as amended, that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions.

All things necessary to make this Indenture a valid and legally binding agreement of the Company, in accordance with its terms, have been done.

NOW, THEREFORE, the Company agrees as follows with the Trustee for the equal and proportionate benefit of all Holders of the Securities or of series thereof:

ARTICLE ONE

DEFINITIONS AND OTHER PROVISIONS

OF GENERAL APPLICATION

SECTION 101. Definitions.

For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:

(1) the terms defined in this Section have the meanings assigned to them in this Section and include the plural as well as the singular;

(2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;

(3) all accounting terms not otherwise defined herein or in such securities shall have the meanings assigned to them in accordance with United States generally accepted accounting principles, and, except as otherwise herein expressly provided, the term “generally accepted accounting principles” with respect to any computation required or permitted hereunder shall mean such accounting principles are generally accepted at the date of such computation; and

(4) all references herein to “Articles” and other subdivisions are to the corresponding Articles or other subdivisions of this Indenture; references herein to “Section” are to corresponding Sections of this Indenture; and the words “herein,” “hereof,” and “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.

Certain terms, used principally in Article Six, are defined in that Article.

“Act,” when used with respect to any Holder, has the meaning specified in Section 104.

“Affiliate“ of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, “control“ when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling“ and “controlled“ have meanings correlative to the foregoing.

“Authenticating Agent“ means any Person authorized by the Trustee to act on behalf of the Trustee to authenticate Securities.

“Board of Directors“ means either the board of directors of the Company or any duly authorized committee of that board.

“Board Resolution“ means a copy of a resolution or resolutions certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors or any committee thereof and to be in full force and effect on the date of such certification, and delivered to the Trustee.

“Business Day“, except as otherwise specified as contemplated by Section 301, when used with respect to any Place of Payment, means any day other than (i) a Saturday or Sunday, (ii) a day on which banking institutions in The City of New York are authorized or required by law or executive order to remain closed or (iii) a day on which the Corporate Trust Office of the Trustee, is closed for business.

“Commission“ means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.

“Company“ means the Person named as the “Company” in the first paragraph of this instrument until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Company” shall mean such successor corporation.

“Company Request“ or “Company Order“ mean respectively a written request or order signed in the name of the Company by its Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer, Managing Director or a Vice President, and by its Treasurer, an Assistant Treasurer, Secretary or an Assistant Secretary, and delivered to the Trustee.

“Corporate Trust Office“ means the office of the Trustee in New York, New York at which at any particular time its corporate trust business shall be administered, which office at the date of execution of this instrument is located at 101 Barclay Street, 8W, New York, NY 10286.

2

“corporation” includes corporations, associations, companies and business trusts.

“Currency” means any currency or currencies, composite currency or currency unit or currency units issued by the government of one or more countries (including, without limitation, the Euro) or by any recognized confederation or association of such governments.

“Defaulted Interest” has the meaning specified in Section 307.

“Depositary” means, with respect to the Securities of any series issuable or issued in whole or in part in the form of one or more Global Securities, the Person designated as Depositary by the Company pursuant to Section 301, and if at any time there is more than one such Person, ‘Depositary’ as used with respect to the Securities of any such series shall mean the Depositary with respect to the Securities of that series.

“Dollar” or “$” means a dollar or other equivalent unit in such coin or currency of the United States of America as at the time shall be legal tender for the payment of public and private debts.

“Exchange Rate Agent” means a New York Clearinghouse Bank retained for the purpose of quoting the exchange rate on any day between Dollars and any Currency, or between any two Currencies.

“Event of Default” has the meaning specified in Section 501.

“Global Security” means a Security issued to evidence all or a part of any series of Securities which is executed by the Company and authenticated and delivered by the Trustee to the Depositary or pursuant to the Depositary’s instruction, all in accordance with this Indenture and pursuant to a Company Order, which shall be registered in the name of the Depositary or its nominee.

“Holder” means a Person in whose name a Security is registered in the Security Register.

“Indenture” means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into from time to time pursuant to the applicable provisions hereof and shall include the form and terms of particular series of Securities established as contemplated by Section 301.

“Interest Payment Date,” when used with respect to any Security, means the Stated Maturity of an installment of interest of such Security.

“Managing Director,” when used with respect to the Company, means any managing director, whether or not designated by a number or a word or words added before or after the title “managing director.”

“Maturity,” when used with respect to any security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption, pursuant to a sinking fund, notice of option to elect repayment or otherwise.

3

“Mortgage“ means any mortgage, pledge, lien, security interest or other encumbrance.

“Officers’ Certificates“ means a certificate signed by two officers, one of whom shall be the principal financial officer from among the Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer, Managing Director or a Vice President, and by the Treasurer, an Assistant Treasurer, Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee.

“Opinion of Counsel“ means a written opinion of counsel, who may be counsel for the Company.

“Original Issue Discount Security“ means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502.

“Outstanding,” when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except:

(i) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation;

(ii) Securities for the payment or redemption of which money or U.S. Government Obligations in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities as contemplated by Article Four or Article Fourteen; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and

(iii) Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a protected purchaser (as defined in Article 8 of the Uniform Commercial Code as in effect from time to time in the state of New York) in whose hands such Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, (a) the principal amount of an Original Issue Discount Security that shall be deemed to be Outstanding shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon acceleration of the Maturity thereof pursuant to Section 502, and (b) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer of the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor.

“Paying Agent“ means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company.

4

“Person“ means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.

“Place of Payment,” when used with respect to the Securities of any series, means the place or places where the principal of (and premium, if any) and interest on the Securities of that series are payable as specified as contemplated by Section 301.

“Predecessor Security“ of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security.

“Redemption Date,” when used with respect to any Security to be redeemed, means the date fixed by the Company for such redemption by or pursuant to this Indenture.

“Redemption Price,” when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture.

“Regular Record Date“ for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 301.

“Responsible Officer,” when used with respect to the Trustee, means any officer of the Trustee with direct responsibility for the administration of this Indenture and for the purposes of Sections 315(b) and 315(d)(2) of the Trust Indenture Act also means any other officer to whom a particular corporate trust matter is referred because of his knowledge and familiarity with the particular subject.

“Restricted Subsidiary“ means Ambac Assurance Corporation and any successor to all or substantially all of its business, provided that such successor is a Subsidiary.

“Securities“ has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture.

“Security Register“ and “Security Registrar“ have the respective meanings specified in Section 305.

“Senior Indebtedness“ means the principal of, premium, if any, and interest on:

(a) all indebtedness of the Company (other than indebtedness issued pursuant to this Indenture), whether outstanding on the date of the issuance of the Securities of any series or thereafter created, incurred or assumed, which is for money borrowed or which is evidenced by a note, bond, debenture or similar instrument;

(b) all obligations of the Company under leases required or permitted to be capitalized under GAAP;

5

(c) all of the Company’s reimbursement obligations with respect to any letter of credit, banker’s acceptance, security purchase facility or similar credit transactions;

(d) all obligations of the types referred to in clauses (a), (b) or (c) above of another person, the payment of which the Company is responsible or liable as guarantor or otherwise;

(e) any agreements or obligations to pay deferred purchase price or conditional sales agreements other than in the ordinary course of business;

(f) all obligations of the types referred to in clauses (a) through (e) above of another person secured by any lien on any property or assets of the Company (whether or not that obligation has been assumed by the Company); and

(g) amendments, modifications, renewals, extensions, deferrals and refundings of any of the above types of indebtedness.

Senior Indebtedness shall continue to be Senior Indebtedness and to be entitled to the benefits of Article Fifteen of this Indenture irrespective of any amendment, modification or waiver of any term of the Senior Indebtedness, or any extension or renewal of the Senior Indebtedness. Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness shall not include (i) indebtedness incurred for the purchase of goods, materials or property, or for services obtained in the ordinary course of business or for other liabilities arising in the ordinary course of business and (ii) any indebtedness which by its terms is expressly made pari passu with or subordinated to the Securities of any series.

“Special Record Date“ for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307.

“Stated Maturity,” when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable.

“Subsidiary“ means a corporation more than 50% of the outstanding Voting Stock of which is owned or controlled, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries.

“Trustee“ means the Person named as the “Trustee” in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Trustee” shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, “Trustee” as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series.

“Trust Indenture Act“ means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed, except as provided in Section 905; provided however, that in the event the Trust Indenture Act is amended after such date, “Trust Indenture Act” means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended.

6

“U.S. Government Obligations“ means direct obligations of the United States for the payment of which its full faith and credit is pledged, or obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States and the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as amended) as custodian with respect to any such U.S. Government Obligations or a specific payment of principal of or interest on any such U.S. Government Obligations held by such custodian for the account of the holder of such depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligations or the specific payment of principal of or interest on the U.S. Government Obligations evidenced by such depository receipt.

“Vice President,” when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title “Vice President.”

“Voting Stock“ means, with respect to any Subsidiary, stock of any class or classes (or equivalent interest), if the holders of the stock of such class or classes (or equivalent interests) are ordinarily, in the absence of contingencies, entitled to vote for the election of the directors (or persons performing similar functions) of such corporation, even though the right so to vote has been suspended by the happening of such a contingency.

SECTION 102. Compliance Certificates And Opinions.

Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers’ Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel such proposed action is authorized or permitted by this Indenture and all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished.

Every certificate or opinion with respect to compliance with a covenant or condition provided for in this Indenture (other than pursuant to Section 1010) shall include:

(1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;

(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

(3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and

(4) a statement as to whether, in the opinion of each such individual, such covenant or condition has been complied with.

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SECTION 103. Form Of Documents Delivered To Trustee.

In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.

Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinions or representations with respect to such matters are erroneous.

Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.

SECTION 104. Acts Of Holders.

(a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “Act“ of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section.

(b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient.

(c) At any time, the ownership of Securities shall be proved by the Security Register.

(d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security.

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SECTION 105. Notices, Etc., To Trustee And Company.

Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with,

(1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Administration, or

(2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company.

SECTION 106. Notice To Holders; Waiver.

Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice mailed in the manner prescribed by this Indenture shall be deemed to have been given whether or not such Holder receives said notice. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.

In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder.

SECTION 107. Immunity of Incorporators, Stockholders, Officers and Directors.

No recourse shall be had for the payment of the principal of (and premium, if any) or the interest, if any, on any Security of any series, or for any claim based thereon, or upon any obligation, covenant or agreement of this Indenture, against any incorporator, stockholder, officer or director, as such, past, present or future of the Company or of any successor corporation, either directly or indirectly through the Company or any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise; it being expressly agreed and understood that this Indenture and all the Securities are solely corporate obligations, and that no personal liability whatever shall attach to, or is incurred by, any incorporator, stockholder, officer or director, past, present or future, of the Company or of any successor corporation, either directly or indirectly through the Company or any successor corporation, because of the incurring of the indebtedness hereby

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authorized or under or by reason of any of the obligations, covenants or agreements contained in this Indenture or in any of the Securities, or to be implied herefrom or therefrom; and that all such personal liability is hereby expressly released and waived as a condition of, and as part of the consideration for, the execution of this Indenture and the issue of the Securities.

SECTION 108. Conflict with Trust Indenture Act.

If any provision hereof limits, qualifies or conflicts with any provision deemed to be included in this Indenture by any of the provisions of the Trust Indenture Act, such deemed-included provision shall control.

SECTION 109. Effect Of Headings And Table Of Contents.

The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

SECTION 110. Successors And Assigns.

All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not.

SECTION 111. Separability Clause.

In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

SECTION 112. Benefits Of Indenture.

Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture.

SECTION 113. Governing Law.

This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York. This Indenture is subject to the provisions of the Trust Indenture Act of 1939, as amended, that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions.

SECTION 114. Legal Holidays.

In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment or in New York City, then unless otherwise specified in the Securities,

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payment of interest or principal (and premium, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be.

SECTION 115. Force Majeure

In no event shall the Trustee be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or computer (software and hardware) services; it being understood that the Trustee shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.

SECTION 116. Waiver of Jury Trial

EACH OF THE COMPANY AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE NOTES OR THE TRANSACTION CONTEMPLATED HEREBY.

SECTION 117. Securities in Foreign Currencies.

Whenever this Indenture provides for any action by, or any distribution to, Holders of Securities denominated in Dollars and in any foreign Currency, in the absence of any provision to the contrary established as contemplated by Section 301 for the Securities of any particular series, any amount in respect of any Security denominated in a foreign Currency shall be treated for any such action or distribution as that amount of Dollars that could be obtained for such amount on such reasonable basis of exchange and as of such date as the Company may specify in a Company Order.

ARTICLE TWO

SECURITY FORMS

SECTION 201. Forms Generally.

The Securities of each series shall be in substantially such form as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 303 for the authentication and delivery of such Securities.

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The Trustee’s certificates of authentication shall be in substantially the form set forth in this Article.

The definitive Securities shall be printed, lithographed or engraved on steel borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities.

SECTION 202. Additional Provisions In Global Securities.

Any Global Security may provide that it shall represent the aggregate or specified amount of Outstanding Securities from time to time endorsed thereon and may also provide that the aggregate amount of Outstanding Securities represented thereby may from time to time be reduced or increased to reflect exchanges. Any endorsement of a Security in global form to reflect the amount, or any increase or decrease in the amount or changes in the rights of Holders of Outstanding Securities represented thereby shall be made in such manner and by such Person or Persons as shall be specified therein or in the Company Order to be delivered to the Trustee pursuant to Section 303 or Section 304. Subject to the provisions of Section 303 and, if applicable, Section 304, the Trustee shall deliver and redeliver any Security in permanent global form in the manner and upon instructions given by the Person or Persons specified therein or in the applicable Company Order. If a Company Order pursuant to Section 303 or 304 has been, or simultaneously is, delivered, any instructions by the Company with respect to a Security in global form shall be in writing but need not comply with Section 314(c) of the Trust Indenture Act.

Notwithstanding the provisions of Section 307, unless otherwise specified as contemplated by Section 301, payment of principal of and any premium and interest on any Security in permanent global form shall be made to the Person or Persons specified therein.

Notwithstanding the provisions of Section 308 and except as provided in the preceding paragraph, the Company, the Trustee and any agent of the Company and the Trustee shall treat as the Holder of such principal amount of Outstanding Securities represented by a permanent Global Security the registered Holder of such permanent Global Security.

SECTION 203. Form Of Trustee’s Certificate Of Authentication.

This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.

THE BANK OF NEW YORK, as Trustee
By:
	Authorized Signatory
Dated:

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ARTICLE THREE

THE SECURITIES

SECTION 301. Amount Unlimited; Issuable In Series.

The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited.

The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution, and set forth in an Officers’ Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series:

(1) the title of the Securities of the series (which shall distinguish the Securities of the series from all other Securities);

(2) the price or prices (expressed as a percentage of the principal amount thereof) at which the Securities of the Series will be issued;

(3) any limit upon the aggregate principal amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Sections 304, 305, 306, 906, 1107 or 1305); provided, however, that the authorized aggregate principal amount of such series may be increased above such amount by a Board Resolution to such effect;

(4) the date or dates, or the method by which such date or dates will be determined or extended, on which the principal (and premium, if any) of the Securities of the series is payable;

(5) the rate or rates, or the method to be used in determining the rate or rates, at which the Securities of such series shall bear interest, if any, the date or dates from which such interest shall accrue or the method by which such date or dates shall be determined, the Interest Payment Dates on which such interest shall be payable and the Regular Record Date for the determination of Holders to whom such interest is payable on any Interest Payment Date, and the basis upon which interest shall be calculated if other than as set forth in Section 310;

(6) the right, if any, and/or obligation, if any, of the Company, at any time and/or from time to time, during the term of the Securities of any series, to defer payments of interest on the Securities of such series and the terms and conditions of such right and/or obligation, if applicable;

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(7) the right, if any, and/or obligation, if any, of the Company to satisfy its obligation to pay Interest then outstanding on and/or principal of the Securities of a series by selling the Company’s common stock, warrants on common stock, securities mandatory convertible into common stock or non-cumulative perpetual preferred stock or other qualifying securities specified in connection with establishment of the securities of such series to third parties that are not Subsidiaries of the Company (a “Share Settlement Mechanism“), the proceeds of which shall be paid to the Holders of the Securities, in satisfaction of Interest or principal, as applicable, then due on such Securities and the terms and conditions of such right and/or obligation, if applicable;

(8) the place or places where the principal of (and premium, if any) and interest on Securities of the series shall be payable;

(9) the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Company, if the Company is to have that option;

(10) the obligation, if any, of the Company to redeem, repay or purchase Securities of the series pursuant to any sinking fund or analogous provision or at the option of a Holder thereof, and the period or periods within which, the price or prices at which, the Currency in which, and other terms and conditions upon which Securities of the series shall be redeemed, repaid or purchased, in whole or in part, pursuant to such obligation;

(11) if other than denominations of $1,000 and integral multiples thereof, the denominations in which Securities of the series shall be issuable;

(12) if other than the principal amount thereof, the portion of the principal amount of Securities of the series which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 502 or the method by which such portion shall be determined;

(13) if other than Dollars, the Currency in which payment of the principal of (and premium, if any) or interest, if any, on the Securities of the series shall be payable or in which the Securities of the series shall be denominated;

(14) whether the amount of payments of principal of (and premium, if any) or interest on the Securities of the series may be determined with reference to an index, formula or other method (which index, formula or method may be based, without limitation, on one or more Currencies, commodities, equity indices or other indices), and the manner in which such amounts shall be determined;

(15) provisions, if any, granting special rights to the Holders of Securities of the series upon the occurrence of such events as may be specified;

(16) the terms, if any, on which a series of Securities may be convertible into or exchangeable for the Company’s preferred stock, common stock, warrants or other debt securities of the Company, including provisions as to whether conversion or exchange is mandatory, at the option of the holder or at the Company’s option, which provisions may allow or require the number of shares of the Company’s common stock, preferred stock, warrants or other debt securities of the Company to be received by;

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(17) any deletions from, modifications of or additions to the Events of Default or covenants of the Company with respect to Securities of the series, whether or not such Events of Default or covenants are consistent with the Events of Default or covenants set forth herein;

(18) the application, if any, of Section 1402 or 1403 to the Securities of any series;

(19) whether the Securities of the series shall be issued in whole or in part in the form of a Global Security or Securities; the terms and conditions, if any, upon which such Global Securities or Securities may be exchanged in whole or in part for other definitive Securities; and the Depositary for such Global Security or Securities, which Depositary must be a clearing agency registered under the Securities Exchange Act of 1934;

(20) any trustees, authenticating or paying agents, transfer agents or registrars or any other agents with respect to the Securities of such series;

(21) the ability to issue additional Securities of any series, having the same ranking and the same interest rate, maturity and other terms as the Securities of that series, except for the issue price and issue date and, in some cases, the first interest payment date, whereby such additional Securities will, together with the then outstanding such series of Securities, constitute a single class of Securities under this Indenture, and will vote together on matters under this Indenture; and

(22) any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture, except as permitted by Section 901(5)).

All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to such Board Resolution and set forth in such Officers’ Certificate or in any such Indenture supplemental hereto related to such series.

If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers’ Certificate setting forth the terms of the series.

SECTION 302. Denominations.

The Securities of each series shall be issuable in registered form without coupons in such denominations as shall be specified as contemplated by Section 301. With respect to Securities of any series denominated in Dollars, in the absence of any such provisions, the Securities of such series, other than Securities issued in global form (which may be of any denomination), shall be issuable in denominations of $1,000 and any integral multiple thereof.

SECTION 303. Execution, Authentication, Delivery And Dating.

The Securities shall be executed on behalf of the Company by its Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer, Managing Director or one of its Vice Presidents. The signature of any of these officers on the Securities may be manual or facsimile.

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Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities.

At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities. If the form or terms of the Securities of the series have been established in or pursuant to one or more Board Resolutions as permitted by Sections 201 and 301, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such series of Securities, the Trustee shall be entitled to receive, and shall be fully protected in relying upon an Opinion of Counsel stating,

(a) if the form of such Securities has been established by or pursuant to a Board Resolution as permitted by Section 201, that such form has been established in conformity with the provisions of this Indenture;

(b) if the terms of such Securities have been established by or pursuant to a Board Resolution as permitted by Section 301, that such terms have been established in conformity with the provisions of this Indenture; and

(c) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, subject to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting the enforcement of creditors’ rights and to general principles of equity.

If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee’s own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee.

If all of the Securities of a series are not to be originally issued at the same time, then the documents required to be delivered pursuant to this Section 303 must be delivered only once, prior to the authentication and delivery of the first Security of such series; provided, however, that any subsequent request by the Company to the Trustee to authenticate Securities of such series upon original issuance shall constitute a representation and warranty by the Company that, as of the date of such request, the statements made in the Officers’ Certificate delivered pursuant to Section 301 shall be true and correct as if made on such date and that all the conditions precedent, if any, provided for in this Indenture or the terms of the Securities of such series relating to the authentication and delivery of Securities of such series have been complied with.

If the Company shall establish pursuant to Section 301 that the Securities of a series are to be issued in whole or in part in the form of one or more Global Securities, then the Company shall execute and the Trustee shall, in accordance with this Section and the Company Order with respect to such series, authenticate and deliver one or more Global Securities that (i) shall represent and shall be denominated in an amount equal to the aggregate principal amount of the Outstanding Securities of such series to be represented by such Global Security or Securities, (ii) shall be registered in the name of the Depositary for such Global Security or Securities or the nominee of such

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Depositary, (iii) shall be delivered by the Trustee to such Depositary or pursuant to such Depositary’s instruction and (iv) shall bear a legend substantially to the following effect: “Unless and until it is exchanged in whole or in part for Securities in certificated form, this Security may not be transferred except as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary” or to such other effect as the Depositary and the Trustee may agree.

Each Depositary designated pursuant to Section 301 must, at the time of its designation and at all times while it serves as Depositary, be a clearing agency registered under the Securities Exchange Act of 1934, as amended, and any other applicable statute or regulation. The Trustee shall have no responsibility to determine if the Depositary is so registered. Each Depositary may enter into an agreement with the Trustee and the Company governing their respective duties and rights with regard to Global Securities.

Each Security shall be dated the date of its authentication.

No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture.

SECTION 304. Temporary Securities.

Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities.

Except in the case of temporary Securities in global form, which shall be exchanged in accordance with the provisions thereof, if temporary Securities of any series are issued, the Company will cause definitive Securities of such series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of the same series of authorized denominations. Until so exchanged the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series.

SECTION 305. Registration, Registration Of Transfer And Exchange.

The Company shall cause to be kept, at an office or agency of the Company maintained pursuant to Section 1002, a register (herein sometimes referred to as the “Security Register“) in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. Such office or agency shall be the “Security Registrar“ for the purpose of registering Securities and transfers as herein provided. The Trustee is hereby initially appointed Security Registrar.

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Upon surrender for registration of transfer of any Security of any series at the office or agency in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferees, one or more new Securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor.

At the option of the Holder, Securities of any series may be exchanged for other Securities of the same series with the same terms, of any authorized denominations and of a like aggregate principal amount and tenor, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive.

All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange.

Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing.

No service charge shall be made for any registration of transfer or exchange of Securities, but the Company or the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 906 or 1107 not involving any transfer.

The Company shall not be required (i) to issue, register the transfer of or exchange Securities of any series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of that series selected for redemption under Section 1103 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part.

Notwithstanding the foregoing, except as otherwise specified as contemplated by Section 301, any Global Security shall be exchangeable pursuant to this Section 305 for Securities registered in the names of Persons other than the Depositary with respect to such Security or its nominee only as provided in this paragraph. A Global Security shall be so exchangeable pursuant to this Section 305 if (i) the Depositary with respect to such Global Security notifies the Company that it is unwilling or unable to continue as Depositary for such Global Security or if at any time such Depositary ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, and, in either such case, a successor Depositary is not appointed by the Company within 90 days, (ii) the Company executes and delivers to the Trustee a Company Order that such Global Security shall be so exchangeable or (iii) there shall have occurred and be continuing an Event of Default, or an event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default, with respect to the Securities. Upon the exchange of a Global Security for Securities in certificated form, such Global Security shall be cancelled by the Trustee. Any Global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for Securities registered in such names as the Depositary with respect to such Global Security shall direct.

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Notwithstanding any other provision of this Section 305, unless and until it is exchanged in whole or in part for Securities in certificated form, a Global Security may not be transferred except as a whole by the Depositary with respect to such Global Security to a nominee of such Depositary, or by a nominee of such Depositary to such Depositary or to another nominee of such Depositary.

SECTION 306. Mutilated, Destroyed, Lost And Stolen Securities.

If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding.

If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a protected purchaser (as defined in Article 8 of the Uniform Commercial Code as in effect from time to time in the state of New York), the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding.

In any case such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security.

Upon the issuance of any new Security under this Section, the Company or the Trustee may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) incurred in connection therewith.

Every new Security of any series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder.

The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.

SECTION 307. Payment Of Interest; Interest Rights Preserved.

Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest at the office or agency of the Company maintained for such purpose pursuant to Section 1002; provided, however, that each installment of interest on any Security may at the Company’s option be paid by mailing a check for such interest, payable to or upon the written order of the Person entitled thereto pursuant to Section 308, to the address of such Person as it appears on the Security Register.

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Any interest on any Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called “Defaulted Interest“) shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below:

(1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money in the Currency in which the Securities of each series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities of such series at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2).

(2) The Company may make payment of any Defaulted Interest on the Securities of any series in the Currency in which the Securities of each series are payable in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee.

Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.

SECTION 308. Persons Deemed Owners.

Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 307) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.

No holder of any beneficial interest in any Global Security held on its behalf by a Depositary shall have any rights under this Indenture with respect to such Global Security, and such Depositary may be treated by the

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Company, the Trustee, and any agent of the Company or the Trustee as the owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee, or any agent of the Company or the Trustee, from giving effect to any written certification, proxy or other authorization furnished by a Depositary or impair, as between a Depositary and such holders of beneficial interests, the operation of customary practices governing the exercise of the rights of the Depositary as Holder of any Security.

SECTION 309. Cancellation.

All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly cancelled by the Trustee. If the Company shall so acquire any of the Securities, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be disposed of in accordance with the Trustee’s customary procedures unless directed by a Company Order.

SECTION 310. Computation Of Interest.

Except as otherwise specified as contemplated by Section 301 for Securities of any series, interest on the Securities of each series shall be computed on the basis of a year of twelve 30-day months.

SECTION 311. CUSIP Numbers

The Company in issuing the Securities may use “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee in writing of any change in the “CUSIP” numbers.

ARTICLE FOUR

SATISFACTION AND DISCHARGE

SECTION 401. Satisfaction And Discharge Of Indenture.

This Indenture shall upon Company Request cease to be of further effect with respect to any series of Securities (except as to any surviving rights of registration of transfer or exchange of Securities of such series herein expressly provided for), and the Trustee, at the expense of the Company and upon Company Request, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture as to such series when

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(1) either

(A) all Securities of such series theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities for whose payment money has, or U.S. Government Obligations have, theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or

(B) all Securities of such series not theretofore delivered to the Trustee for cancellation

(i) have become due and payable, or

(ii) will become due and payable at their Stated Maturity within one year, or

(iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company,

and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount, in the Currency in which the Securities of such series are payable, or U.S. Government Obligations, maturing as to principal and interest at such times as will assure the availability of cash, sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be;

(2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and

(3) the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with.

Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 607 and, if money or U.S. Government Obligations shall have been deposited with the Trustee pursuant to subclause (B) of clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive such satisfaction and discharge.

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SECTION 402. Application Of Trust Money.

Subject to provisions of the last paragraph of Section 1003, all money and U.S. Government Obligations deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee.

The Trustee shall deliver or pay to the Company from time to time upon Company request any U.S. Government Obligations, other government obligations or money held by it as provided in Section 401 and Section 1402 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are then in excess of the amount thereof which then would have been required to be deposited for the purpose for which such U.S. Government Obligations, other government obligations or money were deposited or received.

ARTICLE FIVE

REMEDIES

SECTION 501. Events Of Default.

“Event of Default“, wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):

(1) default in the payment of any interest upon any Security of such series when it becomes due and payable, and continuance of such default for a period of 30 days; or

(2) default in the payment of the principal of (or premium, if any, on) any Security of such series at its Maturity; or

(3) default in the payment of any sinking fund installment as and when the same shall become due and payable by the terms of the Securities of such series; or

(4) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has expressly been included in this Indenture solely for the benefit of series of Securities other than such series), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of all Outstanding Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; or

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(5) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company or any Restricted Subsidiary in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company or any Restricted Subsidiary a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment, rehabilitation, conservation or composition of or in respect of the Company or any Restricted Subsidiary under any applicable federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, rehabilitation, conservator, sequestrator or other similar official of the Company or any Restricted Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 90 consecutive days; or

(6) the commencement by the Company or any Restricted Subsidiary of a voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company or any Restricted Subsidiary in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or any Restricted Subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company or any Restricted Subsidiary in furtherance of any such action; or

(7) any other Event of Default provided with respect to Securities of that series.

When the Trustee incurs expenses or renders services in connection with an Event of Default specified in clauses (5) and (6) of this Section 501, the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any bankruptcy law.

SECTION 502. Acceleration Of Maturity; Rescission And Annulment.

If an Event of Default described in clauses (1) (2), (3) or (7) of Section 501 above with respect to Securities of any series at the time Outstanding occurs and is continuing, then in every such case the Trustee or the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities of such series (each such series voting as a separate class) may declare the principal amount (or, if the Securities of that series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of that series) of all of the Securities of that series and interest accrued thereon, if any, to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such amount shall become immediately due and payable. If an Event of Default described in clauses (4), (5) or (6) of Section 501 above with respect to Securities of all series at the time Outstanding occurs and is continuing, then in every such case, the Trustee or the Holders of not less than 25% in aggregate principal amount of all Outstanding Securities hereunder (voting as a single class) may declare the principal amount (or, if the Securities of any series are Original Issue Discount Securities, such portion of the principal amount as may be specified in the terms of that series) of all of the Securities then Outstanding and interest accrued thereon, if any, to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by the Holders), and upon such declaration such amount shall become immediately due and payable.

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At any time after such a declaration of acceleration with respect to Securities of any series (or all Securities, as the case may be) has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in aggregate principal amount of the Outstanding Securities of such series (voting as a separate class) with respect to an Event of Default described in clauses (1), (2), (3) and (7) of Section 501 above, and the Holders of a majority in aggregate principal amount of the Outstanding Securities of all series (voting as a single class) with respect to an Event of Default described in clause (4), (5) or (6) of Section 501 above, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if

(1) the Company has paid or deposited with the Trustee a sum sufficient to pay

(A) all Defaulted Interest on all Securities of such series (or on all Securities, as the case may be),

(B) the principal of (and premium, if any, on) any Securities of such series (or of all Securities, as the case may be) which has become due otherwise than by such declaration of acceleration and interest thereon at the rate or rates prescribed therefor in such Securities,

(C) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate or rates prescribed therefor in such Securities, and

(D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and

(2) all Events of Default with respect to Securities of such series (or all Securities, as the case may be), other than the non-payment of the principal of Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513.

No such rescission shall affect any subsequent Event of Default or impair any right consequent thereon.

SECTION 503. Collection Of Indebtedness And Suits For Enforcement By Trustee.

The Company covenants that if there is a

(1) default in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or

(2) default in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof,

the Company will, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal (and premium, if any) and interest and, to the extent that payment of such interest shall be legally enforceable, interest on

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any overdue principal (and premium, if any) and on any overdue interest, at the rate or rates prescribed therefor in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.

If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.

SECTION 504. Trustee May File Proofs Of Claim.

In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal, premium, if any, or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise,

(i) to file and prove a claim for the whole amount of principal (and premium, if any) or such portion of the principal amount of any series of Original Issue Discount Securities as may be specified in the terms of such series, and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and

(ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee under Section 607.

Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.

SECTION 505. Trustee May Enforce Claims Without Possession Of Securities.

All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered.

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In connection with any filings of any claims pursuant to Section 317(a)(2) of the Trust Indenture Act (i) the Trustee shall be entitled to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same, (ii) unless prohibited by law or applicable regulation, to vote on behalf of the Holders for the election of a trustee in bankruptcy or other similar official, and any receiver trustee or similar official in any proceeding is hereby authorized by each Holder to make such payments to the Trustee and, if the Trustee consents to the making of such payments directly to the Holders, to pay to the Trustee any amounts due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee or any predecessor Trustee under Section 607.

SECTION 506. Application Of Money Collected.

Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:

FIRST: To the payment of all amounts due the Trustee or any predecessor Trustee under Section 607; and

SECOND: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively; and

THIRD: The balance, if any, to the Company.

SECTION 507. Limitation On Suits.

No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless

(1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of such series;

(2) the Holders of not less than 25% in principal amount of the Outstanding Securities of that series in the case of any Event of Default described in clause (1), (2), (3) or (7) of Section 501, or, in the case of any Event of Default described in clause (4), (5) or (6) of Section 501, the Holders of not less than 25% in aggregate principal amount of all Outstanding Securities, shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;

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(3) such Holder or Holders have offered to the Trustee reasonable indemnity satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request;

(4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and

(5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series in the case of any Event of Default described in clause (1), (2), (3) or (7) of Section 501, or, in the case of any Event of Default described in clause (4), (5) or (6) of Section 501, the Holders of not less than 25% in aggregate principal amount of all Outstanding Securities;

it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of Securities of the same series, in the case of any Event of Default described in clauses (1), (2), (3) or (7) of Section 501, or of Holders of all Securities in the case of any Event of Default described in clauses (4), (5) or (6) of Section 501, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all Holders of Securities of the same series, in the case of any Event of Default described in clauses (1), (2), (3) or (7) of Section 501, or of Holders of all Securities in the case of any Event of Default described in clauses (4), (5) or (6) of Section 501.

SECTION 508. Unconditional Right Of Holders To Receive Principal, Premium And Interest.

Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment, as provided herein (including, if applicable, Article Fourteen) of the principal of (and premium, if any) and (subject to Section 307) interest on, such Security on the respective due dates expressed in such Security (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder.

SECTION 509. Restoration Of Rights And Remedies.

If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.

SECTION 510. Rights And Remedies Cumulative.

Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

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SECTION 511. Delay Or Omission Not Waiver.

No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.

SECTION 512. Control By Holders.

The Holders of not less than a majority in principal amount of the Outstanding Securities of any series (with each series voting as a separate class) shall have the right to direct the time, method and place of conducting any proceeding pertaining to such series for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, relating to or arising under clause (1), (2), (3) or (7) of Section 501, and the Holders of not less than a majority in aggregate principal amount of all Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee not relating to or arising under clause (1), (2), (3) or (7) of Section 501, provided that, in each case:

(1) such direction shall not conflict with any rule of law or with this Indenture, and

(2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.

SECTION 513. Waiver Of Past Defaults.

Prior to the declaration of the acceleration of the maturity of the Securities of any series as provided in Section 502, the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities of such series, voting as a separate class, may, on behalf of the Holders of all such Outstanding Securities of such series, waive any past default or Event of Default described in clause (3) or (7) of Section 501, and the Holders of not less than a majority in aggregate principal amount of all Outstanding Securities hereunder (voting as a single class) may on behalf of the Holders of all Outstanding Securities hereunder waive any past default or Event of Default described in clause (4), (5) or (6) of Section 501 and its consequences, except a default in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected.

Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.

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The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to waive any past default hereunder. If a record date is fixed, the Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to waive any default hereunder, or to retract (prior to the requisite percentage for such waiver to become effective having been obtained) any such waiver previously given, whether or not such Holders remain Holders after such record date; provided that, unless such waiver shall have become effective by virtue of such requisite percentage have long been obtained prior to the date which is 90 days after such record date, such waiver shall, automatically and without further action by the Holder, be canceled and of no further force or effect.

SECTION 514. Waiver Of Stay Or Extension Laws.

The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.

ARTICLE SIX

THE TRUSTEE

SECTION 601. Certain Duties and Responsibilities.

(a) The Trustee shall have and be subject to all the duties and responsibilities specified with respect to an indenture trustee in the Trust Indenture Act and no implied covenants or obligations shall be read into this Indenture against the Trustee. For purposes of Sections 315(a) and 315(c) of the Trust Indenture Act, the term “default” is hereby defined as an Event of Default which has occurred and is continuing.

(b) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.

SECTION 602. Notice Of Defaults.

Within 90 days after the occurrence of any default hereunder with respect to the Securities of any series, the Trustee shall transmit, in the manner and to the extent provided in Section 313(c) of the Trust Indenture Act, notice of such default hereunder known to the Trustee, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any) or interest on any Security of such series or in the payment of any sinking fund installment with respect to Securities of such series, the Trustee shall be protected in withholding such notice if and so long as a trust committee of directors and/or a Responsible Officer of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders of Securities of such series; and provided further that in the case of any default of the character specified in Section 501(4) with respect to Securities of such series, no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term “default“ means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series.

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SECTION 603. Certain Rights Of Trustee.

Subject to the provisions of the Trust Indenture Act:

(a) the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;

(b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution;

(c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers’ Certificate;

(d) the Trustee may consult with counsel of its own selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;

(e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;

(f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorneys at the expense of the Company and shall incur no liability of any kind by reason of such inquiry or investigation;

(g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder;

(h) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture;

(i) the Trustee shall not be charged with knowledge of any default or Event of Default with respect to the Securities unless either (1) a Responsible Officer shall have actual knowledge of such default or Event of Default or (2) written notice of such default or Event of Default shall have been given to the Trustee by the Company or by any Holder of the Securities;

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(j) the permissive rights of the Trustee enumerated herein shall not be construed as duties;

(k) the Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it;

(l) in no event shall the Trustee be responsible or liable for special, indirect, or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action; and

(m) the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder.

SECTION 604. Not Responsible For Recitals Or Issuance Of Securities.

The recitals contained herein and in the Securities, except the Trustee’s certificates of authentication, shall be taken as the statements of the Company, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee or any Authenticating Agent shall not be accountable for the use or application by the Company of Securities or the proceeds thereof.

SECTION 605. May Hold Securities.

The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 310(b) and 311 of the Trust Indenture Act, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent.

SECTION 606. Money Held In Trust.

Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law.

SECTION 607. Compensation, Indemnity And Reimbursement.

The Company agrees

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(1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);

(2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as shall be determined to have been caused by its own negligence or willful misconduct;

(3) to fully indemnify the Trustee or any predecessor Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder; and

(4) whenever the Trustee incurs expenses or renders services in connection with an Event of Default specified in clauses (5) and (6) of Section 501, the expenses (including the fees and expenses of its counsel) and the compensation for services are intended to constitute expenses of administration under any bankruptcy law.

The obligations of the Company under this Section to compensate the Trustee, to pay or reimburse the Trustee for expenses, disbursements and advances and to indemnify and hold harmless the Trustee shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture, the removal or resignation of the Trustee or the termination of the Indenture for any reason.

As security for the performance of such obligations of the Company, the Trustee shall have a claim prior to the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (and premium, if any) or interest on particular Securities.

SECTION 608. Corporate Trustee Required; Different Trustees For Different Series; Eligibility.

There shall at all times be a Trustee hereunder which shall be eligible to act as Trustee under Section 310(a)(1) of the Trust Indenture Act and shall have a combined capital and surplus of at least $50,000,000. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of any Federal, State, Territorial or District of Columbia supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. A different Trustee may be appointed by the Company for the Securities of each series prior to the issuance of such Securities. If the initial Trustee for the Securities of any series is to be other than The Bank of New York, the Company and such Trustee shall, prior to the issuance of such Securities, execute and deliver an indenture supplemental hereto, which shall provide for the appointment of such Trustee as Trustee for the Securities of such series and shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees to be co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.

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SECTION 609. Resignation And Removal; Appointment Of Successor.

(a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 610.

(b) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 610 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction at the expense of the Company for the appointment of a successor Trustee with respect to the Securities of such series.

(c) The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company. The Trustee being removed may petition any court of competent jurisdiction at the expense of the Company for the appointment of a successor Trustee with respect to the Securities of such series.

(d) If at any time:

(1) the Trustee shall fail to comply with Section 310(b) of the Trust Indenture Act after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or

(2) the Trustee shall cease to be eligible under Section 310(a) of the Trust Indenture Act and shall fail to resign after written request therefor by the Company or by any such Holder, or

(3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation.

then, in any such case, (i) the Company by a Board Resolution may remove the Trustee with respect to all Securities, or (ii) subject to Section 315(e) of the Trust Indenture Act, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees.

(e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 610. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so

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appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 610, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 610, any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.

(f) Notice shall be given of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series by the successor Trustee’s mailing written notice of such event by first-class mail, postage prepaid, to all Holders of Securities of such series as their names and addresses appear in the Security Register. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office.

SECTION 610. Acceptance Of Appointment By Successor.

(a) In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder.

(b) In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees cotrustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates.

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(c) Upon request of any such successor Trustee, the Company shall execute any and all instruments necessary to more fully and certainly vest in and confirm to such successor Trustee all such rights, powers and trusts referred to in paragraph (a) or (b) of this Section, as the case may be.

(d) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article.

SECTION 611. Merger, Conversion, Consolidation Or Succession To Business.

Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in the office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities.

SECTION 612. Appointment Of Authenticating Agent.

At any time when any of the Securities remain Outstanding the Trustee may appoint an Authenticating Agent or Agents with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 306, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee’s certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section.

Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent.

An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice

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thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Securities of the series with respect to which such Authenticating Agent will serve, as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section.

The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section.

If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee’s certificate of authentication, an alternate certificate of authentication in the following form:

“This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.

THE BANK OF NEW YORK,
As Trustee
By:
	As Authenticating Agent
By:
	Authorized Signatory
Dated:	”

ARTICLE SEVEN

HOLDERS’ LISTS AND REPORTS BY TRUSTEE AND COMPANY

SECTION 701. Disclosure Of Names And Addresses Of Holders.

Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with Section 312 of the Trust Indenture Act, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 312(b) of the Trust Indenture Act.

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SECTION 702. Reports By Trustee.

Within 60 days after May 15 of each year commencing with the first May 15 after the first issuance of securities pursuant to this Indenture, the Trustee shall transmit to the Holders of Securities, in the manner provided in Section 313(c) of the Trust Indenture Act, a brief report dated as of May 15 of such year if required by Section 313(a) of the Trust Indenture Act.

SECTION 703. Reports By Company And Holders’ Lists.

The Company shall:

(1) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934; or, if the Company is not required to file information, documents or reports pursuant to either of such Sections, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934 in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations;

(2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations;

(3) transmit to all Holders, in the manner and to the extent provided in Section 313(c) of the Trust Indenture Act, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission; and

(4) furnish or cause to be furnished to the Trustee (a) not more than 15 days after each Regular Record Date as defined in Section 101, but in any event not less frequently than semi-annually, a list in such form as the Trustee may reasonably require, containing all the information in the possession or control of the Company or any of its Paying Agents other than the Trustee, as to the names and addresses of the Holders of Securities to which such Regular Record Date applies as of such Regular Record Date, and (b) at such other times as the Trustee may request in writing, within 30 days after receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished, excluding from any such list names and addresses received by the Trustee in its capacity as Security Registrar. The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in this Section and the names and addresses of Holders received by the Trustee in its capacity as Securities Registrar. The Trustee may destroy any list furnished to it as provided in this Section upon receipt of a new list so furnished.

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Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee’s receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company’s compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers’ Certificates).

ARTICLE EIGHT

CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE

SECTION 801. Company May Consolidate, Etc., Only On Certain Terms.

The Company shall not consolidate with or merge into any other corporation or convey, transfer or lease its properties and assets substantially as an entirety to any Person unless:

(1) in case the Company shall consolidate with or merge into another corporation or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the corporation formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest on all the Securities and the performance of every covenant of this Indenture on the part of the Company to be performed or observed;

(2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company as a result of such transaction as having been incurred by the Company at the time of such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and

(3) the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with.

SECTION 802. Successor Corporation Substituted.

Upon any consolidation by the Company with or merger by the Company into any other corporation or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with Section 801, the successor corporation formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor corporation had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor corporation shall be relieved of all obligations and covenants under this Indenture and the Securities.

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ARTICLE NINE

SUPPLEMENTAL INDENTURES

SECTION 901. Supplemental Indentures Without Consent Of Holders.

Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form reasonably satisfactory to the Trustee, for any of the following purposes:

(1) to evidence the succession of another corporation to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or

(2) to add to or modify the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included or modified, as the case may be, solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company; or

(3) to add any additional Events of Default (and if such Events of Default are to be for the benefit of less than all series of Securities, stating that such Events of Default are being included solely for the benefit of such series); or

(4) to add to or to change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interests coupons; or

(5) to add to, change or eliminate any of the provisions of this Indenture in respect of one or more series of Securities; provided, that any such addition, change or elimination (i) shall neither (A) apply to any Security of any series created prior to the execution of such supplemental indenture and entitled to the benefit of such provision nor (B) materially modify the rights of the Holder of any such Security with respect to such provision or (ii) shall become effective only when there is no such Security Outstanding; or;

(6) to secure the Securities; or

(7) to establish the form or terms of Securities of any series as permitted by Sections 201 and 301; or

(8) to allow the issuance of additional Securities of any series, having the same ranking and the same interest rate, maturity and other terms as the Securities of that series, except for the issue price and issue date and, in some cases, the first interest payment date, whereby such additional Securities will, together with the then outstanding such series of Securities, constitute a single class of Securities under this Indentures, and will vote together on matters under this Indenture;

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(9) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 610(b); or

(10) to cure any ambiguity, to correct or supplement any provision herein that may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture that shall not be inconsistent with any provision under this Indenture, provided such action shall not adversely affect the interests of the Holders of Securities of any series in any material respect; or

(11) to make any changes to this Indenture with respect to any series of the Securities in order for this Indenture to conform to the final prospectus supplement provided to investors in connection with the initial offering of any series of Securities by the Company.

SECTION 902. Supplemental Indentures With Consent Of Holders.

With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby,

(1) change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon (including any additional interest thereon), or any premium payable upon the redemption thereof, or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 502 or the amount thereof payable in bankruptcy pursuant to Section 504, or adversely affect any right of repayment at the option of any Holder of any Security, or the Currency in which any Security or any premium or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or

(2) change the manner of calculating payments due on the Securities of any series in a manner adverse to holders of such series;

(3) change the currency in which any such payments on the Securities of any series is payable;

(4) change the place of payment in a manner that is adverse to Holders of such series;

(5) reduce (a) the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (b) the requirements contained in this Indenture for quorum or voting;

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(6) modify any of the provisions of this Section, Section 513 or Section 1010, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby, provided, however, that this clause shall not be deemed to require the consent of any Holder with respect to changes in the references to “the Trustee” and concomitant changes in this Section and Section 1010 or the deletion of this proviso, in accordance with the requirements of Sections 610(b) and 901(9). A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series; or

(7) modify the provisions in Article Fifteen of this Indenture with respect to the subordination of outstanding Securities of any series in a manner adverse to the Holders thereof.

It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.

The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to consent to any indenture supplemental hereto. If a record date is fixed, the Holders on such record date or their duly designated proxies, and only such Persons, shall be entitled to consent to such supplemental indenture or to revoke (prior to the requisite percentage for such consent to become effective having been obtained) any such consent previously given, whether or not such Holders remain Holders after such record date; provided, that unless such consent shall have become effective by virtue of such requisite percentage having been obtained prior to the date which is 90 days after such record date, such consent shall, automatically and without further action by the Holder, be canceled and of no further force or effect.

SECTION 903. Execution Of Supplemental Indentures.

In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be provided with, in addition to the documents required by Section 102, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise.

SECTION 904. Effect Of Supplemental Indentures.

Upon the execution of a supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, but only with respect to the Securities of each series affected by such supplemental indenture, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.

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SECTION 905. Conformity With Trust Indenture Act.

Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect.

SECTION 906. Reference In Securities To Supplemental Indentures.

Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental Indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series.

ARTICLE TEN

COVENANTS

SECTION 1001. Payment Of Principal, Premium And Interest.

The Company covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay the principal of (and premium, if any) and interest on the Securities of that series in accordance with the terms of the Securities and this Indenture.

SECTION 1002. Maintenance Of Office Or Agency.

The Company will maintain or cause to be maintained in each Place of Payment for any series of Securities an office or agency where Securities of that series may be presented or surrendered for payment, where Securities of that series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served, and the Company hereby initially appoints the Corporate Trust Office of the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands.

The Company may also from time to time designate one or more other offices or agencies where the Securities of one or more series may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for Securities of any series for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.

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Unless otherwise specified with respect to any Securities pursuant to Section 301, if and so long as the Securities of any series (i) are denominated in a Currency other than Dollars or (ii) may be payable in a Currency other than Dollars, or if so required under any other provision of the Indenture, then the Company will maintain with respect to each such series of Securities, or as so required, at least one Exchange Rate Agent.

SECTION 1003. Money For Securities Payments To Be Held In Trust.

If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum in the Currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act.

Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, at or prior to 11:00 a.m., New York City time, on each due date of the principal of (and premium, if any) or interest on any Securities of that series, deposit with a Paying Agent a sum (in the Currency described in the preceding paragraph) sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act.

The Company will cause each Paying Agent (other than the Trustee) for any series of Securities other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will:

(1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Securities of that series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided;

(2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities of that series) in the making of any payment of principal (and premium, if any) or interest on the Securities of that series; and

(3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent.

The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.

Any money or U.S. Government Obligations deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security of any series and remaining unclaimed for three years after such principal (and premium, if any) or interest has become due

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and payable shall be paid to the Company on Company Request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease, provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may (but shall not be obligated to) at the expense of the Company cause to be published once, in a newspaper published in an official language of the country of publication or the English language, customarily published on each Business Day and of general circulation in each Place of Payment notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company.

SECTION 1004. Corporate Existence.

Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and that of each Subsidiary and the rights (charter and statutory) and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right or franchise or to retain any Subsidiary if the Company shall determine that the preservation or retention thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries considered as a whole and that the loss thereof is not disadvantageous in any material respect to the Holders.

SECTION 1005. Maintenance Of Properties.

The Company will cause all properties owned or leased by the Company or any Subsidiary and used in the conduct of its business or the business of any Subsidiary to be maintained and kept in such condition, repair and working order and supplied with such equipment and will cause to be made such repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary or appropriate in the performance of its business, provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation and maintenance of any of such properties, or disposing of any of them, if such discontinuance or disposal is, in the judgment of the Company or of the Subsidiary concerned, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders.

SECTION 1006. Payment Of Taxes And Other Claims.

The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all material taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary, and (2) all material lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings or otherwise and the Company shall have set aside on its books adequate reserves with respect thereto (if and to the extent required by generally accepted accounting principles).

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SECTION 1007. Intentionally Omitted.

SECTION 1008. Intentionally Omitted.

SECTION 1009. Statement As To Compliance.

The Company will deliver to the Trustee, by May 1 of each year, a certificate from the Chief Executive Officer, Chief Financial Officer or Treasurer of the Company, stating, as to each signer thereof, that

(1) a review of the activities of the Company during such year and of performance under this Indenture has been made under his supervision, and

(2) to the best of his knowledge, based on such review, (a) the Company has fulfilled all its obligations under this Indenture throughout such year, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to him and the nature and status thereof, and (b) no event has occurred and is continuing which is, or after notice or lapse of time or both would become, an Event of Default, or, if such an event has occurred and is continuing, specifying each such event known to him and the nature and status thereof.

SECTION 1010. Waiver Of Certain Covenants.

The Company may omit in any particular instance to comply with any term, provision or condition set forth in Sections 1004 to 1006, inclusive, with respect to the Securities of all series if before the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities of all series shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect.

SECTION 1011. Statement by Officers as to Default

The Company shall deliver to the Trustee, as soon as possible and in any event within five days after the Company becomes aware of the occurrence of any Event of Default or an event which, with notice or the lapse of time or both, would constitute an Event of Default, an Officers’ Certificate setting forth the details of such Event of Default or default and the action which the Company proposes to take with respect thereto.

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ARTICLE ELEVEN

REDEMPTION OF SECURITIES

SECTION 1101. Applicability Of Article.

Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 301 for Securities of any series) in accordance with this Article.

SECTION 1102. Election To Redeem; Notice To Trustee.

The election of the Company to redeem any Securities shall be evidenced by a Board Resolution and Company Order. In case of any redemption at the election of the Company of all or less than all the Securities of any series, the Company shall, at least 15 days prior to the Trustee’s mailing of the notice of redemption (unless a shorter notice shall be satisfactory to the Trustee) to each Holder of Securities, notify the Trustee of the Redemption Date and of the principal amount of Securities of such series to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers’ Certificate evidencing compliance with such restriction.

SECTION 1103. Selection By Trustee Of Securities To Be Redeemed.

If less than all the Securities of any series with the same issue date, interest rate and Stated Maturity are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate (and which is in compliance with the requirements of any national securities exchange on which such Securities are listed, if any) and which may provide for the selection for redemption of portions (equal to the minimum authorized denomination for Securities of that series or any integral multiple thereof) of the principal amount of Securities of such series of a denomination larger than the minimum authorized denomination for Securities of that series.

The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed.

For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed.

SECTION 1104. Notice Of Redemption.

Unless otherwise specified in the Securities, notice of redemption shall be given by the Trustee by first-class mail, postage prepaid, mailed not less than 15 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. Neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders.

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All notices of redemption shall state:

(1) the Redemption Date,

(2) the Redemption Price,

(3) if less than all the Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Securities to be redeemed,

(4) that on the Redemption Date the Redemption Price (together with accrued interest, if any, to the Redemption Date payable as provided in Section 1106) will become due and payable upon each such Security to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date,

(5) the place or places where such Securities are to be surrendered for payment of the Redemption Price,

(6) that the redemption is for a sinking fund, if such is the case, and

(7) applicable CUSIP numbers.

Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Trustee, at the Company’s request, in the name and at the expense of the Company.

SECTION 1105. Deposit Of Redemption Price.

At or prior to 11:00 a.m., New York City time, on any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money in the Currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date.

SECTION 1106. Securities Payable On Redemption Date.

Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified in the Currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series), and from and after such date (unless the Company shall default in the payment of the Redemption Price and

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accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307.

If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security.

SECTION 1107. Securities Redeemed In Part.

Any Security (including any Global Security) which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered; provided, that if a Global Security is so surrendered, the new Global Security shall be in a denomination equal to the unredeemed portion of the principal of the Global Security so surrendered.

ARTICLE TWELVE

SINKING FUNDS

SECTION 1201. Applicability Of Article.

Retirements of Securities of any series pursuant to any sinking fund shall be made in accordance with the terms of such Securities and (except as otherwise specified as contemplated by Section 301 for Securities of any series) in accordance with this Article.

The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a “mandatory sinking fund payment,” and any payment in excess of such minimum amount provided for by the terms of Securities of any series is herein referred to as an “optional sinking fund payment.” If provided for by the terms of Securities of any series, the cash amount of any mandatory sinking fund payment may be subject to reduction as provided in Section 1202. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series.

SECTION 1202. Satisfaction Of Sinking Fund Payments With Securities.

Subject to Section 1203, in lieu of making all or any part of any mandatory sinking fund payment with respect to any Securities of a series in cash, the Company may at its option (1) deliver to the Trustee Outstanding Securities of a series (other than any previously called for redemption) theretofore purchased or otherwise acquired by the Company, and/or (2) receive credit for the principal amount of Securities of such series which have been

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previously delivered to the Trustee by the Company or for Securities of such series which have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, in each case in satisfaction of all or any part of any mandatory sinking fund payment with respect to the Securities of the same series required to be made pursuant to the terms of such Securities as provided for by the terms of such series; provided, however, that such Securities have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such Securities for redemption through operation of the sinking fund and the amount of such mandatory sinking fund payment shall be reduced accordingly.

SECTION 1203. Redemption Of Securities For Sinking Fund.

Not less than 60 days prior to each sinking fund payment date for any series of Securities, the Company will deliver to the Trustee an Officers’ Certificate specifying the amount of the next ensuing sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash in the Currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) and the portion thereof, if any, which is to be satisfied by delivering or crediting Securities of that series pursuant to Section 1202 (which Securities will, if not previously delivered, accompany such certificate) and whether the Company intends to exercise its right to make a permitted optional sinking fund payment with respect to such series. Such certificate shall be irrevocable and upon its delivery the Company shall be obligated to make the cash payment or payments therein referred to, if any, not later than one Business Day before the next succeeding sinking fund payment date. In the case of the failure of the Company to deliver such certificate, the sinking fund payment due on the next succeeding sinking fund payment date for that series shall be paid entirely in cash and shall be sufficient to redeem the principal amount of such Securities subject to a mandatory sinking fund payment without the option to deliver or credit Securities as provided in Section 1202 and without the right to make any optional sinking fund payment, if any, with respect to such series.

Not more than 60 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1103 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 1104. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 1106 and 1107.

Prior to any sinking fund payment date, the Company shall pay to the Trustee or a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) in cash a sum equal to any interest that will accrue to the date fixed for redemption of Securities or portions thereof to be redeemed on such sinking fund payment date pursuant to this Section 1203.

Notwithstanding the foregoing, with respect to a sinking fund for any series of Securities, if at any time the amount of cash to be paid into such sinking fund on the next succeeding sinking fund payment date, together with any unused balance of any preceding sinking fund payment or payments for such series, does not exceed in the aggregate $100,000, the Trustee, unless requested by the Company, shall not give the next succeeding notice of the redemption of Securities of such series through the operation of the sinking fund. Any such unused balance of moneys deposited in such sinking fund shall be added to the sinking fund payment for such series to be made in cash on the next succeeding sinking fund payment date or, at the request of the Company, shall be applied at any time or from time to time to the purchase of Securities of such series, by public or private purchase, in the open market or otherwise, at a purchase price for such Securities (excluding accrued interest and brokerage commissions, for which the Trustee or any paying agent will be provided funds by the Company) not in excess of the principal amount thereof.

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ARTICLE THIRTEEN

REPAYMENT AT OPTION OF HOLDERS

SECTION 1301. Applicability Of Article.

Repayment of Securities of any series before their Stated Maturity at the option of Holders thereof shall be made in accordance with the terms of such Securities and (except as otherwise specified as contemplated by Section 301 for Securities of any series) in accordance with this Article.

SECTION 1302. Repayment Of Securities.

Securities of any series subject to repayment in whole or in part at the option of the Holders thereof will, unless otherwise provided in the terms of such Securities, be repaid at a price equal to the principal amount thereof, together with interest, if any, thereon accrued to the repayment date specified in or pursuant to the terms of such Securities (the “Repayment Date“). The Company covenants that not later than 11:00 a.m., New York City time, on the Repayment Date it will deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money in the Currency in which the Securities of such series are payable (except as otherwise specified pursuant to Section 301 for the Securities of such series) sufficient to pay the principal (or if so provided by the terms of the Securities of any series, a percentage of the principal) of, and (except if the Repayment Date shall be an Interest Payment Date) accrued interest on, all the Securities or portions thereof, as the case may be, to be repaid on such date.

SECTION 1303. Exercise Of Option.

Securities of any series subject to repayment at the option of the Holders thereof will contain an “Option to Elect Repayment” form on the reverse of such Securities. In order to exercise such option if so specified in the terms of any Security, the Holder shall deliver, or cause to be delivered, such Security at the place of payment therefor specified in the terms of such Security (or at such other place or places which the Company shall from time to time notify the Holders of such Securities) with the “Option to Elect Repayment” form duly completed by the Holder (or by the Holder’s attorney duly authorized in writing), not earlier than 45 days nor later than 30 days prior to the Repayment Date applicable to such Security. If less than the entire principal amount of such Security is to be repaid in accordance with the terms of such Security, the principal amount of such Security to be repaid, in increments of the minimum denomination for Securities of such series, and the denomination or denominations of the Security or Securities to be issued to the Holder for the portion of the principal amount of such Security surrendered that is not to be repaid, must be specified. The principal amount of any Security providing for repayment at the option of the Holder thereof, may not be repaid in part if, following such repayment, the unpaid principal amount of such Security would be less than the minimum authorized denomination of Securities of the series of which such Security to be repaid is a part. Except as otherwise may be provided by the terms of any Security, exercise of the repayment option by the Holder shall be irrevocable unless waived by the Company.

SECTION 1304. When Securities Presented For Repayment Become Due And Payable.

If Securities of any series providing for repayment at the option of the Holders thereof shall have been surrendered as provided in this Article and as provided by or pursuant to the terms of such Securities, such Securities or the portions thereof, as the case may be, to be repaid shall become due and payable and shall be paid by the Company on the Repayment Date therein specified, and on and after such Repayment Date (unless the Company

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shall default in the payment of such Securities on such Repayment Date) such Securities shall, if the same were interest-bearing, cease to bear interest. Upon surrender of any such Security for repayment in accordance with such provisions, the principal amount of such Security so to be repaid shall be paid by the Company, together with accrued interest, if any, to the Repayment Date; provided, however, that, installments of interest, if any, whose Stated Maturity is on or prior to the Repayment Date shall be payable (but without interest thereon, unless the Company shall default in the payment thereof) to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307.

If the principal amount of any Security surrendered for repayment shall not be so repaid upon surrender thereof, such principal amount (together with interest, if any, thereon accrued to such Repayment Date) shall, until paid, bear interest from the Repayment Date at the rate of interest set forth in such Security.

SECTION 1305. Securities Repaid In Part.

Upon surrender of any Security which is to be repaid in part only, the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge and at the expense of the Company, a new Security or Securities of the same series, of any authorized denomination specified by the Holder, in an aggregate principal amount equal to and in exchange for the portion of the principal of such Security so surrendered which is not to be repaid.

ARTICLE FOURTEEN

DEFEASANCE AND COVENANT DEFEASANCE

SECTION 1401. Applicability Of Article; Company’s Option To Effect Defeasance Or Covenant Defeasance.

If pursuant to Section 301 provision is made for either or both of (a) defeasance of the Securities of a series under Section 1402 or (b) covenant defeasance of the Securities of a series under Section 1403, then the provisions of such Section or Sections, as the case may be, together with the other provisions of this Article Fourteen, shall be applicable to the Securities of such series, and the Company may at its option by Board Resolution, at any time, with respect to the Securities of such series, elect to have either Section 1402 (if applicable) or Section 1403 (if applicable) be applied to the Outstanding Securities of such series upon compliance with the conditions set forth below in this Article Fourteen.

SECTION 1402. Defeasance And Discharge.

Upon the Company’s exercise of the above option applicable to this Section with respect to any Securities of a series, the Company shall be deemed to have been discharged from its obligations with respect to the Outstanding Securities of such series on and after the date the conditions precedent set forth below are satisfied but subject to satisfaction of the conditions subsequent set forth below (hereinafter, “defeasance“). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Securities of such series and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company and upon Company Request, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of

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Outstanding Securities of such series to receive, solely from the trust fund described in Section 1404 and as more fully set forth in such Section, payments of the principal of (and premium, if any) and interest on such Securities when such payments are due, (B) the Company’s obligations with respect to such Securities under Sections 304, 305, 306, 1002 and 1003 and such obligations as shall be ancillary thereto, (C) the rights, powers, trusts, duties, immunities and other provisions in respect of the Trustee hereunder and (D) this Article Fourteen. Subject to compliance with this Article Fourteen, the Company may exercise its option under this Section 1402 notwithstanding the prior exercise of its option under Section 1403 with respect to the Securities of such series.

SECTION 1403. Covenant Defeasance.

Upon the Company’s exercise of the option provided in Section 1401 applicable to this Section, the Company shall be released from its obligations under Sections 1005 and 1006 with respect to the Outstanding Securities of such series on and after the date the conditions precedent set forth below are satisfied (hereinafter, “covenant defeasance“). For this purpose, such covenant defeasance means that, with respect to the Outstanding Securities of such series, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section, whether directly or indirectly by reason of any reference elsewhere herein to any such Section or by reason of any reference in any such Section to any other provision herein or in any other document, but the remainder of this Indenture and such Securities shall be unaffected thereby.

SECTION 1404. Conditions To Defeasance Or Covenant Defeasance.

The following shall be the conditions precedent or, as specifically noted below, subsequent to application of either Section 1402 or Section 1403 to the Outstanding Securities of such series:

(1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one Business Day before the due date of any payment, money in an amount, or (C) a combination thereof, sufficient, in each case, without reinvestment, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee to pay and discharge, (i) the principal of (and premium, if any) and interest on the Outstanding Securities of such series to maturity or redemption, as the case may be, and (ii) any mandatory sinking fund payments or analogous payments applicable to the Outstanding Securities of such series on the due dates thereof. Before such a deposit the Company may make arrangements satisfactory to the Trustee for the redemption of Securities at a future date or dates in accordance with Article Eleven, which shall be given effect in applying the foregoing.

(2) No Event of Default or event which with notice or lapse of time or both would become an Event of Default with respect to the Securities of such series shall have occurred and be continuing (A) on the date of such deposit or (B) insofar as subsections 501(5) and (6) are concerned, at any time during the period ending on the 123rd day after the date of such deposit or, if longer, ending on the day following the expiration of the longest preference period applicable to the Company in respect of such deposit (it being understood that the condition in this clause (B) is a condition subsequent and shall not be deemed satisfied until the expiration of such period).

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(3) Such defeasance or covenant defeasance shall not (A) cause the Trustee for the Securities of such series to have a conflicting interest for purposes of the Trust Indenture Act with respect to any securities of the Company or (B) result in the trust arising from such deposit constituting, unless it is qualified as, a regulated investment company under the Investment Company Act of 1940, as amended.

(4) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound.

(5) The Company has delivered to the Trustee an Opinion of Counsel, to the effect that, based on federal income tax laws then in effect, the Holders of the Securities will not recognize income, gain or loss on the Securities or the Securities of such series, as the case may be, for federal income tax purposes as a result of such defeasance or covenant defeasance and shall be subject to federal income tax in the same amounts and at the same times as would have been the case if such option had not been exercised.

(6) The Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to either the defeasance under Section 1402 or the covenant defeasance under Section 1403, as the case may be, have been complied with and an Opinion of Counsel to the effect that either (i) as a result of a deposit pursuant to paragraph (1) above and the related exercise of the Company’s option under Section 1402 or Section 1403 (as the case may be), registration is not required under the Investment Company Act of 1940, as amended, by the Company, with respect to the trust funds representing such deposit, or by the trustee for such trust funds or (ii) all necessary registrations under said Act have been effected.

(7) Such defeasance or covenant defeasance shall be effected in compliance with any additional terms, conditions or limitations which may be imposed on the Company in connection therewith pursuant to Section 301.

Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 607 and, if money or U.S. Government Obligations shall have been deposited with the Trustee pursuant to this Section, the obligations of the Trustee under Section 1405 and the last paragraph of Section 1003 shall survive.

SECTION 1405. Application Of Trust Money.

Subject to the provisions of the last paragraph of Section 1003, all money and U.S. Government Obligations deposited with the Trustee pursuant to Section 1401 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee.

SECTION 1406. Reinstatement.

Anything in this Article Fourteen to the contrary notwithstanding, if and to the extent the deposited money or U.S. Government Obligations (or the proceeds thereof) either (i) cannot be applied by the Trustee in accordance

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with this Section because of a court order or (ii) are for any reason insufficient in amount, then the Company’s obligations to pay principal of (and premium, if any) and interest on the Securities of such series shall be reinstated to the extent necessary to cover the deficiency on any due date for payment. In any case specified in clause (i), the Company’s interest in the deposited money and U.S. Government Obligations (and proceeds thereof) shall be reinstated to the extent the Company’s payment obligations are reinstated.

ARTICLE FIFTEEN

SUBORDINATION OF SECURITIES

SECTION 1501. Securities Subordinate to Senior Indebtedness.

The Company for itself, its successors and assigns, covenants and agrees, and each Holder of Securities issued, whether upon original issue or upon transfer or assignment thereof, by his acceptance thereof likewise covenants and agrees, that the obligation of the Company to make any payment on account of the principal of (and premium, if any) and interest on each and all Securities is hereby expressly subordinated and junior, to the extent and in the manner hereinafter in this Article set forth, in right of payment to the prior payment in full of all Senior Indebtedness of the Company.

SECTION 1502. Payments to Securityholders.

(a) Upon (i) any declaration of acceleration of the principal amount due on the Securities of any series; (ii) any insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding relating to the Company, its creditors or its property; (iii) any proceeding for the liquidation, dissolution or other winding up of the Company, voluntary or involuntary, whether or not involving insolvency or bankruptcy proceedings; (iv) any assignment by the Company for the benefit of creditors; or (v) any other marshalling of the assets of the Company, all principal, premium, if any, and interest, if any, due upon all Senior Indebtedness shall first be paid in full, or payment thereof provided for in money or money’s worth in accordance with its terms, before any payment is made on account of the principal of, premium, if any, or interest on the indebtedness evidenced by the Securities, and upon any such liquidation, dissolution or winding-up or any other event described in clauses (i) through (v) above any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities to which the Holders of the Securities of any series under the terms of this Indenture would be entitled, except for the provisions hereof (other than securities of the Company or any other Person provided for by a plan of reorganization or readjustment, the payment of which is subordinate, at least to the extent provided in this section with respect to the Securities, to the payment in full of all Senior Indebtedness, provided that the rights of the Holders of the Senior Indebtedness are not altered by such reorganization or adjustment), shall (subject to the power of a court of competent jurisdiction to make other equitable provision reflecting the rights conferred by the provisions hereof upon the Senior Indebtedness and the holders thereof with respect to the Securities of such series and the Holders thereof by a lawful plan of reorganization under applicable bankruptcy law), be paid by the Company or any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution, or by the Holders of the securities if received by them, directly to the holders of Senior Indebtedness (pro rata to each such holder on the basis of the respective amounts of Senior Indebtedness held by such holder) or their representatives, to the extent necessary to pay all Senior Indebtedness (including interest thereon) in full in money or money’s worth in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness, before any payment or distribution is made to the Holders of the indebtedness evidenced by the Securities of such series. The consolidation of the Company with, or a merger of the Company into, another Person or the liquidation or dissolution of the Company

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following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another Person upon the terms and conditions provided in Section 801 hereof shall not be deemed a liquidation, dissolution or winding-up, for the purposes of this Section 1502(a).

(b) In the event that any payment or distribution of assets of the Company of any kind or character not permitted by Section 1502(a), whether in cash, property or securities, shall be received by the Trustee for the Securities of any series or the Holders of Securities before all Senior Indebtedness is paid in full, or provision made for such payment, in accordance with its terms, at a time when a Responsible Officer of the Trustee for the Securities of any series or such Holder has actual knowledge that such payment should not have been made to it, such payment or distribution shall be held in trust for the benefit of, and upon written request of the holders of any Senior Indebtedness or their representative or representatives shall be paid over or delivered to, the holders of such Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any of such Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all such Senior Indebtedness in full in accordance with its terms, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness.

(c) No payment on account of principal of, premium, if any, sinking funds or interest on the Securities of any series shall be made unless full payment of amounts then due for principal, premium, if any, sinking funds and interest on any Senior Indebtedness has been made or duly provided for in money or money’s worth in accordance with the terms of such Senior Indebtedness. No payment on account of principal, premium, if any, sinking funds or interest on the Securities shall be made if, at the time of such payment or immediately after giving effect thereto, (i) the Company defaults in the payment of any principal of (or premium, if any) or interest on any Senior Indebtedness when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or acceleration by declaration or otherwise or (ii) an event of default occurs with respect to any Senior Indebtedness permitting the holders thereof to accelerate the maturity thereof and written notice of such event of default (requesting that payments on the Securities cease) is given to the Company by the holders of Senior Indebtedness, and such event of default shall not have been cured or waived or shall not have ceased to exist, provided, however, that if the holders of the Senior Indebtedness to which the default relates have not declared such Senior Indebtedness to be immediately due and payable and within 180 days after the occurrence of such default (or have declared such Senior Indebtedness to be immediately due and payable and within such period have rescinded such declaration of acceleration), then the Company shall resume making any and all required payments in respect of the Securities (including any missed payments). Only one payment blockage period under the immediately preceding sentence may be commenced within any consecutive 365-day period with respect to the Securities of any series. No event of default which existed or was continuing on the date of the commencement of any 180-day payment blockage period with respect to the Senior Indebtedness initiating such payment blockage period shall be, or be made, the basis for the commencement of a second payment blockage period by a Holder or representative of such Senior Indebtedness whether or not within a period of 365 consecutive days unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days (and, in the case of any such waiver, no payment shall be made by the Company to the holders of Senior Indebtedness in connection with such waiver other than amounts due pursuant to the terms of the Senior Indebtedness as in effect at the time of such default).

SECTION 1503. Subrogation to Rights of Holders of Senior Indebtedness

From and after the payment in full of all Senior Indebtedness, the Holders of the Securities (together with the holders of any other indebtedness of the Company which is subordinate in right of payment to the payment in full of all Senior Indebtedness, which is not subordinate in right of payment to the Securities and which by its terms grants such right of subrogation to the holder thereof) shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of assets or securities of the Company applicable to the

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Senior Indebtedness until the Securities shall be paid in full, and, for the purposes of such subrogation, no such payments or distributions to the holders of Senior Indebtedness of assets or securities, which otherwise would have been payable or distributable to Holders of the Securities, shall, as between the Company, its creditors other than the holders of Senior Indebtedness, and the Holders of the Securities, be deemed to be a payment by the Company to or on account of the Senior Indebtedness, it being understood that the provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities, on the one hand, and the holders of the Senior Indebtedness, on the other hand, and nothing contained in this Article is intended to or shall impair as between the Company, its creditors other than the holders of Senior Indebtedness, and the Holders of the Securities, the obligation of the Company, which is unconditional and absolute, to pay to the Holders of the Securities the principal of, premium, if any, and interest, if any, on the Securities as and when the same shall become due and payable in accordance with their terms, or to affect the relative rights of the Holders of the Securities and creditors of the Company other than the holders of the Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or the Holder of a Security of any series from exercising all remedies otherwise permitted by applicable law upon default hereunder with respect to the Securities of such series subject to the rights of the holders of Senior Indebtedness, under Section 1502, to receive cash, property or securities of the Company otherwise payable or deliverable to the Trustee or the Holders of the Securities or to a representative of such Holders, on their behalf.

Upon any distribution or payment in connection with any proceedings or sale referred to in Section 1502(a), the Trustee and each Holder of the Securities then Outstanding shall be entitled to rely upon a certificate of the liquidating trustee or agent or other Person making any distribution or payment to the Trustee or such Holder for the purpose of ascertaining the holders of Senior Indebtedness entitled to participate in such payment or distribution, the amount of such Senior Indebtedness or the amount payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article.

SECTION 1504. Relative Rights

This Article Fifteen defines the relative rights of Holders of Securities and holders of Senior Indebtedness. Nothing in this Indenture shall:

(a) impair, as between the Company and Holders of Securities, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Securities in accordance with their terms;

(b) affect the relative rights of Holders of Securities and creditors of the Company other than their rights in relation to holders of Senior Indebtedness; or

(c) prevent the Trustee or any Holder of Securities from exercising its available remedies upon a default or Event of Default, subject to the rights of holders and owners of Senior Indebtedness to receive distributions and payments otherwise payable to Holders of Notes.

If the Company fails because of this Article Fifteen to pay principal of or interest on a Security when due in accordance with the terms of any series of the Securities, the failure still constitutes a default for purposes of Section 501.

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SECTION 1505. Trustee to Effectuate Subordination

Each Holder of a Security by his acceptance thereof, whether upon original issue or upon transfer or assignment, authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provisions in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes.

SECTION 1506. Subordination May Not Be Impaired

No rights of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Trustee or any Holder of the Securities then Outstanding, or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by any such holder, with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with.

Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article or the obligations of the Holders of the Securities to the holders of Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment of, or renew or alter, Senior Indebtedness, or otherwise amend or supplement in any manner Senior Indebtedness of any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (iii) release any Person liable in any manner for the collection of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company and any other Person.

SECTION 1507. Notice to Trustee

The Company shall give prompt written notice to a Responsible Officer of the Trustee of any fact known to the Company that would prohibit the making of any payment of monies to or by the Trustee in respect of the Securities of any series pursuant to the provisions of this Article Fifteen. Notwithstanding the provisions of this Article Fifteen or any other provisions of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities pursuant to the provisions of this Article Fifteen, unless and until a Responsible Officer of the Trustee shall have received at its Corporate Trust Office written notice thereof from the Company or a holder or holders of Senior Indebtedness or from any trustee therefor at least two Business Days prior to such payment date; and, prior to the receipt of any such written notice, the Trustee shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received such notice at least two Business Days prior to the date upon which by the terms hereof any money or other property may become payable for any purpose (including without limitation, the payment of the principal of, any premium or interest on any Security), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purposes for which they were received, and shall not be affected by any notice to the contrary that may be received by it within two Business Days prior to such date.

The Trustee shall be entitled to rely conclusively on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a trustee on behalf of such holder) to establish that such notice has been given by a holder of Senior Indebtedness or a trustee on behalf of any such holder. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any

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Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article Fifteen, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article Fifteen, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment.

SECTION 1508. Reliance on Certificate of Liquidating Agent

Upon any payment or distribution referred to in this Article Fifteen, the Trustee, and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which a dissolution, winding up or total or partial liquidation or reorganization of the Company or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, liquidating trustee, custodian, receiver, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of the Securities, for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Fifteen.

SECTION 1509. Trustee Not Fiduciary for Holders of Senior Indebtedness

The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and shall not be liable to any such holders if it shall pay over or distribute to Holders of the Securities of any series or to the Company or to any other Person cash, property or securities to which any holders of Senior Indebtedness shall be entitled by virtue of this Article or otherwise. With respect to holders of Senior Indebtedness of the Company, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Fifteen, and no implied covenants or obligations with respect to the holders of such Senior Indebtedness shall be read into the Indenture against the Trustee. Nothing in this Article Fifteen shall apply to claims of, or payments to, the Trustee under or pursuant to Sections 506 and 607.

SECTION 1510. Rights of Trustee as Holder of Senior Indebtedness

The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder.

SECTION 1511. Article Applicable to Paying Agent

In case at any time any Paying Agent (other than the Trustee) shall have been appointed by the Company and be then acting hereunder, the term “Trustee” as used in this Article shall in such case (unless the context shall otherwise require) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; provided, however, that this Section shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent.

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SECTION 1512. Payment Permitted if No Event Specified in Section 1502.

Nothing contained in this Article or elsewhere in this Indenture, or in any of the Securities, shall prevent (a) the Company from making payments at any time of principal of (or premium, if any) or interest on the Securities or (b) the application by the Trustee or any Paying Agent of any moneys deposited with it hereunder to the payment of (or premium, if any) or on account of the principal of or interest on Securities, if, at least two Business Days prior to the time of such application, the Trustee or such Paying Agent, as the case may be, did not have the written notice referred to in Section 1507 of any event prohibiting the making of such deposit. In addition, nothing in this Article shall prevent the Company from making or the Trustee from receiving or applying any payment in connection with the redemption of Securities of a series if the first publication of notice of such redemption (whether by mail or otherwise in accordance with this Indenture) has been made, and the Trustee has received such payment from the Company, prior to the occurrence of any of the contingencies specified in Section 1502.

This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, as of the day and year first above written.

AMBAC FINANCIAL GROUP, INC.
By	/s/ Sean T. Leonard
Name:	Sean T. Leonard
Title:	Senior Vice President and Chief Financial Officer
THE BANK OF NEW YORK, as Trustee
By	/s/ Franca M. Ferrera
Name:	Franca M. Ferrera
Title:	Assistant Vice President

EX-4.12

Exhibit 4.12

EXECUTION COPY

FIRST SUPPLEMENTAL INDENTURE

between

AMBAC FINANCIAL GROUP, INC.

AND

THE BANK OF NEW YORK

SUPPLEMENTAL TO JUNIOR SUBORDINATION INDENTURE,

dated as of February 12, 2007

TABLE OF CONTENTS

			Page
ARTICLE I DEFINITIONS			1
	Section 1.1.	Definitions	1
ARTICLE II GENERAL TERMS AND CONDITIONS OF THE DISCS			12
	Section 2.1.	Designation, Principal Amount and Authorized Denomination	12
	Section 2.2.	Repayment	15
	Section 2.3.	Form	15
	Section 2.4.	Rate of Interest; Interest Payment Date	15
	Section 2.5.	Interest Deferral	16
	Section 2.6.	Alternative Payment Mechanism	17
	Section 2.7.	Events of Default	20
	Section 2.8.	Securities Registrar; Paying Agent; Delegation of Trustee Duties	22
	Section 2.9.	Limitation on Claims in the Event of Bankruptcy, Insolvency or Receivership	23
	Section 2.10.	Location of Payment	23
	Section 2.11.	No Sinking Fund	23
ARTICLE III COVENANTS			23
	Section 3.1.	Dividend and Other Payment Stoppages	23
	Section 3.2.	Additional Limitation on Deferral over One Year	24
ARTICLE IV REDEMPTION OF THE DISCS			25
	Section 4.1.	Redemption Price	25
ARTICLE V REPAYMENT OF DISCS			25
	Section 5.1.	Repayments	25
	Section 5.2.	Selection of the DISCS to be Repaid	25
	Section 5.3.	Notice of Repayment	26
	Section 5.4.	Deposit of Repayment Amount	26
	Section 5.5.	Repayment of DISCS	27
ARTICLE VI ORIGINAL ISSUE OF DISCS			27
	Section 6.1.	Original Issue of DISCS	27
	Section 6.2.	Calculation of Original Issue Discount	27
ARTICLE VII MISCELLANEOUS			28
	Section 7.1.	Effectiveness	28

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Section 7.2.	Successors and Assigns	28
Section 7.3.	Effect of Recitals	28
Section 7.4.	Ratification of Indenture	28
Section 7.5.	Governing Law	28
Section 7.6.	Jury Trial Waiver	28
Section 7.7.	Severability	28

ii

FIRST SUPPLEMENTAL INDENTURE, dated as of February 12, 2007 (the “First Supplemental Indenture”), between AMBAC FINANCIAL GROUP, INC., a Delaware corporation (the “Company”), having its principal office at One Street Plaza, New York, New York 10004, and THE BANK OF NEW YORK, a New York banking corporation, as trustee (hereinafter called the “Trustee”).

RECITALS OF THE COMPANY

The Company and the Trustee entered into a Junior Subordinated Indenture, dated as of February 12, 2007 (the “Indenture”).

Section 901 of the Indenture provides that the Company and the Trustee may, without the consent of any Holder, enter into a supplemental indenture to establish the form or terms of Securities of any series as permitted by Section 201 or 301 thereof.

Pursuant to Sections 201 and 301 of the Indenture, the Company desires to provide for the establishment of a series of Securities under the Indenture, and the form and terms thereof, as hereinafter set forth.

The Company has requested that the Trustee execute and deliver this First Supplemental Indenture. The Company has delivered to the Trustee an Opinion of Counsel and an Officers’ Certificate pursuant to Section 903 of the Indenture to the effect that all conditions precedent provided for in the Indenture to the Trustee’s execution and delivery of this First Supplemental Indenture have been complied with. All acts and things necessary have been done and performed to make this First Supplemental Indenture enforceable in accordance with its terms, and the execution and delivery of this First Supplemental Indenture has been duly authorized in all respects.

Now, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the DISCS (as herein defined) by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the DISCS, as follows:

ARTICLE I

DEFINITIONS

Section 1.1. Definitions

For all purposes of this First Supplemental Indenture, except as otherwise expressly provided or unless the context otherwise requires:

(a) Terms defined in the Indenture (as defined herein) have the same meaning when used in this First Supplemental Indenture unless otherwise defined herein.

(b) The terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular.

(c) The words “herein,” “hereof” and “hereunder” and other words of similar import refer to this First Supplemental Indenture as a whole and not to any particular Article, Section or other subdivision, and any reference to an Article, Section or other subdivision refers to an Article, Section or other subdivision of this First Supplemental Indenture.

(d) Any reference herein to “interest” shall include any Additional Interest.

In addition, the following terms used in this First Supplemental Indenture have the following respective meanings:

“Additional Interest” means the interest, if any, that shall accrue on any interest on the DISCS the payment of which has not been made on the applicable Interest Payment Date.

“APM Period” means, with respect to any Deferral Period, the period commencing on the earlier of (i) the first Interest Payment Date following the commencement of such Deferral Period on which the Company pays any current interest on the DISCS or (ii) the fifth anniversary of the commencement of the Deferral Period, if on such date such Deferral period has not ended, and ending on the next Interest Payment Date on which the Company raised an amount of Eligible Proceeds at least equal to the aggregate amount of accrued and unpaid deferred interest on the DISCS.

“Applicable Spread” means, with respect to a redemption of the DISCS, 0.50% if the redemption is within 90 days after the occurrence of a Tax Event or a Rating Agency Event and 0.20% in all other cases.

“Business Day” means any day other than (i) a Saturday or Sunday, (ii) a day on which banking institutions in The City of New York are authorized or required by law or executive order to remain closed or (iii) a day on which the Corporate Trust Office of the Trustee, is closed for business.

“Business Combination” means any transaction that is subject to Section 801 of the Indenture.

“Calculation Agent” means, with respect to the DISCS, The Bank of New York, or any other firm appointed by the Company, acting as calculation agent in respect of the DISCS.

“Commercially Reasonable Efforts” to sell Qualifying Capital Securities or Qualifying APM Securities, as the case may be, means commercially reasonable efforts to complete the offer and sale of Qualifying Capital Securities or Qualifying APM Securities to Persons other than Subsidiaries in public offerings or private placements. The Company shall not be considered to have made Commercially Reasonable Efforts to effect a sale of Qualifying

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Capital Securities or Qualifying APM Securities, as the case may be, if it determines not to pursue or complete such sale solely due to pricing, coupon, dividend rate or dilution considerations.

“Common Stock” means the Company’s common stock (including treasury shares of common stock), common stock issued pursuant to any dividend reinvestment plan or the Company’s employee benefit plans, a security that tracks the performance of, or relates to the results of, a business, unit or division of the Company, and any securities issued in exchange therefore in connection with a merger, consolidation, binding share exchange, business combination, recapitalization or other similar event.

“Common Equity Issuance Cap” has the meaning specified in Section 2.6(a).

“Company” has the meaning specified in the Recitals.

“Current Stock Market Price” means, with respect to the Company’s common stock on any date, (i) the closing sale price per share (or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on that date as reported in composite transactions by the New York Stock Exchange or, (ii) if the Company’s common stock is not then listed on the New York Stock Exchange, as reported by the principal U.S. securities exchange on which the Company’s common stock is traded or quoted on the relevant date or, (iii) if the Company’s common stock is not listed on any U.S. securities exchange on the relevant date, the last quoted bid price for the Company’s common stock in the over-the-counter market on the relevant date as reported by the National Quotation Bureau or similar organization, or (iv) if the Company’s common stock is not so quoted, the average of the mid-point of the last bid and ask prices for the Company’s common stock on the relevant date from each of at least three nationally recognized independent investment banking firms selected by the Company for this purpose.

“Deferral Period” means the period commencing on an Interest Payment Date with respect to which the Company elects to defer interest pursuant to Section 2.5 and ending on the earlier of (i) the tenth anniversary of that Interest Payment Date and (ii) the next Interest Payment Date on which the Company has paid all deferred and unpaid amounts (including compounded interest on such deferred amounts) with respect to any subsequent period and all other accrued interest on the DISCS.

“DISCS” has the meaning specified in Section 2.1.

“Eligible Proceeds” means, for each relevant Interest Payment Date, the net proceeds (after underwriters’ or placement agents’ fees, commissions or discounts and other expenses relating to the issuance or sale) the Company has received during the 180-day period prior to such Interest Payment Date from the issuance or sale of Qualifying APM Securities (excluding sales of Qualifying Preferred Stock and Mandatorily Convertible Preferred Stock in excess of the Preferred Stock Issuance Cap) to persons that are not the Company’s subsidiaries

“Final Maturity Date” has the meaning specified in Section 2.2(b).

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“First Supplemental Indenture” means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more agreements supplemental hereto.

“Indenture” has the meaning specified in the Recitals.

“Interest Payment Dates” shall have the meaning specified in Section 2.4. Interest Payment Date, August 15, 2007) to but excluding the next Interest Payment Date.

“LIBOR Determination Date” means the second London Banking Day immediately preceding the first day of the relevant Monthly Interest Period.

“London Banking Day” means any day on which commercial banks are open for general business (including dealings in deposits in U.S. dollars) in London.

“Make-Whole Redemption Price” means, with respect to a redemption of the DISCS in whole or in part, the present value of scheduled payments of principal and interest from the Redemption Date to the Scheduled Maturity Date on the DISCS being prepaid, discounted to the Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the Treasury Rate plus the Applicable Spread, plus accrued and unpaid interest to the Redemption Date.

“Mandatorily Convertible Preferred Stock” means Preferred Stock with (a) no prepayment obligation of the liquidation preference on the part of the issuer thereof, whether at the election of the holders or otherwise, and (b) a requirement that the preferred stock converts into the Company’s Common Stock within three years from the date of its issuance at a conversion ratio within a range established at the time of issuance of the Preferred Stock.

“Market Disruption Event” means, with respect to the issuance or sale of Qualifying Capital Securities pursuant to Section 2.2 or Qualifying APM Securities pursuant to Section 2.6, the occurrence or existence of any of the following events or sets of circumstances:

(i) Trading in securities generally, or shares of the Company’s securities specifically, on the New York Stock Exchange or any other national securities exchange or in the over-the-counter market on which Qualifying APM Securities or Qualifying Capital Securities, as the case may be, are then listed or traded shall have been suspended or the settlement of such trading generally shall have been materially disrupted or minimum prices shall have been established on any such exchange or market by the United States Securities and Exchange Commission, by the relevant exchange or by any other regulatory agency or governmental body having jurisdiction;

(ii) The Company would be required to obtain the consent or approval of the Company’s stockholders or a regulatory body (including, without limitation, any securities exchange) or governmental authority to issue or sell Qualifying APM Securities pursuant to Section 2.6 or to issue Qualifying Capital Securities pursuant to Section 2.2, as the case may be, and such consent or approval has not yet been obtained notwithstanding the Company’s commercially reasonable efforts to obtain such consent or approval;

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(iii) A banking moratorium shall have been declared by the federal or state authorities of the United States such that market trading in the Qualifying APM Securities or the Qualifying Capital Securities, as applicable, has been disrupted or ceased;

(iv) A material disruption shall have occurred in commercial banking or securities settlement or clearance services in the United States such that market trading in the Qualifying APM Securities or the Qualifying Capital Securities, as applicable, has been disrupted or ceased;

(v) The United States shall have become engaged in hostilities, there shall have been an escalation in hostilities involving the United States, there shall have been a declaration of a national emergency or war by the United States or there shall have occurred any other national or international calamity or crisis such that market trading in the Qualifying APM Securities or the Qualifying Capital Securities, as applicable, has been disrupted or ceased;

(vi) There shall have occurred such a material adverse change in general domestic or international economic, political or financial conditions, including without limitation as a result of terrorist activities, or the effect of international conditions on the financial markets in the United States shall be as such to make it, in the Company’s reasonable judgment, impracticable or inadvisable to proceed with the offer and sale of Qualifying APM Securities or Qualifying Capital Securities, as the case may be;

(vii) An event occurs and is continuing as a result of which the offering document for such offer and sale of Qualifying Capital Securities or Qualifying APM Securities, as the case may be, would, in the reasonable judgment of the Company, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and either (x) the disclosure of that event at such time, in the reasonable judgment of the Company, is not otherwise required by law and would have a material adverse effect on the business of the Company or (y) the disclosure relates to a previously undisclosed proposed or pending material business transaction, provided that no single suspension period contemplated by this clause (vii) shall exceed 90 consecutive days and multiple suspension periods contemplated by this clause (vii) shall not exceed an aggregate of 180 days in any 360-day period; or

(viii) the Company reasonably believes that the offering document for such offer and sale of Qualifying Capital Securities or Qualifying APM Securities, as the case may be, would not be in compliance with a rule or regulation of the United States Securities and Exchange Commission (for reasons other than those referred to in clause (vii) above), and the Company determines it is unable to comply with such rule or regulation or such compliance is unduly burdensome, provided that no single suspension period contemplated by this clause (viii) shall exceed 90 consecutive days and multiple suspension periods contemplated by this clause (viii) shall not exceed an aggregate of 180 days in any 360-day period.

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“Monthly Interest Payment Date” shall have the meaning specified in Section 2.4.

“Monthly Interest Period” means an Interest Period commencing on or after the Scheduled Maturity Date.

“One-Month LIBOR” means, with respect to any Monthly Interest Period, the rate (expressed as a percentage per annum) for deposits in U.S. dollars for a one-month period commencing on the first day of that Monthly Interest Period that appears on Telerate Page 3750 as of 11:00 a.m., London time, on the LIBOR Determination Date for that Monthly Interest Period. If such rate does not appear on Telerate Page 3750, One-Month LIBOR will be determined on the basis of the rates at which deposits in U.S. dollars for a one-month period commencing on the first day of that Monthly Interest Period and in a principal amount of not less than $1,000,000 are offered to prime banks in the London interbank market by four major banks in the London interbank market selected by the Calculation Agent (after consultation with the Company), at approximately 11:00 a.m., London time, on the LIBOR Determination Date for that Monthly Interest Period. The Calculation Agent will request the principal London office of each of these banks to provide a quotation of its rate. If at least two such quotations are provided, One-Month LIBOR with respect to that Monthly Interest Period will be the arithmetic mean (rounded upward if necessary to the nearest whole multiple of 0.00001%) of such quotations. If fewer than two quotations are provided, One-Month LIBOR with respect to that Monthly Interest Period will be the arithmetic mean (rounded upward if necessary to the nearest whole multiple of 0.00001%) of the rates quoted by three major banks in New York City selected by the Calculation Agent, at approximately 11:00 a.m., New York City time, on the first day of that Monthly Interest Period for loans in U.S. dollars to leading European banks for a one-month period commencing on the first day of that Monthly Interest Period and in a principal amount of not less than $1,000,000. However, if fewer than three banks selected by the Calculation Agent to provide quotations are quoting as described above, One-Month LIBOR for that Monthly Interest Period will be the same as One-Month LIBOR as determined for the previous Monthly Interest Period or, in the case of the Monthly Interest Period beginning on the Scheduled Maturity Date, 1.835%. The establishment of One-Month LIBOR for each Monthly Interest Period by the Calculation Agent shall (in the absence of manifest error) be final and binding.

“Pari Passu Securities” means indebtedness of the Company that ranks in right of payment upon liquidation on a parity with the DISCS, and includes the DISCS.

“Preferred Stock” means the preferred stock of the Company.

“Preferred Stock Issuance Cap” has the meaning specified in Section 2.6(a).

“Qualifying APM Securities” means Common Stock (including treasury stock and shares of common stock sold pursuant to the Company’s employee benefit plans), Qualifying Preferred Stock, Qualifying Warrants, and Mandatorily Convertible Preferred Stock, provided that the Company may, without the consent of the holders of the DISCS, amend the definition of “Qualifying APM Securities” to eliminate Common Stock and/or Mandatorily Convertible Preferred Stock from this definition if the Company has been advised in writing by a nationally recognized independent accounting firm that there is more than an insubstantial risk

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that the failure to do so would result in a reduction in its earnings per share as calculated for financial reporting purposes. The Company shall promptly notify the holders of the DISCS, in the manner contemplated in the Indenture, of such change.

“Qualifying Preferred Stock” means the Company’s non-cumulative perpetual Preferred Stock that ranks pari passu with or junior to all of the Company’s other preferred stock, is perpetual and (a) is subject to a Replacement Capital Covenant substantially similar to the Replacement Capital Covenant or an “Other Qualifying Capital Replacement Covenant”, as such term is defined in the Replacement Capital Covenant or (b) is subject to both (i) mandatory suspension of dividends in the event the Company breaches certain financial metrics specified within the offering documents for such preferred stock and (ii) “Intent-Based Replacement Disclosure”, as such term is defined in the Replacement Capital Covenant. Additionally, in both (a) and (b) the transaction documents for such preferred stock, shall provide for no remedies as a consequence of non-payment of distributions other than “Permitted Remedies”, as such term is defined in the Replacement Capital Covenant.

“Qualifying Capital Securities” has the meaning specified in the Replacement Capital Covenant.

“Qualifying Warrants” means any net share settled warrants to purchase Common Stock that (1) have an exercise price greater than the Current Stock Market Price of Common Stock, and (2) that the Company is not entitled to redeem for cash and the holders of which are not entitled to require the Company to purchase for cash in any circumstances.

“Rating Agency Event” means a change by any nationally recognized statistical rating organization within the meaning of Rule 15c3-1 under the Exchange Act that currently publishes a rating for the Company (in this definition, a “rating agency”) to its equity credit criteria for securities such as the DISCS, as such criteria was in effect on February 7, 2007 (in this definition, the “current criteria”), which change results in (x) the length of time for which is such current criteria is scheduled to be in effect is shortened with respect to the DISCS or (y) a lower equity credit being given to the DISCS as of the date of such change than the equity credit that would have been assigned to the DISCS as of the date of such change by such rating agency pursuant to its current criteria.

“Regular Record Date” means (i) with respect to the Semi-Annual Interest Payment Date, on February 1 or August 1, as any case may be, next preceding the relevant Interest Payment date, and (ii) with respect any Monthly Interest Payment Date, the 15^th day preceding the relevant Interest Payment Date.

“Repayment Date” means the Scheduled Maturity Date and each Monthly Interest Payment Date thereafter until the Company shall have repaid or redeemed all of the DISCS.

“Replacement Capital Covenant” means the Replacement Capital Covenant, dated as of February 12, 2007, by the Company, as the same may be amended or supplemented from time to time in accordance with the provisions thereof and Section 2.2(a)(vii) hereof.

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“Responsible Officer of the Paying Agent” means, with respect to The Bank of New York in its capacity as Paying Agent, any officer within the corporate trust department (or any successor department, unit or division of The Bank of New York) assigned to the paying agent office of The Bank of New York, in its capacity as Paying Agent, who has direct responsibility for the administration of the Paying Agent functions of the Indenture.

“Scheduled Maturity Date” has the meaning specified in Section 2.2(a).

“Securities Registrar” means, with respect to the DISCS, The Bank of New York, or any other firm appointed by the Company, acting as securities registrar for the DISCS.

“Securities Registrar Office” means the office of the applicable Securities Registrar at which at any particular time its corporate agency business shall principally be administered, which office at the date hereof in the case of The Bank of New York, in its capacity as Securities Registrar under the Indenture, is located at 101 Barclay Street, 8 West, New York, NY 10286 Attention: Corporate Trust Department.

“Share Cap Amount” has the meaning specified in Section 2.6.

“Semi-Annual Interest Payment Date” shall have the meaning specified in Section 2.4.

“Tax Event” means the receipt by the Company of an opinion of counsel experienced in such matters to the effect that, as a result of any: (i) amendment to or change (including any announced prospective change) in the laws or regulations of the United States or any political subdivision or taxing authority of or in the United States that is effective on or after the date of initial issuance of the DISCS, or (ii) official administrative decision or judicial decision interpreting or applying those laws or regulations that is announced on or after the date of initial issuance of the DISCS, there is more than an insubstantial risk that interest payable by the Company on the DISCS is not, or within 90 days of the date of such opinion will not be, deductible by the Company, in whole or in part, for United States federal income tax purposes.

“Telerate Page 3750” means the display so designated on the Moneyline/Telerate Service (or such other page as may replace that page on that service, or such other service as may be nominated as the information vendor, for the purpose of displaying rates or prices comparable to the London Interbank Offered rate for U.S. dollar deposits).

“Trading Day” means a day on which Common Stock is traded on the New York Stock Exchange, or if not then listed on the New York Stock Exchange, a day on which Common Stock is traded or quoted on the principal U.S. securities exchange on which it is listed or quoted, or if not then listed or quoted on a U.S. securities exchange, a day on which Common Stock is quoted in the over-the-counter market.

“Treasury Dealer” means Citigroup Global Markets Inc. (or its successor) or, if Citigroup Global Markets Inc. (or its successor) refuses to act as Treasury Dealer for the purpose of determining the Make-Whole Redemption Price or ceases to be a primary U.S. Government securities dealer, another nationally recognized investment banking firm that is a primary U.S. Government securities dealer specified by the Company to act as Treasury Dealer for the purpose of determining the Make-Whole Redemption Price.

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“Treasury Price” means, with respect to a Redemption Date, the bid-side price for the Treasury Security as of the third Trading Day preceding the Redemption Date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York on that Trading Day and designated “Composite 3:30 p.m. Quotations for U.S. Government Securities,” except that: (i) if that release (or any successor release) is not published or does not contain that price information on that Trading Day, or (ii) if the Treasury Dealer determines that the price information is not reasonably reflective of the actual bid-side price of the Treasury Security prevailing at 3:30 p.m., New York City time, on that Trading Day, then Treasury Price will instead mean the bid-side price for the Treasury Security at or around 3:30 p.m., New York City time, on that Trading Day (expressed on a next Trading Day settlement basis) as determined by the Treasury Dealer through such alternative means as are commercially reasonable under the circumstances.

“Treasury Rate” means, with respect to a Redemption Date, the semi-annual equivalent yield to maturity of the Treasury Security that corresponds to the Treasury Price (calculated in accordance with standard market practice and computed as of the second Trading Day preceding the Redemption Date).

“Treasury Security” means the United States Treasury security that the Treasury Dealer determines would be appropriate to use, at the time of determination and in accordance with standard market practice, in pricing the DISCS being redeemed in a tender offer based on a spread to United States Treasury yields.

“Underwriting Agreement” means the Underwriting Agreement, dated as of 2007, among the Company and the underwriters named therein.

ARTICLE II

GENERAL TERMS AND CONDITIONS OF THE DISCS

Section 2.1. Designation, Principal Amount and Authorized Denomination

Pursuant to Section 201 and 301 of the Indenture, there is hereby established a series of Securities of the Company designated as the Directly-Issued Subordinated Capital Securities (the “DISCS”), the principal amount of which to be issued shall be in accordance with Section 6.1 and as set forth in any Company Order for the authentication and delivery of DISCS pursuant to the Indenture, and the form and terms of which shall be as set forth hereinafter. The denominations in which DISCS shall be issuable is $1,000 principal amount and integral multiples thereof.

Section 2.2. Repayment

(a) Scheduled Maturity Date.

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(i) The principal amount of, and all accrued and unpaid interest on, the DISCS shall be payable in full on February 15, 2037 or, if such day is not a Business Day, the following Business Day (the “Scheduled Maturity Date”); provided, however, that in the event the Company has delivered an Officers’ Certificate to the Trustee pursuant to clause (v) of this Section 2.2(a) in connection with the Scheduled Maturity Date, (x) the principal amount of DISCS payable on the Scheduled Maturity Date, if any, shall be the principal amount set forth in the notice of repayment, if any, accompanying such Officers’ Certificate, (y) such principal amount of DISCS shall be repaid on the Scheduled Maturity Date pursuant to Article V hereof, and (z) subject to clause (ii) of this Section 2.2(a), the remaining DISCS shall remain outstanding and shall be payable on the immediately succeeding Monthly Interest Payment Date or such earlier date on which they are redeemed pursuant to Article IV hereof, an event of acceleration following an Event of Default occurs, or shall become due and payable pursuant to Section 502 of the Indenture.

(ii) In the event the Company has delivered an Officers’ Certificate to the Trustee pursuant to clause (v) of this Section 2.2(a) in connection with any Monthly Interest Payment Date, the principal amount of the DISCS repayable on such Monthly Interest Payment Date shall be the principal amount set forth in the notice of repayment, if any, accompanying such Officers’ Certificate, and shall be repaid on such Monthly Interest Payment Date pursuant to Article V hereof, and the remaining DISCS shall remain outstanding and shall be payable on the immediately succeeding Monthly Interest Payment Date or such earlier date on which they are redeemed pursuant to Article IV hereof, an event of acceleration following an Event of Default occurs, or shall become due and payable pursuant to Section 502 of the Indenture.

(iii) The obligation of the Company to repay the DISCS pursuant to this Section 2.2(a) on any date prior to the Final Maturity Date shall be subject to (x) its obligations under Article Fifteen of the Indenture to the holders of Senior Debt and (y) its obligations under Section 2.5 with respect to the payment of deferred interest on the DISCS.

(iv) Until the DISCS are paid in full, the Company shall use Commercially Reasonable Efforts, subject to a Market Disruption Event:

(A) to raise sufficient net proceeds from the issuance of Qualifying Capital Securities during a 180-day period ending on the date, not more than 15 and not less than 10 Business Days prior to the Scheduled Maturity Date, on which the Company delivers the notice required by clause (v) of this Section 2.2(a) and Section 5.1, to permit repayment of the DISCS in full on the Scheduled Maturity Date pursuant to clause (i) of this Section 2.2(a); and

(B) if the Company is unable for any reason to raise sufficient proceeds from the issuance of Qualifying Capital Securities to permit repayment in full of the DISCS on the Scheduled Maturity Date or any subsequent Monthly Interest Payment Date, to raise sufficient net proceeds from the issuance of Qualifying Capital Securities during a 30-day period ending on the date, not more than 15 and not less than 10 Business Days prior to the following Monthly Interest

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Payment Date, on which the Company delivers the notice required by clause (v) of this Section 2.2(a) and Section 5.1, to permit repayment of the DISCS in full on such following Monthly Interest Payment Date pursuant to clause (i)(z) of this Section 2.2(a); and

(C) the Company shall apply any such net proceeds to the repayment of the DISCS as provided in clause (vi) of this Section 2.2(a).

(v) The Company shall, if it has not raised sufficient net proceeds from the issuance of Qualifying Capital Securities pursuant to clause (iv) above in connection with any Repayment Date, deliver an Officers’ Certificate to the Trustee no more than 15 and no less than 10 Business Days in advance of such Repayment Date stating the amount of net proceeds, if any, raised pursuant to clause (iv) above in connection with such Repayment Date. The Company shall be excused from its obligation to use Commercially Reasonable Efforts to sell Qualifying Capital Securities pursuant to clause (iv) above if such Officers’ Certificate further certifies that: (A) a Market Disruption Event was existing during the 180-day period preceding the date of such Officers’ Certificate or, in the case of any Repayment Date after the Scheduled Maturity Date, the 30-day period preceding the date of such Officers’ Certificate; and (B) either (1) the Market Disruption Event continued for the entire 180-day period or 30-day period, as the case may be, or (2) the Market Disruption Event continued for only part of the period, but the Company was unable after Commercially Reasonable Efforts to raise sufficient net proceeds during the rest of that period to permit repayment of the DISCS in full. Each Officers’ Certificate delivered pursuant to this clause (v), unless no principal amount of DISCS is to be repaid on the applicable Repayment Date, shall be accompanied by a notice of repayment pursuant to Section 5.1 setting forth the principal amount of the DISCS to be repaid on such Repayment Date, if any, which amount shall be determined after giving effect to clause (vi) of this Section 2.2(a).

(vi) Net proceeds of the issuance of any Qualifying Capital Securities that the Company is permitted to apply to repayment of the DISCS on any Repayment Date will be applied, first, to pay deferred interest to the extent of Eligible Proceeds raised pursuant to Section 2.6, second, to pay current interest to the extent not paid from other sources and, third, to repay the principal of DISCS, subject to a minimum principal amount of $5 million to be repaid on any Repayment Date; provided that if the Company is obligated to sell Qualifying Capital Securities and apply the net proceeds to payments of principal of or interest on any outstanding securities in addition to the DISCS, then on any date and for any period the amount of net proceeds received by the Company from those sales and available for such payments shall be applied to the DISCS and those other securities having the same scheduled maturity date as the DISCS pro rata in accordance with their respective outstanding principal amounts and none of such net proceeds shall be applied to any other securities having a later scheduled maturity date until the principal of and all accrued and unpaid interest on the DISCS has been paid in full. If the Company raises less than $5 million of proceeds from the sale of Qualifying Capital Securities during the relevant 180-day or 30-day period, the Company will not be required to repay any DISCS on the Scheduled Maturity Date or the next Monthly Interest Payment Date, as applicable, but will use those net proceeds to repay the DISCS on the next Monthly Interest Payment Date as of which the Company has raised at least $5 million of net proceeds.

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(vii) The Company shall not amend the Replacement Capital Covenant to impose additional restrictions on the type or amount of Qualifying Capital Securities that the Company may include for purposes of determining when repayment, redemption or purchase of the DISCS is permitted, except with the consent of Holders of a majority by principal amount of the DISCS. Except as aforesaid, the Company may amend or supplement the Replacement Capital Covenant in accordance with its terms and without the consent of the holders of the DISCS.

(b) Final Maturity Date. The principal of, and all accrued and unpaid interest on, all outstanding DISCS shall be due and payable on February 7, 2087 or, if such date is not a Business Day, the following Business Day (the “Final Maturity Date”), regardless of the amount of Qualifying Capital Securities the Company may have issued and sold by that time.

Section 2.3. Form

The DISCS shall be substantially in the form of Exhibit A attached hereto and shall be issued in fully registered definitive form without interest coupons. Principal of and interest on the DISCS issued in definitive form will be payable, the transfer of such DISCS will be registrable and such DISCS will be exchangeable for DISCS bearing identical terms and provisions and notices and demands to or upon the Company in respect of the DISCS and the Indenture may be served at the Corporate Trust Office of the Trustee, and the Company appoints the Trustee as its agent for the foregoing purposes, provided that payment of interest may be made at the option of the Company by check mailed to the Holders at such address as shall appear in the Securities Register or by wire transfer in immediately available funds to the bank account number of the Holders specified in writing by the Holders not less than 10 days before the relevant Interest Payment Date and entered in the Securities Register by the Securities Registrar. The DISCS may be presented for registration of transfer or exchange at the Securities Registrar Office.

The DISCS are initially solely issuable as Global Securities. Registered DISCS shall be physically transferred to all beneficial owners in definitive form in exchange for their beneficial interests in a Global Security if the Depositary with respect to such Global Securities notifies the Company that it is unwilling or unable to continue as Depositary for such Global Security, as the case may be, and a successor Depositary is not appointed by the Company within 90 days of such notice.

Section 2.4. Rate of Interest; Interest Payment Date

(a) Rate of Interest. The DISCS shall bear interest (i) from and including February 12, 2007 to but excluding the Scheduled Maturity Date at the rate of 6.15% per annum, computed on the basis of a 360-day year comprised of twelve 30-day months, and (ii) thereafter as to any unpaid amounts that remain outstanding, at an annual rate equal to One-Month LIBOR plus 1.835%, accruing from the Scheduled Maturity Date, 2037 and computed on the basis of a 360-day year and the actual number of days elapsed. Accrued

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interest that is not paid on the applicable Interest Payment Date, including interest deferred pursuant to Section 2.5, will bear Additional Interest, to the extent permitted by law, at the interest rate in effect from time to time on the DISCS, from the relevant Interest Payment Date, compounded on each subsequent Interest Payment Date.

(b) Interest Payment Date. Subject to the other provisions hereof, interest on the DISCS shall be payable (i) semi-annually in arrears on February 15 and August 15 of each year, commencing on August 15, 2007, until and including the Scheduled Maturity Date (each such date, a “Semi-Annual Interest Payment Date”), or if any such day is not a Business Day, the following Business Day (and no interest shall accrue as a result of such postponement) and (ii) thereafter, on the 15th day of each calendar month, or if any such day is not a Business Day, the following Business Day, in arrears, commencing on March 15, 2037 (each such date, a “Monthly Interest Payment Date” and, together with Semi-Annual Interest Payment Dates, each, an “Interest Payment Date”).

(c) To Whom Interest is Payable. Interest will be payable to the persons in whose name the DISCS are registered at the close of business on the Regular Record Date next preceding the relevant Interest Payment Date, except that interest payable at maturity shall be paid to the person to whom principal is paid.

Section 2.5. Interest Deferral

(a) Option to Defer Interest Payments.

(i) The Company shall have the right at any time and from time to time, to defer the payment of interest on the DISCS for one or more consecutive Interest Periods that do not exceed 10 years, provided that no Deferral Period shall extend beyond the Final Maturity Date or the earlier repayment of redemption date of the DISCS. If the Company has paid all deferred interest (including Additional Interest) on the DISCS, the Company shall have the right to elect to begin a new deferral period pursuant to this Section 2.5.

(ii) At the end of any Deferral Period, the Company shall pay all deferred interest on the DISCS to the Persons in whose names the DISCS are registered in the Securities Register at the close of business on the Regular Record Date with respect to the Interest Payment Date at the end of such Deferral Period.

(iii) The Company may elect to pay interest on any Interest Payment Date during any Deferral Period to the extent permitted by Section 2.5(b).

(b) Payment of Deferred Interest. The Company will not pay any deferred interest on the DISCS (including Additional Interest thereon) from any source other than Eligible Proceeds prior to the Final Maturity Date, except at any time that the principal amount has been accelerated and such acceleration has not been rescinded or in the case of a Business Combination to the extent described below in this Section 2.5(c). Notwithstanding the foregoing, the Company may pay current interest from any available funds.

(c) Business Combination Exception. If the Company is involved in a Business Combination where immediately after its consummation more than 50% of the voting

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stock of the Person formed by such Business Combination, or the Person that is the surviving entity of such Business Combination, or the Person to whom all or substantially all of the Company’s properties and assets are conveyed, transferred or leased in such Business Combination, is owned by the shareholders of the other party to such Business Combination, then Section 2.5(b) and Section 2.6 shall not apply to any deferral period that is terminated on the next interest payment date following the date of consummation of such Business Combination.

(d) Notice of Deferral. The Company shall give written notice of its election to begin or extend any Deferral Period to the Trustee and the Holders of the DISCS at least one Business Day and not more than sixty Business Days before the next Interest Payment Date. Notice of the Company’s election of a Deferral Period shall be given to the Trustee and each holder of DISCS at such holder’s address appearing in the Security Register by first-class mail, postage prepaid.

Section 2.6. Alternative Payment Mechanism

(a) Obligation to Issue Qualifying APM Securities. During the APM Period, the Company shall, subject to the occurrence of a Market Disruption Event as described under Section 2.6(b) and subject to Section 2.5(c), continuously use its Commercially Reasonable Efforts to issue one or more types of Qualifying APM Securities until the Company has raised an amount of Eligible Proceeds at least equal to the aggregate amount of accrued and unpaid deferred interest on the DISCS, including Additional Interest thereon, and applied such Eligible Proceeds on the next Interest Payment Date to the payment of deferred interest in accordance with Section 2.6, provided that:

(i) the foregoing obligations shall not apply to the extent that, with respect to the issuance of Qualifying APM Securities or the payment of interest on the DISCS, the Company is not required to pay interest on the DISCS (and therefore the Company is not required to issue Qualifying APM securities to raise proceeds to pay such interest) at a time when the payment of such interest would violate the terms of any securities issued by the Company or any Subsidiary or the terms of a contract binding on the Company or any Subsidiary;

(ii) the foregoing obligations shall not apply to the extent that, the number of shares of the Company’s common stock or issuable upon exercise of Qualifying Warrants prior to the fifth anniversary of the commencement of a Deferral Period, applied during such Deferral Period to pay interest on the DISCS pursuant to this Section 2.6, together with the number of the Company’s common stock shares issued or issuable upon exercise of previously issued Qualifying Warrants during such Deferral Period, would exceed an amount equal to 2% of the total number of issued and outstanding shares of the Company’s common stock as of the date of the Company’s then most recent publicly available consolidated financial statements as of the date of such issuance (the “Common Equity Issuance Cap”); provided that the Common Equity Issuance Cap will cease to apply with respect to a Deferral Period following the fifth anniversary of the commencement of a Deferral Period, at which point the Company must repay any deferred interest regardless of the time at which it was deferred, pursuant to this Section

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2.6, subject to a Market Disruption Event; and provided, further, that if the Common Equity Issuance Cap is reached during a Deferral Period and the Company subsequently repays all deferred interest, the Common Equity Issuance Cap will cease to apply with respect to a Deferral Period at the termination of such Deferral Period and will not apply again unless and until the Company starts a new Deferral Period;

(iii) the foregoing obligations shall not apply to the extent that the net proceeds of any issuance of Qualifying Preferred Stock and Mandatorily Convertible Preferred Stock applied to pay interest on the DISCS pursuant to this Section 2.6, together with the net proceeds of all prior issuances of Preferred Stock and any still-outstanding Mandatorily Convertible Preferred Stock so applied during the current and all prior Deferral Periods, would exceed 25% of the aggregate principal amount of the DISCS initially issued under the Indenture (the “Preferred Stock Issuance Cap”);

(iv) notwithstanding the Common Equity Issuance Cap and the Preferred Stock Issuance Cap pursuant to this Section 2.6, for purposes of paying deferred interest, the Company shall not be permitted to sell shares of its Common Stock, Qualifying Warrants, or Mandatorily Convertible Preferred Stock such that the Company’s common stock to be issued (or which would be issuable upon exercise or conversion thereof) would be in excess of 40 million shares of the Company’s common stock (the “Share Cap Amount”); provided that if the issued and outstanding shares of the Company’s common stock are changed into a different number of shares or a different class by reason of any stock split, reverse stock split, stock dividend, reclassification, recapitalization, split-up, combination, exchange of shares or other similar transaction, the Share Cap Amount shall be correspondingly adjusted; provided further that the Share Cap Amount limitation shall apply so long as the DISCS remain outstanding, if the Share Cap Amount has been reached and it is not sufficient to allow the Company to raise sufficient proceeds to pay deferred interest including Additional Interest, in full, the Company shall use its commercially reasonable efforts to increase the Share Cap Amount to permit it to raise sufficient proceeds to pay deferred interest, including Additional Interest, in full to the extent that the Company can do so and (1) simultaneously satisfy its future fixed or contingent obligations under other securities and derivative instruments that provide for settlement or payment in shares of the Company’s common stock or (2) if the Company cannot increase the Share Cap Amount pursuant to the preceding clause (1), by requesting the Company’s Board of Directors to adopt a resolution for shareholder vote at the next occurring annual shareholders meeting to increase the number of shares of the Company’s authorized common stock for purposes of satisfying the Company’s obligations to pay deferred interest.

For the avoidance of doubt, (x) in no event will the Company be obligated to sell Qualifying Preferred Stock or Mandatorily Convertible Preferred Stock or to apply the proceeds of any such sale to pay deferred interest on the DISCS, and no class of investors of the Company’s securities, or any other party, may require the Company to issue Qualifying Preferred Stock and Mandatorily Convertible Preferred Stock, and (y) once the Company reaches the Common Equity Issuance Cap for a Deferral Period, the Company shall not be required to issue more Common Stock, or if the definition of Qualifying APM Securities has been amended to eliminate Common Stock, more

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Qualifying Warrants pursuant to this Section 2.6, prior to the fifth anniversary of the commencement of a Deferral Period even if the amount referred to in clause (i) of this Section 2.6 subsequently increases because of a subsequent increase in the number of outstanding shares of Common Stock, and (y) so long as the definition of Qualifying APM Securities has not been amended to eliminate Common Stock, the sale of Qualifying Warrants to pay deferred interest is an option that may be exercised at the Company’s sole discretion, subject to the Common Equity Issuance Cap, and the Company is not obligated to sell Qualifying Warrants or to apply the proceeds of any such sale to pay deferred interest on the DISCS, and no class of investors of the Company’s securities, or any other party, may require the Company to issue Qualifying Warrants.

(b) Market Disruption Event. Section 2.6(a) shall not apply, with respect to any Interest Payment Date, if the Company shall have provided to the Trustee (which the Trustee will promptly forward upon receipt to each Holder of DISCS) no more than 15 and no less than 10 Business Days prior to such Interest Payment Date an Officers’ Certificate stating that (i) a Market Disruption Event was existing after the immediately preceding Interest Payment Date and (ii) either (x) the Market Disruption Event continued for the entire period from the Business Day immediately following the preceding Interest Payment Date to the Business Day immediately preceding the date on which such Officers’ Certificate is provided or (y) the Market Disruption Event continued for only part of such period, but the Company was unable after Commercially Reasonable Efforts to raise sufficient Eligible Proceeds during the rest of that period to pay all accrued and unpaid interest due on the Interest Payment Date with respect to which such Officers’ Certificate is being delivered.

(c) Partial Payment of Deferral Interest.

(i) If, due to a Market Disruption Event or otherwise, the Company has raised some but not all Eligible Proceeds necessary to pay all deferred interest, including Additional Interest, on any Interest Payment Date pursuant to this Section 2.6, such Eligible Proceeds shall be allocated to pay accrued and unpaid interest on the applicable Interest Payment Date in chronological order based on the date each payment was first deferred, subject to the Common Equity Issuance Cap, the Preferred Stock Issuance Cap, and the Share Cap Amount, and payment on each installment of deferred interest shall be distributed to Holders of the DISCS on a pro rata basis.

(ii) If the Company has outstanding Pari Passu Securities under which the Company is obligated to sell securities that are Qualifying APM Securities and apply the net proceeds to the payment of deferred interest or distributions, then on any date and for any period the amount of net proceeds received by the Company from those sales and available for payment of the deferred interest and distributions shall be applied to the DISCS and those other Pari Passu Securities on a pro rata basis up to the Common Equity Issuance Cap or the Preferred Stock Issuance Cap and the Share Cap Amount (or comparable provisions in the instruments governing those other Pari Passu Securities) in proportion to the total amounts that are due on the DISCS and such other Pari Passu Securities.

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(iii) Qualifying APM Securities Definition Change. The Company shall send written notice to the Trustee (who shall forward such notice to each Holder of the DISCS) in advance of any change in the definition of Qualifying APM Securities to eliminate Common Stock.

Section 2.7. Events of Default

(a) (i) Solely for purposes of the DISCS, Section 501 of the Indenture shall be deleted and replaced by the following:

SECTION 5.01. Events of Default

“Event of Default“, wherever used herein with respect to the DISCS, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):

(1) default in the payment of interest, including compounded interest, in full on any DISCS for a period of 30 days after the conclusion of a 10-year period following the commencement of any Deferral period if at such time such Deferral period has not ended; or

(2) default in the payment of principal on the DISCS when due, subject to the limitations set forth in Section 2.2 of the First Supplemental Indenture; or

(3) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company or any Restricted Subsidiary in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company or any Restricted Subsidiary a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment, rehabilitation, conservation or composition of or in respect of the Company or any Restricted Subsidiary under any applicable federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, rehabilitation, conservator, sequestrator or other similar official of the Company or any Restricted Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 90 consecutive days; or

(4) the commencement by the Company or any Restricted Subsidiary of a voluntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company or any Restricted Subsidiary in an involuntary case or proceeding under any applicable federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or

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consent seeking reorganization or relief under any applicable federal or state law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or any Restricted Subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company or any Restricted Subsidiary in furtherance of any such action.

When the Trustee incurs expenses or renders services in connection with an Event of Default specified in clauses (3) and (4) set forth in this Section 501, the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any bankruptcy law.

(ii) Solely for purposes of the DISCS, Section 502 of the Indenture shall be deleted and replaced by the following:

SECTION 5.02. Acceleration of Maturity; Recission and Annulment.

If an Event of Default described in clauses (1) or (2) set forth in this Section 501 with respect to the DISCS occurs and is continuing, then in every such case the Trustee or the Holders of not less than 25% in aggregate principal amount of the DISCS may declare the principal amount of all of the DISCS and interest accrued thereon, if any, to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by the Holders), and upon any such declaration such amount shall become immediately due and payable. If an Event of Default described in clauses (3) or (4) set forth in this Section 501 with respect to the DISCS and is continuing, then in every such case, the Trustee or the Holders of not less than 25% in aggregate principal amount of all DISCS may declare the principal amount of all of the DISCS and interest accrued thereon, if any, to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by the Holders), and upon such declaration such amount shall become immediately due and payable.

At any time after such a declaration of acceleration with respect to the DISCS has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as provided in Article Five of the Indenture, the Holders of a majority in aggregate principal amount of the DISCS with respect to an Event of Default described in clauses (1) or (2) set forth in this Section 501, and the Holders of a majority in aggregate principal amount of the DISCS with respect to an Event of Default described in clause (3) or (4) set forth in this Section 501, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if:

(1) the Company has paid or deposited with the Trustee a sum sufficient to pay:

(A) all Defaulted Interest on all DISCS

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(B) the principal of (and premium, if any, on) the DISCS which has become due otherwise than by such declaration of acceleration and interest thereon at the rate or rates prescribed therefor in the DISCS,

(C) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate or rates prescribed therefor in the DISCS, and

(D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and

(2) all Events of Default with respect to the DISCS, other than the non-payment of the principal of DISCS which have become due solely by such declaration of acceleration, have been cured or waived as provided under Section 513 of the Indenture.

No such rescission shall affect any subsequent Event of Default or impair any right consequent thereon.

(b) The Trustee shall provide to the Holders of the DISCS such notices as it shall from time to time provide under Section 602 of the Indenture. In addition, the Trustee shall provide to the Holders of the DISCS notice of any Event of Default or event that, with the giving of notice or lapse of time, or both, would become an Event of Default with respect to the DISCS within 90 days after the actual knowledge of a Responsible Officer of the Trustee of such Event of Default or other event. However, except in cases of a default or an Event of Default in payment on the DISCS, the trustee will be protected in withholding the notice if one of its Responsible Officers determines that withholding of the notice is in the interest of such Holders.

(c) For the avoidance of doubt, and without prejudice to any other remedies that may be available to the Trustee or the Holders of the DISCS under the Indenture, no breach by the Company of any covenant or obligation under the Indenture or the terms of the DISCS, including the Company’s obligations under Section 2.2 (a)(iv) or Section 2.6, shall be an Event of Default with respect to the DISCS, other than those specified as Events of Default in Section 501 of the Indenture, as amended by this Section 2.7.

Section 2.8. Securities Registrar; Paying Agent; Delegation of Trustee Duties

(a) The Company appoints The Bank of New York, as Securities Registrar and Paying Agent with respect to the DISCS.

(b) Notwithstanding any provision contained herein, to the extent permitted by applicable law, the Trustee may delegate its duty to provide such notices and to perform such other duties as may be required to be provided or performed by the Trustee under the Indenture, and, to the extent such obligation has been so delegated, the Trustee shall not be responsible for monitoring the compliance of, nor be liable for the default or misconduct of, any such designee.

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Section 2.9. Limitation on Claims in the Event of Bankruptcy, Insolvency or Receivership

Each Holder, by such Holder’s acceptance of the DISCS, agrees that if a Bankruptcy Event of the Company shall occur prior to the redemption or repayment of such DISCS, such Holder shall have no claim for, and thus no right to receive, any deferred interest pursuant to Section 2.5 that has not been paid pursuant to Sections 2.5 and 2.6 to the extent the amount of such interest exceeds two years of accumulated and unpaid interest on such Holder’s DISCS.

Section 2.10. Location of Payment

Solely for the purposes of the DISCS, the first paragraph of Section 307 shall be deleted and replaced by the following:

SECTION 307. Payment Of Interest; Interest Rights Preserved.

Payment of the principal of (and premium, if any) and interest on the DISCS will be made at the paying agent office, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the Securities Register or (ii) by wire transfer in immediately available funds at such place and to such account as may be designated by the Person entitled thereto as specified in the Securities Register. The office where the DISCS may be presented or surrendered for payment and the office where the DISCS may be surrendered for transfer or exchange and where notices and demands to or upon the Company in respect of the DISCS and the Indenture may be served shall be the paying agent office.

Section 2.11. No Sinking Fund

The DISCS shall not be subject to any sinking fund or analogous provisions.

ARTICLE III

COVENANTS

Section 3.1. Dividend and Other Payment Stoppages

So long as any DISCS remain outstanding, if the Company has given notice of its election to defer interest payments on the DISCS but the related Deferral Period has not yet commenced or a Deferral Period is continuing, the Company shall not, and shall not permit any Subsidiary of the Company to:

(i) declare or pay any dividends or distributions, or redeem, purchase, acquire or make a liquidation payment with respect to, any shares of capital stock of the Company;

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(ii) make any payment of principal of, or interest or premium, if any, on or repay, purchase or redeem any of the Company’s debt securities that rank upon the Company’s liquidation on a parity with or junior to the DISCS; or

(iii) make any guarantee payments regarding any guarantee of the subordinated debt securities of any Subsidiaries if the guarantee ranks upon the Company’s liquidation on a parity with or junior to the DISCS.

provided, however, the restrictions in clauses (i), (ii) and (iii) above do not apply to: (1) any purchase, redemption or other acquisition of shares of its capital stock by the Company in connection with (A) any employment contract, benefit plan or other similar arrangement with or for the benefit of any one or more of its employees, officers, directors, consultants or independent contractors, (B) the satisfaction of the Company’s obligations pursuant to any contract entered into in the ordinary course of business prior to the beginning of the applicable Deferral Period, (C) a dividend reinvestment or shareholder purchase plan, or (D) the issuance of the Company’s capital stock, or securities convertible into or exercisable for such capital stock, as consideration in an acquisition transaction entered into prior to the applicable Deferral Period; (2) any exchange, redemption or conversion of any class or series of the Company’s capital stock, or the capital stock of one of its Subsidiaries, for any other class or series of its capital stock, or of any class or series of its indebtedness for any class or series of its capital stock; (3) any purchase of fractional interests in shares of the Company’s capital stock pursuant to the conversion or exchange provisions of such capital stock or the securities being converted or exchanged; (4) any declaration of a dividend in connection with any shareholder rights plan, or the issuance of rights, stock or other property under any shareholder rights plan, or the redemption or purchase of rights pursuant thereto; (5) any dividend in the form of stock, warrants, options or other rights where the dividend stock or stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks equally with or junior to such stock; (6) any payment of current or deferred interest on Pari Passu Securities that is made pro rata to the amounts due on such Pari Passu Securities (including the DISCS); provided that such payments are made in accordance with Section 2.6(c) to the extent it applies, and any payments of deferred interest on Pari Passu Securities that, if not made, would cause the Company to breach the terms of the instrument governing such Pari Passu Securities; or (7) any payment of principal in respect of Pari Passu Securities having the same scheduled maturity date as the DISCS, as required under a provision of such other Pari Passu Securities that is substantially the same as the provisions in Section 2.2, and that is made on a pro rata basis among one or more series of Pari Passu Securities (including the DISCS) having such a provision.

Section 3.2. Additional Limitation on Deferral over One Year.

If any Deferral Period lasts longer than one year, the limitation on the Company’s ability to redeem or purchase Qualifying APM Securities or any securities of the Company that on the Company’s bankruptcy or liquidation rank pari passu to such Qualifying APM Securities as set forth in Section 3.1, shall continue until the first anniversary of the date on which all deferred interest on the DISCS has been paid. However, if the Company is involved in a Business Combination where immediately after its consummation more than 50% of the voting stock of the Person formed by such Business Combination, or the Person that is the surviving entity of

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such Business Combination, or the Person to whom all or substantially all of the Company’s properties and assets are conveyed, transferred or leased in such Business Combination, is owned by the shareholders of the other party to such Business Combination, then the preceding sentence will not apply to any Deferral Period that is terminated on the next Interest Payment Date following the date of consummation of such Business Combination.

ARTICLE IV

REDEMPTION OF THE DISCS

Section 4.1. Redemption Price.

The DISCS shall be redeemable in accordance with Article Eleven of the Indenture, provided that (i) the DISCS are redeemable in whole or in part at the option of the Company at any time after the date hereof or (ii) the DISCS are redeemable in whole but not in part at any time within 90 days following the occurrence and during the continuation of a Tax Event or Rating Agency Event, in each case at a Redemption Price equal to the greater of (1) in the case of any redemption on or after the Scheduled Maturity Date 100% of their principal amount plus accrued and unpaid interest to the Redemption Date or (2) in the case of any such redemption prior to the Scheduled Maturity Date, the Make-Whole Redemption Price; provided that if in the case of an optional redemption, the DISCS are not redeemed in whole, the Company may not affect such redemption unless at least $25 million aggregate principal amount of the DISCS, excluding any DISCS held by the Company or any of its affiliates, remains outstanding after giving effect to such redemption.

ARTICLE V

REPAYMENT OF DISCS

Section 5.1. Repayments

The Company shall, not more than 65 nor less than 60 Business Days prior to each Repayment Date (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of the principal amount of DISCS to be repaid on such date pursuant to Section 2.2(a).

Section 5.2. Selection of the DISCS to be Repaid

If less than all the DISCS are to be repaid on any Repayment Date (unless the DISCS are issued in the form of a Global Security), the particular DISCS to be repaid shall be selected not more than 60 days prior to such Repayment Date by the Trustee, from the Outstanding DISCS not previously repaid or called for redemption, by lot or such other method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of a portion of the principal amount of any DISCS, provided that the portion of the principal amount of any DISCS not repaid shall be in an authorized denomination (which shall not be less than the minimum authorized denomination).

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The Trustee shall promptly notify the Company in writing of the DISCS selected for partial repayment and the principal amount thereof to be repaid. For all purposes hereof, unless the context otherwise requires, all provisions relating to the repayment of DISCS shall relate, in the case of any DISCS repaid or to be repaid only in part, to the portion of the principal amount of such DISCS which has been or is to be repaid.

Section 5.3. Notice of Repayment

Notice of repayment shall be given by first-class mail, postage prepaid, mailed not earlier than the 15th day, and not later than the 10th Business Day, prior to the Repayment Date, to each Holder of DISCS to be repaid, at the address of such Holder as it appears in the Security Register.

Each notice of repayment shall identify the DISCS to be repaid (including the DISCS’ CUSIP number, if a CUSIP number has been assigned to the DISCS) and shall state:

(a) the Repayment Date;

(b) if less than all Outstanding DISCS are to be repaid, the identification (and, in the case of partial repayment, the respective principal amounts) of the particular DISCS to be repaid;

(c) that on the Repayment Date, the principal amount of the DISCS to be repaid will become due and payable upon each such DISCS or portion thereof, and that interest thereon, if any, shall cease to accrue on and after said date; and

(d) the place or places where such DISCS are to be surrendered for payment of the principal amount thereof.

Notice of repayment shall be given by the Company or, if the Company timely notifies the Trustee, at the Company’s request, by the Trustee in the name and at the expense of the Company and shall be irrevocable. The notice if mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holders receive such notice. In any case, a failure to give such notice by mail or any defect in the notice to any Holder of any DISCS designated for repayment as a whole or in part shall not affect the validity of the proceedings for the repayment of any other DISCS.

Section 5.4. Deposit of Repayment Amount

Prior to 11:00 a.m. New York City time on the Repayment Date specified in the notice of repayment given as provided in Section 5.3, the Company will deposit with the Trustee or with one or more Paying Agents (or if the Company is acting as its own Paying Agent, the Company will segregate and hold in trust as provided in Section 1003 of the Indenture) an amount of money sufficient to pay the principal amount of, and any accrued interest on, all the DISCS which are to be repaid on that date.

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Section 5.5. Repayment of DISCS

If any notice of repayment has been given as provided in Section 5.3, the DISCS or portion of the DISCS with respect to which such notice has been given shall become due and payable on the date and at the place or places stated in such notice. On presentation and surrender of such DISCS at a Place of Payment in said notice specified, the said securities or the specified portions thereof shall be paid by the Company at their principal amount, together with accrued interest to the Repayment Date; provided that, except in the case of a repayment in full of all Outstanding DISCS, installments of interest whose Stated Maturity is on or prior to the Repayment Date will be payable to the Holders of such DISCS, registered as such at the close of business on the relevant Regular Record Dates according to their terms and the provisions of Section 1001 of the Indenture.

Upon presentation of any DISCS repaid in part only, the Company shall execute and the Trustee shall authenticate and make available for delivery to the Holders thereof, at the expense of the Company, a new DISCS, of authorized denominations, in aggregate principal amount equal to the portion of the DISCS not repaid and so presented and having the same Scheduled Maturity Date and other terms. If a Global Security is so surrendered, such new DISCS will also be a new Global Security.

If any DISCS required to be repaid shall not be so repaid upon surrender thereof, the principal of such DISCS shall, until paid, bear interest from the applicable Repayment Date at the rate prescribed therefore in the DISCS.

ARTICLE VI

ORIGINAL ISSUE OF DISCS

Section 6.1. Original Issue of DISCS

DISCS in the aggregate principal amount of $400,000,000 may, upon execution of this First Supplemental Indenture, be executed by the Company and delivered to the Trustee or an Authenticating Agent for authentication, and the Trustee or an Authenticating Agent shall thereupon authenticate and deliver said DISCS in accordance with a Company Order.

Section 6.2. Calculation of Original Issue Discount

If during any calendar year any original issue discount shall have accrued on the DISCS, the Company shall file with each Paying Agent (including the Trustee if it is a Paying Agent) promptly at the end of each calendar year (i) a written notice specifying the amount of original issue discount (including daily rates and accrual periods) accrued on Outstanding Securities as of the end of such year and (ii) such other specific information relating to such original issue discount as may then be relevant under the Internal Revenue Code of 1986, as amended from time to time. The Company would not be required to make actual payments on the DISCS during a Deferral Period.

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ARTICLE VII

MISCELLANEOUS

Section 7.1. Effectiveness

This First Supplemental Indenture will become effective upon its execution and delivery.

Section 7.2. Successors and Assigns

All covenants and agreements in the Indenture, as supplemented and amended by this First Supplemental Indenture, by the Company shall bind its successors and assigns, whether so expressed or not.

Section 7.3. Effect of Recitals

The recitals contained herein and in the DISCS, except the Trustee’s certificates of authentication, shall be taken as the statements of the Company, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this First Supplemental Indenture or of the DISCS. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of the DISCS or the proceeds thereof.

Section 7.4. Ratification of Indenture

The Indenture as supplemented by this First Supplemental Indenture, is in all respects ratified and confirmed, and this First Supplemental Indenture shall be deemed part of the Indenture in the manner and to the extent herein and therein provided.

Section 7.5. Governing Law

This First Supplemental Indenture and the DISCS shall be governed by and construed in accordance with the laws of the State of New York.

Section 7.6. Jury Trial Waiver

EACH PARTY HERETO, AND EACH HOLDER OF ANY DISCS BY ACCEPTANCE THEREOF, HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS INDENTURE.

Section 7.7. Severability.

If any provision of the Indenture, as supplemented and amended by this First Supplemental Indenture, shall be held or deemed to be or shall, in fact, be illegal, inoperative or unenforceable, the same shall not affect any other provision or provisions herein contained or render the same invalid, inoperative or unenforceable to any extent whatever.

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*    *    *

This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument

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IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed as of the day and year first above written.

AMBAC FINANCIAL GROUP, INC.
By:	/s/ Sean T. Leonard
Name:	Sean T. Leonard
Title:	Senior Vice President and Chief Financial Officer
THE BANK OF NEW YORK
as Trustee
By:	/s/ Franca M. Ferrera
Name:	Franca M. Ferrera
Title:	Assistant Vice President

EXHIBIT A

Form of DISCS

The DISCS are to be substantially in the following form and shall bear any legend required by Section 202 of the Indenture:

THIS NOTE IS NOT A DEPOSIT OR OTHER OBLIGATION OF A DEPOSITORY INSTITUTION AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.

No. ·	Principal Amount: $·
Issue Date: ·

AMBAC FINANCIAL GROUP, INC.

·% DIRECTLY ISSUED SUBORDINATED CAPITAL SECURITIES

AMBAC FINANCIAL GROUP, INC., a corporation organized and existing under the laws of Delaware (hereinafter called the “Company”, which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to , or registered assigns, the principal sum of • DOLLARS ($•) as may be revised from time to time on Schedule I hereto and all accrued and unpaid interest thereof on February 15, 2037, or if such day is not a Business Day, the following Business Day (the “Scheduled Maturity Date”) or any subsequent Interest Payment Date (as hereafter defined) to the extent set forth in the First Supplement Indenture. If that amount is not paid in full on the Scheduled Maturity Date or any subsequent Interest Payment Date, the remaining amount, together with accrued and unpaid interest, will be due and payable on the Final Maturity Date. The Final Maturity Date will be February 7, 2087, or if such day is not a Business Day, the following Business Day.

The Company further promises to pay interest on said principal sum from and including February 12, 2007, or from and including the most recent interest payment date on which interest has been paid or duly provided for, semi-annually (subject to deferral as set forth herein) in arrears on February 15 and August 15 of each year, commencing August 15, 2007, at the rate of 6.15% per annum (computed on the basis of a 360-day year comprised of twelve 30-day months) to but excluding the Scheduled Maturity Date, and to pay interest, after the Scheduled Maturity Date, on said outstanding principal sum monthly in arrears on the 15th day of each calendar month (each such date and, together with such February 15 and August 15 of each year, an “Interest Payment Date”), at a floating annual rate equal to One-Month LIBOR (as defined in the First Supplemental Indenture) plus 1.835% (computed on the basis of a 360-day year and the actual number of days elapsed), until the principal hereof shall have become due and payable, plus Additional Interest, if any, until the principal hereof is paid or duly provided for or made available for payment. Accrued interest that is not paid on the applicable Interest Payment Date, including interest deferred pursuant to Section 2.5 of the First Supplemental Indenture, will bear Additional Interest, to the extent permitted by law, at the interest rate in effect from time to time, from the relevant Interest Payment Date, compounded on each subsequent Interest Payment Date. In the event that any date on which interest is payable on this

A-2

Security is not a Business Day, then a payment of the interest payable on such date will be made on the next succeeding day that is a Business Day (and, in the case of payments on or prior to the Scheduled Maturity Date, without any interest or other payment in respect of any such delay) with the same force and effect as if made on the date the payment was originally payable. A “Business Day” shall mean any day other than (i) a Saturday or Sunday, (ii) a day on which banking institutions in The City of New York are authorized or required by law or executive order to remain closed or (iii) a day on which the corporate trust office of the Trustee, is closed for business. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest installment, which shall be February 1 and August 1, as the case may be, immediately preceding such Interest Payment Date until the Scheduled Maturity Date (whether or not a Business Day), and the 15^th day preceding the Relevant Interest Payment Date after the Scheduled Maturity Date. Any such interest installment not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture.

So long as no Event of Default has occurred and is continuing, the Company shall have the right at any time or from time to time during the term of this Security to defer payment of interest on this Security for one or more consecutive interest payment periods (each a “Deferral Period”) that do not exceed 10 years, during which Deferral Periods the Company shall have the right to make partial payments of interest on any Interest Payment Date, and at the end of which the Company shall pay all interest then accrued and unpaid (together with Additional Interest thereon to the extent permitted by applicable law); provided, however, that no Deferral Period shall extend beyond the Final Maturity Date or the earlier repayment or redemption in full of the Securities. Upon the termination of any Deferral Period and upon the payment of all deferred interest then due, the Company may elect to begin a new Deferral Period, subject to the above requirements. Deferred interest on the Security will bear interest at the then applicable interest rate, compounded on each Interest Payment Date, subject to applicable law. No interest shall be due and payable during a Deferral Period except at the end thereof. Additional limitations may apply, pursuant to Section 3.2 of the First Supplemental Indenture, if any Deferral Period lasts longer than one year.

So long as any Securities remain outstanding, if the Company has given notice of its election to defer interest payments on the Securities but the related Deferral Period has not yet commenced or a Deferral Period is continuing, the Company shall not, and shall not permit any Subsidiary of the Company to, (i) declare or pay any dividends or distributions, or redeem, purchase, acquire or make a liquidation payment with respect to any shares of the Company’s capital stock, (ii) make any payment of principal of, or interest or premium, if any, on or repay, purchase or redeem any debt securities of the Company that rank upon the Company’s liquidation on a parity with this Security (including this Security, the “Pari Passu Securities”),

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or junior in interest to this Security or (iii) make any payments under any guarantee of the subordinated debt securities of any Subsidiary if the guarantee ranks upon liquidation on a parity with or junior to this Security (other than (a) any purchase, redemption or other acquisition of shares of the Company’s capital stock in connection with (1) any employment contract, benefit plan or other similar arrangement with or for the benefit of any one or more of its employees, officers, directors, consultants or independent contractors, (2) the satisfaction of the Company’s obligations pursuant to any contract entered into in the ordinary course of business prior to the beginning of the applicable Deferral Period, (3) a dividend reinvestment or shareholder purchase plan, or (4) the issuance of the Company’s capital stock, or securities convertible into or exercisable for such capital stock, as consideration in an acquisition transaction entered into prior to the applicable Deferral Period, (b) any exchange, redemption or conversion of any class or series of the Company’s capital stock, or the capital stock of one of its Subsidiaries, for any other class or series of its capital stock, or of any class or series of its indebtedness for any class or series of its capital stock, (c) any purchase of fractional interests in shares of the Company’s capital stock pursuant to the conversion or exchange provisions of such capital stock or the securities being converted or exchanged, (d) any declaration of a dividend in connection with any shareholder rights plan, or the issuance of rights, stock or other property under any shareholder rights plan, or the redemption or purchase of rights pursuant thereto, (e) any dividend in the form of stock, warrants, options or other rights where the dividend stock or stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks equally with or junior to such stock, (f) any payment of current or deferred interest on Pari Passu Securities that is made pro rata to the amounts due on such Pari Passu Securities (including the this Security); provided that such payments are made in accordance with Section 2.6(c) of the First Supplemental Indenture to the extent it applies, and any payments of deferred interest on Pari Passu Securities that, if not made, would cause the Company to breach the terms of the instrument governing such Pari Passu Securities; or (g) any payment of principal in respect of Pari Passu Securities having the same scheduled maturity date as this Security, as required under a provision of such other Pari Passu Securities that is substantially the same as the provisions in Section 2.2 of the First Supplemental Indenture, and that is made on a pro rata basis among one or more series of Pari Passu Securities (including this Security) having such a provision. In addition, if any Deferral Period lasts longer than one year, the restrictions on the Company’s ability to redeem or purchase any of its Qualifying APM Securities or any of its securities that on its bankruptcy or liquidation rank pari passu or junior to such Qualifying APM Securities will continue until the first anniversary of the date on which all deferred interest on this Security has been paid.

The Company shall give written notice of its election to begin or extend any Deferral Period, to the Trustee and the Holders of this Security at least one Business Day and not more than sixty Business Days before the next Interest Payment Date. Notice of the Company’s election of a Deferral Period shall be given to the Trustee and each holder of this Security at such holder’s address appearing in the Security Register by first-class mail, postage prepaid.

Payment of the principal of (and premium, if any) and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the United States, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made (i) by check mailed to the address of the Person entitled thereto

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as such address shall appear in the Securities Register or (ii) by wire transfer in immediately available funds at the bank account number as may be designated by the Person entitled thereto as specified in the Securities Register in writing not less than ten days before the relevant Interest Payment Date.

The indebtedness evidenced by this Security is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such actions as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. Each Holder hereof, by his acceptance hereof, waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions.

The Company and, by acceptance of this Security or a beneficial interest in this Security, each Holder hereof and any person acquiring a beneficial interest herein, agree that for United States federal, state and local tax purposes it is intended that this Security constitute indebtedness.

Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.

Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.

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In Witness Whereof, the Company has caused this instrument to be duly executed.

AMBAC FINANCIAL GROUP, INC.

By:

Title:

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.

THE BANK OF NEW YORK, as Trustee
By:
	Authorized Signatory
Dated:

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(FORM OF REVERSE OF DISCS)

This Security is one of a duly authorized issue of securities of the Company (herein called the “DISCS”), issued and to be issued in one or more series under the Junior Subordinated Indenture, dated as of February 12, 2007 (herein called the “Base Indenture”), between the Company and The Bank of New York, as trustee (the “Trustee”), as amended and supplemented by the First Supplemental Indenture, dated as of February 12, 2007, between the Company and the Trustee (the “First Supplemental Indenture”, and together with the Base Indenture, the “Indenture”), to which Indenture and all other indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Trustee, the Company and the Holders of the DISCS, and of the terms upon which the DISCS are, and are to be, authenticated and delivered. By the terms of the Indenture, the Securities are issuable in series that may vary as to amount, date of maturity, rate of interest, rank and in any other respect provided in the Indenture.

All terms used in this Security that are defined in the Indenture shall have the meanings assigned to them in the Indenture.

This Security shall be redeemable at the option of the Company in accordance with the terms of the Indenture. In particular, (i) this Security is redeemable in whole or in part at the option of the Company at any time after the date hereof or (ii) this Security is redeemable in whole but not in part at any time within 90 days following the occurrence and during the continuation of a Tax Event or Rating Agency Event, in each case at a Redemption Price equal to the greater of (1) in the case of any redemption on or after the Scheduled Maturity Date 100% of its principal amount plus accrued and unpaid interest to the Redemption Date or (2) in the case of any such redemption prior to the Scheduled Maturity Date, the Make-Whole Redemption Price; provided that if in the case of an optional redemption, the DISCS are not redeemed in whole, the Company may not affect such redemption unless at least $25 million aggregate principal amount of the DISCS, excluding any DISCS held by the Company or any of its affiliates, remains outstanding after giving effect to such redemption.

No sinking fund is provided for the DISCS.

The Indenture contains provisions for satisfaction and discharge of the entire indebtedness of this Security upon compliance by the Company with certain conditions set forth in the Indenture.

The Indenture permits, with certain exceptions as therein provided, the Company and the Trustee at any time to enter into a supplemental indenture or indentures for the purpose of modifying in any manner the rights and obligations of the Company and of the Holders of the Securities, with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities to be affected by such supplemental indenture. The Indenture also contains provisions permitting Holders of specified percentages in principal amount of the Securities at the time Outstanding, on behalf of the Holders of all Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this

R-1

Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.

As provided in and subject to the provisions of the Indenture, if an Event of Default with respect to the Securities at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities may declare the entire principal amount and all accrued but unpaid interest of all the Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), provided that the payment of principal and interest (including any Additional Interest) on such Securities shall remain subordinated to the extent provided in Article Fifteen of the Indenture.

No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed.

As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Securities Register, upon surrender of this Security for registration of transfer at the office or agency of the Company maintained under Section 1002 of the Indenture duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Securities Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee shall treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.

The Securities are issuable only in registered form without coupons in minimum denominations of $1,000 and any integral multiples of $1,000 in excess thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate principal amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same.

The Company and, by its acceptance of this Security or a beneficial interest therein, the Holder of, and any Person that acquires a beneficial interest in, this Security agree to treat for United States Federal income tax purposes (i) the Securities as indebtedness of the Company, and (ii) the stated interest on the Securities as ordinary interest income that is includible in the Holder’s or beneficial owner’s gross income at the time the interest is paid or accrued in accordance with the Holder’s or beneficial owner’s regular method of tax accounting, and otherwise to treat the Securities as described in the Prospectus.

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The Indenture and this Security shall be governed by and construed in accordance with the laws of the State of New York.

This is one of the Securities referred to in the within mentioned Indenture.

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ASSIGNMENT

FOR VALUE RECEIVED, the undersigned assigns and transfers this Security to:

(Insert assignee’s social security or tax identification number)

(Insert address and zip code of assignee)

agent to transfer this Security on the books of the Securities Registrar. The agent may substitute another to act for him or her.

Dated:	Signature:
	Signature Guarantee:

(Sign exactly as your name appears on the other side of this Security)

Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of the Securities Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Securities Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

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SCHEDULE I

SCHEDULE OF PRINCIPAL AMOUNT REDUCTIONS

Principal amount of DISCS outstanding represented by this Security as of February 12, 2007:

$                     

Thereafter, the following decreases have been made:

Date of Redemption or Repurchase Principal Amount Redeemed or Repurchased Principal Amount Remaining Notation Made by or on Behalf of the Trustee

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EX-4.13

Exhibit 4.13

Form of DISCS

The DISCS are to be substantially in the following form and shall bear any legend required by Section 202 of the Indenture:

THIS NOTE IS NOT A DEPOSIT OR OTHER OBLIGATION OF A DEPOSITORY INSTITUTION AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.

No. ·	Principal Amount: $·
Issue Date: ·

AMBAC FINANCIAL GROUP, INC.

·% DIRECTLY ISSUED SUBORDINATED CAPITAL SECURITIES

AMBAC FINANCIAL GROUP, INC., a corporation organized and existing under the laws of Delaware (hereinafter called the “Company”, which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to     , or registered assigns, the principal sum of · DOLLARS ($·) as may be revised from time to time on Schedule I hereto and all accrued and unpaid interest thereof on February 15, 2037, or if such day is not a Business Day, the following Business Day (the “Scheduled Maturity Date”) or any subsequent Interest Payment Date (as hereafter defined) to the extent set forth in the First Supplement Indenture. If that amount is not paid in full on the Scheduled Maturity Date or any subsequent Interest Payment Date, the remaining amount, together with accrued and unpaid interest, will be due and payable on the Final Maturity Date. The Final Maturity Date will be February 7, 2087, or if such day is not a Business Day, the following Business Day.

The Company further promises to pay interest on said principal sum from and including February 12, 2007, or from and including the most recent interest payment date on which interest has been paid or duly provided for, semi-annually (subject to deferral as set forth herein) in arrears on February 15 and August 15 of each year, commencing August 15, 2007, at the rate of 6.15% per annum (computed on the basis of a 360-day year comprised of twelve 30-day months) to but excluding the Scheduled Maturity Date, and to pay interest, after the Scheduled Maturity Date, on said outstanding principal sum monthly in arrears on the 15th day of each calendar month (each such date and, together with such February 15 and August 15 of each year, an “Interest Payment Date”), at a floating annual rate equal to One-Month LIBOR (as defined in the First Supplemental Indenture) plus 1.835% (computed on the basis of a 360-day year and the actual number of days elapsed), until the principal hereof shall have become due and payable, plus Additional Interest, if any, until the principal hereof is paid or duly provided for or made available for payment. Accrued interest that is not paid on the applicable Interest Payment Date, including interest deferred pursuant to Section 2.5 of the First Supplemental Indenture, will bear Additional Interest, to the extent permitted by law, at the interest rate in effect from time to time, from the relevant Interest Payment Date, compounded on each subsequent Interest Payment Date. In the event that any date on which interest is payable on this Security is not a Business Day, then a payment of the interest payable on such date will be made on the next succeeding day that is a Business Day (and, in the case of payments on or prior to the

1

Scheduled Maturity Date, without any interest or other payment in respect of any such delay) with the same force and effect as if made on the date the payment was originally payable. A “Business Day” shall mean any day other than (i) a Saturday or Sunday, (ii) a day on which banking institutions in The City of New York are authorized or required by law or executive order to remain closed or (iii) a day on which the corporate trust office of the Trustee, is closed for business. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest installment, which shall be February 1 and August 1, as the case may be, immediately preceding such Interest Payment Date until the Scheduled Maturity Date (whether or not a Business Day), and the 15^th day preceding the Relevant Interest Payment Date after the Scheduled Maturity Date. Any such interest installment not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities of this series not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities of this series may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture.

So long as no Event of Default has occurred and is continuing, the Company shall have the right at any time or from time to time during the term of this Security to defer payment of interest on this Security for one or more consecutive interest payment periods (each a “Deferral Period”) that do not exceed 10 years, during which Deferral Periods the Company shall have the right to make partial payments of interest on any Interest Payment Date, and at the end of which the Company shall pay all interest then accrued and unpaid (together with Additional Interest thereon to the extent permitted by applicable law); provided, however, that no Deferral Period shall extend beyond the Final Maturity Date or the earlier repayment or redemption in full of the Securities. Upon the termination of any Deferral Period and upon the payment of all deferred interest then due, the Company may elect to begin a new Deferral Period, subject to the above requirements. Deferred interest on the Security will bear interest at the then applicable interest rate, compounded on each Interest Payment Date, subject to applicable law. No interest shall be due and payable during a Deferral Period except at the end thereof. Additional limitations may apply, pursuant to Section 3.2 of the First Supplemental Indenture, if any Deferral Period lasts longer than one year.

So long as any Securities remain outstanding, if the Company has given notice of its election to defer interest payments on the Securities but the related Deferral Period has not yet commenced or a Deferral Period is continuing, the Company shall not, and shall not permit any Subsidiary of the Company to, (i) declare or pay any dividends or distributions, or redeem, purchase, acquire or make a liquidation payment with respect to any shares of the Company’s capital stock, (ii) make any payment of principal of, or interest or premium, if any, on or repay, purchase or redeem any debt securities of the Company that rank upon the Company’s liquidation on a parity with this Security (including this Security, the “Pari Passu Securities”), or junior in interest to this Security or (iii) make any payments under any guarantee of the subordinated debt securities of any Subsidiary if the guarantee ranks upon liquidation on a parity

2

with or junior to this Security (other than (a) any purchase, redemption or other acquisition of shares of the Company’s capital stock in connection with (1) any employment contract, benefit plan or other similar arrangement with or for the benefit of any one or more of its employees, officers, directors, consultants or independent contractors, (2) the satisfaction of the Company’s obligations pursuant to any contract entered into in the ordinary course of business prior to the beginning of the applicable Deferral Period, (3) a dividend reinvestment or shareholder purchase plan, or (4) the issuance of the Company’s capital stock, or securities convertible into or exercisable for such capital stock, as consideration in an acquisition transaction entered into prior to the applicable Deferral Period, (b) any exchange, redemption or conversion of any class or series of the Company’s capital stock, or the capital stock of one of its Subsidiaries, for any other class or series of its capital stock, or of any class or series of its indebtedness for any class or series of its capital stock, (c) any purchase of fractional interests in shares of the Company’s capital stock pursuant to the conversion or exchange provisions of such capital stock or the securities being converted or exchanged, (d) any declaration of a dividend in connection with any shareholder rights plan, or the issuance of rights, stock or other property under any shareholder rights plan, or the redemption or purchase of rights pursuant thereto, (e) any dividend in the form of stock, warrants, options or other rights where the dividend stock or stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks equally with or junior to such stock, (f) any payment of current or deferred interest on Pari Passu Securities that is made pro rata to the amounts due on such Pari Passu Securities (including the this Security); provided that such payments are made in accordance with Section 2.6(c) of the First Supplemental Indenture to the extent it applies, and any payments of deferred interest on Pari Passu Securities that, if not made, would cause the Company to breach the terms of the instrument governing such Pari Passu Securities; or (g) any payment of principal in respect of Pari Passu Securities having the same scheduled maturity date as this Security, as required under a provision of such other Pari Passu Securities that is substantially the same as the provisions in Section 2.2 of the First Supplemental Indenture, and that is made on a pro rata basis among one or more series of Pari Passu Securities (including this Security) having such a provision. In addition, if any Deferral Period lasts longer than one year, the restrictions on the Company’s ability to redeem or purchase any of its Qualifying APM Securities or any of its securities that on its bankruptcy or liquidation rank pari passu or junior to such Qualifying APM Securities will continue until the first anniversary of the date on which all deferred interest on this Security has been paid.

The Company shall give written notice of its election to begin or extend any Deferral Period, to the Trustee and the Holders of this Security at least one Business Day and not more than sixty Business Days before the next Interest Payment Date. Notice of the Company’s election of a Deferral Period shall be given to the Trustee and each holder of this Security at such holder’s address appearing in the Security Register by first-class mail, postage prepaid.

Payment of the principal of (and premium, if any) and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the United States, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the Securities Register or (ii) by wire transfer in immediately available funds at the bank account number as may be designated by the Person entitled thereto as specified in the Securities Register in writing not less than ten days before the relevant Interest Payment Date.

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The indebtedness evidenced by this Security is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such actions as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes. Each Holder hereof, by his acceptance hereof, waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions.

The Company and, by acceptance of this Security or a beneficial interest in this Security, each Holder hereof and any person acquiring a beneficial interest herein, agree that for United States federal, state and local tax purposes it is intended that this Security constitute indebtedness.

Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.

Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.

4

In Witness Whereof, the Company has caused this instrument to be duly executed.

AMBAC FINANCIAL GROUP, INC.

By:

Title:

TRUSTEE’S CERTIFICATE OF AUTHENTICATION

This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.

THE BANK OF NEW YORK, as Trustee
By:
	Authorized Signatory

Dated:

5

(FORM OF REVERSE OF DISCS)

This Security is one of a duly authorized issue of securities of the Company (herein called the “DISCS”), issued and to be issued in one or more series under the Junior Subordinated Indenture, dated as of February 12, 2007 (herein called the “Base Indenture”), between the Company and The Bank of New York, as trustee (the “Trustee”), as amended and supplemented by the First Supplemental Indenture, dated as of February 12, 2007, between the Company and the Trustee (the “First Supplemental Indenture”, and together with the Base Indenture, the “Indenture”), to which Indenture and all other indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Trustee, the Company and the Holders of the DISCS, and of the terms upon which the DISCS are, and are to be, authenticated and delivered. By the terms of the Indenture, the Securities are issuable in series that may vary as to amount, date of maturity, rate of interest, rank and in any other respect provided in the Indenture.

All terms used in this Security that are defined in the Indenture shall have the meanings assigned to them in the Indenture.

This Security shall be redeemable at the option of the Company in accordance with the terms of the Indenture. In particular, (i) this Security is redeemable in whole or in part at the option of the Company at any time after the date hereof or (ii) this Security is redeemable in whole but not in part at any time within 90 days following the occurrence and during the continuation of a Tax Event or Rating Agency Event, in each case at a Redemption Price equal to the greater of (1) in the case of any redemption on or after the Scheduled Maturity Date 100% of its principal amount plus accrued and unpaid interest to the Redemption Date or (2) in the case of any such redemption prior to the Scheduled Maturity Date, the Make-Whole Redemption Price; provided that if in the case of an optional redemption, the DISCS are not redeemed in whole, the Company may not affect such redemption unless at least $25 million aggregate principal amount of the DISCS, excluding any DISCS held by the Company or any of its affiliates, remains outstanding after giving effect to such redemption.

No sinking fund is provided for the DISCS.

The Indenture contains provisions for satisfaction and discharge of the entire indebtedness of this Security upon compliance by the Company with certain conditions set forth in the Indenture.

The Indenture permits, with certain exceptions as therein provided, the Company and the Trustee at any time to enter into a supplemental indenture or indentures for the purpose of modifying in any manner the rights and obligations of the Company and of the Holders of the Securities, with the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities to be affected by such supplemental indenture. The Indenture also contains provisions permitting Holders of specified percentages in principal amount of the Securities at the time Outstanding, on behalf of the Holders of all Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this

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Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.

As provided in and subject to the provisions of the Indenture, if an Event of Default with respect to the Securities at the time Outstanding occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities may declare the entire principal amount and all accrued but unpaid interest of all the Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), provided that the payment of principal and interest (including any Additional Interest) on such Securities shall remain subordinated to the extent provided in Article Fifteen of the Indenture.

No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed.

As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Securities Register, upon surrender of this Security for registration of transfer at the office or agency of the Company maintained under Section 1002 of the Indenture duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Securities Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee shall treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.

The Securities are issuable only in registered form without coupons in minimum denominations of $1,000 and any integral multiples of $1,000 in excess thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate principal amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same.

The Company and, by its acceptance of this Security or a beneficial interest therein, the Holder of, and any Person that acquires a beneficial interest in, this Security agree to treat for United States Federal income tax purposes (i) the Securities as indebtedness of the Company, and (ii) the stated interest on the Securities as ordinary interest income that is includible in the Holder’s or beneficial owner’s gross income at the time the interest is paid or accrued in

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accordance with the Holder’s or beneficial owner’s regular method of tax accounting, and otherwise to treat the Securities as described in the Prospectus.

The Indenture and this Security shall be governed by and construed in accordance with the laws of the State of New York.

This is one of the Securities referred to in the within mentioned Indenture.

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ASSIGNMENT

FOR VALUE RECEIVED, the undersigned assigns and transfers this Security to:

(Insert assignee’s social security or tax identification number)

(Insert address and zip code of assignee)

agent to transfer this Security on the books of the Securities Registrar. The agent may substitute another to act for him or her.

Dated:	Signature:
	Signature Guarantee:

(Sign exactly as your name appears on the other side of this Security)

Signatures must be guaranteed by an “eligible guarantor institution” meeting the requirements of the Securities Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Securities Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.

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EX-4.14

Exhibit 4.14

REPLACEMENT CAPITAL COVENANT, dated as of February 12, 2007 (this “Replacement Capital Covenant”), by Ambac Financial Group, Inc., a Delaware corporation (together with its successors and assigns, the “Corporation”), in favor of and for the benefit of each Covered Debtholder (as defined below).

RECITALS

(A) On the date hereof, the Corporation is issuing $400,000,000 aggregate principal amount of its Directly-Issued Subordinated Capital Securities (including any such directly issued subordinated capital securities issued after the date hereof that may be consolidated and form a single series with such Directly Issued Subordinated Capital Securities issued on the date hereof, the “DISCS”).

(B) This Replacement Capital Covenant is the “Replacement Capital Covenant” referred to in the Prospectus Supplement, dated February 7, 2007, relating to the DISCS (together with the Prospectus, dated February 6, 2007 attached thereto, the “Prospectus”).

(C) The Corporation is entering into and disclosing the content of this Replacement Capital Covenant in the manner provided below with the intent that the covenants provided for in this Replacement Capital Covenant be enforceable by each Covered Debtholder and that the Corporation be estopped from disregarding the covenants in this Replacement Capital Covenant, in each case to the fullest extent permitted by applicable law.

(D) The Corporation acknowledges that reliance by each Covered Debtholder upon the covenants in this Replacement Capital Covenant is reasonable and foreseeable by the Corporation and that, were the Corporation to disregard its covenants in this Replacement Capital Covenant, each Covered Debtholder would have sustained an injury as a result of its reliance on such covenants.

NOW, THEREFORE, the Corporation hereby covenants and agrees as follows in favor of and for the benefit of each Covered Debtholder.

Section 1. Definitions. Capitalized terms used in this Replacement Capital Covenant (including the Recitals) have the respective meanings set forth in Schedule I hereto.

Section 2. Limitations on Repayment, Redemption and Purchase of DISCS. The Corporation hereby promises and covenants to and for the benefit of each Covered Debtholder that the Corporation shall not repay, redeem or purchase (for the avoidance of doubt, any reference in this Replacement Capital Covenant to any repayment of the Corporation’s securities will be deemed to include a reference to defeasance of the Corporation’s obligations under the securities), and will cause its Subsidiaries not to, repay, redeem or purchase, as applicable, all or any part of the DISCS on or before February 7, 2067 except to the extent that the principal amount repaid or the applicable redemption, repayment or purchase price does not exceed the sum of the following amounts raised through the issuance of Replacement Capital Securities:

(a) the Applicable Percentage of (i) the aggregate amount of net cash proceeds received by the Corporation and its Subsidiaries from the sale of Common Stock and Qualifying Warrants (each as defined below) to Persons other than the Corporation and its Subsidiaries and (ii) the Market Value of any Common Stock that the Corporation and its Subsidiaries have issued to persons other than the Corporation and its Subsidiaries in connection with the conversion of any convertible or exchangeable securities, other than securities for which the Corporation or any of its Subsidiaries has received equity credit from any NRSRO (as defined below), in each case since the most recent Measurement Date (without double counting proceeds received in any prior Measurement Period); plus

(b) the aggregate amount of net cash proceeds received by the Corporation and its Subsidiaries since the most recent Measurement Date (without double counting proceeds received in any prior Measurement Period) from the sale of Mandatorily Convertible Preferred Stock, Debt Exchangeable for Common Equity, Debt Exchangeable for Preferred Equity and Qualifying Capital Securities to Persons other than the Corporation and its Subsidiaries.

Section 3. Covered Debt. (a) The Corporation represents and warrants that the Initial Covered Debt is Eligible Debt.

(b) On or during the 30-day period immediately preceding any Redesignation Date with respect to the Covered Debt then in effect, the Corporation shall identify the series of Eligible Debt that will become the Covered Debt on and after such Redesignation Date in accordance with the following procedures:

(i) the Corporation shall identify each series of its then outstanding long-term indebtedness for money borrowed that is Eligible Debt;

(ii) if only one series of the Corporation’s then outstanding long-term indebtedness for money borrowed is Eligible Debt, such series shall become the Covered Debt commencing on the related Redesignation Date;

(iii) if the Corporation has more than one outstanding series of long-term indebtedness for money borrowed that is Eligible Debt, then the Corporation shall identify the series that has the latest stated final maturity date as of the date the Corporation is applying the procedures in this Section 3(b) and such series shall become the Covered Debt on the related Redesignation Date;

(iv) the series of outstanding long-term indebtedness for money borrowed that is determined to be Covered Debt pursuant to this Section 3(b) shall be the Covered Debt for purposes of this Replacement Capital Covenant for the period commencing on the related Redesignation Date and continuing to but not including the Redesignation Date as of which a new series of outstanding long-term indebtedness is next determined to be the Covered Debt pursuant to the procedures set forth in this Section 3(b); and

(v) in connection with such identification of a new series of Covered Debt, the Corporation shall, as provided for in Section 3(c), give a notice and file

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with the Commission a current report on Form 8-K under the Exchange Act including or incorporating by reference this Replacement Capital Covenant as an exhibit within the time frame provided for in such section.

(c) Notice. In order to give effect to the intent of the Corporation described in Recital C, the Corporation covenants that (i) simultaneously with the execution of this Replacement Capital Covenant or as soon as practicable after the date hereof, it shall (A) give notice to the Holders of the Initial Covered Debt, in the manner provided in the indenture relating to the Initial Covered Debt, of this Replacement Capital Covenant and the rights granted to such Holders hereunder and (B) file a copy of this Replacement Capital Covenant with the Commission as an exhibit to a current report on Form 8-K under the Exchange Act; (ii) so long as the Corporation is a reporting company under the Exchange Act, the Corporation will include in each annual report filed with the Commission on Form 10-K under the Exchange Act a description of the covenant set forth in Section 2 and identify the series of long-term indebtedness for borrowed money that is Covered Debt as of the date such annual report on Form 10-K is filed with the Commission; (iii) if a series of the Corporation’s long-term indebtedness for money borrowed (A) becomes Covered Debt or (B) ceases to be Covered Debt pursuant to the procedures set forth in Section 3(b), the Corporation shall give notice of such occurrence within 30 days to the holders of such long-term indebtedness for money borrowed in the manner provided for in the indenture, fiscal agency agreement or other instrument under which such long-term indebtedness for money borrowed was issued and report such change in a current report on Form 8-K under the Exchange Act including or incorporating by reference this Replacement Capital Covenant, and in the Corporation’s next quarterly report on Form 10-Q or annual report on Form 10-K, as applicable; (iv) if, and only if, the Corporation ceases to be a reporting company under the Exchange Act, the Corporation shall post on its website the information otherwise required to be included in Exchange Act filings pursuant to clauses (ii) and (iii) of this Section 3(c); and (v) promptly upon request by any Holder of Covered Debt, the Corporation shall provide such Holder with a conformed copy of this Replacement Capital Covenant.

Section 4. Termination, Amendment and Waiver. (a) The obligations of the Corporation pursuant to this Replacement Capital Covenant shall remain in full force and effect until the earliest (the “Termination Date”) to occur of (i) February 7, 2067, or, if earlier, the date on which the DISCS are otherwise repaid, redeemed or purchased in full, (ii) the date, if any, on which the Holders of a majority in principal amount of the then-effective series of Covered Debt consent or agree in writing to the termination of this Replacement Capital Covenant and the obligations of the Corporation hereunder, (iii) the date on which the Corporation ceases to have any series of outstanding Eligible Senior Debt or Eligible Subordinated Debt (in each case, without giving effect to the rating requirement in clause (b) of the definition of each such term) and (iv) the date on which an event of default under the Junior Subordinated Indenture resulting in an acceleration of the DISCS occurs. From and after the Termination Date, the obligations of the Corporation pursuant to this Replacement Capital Covenant shall be of no further force and effect.

(b) This Replacement Capital Covenant may be amended or supplemented from time to time by a written instrument signed by the Corporation with the consent of the Holders of at least a majority in principal amount of the then-effective series of Covered Debt, provided

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that this Replacement Capital Covenant may be amended or supplemented from time to time by a written instrument signed only by the Corporation (and without the consent of any Holder of the then-effective series of Covered Debt) if (i) the effect of such amendment or supplement is solely to impose additional restrictions on the types of securities qualifying as Replacement Capital Securities, and an officer of the Corporation has delivered to the Holders of the then-effective series of Covered Debt in the manner provided for in the indenture, fiscal agency agreement or other instrument with respect to such Covered Debt a written certificate to that effect, (ii) such amendment or supplement is not adverse to the Covered Debtholders and an officer of the Corporation has delivered to the Holders of the then-effective series of Covered Debt in the manner provided for in the indenture, fiscal agency agreement or other instrument with respect to such Covered Debt a written certificate stating that, in his or her determination, such amendment or supplement is not adverse to such Covered Debtholders, or (iii) such amendment or supplement eliminates Common Stock, Debt Exchangeable for Common Equity and/or Mandatorily Convertible Preferred Stock as Replacement Capital Securities if, in the case of this clause (iii), the Corporation has been advised in writing by a nationally recognized independent accounting firm that there is more than an insubstantial risk that the failure to do so would result in a reduction in the Corporation’s earnings per share as calculated for financial reporting purposes.

(c) For purposes of Sections 4(a) and 4(b), the Holders whose consent or agreement is required to terminate, amend or supplement the obligations of the Corporation under this Replacement Capital Covenant shall be the Holders of the then-effective Covered Debt as of a record date established by the Corporation that is not more than 30 days prior to the date on which the Corporation proposes that such termination, amendment or supplement becomes effective.

Section 5. Miscellaneous. (a) This Replacement Capital Covenant shall be governed by and construed in accordance with the laws of the State of New York.

(b) This Replacement Capital Covenant shall be binding upon the Corporation and its successors and assigns and shall inure to the benefit of the Covered Debtholders as they exist from time to time (it being understood and agreed by the Corporation that any Person who is a Covered Debtholder at the time such Person acquires, holds or sells Covered Debt shall retain its status as a Covered Debtholder for so long as the series of long-term indebtedness for borrowed money owned by such Person is Covered Debt and, if such Person initiates a claim or proceeding to enforce its rights under this Replacement Capital Covenant after the Corporation has violated its covenants in Section 2 and before the series of long-term indebtedness for money borrowed held by such Person is no longer Covered Debt, such Person’s rights under this Replacement Capital Covenant shall not terminate prior to a Termination Date solely by reason of such series of long-term indebtedness for money borrowed no longer being Covered Debt).

(c) All demands, notices, requests and other communications to the Corporation under this Replacement Capital Covenant shall be deemed to have been duly given and made if in writing and (i) if served by personal delivery upon the Corporation, on the day so delivered (or, if such day is not a Business Day, the next succeeding Business Day), (ii) if delivered by registered post or certified mail, return receipt requested, or sent to the

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Corporation by a national or international courier service, on the date of receipt by the Corporation (or, if such date of receipt is not a Business Day, the next succeeding Business Day), or (iii) if sent by telecopier, on the day telecopied, or if not a Business Day, the next succeeding Business Day, provided that the telecopy is promptly confirmed by telephone confirmation thereof, and in each case to the Corporation at the address set forth below, or at such other address as the Corporation may thereafter notify to Covered Debtholders or post on its website as the address for notices under this Replacement Capital Covenant:

Ambac Financial Group.

One State Street Plaza

New York, NY 10004

(d) If the Corporation is obligated to sell Replacement Capital Securities and apply the net proceeds to payments of principal of or interest on any outstanding securities in addition to the DISCS, then on any date and for any period the amount of net proceeds received by the Corporation from those sales and available for such payments shall be applied to the DISCS and those other securities having the same scheduled repayment date or scheduled redemption date as the DISCS pro rata in accordance with their respective outstanding principal amounts and none of such net proceeds shall be applied to any other securities having a later scheduled repayment date or scheduled redemption date until the principal of and all accrued and unpaid interest on the DISCS has been paid in full.

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IN WITNESS WHEREOF, the Corporation has caused this Replacement Capital Covenant to be executed by its duly authorized officer, as of the day and year first above written.

AMBAC FINANCIAL GROUP
By:	/s/ David Trick
Name:	David Trick
Title:	Managing Director and Treasurer

[Signature page to the Replacement Capital Covenant]

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Schedule I

DEFINITIONS

“Alternative Payment Mechanism” means, with respect to any securities or combination of securities (together in this definition, “such securities”), provisions in the related transaction documents requiring the Corporation to issue (or use commercially reasonable efforts to issue) one or more types of APM Qualifying Securities raising eligible proceeds at least equal to the deferred Distributions on such securities and apply the proceeds to pay unpaid Distributions on such securities, commencing on the earlier of (x) the first Distribution Date after commencement of a deferral period on which the Corporation pays current Distributions on such securities and (y) the fifth anniversary of the commencement of such deferral period, and that:

(a) define “eligible proceeds” to mean, for purposes of such Alternative Payment Mechanism, the net proceeds (after underwriters’ or placement agents’ fees, commissions or discounts and other expenses relating to the issuance or sale of the relevant securities, where applicable, and including the fair market value of property received by the Corporation or any of its Subsidiaries as consideration for such securities) that the Corporation has received during the 180 days prior to the related Distribution Date from the issuance of APM Qualifying Securities, up to the Preferred Cap (as defined in paragraph (f) below) in the case of APM Qualifying Securities that are Qualifying Non-Cumulative Perpetual Preferred Stock or Mandatorily Convertible Preferred Stock;

(b) permit the Corporation to pay current Distributions on any Distribution Date out of any source of funds but (x) require the Corporation to pay deferred Distributions only out of eligible proceeds and (y) prohibit the Corporation from paying deferred Distributions out of any source of funds other than eligible proceeds;

(c) if deferral of Distributions continues for more than one year (or such shorter period as provided for in the terms of such securities), require the Corporation not to repay, redeem or purchase any APM Qualifying Securities of the Corporation or any securities of the Corporation that on a bankruptcy or liquidation of the Corporation rank pari passu or junior to such APM Qualifying Securities until at least one year after all deferred Distributions have been paid;

(d) may include a provision that, notwithstanding the Common Cap (as defined in paragraph (f) below) and the Preferred Cap, for purposes of paying deferred Distributions, limits the ability of the Corporation to sell shares of Common Stock, Qualifying Warrants, or Mandatorily Convertible Preferred Stock above an aggregate cap specified in the transaction documents (a “Share Cap”), subject to the Corporation’s agreement to use commercially reasonable efforts to increase the Share Cap amount only to the extent that it can do so and (i) simultaneously satisfy its future fixed or contingent obligations under other securities and derivative instruments that provide for settlement or payment in shares of Common Stock or (ii) if the Corporation cannot increase the Share Cap amount as contemplated in the preceding clause, by requesting its Board of Directors to adopt a resolution for shareholder vote at the next occurring annual shareholders meeting to increase the number of shares of the Corporation’s authorized Common Stock for purposes of satisfying the Corporation’s obligations to pay deferred Distributions;

(e) permit the Corporation, at its option, to provide that if the Corporation is involved in a merger, consolidation, amalgamation or conveyance, transfer or lease of assets substantially as an entirety to any other person (a “business combination”) where immediately after the consummation of the business combination more than 50% of the surviving entity’s voting stock of the surviving entity of the business combination, or the person to whom all or substantially all of the Corporation’s assets are conveyed, transferred or leased is owned by the shareholders of the other party to the business combination, then clauses (a), (b) and (c) above will not apply to any deferral period that is terminated on the next interest payment date following the date of consummation of the business combination; and

(f) limit the obligation of the Corporation to issue (or use commercially reasonable efforts to issue) APM Qualifying Securities up to:

(i) in the case of APM Qualifying Securities that are Common Stock or Qualifying Warrants, an aggregate amount of all Common Stock issued or issuable upon the exercise of such Qualifying Warrants pursuant to the Alternative Payment Mechanism with respect to deferred Distributions during the first five years of any deferral period equal to 2% of the total number of issued and outstanding shares of the Common Stock of the Company as of the date of the Corporation’s most recently publicly available consolidated financial statements as of the date of such issuance (the “Common Cap”), provided (and it being understood) that the Common Cap shall cease to apply to such deferral period by a date (as specified in the related transaction documents) which shall be not later than the fifth anniversary of the commencement of such deferral period; and

(ii) in the case of APM Qualifying Securities that are Qualifying Non-Cumulative Perpetual Preferred Stock or Mandatorily Convertible Preferred Stock, an amount from the issuance of such Qualifying Non-Cumulative Perpetual Preferred Stock and then still-outstanding Mandatorily Convertible Preferred Stock pursuant to the related Alternative Payment Mechanism (including, in the case of Qualifying Non-Cumulative Perpetual Preferred Stock, at any point in time from all prior issuances thereof pursuant to such Alternative Payment Mechanism) equal to 25% of the initial principal or stated amount of the securities that are the subject of the related Alternative Payment Mechanism (the “Preferred Cap”);

(iii) provided (and it being understood) that:

(A) the Corporation shall not be obligated to issue (or use commercially reasonable efforts to issue) APM Qualifying Securities for so long as a Market Disruption Event has occurred and is continuing;

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(B) if, due to a Market Disruption Event or otherwise, the Corporation is able to raise and apply some, but not all, of the eligible proceeds necessary to pay all deferred Distributions on any Distribution Date, the Corporation will apply any available eligible proceeds to pay accrued and unpaid Distributions on the applicable Distribution Date in chronological order subject to the Common Cap, Preferred Cap and Share Cap (if any), as applicable; and

if the Corporation has outstanding more than one class or series of securities under which it is obligated to sell a type of APM Qualifying Securities and apply some part of the proceeds to the payment of deferred Distributions, then on any date and for any period the amount of net proceeds received by the Corporation from those sales and available for payment of deferred Distributions on such securities shall be applied to such securities on a pro rata basis in proportion to the total amounts that are due on such securities.

“APM Qualifying Securities” means:

(a) Common Stock;

(b) Qualifying Warrants;

(c) Qualifying Non-Cumulative Perpetual Preferred Stock; or

(d) Mandatorily Convertible Preferred Stock.

“Applicable Percentage” means 1 divided by (i) 75% with respect to any repayment, redemption or purchase prior to February 7, 2037, (ii) 50% with respect to any repayment, redemption or purchase on or after February 7, 2037 and prior to February 7, 2057 and (iii) 25% with respect to any repayment, redemption or purchase on or after February 7, 2057 (for example, prior to February 7, 2037, the Applicable Percentage in the case of such securities will be 133.33%).

“Business Day” means each day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in The City of New York are authorized or required by law or executive order to remain closed, and, on or after the Scheduled Maturity Date, a day that is not a London business day. A “London business day” is any day on which dealings in deposits in U.S. dollars are transacted in the London interbank market.

“Commission” means the United States Securities and Exchange Commission.

“Common Stock” means common stock of the Corporation (including treasury shares of common stock), common stock issued pursuant to any dividend reinvestment plan and employee benefit plans of the Corporation, a security that tracks the performance of, or relates to the results of, a business, unit or division of the Corporation, and any securities issued in exchange therefor in connection with a merger, consolidation, binding share exchange, business combination, recapitalization or other similar event.

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“Corporation” has the meaning specified in the introduction to this instrument.

“Covered Debt” means (a) at the date of this Replacement Capital Covenant and continuing to but not including the first Redesignation Date, the Initial Covered Debt and (b) thereafter, commencing with each Redesignation Date and continuing to but not including the next succeeding Redesignation Date, the Eligible Debt identified pursuant to Section 3(b) as the Covered Debt for such period.

“Covered Debtholder” means each Person (whether a Holder or a beneficial owner holding through a participant in a clearing agency) that buys, holds or sells long-term indebtedness for money borrowed of the Corporation during the period that such long-term indebtedness for money borrowed is Covered Debt.

“Debt Exchangeable for Common Equity” means a security or combination of securities (together in this definition, “such securities”) that:

(a) gives the holder a beneficial interest in (i) debt securities of the Corporation and (ii) a fractional interest in a stock purchase contract for a share of common stock of the Corporation that will be settled in three years or less, with the number of shares of common stock purchasable pursuant to such stock purchase contract to be within a range established at the time of issuance of such debt securities;

(b) provides that the investors directly or indirectly grant to the Corporation a security interest in such debt securities and their proceeds (including any substitute collateral permitted under the transaction documents) to secure the investors’ direct or indirect obligation to purchase common stock of the Corporation pursuant to such stock purchase contracts;

(c) includes a remarketing feature pursuant to which the debt securities of the Corporation are remarketed to new investors commencing not later than the first Distribution Date that is at least 1 month prior to the settlement date of the purchase contract;

(d) provides for the proceeds raised in the remarketing to be used to purchase common stock of the Corporation under the stock purchase contracts and, if there has not been a successful remarketing by the settlement date of the purchase contract, provides that the stock purchase contracts will be settled by the Corporation foreclosing on its debt securities or other collateral directly or indirectly pledged by investors in the Debt Exchangeable for Common Equity.

“Debt Exchangeable for Preferred Equity” means a security or combination of securities (together in this definition, “such securities”) that:

(a) gives the holder a beneficial interest in (i) subordinated debt securities of the Corporation that include a provision requiring the Corporation to issue (or use commercially reasonable efforts to issue) one or more types of APM Qualifying Securities raising proceeds at least equal to the deferred Distributions on such subordinated debt securities commencing not later than the second anniversary of the commencement of such deferral period and that are the most junior subordinated debt of the Corporation (or rank pari passu with the most

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junior subordinated debt of the Corporation) (in this definition, “subordinated debt” of the Corporation) and (ii) a fractional interest in a stock purchase contract for a share of non-cumulative perpetual preferred stock of the Corporation that ranks pari passu with or junior to all other preferred stock of the Corporation (in this definition, “preferred stock” of the Corporation);

(b) provides that the investors directly or indirectly grant to the Corporation a security interest in such subordinated debt securities and their proceeds (including any substitute collateral permitted under the transaction documents) to secure the investors’ direct or indirect obligation to purchase preferred stock of the Corporation pursuant to such stock purchase contracts;

(c) includes a remarketing feature pursuant to which the subordinated debt of the Corporation is remarketed to new investors commencing not later than the first Distribution Date that is at least five years after the date of issuance of securities or earlier in the event of an early settlement event based on: (i) the dissolution of the issuer of such debt exchangeable for preferred equity or (ii) one or more financial tests set forth in the terms of the instrument governing such debt exchangeable for preferred equity;

(d) provides for the proceeds raised in the remarketing to be used to purchase preferred stock of the Corporation under the stock purchase contracts and, if there has not been a successful remarketing by the first Distribution Date that is six years after the date of issuance of such securities, provides that the stock purchase contracts will be settled by the Corporation foreclosing on its subordinated debt securities or other collateral directly or indirectly pledged by investors in the Debt Exchangeable for Preferred Equity;

(e) includes a replacement capital covenant substantially similar to this Replacement Capital Covenant or an Other Qualifying Capital Replacement Covenant that will apply to such securities and, if applicable, to the preferred stock of the Corporation, and will not include Debt Exchangeable for Preferred Equity as a Replacement Capital Security; and

(f) if applicable, after the issuance of such preferred stock of the Corporation, provides the holders of such securities with a beneficial interest in such preferred stock of the Corporation.

“DISCS” has the meaning specified in Recital A.

“Distribution Date” means, as to any securities or combination of securities, the dates on which periodic Distributions on such securities are scheduled to be made.

“Distribution Period” means, as to any securities or combination of securities, each period from and including the later of the issue date and a Distribution Date for such securities to but excluding the next succeeding Distribution Date for such securities.

“Distributions” means, as to a security or combination of securities, dividends, interest payments or other income distributions to the holders thereof that are not Subsidiaries of the Corporation.

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“Eligible Debt” means, at any time, Eligible Subordinated Debt or, if no Eligible Subordinated Debt is then outstanding, Eligible Senior Debt.

“Eligible Senior Debt” means, at any time in respect of any issuer, each series of outstanding unsecured long-term indebtedness for money borrowed of such issuer that (a) upon a bankruptcy, liquidation, dissolution or winding-up of the issuer, ranks most senior among the issuer’s then outstanding classes of indebtedness for money borrowed, (b) is then assigned a rating by at least one NRSRO (provided that this clause (b) shall apply on a Redesignation Date only if on such date the issuer has outstanding senior long-term indebtedness for money borrowed that satisfies the requirements of clauses (a), (c) and (d) that is then assigned a rating by at least one NRSRO), (c) has an outstanding principal amount of not less than $100,000,000, and (d) was issued through or with the assistance of a commercial or investment banking firm or firms acting as underwriters, initial purchasers or placement or distribution agents. For purposes of this definition as applied to securities with a CUSIP number, each issuance of long-term indebtedness for money borrowed that has (or, if such indebtedness is held by a trust or other intermediate entity established directly or indirectly by the issuer, the securities of such intermediate entity that have) a separate CUSIP number shall be deemed to be a series of the issuer’s long-term indebtedness for money borrowed that is separate from each other series of such indebtedness.

“Eligible Subordinated Debt” means, at any time in respect of any issuer, each series of the issuer’s then outstanding unsecured long-term indebtedness for money borrowed that (a) upon a bankruptcy, liquidation, dissolution or winding-up of the issuer, ranks subordinate to the issuer’s then outstanding series of indebtedness for money borrowed that ranks most senior, (b) is then assigned a rating by at least one NRSRO (provided that this clause (b) shall apply on a Redesignation Date only if on such date the issuer has outstanding subordinated long-term indebtedness for money borrowed that satisfies the requirements in clauses (a), (c) and (d) that is then assigned a rating by at least one NRSRO), (c) has an outstanding principal amount of not less than $100,000,000, and (d) was issued through or with the assistance of a commercial or investment banking firm or firms acting as underwriters, initial purchasers or placement or distribution agents. For purposes of this definition as applied to securities with a CUSIP number, each issuance of long-term indebtedness for money borrowed that has (or, if such indebtedness is held by a trust or other intermediate entity established directly or indirectly by the issuer, the securities of such intermediate entity that have) a separate CUSIP number shall be deemed to be a series of the issuer’s long-term indebtedness for money borrowed that is separate from each other series of such indebtedness.

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

“Holder” means, as to the Covered Debt then in effect, each holder of such Covered Debt as reflected on the securities register maintained by or on behalf of the Corporation with respect to such Covered Debt.

“Initial Covered Debt” means the Corporation’s 5.95% Debentures due 2035 (CUSIP: 023139AE8).

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“Intent-Based Replacement Disclosure” means, as to any security or combination of securities (together in this definition, “securities”), that the Corporation has publicly stated its intention, either in the prospectus or other offering document under which such securities were initially offered for sale or in filings with the Commission made by the Corporation under the Exchange Act prior to or contemporaneously with the issuance of such securities, that the Corporation, to the extent the securities provide the Corporation with equity credit, will repay, redeem or purchase such securities only with the proceeds of replacement capital securities that have terms and provisions at the time of repayment, redemption or purchase that are as or more equity-like than the securities then being repaid, redeemed or purchased, raised within 180 days prior to the applicable repayments, redemption or purchase date.

“Junior Subordinated Indenture” means the indenture, dated February 12, 2007, between the Corporation and The Bank of New York, as junior subordinated indenture trustee, as supplemented by the Supplemental Indenture.

“Mandatorily Convertible Preferred Stock” means preferred stock with (a) no prepayment obligation on the part of the issuer thereof, whether at the election of the holders or otherwise, and (b) a requirement that such preferred stock convert into common stock within three years from the date of its issuance at a conversion ratio within a range established at the time of issuance of such preferred stock.

“Mandatory Trigger Provision” means, as to any security or combination of securities (together in this definition, “securities”), provisions in the terms thereof or of the related transaction agreements that (a) require or, at its option in the case of non-cumulative perpetual preferred stock, permit the issuer of such securities to make payment of Distributions on such securities only pursuant to the issue and sale of APM Qualifying Securities, within no more than two years of a failure to satisfy one or more financial tests set forth in the terms of such securities or related transaction agreements, in an amount such that the net proceeds of such sale are at least equal to the amount of unpaid Distributions on such securities (including without limitation all deferred and accumulated amounts) and in either case require the application of the net proceeds of such sale to pay such unpaid Distributions, provided that: (1) if the APM Qualifying Securities issued and sold are Qualifying Non-Cumulative Perpetual Preferred Stock or Mandatorily Convertible Preferred Stock, the amount of the net proceeds of Qualifying Non-Cumulative Perpetual Preferred Stock and Mandatorily Convertible Preferred Stock applied, together with the net proceeds of all prior issuances of Qualifying Non-Cumulative Preferred Stock and any still-outstanding Mandatorily Convertible Preferred Stock applied during the current and all prior deferral periods, to pay such Distributions pursuant to such provision may not exceed 25% of the initial liquidation or principal amount of such securities and (2) if the APM Qualifying Securities issued and sold are Common Stock or Qualifying Warrants and if the Mandatory Trigger provision does not requires such issuance and sale within one year of such failure, the number of shares of Common Stock or Qualifying Warrants issued or issuable upon the exercise of such Qualifying Warrants plus the number of shares of Common Stock previously issued or issuable upon the exercise of previously issued Qualifying Warrants may not exceed 2% of the total number of issued and outstanding shares of the Corporation’s Common Stock as of the date of the Corporation’s most recent publicly available consolidated financial statements as of the date of such issuance, (b) prohibit the issuer from purchasing any APM Qualifying Securities or any of the Corporation’s securities that on the Corporation’s bankruptcy or

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liquidation rank pari passu or junior to such APM qualifying securities prior to the date that is six months after the issuer applies the net proceeds of the sales described in clause (a) to pay such unpaid Distributions, and (c) upon any liquidation, dissolution, winding up, reorganization or in connection with any insolvency, receivership or proceeding under any bankruptcy law with respect to the Corporation, limit the claim of the holders of such securities (other than non-cumulative perpetual preferred stock) to Distributions that accumulate during a period in which the Corporation fails to satisfy one or more financial tests set forth in the terms of such securities or related transaction agreements to (x) 25% of the principal amount of such securities then outstanding in the case of securities not permitting the issuance and sale pursuant to the provisions described in clause (a) above of securities other than Common Stock or Qualifying Warrants or (y) two years of accumulated and unpaid Distributions (including compounded amounts thereon) in all other cases. No remedy other than Permitted Remedies may arise by the terms of such securities or related transaction agreements in favor of the holders of such securities as a result of the issuer’s failure to pay Distributions because of the Mandatory Trigger Provision or as a result of the issuer’s exercise of its right under an Optional Deferral Provision until Distributions have been deferred for one or more Distribution Periods that total together at least ten years.

“Market Disruption Events” means one or more events or circumstances substantially similar to those listed as “Market Disruption Events” in the Supplemental Indenture.

“Market Value” means, on any date, the closing sale price per share of Common Stock (or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on that date as reported in composite transactions by the New York Stock Exchange or, if the Common Stock is not then listed on the New York Stock Exchange, as reported by the principal U.S. securities exchange on which the Common Stock is traded or quoted; if the Common Stock is not either listed or quoted on any U.S. securities exchange on the relevant date, the market price will be the average of the mid-point of the bid and ask prices for the Common Stock on the relevant date submitted by at least three nationally recognized independent investment banking firms selected by the Corporation for this purpose.

“Measurement Date” means (a) with respect to any repayment, redemption or purchase of DISCS on or prior to the Scheduled Maturity Date, the date that is 180 days; and (b) with respect to any repayment, redemption or purchase of DISCS after the Scheduled Maturity Date, the date that is 30 days, in each case prior to delivery of notice of such repayment or redemption or prior to the date of such repayment, redemption or purchase.

“Measurement Period” means the period from a Measurement Date to the related notice date or purchase date. Measurement Periods cannot run concurrently.

“No Payment Provision” means a provision or provisions in the transaction documents for securities (referred to in this definition as “such securities”) that include the following:

(a) an Alternative Payment Mechanism; and

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(b) an Optional Deferral Provision modified and supplemented from the general definition of that term to provide that:

(i) the issuer of such securities may, in its sole discretion, defer in whole or in part payment of Distributions on such securities for one or more consecutive Distribution Periods of up to five years or, if a Market Disruption Event has occurred and is continuing, ten years, without any remedy other than Permitted Remedies and the obligations (and limitations on obligations) described in the definition of “Alternative Payment Mechanism” applying; and

(ii) if the Corporation becomes subject to a bankruptcy, insolvency, receivership or similar proceeding prior to the redemption or repayment of such securities, the holders of such securities will have no claim to any deferred and unpaid Distributions exceeding two years of Distributions on such securities; provided, however, that holders of such securities may have an additional preferred equity claim in respect of deferred and unpaid Distributions which are in excess of two years of Distributions that is senior to the Corporation’s Common Stock and is or would be pari passu with any Qualifying Non-Cumulative Preferred Stock up to the amount equal to their pro rata shares of any unused portion of the Preferred Cap (as defined in the definition of “Alternative Payment Mechanism”).

“Non-Cumulative” means, with respect to any securities, that the issuer may elect not to make any number of periodic Distributions without any remedy arising under the terms of the securities or related agreements in favor of the holders, other than one or more Permitted Remedies.

“NRSRO” means a nationally recognized statistical rating organization within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act.

“Optional Deferral Provision” means, as to any securities, provisions in the terms thereof or of the related transaction agreements to the effect of either (a) or (b) below:

(a) (i) the issuer of such securities may, in its sole discretion, defer in whole or in part payment of Distributions on such securities for one or more consecutive Distribution Periods of up to five years or, if a Market Disruption Event is continuing, ten years, without any remedy other than Permitted Remedies and (ii) an Alternative Payment Mechanism (provided that such Alternative Payment Mechanism need not apply during the first five years of any deferral period and need not include a Common Cap or Preferred Cap); or

(b) the issuer of such securities may, in its sole discretion, defer in whole or in part payment of Distributions on such securities for one or more consecutive Distribution Periods up to ten years, without any remedy other than Permitted Remedies.

“Other Qualifying Capital Replacement Covenant” means a replacement capital covenant, as identified by the Corporation’s Board of Directors acting in good faith and in its reasonable discretion and reasonably construing the definitions and other terms of this Replacement Capital Covenant, (i) entered into by a company that at the time it enters into such

9

replacement capital covenant is a reporting company under the Exchange Act and (ii) that restricts the related issuer from redeeming or purchasing identified securities except from the applicable percentage of the proceeds of specified replacement capital securities that have terms and provisions at the time of redemption or purchase that are as or more equity-like than the securities then being redeemed or purchased, raised within 180 days prior to the applicable redemption or purchase date.

“Permitted Remedies” means, with respect to any securities, one or more of the following remedies:

(a) rights in favor of the holders of such securities permitting such holders to elect one or more directors of the issuer (including any such rights required by the listing requirements of any stock or securities exchange on which such securities may be listed or traded), and

(b) complete or partial prohibitions preventing the issuer from paying Distributions on or purchasing Common Stock or other securities that rank pari passu with or junior as to Distributions to such securities for so long as Distributions on such securities, including unpaid Distributions, remain unpaid.

“Person” means any individual, corporation, partnership, joint venture, trust, limited liability company or corporation, unincorporated organization or government or any agency or political subdivision thereof.

“Prospectus” has the meaning specified in Recital B.

“Qualifying Capital Securities” means securities (other than Common Stock, Qualifying Warrants, Mandatorily Convertible Preferred Stock, Debt Exchangeable for Preferred Equity and Debt Exchangeable for Common Equity) that, in the determination of the Corporation’s Board of Directors reasonably construing the definitions and other terms of this Replacement Capital Covenant, meet one of the following criteria:

(a) in connection with any repayment, redemption or purchase of DISCS on or prior to February 7, 2037:

(i) securities issued by the Corporation or its Subsidiaries that (A) rank pari passu with or junior to the DISCS upon the liquidation, dissolution or winding up of the Corporation, (B) have no maturity or a maturity of at least 60 years and (C) either (x) are subject to a replacement capital covenant substantially similar to this Replacement Capital Covenant or an Other Qualifying Capital Replacement Covenant and have either a No Payment Provision or are Non-Cumulative or (y) have a Mandatory Trigger Provision and are subject to Intent-Based Replacement Disclosure and have either an Optional Deferral Provision or a No Payment Provision; or

(ii) preferred stock issued by the Corporation or its Subsidiaries that (A) is Non-Cumulative, (B) has no prepayment obligation on the part of the issuer thereof, whether at the election of the holders or otherwise, (C) has no maturity

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or a maturity of at least 60 years and (D) either (x) is subject to a replacement capital covenant substantially similar to this Replacement Capital Covenant or an Other Qualifying Capital Replacement Covenant or (y) has a Mandatory Trigger Provision and is subject to Intent-Based Replacement Disclosure; or

(iii) securities issued by the Corporation or its Subsidiaries that (A) rank pari passu or junior to other preferred stock of the issuer, (B) have no maturity or a maturity of at least 40 years, (C) are subject to a replacement capital covenant substantially similar to this Replacement Capital Covenant or an Other Qualifying Capital Replacement Covenant, (D) have an Optional Deferral Provision and (E) have a Mandatory Trigger Provision; or

(b) in connection with any repayment, redemption or purchase of DISCS at any time after February 7, 2037 but on or prior to February 7, 2057:

(i) all securities described under clause (a) of this definition;

(ii) securities issued by the Corporation or its Subsidiaries that (A) rank pari passu with or junior to the DISCS upon a liquidation, dissolution or winding up of the Corporation, (B) have no maturity or a maturity of at least 60 years, (C) are subject to a replacement capital covenant substantially similar to this Replacement Capital Covenant or an Other Qualifying Capital Replacement Covenant and (D) have an Optional Deferral Provision;

(iii) securities issued by the Corporation or its Subsidiaries that (A) rank pari passu with or junior to the DISCS upon a liquidation, dissolution or winding up of the Corporation, (B) are Non-Cumulative or have a No Payment Provision and (C) (x) have no maturity or a maturity of at least 60 years and (y) are subject to Intent-Based Replacement Disclosure;

(iv) securities issued by the Corporation or its Subsidiaries that (A) rank pari passu with or junior to the DISCS upon a liquidation, dissolution or winding up of the Corporation, (B) are Non-Cumulative or have a No Payment Provision, (C) have no maturity or a maturity of at least 40 years and (D) are subject to a replacement capital covenant substantially similar to this Replacement Capital Covenant or an Other Qualifying Capital Replacement Covenant;

(v) securities issued by the Corporation or its Subsidiaries that (A) rank pari passu with or junior to the DISCS upon a liquidation, dissolution or winding up of the Corporation, (B) have an Optional Deferral Provision, (C) have a Mandatory Trigger Provision and (D) have no maturity or a maturity of at least 60 years;

(vi) cumulative preferred stock issued by the Corporation or its Subsidiaries that (A) has no prepayment obligation on the part of the issuer thereof, whether at the election of the holders or otherwise, and (B) (x) has no maturity or a maturity of at least 60 years and (y) is subject to a replacement capital covenant substantially similar to this Replacement Capital Covenant or an Other Qualifying Capital Replacement Covenant; or

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(vii) other securities issued by the Corporation or its Subsidiaries that (A) rank upon a liquidation, dissolution or winding-up of the Corporation either (x) pari passu with or junior to the DISCS or (y) pari passu with the claims of the Corporation’s trade creditors and junior to all of the Corporation’s long-term indebtedness for money borrowed (other than the Corporation’s long-term indebtedness for money borrowed from time to time outstanding that by its terms ranks pari passu with such securities on a liquidation, dissolution or winding-up of the Corporation), (B) have an Optional Deferral Provision or a No Payment Provision and (C) have a Mandatory Trigger Provision and (D) either (x) have no maturity or a maturity of at least 40 years and Intent-Based Replacement Disclosure or (y) have no maturity or a maturity of at least 30 years and are subject to a replacement capital covenant substantially similar to this Replacement Capital Covenant or an Other Qualifying Capital Replacement Covenant; or

(c) in connection with any repayment, redemption or purchase of DISCS at any time after February 7, 2057:

(i) securities described under clause (b) of this definition;

(ii) preferred stock issued by the Corporation that (A) (x) has no maturity or a maturity of at least 60 years and (y) is subject to Intent-Based Replacement Disclosure and (B) is Non-Cumulative;

(iii) securities issued by the Corporation or its Subsidiaries that (A) rank pari passu with or junior to the DISCS upon a liquidation, dissolution or winding up of the Corporation, (B) either (x) have no maturity or a maturity of at least 40 years and are subject to Intent-Based Replacement Disclosure or (y) have no maturity or a maturity at least 30 years and are subject to a replacement capital covenant substantially similar to this Replacement Capital Covenant or an Other Qualifying Capital Replacement Covenant and (C) are Non-Cumulative;

(iv) securities issued by the Corporation or its Subsidiaries that (A) rank pari passu with or junior to the DISCS upon a liquidation, dissolution or winding up of the Corporation, (B) have an Optional Deferral Provision, (C) have a Mandatory Trigger Provision, (D) have no maturity or a maturity at least 30 years and (E) are subject to Intent-Based Replacement Disclosure; or

(v) cumulative preferred stock issued by the Corporation or its Subsidiaries that either (A) (x) has no maturity or a maturity of at least 60 years and (y) are subject to Intent-Based Replacement Disclosure or (B) has a maturity of at least 40 years and is subject to a replacement capital covenant substantially similar to this Replacement Capital Covenant or an Other Qualifying Capital Replacement Covenant.

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“Qualifying Non-Cumulative Perpetual Preferred Stock” means non-cumulative preferred stock of the Corporation that ranks pari passu with or junior to all other preferred stock of the Corporation, is perpetual and (a) is subject to a replacement capital covenant substantially similar to this Replacement Capital Covenant or an Other Qualifying Capital Replacement Covenant or (b) is subject to both (i) mandatory suspension of dividends in the event the Corporation breaches certain financial metrics specified within the offering documents, and (ii) Intent-Based Replacement Disclosure. Additionally, in both (a) and (b) the transaction documents shall provide for no remedies as a consequence of non-payment of Distributions other than Permitted Remedies.

“Qualifying Warrants” means any net share settled warrants to purchase the Corporation’s Common Stock that (1) have an exercise price greater than the current stock market price, determined as specified in the instrument governing such warrants, of the Corporation’s Common Stock, and (2) the Corporation is not entitled to redeem for cash and the holders of which are not entitled to require the Corporation to purchase for cash in any circumstances.

“Redesignation Date” means, as to the Covered Debt in effect at any time, the earliest of (a) the date that is two years prior to the final maturity date of such Covered Debt, (b) if the Corporation elects to redeem or repay, or the Corporation or a Subsidiary of the Corporation elects to purchase, such Covered Debt either in whole or in part with the consequence that after giving effect to such redemption, repayment or purchase the outstanding principal amount of such Covered Debt is less than $100,000,000, the applicable redemption, repayment or purchase date and (c) if such Covered Debt is not Eligible Subordinated Debt, the date on which the Corporation issues long-term indebtedness for money borrowed that is Eligible Subordinated Debt.

“Replacement Capital Covenant” has the meaning specified in the introduction to this instrument.

“Replacement Capital Securities” means,

(a) Common Stock and Qualifying Warrants;

(b) Mandatorily Convertible Preferred Stock;

(c) Debt Exchangeable for Preferred Equity;

(d) Debt Exchangeable for Common Equity; and

(e) Qualifying Capital Securities.

“Scheduled Maturity Date” means, February 15, 2037, or if that date is not a Business Day, the next Business Day.

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“Subsidiary” means, at any time, any Person the shares of stock or other ownership interests of which having ordinary voting power to elect a majority of the board of directors or other managers of such Person are at the time owned, or the management or policies of which are otherwise at the time controlled, directly or indirectly through one or more intermediaries (including other Subsidiaries) or both, by another Person.

“Supplemental Indenture” means the First Supplemental Indenture, dated as of February 12, 2007, between the Corporation and The Bank of New York, as trustee.

“Termination Date” has the meaning specified in Section 4(a).

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EX-99.11

Exhibit 99.11

P R O S P E C T U S  S U P P L E M E N T

(To Prospectus Dated February 6, 2007)

$400,000,000

Ambac Financial Group, Inc.

Directly-Issued Subordinated Capital Securities (DISCS^SM)

The Directly-Issued Subordinated Capital Securities (DISCS^SM) are unsecured, subordinated debt instruments and will bear interest from the date they are issued until February 15, 2037 (or if such day is not a business day, the following business day), the “scheduled maturity date,” at the annual rate of 6.15% of their principal amount, payable semi-annually in arrears on February 15 and August 15 of each year, beginning August 15, 2007. We have the right to elect to defer the payment of interest on the DISCS as described in this prospectus supplement. We will not be required to settle deferred interest pursuant to the alternative payment mechanism described in this prospectus supplement until we have deferred interest for five consecutive years or, if earlier, made a payment of current interest during a deferral period. We may defer interest for up to ten consecutive years without giving rise to an event of default. Deferred interest will accumulate additional interest at an annual rate equal to the annual interest rate then applicable to the DISCS. In the event of our bankruptcy, holders of the DISCS may have a limited claim for deferred interest.

The principal amount of the DISCS will become due on the scheduled maturity date only to the extent that we have received proceeds from the sale of certain qualifying capital securities during a 180-day period ending on a notice date not more than 15 nor less than 10 business days prior to such date. We will use our commercially reasonable efforts, subject to certain market disruption events, to sell enough qualifying capital securities to permit repayment of the DISCS in full on the scheduled maturity date. If any principal amount of the DISCS is not paid on the scheduled maturity date, it will remain outstanding and bear interest at a floating rate reset and payable monthly in arrears, and we will continue to use our commercially reasonable efforts to sell enough qualifying capital securities to permit repayment of the DISCS in full. On February 7, 2087 (or if such day is not a business day, the following business day), the “final maturity date,” we must pay any remaining outstanding principal and interest in full on the DISCS whether or not we have sold qualifying capital securities.

We may redeem the DISCS in whole or in part at our option, or in whole upon the occurrence of certain tax or rating agency events, at the applicable redemption price set forth in this prospectus supplement.

Investing in the DISCS involves risks. See “ Risk Factors” beginning on page S-8.

The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

	Price to Public			Underwriting Discounts and Commissions (2)		Proceeds to Ambac Financial Group, Inc. (2)
Per DISCS		99.335%	(1)		1.00%		98.335%
Total	$	397,340,000	(1)	$	4,000,000	$	393,340,000

(1) Plus interest accrued on the DISCS, if any, from February 12, 2007.

(2) Before expenses and reimbursement of our expenses by the underwriters. See “Underwriting.”

The underwriters expect to deliver the DISCS in book-entry form only through The Depository Trust Company for the accounts of its participants, including Clearstream Banking, société anonyme, Luxembourg (“Clearstream Luxembourg”) and/or Euroclear Bank N.V./S.A. (“Euroclear”), on or about February 12, 2007.

Joint Book-Running Managers

Citigroup	Goldman, Sachs & Co.	JPMorgan
Sole Structuring Advisor

HSBC

Lehman Brothers

Merrill Lynch & Co.

UBS Investment Bank

Wachovia Securities

DISCS^SM is a service mark of Citigroup Global Markets Inc. Citigroup Global Markets Inc. has applied for patent protection for certain aspects of the DISCS^SM structure described in this prospectus supplement.

February 7, 2007

TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT

	Page
ABOUT THIS PROSPECTUS SUPPLEMENT	S-1
PROSPECTUS SUPPLEMENT SUMMARY	S-2
RISK FACTORS	S-8
USE OF PROCEEDS	S-17
RATIO OF EARNINGS TO FIXED CHARGES	S-18
CAPITALIZATION	S-19
DESCRIPTION OF THE DISCS	S-20
DESCRIPTION OF THE REPLACEMENT CAPITAL COVENANT	S-41
UNDERWRITING	S-52
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES	S-56
LEGAL OPINIONS	S-59
PROSPECTUS
	Page
ABOUT THIS PROSPECTUS	1
AMBAC FINANCIAL GROUP, INC.	1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	3
USE OF PROCEEDS	4
RATIO OF EARNINGS TO FIXED CHARGES	5
DESCRIPTION OF SECURITIES	6
DESCRIPTION OF CAPITAL STOCK	6
DESCRIPTION OF DEBT SECURITIES	9
DESCRIPTION OF WARRANTS	18
WHERE YOU CAN FIND MORE INFORMATION	19
LEGAL OPINIONS	20
EXPERTS	21

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ABOUT THIS PROSPECTUS SUPPLEMENT

This document consists of two parts. The first part is the prospectus supplement, which describes the specific terms of this offering. The second part is the prospectus, which describes more general information, some of which may not apply to this offering. You should read both this prospectus supplement and the accompanying prospectus, together with the documents identified under the heading “Where You Can Find More Information” on page 21 of the accompanying prospectus.

If the information set forth in this prospectus supplement differs in any way from the information set forth in the accompanying prospectus, you should rely on the information set forth in this prospectus supplement.

You should rely only on the information contained in or incorporated by reference in this prospectus supplement and any related free writing prospectus issued by us. This prospectus supplement may be used only for the purpose for which it has been prepared. No one is authorized to give information other than that contained in this prospectus supplement, in the documents referred to in this prospectus supplement and which are made available to the public and in any related free writing prospectus isued by us. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it.

We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information appearing in this prospectus supplement or any document incorporated by reference is accurate as of any date other than the date of the applicable document. Our business, financial condition, results of operations and prospects may have changed since that date. Neither this prospectus supplement nor the accompanying prospectus constitutes an offer, or an invitation on our behalf or on behalf of the underwriters, to subscribe for and purchase, any of the securities and may not be used for or in connection with an offer or solicitation by anyone, in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation.

S-1

PROSPECTUS SUPPLEMENT SUMMARY

The following summary highlights selected information contained elsewhere in this prospectus supplement and may not contain all of the information that is important to you. We encourage you to read this prospectus supplement and the accompanying prospectus, together with the documents identified under the heading “Where You Can Find More Information” on page 21 of the accompanying prospectus, in their entirety. You should pay special attention to the “Risk Factors” section of this prospectus supplement. Unless otherwise mentioned or unless the context requires otherwise, all references in this prospectus supplement to “Ambac,” “we,” “us,” “our” or similar references mean Ambac Financial Group, Inc. and its subsidiaries.

Ambac Financial Group, Inc.

Ambac, headquartered in New York City, is a holding company whose subsidiaries provide financial guarantee products and other financial services to clients in both the public and private sectors around the world. Ambac was incorporated on April 29, 1991. Ambac provides financial guarantees for public finance and structured finance obligations through its principal operating subsidiary, Ambac Assurance Corporation, or Ambac Assurance.

Generally, financial guarantee products written by Ambac Assurance guarantee payment when due of the principal of and interest on the guaranteed obligation. In essence, Ambac Assurance steps in to make payments if the party responsible for making payments fails to do so.

Ambac Assurance has earned triple-A ratings, the highest ratings available from Moody’s Investors Service, Inc., or Moody’s, in 1987, Standard & Poor’s Ratings Services, or S&P, in 1979 and Fitch, Inc., or Fitch, in 1994. Ambac Assurance’s ratings have been periodically affirmed by each of the rating agencies and have never been revised downward or put on review for a possible downgrade. Moody’s, S&P and Fitch’s ratings were last reaffirmed in 2006. These ratings are an essential part of Ambac Assurance’s ability to provide credit enhancement.

As a holding company, Ambac Financial Group, Inc. is largely dependent on dividends from Ambac Assurance to pay dividends on its capital stock, to pay principal of and interest on its indebtedness, to pay its operating expenses, to purchase its common stock in the open market and to make capital investments in its subsidiaries. Dividends from Ambac Assurance are subject to certain insurance regulatory restrictions. For more information, see “Ambac Financial Group, Inc.” on page 6 of the accompanying prospectus.

Our principal executive offices are located at One State Street Plaza, New York, New York 10004 and our telephone number is (212) 668-0340.

Recent Developments

On January 31, 2007, we issued a press release pertaining to our results of operations and financial condition for the fourth quarter and full year ended December 31, 2006. For the fourth quarter of 2006, we reported net income of $202.7 million or $1.88 per diluted share. This represents a 1% decrease from fourth quarter 2005 net income of $204.3 million ($1.90 per fully diluted share). For the full year ended December 31, 2006, we reported net income of $875.9 million or $8.15 per diluted share. This represents a 16.6% increase from full year ended December 31, 2005 net income of $751.0 million ($6.87 per fully diluted share). Total assets as of December 31, 2006 were $20.3 billion, up 9.3% from total assets of $18.5 billion at December 31, 2005.

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Credit enhancement production in the fourth quarter of 2006 was $314.5 million, down 21% from the fourth quarter of 2005 of $395.8 million. Credit enhancement production for the full year 2006 of $1,295.2 million was 4% higher than credit enhancement production of $1,249.4 million in 2005, as significant growth in international business more than offset the decline in the U.S. public finance business.

In public finance, Ambac’s premium production was lower while overall market issuance, as reported by third party sources, was up approximately 24% quarter on quarter. The increase in issuance for the quarter was driven by strong new-money issuance across a broad range of municipal sectors. Ambac’s market share remained stable at approximately 23% but the mix of business written in the fourth quarter 2006 varied significantly from the comparable prior period. Ambac’s fourth quarter 2005 production included three large well-priced transactions and strong business flow in the health care sector. While fourth quarter 2006 overall market deal flow was fairly strong, the mix of issuance during the quarter was more inclined towards smaller, less complex transactions. Additionally, pricing continues to be negatively affected by competition from other financial guarantors.

U.S. structured finance production during the quarter was lower as the fourth quarter 2005 included two very large transactions (an auto rental securitization and a commercial asset-backed securitization) which combined represented almost 40% of the total structured finance production from that period. Otherwise, the current quarter was characterized by increased business activity in the investor-owned utility, pooled debt obligations and consumer asset-backed securities sectors. Competition from the senior/subordinated market remains challenging and spreads remain tight across most asset classes of U.S. structured finance.

International production was stronger as Ambac closed three large U.K. transactions in the current quarter, and the geographic breadth of transactions closed was, once again, encouraging. During the quarter, Ambac closed deals in five different countries along with several multi-national pooled debt obligations transactions. Management continues to believe that the broad international markets provide an array of opportunities and will be a driver of short-term and long-term growth for the industry.

Gross premiums written in the fourth quarter of 2006 of $251.8 million were 18% lower than gross premiums written of $306.1 million in the same period of 2005. Gross premiums written for the full year 2006 of $996.7 million were 9% lower than gross premiums written of $1,096.0 million in 2005. Net premiums written in the fourth quarter of 2006 of $223.6 million were 17% lower than net premiums written of $268.1 million in the same period of 2005. Net premiums written for the full year 2006 of $893.2 million were 10% lower than net premiums written of $996.3 million in 2005.

U.S. Public Finance

U.S. Public Finance credit enhancement production in the fourth quarter of 2006 was $84.0 million, down 45% from the fourth quarter of 2005 of $153.5 million. U.S. Public Finance credit enhancement production for the full year 2006 of $405.0 million was 26% lower than credit enhancement production of $550.8 million in 2005.

U.S. Public Finance sector gross premium written and net premiums earned in the fourth quarter of 2006 of $89.4 million and $58.3 million were 44% lower and 2% higher respectively than for the same period of 2005. U.S. Public Finance sector gross premium written and net premiums earned for full year 2006 of $375.7 million and $231.1 million respectively were 32% lower and 3% higher respectively than for the same period of 2005.

Earned premium growth in the U.S. Public Finance sector has been negatively impacted by the high level of refunding activity in Ambac’s public finance book over the past two years, increasingly competitive pricing and the mix of business underwritten in recent periods.

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U.S. Structured Finance

U.S. Structured Finance credit enhancement production in the fourth quarter of 2006 was $97.1 million, down 32% from the fourth quarter of 2005 of $143.4 million. U.S. Structured Finance credit enhancement production for the full year 2006 of $479.3 million was practically unchanged compared to credit enhancement production of $479.0 million in 2005.

U.S. Structured Finance sector gross premium written and net premiums earned in the fourth quarter of 2006 of $85.9 million and $82.2 million respectively were 3% and 7% higher than for the same period of 2005. U.S. Structured Finance sector gross premium written and net premiums earned for full year 2006 of $333.6 million and $317.3 million respectively were 6% and 10% higher than for the same period of 2005.

The rate of growth in U.S. structured finance improved in 2006 driven by strong recent premium production in asset classes such as commercial asset-backed securities, auto securitizations and pooled debt obligations. Narrow credit spreads and accelerated prepayment speeds in the mortgage-backed and home equity book of business persist, continuing to partially offset the positive effects of new business writings in other asset classes.

International

International credit enhancement production in the fourth quarter of 2006 was $133.4 million, up 35% from the fourth quarter of 2005 of $98.9 million. International credit enhancement production for the full year 2006 of $410.9 million was 87% higher than credit enhancement production of $219.6 million in 2005.

International sector gross premium written and net premiums earned in the fourth quarter of 2006 of $76.5 million and $50.8 million respectively were 20% and 5% higher than for the same period of 2005. International sector gross premium written and net premiums earned for full year 2006 of $287.4 million and $204.0 million were 25% higher and 3% lower respectively than for the same period of 2005.

The fourth quarter of 2006 increase in International net premiums earned represents the first increase in this sector since the third quarter of 2005 and was driven primarily by strong business writings across many geographies and asset classes during 2006. The paydowns and calls that had beset the international business in 2005 and the first half of 2006, slowed in the latter half of 2006.

The DISCS

Repayment of Principal

We must repay the principal amount of the DISCS, together with accrued and unpaid interest, on February 15, 2037, or if that date is not a business day, the next business day (the “scheduled maturity date”), subject to the limitations described below.

We are required to repay the DISCS on the scheduled maturity date only to the extent that we have raised sufficient net proceeds from the issuance of “qualifying capital securities,” as described under “Description of the Replacement Capital Covenant,” during a 180-day period ending on a notice date not more than 15 or less than 10 business days prior to such date. If we have not raised sufficient net proceeds to permit repayment of all principal and accrued and unpaid interest on the DISCS on the scheduled maturity date, we will apply any available proceeds to repay the DISCS, and the unpaid portion will remain outstanding and bear interest at a floating rate reset and payable monthly (as described below under “—Interest”) until repaid. We will be required to repay the unpaid portion of the principal amount of the DISCS on each subsequent interest payment date to the extent of the net proceeds we receive from any subsequent issuance of qualifying capital securities.

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We will use our commercially reasonable efforts, subject to a “market disruption event,” as described under “Description of the DISCS—Market Disruption Events,” to raise sufficient net proceeds from the issuance of qualifying capital securities in a 180-day period ending on a notice date not more than 15 or less than 10 business days prior to the scheduled maturity date to permit repayment of the DISCS in full on the scheduled maturity date in accordance with the replacement capital covenant. If we are unable for any reason to raise sufficient proceeds, we will use our commercially reasonable efforts, subject to a market disruption event, to raise sufficient proceeds from the sale of qualifying capital securities to permit repayment of the DISCS on the following monthly interest payment date, and on each monthly interest payment date thereafter, until the DISCS are paid in full.

Any unpaid principal amount of the DISCS, together with accrued and unpaid interest, will be due and payable on the final maturity date or upon acceleration following an event of default, regardless of the amount of qualifying capital securities we have issued and sold by that time. The final maturity date is February 7, 2087 as described under “Description of the DISCS—Repayment of Principal.”

Although under the replacement capital covenant (described below under “—Replacement Capital Covenant”) the principal amount of DISCS that we may repay may be based on the net cash proceeds from certain issuances of common stock, qualifying warrants, mandatorily convertible preferred stock, debt exchangeable for common equity, debt exchangeable for preferred equity and qualifying non-cumulative preferred stock in addition to qualifying capital securities, we have no obligation to issue any securities other than qualifying capital securities or to use the proceeds of the issuance of any other securities to repay the DISCS on the scheduled maturity date or at any time thereafter.

Interest

Until the scheduled maturity date, the DISCS will bear interest at the annual rate of 6.15%. Interest on the DISCS will accrue from February 12, 2007. Ambac will pay that interest semi-annually in arrears on February 15 and August 15 of each year (we refer to these dates as “interest payment dates”), beginning on August 15, 2007. If any DISCS remain outstanding after the scheduled maturity date, they will bear interest at an annual rate equal to one-month LIBOR plus 1.835%, reset and payable monthly until repaid.

We have the right to elect to defer the payment of interest on the DISCS as described in this prospectus supplement. We will not be required to settle deferred interest pursuant to the alternative payment mechanism described in this prospectus supplement until we have deferred interest for five consecutive years or, if earlier, made a payment of current interest during a deferral period. We may defer interest for up to ten consecutive years without giving rise to an event of default. Deferred interest will accumulate additional interest at an annual rate equal to the annual interest rate then applicable to the DISCS. In the event of our bankruptcy, holders of the DISCS may have a limited claim for deferred interest.

Subordination

The DISCS will be unsecured, subordinated and junior in right of payment upon our liquidation, including to all of our existing and future senior indebtedness, but will rank equally in right of payment upon liquidation with debt that by its terms does not rank senior upon our liquidation to the DISCS and with our trade creditors, and will be effectively subordinated to all liabilities of our subsidiaries. Substantially all of our existing indebtedness is senior. As of September 30, 2006, our indebtedness for money borrowed ranking senior to the DISCS upon liquidation, on an unconsolidated basis, totaled approximately $1.2 billion and our subsidiaries’ direct borrowings and other obligations that would effectively rank senior to the DISCS upon liquidation totaled approximately $13.9 billion. See “Description of the DISCS—Subordination” for the definition of “senior indebtedness.”

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The terms of the DISCS permit us to make any payment of current or deferred interest on our indebtedness that ranks on a parity with the DISCS upon our liquidation (“pari passu securities”) that is made pro rata to the amounts due on such pari passu securities (including the DISCS); provided that such payments are made in accordance with the last paragraph under “—Alternative Payment Mechanism” to the extent it applies, and any payments of deferred interest on pari passu securities that, if not made, would cause us to breach the terms of the instrument governing such pari passu securities.

Certain Payment Restrictions Applicable to Ambac

During any period in which we have given notice of our election to defer interest payments on the DISCS but the related deferral period has not yet commenced or a deferral period is continuing, we generally may not make payments on or redeem or purchase any shares of our capital stock or any of our debt securities or guarantees that rank upon our liquidation on a parity with or junior to the DISCS, subject to certain limited exceptions. In addition, subject to certain limited exceptions, if any deferral period lasts longer than one year, the restrictions on our ability to redeem or purchase any of our APM qualifying securities or any of our securities that on our bankruptcy or liquidation rank pari passu or junior to such APM qualifying securities will continue until the first anniversary of the date on which all deferred interest has been paid.

Redemption of DISCS

We may elect to redeem any or all of the DISCS on or after the scheduled maturity date at a redemption price equal to 100% of the principal amount of the DISCS being redeemed plus any accrued and unpaid interest and before the scheduled maturity date (i) in whole at any time or in part from time to time, or (ii) in whole, but not in part, if certain changes occur relating to the tax treatment of or rating agency equity credit accorded to the DISCS, in each case at a redemption price equal to the greater of (x) 100% of the principal amount of the DISCS being redeemed and (y) the applicable treasury-based make-whole amount calculated as described under “Description of the DISCS—Redemption,” in each case plus any accrued and unpaid interest. For a description of the changes that would permit such a redemption and the applicable redemption amounts, see “Description of the DISCS—Redemption” below.

Any redemption of the DISCS before February 7, 2067 will be subject to the limitations described under the section entitled “Description of the Replacement Capital Covenant”.

Events of Default

The following events are “events of default” with respect to the DISCS:

• default in the payment of interest, including compounded interest, in full on any DISCS for a period of 30 days after the conclusion of a 10-year period following the commencement of any deferral period if at such time such deferral period has not ended;

• default in the payment of principal on the DISCS when due, subject to the limitations described below under “Description of the DISCS—Repayment of Principal”; or

• certain events of bankruptcy, insolvency or receivership involving Ambac.

If an event of default under the junior subordinated indenture (as defined under “Description of the DISCS”) occurs and continues, the trustee or the holders of at least 25% in aggregate principal amount of the outstanding DISCS may declare the entire principal amount of, and all accrued but unpaid interest on all DISCS to be due and payable immediately.

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Form

The DISCS will be represented by one or more global securities registered in the name of Cede & Co., as nominee for The Depository Trust Company (“DTC”). Beneficial interests in the DISCS will be represented through book-entry accounts of financial institutions acting on behalf of beneficial owners as direct and indirect participants in DTC. Investors may elect to hold interests in the global securities through either DTC (in the United States), or Clearstream Luxembourg or Euroclear (in Europe) if they are participants in those systems, or indirectly through organizations which are participants in those systems.

Replacement Capital Covenant

Around the time of the initial issuance of the DISCS, we will enter into a “replacement capital covenant” in which we will covenant for the benefit of holders of one or more designated series of our indebtedness (which will initially be our 5.95% Debentures due 2035 (CUSIP: 023139AE8)), other than the DISCS, that we will not repay, redeem or purchase the DISCS on or before February 7, 2067, unless, subject to certain limitations, during the applicable “measurement period” (as defined herein) we have received proceeds from the sale of specified securities in the specified amounts described therein.

The replacement capital covenant will terminate upon the occurrence of certain events, including an acceleration of the DISCS due to the occurrence of an event of default. The replacement capital covenant is not intended for the benefit of holders of the DISCS and may not be enforced by them, except that we will agree in the indenture that we will not amend the replacement capital covenant to impose additional restrictions on the type or amount of qualifying capital securities that we may include for purposes of determining when repayment, redemption or purchase of the DISCS is permitted, except with the consent of the holders of a majority in principal amount of the DISCS.

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RISK FACTORS

Your investment in the DISCS will involve certain risks described below. In consultation with your own financial and legal advisors, you should carefully consider the information included in or incorporated by reference in this prospectus supplement and the accompanying prospectus, and pay special attention to the following discussion of risks relating to the DISCS before deciding whether an investment in the securities offered hereby is suitable for you. The DISCS will not be an appropriate investment for you if you are not knowledgeable about significant features of the securities offered hereby or financial matters in general. You should not purchase the DISCS unless you understand, and know that you can bear, these investment risks.

Risks Relating to Us

A downgrade of the financial strength rating of Ambac Assurance and/or Ambac Assurance UK Limited would adversely affect our business and prospects and, consequently, our results of operations and financial condition.

Our insurance companies currently have triple A financial strength ratings from Moody’s Investors Service, Inc., Standard & Poor’s Rating Services and Fitch Inc. The objective of these ratings is to provide an opinion on an insurer’s financial strength and its ability and intent to pay under its insurance policies and contracts in accordance with their terms. The rating is not specific to any particular policy or contract. Financial strength ratings do not refer to an insurer’s ability to meet non-insurance obligations and are not a “market rating” or a recommendation to buy, hold or sell any security.

The ratings assigned by Moody’s, S&P and Fitch to us are subject to periodic review and may be downgraded by one or more rating agencies as a result of: changes in the views of the rating agencies, adverse developments in our financial condition or results of operations due to underwriting or investment losses. Moody’s, S&P and Fitch’s ratings were reaffirmed in 2006.

Any downgrade in our financial strength rating, or the placement of our financial strength rating on negative credit watch, would have a material adverse effect on our competitive position and our prospects for future business opportunities. In addition, a downgrade of our financial strength ratings below specified levels would allow investment agreement and derivative counterparties to terminate certain agreements, resulting in a possible payment of a settlement amount or we would have to pledge collateral for the benefit of the counterparty, introducing liquidity risk. In addition, most investment agreements provide certain remedies for the investment agreement purchaser in the event of a downgrade of Ambac Assurance’s credit rating, typically to A1 by Moody’s or A+ by S&P. In most cases, we are permitted to post collateral or otherwise enhance our credit, prior to an actual draw on the investment agreement. Our results of operations and financial condition would be materially adversely affected by any reduction in its ratings. See “Business—Rating Agencies” on page 19 and “Management’s Discussion and Analysis-Credit Ratings and Collateral” on page 57 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2005, which is incorporated by reference in this prospectus supplement, for further information.

A downgrade of our long term credit ratings would adversely affect our liquidity and increase our borrowing costs.

Ambac’s long term senior debt is rated “AA” by S&P and Fitch and “Aa2” by Moody’s. Our access to external sources of financing, as well as the cost of financing, is dependent on various factors and could be adversely affected by a deterioration of our long-term debt ratings. Long-term debt ratings are influenced by a number of factors. These include, but are not limited to: financial leverage on an absolute basis or relative to peers, the composition of the balance sheet and/or capital structure, material changes in earning trends and volatility, inability to dividend monies from Ambac Assurance and our competitive position. Material deterioration in any one or a combination of these factors could result in a downgrade of our credit ratings, thus increasing the cost of and/or limiting the availability of unsecured financing. Moreover, if our need for capital

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arises because of significant sudden losses, the occurrence of these losses may make it more difficult for us to raise the necessary capital. If we cannot obtain adequate capital on favorable terms or at all, our business, operating results and financial condition would be adversely affected.

We are subject to credit risk throughout our businesses, including large single risks and correlated risks.

We are exposed to the risk that issuers of debt which we have insured (or with respect to which we have written credit derivatives), issuers of debt which we hold in our investment portfolio, reinsurers and other contract counterparties (including derivative counterparties) may default in their financial obligations, whether as the result of insolvency, lack of liquidity, operational failure or other reasons. These credit risks could cause increased losses and loss reserves and mark-to-market losses with respect to credit derivatives in our financial guarantee business; we could be required by the rating agencies to hold additional capital against insured exposures which have been downgraded by the rating agencies; and we could experience losses and decreases in the value of our investment portfolio and, therefore, our financial strength. Such credit risks may be in the form of large single risk exposures to particular issuers, reinsurers or counterparties; losses caused by catastrophic events (including terrorist acts and natural disasters); or losses in respect of different, but correlated, credit exposures.

General economic conditions can adversely affect our business results and prospects.

Changes in general economic conditions can impact our business. Recessions; increases in corporate, municipal and/or consumer bankruptcies; changes in interest rate levels; changes in domestic and international law, including tax laws; wars; and terrorist acts could adversely affect the performance of our insured portfolio and our investment portfolio, e.g. leading to increases in losses and loss reserves in our insured portfolio and decreases in the value of our investment portfolio and, therefore, our financial strength. Furthermore, reduction in the volume of capital markets transactions; levels of competition; and changes in investor perception of credit risk could adversely impact the volume and pricing of financial guarantee insurance transactions and therefore adversely impact our business prospects.

Changes in prevailing interest rate levels could adversely impact our business results and prospects.

Increases in prevailing interest rate levels can adversely affect the value of our investment portfolio and, therefore, our financial strength. In the event that investments must be sold in order to pay claims, such investments would likely be sold at discounted prices. Additionally, increasing interest rates could lead to increased credit stress on consumer asset-backed transactions in our insured portfolio (as the securitized assets supporting a portion of these exposures are floating rate consumer obligations); slower prepayment speeds and resulting “extension risk” relative to such consumer asset-backed transactions in our insured portfolio and in our investment portfolio; decreased volume of capital markets activity and, correspondingly, decreased volume of insured transactions.

Decreases in prevailing interest rate levels can adversely affect the demand for, and pricing of, financial guarantee insurance, since lower absolute interest rates reduce credit spreads and, therefore, the savings realized by issuers by using our core product. Additionally, decreasing interest rates could result in early terminations of financial guarantee insurance policies in respect of which we are paid on an installment basis, thus reducing premium earned in respect of these transactions. Decreases in prevailing interest rates would also reduce investment income.

The financial guarantee business is highly competitive.

The financial guarantee business is highly competitive and we expect it to remain so in the near future. We face competition from both other financial guarantors and alternatives to third-party credit enhancement. Such alternatives include bank financing, senior/subordinated securitization structures, letters of credit, guarantees and

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credit derivatives provided primarily by foreign and domestic banks. See “Business—Competition” on page 16 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2005, which is incorporated by reference in this prospectus supplement, for further information.

In addition, our performance is largely dependent on the talents and efforts of highly skilled individuals. Over the past few years, there has been increased competition in the financial guarantee business for qualified employees. Our business could be adversely affected if we are unable to attract new employees and retain and motivate our existing employees.

Adequate capital support and liquidity may not be available.

Financial guarantee insurers, including Ambac Assurance, typically rely on providers of lines of credit, reinsurers, contingent capital facilities and similar support mechanisms (often referred to as “soft capital”) to supplement their “hard capital”. The ratings of soft capital providers directly affect the level of capital credit which the rating agencies attribute to the financial guarantee insurer when rating its financial strength. We intend to maintain soft capital facilities with providers having ratings adequate to provide the desired capital credit, although no assurance can be given that one or more of the rating agencies will not downgrade or withdraw the applicable ratings of such providers in the future. In addition, we cannot assure that an acceptable replacement provider would be available in that event. Reductions by the rating agencies in the amount of capital credit that we receive in respect of soft capital facilities would require us to procure additional soft capital.

Loss reserves may not be adequate to cover potential losses.

Loss reserves established with respect to our financial guarantee insurance business are based upon estimates and judgments by management, including estimates and judgments with respect to the probability of default and the severity of loss upon default. As such, there can be no assurance that the actual losses in our financial guarantee insurance portfolio will not exceed our loss reserves.

Our risk management policies and practices may not anticipate unforeseen risks and/or the magnitude of potential for loss as the result of foreseen risks.

As described in “Business—Risk Management” on page 10 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2005, which is incorporated by reference in this prospectus supplement, we have established underwriting policies and practices which seek to mitigate our exposure to credit risk in our insured portfolio. These policies and practices are based in part on models reflecting historical factors, e.g. default rates and severity of loss experience. These policies and practices may not insulate us from risks that are unforeseen and which have unanticipated loss severity.

Our net income and earnings could become more volatile due to the application of fair value accounting, or FAS 133, to the portion of our credit enhancement business which is executed in credit derivative form.

FAS 133 requires that credit derivative transactions be recorded at fair value. Since quoted market prices for the contracts that we execute are not available, Ambac Assurance estimates fair value by using modeling methodologies which are less precise than using quoted market prices. Changes in estimated fair values relative to our credit derivative book can cause increases or decreases in the value of such credit derivative transactions; those changes in value are reported in our financial statements and will therefore affect our reported earnings. Changes in estimated fair values can be caused by general market conditions, perception of credit risk generally and events affecting particular credit derivative transactions (e.g. impairment or improvement of specific reference entities or reference obligations.

Changes to accounting rules relating to the financial guarantee industry could have a material adverse affect on us and our industry.

In January and February of 2005, the Securities and Exchange Commission or the SEC, discussed with financial guarantee industry participants the diversity in practice with respect to their accounting policies for loss

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reserves. In June 2005, the Financial Accounting Standards Board, or the FASB, added a project to its agenda to consider the accounting by financial guarantee insurers for claims liability recognition, premium recognition and deferred acquisition costs. The proposed and final documents are expected to be issued in 2007. When the FASB and/or the SEC reaches a conclusion on this issue, we and the rest of the financial guarantee industry may be required to change some aspects of our loss reserving policies and premium and expense recognition policies, which in turn could have a material effect on us and the financial guarantee industry.

We are subject to the compliance requirements of the federal securities laws.

We are subject to extensive regulation under the federal securities laws, both as a registrant under the Securities Exchange Act of 1934, as amended, and in the conduct of our financial guarantee insurance business. In the event that we were unable to comply with the federal securities laws, we would likely be unable to access the public capital markets, which would make it more difficult for us to raise the necessary capital and/or increase the cost of capital. If we cannot obtain adequate capital on favorable terms or at all, our business, operating results and financial condition would be adversely affected. Additionally, if we are unable to comply with the securities laws, Ambac Assurance would likely be unable to insure transactions in the public capital markets, which would have an adverse impact on our business and operating results.

We are subject to extensive regulation in the conduct of our financial guarantee insurance business.

Our principal subsidiary, Ambac Assurance, is subject to the insurance laws and regulations of each jurisdiction in which it is licensed. Ambac Assurance UK, the subsidiary through which we write financial guarantee insurance in the United Kingdom and in the European Union, is regulated by the Financial Services Authority. Failure to comply with applicable insurance laws and regulations could expose us to fines, the loss of insurance licenses in certain jurisdictions and/or the inability to dividend monies to Ambac from Ambac Assurance, all of which could have an adverse impact on our business results and prospects. Additionally, if the cost of complying with these insurance laws and regulations increases materially, this could impact our business results.

We are subject to a variety of operational risks which could have a material adverse impact on our business results.

We depend on internal processes, risk models, various systems and our employees in the conduct of our business. Any failure of such processes, models and systems and/or employee misconduct or fraud could have an adverse impact on our business results. We are also subject to external operational risks, including fraud, settlement risk and the failure of risk models or other analytical tools provided by third parties. Any such external fraud or failure could have an adverse impact on our business results.

Changes in the rating agencies’ capital models and rating methodology with respect to financial guarantee insurers may adversely affect our business results and prospects.

Changes in the rating agencies’ capital models and rating methodology could require us to hold more capital against specified credit risks in our insured portfolio. These requirements could place stress on our ratings and force us to raise additional capital, which could in turn result in lower returns on equity.

Changes in tax laws impacting marginal tax rates and/or the preferred tax treatment of municipal obligations could adversely impact our business.

Tax legislation which imposes a “flat tax” or otherwise changes the tax preference of municipal obligations under current law could adversely affect the market value of municipal obligations. In large part, our investment portfolio is invested in tax-exempt municipal obligations; as such, the value of our investment portfolio could be adversely affected by any such legislation. Additionally, any such changes in tax law could reduce the difference

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between tax-exempt interest rates and taxable rates. This reduction could adversely impact the financial performance of our interest rate swap business, since, in certain interest swap transactions, we have assumed the “basis risk” between tax-exempt and taxable interest rates in that business. See “Business—Derivative Products” on page 25 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2005, which is incorporated by reference in this prospectus supplement, for further information.

Risks Relating to the DISCS

Our obligation to repay the DISCS on the scheduled maturity date is subject to issuance of qualifying capital securities.

Our obligation to repay the DISCS on the scheduled maturity date of February 15, 2037 is limited. We are required to repay the DISCS on the scheduled maturity date only to the extent that we have raised sufficient net proceeds from the issuance of qualifying capital securities (as defined under “Description of the Replacement Capital Covenant”) within a 180-day period ending on a notice date not more than 15 or less than 10 business days prior to such date. If we have not raised sufficient proceeds from the issuance of qualifying capital securities to permit repayment of the DISCS on the scheduled maturity date, the unpaid amount will remain outstanding until (i) we have raised sufficient net proceeds to permit repayment in full in accordance with this requirement, (ii) we redeem the DISCS, (iii) an event of default occurs or (iv) the final maturity date for the DISCS. Our ability to raise proceeds in connection with this obligation to repay the DISCS will depend on, among other things, market conditions at the time the obligation arises, as well as the acceptability to prospective investors of the terms of these securities. Although we have agreed to use our commercially reasonable efforts to raise sufficient net proceeds from the issuance of qualifying capital securities to repay the DISCS during the 180-day period referred to above and from month to month thereafter until the DISCS are repaid in full, our failure to do so would not be an event of default or give rise to a right of acceleration or similar remedy until the final maturity date, and we will be excused from using our commercially reasonable efforts if certain market disruption events occur.

Moreover, at or around the time of issuance of the DISCS, we will enter into a replacement capital covenant for the benefit of holders of a designated series of our indebtedness that ranks senior to the DISCS, pursuant to which we will covenant that neither we nor any of our subsidiaries will repay, redeem or repurchase any DISCS on or before February 7, 2067, unless during the applicable measurement period we or our subsidiaries have received sufficient proceeds from the sale of common stock, qualifying warrants, mandatorily convertible preferred stock, debt exchangeable for common equity, debt exchangeable for preferred equity and certain other qualifying capital securities (as described under “Description of the Replacement Capital Covenant”). Although under the replacement capital covenant, the principal amount of DISCS that we may repay may be based on the net cash proceeds from certain issuances of common stock, qualifying warrants, mandatorily convertible preferred stock, debt exchangeable for common equity, debt exchangeable for preferred equity in addition to certain other qualifying capital securities (as described under “Description of the Replacement Capital Covenant”), we may modify the replacement capital covenant without your consent if the modification does not further restrict our ability to repay the DISCS in connection with an issuance of qualifying capital securities. In addition, under the junior subordinated indenture we have no obligation to use commercially reasonable efforts to issue any securities that may entitle us under the replacement capital covenant to repay the DISCS other than qualifying capital securities, nor do we have any obligation to use the proceeds of the issuance of any securities other than qualifying capital securities to repay the DISCS on the scheduled maturity date or at any time thereafter. See “Description of the Replacement Capital Covenant.”

We have the right to defer interest for 10 years without causing an event of default.

We have the right to defer interest on the DISCS for a period of up to 10 consecutive years. Although we would be subject to the alternative payment mechanism after we have deferred interest for a period of five consecutive years (or such shorter period resulting from our payment of current interest), if we are unable to raise sufficient eligible proceeds, we may fail to pay accrued interest on the DISCS for a period of up to 10 consecutive years without causing an event of default. During any such deferral period, holders of DISCS will

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receive limited or no current payments on the DISCS and, so long as we are otherwise in compliance with our obligations, such holders will have no remedies against us for nonpayment unless we fail to pay all deferred interest (including compounded interest) at the end of the 10-year deferral period.

Our ability to pay deferred interest is limited by the terms of the alternative payment mechanism, and is subject to market disruption events and other factors beyond our control.

If we elect to defer interest payments, we will not be permitted to pay deferred interest on the DISCS (and compounded interest thereon) during the deferral period, which may last up to 10 years, from any source other than the issuance of qualifying APM securities, as described under “Description of the DISCS—Alternative Payment Mechanism.” The preferred stock issuance cap limits the net proceeds of the issuance of qualifying preferred stock and mandatorily convertible preferred stock that we may apply to the payment of deferred interest with respect to all deferral periods to 25% of the aggregate principal amount of the DISCS initially issued. Pursuant to the common equity issuance cap, we will not be obligated to issue common stock (or, if the definition of “qualifying APM securities” has been amended to eliminate common stock, qualifying warrants) in excess of 2% of the total number of outstanding shares of our common stock pursuant to the alternative payment mechanism to pay deferred interest at any time prior to the fifth anniversary of the commencement of the relevant deferral period. Additionally, we will not be permitted to sell shares of our common stock, qualifying warrants or mandatorily convertible preferred stock for purposes of paying deferred interest on the DISCS to the extent that the number of shares of our common stock to be so issued (or which would be issuable upon exercise or conversion of any such qualifying warrants or mandatorily convertible preferred stock) would exceed 40 million shares of common stock, unless we increase this share cap amount as described below under “Description of the DISCS—Alternative Payment Mechanism.” If we have reached the share cap amount, we may continue to defer interest on the DISCS, and such deferral will not constitute an event of default unless such deferral period exceeds 10 years.

The occurrence of a market disruption event may prevent or delay a sale of qualifying APM securities pursuant to the alternative payment mechanism and, accordingly, the payment of deferred interest on the DISCS. Market disruption events include events and circumstances both within and beyond our control, such as the failure to obtain approval of a regulatory body or governmental authority to issue qualifying APM securities or shareholder consent to increase the shares available for issuance in a sufficient amount, in each case notwithstanding our commercially reasonable efforts. Moreover, we may encounter difficulties in successfully marketing our qualifying APM securities, particularly during times we are subject to the restrictions on dividends as a result of the deferral of interest. See “Description of the DISCS—Option to Defer Interest Payments,” “—Alternative Payment Mechanism” and “—Market Disruption Events.”

The junior subordinated indenture limits our obligation to raise proceeds from the sale of common stock to pay deferred interest and generally does not obligate us to issue qualifying warrants, qualifying preferred stock, or mandatorily convertible preferred stock.

Under the junior subordinated indenture, we will not be obligated to issue common stock (or, if the definition of “qualifying APM securities” has been amended to eliminate common stock, qualifying warrants) in excess of the amount we refer to as the “common equity issuance cap” pursuant to the alternative payment mechanism to pay deferred interest at any time prior to the fifth anniversary of the commencement of the relevant deferral period. The common equity issuance cap takes into account all sales of common stock, and qualifying warrants under the alternative payment mechanism for that deferral period. Once we reach the common equity issuance cap for a deferral period, we will no longer be obligated to sell common stock to pay deferred interest relating to such deferral period, although we will continue to have the right to sell common stock at our election if we have reached the common equity issuance cap. In addition, the sale of qualifying warrants to raise proceeds to pay deferred interest is an option that we have, but, unless we amend the definition of “qualifying APM securities” to eliminate common stock, we are not obligated to sell qualifying warrants and no party may require us to. The sale of qualifying preferred stock and mandatorily convertible preferred stock to raise proceeds to pay

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deferred interest is an option that we have, but we are not obligated to sell qualifying preferred securities and mandatorily convertible preferred stock and no party may require us to. See “Description of the DISCS—Alternative Payment Mechanism.”

We have the ability under certain circumstances to narrow the definition of qualifying APM securities, which may make it more difficult for us to succeed in selling sufficient qualifying APM securities to fund the payment of deferred interest.

We may, without the consent of the holders of the DISCS, amend the definition of “qualifying APM securities” for the purposes of the alternative payment mechanism to eliminate common stock or mandatorily convertible preferred stock from the definition if we have been advised in writing by a nationally recognized independent accounting firm that there is more than an insubstantial risk that the failure to do so would result in a reduction in our earnings per share as calculated for financial reporting purposes. The elimination of common stock or mandatorily convertible preferred stock from the definition of qualifying APM securities, together with continued application of the preferred stock cap, may make it more difficult for us to succeed in selling sufficient qualifying APM securities to fund the payment of deferred interest.

Deferral of interest payments could adversely affect the market price of the DISCS.

We currently do not intend to exercise our right to defer payments of interest on the DISCS. However, if we exercise that right in the future, the market price of the DISCS is likely to be affected. As a result of the existence of our deferral right, the market price of the DISCS, may be more volatile than the market prices of other securities that are not subject to optional deferrals. If we do defer interest on the DISCS and you elect to sell DISCS during the period of that deferral, you may not receive the same return on your investment as a holder that continues to hold its DISCS until the payment of interest at the end of the deferral period.

If you waive our covenants to pay deferred interest only with proceeds from the sale of qualifying APM securities, our credit rating may be negatively affected.

The junior subordinated indenture contains covenants that permit us to pay deferred interest only with proceeds from the sale of qualifying APM securities, except in limited circumstances. These covenants may be amended, and compliance with these covenants may be waived, solely by the holders of a majority of the outstanding principal amount of DISCS, and no holder of our senior debt will have the right to enforce these covenants. Although, in the short term, you may have an economic incentive to waive these covenants in order to receive deferred interest, if such covenants are waived and we pay deferred interest with funds received from any other source, our credit rating may be negatively affected. A negative effect on our credit rating may have an adverse affect on our business or financial condition, which in turn could have an adverse effect on our ability to pay future interest on the DISCS.

The junior subordinated indenture does not limit the amount of indebtedness for money borrowed we may issue that ranks senior to the DISCS upon our liquidation or in right of payment as to principal or interest.

The DISCS will be subordinate and junior in right of payment upon our liquidation (whether in bankruptcy or otherwise) to all of our indebtedness for money borrowed that is not by its terms expressly made pari passu with or junior to the DISCS upon liquidation, but will be pari passu with trade creditors and other pari passu securities. At September 30, 2006, Ambac Financial Group’s indebtedness for money borrowed ranking senior to the DISCS on liquidation, on a non-consolidated basis, totaled approximately $1.2 billion.

“Pari passu securities” means indebtedness that by its terms ranks equally with the DISCS in right of payment and upon liquidation. We may issue or have outstanding pari passu securities as to which we are required to make payments of interest that are not made pro rata with payments of interest on other pari passu

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securities (including the DISCS) and that, if not made, would cause us to breach the terms of the instrument governing such pari passu securities. The terms of the DISCS permit us to make any payment of current or deferred interest on pari passu securities that is made pro rata to the amounts due on such pari passu securities (including the DISCS); provided that such payments are made in accordance with the last paragraph under “—Alternative Payment Mechanism” to the extent it applies, and any payments of deferred interest on pari passu securities that, if not made, would cause us to breach the terms of the instrument governing such pari passu securities.

The DISCS will be effectively subordinated to the obligations of our subsidiaries.

We are a holding company and have no substantial operations of our own or assets other than our ownership of Ambac Assurance, our principal operating subsidiary. As such we receive substantially all of our revenue from dividends from our subsidiaries. Because we are a holding company, our right to participate in any distribution of the assets of our subsidiaries, upon a subsidiary’s dissolution, winding-up, liquidation or reorganization or otherwise, and thus your ability to benefit indirectly from such distribution, is subject to the prior claims of creditors of any such subsidiary, except to the extent that we may be a creditor of that subsidiary and our claims are recognized. There are legal limitations on the extent to which some of our subsidiaries may extend credit, pay dividends or otherwise supply funds to, or engage in transactions with, us or some of our other subsidiaries. Our subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay amounts due under our contracts or otherwise to make any funds available to us. Accordingly, the payments on our DISCS, effectively will be subordinated to all existing and future liabilities of our subsidiaries. At September 30, 2006 our subsidiaries’ direct borrowings and other obligations totaled approximately $13.9. In addition, Wisconsin insurance regulations restrict the declaration and payment of dividends and the making of distributions by Ambac Assurance, unless certain regulatory requirements are met. The inability of Ambac Assurance to pay dividends in an amount sufficient to enable us to meet our cash requirements at the holding company level could affect our ability to repay our debt, including the DISCS, or have a material adverse effect on our operations. See “Business—Dividend Restrictions—Wisconsin” on page 21 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005, incorporated by reference in this prospectus supplement, for further information.

Our right to redeem or repurchase the DISCS is limited by a replacement capital covenant that we are making in favor of certain of our debtholders.

At or around the time of issuance of the DISCS, we will enter into a replacement capital covenant for the benefit of holders of the DISCS, pursuant to which we will covenant that neither we nor any of our subsidiaries will repay, redeem or repurchase the DISCS on or before February 7, 2067, unless during the applicable measurement period we or our subsidiaries have received sufficient proceeds from the sale of common stock, qualifying warrants, mandatorily convertible preferred stock, debt exchangeable for common equity, debt exchangeable for preferred equity and certain other qualifying capital securities (as described under “Description of the Replacement Capital Covenant”). Although under the replacement capital covenant, the principal amount of DISCS that we may repay may be based on the net cash proceeds from certain issuances of common stock, qualifying warrants, mandatorily convertible preferred stock, debt exchangeable for common equity, debt exchangeable for preferred equity and certain other qualifying capital securities (as described under “Description of the Replacement Capital Covenant”), we may modify the replacement capital covenant without your consent to the extent that such modification does not impose additional restrictions on the type or amount of qualifying capital securities that we may include for purposes of determining when repayment, redemption or repurchase of the DISCS is permitted. In addition, under the junior subordinated indenture we have no obligation to use commercially reasonable efforts to issue any securities other than qualifying capital securities under the replacement capital covenant to repay the DISCS. See “Description of the Replacement Capital Covenant.”

Rating agencies may change rating methodologies for securities with features similar to the DISCS, including their views on “notching” practices.

The rating methodologies for securities with features similar to the DISCS are still developing and the rating agencies may change their methodologies in the future. This may include, for example, the relationship between

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ratings assigned to an issuer’s senior securities and ratings assigned to securities with features similar to the DISCS, sometimes called “notching.” If the rating agencies were to change their practices for rating such securities in the future and the ratings of the DISCS were to be subsequently lowered, this may have a negative impact on the trading price of the DISCS. For example, on November 20, 2006 Moody’s Investors Service released a publication entitled “Rating Preferred Stock and Hybrid Securities—Request for Comment” that discusses a possible alternative approach to notching in Moody’s ratings analysis and requests comment from market participants, with the comment period expiring on December 31, 2006. The methodology described in that publication, if adopted, would result in a one notch reduction of the credit rating assigned by Moody’s to certain types of securities having characteristics similar to the DISCS. It is not clear whether the incremental notching described in that publication would apply to the DISCS.

You may have to include interest in your taxable income before you receive cash.

If we do defer interest payments on the DISCS, you will be required to accrue income, in the form of original issue discount, for United States federal income tax purposes during the period of the deferral in respect of your DISCS, even if you normally report income when received and even though you may not receive the cash attributable to that income during the deferral period. You will also not receive the cash payment of any accrued and unpaid interest from us if you sell the DISCS before the record date for any such payment, even if you held the DISCS on the date that the payments would normally have been paid. You should consult with your own tax advisor regarding the tax consequences of an investment in the DISCS. See “Certain United States Federal Income Tax Consequences—U.S. Holders—Interest Income and Original Issue Discount.”

Claims would be limited upon bankruptcy, insolvency or receivership.

In certain events of our bankruptcy, insolvency or receivership prior to the redemption or repayment of any DISCS, whether voluntary or not, a holder of DISCS will have no claim for, and thus no right to receive, deferred and unpaid interest (including compounded interest thereon) that has not been settled through the application of the alternative payment mechanism to the extent the amount of such interest exceeds two years of accumulated and unpaid interest (including compounded interest) on such holder’s DISCS.

As a holder of the DISCS you will have limited rights of acceleration.

An indenture event of default is generally limited to payment defaults after giving effect to our deferral rights, and specific events of bankruptcy, insolvency and reorganization relating to us. The junior subordinated indenture for the DISCS provides that the indenture trustee must give holders notice of all defaults or events of default within 90 days after it becomes known to the indenture trustee. However, except in the cases of a default or an event of default in payment on the DISCS, the indenture trustee will be protected in withholding the notice if its responsible officers determine that withholding of the notice is in the interest of such holders. There is no right of acceleration upon breaches by us of other covenants under the junior subordinated indenture.

The secondary market for the DISCS may be illiquid.

We do not intend to apply to list the DISCS on the New York Stock Exchange or any other securities exchange. We can give you no assurance as to the liquidity of any market that may develop for the DISCS.

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USE OF PROCEEDS

We expect to receive net proceeds from this offering, after deducting underwriting discounts and commissions and other offering expenses payable by us and reimbursement of our expenses as described under “Underwriting”, of approximately $393,165,000. We currently intend to use the net proceeds from this offering to repurchase shares of our common stock pursuant to an accelerated share repurchase program, subject to market conditions and other business considerations. Any proceeds not used for such share repurchases are intended to be used for general corporate purposes.

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RATIO OF EARNINGS TO FIXED CHARGES

The following table contains our ratio to fixed charges for each of the periods indicated:

	Years Ended December 31,					Nine Months Ended
	2005	2004	2003	2002	2001	September 30, 2006	September 30, 2005
Ratio of earnings to fixed charges	18.3x	18.1x	16.0x	13.3x	14.4x	16.2x	18.1x

We computed the ratio of earnings to fixed charges by dividing earnings before income taxes and extraordinary items plus fixed charges by the fixed charges. For the purpose of this ratio, fixed charges consist of interest expense incurred, capitalized interest, amortization of debt expense and one-third of rental payments under operating leases, an amount deemed representative of the appropriate interest factor. Since we did not have any preferred stock outstanding during the periods indicated above, our ratio of earnings to combined fixed charges and preference dividends for each relevant period will be the same as our ratio of earnings to fixed charges.

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CAPITALIZATION

The following table sets forth our cash and cash equivalents capitalization as of September 30, 2006. Each is presented:

• on an actual basis; and

• as adjusted to reflect the sale of the DISCS in this offering and our application of the proceeds of this offering, assuming that we use all of the proceeds to repurchase shares of our common stock pursuant to a share repurchase program. See “Use of Proceeds.”

You should read the information in this table together with our consolidated financial statements and the related notes and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” incorporated by reference in this prospectus supplement and the accompanying prospectus.

	At September 30, 2006
	Actual		As Adjusted
	(unaudited) (in thousands)
Cash	$	42,182	$	42,182
Long-term debt:
9 3/8% Debentures due 2011	$	142,293	$	142,293
7 1/2% Debentures due 2023		74,656		74,656
7.00% Debentures due 2051(1)		200,000		200,000
5.95% Debentures due 2103		200,000		200,000
5.875% Debentures due 2103		175,000		175,000
5.95% debentures due 2035		399,837		399,837
DISCS offered hereby		—		400,000
Total debentures		1,191,786		1,591,786
Total long-term debt(2)		1,191,786		1,591,786
Stockholders’ equity		6,005,317		5,605,317	(3)
Total capitalization	$	7,197,103	$	7,197,103

(1) Does not reflect our redemption on October 23, 2006 of all of our outstanding 7% debentures due 2051 or our write-off, on the redemption date, of fees and expenses related to the original issuance of these debentures of approximately $6.0 million ($3.9 million after-tax). These debentures were redeemed at par ($25 per debenture) plus accrued interest to the redemption date using portions of the proceeds from our December 2005 issuance of the 5.95% debentures due 2034.

(2) Total long-term debt does not include the $1,021,517 of variable interest entity notes that was reported in Ambac Financial Group’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.

(3) Assumes that all of the proceeds from this offering are used to repurchase our common stock pursuant to a share repurchase program. See “Use of Proceeds.”

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DESCRIPTION OF THE DISCS

The following is a brief description of the terms of the Directly-Issued Subordinated Capital Securities (“DISCS”) and the junior subordinated indenture. It does not purport to be complete in all respects. This description is subject to and qualified in its entirety by reference to the DISCS and the junior subordinated indenture referred to below, copies of which are available upon request from us.

The DISCS will be issued pursuant to the junior subordinated indenture, to be dated as of February 12, 2007, between us and The Bank of New York, as trustee. We refer to the junior subordinated indenture, as amended and supplemented by a first supplemental indenture, to be dated as of February 12, 2007, as the “junior subordinated indenture,” and to The Bank of New York or its successor, as trustee, as the “trustee.” You should read the junior subordinated indenture for provisions that may be important to you.

When we use the term “holder” in this prospectus supplement with respect to a registered DISCS, we mean the person in whose name such DISCS is registered in the security register. We expect that the DISCS will be held in book-entry form only, as described under “Book-Entry System,” and will be held in the name of DTC or its nominee.

The junior subordinated indenture does not limit the amount of debt that we or our subsidiaries may incur under the junior subordinated indenture or under other indentures to which we are or become a party. The DISCS are not convertible into or exchangeable for our common stock or authorized preferred stock.

General

We will initially issue $400,000,000 aggregate principal amount of the DISCS. We may from time to time, without the consent of existing holders of the DISCS, create and issue further DISCS having the same terms and conditions as the DISCS being offered hereby in all respects, except for issue date, issue price and, if applicable, the first interest payment date and the amount of interest due on such interest payment date. Additional DISCS issued in this manner will be consolidated with, and will form a single series with, the previously outstanding DISCS unless such additional DISCS will not be treated as fungible with the previously issued and outstanding DISCS for U.S. federal income tax purposes.

The DISCS will be subordinate and junior in right of payment upon our liquidation (whether in bankruptcy or otherwise) to all of our indebtedness for money borrowed that is not by its terms expressly made pari passu with or junior to the DISCS in right of payment upon liquidation, but will be pari passu with trade creditors and other pari passu securities, as defined below under “—Dividend and Other Payment Stoppages during Interest Deferral and under Certain Other Circumstances.”

Interest Rate and Interest Payment Dates

Until the scheduled maturity date of February 15, 2037, or earlier redemption date, the DISCS will bear interest at the annual rate of 6.15% and we will pay interest semi-annually in arrears on February 15 and August 15 of each year, beginning on August 15, 2007. We refer to these dates as “interest payment dates” and we refer to the period beginning on and including February 12, 2007 and ending on but excluding the first interest payment date and each successive period beginning on and including an interest payment date and ending on but excluding the next interest payment date as an “interest period.” Interest payments will be made to the persons or entities in whose names the DISCS are registered at the close of business on February 1 or August 1, as the case may be, next preceding the relevant interest payment date. The amount of interest payable for any interest period ending on or prior to the scheduled maturity date will be computed on the basis of a 360-day year consisting of twelve 30-day months. In the event that any interest payment date before the scheduled maturity date of February 15, 2037 would otherwise fall on a day that is not a business day, the interest payment due on

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that date will be postponed to the next day that is a business day, and no interest will accrue as a result of that postponement. “Business day” means any day other than (i) a Saturday or Sunday, (ii) a day on which banking institutions in The City of New York are authorized or required by law or executive order to remain closed or (iii) a day on which the corporate trust office of the trustee, is closed for business.

Accrued interest that is not paid on the applicable interest payment date will bear additional interest, to the extent permitted by law, at the interest rate in effect from time to time, from the relevant interest payment date, compounded on each subsequent interest payment date. When we use the term “interest” in this prospectus supplement, we are referring not only to regularly scheduled interest payments but also to interest on interest payments not paid on the applicable interest payment date.

If any amount of DISCS remains outstanding after the scheduled maturity date, the principal amount of the outstanding DISCS will bear interest at an annual rate equal to one-month LIBOR, as defined below, plus 1.835%, accruing from February 15, 2037 and computed on the basis of a 360-day year and the actual number of days elapsed. We will pay interest on the DISCS after the scheduled maturity date monthly in arrears on the 15th day of each calendar month (or if this day is not a business day, the following business day), beginning on March 15, 2037, to the persons or entities in whose names the DISCS are registered at the close of business on the 15th day preceding the relevant interest payment date, subject to our rights and obligations under “—Option to Defer Interest Payments” and “—Alternative Payment Mechanism” below. References in this prospectus supplement to “interest payment dates” after the scheduled maturity date are to these dates.

For the purposes of calculating interest due on the DISCS after the scheduled maturity date:

• “One-month LIBOR” means, with respect to any monthly interest period, the rate (expressed as a percentage per annum) for deposits in U.S. dollars for a one-month period commencing on the first day of that monthly interest period that appears on Telerate Page 3750 as of 11:00 a.m., London time, on the LIBOR determination date for that monthly interest period. If such rate does not appear on Telerate Page 3750, one-month LIBOR will be determined on the basis of the rates at which deposits in U.S. dollars for a one-month period commencing on the first day of that monthly interest period and in a principal amount of not less than $1,000,000 are offered to prime banks in the London interbank market by four major banks in the London interbank market selected by the calculation agent (after consultation with us), at approximately 11:00 a.m., London time, on the LIBOR determination date for that monthly interest period. The calculation agent will request the principal London office of each of these banks to provide a quotation of its rate. If at least two such quotations are provided, one-month LIBOR with respect to that monthly interest period will be the arithmetic mean (rounded upward if necessary to the nearest whole multiple of 0.00001%) of such quotations. If fewer than two quotations are provided, one-month LIBOR with respect to that monthly interest period will be the arithmetic mean (rounded upward if necessary to the nearest whole multiple of 0.00001%) of the rates quoted by three major banks in New York City selected by the calculation agent, at approximately 11:00 a.m., New York City time, on the first day of that monthly interest period for loans in U.S. dollars to leading European banks for a one-month period commencing on the first day of that monthly interest period and in a principal amount of not less than $1,000,000. However, if fewer than three banks selected by the calculation agent to provide quotations are quoting as described above, one-month LIBOR for that monthly interest period will be the same as one-month LIBOR as determined for the previous monthly interest period or, in the case of the monthly interest period beginning on the scheduled maturity date, 6.15%. The establishment of one-month LIBOR for each monthly interest period by the calculation agent shall (in the absence of manifest error) be final and binding.

• “Calculation agent” means The Bank of New York, or any other successor appointed by us, acting as calculation agent.

• “London banking day” means any day on which commercial banks are open for general business (including dealings in deposits in U.S. dollars) in London.

• “LIBOR determination date” means the second London banking day immediately preceding the first day of the relevant monthly interest period.

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• “Telerate Page 3750” means the display so designated on the Moneyline/Telerate Service (or such other page as may replace that page on that service, or such other service as may be nominated as the information vendor, for the purpose of displaying rates or prices comparable to the London Interbank Offered rate for U.S. dollar deposits).

Option to Defer Interest Payments

We may elect at one or more times to defer payment of interest on the DISCS for one or more consecutive interest periods that do not exceed 10 years. We may defer payment of interest prior to, on or after the scheduled maturity date, subject to our obligations described under “—Alternative Payment Mechanism” and “—Repayment of Principal” below. We may not defer interest beyond the final maturity date, as defined under “—Repayment of Principal” below, or the earlier repayment or redemption in full of the DISCS.

Deferred interest on the DISCS will bear interest at the then applicable interest rate, compounded on each interest payment date, subject to applicable law. As used in this prospectus supplement, a “deferral period” refers to the period beginning on an interest payment date with respect to which we elect to defer interest and ending on the earlier of (i) the tenth anniversary of that interest payment date and (ii) the next interest payment date on which we have paid all deferred and unpaid amounts (including compounded interest on such deferred amounts) and all other accrued interest on the DISCS.

We have agreed in the junior subordinated indenture that, subject to the occurrence and continuation of a market disruption event (as described further below):

• immediately following the first interest payment date during the deferral period on which we elect to pay current interest or, if earlier, the fifth anniversary of the beginning of the deferral period, we will be required to use our commercially reasonable efforts to sell qualifying APM securities (as defined below under “—Alternative Payment Mechanism”) pursuant to the alternative payment mechanism (as described below under “—Alternative Payment Mechanism”) and apply the eligible proceeds (as defined below under “—Alternative Payment Mechanism”) to the payment of any deferred interest (including compounded interest thereon) on the next interest payment date, and this requirement will continue in effect until the end of the deferral period; and

• we will not pay any deferred interest on the DISCS (including compounded interest thereon) from any source other than eligible proceeds prior to the final maturity date, except at any time that the principal amount has been accelerated and such acceleration has not been rescinded or in the case of a business combination to the extent described below.

Although our failure to comply with the foregoing rules with respect to the alternative payment mechanism and payment of interest during a deferral period will be a breach of the junior subordinated indenture, it will not constitute an event of default under the junior subordinated indenture or give rise to a right of acceleration or similar remedy under the terms thereof.

If we are involved in a business combination where immediately after its consummation more than 50% of the voting stock of the surviving entity of the business combination or the person to whom all or substantially all of our property or assets are conveyed, transferred or leased in such business combination is owned by the shareholders of the other party to the business combination, then the foregoing rules with respect to the alternative payment mechanism and payment of interest during a deferral period will not apply to any deferral period that is terminated on the next interest payment date following the date of consummation of the business combination.

If we have paid all deferred interest (including compounded interest thereon) on the DISCS, we can again defer interest payments on the DISCS as described above.

We will give the holders of the DISCS and the trustee written notice of our election of a deferral period at least one and not more than sixty business days before the next interest payment date.

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We have no present intention of exercising our right to defer payments of interest.

Dividend and Other Payment Stoppages during Interest Deferral and under Certain Other Circumstances

We will agree that, so long as any DISCS remain outstanding, if we have given notice of our election to defer interest payments on the DISCS but the related deferral period has not yet commenced or a deferral period is continuing, then we will not:

• declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any shares of our capital stock;

• make any payment of principal of, or interest or premium, if any, on, or repay, purchase or redeem any of our debt securities that rank upon our liquidation on a parity with or junior to the DISCS; or

• make any guarantee payments regarding any guarantee of the subordinated debt securities of any of our subsidiaries if the guarantee ranks upon our liquidation on a parity with or junior to the DISCS.

The restrictions listed above do not apply to:

• any purchase, redemption or other acquisition of shares of our capital stock in connection with:

• any employment contract, benefit plan or other similar arrangement with or for the benefit of any one or more employees, officers, directors, consultants or independent contractors;

• the satisfaction of our obligations pursuant to any contract entered into in the ordinary course of business prior to the beginning of the deferral period;

• a dividend reinvestment or shareholder purchase plan; or

• the issuance of our capital stock, or securities convertible into or exercisable for such capital stock, as consideration in an acquisition transaction entered into prior to the applicable deferral period;

• any exchange, redemption or conversion of any class or series of our capital stock, or the capital stock of one of our subsidiaries, for any other class or series of our capital stock, or of any class or series of our indebtedness for any class or series of our capital stock;

• any purchase of fractional interests in shares of our capital stock pursuant to the conversion or exchange provisions of such capital stock or the securities being converted or exchanged;

• any declaration of a dividend in connection with any shareholder rights plan, or the issuance of rights, stock or other property under any shareholder rights plan, or the redemption or purchase of rights pursuant thereto;

• any dividend in the form of stock, warrants, options or other rights where the dividend stock or stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks equally with or junior to such stock;

• any payment of current or deferred interest on debt securities that rank in right of payment upon our liquidation on a parity with the DISCS (including the DISCS, “pari passu securities”) that is made pro rata to the amounts due on such pari passu securities (including the DISCS); provided that such payments are made in accordance with the last paragraph under “—Alternative Payment Mechanism” to the extent it applies, and any payments of deferred interest on pari passu securities that, if not made, would cause us to breach the terms of the instrument governing such pari passu securities; or

• any payment of principal in respect of pari passu securities having the same scheduled maturity date as the DISCS, as required under a provision of such pari passu securities that is substantially the same as the provision described below under “—Repayment of Principal,” and that is made on a pro rata basis among one or more series of pari passu securities having such a provision and the DISCS.

In addition, if any deferral period lasts longer than one year, the limitation on our ability to redeem or purchase our APM qualifying securities or any of our securities that on our bankruptcy or liquidation rank pari passu or junior to such APM qualifying securities will continue until the first anniversary of the date on which all deferred interest has been paid.

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If we are involved in a business combination where immediately after its consummation more than 50% of the voting stock of the surviving entity of the business combination or the person to whom all or substantially all of our property or assets are conveyed, transferred or leased in such business combination is owned by the shareholders of the other party to the business combination, then the immediately preceding paragraph will not apply to any deferral period that is terminated on the next interest payment date following the date of consummation of the business combination.

Alternative Payment Mechanism

Subject to the conditions described in “—Option to Defer Interest Payments” above and to the exclusions described in this section and in “—Market Disruption Events” below, if we defer interest on the DISCS, we will be required, commencing on the earlier of (i) the first interest payment date on which we pay current interest (which we may do from any source of funds) or (ii) the fifth anniversary of the commencement of the deferral period, if on such date such deferral period has not ended, to continuously use our commercially reasonable efforts to issue qualifying APM securities, until we have raised an amount of eligible proceeds at least equal to the aggregate amount of accrued and unpaid deferred interest, including compounded interest thereon, on the DISCS. We refer to this period as the “APM period” and to this method of funding the payment of accrued and unpaid interest as the “alternative payment mechanism.”

We have agreed to apply eligible proceeds raised during any deferral period pursuant to the alternative payment mechanism to first pay deferred interest (including compounded interest thereon) on the DISCS.

Notwithstanding (and as a qualification to) the foregoing, under the alternative payment mechanism:

• we are not required to pay interest on the DISCS (and therefore we are not required to issue qualifying APM securities to raise proceeds to pay such interest) at a time when the payment of such interest would violate the terms of any securities issued by us or one of our subsidiaries or the terms of a contract binding on us or any of our subsidiaries;

• we are not required to issue common stock or qualifying warrants prior to the fifth anniversary of the commencement of a deferral period, if the number of shares issued or issuable upon the exercise of such qualifying warrants plus the number of shares of common stock previously issued or issuable upon the exercise of previously issued qualifying warrants during such deferral period would exceed an amount equal to 2% of the total number of issued and outstanding shares of our common stock as of the date of our most recent publicly available consolidated financial statements as of the date of such issuance (the “common equity issuance cap”);

• we are not permitted to issue qualifying preferred stock and mandatorily convertible preferred stock to the extent that the net proceeds of any issuance of qualifying preferred stock and mandatorily convertible preferred stock applied, together with the net proceeds of all prior issuances of qualifying preferred stock and any still-outstanding mandatorily convertible preferred stock applied during the current and all prior deferral periods, to pay interest on the DISCS pursuant to the alternative payment mechanism, would exceed 25% of the aggregate principal amount of the DISCS initially issued under the junior subordinated indenture (the “preferred stock issuance cap”);

• in no event will we be obligated to sell qualifying preferred stock and mandatorily convertible preferred stock or to apply the proceeds of any such sale to pay deferred interest on the DISCS, and no class of investors of our securities, or any other party, may require us to issue qualifying preferred stock and mandatorily convertible preferred stock; and

• so long as the definition of “qualifying APM securities” has not been amended to eliminate common stock, as discussed below;

• the sale of qualifying warrants to pay deferred interest is an option that may be exercised at our sole discretion, subject to the common equity issuance cap, and

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• we will not be obligated to sell qualifying warrants or to apply the proceeds of any such sale to pay deferred interest on the DISCS, and

• no class of investors of our securities, or any other party, may require us to issue qualifying warrants.

Once Ambac reaches the common equity issuance cap for a deferral period, Ambac will not be obligated to issue more common stock or, if the definition of “qualifying APM securities” has been amended to eliminate common stock, more qualifying warrants as described above, pursuant to the alternative payment mechanism prior to the fifth anniversary of the commencement of a deferral period even if the number of outstanding shares of its common stock subsequently increases. The common equity issuance cap will cease to apply with respect to a deferral period following the fifth anniversary of the commencement of a deferral period, at which point Ambac must repay any deferred interest, regardless of the time at which it was deferred, using the alternative payment mechanism, subject to any market disruption event and the share cap amount, as defined below. In addition, if the common equity issuance cap is reached during a deferral period and we subsequently repay all deferred interest, the common equity issuance cap will cease to apply with respect to a deferral period at the termination of such deferral period and will not apply again unless and until we start a new deferral period.

“Eligible proceeds” means, for each relevant interest payment date, the net proceeds (after underwriters’ or placement agents’ fees, commissions or discounts and other expenses relating to the issuance or sale) we have received during the 180-day period prior to that interest payment date from the issuance or sale of qualifying APM securities (excluding sales of qualifying preferred stock and mandatorily convertible preferred stock in excess of the preferred stock issuance cap) to persons that are not our subsidiaries.

Notwithstanding the common equity issuance cap and the preferred stock issuance cap described above, for purposes of paying deferred interest, we are not permitted subject to the provisions of the next paragraph to sell shares of our common stock, qualifying warrants, or mandatorily convertible preferred stock such that the common stock to be issued (or which would be issuable upon exercise or conversion thereof) would be in excess of 40 million shares of our common stock (the “share cap amount”). If the issued and outstanding shares of our common stock are changed into a different number of shares or a different class by reason of any stock split, reverse stock split, stock dividend, reclassification, recapitalization, split-up, combination, exchange of shares or other similar transaction, the share cap amount shall be correspondingly adjusted. The share cap amount limitation will apply so long as the DISCS remain outstanding, but we have agreed to use commercially reasonable efforts to increase the share cap amount from time to time to a number of shares that would allow us to satisfy our obligations with respect to the alternative payment mechanism.

If the share cap amount has been reached and it is not sufficient to allow us to raise sufficient proceeds to pay deferred interest in full, we have agreed to use commercially reasonable efforts to increase the share cap amount only to the extent that we can do so and (i) simultaneously satisfy our future fixed or contingent obligations under other securities and derivative instruments that provide for settlement or payment in shares of our common stock or (ii) if we cannot increase the share cap amount as contemplated in the preceding clause, by requesting our board of directors to adopt a resolution for shareholder vote at the next occurring annual shareholders meeting to increase the number of shares of our authorized common stock for purposes of satisfying our obligations to pay deferred interest.

“Common stock” means our common stock (including treasury shares of common stock), common stock issued pursuant to any dividend reinvestment plan or our employee benefit plans, a security that tracks the performance of, or relates to the results of, a business, unit or division of us, and any securities issued in exchange therefore in connection with a merger, consolidation, binding share exchange, business combination, recapitalization or other similar event.

“Commercially reasonable efforts” to sell our qualifying APM securities means commercially reasonable efforts to complete the offer and sale of our qualifying APM securities to third parties that are not subsidiaries of

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ours in public offerings or private placements. We will not be considered to have made commercially reasonable

efforts to effect a sale of qualifying APM securities if we determine to not pursue or complete such sale solely due to pricing, coupon, dividend rate or dilution considerations.

“Mandatorily convertible preferred stock” means preferred stock with (a) no prepayment obligation of the liquidation preference on the part of the issuer thereof, whether at the election of the holders or otherwise, and (b) a requirement that the preferred stock converts into our common stock within three years from the date of its issuance at a conversion ratio within a range established at the time of issuance of the preferred stock.

“Qualifying APM securities” means our common stock (including treasury stock and shares of common stock sold pursuant to our employee benefit plans), qualifying preferred stock, qualifying warrants and mandatorily convertible preferred stock, provided that we may, without the consent of the holders of the DISCS, amend the definition of “qualifying APM securities” to eliminate common stock and/or mandatorily convertible preferred stock from the definition if we have been advised in writing by a nationally recognized independent

accounting firm that there is more than an insubstantial risk that the failure to do so would result in a reduction in our earnings per share as calculated for financial reporting purposes. We will promptly notify the holders of the DISCS, in the manner contemplated in the junior subordinated indenture, of such change.

“Qualifying preferred stock” means our non-cumulative perpetual preferred stock that ranks pari passu with or junior to all of our other preferred stock, is perpetual and (a) is subject to a replacement capital covenant substantially similar to the replacement capital covenant or any “other qualifying capital replacement covenant, as such term is defined under “Description of Replacement Capital Covenant,” or (b) is subject to both (i) mandatory suspension of dividends in the event we breach certain financial metrics specified within the offering documents, and (ii) “intent-based replacement disclosure,” as such term is defined under “Description of the Replacement Capital Covenant.” Additionally, in both (a) and (b) the transaction documents shall provide for no remedies as a consequence of non-payment of distributions other than “permitted remedies,” as such term is defined under “Description of the Replacement Capital Covenant.”

“Qualifying warrants” means any net share settled warrants to purchase our common stock that (1) have an exercise price greater than the “current stock market price” of our common stock, and (2) we are not entitled to redeem for cash and the holders of which are not entitled to require us to purchase for cash in any circumstances. We intend that any qualifying warrants issued in accordance with the alternative payment mechanism will have exercise prices at least 10% above the current stock market price of our common stock on the date of issuance. The “current stock market price” of our common stock on any date shall be the closing sale price per share (or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on that date as reported in composite transactions by the New York Stock Exchange or, if our common stock is not then listed on the New York Stock Exchange, as reported by the principal U.S. securities exchange on which our common stock is traded or quoted. If our common stock is not listed on any U.S. securities exchange on the relevant date, the “current stock market price” shall be the last quoted bid price for our common stock in the over-the-counter market on the relevant date as reported by the National Quotation Bureau or similar organization. If our common stock is not so quoted, the “current stock market price” shall be the average of the mid-point of the last bid and ask prices for our common stock on the relevant date from each of at least three nationally recognized independent investment banking firms selected by us for this purpose.

Although our failure to comply with our obligations with respect to the alternative payment mechanism will breach the junior subordinated indenture, it will not constitute an event of default thereunder or give rise to a right of acceleration or similar remedy under the terms thereof. The remedies of holders of the DISCS will be limited in such circumstances as described under “Risk Factors—Risks Relating to the DISCS—Holders of the DISCS will have only limited rights of acceleration” above.

If, due to a market disruption event or otherwise, we were able to raise some, but not all, eligible proceeds necessary to pay all deferred interest (including compounded interest thereon) on any interest payment date, we will apply any available eligible proceeds to pay accrued and unpaid interest on the applicable interest payment

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date in chronological order based on the date each payment was first deferred, subject to the common equity issuance cap, the preferred stock issuance cap, and the share cap amount, and you will be entitled to receive your pro rata share of any amounts received on the DISCS. If we have outstanding pari passu securities under which we are obligated to sell securities that are qualifying APM securities and apply the net proceeds to the payment of deferred interest or distributions, then on any date and for any period the amount of net proceeds received by us from those sales and available for payment of the deferred interest and distributions shall be applied to the DISCS and those other pari passu securities on a pro rata basis up to the common equity issuance cap or the preferred stock issuance cap and the share cap amount (or comparable provisions in the instruments governing those pari passu securities) in proportion to the total amounts that are due on the DISCS and such securities.

Market Disruption Events

A “market disruption event” means the occurrence or existence of any of the following events or sets of circumstances:

• trading in securities generally, or shares of our securities specifically, on the New York Stock Exchange or any other national securities exchange, or in the over-the-counter market on which our qualifying APM securities or qualifying capital securities, as the case may be, are then listed or traded shall have been suspended or the settlement of such trading generally shall have been materially disrupted or minimum prices shall have been established on any such exchange or market by the SEC, the relevant exchange or by any other regulatory body or governmental agency having jurisdiction;

• we would be required to obtain the consent or approval of our stockholders or a regulatory body (including, without limitation, any securities exchange) or governmental authority to issue or sell qualifying APM securities pursuant to the alternative payment mechanism or to issue qualifying capital securities pursuant to our repayment obligations described under “—Repayment of Principal” below, as the case may be, and that consent or approval has not yet been obtained notwithstanding our commercially reasonable efforts to obtain that consent or approval;

• a banking moratorium shall have been declared by the federal or state authorities of the United States such that market trading in the qualifying APM securities or the qualifying capital securities, as applicable, has been disrupted or ceased;

• a material disruption shall have occurred in commercial banking or securities settlement or clearance services in the United States such that market trading in the qualifying APM securities or the qualifying capital securities, as applicable, has been disrupted or ceased;

• the United States shall have become engaged in hostilities, there shall have been an escalation in hostilities involving the United States, there shall have been a declaration of a national emergency or war by the United States or there shall have occurred any other national or international calamity or crisis such that market trading in the qualifying APM securities or the qualifying capital securities, as applicable, has been disrupted or ceased;

• there shall have occurred such a material adverse change in general domestic or international economic, political or financial conditions, including without limitation as a result of terrorist activities, or the effect of international conditions on the financial markets in the United States shall be such as to make it, in our reasonable judgment, impracticable or inadvisable to proceed with the offer and sale of qualifying APM securities or qualifying capital securities, as the case may be;

• an event occurs and is continuing as a result of which the offering document for the offer and sale of qualifying APM securities or qualifying capital securities, as the case may be, would, in our reasonable judgment, contain an untrue statement of a material fact or omit to state a material fact required to be stated in that offering document or necessary to make the statements in that offering document not misleading and either (a) the disclosure of that event at such time, in our reasonable judgment, is not otherwise required by law and would have a material adverse effect on our business or (b) the disclosure

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relates to a previously undisclosed proposed or pending material business transaction, provided that no single suspension period described in this bullet shall exceed 90 consecutive days and multiple suspension periods described in this bullet shall not exceed an aggregate of 180 days in any 360-day period; or

• we reasonably believe that the offering document for the offer and the sale of qualifying APM securities or qualifying capital securities, as the case may be, would not be in compliance with a rule or regulation of the SEC (for reasons other than those described in the immediately preceding bullet) and we determine that we are unable to comply with such rule or regulation or such compliance is unduly burdensome, provided that no single suspension period described in this bullet shall exceed 90 consecutive days and multiple suspension periods described in this bullet shall not exceed an aggregate of 180 days in any 360-day period.

We will be excused from our obligations under the alternative payment mechanism in respect of any interest payment date if we provide written certification to the trustee (which the trustee will promptly forward upon receipt to each holder of record of DISCS) no more than 15 and no less than 10 business days in advance of that interest payment date certifying that:

• a market disruption event was existing after the immediately preceding interest payment date; and

• either (a) the market disruption event continued for the entire period from the business day immediately following the preceding interest payment date to the business day immediately preceding the date on which that certification is provided or (b) the market disruption event continued for only part of this period, but we were unable after commercially reasonable efforts to raise sufficient eligible proceeds during the rest of that period to pay all accrued and unpaid interest.

We will not be excused from our obligations under the alternative payment mechanism if we determine not to pursue or complete the sale of qualifying APM securities solely due to pricing, dividend rate or dilution considerations.

Repayment of Principal

Scheduled Maturity

We must repay the principal amount of the DISCS, together with accrued and unpaid interest, on February 15, 2037, or if that date is not a business day, the following business day (the “scheduled maturity date”), subject to the limitations described below.

Our obligation to repay the DISCS on the scheduled maturity date is limited. We are required to repay the DISCS on the scheduled maturity date only to the extent that we have raised sufficient net proceeds from the issuance of qualifying capital securities, as described under “Description of the Replacement Capital Covenant” below, within a 180-day period ending on a notice date not more than 15 and not less than 10 business days prior to the scheduled maturity date. If we have not raised sufficient proceeds to permit repayment of all principal and accrued and unpaid interest on the DISCS on the scheduled maturity date, the unpaid amount will remain outstanding from month to month until we have raised sufficient proceeds to permit repayment in full in accordance with the replacement capital covenant, we redeem the DISCS or acceleration following an event of default occurs.

We will agree in the junior subordinated indenture to use our commercially reasonable efforts (except as described below) to raise sufficient net proceeds from the issuance of qualifying capital securities in a 180-day period ending on a notice date not more than 15 and not less than 10 business days prior to the scheduled maturity date to permit repayment of the DISCS in full on this date in accordance with the replacement capital covenant. We will further agree in the junior subordinated indenture that if we are unable for any reason to raise sufficient proceeds to permit payment in full on the scheduled maturity date, we will use our commercially

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reasonable efforts (except as described below) to raise sufficient proceeds to permit repayment on the next monthly interest payment date, and on each monthly interest payment date thereafter until the DISCS are paid in full. Except under those circumstances, our failure to use our commercially reasonable efforts to raise these proceeds would be a breach of covenant under the junior subordinated indenture. However, in no event will such failure be an event of default thereunder.

Although under the replacement capital covenant the principal amount of DISCS that we may redeem or repay at any time may be based on the net cash proceeds from certain issuances during the applicable measurement period of common stock, qualifying warrants, mandatorily convertible preferred stock, debt exchangeable for common equity, debt exchangeable for preferred equity in addition to certain qualifying capital securities (as described under “Description of the Replacement Capital Covenant”), we have no obligation under the junior subordinated indenture to use commercially reasonable efforts to issue any securities other than qualifying capital securities or to use the proceeds of the issuance of any other securities to repay the DISCS on the scheduled maturity date or at any time thereafter.

We may amend or supplement the replacement capital covenant from time to time with the consent of the holders of the specified series of indebtedness benefiting from the replacement capital covenant, provided that no such consent shall be required if (i) such amendment eliminates common stock, mandatorily convertible preferred stock or debt exchangeable for common equity (as defined in the replacement capital covenant) for purposes of determining the extent to which repayment, redemption or purchase of the DISCS is permitted in accordance with the replacement capital covenant and we have been advised in writing by a nationally recognized independent accounting firm that there is more than an insubstantial risk that the failure to do so would result in a reduction in our earnings per share as calculated for financial reporting purposes or (ii) such amendment or supplement is not adverse to the holders of the specified series of indebtedness benefiting from the replacement capital covenant.

We generally may amend or supplement the replacement capital covenant without the consent of the holders of the DISCS. With respect to qualifying capital securities, we have agreed in the junior subordinated indenture for the DISCS that we will not amend the replacement capital covenant to impose additional restrictions on the type or amount of qualifying capital securities that we may include for purposes of determining whether or to what extent repayment, redemption or purchase of the DISCS is permitted, except with the consent of holders of a majority by principal amount of the DISCS.

If any amount of DISCS remains outstanding after the scheduled maturity date, the principal amount of the outstanding DISCS will bear interest at a floating rate interest until repaid as described above under “—Interest Rate and Interest Payment Dates.”

“Commercially reasonable efforts” to sell our qualifying capital securities means commercially reasonable efforts to complete the offer and sale of our qualifying capital securities to third parties that are not subsidiaries of ours in public offerings or private placements. We will not be considered to have made commercially reasonable efforts to effect a sale of qualifying capital securities if we determine to not pursue or complete such sale solely due to pricing, coupon, dividend rate or dilution considerations.

We will be excused from our obligation under the junior subordinated indenture to use commercially reasonable efforts to sell qualifying capital securities to permit repayment of the DISCS under the terms of the replacement capital covenant if we provide written certification to the trustee (which certification will be forwarded to each holder of record of the DISCS) no more than 15 and no less than 10 business days in advance of the required repayment date certifying that:

• a market disruption event was existing during the 180-day period preceding the date of the certificate or, in the case of any required repayment date after the scheduled maturity date, the 30-day period preceding the date of the certificate; and

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• either (a) the market disruption event continued for the entire 180-day period or 30-day period, as the case may be, or (b) the market disruption event continued for only part of the period, but we were unable after commercially reasonable efforts to raise sufficient net proceeds during the rest of that period to permit repayment of the DISCS in full.

Net proceeds that we are permitted to apply to repayment of the DISCS on and after the scheduled maturity date will be applied, first, to pay deferred interest (including compounded interest thereon) to the extent of eligible proceeds under the alternative payment mechanism, second, to pay current interest that we are not paying from other sources and, third, to repay the principal of the DISCS; provided that if we are obligated to sell qualifying capital securities and apply the net proceeds to payments of principal of or interest on any outstanding securities in addition to the DISCS, then on any date and for any period the amount of net proceeds received by us from those sales and available for such payments shall be applied to the DISCS and those other securities having the same scheduled maturity date as the DISCS pro rata in accordance with their respective outstanding principal amounts and none of such net proceeds shall be applied to any other securities having a later scheduled maturity date until the principal of and all accrued and unpaid interest on the DISCS has been paid in full. If we raise less than $5 million of net proceeds from the sale of qualifying capital securities during the relevant 180-day or 30-day period, we will not be required to repay any DISCS on the scheduled maturity date or the next monthly interest payment date, as applicable, but we will use those net proceeds to repay the DISCS on the next monthly interest payment date as of which we have raised at least $5 million of net proceeds.

Final Maturity Date

Any principal amount of the DISCS, together with accrued and unpaid interest, will be due and payable on the final maturity date for the DISCS, regardless of the amount of qualifying capital securities we have issued and sold by that time. The final maturity date will be February 7, 2087 or, if that date is not a business day, the following business day.

Redemption

The DISCS:

• are repayable on the scheduled maturity date or thereafter as described under “—Repayment of Principal” above;

• are redeemable, in whole or in part, at our option at any time at the redemption price set forth below;

• are redeemable, in whole but not in part, after the occurrence of a “tax event” or a “rating agency event,” as described below; and

• are not subject to any sinking fund or similar provisions.

Any redemption of the DISCS prior to February 7, 2067, will be subject to the restrictions described under “Description of the Replacement Capital Covenant” below. After February 7, 2067, we may redeem the DISCS using cash from any source.

In the case of any optional redemption or redemption within 90 days after the occurrence of a “tax event” or a “rating agency event,” each as defined below, the redemption price will be equal to (1) in the case of any redemption on or after the scheduled maturity date, 100% of the principal amount of the DISCS being redeemed or (2) in the case of any redemption prior to the scheduled maturity date, if greater, the present value of scheduled payments of principal and interest from the redemption date to the scheduled maturity date on the DISCS being redeemed, discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the treasury rate plus the applicable spread, in each case plus accrued and unpaid interest to the redemption date. If in the case of an optional redemption, the DISCS are not redeemed in whole, we may not affect such redemption unless at least $25 million aggregate principal amount of the DISCS, excluding any DISCS held by us or any of our affiliates, remains outstanding after giving effect to such redemption.

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“Tax event” means the receipt by Ambac of an opinion of counsel experienced in such matters to the effect that, as a result of any:

• amendment to or change (including any announced prospective change) in the laws or regulations of the United States or any political subdivision or taxing authority of or in the United States that is effective on or after the date of issuance of the DISCS; or

• official administrative decision or judicial decision interpreting or applying those laws or regulations that is announced on or after the date of issuance of the DISCS;

there is more than an insubstantial risk that interest payable by us on the DISCS is not, or within 90 days of the date of such opinion will not be, deductible by us, in whole or in part, for United States federal income tax purposes.

“Rating agency event” means a change by any nationally recognized statistical rating organization within the meaning of Rule 15c3-1 under the Exchange Act that currently publishes a rating for us (a “rating agency”) to its equity credit criteria for securities such as the DISCS, as such criteria is in effect on the date of this prospectus supplement (the “current criteria”), which change results in (i) the length of time for which such current equity credit is scheduled to be in effect is shortened with respect to the DISCS, or (ii) a lower equity credit being given to the DISCS as of the date of such change than the equity credit that would have been assigned to the DISCS as of the date of such change by such rating agency pursuant to its current criteria.

For the purposes of clause (2) in the third preceding paragraph:

• “treasury rate” means the semi-annual equivalent yield to maturity of the “treasury security” that corresponds to the “treasury price” (calculated in accordance with standard market practice and computed as of the second trading day preceding the redemption date);

• “treasury security” means the United States Treasury security that the “treasury dealer” determines would be appropriate to use, at the time of determination and in accordance with standard market practice, in pricing the DISCS being redeemed in a tender offer based on a spread to United States Treasury yields;

• “treasury price” means the bid-side price for the treasury security as of the third trading day preceding the redemption date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York on that trading day and designated “Composite 3:30 p.m. Quotations for U.S. Government Securities,” except that: (i) if that release (or any successor release) is not published or does not contain that price information on that trading day; or (ii) if the treasury dealer determines that the price information is not reasonably reflective of the actual bid-side price of the treasury security prevailing at 3:30 p.m., New York City time, on that trading day, then treasury price will instead mean the bid-side price for the treasury security at or around 3:30 p.m., New York City time, on that trading day (expressed on a next trading day settlement basis) as determined by the treasury dealer through such alternative means as are commercially reasonable under the circumstances;

• “treasury dealer” means Citigroup Global Markets Inc. (or its successor) or, if Citigroup Global Markets Inc. (or its successor) refuses to act as treasury dealer for this purpose or ceases to be a primary U.S. Government securities dealer, another nationally recognized investment banking firm that is a primary U.S. Government securities dealer specified by us for these purposes; and

• “applicable spread” means 0.50% if the redemption is within 90 days after the occurrence of a tax event or a rating agency event and 0.20% in all other cases.

Notice of any redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of DISCS to be redeemed at its registered address. Unless we default in payment of the redemption price, on and after the redemption date, interest will cease to accrue on the DISCS or portions thereof called for redemption.

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We may not redeem the DISCS in part if the principal amount has been accelerated and such acceleration has not been rescinded or unless all accrued and unpaid interest, including deferred interest, has been paid in full on all outstanding DISCS for all interest periods terminating on or before the redemption date.

In the event of any redemption, neither we nor the trustee will be required to:

• issue, register the transfer of, or exchange, DISCS during a period beginning at the opening of business 15 days before the day of selection for redemption of DISCS and ending at the close of business on the day of mailing of notice of redemption; or

• transfer or exchange any DISCS so selected for redemption, except, in the case of any DISCS being redeemed in part, any portion thereof not to be redeemed.

Subordination

The payment of the principal of and interest on the DISCS is expressly subordinated, to the extent and in the manner set forth in the junior subordinated indenture, in right of payment to the prior payment in full of all of our senior indebtedness.

Subject to the qualifications described below, the term “senior indebtedness” is defined in the junior subordinated indenture to include principal of, and interest and premium (if any) on, the following:

• all of the indebtedness of Ambac (other than indebtedness issued pursuant to the junior subordinated indenture), whether outstanding on the date of the issuance of the junior subordinated debt securities of any series or thereafter created, incurred or assumed, which is for money borrowed, or which is evidenced by a note, bond, debenture or similar instrument;

• all of our obligations under leases required or permitted to be capitalized under generally accepted accounting principles;

• all of our reimbursement obligations with respect to any letter of credit, banker’s acceptance, security purchase facility or similar credit transactions;

• all obligations of the types referred to in the preceding bullet points of another person, the payment of which we are responsible or liable as guarantor or otherwise;

• any agreements or obligations to pay deferred purchase price or conditional sales agreements other than in the ordinary course of business;

• all obligations of the types referred to in the preceding bullet points of another person secured by any lien on any of our property or assets (whether or not that obligation has been assumed by us); and

• amendments, modifications, renewals, extensions, deferrals and refundings of any of the above types of indebtedness.

The DISCS will rank senior to all of our equity securities, including any preferred stock we may issue in the future.

The senior indebtedness will continue to be senior indebtedness and entitled to the benefits of the subordination provisions irrespective of any amendment, modification or waiver of any term of the senior indebtedness or extension or renewal of the senior indebtedness. Notwithstanding anything to the contrary in the foregoing, senior indebtedness will not include (1) indebtedness incurred for the purchase of goods, materials or property, or for services obtained in the ordinary course of business or for other liabilities arising in the ordinary course of business and (2) any indebtedness which by its terms is expressly made equal in rank and payment with or subordinated to the DISCS.

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All liabilities of our subsidiaries including trade accounts payable and accrued liabilities arising in the ordinary course of business are effectively senior to the DISCS to the extent of the assets of such subsidiaries. As of September 30, 2006, our indebtedness for money borrowed ranking senior to the DISCS upon liquidation, on an unconsolidated basis, totaled approximately $1.2 billion and our subsidiaries’ direct borrowings and other obligations that would effectively rank senior to the DISCS upon liquidation totaled approximately $13.9 billion.

Notwithstanding the foregoing or any other provision of the junior subordinated indenture, provided that we are not subject to a bankruptcy, insolvency, liquidation or similar proceeding, we may pay interest or principal on pari passu securities, as that term is defined under “—Dividend and Other Payment Stoppages during Interest Deferral and under Certain Other Circumstances” above, in accordance with that section and free of the limitations described in the preceding paragraph.

If certain events in bankruptcy, insolvency or reorganization occur, we will first pay all senior indebtedness, including any interest accrued after the events occur, in full before we make any payment or distribution, whether in cash, securities or other property, on account of the principal of or interest on the DISCS. In such an event, we will pay or deliver directly to the holders of senior indebtedness, any payment or distribution otherwise payable or deliverable to holders of the DISCS. We will make the payments to the holders of senior indebtedness according to priorities existing among those holders until we have paid all senior indebtedness, including accrued interest, in full. Notwithstanding the subordination provisions discussed in this paragraph, we may make payments or distributions on the DISCS so long as:

• the payments or distributions consist of securities issued by us or another company in connection with a plan of reorganization or readjustment; and

• payment on those securities is subordinate to outstanding senior indebtedness and any securities issued with respect to senior indebtedness under such plan of reorganization or readjustment at least to the same extent provided in the subordination provisions of the DISCS.

If such events of bankruptcy, insolvency or reorganization occur, after we have paid in full all amounts owed on senior indebtedness, the holders of DISCS together with the holders of any of our other pari passu securities will be entitled to receive from our remaining assets any principal, premium or interest due at that time on the DISCS and such other obligations, subject to the limitation on payments of deferred and unpaid interest described under “—Limitation on Claims in the Event of Our Bankruptcy, Insolvency or Receivership,” before we make any payment or other distribution on account of any of our capital stock or obligations ranking junior to the DISCS.

If we violate the junior subordinated indenture by making a payment or distribution to holders of the DISCS before we have paid all the senior indebtedness in full, then such holders of the DISCS will have to pay or transfer the payments or distributions to the trustee in bankruptcy, receiver, liquidating trustee or other person distributing our assets for payment of the senior indebtedness. Notwithstanding the subordination provisions discussed in this paragraph, holders of DISCS will not be required to pay, or transfer payments or distributions to, holders of senior indebtedness so long as:

• the payments or distributions consist of securities issued by us or another company in connection with a plan of reorganization or readjustment; and

• payment on those securities is subordinate to outstanding senior indebtedness and any securities issued with respect to senior indebtedness under such plan of reorganization or readjustment at least to the same extent provided in the subordination provisions of the DISCS.

Because of the subordination provisions, if we become insolvent, holders of senior indebtedness may receive more, ratably, and holders of the DISCS having a claim pursuant to those securities may receive less, ratably, than our other creditors. This type of subordination will not prevent an event of default from occurring under the junior subordinated indenture in connection with the DISCS.

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The junior subordinated indenture places no limitation on the amount of senior indebtedness that we may incur. We expect from time to time to incur additional indebtedness and other obligations constituting senior indebtedness.

Limitation on Claims in the Event of Our Bankruptcy, Insolvency or Receivership

The junior subordinated indenture provides that each holder of DISCS, by that holder’s acceptance of the DISCS, agrees that in certain events of our bankruptcy, insolvency or receivership prior to the redemption or repayment of its DISCS, that holder of DISCS will have no claim for, and thus no right to receive, deferred and unpaid interest (including compounded interest thereon) that has not been settled through the application of the alternative payment mechanism to the extent the amount of such interest exceeds two years of accumulated and unpaid interest (including compounded interest thereon) on such holder’s DISCS.

Denominations

The DISCS will be issued only in registered form, without coupons, in denominations of $1,000 each or multiples of $1,000. We expect that the DISCS will be held in book-entry form only, as described under “Book-Entry System,” and will be held in the name of DTC or its nominee.

Limitation on Mergers and Sales of Assets

The junior subordinated indenture generally permits a consolidation or merger between us and another entity. It also permits the sale or transfer by us of all or substantially all of our property and assets. These transactions are permitted if:

• the resulting or acquiring entity, if other than us, is organized and existing under the laws of a domestic jurisdiction and assumes all of our responsibilities and liabilities under the junior subordinated indenture, including the payment of all amounts due on the debt securities and performance of the covenants in the junior subordinated indenture;

• immediately after the transaction, and giving effect to the transaction, no event of default under the junior subordinated indenture exists; and

• certain other conditions as prescribed in the junior subordinated indenture are met.

If we consolidate or merge with or into any other entity or sell or lease all or substantially all of our assets according to the terms and conditions of the junior subordinated indenture, the resulting or acquiring entity will be substituted for us in such junior subordinated indenture with the same effect as if it had been an original party to the junior subordinated indenture. As a result, such successor entity may exercise our rights and powers under the junior subordinated indenture, in our name and, except in the case of a lease of all or substantially all of our properties and assets, we will be released from all our liabilities and obligations under the junior subordinated indenture and under the DISCS.

Events of Default; Waiver and Notice

The following events are “events of default” with respect to the DISCS:

• default in the payment of interest, including compounded interest, in full on any DISCS for a period of 30 days after the conclusion of a 10-year period following the commencement of any deferral period if at such time such deferral period has not ended;

• default in the payment of principal on the DISCS when due, subject to the limitations described under “Repayment of Principal”; or

• certain events of bankruptcy, insolvency or receivership involving Ambac.

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An event of default does not include a failure to comply with covenants under the junior subordinated indenture, including our obligations under the alternative payment mechanism.

The junior subordinated indenture for the DISCS provides that the trustee must give holders notice of all defaults or events of default within 90 days after it becomes actually known to a responsible officer of the trustee. However, except in the cases of a default or an event of default in payment on the DISCS, the trustee will be protected in withholding the notice if its responsible officers determine that withholding of the notice is in the interest of such holders.

If an event of default under the junior subordinated indenture occurs and continues, the trustee or the holders of at least 25% in aggregate principal amount of the outstanding DISCS may declare the entire principal amount of and all accrued but unpaid interest on all DISCS to be due and payable immediately.

If such a declaration occurs, the holders of a majority of the aggregate principal amount of the outstanding DISCS can, subject to certain conditions, rescind the declaration.

The holders of a majority in aggregate principal amount of the outstanding DISCS may waive any past default, except:

• a default in payment of principal or interest; or

• a default under any provision of the junior subordinated indenture that itself cannot be modified or amended without the consent of the holder of each outstanding DISCS.

The holders of a majority in principal amount of the DISCS shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee, subject to the provisions of the junior subordinated indenture.

We are required to file an officers’ certificate with the trustee each year that states, to the knowledge of the certifying officer, whether or not any defaults exist under the terms of the junior subordinated indenture.

Actions Not Restricted by Junior Subordinated Indenture

The junior subordinated indenture does not contain restrictions on our ability to:

• incur, assume or become liable for any type of debt or other obligation;

• create liens on our property for any purpose; or

• pay dividends or make distributions on our capital stock or purchase or redeem our capital stock, except as set forth under “—Dividend and Other Payment Stoppages During Interest Deferral and Under Certain Other Circumstances” above.

The junior subordinated indenture does not require the maintenance of any financial ratios or specified levels of net worth or liquidity. In addition, the junior subordinated indenture does not contain any provisions that would require us to repurchase or redeem or modify the terms of any of the DISCS upon a change of control or other event involving us that may adversely affect the creditworthiness of the DISCS.

Modification of Junior Subordinated Indenture

Under the junior subordinated indenture, certain of our rights and obligations and certain of the rights of holders of the DISCS may be modified or amended with the consent of the holders of at least a majority of the aggregate principal amount of the outstanding DISCS. However, the following modifications and amendments will not be effective against any holder without its consent:

• a change in the stated maturity date of any payment of principal or interest (including any additional interest thereon), including the scheduled maturity date and the final maturity date;

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• a change in the manner of calculating payments due on the DISCS in a manner adverse to holders of DISCS;

• a change in the place of payment for any payment on the DISCS that is adverse to holders of the DISCS or a change in the currency in which any payment on the DISCS is payable;

• an impairment of the right of any holder of DISCS to institute suit for payments on the DISCS;

• a reduction in the percentage of outstanding DISCS required to consent to a modification or amendment of the junior subordinated indenture or required to consent to a waiver of compliance with certain provisions of the junior subordinated indenture or certain defaults under the junior subordinated indenture;

• a reduction in the requirements contained in the junior subordinated indenture for quorum or voting;

• a change in the subordination of the DISCS in a manner adverse to holders of DISCS; and

• a modification of any of the foregoing contained in the junior subordinated indenture.

Under the junior subordinated indenture, the holders of at least a majority of the aggregate principal amount of the outstanding DISCS may, on behalf of all holders of the DISCS, waive compliance by us with any covenant or condition contained in the junior subordinated indenture.

We and the trustee may execute, without the consent of any holder of DISCS, any supplemental indenture for the purposes of:

• evidencing the succession of another corporation to us, and the assumption by any such successor of our covenants contained in the junior subordinated indenture and the DISCS;

• adding or modifying covenants of us for the benefit of the holders of the DISCS or surrendering any of our rights or powers under the junior subordinated indenture;

• adding any additional events of default for the DISCS or changing any existing events of default in a manner that is not adverse to holders of DISCS;

• evidencing and providing for the acceptance of appointment under the junior subordinated indenture by a successor trustee with respect to the DISCS;

• curing any ambiguity, correcting or supplementing any provision in the junior subordinated indenture that may be inconsistent with any other provision therein or making any other provisions with respect to matters or questions arising under the junior subordinated indenture that shall not be inconsistent with any provision therein, provided that such other provisions shall not adversely affect the interests of the holders of the DISCS in any material respect;

• making any changes to the junior subordinated indenture in order for the junior subordinated indenture to conform to the final prospectus supplement.

Book-Entry System

The Depository Trust Company, or “DTC,” which we refer to along with its successors in this capacity as the depositary, will act as securities depositary for the DISCS. The DISCS will be issued only as fully registered securities registered in the name of Cede & Co., the depositary’s nominee. One or more fully registered global security certificates, representing the total aggregate principal amount of the DISCS, will be issued and will be deposited with the depositary or its custodian and will bear a legend regarding the restrictions on exchanges and registration of transfer referred to below.

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The laws of some jurisdictions may require that some purchasers of securities take physical delivery of securities in definitive form. These laws may impair the ability to transfer beneficial interests in the DISCS so long as the DISCS are represented by global security certificates.

Investors may elect to hold interests in the DISCS in global form through either DTC in the United States or Clearstream Banking, société anonyme (“Clearstream, Luxembourg”) or Euroclear Bank S.A./N.V, as operator of the Euroclear System (the “Euroclear System”), in Europe if they are participants in those systems, or indirectly through organizations which are participants in those systems. Clearstream, Luxembourg and the Euroclear System will hold interests on behalf of their participants through customers’ securities accounts in Clearstream, Luxembourg’s and the Euroclear System’s names on the books of their respective depositaries, which in turn will hold such interests in customers’ securities accounts in the depositaries’ names on the books of DTC. Citibank, N.A. will act as depositary for Clearstream, Luxembourg and JPMorgan Chase Bank will act as depositary for the Euroclear System (in such capacities, the “U.S. Depositaries”).

DTC advises that it is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. The depositary holds securities that its participants (the “DTC Participants”) deposit with the depositary. The depositary also facilitates the settlement among participants of securities transactions, including transfers and pledges, in deposited securities through electronic computerized book-entry changes in participants’ accounts, thereby eliminating the need for physical movement of securities certificates. Direct participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. The depositary is owned by a number of its direct participants and by the New York Stock Exchange, the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the depositary’s system is also available to others, including securities brokers and dealers, banks and trust companies that clear transactions through or maintain a direct or indirect custodial relationship with a direct participant either directly, or indirectly. The rules applicable to the depositary and its participants are on file with the SEC.

Clearstream, Luxembourg advises that it is incorporated under the laws of Luxembourg as a professional depositary. Clearstream, Luxembourg holds securities for its participating organizations (“Clearstream Participants”) and facilitates the clearance and settlement of securities transactions between Clearstream Participants through electronic book-entry changes in accounts of Clearstream Participants, thereby eliminating the need for physical movement of certificates. Clearstream, Luxembourg provides to Clearstream Participants, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Clearstream, Luxembourg interfaces with domestic markets in several countries. As a professional depositary, Clearstream, Luxembourg is subject to regulation by the Luxembourg Commission for the Supervision of the Financial Sector (Commission de Surveillance du Secteur Financier). Clearstream Participants are recognized financial institutions around the world, including underwriters, securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations and may include the underwriters. Indirect access to Clearstream, Luxembourg is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Clearstream Participant, either directly or indirectly.

Distributions with respect to interests in the DISCS held beneficially through Clearstream, Luxembourg will be credited to cash accounts of Clearstream Participants in accordance with its rules and procedures, to the extent received by the U.S. Depositary for Clearstream, Luxembourg.

The Euroclear System advises that it was created in 1968 to hold securities for participants of the Euroclear System (“Euroclear Participants”) and to clear and settle transactions between Euroclear Participants through simultaneous electronic book-entry delivery against payment, thereby eliminating the need for physical movement of certificates and any risk from lack of simultaneous transfers of securities and cash. The Euroclear

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System includes various other services, including securities lending and borrowing and interfaces with domestic markets in several countries. The Euroclear System is operated by Euroclear Bank S.A./N.V (the “Euroclear Operator”). All operations are conducted by the Euroclear Operator, and all Euroclear securities clearance accounts and Euroclear System cash accounts are accounts with the Euroclear Operator. Euroclear Participants include banks (including central banks), securities brokers and dealers and other professional financial intermediaries and may include the underwriters. Indirect access to the Euroclear System is also available to other firms that clear through or maintain a custodial relationship with a Euroclear Participant, either directly or indirectly.

Securities clearance accounts and cash accounts with the Euroclear Operator are governed by the Terms and Conditions Governing Use of Euroclear and the related Operating Procedures of the Euroclear System, and applicable Belgian law (collectively, the “Terms and Conditions”). The Terms and Conditions govern transfers of securities and cash within the Euroclear System, withdrawals of securities and cash from the Euroclear System, and receipts of payments with respect to securities in the Euroclear System. All securities in the Euroclear System are held on a fungible basis without attribution of specific certificates to specific securities clearance accounts. The Euroclear Operator acts under the Terms and Conditions only on behalf of Euroclear Participants, and has no records of or relationship with persons holding through Euroclear Participants.

Distributions with respect to the DISCS held beneficially through the Euroclear System will be credited to the cash accounts of Euroclear Participants in accordance with the Terms and Conditions, to the extent received by the U.S. Depositary for the Euroclear System.

We will issue the DISCS in definitive certificated form if the depositary notifies us that it is unwilling or unable to continue as depositary or the depositary ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, and a successor depositary is not appointed by us within 90 days. In addition, beneficial interests in a global security certificate may be exchanged for definitive certificated DISCS upon request by or on behalf of the depositary in accordance with customary procedures following the request of a beneficial owner seeking to exercise or enforce its rights under such DISCS. If we determine at any time that the DISCS shall no longer be represented by global security certificates, we will inform the depositary of such determination who will, in turn, notify participants of their right to withdraw their beneficial interest from the global security certificates, and if such participants elect to withdraw their beneficial interests, we will issue certificates in definitive form in exchange for such beneficial interests in the global security certificates. Any global note, or portion thereof, that is exchangeable pursuant to this paragraph will be exchangeable for note certificates, as the case may be, registered in the names directed by the depositary. We expect that these instructions will be based upon directions received by the depositary from its participants with respect to ownership of beneficial interests in the global security certificates.

As long as the depositary or its nominee is the registered owner of the global security certificates, the depositary or its nominee, as the case may be, will be considered the sole owner and holder of the global security certificates and all DISCS represented by these certificates for all purposes under the DISCS and the junior subordinated indenture governing the DISCS. Except in the limited circumstances referred to above, owners of beneficial interests in global security certificates:

• will not be entitled to have the DISCS represented by these global security certificates registered in their names, and

• will not be considered to be owners or holders of the global security certificates or any DISCS represented by these certificates for any purpose under the DISCS or the junior subordinated indenture governing the DISCS.

All payments on the DISCS represented by the global security certificates and all transfers and deliveries of related DISCS will be made to the depositary or its nominee, as the case may be, as the holder of the securities.

Ownership of beneficial interests in the global security certificates will be limited to participants or persons that may hold beneficial interests through institutions that have accounts with the depositary or its nominee. Ownership of beneficial interests in global security certificates will be shown only on, and the transfer of those

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ownership interests will be effected only through, records maintained by the depositary or its nominee, with respect to participants’ interests, or any participant, with respect to interests of persons held by the participant on their behalf. Payments, transfers, deliveries, exchanges and other matters relating to beneficial interests in global security certificates may be subject to various policies and procedures adopted by the depositary from time to time. Neither we nor the trustee will have any responsibility or liability for any aspect of the depositary’s or any participant’s records relating to, or for payments made on account of, beneficial interests in global security certificates, or for maintaining, supervising or reviewing any of the depositary’s records or any participant’s records relating to these beneficial ownership interests.

Although the depositary has agreed to the foregoing procedures in order to facilitate transfers of interests in the global security certificates among participants, the depositary is under no obligation to perform or continue to perform these procedures, and these procedures may be discontinued at any time. We will not have any responsibility for the performance by the depositary or its direct participants or indirect participants under the rules and procedures governing the depositary.

The information in this section concerning the depositary, its book-entry system, Clearstream, Luxembourg and the Euroclear System has been obtained from sources that we believe to be reliable, but we have not attempted to verify the accuracy of this information.

Global Clearance and Settlement Procedures

Initial settlement for the DISCS will be made in immediately available funds. Secondary market trading between DTC Participants will occur in the ordinary way in accordance with DTC rules and will be settled in immediately available funds using DTC’s Same-Day Funds Settlement System. Secondary market trading between Clearstream Participants and/or Euroclear Participants will occur in the ordinary way in accordance with the applicable rules and operating procedures of Clearstream, Luxembourg and the Euroclear System, as applicable.

Cross-market transfers between persons holding directly or indirectly through DTC on the one hand, and directly or indirectly through Clearstream Participants or Euroclear Participants, on the other, will be effected through DTC in accordance with DTC rules on behalf of the relevant European international clearing system by its U.S. Depositary; however, such cross-market transactions will require delivery of instructions to the relevant European international clearing system by the counterparty in such system in accordance with its rules and procedures and within its established deadlines (European time). The relevant European international clearing system will, if the transaction meets its settlement requirements, deliver instructions to its U.S. Depositary to take action to effect final settlement on its behalf by delivering or receiving securities in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Clearstream Participants and Euroclear Participants may not deliver instructions directly to their respective U.S. Depositaries.

Because of time-zone differences, credits of DISCS received in Clearstream, Luxembourg or the Euroclear System as a result of a transaction with a DTC Participant will be made during subsequent securities settlement processing and dated the business day following the DTC settlement date. Such credits or any transactions in such DISCS settled during such processing will be reported to the relevant Euroclear Participant or Clearstream Participant on such business day. Cash received in Clearstream, Luxembourg or the Euroclear System as a result of sales of the DISCS by or through a Clearstream Participant or a Euroclear Participant to a DTC Participant will be received with value on the DTC settlement date but will be available in the relevant Clearstream, Luxembourg or the Euroclear System cash account only as of the business day following settlement in DTC.

Although DTC, Clearstream, Luxembourg and the Euroclear System have agreed to the foregoing procedures in order to facilitate transfers of DISCS among participants of DTC, Clearstream, Luxembourg and the Euroclear System, they are under no obligation to perform or continue to perform such procedures and such procedures may be discontinued or changed at any time.

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Governing Law

The junior subordinated indenture and the DISCS will be governed by, and construed in accordance with, the laws of the State of New York.

The Trustee

The trustee will have all of the duties and responsibilities specified under the Trust Indenture Act. Other than its duties in a case of default, the trustee is under no obligation to exercise any of the powers under the junior subordinated indenture at the request, order or direction of any holders of DISCS unless offered reasonable indemnification.

Miscellaneous

We or our affiliates may from time to time purchase any of the DISCS that are then outstanding by tender, in the open market or by private agreement.

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DESCRIPTION OF THE REPLACEMENT CAPITAL COVENANT

We have summarized below all the material terms of the replacement capital covenant. This summary is not a complete description of the replacement capital covenant and is subject to and qualified in its entirely by the terms and provisions of the full document, a copy of which will be filed with the SEC as an exhibit to a current report on Form 8-K. References to “we,” “us” and “our” in the following description refer only to Ambac Financial Group, Inc. and not any of its subsidiaries.

We will covenant in a replacement capital covenant for the benefit of persons that buy, hold or sell a specified series of our long-term indebtedness that ranks senior to the DISCS that we will not repay, redeem or purchase, and will cause our subsidiaries not to repay, redeem or purchase, as applicable, the DISCS on or before February 7, 2067, except to the extent that the principal amount repaid or the applicable redemption, repayment or purchase price, that is raised through the issuance of replacement capital securities, does not exceed the sum of the following amounts raised through the issuance of replacement capital securities (as defined below):

(a) the “applicable percentage” of (i) the aggregate amount of net cash proceeds received by us and our subsidiaries from the sale of our common stock and “qualifying warrants” to persons other than us and our subsidiaries and (ii) the market value of any common stock that we and our subsidiaries have issued to persons other than us and our subsidiaries in connection with the conversion of any convertible or exchangeable securities, other than securities for which we or any of our subsidiaries has received equity credit from any NRSRO (as defined below), in each case since the most recent “measurement date” (without double counting proceeds received in any prior “measurement period”); plus

(b) the aggregate amount of net cash proceeds received by us and our subsidiaries since the most recent “measurement date” (without double counting proceeds received in any prior “measurement period”) from the sale of “mandatorily convertible preferred stock”, “debt exchangeable for common equity”, “debt exchangeable for preferred equity” and “qualifying capital securities” (collectively with our common stock and qualifying warrants, the “replacement capital securities”) to Persons other than the Corporation and its Subsidiaries.”

Our covenants in the replacement capital covenant run only to the benefit of holders of the “covered debt.” The replacement capital covenant is not intended for the benefit of holders of the DISCS and may not be enforced by them, and the replacement capital covenant is not a term of the junior subordinated indenture or the DISCS, except that we will agree in the junior subordinated indenture that we will not amend the replacement capital covenant to impose additional restrictions on the type or amount of qualifying capital securities that we may include for purposes of determining when repayment, redemption or purchase of the DISCS is permitted, except with the consent of the holders of a majority in principal amount of the DISCS. The initial series of covered debt is our 5.95% Debentures due 2035 (CUSIP: 023139AE8) (the “initial covered debt”). The replacement capital covenant includes provisions requiring us to redesignate a new series of indebtedness if the covered debt approaches maturity, becomes subject to a redemption notice or is reduced to less than $100 million in outstanding principal amount, subject to additional procedures. We expect that, at all times prior to February 7, 2067, we will be subject to the replacement capital covenant and, accordingly, will be restricted in our ability to repay, redeem or purchase the DISCS.

Our ability to raise proceeds from the replacement capital securities during the applicable measurement period with respect to any proposed repayment, redemption or purchase of the DISCS will depend on, among other things, market conditions at that time as well as the acceptability to prospective investors of the terms of those replacement capital securities.

We may amend or supplement the replacement capital covenant from time to time with the consent of the holders of at least a majority in principal amount of the then-effective series of covered debt. We may, acting alone and without the consent of the holders of the covered debt (the “covered debtholders”), amend or supplement the replacement capital covenant if (i) the effect of such amendment or supplement is solely to

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impose additional restrictions on the types of securities qualifying as replacement capital securities, and one of our officers has delivered to the holders of the then-effective series of covered debt in the manner provided for in the indenture, fiscal agency agreement or other instrument with respect to such covered debt a written certificate to that effect, (ii) such amendment or supplement is not adverse to the covered debtholders and one of our officers has delivered to the holders of the then-effective series of covered debt in the manner provided for in the indenture, fiscal agency agreement or other instrument with respect to such covered debt a written certificate stating that, in his or her determination, such amendment or supplement is not adverse to such covered debtholders, (iii) such amendment or supplement eliminates common stock, debt exchangeable for common equity and/or mandatorily convertible preferred stock as replacement capital securities if, in the case of this clause (iii), we have been advised in writing by a nationally recognized independent accounting firm that there is more than an insubstantial risk that the failure to do so would result in a reduction in our earnings per share as calculated for financial reporting purposes.

The replacement capital covenant will terminate upon the earliest to occur of (i) February 7, 2067, or, if earlier, the date on which the DISCS are otherwise repaid, redeemed or purchased in full, (ii) the date, if any, on which the holders of a majority in principal amount of the then-effective specified series of covered debt consent or agree to the termination of the replacement capital covenant and our obligations thereunder, (iii) the date on which we cease to have any series of outstanding “eligible senior debt” or “eligible subordinated debt” (in each case, without giving effect to the rating requirement in clause (b) of the definition of each such term) and (iv) the date on which an event of default under the junior subordinated indenture resulting in an acceleration of the DISCS occurs.

If we are obligated to sell replacement capital securities and apply the net proceeds to payments of principal of or interest on any outstanding securities in addition to the DISCS, then on any date and for any period the amount of net proceeds received by us from those sales and available for such payments shall be applied to the DISCS and those other securities having the same scheduled repayment date or scheduled redemption date as the DISCS pro rata in accordance with their respective outstanding principal amounts (but taking into account any other payments made on such other securities from other sources of funds) and none of such net proceeds shall be applied to any other securities having a later scheduled repayment date or scheduled redemption date until the principal of and all accrued and unpaid interest on the DISCS has been paid in full.

For the avoidance of doubt, any reference in this section “Description of the Replacement Capital Covenant” to any repayment of our securities will be deemed to include a reference to defeasance of our obligations under such securities.

“Applicable percentage” means 1 divided by (a) 75% with respect to any repayment, redemption or purchase prior to February 7, 2037, (b) 50% with respect to any repayment, redemption or purchase on or after February 7, 2037 and prior to February 7, 2057 and (c) 25% with respect to any repayment, redemption or purchase on or after February 7, 2057 (for example, prior to February 7, 2037, the applicable percentage in the case of such securities will be 133.33%).

“Common stock” means our common stock (including treasury shares of common stock), common stock issued pursuant to any dividend reinvestment plan or our employee benefit plans, a security that tracks the performance of, or relates to the results of, a business, unit or division of us, and any securities issued in exchange therefore in connection with a merger, consolidation, binding share exchange, business combination, recapitalization or other similar event.

“Covered debt” means (a) at the date of the replacement capital covenant and continuing to but not including the first redesignation date, the initial covered debt and (b) thereafter, commencing with each redesignation date and continuing to but not including the next succeeding redesignation date, the eligible subordinated debt or, if no eligible subordinated debt is then outstanding, the eligible senior debt, identified pursuant to the replacement capital covenant as the covered debt for such period.

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“Debt exchangeable for common equity” means a security or combination of securities (together in this definition, “such securities”) that:

• gives the holder a beneficial interest in (i) our debt securities and (ii) a fractional interest in a stock purchase contract for a share of our common stock that will be settled in three years or less, with the number of shares of common stock purchasable pursuant to such stock purchase contract to be within a range established at the time of issuance of such debt securities;

• provides that the investors directly or indirectly grant us a security interest in such debt securities and their proceeds (including any substitute collateral permitted under the transaction documents) to secure the investors’ direct or indirect obligation to purchase our common stock pursuant to such stock purchase contracts;

• includes a remarketing feature pursuant to which our debt securities are remarketed to new investors commencing not later than the first distribution date that is at least 1 month prior to the settlement date of the purchase contract;

• provides for the proceeds raised in the remarketing to be used to purchase our common stock under the stock purchase contracts and, if there has not been a successful remarketing by the settlement date of the purchase contract, provides that the stock purchase contracts will be settled by us foreclosing on our debt securities or other collateral directly or indirectly pledged by investors in the debt exchangeable for common equity.

“Debt exchangeable for preferred equity” means a security or combination of securities (together in this definition, “such securities”) that:

• gives the holder a beneficial interest in (a) our subordinated debt securities that include a provision requiring us to issue (or use commercially reasonable efforts to issue) one or more types of APM qualifying securities raising proceeds at least equal to the deferred distributions on such subordinated debt securities commencing not later than the second anniversary of the commencement of such deferral period and that are our most junior subordinated debt (or rank pari passu with our most junior subordinated debt) (in this definition, our “subordinated debt”) and (b) a fractional interest in a stock purchase contract for a share of our non-cumulative perpetual preferred stock that ranks pari passu with or junior to all of our other preferred stock (in this definition, our “preferred stock”);

• provides that the investors directly or indirectly grant to us a security interest in such subordinated debt securities and their proceeds (including any substitute collateral permitted under the transaction documents) to secure the investors’ direct or indirect obligation to purchase our preferred stock pursuant to such stock purchase contracts;

• includes a remarketing feature pursuant to which our subordinated debt is remarketed to new investors commencing not later than the first distribution date that is at least five years after the date of issuance of securities or earlier in the event of an early settlement event based on (i) the dissolution of the issuer of such debt exchangeable for preferred equity or (ii) one or more financial tests set forth in the terms of the instrument governing such debt exchangeable for preferred equity;

• provides for the proceeds raised in the remarketing to be used to purchase our preferred stock under the stock purchase contracts and, if there has not been a successful remarketing by the first distribution date that is six years after the date of issuance of such securities, provides that the stock purchase contracts will be settled by us foreclosing on our subordinated debt securities or other collateral directly or indirectly pledged by investors in the debt exchangeable for preferred equity;

• includes a replacement capital covenant substantially similar to the replacement capital covenant or an other qualifying capital replacement covenant that will apply to such securities and, if applicable, to our preferred stock, and will not include debt exchangeable for preferred equity as a replacement security; and

• if applicable, after the issuance of such preferred stock, provides the holders of such securities with a beneficial interest in such preferred stock.

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“Mandatorily convertible preferred stock” means preferred stock with (a) no prepayment obligation on the part of the issuer thereof, whether at the election of the holders or otherwise, and (b) a requirement that such preferred stock convert into common stock within three years from the date of its issuance at a conversion ratio within a range established at the time of issuance of such preferred stock.

“Measurement date” means: (a) with respect to any repayment, redemption or purchase of DISCS on or prior to the scheduled maturity date, the date that is 180 days; and (b) with respect to any repayment, redemption or purchase of DISCS after the scheduled maturity date, the date that is 30 days, in each case prior to delivery of notice of such repayment or redemption or prior to the date of such repayment, redemption or purchase.

“Measurement period” means the period from a measurement date to the related notice date or repurchase date. Measurement periods cannot run concurrently.

“Qualifying capital securities” means securities (other than common stock, qualifying warrants, mandatorily convertible preferred stock, debt exchangeable for preferred equity and debt exchangeable for common equity) that, in the determination of our board of directors reasonably construing the definitions and other terms of the replacement capital covenant, meet one of the following criteria:

• in connection with any repayment, redemption or purchase of DISCS on or prior to February 7, 2037:

• securities issued by us or our subsidiaries that (a) rank pari passu with or junior to the DISCS upon our liquidation, dissolution or winding up, (b) have no maturity or a maturity of at least 60 years and (c) either (x) are subject to a replacement capital covenant substantially similar to the replacement capital covenant or an other qualifying capital replacement covenant and have either a no payment provision or are non-cumulative or (y) have a mandatory trigger provision and are subject to intent-based replacement disclosure and have either an optional deferral provision or a no payment provision; or

• preferred stock issued by us or our subsidiaries that (a) is non-cumulative, (b) has no prepayment obligation on the part of the issuer thereof, whether at the election of the holders or otherwise, (c) has no maturity or a maturity of at least 60 years and (d) either (x) is subject to a replacement capital covenant substantially similar to the replacement capital covenant or an other qualifying capital replacement covenant or (y) has a mandatory trigger provision and is subject to intent-based replacement disclosure; or

• securities issued by us or our subsidiaries that (a) rank pari passu or junior to other preferred stock of the issuer, (b) have no maturity or a maturity of at least 40 years, (c) are subject to a replacement capital covenant substantially similar to the replacement capital covenant or an other qualifying capital replacement covenant (d) have an optional deferral provision and (e) have a mandatory trigger provision; or

• in connection with any repayment, redemption or purchase of DISCS at any time after February 7, 2037 but on or prior to February 7, 2057:

• all securities described under the first bullet of this definition that would be qualifying capital securities on or prior to February 7, 2037;

• securities issued by us or our subsidiaries that (a) rank pari passu with or junior to the DISCS upon our liquidation, dissolution or winding up, (b) have no maturity or a maturity of at least 60 years, (c) are subject to a replacement capital covenant substantially similar to the replacement capital covenant or an other qualifying capital replacement covenant and (d) have an optional deferral provision;

• securities issued by us or our subsidiaries that (a) rank pari passu with or junior to the DISCS upon our liquidation, dissolution or winding up, (b) are non-cumulative or have a no payment provision and (c) (x) have no maturity or a maturity of at least 60 years and (y) are subject to intent-based replacement disclosure;

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• securities issued by us or our subsidiaries that (a) rank pari passu with or junior to the DISCS upon our liquidation, dissolution or winding up, (b) are non-cumulative or have a no payment provision, (c) have no maturity or a maturity of at least 40 years and (d) are subject to a replacement capital covenant substantially similar to the replacement capital covenant or an other qualifying capital replacement covenant;

• securities issued by us or our subsidiaries that (a) rank pari passu with or junior to the DISCS upon our liquidation, dissolution or winding up, (b) have an optional deferral provision, (c) have a mandatory trigger provision and (d) have no maturity or a maturity of at least 60 years;

• cumulative preferred stock issued by us or our subsidiaries that (a) has no prepayment obligation on the part of the issuer thereof, whether at the election of the holders or otherwise, and (b) (x) has no maturity or a maturity of at least 60 years and (y) is subject to a replacement capital covenant substantially similar to the replacement capital covenant or an other qualifying capital replacement covenant; or

• other securities issued by us or our subsidiaries that (a) rank upon our liquidation, dissolution or winding-up either (x) pari passu with or junior to the DISCS or (y) pari passu with the claims of our trade creditors and junior to all of our long-term indebtedness for money borrowed (other than our long-term indebtedness for money borrowed from time to time outstanding that by its terms ranks pari passu with such securities on our liquidation, dissolution or winding-up), (b) have an optional deferral provision or a no payment provision and (c) have a mandatory trigger provision and (d) either (x) have no maturity or a maturity of at least 40 years and intent-based replacement disclosure or (y) have no maturity or a maturity of at least 30 years and are subject to a replacement capital covenant substantially similar to the replacement capital covenant or an other qualifying capital replacement covenant; or

• in connection with any repayment, redemption or purchase of DISCS at any time after February 7, 2057:

• all securities described under the second bullet of this definition that would be qualifying capital securities after February 7, 2037 but on or prior to February 7, 2057;

• preferred stock issued by us that (a) (x) has no maturity or a maturity of at least 60 years and (y) is subject to intent-based replacement disclosure and (b) is non-cumulative;

• securities issued by us or our subsidiaries that (a) rank pari passu with or junior to the DISCS upon our liquidation, dissolution or winding up, (b) either (x) have no maturity or a maturity of at least 40 years and are subject to intent-based replacement disclosure or (y) have no maturity or a maturity at least 30 years and are subject to a replacement capital covenant substantially similar to the replacement capital covenant or an other qualifying capital replacement covenant and (c) are non-cumulative;

• securities issued by us or our subsidiaries that (a) rank pari passu with or junior to the DISCS upon our liquidation, dissolution or winding up, (b) have an optional deferral provision, (c) have a mandatory trigger provision, (d) have no maturity or a maturity at least 30 years and (e) are subject to intent-based replacement disclosure; or

• cumulative preferred stock issued by us or our subsidiaries that either (a) (x) has no maturity or a maturity of at least 60 years and (y) are subject to intent-based replacement disclosure or (b) has a maturity of at least 40 years and is subject to a replacement capital covenant substantially similar to the replacement capital covenant or an other qualifying capital replacement covenant.

For purposes of the definitions provided above, the following terms shall have the following meanings:

“Alternative payment mechanism” means, with respect to any securities or combination of securities (together in this definition, “such securities”), provisions in the related transaction documents requiring us to issue (or use commercially reasonable efforts to issue) one or more types of APM qualifying securities raising eligible proceeds at least equal to the deferred distributions on such securities and apply the proceeds to pay

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unpaid distributions on such securities, commencing on the earlier of (x) the first distribution date after commencement of a deferral period on which we pay current distributions on such securities and (y) the fifth anniversary of the commencement of such deferral period, and that:

• define “eligible proceeds” to mean, for purposes of such alternative payment mechanism, the net proceeds (after underwriters’ or placement agents’ fees, commissions or discounts and other expenses relating to the issuance or sale of the relevant securities, where applicable, and including the fair market value of property received by us or any of our subsidiaries as consideration for such securities) that we have received during the 180 days prior to the related distribution date from the issuance of APM qualifying securities, up to the preferred cap (as defined below in the sixth bullet of this definition) in the case of APM qualifying securities that are qualifying non-cumulative perpetual preferred stock or mandatorily convertible preferred stock;

• permit us to pay current distributions on any distribution date out of any source of funds but (x) require us to pay deferred distributions only out of eligible proceeds and (y) prohibit us from paying deferred distributions out of any source of funds other than eligible proceeds;

• if deferral of distributions continues for more than one year (or such shorter period as provided for in the terms of such securities), require us not to repay, redeem or purchase any APM qualifying securities or any of our securities that on a bankruptcy or liquidation of us rank pari passu or junior to such APM qualifying securities until at least one year after all deferred distributions have been paid;

• may include a provision that, notwithstanding the common cap (as defined below in the sixth bullet of this definition) and the preferred cap, for purposes of paying deferred distributions, limits our ability to sell shares of common stock, qualifying warrants, or mandatorily convertible preferred stock above an aggregate cap specified in the transaction documents (a “share cap”), subject to agreement to use commercially reasonable efforts to increase the share cap amount only to the extent that we can do so and (i) simultaneously satisfy our future fixed or contingent obligations under other securities and derivative instruments that provide for settlement or payment in shares of common stock or (ii) if we cannot increase the share cap amount as contemplated in the preceding clause, by requesting our board of directors to adopt a resolution for shareholder vote at the next occurring annual shareholders meeting to increase the number of shares of our authorized common stock for purposes of satisfying our obligations to pay deferred distributions;

• permit us, at our option, to provide that if we are involved in a merger, consolidation, amalgamation or conveyance, transfer or lease of assets substantially as an entirety to any other person (a “business combination”) where immediately after the consummation of the business combination more than 50% of the voting stock of the surviving entity of the business combination or the person to whom all or substantially all of our assets have been transferred, conveyed or leased is owned by the shareholders of the other party to the business combination, then the first three bullet points of this definition will not apply to any deferral period that is terminated on the next interest payment date following the date of consummation of the business combination; and

• limit our obligation to issue (or use commercially reasonable efforts to issue) APM qualifying securities up to:

• in the case of APM qualifying securities that are common stock or qualifying warrants, an aggregate amount of all common stock issued or issuable upon the exercise of such qualifying warrants plus the number of shares of common stock previously issued or issuable with the exercise of previously issued qualifying warrants, pursuant to the alternative payment mechanism with respect to deferred distributions during the first five years of any deferral period equal to 2% of the total number of issued and outstanding shares of our common stock as of the date of our most recently publicly available consolidated financial statements as of the date of such issuance (the “common cap”), provided (and it being understood) that the common cap shall cease to apply to such deferral period by a date (as specified in the related transaction documents) which shall be not later than the fifth anniversary of the commencement of such deferral period; and

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• in the case of APM qualifying securities that are qualifying non-cumulative perpetual preferred stock, or Mandatorily Convertible Preferred Stock, an amount from the issuance of such qualifying non-cumulative perpetual preferred stock and then still-outstanding mandatorily convertible preferred stock pursuant to the related alternative payment mechanism (including, in the case of qualifying non-cumulative perpetual preferred stock, at any point in time from all prior issuances thereof pursuant to such alternative payment mechanism) equal to 25% of the initial principal or stated amount of the securities that are the subject of the related alternative payment mechanism (the “preferred cap”);

• provided (and it being understood) that:

• we shall not be obligated to issue (or use commercially reasonable efforts to issue) APM qualifying securities for so long as a “market disruption event” has occurred and is continuing;

• if, due to a market disruption event or otherwise, we are able to raise and apply some, but not all, of the eligible proceeds necessary to pay all deferred distributions on any distribution date, we will apply any available eligible proceeds to pay accrued and unpaid distributions on the applicable distribution date in chronological order subject to the common cap, preferred cap and share cap (if any), as applicable; and

if we have outstanding more than one class or series of securities under which we are obligated to sell a type of APM qualifying securities and apply some part of the proceeds to the payment of deferred distributions, then on any date and for any period the amount of net proceeds received by us from those sales and available for payment of deferred distributions on such securities shall be applied to such securities on a pro rata basis in proportion to the total amounts that are due on such securities.

“APM qualifying securities” means:

• common stock;

• qualifying warrants;

• qualifying non-cumulative perpetual preferred stock; or

• manatorily convertible preferred stock.

“Covered debtholder” means each person (whether a holder or a beneficial owner holding through a participant in a clearing agency) that buys, holds or sells our long-term indebtedness for money borrowed during the period that such long-term indebtedness for money borrowed is covered debt.

“Distribution date” means, as to any securities or combination of securities, the dates on which periodic distributions on such securities are scheduled to be made.

“Distribution period” means, as to any securities or combination of securities, each period from and including the later of the issue date and a distribution date for such securities to but excluding the next succeeding distribution date for such securities.

“Distributions” means, as to a security or combination of securities, dividends, interest payments or other income distributions to the holders thereof that are not our subsidiaries.

“Eligible senior debt” means, at any time in respect of any issuer, each series of outstanding unsecured long-term indebtedness for money borrowed of such issuer that (a) upon a bankruptcy, liquidation, dissolution or winding-up of the issuer, ranks most senior among the issuer’s then outstanding classes of indebtedness for money borrowed, (b) is then assigned a rating by at least one NRSRO (provided that this clause (b) shall apply on a redesignation date only if on such date the issuer has outstanding senior long-term indebtedness for money

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borrowed that satisfies the requirements of clauses (a), (c) and (d) of this definition that is then assigned a rating by at least one NRSRO), (c) has an outstanding principal amount of not less than $100,000,000, and (d) was issued through or with the assistance of a commercial or investment banking firm or firms acting as underwriters, initial purchasers or placement or distribution agents. For purposes of this definition as applied to securities with a CUSIP number, each issuance of long-term indebtedness for money borrowed that has (or, if such indebtedness is held by a trust or other intermediate entity established directly or indirectly by the issuer, the securities of such intermediate entity that have) a separate CUSIP number shall be deemed to be a series of the issuer’s long-term indebtedness for money borrowed that is separate from each other series of such indebtedness.

“Eligible subordinated debt” means, at any time in respect of any issuer, each series of the issuer’s then outstanding unsecured long-term indebtedness for money borrowed that (a) upon a bankruptcy, liquidation,

dissolution or winding-up of the issuer, ranks subordinate to the issuer’s then outstanding series of indebtedness for money borrowed that ranks most senior, (b) is then assigned a rating by at least one NRSRO (provided that this clause (b) shall apply on a redesignation date only if on such date the issuer has outstanding subordinated long-term indebtedness for money borrowed that satisfies the requirements in clauses (a), (c) and (d) that is then assigned a rating by at least one NRSRO), (c) has an outstanding principal amount of not less than $100,000,000, and (d) was issued through or with the assistance of a commercial or investment banking firm or firms acting as underwriters, initial purchasers or placement or distribution agents. For purposes of this definition as applied to securities with a CUSIP number, each issuance of long-term indebtedness for money borrowed that has (or, if such indebtedness is held by a trust or other intermediate entity established directly or indirectly by the issuer, the securities of such intermediate entity that have) a separate CUSIP number shall be deemed to be a series of the issuer’s long-term indebtedness for money borrowed that is separate from each other series of such indebtedness.

“Holder” means, as to the covered debt then in effect, each holder of such covered debt as reflected on the securities register maintained by or on behalf of us with respect to such covered debt.

“Intent-based replacement disclosure” means, as to any security or combination of securities (together in this definition, “securities”), that we have publicly stated our intention, either in the prospectus or other offering document under which such securities were initially offered for sale or in filings with the SEC made by us under the Exchange Act prior to or contemporaneously with the issuance of such securities, that we, to the extent the securities provide us with equity credit, will repay, redeem or purchase such securities only with the proceeds of replacement capital securities that have terms and provisions at the time of repayment, redemption or purchase that are as or more equity-like than the securities then being repaid, redeemed or purchased, raised within 180 days prior to the applicable repayment, redemption or purchase date.

“Mandatory trigger provision” means, as to any security or combination of securities (together in this definition, “securities”), provisions in the terms thereof or of the related transaction agreements that (a) require or, at its option in the case of non-cumulative perpetual preferred stock, permit the issuer of such securities to make payment of distributions on such securities only pursuant to the issue and sale of APM qualifying securities, within no more than two years of a failure to satisfy one or more financial tests set forth in the terms of such securities or related transaction agreements, in an amount such that the net proceeds of such sale are at least equal to the amount of unpaid distributions on such securities (including without limitation all deferred and accumulated amounts) and in either case require the application of the net proceeds of such sale to pay such unpaid distributions, provided that (1) if the APM qualifying securities issued and sold are qualifying non-cumulative perpetual preferred stock or mandatorily convertible preferred stock, the amount of the net proceeds of qualifying non-cumulative perpetual preferred stock and Mandatorily Convertible Preferred Stock applied, together with the net proceeds of all prior issuances of Qualifying Non-Cumulative Preferred Stock and any still-outstanding Mandatorily Convertible Preferred Stock applied during the current and all prior deferral periods, to pay such distributions pursuant to such provision may not exceed 25% of the initial liquidation or principal amount of such securities and (2) if the APM qualifying securities issued and sold are common stock or qualifying warrants and if the mandatory trigger provision does not require such issuance and sale within one year of such failure, the number of shares of common stock or qualifying warrants issued or issuable upon the exercise of such qualifying warrants plus the number of

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shares of common stock previously issued or issuable upon the exercise of previously issued qualifying warrants may not exceed 2% of the total number of issued and outstanding shares of our common stock as of the date of our most recent publicly available consolidated financial statements as of the date of such issuance, (b) prohibit the issuer from purchasing any APM qualifying securities or any of our securities that on our bankruptcy or liquidation rank pari passu or junior to such APM qualifying securities prior to the date that is six months after the issuer applies the net proceeds of the sales described in clause (a) above to pay such unpaid distributions, and (c) upon any liquidation, dissolution, winding up, reorganization or in connection with any insolvency, receivership or proceeding under any bankruptcy law with respect to us, limit the claim of the holders of such securities (other than non-cumulative perpetual preferred stock) to distributions that accumulate during a period in which we fail to satisfy one or more financial tests set forth in the terms of such securities or related transaction agreements to (x) 25% of the principal amount of such securities then outstanding in the case of securities not permitting the issuance and sale pursuant to the provisions described in clause (a) above of securities other than common stock or qualifying warrants or (y) two years of accumulated and unpaid distributions (including compounded amounts thereon) in all other cases. No remedy other than permitted remedies may arise by the terms of such securities or related transaction agreements in favor of the holders of such securities as a result of the issuer’s failure to pay distributions because of the mandatory trigger provision or as a result of the issuer’s exercise of its right under an optional deferral provision until distributions have been deferred for one or more distribution periods that total together at least ten years.

“Market disruption events” means one or more events or circumstances substantially similar to those listed as “market disruption events” in the junior subordinated indenture.

“Market Value” means, on any date, the closing sale price per share of common stock (or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on that date as reported in composite transactions by the New York Stock Exchange or, if the common stock is not then listed on the New York Stock Exchange, as reported by the principal U.S. securities exchange on which the common stock is traded or quoted; if the common stock is not either listed or quoted on any U.S. securities exchange on the relevant date, the market price will be the average of the mid-point of the bid and ask prices for the common stock on the relevant date submitted by at least three nationally recognized independent investment banking firms selected by us for this purpose.

“No payment provision” means a provision or provisions in the transaction documents for securities (referred to in this definition as “such securities”) that include the following:

• an alternative payment mechanism; and

• an optional deferral provision modified and supplemented from the general definition of that term to provide that:

• the issuer of such securities may, in its sole discretion, defer in whole or in part payment of distributions on such securities for one or more consecutive distribution periods of up to five years or, if a market disruption event has occurred and is continuing, ten years, without any remedy other than permitted remedies and the obligations (and limitations on obligations) described in the definition of “alternative payment mechanism” applying; and

• if we become subject to a bankruptcy, insolvency, receivership or similar proceeding prior to the redemption or repayment of such securities, the holders of such securities will have no claim to any deferred and unpaid distributions exceeding two years of distributions on such securities; provided, however, that holders of such securities may have an additional preferred equity claim in respect of deferred and unpaid distributions which are in excess of two years of distributions that is senior to our common stock and is or would be pari passu with any qualifying non-cumulative preferred stock up to the amount equal to their pro rata shares of any unused portion of the preferred cap (as defined in the definition of alternative payment mechanism).

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“Non-cumulative” means, with respect to any securities, that the issuer may elect not to make any number of periodic distributions without any remedy arising under the terms of the securities or related agreements in favor of the holders, other than one or more permitted remedies.

“NRSRO” means a nationally recognized statistical rating organization within the meaning of Rule 15c3-1(c)(2)(vi)(F) under the Exchange Act.

“Optional deferral provision” means, as to any securities, provisions in the terms thereof or of the related transaction agreements to the effect of either bullet point below:

• (a) the issuer of such securities may, in its sole discretion, defer in whole or in part payment of distributions on such securities for one or more consecutive distribution periods of up to five years or, if a market disruption event is continuing, ten years, without any remedy other than permitted remedies and (b) an alternative payment mechanism (provided that such alternative payment mechanism need not apply during the first five years of any deferral period and need not include a common cap or preferred cap); or

• the issuer of such securities may, in its sole discretion, defer in whole or in part payment of distributions on such securities for one or more consecutive distribution periods up to ten years, without any remedy other than permitted remedies.

“Other qualifying capital replacement covenant” means a replacement capital covenant, as identified by our board of directors acting in good faith and in its reasonable discretion and reasonably construing the definitions and other terms of the replacement capital covenant, (i) entered into by a company that at the time it enters into such replacement capital covenant is a reporting company under the Exchange Act and (ii) that restricts the related issuer from redeeming or purchasing identified securities except from the applicable percentage of the proceeds of specified replacement capital securities that have terms and provisions at the time of redemption or purchase that are as or more equity-like than the securities then being redeemed or purchased, raised within 180 days prior to the applicable redemption or purchase date.

“Permitted remedies” means, with respect to any securities, one or more of the following remedies:

• rights in favor of the holders of such securities permitting such holders to elect one or more directors of the issuer (including any such rights required by the listing requirements of any stock or securities exchange on which such securities may be listed or traded); and

• complete or partial prohibitions preventing the issuer from paying distributions on or purchasing common stock or other securities that rank pari passu with or junior as to distributions to such securities for so long as distributions on such securities, including unpaid distributions, remain unpaid.

“Qualifying non-cumulative perpetual preferred stock” means our non-cumulative preferred stock that ranks pari passu with or junior to all of our other preferred stock, is perpetual and (a) is subject to a replacement capital covenant substantially similar to the replacement capital covenant or an other qualifying capital replacement covenant or (b) is subject to both (i) mandatory suspension of dividends in the event we breach certain financial metrics specified within the offering documents, and (ii) intent-based replacement disclosure. Additionally, in both (a) and (b) the transaction documents shall provide for no remedies as a consequence of non-payment of distributions other than permitted remedies.

“Qualifying warrants” means any net share settled warrants to purchase our common stock that (1) have an exercise price greater than the current stock market price, determined as specified in the instrument governing such warrants, of our common stock, and (2) we are not entitled to redeem for cash and the holders of which are not entitled to require us to purchase for cash in any circumstances.

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“Redesignation date” means, as to the covered debt in effect at any time, the earliest of (a) the date that is two years prior to the final maturity date of such covered debt, (b) if we elect to redeem or repay, or we or one of our subsidiaries elects to purchase, such covered debt either in whole or in part with the consequence that after giving effect to such redemption, repayment or purchase the outstanding principal amount of such covered debt is less than $100,000,000, the applicable redemption, repayment or purchase date and (c) if such covered debt is not eligible subordinated debt, the date on which we issue long-term indebtedness for money borrowed that is eligible subordinated debt.

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UNDERWRITING

Citigroup Global Markets Inc., Goldman, Sachs & Co. and J.P. Morgan Securities Inc. are acting as joint book-running managers of the offering and as representatives of the underwriters named below.

Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus supplement, each underwriter named below has agreed to purchase, and we have agreed to sell to that underwriter, the principal amount of DISCS set forth opposite the underwriter’s name.

Underwriters	Principal amount of DISCS
Citigroup Global Markets Inc.	$	140,000,000
Goldman, Sachs & Co.		80,000,000
J.P. Morgan Securities Inc.		80,000,000
HSBC Securities (USA) Inc.		20,000,000
Lehman Brothers Inc.		20,000,000
Merrill Lynch, Pierce, Fenner & Smith                  Incorporated		20,000,000
UBS Securities LLC		20,000,000
Wachovia Capital Markets, LLC		20,000,000
Total	$	400,000,000

The underwriting agreement provides that the obligations of the underwriters to purchase the DISCS included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all the DISCS if they purchase any of the DISCS.

The underwriters propose to offer some of the DISCS directly to the public at the public offering price set forth on the cover page of this prospectus supplement and some of the DISCS to dealers at the public offering price less a concession not to exceed 0.60% of the principal amount of the DISCS. The underwriters may allow, and dealers may reallow, a concession not to exceed 0.30% of the principal amount of the DISCS on sales to other dealers. After the initial offering of the DISCS to the public, the representatives may change the public offering price and concessions.

The following table shows the underwriting discounts and commissions that we are to pay to the underwriters in connection with this offering (expressed as a percentage of the principal amount of the DISCS).

	Paid by Ambac
Per DISCS	1.00	%

We estimate that our total expenses for this offering will be approximately $575,000. Pursuant to the underwriting agreement, the underwriters have agreed to reimburse us in the amount of $400,000 for certain of our expenses for this offering.

In connection with the offering, the representatives may purchase and sell DISCS in the open market. These transactions may include over-allotment, syndicate covering transactions and stabilizing transactions. Over-allotment involves syndicate sales of DISCS in excess of the principal amount of DISCS to be purchased by the underwriters in the offering, which creates a syndicate short position. Syndicate covering transactions involve purchases of the DISCS in the open market after the distribution has been completed in order to cover syndicate short positions. Stabilizing transactions consist of certain bids or purchases of DISCS made for the purpose of preventing or retarding a decline in the market price of the DISCS while the offering is in progress.

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In connection with this offering, the underwriters may over-allot or effect transactions with a view to supporting the market price of the DISCS at a level higher than that which might otherwise prevail for a limited period after the issue date. However, there may be no obligation on the underwriters to do this. Such stabilizing, if commenced, may be discontinued at any time, and must be brought to an end after a limited period.

The underwriters also may impose a penalty bid. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when an underwriter, in covering syndicate short positions or making stabilizing purchases, repurchase DISCS originally sold by that syndicate member.

Any of these activities may have the effect of preventing or retarding a decline in the market price of the DISCS. They may also cause the price of the DISCS to be higher than the price that otherwise would exist in the open market in the absence of these transactions. The underwriters may conduct these transactions in the over-the-counter market or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time.

Ambac has agreed in the underwriting agreement that for a period of 30 days after the date of this prospectus supplement, neither it, nor any of its subsidiaries or other affiliates over which it exercises management or voting control, nor any person acting on their behalf will, without the prior written consent of Citigroup Capital Markets Inc., offer, sell, contract to sell or otherwise dispose of any securities that are substantially similar to the DISCS.

The DISCS are a new issue of securities with no established trading market and will not be listed on any national securities exchange. The underwriters have advised us that they intend to make a market for the DISCS, but they have no obligation to do so and may discontinue market making at any time and for any reason without providing any notice. We cannot give any assurance as to the liquidity of any trading market for the DISCS.

The underwriters have performed investment banking and advisory services for us from time to time for which they have received customary fees and expenses. Ambac and its subsidiary Ambac Assurance Corporation have entered into a $400 million revolving credit facility with some of the affiliates of some of the underwriters. Citibank, N.A. serves as administrative agent and lender, and Citigroup Global Markets Inc. serves as sole lead arranger and sole book runner under the revolving credit facility. These companies receive standard fees for their services. The underwriters may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business, for which they will receive customary fees and expenses.

As described above in “Use of Proceeds,” we currently intend to use the net proceeds from this offering to repurchase shares of our common stock pursuant to an accelerated share repurchase program, subject to market conditions and other business considerations. In connection with this intended use of proceeds, we expect to enter into a share repurchase program with one of the underwriters in this offering. If the net proceeds are used in this manner, more than 10% of the net proceeds of this offering, not including underwriting compensation, may be received by the underwriters, each of which is a member of the National Association of Securities Dealers, Inc. (“NASD”), or their affiliates. Consequently, this offering is being conducted in compliance with NASD Conduct Rule 2710(h). Pursuant to that rule, the appointment of a qualified independent underwriter is not necessary in connection with this offering, as the offering is of a class of securities to be rated Baa or better by Moody’s rating service or BBB or better by Standard & Poor’s rating service.

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribute to payments the underwriters may be required to make because of any of those liabilities.

Notice to Prospective Investors in the European Economic Area

In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a “relevant member state”), with effect from and including the date on which the Prospectus

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Directive is implemented in that relevant member state (the “relevant implementation date”), an offer of the DISCS described in this prospectus supplement may not be made to the public in that relevant member state prior to the publication of a prospectus in relation to the DISCS that has been approved by the competent authority in that relevant member state or, where appropriate, approved in another relevant member state and notified to the competent authority in that relevant member state, all in accordance with the Prospectus Directive, except that, with effect from and including the relevant implementation date, an offer of securities may be offered to the public in that relevant member state at any time:

• to any legal entity that is authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities or

• to any legal entity that has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts or

• in any other circumstances that do not require the publication of a prospectus pursuant to Article 3 of the Prospectus Directive.

Each purchaser of DISCS described in this prospectus supplement located within a relevant member state will be deemed to have represented, acknowledged and agreed that it is a “qualified investor” within the meaning of Article 2(1)(e) of the Prospectus Directive.

For purposes of this provision, the expression an “offer to the public” in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe the securities, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each relevant member state.

The sellers of the DISCS have not authorized and do not authorize the making of any offer of the DISCS through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the DISCS as contemplated in this prospectus supplement. Accordingly, no purchaser of the DISCS, other than the underwriters, is authorized to make any further offer of the DISCS on behalf of the sellers or the underwriters.

Notice to Prospective Investors in the United Kingdom

This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive (“Qualified Investors”) that are also (i) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). This prospectus supplement and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant persons should not act or rely on this document or any of its contents.

Notice to Prospective Investors in Hong Kong

The DISCS may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the

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document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the DISCS may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to DISCS which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

Notice to Prospective Investors in Japan

The DISCS have not been and will not be registered under the Securities and Exchange Law of Japan (the Securities and Exchange Law) and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.

Notice to Prospective Investors in Singapore

This prospectus supplement and the accompanying prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus supplement and the accompanying prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the DISCS may not be circulated or distributed, nor may the DISCS be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Where the DISCS are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the DISCS under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.

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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of certain United States federal income tax consequences of the purchase, ownership, and disposition of the DISCS by an initial purchaser of the DISCS upon their original issuance for their “issue price,” which will equal the first price at which a substantial amount of the DISCS are sold to the public. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), the Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, all as of the date hereof, and subject to change or differing interpretations, possibly on a retroactive basis, so as to result in United States federal income tax consequences different from those discussed below. This summary does not discuss all aspects of United States federal income taxation which may be important to particular investors in light of their individual circumstances, such as DISCS held by investors subject to special tax rules (e.g., persons that are not United States persons, banks, insurance companies, tax-exempt organizations, financial institutions, regulated investment companies, common trust funds, entities that are treated for United States federal income tax purposes as partnerships or other pass-through entities, persons subject to alternative minimum tax, broker-dealers, expatriates, controlled foreign corporations, passive foreign investment companies and corporations that accumulate earnings to avoid United States federal income tax) or to persons that will hold the DISCS as part of a straddle, hedge, conversion, constructive sale, or other integrated security transaction for United States federal income tax purposes or U.S. Holders (as defined below) that have a functional currency other than the United States dollar, all of whom may be subject to tax rules that differ significantly from those summarized below. In addition, this summary does not discuss any foreign, state, or local tax considerations. This summary assumes that investors will hold their DISCS as “capital assets” under the Code. Each prospective investor is urged to consult its tax advisor regarding the United States federal, state, local, and foreign income and other tax consequences of the purchase, ownership, and disposition of the DISCS.

For purposes of this summary, a “U.S. Holder” is a beneficial owner of DISCS that is, for United States federal income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity subject to tax as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States or any political subdivision thereof; (iii) an estate the income of which is includible in gross income for United States federal income tax purposes regardless of its source, or (iv) a trust (A) the administration of which is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust, or (B) that has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person. A beneficial owner of DISCS that is not a U.S. Holder is referred to herein as a “Non-U.S. Holder.” If a partnership (including any entity or arrangement treated as a partnership for United States federal income tax purposes) is a beneficial owner of DISCS, the treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A holder of DISCS that is a partnership and partners in such partnership should consult their tax advisors about the United States federal income tax consequences of holding and disposing of DISCS.

Classification of the DISCS

In connection with the issuance of the DISCS, Skadden, Arps, Slate, Meagher & Flom LLP, special tax counsel to Ambac, will render its opinion generally to the effect that, although the matter is not free from doubt, under then current law and assuming full compliance with the terms of the indenture governing the DISCS (the “Indenture”) and other relevant documents, and based on the facts and assumptions contained in such opinion, the DISCS will be classified for United States federal income tax purposes as indebtedness of Ambac. Under the terms of the Indenture, each holder of the DISCS will agree to treat the DISCS as indebtedness of Ambac for United States federal income tax purposes. The remainder of this discussion assumes that the classification of the DISCS as indebtedness will be respected for United States federal income tax purposes.

U.S. Holders

Interest Income and Original Issue Discount

Under applicable Treasury regulations, a “remote” contingency that stated interest will not be timely paid will be ignored in determining whether a debt instrument is issued with original issue discount (“OID”). Ambac

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believes that the likelihood of its exercising its option to defer payments is remote within the meaning of the Treasury regulations. Based on the foregoing, although the matter is not free from doubt, the DISCS will not be considered to be issued with OID at the time of their original issuance. Accordingly, each U.S. Holder of DISCS should include in gross income such U.S. Holder’s allocable share of interest on the DISCS in accordance with such U.S. Holder’s method of tax accounting.

Under the applicable Treasury regulations, if the option to defer any payment of interest was determined not to be “remote,” or if Ambac exercised such option, the DISCS would be treated as issued with OID at the time of issuance or at the time of such exercise, as the case may be. Then, all stated interest on the DISCS would thereafter be treated as OID as long as the DISCS remained outstanding. In such event, all of a U.S. Holder’s taxable interest income relating to the DISCS would constitute OID that would have to be included in income on an economic accrual basis before the receipt of the cash attributable to the interest, regardless of such U.S. Holder’s method of tax accounting, and actual distributions of stated interest would not be reported as taxable income. Consequently, a U.S. Holder of DISCS would be required to include in gross income OID even though Ambac would not make any actual cash payments during a deferral period.

No rulings or other interpretations have been issued by the Internal Revenue Service which have addressed the meaning of the term “remote” as used in the applicable Treasury regulations, and it is possible that the IRS could take a position contrary to the interpretation in this prospectus supplement.

Because income on the DISCS will constitute interest or OID, corporate holders of DISCS will not be entitled to a dividends-received deduction with respect to any income recognized relating to the DISCS, and individual holders will not be entitled to a lower income tax rate in respect of certain dividends, with respect to any income recognized relating to the DISCS.

Sales or Redemption of DISCS

Upon the sale, exchange, redemption or other taxable disposition (collectively, a “disposition”) of DISCS, a U.S. Holder will be considered to have disposed of all or part of its DISCS. Such U.S. Holder will recognize gain or loss equal to the difference between its adjusted tax basis in the DISCS and the amount realized on the disposition of such DISCS. For these purposes, the amount realized does not include any amount attributable to accrued interest, which will be taxed as described above under “Interest Income and Original Issue Discount.” Assuming that Ambac does not exercise its option to defer payment of interest on the DISCS and that the DISCS are not deemed to be issued with OID, a U.S. Holder’s adjusted tax basis in the DISCS will generally be its initial purchase price. If the DISCS are deemed to be issued with OID, a U.S. Holder’s tax basis in the DISCS will generally be its initial purchase price, increased by OID previously includible in such U.S. Holder’s gross income to the date of disposition and decreased by distributions or other payments received on the DISCS since and including the date that the DISCS were deemed to be issued with OID. Any gain or loss on a disposition of the DISCS will generally be a capital gain or loss, except to the extent of any accrued interest relating to such U.S. Holder’s DISCS that is required to be included in income (as described above), and will generally be a long-term capital gain or loss if the DISCS have been held for more than one year.

Should Ambac exercise its option to defer payment of interest on the DISCS, the DISCS may trade at a price that does not fully reflect the accrued but unpaid interest relating to the DISCS. In the event of such a deferral, a U.S. Holder who disposes of its DISCS between record dates for payments of distributions will be required to include in income as ordinary income accrued but unpaid interest on the DISCS to the date of disposition and to add such amount to its adjusted tax basis of the DISCS. To the extent the selling price is less than the holder’s adjusted tax basis, such holder will recognize a capital loss. Capital losses generally cannot be applied to offset ordinary income for United States federal income tax purposes.

Under the circumstances described in this prospectus supplement, the DISCS may be redeemed by Ambac for cash. Under current law, such a redemption would, for United States federal income tax purposes, constitute a taxable disposition of the redeemed DISCS. Accordingly, a U.S. Holder would recognize gain or loss as if it had sold such redeemed DISCS for cash.

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Information Reporting and Backup Withholding

Generally, income on the DISCS will be reported to the IRS and to holders on Forms 1099-INT, which forms should be mailed to holders of DISCS by January 31 following each calendar year of payment. In addition, U.S. Holders may be subject to a backup withholding tax on such payments if they do not provide their taxpayer identification numbers to the paying agent in the manner required, fail to certify that they are not subject to backup withholding tax, or otherwise fail to comply with applicable backup withholding tax rules. U.S. Holders may also be subject to information reporting and backup withholding tax with respect to proceeds from a disposition of the DISCS. Any amounts withheld under the backup withholding rules will be allowed as a credit against the U.S. Holder’s United States federal income tax liability provided the required information is timely provided to the IRS.

Non-U.S. Holders

Under current United States federal income tax law, although not free from doubt, withholding of United States federal income tax will not apply to a payment on DISCS to a Non-U.S. Holder, provided that:

• the Non-U.S. Holder does not actually or constructively own 10 percent or more of the total combined voting power of all classes of stock of Ambac entitled to vote and is not a controlled foreign corporation that is related to Ambac through stock ownership;

• the beneficial owner provides a statement signed under penalties of perjury that includes its name and address and certifies that it is a Non-U.S. Holder in compliance with applicable requirements; and

• neither Ambac nor its paying agent has actual knowledge or reason to know that the beneficial owner of the DISCS is a U.S. Holder.

Despite the above, if a Non-U.S. Holder is engaged in a trade or business in the United States (or, if certain tax treaties apply, if the Non-U.S. Holder maintains a permanent establishment within the United States) and the interest on the DISCS is effectively connected with the conduct of that trade or business (or, if certain tax treaties apply, attributable to that permanent establishment), such Non-U.S. Holder will be subject to United States federal income tax on the interest on a net income basis in the same manner as if such Non-U.S. Holder were a U.S. Holder. In addition, a Non-U.S. Holder that is a foreign corporation that is engaged in a trade or business in the United States may be subject to a 30 percent (or, if certain tax treaties apply, such lower rates as provided) branch profits tax.

Any gain realized on the disposition of DISCS will generally not be subject to United States federal income tax unless:

• that gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States (or, if certain tax treaties apply, is attributable to a permanent establishment maintained by the Non-U.S. Holder within the United States); or

• the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of the disposition and certain other conditions are met.

In general, backup withholding and information reporting will not apply to a payment of interest on DISCS to a Non-U.S. Holder, or to proceeds from the disposition of DISCS by a Non-U.S. Holder, in each case, if the holder certifies under penalties of perjury that it is a Non-U.S. Holder and neither Ambac nor its paying agent has actual knowledge to the contrary. Any amounts withheld under the backup withholding rules will be refunded or credited against the Non-U.S. Holder’s United States federal income tax liability provided the required information is timely furnished to the IRS. In certain circumstances, if DISCS are not held through a qualified intermediary, the amount of payments made on such DISCS, the name and address of the beneficial owner and the amount, if any, of tax withheld may be reported to the IRS.

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LEGAL OPINIONS

Anne Gill Kelly, Esq., Managing Director, Secretary and Assistant General Counsel of Ambac, One State Street Plaza, New York, New York 10004, will issue an opinion about the legality of the DISCS. Anne Gill Kelly, Esq. beneficially owns, or has the right to acquire under Ambac’s employee benefit plans, an aggregate of less than 1% of Ambac’s common stock. Additionally, certain legal matters relating to the DISCS offered hereby will be passed upon for us by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York 10036. Certain legal matters in connection with this offering will be passed upon for the underwriters by Shearman & Sterling LLP, New York, New York 10022.

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PROSPECTUS

Ambac Financial Group, Inc.

Ambac Financial Group, Inc. may sell from time to time

*Common Stock

*Preferred Stock

*Senior Debt Securities

*Junior Subordinated Debt Securities

*Warrants

This prospectus describes some of the general terms that may apply to these securities. The specific terms of the common stock, the preferred stock, the senior debt securities, junior subordinated debt securities and the warrants then being offered will be described in supplements to this prospectus. The prospectus supplements may also add, update or change information contained in this prospectus. You should read this prospectus and the applicable prospectus supplement carefully before you make your investment decision.

We may offer and sell these securities through one or more underwriters, dealers and agents, underwriting syndicates managed or co-managed by one or more underwriters, or directly to purchasers, on a continuous or delayed basis.

This prospectus may not be used to sell securities unless accompanied by a prospectus supplement.

The prospectus supplement for each offering of securities will describe in detail the plan of distribution for that offering. Our common stock is listed on the New York Stock Exchange under the trading symbol “ABK”. Each prospectus supplement will indicate if the securities offered thereby will be listed on any securities exchange.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus or the accompanying prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is February 6, 2007.

TABLE OF CONTENTS

ABOUT THIS PROSPECTUS	1
AMBAC FINANCIAL GROUP, INC.	1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	3
USE OF PROCEEDS	4
RATIO OF EARNINGS TO FIXED CHARGES	5
DESCRIPTION OF SECURITIES	6
DESCRIPTION OF CAPITAL STOCK	6
DESCRIPTION OF DEBT SECURITIES	9
DESCRIPTION OF WARRANTS	18
WHERE YOU CAN FIND MORE INFORMATION	19
LEGAL OPINIONS	20
EXPERTS	21

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement that we filed with the SEC using a “shelf” registration process. Under this shelf process, we may, from time to time, sell any combination of the securities described in this prospectus in one or more offerings. This prospectus provides you with a general description of the securities we may offer. Each time we sell securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add, update or change information contained in this prospectus. You should read both this prospectus and any prospectus supplement together with additional information described under the heading “Where You Can Find More Information.” Unless otherwise stated or the context otherwise requires, references in this prospectus to “Ambac”, “we”, “our” or “us” refer to Ambac Financial Group, Inc., and its direct and indirect subsidiaries.

AMBAC FINANCIAL GROUP, INC.

Ambac, headquartered in New York City, is a holding company whose subsidiaries provide financial guarantee products and other financial services to clients in both the public and private sectors around the world. Ambac was incorporated on April 29, 1991. Ambac provides financial guarantees for public finance and structured finance obligations through its principal operating subsidiary, Ambac Assurance Corporation, or Ambac Assurance.

Generally, financial guarantee products written by Ambac Assurance guarantee payment when due of the principal of and interest on the guaranteed obligation. In essence, Ambac Assurance steps in to make payments if the party responsible for making payments fails to do so.

Ambac Assurance has earned triple-A ratings, the highest ratings available, from Moody’s Investors Service, Inc., or Moody’s, in 1987, Standard & Poor’s Ratings Services, or S&P, in 1979 and Fitch, Inc., or Fitch, in 1994. Ambac Assurance’s ratings have been periodically affirmed by each of the rating agencies and have never been revised downward or put on review for a possible downgrade. Moody’s, S&P and Fitch’s ratings were last reaffirmed in 2006. These ratings are an essential part of Ambac Assurance’s ability to provide credit enhancement.

Ambac Assurance provides its financial guarantees for a variety of products, including:

• public finance securities, which include bonds issued by state and local municipalities such as cities, counties, towns and villages, as well as water districts, sewer districts, higher educational institutions, hospitals, transportation authorities, housing authorities and other similar agencies;

• securities issued in connection with privatizations of essential infrastructures by sovereign and subsovereigns where the insured debt is backed by payments made by private companies which own concessions to build, maintain and operate roads, hospitals, schools and other essential infrastructure;

• mortgage-backed securities, which are bonds and notes where investors receive payments out of the interest and principal on the underlying mortgages that back the securities;

• asset-backed securities, which are bonds and notes where investors receive payments out of cash flows from the underlying accounts receivable, loans, corporate debt or sovereign debt that back the securities; and

• structured credit derivatives, which are privately negotiated contracts that provide an investor with credit protection against the occurrence of a specific event such as a payment default or bankruptcy relating to an underlying obligation.

Ambac Assurance and its subsidiary Ambac Assurance UK Limited, which serve the global capital markets, are primarily engaged in guaranteeing public finance securities, mortgage-backed securities, asset-backed

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securities and other structured finance obligations. Global capital markets include the U.S. financial markets and international markets such as the United Kingdom, Italian, Japanese and Australian financial markets. Ambac Assurance is the successor of the founding financial guarantee insurance company, which wrote the first bond insurance policy in 1971.

Ambac Assurance seeks to minimize the risk inherent in its financial guarantee portfolio by maintaining a diverse portfolio which spreads its risk across a number of criteria, including issue size, type of obligation, geographic area and obligor, which is the entity responsible for making payments. In the case of default on a guaranteed obligation, payments under the financial guarantee policy generally may not be accelerated by the policyholder without Ambac Assurance’s consent. As of December 31, 2005 and September 30, 2006, Ambac Assurance’s net financial guarantee in force, after giving effect for reinsurance, was $726.6 billion and $794.6 billion, respectively.

Ambac Credit Products, LLC, a wholly owned subsidiary of Ambac Assurance, primarily provides credit protection in the global markets in the form of structured credit derivatives. Structured credit derivatives are privately negotiated contracts that require Ambac Credit to make payments upon the occurrence of certain defined credit events relating to an underlying obligation. Structured credit derivatives issued by Ambac Credit are guaranteed by Ambac Assurance. Ambac Credit generally enters into structured credit derivative contracts in which its exposure is to highly rated risks.

Ambac provides financial services and investment products principally to its financial guarantee clients which include municipalities and their authorities, school districts, health care organizations and asset-backed issuers.

Through its financial services subsidiaries, Ambac provides financial and investment products that include:

• investment agreements, which are contracts between Ambac and a client that provide for the guaranteed return of principal invested and for the payment of interest at a guaranteed rate;

• interest rate swaps, currency swaps and total return swaps; and

• funding conduits, which are special purpose companies that help clients raise funds by issuing notes for the purpose of acquiring financial assets such as trade receivables.

We conduct our investment agreement business through our subsidiary, Ambac Capital Funding, Inc., or Ambac Capital. Ambac Capital provides investment agreements primarily to municipalities and their authorities, mortgage-backed security issuers, asset-backed security issuers and international issuers. The investment agreements written by Ambac Capital are guaranteed by Ambac Assurance. Investment agreements are primarily used by issuers to invest bond proceeds until the proceeds can be used for their intended purpose.

Ambac provides interest rate and currency swaps through its subsidiary, Ambac Financial Services, L.L.C. and total return swaps through its subsidiary Ambac Capital Services, L.L.C., primarily to states, municipalities and their authorities, issuers of asset-backed securities, investment banks and other entities in connection with their financings. The swaps provided by Ambac Financial Services and Ambac Capital Services are guaranteed by Ambac Assurance and provide a financing alternative that is intended to reduce an issuer’s overall borrowing costs and/or help manage their risk.

As a holding company, Ambac Financial Group, Inc. is largely dependent on dividends from Ambac Assurance to pay dividends on its capital stock, to pay principal of and interest on its indebtedness, to pay its operating expenses, to purchase its common stock in the open market and to make capital investments in its subsidiaries. Dividends from Ambac Assurance are subject to certain insurance regulatory restrictions.

Our principal executive offices are located at One State Street Plaza, New York, New York 10004 and our telephone number is (212) 668-0340.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus and accompanying prospectus supplement may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts but instead represent management’s belief regarding future events, many of which, by their nature, are inherently uncertain and outside our control. You can identify these statements by the fact that they do not relate strictly to historical or current facts and relate to future plans or objectives and results.

Any or all of our forward-looking statements here or in other publications may turn out to be wrong and are based on current expectations and the current economic environment. Ambac’s actual results may vary materially, and there are no guarantees about the performance of our securities. Among factors that could cause actual results to differ materially are:

• changes in the economic, credit or interest rate environment in the United States and abroad;

• the level of activity within the national and worldwide debt markets;

• competitive conditions and pricing levels;

• legislative and regulatory developments;

• changes in tax laws;

• the policies and actions of the United States and other governments;

• changes in capital requirement or other criteria of rating agencies;

• changes in accounting principles or practices that may impact Ambac’s reported financial results;

• the amount of reserves established for losses and loss expenses;

• default of one or more of Ambac’s reinsurers;

• market spreads and pricing on insured pooled debt obligations and other derivative products insured or issued by Ambac;

• prepayment speeds on insured asset-backed securities and other factors that may influence the amount of installment premiums paid to Ambac; and

• other risks and uncertainties that have not been identified at this time.

Ambac is not obligated to publicly correct or update any forward-looking statement if we later become aware that it is not likely to be achieved, except as required by law. You are advised, however, to consult any further disclosures we make on related subjects in our reports to the SEC.

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USE OF PROCEEDS

Unless otherwise indicated in the applicable prospectus supplement, we intend to use the proceeds of any securities sold for general corporate purposes.

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AMBAC FINANCIAL GROUP, INC.

RATIO OF EARNINGS TO FIXED CHARGES

The following table contains our ratio of earnings to fixed charges for each of the periods indicated:

	Years Ended December 31,										Nine Months Ended
	2005		2004		2003		2002		2001		September 30, 2006	September 30, 2005
Ratio of Earnings to fixed charges	18.3	x	18.1	x	16.0	x	13.3	x	14.4	x	16.2	18.1x

We computed the ratio of earnings to fixed charges by dividing earnings before income taxes and extraordinary items plus fixed charges by the fixed charges. For the purpose of this ratio, fixed charges consist of interest expense incurred, capitalized interest, amortization of debt expense and one-third of rental payments under operating leases, an amount deemed representative of the appropriate interest factor. Since we did not have any preferred stock outstanding during the periods indicated above, our ratio of earnings to combined fixed charges and preference dividends for each relevant period will be the same as our ratio of earnings to fixed charges.

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DESCRIPTION OF SECURITIES

This prospectus contains a summary of the common stock, preferred stock, debt securities and warrants that we may sell. These summaries are not meant to be a complete description of each security. However, this prospectus and accompanying prospectus supplement contain all the material terms of the securities being offered.

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 350,000,000 shares of common stock, par value $0.01 per share, and 4,000,000 shares of preferred stock, par value $0.01 per share. No shares of preferred stock were issued or outstanding as of February 6, 2007.

Common stock

Voting rights. Each holder of common stock is entitled to one vote for each share held on all matters to be voted upon by stockholders.

Dividends. The holders of common stock, after any preferences of holders of any preferred stock, are entitled to receive dividends as determined by the board of directors.

Liquidation and dissolution. If we liquidate or dissolve, the holders of the common stock will be entitled to share in our assets available for distribution to common stockholders in proportion to the amount of common stock they own. The amount available for common stockholders is calculated after payment of liabilities. Holders of any preferred stock will receive a preferential share of our assets before the holders of the common stock receive any assets.

Other rights. Holders of the common stock have no right to

• convert or exchange the stock into any other security;

• have the stock redeemed; or

• purchase additional stock or to maintain their proportionate ownership interest.

The common stock does not have cumulative voting rights. Holders of shares of our common stock are not required to make additional capital contributions.

Our common stock is listed and traded on the New York Stock Exchange under the symbol “ABK.”

Transfer agent and registrar

Citibank, N.A. is the transfer agent and registrar for the common stock.

Removal of directors by stockholders

Delaware law provides that members of a board of directors may be removed, with or without cause, by a majority of the outstanding shares entitled to vote on the election of the directors.

Stockholder nomination of directors

Our by-laws provide that a stockholder must notify us in writing of any stockholder nomination of a director at least sixty, but not more than ninety, days prior to the date of the meeting for the election of directors. Except

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that if we give less than seventy days notice or prior public disclosure of the date for the meeting, then notice by a stockholder is timely if received by us no later than the close of business on the tenth day on which such notice was mailed or such public disclosure was made.

10% stockholder provision

Our subsidiary, Ambac Assurance, is a Wisconsin corporation and subject to the insurance and regulatory laws of the State of Wisconsin. Under Wisconsin insurance holding company laws, any acquisition of control of Ambac requires the prior approval of the Office of the Commissioner of Insurance of the State of Wisconsin. As a result, section 4.5 of our amended and restated certificate of incorporation provides that no stockholder may cast votes with respect to 10% or more of our voting stock, regardless of the actual number of shares of voting stock beneficially held by the stockholder. In addition, any voting stock held by a stockholder in excess of 10% will not count in the calculation of or toward a quorum at any meeting of stockholders. These voting restrictions will not apply to any stockholder whose acquisition or ownership of 10% or more of our voting stock has been approved by the Office of the Commissioner of Insurance of the State of Wisconsin.

Delaware Business Combination Statute

Section 203 of the Delaware General Corporation Law (“DGCL”) is applicable to us. Section 203 of the DGCL restricts some types of transactions and business combinations between a corporation and a 15% stockholder. A 15% stockholder is generally considered by Section 203 to be a person owning 15% or more of the corporation’s outstanding voting stock. Section 203 refers to a 15% stockholder as an “interested stockholder.” Section 203 restricts these transactions for a period of three years from the date the stockholder acquired 15% or more of our outstanding voting stock. With some exceptions, unless the transaction is approved by the board of directors and the holders of at least two-thirds of the outstanding voting stock of the corporation, Section 203 prohibits significant business transactions such as:

• a merger with, disposition of significant assets to or receipt of disproportionate financial benefits by the 15% stockholder, or

• any other transaction that would increase the 15% stockholder’s proportionate ownership of any class or series of our capital stock.

The shares held by the 15% stockholder are not counted as outstanding when calculating the two-thirds of the outstanding voting stock needed for approval.

The prohibition against these transactions does not apply if:

• prior to the time that any stockholder became a 15% stockholder, the board of directors approved either the business combination or the transaction in which such stockholder acquired 15% or more of our outstanding voting stock, or

• the 15% stockholder owns at least 85% of the outstanding voting stock of the corporation as a result of the transaction in which such stockholder acquired 15% or more of our outstanding voting stock. Shares held by persons who are both directors and officers or by some types of employee stock plans are not counted as outstanding when making this calculation.

Preferred stock

General. We are authorized to issue 4,000,000 shares of preferred stock. No shares of preferred stock are currently issued or outstanding. Our board of directors may, without stockholder approval, issue shares of preferred stock. The board can issue more than one series of preferred stock. The board has the right to fix the number of shares, dividend rights, conversion rights, voting rights, redemption rights, liquidation preferences and any other rights, preferences, privileges and restrictions applicable to the preferred stock it decides to issue.

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Voting rights. The DGCL provides that the holders of preferred stock will have the right to vote separately as a class on any proposal involving fundamental changes in the rights of holders of such preferred stock.

Conversion or exchange. The prospectus supplement will describe the terms, if any, on which the preferred stock may be convertible into or exchangeable for our debt securities, common stock, warrants or other preferred stock. These terms will include provisions as to whether conversion or exchange is mandatory, at the option of the holder or at our option. These provisions may allow or require the number of our shares of common stock or other securities to be received by the holders of preferred stock to be adjusted.

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DESCRIPTION OF DEBT SECURITIES

The debt securities covered by this prospectus will be our direct unsecured obligations. The debt securities will be either senior debt securities that rank on an equal basis with all our other unsecured and unsubordinated debt, or they will be junior subordinated debt securities that will rank junior to all of our senior unsecured debt, including any senior subordinated debt.

The following description briefly sets forth certain general terms and provisions of the debt securities. The prospectus supplement for a particular series of debt securities will describe the particular terms of the debt securities we offer and the extent to which these general provisions may apply to that particular series of debt securities.

Our senior debt securities will be issued under a senior debt indenture, dated as of February 15, 2006. Our junior subordinated debt securities will be issued under a junior subordinated debt indenture. The trustee under both indentures is The Bank of New York. The senior debt indenture and the junior subordinated debt indenture are sometimes referred to in this prospectus individually as an “indenture” and collectively as the “indentures”. Forms of the indentures have been filed with the SEC and are incorporated by reference as Exhibits 4.1 and 4.9 to the registration statement on Form S-3 under the Securities Act of 1933, of which this prospectus forms a part.

We have summarized all material provisions of the indentures below. You should read the indentures for further information. If we make no distinction in the following summaries between the senior debt securities and the junior subordinated debt securities or between the indentures, such summaries refer to any debt securities and either indenture.

General

The indentures allow us to issue either senior or junior subordinated debt securities from time to time under the applicable indenture without limitation as to amount. We may issue the debt securities in one or more series with the same or different terms.

Because we are a holding company, our rights and the rights of our creditors, including the holders of debt securities, to participate in the assets of any subsidiary upon its liquidation or recapitalization will be subject to the prior claims of the subsidiary’s creditors, except to the extent that we may ourself be a creditor with recognized claims against the subsidiary.

We may sell debt securities at a substantial discount below their stated principal amount that bear no interest or below market rates of interest. The applicable prospectus supplement will describe the material federal income tax consequences and special investment considerations applicable to any such series of debt securities.

Provisions Generally Applicable to Both Senior and Junior Subordinated Debt Securities

Unless otherwise indicated, the following terms apply to both the senior debt securities and the junior subordinated debt securities and to both of the indentures.

Terms Specified in the Prospectus Supplement

A prospectus supplement relating to any series of debt securities being offered will include specific terms relating to the offering.

With respect to either indenture, the prospectus supplement will include some or all of the following for a particular series of debt securities:

• the title of debt securities;

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• any limit on the aggregate principal amount of the debt securities;

• the price or prices at which we will sell the debt securities;

• the maturity date or dates of the debt securities;

• the per annum interest rate or rates, if any, on the series and the date or dates from which any such interest will accrue;

• whether the amount of payments of principal of and premium, if any, or interest on the debt securities may be determined with reference to any index, formula or other method, such as one or more currencies, commodities, equity indices or other indices, and the manner of determining the amount of such payments;

• the dates or dates, or the method by which such date or dates will be determined or, in the case of the junior subordinated indenture, extended, on which we will pay interest on the debt securities and the regular record date for determining who is entitled to the interest payable on any interest payment date;

• the place or places where the principal of and premium, if any, and interest on the debt securities will be payable;

• if we possess the option to do so, the periods within which and the prices at which we may redeem the debt securities, in whole or in part, pursuant to optional redemption provisions, and the other terms and conditions of any such provisions;

• our obligation, if any, to redeem, repay or purchase debt securities by making periodic payments to a sinking fund or through an analogous provision or at the option of holders of the debt securities, and the period or periods within which and the price or prices at which we will redeem, repay or purchase the debt securities, in whole or in part, pursuant to such obligation, and the other terms and conditions of such obligation;

• the denominations in which the debt securities will be issued, if other than $1,000 and integral multiples of $1,000;

• the portion or methods of determining the portion of the principal amount of the debt securities which we must pay upon the acceleration of the maturity of the debt securities in connection with an Event of Default, as described below, if other than the full principal amount;

• the currency, currencies or currency unit in which we will pay the principal of and premium, if any or interest, if any, on the debt securities, if not United States dollars;

• provisions, if any, granting special rights to holders of the debt securities upon the occurrence of specified events;

• any deletions from, modifications of or additions to the Events of Default or our covenants with respect to the applicable series of debt securities, and whether or not such Events of Default or covenants are consistent with those contained in the applicable indenture;

• the application, if any, of the terms of the applicable indenture relating to defeasance and covenant defeasance, which terms are described below, to the debt securities;

• whether any of the debt securities will be issued in global form and, if so, the terms and conditions upon which global debt securities may be exchanged for certificated debt securities;

• the depositary for global or certificated debt securities;

• any trustees, authenticating or paying agents, transfer agents or registrars or other agents with respect to the debt securities;

• whether and under what circumstances we may from time to time, without the consent of holders of debt securities, issue additional debt securities, having the same ranking and the same interest rate, maturity

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and other terms as the debt securities being offered, except for the issue price and issue date and, in some cases, the first interest payment date, whereby such additional securities will, together with the then outstanding debt securities, constitute a single class of debt securities under the applicable indenture, and will vote together on matters under the applicable indenture; and

• any other terms of the debt securities consistent with the provisions of the applicable indenture.

With respect to the junior subordinated indenture, the prospectus supplement may also include some or all of the following for a particular series of debt securities:

• our right, if any, and/or obligation, if any, at any time and/or from time to time, during the term of the junior subordinated debt securities of any series, to defer payments of interest on the junior subordinated debt securities of such series and the terms and conditions of such right and/or obligation, if applicable; and

• our right, if any, and/or obligation, if any, to satisfy our obligation to pay interest then outstanding on and/or principal of the junior subordinated debt securities of a series by selling our common stock, warrants on common stock, securities mandatorily convertible into common stock or non-cumulative perpetual preferred stock or other qualifying securities specified in connection with establishment of the junior subordinated debt securities of such series to third parties that are not our subsidiaries (i.e., a “share settlement mechanism”), the proceeds of which shall be paid to the holders of the junior subordinated debt securities, in satisfaction of interest or principal, as applicable, then due on such junior subordinated debt securities and the terms and conditions of such right and/or obligation, if applicable.

Consolidation, Merger, Sale of Assets and Other Transactions

Under each of the indentures, so long as any debt securities are outstanding, we may not consolidate or merge with another corporation or convey, transfer or lease its properties or assets as an entirety or substantially as an entirety to another person, unless:

• the successor or purchaser is a corporation organized under the laws of the United States, any state within the United States or the District of Columbia;

• the successor or purchaser expressly assumes our obligations under the applicable indenture and the applicable debt securities; and

• immediately after the transaction, no Event of Default, and no event which, if notice was given and/or a certain period of time passed, would become an Event of Default, shall exist.

Except as described above, neither of the indentures nor the applicable debt securities contain change of control or similar provisions intended to protect you by requiring us to repurchase or redeem the debt securities if we become involved in a merger or other significant corporate event. In addition, except as described above, no indenture provisions prohibit us from entering into a merger or a significant corporate event.

Events of Default

Unless we tell you otherwise in an accompanying prospectus supplement, the following shall constitute “Events of Default” under each of the indentures with respect to each series of the applicable debt securities:

• our failure for 30 days to pay any interest on any debt security of such series when due;

• our failure to pay principal or premium, if any, on any debt security of such series when due, regardless of whether such payment became due because of maturity, redemption, acceleration or otherwise;

• our failure to perform any of our covenants with respect to such debt securities for 60 days after we receive notice of such failure; and

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• certain events of bankruptcy, insolvency or reorganization of Ambac, Ambac Assurance or any successor to the business of Ambac Assurance which is also a subsidiary of Ambac.

We are required to file with the trustee each year a written statement as to our compliance with certain of our obligations under each of the indentures.

Remedies

Under each of the indentures, if an Event of Default resulting from the failure to pay interest or principal or premium, if any, on the debt securities of any series exists, either the trustee or the holders of 25% in aggregate principal amount of outstanding debt securities of such series may declare the principal of all the outstanding debt securities of that series and all accrued interest on the applicable debt securities immediately due.

If one of the other Events of Default exists, either the trustee or the holders of 25% in aggregate principal amount of the outstanding debt securities of all existing series, voting together as one class, may declare the principal of all the outstanding debt securities of all series and all accrued interest on the applicable debt securities immediately due.

Under certain conditions, these declarations may be annulled and defaults which have been cured may be waived by the holders of a majority in aggregate principal amount of the outstanding debt securities of the affected series, voting separately, or of all series of the applicable debt securities, voting together as one class, whichever was required to make the declaration in the first place.

Before the principal of the debt securities of any series is declared immediately due as described above, the holders of a majority in aggregate principal amount of the outstanding debt securities of the affected series, voting separately, or of all series, voting together as one class, depending on the nature of the Event of Default, may waive any Event of Default other than an Event of Default:

• resulting from a failure to pay principal of and premium, if any, or interest on any of the debt securities or

• in respect of a provision of the applicable indenture which cannot be modified without the consent of the holder of each debt security affected by the modification.

If an Event of Default occurs, the holders of a majority in aggregate principal amount of the outstanding debt securities of the affected series, voting separately, or of all series of the applicable debt securities, voting together as one class, depending on the nature of the proceeding, may direct the time, method and place of conducting any proceeding for any remedy available to the trustee, or exercising any trust or power conferred on the trustee. However, unless the applicable indenture requires otherwise, the trustee is not under any obligation to exercise any of its rights or powers under the applicable indenture at the request or direction of holders of applicable debt securities unless such holders offer indemnity reasonably satisfactory to the trustee.

Defeasance and Covenant Defeasance

We may, at our option, irrevocably deposit with the trustee money and/or United States government obligations in an amount that would be sufficient to pay the principal of and premium, if any, and interest on the debt securities of a series when each payment becomes due. If we do so, we may then elect to take advantage of the concept of defeasance, which allows us to be discharged from our obligations on the debt securities of such series, other than certain continuing obligations specified in each indenture relating to:

• the transfer of debt securities;

• the replacement of temporary or mutilated, lost or stolen debt securities; and

• the place we maintain for payments of the debt securities.

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Alternately, we may elect to take advantage of the concept of covenant defeasance, which allows us to be discharged from our obligations with respect to the debt securities of such series under certain covenants.

Notwithstanding the deposit of funds and/or United States government obligations described above, in order to effect defeasance or covenant defeasance, each indenture requires us to deliver to the trustee an opinion of counsel that the contemplated defeasance or covenant defeasance will not cause the holders of debt securities of the relevant series to recognize income, gain or loss for federal income tax purposes.

Modification and Waiver

Under each of the indentures, Ambac and the trustee may supplement the applicable indenture for certain purposes which would not materially adversely affect the interests of the holders of debt securities of a series without the consent of those holders. Ambac and the trustee may also modify the applicable indenture or any supplemental indenture in a manner that affects the interests or rights of the holders of debt securities with the consent of the holders of at least a majority in principal amount of the outstanding debt securities of all affected series, voting together as one class.

However, under either indenture, the following modifications and amendments will not be effective against any holder without its consent:

• a change the maturity or reduce the principal amount of any debt securities, reduce their interest rate or extend the time of interest payments, reduce any amount payable upon redemption of any debt securities or impair or affect the right of any holder of debt securities to institute suit for payments on the debt securities or

• certain changes to the requirements for modification of the applicable indenture or any supplemental indenture.

In addition, under the junior subordinated indenture, the following modifications and amendments will not be effective against any holder without its consent:

• a change in the manner of calculating payments due on the junior subordinated debt securities of any series in a manner adverse to holders of such junior subordinated debt securities;

• a change in the place of payment for any payment on the junior subordinated debt securities of any series that is adverse to holders of such junior subordinated debt securities or a change in the currency in which any payment on such junior subordinated debt securities is payable; and

• a change in the subordination of the junior subordinated debt securities of any series in a manner adverse to holders of such junior subordinated debt securities.

Each of the indentures permits the holders of a majority in aggregate principal amount of the outstanding debt securities of all series, voting together as one class, to waive our compliance with certain covenants contained in the applicable indenture.

Payment and Paying Agents

We will make payment of principal of and premium, if any, and interest on debt securities at the place we designate. We may, at our option, make payments of interest by check mailed to the address of the person entitled to receive such interest payment according to the register for the debt securities or by transfer to an account of such person. Interest payments will be made to the person in whose name a debt security is registered as of a certain number of days prior to the relevant payment date. Although we may designate additional paying agents or remove paying agents, we will at all times maintain a paying agent in each place we designate for payment.

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If the debt securities are represented by global certificates, payments will be made to The Depository Trust Company.

Denominations, Registrations and Transfer

Unless we tell you otherwise in an accompanying prospectus supplement, debt securities will be represented by one or more global certificates registered in the name of a nominee for The Depository Trust Company. In such case, each owner’s beneficial interest in the global securities will be shown on the records of DTC and transfers of beneficial interests will only be effected through DTC’s records.

Beneficial interests in a global security may only be exchanged for certificated securities registered in the particular owner’s name if:

• DTC notifies us that it is unwilling or unable to continue serving as the depositary for the relevant global securities or DTC ceases to maintain certain qualifications under the Securities Exchange Act of 1934, as amended, and no successor depositary has been appointed for 90 days;

• we determine, in our sole discretion, that the global security shall be exchangeable; or

• an Event of Default has occurred and is continuing.

If debt securities are issued in certificated form, they will only be issued in the minimum denomination specified in the accompanying prospectus supplement and integral multiples of such denomination. Transfers and exchanges of such debt securities will only be permitted in such minimum denomination. Transfers of debt securities in certificated form may be registered at the trustee’s corporate office or at the offices of any paying agent or trustee appointed by Ambac under the applicable indenture. Exchanges of debt securities for an equal aggregate principal amount of debt securities in different denominations may also be made at such locations.

Governing Law

Each of the indentures and the applicable debt securities will be governed by the laws of New York.

Our Relationship with the Trustee

The Trust Indenture Act of 1939 contains limitations on the rights of a trustee, should it become a creditor of Ambac, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of those claims, as security or otherwise. The Bank of New York, as trustee, is permitted to engage in other transactions with Ambac and its subsidiaries from time to time, provided that if The Bank of New York acquires any conflicting interest it must eliminate the conflict upon the occurrence of an event of default under the relevant indenture, or else resign.

The trustee under the indentures, The Bank of New York, occasionally acts as trustee in connection with obligations insured by Ambac and its subsidiaries. The Bank of New York is also acting as a trustee in connection with certain debt obligations that were previously issued by us and as a creditor under the $400 million revolving credit facility entered into by Ambac and its subsidiary Ambac Assurance Corporation. In addition, we have various business dealings with affiliates of the trustee.

Conversion or exchange rights

The prospectus supplement will describe the terms, if any, on which a series of debt securities may be convertible into or exchangeable for our preferred stock, common stock, warrants or other debt securities. These terms will include provisions as to whether conversion or exchange is mandatory, at the option of the holder or at our option. These provisions may allow or require the number of our shares of common stock, shares of preferred stock, warrants or other debt securities to be received by the holders of such series of debt securities to be adjusted.

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Provisions Applicable Solely to Senior Debt Securities

Unless we tell you otherwise in an accompanying prospectus supplement, the following restrictive covenants shall apply with respect to each series of our senior debt securities:

Limitation on Liens. So long as any senior debt securities are outstanding, neither Ambac nor any of its subsidiaries will create, incur or guarantee any debt which is secured by any mortgage, pledge, lien, security interest or other encumbrance on any capital stock of Ambac Assurance, any successor to the business of Ambac Assurance which is also a subsidiary of Ambac or any corporation, other than Ambac, having direct or indirect control of Ambac Assurance or any such successor. However, this restriction will not apply if the senior debt securities then outstanding are secured at least equally and ratably with the otherwise prohibited secured debt so long as it is outstanding.

Limitations on Dispositions of Stock of Certain Subsidiaries. So long as any debt securities are outstanding and subject to the provisions of the senior indenture regarding mergers, consolidations and sales of assets, neither Ambac nor any of its subsidiaries will sell or otherwise dispose of any shares of capital stock of Ambac Assurance, any successor to the business of Ambac Assurance which is also a subsidiary of Ambac or any corporation, other than Ambac, having direct or indirect control of Ambac Assurance or any such successor, except for:

• a sale or other disposition of any of such stock to a wholly-owned subsidiary of Ambac or of such subsidiary;

• a sale or other disposition of all of such stock for at least fair value, as determined by Ambac’s board of directors acting in good faith, or

• a sale or other disposition of any of such stock for at least fair value, as determined by Ambac’s board of directors acting in good faith, if, after such transaction, Ambac and its subsidiaries would own more than 80% of the issued and outstanding voting stock of Ambac Assurance or any such successor.

Provisions Applicable Solely to Junior Subordinated Debt Securities

General

Our junior subordinated debt securities will be issued under the junior subordinated indenture. Holders of junior subordinated debt securities should recognize that contractual provisions in the junior subordinated debt indenture may prohibit us from making payments on these securities. The junior subordinated debt securities will rank on an equal basis with certain of our other junior subordinated debt that may be outstanding from time to time and will rank junior to all of our senior indebtedness, as defined below, including any senior debt securities that may be outstanding from time to time.

If we issue junior subordinated debt securities, the aggregate principal amount of senior indebtedness outstanding as of a recent date will be set forth in the applicable prospectus supplement. Neither the senior nor the junior subordinated debt indenture restricts the amount of senior indebtedness that we may incur.

Subordination

The payment of the principal of, and premium, if any, and interest on the junior subordinated debt securities is expressly subordinated, to the extent and in the manner set forth in the junior subordinated indenture, in right of payment to the prior payment in full of all of our senior indebtedness.

Subject to the qualifications described below, the term “senior indebtedness” is defined in the junior subordinated indenture to include principal of, and interest and premium (if any) on, the following:

• all indebtedness of Ambac (other than indebtedness issued pursuant to the junior subordinated indenture), whether outstanding on the date of the issuance of the junior subordinated debt securities of

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any series or thereafter created, incurred or assumed, which is for money borrowed, or which is evidenced by a note, bond, indenture or similar instrument;

• all obligations of Ambac under leases required or permitted to be capitalized under generally accepted accounting principles;

• all of Ambac’s reimbursement obligations with respect to any letter of credit, banker’s acceptance, security purchase facility or similar credit transactions;

• all obligations of the types referred to in the preceding bullet points of another person, the payment of which Ambac is responsible or liable as guarantor or otherwise;

• any agreements or obligations to pay deferred purchase price or conditional sales agreements other than in the ordinary course of business;

• all obligations of the types referred to in the preceding bullet points of another person secured by any lien on any property or assets of Ambac (whether or not that obligation has been assumed by Ambac); and

• amendments, modifications, renewals, extensions, deferrals and refundings of any of the above types of indebtedness.

The junior subordinated debt securities will rank senior to all of our equity securities, including any preferred stock we may issue in the future.

The senior indebtedness will continue to be senior indebtedness and entitled to the benefits of the subordination provisions irrespective of any amendment, modification or waiver of any term of the senior indebtedness or extension or renewal of the senior indebtedness. Notwithstanding anything to the contrary in the foregoing, senior indebtedness will not include (1) indebtedness incurred for the purchase of goods, materials or property, or for services obtained in the ordinary course of business or for other liabilities arising in the ordinary course of business and (2) any indebtedness which by its terms is expressly made equal in rank and payment with or subordinated to the junior subordinated debt securities of any series.

The junior subordinated indenture provides that, unless all principal of, and any premium or interest on, the senior indebtedness has been paid in full, or provision has been made to make these payments in full, no payment or other distribution may be made with respect to the junior subordinated indebtedness in the following circumstances.

• any insolvency, bankruptcy, receivership, liquidation, reorganization, readjustment, composition or other similar proceeding relating to Ambac, its creditors or its property;

• any proceeding for the liquidation, dissolution or other winding-up of Ambac, voluntary or involuntary, whether or not involving insolvency or bankruptcy proceedings;

• any assignment by Ambac for the benefit of creditors;

• any other marshaling of the assets of Ambac;

• a default in the payment of principal, premium, if any, sinking fund or interest with respect to any of our senior indebtedness, whether at maturity or at a date fixed for prepayment or declaration or otherwise; or

• an event of default occurs with respect to any senior indebtedness permitting the holders to accelerate the maturity and written notice of such event of default, requesting that payments on the junior subordinated debt securities cease, is given to Ambac by the holders of senior indebtedness unless and until such default in payment or event of default has been cured or waived or ceases to exist.

A merger, consolidation or conveyance of all or substantially all of our assets on the terms and conditions provided in the junior subordinated indenture will not be deemed a liquidation, dissolution or winding-up for the purposes of these subordination provisions.

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Notwithstanding the foregoing subordination provisions, we may make payments or distributions on the junior subordinated debt securities of any series so long as:

• the payments or distributions consist of securities issued by us or another company in connection with a plan of reorganization or readjustment; and

• payment on those securities is subordinate to outstanding senior debt and any securities issued with respect to senior debt under such plan of reorganization or readjustment at least to the same extent provided in the subordination provisions of such junior subordinated debt securities.

If the holders of junior subordinated securities receive any payment or distribution of our assets not permitted by the subordination provisions, the holders of junior subordinated debt securities will have to repay that amount to the holders of the senior debt securities or to the trustee.

Subrogation

After the payment in full of all senior indebtedness, the holders of the junior subordinated debt securities will be subrogated to the rights of the holders of senior indebtedness to receive payments or distributions of our assets or securities applicable to the senior indebtedness until the junior subordinated debt securities are paid in full. Under these subrogation provisions, no payments or distributions to the holders of senior indebtedness which otherwise would have been payable or distributable to holders of the junior subordinated debt securities will be deemed to be a payment by us to holders of or on the account of the senior indebtedness. These provisions of the junior subordinated indenture are intended solely for the purpose of defining the relative rights of the holders of the junior subordinated debt securities and the holders of the senior debt securities. Nothing contained in the junior subordinated indenture is intended to impair our absolute obligation to pay the principal of and premium and interest on the junior subordinated debt securities in accordance with their terms or to affect the relative rights of the holders of the junior subordinated debt securities and our creditors other than the holders of the senior indebtedness. These subrogation provisions of the junior subordinated indenture will not prevent the holder of any junior subordinated debt security from exercising all remedies otherwise permitted by applicable law upon default of that security, subject to the rights of subordination described above.

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DESCRIPTION OF WARRANTS

We may issue warrants to purchase our debt securities, preferred stock or common stock. Each warrant will entitle the holder of warrants to purchase for cash the amount of debt securities, preferred stock or common stock at the exercise price stated or determinable in the prospectus supplement for the warrants. We may issue warrants independently or together with any offered securities. The warrants may be attached to or separate from those offered securities. We will issue the warrants under warrant agreements to be entered into between us and a bank or trust company, as warrant agent, all as described in the applicable prospectus supplement. The warrant agent will act solely as our agent in connection with the warrants and will not assume any obligation or relationship of agency or trust for or with any holders or beneficial owners of warrants.

The prospectus supplement relating to any warrants that we may offer will contain the specific terms of the warrants. These terms may include the following:

• the title of the warrants;

• the price or prices at which the warrants will be issued;

• the designation, amount and terms of the securities for which the warrants are exercisable;

• the designation and terms of our debt securities, preferred stock or common stock, if any, with which the warrants are to be issued and the number of warrants issued with each such debt security, preferred stock or common stock;

• the aggregate number of warrants;

• any provisions for adjustment of the number or amount of securities receivable upon exercise of the warrants or the exercise price of the warrants;

• the price or prices at which the securities purchasable upon exercise of the warrants may be purchased;

• the date on and after which the warrants and the securities purchasable upon exercise of the warrants will be separately transferable, if applicable;

• a discussion of any material U.S. federal income tax considerations applicable to the exercise of the warrants;

• the date on which the right to exercise the warrants will commence, and the date on which the right will expire;

• the maximum or minimum number of warrants that may be exercised at any time;

• information with respect to book-entry procedures, if any; and

• any other terms of the warrants, including terms, procedures and limitations relating to the exchange and exercise of the warrants.

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WHERE YOU CAN FIND MORE INFORMATION

We file reports, proxy statements, and other information with the SEC. These reports, proxy statements, and other information can be read and copied at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding companies that file electronically with the SEC, including Ambac. These reports, proxy statements and other information can also be read at the offices of the NYSE, 20 Broad Street, New York, New York 10005 or on our internet site at www.ambac.com. Information on our website is not incorporated into this prospectus or our other SEC filings and is not a part of this prospectus or those filings.

This prospectus is part of a registration statement filed by us with the SEC. The full registration statement can be obtained from the SEC as indicated above, or from us.

The SEC allows us to “incorporate by reference” the information we file with the SEC. This permits us to disclose important information to you by referencing these filed documents. Any information referenced this way is considered part of this prospectus, and any information filed with the SEC subsequent to this prospectus and prior to the termination of the particular offering referred to in such prospectus supplement will automatically be deemed to update and supersede this information. We incorporate by reference the following documents which have been filed with the SEC:

• Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (filed on March 13, 2006);

• Quarterly Reports on Form 10-Q for the quarters ended March 31, 2006 (filed on May 10, 2006), June 30, 2006 (filed on August 9, 2006) and September 30, 2006 (filed on October 8, 2006);

• Current Reports on Form 8-K filed on January 25, 2006, January 27, 2006, April 26, 2006, July 26, 2006, August 22, 2006, September 25, 2005, October 25, 2006, October 27, 2006, December 8, 2006, January 31, 2007 and February 2, 2007;

• portions of our Definitive Proxy Statement on Schedule 14A filed on May 2, 2006 that are incorporated by reference into Part III of our Annual Report on Form 10-K for the fiscal year ended December 31, 2005;

• Registration Statements on Form 8-A dated June 12, 1991 and February 28, 1996; and

• Annual Report of Employee Stock Purchase Plans on Form 11-K (filed on June 27, 2006).

We incorporate by reference the documents listed above and any future filings made with the SEC in accordance with Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, with the exception of any documents deemed not to be filed and any documents filed pursuant to Item 402(a)(8) of Regulation S-K under the Securities Act.

We will provide without charge upon written or oral request, a copy of any or all of the documents which are incorporated by reference to this prospectus, other than exhibits which are specifically incorporated by reference into those documents. Requests should be directed to Peter R. Poillon, Managing Director, Investor Relations, Ambac Financial Group, Inc., One State Street Plaza, New York, New York 10004 (telephone number (212) 208-3333 or at ppoillon@ambac.com).

19

LEGAL OPINIONS

Anne Gill Kelly, Esq., Managing Director, Corporate Secretary and Assistant General Counsel of Ambac, One State Street Plaza, New York, New York 10004, and/or Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York 10036 will act as our legal counsel. Anne Gill Kelly, Esq. will issue an opinion about the legality of the securities. Anne Gill Kelly, Esq. beneficially owns, or has the right to acquire under Ambac’s employee benefit plans, an aggregate of less than 1% of Ambac’s common stock.

20

EXPERTS

Ambac Financial Group’s consolidated financial statements and related financial statement schedules as of December 31, 2005 and 2004 and for each of the years in the three-year period ended December 31, 2005 and management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2005, have been incorporated by reference herein and in the registration statement in reliance upon the reports of KPMG LLP, independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The report of KPMG LLP refers to changes, in 2003, in Ambac Financial Group’s method of accounting for variable interest entities and stock-based compensation.

21

$400,000,000

Ambac Financial Group, Inc.

Directly-Issued Subordinated Capital Securities (DISCS^SM)

P R O S P E C T U S  S U P P L E M E N T

February 7, 2007

Joint Book-Running Managers

Citigroup

Sole Structuring Advisor

Goldman, Sachs & Co.

JPMorgan

HSBC

Lehman Brothers

Merrill Lynch & Co.

UBS Investment Bank

Wachovia Securities