Pg 1 of 8 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK --------------------------------------------------------------- x In re AMBAC FINANCIAL GROUP, INC., Debtor. --------------------------------------------------------------- x Chapter 11 Case No. 10-15973 (SCC) STIPULATION AND AGREED ORDER RESOLVING KARTHIKEYAN V. VEERA S OBJECTION TO CONFIRMATION OF AMBAC FINANCIAL GROUP, INC. S PLAN OF REORGANIZATION Ambac Financial Group, Inc., as debtor and debtor in possession in the above-captioned case (the Debtor ) and Karthikeyan V. Veera ( Veera, and together with the Debtor, the Parties ), as plaintiff in the class action entitled Veera v. Ambac Plan Administrative Committee, et al., No. 10-cv-4191 (the ERISA Action ), pending before Judge Harold Baer in the United States District Court for the Southern District of New York (the District Court ), respectfully submit this stipulation and agreed order (this Stipulation ) resolving Veera s limited objection, filed on March 2, 2012 [Bankr. Ct. Docket No. 842] (the Veera Objection ) to confirmation of the Debtor s third amended plan of reorganization, filed on February 24, 2012 [Bankr. Ct. Docket No. 829] (the Third Amended Plan ) and stipulate and agree as follows RECITALS A. On May 4, 2010, Veera commenced the ERISA Action by filing a complaint with the District Court [District Ct. Docket No. 1]. Veera s amended complaint, filed on September 7, 2010 [District Ct. Docket No. 48] asserts claims against the Administrative and Investment Committees under the Debtor s Savings Incentive Plan, the Compensation Committee of the Debtor s Board of Directors, and certain current and former directors and officers of the Debtor and/or its principal operating subsidiary, Ambac Assurance Corporation ( AAC ).
Pg 2 of 8 B. On November 8, 2010, the Debtor filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court ). C. On January 5, 2011, Veera filed a motion for an order granting relief from the automatic stay so Veera could obtain discovery from the Debtor in connection with the ERISA Action [Bankr. Ct. Docket No. 107]. On January 12, 2011, the Debtor filed an objection to Veera s motion [Bankr. Ct. Docket No. 114] and the official committee of unsecured creditors filed a joinder to the Debtor s objection [Bankr. Ct. Docket No. 115]. D. On January 18, 2011, the Debtor commenced an adversary proceeding against Veera, Adv. Pro. No. 11-1265, seeking, among other things, a declaratory judgment that the automatic stay applies to the ERISA Action [Adv. Pro. Docket No. 1]. On February 11, 2011, the Debtor moved for summary judgment with respect to the claims asserted in its adversary complaint [Adv. Pro. Docket No. 5]. E. On March 8, 2011, the Bankruptcy Court entered an order granting the Debtor s motion for summary judgment and confirming that the automatic stay applies to the ERISA Action [Bankr. Ct. Docket No. 207, Adv. Pro. Docket No. 15]. The order granted Veera limited relief from the automatic stay so that he could obtain discovery from the Debtor to the extent specified in the order and provided that Veera could request additional relief from the automatic stay after the expiration of the Debtor s exclusive period for filing a plan of reorganization on July 7, 2011. F. On July 15, 2011, Veera filed a motion for further relief from the automatic stay so that he could obtain additional discovery from the Debtor and the Debtor filed a statement of 2
Pg 3 of 8 position arguing the automatic stay should continue to apply to the ERISA Action [Bankr. Ct. Docket Nos. 404 and 406, Adv. Pro. Docket Nos. 16 and 17]. G. On July 21, 2011, the Bankruptcy Court entered an order denying Veera s motion for further relief from the automatic stay, without prejudice, but granting Veera relief from the automatic stay to permit him to participate in non-binding mediation with respect to the ERISA Action [Bankr. Ct. Docket No. 440, Adv. Pro. Docket No. 18]. H. On February 24, 2012, the Debtor filed its Third Amended Plan. The Third Amended Plan includes an injunction, set forth in Article VIII.B thereof (the Injunction ), which provides that as of the Third Amended Plan s effective date, all entities that have held, hold, or may hold claims that may result in reimbursement, contribution, or indemnification by the Debtor on account of such claims, including, for the avoidance of doubt, the claims asserted by Veera in the ERISA Action, shall be enjoined from asserting such claims. I. The Third Amended Plan also includes a general release by holders of claims against and equity interests in the Debtor, set forth in Article VIII.E thereof (the Holders General Release ), which provides that, subject to limited exceptions, as of the Third Amended Plan s effective date, each entity that has held, holds, or may hold a claim against or equity interest in the Debtor shall be deemed to have released certain Released Parties from any and all claims and causes of action of any nature whatsoever relating to any act or omission taking place prior to the Third Amended Plan s effective date and relating to the Debtor. The term Released Parties is defined in the Third Amended Plan as including the board of directors and board committees of the Debtor and AAC and all current and former individual directors, officers, or employees of the Debtor and AAC. The Parties agree that if approved, the Holders General Release would prohibit Veera from pursuing the claims asserted in the ERISA Action. 3
Pg 4 of 8 J. On March 2, 2012, Veera filed the Veera Objection, which objection asserts that the Third Amended Plan should not be confirmed because, as a nonconsensual third party release, the Holders General Release is impermissible under applicable law, namely, the Second Circuit s decision in Deutsche Bank AG, London Branch v. Metromedia Fiber Network, Inc. (In re Metromedia Fiber Network, Inc.), 416 F.3d 136 (2d Cir. 2005) ( Metromedia ). K. On March 6, 2012, the Debtor filed its memorandum in support of confirmation of the Third Amended Plan and in response to objections thereto [Bankr. Ct. Docket No. 863], in which the Debtor argues the Holders General Release satisfies the Second Circuit s requirements under Metromedia because unique circumstances justify the Holders General Release, certain of the Released Parties furnished substantial consideration in exchange for such release, an identity of interests exists between the Debtor and certain of the Released Parties, creditors voted overwhelmingly to accept the Third Amended Plan and the Holders General Release set forth therein, and the Holders General Release is reasonable, consistent with public policy, and includes appropriate carve-outs. L. On March 9, 2012, the Debtor filed its fourth amended plan of reorganization [Bankr. Ct. Docket No. 880] (the Fourth Amended Plan ), which plan retained the Injunction provision and Holders General Release. M. On March 12, 2012, the Debtor filed its fifth amended plan of reorganization (the Fifth Amended Plan ), which plan modified the Injunction provision and Holders General Release in accordance with this Stipulation. NOW THEREFORE, IT IS HEREBY STIPULATED AND AGREED 1. The foregoing recitals are incorporated into this Stipulation. 4
Pg 5 of 8 2. This Stipulation shall become effective upon the date it is so ordered by the Bankruptcy Court. 3. Veera shall be deemed to have withdrawn the Veera Objection upon the date this Stipulation is so ordered by the Bankruptcy Court. 4. Veera shall not seek any discovery from the Office of the Commissioner of Insurance for the State of Wisconsin ( OCI ) in connection with the ERISA Action. 5. Veera shall significantly limit the discovery it will seek from the Debtor or AAC. Veera shall depose former directors, officers, and employees of the Debtor and AAC before deposing any current directors, officers, or employees of the Debtor or AAC. Veera will endeavor to avoid duplication of effort and needless discovery in scheduling depositions of current directors, officers, and/or employees of the Debtor or AAC. Veera s counsel shall coordinate the scheduling of any such depositions with counsel for the Debtor and/or AAC so as to avoid any undue burden and interference with the Debtor s and AAC s business. Veera s counsel may also serve a deposition notice pursuant to Rule 30(b)(6) of the Federal Rules of Civil Procedure upon AAC after completing significant discovery from other sources, but shall consult with AAC s counsel before serving any such notice in an effort to reach agreement on a limited and manageable scope of such deposition. 6. Veera shall request the production of documents from individual defendants in the ERISA Action (each, an Individual Defendant ) who are no longer directors, officers, or employees of the Debtor or AAC before requesting the production of any documents by the Debtor or AAC. AAC s production shall be limited, at this time, to the following documents (i) the two deposition transcripts (and exhibits used at such depositions) of AAC employees which have already been taken in Ambac Assurance Corporation v. EMC Mortgage Corporation, No. 08-cv-9464 (S.D.N.Y.), Ambac Assurance Corporation, et al., v. Countrywide Home Loans, Inc., 5
Pg 6 of 8 et al., Index No. 651612/2010 (Sup. Ct. N.Y. Cty.), and Ambac Assurance Corporation v. DLJ Mortgage Capital, Inc., et al., Index No. 600070/2010 (Sup. Ct. N.Y. Cty.) (together, the Representation and Warranty Litigation ) and the deposition transcripts (and exhibits used at such depositions) of any Individual Defendant who may in the future be deposed in the Representation and Warranty Litigation, without prejudice to Veera s right to request additional deposition transcripts and the Debtor s and AAC s right to object to any such request; provided, however, that Veera shall not use AAC s production of the foregoing deposition transcripts or exhibits in support of any effort to obtain the production of any additional deposition transcripts or exhibits; and (ii) (iii) the minutes from meetings of AAC s board of directors and any relevant minutes from meetings of committees of AAC s board of directors (along with any relevant materials presented to the board of directors or committees thereof at such meetings) occurring during the period of October 1, 2006 through April 1, 2009 that refer or relate to AAC s financial condition, the market value of the Debtor s common stock, and/or the Debtor s Savings Incentive Plan; and e-mails to or from any Individual Defendant that specifically refer to the resignation or termination of Robert Genader, Sean T. Leonard, or William Gregory; provided, however, that counsel for Veera shall work with counsel for AAC on the development of a list of search terms that will reduce the burden and expense of such discovery on AAC. 7. Veera s right to serve additional requests for discovery from the Debtor and/or AAC for a limited and manageable set of other documents and information needed to establish his claims in the ERISA Action shall be preserved, and counsel for the Debtor and AAC shall have the right to object to any such requests. The Parties shall attempt to identify and reach agreement on such additional categories of documents within the next 30 days, it being understood that the Debtor is only willing at this time to agree to lift the automatic stay as it applies to the ERISA Action with respect to discovery that the Debtor and AAC have agreed to provide, as set forth above, or subsequently agree to produce. 8. In consideration for the foregoing, the Fifth Amended Plan modifies the Injunction and Holders General Release provisions, so as to carve-out the ERISA Action from their scope, in the following manner 6
Pg 7 of 8 (i) (ii) The Fifth Amended Plan s Injunction provision does not include the following language set forth in the Third and Fourth Amended Plans (including, for the avoidance of doubt, the ERISA claims at issue in the ERISA Action), and The Fifth Amended Plan s Holders General Release includes the following provision, as proposed in the Veera Objection Neither the Plan nor any contract, instrument, release, agreement, or document executed or delivered in connection therewith, nor the occurrence of the Effective Date, shall release, waive, discharge, contribute, or assign any of the claims or causes of action against the non-debtor defendants in the ERISA Action. Additionally, the Fifth Amended Plan s retention of jurisdiction provision, set forth in Article XI thereof, provides that the Bankruptcy Court shall, after such plan s effective date, retain jurisdiction to resolve any disputes or controversies arising from or relating to this Stipulation. 9. OCI and AAC are intended to, and shall be, considered third party beneficiaries of this Stipulation. 10. The undersigned hereby represent and warrant that they have full authority to execute this Stipulation on behalf of the respective Parties and that the respective Parties have full knowledge of and have consented to this Stipulation. 11. This Stipulation may be executed by the Parties in counterparts, each of which shall be deemed an original and all of which when together shall be deemed to constitute one and the same document. 12. This Stipulation may not be modified without the written consent of the Parties hereto. 13. The Bankruptcy Court shall retain exclusive jurisdiction (and the Parties consent to such retention of jurisdiction) to resolve any disputes or controversies arising from or relating to this Stipulation. 7
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