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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
AMBAC INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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AMBAC LOGO
NOTICE OF
1997 ANNUAL MEETING OF STOCKHOLDERS
AND
PROXY STATEMENT
DATE: WEDNESDAY, MAY 14, 1997
TIME: 11:30 A.M.
PLACE: AMBAC INC.
ONE STATE STREET PLAZA
NEW YORK, NEW YORK 10004
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AMBAC LOGO
AMBAC INC. PHILLIP B. LASSITER
ONE STATE STREET PLAZA CHAIRMAN, PRESIDENT
NEW YORK, NEW YORK 10004 AND CHIEF EXECUTIVE OFFICER
March 31, 1997
Dear Stockholder:
It is my pleasure to invite you to AMBAC's 1997 Annual Meeting of Stockholders.
We will hold the meeting on Wednesday, May 14, 1997, at 11:30 a.m. at our
executive offices in New York City. In addition to the formal items of business,
I will review the major developments of 1996 and answer your questions.
This booklet includes the Notice of Annual Meeting and the Proxy Statement. The
Proxy Statement describes the business that we will conduct at the meeting and
provides information about AMBAC.
Your vote is important. Whether you plan to attend the meeting or not, please
complete, date, sign and return the enclosed proxy card promptly. If you attend
the meeting and prefer to vote in person, you may do so.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Phillip B. Lassiter
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AMBAC LOGO
NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS
DATE: WEDNESDAY, MAY 14, 1997
TIME: 11:30 A.M.
PLACE: AMBAC INC.
ONE STATE STREET PLAZA
NEW YORK, NY 10004
Dear Stockholders:
At our Annual Meeting, we will ask you to:
- Elect six directors;
- Amend our Certificate of Incorporation as
follows:
- - change our name from "AMBAC INC."
to "AMBAC FINANCIAL GROUP, INC.";
- - increase the number of authorized
shares of common stock from 50
million shares to 100 million
shares; and
- - eliminate the Class A common
stock and certain other outdated
provisions which were added when
AMBAC was a subsidiary of
Citibank, N.A.;
- Approve the 1997 Equity Plan;
- Approve the 1997 Executive Incentive Plan;
- Approve the 1997 Non-Employee Directors
Equity Plan;
- Ratify the selection of KPMG Peat Marwick
LLP as independent auditors for 1997; and
- Transact any other business that may
properly be presented at the Annual
Meeting.
If you were a stockholder of record at the close of business on March
21, 1997, you may vote at the Annual Meeting.
By order of the Board of
Directors,
/s/ Richard B. Gross
Richard B. Gross
Senior Vice President, General Counsel
and Secretary
March 31, 1997
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TABLE OF CONTENTS
PAGE
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INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Why Did You Send Me this Proxy Statement?................................... 1
How Many Votes Do I Have?................................................... 1
How Do I Vote by Proxy?..................................................... 1
May I Revoke My Proxy?...................................................... 2
How Do I Vote in Person?.................................................... 2
How Do Employees in the AMBAC Stock Fund Vote by Proxy?..................... 2
What Vote Is Required to Approve Each Proposal?............................. 3
Is Voting Confidential?..................................................... 4
What Are the Costs of Soliciting these Proxies?............................. 4
How Do I Obtain an Annual Report on Form 10-K?.............................. 4
INFORMATION ABOUT AMBAC COMMON STOCK OWNERSHIP
Which Stockholders Own at Least 5% of AMBAC?................................ 5
How Much Stock Is Owned by Directors and Executive Officers?................ 6
Did Directors, Executive Officers and Greater-Than-10% Stockholders
Comply with Section 16(a) Beneficial Ownership Reporting in 1996?......... 7
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors...................................................... 8
The Committees of the Board................................................. 8
How We Compensate Directors................................................. 9
Related Party Transaction with Director..................................... 10
The Executive Officers...................................................... 11
How We Compensate Executive Officers........................................ 12
- Summary Compensation Table.............................................. 12
- Option Grants During 1996............................................... 13
- Aggregated Option Exercises During 1996 and Year-End Option Values...... 14
- The Pension Plan........................................................ 14
- Employment Agreement with Chief Executive Officer....................... 16
- Management Retention Agreements with Executive Officers................. 16
- Arrangement with Former Executive Officer............................... 17
Report on Executive Compensation for 1996 by the Compensation
and Organization Committee................................................ 18
Performance Graph........................................................... 21
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD
Proposal 1: Elect Six Directors............................................. 22
Proposal 2A: Approve Amendment to the Charter to Change Our Name to Ambac
Financial Group, Inc...................................................... 23
Proposal 2B: Approve Amendment to the Charter to Increase the Number of
Authorized Shares of Common Stock to 100 million.......................... 23
Proposal 2C: Approve Amendments to the Charter to Eliminate Class A Common
Stock and Certain Other Outdated Provisions............................... 25
Proposal 3: Approve 1997 Equity Plan........................................ 25
Proposal 4: Approve 1997 Executive Incentive Plan........................... 29
Proposal 5: Approve 1997 Non-Employee Directors Equity Plan................. 31
Proposal 6: Ratify Selection of Independent Auditors for 1997............... 35
INFORMATION ABOUT STOCKHOLDER PROPOSALS....................................... 36
APPENDIX A: Amended Certificate of Incorporation.............................. A-1 to A-16
APPENDIX B: AMBAC 1997 Equity Plan............................................ B-1 to B-10
APPENDIX C: AMBAC 1997 Executive Incentive Plan............................... C-1 to C-5
APPENDIX D: AMBAC 1997 Non-Employee Directors Equity Plan..................... D-1 to D-8
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PROXY STATEMENT FOR THE AMBAC INC.
1997 ANNUAL MEETING OF STOCKHOLDERS
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
WHY DID YOU SEND ME THIS PROXY STATEMENT?
We sent you this Proxy Statement and the enclosed proxy card because
AMBAC's Board of Directors is soliciting your proxy to vote at the 1997 Annual
Meeting of Stockholders. This Proxy Statement summarizes the information you
need to know to vote intelligently at the Annual Meeting. However, you do not
need to actually attend the Annual Meeting to vote your shares. Instead, you may
simply complete, sign and return the enclosed proxy card.
Today, we began sending this Proxy Statement, the attached Notice of
Annual Meeting, the enclosed proxy card and our 1996 Annual Report to all
stockholders of record at the close of business on March 21, 1997. On that
record date, there were 34,878,061 shares of AMBAC common stock outstanding.
AMBAC common stock is our only class of voting stock.
HOW MANY VOTES DO I HAVE?
Each share of AMBAC common stock that you own entitles you to one
vote. The proxy card indicates the number of shares of AMBAC common stock that
you own.
HOW DO I VOTE BY PROXY?
Whether you plan to attend the Annual Meeting or not, we urge you to
complete, sign and date the enclosed proxy card and to return it promptly in the
envelope provided. Returning the proxy card will not affect your right to attend
the Annual Meeting and vote.
If you properly fill in your proxy card and send it to us in time to
vote, your "proxy" (one of the individuals named on your proxy card) will vote
your shares as you have directed. If you sign the proxy card but do not make
specific choices, your proxy will vote your shares as recommended by the Board
as follows:
- "FOR" the election of all six nominees for director,
- "FOR" all amendments to the Charter,
- "FOR" the 1997 Equity Plan, the 1997 Executive Incentive Plan and
the 1997 Non-Employee Directors Equity Plan, and
- "FOR" ratification of the selection of independent auditors for
1997.
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If any other matter is presented, your proxy will vote in accordance
with his best judgment. At the time this Proxy Statement went to press, we knew
of no matters which needed to be acted on at the Annual Meeting, other than
those discussed in this Proxy Statement.
MAY I REVOKE MY PROXY?
If you give a proxy, you may revoke it at any time before it is
exercised. You may revoke your proxy in any one of three ways:
- You may send in another proxy with a later date.
- You may notify AMBAC's Secretary in writing before the Annual
Meeting that you have revoked your proxy.
- You may vote in person at the Annual Meeting.
HOW DO I VOTE IN PERSON?
If you plan to attend the Annual Meeting and vote in person, we will
give you a ballot when you arrive. However, if your shares are held in the name
of your broker, bank or other nominee, you must bring an account statement or
letter from the nominee indicating that you are the beneficial owner of the
shares on March 21, 1997, the record date for voting.
HOW DO EMPLOYEES IN THE AMBAC STOCK FUND VOTE BY PROXY?
If you are an employee who participates in our Savings Incentive Plan
("SIP"), the SIP Trustee will send you a voting instruction card. This card
indicates the number of shares of AMBAC common stock credited to your account
under the SIP as of March 21, 1997.
- If you sign and return the card on time, the SIP Trustee will vote
the shares as you have directed.
- If you do not sign and return the card on time, the SIP Trustee will
vote the shares the same way it votes the majority of the shares it
receives from employees with directions.
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WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
PROPOSAL 1: ELECT SIX
DIRECTORS The six nominees for director who receive the most
votes will be elected. So, if you do not vote for a
particular nominee, or you indicate "withheld" on
your proxy card, your vote will not count either
"for" or "against" the nominee.
A "broker non-vote" (discussed below in this
section) will also have no effect on the outcome
since only a plurality of votes actually cast is
required to elect a director.
PROPOSALS 2A, 2B AND 2C:
APPROVE AMENDMENTS TO
CHARTER The affirmative vote of a majority of the
outstanding shares of common stock is required to
approve each of these amendments to our Charter.
So, if you do not vote, or "abstain" from voting,
it has the same effect as if you voted "against" an
amendment.
PROPOSALS 3, 4 AND 5:
APPROVE 1997 PLANS The affirmative vote of a majority of the votes
cast at the Annual Meeting is required to approve
each of these plans. So, if you "abstain" from
voting, it has the same effect as if you voted
"against" a proposal.
PROPOSAL 6:
RATIFY SELECTION
OF AUDITORS The affirmative vote of a majority of the votes
cast at the Annual Meeting is required to ratify
the selection of independent auditors. So, if you
"abstain" from voting, it has the same effect as if
you voted "against" this proposal.
THE EFFECT OF
BROKER NON-VOTES Under the rules of the New York Stock Exchange, if
your broker holds your shares in its name, the
broker will be entitled to vote your shares on both
Proposal 1 and Proposal 6 even if it does not
receive instructions from you. Your broker is not
entitled to vote on Proposals 2A, 2B, 2C, 3, 4 and
5 unless it receives instructions from you.
If your broker does not vote your shares on
Proposals 3, 4 and 5, such "broker non-votes" do
not count as "shares present." This means that a
broker non-vote would reduce the number of
affirmative votes that are necessary to approve
each of these proposals.
For Proposals 2A, 2B, 2C and 6, a broker non-vote
has the same effect as a vote "against" each of
these proposals.
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IS VOTING CONFIDENTIAL?
We keep all the proxies, ballots and voting tabulations private as a
matter of practice. We only let our Inspectors of Election (Citibank, N.A.) and
certain employees of our independent tabulating agent (Kissel-Blake Inc.)
examine these documents. We will not disclose your vote to management unless it
is necessary to meet legal requirements. We will, however, forward to management
any written comments you make, on the proxy card or elsewhere.
WHAT ARE THE COSTS OF SOLICITING THESE PROXIES?
AMBAC will pay all the costs of soliciting these proxies. In addition
to mailing proxy soliciting material, our directors and employees may also
solicit proxies in person, by telephone or by other electronic means of
communication. We will ask banks, brokers and other institutions, nominees and
fiduciaries to forward the proxy material to their principals and to obtain
authority to execute proxies. We will then reimburse them for expenses. We have
also retained Kissel-Blake Inc. to assist us in the distribution and
solicitation of proxies. We have agreed to pay them a fee of approximately
$9,500 plus out-of-pocket expenses.
HOW DO I OBTAIN AN ANNUAL REPORT ON FORM 10-K?
IF YOU WOULD LIKE A COPY OF OUR ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1996, THAT WE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, WE WILL SEND YOU ONE WITHOUT CHARGE. PLEASE WRITE TO:
INVESTOR RELATIONS
AMBAC INC.
ONE STATE STREET PLAZA
NEW YORK, NEW YORK 10004
ATTENTION: JOHN M. CATHEY, VICE PRESIDENT
OR CONTACT MR. CATHEY AT (212) 208-3490 OR AT JCATHEY@AMBAC.COM
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INFORMATION ABOUT AMBAC COMMON STOCK OWNERSHIP
WHICH STOCKHOLDERS OWN AT LEAST 5% OF AMBAC?
The following table shows, as of December 31, 1996, all persons we
know to be beneficial owners (1) of more than five percent of AMBAC common
stock. This information is based on Schedule 13G reports filed with the
Securities and Exchange Commission (SEC) by each of the firms listed in the
table below. If you wish, you may obtain these reports from the SEC.
NUMBER OF PERCENT
SHARES OWNED OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY CLASS
J.P. Morgan & Co. Incorporated(2)................ 4,531,245 12.90%
60 Wall Street
New York, New York 10004
Harris Associates L.P.(2)........................ 3,983,964 11.37%
Harris Associates Inc., General Partner
Two North LaSalle Street, Suite 500
Chicago, Illinois 60602
Pioneering Management Corporation................ 3,367,200 9.63
60 State Street
Boston, MA 02114
Sanford C. Bernstein & Co., Inc.................. 3,263,994 9.30
One State Street Plaza
New York, New York 10004
Liberty Investment Management, Inc............... 2,517,925 7.20
2502 Rocky Point Drive, Suite 500
Tampa, Florida 33607
- -
(1) "Beneficial ownership" is a technical term broadly defined by the SEC to
mean more than ownership in the usual sense. So, for example, you
"beneficially" own AMBAC common stock not only if you hold it directly, but
also if you indirectly (through a relationship, a position as a director or
trustee, or a contract or understanding), have (or share) the power to vote
the stock, or to sell it, or you have the right to acquire it within 60
days.
(2) Because AMBAC Indemnity Corporation ("AMBAC INDEMNITY"), our principal
operating subsidiary, is a Wisconsin-domiciled insurance company, J.P.
Morgan and Harris Associates L.P. were required to obtain approval from the
Wisconsin Insurance Commissioner to acquire more than ten percent of our
outstanding common stock. Ten percent ownership of AMBAC is considered to be
indirect "control" of AMBAC Indemnity. In their requests for approval, both
J.P. Morgan and Harris disclaimed any present intention to exercise control
over AMBAC or AMBAC Indemnity or to control or attempt to control the
management or operations of AMBAC or AMBAC Indemnity.
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HOW MUCH STOCK IS OWNED BY DIRECTORS AND EXECUTIVE OFFICERS?
The following table shows, as of March 1, 1997, the AMBAC common stock
owned beneficially by AMBAC directors and executive officers. Except for Mr.
Lassiter, no director or executive officer owns beneficially 1% or more of the
shares of AMBAC common stock. All directors and executive officers as a group
own beneficially 2.52% of the shares of AMBAC common stock.
SHARES PERCENT TOTAL BENEFICIAL
BENEFICIALLY OF HOLDINGS
NAME OF BENEFICIAL OWNER OWNED(1)(2)(3) CLASS PSUS(4) (INCLUDING PSUS)
Michael A. Callen..................... 5,633 -- 2,172 7,805
Renso L. Caporali..................... 2,201 -- 551 2,752
Richard Dulude........................ 2,547 -- 1,410 3,957
W. Grant Gregory...................... 2,833 -- 2,131 4,964
C. Roderick O'Neil.................... 7,833 -- -- 7,833
Phillip B. Lassiter................... 468,814 1.35% -- 468,814
Robert J. Genader..................... 161,594 -- -- 161,594
Joseph V. Salzano..................... 48,351 -- -- 48,351
W. Dayle Nattress..................... 19,728 -- -- 19,728
Frank J. Bivona....................... 86,836 -- -- 86,836
All directors and executive officers
as a group (11 persons)............. 877,474 2.52% 6,264 883,738
=
=
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(1) Except for Messrs. Lassiter and Genader, who share voting and investment
power with their spouses, each of the directors and executive officers
listed has sole voting and investment power over his shares.
(2) The number of shares shown for each director includes the 1,500 restricted
shares of AMBAC common stock that were granted to each director at the
annual meeting at which the director was first elected to the Board. These
restricted shares will generally vest on the fifth anniversary of the date
of grant. Each of the 1,500 restricted shares of Messrs. Callen, Dulude,
Gregory and O'Neil will vest on May 18, 1997. Dr. Caporali's 1,500
restricted shares will vest on May 17, 2000. For more information on these
restricted shares, see below at page under "How We Compensate Directors."
(3) The number of shares shown for each executive officer includes the following
shares that may be acquired upon exercise of stock options that were
exercisable as of March 1, 1997, or that will become exercisable within 60
days after March 1: Mr. Lassiter -- 402,958 shares; Mr. Genader -- 144,078
shares; Mr. Salzano -- 47,226 shares; Mr. Nattress -- 15,000 shares; Mr.
Bivona -- 81,660 shares; and all executive officers as a group -- 759,872
shares.
The number of shares shown for each executive officer (and all executive
officers as a group) also includes the number of shares of AMBAC common
stock owned indirectly, as of March 1, 1997 by such executive officers in
our Savings Incentive Plan (the "SIP"), as reported to us by the SIP
Trustee.
The number of shares shown for Messrs. Lassiter and Genader also include
restricted stock units ("RSUS") that were awarded under the 1991 Stock
Incentive Plan and have vested (but will not settle within 60 days after
March 1, 1997): Mr. Lassiter -- 19,278 RSUs and Mr. Genader -- 5,037 RSUs.
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(4) Those directors who have elected to defer their directors' compensation
under AMBAC's Deferred Compensation Plan and have acquired phantom stock
units ("PSUS") are shown in this column. For more information on this plan,
see below at page under "How We Compensate Directors."
The Chief Executive Officer has established stock ownership guidelines
for AMBAC's senior officers. This voluntary program sets certain stock ownership
levels for senior officers to achieve over time to further align their interests
with those of the stockholders. The guidelines provide for a maximum target of
either a multiple of the senior officer's base salary (based on the market value
of AMBAC common stock) or a fixed number of shares.
DID DIRECTORS, EXECUTIVE OFFICERS AND GREATER-THAN-10% STOCKHOLDERS
COMPLY WITH SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING IN 1996?
Sections 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers, and greater-than-10% stockholders to file reports
with the SEC on changes in their beneficial ownership of AMBAC common stock and
to provide AMBAC with copies of the reports. Based on our review of these
reports and of certifications furnished to us, we believe that all of these
reporting persons complied with their filing requirements for 1996.
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INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
THE BOARD OF DIRECTORS
The Board of Directors oversees the business and affairs of AMBAC and
monitors the performance of management. In accordance with corporate governance
principles, the Board does not involve itself in day-to-day operations. The
directors keep themselves informed through discussions with the Chairman, other
key executives and our principal external advisers (legal counsel, outside
auditors, investment bankers and other consultants), by reading reports and
other materials that we send them and by participating in Board and Committee
meetings.
The Board held six meetings during 1996. The permanent and special
committees of the Board held nine meetings. All of the directors attended at
least 80% of the total number of meetings of the Board and of all committees of
the Board on which they served. Each director also serves as a director of our
principal operating subsidiary, AMBAC Indemnity Corporation, a leading triple-A
rated insurance company.
THE COMMITTEES OF THE BOARD
The Board has two permanent committees: the Audit Committee and the
Compensation and Organization Committee. There is no nominating committee or any
other committee that acts as a nominating committee. Our By-laws, however,
provide a procedure for you to recommend candidates for director at an annual
meeting. For more information, see below at page under "Information About
Stockholder Proposals."
THE AUDIT COMMITTEE None of the directors who serve as members of the
Audit Committee are employees of AMBAC or of any of
our subsidiaries.
The Committee makes recommendations to the Board
regarding
the independent auditors to be selected for ratification by the
stockholders, approves the scope of the annual
audit activities of the independent auditors and
our internal auditors and reviews audit results.
Messrs. Callen, Dulude, Gregory, O'Neil and Dr.
Caporali currently serve as members of the
Committee. Mr. O'Neil serves as Chairman of the
Committee.
The Committee met three times during 1996.
THE COMPENSATION AND
ORGANIZATION COMMITTEE None of the directors who serve as members of the
Compensation and Organization Committee are
employees of AMBAC or of any of our subsidiaries.
The Committee establishes and approves annual
compensation for the executive officers, and
reviews compensation and related arrangements with
all other executives and highly-compensated
officers. The Committee's Report on Executive
Compensation for 1996 is printed below at pages
to .
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The Committee administers the 1991 Stock Incentive
Plan and has sole authority for awards under the
Plan, including timing, pricing and amount. If
approved at the Annual Meeting, the Committee will
administer the 1997 Equity Plan and the 1997
Executive Incentive Plan. For more information on
these proposed 1997 plans, see Proposals 3 and 4
below at pages to .
Messrs. Callen, Dulude, O'Neil and Dr. Caporali
currently serve as members of the Committee. Mr.
Dulude serves as Chairman of the Committee.
The Committee met four times during 1996.
HOW WE COMPENSATE DIRECTORS
ANNUAL FEE We compensate directors who are not employees of
AMBAC or any of our subsidiaries with a fee of
$30,000 per year as follows:
- we pay $20,000 in cash; and
- we pay $10,000 in the form of shares of
AMBAC common stock under our 1991
Non-Employee Directors Stock Plan.
STOCK AWARD
EVERY FIVE YEARS We also grant each non-employee director 1,500
restricted shares of AMBAC common stock at the
annual meeting at which the director is first
elected to the Board. These restricted shares
(which are subject to restrictions on transfer
prior to vesting) will generally vest on the fifth
anniversary of the date of grant. If the director
remains on the Board after the first 1,500
restricted shares vest, we will award the director
an additional 1,500 restricted shares, subject to
similar vesting conditions and restrictions on
transfer.
If you approve the 1997 Non-Employee Directors
Equity Plan at the Annual Meeting, we will grant
directors, in the future, 1,500
restricted stock units (instead of the 1,500
restricted shares) once every five years and 1,000
stock options (instead of $10,000 worth of common
stock) each year. For a more detailed discussion,
see Proposal 5, "Approval of 1997 Non-Employee
Directors Equity Plan" below at pages to
.
MEETING FEES We pay non-employee directors a fee of:
- $750 for attendance at each meeting of
stockholders and each Board meeting;
- $500 for attendance at each committee
meeting held at the same time as a
stockholder or Board meeting; and
- $750 for attendance at each committee
meeting not held at the same time as a
stockholder or Board meeting.
FEES FOR CHAIRING
A COMMITTEE We pay an annual fee of $1,500 to each non-employee
director who chairs a committee.
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EXPENSES AND BENEFITS We reimburse all directors for travel and other
related expenses incurred in attending stockholder,
Board and committee meetings. We also provide
non-employee directors with life and health
insurance benefits.
SERVICE ON THE AMBAC
INDEMNITY BOARD Although AMBAC Indemnity does not pay its
non-employee directors an annual fee for serving on
its Board of Directors, it does pay them meeting
fees (in the same amounts as we do for the AMBAC
Board) and reimburses all directors for expenses.
SERVICE ON AMBAC
TREASURERS TRUST (ATT) Our affiliate, ATT, a registered investment
company, compensates AMBAC's non-employee directors
who also serve as directors of ATT as follows:
- an annual fee of $5,000;
- fees of $750 for each board meeting attended
and committee meeting attended; and
- an annual fee of $1,000 for chairing a
committee.
Mr. O'Neil is currently a trustee of ATT.
DIRECTORS WHO ARE
AMBAC EMPLOYEES We do not compensate our employees or employees of
any of our subsidiaries for service as a director.
We do, however, reimburse them for travel and other
related expenses.
THE DEFERRED
COMPENSATION PLAN Under our Deferred Compensation Plan, non-employee
directors may elect to defer all or part of their
director compensation (including both the annual
fee and meeting fees) that is paid in cash. At the
director's election, we credit deferrals to a
bookkeeping account maintained on the director's
behalf either as a cash credit (which we
periodically credit with interest) or as a phantom
stock unit ("PSU") based on the market value of
AMBAC common stock (on which we quarterly pay
dividend equivalents in additional PSUs). We do not
fund the Deferred Compensation Plan. We settle
accounts only in cash.
RELATED PARTY TRANSACTION WITH DIRECTOR
On August 1, 1996, AMBAC retained the merchant banking firm of Gregory
& Hoenemeyer, Inc., to serve as financial adviser in connection with our
acquisition of Cadre Financial Services, Inc., an investment adviser, and its
broker-dealer affiliate, Cadre Securities, Inc. W. Grant Gregory, one of our
directors, is the Chairman and sole owner of this firm. We paid Mr. Gregory's
firm $30,000 on August 1, 1996 and $215,000 on January 2, 1997, following the
completion of our acquisition of Cadre Financial Services, Inc. We also
reimbursed Mr. Gregory for his out-of-pocket expenses incurred in connection
with the Cadre acquisition.
As a result of his firm's engagement, Mr. Gregory did not stand for
re-election to the Compensation and Organization Committee. However, after
review, the Board concluded that Mr. Gregory could properly stand for
re-election to the Audit Committee. The full Board (without Mr. Gregory voting)
approved both the engagement of Mr. Gregory's firm and the Cadre acquisition.
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THE EXECUTIVE OFFICERS
These are the biographies of AMBAC's current executive officers,
except for Mr. Lassiter, the Chief Executive Officer, whose biography is
included below at page under "Nominees for Directors."
ROBERT J. GENADER Age EXECUTIVE VICE PRESIDENT. Mr. Genader has been an Executive Vice
50 President of AMBAC since April 1991 and an Executive Vice President
of AMBAC Indemnity since 1986, when he joined AMBAC Indemnity from
Citicorp. Mr. Genader has executive responsibility for AMBAC
Indemnity's Specialized Finance Division, which includes domestic and
international structured finance underwriting. Mr. Genader has also
served as a director of AMBAC Indemnity since August 1992.
JOSEPH V. SALZANO Age EXECUTIVE VICE PRESIDENT. Mr. Salzano has been an Executive Vice
40 President of AMBAC and AMBAC Indemnity since June 1995. Mr. Salzano
has executive responsibility for AMBAC Indemnity's Public Finance
Division. From January 1989 to January 1995, Mr. Salzano was First
Vice President, Associate General Counsel and Head of Legal
Underwriting of AMBAC Indemnity. He became a Senior Vice President in
January 1995. Mr. Salzano joined AMBAC Indemnity in March 1987 as a
Vice President and Assistant General Counsel.
FRANK J. BIVONA Age SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER. Mr.
41 Bivona has been Treasurer of AMBAC since April 1991, was elected a
Senior Vice President in July 1992 and was named Chief Financial
Officer in January 1993. Mr. Bivona has executive responsibility for
AMBAC's financial management and control, treasury, tax and capital
planning, rating agency relations, reinsurance, investor relations
and public relations. Since 1987, Mr. Bivona has been Senior Vice
President, Chief Financial Officer and Treasurer of AMBAC Indemnity.
Mr. Bivona joined AMBAC Indemnity as Treasurer in 1986 from Citicorp.
RICHARD B. GROSS Age SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY. Mr. Gross has
49 been Senior Vice President, General Counsel and Secretary of AMBAC
since April 1991 and a Senior Vice President of AMBAC Indemnity since
June 1991. Mr. Gross's position as AMBAC's chief legal officer
includes executive responsibility for compliance and internal audit.
Mr. Gross joined AMBAC in 1991 from Citicorp. His last position at
Citicorp was as Senior Vice President and General Counsel, and a
director of Citicorp Insurance Group, Inc.
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HOW WE COMPENSATE EXECUTIVE OFFICERS
The tables on pages through show salaries and bonuses paid during
the last three years, options granted in 1996 and aggregate options exercised in
1996 for the Chief Executive Officer and our next four most highly compensated
executive officers. Mr. Salzano did not become an executive officer until June
1995. Mr. Nattress is no longer an executive officer.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------------------------
RESTRICTED SECURITIES ALL OTHER
NAME AND PRINCIPAL STOCK UNDERLYING COMPENSATION
POSITION YEAR SALARY($) BONUS($) UNITS($)(1) OPTIONS(#) ($)(2)
PHILLIP B. LASSITER....... 1996 $ 530,000 $ 425,000 $ 200,000 40,000 $ 47,700
Chairman, President 1995 500,000 400,000 0 65,000 45,000
and Chief 1994 500,000 200,000 0 80,000 45,000
Executive Officer
ROBERT J. GENADER......... 1996 275,000 340,000 0 25,000 24,750
Executive Vice 1995 260,000 260,000 0 15,000 23,400
President 1994 260,000 135,000 0 65,000 23,400
JOSEPH V. SALZANO......... 1996 215,000 200,000 54,000 19,350
Executive Vice 1995 189,077 140,000 0 19,000 17,017
President
W. DAYLE NATTRESS......... 1996 235,000 210,000 0 -- 21,150
Chief Investment
Officer 1995 235,000 135,000 0 8,000 21,150
1994 235,000 135,000 0 80,000 21,150
FRANK J. BIVONA........... 1996 225,000 170,000 0 15,000 20,250
Senior Vice
President, 1995 210,000 130,000 0 23,000 18,900
Chief Financial
Officer 1994 210,000 100,000 0 25,000 18,900
and Treasurer
- - - - -
---
- --------------------------------------------------------------------------------------------------------
(1) For 1996, the Compensation and Organization Committee determined that Mr.
Lassiter's bonus would be paid partly in cash and partly in restricted stock
units (RSUs). The Committee determines what portion of an executive's annual
cash bonus, if any, should to be paid in RSUs. The RSUs granted to Mr.
Lassiter for 1996 vest on the anniversary date of grant. As dividends are
paid on the common stock, dividend equivalents are accrued on RSUs as
additional RSUs and vest according to the same schedule.
The total number of RSUs held by the named officers as of December 31, 1996,
and the total value of these RSUs (based on the $66.375 per share New York
Stock Exchange closing price of the common stock on Tuesday, December 31,
1996), were as follows: Mr. Lassiter -- 25,883 RSUs ($1,717,984); and Mr.
Genader -- 5,037 RSUs ($334,331).
(2) The amounts which are in the column called "All Other Compensation" include
the following amounts that we contributed to our Savings Incentive Plan (the
"SIP") for the benefit of the named officers: Mr. Lassiter -- $13,500
(1996), $13,043 (1995) and $13,615 (1994); Mr. Genader -- $12,322 (1996),
$12,270 (1995) and
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$12,270 (1994); Mr. Salzano -- $13,500 (1996), and $13,620 (1995); Mr.
Nattress -- $13,500 (1996), $13,417 (1995) and $13,610 (1994); and Mr.
Bivona -- $13,100 (1996), $13,378 (1995) and $13,620 (1994).
For 1994, the amounts which are in the column called "All Other Compensation"
also include amounts that we were precluded from contributing to the SIP on
behalf of the named officers because of limitations under the Internal
Revenue Code. We instead paid these amounts to the named officers in cash:
Mr. Lassiter -- $31,385: Mr. Genader -- $11,130; Mr. Nattress -- $7,540; and
Mr. Bivona -- $5,280.
In October 1995, we adopted the AMBAC Inc. Nonqualified Savings Plan. We credit
amounts that we are precluded from contributing to the SIP because of
limitations under the Internal Revenue Code to accounts that we maintain
under the Nonqualified Savings Plan. Accordingly, the amounts which are in
the column called "All Other Compensation" also include the following
amounts that we credited to the Nonqualified Savings Plan for 1996 and 1995
on behalf of the named officers: Mr. Lassiter -- $34,200 (1996) and $31,957
(1995); Mr. Genader -- $12,428 (1996) and $11,130 (1995); Mr.
Salzano -- $5,850 (1996) and $3,397 (1995); Mr. Nattress -- $7,650 (1996)
and $7,733 (1995); and Mr. Bivona -- $7,150 (1996) and $5,522 (1995).
OPTION GRANTS DURING 1996
INDIVIDUAL GRANTS
NUMBER OF PERCENT OF
SECURITIES TOTAL GRANT DATE
UNDERLYING OPTIONS OPTIONS GRANTED EXERCISE EXPIRATION PRESENT
NAME GRANTED(#)(1) TO EMPLOYEES PRICE($/SH)(2) DATE VALUE($)(3)
Phillip B. Lassiter....... 40,000 8.2% $ 48.5625 4/23/03 $ 512,400
Robert J. Genader......... 25,000 5.1% 48.5625 4/23/03 320,250
Joseph V. Salzano......... 54,000 11.1% 48.5625 4/23/03 691,740
Frank J. Bivona........... 15,000 3.1% 48.5625 4/23/03 192,150
------------ - ---
---------- ------
- ------------------------------------------------------------------------------------------------------------------
(1) For 1996, all options awarded to the named executive officers by the
Compensation and Organization Committee were long-term incentive awards
granted on April 23, 1996. Except for Mr. Salzano's options, which vest in
four equal installments (on the first, second, third and fourth
anniversaries of the date of grant), each executive officer's options will
vest in three equal installments (on the first, second and third
anniversaries of the date of grant). Like all options granted in 1996,
vesting is accelerated upon death or permanent disability. Generally, all of
the executive officers' options will expire seven years from the date of
grant or earlier if employment terminates.
(2) The exercise price per share is the fair market value of the common stock on
the date of grant. We determine this by calculating the average of the high
and low price of the AMBAC common stock on the New York Stock Exchange on
the date of grant.
(3) We calculated these values by using the Black-Scholes stock option pricing
model.
The model, as we applied it, uses the grant date of April 23, 1996 and the
fair market value on that date of $48.5625 per share as discussed above. The
model also assumes (a) a risk-free rate of return of 6.32 % (which was the
yield on a U.S. Treasury Strip zero coupon bond with a maturity that
approximates the term of the option), (b) a stock price volatility of 16.29%
(calculated using month-end closing prices of the AMBAC common stock on the
New York Stock Exchange for the period beginning with March 31, 1992 and
ending as of the end of the month preceding the grant date), (c) a constant
dividend yield of 1.24% based on the quarterly cash dividend rate of 16.5
cents per share on the AMBAC common stock, and (d) an exercise date, on
average, of 5 1/2 years after grant.
WE DID NOT ADJUST THE MODEL FOR NON-TRANSFERABILITY, RISK OF FORFEITURE, OR
VESTING RESTRICTIONS. THE ACTUAL VALUE (IF ANY) AN EXECUTIVE OFFICER
RECEIVES FROM A STOCK OPTION WILL DEPEND UPON THE AMOUNT BY WHICH THE MARKET
PRICE OF THE AMBAC COMMON STOCK EXCEEDS THE EXERCISE PRICE OF THE OPTION ON
THE DATE OF EXERCISE. THERE CAN BE NO ASSURANCE THAT THE AMOUNT STATED AS
"GRANT DATE PRESENT VALUE" WILL ACTUALLY BE REALIZED.
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AGGREGATED OPTION EXERCISES DURING 1996
AND YEAR-END OPTION VALUES
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED ON UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
EXERCISE OPTIONS HELD AT HELD AT
NAME (#) VALUE REALIZED($) DECEMBER 31, 1996(#) DECEMBER 31, 1996($)(1)
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
Phillip B.
Lassiter.......... 12,996 $328,376.43 333,792 128,333 $12,672,738 $ 2,872,983
Robert J. Genader... 4,548 114,916.59 103,517 65,833 3,390,343 1,414,263
Joseph V. Salzano... -- -- 23,394 72,331 680,660 1,370,711
W. Dayle Nattress... 8,000 200,000.00 63,000 48,000 1,526,875 1,177,625
Frank J. Bivona..... -- -- 58,911 44,249 1,925,341 981,116
- --------------------------------------------------------------------------------
(1) This valuation represents the difference between $66.375, the closing price
of the AMBAC common stock on the New York Stock Exchange on Tuesday,
December 31, 1996, and the exercise price of the stock options.
"In-the-money" stock options are options for which the exercise price is
less than the market price of the underlying stock on a particular date.
THE PENSION PLAN
AMBAC's Pension Plan is a defined benefit pension plan intended to be
tax-qualified under Section 401(a) of the Internal Revenue Code.
- In general, officers and employees of AMBAC and its subsidiaries
(except AMBAC Connect Inc. and certain employees of Cadre Financial
Services, Inc.) become participants in the Pension Plan after one
year of service. All executive officers participate in the Pension
Plan. Non-employee directors of AMBAC and our subsidiaries are not
eligible to participate in the Pension Plan.
- Benefits under the Pension Plan vest after five years. Upon normal
retirement at age 65, a retired employee receives an annual pension
from the Pension Plan, subject to a statutory limit. The Pension
Plan also contains provisions for early retirement and survivor
benefits.
The following table below illustrates the annual pension benefits
payable to executive officers under the Pension Plan. The table also reflects
the excess and supplemental benefit plans that we have established to provide
retirement benefits over Internal Revenue Code limitations. We calculated the
benefits before offsetting (a) an employee's primary Social Security benefit and
(b) benefits payable under the retirement plan of Citibank, N.A., AMBAC's former
parent corporation (the "Citibank Plan"). Since benefits shown in the table
reflect a straight life form of annuity benefit, if payment is made in the form
of a joint and survivor annuity, the annual amounts of benefit could be
substantially below those illustrated.
YEARS OF SERVICE
------------------------------------------------------------------------------
AVERAGE
COVERED
COMPENSATION 10 15 20 25 30 35
----------------------------------------------------------------------------------------------
$ 100,000 $ 20,000 $ 27,000 $ 32,000 $ 37,000 $ 42,000 $ 47,000
200,000 40,000 54,000 64,000 74,000 84,000 94,000
500,000 100,000 135,000 160,000 185,000 210,000 235,000
1,000,000 200,000 270,000 320,000 370,000 420,000 470,000
1,500,000 300,000 405,000 480,000 555,000 630,000 705,000
=
=
=
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SERVICE FROM 1992 For service on or after January 1, 1992, the annual
retirement benefit is equal to 1% (without an
offset for any Social Security benefits) of an
employee's Average Compensation (as described in
the next sentence) multiplied by the employee's
years of credited service. "Average Compensation"
is defined, generally, as average annual base
salary (which, in the case of executive officers
identified in the Summary Compensation Table, is
the amount shown under the column called "Salary")
for the five highest paid of the ten years of
employment preceding retirement.
SERVICE BEFORE 1992 For service prior to January 1, 1992, the annual
retirement benefit is equal to 2% (with an offset
for Social Security benefits) of an employee's
Average Compensation (determined as if the employee
retired on December 31, 1991) multiplied by years
of credited service up to 30.
YEARS OF SERVICE The years of credited service under the Pension
Plan (including credit for years of past service
under the Citibank Plan) as of December 31, 1996
for executive officers named in the Summary
Compensation Table were as follows: Mr.
Lassiter -- 27 years, Mr. Genader -- 22 years, Mr.
Salzano -- 10 years, Mr. Nattress -- 9 years and
Mr. Bivona -- 19 years. The benefits payable under
the Pension Plan to employees who receive credit
for years of past service under the Citibank Plan
will be reduced by the amount of any benefits
payable under the Citibank Plan.
In view of the change in the formula for
determining benefits under the Pension Plan that
became effective as of January 1, 1992 (the
"Transition Date"), we prepared the above table
assuming twelve years of credited service prior to
the Transition Date. Twelve years is the
approximate average period of credited service
under the Pension Plan (including, where
applicable, years of credited service under the
Citibank Plan) as of the Transition Date for the
executive officers named in the Summary
Compensation Table. We further assumed that periods
of credited service in excess of twelve years were
rendered after the Transition Date.
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EMPLOYMENT AGREEMENT WITH CHIEF EXECUTIVE OFFICER
AMBAC's employment agreement with Mr. Lassiter provides that he shall
serve as the Chairman and Chief Executive Officer and a director. The agreement
has a rolling two-year term until AMBAC or Mr. Lassiter terminates it. Mr.
Lassiter is to receive base salary at a rate of not less than $410,000 per annum
and participate in bonus arrangements under which he is eligible to earn an
annual bonus based on AMBAC's achieving certain performance goals to be
established by the Board.
Mr. Lassiter has a supplemental pension benefit that will be based on
the benefit formula of the Pension Plan that was in effect until the end of
1991. But the formula will take into account his bonus compensation (including
that portion of his bonus paid in RSUs) and will be determined without giving
effect to provisions of the Internal Revenue Code that limit the amount of
compensation that may be taken into account in calculating benefits and the
amount of annual benefits that may be paid. Mr. Lassiter's supplemental pension
benefit will be reduced, however, to take account of enhancements in AMBAC's
contributions to the SIP that we introduced in 1992.
If Mr. Lassiter's employment is terminated other than for Cause (as
defined below), or if he resigns for Good Reason (as defined below), Mr.
Lassiter will:
- continue to receive, for the remainder of the term, compensation at
an annualized rate equal to the sum of his base annual salary and
target bonus at the time of termination;
- be fully vested in all awards under the 1991 Stock Incentive Plan;
- receive a lump-sum payment equal to the amount that we would have
contributed to his account under the SIP and any nonqualified plan
we maintained during the two years following termination;
- be credited with an additional two years of service under the
Pension Plan; and
- continue to participate in all AMBAC medical and other welfare plans
for a limited time following termination.
The amount payable to Mr. Lassiter following a termination would be
reduced by any compensation paid to him by any party unrelated to AMBAC for
services he performs, other than service as a director. Following a "Change in
Control" (as defined below), this reduction would apply only to amounts in
excess of one year of compensation (at the rates described above). Mr. Lassiter
will also be subject to certain restrictions under an agreement prohibiting him
from engaging in competition with AMBAC or any of our subsidiaries (except that
these restrictions will not apply following a Change in Control) and from
divulging any confidential or proprietary information he obtained while he was
our employee.
MANAGEMENT RETENTION AGREEMENTS WITH EXECUTIVE OFFICERS
We have entered into management retention agreements with each of our
executive officers, including the executives (other than Mr. Lassiter) named in
the Summary Compensation Table. If there is a Change in Control (as defined
below) and, within two years of the Change in Control, the executive's
employment is terminated by AMBAC or its successor other than for Cause (as
defined below), or if the executive resigns for Good Reason (as defined below),
the executive will:
- receive cash payments equal to two times the sum of (a) the
executive's highest annual base salary and (b) the product of the
executive's highest bonus percentage (as a percentage of base
salary) times his highest base salary (such sum being the "Reference
Amount"). We will reduce amounts in excess of one times the
Reference Amount by any compensation the executive earns from a
subsequent employer unrelated to AMBAC;
- be fully vested in all stock options and other awards under the 1991
Stock Incentive Plan;
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- receive a lump-sum payment equal to the amount that we would have
contributed to the executive's account under the SIP and any
nonqualified plan we maintained during the two years following
termination;
- be credited with an additional two years of service under the
Pension Plan; and
- continue to participate in AMBAC's medical and other welfare
benefits programs for a limited time following termination.
DEFINITIONS
The following definitions are used in the agreements described above:
- A "CHANGE IN CONTROL" generally includes (a) the acquisition by an
individual, entity or group ("PERSON") of beneficial ownership of
20% or more of the common stock then outstanding, except for
acquisitions by AMBAC and its affiliates or any employee benefit
plan that they sponsor and certain acquisitions by persons who owned
at least 15% of the outstanding shares of common stock on January
31, 1996 or (b) the individuals who, as of January 29, 1997,
constitute the Board, and subsequently elected members of the Board
whose election is approved or recommended by at least a majority of
such members or their successors whose election was so approved or
recommended, cease for any reason to constitute at least a majority
of the Board.
- "CAUSE" for an executive's termination generally includes: (a) the
willful commission of acts that are dishonest and demonstrably and
materially injurious to AMBAC, monetarily or otherwise; (b) the
conviction of certain felonies; or (c) a material breach of any of
the executive's agreements concerning confidentiality and
proprietary information.
- An executive will generally have "GOOD REASON" to terminate his
employment if (a) there is substantial adverse change in the
executive's duties or responsibilities, (b) the executive is
required to relocate more than 25 miles, or (c) if AMBAC fails to
honor its obligations under the agreement.
ARRANGEMENT WITH FORMER EXECUTIVE OFFICER
On February 26, 1997, W. Dayle Nattress, an executive officer named in
the Summary Compensation Table, resigned as Chief Investment Officer and
Division Executive for the Financial Services Division. We are currently
negotiating a severance arrangement with Mr. Nattress. We will include any
agreement we reach with Mr. Nattress as an exhibit to our next quarterly report
filed with the SEC.
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REPORT ON EXECUTIVE COMPENSATION FOR 1996 BY
THE COMPENSATION AND ORGANIZATION COMMITTEE
The Compensation and Organization Committee of the Board administers
AMBAC's executive compensation program. The members of the Committee are
independent non-employee, non-affiliated directors. The Committee has furnished
the following report on executive compensation for 1996:
EXECUTIVE COMPENSATION PHILOSOPHY
The Committee has designed AMBAC's executive compensation program to
support what we believe to be an appropriate relationship between executive pay
and the creation of stockholder value. To emphasize equity incentives, we link a
significant portion of executive compensation to the market performance of AMBAC
common stock. The objectives of our program are:
- To support a pay-for-performance policy that differentiates bonus
amounts among all executives based on both their individual
performance and the performance of AMBAC;
- To align the interests of executives with the long-term interests of
stockholders through awards whose value over time depends upon the
market value of AMBAC's common stock;
- To provide compensation comparable to that offered by other leading
companies in our industry, enabling AMBAC to compete for and retain
talented executives who are critical to our long-term success; and
- To motivate key executives to achieve strategic business initiatives
and to reward them for their achievement.
We compensate our executives through base salary, bonus paid in cash
(or a combination of cash and restricted stock units), and long-term incentive
awards (usually grants of stock options).
We also provide our executives with employee benefits, such as
retirement and health benefits, and a voluntary deferred compensation
arrangement, similar to those typically offered to executives by the
corporations with which we compete for talent. AMBAC has also entered into
management retention agreements with our executive officers to provide for
certain payments and other benefits if they are terminated following a change in
control of AMBAC. (These agreements, and the employment agreement with AMBAC's
Chief Executive Officer, which includes comparable change in control provisions,
are discussed elsewhere in the Proxy Statement.)
BASE SALARIES FOR 1996
GENERAL. The Committee annually reviews the base salaries of our
executives to determine if adjustments are appropriate to ensure that their
salaries are competitive and that they reflect the executive's increased
responsibilities as AMBAC grows.
In conducting our review for 1996, the Committee considered
comparative data prepared by both AMBAC's senior human resources officer and by
Frederic W. Cook & Co., Inc., the Committee's outside consultant for executive
compensation. The comparison group we chose for compensation purposes (the
"COMPARISON GROUP") consisted of companies in the financial guarantee insurance
industry and some, but not all, of the other insurance companies that are
included in the Investor's
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Business Daily Insurance Multi-Line Index. We use that index in the performance
graph that follows this Report in the Proxy Statement. We obtained data for the
Comparison Group from a number of sources, including proxy statements, public
information available from regulatory agencies and surveys by consulting firms.
We used this comparative data as a benchmark in reaching our own determination
of what were appropriate salary levels for our executives. For executives other
than the Chief Executive Officer, we also considered the recommendations of Mr.
Lassiter, AMBAC's Chairman, President and Chief Executive Officer.
BASE SALARIES OF THE EXECUTIVES. The Committee accepted Mr.
Lassiter's recommendation to increase the base salaries of only certain of
AMBAC's executives. The Committee notes, however, that while it increased the
salaries of our executives (excluding the Chief Executive Officer) by an average
of approximately 4% for 1996, the base salaries of our executives (excluding the
Chief Executive Officer) were still generally at or below the median for
salaries of executives in the Comparison Group.
BASE SALARY OF THE CHIEF EXECUTIVE OFFICER. The Committee increased
the base salary of Mr. Lassiter for 1996 by 6%, from $500,000 to $530,000. In
considering Mr. Lassiter's base pay, we reviewed the comparative data and
applied the same criteria that we applied to the other executives. The Committee
again targeted Mr. Lassiter's base salary to be in the top quarter for salaries
of chief executive officers in the Comparison Group.
BONUS COMPENSATION FOR 1996
GENERAL. The total amount of bonus compensation that the Committee
paid to executives was based upon AMBAC's success in the nine performance
categories that we had identified at the beginning of 1996. The nine categories
were:
- return on equity,
- net income growth,
- total return to stockholders,
- expense management,
- risk management of the business portfolio,
- market share,
- industry leadership,
- new products, and
- organizational development.
In January 1997, the Committee evaluated AMBAC's performance during
1996 under each of these nine categories. We did not weight the categories but
instead arrived at an overall "grade" for corporate performance. We determined
AMBAC's overall performance to be very good based on its particularly strong
performance in the categories of return on equity, net income growth, total
return to stockholders, new products, and risk management.
BONUS COMPENSATION FOR THE EXECUTIVES. The Committee awarded bonus
compensation for 1996 to each executive based on the executive's scope of
responsibility, and the specific contributions made by the executive to AMBAC's
performance overall and to the performance within the executive's area of
responsibility. We again considered the Chief Executive Officer's
recommendations and also took into account the comparative data. Overall,
bonuses for our executives remained generally at or near the median for
executives in the Comparison Group.
BONUS COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER. For 1996, the
Committee determined that Mr. Lassiter's contributions to AMBAC's performance in
the nine categories warranted a bonus of $625,000. The Committee determined that
$425,000 should be paid in cash and $200,000 should be paid in
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the form of restricted stock units (RSUs). We decided that the RSUs should vest
over one year, subject to forfeiture if the CEO were to leave AMBAC or were
terminated for cause prior to vesting. Because the Committee was impressed with
AMBAC's and Mr. Lassiter's performance, we decided to grant him a bonus with
approximately the same high overall value as 1995 (using our Black-Scholes model
to value the stock options that we awarded him as part of his 1995 bonus) but to
significantly increase the cash component.
LONG-TERM INCENTIVE AWARDS IN 1996
We provide long-term incentive awards for executives by granting stock
options under the 1991 Stock Incentive Plan. The Committee believes that the
granting of stock options helps align the interests of its top executives with
stockholders because these executives receive value only if the market value of
the common stock increases. To increase the importance of creating stockholder
value over the shorter term, we decided to limit the term of the stock options
to seven years. The size of the stock options awarded as long-term incentives in
1996 to executives (including the award to Mr. Lassiter) were in the top quarter
of recent awards given by companies within the Comparison Group.
LIMITS TO TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Under Section 162(m) of the Internal Revenue Code, AMBAC is generally
precluded from deducting compensation in excess of $1 million per year for its
Chief Executive Officer and any of its next four highest-paid executive
officers, unless the payments are made under qualifying performance-based plans.
This tax provision had no affect on AMBAC in 1996.
In January 1997, the Board adopted, subject to your approval at the
Annual Meeting, the 1997 Executive Incentive Plan. Under the Plan, we will award
executive officers that we select a bonus conditioned upon their attaining
objective performance criteria that we establish. For 1997, the only executive
officer that we selected for the Plan was Mr. Lassiter.
The Committee generally intends to pursue a strategy of maximizing the
deductibility of the compensation paid to executives. This includes applying the
1997 Executive Incentive Plan to executives whose compensation for a given year
can reasonably be expected to exceed $1 million. However, the Committee intends
to maintain the flexibility to take actions that we consider to be in the best
interests of AMBAC and our stockholders and which may be based on considerations
in addition to tax deductibility.
THE COMPENSATION AND ORGANIZATION
COMMITTEE:
Richard Dulude, Chairman
March 25, 1997 Michael A. Callen
Renso L. Caporali
C. Roderick O'Neil
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PERFORMANCE GRAPH
The graph below compares the performance of AMBAC common stock with
that of the Standard & Poor's 500 Stock Index and the Investor's Business Daily
Insurance Multi-Line Index. The graph assumes that you invested $100 in AMBAC
common stock and in each index on December 31, 1991, and that all dividends were
reinvested.
COMPARISON OF FIVE-YEAR TOTAL RETURN TO STOCKHOLDERS
MEASUREMENT PERIOD IBD INSURANCE-
(FISCAL YEAR COVERED) AMBAC S&P 500 MULTI-LINE
1991 100 100 100
1992 124.3 107.6 126.6
1993 122.6 118.5 126.2
1994 110.1 120 109.9
1995 140.5 165.1 162.5
1996 201.3 203.1 170.2
If you had invested $100 in AMBAC common stock at the time of our
Initial Public Offering (July 18, 1991), your investment would have grown to
$353.00 by the end of 1996. This compares with a $100 investment growing to only
$222.70 in the S&P 500 Index and to $214.60 in the IBD Insurance Multi-line
Index. We assumed that all dividends were reinvested, as we did for the
five-year performance graph displayed above.
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DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD
PROPOSAL 1: ELECT SIX DIRECTORS
The Board has nominated six directors for election at the Annual
Meeting. Each nominee is currently serving as one of our directors. If elected,
nominees will hold office until the next annual meeting or until their
successors have been elected.
As noted above, each nominee also serves as a director of AMBAC
Indemnity and one of our directors, Mr. O'Neil, serves on the Board of Trustees
of our affiliate, AMBAC Treasurers Trust.
We know of no reason why any nominee may be unable to serve as a
director. If any nominee is unable to serve, your proxy may vote for another
nominee proposed by the Board, or the Board may reduce the number of directors
to be elected. If any director resigns, dies or is otherwise unable to serve out
his term, or the Board increases the number of directors, the Board may fill the
vacancy until the next annual meeting.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF ALL SIX NOMINEES FOR
DIRECTOR.
NOMINEES
PHILLIP B. LASSITER CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER OF AMBAC
Age 53 AND AMBAC INDEMNITY SINCE APRIL 1991 AND PRESIDENT SINCE
Director since AUGUST 1992. Mr. Lassiter joined AMBAC from Citibank, where
1991 he was a member of the 1991 Policy Committee, Finance
Committee, Deputy Sector Head for Citibank's North American
investment and corporate banking activities, and Citibank's
institutional insurance activities, which, at the time,
included AMBAC Indemnity. Mr. Lassiter also serves as a
director of Diebold Inc. and HCIA Inc.
MICHAEL A. CALLEN SPECIAL ADVISOR, NATIONAL COMMERCIAL BANK, JEDDAH, KINGDOM OF
Age 56 SAUDI ARABIA (BANKING) SINCE APRIL 1993. Mr. Callen was an
Director since independent consultant from January 1992 until June 1993, and
1991 an Adjunct Professor at Columbia University Business School
during 1992. He was a director of Citicorp and Citibank and a
Sector Executive for Citicorp from 1987 until January 1992.
Mr. Callen also serves as a director of Intervest Corporation
of New York and Intervest Bancshares Corporation.
DR. RENSO L. CAPORALI SENIOR VICE PRESIDENT OF RAYTHEON COMPANY (ELECTRONICS,
Age 64 AIRCRAFT, ENGINEERING, CONSTRUCTION AND APPLIANCES) SINCE
Director since APRIL 1995. Dr. Caporali retired in June 1994 as Chairman
1995 and Chief Executive Officer of Grumman Corporation (defense
and aerospace). He was Chairman and Chief Executive Officer
of Grumman Corporation from July 1990 until June 1994 and
Vice Chairman of Grumman Corporation from 1988 to July 1990.
Dr. Caporali also serves as a director of Long Island
Lighting Company.
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RICHARD DULUDE RETIRED IN APRIL 1993 AS VICE CHAIRMAN OF CORNING
Age 64 INCORPORATED (DIVERSIFIED MANUFACTURING). Mr. Dulude was
Director since Vice Chairman of Corning Incorporated from November 1990 to
1992 April 1993 and Group President from 1983 until 1990. Mr.
Dulude also serves as a director of Raychem Corporation,
Landec Corporation and HCIA Inc.
W. GRANT GREGORY CHAIRMAN OF GREGORY & HOENEMEYER, INC. (MERCHANT BANKING
Age 56 FIRM) SINCE 1988. Mr. Gregory retired in 1987 as Chairman of
Director since the Board of Touche Ross & Co. (accounting firm). Mr. Gregory
1991 also serves as a director of InaCom Corp., Renaissance Hotel
Group N.V. and HCIA Inc.
C. RODERICK O'NEIL CHAIRMAN, O'NEIL ASSOCIATES (FORMERLY GREENSPAN O'NEIL ASSO-
Age 66 CIATES) (INVESTMENT AND FINANCIAL CONSULTING FIRM) SINCE
Director since 1984. Mr. O'Neil also serves as a director of Fort Dearborn
1991 Income Securities, Inc., Beckman Instruments, Inc. and AMBAC
Treasurers Trust.
PROPOSALS 2A, 2B AND 2C: APPROVE AMENDMENTS TO THE CHARTER
We are seeking your approval to amend our Restated Certificate of
Incorporation ("Charter") to:
- change our name (PROPOSAL 2A)
- increase the number of authorized shares of common stock (PROPOSAL
2B)
- eliminate the Class A common stock and certain other outdated
provisions (PROPOSAL 2C)
The Board adopted each of these amendments to the Charter on January
29, 1997, subject to your approval at the Annual Meeting.
We have summarized below the reasons why you should approve each of
the proposed amendments. Before you decide how to vote, however, you should read
the complete Charter, which we have included as Appendix A. We have marked
Appendix A to show the proposed additions and deletions.
PROPOSAL 2A: APPROVE AMENDMENT TO THE CHARTER TO CHANGE OUR NAME TO AMBAC
FINANCIAL GROUP, INC.
We propose to amend Article I of the Charter to change our name from
"AMBAC INC." to "AMBAC FINANCIAL GROUP, INC." We believe that a change in the
name of the company is desirable to more accurately reflect the nature of our
business and our plans for the future.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE AMENDMENT TO THE CHARTER
TO CHANGE OUR NAME TO AMBAC FINANCIAL GROUP, INC.
PROPOSAL 2B: APPROVE AMENDMENT TO THE CHARTER TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK TO 100 MILLION.
We propose to amend Article IV of the Charter to increase the number
of authorized shares of common stock from 50 million shares to 100 million
shares.
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- As of the Record Date, there were 34,878,061 shares of common stock
issued and outstanding and 298,976 shares of common stock reserved
for issuance under our employee benefit plans. Only an additional
12,435,467 authorized but unissued and unreserved shares of common
stock are available for issuance under the present Charter.
- Our proposed amendment increases the number of authorized shares of
common stock by 50 million shares. The additional shares, if issued,
would have the same rights and privileges as the shares of common
stock now outstanding. The Board has no present plans, agreements,
commitments or understandings regarding the issuance of these
proposed additional shares.
- We believe that the proposed increase is in the best interests of
AMBAC and our stockholders because sufficient shares should be
readily available to the Board for issuance in connection with stock
splits and stock dividends, implementation of employee benefit
plans, offer of shares for cash, mergers and acquisitions, and other
proper business purposes.
-- By having additional shares readily available for issuance, the
Board will be able to act expeditiously without spending the time
and incurring expense of soliciting proxies and holding a special
meeting of stockholders.
-- The Board believes that it is important to have the flexibility
to act promptly to meet future business needs. For example,
today, if the Board determined that a stock split were advisable
to enhance your liquidity, the Board would not have sufficient
authorized shares available to effect a split.
-- However, the Board may issue additional shares of common stock
without further action on your part, only if the action is
permissable under law and the rules of the stock exchange on
which the AMBAC common stock is listed. For example, today, the
New York Stock Exchange rules would require your approval if the
Board desired to make a stock acquisition which would result in
an increase of 20% or more in the number of shares of AMBAC
common stock outstanding.
- Although we do not view an increase in the number of authorized
shares as an anti-takeover measure, SEC rules require us to disclose
all Charter, By-law and other provisions that could have an
anti-takeover effect. These include:
-- under our Charter, the Board has authority to issue one or more
series of preferred stock up to a maximum of approximately 3.5
million shares presently available;
-- under our By-Laws, only the Chairman, the President or the
Secretary may call a special meeting of stockholders;
-- under our By-Laws, stockholders must give advance written notice
(not less than 60 days nor more than 90 days prior to the annual
meeting) of any nominations for director or other action to be
proposed at an annual meeting; and
-- our stockholders rights plan could have a deterrent effect
against a hostile takeover of AMBAC.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE AMENDMENT TO THE CHARTER
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK TO 100 MILLION.
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PROPOSAL 2C: APPROVE AMENDMENTS TO THE CHARTER TO ELIMINATE CLASS A COMMON STOCK
AND CERTAIN OTHER OUTDATED PROVISIONS.
We propose to amend Articles III, IV, V, VI, VII, IX and XII of the
Charter to eliminate the provisions authorizing the Class A Common Stock and the
other provisions which were previously included to accommodate the ownership of
our common stock and Class A Common Stock by Citibank, N.A.
AMBAC was formed in April 1991 by Citicorp Financial Guaranty
Holdings, Inc., a wholly owned subsidiary of Citibank, N.A., a national banking
association. As an operating subsidiary of a national bank, we were subject, in
general, to all provisions of federal banking laws and regulations. Therefore,
Citibank drafted our Charter to ensure that we would be subject to all bank
regulatory requirements applicable to an operating subsidiary of a national
bank.
Since Citibank no longer retains ownership of our common stock or
Class A common stock, and there are no longer any shares of Class A common stock
outstanding, the proposed amendments eliminate the Class A common stock and the
other provisions previously included as a result of Citibank's ownership.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE AMENDMENTS TO THE CHARTER
TO ELIMINATE CLASS A COMMON STOCK AND CERTAIN OTHER OUTDATED PROVISIONS.
PROPOSAL 3: APPROVE 1997 EQUITY PLAN
We are asking for your approval of the 1997 Equity Plan. The Board
adopted the Equity Plan on January 29, 1997, subject to your approval at the
Annual Meeting.
The Equity Plan replaces the 1991 Stock Incentive Plan. If you approve
the Equity Plan at the Annual Meeting, we will make no further awards under the
1991 Stock Incentive Plan.
We have summarized below certain material provisions of the Equity
Plan. Because it is a summary, it may not contain all the information that is
important to you. Before you decide how to vote, you should review the full text
of the Equity Plan, which we have included as Appendix B.
DESCRIPTION OF EQUITY PLAN
PURPOSES AND ELIGIBILITY The purposes of the Equity Plan are to attract,
retain and motivate key employees, to compensate
them for their contributions to our growth and
profits and to encourage them to own AMBAC common
stock. The Equity Plan authorizes the issuance of
certain awards to such individuals. We estimate
that as of March 21, 1997, approximately 210
individuals are eligible to participate in the
Equity Plan.
SHARES AVAILABLE
-- OVERALL LIMIT A total of 2.75 million shares of common stock
(plus the number of shares remaining under the 1991
Stock Incentive Plan) are authorized for issuance
under the Equity Plan. As of March 21, 1997, a
total of 292,105 shares remains available for
awards under the 1991 Stock Incentive Plan. We will
adjust the number of shares available
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for issuance under the Equity Plan if there are
changes in our capitalization, a merger, or a
similar transaction. We may issue new shares or
treasury shares or both. (Treasury shares are
shares that were previously issued and outstanding
which AMBAC has repurchased and is holding in its
treasury.)
SPECIAL LIMITS In addition to the overall share limit, two special
limits apply:
- -- STOCK AWARD LIMIT (1) The maximum number of shares that may be issued
in the form of stock awards, or upon settlement
of restricted stock units or other stock-based
awards, is 800,000 shares. Any stock-based
awards that are issued instead of cash
compensation, or in satisfaction of any other
obligation owed by AMBAC to an employee, will
not be counted against this limitation.
- -- INDIVIDUAL EMPLOYEE
LIMIT ON STOCK OPTIONS (2) The number of stock options and stock
appreciation rights that may be awarded to any
eligible individual in any year is limited to
200,000 shares (with a carryover of any unused
portion to future years). This maximum
individual employee limit is required to
satisfy Section 162(m) of the Internal Revenue
Code.
ADMINISTRATION The Compensation and Organization Committee of the
Board will administer the Equity Plan, select
participants from among eligible employees, and
determine the form, terms and conditions of awards.
Subject to certain limitations, the Committee may
from time to time delegate some or all of its
authority to an administrator consisting of one or
more members of the Committee or one or more
officers of AMBAC.
AWARDS
- -- GENERALLY The Equity Plan authorizes the following awards
based upon AMBAC common stock: stock options, stock
appreciation rights, stock awards, restricted stock
units, performance units and other forms of
equity-based or equity-related awards that the
Committee determines to be consistent with the
purposes of the Equity Plan and the interests of
AMBAC.
The Committee will determine vesting,
exercisability, payment and other restrictions that
apply to an award. (Vesting means the individual
has the right to the award.) The minimum vesting
for any stock option is one year. The Committee
will also have authority to determine the effect,
if any, that an employee's termination or a change
in control of AMBAC will have on an award.
The Plan terminates in seven years. This means that
if you approve the Equity Plan at the Annual
Meeting, no awards will be permitted to be made
under the Plan after May 14, 2004.
- -- STOCK OPTIONS Stock options may be either nonqualified or
incentive stock options (within the meaning of
Section 422 of the Internal Revenue Code).
The Committee may issue stock options at an
exercise price no less than the fair market value
of AMBAC common stock on the date of grant (subject
to a limited exception for options assumed in
connection with the acquisition of another
company).
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The exercise price of a stock option may be paid in
cash or previously owned stock or both. Stock
options may also be exercised through a "cashless
exercise" procedure. This allows employees to sell
immediately some or all of the shares to generate
sufficient cash to pay the exercise price of the
stock option and/or to satisfy withholding tax
obligations.
The Committee will fix the term of a stock option
upon grant, but the term may be no longer than ten
years.
- -- STOCK APPRECIATION
RIGHTS Stock appreciation rights entitle an employee to
receive the excess, if any, of the fair market
value on the date of exercise over the exercise
price. The Committee must issue stock appreciation
rights at no less than at the fair market value of
the common stock on the date of grant. At the
discretion of the Committee, the Committee may make
payments to an employee upon exercise of a stock
appreciation right in cash, shares of common stock
or both.
The Committee may grant stock appreciation rights
alone or together with stock options.
The Committee has not awarded stock appreciation
rights in the past and has no current intention of
making such awards in the future.
- -- STOCK AWARDS Stock awards consist of one or more shares of
common stock granted to a participant for no
consideration other than the provision of services
(or, if required by law, payment of the par value
of the shares). Stock awards may be subject to
restrictions on transfer and subject to vesting
conditions, as the Committee may determine.
- -- RESTRICTED STOCK UNITS A restricted stock unit (RSU) represents the right
of the participant to receive one share of common
stock, subject to the terms and conditions
established by the Committee. When these terms and
conditions are satisfied, restricted stock units
will be payable, at the discretion of the
Committee, in cash, shares of common stock or both.
- -- PERFORMANCE UNITS Performance units may be granted as fixed or
variable share- or dollar-denominated units subject
to such conditions of vesting and time of payment
as the Committee may determine. Performance units
will be payable, at the discretion of the
Committee, in cash, shares of common stock or both.
- -- OTHER AWARDS The Committee has the authority to specify the
terms and provisions of other forms of equity-based
or equity-related awards not described above which
the Committee determines to be consistent with the
purposes of the Equity Plan and the interests of
AMBAC. These awards may provide for cash payments
based in whole or in part on the value or future
value of common stock, for the acquisition or
future acquisition of common stock, or both. Other
awards may include cash payments based on one or
more criteria determined by the Committee which are
unrelated to the value of common stock.
AMENDMENT We may amend or terminate the Equity Plan at any
time. However, we must obtain stockholder approval
to increase the maximum number of shares issuable,
or to reduce the exercise price of a stock
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option or stock appreciation right. Also, we may
not amend or terminate the plan if it adversely
affects an employee's rights with respect to
previously-granted awards without the employee's
consent.
STOCK PRICE On March 21, 1997, the closing price of AMBAC
common stock on the New York Stock Exchange was
$66.00.
NEW PLAN BENEFITS
As of the date of this Proxy Statement, we have made no awards under
the Equity Plan. Since awards will be authorized by the Committee in its sole
discretion, it is not possible to determine the benefits or amounts that will be
received by any particular employee or group of employees in the future. Stock
options have been awarded in 1996 under the 1991 Stock Incentive Plan.
Information about these stock options awarded to the executive officers named in
the Summary Compensation Table appears at page above.
The following table provides additional information about stock
options awarded in 1996 under the 1991 Stock Incentive Plan:
DOLLAR NUMBER OF SHARES COVERED
NAME AND POSITION VALUE(1) BY STOCK OPTIONS
All executive officers as a group (6
persons).................................... $1,870,260 146,000
All employees, including all current
officers who are not executive officers,
as a group............................... $3,459,661 270,075
(1) We calculated the values using the Black-Scholes stock option pricing model
that we modified to take dividends into account. We used the same
assumptions in the calculation as those set forth at footnote 3 under
"Option Grants During 1996" above at page .
FEDERAL INCOME TAX CONSEQUENCES
The following discussion addresses certain federal income tax
consequences of the issuance and exercise of stock options under the Equity
Plan. Because state tax treatment is subject to individual state laws, we did
not include it in this discussion.
NONQUALIFIED STOCK
OPTIONS Upon the grant of a nonqualified stock option, the
employee will not recognize taxable income and
AMBAC will not receive a deduction.
Upon the exercise of the option, an employee will
recognize ordinary income in an amount equal to the
excess of the fair market value of the common stock
on the date of exercise over the exercise price.
AMBAC is required to withhold tax on the amount of
income recognized. AMBAC will receive a tax
deduction equal to the amount of the income.
The subsequent sale of any common stock received
upon the exercise of a nonqualified stock option
generally will be taxed as a capital gain or loss
(long-term or short-term, depending upon the
holding period
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of the stock sold). Certain additional rules apply
if the exercise price for an option is paid in
shares previously owned by the employee.
INCENTIVE STOCK OPTIONS Upon the grant or exercise of an incentive stock
option, the employee will not recognize taxable
income and AMBAC will not receive a deduction.
If the employee retains the shares of common stock
received as a result of an exercise of an incentive
stock option for at least two years from the date
of the grant, and one year from the date of
exercise, then any gain or loss is treated as
long-term. However, if the shares are disposed of
during this period, the option will be treated as a
nonqualified stock option. AMBAC receives a tax
deduction only if the shares are disposed of during
this period. The deduction is equal to the amount
of taxable income the employee recognizes.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE 1997 EQUITY PLAN.
PROPOSAL 4: APPROVE 1997 EXECUTIVE INCENTIVE PLAN
We are seeking your approval of the 1997 Executive Incentive Plan. The
Board adopted the Executive Incentive Plan on January 29, 1997, subject to your
approval at the Annual Meeting.
We have summarized below certain material provisions of the Executive
Incentive Plan. Because it is a summary, it may not contain all the information
that is important to you. Before you decide how to vote, you should review the
full text of the Executive Incentive Plan, which we have included as Appendix C.
DESCRIPTION OF EXECUTIVE INCENTIVE PLAN
PURPOSES The purposes of the Executive Incentive Plan are to
attract, retain and motivate executives and key
employees of the highest caliber and quality by
providing them with the opportunity to earn
incentive compensation directly linked to AMBAC's
performance.
ELIGIBILITY Section 162(m) of the Internal Revenue Code limits
the deductibility of compensation in excess of $1
million paid to the chief executive officer and the
four other most highly compensated executive
officers of a public company unless the payments
are made under qualifying performance-based plans.
We designed the Executive Incentive Plan to enable
us to make awards to our executive officers that
will not be subject to this limitation on
deductibility.
The Committee will select participants for the
Executive Incentive Plan at the start of each
annual or other performance period from among
AMBAC's executive officers, senior officers and key
employees. For 1997, the Committee has designated
Phillip B. Lassiter, AMBAC's Chairman, President
and Chief Executive Officer, as the only
participant in the Executive Incentive Plan.
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PERFORMANCE GOALS AND
PERFORMANCE TARGETS The executives selected by the Committee will be
eligible to earn an incentive amount for the
performance period. Payment will be conditioned
upon attaining specified performance targets
related to designated performance goals selected by
the Committee from among the following criteria:
- return on equity
- net income growth
- total return to stockholders
- expense management
- risk management of the business portfolio
- market share
- industry leadership
- new products
- organizational development
At the beginning of a performance period, the
Committee will select the performance goals
establish the specific performance targets and the
award which may be earned by each executive and
specify the relationship between performance
targets and the award.
Following the completion of the performance period,
the Committee must certify in writing whether the
applicable performance targets have been achieved
and the incentive amounts, if any, payable to
executives. The Committee may reduce (but may not
increase) the incentive amount payable to take into
account additional factors that the Committee may
deem relevant to the assessment of individual or
corporate performance.
PAYMENT OF AWARDS The Committee will determine whether awards will be
paid in cash, in the form of stock awards or
restricted stock units issued under the 1997 Equity
Plan (or another stock-based compensation plan of
AMBAC), or in any combination. If the Committee
determines that an award will be paid in the form
of stock awards or restricted stock units, then for
purposes of determining the number of shares of
common stock subject to an award, the Committee may
value the shares at a discount to reflect any
restrictions or conditions. The discount may not
exceed 50% of the fair market value of the shares
as of the date of determination.
MAXIMUM AWARD LIMITS The maximum award that an executive may earn for a
performance period of one year or less will be $1
million. The maximum award that an executive may
earn for a performance period of more than one year
will be $3 million.
TERMINATION OF EMPLOYMENT If an executive's employment is terminated during a
performance period by reason of death, disability
or retirement (or with the approval of the
Committee), the executive will receive a pro rata
payment based upon: the amount of time the
executive was employed during the performance
period and the degree to which the Committee
determines that the performance targets have been
achieved prior to such termination. If an
executive's employment terminates during a
performance period for any other reason, the
executive will not be entitled to an award.
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AMENDMENT The Board or the Committee may amend or terminate
the
Executive Incentive Plan at any time. However, no
action will be effective without stockholder
approval to the extent necessary to continue to
qualify the amounts payable to covered employees as
performance-based compensation under Section 162(m)
of the Internal Revenue Code.
TERM The Executive Incentive Plan became effective upon
its adoption by the Board, subject to your approval
at the Annual Meeting. Unless the Board or the
Committee terminates the Plan earlier, no award may
be made for performance periods beginning after
January 1, 2002.
NEW PLAN BENEFITS
It is not possible to determine the benefits or amounts that will be
received by any participant for the current year or any year in the future
because (a) the performance targets will be determined by the Committee at the
beginning of the performance period, and (b) the amount, if any, payable will
depend upon the extent to which the executive satisfies such performance
targets. However, for 1996, the Committee employed a methodology for determining
the compensation of Mr. Lassiter (who is the only participant in the Executive
Incentive Plan for 1997) that was substantially similar to that which is
expected to be used for the current year. The amount of incentive compensation
earned by Mr. Lassiter for 1996 is reported in the Summary Compensation Table
above at page . The basis for paying compensation is explained in the "Report
on Executive Compensation for 1996 by the Compensation and Organization
Committee" above at page .
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE 1997 EXECUTIVE INCENTIVE PLAN.
PROPOSAL 5: APPROVE 1997 NON-EMPLOYEE DIRECTORS EQUITY PLAN
We are asking for your approval of the 1997 Non-Employee Directors
Equity Plan. The Directors Equity Plan provides for automatic, non-discretionary
awards of restricted stock units and stock options to non-employee directors.
The Board adopted the Directors Equity Plan on January 29, 1997, subject to your
approval at the Annual Meeting.
The Directors Equity Plan replaces the 1991 Non-Employee Directors
Stock Plan. If you approve the Directors Equity Plan at the Annual Meeting, we
will make no further awards under the 1991 Non-Employee Directors Stock Plan.
We have summarized below certain material provisions of the Directors
Equity Plan. Because it is a summary, it may not contain all of the information
that is important to you. Before you decide how to vote, you should review the
full text of the Directors Equity Plan, which we have included as Appendix D.
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DESCRIPTION OF DIRECTORS EQUITY PLAN
The Directors Equity Plan provides for two types of awards: restricted
stock units and stock options.
PURPOSES The purposes of the Directors Equity Plan are to
promote our long-term growth and financial success
by attracting, motivating and retaining
non-employee directors of outstanding ability, and
to foster a greater identity of interest between
our non-employee directors and our stockholders.
ELIGIBILITY Only directors who are not employees of AMBAC or
any of our subsidiaries may participate in the
Plan. Five of our directors are currently eligible
to participate in the Directors Equity Plan:
Messrs. Callen, Caporali, Dulude, Gregory and
O'Neil.
SHARES AVAILABLE
- -- OVERALL LIMIT A total of 70,000 shares of common stock will be
available for issuance under the Directors Equity
Plan (plus the number of shares that remain
available under the 1991 Non-Employee Directors
Stock Plan as of the date of the Annual Meeting).
As of the date of this Proxy Statement, a total of
9,821 shares remain available for awards under the
1991 Non-Employee Directors Stock Plan. Only 25,000
shares may be issued upon settlement of restricted
stock units ("RSUS").
- -- SPECIAL LIMIT We will adjust the number of shares available for
issuance under the Directors Equity Plan if there
are changes in our capitalization, a merger, or a
similar transaction. We may issue new shares or
treasury shares or both.
RESTRICTED STOCK UNITS At the annual meeting at which a director is first
elected to the Board, a director will receive a
grant of 1,500 restricted stock units.
- Restricted stock units vest in full on the date
of the annual meeting held in the fifth year
following the date of grant. If a director's
service on the Board terminates by reason of
death, permanent disability, retirement or a
change in control, the director's RSUs will
immediately vest.
- Upon vesting of an award of restricted stock
units, a non-employee director standing for
reelection will receive an additional grant of
1,500 restricted stock units. This means that
grants of RSUs will be made to a director every
five years.
We will credit restricted stock units to a
bookkeeping account that we maintain for each
director. We will also credit a director's account
with an amount equal to any dividends paid by AMBAC
on a number of shares of common stock corresponding
to the number of restricted stock units credited to
the account; credits will be in the form of
additional RSUs.
As soon as practicable following vesting, we will
settle restricted stock units by delivering to the
director the equivalent number of shares of common
stock. Prior to settlement, directors will not have
the rights of a stockholder in any shares
corresponding to the RSUs.
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STOCK OPTIONS At each annual meeting, starting with the 1997
Annual Meeting, each newly-elected director will
automatically receive stock options to purchase
1,000 shares of common stock.
- The exercise price of each stock option will be
the fair market value of the common stock on the
date of grant. We define fair market value as the
average of the highest and the lowest price of
AMBAC common stock on the New York Stock
Exchange.
- Stock options will vest and become exercisable as
of the date of the next annual meeting. If a
director's service on the Board terminates by
reason of death, permanent disability or change
in control, the director's options will
immediately vest.
Directors who are elected other than in connection
with an annual meeting (for example, to fill a
vacancy) will receive a pro-rated award of stock
options that will vest at the first annual meeting
following the individual's election.
Stock options will generally expire on the date of
the annual meeting held in the seventh calendar
year following the date of grant. Upon termination
of a director's service on the Board, vested stock
options generally may be exercised (a) during the
following three years, if termination was by reason
of death, permanent disability or retirement from
the Board in accordance with the retirement policy
then in effect for Board members, or (b) during the
following year in all other cases.
ADMINISTRATION The full Board will administer the Directors Equity
Plan. The Board will have authority to adopt rules
and regulations that it considers necessary or
appropriate to carry out the purposes of the
Directors Equity Plan and to interpret the Plan.
AMENDMENT
AND TERMINATION The Board will have authority to amend or terminate
the Directors Equity Plan at any time. However, the
Board may not, without your approval,
- increase the number of shares available for
issuance, or
- the number of restricted stock units to be issued
to any non-employee director, or
- reduce the exercise price of a stock option.
Unless terminated earlier by the Board, the
Directors Equity Plan will expire at the annual
meeting held in 2004. No further restricted stock
units or stock options will be awarded under the
Plan after this date.
STOCK PRICE On March 21, 1997, the closing price of the AMBAC
common stock on the New York Stock Exchange was
$66.00.
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NEW PLAN BENEFITS
The following table sets forth the number of restricted stock units
and stock options that will be awarded in 1997 to our current non-employee
directors, if you approve the Directors Equity Plan. All current directors are
nominees for re-election.
1997 NON-EMPLOYEE DIRECTORS EQUITY PLAN
NAME AND POSITION DOLLAR VALUE NUMBER OF
UNITS
Current directors who are not executive officers
(5 persons)................................................................... (3) 6,000(1)
(3) 5,000(2)
=
- --------------------------------------------------------------------------------
(1) These units are restricted stock units.
(2) These units are stock options.
(3) The dollar value of these awards cannot be determined because the value
depends on the stock price and, in the case of the stock options, other
factors, on May 14, 1997, the date of the 1997 Annual Meeting.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion addresses certain federal income tax
consequences of the issuance and exercise of stock options under the Directors
Equity Plan. Because state tax treatment is subject to individual state laws, we
did not include it in this discussion.
- The grant of a stock option under the Directors Stock Plan will not
result in income for the participant or in a deduction for AMBAC.
- The exercise of a stock option will generally result in ordinary
income for the director and a deduction for AMBAC, in each case
measured by the difference between the exercise price and the fair
market value of the shares at the time of exercise.
- Gain or loss upon a subsequent sale of common stock received upon
exercise of a stock option generally will be taxed as capital gain
or loss (long-term or short-term, depending upon the holding period
of the stock sold).
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE 1997 NON-EMPLOYEE DIRECTORS EQUITY
PLAN.
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PROPOSAL 6: RATIFY SELECTION OF INDEPENDENT AUDITORS FOR 1997
We are asking you to ratify the Board's selection of KPMG Peat Marwick
LLP, certified public accountants, as independent auditors for 1997. The Audit
Committee recommended the selection of KPMG to the Board. KPMG has served as the
independent auditors of AMBAC Indemnity since 1985 and of AMBAC since our
incorporation in 1991.
A representative of KPMG will attend the Annual Meeting to answer your
questions.
We are submitting this proposal to you because the Board believes that
such action follows sound corporate practice. If you do not ratify the selection
of independent auditors, the Board will consider it a direction to consider
selecting other auditors for next year. However, even if you ratify the
selection, the Board may still appoint new independent auditors at any time
during the year if it believes that such a change would be in the best interests
of AMBAC and our stockholders.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" RATIFICATION OF THE SELECTION OF
KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS FOR 1997.
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INFORMATION ABOUT STOCKHOLDER PROPOSALS
If you wish to submit proposals to be included in our 1998 proxy
statement, we must receive them on or before Friday, November 28, 1997. Please
address your proposals to: RICHARD B. GROSS, SECRETARY, AMBAC INC., ONE STATE
STREET PLAZA, NEW YORK, NEW YORK 10004.
Under our By-laws, if you wish to nominate directors or bring other
business before the stockholders
- You must notify the Secretary in writing not less than 60 days nor
more than 90 days before the annual meeting.
- If we give you less than 70 days' notice or prior public disclosure
of the meeting date, you may notify us within 10 days after the
notice was mailed or publicly disclosed.
- Your notice must contain the specific information required in our
By-laws.
Please note that these requirements relate only to matters you wish to bring
before your fellow stockholders at an annual meeting. They are separate from the
SEC's requirements to have your proposal included in our proxy statement.
If you would like a copy of our By-laws, we will send you one without
charge. Please write to the Secretary.
By order of the Board of Directors,
/s/ Richard B. Gross
Richard B. Gross
Senior Vice President, General
Counsel and Secretary
March 31, 1997
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- --------------------------------------------------------------------------------
================================================================================
NOTE TO READER: Deletions (words crossed out) are for
your information only and will not appear in the Charter
when we file it.* APPENDIX A
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
AMBAC INC.
AMBAC Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation"), DOES HEREBY CERTIFY as follows:
1. The name of the Corporation is AMBAC Inc. The Corporation was
originally incorporated under the name of AMBAC Inc. and the original
Certificate of Incorporation was filed with the Secretary of State of the
State of Delaware on April 29, 1991.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Amended and Restated Certificate of
Incorporation restates and integrates and further amends the Restated
Certificate of Incorporation of the Corporation.
3. The text of the Restated Certificate of Incorporation of the
Corporation is hereby restated and further amended to read in its entirety
as follows:
ARTICLE I
NAME
The name of the corporation is [AMBAC Inc.,] Ambac Financial Group, Inc.
(the "CORPORATION").
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
ARTICLE III
CORPORATE PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware (the "GENERAL CORPORATION LAW").
*In the Edgar version, language contained within brackets is to be deleted and
will not appear in the Charter when we file it.
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43
[SECTION 3.2. BANKING REGULATION. Until the earlier of June 30, 1996 and
the date on which Citibank, N.A. ("Citibank") no longer owns, directly or
indirectly any share of the Corporation Common Stock (as defined in Section
4.1),
(i) the operations of the Corporation shall, unless otherwise
provided by statute or regulation, be subject to all provisions of
federal banking laws and regulations applicable to the operation of
operating subsidiaries of national banks in accordance with the
provisions of 12 C.F.R. sec. 5.34(d)(2), or any successor rule or
regulation, except to the extent that any such provision of federal
banking laws or regulations is determined to be inapplicable to the
operations of the Corporation by the Office of the Comptroller of the
Currency (the "Comptroller") or by Citibank,
(ii) the Corporation shall obtain the prior approval of the
Comptroller to engage in any activity, either directly or through its
subsidiaries, other than those approved for the Corporation or its
subsidiaries by the Comptroller on the date hereof, except to the extent
that the Comptroller or Citibank determines that such prior approval of
the Comptroller is no longer required, and
(iii) the operations of the Corporation shall be subject to
examination and supervision by the Comptroller, except to the extent
that the Comptroller or Citibank determines that such examination or
supervision of the operations of the Corporation is no longer required.]
ARTICLE IV
CAPITAL STOCK
SECTION 4.1. AUTHORIZED CAPITAL. The total number of shares of all
classes of stock that the Corporation shall have authority to issue is
74,000,000, 104,000,000 consisting of [50,000,000] 100,000,000 shares of Common
Stock, par value $.01 per share (the "COMMON STOCK"), [20,000,000 shares of
Class A Common Stock, par value $.01 per share (the "Class A Common Stock",
together with the Common Stock, the "Corporation Common Stock")] and 4,000,000
shares of Preferred Stock, par value $.01 per share (the "PREFERRED STOCK").
SECTION 4.2. PREFERRED STOCK. The designations and the powers,
preferences and rights and the qualifications, limitations or restrictions
thereof of the shares of each class as Preferred Stock are as follows:
(a) The Preferred Stock may be issued from time to time in one or more
series, the shares of each series to have such voting powers, full or
limited, and such designations, preferences and relative, participating,
optional or other special rights and qualifications, limitations or
restrictions thereof as are stated and expressed herein or in the
resolution or resolutions providing for the issuance of such series,
adopted by the Board of Directors as hereinafter provided; provided,
however, that in the event the Board of Directors of the Corporation
provides that any series of Preferred Stock shall be given voting powers,
such series shall not be entitled to vote separately as a single class
other than as expressly required by law and for the election of one or more
additional directors of the Corporation in the case of dividend arrearages
or other specified events and such series of Preferred Stock shall not be
granted the right to cast in excess of one vote per share of Preferred
Stock.
(b) Authority is hereby expressly granted to the Board of Directors,
subject to the provisions of this Article IV and to the limitations
prescribed by law, to authorize the issuance of one or more series of
Preferred Stock and with respect to each such series to fix by resolution
or resolutions providing for the issuance of such series the voting powers,
full or limited, if any, of the shares of such series and the designations,
preferences and relative, participating, optional or other special rights
and the qualifications, limitations or restrictions thereof. The authority
of the Board of
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44
Directors with respect to each series shall include, but not be limited to,
the determination or fixing of the following:
(i) The designation of such series;
(ii) The dividend rate of such series, the conditions and dates
upon which such dividends shall be payable, the relation which such
dividends shall bear to the dividends payable on any other class or
classes of stock, and whether such dividends shall be cumulative or non-
cumulative;
(iii) Whether the shares of such series shall be subject to
redemption by the Corporation and, if made subject to such redemption,
the times, prices and other terms and conditions of such redemption;
(iv) The terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series;
(v) Whether or not the shares of such series shall be convertible
into or exchangeable for shares of any other class or classes or of any
other series of any class or classes of stock, or for debt securities,
of the Corporation and, if provision be made for conversion or exchange,
the times, prices, rates, adjustments, and other terms and conditions of
such conversion or exchange;
(vi) The extent, if any, to which the holders of the shares of such
series shall be entitled to vote with respect to the election of
directors or otherwise;
(vii) The restrictions, if any, on the issue or reissue of any
additional Preferred Stock; and
(viii) The rights of the holders of the shares of such series upon
the dissolution of, or upon the distribution of assets of, the
Corporation.
SECTION 4.3. SERIES A JUNIOR PARTICIPATING PREFERRED STOCK. Pursuant to
the authority vested in the Board of Directors in accordance with Section 4.2
hereof, the Board of Director has authorized the creation of a series of
Preferred Stock with the designation and amount thereof and the voting powers,
preferences and relative, participating, optional and other special rights of
the shares of such series, and the qualifications, limitations or restrictions
thereof as follows:
(A) DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "SERIES A JUNIOR PARTICIPATING PREFERRED STOCK" and the
number of shares constituting such series shall be 500,000.
(B) DIVIDENDS AND DISTRIBUTIONS.
(i) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to
the shares of Series A Junior Participating Preferred Stock with respect
to dividends, the holders of shares of Series A Junior Participating
Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the fifteenth day of
March, June, September and December in each year (each such date being
referred to herein as a "QUARTERLY DIVIDEND PAYMENT DATE"), commencing
on the first Quarterly Dividend Payment Date after the first issuance of
a share or fraction of a share of Series A Junior Participating
Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $1.00 or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share
amount of all cash dividends, and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or
a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date, or, with
A-3
45
respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Junior
Participating Preferred Stock. In the event the Corporation shall at any
time after January 31, 1996 (the "RIGHTS DECLARATION DATE") (i) declare
any dividend on Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the
amount to which holders of shares of Series A Junior Participating
Preferred Stock were entitled immediately prior to such event under
clause (b) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(ii) The Corporation shall declare a dividend or distribution on
the Series A Junior Participating Preferred Stock as provided in
subparagraph (b)(i) above immediately after it declares a dividend or
distribution on the Common Stock (other than a dividend payable in
shares of Common Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per
share on the Series A Junior Participating Preferred Stock shall
nevertheless be payable on such subsequent Quarterly Dividend Payment
Date.
(iii) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Stock from
the Quarterly Dividend Payment Date next preceding the date of issue of
such shares of Series A Junior Participating Preferred Stock, unless the
date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares
shall begin to accrue from the date of issue of such shares, or unless
the date of issue is a Quarterly Dividend Payment Date or is a date
after the record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of
Series A Junior Participating Preferred Stock in an amount less than the
total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A
Junior Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be no
more than 30 days prior to the date fixed for the payment thereof.
(C) VOTING RIGHTS. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(i) Each share of Series A Junior Participating Preferred Stock
shall entitle the holder thereof to one vote on all matters submitted to
a vote of the stockholders of the Corporation.
(ii) Except as otherwise provided herein or by law, the holders of
shares of Series A Junior Participating Preferred Stock and the holders
of shares of Common Stock shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(iii) (A) If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount equal to
six (6) quarterly dividends thereon, the occurrence of such contingency
shall mark the beginning of a period (herein called a "DEFAULT PERIOD")
which shall extend until such time when all accrued and unpaid dividends
for all previous quarterly dividend periods and for the current
quarterly dividend period on all shares of Series A Junior
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46
Participating Preferred Stock then outstanding shall have been declared
and paid or set apart for payment. During each default period, all
holders of Preferred Stock (including holders of the Series A Junior
Participating Preferred Stock) with dividends in arrears in an amount
equal to six (6) quarterly dividends thereon, voting as a class,
irrespective of series, shall have the right to elect two (2) Directors.
(B) During any default period, such voting right of the holders
of Series A Junior Participating Preferred Stock may be exercised
initially at a special meeting called pursuant to subparagraph (C) of
this subsection (c)(iii) or at any annual meeting of stockholders,
and thereafter at annual meetings of stockholders, provided that such
voting right shall not be exercised unless the holders of ten percent
(10%) in number of shares of Preferred Stock outstanding shall be
present in person or by proxy. The absence of a quorum of the holders
of Common Stock shall not affect the exercise by the holders of
Preferred Stock of such voting right. At any meeting at which the
holders of Preferred Stock shall exercise such voting right initially
during an existing default period, they shall have the right, voting
as a class, to elect Directors to fill such vacancies, if any, in the
Board of Directors as may then exist up to two (2) Directors or, if
such right is exercised at an annual meeting, to elect two (2)
Directors. If the number which may be so elected at any special
meeting does not amount to the required number, the holders of the
Preferred Stock shall have the right to make such increase in the
number of Directors as shall be necessary to permit the election by
them of the required number. After the holders of the Preferred Stock
shall have exercised their right to elect Directors in any default
period and during the continuance of such period, the number of
Directors shall not be increased or decreased except by vote of the
holders of Preferred Stock as herein provided or pursuant to the
rights of any equity securities ranking senior to or pari passu with
the Series A Junior Participating Preferred Stock.
(C) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to
elect Directors, the Board of Directors may order, or any stockholder
or stockholders owning in the aggregate not less than ten percent
(10%) of the total number of shares of Preferred Stock outstanding,
irrespective of series, may request, the calling of special meeting
of the holders of Preferred Stock, which meeting shall thereupon be
called by the President, a Vice-President or the Secretary of the
Corporation. Notice of such meeting and of any annual meeting at
which holders of Preferred Stock are entitled to vote pursuant to
this subparagraph (c)(iii)(C) shall be given to each holder of record
of Preferred Stock by mailing a copy of such notice to him at his
last address as the same appears on the books of the Corporation.
Such meeting shall be called for a time not earlier than 20 days and
not later than 60 days after such order or request or in default of
the calling of such meeting within 60 days after such order or
request, such meeting may be called on similar notice by any
stockholder or stockholders owning in the aggregate not less than ten
percent (10%) of the total number of shares of Preferred Stock
outstanding. Notwithstanding the provisions of this subparagraph
(c)(iii)(C) no such special meeting shall be called during the period
within 60 days immediately preceding the date fixed for the next
annual meeting of the stockholders.
(D) In any default period, the holders of Common Stock, and
other classes of stock of the Corporation if applicable, shall
continue to be entitled to elect the whole number of Directors until
the holders of Preferred Stock shall have exercised their right to
elect two (2) Directors voting as a class, after the exercise of
which right (x) the Directors so elected by the holders of Preferred
Stock shall continue in office until their successors shall have been
elected by such holders or until the expiration of the default
period, and (y) any vacancy in the Board of Directors may (except as
provided in subparagraph (iii)(B) of this subsection (c)) be filled
by vote of a majority of the remaining Directors theretofore
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elected by the holders of the class of stock which elected the
Director whose office shall have become vacant. References in this
paragraph (iii) to Directors elected by the holders of a particular
class of stock shall include Directors elected by such Directors to
fill vacancies as provided in clause (y) of the foregoing sentence.
(E) Immediately upon the expiration of a default period, (x) the
right of the holders of Preferred Stock as a class to elect Directors
shall cease, (y) the term of any Directors elected by the holders of
Preferred Stock as a class shall terminate, and (z) the number of
Directors shall be such number as may be provided for in the
Certificate of Incorporation or By-laws irrespective of any increase
made pursuant to the provisions of subparagraph (iii)(B) of this
subsection (c) (such number being subject, however, to change
thereafter in any manner provided by law or in the Certificate of
Incorporation or By-laws). Any vacancies in the Board of Directors
effected by the provisions of clauses (y) and (z) in the preceding
sentence may be filled by a majority of the remaining Directors.
(iv) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
(D) CERTAIN RESTRICTIONS.
(i) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating Preferred
Stock as provided in subsection (b) are in arrears, thereafter and until
all accrued and unpaid dividends and distributions, whether or not
declared, on shares of Series A Junior Participating Preferred Stock
outstanding shall have been paid in full, the Corporation shall not
(A) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Junior
Participating Preferred Stock;
(B) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, except dividends paid ratably on the
Series A Junior Participating Preferred Stock and all such parity
stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(C) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, provided that the Corporation may at
any time redeem, purchase or otherwise acquire shares of any such
parity stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Junior Participating
Preferred Stock; or
(D) purchase or otherwise acquire for consideration any shares
of Series A Junior Participating Preferred Stock, or any shares of
stock ranking on a parity with the Series A Junior Participating
Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors)
to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective
series and
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classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(ii) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (i) of this subsection (d), purchase or otherwise acquire such
shares at such time and in such manner.
(E) REACQUIRED SHARES. Any shares of Series A Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as
part of a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
(F) LIQUIDATION, DISSOLUTION OR WINDING UP.
(i) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the
holders of shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A Junior
Participating Preferred Stock unless, prior thereto, the holders of
shares of Series A Junior Participating Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the
date of such payment (the "SERIES A LIQUIDATION PREFERENCE"). Following
the payment of the full amount of the Series A Liquidation Preference,
no additional distributions shall be made to the holders of shares of
Series A Junior Participating Preferred Stock unless, prior thereto, the
holders of shares of Common Stock shall have received an amount per
share (the "COMMON ADJUSTMENT") equal to the quotient obtained by
dividing (i) the Series A Liquidation Preference by (ii) 100 (as
appropriately adjusted as set forth in paragraph (iii) below to reflect
such events as stock splits, stock dividends and recapitalizations with
respect to the Common Stock) (such number in clause (ii), the
"ADJUSTMENT NUMBER"). Following the payment of the full amount of the
Series A Liquidation Preference and the Common Adjustment in respect of
all outstanding shares of Series A Junior Participating Preferred Stock
and Common Stock, respectively, holders of Series A Junior Participating
Preferred Stock and holders of shares of Common Stock shall receive
their ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to 1 with respect to
such Series A Junior Participating Preferred Stock and Common Stock, on
a per share basis, respectively.
(ii) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of
preferred stock, if any, which rank on a parity with the Series A Junior
Participating Preferred Stock, then such remaining assets shall be
distributed ratably to the holders of such parity shares in proportion
to their respective liquidation preferences. In the event, however, that
there are not sufficient assets available to permit payment in full of
the Common Adjustment, then such remaining assets shall be distributed
ratably to the holders of Common Stock.
(iii) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by multiplying such
Adjustment Number by a fraction the numerator of which is the number of
shares of Common Stock outstanding
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immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
(g) CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the
shares of Series A Junior Participating Preferred Stock shall at the same
time be similarly exchanged or changed in an amount per share (subject to
the provision for adjustment hereinafter set forth) equal to 100 times the
aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share
of Common Stock is changed or exchanged. In the event the Corporation shall
at any time after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock
into a smaller number of shares, then in each such case the amount set
forth in the preceding sentence with respect to the exchange or change of
shares of Series A Junior Participating Preferred Stock shall be adjusted
by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(h) NO REDEMPTION. The shares of Series A Junior Participating
Preferred Stock shall not be redeemable.
(i) RANKING. The Series A Junior Participating Preferred Stock shall
rank junior to all other series of the Corporation's Preferred Stock as to
the payment of dividends and the distribution of assets, unless the terms
of such series shall provide otherwise.
(j) AMENDMENT. The Certificate of Incorporation of the Corporation
shall not be further amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding
shares of Series A Junior Participating Preferred Stock, voting separately
as a class.
(k) FRACTIONAL SHARES. Series A Junior Participating Preferred Stock
may be issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of
all other rights of holders of Series A Junior Participating Preferred
Stock.
SECTION 4.4. CORPORATION COMMON STOCK. Except as otherwise provided [in
this Certificate of Incorporation, the Common Stock and the Class A Common Stock
shall have the same rights and privileges and shall rank equally, share ratably
and be identical in all respects as to all matters, including rights in
liquidation. (a) Except as otherwise provided] by this Certificate of
Incorporation or as otherwise from time to time provided by law, the holders of
Common Stock shall be entitled to one vote per share on all matters to be voted
on by the stockholders of the Corporation., [such vote to be exercised together
with the holders of shares of Class A Common Stock, voting as a single class.]
[(b) Except as otherwise provided by this Certificate of Incorporation
or as otherwise from time to time provided by law, the holders of Class A Common
Stock shall be entitled to vote at any particular time such number of votes per
share as will give the holders of the Class A Common Stock in the aggregate the
right to cast 20% of the total number of votes which may be cast by all shares
of Corporation Common Stock then Outstanding (after giving effect, if required,
to the provision of Section 4.5(a)), such vote to be exercised together with the
holders of shares of Common Stock, voting as a single class.]
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[(c) If, at any time, the Regulated Banking Stockholders (as defined in
Article VII) shall beneficially own in the aggregate less than 25% of the
aggregate number of shares of the then Outstanding Corporation Common Stock (the
occurrence of such level of ownership being referred to herein as a "Triggering
Event"), all shares of Class A Common Stock shall lose all voting rights and may
not thereafter regain any voting rights other than those set forth in Article
XII and those that may be required by the General Corporation Law.]
SECTION 4.5. SUBSTANTIAL STOCKHOLDER.
(a) So long as any Person other than the Corporation or a Subsidiary
thereof is (without giving effect to this Section 4.5(a)) the beneficial owner
of capital stock representing 10% or more of the votes entitled to be cast by
the holders of all outstanding shares of capital stock (a "SUBSTANTIAL
STOCKHOLDER"), the record holders of the shares of capital stock beneficially
owned by such Substantial Stockholder shall have limited voting rights on all
matters, as follows: with respect to the shares of capital stock that would
entitle such record holders in the aggregate to cast less than 10% of the votes
entitled to be cast by the holders of all Outstanding shares of capital stock,
such record holders shall be entitled to cast the vote per share specified in
this Certificate of Incorporation; and with respect to the shares of capital
stock that would otherwise entitle such record holders in the aggregate to cast
10% or more of the votes entitled to be cast by the holders of all outstanding
shares of capital stock, such record holders shall not be entitled to cast any
votes for such shares, so that such record holders shall be entitled to cast
with respect to all shares of capital stock held by such record holders in the
aggregate only such number of votes that would equal (after giving effect to
this Section 4.5(a)) one vote less than 10% of the votes entitled to be cast by
all holders of outstanding shares of capital stock; provided, however, that the
restriction on voting contained in this Section 4.5(a) shall not apply to any
capital stock beneficially owned by any Substantial Stockholder whose
acquisition or ownership of capital stock representing 10% or more of the votes
entitled to be cast by the holders of all Outstanding shares of capital stock
has been approved by the Wisconsin Insurance Commissioner. The aggregate voting
power of such record holders, so limited, for all shares of capital stock
beneficially owned by the Substantial Stockholder shall be allocated
proportionately among such record holders as follows: for each such record
holder, this allocation shall be accomplished by multiplying the aggregate
voting power (after giving effect to the provisions of this Section 4.5(a)) of
the Outstanding shares of capital stock beneficially owned by the Substantial
Stockholder by a fraction the numerator of which is the number of votes that the
shares of capital stock owned of record by such record holder would have
entitled such record holder to cast were no effect given to this Section 4.5(a),
and the denominator of which is the total number of votes which all shares of
capital stock beneficially owned by the Substantial Stockholder would have
entitled their record holders to cast were no effect given to this Section
4.5(a).
(b) The Board of Directors by majority vote shall have the power and duty
to determine for the purposes of this Article IV, on the basis of information
known to them after reasonable inquiry, (i) whether a Person is a Substantial
Stockholder, (ii) the number of shares of capital stock beneficially owned by
any Person, (iii) whether a Person is an Affiliate or Associate of another, (iv)
the Persons who may be deemed to be the record holders of shares beneficially
owned by a Substantial Stockholder, [(v) the number of votes per share of Class
A Common Stock at any particular time and (vi)] and (v) such other matters with
respect to which a determination is required under this Article IV. Any such
determination made in good faith shall be binding and conclusive on all parties.
(c) The Board of Directors shall have the right to demand that any Person
who is reasonably believed to be a Substantial Stockholder (or to hold of record
shares of capital stock beneficially owned by a Substantial Stockholder) supply
the Corporation with complete information as to (i) the record holder or holders
of all shares beneficially owned by such Person, (ii) the number of shares of
capital stock beneficially owned by such Person and held of record by each such
record holder, and (iii) any other factual matter relating to the applicability
or effect of this Article IV, as may reasonably be requested of such Person, and
such Person shall furnish such information within ten days after the receipt of
such demand.
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(d) Nothing contained in this Article IV shall be construed to relieve any
Substantial Stockholder from any fiduciary obligation imposed by law.
[SECTION 4.6. Class A Common Stock Directors. Notwithstanding any provision
of the By-Laws of the Corporation, the holders of the Class A Common Stock shall
have the right to elect one member of the Board of Directors of the Corporation
until such time as a Triggering Event shall occur, at which time such right
shall terminate. In the case of any vacancy occurring with respect to the
director elected by the holders of the Class A Common Stock, such vacancy may be
filled only by the affirmative vote of the holders of the Class A Common Stock.
Upon such termination of the right of the holders of the Class A Common Stock to
elect one member of the Board of Directors as herein provided, the term of
office of the director then in office shall continue until the Corporation's
next annual meeting of stockholders.]
[Section 4.7. Corporation Common Stock Dividends. Each Outstanding share of
Corporation Common Stock shall be entitled to share ratably with each other
Outstanding share of Corporation Common Stock in such dividends as may be
declared and paid at such times and in such amounts as the Board of Directors of
the Corporation may from time to time determine; provided, however, that if
dividends are declared that are payable in shares of, or in subscription or
other rights to acquire shares of Corporation Common Stock, such dividends will
be declared which are payable at the same rate on each class of Corporation
Common Stock and the dividends payable in shares of, or in subscription or other
rights to acquire shares of, Common Stock will be payable only to holders of
Common Stock and the dividends payable in shares of, or in subscription or other
rights to acquire shares of, Class A Common Stock will be payable only to
holders of Class A Common Stock.]
[Section 4.8. Corporation Common Stock Liquidation. In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, each share of Common Stock shall be entitled, after payment or
provision for payment of the debts or other liabilities of the Corporation, to
share ratably (based upon the number of shares Outstanding) with shares of the
Class A Common Stock in the remaining assets of the Corporation.]
[Section 4.9. Class A Common Stock Legend. The Class A Common Stock shall
bear the following legend:]
[UPON THE TRANSFER OR SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE TO ANY PERSON THAT IS NOT A REGULATED BANKING STOCKHOLDER (AS
DEFINED IN THE CORPORATION'S CERTIFICATE OF INCORPORATION), WITHOUT ANY FURTHER
ACTION ON THE PART OF THE CORPORATION OR THE HOLDER HEREOF, THIS CERTIFICATE
SHALL BE DEEMED TO REPRESENT COMMON STOCK AND SHALL BE ENTITLED TO ALL THE
RIGHTS AND PRIVILEGES ACCORDED SHARES OF COMMON STOCK IN ACCORDANCE WITH THE
CERTIFICATE OF INCORPORATION OF THE CORPORATION. A COPY OF SUCH CERTIFICATE OF
INCORPORATION IS ON FILE AT THE OFFICES OF AMBAC INC. AT ONE STATE STREET PLAZA,
NEW YORK, NEW YORK 10004.]
[Section 4.10. Conversion of Class A Common Stock Upon Transfer. (a) Upon
the sale or transfer of any shares of Class A Common Stock by a Regulated
Banking Stockholder to any Person or group of Persons (within the meaning of
Regulation 13D-G under the Securities Exchange Act of 1934) other than another
Regulated Banking Stockholder, each share of Class A Common Stock sold or
transferred shall be deemed to be converted, without any further action on the
part of the Board of Directors, the Corporation or any other Person or entity,
into one share of Common Stock, and thereafter all rights of the holders of
certificates evidencing such converted shares of Class A Common Stock pursuant
to this Certificate of Incorporation (as the same may be amended or restated
from time to time) as such holders shall cease, and such certificates shall
evidence the rights of a holder of the number of shares of the Common Stock, as
set forth in this Certificate of Incorporation (as the same may be amended or
restated]
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[from time to time) into which such shares of Class A Common Stock have been
converted. Each share of Class A Common Stock so converted shall be canceled and
not reissued.]
[(b) Following such conversion, record holders of certificates formerly
evidencing shares of Class A Common Stock may present such certificates for
exchange for new certificates evidencing the shares of Common Stock into which
such shares of Class A Common Stock were converted at the offices of the
Corporation or such other location as the Corporation may select.]
[(c) As promptly as practicable after the surrender for conversion of a
certificate representing shares of Class A Common Stock in the manner provided
in Section 4.10(b) above and the payment in cash of any amount required by the
provisions of Section 4.10(f) below, the Corporation will deliver or cause to be
delivered, upon the written order of the holder of such certificate, a
certificate or certificates representing the number of whole fully paid and
nonassessable shares of Common Stock issuable upon such conversion in such name
or names as such holder may direct.]
[(d) No adjustments in respect of dividends or other distributions shall be
made upon the conversion of any shares of Class A Common Stock; provided,
however, that, if such shares shall be converted subsequent to the record date
for the payment of a dividend or other distribution on shares of Common Stock
but prior to such payment, the holder of such shares of Class A Common Stock at
the close of business on such record date shall be entitled to receive the
dividend or other distribution payable on such shares on the date set for
payment of such dividend or other distribution notwithstanding the conversion
thereof.]
[(e) The Corporation will at all times reserve and keep available, solely
for the purpose of issuance upon conversion of the Outstanding shares of Class A
Common Stock, such number of shares of Common Stock as shall be issuable upon
the conversion of all Outstanding shares of Class A Common Stock.]
[(f) The issuance of certificates for shares of Common Stock upon
conversion of shares of Class A Common Stock shall be made without charge for
any stamp or other similar tax in respect of such issuance. However, if any such
certificate is to be issued in a name other than that of the holder of the
shares of Class A Common Stock converted, the Person or Persons requesting the
issuance thereof shall pay to the Corporation the amount of any tax payable in
respect of any transfer involved in such issuance or shall establish to the
satisfaction of the Corporation that any such tax has been paid.]
[Section 4.11. Limitation on Corporation Common Stock Splits, etc. (a) The
Corporation shall not (i) subdivide its Outstanding Class A Common Stock by
stock dividend or otherwise, or (ii) combine its Outstanding Class A Common
Stock into a smaller number of shares, or (iii) reclassify its Class A Common
Stock (including any reclassification in connection with a merger, consolidation
or other business combination in which the Corporation is the surviving
corporation) unless at the same time the Corporation subdivides, combines or
reclassifies, as applicable, the shares of the Common Stock on the same basis as
the Corporation so subdivides, combines or reclassifies the Class A Common
Stock.]
[(b) The Corporation shall not (i) subdivide its Outstanding Common Stock
by stock dividend or otherwise, or (ii) combine its Outstanding Common Stock
into a smaller number of shares, or (iii) reclassify its Common Stock (including
any reclassification in connection with a merger, consolidation or other
business combination in which the Corporation is the surviving corporation)
unless at the same time the Corporation subdivides, combines or reclassifies, as
applicable, the shares of the Class A Common Stock on the same basis as the
Corporation so subdivides, combines or reclassifies the Common Stock.]
[SECTION 4.12.] SECTION 4.6. QUORUMS. Except as otherwise provided in
this Certificate of Incorporation, the presence in person or by proxy of the
holders of record of shares of capital stock entitling the holders thereof to
cast a majority of the votes (after giving effect, if required, to the
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provisions of Section 4.5(a)) entitled to be cast by the holders of all
Outstanding shares of capital stock entitled to vote shall constitute a quorum
at all meetings of the stockholders.
SECTION [4.13] 4.7. MAJORITY VOTE. If any class or series of the
Corporation's capital stock shall be entitled to more or less than one vote for
any share, on any matter for which such class or series is entitled to vote with
one or more other classes or series, together as one class, every reference in
this Certificate of Incorporation, the By-laws and in any relevant provision of
law to a majority or other proportion of stock shall refer to such majority or
other proportion of the votes of such stock.
SECTION [4.14] 4.8. NO PREEMPTIVE RIGHTS. Except as otherwise provided by
this Certificate of Incorporation or as otherwise from time to time provided by
law, no holder of shares of any class or series of capital stock of the
Corporation or of any security or obligation convertible into, or of any
warrant, option or right to subscribe for, purchase or otherwise acquire, shares
of any class or series of capital stock of the Corporation, whether now or
hereafter authorized, shall, as such holder, have any preemptive right to
subscribe for, purchase or otherwise acquire shares of any class or series of
capital stock of the Corporation or any security or obligation convertible into,
or any warrant, option or right to subscribe for, purchase or otherwise acquire,
shares of any class or series of capital stock of the Corporation, whether now
or hereafter authorized.
[ARTICLE V]
[Mergers, Consolidations and Other Business Combinations]
[The Corporation shall not become a party to a merger, consolidation or
other business combination, unless the holders of each class of Corporation
Common Stock shall be entitled to receive ratably per share the same
consideration in such merger, consolidation or other business combination as the
holders of each such class receive only securities in the surviving corporation
with provisions differentiating the rights of their respective class of common
stock in the surviving corporation that are substantially identical to the
provisions in effect at such time differentiating the rights of their respective
class of the Corporation Common Stock.]
[ARTICLE VI]
[REPORTS TO STOCKHOLDERS]
[Section 6.1. Triggering Notice. (a) Prior to taking any action that would
cause a Triggering Event to occur, the Regulated Banking Stockholder desiring to
take such action shall give written notice (the "Triggering Notice") to the
Corporation of its desire to effect such a transaction at least 10 business days
prior to consummating such event.]
[(b) Upon receipt of a Triggering Notice or of any other notice that a
Triggering Event has occurred, the Corporation shall promptly mail to the
holders of record of the Outstanding shares of Corporation Common Stock, at
their respective addresses as the same shall appear in the Corporation's stock
records, a notice to such effect stating the number of shares of Class A Common
Stock that remain Outstanding and that such shares of Class A Common Stock are
no longer entitled to vote generally on matters submitted to the stockholders of
the Corporation. The failure of the Corporation to give the notice described in
the next preceding sentence shall not in any way affect the validity of the
Triggering Event or the subsequent conversion of any of the shares of Class A
Common Stock into Common Stock.]
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ARTICLE V
[ARTICLE VII]
DEFINITIONS
As used in this Certificate of Incorporation, the following terms shall
have the following meanings:
"AFFILIATE", with respect to any Person, means any other Person directly or
indirectly controlling, controlled by or under common control with, such Person.
For purposes of this definition, "CONTROL" (including, with correlative
meanings, the terms "CONTROLLING," "CONTROLLED BY" or "UNDER COMMON CONTROL
WITH"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities,
by contract, by common management or otherwise. A Person having a contract or
arrangement giving that Person control is deemed to be in control despite any
limitations placed by law on the validity of the contract or arrangement. A
corporation is deemed to be under common control with any corporation,
regardless of ownership, if substantially the same group of persons manage the
two corporations.
"ASSOCIATE", used to indicate a relationship with a specified Person, shall
mean (i) any Person (other than the Corporation or a Subsidiary) of which such
specified Person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of the voting securities of such Person, (ii)
any trust or other estate in which such specified Person has a substantial
beneficial interest or as to which such specified Person serves as trustee or in
a similar fiduciary capacity, (iii) any relative or such spouse of such
specified Person or any relative of such spouse who has the same home as such
specified Person or who is a director or officer of the Corporation or any
Subsidiary, and (iv) any Person who is a director or officer of such specified
Person or any of its parents or subsidiaries (other than the Corporation or a
Subsidiary).
A Person shall be deemed a "BENEFICIAL OWNER" of any shares of capital
stock of the Corporation (a) which such Person or any of its Affiliates or
Associates beneficially owns, directly or indirectly; (b) which such Person or
any of its Affiliates or Associates has, directly or indirectly, the right to
vote pursuant to any agreement, contract, arrangement or understanding, or (c)
which are beneficially owned, directly or indirectly, by any other Person with
which such Person or any of its Affiliates or Associates has any contract,
agreement, arrangement or understanding for the purpose of holding or voting of
any capital stock of the Corporation.
"OUTSTANDING", when used in reference to shares of stock, shall mean issued
shares, excluding shares held in treasury.
"PERSON" shall mean any individual, firm, corporation or other entity and
shall include any group comprised of any Person and any other Person with whom
such Person or any Affiliate or Associate of such Person has any agreement,
contract, arrangement or understanding, directly or indirectly, for the purpose
of acquiring, holding, voting or disposing of any shares of capital stock of the
Corporation.
["REGULATED BANKING STOCKHOLDERS" means Citicorp Financial Guaranty
Holdings, Inc., a Delaware corporation, Citicorp, a Delaware corporation,
Citibank, a national banking association, and any Affiliate of any such Person.]
"SUBSIDIARY" shall mean any corporation of which a majority of any class of
equity securities is beneficially owned, directly or indirectly, by the
Corporation.
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"SUBSTANTIAL STOCKHOLDER" shall be defined as in Section 4.5 of this
Certificate of Incorporation.
ARTICLE [VIII] VI
DIRECTORS
SECTION [8.1] 6.1. WRITTEN BALLOT. Elections of directors of the
Corporation need not be by written ballot, except and to the extent provided in
the By-laws of the Corporation.
SECTION [8.2] 6.2. NO LIABILITY. To the fullest extent permitted by the
General Corporation Law as it now exists and as it may hereafter be amended, no
director of the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty as a
director.
ARTICLE [IX] VII
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION [9.1.] 7.1. INDEMNIFICATION. (a) The Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
false plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person seeking indemnification did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Sections [9.1(a)] 7.1(a) and
(b) or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
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(d) Any indemnification under Sections [9.1(a)]7.1(a) and (b) (unless
ordered by a court) shall be made by the Corporation only as authorized in
the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in such Sections
[9.1(a)] 7.1(a) and (b). Such determination shall be made (i) by the Board
of Directors of the Corporation by a majority vote of a quorum consisting
of directors who were not parties to such action, suit or proceeding, or
(ii) if such a quorum is not obtainable, or, even if obtainable, a quorum
of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders of the Corporation.
(e) Expenses incurred by a director or officer of the Corporation in
defending a civil or criminal action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director
or officer to repay such amount if it shall ultimately be determined that
he is not entitled to be indemnified by the Corporation authorized in this
Article [IX] VII. Such expenses incurred by other employees and agents may
be so paid upon such terms and conditions, if any, as the Board of
Directors of the Corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other sections of this Article [IX] VII shall not
be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any law,
by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in an official capacity and as to action in
another capacity while holding such office.
(g) The Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of Section 145 of
the General Corporation Law.
(h) For purposes of this Article [IX] VII, references to "THE
CORPORATION" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors,
officers, employees or agents so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
the provisions of this Article [IX] VII with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this Article [IX] VII, references to "OTHER
ENTERPRISES" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to "SERVING AT THE REQUEST OF THE
CORPORATION" shall include any service as a director, officer, employee or
agent of the Corporation which imposes duties on, or involves service by,
such director, officer, employee or agent with respect to any employee
benefit plan, its participants or beneficiaries; and a person who acted in
good faith and in a manner he reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "NOT OPPOSED TO THE BEST INTERESTS OF THE
CORPORATION" as referred to in this Article [IX] VII.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article [IX] VII shall, unless otherwise provided
when authorized or ratified, continue as to a person
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who has ceased to be a director, officer, employee or agent and shall inure
to the benefit of the heirs, executors and administrators of such a person.
ARTICLE VIII X
BY-LAWS
The directors of the Corporation shall have the power to adopt, amend or
repeal the By-laws of the Corporation.
ARTICLE XI IX
REORGANIZATION
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
the provisions of section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three-
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
ARTICLE XII X
AMENDMENT
The Corporation reserves the right to amend, alter, change or repeal any
provision of this Certificate of Incorporation, in the manner now or hereafter
prescribed by law and the Certificate of Incorporation, and all rights conferred
on stockholders in this Certificate of Incorporation are subject to this
reservation.
[Notwithstanding any other provisions of this Certificate of Incorporation
or the By-Laws of the Corporation, until the earlier of June 30, 1996 and the
date on which Citibank no longer owns, directly or indirectly, any share of the
Corporation Common Stock, the affirmative vote of the holders of a majority of
the Common Stock and of the holders of a majority of the Class A Common Stock,
each voting as a separate class, shall be required to amend or repeal, or to
adopt any provision inconsistent with, Sections 3.2, Sections 4.2(ii)-(iii),
Section 4.3, Section 4.6, the definition of "Regulated Banking Stockholders" in
Article VII and Article XII hereof.]
IN WITNESS WHEREOF, AMBAC Inc. has caused this Amended and Restated
Certificate of Incorporation to be signed on this day of , 1997,
in its name and on its behalf by its Chairman, President and Chief Executive
Officer.
--------------------------------------
Phillip B. Lassiter
Chairman, President and
Chief Executive Officer
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APPENDIX B
AMBAC 1997 EQUITY PLAN
1. PURPOSES
The purposes of the AMBAC 1997 Equity Plan (the "Plan") are to attract,
retain and motivate key employees of the Company, to compensate them for their
contributions to the growth and profits of the Company and to encourage
ownership by them of Common Stock.
2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as follows:
"ADMINISTRATOR" means the individual or individuals to whom the Committee
delegates authority under the Plan in accordance with Section 3(d).
"AMBAC" means AMBAC Inc., a Delaware corporation.
"AWARD" means an award made pursuant to the terms of the Plan to an
Eligible Individual in the form of Stock Options, Stock Appreciation Rights,
Stock Awards, Restricted Stock Units, Performance Units or Other Awards.
"AWARD AGREEMENT" means a written document approved in accordance with
Section 3 which sets forth the terms and conditions of the Award to the
Participant. An Award Agreement may be in the form of (i) an agreement between
AMBAC or one of its Subsidiaries which is executed by an officer on behalf of
AMBAC or such Subsidiary and is signed by the Participant or (ii) a certificate
issued by AMBAC or one of its Subsidiaries which is executed by an officer on
behalf of AMBAC or such Subsidiary but does not require the signature of the
Participant.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
applicable rulings and regulations (including any proposed regulations)
thereunder.
"COMMITTEE" means the Compensation and Organization Committee of the Board,
any successor committee thereto or any other committee appointed from time to
time by the Board to administer the Plan. The Committee shall consist of at
least two individuals and shall serve at the pleasure of the Board.
"COMMON STOCK" means the Common Stock, par value $.01 per share, of the
Company.
"COMPANY" means AMBAC and its Subsidiaries.
"ELIGIBLE INDIVIDUALS" means the individuals described in Section 6 who are
eligible for Awards under the Plan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the applicable rulings and regulations thereunder.
"FAIR MARKET VALUE" means, with respect to a share of Common Stock, the
fair market value thereof as of the relevant date of determination, as
determined in accordance with a valuation methodology approved by the Committee.
In the absence of any alternative valuation methodology approved by the
Committee, the Fair Market Value of a share of Common Stock shall equal the
average of the highest and the lowest quoted selling price of a share of Common
Stock as reported on the composite tape for securities listed on the New York
Stock Exchange, or such other national securities exchange as may be designated
by the Committee, or, in the event that the Common Stock is not listed for
trading on a national securities exchange but is quoted on an automated system,
on such automated system, in any such case on the valuation date (or, if there
were no sales on the valuation date, the
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average of the highest and the lowest quoted selling prices as reported on said
composite tape or automated system for the most recent day during which a sale
occurred).
"INCENTIVE STOCK OPTION" means a Stock Option which is an "incentive stock
option" within the meaning of Section 422 of the Code and designated by the
Committee as an Incentive Stock Option in an Award Agreement.
"NONQUALIFIED STOCK OPTION" means a Stock Option which is not an Incentive
Stock Option.
"OTHER AWARD" means any other form of award authorized under Section 13 of
the Plan.
"PARTICIPANT" means an Eligible Individual to whom an Award has been
granted under the Plan.
"PERFORMANCE UNIT" means a performance unit granted to an Eligible
Individual pursuant to Section 12 hereof.
"PREDECESSOR PLAN" means the AMBAC Inc. 1991 Stock Incentive Plan, as
amended.
"RESTRICTED STOCK UNIT" means a restricted stock unit granted to an
Eligible Individual pursuant to Section 11 hereof.
"STOCK APPRECIATION RIGHT" means a right to receive all or some portion of
the appreciation on shares of Common Stock granted to an Eligible Individual
pursuant to Section 9 hereof.
"STOCK AWARD" means a share of Common Stock granted to an Eligible
Individual for no consideration other than the provision of services or offer
for sale to an Eligible Employee at a purchase price determined by the
Committee, in either case pursuant to Section 10 hereof.
"STOCK OPTION" means an Award to purchase shares of Common Stock granted to
an Eligible Individual pursuant to Section 8 hereof, which Award may be either
an Incentive Stock Option or a Nonqualified Stock Option.
"SUBSIDIARY" means (i) a corporation or other entity with respect to which
AMBAC, directly or indirectly, has the power, whether through the ownership of
voting securities, by contract or otherwise, to elect at least a majority of the
members of such corporation's board of directors or analogous governing body, or
(ii) any other corporation or other entity in which AMBAC, directly or
indirectly, has an equity or similar interest and which the Committee designates
as a Subsidiary for purposes of the Plan.
"SUBSTITUTE AWARD" means an Award granted upon assumption of, or in
substitution for, outstanding awards previously granted by a company or other
entity in connection with a corporate transaction, such as a merger,
combination, consolidation or acquisition of property or stock.
3. ADMINISTRATION OF THE PLAN
(a) POWER AND AUTHORITY OF THE COMMITTEE. The Plan shall be administered
by the Committee, which shall have full power and authority, subject to the
express provisions hereof:
(i) to select Participants from the Eligible Individuals;
(ii) to make Awards in accordance with the Plan;
(iii) to determine the number of shares of Common Stock subject to
each Award or the cash amount payable in connection with an Award;
(iv) to determine the terms and conditions of each Award, including,
without limitation, those related to vesting, forfeiture, payment and
exercisability, and the effect, if any, of a Participant's termination of
employment with the Company, and including the authority to amend the terms
and conditions of an Award after the granting thereof to a Participant in a
manner that is not, without the consent of the Participant, prejudicial to
the rights of such Participant in such Award;
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(v) to specify and approve the provisions of the Award Agreements
delivered to Participants in connection with their Awards;
(vi) to construe and interpret any Award Agreement delivered under the
Plan;
(vii) to prescribe, amend and rescind rules and procedures relating to
the Plan;
(viii) to vary the terms of Awards to take account of tax, securities
law and other regulatory requirements of foreign jurisdictions;
(ix) subject to the provisions of the Plan and subject to such
additional limitations and restrictions as the Committee may impose, to
delegate to one or more officers of the Company some or all of its
authority under the Plan;
(x) to employ such legal counsel, independent auditors and consultants
as it deems desirable for the administration of the Plan and to rely upon
any opinion or computation received therefrom; and
(xi) to make all other determinations and to formulate such procedures
as may be necessary or advisable for the administration of the Plan.
(b) PLAN CONSTRUCTION AND INTERPRETATION. The Committee shall have full
power and authority, subject to the express provisions hereof, to construe and
interpret the Plan.
(c) DETERMINATIONS OF COMMITTEE FINAL AND BINDING. All determinations by
the Committee in carrying out and administering the Plan and in construing and
interpreting the Plan shall be final, binding and conclusive for all purposes
and upon all persons interested herein.
(d) DELEGATION OF AUTHORITY. The Committee may, but need not, from time
to time delegate some or all of its authority under the Plan to an Administrator
consisting of one or more members of the Committee or of one or more officers of
the Company; provided, however, that the Committee may not delegate its
authority (i) to make Awards to Eligible Individuals who are officers of the
Company who are delegated authority by the Committee hereunder, or (ii) under
Sections 3(b) and 16 of the Plan. Any delegation hereunder shall be subject to
the restrictions and limits that the Committee specifies at the time of such
delegation or thereafter. Nothing in the Plan shall be construed as obligating
the Committee to delegate authority to an Administrator, and the Committee may
at any time rescind the authority delegated to an Administrator appointed
hereunder or appoint a new Administrator. At all times, the Administrator
appointed under this Section 3(d) shall serve in such capacity at the pleasure
of the Committee. Any action undertaken by the Administrator in accordance with
the Committee's delegation of authority shall have the same force and effect as
if undertaken directly by the Committee, and any reference in the Plan to the
Committee shall, to the extent consistent with the terms and limitations of such
delegation, be deemed to include a reference to the Administrator.
(e) LIABILITY OF COMMITTEE. No member of the Committee shall be liable
for any action nor determination made in good faith, and the members of the
Committee shall be entitled to indemnification and reimbursement in the manner
provided in AMBAC's Certificate of Incorporation as it may be amended from time
to time. In the performance of its responsibilities with respect to the Plan,
the Committee shall be entitled to rely upon information and advice furnished by
the Company's officers, the Company's accountants, the Company's counsel and any
other party the Committee deems necessary, and no member of the Committee shall
be liable for any action taken or not taken in reliance upon any such advice.
(f) ACTION BY THE BOARD. Anything in the Plan to the contrary
notwithstanding, any authority or responsibility which, under the terms of the
Plan, may be exercised by the Committee may alternatively be exercised by the
Board.
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4. EFFECTIVE DATE AND TERM
The Plan shall become effective upon its adoption by the Board subject to
its approval by the stockholders of AMBAC. Prior to such stockholder approval,
the Committee may grant Awards conditioned on stockholder approval. If such
stockholder approval is not obtained at or before the first annual meeting of
stockholders to occur after the adoption of the Plan by the Board (including any
adjournment or adjournments thereof), the Plan and any Awards made thereunder
shall terminate ab initio and be of no further force and effect. In no event
shall any Awards be made under the Plan after the seventh anniversary of the
date of stockholder approval.
5. SHARES OF COMMON STOCK SUBJECT TO THE PLAN
(a) GENERAL. Subject to adjustment as provided in Section 15(b) hereof,
the number of shares of Common Stock that may be issued pursuant to Awards under
the Plan (the "Section 5 Limit") shall not exceed, in the aggregate:
(I) 2,750,000 shares; plus
(II) the number of shares of Common Stock that remain available for
issuance under the Predecessor Plan as of the date this Plan is approved by
the stockholders of the Company (increased by any shares of Common Stock
subject to any award (or portion thereof) outstanding under the Predecessor
Plan on such date which lapses, expires or is otherwise terminated without
the issuance of such shares or is settled by the delivery of consideration
other than shares).
Shares issued under this Plan may be either authorized but unissued shares,
treasury shares or any combination thereof.
(b) RULES APPLICABLE TO DETERMINING SHARES AVAILABLE FOR ISSUANCE. For
purposes of determining the number of shares of Common Stock that remain
available for issuance, the following shares shall be added back to the Section
5 Limit and again be available for Awards:
(x) The number of shares tendered to pay the exercise price of a Stock
Option or other Award; and
(y) The number of shares withheld from any Award to satisfy a
Participant's tax withholding obligations or, if applicable, to pay the
exercise price of a Stock Option or other Award.
In addition, any shares underlying Substitute Awards shall not be counted
against the Section 5 Limit and shall not be subject to Section 5(c) below.
(c) SPECIAL LIMITS. Anything to the contrary in Section 5(a) above
notwithstanding, but subject to Section 15(b) below, the following special
limits shall apply to shares of Common Stock available for Awards under the
Plan:
(i) The maximum number of shares that may be issued in the form of
Stock Awards, or issued upon settlement of Restricted Stock Units or Other
Awards, shall equal 800,000 shares, provided, however, that any such Stock
Awards, Restricted Stock Units or Other Awards that are issued in lieu of
cash compensation that otherwise would be paid to a Participant, or in
satisfaction of any other obligation owed by the Company to a Participant,
shall not be counted against such limitation; and
(ii) The maximum number of shares of Common Stock that may be subject
to Stock Options or Stock Appreciation Rights granted to any Eligible
Individual in any fiscal year of the Company shall equal 200,000 shares
plus any shares which were available under this Section 5cii) for Awards of
Stock Options or Stock Appreciation Rights to such Eligible individual in
any prior fiscal year but which were not covered by such Awards.
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(d) NO FURTHER AWARDS UNDER PREDECESSOR PLAN. From and after the date
this Plan is approved by the stockholders of the Company, no further awards
shall be made under the Predecessor Plan.
6. ELIGIBLE INDIVIDUALS
Awards may be granted by the Committee to individuals ("Eligible
Individuals") who are officers or other key employees of the Company. Members of
the Committee will not be eligible to receive Awards under the Plan. An
individual's status as an Administrator will not affect his or her eligibility
to participate in the Plan.
7. AWARDS IN GENERAL
(a) TYPES OF AWARD AND AWARD AGREEMENT. Awards under the Plan may consist
of Stock Options, Stock Appreciation Rights, Stock Awards, Restricted Stock
Units, Performance Units or Other Awards. Any Award described in Sections 8
through 13 of the Plan may be granted singly or in combination or tandem with
any other Award, as the Committee may determine. Awards may be made in
combination with, in replacement of, or as alternatives to grants of rights
under any other employee compensation plan of the Company, including the plan of
any acquired entity, or may be granted in satisfaction of the Company's
obligations under any such plan.
(b) TERMS SET FORTH IN AWARD AGREEMENT. The terms and provisions of an
Award shall be set forth in a written Award Agreement approved by the Committee
and delivered or made available to the Participant as soon as practicable
following the date of the award. The vesting, exercisability, payment and other
restrictions applicable to an Award (which may include, without limitation,
restrictions on transferability or provision for mandatory resale to the
Company) shall be determined by the Committee and set forth in the applicable
Award Agreement. Notwithstanding the foregoing, the Committee may accelerate (i)
the vesting or payment of any Award, (ii) the lapse of restrictions on any Award
or (iii) the date on which any Stock Option, Stock Appreciation Right or other
Award first becomes exercisable.
(c) TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL. The Committee shall
also have full authority to determine and specify in the applicable Award
Agreement the effect, if any, that a Participant's termination of employment for
any reason will have on the vesting, exercisability, payment or lapse of
restrictions applicable to an Award. The date of a Participant's termination of
employment for any reason shall be determined in the sole discretion of the
Committee. Similarly, the Committee shall have full authority to determine the
effect, if any, of a change in control of AMBAC on the vesting, exercisability,
payment or lapse of restrictions applicable to an Award, which effect may be
specified in the applicable Award Agreement or determined at a subsequent time.
(d) DIVIDENDS AND DIVIDEND EQUIVALENTS. The Committee may provide
Participants with the right to receive dividends or payments equivalent to
dividends or interest with respect to an outstanding Awards, which payments can
either be paid currently or deemed to have been reinvested in shares of Common
Stock, and can be made in Common Stock, cash or a combination thereof, as the
Committee shall determine.
8. STOCK OPTIONS
(a) TERMS OF STOCK OPTIONS GENERALLY. A Stock Option shall entitle the
Participant to whom the Stock Option was granted to purchase a specified number
of shares of Common Stock during a specified period at a price that is
determined in accordance with Section 8(b) below. Stock Options may be either
Nonqualified Stock Options or Incentive Stock Options. The Committee will fix
the vesting and exercisability conditions applicable to a Stock Option, provided
that no Stock Option shall vest sooner than one year from the date of grant
(subject to early vesting, if so provided by the Committee, upon death,
disability, termination of employment or a change in control of the Company).
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(b) EXERCISE PRICE. The exercise price per share of Common Stock
purchasable under a Stock Option shall be fixed by the Committee at the time of
grant or, alternatively, shall be determined by a method specified by the
Committee at the time of grant; provided, however, that the exercise price per
share shall be no less than 100% of the Fair Market Value per share on the date
of grant (or it the exercise price is not fixed on the date of grant, then on
such date as the exercise price is fixed); and provided further, that, except as
provided in Section 15(b) below, the exercise price per share of Common Stock
applicable to a Stock Option may not be adjusted or amended, including by means
of amendment, cancellation or the replacement of such Stock Option with a
subsequently awarded Stock Option. Notwithstanding the foregoing, the exercise
price per share of a Stock Option that is a Substitute Award may be less than
the Fair Market Value per share on the date of award, provided that the excess
of:
(i) the aggregate Fair Market Value (as of the date such Substitute
Award is granted) of the shares of Common Stock subject to the Substitute
Award, over
(ii) the aggregate exercise price thereof,
does not exceed the excess of:
(iii) the aggregate fair market value (as of the time immediately
preceding the transaction giving rise to the Substitute Award, such fair
market value to be determined by the Committee) of the shares of the
predecessor entity that were subject to the award assumed or substituted
for by the Company, over
(iv) the aggregate exercise price of such shares.
(c) OPTION TERM. The term of each Stock Option shall be fixed by the
Committee and shall not exceed ten years from the date of grant.
(d) METHOD OF EXERCISE. Subject to the provisions of the applicable Award
Agreement, the exercise price of a Stock Option may be paid in cash or
previously owned shares or a combination thereof and, if the applicable Award
Agreement so provides, in whole or in part through the withholding of shares
subject to the Stock Option with a value equal to the exercise price. In
accordance with the rules and procedures established by the Committee for this
purpose, the Stock Option may also be exercised through a "cashless exercise"
procedure approved by the Committee involving a broker or dealer approved by the
Committee, that affords Participants the opportunity to sell immediately some or
all of the shares underlying the exercised portion of the Stock Option in order
to generate sufficient cash to pay the Stock Option exercise price and/or to
satisfy withholding tax obligations related to the Stock Option.
9. STOCK APPRECIATION RIGHTS
(a) GENERAL. A Stock Appreciation Right shall entitle a Participant to
receive, upon satisfaction of the conditions to the payment specified in the
applicable Award Agreement, an amount equal to the excess, if any, of the Fair
Market Value on the exercise date of the number of shares of Common Stock for
which the Stock Appreciation Right is exercised, over the exercise price for
such Stock Appreciation Right specified in the applicable Award Agreement. The
exercise price per share of Common Stock covered by a Stock Appreciation Right
shall be fixed by the Committee at the time of grant or, alternatively, shall be
determined by a method specified by the Committee at the time of grant;
provided, however, that, except as provided in Section 9(b) below, the exercise
price per share shall be no less than 100% of the Fair Market Value per share on
the date of grant (or if the exercise price is not fixed on the date of grant,
then on such date as the exercise price is fixed); and provided further, that,
except as provided in Section 15(b) below, the exercise price per share of
Common Stock subject to a Stock Appreciation Right may not be adjusted or
amended, including by means of amendment, cancellation or the replacement of
such Stock Appreciation Right with a subsequently awarded Stock Appreciation
Right. Notwithstanding the foregoing, the exercise price per share of a Stock
Appreciation Right that is a
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Substitute Award may be less than the Fair Market Value per share on the date of
award, provided, that such exercise price is not less than the minimum exercise
price that would be permitted for an equivalent Stock Option as determined in
accordance with Section 8(b) above. At the sole discretion of the Committee,
payments to a Participant upon exercise of a Stock Appreciation Right may be
made in cash, in shares of Common Stock having an aggregate Fair Market Value as
of the date of exercise equal to such amount, or in a combination of cash and
shares having an aggregate value as of the date of exercise equal to such
amount.
(b) STOCK APPRECIATION RIGHTS IN TANDEM WITH STOCK OPTIONS. A Stock
Appreciation Right may be granted alone or in addition to other Awards, or in
tandem with a Stock Option. A Stock Appreciation Right granted in tandem with a
Stock Option may be granted either at the same time as such Stock Option or
subsequent thereto. If granted in tandem with a Stock Option, a Stock
Appreciation Right shall cover the same number of shares of Common Stock as
covered by the Stock Option (or such lesser number of shares as the Committee
may determine) and shall be exercisable only at such time or times and to the
extent the related Stock Option shall be exercisable, and shall have the same
term and exercise price as the related Stock Option (which, in the case of a
Stock Appreciation Right granted after the grant of the related Stock Option,
may be less than the Fair Market Value per share on the date of grant of the
tandem Stock Appreciation Right). Upon exercise of a Stock Appreciation Right
granted in tandem with a Stock Option, the related Stock Option shall be
cancelled automatically to the extent of the number of shares covered by such
exercise; conversely, if the related Stock Option is exercised as to some or all
of the shares covered by the tandem grant, the tandem Stock Appreciation Right
shall be cancelled automatically to the extent of the number of shares covered
by the Stock Option exercise.
10. STOCK AWARDS
(a) GENERAL. A Stock Award shall consist of one or more shares of Common
Stock granted to a Participant for no consideration other than the provision of
services (or, if required by applicable law in the reasonable judgment of the
Company, for payment of the par value of such shares). Stock Awards shall be
subject to such restrictions (if any) on transfer or other incidents of
ownership for such periods of time, and shall be subject to such conditions of
vesting, as the Committee may determine and as shall be set forth in the
applicable Award Agreement.
(b) DISTRIBUTIONS. Any shares of Common Stock or other securities of the
Company received by a Participant to whom a Stock Award has been granted as a
result of a stock distribution to holders of Common Stock or as a stock dividend
on Common Stock shall be subject to the same terms, conditions and restrictions
as such Stock Award.
11. RESTRICTED STOCK UNITS
An Award of Restricted Stock Units shall consist of a grant of units, each
of which represents the right of the Participant to receive one share of Common
Stock, subject to the terms and conditions established by the Committee in
connection with the Award and set forth in the applicable Award Agreement. Upon
satisfaction of the conditions to vesting and payment specified in the
applicable Award Agreement, Restricted Stock Units will be payable, at the
discretion of the Committee, in Common Stock, in cash equal to the Fair Market
Value of the shares subject to such Restricted Stock Units, or in a combination
of Common Stock and cash.
12. PERFORMANCE UNITS
Performance units may be granted as fixed or variable share- or
dollar-denominated units subject to such conditions of vesting and time of
payment as the Committee may determine and as shall be set forth in the
applicable Award Agreement relating to such Performance Units. Performance Units
may be paid in Common Stock, cash or a combination of Common Stock and cash, as
the Committee may determine.
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13. OTHER AWARDS
The Committee shall have the authority to specify the terms and provisions
of other forms of equity-based or equity-related Awards not described above
which the Committee determines to be consistent with the purpose of the Plan and
the interests of the Company, which Awards may provide for cash payments based
in whole or in part on the value or future value of Common Stock, for the
acquisition or future acquisition of Common Stock, or any combination thereof.
Other Awards shall also include cash payments (including the cash payment of
dividend equivalents) under the Plan which may be based on one or more criteria
determined by the Committee which are unrelated to the value of Common Stock and
which may be granted in tandem with, or independent of, other Awards under the
Plan.
14. CERTAIN RESTRICTIONS
(a) TRANSFERS. Unless the Committee determines otherwise, no Award shall
be transferable other than by will or by the laws of descent and distribution or
pursuant to a domestic relations order; provided, however, that the Committee
may, in its discretion and subject to such terms and conditions as it shall
specify, permit the transfer of an Award for no consideration to a Participant's
family members or to one or more trusts or partnerships established in whole or
in part for the benefit of one or more of such family members (collectively,
"Permitted Transferees"). Any Award transferred to a Permitted Transferee shall
be further transferable only by will or the laws of descent and distribution or,
for no consideration, to another Permitted Transferee of the Participant. The
Committee may in its discretion permit transfers of Awards other than those
contemplated by this Section.
(b) EXERCISE. During the lifetime of the Participant, a Stock Option,
Stock Appreciation Right or similar-type Other Award shall be exercisable only
by the Participant or by a Permitted Transferee to whom such Stock Option, Stock
Appreciation Right or Other Award has been transferred in accordance with
Section 14(a).
15. RECAPITALIZATION OR REORGANIZATION
(a) AUTHORITY OF THE COMPANY AND STOCKHOLDERS. The existence of the Plan,
the Award Agreements and the Awards granted hereunder shall not affect or
restrict in any way the right or power of the Company or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of stock or of options, warrants or
rights to purchase stock or of bonds, debentures, preferred or prior preference
stocks whose rights are superior to or affect the Common Stock or the rights
thereof or which are convertible into or exchangeable for Common Stock, or the
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
(b) CHANGE IN CAPITALIZATION. Notwithstanding any provision of the Plan
or any Award Agreement, the number and kind of shares authorized for issuance
under Section 5(a) above, including the maximum number of shares available under
the special limits provided for in Section 5(c) above, may be equitably adjusted
in the sole discretion of the Committee in the event of a stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, extraordinary
dividend, split-up, spin-off, combination, exchange of shares, warrants or
rights offering to purchase Common Stock at a price substantially below Fair
Market Value or other similar corporate event affecting the Common Stock in
order to preserve, but not increase, the benefits or potential benefits intended
to be made available under the Plan. In addition, upon the occurrence of any of
the foregoing events, the number of outstanding Awards and the number and kind
of shares subject to any outstanding Award and the purchase price per share, if
any, under any outstanding Award may be equitably adjusted (including by payment
of cash to a Participant) in the sole discretion of the Committee in order to
preserve the benefits or potential benefits intended to be made available to
Participants granted Awards. Such adjustments shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be
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final. Unless otherwise determined by the Committee, such adjusted Awards shall
be subject to the same vesting schedule and restrictions to which the underlying
Award is subject.
16. AMENDMENTS
The Board or Committee may at any time and from time to time alter, amend,
suspend or amend the Plan in whole or in part; provided, however, that any
amendment which under the requirements of any applicable law or stock exchange
rule must be approved by the stockholders of the Company shall not be effective
unless and until such stockholder approval has been obtained in compliance with
such law or rule; and provided further, that, except as contemplated by Section
15(b) above, the Board or Committee may not, without the approval of the
Company's stockholders, increase the maximum number of shares issuable under the
Plan or reduce the exercise price of a Stock Option or Stock Appreciation Right.
No termination or amendment of the Plan may, without the consent of the
Participant to whom an Award has been granted, adversely affect the rights of
such Participant under such Award. Notwithstanding any provision herein to the
contrary, the Board or Committee shall have broad authority to amend the Plan or
any Award under the Plan to take into account changes in applicable tax laws,
securities laws, accounting rules and other applicable state and federal laws.
17. MISCELLANEOUS
(a) TAX WITHHOLDING. The Company may require any individual entitled to
receive a payment in respect of an Award to remit to the Company, prior to such
payment, an amount sufficient to satisfy any Federal, state or local tax
withholding requirements. The Company shall also have the right to deduct from
all cash payments made pursuant to or in connection with any Award any Federal,
state or local taxes required to be withheld with respect to such payments. In
the case of an Award payable in shares of Common Stock, the Company may permit
such individual to satisfy, in whole or in part, such obligation to remit taxes
by directing the Company to withhold shares of Common Stock that would otherwise
be received by such individual, pursuant to such rules as the Committee may
establish from time to time.
(b) NO RIGHT TO GRANTS OR EMPLOYMENT. No Eligible Individual or
Participant shall have any claim or right to receive grants of Awards under the
Plan. Nothing in the Plan or in any Award or Award Agreement shall confer upon
any employee of the Company any right to continued employment with the Company
or interfere in any way with the right of the Company to terminate the
employment of any of its employees at any time, with or without cause.
(c) OTHER COMPENSATION. Nothing in this Plan shall preclude or limit the
ability of the Company to pay any compensation to a Participant under the
Company's other compensation and benefit plans and programs.
(d) OTHER EMPLOYEE BENEFIT PLANS. Payments received by a Participant
under any Award made pursuant to the Plan shall not be included in, nor have any
effect on, the determination of benefits under any other employee benefit plan
or similar arrangement provided by the Company, unless otherwise specifically
provided for under the terms of such plan or arrangement or by the Committee.
(e) UNFUNDED PLAN. The Plan is intended to constitute an unfunded plan
for incentive compensation. Prior to the payment or settlement of any Award,
nothing contained herein shall give any Participant any rights that are greater
than those of a general creditor of the Company. In its sole discretion, the
Committee may authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver Common Stock or payments in lieu
thereof with respect to awards hereunder.
(f) SECURITIES LAW RESTRICTIONS. The Committee may require each Eligible
Individual purchasing or acquiring shares of Common Stock pursuant to a Stock
Option or other Award under the Plan to represent to and agree with the Company
in writing that such Eligible Individual is acquiring the
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shares for investment and not with a view to the distribution thereof. All
certificates for shares of Common Stock delivered under the Plan shall be
subject to such stock-transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any exchange upon which the Common Stock is
then listed, and any applicable federal or state securities law, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions. No shares of Common Stock shall
be issued hereunder unless the Company shall have determined that such issuance
is in compliance with, or pursuant to an exemption from, all applicable federal
and state securities laws.
(g) COMPLIANCE WITH RULE 16B-3. Notwithstanding anything contained in the
Plan or in any Award Agreement to the contrary, if the consummation of any
transaction under the Plan would result in the possible imposition of liability
on a Participant pursuant to Section 16(b) of the Exchange Act, the Committee
shall have the right, in its sole discretion, but shall not be obligated, to
defer such transaction or the effectiveness of such action to the extent
necessary to avoid such liability, but in no event for a period longer than six
months.
(h) AWARD AGREEMENT. In the event of any conflict or inconsistency
between the Plan and any Award Agreement, the Plan shall govern, and the Award
Agreement shall be interpreted to minimize or eliminate any such conflict or
inconsistency.
(i) EXPENSES. The costs and expenses of administering the Plan shall be
borne by the Company.
(j) APPLICATION OF FUNDS. The proceeds received from the Company from the
sale of Common Stock or other securities pursuant to Awards will be used for
general corporate purposes.
(k) APPLICABLE LAW. Except as to matters of federal law, the Plan and all
actions taken thereunder shall be governed by and construed in accordance with
the laws of the State of Delaware without giving effect to conflicts of law
principles.
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APPENDIX C
AMBAC 1997 EXECUTIVE INCENTIVE PLAN
1. PURPOSES
The purposes of the AMBAC 1997 Executive Incentive Plan (the "Plan") are to
enable AMBAC Inc. (the "Company") to attract, retain, motivate and reward
executives and key employees of the highest caliber and quality by providing
them with the opportunity to earn incentive compensation directly linked to the
Company's performance.
2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as follows:
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
applicable rulings and regulations (including any proposed regulations)
thereunder.
"COMMITTEE" means the Compensation and Organization Committee of the Board,
any successor committee thereto or any other committee appointed by the Board to
administer the Plan. The Committee shall consist of at least two individuals,
each of whom shall be qualified as an "outside director" (or shall satisfy any
successor standard thereto) for purposes of Section 162(m), and shall serve at
the pleasure of the Board.
"COMMON STOCK" means the Common Stock, par value $.01 per share, of the
Company.
"COVERED EMPLOYEE" means a Participant who has been designated by the
Committee as a Participant whose compensation for the relevant fiscal year may
be subject to the limit on deductible compensation imposed by Section 162(m) of
the Code.
"DISABILITY" means eligibility for disability benefits under the terms of
the Company's long-term disability plan in effect at the time the Participant
becomes disabled.
"EQUITY PLAN" means the AMBAC 1997 Equity Incentive Plan and any successor
or similar plan of the Company.
"FAIR MARKET VALUE" means, with respect to a share of Common Stock, the
fair market value thereof as of the relevant date of determination, as
determined in accordance with a valuation methodology approved by the Committee.
In the absence of any alternative valuation methodology approved by the
Committee, the Fair Market Value of a share of Common Stock shall equal the
average of the highest and the lowest quoted selling price of a share of Common
Stock as reported on the composite tape for securities listed on the New York
Stock Exchange, or such other national securities exchange as may be designated
by the Committee, or, in the event that the Common Stock is not listed for
trading on a national securities exchange but is quoted on an automated system,
on such automated system, in any such case on the valuation date (or, if there
were no sales on the valuation date, the average of the highest and the lowest
quoted selling prices as reported on said composite tape or automated system for
the most recent day during which a sale occurred).
"PARTICIPANT" means each executive officer, senior officer or key employee
of the Company or a Subsidiary whom the Committee designates as a participant
under the Plan.
"PERFORMANCE TARGETS" means the targets related to the performance goals
designated in Section 4(d), which Performance Targets will be established by the
Committee for a Performance Period.
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"PERFORMANCE PERIOD" means each fiscal year of the Company or such other
period as may be designated by the Committee.
"SECTION 162(M)" means Section 162(m) of the Code.
"SUBSIDIARY" means (i) a corporation or other entity with respect to which
the Company, directly or indirectly, has the power, whether through the
ownership of voting securities, by contract or otherwise, to elect at least a
majority of the members of such corporation's board of directors or analogous
governing body, or (ii) any other corporation or other entity in which the
Company, directly or indirectly, has an equity or similar interest and which the
Committee designates as a Subsidiary for purposes of the Plan.
3. ADMINISTRATION
(a) POWER AND AUTHORITY OF THE COMMITTEE. The Plan shall be administered
by the Committee which shall have full power and authority, subject to the
express provisions hereof:
(i) to select Participants from executive officers, senior officers
and key employees of the Company;
(ii) to establish the Performance Targets for achievement during a
Performance Period and to determine whether such Performance Targets have
been achieved;
(iii) to determine the cash amount and/or number of shares of Common
Stock payable in connection with an award;
(iv) to prescribe, amend and rescind rules and procedures relating to
the Plan;
(v) to vary the terms of awards to take account of tax, securities law
and other regulatory requirements of foreign jurisdictions;
(vi) subject to the provisions of the Plan and subject to such
additional limitations and restrictions as the Committee may impose, to
delegate to one or more officers of the Company some or all of its
authority under the Plan;
(vii) to employ such legal counsel, independent auditors and
consultants as it deems desirable for the administration of the Plan and to
rely upon any opinion or computation received therefrom; and
(viii) to make all other determinations and to formulate such
procedures as may be necessary or advisable for the administration of the
Plan.
(b) PLAN CONSTRUCTION AND INTERPRETATION. The Committee shall have full
power and authority, subject to the express provisions hereof, to construe and
interpret the Plan.
(c) DETERMINATIONS OF COMMITTEE FINAL AND BINDING. All determinations by
the Committee in carrying out and administering the Plan and in construing and
interpreting the Plan shall be final, binding and conclusive for all purposes
and upon all persons interested herein.
(d) LIABILITY OF COMMITTEE. No member of the Committee shall be liable
for any action nor determination made in good faith, and the members of the
Committee shall be entitled to indemnification and reimbursement in the manner
provided in the Company's Certificate of Incorporation as it may be amended from
time to time. In the performance of its responsibilities with respect to the
Plan, the Committee shall be entitled to rely upon information and advice
furnished by the Company's officers, the Company's accountants, the Company's
counsel and any other party the Committee deems necessary, and no member of the
Committee shall be liable for any action taken or not taken in reliance upon any
such advice.
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4. AWARDS
(a) PERFORMANCE TARGETS. The Committee shall determine in its sole
discretion whether any executive officer, senior officer or other employee of
the Company shall have the opportunity to earn incentive compensation under this
Plan during any Performance Period. If the Committee decides to offer such
opportunity to one or more executive officers, senior officers or other
employees of the Company, then no later than 90 days after the beginning of a
Performance Period (or such other time as may be required or permitted by
Section 162(m)), the Committee shall (i) designate each Participant for the
Performance Period, (ii) select from the performance goals set forth in Section
4(d) below the performance goal or goals to be applicable to the Performance
Period, (iii) establish specific Performance Targets related to such performance
goals and the incentive amounts which may be earned for the Performance Period
by each Participant and (iv) specify the relationship between Performance
Targets and the incentive amount to be earned by each Participant for the
Performance Period. The Committee may specify that the incentive amount for a
Performance Period will be earned if the applicable Performance Target is
achieved for one performance goal or for any one of a number of performance
goals. The Committee may also provide that the incentive amount for a
Performance Period will be earned only if a Performance Target is achieved for
more than one performance goal, or that the incentive amount to be earned for a
given Performance Period will vary based upon different levels of achievement of
the applicable Performance Targets.
(b) Following the completion of each Performance Period, the Committee
shall certify in writing whether the applicable Performance Targets have been
achieved for such Performance Period and the incentive amounts, if any, payable
to Participants for such Performance Period. In determining the incentive amount
earned by a Participant for a given Performance Period, the Committee shall have
the right to reduce (but not to increase) the incentive amount payable at a
given level of performance to take into account additional factors that the
Committee may deem relevant to the assessment of individual or corporate
performance for the Performance Period.
(c) PAYMENT OF AWARDS; MAXIMUM LIMITATION. Anything in this Plan to the
contrary notwithstanding, (i) the maximum aggregate incentive amount that may be
earned under the Plan by a Participant for all Performance Periods of one year
or less beginning in any given fiscal year of the Company shall be $1,000,000,
and (ii) the maximum aggregate incentive amount that may be earned under the
Plan by a Participant for all Performance Periods of more than one year
beginning in any given fiscal year of the Company shall be $3,000,000.
(d) PERFORMANCE GOALS. For purposes of this Plan, the performance goals
from which the Committee shall establish Performance Targets applicable to
specific Performance Periods shall be limited to the following:
(i) return on equity;
(ii) net income growth;
(iii) total return to stockholders;
(iv) expense management;
(v) risk management of the business portfolio;
(vi) market share;
(vii) industry leadership;
(viii) new products; and
(ix) organizational development;
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each of which may be established (x) on a corporate-wide basis or with respect
to one or more operating units, divisions, acquired businesses, minority
investments, partnerships or joint ventures, or, where applicable, (y) on a
relative or an absolute basis or (z) on a per share or an aggregate basis.
5. TERMINATION OF EMPLOYMENT
If a Participant's employment with the Company or a Subsidiary terminates
during a Performance Period by reason of death, Disability or retirement or with
the approval of the Committee, the Participant shall receive a pro rata payment
based upon the number of full months during which the Participant was employed
during the Performance Period and the degree to which the Performance Targets
are determined by the Committee to have been achieved prior to the Participant's
termination. If a Participant's employment with the Company or a Subsidiary
terminates during a Performance Period for any reason other than death,
Disability or retirement or other than with the approval of the Committee, the
Participant's participation in the Plan shall terminate forthwith and he or she
shall not be entitled to an award for such Performance Period.
6. PAYMENT OF AWARDS
Payment of awards determined under Section 4 shall be made to each
Participant as soon as practicable after the Committee determines that the
applicable Performance Targets have been achieved. The Committee in its sole
discretion shall determine whether awards shall be payable in cash, in the form
of stock awards or restricted stock units issued pursuant to an Equity Plan or
from treasury, or in any combination thereof. If the Committee determines that
an award shall be paid in the form of stock awards or restricted stock units
issued under an Equity Plan or from treasury, then for purposes of determining
the number of shares of Common Stock subject to an award the Committee may value
such shares at a discount to Fair Market Value to reflect any restrictions,
conditions and limitations set forth in the relevant Equity Plan or the
applicable award agreement or certificate or otherwise applicable to the shares,
provided, that such discount shall not exceed 50% of the Fair Market Value as of
the relevant date of determination.
7. EFFECTIVE DATE; TERM
The Plan shall become effective upon its adoption by the Board subject to
its approval by the stockholders of the Company. Prior to such stockholder
approval, the Committee may grant awards conditioned on stockholder approval. If
such stockholder approval is not obtained at or before the first annual meeting
of stockholders to occur after the adoption of the Plan by the Board (including
any adjournment or adjournments thereof), the Plan and any awards made hereunder
shall terminate ab initio and be of no further force and effect. Unless earlier
terminated in accordance with Section 8 below, no award shall be made under the
Plan with respect to Performance Periods beginning after January 1, 2002.
8. AMENDMENT AND TERMINATION
Notwithstanding Section 7, the Board or the Committee may at any time
amend, suspend, discontinue or terminate the Plan; provided, however, that no
such action shall be effective without approval by the stockholders of the
Company to the extent necessary to continue to qualify the amounts payable
hereunder to Covered Employees as performance-based compensation under Section
162(m).
9. MISCELLANEOUS
(a) TAX WITHHOLDING. No later than the date as of which an amount first
becomes includable in the gross income of the Participant for applicable income
tax purposes with respect to any award under the Plan, the Participant shall pay
to the Company or make arrangements satisfactory to the Committee regarding the
payment of any federal, state or local taxes of any kind required by law to be
withheld with
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respect to such amount. In the case of an award that is payable in shares of
Common Stock, the Company may permit the Participant to satisfy, in whole or in
part, such obligation to remit taxes by directing the Company to withhold shares
of Common Stock that would otherwise be received by such individual, pursuant to
such rules as the Committee may establish from time to time.
(b) NO RIGHTS TO AWARDS OR EMPLOYMENT. No Participant shall have any
claim or right to receive awards under the Plan. Nothing in the Plan shall
confer upon any employee of the Company any right to continued employment with
the Company or interfere in any way with the right of the Company to terminate
the employment of any of its employees at any time, with or without cause.
(c) OTHER COMPENSATION. Nothing in this Plan shall preclude or limit the
ability of the Company to pay any compensation to a Participant under the
Company's other compensation and benefit plans and programs, including without
limitation any Equity Plan.
(d) NO LIMITATION ON CORPORATE ACTIONS. Nothing contained in the Plan
shall be construed to prevent the Company or any Subsidiary from taking any
corporate action which is deemed by it to be appropriate or in its best
interest, whether or not such action would have an adverse effect on any awards
made under the Plan. No Participant, beneficiary or other person shall have any
claim against the Company or any Subsidiary as a result of any such action.
(e) UNFUNDED PLAN. The Plan is intended to constitute an unfunded plan
for incentive compensation. Prior to the payment of any award, nothing contained
herein shall give any Participant any rights that are greater than those of a
general creditor of the Company. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver payment in cash or Common Stock with respect
to awards hereunder.
(f) NON-TRANSFERABILITY. Except as expressly provided herein, no
Participant or beneficiary shall have the power or right to sell, transfer,
assign, pledge or otherwise encumber or dispose of the Participant's interest
under the Plan.
(g) DESIGNATION OF BENEFICIARY. A Participant may designate a beneficiary
or beneficiaries to receive any payments which may be made following the
Participant's death. Such designation may be changed or canceled at any time
without the consent of such beneficiary. Any such designation, change or
cancellation must be made in a form approved by the Committee and shall not be
effective until received by the Committee. If a Participant does not designate a
beneficiary, or the designated beneficiary or beneficiaries predeceases the
Participant, any payments which may be made following the Participant's death
shall be made to the Participant's estate.
(h) SEVERABILITY. If any provision of this Plan is held unenforceable,
the remainder of the Plan shall continue in full force and effect without regard
to such unenforceable provision and shall be applied as though the unenforceable
provision were not contained in the Plan.
(i) EXPENSES. The costs and expenses of administering the Plan shall be
borne by the Company.
(j) GOVERNING LAW. The Plan and all actions taken thereunder shall be
governed by and construed in accordance with and governed by the laws of the
State of Delaware, without reference to the principles of conflict of laws.
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APPENDIX D
AMBAC 1997 NON-EMPLOYEE DIRECTORS EQUITY PLAN
1. PURPOSE
The purpose of the AMBAC 1997 Non-Employee Directors Equity Plan (the
"Plan") is to promote the long-term growth and financial success of the Company
by attracting, motivating and retaining non-employee directors of outstanding
ability and assisting the Company in promoting a greater identity of interest
between the Company's non-employee directors and its stockholders.
The Plan replaces the AMBAC Inc. 1991 Non-Employee Directors Stock Plan
(the "Predecessor Plan"). From and after the effective date of the Plan as
provided in Section 10 below, no further awards shall be made under the
Predecessor Plan.
2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as follows:
"ANNUAL MEETING" means an annual meeting of the Company's stockholders.
"BOARD" means the Board of Directors of the Company.
"CHANGE IN CONTROL" means:
(i) the acquisition by any Person of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the
Common Stock then outstanding, but shall not include any such acquisition by:
(A) the Company;
(B) any Subsidiary of the Company;
(C) any employee benefit plan of the Company or of any Subsidiary of
the Company;
(D) any Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan;
(E) any Person who as of January 31, 1996 was the beneficial owner of
15% or more of the shares of Common Stock outstanding on such date unless
and until such Person, together with all affiliates and associates of such
Person, becomes the beneficial owner of 25% or more of the shares of Common
Stock then outstanding whereupon a Change in Control shall be deemed to
have occurred; or
(F) any Person who becomes the Beneficial Owner of 20% or more, or,
with respect to a Person described in clause (E) above, 25% or more, of the
shares of Common Stock then outstanding as a result of a reduction in the
number of shares of Common Stock outstanding due to the repurchase of
shares of Common Stock by the Company unless and until such Person, after
becoming aware that such Person has become the beneficial owner of 20% or
more, or 25% or more, as the case may be, of the then outstanding shares of
Common Stock, acquires beneficial ownership of additional shares of Common
Stock representing 1% or more of the shares of Common Stock then
outstanding, whereupon a Change in Control shall be deemed to have occurred
or
(ii) individuals who, as of the date this Plan is approved by the Board,
constitute the Board, and subsequently elected members of the Board whose
election is approved or recommended by at least a majority of such current
members or their successors whose election was so approved or recommended (other
than any subsequently elected members whose initial assumption of office occurs
as a result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or
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threatened solicitation of proxies or consents by or on behalf of a person other
than the Board), cease for any reason to constitute at least a majority of such
Board.
"COMMON STOCK" means the Common Stock of the Company, par value $.01 per
share, or such other class or kind of shares or other securities as may be
applicable under Section 12 below.
"COMPANY" means AMBAC Inc., a Delaware corporation, or any successor to
substantially all its business.
"DIRECTOR ACCOUNT" means the bookkeeping record established for each
Non-Employee Director. A Director Account is established only for purposes of
measuring the value of the Company's obligation to a Non-Employee Director in
respect of Director Stock Units and earnings thereon and not to segregate assets
or to identify assets that may be used to settle Director Stock Units.
"DIRECTOR OPTION" means a right to purchase shares of Common Stock granted
to a Non-Employee Director pursuant to Section 7 hereof.
"DIRECTOR STOCK UNIT" means a restricted stock unit granted to a
Non-Employee Director pursuant to Section 6 hereof.
"EFFECTIVE DATE" means the effective date of the Plan provided for in
Section 10 below.
"FAIR MARKET VALUE" means the average of the highest and the lowest quoted
selling price of Common Stock as reported on the composite tape for securities
listed on the New York Stock Exchange on the applicable valuation date or, if
there were no sales on such valuation date, the average of the highest and the
lowest quoted selling prices on said composite tape for the preceding business
day.
"NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an employee
of the Company or any of its subsidiaries.
"PERMANENT DISABILITY" means a physical or mental impairment rendering a
Non-Employee Director substantially unable to function as a member of the Board
for any period of six consecutive months. Any dispute as to whether a
Non-Employee Director is Permanently Disabled shall be resolved by a physician
mutually acceptable to the Non-Employee Director and the Company, whose decision
shall be final and binding upon the Non-Employee Director and the Company.
"PERSON" means any individual, firm, corporation, partnership or other
entity.
"PREDECESSOR PLAN" has the meaning set forth in Section 1 above.
"SUBSIDIARY" means (i) a corporation or other entity with respect to which
the Company, directly or indirectly, has the power, whether through the
ownership of voting securities, by contract or otherwise, to elect at least a
majority of the members of such corporation's board of directors or analogous
governing body, or (ii) any other corporation or other entity in which the
Company, directly or indirectly, has an equity or similar interest and which the
Committee designates as a Subsidiary for purposes of the Plan.
3. ADMINISTRATION
(a) ADMINISTRATION BY THE BOARD. The Plan shall be administered by the
Board, which may adopt rules and regulations it considers necessary or
appropriate to carry out the Plan's purposes. The Board's interpretation and
construction of any Plan provision shall be final and conclusive. The Board may,
but need not, from time to time delegate some or all of its authority under the
Plan to a committee consisting of one or members of the Board, any such
delegation to be subject to the restrictions and limits that the Board specifies
at the time of such delegation or thereafter. References in the Plan to the
"Board" shall, to the extent consistent with the terms and limitations of any
such delegation, be deemed to include a reference to any such committee to which
the Board's authority hereunder has been delegated.
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(b) AWARD CERTIFICATE. The terms and conditions of each grant of
Directors Stock Units and Director Options under the Plan shall be embodied in
an award agreement or award certificate which shall incorporate the Plan by
reference, shall indicate the date on which the Director Stock Units or Director
Options were granted and the number of Director Stock Units or Director Options
granted on such date.
4. SHARES AVAILABLE
Subject to Section 12 below, the maximum number of shares of Common Stock
which may be issued under the Plan (the "Section 4 Limit") shall be 70,000
shares plus the number of shares of Common Stock that remain available for
issuance under the Predecessor Plan as of the date the Plan is approved by the
stockholders of the Company (increased by any shares of Common Stock subject to
any award (or portion thereof) outstanding under the Predecessor Plan on such
date which lapses, expires or is otherwise terminated without the issuance of
such shares or is settled by the delivery of consideration other than shares).
Subject to Section 12 below, of the shares of Common Stock available for
issuance under the Plan, no more than 25,000 shares may be issued upon
settlement of Director Units. For purposes of determining the number of shares
of Common Stock that remain available for issuance, there shall be added back to
the Section 4 Limit and again be available under the Plan any shares of Common
Stock tendered to pay the exercise price of a Director Option. Either authorized
and unissued shares of Common Stock or treasury shares may be delivered pursuant
to the Plan.
5. ELIGIBILITY
Director Stock Units and Director Options shall be granted only to
Non-Employee Directors.
6. DIRECTOR STOCK UNITS
(a) GENERAL. A Director Stock Unit shall represent the right to receive
one share of Common Stock upon satisfaction of the conditions to vesting and
settlement specified in the Plan. Director Stock Units will be settled
exclusively in Common Stock.
(b) GRANTS OF DIRECTOR STOCK UNITS. Director Stock Units shall be awarded
under the Plan as follows:
(i) On the date of the Annual Meeting coincident with or first
succeeding a Non-Employee Director's initial election to the Board (or
reelection to the Board after a period during which the Non-Employee
Director did not serve on the Board), the Non-Employee Director shall
receive a grant of 1,500 Director Stock Units.
(ii) Upon the vesting of Director Stock Units in accordance with
Section 6(d)(i) below, or the vesting of restricted shares under the
Predecessor Plan in accordance with Section 6(c)(i) thereof, a Non-Employee
Director shall receive an additional grant of 1,500 Director Stock Units.
Such additional grants shall be made as of the date of the Annual Meeting
as of which such vesting occurs (or, if the vesting date of any restricted
shares under the Predecessor Plan does not coincide with the date of an
Annual Meeting, as of the date of the Annual Meeting that is closest in
time to the applicable vesting date) and shall be made only if (i) the
Annual Meeting as of which such additional grant is to be made occurs
during the term of the Plan as set forth in Section 10 below, and (ii) the
Non-Employee Director is standing for re-election at such Annual Meeting.
(c) ACCOUNTS. As of the date of each Annual Meeting as of which a
Non-Employee Director is granted Director Stock Units, the Director Account of
such Non-Employee Director will be credited with 1,500 Director Stock Units. In
the event that the Company pays any cash or other dividend or makes any other
distribution in respect of the Common Stock, each Director Account will be
credited with an additional number of Director Units (including fractions
thereof) determined by dividing (A) the amount of cash, or the value (as
determined by the Board) of any securities or other property,
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paid or distributed in respect of one outstanding share of Common Stock by (B)
the Fair Market Value of a share of Common Stock for the date of such payment or
distribution, and multiplying the result of such division by (C) the number of
Director Stock Units that were credited to the Director Account immediately
prior to the date of the dividend or other distribution. Credits shall be made
effective as of the date of the dividend or other distribution in respect of the
Common Stock.
(d) VESTING; ACCELERATED VESTING; DEFERRAL.
(i) Director Stock Units granted in respect of a given Annual Meeting,
and any additional Director Stock Units credited to a Director Account in
respect of earnings or other distributions on such Director Stock Units as
provided in Section 6(c), shall vest on the date of the Annual Meeting held
in the fifth calendar year following the date of grant and shall be settled
as soon as practicable thereafter, provided that the Non-Employee Director
shall have remained a member of the Board continuously from the date of
grant to the date of such Annual Meeting.
(ii) Notwithstanding the provisions of Section 6(d)(i) above, all
Director Stock Units granted to a Non-Employee Director shall immediately
vest upon the first to occur of (A) a Non-Employee Director ceasing to be a
member of the Board as a result of retirement from the Board in accordance
with the retirement policy then applicable to Board members, (B) a
Non-Employee Director ceasing to be a member of the Board as a result of
death or Permanent Disability or (C) a Change in Control of the Company,
and shall be settled as soon as practicable thereafter.
(iii) Notwithstanding the provisions of Sections 6(d)(i) and 6(d)(ii)
above, a Non-Employee Director may elect to defer settlement of any or all
Director Stock Units to a date subsequent to the vesting date of such
Director Stock Units, provided that no such deferral may extend beyond the
earlier of (A) the Non-Employee Director's termination of service on the
Board or (B) the Non-Employee's death. Settlement of any deferred Director
Stock Units shall be made on or as soon as practicable following the date
specified by the Non-Employee Director in the relevant deferral election
or, if applicable, the earlier of the dates specified in clauses (A) and
(B) of the preceding sentence.
(e) FORFEITURE OF GRANT. Except as provided in Section 6(d)(ii) above,
all Director Stock Units shall be forfeited, and all rights of the Non-Employee
Director to or with respect to such Director Units shall terminate without any
obligation on the part of the Company, upon the termination of a Non-Employee
Director's service as a member of the Board prior to the date on which such
Director Stock Units vest in accordance with Section 6(d)(i) above.
(f) DELIVERY OF SHARE CERTIFICATES. As soon as practicable following the
vesting of Director Units as provided in Sections 6(d)(i) and 6(d)(ii) above, or
the date for deferred settlement as provided in Section 6(d)(iii) above,
Director Stock Units shall be settled by delivery to the Non-Employee Director
of a share certificate for the number of shares corresponding to such Director
Units. Shares delivered in settlement of Director Units shall be free of all
such restrictions, except any that may be imposed under applicable law or the
Company's trading policy.
(g) NO STOCKHOLDER RIGHTS. The crediting of Director Stock Units to a
Director Account shall not confer on the relevant Non-Employee Director any
rights as a stockholder of the Company.
7. GRANTS OF DIRECTOR OPTIONS
(a) GENERAL. A Director Option shall entitle a Non-Employee Director to
purchase a specified number of shares of Common Stock during a specified period
at an exercise price per share of Common Stock determined as provided below. All
Director Options provided for herein shall have the general terms and conditions
set forth in Section 8 below.
(b) ANNUAL GRANTS OF DIRECTOR OPTIONS. As of the date of each Annual
Meeting, commencing with the 1997 Annual Meeting, each Non-Employee Director
shall automatically receive Director
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Options to purchase 1,000 shares of Common Stock provided that the Non-Employee
Director shall continue to serve as a director of the Company after such Annual
Meeting. The exercise price per share of Common Stock of each Director Option
provided for in this Section 7(b) shall be the Fair Market Value of one share of
Common Stock on the date of the relevant Annual Meeting.
(c) GRANTS OF DIRECTOR OPTIONS TO NEW DIRECTORS. A Non-Employee Director
who is initially elected or appointed to the Board other than in connection with
an Annual Meeting shall receive, as of the date of such initial election or
appointment, Director Options to purchase a number of shares determined by
multiplying 1,000 by a fraction, the numerator of which is the number of full
months remaining until the next Annual Meeting (starting with the month
following the date of election or appointment and counting the month in which
the next Annual Meeting is scheduled to occur as a full month) and the
denominator of which is 12. (If the date of the next Annual Meeting has not been
scheduled at the time of the Non-Employee Director's initial election or
appointment, it shall be assumed that the next Annual Meeting will occur in the
same month as the immediately preceding Annual Meeting.) The exercise price per
share of Common Stock of each Director Option provided for in this Section 7(d)
shall be the Fair Market Value of one share of Common Stock on the date of the
Non-Employee Director's election or appointment to the Board.
8. GENERAL TERMS AND CONDITIONS OF DIRECTORS OPTIONS
(a) OPTION TERM. Each Director Option shall expire on the date of the
Annual Meeting held in the seventh calendar year following the date of grant,
subject to earlier expiration as provided herein, provided, however, that
Director Options granted to a Non-Employee Director whose initial election
occurs other than in connection with an Annual Meeting shall be treated for this
purpose as though they had been granted at the first Annual Meeting following
such initial election.
(b) VESTING; ACCELERATED VESTING; EFFECT OF TERMINATION OF SERVICE.
(i) Vesting Generally. Director Options shall vest and become
exercisable as of the date of the first Annual Meeting following the date
of grant, assuming that the Non-Employee Director has continued to serve as
a member of the Board until such date, provided, however, that all Director
Options awarded to a Non-Employee Director shall be considered fully vested
upon the earlier to occur of (A) termination of the Non-Employee Director's
service on the Board by reason of death or Permanent Disability or (B) a
Change in Control. If a Non-Employee Director's service on the Board
terminates for any reason other than death or Permanent Disability and
prior to a Change in Control, then any unvested Director Options shall be
forfeited to the Company, and the Non-Employee Director shall have no
further right or interest therein.
(ii) Exercise Following Termination of Service. Following termination
of a Non-Employee Director's service on the Board, the former Non-Employee
Director (or the former Non-Employee Directors' estate, personal
representative or beneficiary, as the case may be) shall have the right,
subject to the other terms and conditions hereof, to exercise all Director
Options that had vested as of or in connection with the termination of
service:
(A) at any time within three years after the date of termination of
service, if such termination was by reason of death, Permanent
Disability or retirement from the Board in accordance with the
retirement policy then in effect for Board members, or
(B) in all other cases, at any time within one year after the date
of termination of service;
subject, in all case, to earlier expiration of the Director Option pursuant
to Section 8(a) above.
(c) NOTICE OF EXERCISE. Subject to the other terms and conditions of the
Plan, a Non-Employee Director may exercise all or any portion of a vested
Director Option by giving written notice of exercise to the Company, provided,
however, that no fewer than 10 shares of Common Stock may be purchased upon any
exercise of a Director Option unless the number of shares purchased at such time
is
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the total number of shares in respect of which the Director Option is then
exercisable, and provided, further, that in no event shall the Option be
exercisable for a fractional share. The date of exercise of an Option shall be
the later of (i) the date on which the Company receives such written notice or
(ii) the date on which the conditions provided in Sections 8(d) and 8(e) below
are satisfied.
(d) PAYMENT. The exercise price of a Director Option may be paid in cash
or previously owned shares or a combination thereof or by any other method
approved by the Board.
(e) LIMITATION ON EXERCISE. A Director Option shall not be exercisable
unless the Common Stock subject thereto has been registered under the Securities
Act of 1933, as amended (the "1933 Act"), and qualified under applicable state
"blue sky" laws in connection with the offer and sale thereof, or the Company
has determined that an exemption from registration under the 1933 Act and from
qualification under such state "blue sky" laws is available.
(f) ISSUANCE OF SHARES. Subject to the foregoing conditions, as soon as
is reasonably practicable after its receipt of a proper notice of exercise and
payment of the exercise price for the number of shares with respect to which a
Director Option is exercised, the Company shall deliver to the exercising
Non-Employee Director, at the principal office of the Company or at such other
location as may be acceptable to the Company and the Non-Employee Director, one
or more stock certificates for the appropriate number of shares of Common Stock
issued in connection with such exercise. Such shares shall be fully paid and
nonassessable and shall be issued in the name of the Non-Employee Director.
Notwithstanding the foregoing, the Board in its discretion may, subject to rules
and procedures as it may adopt or proposed from time to time, provide
Non-Employee Directors with the opportunity to defer receipt of shares of Common
Stock issuable upon exercise of Director Options.
9. TRANSFERABILITY
Director Stock Units (including interests in a Director Account) and
Director Options may not be transferred, pledged, assigned or otherwise disposed
of except by will or the laws of descent and distribution or pursuant to a
domestic relations order, provided, however, that Director Options may be
transferred to a member or members of a Non-Employee Director's immediate family
(as defined below) or to one or more trusts or partnerships established in whole
or in part for the benefit of one or more of such immediate family members
(collectively as "Permitted Transferees"), subject to such rules and procedures
as may from time to time be adopted or imposed by the Board. If a Director Stock
Option is transferred to a Permitted Transferee, it shall be further
transferable only by will or the laws of descent and distribution or, for no
consideration, to another Permitted Transferee of the Non-Employee Director. A
Non-Employee Director shall notify the Company in writing prior to any proposed
transfer of a Director Option to a Permitted Transferee and shall furnish the
Company, upon request, with information concerning such Permitted Transferee's
financial condition and investment experience. For purposes of the Plan, a
Non-Employee Director's "immediate family" means any child, stepchild,
grandchild, spouse, son-in-law or daughter-in-law and shall include adoptive
relationships; provided, however, that if the Company adopts a different
definition of "immediate family" (or similar term) in connection with the
transferability of employee stock options awarded to employees of the Company,
such definition shall apply, without further action of the Board, to the Plan.
10. TERM
(a) EFFECTIVE DATE; EXPIRATION. The Effective Date shall be the date of
the 1997 Annual Meeting, assuming the Plan is approved by the stockholders of
the Company at such Annual Meeting. Unless earlier terminated in accordance with
Section 11 below, the Plan shall expire on the date of the Annual Meeting held
in 2004. Grants of Director Stock Units and Director Options shall be made in
connection with the Annual Meeting held in 2004, and shall be the last grants
made under the Plan. Expiration of the Plan in connection with the Annual
Meeting held in 2004 shall not affect awards of
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Director Stock Units and Director Options made prior to such Annual Meeting,
which awards shall remain outstanding subject to the terms hereof.
(b) COORDINATION WITH PREDECESSOR PLAN. Awards of "Directors Shares" (as
such term is defined in the Predecessor Plan) shall be made under the
Predecessor Plan in connection with the 1997 Annual Meeting. Assuming the Plan
is approved by the stockholders of the Company at the 1997 Annual Meeting, no
further awards shall be made under the Predecessor Plan after the Effective
Date. Awards outstanding under the Predecessor Plan (including awards made in
connection with the 1997 Annual Meeting) shall remain outstanding after the
Effective Date subject to the terms thereof.
11. AMENDMENTS
The Board may at any time and from time to time alter, amend, suspend or
terminate the Plan in whole of in part, including without limitation to amend
the provisions for determining the amount of Director Stock Units or Directors
Options to be issued to a Non-Employee Director, provided, however, that:
(i) any amendment which under the requirements of applicable law or
stock exchange rule must be approved by the stockholders of the Company
shall not be effective unless and until such stockholder approval has been
obtained in compliance with such law or rule;
(ii) except as provided in Section 12 below, the Board may not,
without the approval of the Company's stockholders, increase the number of
shares available for issuance under the Plan pursuant to Section 4 above or
the number of Director Stock Units to be issued to any Non-Employee
Director pursuant to Section 6 above or reduce the exercise price of a
Director Option.
No termination or amendment of the Plan that would adversely affect a
Non-Employee Director's rights under the Plan with respect to any award of
Directors Stock Units or Director Options made prior to such action shall be
effective as to such Non-Employee Director unless he or she consents thereto.
12. ADJUSTMENT OF AND CHANGES IN SHARES
In the event of any merger, consolidation, recapitalization,
reclassification, stock dividend, distribution of property, special cash
dividend or other change in corporate structure affecting the shares, the Board,
in its discretion, may make (i) such proportionate adjustments as it considers
appropriate in the number and kind of shares authorized for issuance hereunder
in order to preserve, but not increase, the benefits or potential benefits
intended to be made available hereunder and/or (ii) such other adjustments as it
deems appropriate. The Board's determination as to what, if any, adjustments
shall be made shall be final and binding on the Company and all Non-Employee
Directors who receive grants under the Plan.
13. NO RIGHT TO RE-ELECTION
Nothing in the Plan shall be deemed to create any obligation on the part of
the Board to nominate any of its members for re-election by the Company's
stockholders, nor confer upon any Non-Employee Director the right to remain a
member of the Board for any period of time, or at any particular rate of
compensation.
14. GOVERNING LAW
The Plan and all agreements entered into under the Plan shall be construed
in accordance with and governed by the laws of the State of Delaware.
15. NO RESTRICTION ON RIGHT OF COMPANY TO EFFECT CORPORATE CHANGES
The Plan shall not affect in any way the right or power of the Company or
its stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's
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capital structure or its business, or any merger or consolidation of the
Company, or any issue of stock or of options, warrants or rights to purchase
stock or of bonds, debentures, preferred or prior preference stocks whose rights
are superior to or affect the Common Stock or the rights thereof or which are
convertible into or exchangeable for Common Stock, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.
16. UNFUNDED PLAN
The Plan is unfunded. Prior to the payment or settlement of any award of
Director Stock Units or the exercise of any Director Options, nothing contained
herein shall give any non-Employee Director any rights that are greater than
those of a general creditor of the Company. In its sole discretion, the Board
may authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver Common Stock with respect to
awards hereunder.
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1997
AMBAC INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 14,
1997
The undersigned hereby appoints Phillip B. Lassiter and Richard
B. Gross, and each of them, proxies, with power of
substitution, to vote all shares of Common Stock of AMBAC Inc.
which the undersigned is entitled to vote at the Annual Meeting
of Stockholders to be held on Wednesday, May 14, 1997, at 11:30
a.m., local time, at AMBAC's executive offices, One State
Street Plaza, New York, New York, and at any adjournments of
the Annual Meeting. The proxies have the authority to vote as
directed on the reverse side of this card with the same effect
as though the undersigned were present in person and voting.
The proxies are further authorized in their discretion to vote
upon such other business as may properly come before the Annual
Meeting and any adjournments of the Annual Meeting. The
undersigned revokes all proxies previously given to vote at the
Annual Meeting.
PLEASE INDICATE ON THE REVERSE SIDE OF THIS PROXY CARD HOW YOU
WISH YOUR SHARES TO BE VOTED. UNLESS YOU INDICATE OTHERWISE,
YOUR PROXY WILL VOTE "FOR" ALL OF THE PROPOSALS ON THE REVERSE
SIDE OF THIS CARD. WE CANNOT VOTE YOUR SHARES UNLESS YOU SIGN,
DATE AND RETURN THIS CARD.
(IMPORTANT--YOU SHOULD SIGN AND DATE THIS PROXY ON THE REVERSE
SIDE OF THIS CARD)
P
82
1997 PROXY
- ------
X
- ------
PLEASE MARK YOUR
VOTE AS IN
THIS EXAMPLE.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS YOU DIRECT. IF YOU GIVE NO
DIRECTION, YOUR SHARES OF COMMON STOCK WILL BE VOTED "FOR" ALL PROPOSALS.
--------------------------------
THE BOARD OF DIRECTORS
RECOMMENDS A VOTE "FOR" ALL
PROPOSALS.
--------------------------------
1. Elect Six Directors.
THE NOMINEES ARE: Phillip B. Lassiter, Michael A. Callen, Renso L. Caporali,
Richard Dulude, W. Grant Gregory and C. Roderick O'Neil.
FOR WITHHELD
FOR, except WITHHOLD authority to vote for the following nominee(s):
---------------------------------------------------------------
2A. Approve Amendment to FOR AGAINST ABSTAIN
Charter to Change
Name to Ambac Financial
Group, Inc.
2B. Approve Amendment to FOR AGAINST ABSTAIN
Charter to Increase Number of
Authorized Shares to 100
Million.
2C. Approve Amendments to Charter FOR AGAINST ABSTAIN
to Eliminate Class A Common
Stock and Certain Other
Outdated Provisions.
3. Approve 1997 FOR AGAINST ABSTAIN
Equity Plan.
4. Approve 1997 Executive FOR AGAINST ABSTAIN
Incentive Plan.
5. Approve 1997 Non-Employee FOR AGAINST ABSTAIN
Directors Equity Plan.
6. Ratify Selection of KPMG FOR AGAINST ABSTAIN
Peat Marwick LLP as
independent auditors for
1997.
Signature ------------------------------------- Date ---------------
Signature ------------------------------------- Date ---------------
IMPORTANT: Please sign EXACTLY as name(s) appears to the left. Joint Owners
should each sign. If you are signing as an executor, administrator, trustee,
guardian, attorney or corporate officer, please give your full title.