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
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
AMBAC FINANCIAL GROUP, INC.
................................................................................
(Name of Registrant as Specified In Its Charter)
................................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transaction applies:
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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):
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[ ] 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing party:
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4) Date Filed:
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Notes:
Reg. (S) 240.14a-101
SEC 1913 (3-99)
AMBAC FINANCIAL GROUP, INC.
[LOGO] Ambac NOTICE OF
2001 ANNUAL MEETING
OF STOCKHOLDERS
AND
PROXY STATEMENT
Meeting Date:
Tuesday, May 1, 2001
at 11:30 A.M. (local time)
Meeting Place:
Ambac Financial Group, Inc.
One State Street Plaza
New York, New York 10004
AMBAC FINANCIAL
GROUP, INC.
One State Street
Plaza
New York, NY 10004
212.668.0340
PHILLIP B. LASSITER
Chairman and
Chief Executive
Officer
March 28, 2001
[LOGO] Ambac
Dear Stockholders:
It is my pleasure to invite you to Ambac's 2001 Annual
Meeting of Stockholders.
We will hold the meeting on Tuesday, May 1, 2001, 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 2000 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.
Your vote is important. Whether you plan to attend the
meeting or not, please complete, sign and return the
enclosed proxy card in the envelope provided. If you
attend the meeting you may vote in person, even if you
previously submitted your proxy.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Phillip B. Lassiter
AMBAC FINANCIAL
GROUP, INC.
One State Street
Plaza
New York, NY 10004
212.668.0340
NOTICE OF 2001 ANNUAL MEETING OF STOCKHOLDERS
March 28, 2001
[LOGO] Ambac
Dear Stockholders:
We will hold the 2001 Annual Meeting of Stockholders
on Tuesday, May 1, 2001 at 11:30 a.m. (local time) at
our executive offices at One State Street Plaza in New
York City. At our Annual Meeting, we will ask you to:
. Elect seven directors;
. Ratify the selection of KPMG LLP as independent
auditors for 2001; and
. Consider any other business that is properly
presented at the Annual Meeting.
You may vote at the Annual Meeting if you were an
Ambac stockholder at the close of business on March
14, 2001.
Along with the attached Proxy Statement, we are also
sending you the Ambac 2000 Annual Report, which
includes our financial statements.
/s/ Anne G.Gill
Anne G. Gill
First Vice President, Corporate Secretary
and Assistant General Counsel
TABLE OF CONTENTS
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING......................................... 1
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 Vote by Telephone or Via the Internet?......................................... 2
May I Revoke My Proxy?............................................................... 2
How Do I Vote in Person?............................................................. 2
How Do Employees in the Ambac Stock Fund Vote?....................................... 3
What Votes Do We Need to be Present to Hold the Annual Meeting?...................... 3
What Vote Is Required to Approve Each Proposal?...................................... 3
What Is the Effect of Broker Non-Votes?.............................................. 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
Where Can I Find the Voting Results?................................................. 4
Whom Should I Call If I Have Any Questions?.......................................... 4
INFORMATION ABOUT AMBAC COMMON STOCK OWNERSHIP.......................................... 5
Which Stockholders own at least 5% of Ambac?......................................... 5
How Much Stock is Owned By Directors and Executive Officers?......................... 6
Did Ambac Insiders Comply with Section 16(a) Beneficial Ownership Reporting in 2000?. 7
INFORMATION ABOUT DIRECTORS............................................................. 8
The Board of Directors............................................................... 8
The Committees of the Board.......................................................... 8
How We Compensate Directors.......................................................... 9
THE AUDIT COMMITTEE REPORT.............................................................. 11
INFORMATION ABOUT THE EXECUTIVE OFFICERS................................................ 12
The Executive Officers............................................................... 12
How We Compensate Executive Officers................................................. 14
The Pension Plan..................................................................... 16
Employment Agreement with the Chief Executive Officer................................ 18
Management Retention Agreements with Executive Officers.............................. 20
Definitions.......................................................................... 20
REPORT ON EXECUTIVE COMPENSATION FOR 2000 BY THE COMPENSATION AND
ORGANIZATION COMMITTEE................................................................ 22
What is Our Executive Compensation Philosophy?....................................... 22
What is Our Position on Maximizing the Deductibility of Executive Compensation?...... 22
What are the Elements of Executive Compensation?..................................... 23
How Did We Determine Base Salaries for 2000?......................................... 23
How Did We Determine Bonuses for 2000?............................................... 24
What Were the Long-Term Incentive Awards in 2000?.................................... 25
PERFORMANCE GRAPH....................................................................... 27
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD........................................ 28
Proposal 1: Elect Seven Directors.................................................... 28
Proposal 2: Ratify Selection of KPMG LLP as Independent Auditors for 2001............ 30
INFORMATION ABOUT STOCKHOLDER PROPOSALS................................................. 31
PROXY STATEMENT FOR THE AMBAC FINANCIAL GROUP, INC.
2001 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 2001 Annual
Meeting of Stockholders.
This Proxy Statement summarizes the information you need to vote at the
Annual Meeting. You do not need to attend the Annual Meeting to vote your
shares. You may simply complete, sign and return the enclosed proxy card.
We will begin mailing this Proxy Statement on March 28, 2001 to all
stockholders entitled to vote. If you owned Ambac common stock at the close of
business on March 14, 2001, you are entitled to vote. On that date, there were
105,652,028 shares of Ambac common stock outstanding. Ambac common stock is our
only class of voting stock.
HOW MANY VOTES DO I HAVE?
You have one vote for each share of Ambac common stock that you owned at
the close of business on March 14, 2001. The proxy card indicates the number.
HOW DO I VOTE BY PROXY?
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:
. "FOR" Proposal 1 (Elect Seven Directors); and
. "FOR" Proposal 2 (Ratify Selection of KPMG LLP as Independent Auditors
for 2001).
If any other matter is presented, your proxy will vote in accordance with
his or her best judgment. At the time we began printing this Proxy Statement,
we knew of no matters that needed to be acted on at the Annual Meeting, other
than those discussed in this Proxy Statement.
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.
MAY I VOTE BY TELEPHONE OR VIA THE INTERNET?
Yes. Instead of submitting your vote by mail on the enclosed proxy card,
you may be able to vote via the Internet or by telephone. Please note that
there are separate Internet and telephone arrangements depending on whether you
are a registered stockholder (that is, if you hold your stock in your own
name), or whether you hold your shares in "street name" (that is, if your stock
is held in the name of your broker or bank).
If you are a registered stockholder, you may vote by telephone, or
electronically through the Internet, by following the instructions provided on
your proxy card.
If your shares are held in "street name", you may need to contact your bank
or broker to determine whether you will be able to vote by telephone or
electronically.
The telephone and Internet voting procedures are designed to authenticate
stockholders' identities, to allow stockholders to give their voting
instructions and to confirm that stockholders' instructions have been recorded
properly. If you vote via the Internet, you may incur costs, such as usage
charges from Internet access providers and telephone companies. You will be
responsible for those costs.
MAY I REVOKE MY PROXY?
Yes. You may change your mind after you send in your proxy card by
following any of these procedures. To revoke your proxy:
. Send in another signed proxy with a later date; or
. Send a letter revoking your proxy to Ambac's Corporate Secretary at the
address indicated on page 31 under "Information about Stockholder
Proposals"; or
. Attend the Annual Meeting and vote in person.
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.
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. The account
statement or letter must show that you were the direct or indirect (beneficial)
owner of the shares on March 14, 2001.
2
HOW DO EMPLOYEES IN THE AMBAC STOCK FUND VOTE?
If you are an employee who participates in our Savings Incentive Plan
("SIP"), you are receiving this material because of shares held for you in the
Ambac Stock Fund in the SIP. The SIP Trustee will send you a voting instruction
card instead of a proxy card. This voting instruction card will indicate the
number of shares of Ambac common stock credited to your account in the Ambac
Stock Fund as of March 14, 2001.
. If you complete, sign and return the voting instruction card on time,
the SIP Trustee will vote the shares as you have directed.
. If you do not complete, sign and return the voting instruction card on
time, the SIP Trustee will not vote the shares credited to your account.
WHAT VOTES DO WE NEED TO BE PRESENT TO HOLD THE ANNUAL MEETING?
We need a majority of the shares of Ambac common stock outstanding on March
14, 2001 to be present, in person or by proxy, to hold the Annual Meeting.
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
PROPOSAL 1: The seven nominees for director who receive the most
ELECT SEVEN votes will be elected. If you do not vote for a
DIRECTORS nominee, or you indicate "withhold authority to vote"
for any nominee on your proxy card, your vote will not
count either for or against the nominee.
PROPOSAL 2: The affirmative vote of a majority of the votes present
RATIFY SELECTION and entitled to vote at the Annual Meeting is required
OF AUDITORS 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.
WHAT IS THE EFFECT OF BROKER NON-VOTES?
Under the rules of the New York Stock Exchange, if your broker holds your
shares in its "street" name, the broker may vote your shares on both proposals
even if it does not receive instructions from you.
However, if your broker does not vote on either of the proposals, it will
have no effect on the outcome of the proposal.
3
IS VOTING CONFIDENTIAL?
We maintain a policy of keeping all the proxies, ballots and voting
tabulations confidential. The Inspectors of Election will forward to management
any written comments that you make on the proxy card.
WHAT ARE THE COSTS OF SOLICITING THESE PROXIES?
Ambac will pay all the costs of soliciting these proxies. Although we are
mailing these proxy materials, our directors and employees may also solicit
proxies by telephone, by fax or other electronic means of communication, or in
person. We will reimburse banks, brokers, nominees and other fiduciaries for
the expenses they incur in forwarding the proxy materials to you. Georgeson
Shareholder Communications, Inc. is assisting us with the solicitation of
proxies for a fee of $8,500 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, 2000 THAT WE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, WE WILL SEND YOU ONE WITHOUT CHARGE. PLEASE WRITE TO:
INVESTOR RELATIONS
AMBAC FINANCIAL GROUP, INC.
ONE STATE STREET PLAZA
NEW YORK, NEW YORK 10004
ATTENTION: BRIAN MOORE, MANAGING DIRECTOR, INVESTOR
RELATIONS
OR CONTACT MR. MOORE AT (212) 208-3333 OR AT BMOORE@AMBAC.COM.
WHERE CAN I FIND THE VOTING RESULTS?
We will publish the voting results in our FORM 10-Q for the second quarter
of 2001, which we will file with the SEC in August 2001. You can also find the
results on Ambac's website at WWW.AMBAC.COM.
WHOM SHOULD I CALL IF I HAVE ANY QUESTIONS?
If you have any questions about the Annual Meeting or voting, please
contact ANNE GILL, OUR CORPORATE SECRETARY, AT (212) 208-3355 OR AT
AGILL@AMBAC.COM.
If you have any questions about your ownership of Ambac common stock,
please call BRIAN MOORE, MANAGING DIRECTOR, INVESTOR RELATIONS, AT (212)
208-3333 OR AT BMOORE@ AMBAC.COM.
4
INFORMATION ABOUT AMBAC COMMON STOCK OWNERSHIP
WHICH STOCKHOLDERS OWN AT LEAST 5% OF AMBAC?
The following table shows all persons we know to be direct or indirect
owners of at least 5% of Ambac common stock as of December 31, 2000. Persons
who are direct or indirect owners of Ambac common stock are sometimes referred
to in this Proxy Statement as "BENEFICIAL OWNERS" or as persons who
"BENEFICIALLY OWN" Ambac common stock. Our information is based on reports
filed with the Securities and Exchange Commission by each of the firms listed
in the table below. If you wish, you may obtain these reports from the SEC.
NUMBER OF
SHARES OWNED PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY CLASS
- ------------------------------------------------------------
FMR CORP. 12,631,764 12.0%
82 Devonshire Street
Boston, Massachusetts 02109
J.P. MORGAN CHASE & CO. 9,132,506 8.6%
270 Park Avenue
New York, New York 10017
GOLDMAN SACHS ASSET MANAGEMENT 5,946,050 5.6%
32 Old Slip
New York, NY 10005
5
HOW MUCH STOCK IS OWNED BY DIRECTORS AND EXECUTIVE OFFICERS?
The following table shows the Ambac common stock owned directly or
indirectly by Ambac's directors and executive officers as of February 15, 2001.
Except for Mr. Lassiter, no director or executive officer beneficially owns 1%
or more of the shares of Ambac common stock. All directors and executive
officers as a group beneficially own 3.0% of the shares of Ambac common stock.
We have adjusted all shares, options, restricted stock units ("RSUS") and
phantom stock units to reflect Ambac's three-for-two stock split in December
2000.
SHARES
BENEFICIALLY TOTAL HOLDINGS
OWNED PERCENT UNVESTED (INCLUDING RSUs
NAME OF BENEFICIAL OWNER (1)(2)(3)(4)(5) OF CLASS RSUs(6) PSUs(7) AND PSUs)
- ----------------------------------------------------------------------------------------------------
OUTSIDE DIRECTORS
Michael A. Callen....................... 26,487 -- 4,628 7,576 38,691
Renso L. Caporali....................... 15,369 -- 3,020 5,442 23,831
Jill M. Considine....................... 626 -- 3,020 552 4,198
Richard Dulude.......................... 17,229 -- 4,628 8,318 30,175
W. Grant Gregory........................ 38,053 -- 4,628 10,061 52,742
C. Roderick O'Neil...................... 33,087 -- 4,628 4,011 41,726
EXECUTIVE OFFICERS
Phillip B. Lassiter..................... 1,543,976 1.5% 16,640 -- 1,560,616
Robert J. Genader....................... 701,477 -- 10,775 -- 712,252
Frank J. Bivona......................... 438,327 -- 5,517 -- 443,844
David L. Boyle.......................... 228,036 -- 5,967 -- 234,003
Kevin J. Doyle.......................... 74,253 -- 4,364 -- 78,617
All executive officers and directors as
a group (12 persons)................... 3,162,056 3.0% 70,072 35,960 3,268,088
- ----------------------------------------------------------------------------------------------------
(1) To our knowledge, except for Messrs. Lassiter and Genader, who share
voting and investment power with their spouses, each of the directors and
executive officers has sole voting and investment power over his shares.
(2) The number of shares shown for Mr. Lassiter includes 12,000 shares owned
by his spouse. Mr. Lassiter disclaims beneficial ownership of these
shares.
The number of shares shown for Mr. Gregory includes 4,999 shares held in
the Gregory 1997 Children's Trust, of which his daughter is a beneficiary.
Mr. Gregory disclaims beneficial ownership of these shares.
(3) The number of shares shown for each director and executive officer
includes shares that may be acquired upon exercise of stock options that
were exercisable as of February 15, 2001 or that will become exercisable
within 60 days after February 15, 2001. These shares are shown in the
following table
OUTSIDE DIRECTORS NUMBER OF SHARES EXECUTIVE OFFICERS NUMBER OF SHARES
- ----------------- ---------------- ------------------ ----------------
Mr. Callen....... 9,000 Mr. Lassiter...... 427,596
Dr. Caporali..... 6,000 Mr. Genader....... 487,500
Ms. Considine.... 626 Mr. Bivona........ 329,229
Mr. Dulude....... 9,000 Mr. Boyle......... 222,500
Mr. Gregory...... 9,000 Mr. Doyle......... 68,875
Mr. O'Neil....... 9,000
(4) The number of shares shown for each executive officer also includes the
number of shares of Ambac common stock owned indirectly as of February 15,
2001 by these executive officers in our Savings Incentive Plan ("SIP ").
Our information on these shares is based on reports from the SIP Trustee.
6
(5) The number of shares shown for Messrs. Lassiter, Genader, Bivona, Boyle
and Doyle include vested restricted stock units ("RSUs") that we awarded
under our equity plans. These RSUs are shown in the following table:
EXECUTIVE OFFICERS NUMBER OF VESTED RSUs
- ------------------ ---------------------
Mr. Lassiter...... 829,039
Mr. Genader....... 170,455
Mr. Bivona........ 93,638
Mr. Boyle......... 0
Mr. Doyle......... 0
(6) This column shows the 4,500 RSUs that were granted to each of Messrs.
Callen, Dulude, Gregory, and O'Neil at the 1998 Annual Meeting under the
1997 Non-Employee Directors Equity Plan and accrued dividends and the
3,000 RSUs that were granted to Mr. Caporali and Ms. Considine at the 2000
Annual Meeting under the 1997 Non-Employee Directors Equity Plan and
accrued dividends. These RSUs generally will vest on the date of the
Annual Meeting held in the fifth calendar year following the date of
grant. At that time, each of these directors will receive one share of
Ambac common stock in settlement of each RSU. For more information on
these RSUs, see below at page 9 under "How We Compensate Directors."
This column also shows RSUs for Messrs. Lassiter, Genader, Bivona, Boyle
and Doyle that were awarded as part of each executive officer's 1999 bonus
and 2000 bonus pursuant to the Ambac Deferred Compensation Sub-Plan of the
1997 Equity Plan (the "SUB-PLAN") and accrued dividends. See page 25 for
more detailed descriptions of these awards made pursuant to the Sub-Plan.
(7) Under Ambac's Deferred Compensation Plan, directors may defer their cash
compensation. If a director has elected to defer cash compensation into
Phantom Stock Units ("PSUs"), these PSUs are shown in this column. For
more information on the Deferred Compensation Plan, see below at page 10.
DID AMBAC INSIDERS COMPLY WITH SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING IN
2000?
Section 16(a) of the Securities Exchange Act of 1934 requires that our
insiders--our directors, executive officers, and greater-than-10%
stockholders--file reports with the SEC and the New York Stock Exchange on
their initial beneficial ownership of Ambac common stock and any subsequent
changes. They must also provide us with copies of the reports.
We reviewed copies of all reports furnished to us and obtained written
representations that no other reports were required. Based on this, we believe
that all of our insiders complied with their filing requirements for 2000.
7
INFORMATION ABOUT DIRECTORS
THE BOARD OF DIRECTORS
The Board of Directors oversees the business 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 by discussing matters with the Chairman, other key
executives and our principal external advisers (legal counsel, outside
auditors, investment bankers and other consultants) by reading the reports and
other materials that we send them regularly and by participating in Board and
committee meetings.
Ambac's Board usually meets five times per year in regularly scheduled
meetings, but will meet more often if necessary. The Board met five times
during 2000. All directors attended at least 75% of the Board meetings and
meetings of the Committees of which they were members.
Each of our directors also serves as a director of our principal operating
subsidiary, Ambac Assurance Corporation, a leading triple-A rated financial
guarantee insurance company.
THE COMMITTEES OF THE BOARD
The Board has three standing committees: the Audit Committee, the
Compensation and Organization Committee and the Nominating Committee. None of
the directors who serve as members of these committees is, or has ever been, an
employee of Ambac or our subsidiaries.
THE AUDIT The Audit Committee recommends the selection of the
COMMITTEE independent auditors to the Board, approves the scope
of the annual audit by the independent auditors and our
internal auditors, reviews audit findings and
accounting policies and oversees compliance with
Ambac's Code of Business Conduct. The Committee also
meets privately, outside the presence of Ambac
management, with both the independent auditors and the
internal auditors. Under the rules of the New York
Stock Exhange, all of the members of the Audit
Committee are independent. The Committee's Report is
printed below at page 11.
In January 2000, the Audit Committee approved and
adopted an Audit Committee Charter, which is attached
to this Proxy Statement as Appendix A.
The Committee met three times during 2000.
Messrs. Callen, Dulude, Gregory and O'Neil and Dr.
Caporali and Ms. Considine currently serve as members
of the Committee. Mr. O'Neil serves as Chairman of the
Committee.
THE COMPENSATION The Compensation and Organization Committee establishes
AND ORGANIZATION and approves all elements of compensation for the
COMMITTEE executive officers. Each year, as the SEC requires, the
Committee reports to you on executive compensation. The
Committee's Report on Executive Compensation for 2000
is printed below, starting at page 22.
8
The Committee administers Ambac's 1997 equity plan and
has sole authority for awards under the plan. The
Committee evaluates existing and proposed employee
benefit plans and may approve of plan changes. The
Committee also administers the 1997 Executive Incentive
Plan and Ambac's Deferred Compensation Plan for Outside
Directors and Ambac's Senior Officer Deferred
Compensation Sub-Plan of the 1997 Equity Plan.
The Committee met three times during 2000.
Messrs. Callen, Dulude, Gregory and O'Neil and Dr.
Caporali and Ms. Considine currently serve as members
of the Committee. Mr. Dulude serves as Chairman of the
Committee.
THE NOMINATING The Nominating Committee is responsible for identifying
COMMITTEE and recommending qualified candidates to the Board for
election as directors. In addition, our By-laws provide
a procedure for you to recommend candidates for
director at an annual meeting. For more information,
see below at page 31 under "Information About
Stockholder Proposals."
The Committee met once during 2000.
Messrs. Callen, Dulude, O'Neil and Gregory currently
serve as members of the Committee. Mr. Gregory serves
as Chairman of the Committee.
HOW WE COMPENSATE DIRECTORS
ANNUAL We compensate directors who are not employees of Ambac
CASH FEE or our subsidiaries with an annual cash fee of $20,000
per year.
ANNUAL STOCK We also grant each non-employee director 3,750 stock
OPTION AWARD options on the date of each annual meeting. (The Board
adjusted the number of stock options awarded from 2,500
to 3,750 to reflect Ambac's three-for-two stock split
in December 2000.) These options have an exercise price
equal to the average of the high and low trading price
of our stock on the New York Stock Exchange on the date
of grant. The options generally will vest on the first
anniversary of the date of the grant and expire on the
date of the annual meeting held in the seventh calendar
year following the date of the grant.
AWARD OF Ambac grants each non-employee director 3,000
RESTRICTED STOCK restricted stock units ("RSUs") at the annual meeting
UNITS EVERY at which the director is first elected to the Board.
FIVE YEARS (The Board adjusted the number of RSUs awarded from
2,000 to 3,000 to reflect Ambac's three-for-two stock
split in December 2000.)
. These RSUs generally will vest on the date of the
annual meeting held in the fifth year following the
date of grant and will be settled by the delivery
of one share of Ambac common stock for each RSU.
9
. If the director remains on the Board after the
first award of RSUs vests, Ambac will grant the
director a second award of 3,000 RSUs, subject to
similar vesting conditions and restrictions on
transfer.
MEETING FEES We also pay each non-employee director a meeting fee
of:
. $1,000 for attendance at each meeting of
stockholders and each Board meeting; and
. $1,000 for attendance at each committee meeting.
FEE FOR CHAIRING We pay an annual fee of $1,500 to each non-employee
A COMMITTEE director who chairs a committee.
EXPENSES AND Ambac reimburses all directors for travel and other
BENEFITS related expenses incurred in attending stockholder,
Board and committee meetings.
We provide non-employee directors with life and health
insurance benefits. We also allow them to participate
in our Matching Gift Program up to $20,000. Under this
Program, Ambac will match gifts by directors to
qualified organizations.
THE DEFERRED Under our Deferred Compensation Plan for Outside
COMPENSATION Directors, non-employee directors may elect to defer
PLAN all or part of their director compensation that is paid
in cash.
. At the director's election, we credit deferrals to
a bookkeeping account that we maintain on the
director's behalf either as a cash credit (which we
credit with interest quarterly), or as phantom
stock units ("PSU") based on the market value of
Ambac common stock (on which we pay quarterly
dividend equivalents in additional PSUs) or as
performance units measured by the performance of
those mutual funds the director selects out of a
limited group of funds.
. We do not fund the Deferred Compensation Plan. We
settle accounts only in cash.
SERVICE ON THE Although Ambac Assurance does not pay its non-employee
AMBAC ASSURANCE directors an annual fee for serving on its Board of
BOARD Directors, it does pay them meeting fees (in the same
amounts as we do for the Ambac Board) and reimburses
all directors for expenses.
DIRECTORS WHO We do not compensate our employees or employees of our
ARE AMBAC subsidiaries for service as a director. We do, however,
EMPLOYEES reimburse them for travel and other related expenses.
10
THE AUDIT COMMITTEE REPORT
The Audit Committee of Ambac is responsible for providing independent,
objective oversight of Ambac's accounting functions and internal controls. The
Audit Committee recommends the selection of the independent auditors to the
Board. The Audit Committee is currently composed of six independent directors,
each of whom is independent as defined under the rules of the New York Stock
Exchange. The Audit Committee operates under a written charter adopted by the
Board of Directors, attached to this Proxy Statement as Appendix A.
Management is responsible for Ambac's internal controls and financial
reporting process. The independent accountants are responsible for performing
an independent audit of Ambac's consolidated financial statements in accordance
with auditing standards generally accepted in the United States of America and
to issue a report thereon. The Audit Committee's responsibility is to monitor
and oversee these processes. However, none of the members of the Committee is
professionally engaged in the practice of accounting or auditing nor are all of
our members experts in those fields. The Committee relies without independent
verification on the information provided to it and on the representations made
by management and the independent auditors.
In connection with these responsibilities, we met with management and KPMG
LLP to review and discuss the December 31, 2000 financial statements. We also
discussed with the independent accountants the matters required by Statement on
Auditing Standards No. 61 (Communication with Audit Committees). The
Corporation's independent accountants also provided us the written disclosures
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), and we discussed with KPMG its
independence.
Based upon the review and discussions referred to above, we recommended to
the Board of Directors, and the Board of Directors has approved, that Ambac's
audited financial statements be included in Ambac's Annual Report on SEC Form
10-K for the fiscal year December 31, 2000. We also recommended the selection
of KPMG LLP as Ambac's independent auditors for 2001 and, based on that
recommendation, the Board has selected KPMG LLP as Ambac's independent auditors
for 2001.
PRINCIPAL ACCOUNTING FIRM FEES
Fees paid to KPMG for the fiscal year ended December 31, 2000 were: Audit:
$789,500; Financial Information Systems Design and Implementation Fees: $0 and
All Other Fees: $682,193. Of the $682,193 All Other Fees, $148,200 were fees
paid to KPMG for consents provided by KPMG in connection with the registration
of securities of our clients which were guaranteed by Ambac Assurance. These
fees were reimbursed to Ambac by the clients.
THE AUDIT COMMITTEE
C. Roderick O'Neil, Chairman
Michael A. Callen
Renso L. Caporali
Jill M. Considine
March 22, 2001 Richard Dulude
W. Grant Gregory
11
INFORMATION ABOUT THE EXECUTIVE OFFICERS
THE EXECUTIVE OFFICERS
These are the biographies of Ambac's current executive officers, except for
Mr. Lassiter, the Chief Executive Officer, and Mr. Genader, the President and
Chief Operating Officer, whose biographies are included below at pages 28 and
29 under "Proposal 1: Elect Seven Directors."
FRANK J. BIVONA VICE CHAIRMAN AND CHIEF FINANCIAL OFFICER--FINANCE AND
Age 45 INVESTMENT GROUP.
In January 2001, Mr. Bivona was promoted to Vice
Chairman and Chief Financial Officer--Finance and
Investment Group of Ambac and Ambac Assurance. In
February 2000, he was named as Head of the Finance and
Investment Group, in addition to his position as
Ambac's Chief Financial Officer. Mr. Bivona also has
executive responsibility for managing Ambac's
investment portfolio, asset and liability management
services, corporate marketing, investor and public
relations and corporate administration. Mr. Bivona
served as Executive Vice President and Chief Financial
Officer of Ambac and Ambac Assurance from January 1998
to January 2001. Mr. Bivona served as Senior Vice
President and Chief Financial Officer of Ambac from
1993 to January 1998 and Ambac Assurance from 1987 to
January 1998. Mr. Bivona also served as Treasurer of
Ambac from 1993 to July 1998 and Ambac Assurance from
1987 to July 1998. Mr. Bivona also serves as a trustee
of Cadre Institutional Investors Trust. Mr. Bivona
joined Ambac Assurance from Citibank in 1986.
DAVID L. BOYLE VICE CHAIRMAN--PORTFOLIO RISK MANAGEMENT GROUP.
Age 54 In February 2000, Mr. Boyle was named Vice Chairman of
Ambac's Portfolio Risk Management Group. The Portfolio
Risk Management Group oversees our specialized finance
and public finance portfolios, market risk management,
reinsurance, technology and internal audit. Mr. Boyle
previously served as Vice Chairman of the Municipal
Financial Services Group from January 1998 to February
2000. Mr. Boyle joined Ambac and Ambac Assurance in
March 1997 as Senior Vice President of the Financial
Management Services Division. He became an Executive
Vice President in July 1997. Mr. Boyle joined Ambac
from Citibank, where, as a managing director, he held
various management positions in corporate banking over
a 22-year career.
GREGG L. BIENSTOCK MANAGING DIRECTOR, HUMAN RESOURCES AND EMPLOYMENT
Age 36 COUNSEL.
Mr. Bienstock has been Managing Director, Human
Resources and Employment Counsel since January 1999.
Mr. Bienstock served as First Vice President, Director
of Human Resources and Employment Counsel of Ambac and
Ambac Assurance from February 1997 to January 1999. Mr.
Bienstock joined Ambac from the Bristol Myers-Squibb
Corporation, where he served as a Director of Human
Resources from February 1996 to February 1997. From
September 1993 to February 1996, Mr. Bienstock was an
associate with the New York law firm of Proskauer Rose
LLP. Prior to joining Proskauer, from April 1992 to
September 1993, Mr. Bienstock was an Assistant General
Counsel for the Mayor's Office of Labor Relations for
the City of New York.
12
KEVIN J. DOYLE e MANAGING DIRECTOR AND GENERAL COUNSEL.
Age 44 Mr. Doyle was named Managing Director and General
Counsel of Ambac and Ambac Assurance in January 2000.
Mr. Doyle is Ambac's chief legal officer. From January
1996 to January 2000, Mr. Doyle served as the Managing
Director and General Counsel of the Specialized Finance
Division of Ambac Assurance. Mr. Doyle served as First
Vice President and General Counsel of the Specialized
Finance Division of Ambac Assurance from July 1995 to
January 1996. Mr. Doyle joined Ambac Assurance as a
Vice President and Assistant General Counsel from the
New York law firm LeBoeuf, Lamb, Greene & MacRae in
1991.
13
HOW WE COMPENSATE EXECUTIVE OFFICERS
The tables on pages 14 through 16 show salaries, bonuses and other
compensation paid during the last three years, options granted in 2000, options
exercised in 2000 and option values as of year-end 2000 for the Chief Executive
Officer and our next four most highly compensated executive officers. We have
adjusted all share and option amounts to reflect Ambac's three-for-two stock
split.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------------
RESTRICTED SECURITIES ALL OTHER
STOCK UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) UNITS($)(1) OPTIONS($)(2) ($)(3)
- ---------------------------------------------------------------------------------------------------
PHILLIP B. LASSITER 2000 $620,000 $930,000 $413,335 287,232 $78,509
Chairman and 1999 560,000 750,000 333,350 250,063 52,340
Chief Executive Officer 1998 560,000 840,000 0 187,811 50,200
ROBERT J. GENADER 2000 345,000 600,000 266,658 140,242 31,049
President and Chief 1999 310,000 487,500 216,650 63,888 28,973
Operating Officer 1998 310,000 525,000 0 81,098 27,900
FRANK J. BIVONA 2000 270,000 318,750 141,687 86,731 24,301
Vice Chairman and 1999 245,000 240,000 106,650 47,150 22,615
Chief Financial Officer--Finance 1998 245,000 260,000 0 42,820 22,050
and Investment Group
DAVID L. BOYLE 2000 330,000 318,750 141,687 90,000 29,699
Vice Chairman--Portfolio 1999 300,000 281,250 125,030 20,000 28,040
Risk Management Group 1998 300,000 300,000 0 100,000 18,300
KEVIN J. DOYLE 2000 174,000 232,500 103,346 21,750 15,660
Managing Director 1999 164,000 206,250 91,667 15,000 15,327
and General Counsel 1998 164,000 210,000 0 15,000 14,520
- --------------------------------------------------------------------------------
(1) Pursuant to the Ambac Deferred Compensation Sub-Plan of the 1997 Equity
Plan (the "SUB-PLAN"), the Compensation and Organization Committee paid
25% of each executive officer's bonus for 1999 and 2000 in restricted
stock units ("RSUS"). Amounts shown in this column are based on the market
value of the underlying Common Stock on the date of grant and do not
reflect the discount attributed to such value by the Committee to take
account of vesting requirements, restrictions on transfer and other
limitations. See page 25 for more detailed descriptions of these awards
made pursuant to the Sub-Plan. As dividends are paid on the common stock,
dividend equivalents are accrued on the RSUs as additional RSUs and vest
according to the same schedule.
The total number of RSUs held by the named executive officers as of
December 31, 2000, and the total value of these RSUs (based on the $58.31
per share closing price of Ambac common stock on the New York Stock
Exchange on Friday, December 31, 2000), were as follows: Mr.
Lassiter--767,719 RSUs ($44,765,695); Mr. Genader--175,565 RSUs
($10,237,195); Mr. Bivona--96,112 RSUs ($5,604,291); Mr. Boyle--4,062 RSUs
($236,855); and Mr. Doyle--2,980 RSUs ($173,764).
(2) The number of securities underlying options for 1998, 1999 and 2000
includes restoration options awarded upon the exercise of stock options in
accordance with Ambac's Restoration Option Program. For the specific
breakdown of option and restoration option grants made in 2000, please
refer below to the table on page 15 under "Option Grants in 2000." For a
more detailed description of our Restoration Option Program, please see
footnote 3 under the "Option Grants in 2000" table on page 15.
14
(3) The column called "ALL OTHER COMPENSATION" includes the amounts that Ambac
contributed or credited on behalf of the named officers in 2000 to (a) our
Savings Incentive Plan (the "SIP"), and (b) our Non-Qualified SIP. 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 Ambac's Non-Qualified SIP.
CREDITS TO THE
CONTRIBUTIONS NON-QUALIFIED
TO THE SIP SIP
------------- --------------
Mr. Lassiter......................... $15,000 $40,802
Mr. Genader.......................... 13,700 17,349
Mr. Bivona........................... 14,700 9,601
Mr. Boyle............................ 14,403 15,296
Mr. Doyle............................ 13,700 1,960
OPTION GRANTS IN 2000
INDIVIDUAL GRANTS
--------------------------------------------------------------------------
NUMBER OF SECURITIES UNDERLYING PERCENT OF TOTAL
OPTIONS GRANTED (#) OPTIONS GRANTED GRANT DATE
RESTORATION TO EMPLOYEES IN EXERCISE PRICE EXPIRATION PRESENT VALUE
NAME OPTIONS(1) OPTIONS(2) 2000 ($/SH)(3) DATE ($)(4)
- ------------------------------------------------------------------------------------------------------------
Phillip B. Lassiter 225,000 12.53% $31.02 1/24/07 $2,592,000
62,232 3.46 53.48 1/28/04 891,162
Robert J. Genader 120,000 31.02 1/24/07 1,382,400
20,241 6.68 46.56 3/03/03 210,304
1.13
Frank J. Bivona 75,000 4.18 31.02 1/24/07 864,000
11,730 0.65 46.56 3/03/03 121,875
David L. Boyle 90,000 5.01 31.02 1/24/07 1,036,800
Kevin J. Doyle 21,750 1.21 31.02 1/24/07 250,560
- ------------------------------------------------------------------------------------------------------------
(1) Options awarded to the named executive officers by the Compensation and
Organization Committee were long-term incentive awards granted on January
24, 2000. Each executive officer's options will vest in two equal
installments when the market price of Ambac common stock meets or exceeds
$43.33 and $56.66 for twenty consecutive trading days or no later than the
sixth anniversary of the grant date. Vesting is accelerated upon
retirement, 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. We have adjusted all options awarded to
reflect Ambac's three-for-two stock split in December 2000.
(2) Restoration options were awarded upon the exercise of stock options in
accordance with Ambac's Restoration Option Program. A restoration option is
awarded automatically when the underlying option is exercised by tendering
shares of common stock to pay the exercise price. Each restoration option
will vest one year from the date of grant and has the same exercise,
transfer and expiration provisions as its underlying option. We have
adjusted all options awarded to reflect Ambac's three-for-two stock split
in December 2000.
(3) 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 Ambac common stock on the New York Stock Exchange on
the date of grant. We have adjusted all share prices to reflect Ambac's
three-for-two stock split in December 2000.
(4) We calculated these values by using the Black-Scholes stock option pricing
model as follows:
FOR THE JANUARY OPTION GRANTS. The model, as we applied, uses the grant date
of January 24, 2000. The fair market value on that date was $31.02 per share
as we discussed above. The model also assumes: (a) a risk-free rate of
return of
15
6.6% (which was the yield on a U.S. Treasury Strip zero coupon bond with a
maturity that approximates the term of the option), (b) stock price
volatility of 30.1% (calculated using month-end closing prices of Ambac
common stock on the New York Stock Exchange for the period beginning with
January 31, 1997 and ending as of the end of the month preceding the grant
date); (c) a constant dividend yield of .95% based on the quarterly cash
dividend rate at the time of grant on Ambac common stock; and (d) an
exercise date, on average, of 5.5 years after grant.
FOR THE RESTORATION OPTION GRANTS. We use the following assumptions in
applying the model for each Restoration Option Grant: (a) a risk-free rate
of return equal to the yield on grant date of a U.S. Treasury Strip zero
coupon bond with a maturity that approximates the term of the option; (b)
stock price volatility of Ambac common stock calculated using month-end
closing prices of Ambac common stock on the New York Stock Exchange for the
three year period prior to the grant date; (c) a constant dividend yield
based on the quarterly cash dividend rate at the time of grant on Ambac
common stock; and (d) exercise of the restoration option at the end of its
term.
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 AMBAC COMMON STOCK EXCEEDS THE EXERCISE PRICE OF THE OPTION ON THE
DATE OF EXERCISE. THE HYPOTHETICAL VALUES ARE PRESENTED PURSUANT TO SEC
RULES AND THERE CAN BE NO ASSURANCE THAT THE AMOUNT STATED AS "GRANT DATE
PRESENT VALUE" WILL ACTUALLY BE REALIZED.
AGGREGATED OPTION EXERCISES DURING 2000 AND YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS HELD AT
NUMBER OF SHARES DECEMBER 31, 2000 DECEMBER 31, 2000 ($)(1)(2)
ACQUIRED ON VALUE ------------------------- ----------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------------------------------------------------------------------
Phillip B. Lassiter 238,028 $6,224,755 427,596 234,732 $ 9,930,705 $4,659,250
Robert J. Genader 123,146 3,494,240 487,500 110,241 16,975,472 2,519,425
Frank J. Bivona 81,725 2,438,854 329,229 69,230 11,654,404 1,590,671
David L. Boyle 0 0 222,500 92,500 6,460,428 2,490,338
Kevin J. Doyle 0 0 68,875 15,875 2,274,100 404,152
- -------------------------------------------------------------------------------------------------------
(1) We have adjusted all shares to reflect Ambac's three-for-two stock split in
December 2000.
(2) This valuation represents the difference between $58.31, the closing price
of Ambac common stock on the New York Stock Exchange on Friday, December
31, 2000, 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 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.
16
. 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 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 company (the "CITIBANK PLAN"). 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.
TOTAL YEARS OF SERVICE AT RETIREMENT
------------------------------------------------------------
AVERAGE YEARS OF
COVERED SERVICE AT
COMPENSATION TRANSITION DATE 10 15 20 25 30 35
- -------------------------------------------------------------------------------------------
$150,000 30 NA NA NA NA $ 90,000 $ 97,500
15 NA $ 45,000 $ 52,500 $ 60,000 67,500 75,000
0 $ 15,000 22,500 30,000 37,500 45,000 52,500
- -------------------------------------------------------------------------------------------
200,000 30 NA NA NA NA 120,000 130,000
15 NA 60,000 70,000 80,000 90,000 100,000
0 20,000 30,000 40,000 50,000 60,000 70,000
- -------------------------------------------------------------------------------------------
500,000 30 NA NA NA NA 300,000 325,000
15 NA 150,000 175,000 200,000 225,000 250,000
0 50,000 75,000 100,000 125,000 150,000 175,000
- -------------------------------------------------------------------------------------------
1,000,000 30 NA NA NA NA 600,000 650,000
15 NA 300,000 350,000 400,000 450,000 500,000
0 100,000 150,000 200,000 250,000 300,000 350,000
- -------------------------------------------------------------------------------------------
1,500,000 30 NA NA NA NA 900,000 975,000
15 NA 450,000 525,000 600,000 675,000 750,000
0 150,000 225,000 300,000 375,000 450,000 525,000
- -------------------------------------------------------------------------------------------
2,000,000 30 NA NA NA NA 1,200,000 1,300,000
15 NA 600,000 700,000 800,000 900,000 1,000,000
0 200,000 300,000 400,000 500,000 600,000 700,000
- -------------------------------------------------------------------------------------------
2,500,000 30 NA NA NA NA 1,500,000 1,625,000
15 NA 750,000 875,000 1,000,000 1,125,000 1,250,000
0 250,000 375,000 500,000 625,000 600,000 875,000
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 on page 14, is the amount shown
under the column called "SALARY") for the five highest
consecutive paid years of the ten years of employment
preceding retirement.
17
SERVICE BEFORE For service prior to January 1, 1992, the annual
1992 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 thirty years.
YEARS OF SERVICE 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 to show the benefits payable
depending on how many years of service the executive
officer would have:
. prior to the Transition Date, and
. at Retirement.
In order to simplify the chart, we show only 0, 15 and
30 years of service at Transition, since those values
cover the range for our executive officers.
The years of credited service under the Pension Plan
(including credit for years of past service under the
Citibank Plan) as of December 31, 2000 for executive
officers named in the Summary Compensation Table were
as follows: Mr. Lassiter--31 years, Mr. Genader--26
years, Mr. Bivona--23 years, Mr. Boyle--4 years, and
Mr. Doyle--9 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.
EMPLOYMENT AGREEMENT WITH THE CHIEF EXECUTIVE OFFICER
IN GENERAL Ambac's employment agreement with Mr. Lassiter provides
that he shall serve as the Chairman and Chief Executive
Officer and as a director.
. The agreement has a two year term, which is
extended on a daily basis, until Ambac or Mr.
Lassiter terminates it.
. Mr. Lassiter is to receive a base salary at a rate
not less than his current rate.
. He is to 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.
SUPPLEMENTAL Mr. Lassiter has a supplemental pension benefit that
PENSION BENEFIT will be based on the benefit formula of the Pension
Plan that was in effect until the end of 1991. The
formula, however, 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
18
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 Savings Incentive Plan ("SIP")
that we introduced in 1992.
PAYMENTS AND If Mr. Lassiter's employment is terminated other than
BENEFITS for "Cause" (as we define it below), or if he resigns
for "Good Reason" (as we define it below), Mr. Lassiter
will:
- -- AFTER TERMINATION . receive, for the remainder of the term (which
OR RESIGNATION typically would be for two years), 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 and the 1997 Equity 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.
- -- AFTER CHANGE IN All stock options and other awards under the 1997
CONTROL Equity Plan that are made to Mr. Lassiter after
January 1, 1998 will vest in full upon the occurrence of
a "Change in Control" (as we define it below), whether
or not his employment is subsequently terminated.
In addition, if Mr. Lassiter's employment terminates
following a Change in Control, his severance amount
would be calculated and paid in the same manner as we
describe below under "Management Retention Agreements
with Executive Officers."
Mr. Lassiter would also be entitled to the "gross up"
payment described in that section.
OTHER RESTRICTIONS Mr. Lassiter will be subject to certain restrictions
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.
19
MANAGEMENT RETENTION AGREEMENTS WITH EXECUTIVE OFFICERS
IN GENERAL We have entered into management retention agreements
with each of our executive officers (other than Mr.
Lassiter) to provide for payments and certain benefits
if they are terminated following a "Change in Control"
(as we define it below).
PAYMENTS AND If there is a Change in Control and, within three years
BENEFITS AFTER of the Change in Control, the executive's employment is
CHANGE IN CONTROL terminated by Ambac or its successor other than for
"Cause" (as we define it below), or if the executive
resigns for "Good Reason" (as we define it 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;
. be fully vested in all stock options and other
awards under the 1991 Stock Incentive Plan and the
1997 Equity Plan;
. 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.
All stock options and other awards under the 1997
Equity Plan that are made to executive officers after
January 1, 1998 will vest in full upon the occurrence
of a Change in Control, whether or not the executive's
employment is subsequently terminated.
The agreements also provide for a "gross up" payment in
an amount that is intended to make the executive whole,
on an after-tax basis, for any excise tax (but not any
other tax) imposed on the payments described above.
DEFINITIONS
The following definitions are used in the Management Retention Agreements
and the Employment Agreement with the Chief Executive Officer described above:
"CHANGE IN A "Change in Control" generally occurs if
CONTROL"
. an individual, entity or group acquires beneficial
ownership of 20% or more of the outstanding common
stock. Acquisitions by Ambac and
20
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 are not considered
a change in control;
. 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 these members
or their successors whose election was so approved
or recommended, cease for any reason to constitute
at least a majority of the Board; or
. our stockholders approve a merger or similar
business combination, or a sale of all or
substantially all of Ambac's assets, unless the
Ambac stockholders immediately prior to the
completion of the transaction will continue to own
at least 70% of outstanding shares and voting power
of the corporation that results from the
transaction.
"CAUSE" "Cause" for an executive's termination generally
includes:
. the willful commission of acts that are dishonest
and demonstrably and materially injurious to Ambac;
. the conviction of certain felonies; or
. a material breach of any of the executive's
agreements concerning confidentiality and
proprietary information.
An executive's termination will not be considered to
have been for Cause unless at least three-quarters of
the members of the Board adopt a resolution finding
that the executive has engaged in conduct that
constitutes Cause as defined in the agreement.
"GOOD REASON" An executive will generally have "Good Reason" to
terminate his employment if:
. there is substantial adverse change in the
executive's duties or responsibilities;
. the office of the executive is relocated more than
25 miles from the location where the executive
worked immediately prior to the Change in Control;
or
. Ambac fails to honor its obligations under the
agreement.
During a 30-day period following the first anniversary
of a Change in Control, a resignation by the executive
for any reason will be considered a termination for
Good Reason.
21
REPORT ON EXECUTIVE COMPENSATION FOR 2000
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 2000:
WHAT IS OUR 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 this relationship, 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 stock option and restricted stock unit 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.
WHAT IS OUR POSITION ON MAXIMIZING THE DEDUCTIBILITY OF EXECUTIVE COMPENSATION?
In 1997, our stockholders approved the 1997 Executive Incentive Plan
("EIP") and the 1997 Equity Plan. We designed these plans to allow Ambac to
receive a tax deduction for incentive compensation payments to our Chief
Executive Officer and our other four most highly paid executive officers.
Without these qualifying performance-based plans, Ambac could not deduct
incentive compensation payments to the extent the amounts paid to any of these
executive officers in any year exceeded $1 million.
The Committee intends to pursue a strategy of maximizing the deductibility
of the compensation we pay to our executives. However, we intend to retain 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.
22
WHAT ARE THE ELEMENTS OF EXECUTIVE COMPENSATION?
We compensate our executives through base salary, bonus (paid in a
combination of cash and restricted stock units) and long-term incentive awards
in the form of stock options. We target total compensation for our executive
officers so that at least 60% (and in the case of the Chairman, 75%) consists
of bonus and long term incentive awards. In this way, a significant portion of
the value ultimately realized by the executives will depend upon Ambac's
performance and can be considered "at risk."
Our executives participate in a retirement plan, health plan, savings
incentive plan and other voluntary benefit plans that we make available to all
Ambac employees generally. We also provide our executives, and all Ambac
employees who are eligible, with nonqualified savings incentive and pension
plans. We also provide our executives with a voluntary deferred compensation
arrangement, which is 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.
HOW DID WE DETERMINE BASE SALARIES FOR 2000?
IN GENERAL We annually review 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.
For executives other than the Chief Executive Officer,
we also consider the recommendations of Mr. Lassiter,
Ambac's Chairman and Chief Executive Officer.
COMPARATIVE DATA In conducting our review for 2000, we considered
comparative data prepared by both Ambac's senior human
resources officer and by Johnson Associates, Inc., the
Committee's outside consultant for executive
compensation.
The comparison group we chose for compensation purposes
(the "COMPARISON GROUP") consisted mainly of our
competitors in the financial guarantee insurance
industry. The index we chose for our performance graph
was the Investor's Business Daily Insurance
Property/Casualty/Title Index. This was the publicly
available index that we found best corresponded to our
business and included the greatest number of companies
in the Comparison Group. The performance graph 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.
23
BASE SALARIES OF The data for the Comparison Group supported an
THE EXECUTIVES increase in base salaries for 2000 and the
Committee accepted Mr. Lassiter's recommendation to
increase base salaries for all of the named
executives. We note that the base salaries of our
executives (excluding the Chief Executive Officer)
are generally at or below the median for salaries
of executives in the Comparison Group. The base
salary for each of the named executive officers is
reported in the "Summary Compensation Table"
elsewhere in the Proxy Statement.
BASE SALARY OF THE The Committee increased the base salary of Mr.
CHIEF EXECUTIVE Lassiter for 2000 by approximately 10% from
OFFICER $560,000 to $620,000. We note that Mr. Lassiter's
base salary in 2000 was in the median for salaries
of chief executive officers in the Comparison
Group.
HOW DID WE DETERMINE BONUSES FOR 2000?
2000 OVERALL In January 2001, the Committee evaluated Ambac's
PERFORMANCE performance during 2000 under each of the nine
categories set out in the EIP: return on equity;
core/operating earnings growth; total return to
stockholders; expense management; risk management;
market share; industry leadership/image building;
new products/initiatives; and organizational
development/corporate culture. We did not weight
the categories but instead arrived at an overall
"grade" for corporate performance. We determined
Ambac's overall performance to be extremely strong
based especially on its excellent performance in
the categories of return on equity, core/operating
earnings growth, total return to shareholders;
expense management, market share and organizational
development/corporate culture.
BONUSES FOR THE The Committee awarded bonus compensation for 2000
EXECUTIVES to each executive based on the executive's scope of
responsibility, individual performance and specific
contribution to Ambac's overall performance. We
again considered the Chief Executive Officer's
recommendations and also took into account the
comparative data. The bonus for each of the named
executive officers is reported in the "Summary
Compensation Table" elsewhere in the Proxy
Statement.
Under the Ambac Senior Officer Deferred Compensation
Sub-Plan of the 1997 Equity Plan, 25% of each executive
officer's bonus is paid in RSUs unless the executive
officer has satisfied the stock ownership target under
the Ambac Stock Ownership Program. An executive who has
met the ownership target may elect to receive 25% of
his or her bonus in the form of RSUs. Each executive
officer is receiving 25% of his bonus in the form of
RSUs. Bonus amounts are reported in the Summary
Compensation Table elsewhere in this Proxy Statement.
24
The value we ascribed to the RSUs awarded under the
Sub-Plan for 2000 was based on a 25% discount from the
market value of Ambac's common stock on the date of
grant. The Committee decided to discount these RSUs in
order to account for vesting requirements and
restrictions on transfer of the RSUs. Accordingly, the
value we ascribed to the RSUs differs from the amounts
reported in the Summary Compensation Table under the
column headed "Annual Compensation--Restricted Stock
Units", as those amounts, in accordance with SEC
requirements, are based on the market price of the
Common Stock on the date of grant.
BONUS FOR THE At our meeting in January 2000, the Committee
CHIEF EXECUTIVE selected Mr. Lassiter as the only executive to
OFFICER participate in the EIP. We then established a
formula under the EIP for determining Mr.
Lassiter's bonus for the performance year. The
formula emphasized return on equity and core
earnings growth.
In January 2001, we applied the formula and awarded Mr.
Lassiter a bonus of $1,240,000. Although we had the
authority to award a bonus of less than the amount
determined by the formula, in view of Ambac's very
strong performance in 2000 under Mr. Lassiter's
leadership, we decided to award Mr. Lassiter the
maximum amount under the formula. Pursuant to the
Sub-Plan, Mr. Lassiter elected to receive 25% of his
bonus in the form of RSUs having the terms described
above.
For 2001, we selected Messrs. Lassiter and Genader as
the only executive officers to participate in the EIP.
WHAT WERE THE LONG-TERM INCENTIVE AWARDS IN 2000?
2000 GRANTS In 2000, we provided long-term incentive awards for
executives by granting stock options. These awards
provide compensation to executives only if
shareholder value increases. We believe these
awards focus executives on the Company's long-term
success. In determining the number of stock options
awarded, we reviewed surveys of similar awards
given by companies within the Comparison Group and
the executive's past performance. We also
considered the number of stock options previously
granted to executives.
This year, we decided to award, for the first time,
performance-based stock options. These options vest
only if the share price of Ambac's common stock meets
certain targets. For 2000, each of the options granted
to the executives will vest in two equal installments
when the market price of Ambac common stock meets or
exceeds $43.33 and
25
$56.66 for twenty consecutive trading days or no later
than the sixth anniversary of the grant date. (Please
note that we have adjusted the share price to reflect
Ambac's three-for-two stock split in December 2000.) As
we have done since 1997, we again limited the term of
the stock options to seven years. The number of stock
options awarded to each of the executives (including
Mr. Lassiter) was in the top quarter of recent awards
given by companies within the Comparison Group. The
number of stock options awarded to each of the named
executive officers is reported in the "Option Grants in
2000" table elsewhere in the Proxy Statement.
STOCK OWNERSHIP The Committee continues to apply our stock ownership
GUIDELINES guidelines to all managing directors and executive
officers. The guidelines set an appropriate level of
ownership of Ambac stock (based on the market value of
Ambac common stock) as a multiple of the officer's
total cash compensation (base salary plus cash bonus).
The multiple ranges from a high of seven times total
cash compensation (in the case of Mr. Lassiter) to a
low of one and one-half times total cash compensation
for managing directors. Messrs. Lassiter, Genader and
Bivona have all met their stock ownership guidelines.
The Committee believes these guidelines have the
positive effect of further aligning the interests of
the executives with all stockholders.
THE COMPENSATION AND ORGANIZATION COMMITTEE
Richard Dulude, Chairman
Michael A. Callen
Renso L. Caporali
Jill M. Considine
W. Grant Gregory
C. Roderick O'Neil
March 22, 2001
26
PERFORMANCE GRAPH
The graph below compares the five-year total return to stockholders (stock
price appreciation plus reinvested dividends) for Ambac common stock with the
comparable return of two indexes: the Standard & Poor's 500 Stock Index and the
Investor's Business Daily Insurance--Property/Casualty/Title Index.
The graph assumes that you invested $100 in Ambac common stock and in each
of the indexes on December 31, 1995, and that all dividends were reinvested.
Points on the graph represent the performance as of the last business day of
each of the years indicated.
[CHART]
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
Ambac Financial Group, Inc. $100.0 $143.2 $200.3 $263.9 $230.6 $389.6
S&P 500 Index 100.0 123.0 164.0 210.9 255.2 232.0
IBD-INS.
Property/Casualty/
Title Index 100.0 105.0 129.2 103.3 78.5 110.2
If you had invested $100 in Ambac common stock on the date of our Initial
Public Offering (July 18, 1991), your investment would have grown to
approximately $925.58 by the end of 2000. This compares with a $100 investment
growing to approximately $420.76 in the S&P 500 Index and to approximately
$196.26 in the IBD Insurance Index.
For this computation, we assumed that all dividends were reinvested, just
as we did for the five-year total return comparison above.
27
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD
PROPOSAL 1: ELECT SEVEN DIRECTORS
The Board has nominated seven directors for election at the Annual Meeting.
Each nominee is currently serving as one of our directors. Mr. Genader was
appointed as a director in January 2001. If you re-elect them, they will hold
office until the next annual meeting or until their successors have been
elected.
As we noted above, each nominee also serves as a director of Ambac
Assurance.
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.
NOMINEES
PHILLIP B. CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER OF
LASSITER AMBAC AND AMBAC ASSURANCE since April 1991. Mr.
Age 57 Lassiter also served as President of Ambac and Ambac
Director since 1991 Assurance from August 1992 to January 2001. Mr.
Lassiter joined Ambac in 1991 from Citibank, where he
was a member of the Policy Committee and Finance
Committee and served as Deputy Sector Head for
Citibank's North American investment and corporate
banking activities. Mr. Lassiter also serves as a
director of Diebold Inc. and Worldinsure Limited.
MICHAEL A. CALLEN PRESIDENT, AVALON ARGUS ASSOCIATES, LLC (financial
Age 60 consulting) since April 1996. Mr. Callen was Special
Director since 1991 Advisor to the National Commercial Bank located in
Jeddah in the Kingdom of Saudi Arabia from April 1993
through April 1996. He was an independent consultant
from January 1992 until June 1993, and 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.
RENSO L. CAPORALI RETIRED CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF GRUMMAN
Age 68 CORPORATION (defense and aerospace). Dr. Caporali was
Director since 1995 Senior Vice President of Raytheon Company (electronics,
aircraft, engineering and construction) from April 1995
until he retired in May 1998. Previously, Dr. Caporali
had retired in June 1994 as Chairman and Chief
Executive Officer of Grumman Corporation. He was
Chairman and Chief Executive Officer of Grumman
Corporation from July 1990 until June 1994. Dr.
Caporali also serves as a director of Bank of Akron.
28
JILL M. CONSIDINE CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF THE DEPOSITORY
Age 56 TRUST & CLEARING CORPORATION since November 1999 and
Director since 2000 Chairman and Chief Executive Officer of The Depository
Trust Company (securities depository and clearing
house) since January 1999. Prior to joining The
Depository Trust Company, Ms. Considine served as the
President of the New York Clearing House Association,
L.L.C. from 1993 to 1999. Ms. Considine served as a
Managing Director, Chief Administrative Officer and as
a member of the Board of Directors of American Express
Bank Ltd., from 1991 to 1993. Prior to that, Ms.
Considine served as the New York State Superintendent
of Banks from 1985 to 1991. Ms. Considine also serves
as a director of the Atlantic Mutual Insurance
Companies and The Interpublic Group of Companies, Inc.
RICHARD DULUDE RETIRED VICE CHAIRMAN OF CORNING INCORPORATED
Age 68 (diversified manufacturing). Mr. Dulude was Vice
Director since 1992 Chairman of Corning Incorporated from November 1990
until he retired in April 1993. Mr. Dulude was Group
President of Corning Incorporated from 1983 until 1990.
Mr. Dulude also serves as a director of Landec
Corporation.
ROBERT J. GENADER PRESIDENT AND CHIEF OPERATING OFFICER OF AMBAC AND
Age 54 AMBAC. In January 2001, Mr. Genader was named as the
Director since January President and Chief Operating Officer of Ambac and
2001 Ambac Assurance. From February 2000 to January 2001,
Mr. Genader served as Vice Chairman of Ambac's
Financial Insurance Business Group. From January 1998
to February 2000, Mr. Genader served as Vice Chairman
of the Specialized Finance Division when the
Specialized Finance Division and the Public Finance
Division were combined to create the Financial
Insurance Business Group. Mr. Genader has been a
director of Ambac Assurance since 1992. Mr. Genader
served as an Executive Vice President of Ambac from
1991 to January 1998 and Ambac Assurance from 1986 to
January 1998. He joined Ambac Assurance from Citibank
in 1986. Mr. Genader also served as Chairman of the
Association of Financial Guaranty Insurors from January
1994 to January 1996.
W. GRANT GREGORY CHAIRMAN OF GREGORY & HOENEMEYER, INC. (merchant
Age 60 banking) since 1988. Mr. Gregory retired in 1987 as
Director since 1991 Chairman of the Board of Touche Ross & Co., now
Deloitte and Touche. Mr. Gregory also serves as a
director of DoubleClick Inc., an Internet advertising
company. In addition, Mr. Gregory serves as a director
of three private companies: yClip.com, an e-commerce
enabled incentives company; zUniversity.com, an online
network for higher education; and Class.com, an
Internet leader in accredited distance learning.
The Board recommends that you vote "FOR" the election of all seven nominees for
director.
29
PROPOSAL 2: RATIFY SELECTION OF KPMG LLP AS INDEPENDENT AUDITORS FOR 2001
We are asking you to ratify the Board's selection of KPMG LLP, certified
public accountants, as independent auditors for 2001. The Audit Committee
recommended the selection of KPMG to the Board. KPMG has served as the
independent auditors of Ambac Assurance 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
LLP as independent auditors for 2001.
30
INFORMATION ABOUT STOCKHOLDER PROPOSALS
Under our By-laws, if you wish to nominate a director or bring other
business before the stockholders:
. You must notify the Corporate 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 of the meeting date, however,
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 By-laws requirements relate only to matters you wish
to bring before your fellow stockholders at an annual meeting. They do not
apply to proposals that you wish to have included in our proxy statement.
If you wish to submit proposals to be included in our 2001 proxy statement,
we must receive them on or before Thursday, November 29, 2001. Please address
your proposals to: ANNE G. GILL, CORPORATE SECRETARY, AMBAC FINANCIAL GROUP,
INC., ONE STATE STREET PLAZA, NEW YORK, NEW YORK 10004.
If you would like a copy of our By-laws, we will send you one without
charge. Please write to the Corporate Secretary of Ambac.
By order of the Board of Directors,
/s/ Anne G.Gill
Anne G. Gill
First Vice President, Corporate Secretary and
Assistant General Counsel
March 28, 2001
31
APPENDIX A
AMBAC FINANCIAL GROUP, INC.
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
PURPOSE
The purpose of the Ambac Financial Group, Inc. Audit Committee (the
"COMMITTEE") is to understand, assess, and monitor the corporate control
environment of Ambac Financial Group, Inc. (the "COMPANY"). The Committee will
assist the Board of Directors in fulfilling its oversight responsibilities by
reviewing the financial information that is provided to stockholders and
others, the systems of internal controls established by management and the
Board of Directors, and the audit process of the Company.
The Committee will meet at least three times per year. The Committee will
comply with the requirements of the Securities and Exchange Commission (the
"SEC") and the New York Stock Exchange (the "NYSE") regarding corporate audit
committees.
MEMBERSHIP REQUIREMENTS
The Committee will be comprised of at least three independent directors who are
financially literate or who become financially literate within a reasonable
period of time. These directors will not have any relationship to the Company
that will interfere with their exercise of independent judgment from management
and the Company as members of the Committee. At least one member of the
Committee will have accounting or related financial management expertise.
PRIMARY DUTIES
In accordance with the SEC requirements, the Committee will provide a report in
the Company's proxy statement which states whether the Committee:
. reviewed and discussed the audited financial statements with management;
. discussed with the independent auditors the matters required by
Statement on Auditing Standards No. 61 (which requires the outside
auditors to communicate to the Committee matters related to the conduct
of the audit);
. received the written disclosures and the letter from the auditors
regarding the auditors' independence and discussed the auditors'
independence as required by Independent Standards Board Standard No. 1
with the auditors; and
A-1
. recommended to the Board of Directors that the financial statements be
included in the Company's annual report on Form 10-K (or 10-KSB) for the
last fiscal year for filing with the SEC based upon its discussions with
the auditors regarding the auditors' independence.
In accordance with the NYSE requirements, the Committee will:
. review and reassess the adequacy of the audit committee charter on an
annual basis;
. select, evaluate, and replace the outside auditor, who is ultimately
accountable to the Committee and the Board of Directors of the Company
(or nominate the outside auditor for stockholder approval in any proxy
statement);
. ensure that the outside auditor submits a formal written statement to
the Committee on a periodic basis that delineates all relationships
between the outside auditor and the Company;
. actively discuss with the outside auditor any relationships between the
outside auditor and the Company or any other relationships that may
impact the objectivity and independence of the outside auditor; and
. recommend that the Board of Directors takes appropriate action in
response to the report of the outside auditor to satisfy itself of the
independence of the outside auditor.
In general, the Committee will:
. review the scope of the annual audit of the Company's financial
statements, the fees for the audit and for non-audit services, and the
findings and recommendations of the outside auditors;
. review the Company's accounting practices, internal auditing controls,
and business ethics practices, as appropriate, including the monitoring
and enforcement of the Company's Code of Business Conduct;
. review the Company's internal audit function, including the scope of the
audits and the findings of the internal auditors;
. review elements of the Company's financial statements on a periodic
basis; and
. meet with the internal auditors and other personnel of the Company, as
appropriate.
In carrying out its responsibilities, the Committee will comply with the SEC
and the NYSE audit committee requirements. However, the policies and procedures
of the Committee will remain flexible, and the Committee may assume other
responsibilities as it deems necessary to ensure that the corporate accounting
and reporting practices are appropriate given the circumstances of the Company.
The evaluation of the Company's financial statements by the Committee is not of
the same quality as the audits performed by the outside auditors, nor does the
Committee's evaluation supersede or alter the traditional responsibilities of
the Company's management for preparing, or the outside auditors for auditing,
the Company's financial statements.
A-2
[LOGO] Ambac
ONE STATE STREET PLAZA, NEW YORK, NY 10004
---------------------------------------------
VOTE BY TELEPHONE
---------------------------------------------
Have your proxy card available when you call the
TOLL-FREE NUMBER 1-800-250-9081 using a
touch-tone telephone. You will be prompted to
enter your Control Number and then you can
follow the simple prompts that will be presented
to you to record your vote.
---------------------------------------------
VOTE BY INTERNET
---------------------------------------------
Have your proxy card available when you access
the website HTTP://WWW.VOTEFAST.COM. You will be
prompted to enter your Control Number and then
you can follow the simple prompts that will be
presented to you to record your vote.
---------------------------------------------
VOTE BY MAIL
---------------------------------------------
Please mark, sign and date your proxy card and
return it in the POSTAGE-PAID ENVELOPE provided
or return it to: Corporate Election Services,
PO Box 1150, Pittsburgh, PA 15230.
---------------------------------------------
- ------------------------ ------------------------ ----------------------
VOTE BY TELEPHONE VOTE BY INTERNET VOTE BY MAIL
Call Toll-Free using a Access the website and Return your proxy
touch-tone telephone: cast your vote: in the postage-paid
1-800-250-9081 http://www.votefast.com envelope provided.
- ------------------------ ------------------------ ----------------------
VOTE 24 HOURS A DAY, 7 DAYS A WEEK!
YOUR TELEPHONE OR INTERNET VOTE MUST BE RECEIVED BY 11:59 P.M. EASTERN
DAYLIGHT TIME ON APRIL 30, 2001 TO BE COUNTED IN THE FINAL TABULATION.
======================================================
YOUR CONTROL NUMBER IS:
======================================================
Please fold and detach card at perforation before mailing.
AMBAC FINANCIAL GROUP, INC. PROXY
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF STOCKHOLDERS ON MAY 1, 2001.
The undersigned hereby appoints Phillip B. Lassiter, Frank J. Bivona and Anne G.
Gill, and each of them, proxies, with power of substitution, to vote all shares
of Common Stock of Ambac Financial Group, Inc. which the undersigned is entitled
to vote at the Annual Meeting of Stockholders to be held on Tuesday, May 1, 2001
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.
--------------------------------------
Signature(s)
--------------------------------------
Signature(s)
IMPORTANT: Please sign EXACTLY as your
name(s) appears on 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.
Date: , 2001
--------------------------
YOUR VOTE IS IMPORTANT!
If you do not vote by telephone or Internet, please sign and date this proxy
card and return it promptly in the enclosed postage-paid envelope, or otherwise
to Corporate Election Services, PO Box 1150, Pittsburgh, PA 15230, so that your
shares may be represented at the Meeting. If you vote by telephone or internet,
it is not necessary to return this proxy card.
Please fold and detach card at perforation before mailing.
AMBAC FINANCIAL GROUP, INC. PROXY
- ------------------------------------------------------------------------------
PLEASE INDICATE BELOW HOW YOU WISH YOUR SHARES TO BE VOTED. UNLESS YOU INDICATE
OTHERWISE, YOUR PROXY WILL VOTE "FOR" ALL OF THE PROPOSALS ON THIS CARD. WE
CANNOT VOTE YOUR SHARES UNLESS YOU SIGN, DATE AND RETURN THIS CARD.
THE BOARD OF DIRECTORS RECOMMEND THAT YOU VOTE "FOR" ALL PROPOSALS.
1. Elect Seven Directors
Nominees: (01) Phillip B. Lassiter (02) Michael A. Callen (03) Renso L. Caporali (04) Jill M. Considine
(05) Richard Dulude (06) Robert J. Genader (07) W. Grant Gregory
[ ] FOR all nominees listed above. [ ] WITHHOLD AUTHORITY
(Except as listed to the contrary to vote for all nominees
below.) listed above.
To withhold authority to vote for any individual nominee, write that
nominee's name or number below.
- --------------------------------------------------------------------------------
2. Ratify Selection of KPMG LLP as Independent Auditors for 2001.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
TO BE SIGNED AND DATED ON REVERSE SIDE