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:
[_] Preliminary Proxy Statement
[X] 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 FINANCIAL GROUP, 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:
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(2) Aggregate number of securities to which transaction applies:
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(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
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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:
------------------------------------------------------
(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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AMBAC FINANCIAL GROUP, INC.
AMBAC NOTICE OF
1998 ANNUAL MEETING
OF STOCKHOLDERS
AND
PROXY STATEMENT
MEETING DATE:
WEDNESDAY, MAY 13, 1998
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, PRESIDENT
AND CHIEF EXECUTIVE
OFFICER
March 31, 1998
AMBAC
Dear Stockholders:
It is my pleasure to invite you to Ambac's 1998
Annual Meeting of Stockholders.
We will hold the meeting on Wednesday, May 13, 1998,
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 1997 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, sign and return
the enclosed proxy card in the envelope provided. 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
AMBAC FINANCIAL GROUP, INC.
ONE STATE STREET
PLAZA
NEW YORK, NY 10004
212.668.0340
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
March 31, 1998
AMBAC Dear Stockholders:
We will hold the 1998 Annual Meeting of Stockholders
on Wednesday, May 13, 1998 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 six directors;
. Amend our Certificate of Incorporation to
increase the number of authorized shares of
common stock from 100 million to 200
million;
. Ratify the selection of KPMG Peat Marwick
LLP as independent auditors for 1998; 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
23, 1998.
Along with the attached Proxy Statement, we are also
enclosing the Ambac 1997 Annual Report, which
includes our financial statements.
/s/ Richard B. Gross
Richard B. Gross
Senior Vice President, General Counsel
and Secretary
TABLE OF CONTENTS
PAGE
----
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
What Is the Effect of Broker Non-Votes?................................. 3
Is Voting Confidential?................................................. 3
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
Who Should I Call If I Have Any Questions?.............................. 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 1997?...... 7
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors.................................................. 8
The Committees of the Board............................................. 8
How We Compensate Directors............................................. 9
The Executive Officers.................................................. 11
How We Compensate Executive Officers.................................... 13
. Summary Compensation Table.......................................... 13
. Option Grants in 1997............................................... 14
. Aggregated Option Exercises in 1997 and Option Values as of Year-End
1997................................................................. 15
. The Pension Plan.................................................... 16
. Employment Agreement with Chief Executive Officer................... 17
. Management Retention Agreements with Executive Officers............. 19
. Arrangements with Named Executive Officer........................... 21
Report on Executive Compensation for 1997 by the Compensation and
Organization Committee................................................. 22
Performance Graph....................................................... 26
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD
Proposal 1: Elect Six Directors......................................... 27
Proposal 2: Amend Certificate of Incorporation to Increase the Number of
Authorized Shares of Common Stock from 100 to 200 million...... 28
Proposal 3: Ratify Selection of KPMG Peat Marwick LLP as Independent
Auditors for 1998.............................................. 29
INFORMATION ABOUT STOCKHOLDER PROPOSALS................................... 30
PROXY STATEMENT FOR THE AMBAC FINANCIAL GROUP, INC.
1998 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 1998
Annual Meeting of Stockholders.
This Proxy Statement summarizes the information you need to know to
vote intelligently at the Annual Meeting. You do not need to attend the
Annual Meeting, however, to vote your shares. You may simply complete,
sign and return the enclosed proxy card.
We will begin sending this Proxy Statement out on March 31, 1998 to
all stockholders entitled to vote. If you owned Ambac common stock at
the close of business on March 23, 1998, you are entitled to vote. On
that date, there were 70,116,214 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 23, 1998. 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 as follows:
.""FOR'' Proposal 1 (Elect Six Directors);
. ""FOR'' Proposal 2 (Amend Certificate of Incorporation to
Increase the Number of Authorized Shares of Common Stock from
100 to 200 million); and
. ""FOR'' Proposal 3 (Ratify Selection of KPMG Peat Marwick LLP as
Independent Auditors for 1998).
If any other matter is presented, your proxy will vote in accordance
with his 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 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 Secretary at the
address indicated on page 30 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 23, 1998.
HOW DO EMPLOYEES IN THE AMBAC STOCK FUND VOTE BY PROXY?
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. In that case, 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 23,
1998.
. 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.
2
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
PROPOSAL 1:
ELECT SIX The six nominees for director who receive the
DIRECTORS most votes will be elected. So, if you do not
vote for a 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:
INCREASE The affirmative vote of a majority of the
AUTHORIZED outstanding shares of common stock is required
SHARES to approve the increase in authorized shares.
So, if you do not vote, or you "abstain" from
voting, it has the same effect as if you voted
"against" the proposal.
PROPOSAL 3:
RATIFY SELECTION The affirmative vote of a majority of the votes
OF AUDITORS 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.
WHAT IS THE EFFECT OF BROKER NON-VOTES?
Under the current rules of the New York Stock Exchange, if your
broker holds your shares in its "street" name, the broker may vote your
shares on all three proposals even if it does not receive instructions
from you.
However, if your broker does not vote on any of the three proposals,
here is the effect of a broker non-vote:
. Proposal 1: Elect Six Directors. A broker non-vote would have no
effect on the outcome of this proposal because only a plurality
of votes cast is required to elect a director.
. Proposal 2: Increase Authorized Shares. A broker non-vote would
have the same effect as a vote against this proposal.
. Proposal 3: Ratify Selection of Auditors. A broker non-vote would
have no effect on the outcome of this proposal.
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
forward to management any written comments that you make on the proxy
card or elsewhere.
3
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. Kissel-Blake Inc. is assisting us solicit
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, 1997, THAT WE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"), 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, DIRECTOR OF 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 1998, which we file with the SEC in August 1998. You can also
find the results on Ambac's website at WWW.AMBAC.COM.
WHO SHOULD I CALL IF I HAVE ANY QUESTIONS?
If you have any questions about the Annual Meeting or voting, please
call RICHARD GROSS, OUR SECRETARY, AT (212) 208-3354.
If you have any questions about your ownership of Ambac common stock,
please call BRIAN MOORE, OUR DIRECTOR OF INVESTOR RELATIONS, AT (212)
208-3333.
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 ("BENEFICIAL OWNERS") of at least 5% of Ambac common
stock as of December 31, 1997. 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
- --------------------------------------------------------------------------------
PIONEERING MANAGEMENT CORPORATION 7,000,200 9.98%
60 State Street
Boston, Massachusetts 02109
J.P. MORGAN & CO. INCORPORATED 6,507,920 9.20%
60 Wall Street
New York, New York 10004
SANFORD C. BERNSTEIN & CO., INC. 6,254,289 8.90%
767 Fifth Avenue
New York, New York 10153
FMR CORP. 5,137,100 7.33%
82 Devonshire Street
Boston, Massachusetts 02109
HARRIS ASSOCIATES L.P. 4,763,200 6.80%
HARRIS ASSOCIATES INC., GENERAL
PARTNER
Two North LaSalle Street, Suite 500
Chicago, Illinois 60602
5
HOW MUCH STOCK IS OWNED BY DIRECTORS AND EXECUTIVE OFFICERS?
The following table shows the Ambac common stock owned directly or
indirectly ("BENEFICIALLY") by Ambac's directors and executive officers
as of March 15, 1998. 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 2.0% of the shares of
Ambac common stock. We have adjusted all shares, options, restricted
stock units ("RSUS") and phantom stock units ("PSUS") to reflect Ambac's
two-for-one stock split in September 1997.
Total
Shares Holdings
Beneficially Percent (including RSUs
Name of Beneficial Owner Owned(1)(2)(3)(4) of Class RSUs(5) PSUs(6) and PSUs)
- -----------------------------------------------------------------------------------------------------------------------
OUTSIDE DIRECTORS
- -----------------
Michael A. Callen 13,658 -- 3,000 5,329 21,987
Renso L. Caporali 7,094 -- -- 1,976 9,070
Richard Dulude 7,486 -- 3,000 3,850 14,336
W. Grant Gregory 8,058 -- 3,000 5,156 16,214
C. Roderick O'Neil 18,058 -- 3,000 1,024 22,082
EXECUTIVE OFFICERS
- ------------------
Phillip B. Lassiter 675,946 -- 219,112 -- 895,058
David L. Boyle 10,000 -- -- -- 10,000
Robert J. Genader 243,560 -- 76,382 -- 319,942
Frank J. Bivona 169,083 -- 32,697 -- 201,780
Joseph V. Salzano 141,823 -- -- -- 141,823
Richard B. Gross 110,320 -- 16,369 -- 126,689
All executive officers and
directors as a group
(11 persons) 1,405,086 2.0% 356,560 17,335 1,778,981
(1) To our knowledge, except for Messrs. Lassiter, Genader and
Gross, 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 Dr. Caporali includes 3,000
restricted shares, which were granted at the 1995 Annual
Meeting under Ambac's 1991 Non-Employee Directors Stock Plan
and will vest on May 17, 2000.
6
(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 March 15, 1998, or
that will become exercisable within 60 days after March 15.
These shares are shown in the following table:
OUTSIDE NUMBER OF EXECUTIVE NUMBER OF
DIRECTORS SHARES OFFICERS SHARES
--------- -------------- -------------- --------------
Mr. Callen 2,000 Mr. Lassiter 536,668
Dr. Caporali 2,000 Mr. Boyle 10,000
Mr. Dulude 2,000 Mr. Genader 214,854
Mr. Gregory 2,000 Mr. Bivona 157,983
Mr. O'Neil 2,000 Mr. Salzano 139,334
Mr. Gross 90,667
(4) The number of shares shown for each executive officer also
includes the number of shares of Ambac common stock owned
indirectly as of March 15, 1998 by these executive officers in
our Savings Incentive Plan. Our information is based on
reports from the Plan Trustee.
(5) This column shows the 3,000 RSUs that were granted to each of
Messrs. Callen, Dulude, Gregory, and O'Neil at the 1997
Annual Meeting under the 1997 Non-Employee Directors Equity
Plan. 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
restricted stock unit. For more information on these
restricted stock units, see below at page 9 under "How We
Compensate Directors."
The RSUs shown for Messrs. Lassiter, Genader, Bivona, and Gross
are vested RSUs that were awarded under the 1991 Stock
Incentive Plan or the 1997 Equity Plan, as the case may be.
(6) Under Ambac's Deferred Compensation Plan, directors may defer
their cash compensation and executives may defer their cash
bonuses. If a director or executive has elected to defer cash
compensation into PSUs, these PSUs are shown in this column.
For more information on the Deferred Compensation Plan, see
below at page 10 under "How We Compensate Directors."
DID DIRECTORS, EXECUTIVE OFFICERS AND GREATER-THAN-10% STOCKHOLDERS COMPLY
WITH SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING IN 1997?
Section 16(a) of the Securities Exchange Act of 1934 requires that
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 these reporting persons complied with their
filing requirements for 1997.
7
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
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.
The Board met five times during 1997. The committees of the Board met
six times. Overall attendance at Board and committee meetings was 92%.
Attendance was at least 87% or more for each director, except for Dr.
Caporali whose attendance was 73%.
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 two permanent committees: the Audit Committee and the
Compensation and Organization Committee. None of the directors who serve
as members of either permanent committee is, or has ever been, an
employee of Ambac or our subsidiaries.
There is no formal nominating committee or any other committee that
recommends qualified candidates to the Board for election as directors.
Instead, the entire Board performs these duties. 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 30 under
"Information About Stockholder Proposals."
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 meets
privately, outside the presence of Ambac management,
with both the independent auditors and the internal
auditors.
The Committee met three times during 1997.
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.
8
THE COMPENSATION
AND ORGANIZATION The Compensation and Organization Committee
COMMITTEE establishes and approves all elements of compensation
for the executive officers. Each year, as the SEC
requires, the Committee reports to you on executive
compensation. The Committee's Report on Executive
Compensation for 1997 is printed below at pages 22 to
25.
The Committee administers Ambac's 1991 and 1997
equity plans and has sole authority for awards under
the plans. The Committee evaluates existing and
proposed employee benefit plans and may propose plan
changes to the Board. The Committee also administers
the 1997 Executive Incentive Plan and Ambac's
Deferred Compensation Plan for Outside Directors and
Eligible Senior Officers.
The Committee met three times during 1997.
Messrs. Callen, Dulude, O'Neil and Dr. Caporali
currently serve as members of the Committee. Mr.
Dulude serves as Chairman of the Committee.
HOW WE COMPENSATE DIRECTORS
ANNUAL We compensate directors who are not employees of
CASH FEE Ambac or our subsidiaries with an annual cash fee of
$20,000 per year.
ANNUAL STOCK
OPTION AWARD We also grant each non-employee director 2,000 stock
options on the date of each annual meeting. (The
Board adjusted the number of stock options awarded
from 1,000 to 2,000 to reflect Ambac's two-for-one
stock split in September 1997.) These options
generally will vest on the date of the first annual
meeting following 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
RESTRICTED STOCK Ambac grants each non-employee director 2,000
UNITS EVERY restricted stock units at the annual meeting at which
FIVE YEARS the director is first elected to the Board. (The
Board adjusted the number of RSUs from 1,500 to 2,000
to take into account Ambac's two-for-one stock split
in September 1997.)
. 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 unit.
. If the director remains on the Board after the
first award of RSUs vest, Ambac will grant the
director a second award of 2,000 RSUs, subject to
similar vesting conditions and restrictions on
transfer.
9
MEETING FEES
We also pay each non-employee director a meeting 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 held
at a different time than a stockholder or Board
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. Under this
Program, Ambac will match gifts by directors to
qualified organizations.
DIRECTORS WHO We do not compensate our employees or employees of
ARE AMBAC our subsidiaries for service as a director. We do,
EMPLOYEES however, reimburse them for travel and other related
expenses.
THE DEFERRED Under our Deferred Compensation Plan, non-employee
COMPENSATION directors may elect to defer all or part of their
PLAN 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 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.
SERVICE ON THE Although Ambac Assurance does not pay its non-
AMBAC ASSURANCE employee directors an annual fee for serving on its
BOARD 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.
10
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 27 under "Proposal 1: Elect Six Directors."
The Board elects the executive officers for a term of one year (or
until their successors are chosen and qualified) at its organizational
meeting each year. The organizational meeting is the first Board meeting
following the annual meeting of stockholders.
DAVID L. BOYLE VICE CHAIRMAN -- MUNICIPAL FINANCIAL SERVICES GROUP.
Age 51
Mr. Boyle was named Vice Chairman -- Municipal
Financial Services Group in January 1998. The
Municipal Financial Services Group encompasses the
Public Finance Division, management of Ambac
Assurance's investment portfolio, asset and liability
management services, investment advisory and fund
administration services, electronic commerce services
and marketing. Mr. Boyle joined Ambac and Ambac
Assurance in March 1997 as Senior Vice President --
Financial Management Services Division. He became an
Executive Vice President in July 1997. Mr. Boyle
joined Ambac from Citibank, where he held various
corporate banking positions over a 22-year career.
His last position at Citibank was as Managing
Director for Cross-Border Custody Services.
ROBERT J. GENADER VICE CHAIRMAN -- SPECIALIZED FINANCE GROUP.
Age 51 Mr. Genader was named Vice Chairman -- Specialized
Finance Group in January 1998. The Specialized
Finance Group encompasses financial guarantee
insurance for structured and asset-backed securities
in the United States and abroad. Mr. Genader is also
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.
FRANK J. BIVONA EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND
Age 42 TREASURER.
Mr. Bivona was named Executive Vice President, Chief
Financial Officer and Treasurer in January 1998. Mr.
Bivona served as Senior Vice President, Chief
Financial Officer and Treasurer of Ambac (from 1993
to January 1998) and Ambac Assurance (from 1987 to
January 1998). In addition to his position as Ambac's
chief financial officer, Mr. Bivona has executive
responsibility for technology, reinsurance and
investor and public relations. Mr. Bivona joined
Ambac Assurance from Citibank in 1986.
11
JOSEPH V. SALZANO EXECUTIVE VICE PRESIDENT -- PUBLIC FINANCE DIVISION.
Age 41 Mr. Salzano has been Executive Vice President --
Public Finance Division since 1995. The Public
Finance Division encompasses financial guarantee
insurance for states, municipalities and other public
entities. Mr. Salzano was First Vice President,
Associate General Counsel and Head of Legal
Underwriting of Ambac Assurance (from 1989 to 1995).
He became a Senior Vice President in 1995. Mr.
Salzano joined Ambac Assurance from the New York law
firm of Hawkins, Delafield & Wood in 1987.
RICHARD B. GROSS SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY.
Age 50 Mr. Gross has been Senior Vice President, General
Counsel and Secretary of Ambac and a Senior Vice
President of Ambac Assurance since 1991. In addition
to his position as Ambac's chief legal officer, Mr.
Gross has executive responsibility for human
resources, internal audit and corporate
administration. Mr. Gross joined Ambac from Citibank
in 1991. His last position at Citibank was as Senior
Vice President and General Counsel, and a director of
Citicorp Insurance Group, Inc.
12
HOW WE COMPENSATE EXECUTIVE OFFICERS
The tables on pages 13 through 15 show salaries, bonuses and other
compensation paid during the last three years, options granted in
1997, options exercised in 1997 and option values as of year-end 1997
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 two-for-one stock split in September 1997.
Mr. Boyle became an executive officer at the time he joined Ambac in
March 1997.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------------------------------------
RESTRICTED SECURITIES ALL OTHER
NAME AND STOCK UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) UNITS ($)(2) OPTIONS(#) ($)(3)
- ---------------------------------------------------------------------------------------------------------------------------
PHILLIP B. LASSITER 1997 $ 530,000 $ 660,000 0 100,000 $ 47,534
Chairman, President 1996 530,000 425,000 $ 200,000 80,000 47,700
and Chief Executive 1995 500,000 400,000 0 130,000 45,000
Officer
DAVID L. BOYLE 1997 197,308 275,000 0 30,000 0
Vice Chairman --
Municipal Financial
Services Group
ROBERT J. GENADER 1997 275,000 400,000 0 60,000 24,664
Vice Chairman -- 1996 275,000 340,000 0 50,000 24,750
Specialized Finance 1995 260,000 260,000 0 30,000 23,400
Group
FRANK J. BIVONA 1997 225,000 220,000 0 36,000 20,179
Executive Vice 1996 225,000 170,000 0 30,000 20,250
President, Chief 1995 210,000 130,000 0 46,000 18,900
Financial Officer
and Treasurer
JOSEPH V. SALZANO 1997 215,000 200,000 0 10,000 19,283
Executive Vice 1996 215,000 200,000 0 108,000 19,350
President 1995 189,077 140,000 0 38,000 17,017
(1) As we noted above, Mr. Boyle did not join Ambac until March
1997. The information in the Summary Compensation Table only
shows compensation we actually paid. Mr. Boyle's annualized
salary was $270,000 for the year. Mr. Salzano became an
executive officer in June 1995.
(2) The Compensation and Organization Committee determines what
portion of an executive's annual cash bonus, if any, should be
paid in restricted stock units ("RSUS"). 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. For 1996, the Committee determined that Mr.
Lassiter's bonus would be paid partly in cash and partly in
RSUs. The RSUs granted to Mr. Lassiter for 1996 vested on
January 28, 1998.
13
The total number of RSUs held by the named executive officers
as of December 31, 1997, and the total value of these RSUs
(based on the $46.00 per share New York Stock Exchange closing
price of the common stock on Thursday, December 31, 1997), were
as follows: Mr. Lassiter -- 44,966 RSUs ($2,068,436); and Mr.
Genader--3,250 RSUs ($149,500).
(3) The column called "ALL OTHER COMPENSATION" includes the
amounts that Ambac contributed on behalf of the named officers
in 1997 to (a) our Savings Incentive Plan (the "SIP"), and (b)
our Nonqualified 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 Nonqualified SIP.
CONTRIBUTIONS CONTRIBUTIONS TO THE
TO THE SIP NON-QUALIFIED SIP
------------- --------------------
Mr. Lassiter........................... $14,350 $33,184
Mr. Boyle.............................. 0 0
Mr. Genader............................ 12,922 11,742
Mr. Bivona............................. 13,700 6,479
Mr. Salzano............................ 14,350 4,933
Option Grants In 1997
Individual Grants
----------------------------------------------------------------------
Number of Percent of
Securities Total Options
Underlying Granted to Grant Date
Options Employees in Exercise Expiration Present
Name Granted(#)(1) 1997 Price($/Sh)(2) Date Value($)(3)
- --------------------------------------------------------------------------------------------------------------------
Phillip B. Lassiter 100,000 11.77% $33.2813 1/28/04 $980,000
David L. Boyle 30,000 3.53 32.1250 4/30/04 283,500
Robert J. Genader 60,000 7.06 33.2813 1/28/04 588,000
Frank J. Bivona 36,000 4.24 33.2813 1/28/04 352,800
Joseph V. Salzano 10,000 1.18 33.2813 1/28/04 98,000
(1) For 1997, except for Mr. Boyle, all options awarded to the named
executive officers by the Compensation and Organization
Committee were long-term incentive awards granted on January 28,
1997. The Committee awarded Mr. Boyle a long-term incentive
award on April 30, 1997, shortly after he joined Ambac.
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 1997, 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. We have
adjusted all options awarded to reflect Ambac's two-for-one stock
split in September 1997.
(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 Ambac
common stock on the New York Stock Exchange on the date of
grant. We have adjusted all share prices to reflect Ambac's two-
for-one stock split in September 1997.
14
(3) We calculated these values by using the Black-Scholes stock
option pricing model as follows:
FOR THE JANUARY GRANTS. The model, as we applied it, uses the
grant date of January 28, 1997 and the fair market value on that
date of $33.2813 per share as we discussed above. The model also
assumes (a) a risk-free rate of return of 6.42% (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 19.41% (calculated using month-end closing prices of
Ambac common stock on the New York Stock Exchange for the period
beginning with January 31, 1993 and ending as of the end of the
month preceding the grant date), (c) a constant dividend yield of
1.08% based on the quarterly cash dividend rate of 9 cents per
share on Ambac common stock, and (d) an exercise date, on average,
of 5.5 years after grant.
FOR THE APRIL GRANT. The model, as we applied it, uses the grant
date of April 29, 1997 and the fair market value on that date of
$32.125 per share as we discussed above. The model also assumes
(a) a risk-free rate of return of 6.58% (which was the yield on a
U.S. Treasury Strip zero coupon bond with a maturity that
approximates the term of the option), (b) a stock price volatility
of 18.95% (calculated using month-end closing prices of Ambac
common stock on the New York Stock Exchange for the period
beginning with January 31, 1993 and ending as of the end of the
month preceding the grant date), (c) a constant dividend yield of
1.12% based on the quarterly cash dividend rate of 9 cents per
share on Ambac common stock, and (d) an exercise date, on average,
of 5.5 years after grant.
WE DID NOT ADJUST THE MODEL FOR NON-TRANSFERABILITY, RISK OF
FORFEITURE, OR VESTING RESTRICTIONS. THE ACTUAL VALUE (IF ANY) AN
EXECUTIVE OFFICER RECEIVES FROM A STOCK OPTION WILL DEPEND UPON
THE AMOUNT BY WHICH THE MARKET PRICE OF AMBAC COMMON STOCK EXCEEDS
THE EXERCISE PRICE OF THE OPTION ON THE DATE OF EXERCISE. THERE
CAN BE NO ASSURANCE THAT THE AMOUNT STATED AS "GRANT DATE PRESENT
VALUE" WILL ACTUALLY BE REALIZED.
Aggregated Option Exercises In 1997
and Option Values as of Year-End 1997
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options Held at December 31, In-the-Money Options Held at
Acquired On Value 1997(#)(1) December 31, 1997($)(2)
Name Exercise(#)(1) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------------------
Phillip B. Lassiter 94,250 $1,782,962 711,667 218,333 $21,812,134 $4,030,681
David L. Boyle -- -- 0 30,000 0 416,250
Robert J. Genader 24,700 556,489 265,667 108,333 7,255,512 1,824,124
Frank J. Bivona 2,320 45,730 161,000 79,000 4,479,153 1,461,527
Joseph V. Salzano -- -- 93,000 107,000 2,322,653 2,266,901
(1)We have adjusted all shares to reflect Ambac's two-for-one stock
split in September 1997.
(2) This valuation represents the difference between $46.00, the
closing price of Ambac common stock on the New York Stock
Exchange on Tuesday, December 31, 1997, 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.
15
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., Cadre Financial Services, Inc. and
Cadre Securities, 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 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"). 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.
Average Years of Service
Covered -------------------------------------------------------------------------------------------------------
Compensation 10 15 20 25 30 35
- ---------------------------------------------------------------------------------------------------------------------------------
$ 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
SERVICE For service on or after January 1, 1992, the annual
FROM 1992 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
years of the ten years of employment preceding
retirement.
16
SERVICE For service prior to January 1, 1992, the annual
BEFORE 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 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, 1997 for executive
officers named in the Summary Compensation Table were
as follows: Mr. Lassiter -- 28 years, Mr. Boyle -- 1
year, Mr. Genader -- 23 years, Mr. Bivona -- 20 years
and Mr. Salzano -- 11 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.
EMPLOYMENT AGREEMENT WITH 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 rolling two year term until
Ambac or Mr. Lassiter terminates it.
. Mr. Lassiter is to receive a base salary at a rate
of 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 will be based on the benefit formula of the Pension
BENEFIT Plan that was in effect until the end of 1991. But
the formula will take into account his bonus
compensation
17
(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 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 . continue to receive, for the remainder of the
TERMINATION 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 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 All stock options and other awards under the 1997
CHANGE Equity Plan that are made to Mr. Lassiter after
IN CONTROL 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 be entitled to the "gross up"
payment also described in that section.
OTHER Mr. Lassiter will be subject to certain restrictions
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.
18
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 of the Change in Control, the executive's
BENEFITS AFTER employment is 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:
CHANGE IN CONTROL
. 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 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 agreements described above:
"CHANGE IN
CONTROL"
A "Change in Control" generally includes:
19
. 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;
. 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, monetarily or otherwise;
. 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 executive is required to relocate more than 25
miles; or
. Ambac fails to honor its obligations under the
agreement.
During a 30-day period following the first
anniversary of a Change in Control, however, a
resignation by the executive for any reason will be
considered a termination for Good Reason.
20
ARRANGEMENTS WITH NAMED EXECUTIVE OFFICER
When Ambac hired Mr. Boyle in March 1997, we entered into a letter
agreement to provide him with a minimum guaranteed bonus of $100,000 for
1997. In fact, in January 1998, the Compensation and Organization
Committee awarded Mr. Boyle a $275,000 bonus (based on his performance
during 1997) which exceeded his minimum guarantee. Ambac made no
guarantees for 1998 or later years.
Ambac also entered into a supplemental pension agreement with Mr.
Boyle. This agreement is only effective if Mr. Boyle is employed by
Ambac for at least five years. As a result of this supplemental pension
agreement, Mr. Boyle generally receives two years of service credit for
every one year of actual service with Ambac for up to a maximum of ten
additional years of service credit.
21
REPORT ON EXECUTIVE COMPENSATION FOR 1997 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 1997:
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 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.
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 for
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 cash
(or 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 with a
nonqualified savings incentive plan and a voluntary deferred compensation
arrangement, which are 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 1997?
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, President and Chief Executive
Officer.
COMPARATIVE DATA
In conducting our review for 1997, we 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 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 Multi-line
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
23
as a benchmark in reaching our own determination of
what were appropriate salary levels for our executives.
BASE SALARIES
OF THE Although data for the Comparison Group supported an
EXECUTIVES annual increase in base salaries for 1997, the
Committee accepted Mr. Lassiter's recommendation to
control expenses by keeping the base salaries for all
Ambac executives at their 1996 levels. We note that 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. 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 In light of our decision not to increase the base
CHIEF EXECUTIVE salaries of Ambac's executives, the Committee did not
OFFICER increase the base salary of Mr. Lassiter for 1997. Mr.
Lassiter's base pay therefore remained at the 1996
level of $530,000. We note that Mr. Lassiter's base
salary in 1997 was still in the top quarter for
salaries of chief executive officers in the Comparison
Group.
HOW DID WE DETERMINE BONUSES FOR 1997?
1997 OVERALL
PERFORMANCE In January 1998, the Committee evaluated Ambac's
performance during 1997 under each of the nine
categories set out in the EIP: 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. 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 strong based especially
on its excellent performance in the categories of
return on equity, net income growth, total return to
stockholders and risk management.
BONUSES
FOR THE
EXECUTIVES The Committee awarded bonus compensation for 1997 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.
24
BONUS
FOR THE At our meeting in January 1997, the Committee selected
CHIEF EXECUTIVE Mr. Lassiter as the only executive to participate in
OFFICER 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 net income growth.
In January 1998, we applied the formula and awarded Mr.
Lassiter a bonus of $660,000. 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 overall performance in 1997 under Mr. Lassiter's
leadership, we decided to award Mr. Lassiter the
maximum amount under the formula.
For 1998, we again selected Mr. Lassiter as the only
executive officer to participate in the EIP.
WHAT WERE THE LONG-TERM INCENTIVE AWARDS IN 1997?
1997 GRANTS In 1997, we provided long-term incentive awards for
executives by granting stock options. To increase the
importance of creating stockholder value over the
shorter term, we again limited the term of the stock
options to seven years. The size of the 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 1997"
table elsewhere in the Proxy Statement.
STOCK
OWNERSHIP The Chief Executive Officer has established stock
GUIDELINES ownership guidelines for all of Ambac's executives. The
guidelines set an appropriate level of ownership of
Ambac stock as a fixed number of shares, or, if less,
as a multiple of the executive's annual base salary
(based on the market value of Ambac common stock). The
fixed number ranges from a high of 100,000 shares (in
the case of Mr. Lassiter) to a low of 20,000 shares.
The multiple ranges from a high of five times base
salary (in the case of Mr. Lassiter) to a low of three
times base salary.
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
C. Roderick O'Neil
March 27, 1998
25
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 Multi-Line
Index.
The graph assumes that you invested $100 in Ambac common stock and in
each of the indexes on December 31, 1992, 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.
Comparison of Five-Year Total Return to Stockholders
GRAPHIC
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- --------------------------------------------------------------------------------------------------------
Ambac $100.00 $ 98.67 $ 88.63 $113.01 $161.82 $226.36
S&P 500 Index 100.00 110.06 111.52 153.39 188.59 251.49
IBD Insurance Multi-line Index 100.00 99.63 86.82 128.35 134.38 115.49
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 $475.93 by the end of 1997. This compares with a $100
investment growing to only $297.42 in the S&P 500 Index and to $183.75
in the IBD Insurance Multi-line Index.
For this computation, we assumed that all dividends were reinvested,
just as we did for the five-year total return comparison above.
26
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
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. LASSITER CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
Age 54 (since 1991) AND PRESIDENT (since 1992) OF AMBAC AND
Director since AMBAC ASSURANCE.
1991 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 HCIA Inc.
MICHAEL A. CALLEN PRESIDENT, AVALON ARGUS ASSOCIATES, LLC (financial
Age 57 consulting) SINCE APRIL 1996.
Director since Mr. Callen was Special Advisor to the National
1991 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 SENIOR VICE PRESIDENT OF RAYTHEON COMPANY
Age 65 (electronics, aircraft, engineering and construction)
Director since SINCE APRIL 1995.
1995 Dr. Caporali retired in June 1994 as Chairman 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.
27
RICHARD DULUDE RETIRED IN APRIL 1993 AS VICE CHAIRMAN OF CORNING
Age 65 INCORPORATED (diversified manufacturing).
Director since Mr. Dulude was Vice Chairman of Corning Incorporated
1992 from November 1990 to 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
Age 57 CHAIRMAN OF GREGORY & HOENEMEYER, INC. (merchant
Director since banking) SINCE 1988.
Mr. Gregory retired in 1987 as Chairman of the Board
1991 of Touche Ross & Co. (accounting firm). Mr. Gregory
also serves as a director of InaCom Corp., True North
Communications and HCIA Inc.
C. RODERICK O'NEIL
Age 67 CHAIRMAN, O'NEIL ASSOCIATES (FORMERLY GREENSPAN
Director since O'NEIL ASSOCIATES) (investment and financial
consulting) SINCE 1984.
1991 Mr. O'Neil also serves as a director of Fort Dearborn
Income Securities, Inc., Beckman Instruments, Inc.
and Cadre Institutional Investors Trust.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF ALL
SIX NOMINEES FOR DIRECTOR.
PROPOSAL 2: AMEND CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK FROM 100 TO 200 MILLION.
We propose to amend Article IV of the Certificate of Incorporation to
increase the number of authorized shares of common stock from 100
million to 200 million.
. Of the 100 million shares authorized for issuance under our
Certificate of Incorporation, there are only approximately 19.6
million shares unissued and unreserved. As of the record date,
there were approximately 70.1 million shares issued and
outstanding and approximately 10.3 million reserved for issuance
under employee benefit plans.
. Our proposed amendment increases the number of authorized shares
of common stock by 100 million.
-- The rights of additional authorized shares would be identical
to the rights of the shares you now hold.
-- The authorization will not, in itself, have any effect on
your rights as a stockholder. If the Board were to issue
additional shares for other than a stock split or dividend,
however, it could have a dilutive effect on Ambac's earnings
per share and on your voting power in Ambac.
28
-- This proposal is not in response to any effort we know of to
accumulate Ambac common stock or to obtain control of Ambac.
-- The Board has no present plans, agreements, commitments or
understandings for the issuance or use of these proposed
additional shares.
. We believe that the proposed increase is in the best interests
of Ambac and our stockholders. It is important for the Board to
have the flexibility to act promptly to meet future business
needs as they arise. Sufficient shares should be readily
available to maintain our financing and capital raising
flexibility, for stock splits and stock dividends, acquisitions
and mergers, employee benefit plans 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 the expense of soliciting proxies and
holding special meetings of stockholders.
For example, today, if the Board determined that a stock
split were advisable to enhance your liquidity or to
achieve a more attractive market price for a broader
spectrum of investors, the Board would not have
sufficient authorized shares available to effect a split.
-- The Board may only issue additional shares of common stock
without action on your part if the action is permissible
under Delaware law and the rules of the stock exchange on
which our common stock is listed.
For example, today, if the Board wished to make an
acquisition using stock that would result in an increase
of 20% or more in the number of shares of Ambac common
stock outstanding, New York Stock Exchange rules would
require us to obtain your approval.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE AMENDMENT TO
THE CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK FROM 100 TO 200 MILLION.
PROPOSAL 3: RATIFY SELECTION OF KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS
FOR 1998
We are asking you to ratify the Board's selection of KPMG Peat
Marwick LLP, certified public accountants, as independent auditors for
1998. 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,
29
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 1998.
INFORMATION ABOUT STOCKHOLDER PROPOSALS
If you wish to submit proposals to be included in our 1999 proxy
statement, we must receive them on or before Tuesday, December 1, 1998.
Please address your proposals to: RICHARD B. GROSS, SECRETARY, AMBAC
FINANCIAL GROUP, INC., ONE STATE STREET PLAZA, NEW YORK, NEW YORK 10004.
Under our By-laws, if you wish to nominate a director 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, 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 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 would like a copy of our By-laws, we will send you one without
charge. Please write to the Secretary of Ambac.
By order of the Board of Directors,
/s/ Richard B. Gross
Richard B. Gross
Senior Vice President, General
Counsel and Secretary
March 31, 1998
30
[AMBAC LOGO]
ONE STATE STREET PLAZA, NEW YORK, NY 10004
Printed on Recycled Paper [LOGO]
1998
P
R
O
X
Y
AMBAC FINANCIAL GROUP, INC.
This Proxy is Solicited on Behalf of the Board of Directors
for the Annual Meeting of Stockholders to be Held on May 13, 1998
The undersigned hereby appoints Phillip B. Lassiter, Frank J. Bivona and Richard
B. Gross, 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 Wednesday,
May 13, 1998, 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.
Sign here as name(s) appear to the left.
----------------------------------------
----------------------------------------
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:_____________________________, 1998
1998 PROXY
[X] Please mark your
vote as in
this example.
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 RECOMMENDS THAT YOU 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 all nominees WITHHOLD AUTHORITY
(except as indicated [ ] to vote for all [ ]
below) nominees
(To withhold authority to vote for any individual nominee, write that
nominee's name below)
- ---------------------------------------------
2. Amend FOR AGAINST ABSTAIN
Certificate of Incorporation to
Increase Number of Authorized Shares [ ] [ ] [ ]
of Common Stock from 100 to
200 Million.
3. Ratify Selection of FOR AGAINST ABSTAIN
KPMG Peat Marwick LLP
as independent auditors [ ] [ ] [ ]
for 1998.