<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-10777
Ambac Financial Group, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 13-3621676
(State of incorporation) (I.R.S. employer identification no.)
One State Street Plaza
New York, New York 10004
(Address of principal executive offices) (Zip code)
(212) 668-0340
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
As of June 30, 1997, 35,045,383 shares of Common Stock, par value $0.01 per
share, (net of 294,809 treasury shares) and -0- shares of Class A Common Stock,
par value $0.01 per share, of the Registrant were outstanding.
<PAGE>
Ambac Financial Group, Inc. and Subsidiaries
INDEX
-----
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - June 30, 1997
and December 31, 1996................................................ 3
Consolidated Statements of Operations - three months and six months
ended June 30, 1997 and June 30, 1996................................ 4
Consolidated Statements of Cash Flows - six months
ended June 30, 1997 and June 30, 1996................................ 5
Notes to Consolidated Financial Statements............................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 7
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.................... 21
Item 5. Other Information...................................................... 22
Item 6. Exhibits and Reports on Form 8-K....................................... 23
SIGNATURES...................................................................... 24
INDEX TO EXHIBITS............................................................... 25
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements of Ambac Financial Group, Inc. and Subsidiaries
Ambac Financial Group, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 1997 and December 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
(unaudited)
<S> <C> <C>
Assets
Investments:
Bonds, at fair value
(amortized cost of $5,617,889 in 1997 and $4,979,017 in 1996) $ 5,716,838 $ 5,088,031
Short-term investments, at cost (approximates fair value) 142,337 112,511
----------- -----------
Total investments 5,859,175 5,200,542
Cash 6,752 7,734
Securities purchased under agreements to resell 182,082 201,169
Receivable for municipal investment agreements 32,173 33,299
Receivable for securities sold 58,799 18,467
Investment income due and accrued 69,897 65,920
Deferred acquisition costs 101,391 94,212
Prepaid reinsurance 169,194 168,786
Notes receivable 70,350 --
Other assets 90,022 85,836
----------- -----------
Total assets $ 6,639,835 $ 5,875,965
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Unearned premiums $ 1,031,131 $ 991,224
Losses and loss adjustment expenses 61,041 60,220
Ceded reinsurance balances payable 11,723 7,438
Obligations under municipal investment agreements 2,723,041 2,417,817
Obligations under municipal investment repurchase agreements 578,426 336,773
Payment agreement obligations 70,350 --
Deferred income taxes 82,396 80,086
Current income taxes 8,792 6,538
Debentures 223,831 223,798
Accrued interest payable 37,709 29,958
Accounts payable and other liabilities 45,773 57,689
Payable for securities purchased 74,456 49,408
----------- -----------
Total liabilities 4,948,669 4,260,949
----------- -----------
Stockholders' equity:
Preferred stock -- --
Common stock, Class A -- --
Common stock 353 353
Additional paid-in capital 499,244 498,401
Unrealized gains on investments, net of tax 54,117 58,911
Retained earnings 1,157,098 1,072,418
Cumulative translation adjustment 397 --
Common stock held in treasury at cost (20,043) (15,067)
----------- -----------
Total stockholders' equity 1,691,166 1,615,016
----------- -----------
Total liabilities and stockholders' equity $ 6,639,835 $ 5,875,965
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE>
Ambac Financial Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For the Periods Ended June 30, 1997 and 1996
(Dollars in Thousands Except Common Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ -------------------------------
1997 1996 1997 1996
------------------------------ -------------------------------
<S> <C> <C> <C> <C>
Financial Guarantee Insurance operations:
Gross premiums written $73,740 $58,115 $125,532 $108,402
Ceded premiums written (7,195) (9,836) (12,627) (19,448)
------------ ------------ ------------ ------------
Net premiums written 66,545 48,279 112,905 88,954
Increase in unearned premiums (30,159) (8,634) (39,486) (21,116)
------------ ------------ ------------ ------------
Net premiums earned 36,386 39,645 73,419 67,838
Net investment income 39,258 35,498 77,705 70,325
Net realized gains (losses) 3,479 (22,100) 4,291 (19,744)
Other income 2,285 2,236 3,388 3,628
------------ ------------ ------------ ------------
Total Financial Guarantee revenues 81,408 55,279 158,803 122,047
------------ ------------ ------------ ------------
Losses and loss adjustment expenses 664 1,700 1,392 2,510
Underwriting and operating expenses 9,732 10,351 18,824 19,099
------------ ------------ ------------ ------------
Total Financial Guarantee expenses 10,396 12,051 20,216 21,609
------------ ------------ ------------ ------------
Financial Guarantee Insurance operating income 71,012 43,228 138,587 100,438
Financial Management Services operating income (loss) 755 2,737 (1,003) 7,612
Equity in income of affiliate -- -- -- 627
Interest expense (5,303) (5,167) (10,544) (10,425)
Other income (deductions), net 1,372 1,366 2,404 919
Other net realized gains -- 155,613 788 155,613
------------ ------------ ------------ ------------
Income before income taxes 67,836 197,777 130,232 254,784
------------ ------------ ------------ ------------
Income tax expense (benefit):
Current taxes 10,964 66,939 21,749 79,913
Deferred taxes 3,259 (5,109) 5,132 (5,629)
------------ ------------ ------------ ------------
Total income taxes 14,223 61,830 26,881 74,284
------------ ------------ ------------ ------------
Net income $53,613 $135,947 $103,351 $180,500
============ ============ ============ ============
Net income per common share $1.53 $3.89 $2.96 $5.16
============ ============ ============ ============
Weighted average number of
common shares outstanding 34,978,676 34,915,449 34,961,172 34,984,680
============ ============ ============ ============
Pro forma net income per common share
retroactively adjusted to reflect the two-
for-one split of common stock $0.77 $1.94 $1.48 $2.58
============ ============ ============ ============
Pro forma weighted average number of
common shares outstanding retroactively
adjusted to reflect the two-for-one split
of common stock 70,024,059 69,960,832 70,006,555 70,030,063
============ ============ ============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE>
Ambac Financial Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For The Periods Ended June 30, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $103,351 $180,500
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 872 1,077
Amortization of bond premium and discount (723) (453)
Current income taxes 2,254 55,749
Deferred income taxes 5,299 (5,756)
Deferred acquisition costs (7,179) (5,487)
Unearned premiums, net 39,499 21,115
Losses and loss adjustment expenses 821 (6,567)
Ceded reinsurance balances payable 4,285 (7,889)
Investment income due and accrued (3,977) (6,314)
Accrued interest payable 7,751 3,806
Gain on sales of investments (5,158) (135,850)
Accounts payable and other liabilities (11,916) 2,543
Other, net (12,389) (12,183)
----------- -----------
Net cash provided by operating activities 122,790 84,291
----------- -----------
Cash flows from investing activities:
Proceeds from sales of bonds 859,455 815,183
Proceeds from matured bonds 582,984 444,344
Purchases of bonds (2,091,575) (1,985,878)
Change in short-term investments (29,826) (54,286)
Securities purchased under agreements to resell 19,087 91,694
Proceeds from sale of affiliate -- 202,609
Other, net 4,638 3,389
----------- -----------
Net cash used in investing activities (655,237) (482,945)
----------- -----------
Cash flows from financing activities:
Dividends paid (11,562) (10,500)
Proceeds from issuance of municipal investment agreements 1,158,705 938,111
Payments for municipal investment agreement draws (610,702) (522,548)
Proceeds from sale of treasury stock 27,227 7,701
Purchases of treasury stock (32,203) (20,891)
----------- -----------
Net cash provided by financing activities 531,465 391,873
----------- -----------
Net cash flow (982) (6,781)
Cash at January 1 7,734 12,167
----------- -----------
Cash at June 30 $6,752 $5,386
=========== ===========
Supplemental disclosure of cash flow information Cash paid during the period
for:
Income taxes $14,110 $23,392
=========== ===========
Interest expense on debt $10,896 $10,846
=========== ===========
Interest expense on municipal investment agreements $76,099 $68,493
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
5
<PAGE>
Ambac Financial Group, Inc. and Subsidiaries
Notes to Consolidated Unaudited Financial Statements
(1) Basis of Presentation
Ambac Financial Group, Inc., formerly known as AMBAC Inc., (the "Company")
headquartered in New York City, is a holding company that provides through its
affiliates financial guarantee insurance and financial management services to
clients in both the public and private sectors in the U.S. and abroad. The
Company's principal operating subsidiary, Ambac Assurance Corporation ("Ambac
Assurance"), a leading insurer of municipal and structured finance obligations,
has been assigned triple-A claims-paying ability ratings, the highest ratings
available from Moody's Investors Service, Inc., Standard & Poor's Ratings Group,
Fitch Investors Service, L.P. and Nippon Investors Service, Inc. Through its
Financial Management Services Division, the Company provides investment
agreements, interest rate swaps, investment advisory and cash management
services, and procurement systems principally to states, municipalities and
their authorities, school districts, and hospitals and health organizations.
The Company's consolidated unaudited interim financial statements have been
prepared on the basis of generally accepted accounting principles ("GAAP") and,
in the opinion of management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the Company's
financial condition, results of operations and cash flows for the periods
presented. The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported revenues
and expenses during the reporting period. Actual results could differ from those
estimates. The results of operations for the three months and six months ended
June 30, 1997 may not be indicative of the results that may be expected for the
full year ending December 31, 1997. These consolidated financial statements and
notes should be read in conjunction with the financial statements and notes
included in the audited consolidated financial statements of Ambac Financial
Group, Inc. and its subsidiaries contained in (i) the Company's Annual Report on
Form 10-K for the year ended December 31, 1996, which was filed with the
Securities and Exchange Commission (the "Commission") on March 31, 1997, and
(ii) the Company's Quarterly Report on Form 10-Q for the quarterly period ended
on March 31, 1997, which was filed with the Commission on May 15, 1997.
The consolidated financial statements include the accounts of the Company
and each of its subsidiaries. All significant intercompany balances have been
eliminated.
(2) Two-for-One Stock Split
On July 31, 1997, the Company announced that its Board of Directors had
approved a two-for-one split of the Company's common stock in the form of a
stock dividend. Stockholders of record on August 29, 1997 will receive on
September 10, 1997, one additional share for each share they own on the record
date. The proforma number of common shares outstanding presented on the
Consolidated Statements of Operations, assumes that the additional shares issued
on the effective date of the two-for-one split, will be equal to the number of
shares outstanding at June 30, 1997. The actual number of additional shares
issued on the effective date may differ.
6
<PAGE>
Notes to Consolidated Unaudited Financial Statements (Continued)
(3) Future Impact of New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), entitled "Earnings Per
Share." SFAS 128 will replace the presentations of primary and fully diluted
earnings per share under current accounting standards with "basic earnings per
share" and "diluted earnings per share," respectively. Basic earnings per share
excludes dilution and is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding during
the period, whereas primary earnings per share includes the impact of assumed
conversion of common stock equivalents. Diluted earnings per share under SFAS
128 is generally similar to fully diluted earnings per share. For calendar year
enterprises, SFAS 128 must be adopted commencing with year end 1997 financial
statements, and will then apply retroactively to both annual and interim
periods, requiring the restatement of previously presented earnings per share
data. Earlier application of SFAS 128 is not permitted. Based on preliminary
calculations, the Company does not believe that earnings per share computed
under SFAS 128 would be materially different from the earnings per share data
presented herein.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following paragraphs describe the consolidated results of operations of
Ambac Financial Group, Inc. and its subsidiaries (sometimes collectively
referred to as the "Company") for the three and six month periods ended June 30,
1997 and 1996, and its financial condition as of June 30, 1997 and December 31,
1996. These results are presented for the Company's two business segments:
Financial Guarantee Insurance and Financial Management Services (formerly called
the "Financial Services" segment).
Results of Operations
Three Months Ended June 30, 1997 Versus Three Months Ended June 30, 1996
Consolidated Net Income
The Company's net income for the three months ended June 30, 1997 was $53.6
million or $1.53 per common share, a decrease of 61% from $135.9 million or
$3.89 per common share in the three months ended June 30, 1996. The decrease
from the prior period was primarily the result of a net realized gain of $155.6
million (which had a net income per common share effect of $2.88) from the
Company's sale of its former affiliate, HCIA Inc. ("HCIA"). Excluding the effect
of this one-time gain, net income increased 52% over the second quarter of 1996.
This increase in net income was attributable to higher Financial Guarantee
Insurance operating income, partially offset by lower Financial Management
Services operating income.
Financial Guarantee Insurance
Operating Income. Through its principal operating subsidiary, Ambac
Assurance Corporation ("Ambac Assurance"), the Company provides financial
guarantee insurance. Financial Guarantee Insurance operating income for the
three months ended June 30, 1997 was $71.0 million, an increase of 64% from
$43.2 million in the three months ended June 30, 1996. This increase was
primarily due to realized gains from sales of securities for the period,
7
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
increased premiums earned from the underlying book of business, higher net
investment income, and lower expenses, partially offset by lower premiums earned
from refundings, calls and other accelerations.
Gross Par Written. Ambac Assurance insured $10.6 billion in par value bonds
during the three months ended June 30, 1997, an increase of 15% from $9.2
billion in the three months ended June 30, 1996. Par value written for the
second quarter of 1997 was comprised of $7.3 billion from municipal bond
insurance and $3.3 billion from structured finance insurance, compared to $7.1
billion and $2.1 billion, respectively, in the second quarter of 1996. According
to estimates based on industry sources, the total volume of new issues of
municipal bonds increased 12% from $49.6 billion during the three months ended
June 30, 1996 to $55.7 billion in the three months ended June 30, 1997. During
the three months ended June 30, 1997, the insured portion of the new issue
municipal bond market increased to approximately 52% from approximately 48% for
the three months ended June 30, 1996, reflecting increased demand for insured
bonds. (Market size amounts and insured percentage figures used in this
paragraph were determined on a sale date basis, in conformity with industry
practices; all other amounts and percentage figures in this discussion were
determined on a closing date basis.)
Gross Premiums Written. Gross premiums written for the three months ended
June 30, 1997 were $73.7 million, an increase of 27% from $58.1 million in the
three months ended June 30, 1996. The following table sets forth the amounts of
gross premiums written by type and percent of total:
<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------------
(Dollars in Millions) 1997(1) %(1) 1996(1) %(1)
------- ----- ------- -----
<S> <C> <C> <C> <C>
Domestic:
Municipal finance premiums:
Up-front policies:
New issue ............................ $47.7 65% $47.0 81%
Secondary market ..................... 7.4 10 2.5 4
----- ----- ----- -----
Sub-total up-front written ......... 55.0 75 49.5 85
----- ----- ----- -----
Installment policies:
Annual policies ...................... 3.0 4 2.5 4
Portfolio products ................... 0.8 1 1.0 2
----- ----- ----- -----
Sub-total installment written .... 3.8 5 3.5 6
----- ----- ----- -----
Total municipal finance written . 58.8 80 53.0 91
----- ----- ----- -----
Structured finance premiums:
Up-front ............................. 0.6 1 0.7 1
Installment .......................... 4.5 6 1.8 3
----- ----- ----- -----
Total structured finance written 5.1 7 2.5 4
----- ----- ----- -----
Total domestic written ...... 64.0 87 55.5 95
----- ----- ----- -----
International:
Up-front .......................... 8.3 11 2.0 3
Installment ....................... 1.5 2 0.6 1
----- ----- ----- -----
Total international written . 9.8 13 2.6 4
----- ----- ----- -----
Total up-front written ..................... 64.0 87 52.2 90
Total installment written .................. 9.8 13 5.9 10
----- ----- ----- -----
Grand total written ....................... $73.7 100% $58.1 100%
===== ===== ===== =====
</TABLE>
(1) Numbers may not add due to rounding.
8
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Ceded Premiums Written. Ceded premiums written for the second quarter of
1997 were $7.2 million, compared to $9.8 million in the second quarter of 1996.
The 27% decrease in ceded premiums written is primarily due to the non-renewal
of the automatic treaty reinsurance for domestic business effective January 1,
1997, partially offset by higher ceded premiums for international business.
Ambac Assurance uses facultative reinsurance agreements to reduce its risk and
manage its insurance portfolio. Ceded premiums written were 9.8% and 16.9% of
gross premiums written for the three month periods ended June 30, 1997 and 1996,
respectively.
Net Premiums Written. Net premiums written for the three months ended June
30, 1997 were $66.5 million, an increase of 38% from the $48.3 million in the
three months ended June 30, 1996. This increase reflects higher gross premiums
written and lower premiums ceded to reinsurers in the three months ended June
30, 1997 compared with the corresponding prior period.
Net Premiums Earned. Net premiums earned during the three months ended June
30, 1997 were $36.4 million, a decrease of 8% from $39.6 million in the three
months ended June 30, 1996. The decrease was primarily due to the decline in
premiums earned from refundings, calls and other accelerations for the three
months ended June 30, 1997, partially offset by the continued growth in premiums
earned from the underlying book of business during the period. Net premiums
earned for the three months ended June 30, 1997 included $5.8 million (which had
a net income per common share effect of $0.09) from refundings, calls and other
accelerations of previously insured issues. Net premiums earned in the three
months ended June 30, 1996 included $13.8 million (which had a net income per
common share effect of $0.22) from refundings, calls and other accelerations.
Refunding levels vary depending upon a number of conditions, primarily the
relationship between current interest rates and interest rates on outstanding
debt. Excluding the effect of accelerated earnings from refundings, calls and
other accelerations, net premiums earned for the three months ended June 30,
1997 were $30.6 million, an increase of 19% from $25.8 million in the three
months ended June 30, 1996.
Net Investment Income. Net investment income for the three months ended
June 30, 1997 was $39.3 million, an increase of 11% from $35.5 million in the
three months ended June 30, 1996. The increase was primarily attributable to the
growth of the investment portfolio. Ambac Assurance's investments in tax-exempt
securities amounted to 80% of the total market value of its portfolio as of June
30, 1997, versus 76% at June 30, 1996. The average pre-tax yield-to-maturity on
the Financial Guarantee Insurance investment portfolio was 6.40% and 6.49% as of
June 30, 1997 and 1996, respectively.
Net Realized Gains (Losses). Net realized gains were $3.5 million for the
three months ended June 30, 1997, compared to $22.1 million in net realized
losses for the comparative prior period in 1996. The net realized losses in the
three months ended June 30, 1996 partially offset the net realized gain on the
sale of HCIA.
Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses
for the three months ended June 30, 1997 were $0.7 million, versus $1.7 million
in the three months ended June 30, 1996. Losses and loss adjustment expenses are
generally based upon estimates of the ultimate aggregate losses inherent in the
obligations insured. No salvage was recognized for the three month periods ended
June 30, 1997 and 1996, respectively.
9
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Underwriting and Operating Expenses. Underwriting and operating expenses
for the second quarter of 1997 were $9.7 million, a decrease of 7% from $10.4
million in the second quarter of 1996, primarily as a result of lower gross
underwriting expenses. Underwriting and operating expenses consist of gross
underwriting and operating expenses, less the deferral to future periods of
expenses and reinsurance commissions related to the acquisition of new insurance
contracts, plus the amortization of previously deferred expenses and reinsurance
commissions. During the three month period ended June 30, 1997, Ambac
Assurance's gross underwriting and operating expenses were $14.4 million, a
decrease of 5% from $15.1 million in the three months ended June 30, 1996,
primarily due to lower premium taxes and compensation expenses. Underwriting and
operating expenses deferred were $8.0 million and $8.5 million for the three
months ended June 30, 1997 and 1996, respectively. Reinsurance commissions which
relate to the current period were none and $0.3 million for the three months
ended June 30, 1997 and 1996, respectively. The amortization of previously
deferred expenses and reinsurance commissions was $3.3 million and $3.4 million
for the three months ended June 30, 1997 and 1996, respectively.
Financial Management Services
Operating Income. Through its Financial Management Services subsidiaries,
the Company provides investment agreements, interest rate swaps, investment
advisory and cash management services, and procurement systems principally to
states, municipalities and their authorities, school districts, and hospitals
and health organizations. Financial Management Services operating income for the
three months ended June 30, 1997 was $0.8 million, down from $2.7 million in the
three months ended June 30, 1996. Revenues for the second quarter of 1997 were
$6.2 million, up from $5.1 million in the second quarter of 1996. The increase
was primarily due to the inclusion of investment advisory and cash management
services revenues of Cadre Financial Services, Inc. ("Cadre"), the assets and
name of which the Company acquired on December 31, 1996, partially offset by
lower revenues on interest rate swaps. Expenses for the second quarter of 1997
were $5.4 million, up from $2.4 million in the second quarter of 1996. These
increased expenses resulted primarily from the consolidation of Cadre and the
Company's software procurement affiliate, Ambac Connect, Inc., into the
Financial Management Services businesses.
Corporate Items
Interest Expense and Other Income (Deductions), Net. Interest expense for
the three months ended June 30, 1997 was $5.3 million, up slightly from $5.2
million for the three months ended June 30, 1996. Other income (deductions),
net, includes investment income and operating expenses of the holding company,
Ambac Financial Group, Inc. Other income (deductions), net, was $1.4 million for
the three months ended June 30, 1997, flat compared to the comparative prior
period.
Other Net Realized Gains. On May 6, 1996, the Company sold its remaining
4,159,505 shares of HCIA common stock in a secondary public offering yielding
net proceeds to the Company of $202.6 million. The sale resulted in a net
realized gain of $155.6 million, pre-tax, $100.6 million, after-tax, (net income
per common share effect of $2.88).
10
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Income Taxes. Income taxes for the three months ended June 30, 1997 were at
an effective rate of 20.9%, versus 31.3% in the three months ended June 30,
1996. The higher effective tax rate in the second quarter of 1996 reflected the
realized gain on the sale of HCIA.
Supplemental Analytical Financial Data
Management, equity analysts and investors consider the following four
measures important in analyzing the financial results, and measuring the
intrinsic value of the Company: core earnings; operating earnings; adjusted
gross premiums written; and adjusted book value. However, none of these measures
are promulgated in accordance with generally accepted accounting principles
("GAAP") and should not be considered as substitutes for net income, gross
premiums written and book value. The definitions of core earnings, operating
earnings, adjusted gross premiums written and adjusted book value described
below may differ from the definitions used by other public holding companies of
financial guarantee insurers.
Core Earnings. Core earnings for the three months ended June 30, 1997 were
$48.0 million , an increase of 14% from $41.8 million for the three months ended
June 30, 1996. The increase in core earnings was primarily the result of
continued growth in net premiums earned from the underlying book of business,
higher net investment income and lower expenses from Financial Guarantee
Insurance operations, partially offset by lower Financial Management Services
operating income. The Company defines core earnings as consolidated net income,
less the effect of net realized gains and losses, net insurance premiums earned
from refundings and calls and certain non-recurring items.
Operating Earnings. Operating earnings for the second quarter of 1997 were
$51.3 million, an increase of 4% from $49.6 million in the second quarter of
1996. The Company defines operating earnings as consolidated net income, less
the effect of net realized gains and losses and certain non-recurring items.
The following table reconciles net income computed in accordance with GAAP
to operating earnings and core earnings for the three months ended June 30, 1997
and 1996:
<TABLE>
<CAPTION>
(Dollars in Millions) 1997(1) 1996(1)
------------ ------------
<S> <C> <C>
Net Income..................................................... $53.6 $135.9
Net realized gains, after tax.................................. (2.3) (86.3)
------------ ------------
Operating earnings.................................... 51.3 49.6
Premiums earned from refundings,
calls and other accelerations, after tax................. (3.3) (7.8)
------------ ------------
Core earnings......................................... $48.0 $41.8
============ ============
</TABLE>
(1) Numbers may not add due to rounding.
The weighted average number of shares outstanding during the second quarter
of 1997 and 1996 was 35.0 million and 34.9 million, respectively.
Adjusted Gross Premiums Written. Adjusted gross premiums written were $84.5
million in the second quarter of 1997, up 14% from $74.1 million in the second
quarter of 1996. The Company defines adjusted gross premiums written as up-front
premiums written plus the present value of estimated future installment premiums
written in the period. While most of Ambac Assurance's premiums written are
collected up-front at policy issuance, a growing
11
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
portion of premiums are collected on an installment basis. The net present value
of estimated future installment premiums written in the second quarter of 1997
was $20.6 million, a decrease of 6% from $22.0 million written in the second
quarter of 1996. The aggregate net present value of estimated future installment
premiums was $186.4 million and $157.7 million as of June 30, 1997 and December
31, 1996, respectively.
The following table reconciles total up-front premiums written to adjusted
gross premiums written for the three months ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
(Dollars in Millions) 1997(1) 1996(1)
----------- ------------
<S> <C> <C>
Adjusted Gross Premium Analysis:
Total Up-front premiums written............................. $64.0 $52.2
PV of estimated future installment premiums................. 20.6 22.0
=========== ============
Adjusted gross premiums written................... $84.5 $74.1
=========== ============
</TABLE>
(1) Numbers may not add due to rounding.
Adjusted Book Value. Adjusted book value ("ABV") per common share increased
5% to $65.83 at June 30, 1997 compared to $62.50 at December 31, 1996.
Management derives ABV by beginning with stockholders' equity (book value) and
adding or subtracting the after-tax value of: the net unearned premium reserve;
deferred acquisition costs; the present value of estimated net future
installment premiums; and the unrealized gain or loss on investment agreement
liabilities. These adjustments will not be realized until future periods and may
differ materially from the amounts used in determining ABV.
The following table reconciles book value per share to ABV per share as of
June 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
June 30, December 31,
1997(1) 1996(1)
----------- ------------
<S> <C> <C>
Book value per share............................................ $48.26 $46.02
After-tax value of:
Net unearned premium reserve................................ 15.98 15.25
Deferred acquisition costs.................................. (1.88) (1.74)
Present value of installment premiums...................... 3.45 2.91
Unrealized gain on investment agreement liabilities......... 0.03 0.06
----------- ------------
Adjusted book value per share................................... $65.83 $62.50
=========== ============
</TABLE>
(1) Numbers may not add due to rounding.
12
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Results of Operations
Six Months Ended June 30, 1997 Versus Six Months Ended June 30, 1996
Consolidated Net Income
The Company's net income for the six months ended June 30, 1997 was $103.4
million or $2.96 per common share, a decrease of 43% from $180.5 million or
$5.16 per common share in the six months ended June 30, 1996. The decrease in
net income from the prior period was primarily the result of a net realized gain
of $155.6 million (which had a net income per common share effect of $2.88) from
the Company's sale of its former affiliate, HCIA. Excluding the effect of this
one-time gain, net income increased 29% over the six months ended June 30, 1996.
This increase in net income was attributable to higher Financial Guarantee
Insurance operating income, partially offset by lower Financial Management
Services operating income.
Financial Guarantee Insurance
Operating Income. Financial Guarantee Insurance operating income for the
six months ended June 30, 1997 was $138.6 million, an increase of 38% from
$100.4 million in the six months ended June 30, 1996 This increase was primarily
due to realized gains from sales of securities for the period, increased
premiums earned from the underlying book of business, higher net investment
income, and lower expenses, partially offset by lower premiums earned from
refundings, calls, and other accelerations.
Gross Par Written. Ambac Assurance insured $18.5 billion in par value bonds
during the six months ended June 30, 1997, an increase of 19% from $15.5 billion
in the six months ended June 30, 1996. Par value written for the first six
months of 1997 was comprised of $12.6 billion from municipal bond insurance and
$5.9 billion from structured finance insurance, compared to $11.7 billion and
$3.8 billion, respectively, in the first six months of 1996. According to
estimates based on industry sources, the total volume of new issues of municipal
bonds increased 3% from $91.2 billion during the six months ended June 30, 1996
to $93.7 billion in the six months ended June 30, 1997. During the six months
ended June 30, 1997, the insured portion of the new issue municipal bond market
increased to approximately 52% from approximately 47% for the six months ended
June 30, 1996, reflecting increased demand for insured bonds. (Market size
amounts and insured percentage figures used in this paragraph were determined on
a sale date basis, in conformity with industry practices; all other amounts and
percentage figures in this discussion were determined on a closing date basis.)
13
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Gross Premiums Written. Gross premiums written for the six months ended
June 30, 1997 were $125.5 million, an increase of 16% from $108.4 million in the
six months ended June 30, 1996. The following table sets forth the amounts of
gross premiums written by type and percent of total:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------------------------------------
(Dollars in Millions) 1997(1) %(1) 1996(1) %(1)
------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Domestic:
Municipal finance premiums:
Up-front policies:
New issue ............................ $79.6 63% $76.2 70%
Secondary market ..................... 11.9 10 7.3 7
------------ --------- ------------ ---------
Sub-total up-front written ......... 91.5 73 83.5 77
------------ --------- ------------ ---------
Installment policies:
Annual policies ...................... 4.8 4 3.9 4
Portfolio products ................... 1.6 1 2.1 2
------------ --------- ------------ ---------
Sub-total installment written .... 6.4 5 6.0 6
------------ --------- ------------ ---------
Total municipal finance written . 97.9 78 89.5 83
------------ --------- ------------ ---------
Structured finance premiums:
Up-front ............................. 7.8 6 0.9 1
Installment .......................... 8.2 7 3.1 3
------------ --------- ------------ ---------
Total structured finance written 16.1 13 4.0 4
------------ --------- ------------ ---------
Total domestic written ...... 114.0 91 93.5 86
------------ --------- ------------ ---------
International:
Up-front .......................... 9.1 7 14.2 13
Installment ....................... 2.5 2 0.8 1
------------ --------- ------------ ---------
Total international written . 11.6 9 14.9 14
------------ --------- ------------ ---------
Total up-front written ..................... 108.4 86 98.5 91
Total installment written .................. 17.1 14 9.9 9
------------ --------- ------------ ---------
Grand total written ....................... $125.5 100% $108.4 100%
============ ========= ============ =========
</TABLE>
(1) Numbers may not add due to rounding.
Ceded Premiums Written. Ceded premiums written for the first six months of
1997 were $12.6 million, compared to $19.4 million in the first six months of
1996. The 35% decrease in ceded premiums written is primarily due to the
non-renewal in 1997 of the automatic treaty reinsurance for domestic business,
partially offset by higher ceded premiums for international business. Ambac
Assurance uses facultative reinsurance agreements to reduce its risk and manage
its insurance portfolio. Ceded premiums written were 10.0% and 17.9% of gross
premiums written for the six month periods ended June 30, 1997 and 1996,
respectively.
Net Premiums Written. Net premiums written for the six months ended June
30, 1997 were $112.9 million, an increase of 27% from the $89.0 million in the
six months ended June 30, 1996. This increase reflects higher gross premiums
written and lower premiums ceded to reinsurers in the six months ended June 30,
1997 compared with the corresponding prior period.
Net Premiums Earned. Net premiums earned during the six months ended June
30, 1997 were $73.4 million, an increase of 8% from $67.8 million in the six
months ended June 30, 1996. The increase was primarily the result of increased
premiums earned from the underlying book of business during the six months ended
June 30, 1997, partially offset by lower premiums earned from refundings, calls
and other accelerations during the period. Net premiums earned for the six
months ended June 30, 1997 included $13.4 million (which had a net income per
common share effect of $0.22) from refundings, calls and other accelerations of
previously insured issues. Net premiums earned in the six months ended June 30,
1996
14
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
included $18.1 million (which had a net income per common share effect of $0.29)
from refundings, calls and other accelerations. Excluding the effect of
accelerated earnings from refundings, calls and other accelerations, net
premiums earned for the six months ended June 31, 1997 were $60.0 million, an
increase of 20% from $49.8 million in the six months ended June 30, 1996.
Net Investment Income. Net investment income for the six months ended June
30, 1997 was $77.7 million, an increase of 11% from $70.3 million in the six
months ended June 30, 1996. The increase was primarily attributable to the
growth of the investment portfolio. Ambac Assurance's investments in tax-exempt
securities amounted to 80% of the total market value of its portfolio as of June
30, 1997, versus 76% at June 30, 1996. The average pre-tax yield-to-maturity on
the Financial Guarantee Insurance investment portfolio was 6.40% and 6.49% as of
June 30, 1997 and 1996, respectively.
Net Realized Gains (Losses). Net realized gains were $4.3 million for the
six months ended June 30, 1997, compared to $19.7 million in net realized losses
for the comparative prior period in 1996. The net realized losses in the six
months ended June 30, 1996 partially offset the net realized gain on the sale of
HCIA.
Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses
for the six months ended June 30, 1997 were $1.4 million, versus $2.5 million in
the six months ended June 30, 1996. Losses and loss adjustment expenses are
generally based upon estimates of the ultimate aggregate losses inherent in the
obligations insured. Losses and loss adjustment expenses, exclusive of salvage
recognized, were $1.5 million and $2.6 million for the six months ended June 30,
1997 and 1996, respectively. Salvage recognized amounted to $0.1 million for
both six month periods ended June 30, 1997 and 1996.
Underwriting and Operating Expenses. Underwriting and operating expenses
for the first six months of 1997 were $18.8 million, a decrease of 2% from $19.1
million in the first six months of 1996 primarily due to lower reinsurance
commission expenses in the six months ended June 30, 1997, partially offset by
higher amortization of previously deferred acquisition costs during the period.
During the six month period ended June 30, 1997, Ambac Assurance's gross
underwriting and operating expenses were $28.0 million, relatively flat from
$27.8 million in the six months ended June 30, 1996. Underwriting and operating
expenses deferred were $15.9 million and $15.5 million for the six months ended
June 30, 1997 and 1996, respectively. Reinsurance commissions which relate to
the current period were none and $0.6 million for the six months ended June 30,
1997 and 1996, respectively. The amortization of previously deferred expenses
and reinsurance commissions was $6.7 million and $6.2 million for the three
months ended June 30, 1997 and 1996, respectively.
Financial Management Services
Operating Income. Financial Management Services had an operating loss for
the six months ended June 30, 1997 of $1.0 million, compared to income of $7.6
million in the six months ended June 30, 1996. These results include a $3.5
million restructuring charge (which had a net income per common share effect of
$0.06) in the current period for the consolidation of the Company's Westport,
Connecticut office into the Company's corporate headquarters in New York City.
Revenues for the first six months of 1997 were $13.5 million, up from $12.1
million in the first six months of 1996. The increase was primarily due to the
inclusion of
15
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
revenues of Cadre, partially offset by lower revenues on interest rate swaps.
Expenses for the first six months of 1997, excluding the restructuring charge,
were $11.0 million, compared to $4.5 million in the first six months of 1996.
These increased expenses resulted primarily from the consolidation of Cadre and
Ambac Connect into the Financial Management Services businesses.
Corporate Items
Interest Expense and Other Income (Deductions), Net. Interest expense for
the six months ended June 30, 1997 was $10.5 million, up slightly from $10.4
million for the six months ended June 30, 1996. Other income (deductions), net,
includes investment income and operating expenses of the holding company, Ambac
Financial Group, Inc. Other income (deductions), net, increased from $0.9
million for the six months ended June 30, 1996 to $2.4 million for the six
months ended June 30, 1997, primarily as a result of the additional investment
income generated by Ambac Financial Group, Inc. from the proceeds of the sale of
HCIA.
Income Taxes. Income taxes for the six months ended June 30, 1997 were at
an effective rate of 20.6%, compared to 29.2% in the six months ended June 30,
1996. The higher effective tax rate in the second quarter of 1996 reflected the
realized gain from the sale of HCIA.
Supplemental Analytical Financial Data
Management, equity analysts and investors consider the following four
measures important in analyzing the financial results, and measuring the
intrinsic value of the Company: core earnings; operating earnings; adjusted
gross premiums written; and adjusted book value. However, none of these measures
are promulgated in accordance with GAAP and should not be considered as
substitutes for net income, gross premiums written and book value. The
definitions of core earnings, operating earnings, adjusted gross premiums
written and adjusted book value described below may differ from the definitions
used by other public holding companies of financial guarantee insurers.
Core Earnings. Core earnings for the six months ended June 30, 1997 were
$94.5 million , an increase of 15% from $82.4 million for the six months ended
June 30, 1996. The increase in core earnings was primarily the result of
continued growth in net premiums earned from the underlying book of business,
higher net investment income and lower expenses from Financial Guarantee
Insurance operations, partially offset by lower Financial Management Services
operating results. The Company defines core earnings as consolidated net income,
less the effect of net realized gains and losses, net insurance premiums earned
from refundings and calls and certain non-recurring items.
Operating Earnings. Operating earnings for the six months ended June 30,
1997 were $102.1 million, an increase of 10% from $92.7 million in the six
months ended June 30, 1996. The Company defines operating earnings as
consolidated net income, less the effect of net realized gains and losses and
certain non-recurring items.
16
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
The following table reconciles net income computed in accordance with GAAP
to operating earnings and core earnings for the six months ended June 30, 1997
and 1996:
<TABLE>
<CAPTION>
(Dollars in Millions) 1997(1) 1996(1)
----------- ----------
<S> <C> <C>
Net Income......................................................... $103.4 $180.5
Net realized gains, after tax...................................... (3.4) (87.8)
Non-recurring item, after tax...................................... 2.1 --
----------- ----------
Operating earnings........................................ 102.1 92.7
Premiums earned from refundings,
calls and other accelerations, after tax..................... (7.6) (10.2)
----------- ----------
Core earnings............................................. $94.5 $82.4
=========== ==========
</TABLE>
(1) Numbers may not add due to rounding.
The weighted average number of shares outstanding during the six month
period ended June 30, 1997 and 1996 were 35.0 million.
Adjusted Gross Premiums Written. Adjusted gross premiums written were
$153.8 million in the first six months of 1997, an increase of 20% from $128.1
million in the first six months of 1996. The Company defines adjusted gross
premiums written as up-front premiums written plus the present value of
estimated future installment premiums written in the period. While most of Ambac
Assurance's premiums written are collected up-front at policy issuance, a
growing portion of premiums are collected on an installment basis. The net
present value of estimated future installment premiums written in the six months
ended June 30, 1997 was $45.4 million, an increase of 53% from $29.6 million in
the six months ended June 30, 1996. The aggregate net present value of estimated
future installment premiums was $186.4 million and $157.7 million as of June 30,
1997 and December 31, 1996, respectively.
The following table reconciles total up-front premiums written to
adjusted gross premiums written for the six months ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
(Dollars in Millions) 1997(1) 1996(1)
---------- ----------
<S> <C> <C>
Adjusted Gross Premium Analysis:
Total Up-front premiums written................................. $108.4 $98.5
PV of estimated future installment premiums..................... 45.4 29.6
---------- ----------
Adjusted gross premiums written....................... $153.8 $128.1
========== ==========
</TABLE>
(1) Numbers may not add due to rounding.
Adjusted Book Value. ABV per common share increased 5% to $65.83 at June
30, 1997 compared to $62.50 at December 31, 1996. Management derives ABV by
beginning with stockholders' equity (book value) and adding or subtracting the
after-tax value of: the net unearned premium reserve; deferred acquisition
costs; the present value of estimated net future installment premiums; and the
unrealized gain or loss on investment agreement liabilities. These adjustments
will not be realized until future periods and may differ materially from the
amounts used in determining ABV.
17
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
The following table reconciles book value per share to ABV per share as of
June 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
June 30, December 31,
1997(1) 1996(1)
------------- -------------
<S> <C> <C>
Book value per share .................................. $48.26 $46.02
After-tax value of:
Net unearned premium reserve ...................... 15.98 15.25
Deferred acquisition costs ........................ (1.88) (1.74)
Present value of installment premiums ............. 3.45 2.91
Unrealized gain on investment agreement liabilities 0.03 0.06
------------- -------------
Adjusted book value per share ......................... $65.83 $62.50
============= =============
</TABLE>
(1) Numbers may not add due to rounding.
Liquidity and Capital Resources
Ambac Financial Group, Inc. Liquidity. The Company's liquidity, both on a
short-term basis (for the next twelve months) and a long-term basis (beyond the
next twelve months), is largely dependent upon Ambac Assurance's ability to pay
dividends or make payments to the Company and external financings.
Pursuant to Wisconsin insurance laws, Ambac Assurance may declare
dividends, provided that, after giving effect to the distribution, it would not
violate certain statutory equity, solvency and asset tests. During the six
months ended June 30, 1997, Ambac Assurance paid dividends of $22.0 million on
its common stock to the Company.
The Company's principal uses of liquidity are for the payment of its
operating expenses, interest on its debt, dividends on its shares of Common
Stock and capital investments in its subsidiaries. Based on the amount of
dividends that the Company expects to receive from Ambac Assurance during 1997
along with the income from its investment portfolio, the Company believes it
will have sufficient liquidity to satisfy its liquidity needs over the next
twelve months, including the payment of dividends on the Common Stock in
accordance with its current dividend policy. Beyond the next twelve months,
Ambac Assurance's ability to declare and pay dividends to the Company may be
influenced by a variety of factors, including adverse market changes, insurance
regulatory changes and changes in general economic conditions. Consequently,
although the Company believes that it will continue to have sufficient liquidity
to meet its debt service and other obligations over the long term, no assurance
can be given that Ambac Assurance will be permitted to dividend amounts
sufficient to pay all of the Company's operating expenses, debt service
obligations and cash dividends on its Common Stock.
Ambac Assurance Liquidity. The principal uses of Ambac Assurance's
liquidity are the payment of operating expenses, reinsurance premiums, income
taxes and dividends to the Company. The Company believes that Ambac Assurance's
operating liquidity needs can be funded exclusively from its operating cash
flow. The principal sources of Ambac Assurance's liquidity are gross premiums
written, scheduled investment maturities and net investment income. The majority
of premiums for Ambac Assurance's Financial Guarantee Insurance policies are
payable in full at the outset of the term of the policy, even though premiums
are earned over the life of such policies for financial accounting purposes.
18
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Financial Management Services Liquidity. The principal uses of liquidity by
the Company's Financial Management Services subsidiaries are the payment of
investment agreement obligations pursuant to defined terms, net obligations
under interest rate swaps, operating expenses and income taxes. The Company
believes that its Financial Management Services operating liquidity needs can be
funded primarily from its operating cash flow and the maturity of its invested
assets. The principal sources of Financial Management Services liquidity are
proceeds from issuance of investment agreements, net investment income,
maturities of securities from its investment portfolio which are invested with
the objective of matching the duration of its obligations under the investment
agreements, net receipts from interest rate swaps and related hedges and fees
for investment management services. The Company's investment objectives with
respect to investment agreements are to achieve the highest after-tax total
return, subject to a minimum average quality rating of Aa/AA on invested assets,
and to maintain cash flow matching of invested assets to funded liabilities to
minimize interest rate and liquidity exposure. The Company maintains a portion
of its Financial Management Services assets in short-term investments and
repurchase agreements in order to meet unexpected liquidity needs.
Credit Facilities. The Company and Ambac Assurance have a revolving credit
facility with two major international banks, as co-agents, for $100.0 million,
which expires in July 1998. This facility is available for general corporate
purposes, including the payment of claims. As of June 30, 1997 and 1996, no
amounts were outstanding under this credit facility.
Ambac Assurance has an agreement with a group of Aaa/AAA-rated
international banks for a $350.0 million credit facility, expiring in December
2003. This facility is a seven-year stand-by irrevocable limited recourse
line-of-credit, which will provide liquidity to Ambac Assurance in the event
that claims from municipal obligations exceed specified levels. Repayment of any
amounts drawn under the line will be limited primarily to the amount of any
recoveries of losses related to policy obligations. As of June 30, 1997 and
1996, no amounts were outstanding under this line.
Stock Repurchase Program. During the six months ended June 30, 1997, the
Company acquired 475,000 shares under its existing stock repurchase program.
Since inception of the Stock Repurchase Program, the Company has acquired
approximately 1,536,000 shares.
Balance Sheet. As of June 30, 1997, the fair value of the Company's
consolidated investment portfolio was $5.86 billion, an increase of 13% from
$5.20 billion at December 31, 1996. This was primarily due to the growth of the
Company's Financial Guarantee Insurance and Financial Management Services
operations.
Cash Flows. Net cash provided by operating activities was $122.8 million
and $84.3 million during the six months ended June 30, 1997 and 1996,
respectively. These cash flows were primarily provided by the Financial
Guarantee Insurance operations.
Net cash provided by financing activities was $531.5 million and $391.9
million during the six months ended June 30, 1997 and 1996, respectively. This
activity included $548.0 million and $415.6 million, respectively, in municipal
investment agreements issued (net of draws paid).
19
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
The total cash provided by operating and financing activities was $654.3
million and $476.2 million during the six months ended June 30, 1997 and 1996,
respectively. From these totals, $655.2 million was used in investing activities
during the six months ended June 30, 1997, principally purchases of bonds,
offset by proceeds from sales and maturities of bonds. During the six months
ended June 30, 1996, $482.9 million was used in investing activities,
principally purchases of bonds, offset by proceeds from sales and maturities of
bonds and sale of affiliate.
Off-Balance Sheet Risk. In the normal course of business, the Company uses
interest rate contracts for hedging purposes as part of its overall interest
rate risk management. In addition, one of the Company's Financial Management
Services subsidiaries is a dealer of interest rate swaps primarily to states,
municipalities and municipal authorities. This subsidiary manages its interest
rate swap business with the goal of being market neutral to changes in taxable
interest rates, while retaining "basis risk," the relationship between changes
in floating tax-exempt and floating taxable interest rates. In the ordinary
course of business, the Company manages a variety of other risks - principally
credit, market, liquidity, operational, and legal. These risks are identified,
measured, and monitored through a variety of control mechanisms, which are in
place at different levels throughout the organization.
Material Commitments. The Company has made no commitments for material
capital expenditures within the next twelve months. However, management
continually evaluates opportunities to expand the Company's businesses through
internal development of new products as well as acquisitions.
20
<PAGE>
PART II - OTHER INFORMATION
Items 1, 2, and 3 are omitted either because they are inapplicable or
because the answer to such question is negative.
Item 4 - Submission of Matters to a Vote of Security Holders
The following matters were voted upon at the Annual Meeting of Stockholders
of the Company held on May 14, 1997, and received the votes set forth below:
Proposal 1. The following directors were elected to serve on the Company's
Board of Directors:
<TABLE>
<CAPTION>
Number of Votes Cast
----------------------------------------
For Withheld
----------------------------------------
<S> <C> <C>
Phillip B. Lassiter 29,796,230 60,166
Michael A. Callen 29,817,630 38,766
Renso L. Caporali 29,817,835 38,561
Richard Dulude 29,817,735 38,661
W. Grant Gregory 29,817,980 38,416
C. Roderick O'Neil 29,801,895 54,501
</TABLE>
There were no broker non-votes for this proposal.
Proposal 2A. The proposal to approve the amendment to the Charter to change
the Company's name from AMBAC Inc. to Ambac Financial Group, Inc. was adopted,
with 29,823,450 votes in favor, 6,552 votes against and 26,394 votes abstaining.
There were no broker non-votes for this proposal.
Proposal 2B. The proposal to approve the amendment to the Charter to
increase the number of authorized shares of Common Stock to 100 million was
adopted, with 27,499,778 votes in favor, 2,330,232 votes against and 26,386
votes abstaining. There were no broker non-votes for this proposal.
Proposal 2C. The proposal to approve the amendment to the Charter to
eliminate Class A Common Stock and certain other outdated provisions was
adopted, with 29,552,715 votes in favor, 47,778 votes against and 53,021 votes
abstaining. There were 223,577 broker non-votes for this proposal.
Proposal 3. The proposal to approve the 1997 Equity Plan was adopted, with
29,552,715 votes in favor, 47,778 votes against and 32,326 votes abstaining.
There were 1,817,286 broker non-votes for this proposal.
Proposal 4. The proposal to approve the 1997 Executive Incentive Plan was
adopted, with 27,320,120 votes in favor, 716,152 votes against and 56,721 votes
abstaining. There were 1,763,403 broker non-votes for this proposal.
21
<PAGE>
PART II - OTHER INFORMATION (Continued)
Proposal 5. The proposal to approve the 1997 Non-Employee Directors Equity
Plan was adopted, with 26,889,896 votes in favor, 1,152,227 votes against and
50,871 votes abstaining. There were 1,763,402 broker non-votes for this
proposal.
Proposal 6. The proposal to ratify the selection of KPMG Peat Marwick LLP
as independent auditors of the Company and its subsidiaries for 1997 was
adopted, with 29,752,316 votes in favor, 80,142 votes against and 23,938 votes
abstaining. There were no broker non-votes for this proposal.
Item 5 - Other Information
Acquisition of Cadre Securities, Inc.
On June 19, 1997, Ambac Securities Inc., a wholly-owned subsidiary of the
Company, completed its acquisition of certain assets including the name and
assumption of certain liabilities of Cadre Securities, Inc. ("Cadre
Securities"). Cadre Securities is registered as a broker-dealer with the
Securities and Exchange Commission and with certain states that require such
registration, and it is a member of the National Association of Securities
Dealers, Inc. Cadre Securities is a distributor and marketing agent for various
registered and unregistered money market funds and offers its clients U.S.
government securities and money market instruments.
Name Change
As the Company previously announced in its press release on July 11, 1997,
the Company has changed its name from AMBAC Inc. to Ambac Financial Group, Inc.,
effective as of the close of business on July 11, 1997. The name change was
approved by the Company's stockholders at its Annual Meeting in May.
The Company also announced that, as of the close of business on July 11,
1997, it was changing the name of its principal operating subsidiary, AMBAC
Indemnity Corporation, to Ambac Assurance Corporation.
22
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) The following are annexed as exhibits:
Exhibit
Number Description
- ------ -----------
4.05 Amended and Restated Certificate of Incorporation of the Company.
4.06 By-Laws of the Company, as amended on July 11, 1997.
10.19* Employment Letter between David L. Boyle and the Company
dated March 4, 1997.
10.20* Agreement and General Release between W. Dayle Nattress, the
Company and AMBAC Indemnity Corporation dated April 10, 1997.
10.21* Ambac 1997 Equity Plan.
10.22* Ambac 1997 Executive Incentive Plan.
10.23* Ambac 1997 Non-Employee Directors Equity Plan.
10.24* Supplemental Pension Agreement between the Company and
Phillip B. Lassiter dated April 30, 1997.
10.25* Supplemental Pension Agreement between the Company and
David L. Boyle dated April 30, 1997.
11.00 Statement re computation of per share earnings.
27.00 Financial Data Schedule.
99.03 Ambac Assurance Corporation and Subsidiaries Consolidated
Unaudited Financial Statements as of June 30, 1997 and
December 31, 1996 and for the periods ended June 30, 1997 and
1996.
(b) Reports on Form 8-K:
There were no Reports on Form 8-K filed during the second quarter of 1997.
- ----------
* Management contract or compensatory plan, contract or arrangement required to
be filed as an exhibit pursuant to Item 6(a) of Form 10-Q.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Ambac Financial Group, Inc.
(Registrant)
Dated: August 14, 1997 By: /s/ Frank J. Bivona
-------------------
Frank J. Bivona
Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and
Accounting Officer and Duly
Authorized Officer)
24
<PAGE>
INDEX TO EXHIBITS
Exhibit Description
- ------- -----------
Number
4.05 Amended and Restated Certificate of Incorporation of the Company.
4.06 By-Laws of the Company, as amended on July 11, 1997.
10.19* Employment Letter between David L. Boyle and the Company.
10.20* Agreement and General Release between W. Dayle Nattress, the
Company and AMBAC Indemnity Corporation dated April 10, 1997.
10.21* Ambac 1997 Equity Plan.
10.22* Ambac 1997 Executive Incentive Plan.
10.23* Ambac 1997 Non-Employee Directors Equity Plan.
10.24* Supplemental Pension Agreement between the Company and
Phillip B. Lassiter dated April 30, 1997.
10.25* Supplemental Pension Agreement between the Company and David
L. Boyle dated April 30, 1997.
11.00 Statement re computation of per share earnings.
27.00 Financial Data Schedule.
99.03 Ambac Assurance Corporation and Subsidiaries Consolidated Unaudited
Financial Statements as of June 30, 1997 and December 31, 1996 and
for the periods ended June 30, 1997 and 1996.
- ----------
* Management contract or compensatory plan, contract or arrangement required to
be filed as an exhibit pursuant to Item 6(a) of Form 10-Q.
25
<PAGE>
EXHIBIT 4.05
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
AMBAC INC.
AMBAC Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation"), DOES HEREBY CERTIFY as follows:
1. The name of the Corporation is AMBAC Inc. The Corporation was
originally incorporated under the name of AMBAC Inc. and the original
Certificate of Incorporation was filed with the Secretary of State of the
State of Delaware on April 29, 1991.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Amended and Restated Certificate of
Incorporation restates and integrates and further amends the Restated
Certificate of Incorporation of the Corporation.
3. The text of the Restated Certificate of Incorporation of the
Corporation is hereby restated and further amended to read in its entirety
as follows:
ARTICLE I
Name
The name of the corporation is Ambac Financial Group, Inc. (the
"Corporation").
ARTICLE II
Registered Office and Registered Agent
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
ARTICLE III
Corporate Purpose
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware (the "General Corporation Law").
ARTICLE IV
Capital Stock
Section 4.1. Authorized Capital. The total number of shares of all classes
of stock that the Corporation shall have authority to issue is 104,000,000
consisting of 100,000,000 shares of Common Stock, par value $.01 per share (the
"Common Stock") and 4,000,000 shares of Preferred Stock, par value $.01 per
share (the "Preferred Stock").
1
<PAGE>
Section 4.2. Preferred Stock. The designations and the powers, preferences
and rights and the qualifications, limitations or restrictions thereof of the
shares of each class as Preferred Stock are as follows:
(a) The Preferred Stock may be issued from time to time in one or more
series, the shares of each series to have such voting powers, full or
limited, and such designations, preferences and relative, participating,
optional or other special rights and qualifications, limitations or
restrictions thereof as are stated and expressed herein or in the
resolution or resolutions providing for the issuance of such series,
adopted by the Board of Directors as hereinafter provided; provided,
however, that in the event the Board of Directors of the Corporation
provides that any series of Preferred Stock shall be given voting powers,
such series shall not be entitled to vote separately as a single class
other than as expressly required by law and for the election of one or more
additional directors of the Corporation in the case of dividend arrearages
or other specified events and such series of Preferred Stock shall not be
granted the right to cast in excess of one vote per share of Preferred
Stock.
(b) Authority is hereby expressly granted to the Board of Directors,
subject to the provisions of this Article IV and to the limitations
prescribed by law, to authorize the issuance of one or more series of
Preferred Stock and with respect to each such series to fix by resolution
or resolutions providing for the issuance of such series the voting powers,
full or limited, if any, of the shares of such series and the designations,
preferences and relative, participating, optional or other special rights
and the qualifications, limitations or restrictions thereof. The authority
of the Board of Directors with respect to each series shall include, but
not be limited to, the determination or fixing of the following:
(i) The designation of such series;
(ii) The dividend rate of such series, the conditions and dates
upon which such dividends shall be payable, the relation which such
dividends shall bear to the dividends payable on any other class or
classes of stock, and whether such dividends shall be cumulative or
non- cumulative;
(iii) Whether the shares of such series shall be subject to
redemption by the Corporation and, if made subject to such redemption,
the times, prices and other terms and conditions of such redemption;
(iv) The terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series;
(v) Whether or not the shares of such series shall be convertible
into or exchangeable for shares of any other class or classes or of
any other series of any class or classes of stock, or for debt
securities, of the Corporation and, if provision be made for
conversion or exchange, the times, prices, rates, adjustments, and
other terms and conditions of such conversion or exchange;
(vi) The extent, if any, to which the holders of the shares of
such series shall be entitled to vote with respect to the election of
directors or otherwise;
(vii) The restrictions, if any, on the issue or reissue of any
additional Preferred Stock; and
(viii) The rights of the holders of the shares of such series
upon the dissolution of, or upon the distribution of assets of, the
Corporation.
2
<PAGE>
Section 4.3. Series A Junior Participating Preferred Stock. Pursuant to the
authority vested in the Board of Directors in accordance with Section 4.2
hereof, the Board of Director has authorized the creation of a series of
Preferred Stock with the designation and amount thereof and the voting powers,
preferences and relative, participating, optional and other special rights of
the shares of such series, and the qualifications, limitations or restrictions
thereof as follows:
(a) Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" and the
number of shares constituting such series shall be 500,000.
(b) Dividends and Distributions.
(i) Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and superior
to the shares of Series A Junior Participating Preferred Stock with
respect to dividends, the holders of shares of Series A Junior
Participating Preferred Stock shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the
fifteenth day of March, June, September and December in each year
(each such date being referred to herein as a "Quarterly Dividend
Payment Date"), commencing on the first Quarterly Dividend Payment
Date after the first issuance of a share or fraction of a share of
Series A Junior Participating Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1.00 or (b)
subject to the provision for adjustment hereinafter set forth, 100
times the aggregate per share amount of all cash dividends, and 100
times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on the
Common Stock since the immediately preceding Quarterly Dividend
Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of
Series A Junior Participating Preferred Stock. In the event the
Corporation shall at any time after January 31, 1996 (the "Rights
Declaration Date") (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of
shares, then in each such case the amount to which holders of shares
of Series A Junior Participating Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(ii) The Corporation shall declare a dividend or distribution on
the Series A Junior Participating Preferred Stock as provided in
subparagraph (b)(i) above immediately after it declares a dividend or
distribution on the Common Stock (other than a dividend payable in
shares of Common Stock); provided that, in the event no dividend or
distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per
share on the Series A Junior Participating Preferred Stock shall
nevertheless be payable on such subsequent Quarterly Dividend Payment
Date.
(iii) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Junior Participating Preferred Stock
from the Quarterly Dividend Payment Date next preceding the date of
issue of such shares of Series A Junior Participating Preferred Stock,
unless the date of issue of such shares is prior to the record date
for the first Quarterly Dividend Payment Date, in which case dividends
on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the
3
<PAGE>
record date for the determination of holders of shares of Series A
Junior Participating Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid
dividends shall not bear interest. Dividends paid on the shares of
Series A Junior Participating Preferred Stock in an amount less than
the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors
may fix a record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon, which record
date shall be no more than 30 days prior to the date fixed for the
payment thereof.
(c) Voting Rights. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
(i) Each share of Series A Junior Participating Preferred Stock
shall entitle the holder thereof to one vote on all matters submitted
to a vote of the stockholders of the Corporation.
(ii) Except as otherwise provided herein or by law, the holders
of shares of Series A Junior Participating Preferred Stock and the
holders of shares of Common Stock shall vote together as one class on
all matters submitted to a vote of stockholders of the Corporation.
(iii) (A) If at any time dividends on any Series A Junior
Participating Preferred Stock shall be in arrears in an amount equal
to six (6) quarterly dividends thereon, the occurrence of such
contingency shall mark the beginning of a period (herein called a
"default period") which shall extend until such time when all accrued
and unpaid dividends for all previous quarterly dividend periods and
for the current quarterly dividend period on all shares of Series A
Junior Participating Preferred Stock then outstanding shall have been
declared and paid or set apart for payment. During each default
period, all holders of Preferred Stock (including holders of the
Series A Junior Participating Preferred Stock) with dividends in
arrears in an amount equal to six (6) quarterly dividends thereon,
voting as a class, irrespective of series, shall have the right to
elect two (2) Directors.
(B) During any default period, such voting right of the
holders of Series A Junior Participating Preferred Stock may be
exercised initially at a special meeting called pursuant to
subparagraph (C) of this subsection (c)(iii) or at any annual
meeting of stockholders, and thereafter at annual meetings of
stockholders, provided that such voting right shall not be
exercised unless the holders of ten percent (10%) in number of
shares of Preferred Stock outstanding shall be present in person
or by proxy. The absence of a quorum of the holders of Common
Stock shall not affect the exercise by the holders of Preferred
Stock of such voting right. At any meeting at which the holders
of Preferred Stock shall exercise such voting right initially
during an existing default period, they shall have the right,
voting as a class, to elect Directors to fill such vacancies, if
any, in the Board of Directors as may then exist up to two (2)
Directors or, if such right is exercised at an annual meeting, to
elect two (2) Directors. If the number which may be so elected at
any special meeting does not amount to the required number, the
holders of the Preferred Stock shall have the right to make such
increase in the number of Directors as shall be necessary to
permit the election by them of the required number. After the
holders of the Preferred Stock shall have exercised their right
to elect Directors in any default period and during the
continuance of such period, the number of Directors shall not be
increased or decreased except by vote of the holders of Preferred
Stock as herein provided or pursuant to the rights of any equity
securities ranking senior to or pari passu with the Series A
Junior Participating Preferred Stock.
4
<PAGE>
(C) Unless the holders of Preferred Stock shall, during an
existing default period, have previously exercised their right to
elect Directors, the Board of Directors may order, or any
stockholder or stockholders owning in the aggregate not less than
ten percent (10%) of the total number of shares of Preferred
Stock outstanding, irrespective of series, may request, the
calling of special meeting of the holders of Preferred Stock,
which meeting shall thereupon be called by the President, a
Vice-President or the Secretary of the Corporation. Notice of
such meeting and of any annual meeting at which holders of
Preferred Stock are entitled to vote pursuant to this
subparagraph (c)(iii)(C) shall be given to each holder of record
of Preferred Stock by mailing a copy of such notice to him at his
last address as the same appears on the books of the Corporation.
Such meeting shall be called for a time not earlier than 20 days
and not later than 60 days after such order or request or in
default of the calling of such meeting within 60 days after such
order or request, such meeting may be called on similar notice by
any stockholder or stockholders owning in the aggregate not less
than ten percent (10%) of the total number of shares of Preferred
Stock outstanding. Notwithstanding the provisions of this
subparagraph (c)(iii)(C) no such special meeting shall be called
during the period within 60 days immediately preceding the date
fixed for the next annual meeting of the stockholders.
(D) In any default period, the holders of Common Stock, and
other classes of stock of the Corporation if applicable, shall
continue to be entitled to elect the whole number of Directors
until the holders of Preferred Stock shall have exercised their
right to elect two (2) Directors voting as a class, after the
exercise of which right (x) the Directors so elected by the
holders of Preferred Stock shall continue in office until their
successors shall have been elected by such holders or until the
expiration of the default period, and (y) any vacancy in the
Board of Directors may (except as provided in subparagraph
(iii)(B) of this subsection (c)) be filled by vote of a majority
of the remaining Directors theretofore elected by the holders of
the class of stock which elected the Director whose office shall
have become vacant. References in this paragraph (iii) to
Directors elected by the holders of a particular class of stock
shall include Directors elected by such Directors to fill
vacancies as provided in clause (y) of the foregoing sentence.
(E) Immediately upon the expiration of a default period, (x)
the right of the holders of Preferred Stock as a class to elect
Directors shall cease, (y) the term of any Directors elected by
the holders of Preferred Stock as a class shall terminate, and
(z) the number of Directors shall be such number as may be
provided for in the Certificate of Incorporation or By-laws
irrespective of any increase made pursuant to the provisions of
subparagraph (iii)(B) of this subsection (c) (such number being
subject, however, to change thereafter in any manner provided by
law or in the Certificate of Incorporation or By-laws). Any
vacancies in the Board of Directors effected by the provisions of
clauses (y) and (z) in the preceding sentence may be filled by a
majority of the remaining Directors.
(iv) Except as set forth herein, holders of Series A Junior
Participating Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
(d) Certain Restrictions.
(i) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Junior Participating Preferred
Stock as provided in subsection (b) are in arrears, thereafter and
until all accrued and unpaid dividends and distributions, whether or
not declared, on shares of
5
<PAGE>
Series A Junior Participating Preferred Stock outstanding shall have
been paid in full, the Corporation shall not
(A) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Junior Participating Preferred Stock;
(B) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding up)
with the Series A Junior Participating Preferred Stock, except
dividends paid ratably on the Series A Junior Participating
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which
the holders of all such shares are then entitled;
(C) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with
the Series A Junior Participating Preferred Stock, provided that
the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of
any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the
Series A Junior Participating Preferred Stock; or
(D) purchase or otherwise acquire for consideration any
shares of Series A Junior Participating Preferred Stock, or any
shares of stock ranking on a parity with the Series A Junior
Participating Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined
by the Board of Directors) to all holders of such shares upon
such terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine
in good faith will result in fair and equitable treatment among
the respective series or classes.
(ii) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (i) of this subsection (d), purchase or otherwise acquire
such shares at such time and in such manner.
(e) Reacquired Shares. Any shares of Series A Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as
part of a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions and
restrictions on issuance set forth herein.
(f) Liquidation, Dissolution or Winding Up.
(i) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the
holders of shares of stock ranking junior (either as to dividends or
upon liquidation, dissolution or winding up) to the Series A Junior
Participating Preferred Stock unless, prior thereto, the holders of
shares of Series A Junior Participating Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared, to the
date of such payment (the "Series A Liquidation Preference").
Following the payment of the full
6
<PAGE>
amount of the Series A Liquidation Preference, no additional
distributions shall be made to the holders of shares of Series A
Junior Participating Preferred Stock unless, prior thereto, the
holders of shares of Common Stock shall have received an amount per
share (the "Common Adjustment") equal to the quotient obtained by
dividing (i) the Series A Liquidation Preference by (ii) 100 (as
appropriately adjusted as set forth in paragraph (iii) below to
reflect such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock) (such number in
clause (ii), the "Adjustment Number"). Following the payment of the
full amount of the Series A Liquidation Preference and the Common
Adjustment in respect of all outstanding shares of Series A Junior
Participating Preferred Stock and Common Stock, respectively, holders
of Series A Junior Participating Preferred Stock and holders of shares
of Common Stock shall receive their ratable and proportionate share of
the remaining assets to be distributed in the ratio of the Adjustment
Number to 1 with respect to such Series A Junior Participating
Preferred Stock and Common Stock, on a per share basis, respectively.
(ii) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation
Preference and the liquidation preferences of all other series of
preferred stock, if any, which rank on a parity with the Series A
Junior Participating Preferred Stock, then such remaining assets shall
be distributed ratably to the holders of such parity shares in
proportion to their respective liquidation preferences. In the event,
however, that there are not sufficient assets available to permit
payment in full of the Common Adjustment, then such remaining assets
shall be distributed ratably to the holders of Common Stock.
(iii) In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the Adjustment Number
in effect immediately prior to such event shall be adjusted by
multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such event.
(g) Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the
shares of Series A Junior Participating Preferred Stock shall at the same
time be similarly exchanged or changed in an amount per share (subject to
the provision for adjustment hereinafter set forth) equal to 100 times the
aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share
of Common Stock is changed or exchanged. In the event the Corporation shall
at any time after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock
into a smaller number of shares, then in each such case the amount set
forth in the preceding sentence with respect to the exchange or change of
shares of Series A Junior Participating Preferred Stock shall be adjusted
by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(h) No Redemption. The shares of Series A Junior Participating
Preferred Stock shall not be redeemable.
(i) Ranking. The Series A Junior Participating Preferred Stock shall
rank junior to all other series of the Corporation's Preferred Stock as to
the payment of dividends and the distribution of assets, unless the terms
of such series shall provide otherwise.
7
<PAGE>
(j) Amendment. The Certificate of Incorporation of the Corporation
shall not be further amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Junior
Participating Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding
shares of Series A Junior Participating Preferred Stock, voting separately
as a class.
(k) Fractional Shares. Series A Junior Participating Preferred Stock
may be issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of
all other rights of holders of Series A Junior Participating Preferred
Stock.
Section 4.4. Common Stock. Except as otherwise provided by this Certificate
of Incorporation or as otherwise from time to time provided by law, the holders
of Common Stock shall be entitled to one vote per share on all matters to be
voted on by the stockholders of the Corporation.
Section 4.5. Substantial Stockholder.
(a) So long as any Person other than the Corporation or a Subsidiary
thereof is (without giving effect to this Section 4.5(a)) the beneficial
owner of capital stock representing 10% or more of the votes entitled to be
cast by the holders of all outstanding shares of capital stock (a
"Substantial Stockholder"), the record holders of the shares of capital
stock beneficially owned by such Substantial Stockholder shall have limited
voting rights on all matters, as follows: with respect to the shares of
capital stock that would entitle such record holders in the aggregate to
cast less than 10% of the votes entitled to be cast by the holders of all
Outstanding shares of capital stock, such record holders shall be entitled
to cast the vote per share specified in this Certificate of Incorporation;
and with respect to the shares of capital stock that would otherwise
entitle such record holders in the aggregate to cast 10% or more of the
votes entitled to be cast by the holders of all outstanding shares of
capital stock, such record holders shall not be entitled to cast any votes
for such shares, so that such record holders shall be entitled to cast with
respect to all shares of capital stock held by such record holders in the
aggregate only such number of votes that would equal (after giving effect
to this Section 4.5(a)) one vote less than 10% of the votes entitled to be
cast by all holders of outstanding shares of capital stock; provided,
however, that the restriction on voting contained in this Section 4.5(a)
shall not apply to any capital stock beneficially owned by any Substantial
Stockholder whose acquisition or ownership of capital stock representing
10% or more of the votes entitled to be cast by the holders of all
Outstanding shares of capital stock has been approved by the Wisconsin
Insurance Commissioner. The aggregate voting power of such record holders,
so limited, for all shares of capital stock beneficially owned by the
Substantial Stockholder shall be allocated proportionately among such
record holders as follows: for each such record holder, this allocation
shall be accomplished by multiplying the aggregate voting power (after
giving effect to the provisions of this Section 4.5(a)) of the Outstanding
shares of capital stock beneficially owned by the Substantial Stockholder
by a fraction the numerator of which is the number of votes that the shares
of capital stock owned of record by such record holder would have entitled
such record holder to cast were no effect given to this Section 4.5(a), and
the denominator of which is the total number of votes which all shares of
capital stock beneficially owned by the Substantial Stockholder would have
entitled their record holders to cast were no effect given to this Section
4.5(a).
(b) The Board of Directors by majority vote shall have the power and
duty to determine for the purposes of this Article IV, on the basis of
information known to them after reasonable inquiry, (i) whether a Person is
a Substantial Stockholder, (ii) the number of shares of capital stock
beneficially owned by any Person, (iii) whether a Person is an Affiliate or
Associate of another, (iv) the Persons who may be deemed to be the record
holders of shares beneficially owned by a Substantial Stockholder
8
<PAGE>
and (v) such other matters with respect to which a determination is
required under this Article IV. Any such determination made in good faith
shall be binding and conclusive on all parties.
(c) The Board of Directors shall have the right to demand that any
Person who is reasonably believed to be a Substantial Stockholder (or to
hold of record shares of capital stock beneficially owned by a Substantial
Stockholder) supply the Corporation with complete information as to (i) the
record holder or holders of all shares beneficially owned by such Person,
(ii) the number of shares of capital stock beneficially owned by such
Person and held of record by each such record holder, and (iii) any other
factual matter relating to the applicability or effect of this Article IV,
as may reasonably be requested of such Person, and such Person shall
furnish such information within ten days after the receipt of such demand.
(d) Nothing contained in this Article IV shall be construed to relieve
any Substantial Stockholder from any fiduciary obligation imposed by law.
Section 4.6. Quorum. Except as otherwise provided in this Certificate of
Incorporation, the presence in person or by proxy of the holders of record of
shares of capital stock entitling the holders thereof to cast a majority of the
votes (after giving effect, if required, to the provisions of Section 4.5(a))
entitled to be cast by the holders of all Outstanding shares of capital stock
entitled to vote shall constitute a quorum at all meetings of the stockholders.
Section 4.7. Majority Vote. If any class or series of the Corporation's
capital stock shall be entitled to more or less than one vote for any share, on
any matter for which such class or series is entitled to vote with one or more
other classes or series, together as one class, every reference in this
Certificate of Incorporation, the By-laws and in any relevant provision of law
to a majority or other proportion of stock shall refer to such majority or other
proportion of the votes of such stock.
Section 4.8. No Preemptive Rights. Except as otherwise provided by this
Certificate of Incorporation or as otherwise from time to time provided by law,
no holder of shares of any class or series of capital stock of the Corporation
or of any security or obligation convertible into, or of any warrant, option or
right to subscribe for, purchase or otherwise acquire, shares of any class or
series of capital stock of the Corporation, whether now or hereafter authorized,
shall, as such holder, have any preemptive right to subscribe for, purchase or
otherwise acquire shares of any class or series of capital stock of the
Corporation or any security or obligation convertible into, or any warrant,
option or right to subscribe for, purchase or otherwise acquire, shares of any
class or series of capital stock of the Corporation, whether now or hereafter
authorized.
ARTICLE V
Definitions
As used in this Certificate of Incorporation, the following terms shall
have the following meanings:
"Affiliate", with respect to any Person, means any other Person directly or
indirectly controlling, controlled by or under common control with, such Person.
For purposes of this definition, "control" (including, with correlative
meanings, the terms "controlling," "controlled by" or "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities,
by contract, by common management or otherwise. A Person having a contract or
arrangement giving that Person control is deemed to be in control despite any
limitations placed by law on the validity of the contract or arrangement. A
corporation is deemed to be under
9
<PAGE>
common control with any corporation, regardless of ownership, if substantially
the same group of persons manage the two corporations.
"Associate", used to indicate a relationship with a specified Person, shall mean
(i) any Person (other than the Corporation or a Subsidiary) of which such
specified Person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of the voting securities of such Person, (ii)
any trust or other estate in which such specified Person has a substantial
beneficial interest or as to which such specified Person serves as trustee or in
a similar fiduciary capacity, (iii) any relative or such spouse of such
specified Person or any relative of such spouse who has the same home as such
specified Person or who is a director or officer of the Corporation or any
Subsidiary, and (iv) any Person who is a director or officer of such specified
Person or any of its parents or subsidiaries (other than the Corporation or a
Subsidiary).
A Person shall be deemed a "beneficial owner" of any shares of capital
stock of the Corporation (a) which such Person or any of its Affiliates or
Associates beneficially owns, directly or indirectly; (b) which such Person or
any of its Affiliates or Associates has, directly or indirectly, the right to
vote pursuant to any agreement, contract, arrangement or understanding, or (c)
which are beneficially owned, directly or indirectly, by any other Person with
which such Person or any of its Affiliates or Associates has any contract,
agreement, arrangement or understanding for the purpose of holding or voting of
any capital stock of the Corporation.
"Outstanding", when used in reference to shares of stock, shall mean issued
shares, excluding shares held in treasury.
"Person" shall mean any individual, firm, corporation or other entity and
shall include any group comprised of any Person and any other Person with whom
such Person or any Affiliate or Associate of such Person has any agreement,
contract, arrangement or understanding, directly or indirectly, for the purpose
of acquiring, holding, voting or disposing of any shares of capital stock of the
Corporation.
"Subsidiary" shall mean any corporation of which a majority of any class of
equity securities is beneficially owned, directly or indirectly, by the
Corporation.
"Substantial Stockholder" shall be defined as in Section 4.5 of this
Certificate of Incorporation.
ARTICLE VI
Directors
Section 6.1. Written Ballot. Elections of directors of the Corporation need
not be by written ballot, except and to the extent provided in the By-laws of
the Corporation.
Section 6.2. No Liability. To the fullest extent permitted by the General
Corporation Law as it now exists and as it may hereafter be amended, no director
of the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty as a
director.
ARTICLE VII
Indemnification of Directors, Officers and Others
Section 7.1. Indemnification. (a) The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the
10
<PAGE>
Corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a false plea of nolo contendere
or its equivalent, shall not, of itself, create a presumption that the person
seeking indemnification did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Sections 7.1(a) and (b) or in
defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under Sections 7.1(a) and (b) (unless ordered
by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has
met the applicable standard of conduct set forth in such Sections 7.1(a)
and (b). Such determination shall be made (i) by the Board of Directors of
the Corporation by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (ii) if such a
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or
(iii) by the stockholders of the Corporation.
(e) Expenses incurred by a director or officer of the Corporation in
defending a civil or criminal action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director
or officer to repay such amount if it shall ultimately be determined that
he is not entitled to be indemnified by the Corporation authorized in this
Article IX VII. Such expenses incurred by other employees and agents may be
so paid upon such terms and conditions, if any, as the Board of Directors
of the Corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other sections of this Article VII shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any law, by-law,
11
<PAGE>
agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in an official capacity and as to action in another
capacity while holding such office.
(g) The Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of Section 145 of
the General Corporation Law.
(h) For purposes of this Article VII, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
employees or agents so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, shall stand in the same position under the provisions
of this Article VII with respect to the resulting or surviving corporation
as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this Article VII, references to "other
enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a director, officer, employee or
agent of the Corporation which imposes duties on, or involves service by,
such director, officer, employee or agent with respect to any employee
benefit plan, its participants or beneficiaries; and a person who acted in
good faith and in a manner he reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article VII.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE VIII
By-laws
The directors of the Corporation shall have the power to adopt, amend or
repeal the By-laws of the Corporation.
ARTICLE IX
Reorganization
Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation
12
<PAGE>
under the provisions of section 279 of Title 8 of the Delaware Code order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this Corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
ARTICLE X
Amendment
The Corporation reserves the right to amend, alter, change or repeal any
provision of this Certificate of Incorporation, in the manner now or hereafter
prescribed by law and the Certificate of Incorporation, and all rights conferred
on stockholders in this Certificate of Incorporation are subject to this
reservation.
ARTICLE XI
Effective Time
This Amended and Restated Certificate of Incorporation shall become
effective on July 11, 1997 at 5:00 p.m.
IN WITNESS WHEREOF, AMBAC Inc. has caused this Amended and Restated
Certificate of Incorporation to be signed on this 10th day of July, 1997, in its
name and on its behalf by its Chairman, President and Chief Executive Officer.
/s/Phillip B. Lassiter
----------------------------
Phillip B. Lassiter
Chairman, President and
Chief Executive Officer
13
<PAGE>
EXHIBIT 4.06
=================================
BY-LAWS
OF
AMBAC FINANCIAL GROUP, INC.
=================================
Amended as of
July 11, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
OFFICES
SECTION 1.01 Registered Office.............................................. 1
SECTION 1.02 Other Offices.................................................. 1
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01 Annual Meetings................................................ 1
SECTION 2.02 Special Meetings............................................... 1
SECTION 2.03 Notice of Meetings............................................. 1
SECTION 2.04 Waiver of Notice............................................... 2
SECTION 2.05 Adjournments................................................... 2
SECTION 2.06 Quorum......................................................... 3
SECTION 2.07 Voting......................................................... 3
SECTION 2.08 Proxies........................................................ 3
SECTION 2.09 Chairman and Secretary at Meetings............................. 3
SECTION 2.10 Judges......................................................... 3
SECTION 2.11 List of Stockholders........................................... 3
SECTION 2.12 Notice of Stockholder Business................................. 4
SECTION 2.13 Notice of Stockholder Nominees................................. 4
SECTION 2.14 Stockholders' Consent in Lieu of Meeting....................... 5
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01 General Powers................................................. 6
SECTION 3.02 Number and Term of Office...................................... 6
SECTION 3.03 Resignation.................................................... 6
SECTION 3.04 Removal........................................................ 7
SECTION 3.05 Vacancies...................................................... 7
SECTION 3.06 Meetings....................................................... 7
SECTION 3.07 Committees of the Board........................................ 8
SECTION 3.08 Directors' Consent in Lieu of Meeting.......................... 9
SECTION 3.09 Action by Means of Telephone or Similar Communications
Equipment................................................ 9
SECTION 3.10 Compensation................................................... 9
i
<PAGE>
Page
----
ARTICLE IV
OFFICERS
SECTION 4.01 Officers....................................................... 9
SECTION 4.02 Authority and Duties........................................... 10
SECTION 4.03 Term of Office, Resignation and Removal........................ 10
SECTION 4.04 Vacancies...................................................... 10
SECTION 4.05 The Chairman................................................... 10
SECTION 4.06 The President.................................................. 10
SECTION 4.07 Vice Presidents................................................ 11
SECTION 4.08 The Secretary.................................................. 11
SECTION 4.09 Assistant Secretaries.......................................... 11
SECTION 4.10 The Treasurer.................................................. 11
SECTION 4.11 Assistant Treasurers........................................... 12
ARTICLE V
CHECKS, DRAFTS, NOTES AND PROXIES
SECTION 5.01 Checks, Drafts and Notes....................................... 12
SECTION 5.02 Execution of Proxies........................................... 12
ARTICLE VI
SHARES AND TRANSFERS OF SHARES
SECTION 6.01 Certificates Evidencing Shares................................. 12
SECTION 6.02 Stock Ledger................................................... 13
SECTION 6.03 Transfers of Shares............................................ 13
SECTION 6.04 Addresses of Stockholders...................................... 13
SECTION 6.05 Lost, Destroyed and Mutilated Certificates..................... 13
SECTION 6.06 Regulations.................................................... 13
SECTION 6.07 Fixing Date for Determination of Stockholders of Record........ 14
ARTICLE VII
SEAL
SECTION 7.01 Seal........................................................... 14
ARTICLE VIII
FISCAL YEAR
SECTION 8.01 Fiscal Year.................................................... 14
ii
<PAGE>
Page
----
ARTICLE IX
INDEMNIFICATION AND INSURANCE
SECTION 9.01 Indemnification................................................ 14
SECTION 9.02 Insurance for Indemnification.................................. 17
ARTICLE X
AMENDMENTS
SECTION 10.01 Amendments.................................................... 17
iii
<PAGE>
By-laws of Ambac Financial Group, Inc.
Amended as of 7/11/97
BY-LAWS
OF
AMBAC FINANCIAL GROUP, INC.
ARTICLE I
OFFICE
SECTION 1.01 Registered Office. The registered office of Ambac Financial
Group, Inc. (the "Corporation") in the State of Delaware shall be at the
principal office of The Corporation Trust Company in the City of Wilmington,
County of New Castle, and the registered agent in charge thereof shall be The
Corporation Trust Company.
SECTION 1.02 Other Offices. The Corporation may also have an office or
offices at any other place or places within or without the State of Delaware as
the Board of Directors of the Corporation (the "Board") may from time to time
determine or the business of the Corporation may from time to time require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01 Annual Meetings. The annual meeting of Stockholders (as
defined in Section 2.03) of the Corporation for the election of directors of the
Corporation ("Directors"), and for the transaction of such other business as may
properly come before such meeting, shall be held at such place, date and time as
shall be fixed by the Board and designated in the notice or waiver of notice of
such annual meeting.
SECTION 2.02 Special Meetings. Special meetings of Stockholders for any
purpose or purposes may be called by the Board or the Chairman of the Board of
the Corporation (the "Chairman") the President of the Corporation (the
"President") or the Secretary of the Corporation (the "Secretary"), to be held
at such place, date and time as shall be designated in the notice or waiver of
notice thereof.
SECTION 2.03 Notice of Meetings. (a) Except as otherwise provided by law,
written notice of each annual or special meeting of Stockholders stating the
place, date and time of such meeting and, in the case of a special meeting, the
purpose or purposes for which such meeting is to be held, shall be given
personally or by first-class mail (airmail in the case of international
communications) to each recordholder of shares
-1-
<PAGE>
By-laws of Ambac Financial Group, Inc.
Amended as of 7/11/97
of common stock of the Corporation issued and outstanding ("Shares") entitled to
vote thereat, not less than 10 nor more than 90 days before the date of such
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, postage prepaid, directed to the recordholder of Shares
(a "Stockholder") at such Stockholder's address as it appears on the records of
the Corporation. If, prior to the time of mailing, the Secretary shall have
received from any Stockholder a written request that notices intended for such
Stockholder are to be mailed to some address other than the address that appears
on the records of the Corporation, notices intended for such Stockholder shall
be mailed to the address designated in such request.
(b) Notice of a special meeting of Stockholders may be given by the person
or persons calling the meeting, or, upon the written request of such person or
persons, such notice shall be given by the Secretary on behalf of such person or
persons. If the person or persons calling a special meeting of Stockholders give
notice thereof, such person or persons shall deliver a copy of such notice to
the Secretary. Each request to the Secretary for the giving of notice of a
special meeting of Stockholders shall state the purpose or purposes of such
meeting.
SECTION 2.04 Waiver of Notice. Notice of any annual or special meeting of
Stockholders need not be given to any Stockholder who files a written waiver of
notice with the Secretary, signed by the person entitled to notice whether
before or after such meeting. Neither the business to be transacted at, nor the
purpose of, any meeting of Stockholders need to be specified in any written
waiver of notice thereof. Attendance of a Stockholder at a meeting, in person or
by proxy, shall constitute a waiver of notice of such meeting, except when such
Stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the grounds that
the notice of such meeting was inadequate or improperly given.
SECTION 2.05 Adjournments. Whenever a meeting of Stockholders, annual or
special, is adjourned to another date, time or place, notice need not be given
of the adjourned meeting if the date, time and place thereof are announced at
the meeting at which the adjournment is taken. If the adjournment is for more
than 30 days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
Stockholder entitled to vote thereat. At the adjourned meeting, any business may
be transacted which might have been transacted at the original meeting. Any
previously scheduled meeting of the Stockholders may be postponed, and (unless
the Certificate of Incorporation of the Corporation (the "Certificate of
Incorporation") otherwise provides) any special meeting of the Stockholders may
be canceled, by resolution of the Board upon public notice given prior to the
date previously scheduled for such meeting of Stockholders.
-2-
<PAGE>
By-laws of Ambac Financial Group, Inc.
Amended as of 7/11/97
SECTION 2.06 Quorum. Except as otherwise provided by law or the Certificate
of Incorporation, the recordholders of a majority of the Shares entitled to vote
thereat, present in person or by proxy, shall constitute a quorum for the
transaction of business at all meetings of Stockholders, whether annual or
special. If , however, such quorum shall not be present in person or by proxy at
any meeting of Stockholders, the presiding officer at the meeting of the
Stockholders entitled to vote thereat may adjourn the meeting from time to time
in accordance with Section 2.05 hereof until a quorum shall be present in person
or by proxy.
SECTION 2.07 Voting. Each Stockholder shall be entitled to one vote for
each Share held of record by such Stockholder. Except as otherwise provided by
law or the Certificate of Incorporation, when a quorum is present at any meeting
of Stockholders, the vote of the recordholders of a majority of the Shares
constituting such quorum shall decide any question brought before such meeting.
SECTION 2.08 Proxies. Each Stockholder entitled to vote at a meeting of
Stockholders or to express, in writing, consent to or dissent from any action of
Stockholders without a meeting may authorize another person or persons to act
for such Stockholder by proxy. Such proxy shall be filed with the Secretary
before such meeting of Stockholders or such action of Stockholders without a
meeting, at such time as the Board may require. No proxy shall be voted or acted
upon more than three years from its date, unless the proxy provides for a longer
period.
SECTION 2.09 Chairman and Secretary at Meetings. At any meeting of
Stockholders, the Chairman, or in his absence, the President, or if neither such
person is available, then a person designated by the Board, shall preside at and
act as chairman of the meeting. The Secretary, or in his absence a person
designated by the chairman of the meeting, shall act as secretary of the
meeting.
SECTION 2.10 Judges. The votes at each meeting of Stockholders shall be
supervised by not less than two judges who shall decide all questions respecting
the qualification of voters, the validity of the proxies and the acceptance or
rejection of votes. The judges shall be appointed by the Board but if, for any
reason, there are less than two judges present and acting at any meeting, the
chairman of the meeting shall appoint an additional judge or judges so that
there shall always be at least two judges to act at the meeting.
SECTION 2.11 List of Stockholders. A complete list of the Stockholders
entitled to vote at each meeting of Stockholders, arranged in alphabetical
order, and showing the address and number of shares registered in the name of
each Stockholder, shall be prepared and made available for examination during
regular business hours by any Stockholder for any purpose germane to the
meeting. The list shall be available for such examination for a period of not
less than ten days prior to the meeting and during the whole time of the meeting
either at a place within the city where the
-3-
<PAGE>
By-laws of Ambac Financial Group, Inc.
Amended as of 7/11/97
meeting is to be held, which place shall be specified in the notice of meeting
or, if not so specified, at the place where the meeting is to be held.
SECTION 2.12 Notice of Stockholder Business. At an annual meeting of the
Stockholders, only such business shall be conducted as shall have been brought
before the meeting (a) by or at the direction of the Board or (b) by any
Stockholder who complies with the notice procedures set forth in this Section
2.12. For business to be properly brought before an annual meeting by a
Stockholder, the Stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a Stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation, not less than sixty days nor more than ninety days prior to the
meeting; provided, however, that in the event that less than seventy days'
notice or prior public disclosure of the date of the meeting is given or made to
the Stockholders, notice by the Stockholder to be timely must be received not
later than the close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. A Stockholder's notice to the Secretary shall set forth as to each
matter the Stockholder proposes to bring before the annual meeting (a) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting; (b) the name and
address, as they appear on the Corporation's books, of the Stockholder proposing
such business; (c) the class and number of shares of the Corporation which are
beneficially owned by the Stockholder; and (d) any material interest of the
Stockholder in such business. Notwithstanding anything in these By-laws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 2.12. The chairman of
an annual meeting shall, if the facts warrant, determine and declare to the
meeting that business was no properly brought before the meeting and in
accordance with the provisions of this Section 2.12, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted. Notwithstanding the
foregoing provisions of this Section 2.12, a Stockholder seeking to have a
proposal included in the Corporation's proxy statement shall comply with the
requirements of Regulation 14A under the Securities Exchange Act of 1934, as
amended (including, but not limited to, Rule 14a-8 or its successor provision.)
SECTION 2.13 Notice of Stockholder Nominees. Only persons who are nominated
in accordance with the procedures set forth in these By-laws shall be eligible
for election as Directors. Nominations of persons for election to the Board may
be made at a meeting of Stockholders (a) by or at the direction of the Board or
(b) by any Stockholder entitled to vote for the election of Directors at the
meeting who complies with the notice procedures set forth in this Section 2.13.
Nominations by Stockholders shall be made pursuant to timely notice in writing
to the Secretary of the Corporation. To be timely, a Stockholder's notice shall
be delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty days nor more than ninety days prior to the
meeting; provided, however, that in the event that less than seventy days'
-4-
<PAGE>
By-laws of Ambac Financial Group, Inc.
Amended as of 7/11/97
notice or prior public disclosure of the date of the meeting is given or made to
Stockholders, notice by the Stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
Such Stockholder's notice shall set forth (a) as to each person whom the
Stockholder proposes to nominate for election or re-election as a Director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a Director if elected); and (b) as to
the Stockholder giving the notice (i) the name and address, as they appear on
the Corporation's books, of such Stockholder and (ii) the class and number of
shares of the Corporation which are beneficially owned by such Stockholder. At
the request of the Board any person nominated by the Board for election as a
Director shall furnish to the Secretary that information required to be set
forth in a Stockholder's notice of nomination which pertains to the nominee. No
person shall be eligible for election as a Director unless nominated in
accordance with the procedures set forth in these By-laws. The chairman of the
meeting shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by these
By-laws, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
SECTION 2.14 Stockholders' Consent in Lieu of Meeting. (a) Consents to
Corporate Action. Any action which is required to be or may be taken at any
annual or special meeting of Stockholders, subject to the provisions of
Subsections (b) and (c) of this Section 2.14, may be taken without a meeting,
without prior notice and without a vote if consents in writing, setting forth
the action so taken, shall have been signed by the holders of the outstanding
Shares having not less than the minimum number of votes that would be necessary
to authorize or to take such action at a meeting at which all Shares entitled to
vote thereon were present and voted; provided. however, that prompt notice of
the taking of the corporate action without a meeting and by less than unanimous
written consent shall be given to those Stockholders who have not consented in
writing.
(b) Determination of Record Date of Action by Written Consent. The record
date for determining Stockholders entitled to express consent to corporate
action in writing without a meeting shall be fixed by the Board. Any Stockholder
of record seeking to have the Stockholders authorize or take corporate action by
written consent without a meeting shall, by written notice to the Secretary,
request the Board to fix a record date. Upon receipt of such a request, the
Secretary shall place such request before the Board at its next regularly
scheduled meeting, provided, however, that if the Stockholder represents in such
request that he intends, and is prepared, to commence a consent solicitation as
soon as is permitted by the Securities Exchange Act of 1934, as amended, and the
regulations thereunder and other applicable law, the Secretary shall, as
promptly a practicable, call a special meeting of the Board, which meeting shall
be held as
-5-
<PAGE>
By-laws of Ambac Financial Group, Inc.
Amended as of 7/11/97
promptly as practicable. At such regular or special meeting, the Board shall fix
a record date as provided in Section 213(a) (or its successor provision) of the
General Corporation Law of the State of Delaware (the "General Corporation
Law"). Should the Board fail to fix a record date as provided for in this
Subsection (b), then the record date shall be the day on which the first written
consent is expressed.
(c) Procedures for Written Consent. In the event of the delivery to the
Corporation of a written consent or consents purporting to represent the
requisite voting power to authorize or take corporate action and/or related
revocations, the Secretary shall provide for safekeeping of such consents and
revocations and shall, as promptly as practicable, engage nationally recognized
independent judges of election for the purpose of promptly performing a
ministerial review of the validity of the consents and revocations. No action by
written consent and without a meeting shall be effective until such judges have
completed their review, determined that the requisite number of valid and
unrevoked consents has been obtained to authorize or take action specified in
the consents, and certified such determination for entry in the records of the
Corporation kept for the purpose of recording the proceedings of meetings of
Stockholders.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01 General Powers. The business and affairs of the Corporation
shall be managed by the Board, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law, the
Certificate of Incorporation or these By-laws directed or required to be
exercised or done by Stockholders.
SECTION 3.02 Number and Term of Office. The number of Directors shall be
three or such greater number as shall be fixed from time to time by the Board.
Directors need not be Stockholders. Directors shall be elected at the annual
meeting of Stockholders, and each Director shall hold office until his successor
is elected and qualified, or until his earlier death or resignation or removal
in the manner hereinafter provided.
SECTION 3.03 Resignation. Any Director may resign at any time by giving
written notice to the Board, the Chairman or the Secretary. Such resignation
shall take effect at the time specified in such notice or, if the time be not
specified, upon receipt thereof by the Board, the Chairman or the Secretary, as
the case may be. Unless otherwise specified therein, acceptance of such
resignation shall not be necessary to make it effective.
-6-
<PAGE>
By-laws of Ambac Financial Group, Inc.
Amended as of 7/11/97
SECTION 3.04 Removal. Any or all of the Directors may be removed, with or
without cause, at any time by vote of the recordholders of a majority of the
Shares then entitled to vote at an election of Directors, or by written consent
of the recordholders of Shares pursuant to Section 2.14 hereof.
SECTION 3.05 Vacancies. Vacancies occurring on the Board as a result of the
removal of Directors without cause may be filled only by vote of the
recordholders of a majority of the Shares then entitled to vote at an election
of Directors, or by written consent of such recordholders pursuant to Section
2.14 hereof. Vacancies occurring on the Board for any other reason, including,
without limitation, vacancies occurring as a result of the creation of new
directorships that increase the number of Directors, may be filled by such vote
or written consent or by vote of the Board or by written consent of the
Directors pursuant to Section 3.08 hereof. If the number of Directors then in
office is less than quorum, such other vacancies may be filled by vote of a
majority of the Directors then in office or by written consent of all such
Directors pursuant to Section 3.08 hereof. Unless earlier removed pursuant to
Section 3.04 hereof, each Director chosen in accordance with this Section 3.05
shall hold office until the next annual election of Directors by the
Stockholders and until his successor shall be elected and qualified.
SECTION 3.06 Meetings. (a) Annual Meetings. As soon as practicable after
each annual election of Directors by the Stockholders, the Board shall meet for
the purpose of organization and the transaction of other business, unless it
shall have transacted all such business by written consent pursuant to Section
3.08 hereof.
(b) Stated Meetings. The Board may provide for state meetings of the Board.
(c) Other Meetings. Other meetings of the Board shall be held at such times
as the Chairman, the President, the Secretary or a majority of the Board shall
from time to time determine.
(d) Notice of Meetings. No notice need be given of any organization or
stated meeting of the Board for which the date, hour and place have been fixed
by the Board. The Secretary shall give written notice to each Director of each
other organization and stated meeting and of all special meetings of the Board,
which notice shall state the place, date, time and purpose of such meeting.
Notice of each such meeting shall be given to each Director, if by mail,
addressed to him at his residence or usual place of business, at least two days
before the day on which such meeting is to be held, or shall be sent to him at
such place by telecopy, telegraph, cable, or other form of recorded
communication, or be delivered personally or by telephone not later than the day
before the day on which such meeting is to be held. A written waiver of notice,
signed by the Director entitled to notice, whether before or after the time of
the meeting referred to in such waiver, shall be deemed equivalent to notice.
Neither the business to be transacted at, nor the purpose any meeting of the
Board need be specified in any written waiver of notice thereof. Attendance of a
Director at a meeting of the Board shall constitute a waiver of
-7-
<PAGE>
By-laws of Ambac Financial Group, Inc.
Amended as of 7/11/97
notice of such meeting, except as provided by law.
(e) Place of Meetings. The Board may hold its meetings at such place or
places within or without the State of Delaware as the Board or the Chairman may
from time to time determine, or as shall be designated in the respective notices
or waivers of notice of such meetings.
(f) Quorum and Manner of Acting. One-third of the total number of Directors
then in office (but in no event less than three Directors) shall be present in
person at any meeting of the Board in order to constitute a quorum for the
transaction of business at such meeting, and the vote of a majority of those
Directors present at any such meeting at which a quorum is present shall be
necessary for the passage of any resolution or act of the Board, except as
otherwise expressly required by law, the Certificate of Incorporation or these
By-laws. In the absence of a quorum for any such meeting, a majority of the
Directors present thereat may adjourn such meeting from time to time until a
quorum shall be present.
(g) Organization. At each meeting of the Board, one of the following shall
act as chairman of the meeting and preside, in the following order of
precedence:
(i) the Chairman;
(ii) the President;
(iii) any Director chosen by a majority of the Directors present.
The Secretary or, in the case of his absence, any person (who shall be an
Assistant Secretary, if an Assistant Secretary is present) whom the chairman of
the meeting shall appoint shall act as secretary of such meeting and keep the
minutes thereof.
SECTION 3.07 Committees of the Board. The Board may designate one or more
committees, each committee to consist of one or more Directors. The Board may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of such committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another Director
to act at the meeting in the place of any such absent or disqualified member. A
majority of the members of any committee of the Board shall be present in person
at any meeting of the committee in order to constitute a quorum for the
transaction of business at such meeting, and the act of a majority of the
members present at any such meeting at which a quorum is present shall be the
act of the committee. In the absence of a quorum for any such meeting, a
majority
-8-
<PAGE>
By-laws of Ambac Financial Group, Inc.
Amended as of 7/11/97
of the members present thereat may adjourn such meeting from time to time until
a quorum shall be present. Any committee of the Board, to the extent provided in
the resolution of the Board designating such committee, shall have and may
exercise all the powers and authority of the Board in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; provided, however,
that no such committee shall have such power or authority in reference to the
following matters: (i) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by the General Corporation
Law to be submitted to stockholders for approval or (ii) adopting, amending or
repealing these By-laws. In addition, each committee of the Board so appointed
may appoint a sub-committee of the Board in furtherance of the duties delegated
to it by the Board. Each committee of the Board shall keep regular minutes of
its proceedings and report the same to the Board when so requested by the Board.
SECTION 3.08 Directors' Consent in Lieu of Meeting. Any action required or
permitted to be taken at any meeting of the Board or of any committee thereof
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by all
the members of the Board or such committee and such consent is filed with the
minutes of the proceedings of the Board or such committee.
SECTION 3.09 Action by Means of Telephone or Similar Communications
Equipment. Any one or more members of the Board, or of any committee thereof,
may participate in a meeting of the Board or such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.
SECTION 3.10 Compensation. Unless otherwise restricted by the Certificate
of Incorporation, the Board may determine the compensation of Directors. In
addition, as determined by the Board, Directors may be reimbursed by the
Corporation for their expenses, if any, in the performance of their duties as
Directors. No such compensation or reimbursement shall preclude any Director
from serving the Corporation in any other capacity and receiving compensation
therefor.
ARTICLE IV
OFFICERS
SECTION 4.01 Officers. The officers of the Corporation shall be the
Chairman, the President, the Secretary and a Treasurer and may include one or
more Vice Presidents and one or more Assistant Secretaries and one or more
Assistant Treasurers.
-9-
<PAGE>
By-laws of Ambac Financial Group, Inc.
Amended as of 7/11/97
Any two or more offices may be held by the same person provided that the office
of President and Secretary shall not be held by the same person.
SECTION 4.02 Authority and Duties. All officers shall have such authority
and perform such duties in the management of the Corporation as may be provided
in these By-laws or, to the extent not so provided, by resolution of the Board.
SECTION 4.03 Term of Office, Resignation and Removal. (a) Each officer
shall be appointed by the Board and shall hold office for such term as may be
determined by the Board. Each officer shall hold office until his successor has
been appointed and qualified or his earlier death or resignation or removal in
the manner hereinafter provided. The Board may require any officer to give
security for the faithful performance of his duties.
(b) Any officer may resign at any time by giving written notice to the
Board, the Chairman, the President or the Secretary. Such resignation shall take
effect at the time specified in such notice or, if the time be not specified,
upon receipt thereof by the Board, the Chairman, the President or the Secretary,
as the case may be. Unless otherwise specified therein, acceptance of such
resignation shall not be necessary to make it effective.
(c) All officers and agents appointed by the Board shall be subject to
removal, with or without cause, at any time by the Board or by the action of the
recordholders of a majority of the Shares entitled to vote thereon
SECTION 4.04 Vacancies. Any vacancy occurring in any office of the
Corporation, for any reason, shall be filled by action of the Board. Unless
earlier removed pursuant to Section 4.03 hereof, any officer appointed by the
Board to fill any such vacancy shall serve only until such time as the unexpired
term of his predecessor expires unless reappointed by the Board.
SECTION 4.05 The Chairman. The Chairman shall be the chief executive
officer of the Corporation and shall have general and active management and
control of the business and affairs of the Corporation, subject to the control
of the Board, and shall see that all orders and resolutions of the Board are
carried into effect. The Chairman shall have the power to call special meetings
of Stockholders, to call special meetings of the Board and, if present, to
preside at all meetings of Stockholders and all meetings of the Board. The
Chairman shall perform all duties incident to the office of Chairman of the
Board and all such other duties as may from time to time be assigned to him by
the Board or these By-laws.
SECTION 4.06 The President. The President shall be the chief operating
officer of the Corporation and shall have general and active management and
control the operations of the Corporation, subject to the control of the Board,
and shall
-10-
<PAGE>
By-laws of Ambac Financial Group, Inc.
Amended as of 7/11/97
see that all orders and resolutions of the Board are carried into effect. The
President shall perform all duties incident to the office of President and all
such other duties as may from time to time be assigned to him by the Board or
these By-laws.
SECTION 4.07 Vice Presidents. Vice Presidents, if any, in order of their
seniority or in any other order determined by the Board, shall generally assist
the President and perform such other duties as the Board or the President shall
prescribe, and in the absence or disability of the President, shall perform the
duties and exercise the powers of the President.
SECTION 4.08 The Secretary. The Secretary shall, to the extent practicable,
attend all meetings of the Board and all meetings of Stockholders and shall
record all votes and the minutes of all proceedings in a book to be kept for
that purpose, and shall perform the same duties for any committee of the Board
when so requested by such committee. He shall give or cause to be given notice
of all meetings of Stockholders and of the Board, shall perform such other
duties as may be prescribed by the Board, the Chairman or the President and
shall act under the supervision of the Chairman. He shall keep in safe custody
the seal of the Corporation and affix the same to any instrument that requires
that the seal be affixed to it and which shall have been duly authorized for
signature in the name of the Corporation and, when so affixed, the seal shall be
attested by his signature or by the signature of the Treasurer of the
Corporation (the "Treasurer") or an Assistant Secretary or Assistant Treasurer
of the Corporation. He shall keep in safe custody the certificate books and
stockholder records and such other books and records of the Corporation as the
Board, the Chairman or the President may direct and shall perform all other
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to him by the Board, the Chairman or the President.
SECTION 4.09 Assistant Secretaries. Assistant Secretaries of the
Corporation ("Assistant Secretaries"), if any, in order of their seniority or in
any other order determined by the Board, shall generally assist the Secretary
and perform such other duties as the Board or the Secretary shall prescribe,
and, in the absence or disability of the Secretary, shall perform the duties and
exercise the powers of the Secretary.
SECTION 4.10 The Treasurer. The Treasurer shall have the care and custody
of all the funds of the Corporation and shall deposit such funds in such banks
or other depositories as the Board, or any officer or officers, or any officer
and agent jointly, duly authorized by the Board, shall, from time to time,
direct or approve. He shall disburse the funds of the Corporation under the
direction of the Board and the President. He shall keep a full and accurate
account of all moneys received and paid on account of the Corporation and shall
render a statement of his accounts whenever the Board, the Chairman or the
President shall so request. He shall perform all other necessary actions and
duties in connection with the administration of the financial affairs of the
Corporation
-11-
<PAGE>
By-laws of Ambac Financial Group, Inc.
Amended as of 7/11/97
and shall generally perform all the duties usually appertaining to the office of
treasurer of a corporation. When required by the Board, he shall give bonds for
the faithful discharge of his duties in such sums and with such sureties as the
Board shall approve.
SECTION 4.11 Assistant Treasurers. Assistant Treasurers of the Corporation
("Assistant Treasurers"), if any, in order of their seniority or in any other
order determined by the Board, shall generally assist the Treasurer and perform
such other duties as the Board or the Treasurer shall prescribe, and, in the
absence or disability of the Treasurer, shall perform the duties and exercise
the powers of the Treasurer.
ARTICLE V
CHECKS, DRAFTS, NOTES AND PROXIES
SECTION 5.01 Checks, Drafts and Notes. All checks, drafts and other orders
for the payment of money, notes and other evidences of indebtedness issued in
the name of the Corporation shall be signed by such officer or officers, agent
or agents of the Corporation and in such manner as shall be determined from time
to time, by resolution of the Board.
SECTION 5.02 Execution of Proxies. The Chairman or the President, or, in
the absence or disability of both of them, any Vice President, may authorize,
from time to time, the execution and issuance of proxies to vote shares of stock
or other securities of other corporations held of record by the Corporation and
the execution of consents to action taken or to be taken by any such
corporation. All such proxies and consents, unless otherwise authorized by the
Board, shall be signed in the name of the Corporation by the Chairman, the
President or any Vice President.
-12-
<PAGE>
By-laws of Ambac Financial Group, Inc.
Amended as of 7/11/97
ARTICLE VI
SHARES AND TRANSFERS OF SHARES
SECTION 6.01 Certificates Evidencing Shares. Shares shall be evidenced by
certificates in such form or forms as shall be approved by the Board.
Certificates shall be issued in consecutive order and shall be numbered in the
order of their issue, and shall be signed by the Chairman, the President or any
Vice President and by the Secretary, any Assistant Secretary, the Treasurer or
any Assistant Treasurer; provided that if such a certificate is manually signed
by one such officer, any other signature on the certificate may be a facsimile
and, if such a certificate is countersigned by a transfer agent or registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In the event any such officer who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to hold such office or to be employed by the Corporation before such certificate
is issued, such certificate may be issued by the Corporation with the same
effect as if such officer had held such office on the date of issue.
SECTION 6.02 Stock Ledger. A stock ledger in one or more counterparts shall
be kept by the Corporation, in which shall be recorded the name and address of
each person, firm or corporation owning the Shares evidenced by each certificate
evidencing Shares issued by the Corporation, the number of Shares evidenced by
each such certificate, the date of issuance thereof and, in the case of
cancellation, the date of cancellation. Except as otherwise expressly required
by law, the person in whose name Shares stand on the stock ledger of the
Corporation shall be deemed the owner and recordholder thereof for all purposes.
The Board may from time to time appoint such transfer agents or registrars as it
may deem advisable and may define their powers and duties. Any such transfer
agent or registrar need not be an employee of the Corporation.
SECTION 6.03 Transfers of Shares. Registration of transfers of Shares shall
be made only in the stock ledger of the Corporation upon request of the
registered holder of such shares, or of his attorney thereunto authorized by
power of attorney duly executed and filed with the Corporation, and upon the
surrender of the certificate or certificates evidencing such Shares properly
endorsed or accompanied by a stock power duly executed, together with such proof
of the authenticity of signatures as the Corporation may reasonably require.
SECTION 6.04 Addresses of Stockholders. Each Stockholder shall designate to
the Corporation an address at which notices of meetings and all other corporate
notices may be served or mailed to such Stockholder, and, if any Stockholder
shall fail to so designate such an address, corporate notices may be served upon
such Stockholder by mail directed to the mailing address, if any, as the same
appears in the stock ledger of the Corporation or at the last known mailing
address of such Stockholder.
-13-
<PAGE>
By-laws of Ambac Financial Group, Inc.
Amended as of 7/11/97
SECTION 6.05 Lost, Destroyed and Mutilated Certificates. Each recordholder
of Shares shall promptly notify the Corporation of any loss, destruction or
mutilation of any certificate or certificates evidencing any Share or Shares of
which he is the recordholder. The Board, in its discretion, or any transfer
agent thereunto duly authorized by the Board, may authorize the issue of a new
certificate in place of any certificate theretofore issued and alleged to have
been mutilated, lost, stolen or destroyed, upon the surrender of the mutilated
certificate or, in the case of loss, theft or destruction of the certificate,
upon satisfactory proof of such loss, theft or destruction, and the Board may,
in its discretion, require, and its transfer agents and registrars may so
require, the recordholder of the Shares evidenced by the lost, stolen or
destroyed certificate or his legal representative to give the Corporation a bond
sufficient to indemnify the Corporation against any claim made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
SECTION 6.06 Regulations. The Board may make such other rules and
regulations as it may deem expedient, not inconsistent with these By-laws,
concerning the issue, transfer and registration of certificates evidencing
Shares.
SECTION 6.07 Fixing Date for Determination of Stockholders of Record. In
order that the Corporation may determine the Stockholders entitled to notice of
or to vote at any meeting of Stockholders or any adjournment thereof, or to
express consent to, or to dissent from, corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which shall not be more
than 60 nor less than 10 days before the date of such meeting, nor more than 60
days prior to any other such action. A determination of the Stockholders
entitled to notice of or to vote at a meeting of Stockholders shall apply to any
adjournment of such meeting; provided, however, that the Board may fix a new
record date for the adjourned meeting.
ARTICLE VII
SEAL
SECTION 7.01 Seal. The Board may approve and adopt a corporate seal, which
shall be in the form of a circle and shall bear the full name of the
Corporation, the year of its incorporation and the words "Corporate Seal
Delaware".
-14-
<PAGE>
By-laws of Ambac Financial Group, Inc.
Amended as of 7/11/97
ARTICLE VIII
FISCAL YEAR
SECTION 8.01 Fiscal Year. The fiscal year of the Corporation shall end on
the thirty-first day of December of each year unless changed by resolution of
the Board.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
SECTION 9.01 Indemnification. (a) The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorney's fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
-15-
<PAGE>
By-laws of Ambac Financial Group, Inc.
Amended as of 7/11/97
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 9.01(a) and (b) of these
By-laws, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under Section 9.01(a) and (b) of these By-laws
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 9.01(a) and (b) of these
By-laws. Such determination shall be made (i) by the Board by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable,
a quorum of disinterested directors so directs, by independent legal counsel in
a written opinion, or (iii) by the stockholders of the Corporation.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the Corporation
pursuant to this Article IX. Such expenses (including attorneys' fees) incurred
by other employees and agents may be so paid upon such terms and conditions, if
any, as the Board deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, other Sections of this Article IX shall not be deemed exclusive of
any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any law, by-law, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in an official
capacity and as to action in another capacity while holding such office.
(g) For purposes of this Article IX, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees or agents so that any
person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Article IX with respect to the
-16-
<PAGE>
By-laws of Ambac Financial Group, Inc.
Amended as of 7/11/97
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(h) For purposes of this Article IX, references to "other enterprises"
shall include employee benefit plans, references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves service by, such director, officer, employee or
agent with respect to any employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
IX.
(i) The indemnification and advancement of expenses provided by, or granted
pursuant to, this Article IX shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
SECTION 9.02 Insurance for Indemnification. The Corporation may purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of Section
145 of the General Corporation Law.
ARTICLE X
AMENDMENTS
SECTION 10.01 Amendments. Any By-law (including these By-laws) may be
adopted, amended or repealed by the vote of the recordholders of a majority of
the Shares then entitled to vote at an election of Directors or by written
consent of Stockholders pursuant to Section 2.09 hereof, or by vote of the Board
or by a written consent of Directors pursuant to Section 3.08 hereof.
-17-
<PAGE>
EXHIBIT 10.19
AMBAC Inc. Phillip B. Lassiter
One State Street Plaza Chairman, President and
New York, New York 10004 Chief Executive Officer
(212) 668-0340
March 4, 1997
Mr. David L. Boyle
440 Riversville Road
Greenwich, CT 06831
Dear David:
I am pleased to offer you the position of Senior Vice President and Financial
Services Division Executive, reporting directly to me. We look forward to you
joining AMBAC on March 31, 1997; as discussed, initially you will be working out
of the Connecticut office but should be situated in New York City by June 30,
1997.
Your annual salary will be $270,000, paid on a bi-weekly basis. As a senior
officer of AMBAC, you will be eligible for the Annual Incentive Bonus Program,
which for the 1997 performance year, we will guarantee to you a minimum of
$100,000. In addition, you will receive 15,000 stock options, to be granted by
AMBAC's Board of Directors at their meeting scheduled for April 30, 1997. These
options will have a seven year term and will vest in equal installments over the
next three years. Thereafter, you will be eligible for stock options at the
annual grant cycle beginning in January, 1998, subject to approval by the
Compensation & Organization Committee of the Board of Directors.
All AMBAC health and welfare benefits will be available to you as of your first
day of employment. The AMBAC Pension and Savings Incentive Plans (the retirement
programs) will be available to you after one full year of employment. An
addendum to this letter outlines the supplemental pension benefit AMBAC will
provide for you. Booklets explaining all these programs have been sent under
separate cover.
AMBAC's policy is to conduct a pre-employment drug screening which will be
arranged for March 13, 1997.
We are excited at the prospect of having you join us, knowing you will make
substantial contributions to AMBAC and the Financial Services Division.
David, if you have any comments and/or questions, please give me a call.
Best regards,
/s/ Phillip B. Lassiter
- --------------------------------
Enclosure: Pension Agreement
<PAGE>
EXHIBIT 10.20
April 10, 1997
Mr. W. Dayle Nattress
5 Harvest Lane
Weston, CT 06883
Dear Mr. Nattress:
This Agreement and General Release sets forth our agreement regarding your
employment relationship with AMBAC Indemnity Corporation and AMBAC Inc.
(collectively "AMBAC"), and the termination of that relationship. As a result of
discussions between you and AMBAC, it has been decided that a mutually agreed
upon resignation is in the best interest of both parties. By signing this
Agreement and General Release ("Agreement") you hereby acknowledge and agree to
the following terms and conditions concerning your resignation from AMBAC:
1. Effective Date of Resignation.
(a) Your resignation as an employee of AMBAC shall be effective on the
earlier of (i) the date you give us notice that you have obtained New
Employment, or (ii) June 30, 1997 (the "Resignation Date").
(b) Effective February 26,1997 you relinquished your title as Division
Executive and Chief Investment Officer of AMBAC, but will remain an employee
until the Resignation Date.
(c) During the period from the date of this letter to the Resignation Date
(the "Employment Period"), you will no longer report to the office, but will
make yourself available to provide advice and counsel on business-related
issues.
2. Salary Continuation and Severance.
(a) During the Employment Period, you will continue to receive your regular
salary.
(b) For the period beginning from the Resignation Date and ending June 30,
1998, you will receive bi-weekly payments, subject to regular payroll
deductions, tax withholdings and other legal requirements, totaling $245,000.
However, if you obtain New Employment (as defined in Section 2(d)), any
compensation or attributed earnings, as defined in Section 2(d), attributed to
/s/ WDN /s/ JRE
- --------- ---------
WDN JRE
<PAGE>
April 10, 1997
Page 2 of 8
such employment shall reduce the payments provided for in this Section 2(a)
and/or 2(b). If you accept New Employment with a level of compensation or
attributed earnings less than the amount provided for in this Section 2(b),
AMBAC shall, on a monthly basis, pay any difference between your compensation or
attributed earnings and the amount provided for in this Section 2(b) until the
earlier of (i) June 30, 1998, or (ii) said difference no longer exists. You
agree to provide AMBAC appropriate documentation describing the New Employment
and compensation arrangement within two days of accepting New Employment, the
failure of which shall serve to excuse any future payments by AMBAC under
Section 2(b).
(c) You will receive an additional lump sum severance payment in the amount
of $225,000 to be paid within 30 days of the Effective Date of this Agreement.
(d) "New Employment" means your acceptance of a compensated position of
employment with another person, entity, or organization, or the creation or
establishment of a business causing you to be self-employed or employed. For
purposes of Section 2(b), "Compensation" or "attributed earnings" from New
Employment shall include, but not be limited to, base salary, sign-on bonus,
other bonuses, any equity awards (stock options, SARS, Restricted Stock, phantom
shares and the like), deferred compensation of any kind, guarantees or value
given to you in connection with the New Employment.
3. Benefits
(a) From the date of this letter through the Resignation Date your current
elections from AMBAC-provided benefits will continue. During this period, you
will be required to make your normal employee contributions for benefit coverage
and will be subject to any increases in employee contributions that a regular
employee with like coverage may be required to pay. All benefits will cease as
of the Resignation Date except (i) Business Travel Accident, which already
ceased; and (ii) medical and dental coverage, which will continue until such
time as you accept New Employment, or June 30, 1998, whichever is earlier.
(b) After the New Employment Date or June 30, 1998, whichever is earlier,
you will be eligible for continuation of medical and dental benefits under the
applicable provisions of COBRA.
4. Bonus for 1997.
You will not be eligible for any bonus payable for work performed
during the year 1997.
5. Retirement Plans.
(a) You are vested in AMBAC's Pension Plan and, therefore, are entitled to
a benefit as a terminated, vested participant from AMBAC. Your pension benefit
calculation will include all credited service through the Resignation Date.
/s/ WDN /s/ JRE
- --------- ---------
WDN JRE
<PAGE>
April 10, 1997
Page 3 of 8
(b) Through the Resignation Date, company-match contributions will be
credited on your behalf to the Savings Incentive Plan (SIP). No other
contributions will be made to the Plan on your behalf. Thus, there will be no
additional contributions to the Plan in 1997 or thereafter, such as the 3% basic
and the 3% profit sharing contributions which would typically be paid in the
first quarter of 1998.
6. Stock Options.
(a) As of the date of this letter, a total of 139,000 AMBAC stock options
have been granted to you by the Compensation and Organization Committee of AMBAC
Inc.'s Board of Directors ("the Board").
(b) To date, you have exercised 85,000 stock options at a pre-tax gain of
approximately $2,190,601. After the Resignation Date, you will have six months
to exercise the remaining 15,000 vested options, assuming no prior exercise. Any
vested options not exercised within six months from the Resignation Date will be
forfeited. All unvested options will be forfeited on the Resignation Date.
(c) As of the Resignation Date, you will not be subject to AMBAC's Insider
Trading Policies, but you will remain subject to any and all reporting and
liability provisions imposed by Section 16 of the Securities and Exchange Act of
1934, as amended, and other federal and state securities laws prohibiting
insider trading. If you have any questions regarding this matter, please contact
Richard B. Gross, Esquire, Senior Vice President and General Counsel.
7. Vacation
The unused 1996 vacation and the accrued 1997 vacation have been included
in your total severance payment stated in paragraph 2 (b).
8. Outplacement Counseling.
AMBAC will engage an outplacement firm to provide you with executive job
placement services for up to one-year from the date of this letter with an
office in Stamford and New York City for your use. The terms and conditions of
the outplacement services will be negotiated by AMBAC.
9. Return of AMBAC Property.
AMBAC property currently in your possession is to be returned to Janice
Reals Ellig at AMBAC's New York City office by April 15, 1997.
10. Acknowledgment of Benefits.
You agree and acknowledge that the payments and benefits to be made in
accordance with paragraphs 2 through 8, exceed any sums of which you would
otherwise be entitled under any AMBAC policy, plan and/or procedure.
/s/ WDN /s/ JRE
- --------- ---------
WDN JRE
<PAGE>
April 10, 1997
Page 4 of 8
11. Confidentiality.
In consideration for the payments described above you agree to the
following:
(a) AMBAC (AMBAC refers to AMBAC Inc. and all of its affiliates) is engaged
in a highly competitive business and that in connection with your employment,
you have access to information relating to AMBAC's business that provides AMBAC
with a competitive advantage, that is not generally known by persons not
employed by AMBAC and that could not easily be determined or learned by someone
outside AMBAC (collectively "Confidential Information"). Such Confidential
Information includes, but is not limited to, the identity, characteristics and
preferences of AMBAC's Customers (as defined below) and accounts, matters as
relating to information, pricing, fee and commission structures, trading
policies and procedures, trade secrets, records, files, memoranda, documents,
reports, and other written, printed or recorded material and data, regardless of
data storage method (collectively "Documents") received, created, or used by you
during the course of your employment and other methods of doing business,
whether marked as confidential or secret. As used herein, "Customer" shall
include all clients and actively pursued prospective clients of AMBAC.
(b) You agree that before and after the Resignation Date, you will hold all
Confidential Information in a fiduciary capacity for the benefit of AMBAC and
you shall not, directly or indirectly, use or disclose such Confidential
Information except as may be necessary in the good faith performance of your
duties to AMBAC. You acknowledge that all Confidential Information will remain
the sole property of AMBAC and will be returned by you to AMBAC on or prior to
the Resignation Date. The terms and conditions of this paragraph 11 (a) and (b)
are in addition to and do not supersede or replace the terms and obligations of
AMBAC's Code of Business Conduct.
(c) (i) You further agree that for a period of one year after the
Resignation Date, you will not, for any reason, unless AMBAC consents in
writing, (i) solicit the business of or perform any services for any Customer or
account of AMBAC; nor will you encourage or assist any other party in
competition with AMBAC to solicit or service any such Customer or account or
(ii) hire or seek to hire, whether on your own behalf or on behalf of any other
person or entity, any person who is an employee of AMBAC at the Resignation
Date, or who left the employ of AMBAC within three months prior to such date.
(ii) Notwithstanding the terms of this paragraph 11(c)(i), there is no
restriction on your performing services for a customer or account of AMBAC
where the services to be performed are those of managing an existing
portfolio that, prior to your new employment, includes assets of a customer
or account of AMBAC. In such circumstances, you agree to advise AMBAC prior
to your accepting such a position.
/s/ WDN /s/ JRE
- --------- ---------
WDN JRE
<PAGE>
April 10, 1997
Page 5 of 8
(d) In view of the nature of AMBAC's business, you also acknowledge that
the restrictions contained in paragraph 11 are fair, reasonable and necessary to
protect the legitimate business interests of AMBAC and that AMBAC will suffer
irreparable harm in the event of any actual or threatened violation by you of
this paragraph. You therefore agree that AMBAC shall be entitled to a court
order requiring you to cease any such violations in addition to and without
prejudice to any other rights or remedies which may be available to AMBAC
through the legal system.
(e) You shall not be deemed to be in breach of any covenant set forth in
this Agreement on the basis of any communications you may have with third
parties relating to: (i) the fact of your employment by AMBAC; (ii) your job
titles at AMBAC; (iii) the dates your employment by AMBAC; (iv) the
responsibilities and authorities of your positions at AMBAC; (v) the nature and
extent of your achievements during employment by AMBAC; and (vi) the names and
positions of individuals whom you worked during your employment at AMBAC.
(f) You shall not be deemed in breach of the confidentiality obligations
set forth in paragraph 11 if, compelled by legal process or court order, you are
to participate in any administrative, judicial or criminal investigation, probe,
grand jury proceeding or other demand for testimony, information or
documentation.
(g) Before initiating any litigation, AMBAC shall give written notice to
you and your legal counsel if it believes you are in violation of any covenant
or obligation under this Agreement. Upon written request, you will receive
AMBAC's judgment regarding whether a particular activity or act would be deemed
in breach of your obligations and/or covenants under this Agreement.
12. General Releases.
(a) In consideration of the payments provided for in paragraphs 2 through 8
of this Agreement, and other valuable consideration as set forth in this
Agreement, you for yourself and for your heirs, executors, administrators,
trustees, legal representatives and assigns (hereinafter collectively referred
to as the "Releasors") hereby release and discharge AMBAC, and any and all of
its parent corporations, shareholders, subsidiaries, divisions, affiliated and
related entities, employee benefit and/or pension plans or funds, successors and
assigns, and any and all of its or their past, present or future officers,
directors, agents, stockholders, trustees, fiduciaries, administrators,
employees or assigns (whether acting as agents for AMBAC or in their individual
capacities) (hereinafter collectively referred to as "Releasees"), of and from
any and all claims, demands, causes of action, and liabilities of any kind
whatsoever, whether known or unknown, whether arising in law or in equity or
arising out of any federal, state or city constitution, statute, ordinance,
bylaw or regulation (including but not limited to, all common law claims, all
claims arising under the Age Discrimination in Employment Act of 1967, the Older
Workers Benefit Protection Act, Title VII of the Civil Rights Act of 1964, as
amended, the Connecticut Human
/s/ WDN /s/ JRE
- --------- ---------
WDN JRE
<PAGE>
April 10, 1997
Page 6 of 8
Rights Law ss.ss.46a-60, and the like, the New York City Administrative Code,
and the like) or by reason of any act, omission, transaction, conduct or
occurrence up to and including the effective date of this Agreement, which you
ever had, now have or hereafter can, shall or may have against the Releasees
for, upon or by reason of any act, omission, transaction or occurrence up to and
including the Effective Date of this Agreement and General Release.
(b) In consideration of the payments provided for in paragraphs 2 through 8
of this Agreement, and other valuable consideration as set forth herein, you
also agree to provide AMBAC on the Resignation Date with an executed copy of a
General Release in the form annexed hereto as Exhibit A.
13. You represent and warrant that you will not commence, maintain, prosecute or
participate in any action or proceeding of any kind (judicial or administrative)
against any of the Releasees, arising out of any act, omission, transaction or
occurrence happening up to and including the date of this letter, and have not
done so as of the date of this letter.
14. The terms, conditions, and existence of this Agreement are and shall be
treated as confidential, and shall not hereafter be disclosed by you to any
person or entity, except to attorneys, accountants, tax advisors, or immediate
family members, or as may be required by law. Any individual to whom the terms
and conditions of this Agreement have been disclosed will be advised of the
confidentiality requirements of this paragraph. You further agree not to solicit
or initiate any demand by others not party to this Agreement for any disclosure
of its terms and obligations regarding Confidential Information based upon any
disclosure required by law or if compelled by legal process or court order.
15. You agree not to make any derogatory statements of any kind about AMBAC (or
any of its subsidiaries, parents, affiliates or related business entities), or
any present or former employee or director of AMBAC (or any of its subsidiaries,
parents, affiliates or related business entities) or act in a manner that is or
may be harmful to AMBAC (or any of its subsidiaries, parents, affiliates or
related business entities).
16. AMBAC agrees to direct all senior officers with knowledge of the
circumstances surrounding your resignation to refrain from making any derogatory
statements of any kind about you.
17. A statement has been issued to AMBAC directors and employees, and
appropriate third parties regarding the reason(s) for your departure from AMBAC.
Any other written or oral statements made by you or AMBAC regarding your
relationship with and separation from AMBAC shall be fully consistent with this
Agreement.
/s/ WDN /s/ JRE
- --------- ---------
WDN JRE
<PAGE>
April 10, 1997
Page 7 of 8
18. You agree to cooperate fully with AMBAC and its employees by providing
information to AMBAC and its representatives, agents or advisors regarding any
business matters with which you were involved on behalf of AMBAC and to
cooperate fully in the event of any litigation or legal, administrative or
regulatory proceeding, the facts of which you have knowledge or information,
including, but not limited to, providing testimony on behalf of AMBAC at any
legal, administrative or regulatory proceeding.
19. (a) In the event of any breach of paragraphs 11 through 15, or paragraph 18,
or your failure to execute Exhibit A on the Resignation Date, AMBAC shall be
released from any obligation to make any payment to you or on your behalf and
provide any benefits under this Agreement (or, if such payment has ready been
made to you or on your behalf, AMBAC shall be entitled to recover from you the
amounts already paid under this Agreement). AMBAC shall be further entitled to
pursue any and all of its remedies under the law arising out of such breach. In
any action alleging breach of this Agreement, the prevailing party shall be
entitled to recover reasonable costs and/or attorneys' fees incurred to enforce
this Agreement.
(b) The making of this Agreement is not intended, and shall not be
construed, as an admission that AMBAC, its subsidiaries, parents, affiliates, or
related business entities, or any person now or previously employed by AMBAC or
any of its subsidiaries, parents, affiliates or related business entities, have
violated any federal, state, or local law (statutory or decisional), ordinance,
regulation, or any common law rule, or that AMBAC, its subsidiaries, parents,
affiliates, or related business entities, or any person now or previously
employed by AMBAC, its subsidiaries, parents, affiliates, or related business
entities, have committed any wrong against you.
20. You may accept this Agreement by signing it and returning it to AMBAC. After
signing this Agreement, you shall be given a period of seven (7) days ("the
Revocation Period") during which you may revoke this Agreement and General
Release by indicating your desire to do so in writing addressed to AMBAC, Human
Resources Department, Attention: Janice Reals Ellig, One State Street Plaza, New
York, New York 10004. This Agreement is effective eight (8) days following your
signing of the Agreement ("the Effective Date"). If you do not accept this
Agreement as indicated above, or in the event you revoke this Agreement during
the Revocation Period, this Agreement shall be null and void.
21. You represent and warrant that you have carefully read this Agreement in its
entirety; that you have had an opportunity to consider fully the terms of this
Agreement for twenty-one (21) days; that you have been advised by AMBAC in
writing to consult with an attorney of your choice in connection with this
Agreement; that you fully understand the significance of all of the terms and
conditions of this Agreement; that you have discussed it with your independent
legal counsel, or have had a reasonable opportunity to do so; that you have had
answered to your satisfaction any questions you have asked with regard to the
meaning and significance of any of the provisions of this Agreement; and that
you are signing this Agreement voluntarily and of your own free will and assent
to all the terms and conditions contained herein.
/s/ WDN /s/ JRE
- --------- ---------
WDN JRE
<PAGE>
April 10, 1997
Page 8 of 8
22. Any disputes or controversies relating to this Agreement shall be
interpreted under the laws of the State of New York. If at any time after the
date of the execution of this Agreement, any provision of this Agreement shall
be held by any court of competent jurisdiction to be illegal, void, or
unenforceable, such provision, however, shall have no effect upon, and shall not
impair the enforceability of any other provision of this Agreement, provided
that upon a finding by a court of competent jurisdiction that the General
Releases given by you are illegal and/or unenforceable, you shall be required to
pay AMBAC all amounts paid to you or on your behalf by AMBAC pursuant to this
Agreement.
23. This Agreement constitutes the complete understanding between the parties.
No other promises or agreements shall be binding unless in writing and signed by
the parties.
/s/ W. Dayle Nattress 4/23/97
- ------------------------------- -----------------
W. Dayle Nattress Date
AMBAC Inc.
AMBAC Indemnity Corporation
By: /s/ Janice Reals Ellig 4/12/97
----------------------------------------- ----------------
Janice Reals Ellig, Senior Vice President Date
<PAGE>
EXHIBIT 10.21
AMBAC 1997 EQUITY PLAN
1. Purposes
The purposes of the AMBAC 1997 Equity Plan (the "Plan") are to attract,
retain and motivate key employees of the Company, to compensate them for their
contributions to the growth and profits of the Company and to encourage
ownership by them of Common Stock.
2. Definitions
For purposes of the Plan, the following terms shall be defined as follows:
"Administrator" means the individual or individuals to whom the Committee
delegates authority under the Plan in accordance with Section 3(d).
"AMBAC" means AMBAC Inc., a Delaware corporation.
"Award" means an award made pursuant to the terms of the Plan to an
Eligible Individual in the form of Stock Options, Stock Appreciation Rights,
Stock Awards, Restricted Stock Units, Performance Units or Other Awards.
"Award Agreement" means a written document approved in accordance with
Section 3 which sets forth the terms and conditions of the Award to the
Participant. An Award Agreement may be in the form of (i) an agreement between
AMBAC or one of its Subsidiaries which is executed by an officer on behalf of
AMBAC or such Subsidiary and is signed by the Participant or (ii) a certificate
issued by AMBAC or one of its Subsidiaries which is executed by an officer on
behalf of AMBAC or such Subsidiary but does not require the signature of the
Participant.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and the
applicable rulings and regulations (including any proposed regulations)
thereunder.
"Committee" means the Compensation and Organization Committee of the Board,
any successor committee thereto or any other committee appointed from time to
time by the Board to administer the Plan. The Committee shall consist of at
least two individuals and shall serve at the pleasure of the Board.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Company.
"Company" means AMBAC and its Subsidiaries.
"Eligible Individuals" means the individuals described in Section 6 who are
eligible for Awards under the Plan.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the applicable rulings and regulations thereunder.
"Fair Market Value" means, with respect to a share of Common Stock, the
fair market value thereof as of the relevant date of determination, as
determined in accordance with a valuation methodology approved by the Committee.
In the absence of any alternative valuation methodology approved by the
Committee, the Fair Market Value of a share of Common Stock shall equal the
average of the highest and the lowest quoted selling price of a share of Common
Stock as reported on the composite tape for
<PAGE>
securities listed on the New York Stock Exchange, or such other national
securities exchange as may be designated by the Committee, or, in the event that
the Common Stock is not listed for trading on a national securities exchange but
is quoted on an automated system, on such automated system, in any such case on
the valuation date (or, if there were no sales on the valuation date, the
average of the highest and the lowest quoted selling prices as reported on said
composite tape or automated system for the most recent day during which a sale
occurred).
"Incentive Stock Option" means a Stock Option which is an "incentive stock
option" within the meaning of Section 422 of the Code and designated by the
Committee as an Incentive Stock Option in an Award Agreement.
"Nonqualified Stock Option" means a Stock Option which is not an Incentive
Stock Option.
"Other Award" means any other form of award authorized under Section 13 of
the Plan.
"Participant" means an Eligible Individual to whom an Award has been
granted under the Plan.
"Performance Unit" means a performance unit granted to an Eligible
Individual pursuant to Section 12 hereof.
"Predecessor Plan" means the AMBAC Inc. 1991 Stock Incentive Plan, as
amended.
"Restricted Stock Unit" means a restricted stock unit granted to an
Eligible Individual pursuant to Section 11 hereof.
"Stock Appreciation Right" means a right to receive all or some portion of
the appreciation on shares of Common Stock granted to an Eligible Individual
pursuant to Section 9 hereof.
"Stock Award" means a share of Common Stock granted to an Eligible
Individual for no consideration other than the provision of services or offer
for sale to an Eligible Employee at a purchase price determined by the
Committee, in either case pursuant to Section 10 hereof.
"Stock Option" means an Award to purchase shares of Common Stock granted to
an Eligible Individual pursuant to Section 8 hereof, which Award may be either
an Incentive Stock Option or a Nonqualified Stock Option.
"Subsidiary" means (i) a corporation or other entity with respect to which
AMBAC, directly or indirectly, has the power, whether through the ownership of
voting securities, by contract or otherwise, to elect at least a majority of the
members of such corporation's board of directors or analogous governing body, or
(ii) any other corporation or other entity in which AMBAC, directly or
indirectly, has an equity or similar interest and which the Committee designates
as a Subsidiary for purposes of the Plan.
"Substitute Award" means an Award granted upon assumption of, or in
substitution for, outstanding awards previously granted by a company or other
entity in connection with a corporate transaction, such as a merger,
combination, consolidation or acquisition of property or stock.
3. Administration of the Plan
(a) Power and Authority of the Committee. The Plan shall be administered by
the Committee, which shall have full power and authority, subject to the express
provisions hereof:
(i) to select Participants from the Eligible Individuals;
2
<PAGE>
(ii) to make Awards in accordance with the Plan;
(iii) to determine the number of shares of Common Stock subject to
each Award or the cash amount payable in connection with an Award;
(iv) to determine the terms and conditions of each Award, including,
without limitation, those related to vesting, forfeiture, payment and
exercisability, and the effect, if any, of a Participant's termination of
employment with the Company, and including the authority to amend the terms
and conditions of an Award after the granting thereof to a Participant in a
manner that is not, without the consent of the Participant, prejudicial to
the rights of such Participant in such Award;
(v) to specify and approve the provisions of the Award Agreements
delivered to Participants in connection with their Awards;
(vi) to construe and interpret any Award Agreement delivered under the
Plan;
(vii) to prescribe, amend and rescind rules and procedures relating to
the Plan;
(viii) to vary the terms of Awards to take account of tax, securities
law and other regulatory requirements of foreign jurisdictions;
(ix) subject to the provisions of the Plan and subject to such
additional limitations and restrictions as the Committee may impose, to
delegate to one or more officers of the Company some or all of its
authority under the Plan;
(x) to employ such legal counsel, independent auditors and consultants
as it deems desirable for the administration of the Plan and to rely upon
any opinion or computation received therefrom; and
(xi) to make all other determinations and to formulate such procedures
as may be necessary or advisable for the administration of the Plan.
(b) Plan Construction and Interpretation. The Committee shall have full
power and authority, subject to the express provisions hereof, to construe and
interpret the Plan.
(c) Determinations of Committee Final and Binding. All determinations by
the Committee in carrying out and administering the Plan and in construing and
interpreting the Plan shall be final, binding and conclusive for all purposes
and upon all persons interested herein.
(d) Delegation of Authority. The Committee may, but need not, from time to
time delegate some or all of its authority under the Plan to an Administrator
consisting of one or more members of the Committee or of one or more officers of
the Company; provided, however, that the Committee may not delegate its
authority (i) to make Awards to Eligible Individuals who are officers of the
Company who are delegated authority by the Committee hereunder, or (ii) under
Sections 3(b) and 16 of the Plan. Any delegation hereunder shall be subject to
the restrictions and limits that the Committee specifies at the time of such
delegation or thereafter. Nothing in the Plan shall be construed as obligating
the Committee to delegate authority to an Administrator, and the Committee may
at any time rescind the authority delegated to an Administrator appointed
hereunder or appoint a new Administrator. At all times, the Administrator
appointed under this Section 3(d) shall serve in such capacity at the pleasure
of the Committee. Any action undertaken by the Administrator in accordance with
the Committee's delegation of authority shall have the same force and effect as
if undertaken directly by the Committee, and any reference in the Plan to the
Committee shall, to the extent consistent with the terms and limitations of such
delegation, be deemed to include a reference to the Administrator.
3
<PAGE>
(e) Liability of Committee. No member of the Committee shall be liable for
any action nor determination made in good faith, and the members of the
Committee shall be entitled to indemnification and reimbursement in the manner
provided in AMBAC's Certificate of Incorporation as it may be amended from time
to time. In the performance of its responsibilities with respect to the Plan,
the Committee shall be entitled to rely upon information and advice furnished by
the Company's officers, the Company's accountants, the Company's counsel and any
other party the Committee deems necessary, and no member of the Committee shall
be liable for any action taken or not taken in reliance upon any such advice.
(f) Action by the Board. Anything in the Plan to the contrary
notwithstanding, any authority or responsibility which, under the terms of the
Plan, may be exercised by the Committee may alternatively be exercised by the
Board.
4. Effective Date and Term
The Plan shall become effective upon its adoption by the Board subject to
its approval by the stockholders of AMBAC. Prior to such stockholder approval,
the Committee may grant Awards conditioned on stockholder approval. If such
stockholder approval is not obtained at or before the first annual meeting of
stockholders to occur after the adoption of the Plan by the Board (including any
adjournment or adjournments thereof), the Plan and any Awards made thereunder
shall terminate ab initio and be of no further force and effect. In no event
shall any Awards be made under the Plan after the seventh anniversary of the
date of stockholder approval.
5. Shares of Common Stock Subject to the Plan
(a) General. Subject to adjustment as provided in Section 15(b) hereof, the
number of shares of Common Stock that may be issued pursuant to Awards under the
Plan (the "Section 5 Limit") shall not exceed, in the aggregate:
(I) 2,750,000 shares; plus
(II) the number of shares of Common Stock that remain available for
issuance under the Predecessor Plan as of the date this Plan is approved by
the stockholders of the Company (increased by any shares of Common Stock
subject to any award (or portion thereof) outstanding under the Predecessor
Plan on such date which lapses, expires or is otherwise terminated without
the issuance of such shares or is settled by the delivery of consideration
other than shares).
Shares issued under this Plan may be either authorized but unissued shares,
treasury shares or any combination thereof.
(b) Rules Applicable to Determining Shares Available for Issuance. For
purposes of determining the number of shares of Common Stock that remain
available for issuance, the following shares shall be added back to the Section
5 Limit and again be available for Awards:
(x) The number of shares tendered to pay the exercise price of a Stock
Option or other Award; and
(y) The number of shares withheld from any Award to satisfy a
Participant's tax withholding obligations or, if applicable, to pay the
exercise price of a Stock Option or other Award.
In addition, any shares underlying Substitute Awards shall not be counted
against the Section 5 Limit and shall not be subject to Section 5(c) below.
4
<PAGE>
(c) Special Limits. Anything to the contrary in Section 5(a) above
notwithstanding, but subject to Section 15(b) below, the following special
limits shall apply to shares of Common Stock available for Awards under the
Plan:
(i) The maximum number of shares that may be issued in the form of
Stock Awards, or issued upon settlement of Restricted Stock Units or Other
Awards, shall equal 800,000 shares, provided, however, that any such Stock
Awards, Restricted Stock Units or Other Awards that are issued in lieu of
cash compensation that otherwise would be paid to a Participant, or in
satisfaction of any other obligation owed by the Company to a Participant,
shall not be counted against such limitation; and
(ii) The maximum number of shares of Common Stock that may be subject
to Stock Options or Stock Appreciation Rights granted to any Eligible
Individual in any fiscal year of the Company shall equal 200,000 shares
plus any shares which were available under this Section 5cii) for Awards of
Stock Options or Stock Appreciation Rights to such Eligible individual in
any prior fiscal year but which were not covered by such Awards.
(d) No Further Awards under Predecessor Plan. From and after the date this
Plan is approved by the stockholders of the Company, no further awards shall be
made under the Predecessor Plan.
6. Eligible Individuals
Awards may be granted by the Committee to individuals ("Eligible
Individuals") who are officers or other key employees of the Company. Members of
the Committee will not be eligible to receive Awards under the Plan. An
individual's status as an Administrator will not affect his or her eligibility
to participate in the Plan.
7. Awards in General
(a) Types of Award and Award Agreement. Awards under the Plan may consist
of Stock Options, Stock Appreciation Rights, Stock Awards, Restricted Stock
Units, Performance Units or Other Awards. Any Award described in Sections 8
through 13 of the Plan may be granted singly or in combination or tandem with
any other Award, as the Committee may determine. Awards may be made in
combination with, in replacement of, or as alternatives to grants of rights
under any other employee compensation plan of the Company, including the plan of
any acquired entity, or may be granted in satisfaction of the Company's
obligations under any such plan.
(b) Terms Set Forth in Award Agreement. The terms and provisions of an
Award shall be set forth in a written Award Agreement approved by the Committee
and delivered or made available to the Participant as soon as practicable
following the date of the award. The vesting, exercisability, payment and other
restrictions applicable to an Award (which may include, without limitation,
restrictions on transferability or provision for mandatory resale to the
Company) shall be determined by the Committee and set forth in the applicable
Award Agreement. Notwithstanding the foregoing, the Committee may accelerate (i)
the vesting or payment of any Award, (ii) the lapse of restrictions on any Award
or (iii) the date on which any Stock Option, Stock Appreciation Right or other
Award first becomes exercisable.
(c) Termination of Employment and Change in Control. The Committee shall
also have full authority to determine and specify in the applicable Award
Agreement the effect, if any, that a Participant's termination of employment for
any reason will have on the vesting, exercisability, payment or lapse of
restrictions applicable to an Award. The date of a Participant's termination of
employment for any reason shall be determined in the sole discretion of the
Committee. Similarly, the Committee shall have full authority to determine the
effect, if any, of a change in control of AMBAC on the vesting, exercisability,
payment or lapse of restrictions applicable to an Award, which effect may be
specified in the applicable Award Agreement or determined at a subsequent time.
5
<PAGE>
(d) Dividends and Dividend Equivalents. The Committee may provide
Participants with the right to receive dividends or payments equivalent to
dividends or interest with respect to an outstanding Awards, which payments can
either be paid currently or deemed to have been reinvested in shares of Common
Stock, and can be made in Common Stock, cash or a combination thereof, as the
Committee shall determine.
8. Stock Options
(a) Terms of Stock Options Generally. A Stock Option shall entitle the
Participant to whom the Stock Option was granted to purchase a specified number
of shares of Common Stock during a specified period at a price that is
determined in accordance with Section 8(b) below. Stock Options may be either
Nonqualified Stock Options or Incentive Stock Options. The Committee will fix
the vesting and exercisability conditions applicable to a Stock Option, provided
that no Stock Option shall vest sooner than one year from the date of grant
(subject to early vesting, if so provided by the Committee, upon death,
disability, termination of employment or a change in control of the Company).
(b) Exercise Price. The exercise price per share of Common Stock
purchasable under a Stock Option shall be fixed by the Committee at the time of
grant or, alternatively, shall be determined by a method specified by the
Committee at the time of grant; provided, however, that the exercise price per
share shall be no less than 100% of the Fair Market Value per share on the date
of grant (or it the exercise price is not fixed on the date of grant, then on
such date as the exercise price is fixed); and provided further, that, except as
provided in Section 15(b) below, the exercise price per share of Common Stock
applicable to a Stock Option may not be adjusted or amended, including by means
of amendment, cancellation or the replacement of such Stock Option with a
subsequently awarded Stock Option. Notwithstanding the foregoing, the exercise
price per share of a Stock Option that is a Substitute Award may be less than
the Fair Market Value per share on the date of award, provided that the excess
of:
(i) the aggregate Fair Market Value (as of the date such Substitute
Award is granted) of the shares of Common Stock subject to the Substitute
Award, over
(ii) the aggregate exercise price thereof,
does not exceed the excess of:
(iii) the aggregate fair market value (as of the time immediately
preceding the transaction giving rise to the Substitute Award, such fair
market value to be determined by the Committee) of the shares of the
predecessor entity that were subject to the award assumed or substituted
for by the Company, over
(iv) the aggregate exercise price of such shares.
(c) Option Term. The term of each Stock Option shall be fixed by the
Committee and shall not exceed ten years from the date of grant.
(d) Method of Exercise. Subject to the provisions of the applicable Award
Agreement, the exercise price of a Stock Option may be paid in cash or
previously owned shares or a combination thereof and, if the applicable Award
Agreement so provides, in whole or in part through the withholding of shares
subject to the Stock Option with a value equal to the exercise price. In
accordance with the rules and procedures established by the Committee for this
purpose, the Stock Option may also be exercised through a "cashless exercise"
procedure approved by the Committee involving a broker or dealer approved by the
Committee, that affords Participants the opportunity to sell immediately some or
all of the shares underlying the exercised portion of the Stock Option in order
to generate sufficient cash to pay the Stock Option exercise price and/or to
satisfy withholding tax obligations related to the Stock Option.
6
<PAGE>
9. Stock Appreciation Rights
(a) General. A Stock Appreciation Right shall entitle a Participant to
receive, upon satisfaction of the conditions to the payment specified in the
applicable Award Agreement, an amount equal to the excess, if any, of the Fair
Market Value on the exercise date of the number of shares of Common Stock for
which the Stock Appreciation Right is exercised, over the exercise price for
such Stock Appreciation Right specified in the applicable Award Agreement. The
exercise price per share of Common Stock covered by a Stock Appreciation Right
shall be fixed by the Committee at the time of grant or, alternatively, shall be
determined by a method specified by the Committee at the time of grant;
provided, however, that, except as provided in Section 9(b) below, the exercise
price per share shall be no less than 100% of the Fair Market Value per share on
the date of grant (or if the exercise price is not fixed on the date of grant,
then on such date as the exercise price is fixed); and provided further, that,
except as provided in Section 15(b) below, the exercise price per share of
Common Stock subject to a Stock Appreciation Right may not be adjusted or
amended, including by means of amendment, cancellation or the replacement of
such Stock Appreciation Right with a subsequently awarded Stock Appreciation
Right. Notwithstanding the foregoing, the exercise price per share of a Stock
Appreciation Right that is a Substitute Award may be less than the Fair Market
Value per share on the date of award, provided, that such exercise price is not
less than the minimum exercise price that would be permitted for an equivalent
Stock Option as determined in accordance with Section 8(b) above. At the sole
discretion of the Committee, payments to a Participant upon exercise of a Stock
Appreciation Right may be made in cash, in shares of Common Stock having an
aggregate Fair Market Value as of the date of exercise equal to such amount, or
in a combination of cash and shares having an aggregate value as of the date of
exercise equal to such amount.
(b) Stock Appreciation Rights in Tandem with Stock Options. A Stock
Appreciation Right may be granted alone or in addition to other Awards, or in
tandem with a Stock Option. A Stock Appreciation Right granted in tandem with a
Stock Option may be granted either at the same time as such Stock Option or
subsequent thereto. If granted in tandem with a Stock Option, a Stock
Appreciation Right shall cover the same number of shares of Common Stock as
covered by the Stock Option (or such lesser number of shares as the Committee
may determine) and shall be exercisable only at such time or times and to the
extent the related Stock Option shall be exercisable, and shall have the same
term and exercise price as the related Stock Option (which, in the case of a
Stock Appreciation Right granted after the grant of the related Stock Option,
may be less than the Fair Market Value per share on the date of grant of the
tandem Stock Appreciation Right). Upon exercise of a Stock Appreciation Right
granted in tandem with a Stock Option, the related Stock Option shall be
cancelled automatically to the extent of the number of shares covered by such
exercise; conversely, if the related Stock Option is exercised as to some or all
of the shares covered by the tandem grant, the tandem Stock Appreciation Right
shall be cancelled automatically to the extent of the number of shares covered
by the Stock Option exercise.
10. Stock Awards
(a) General. A Stock Award shall consist of one or more shares of Common
Stock granted to a Participant for no consideration other than the provision of
services (or, if required by applicable law in the reasonable judgment of the
Company, for payment of the par value of such shares). Stock Awards shall be
subject to such restrictions (if any) on transfer or other incidents of
ownership for such periods of time, and shall be subject to such conditions of
vesting, as the Committee may determine and as shall be set forth in the
applicable Award Agreement.
(b) Distributions. Any shares of Common Stock or other securities of the
Company received by a Participant to whom a Stock Award has been granted as a
result of a stock distribution to holders of Common Stock or as a stock dividend
on Common Stock shall be subject to the same terms, conditions and restrictions
as such Stock Award.
11. Restricted Stock Units
7
<PAGE>
An Award of Restricted Stock Units shall consist of a grant of units, each
of which represents the right of the Participant to receive one share of Common
Stock, subject to the terms and conditions established by the Committee in
connection with the Award and set forth in the applicable Award Agreement. Upon
satisfaction of the conditions to vesting and payment specified in the
applicable Award Agreement, Restricted Stock Units will be payable, at the
discretion of the Committee, in Common Stock, in cash equal to the Fair Market
Value of the shares subject to such Restricted Stock Units, or in a combination
of Common Stock and cash.
12. Performance Units
Performance units may be granted as fixed or variable share- or
dollar-denominated units subject to such conditions of vesting and time of
payment as the Committee may determine and as shall be set forth in the
applicable Award Agreement relating to such Performance Units. Performance Units
may be paid in Common Stock, cash or a combination of Common Stock and cash, as
the Committee may determine.
13. Other Awards
The Committee shall have the authority to specify the terms and provisions
of other forms of equity-based or equity-related Awards not described above
which the Committee determines to be consistent with the purpose of the Plan and
the interests of the Company, which Awards may provide for cash payments based
in whole or in part on the value or future value of Common Stock, for the
acquisition or future acquisition of Common Stock, or any combination thereof.
Other Awards shall also include cash payments (including the cash payment of
dividend equivalents) under the Plan which may be based on one or more criteria
determined by the Committee which are unrelated to the value of Common Stock and
which may be granted in tandem with, or independent of, other Awards under the
Plan.
14. Certain Restrictions
(a) Transfers. Unless the Committee determines otherwise, no Award shall be
transferable other than by will or by the laws of descent and distribution or
pursuant to a domestic relations order; provided, however, that the Committee
may, in its discretion and subject to such terms and conditions as it shall
specify, permit the transfer of an Award for no consideration to a Participant's
family members or to one or more trusts or partnerships established in whole or
in part for the benefit of one or more of such family members (collectively,
"Permitted Transferees"). Any Award transferred to a Permitted Transferee shall
be further transferable only by will or the laws of descent and distribution or,
for no consideration, to another Permitted Transferee of the Participant. The
Committee may in its discretion permit transfers of Awards other than those
contemplated by this Section.
(b) Exercise. During the lifetime of the Participant, a Stock Option, Stock
Appreciation Right or similar-type Other Award shall be exercisable only by the
Participant or by a Permitted Transferee to whom such Stock Option, Stock
Appreciation Right or Other Award has been transferred in accordance with
Section 14(a).
15. Recapitalization or Reorganization
(a) Authority of the Company and Stockholders. The existence of the Plan,
the Award Agreements and the Awards granted hereunder shall not affect or
restrict in any way the right or power of the Company or the stockholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of stock or of options, warrants or
rights to purchase stock or of bonds, debentures, preferred or prior preference
stocks whose rights are superior to or affect the Common Stock or the rights
thereof or which are convertible into or exchangeable for Common Stock, or the
8
<PAGE>
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
(b) Change in Capitalization. Notwithstanding any provision of the Plan or
any Award Agreement, the number and kind of shares authorized for issuance under
Section 5(a) above, including the maximum number of shares available under the
special limits provided for in Section 5(c) above, may be equitably adjusted in
the sole discretion of the Committee in the event of a stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, extraordinary
dividend, split-up, spin-off, combination, exchange of shares, warrants or
rights offering to purchase Common Stock at a price substantially below Fair
Market Value or other similar corporate event affecting the Common Stock in
order to preserve, but not increase, the benefits or potential benefits intended
to be made available under the Plan. In addition, upon the occurrence of any of
the foregoing events, the number of outstanding Awards and the number and kind
of shares subject to any outstanding Award and the purchase price per share, if
any, under any outstanding Award may be equitably adjusted (including by payment
of cash to a Participant) in the sole discretion of the Committee in order to
preserve the benefits or potential benefits intended to be made available to
Participants granted Awards. Such adjustments shall be made by the Committee,
whose determination as to what adjustments shall be made, and the extent
thereof, shall be final. Unless otherwise determined by the Committee, such
adjusted Awards shall be subject to the same vesting schedule and restrictions
to which the underlying Award is subject.
16. Amendments
The Board or Committee may at any time and from time to time alter, amend,
suspend or amend the Plan in whole or in part; provided, however, that any
amendment which under the requirements of any applicable law or stock exchange
rule must be approved by the stockholders of the Company shall not be effective
unless and until such stockholder approval has been obtained in compliance with
such law or rule; and provided further, that, except as contemplated by Section
15(b) above, the Board or Committee may not, without the approval of the
Company's stockholders, increase the maximum number of shares issuable under the
Plan or reduce the exercise price of a Stock Option or Stock Appreciation Right.
No termination or amendment of the Plan may, without the consent of the
Participant to whom an Award has been granted, adversely affect the rights of
such Participant under such Award. Notwithstanding any provision herein to the
contrary, the Board or Committee shall have broad authority to amend the Plan or
any Award under the Plan to take into account changes in applicable tax laws,
securities laws, accounting rules and other applicable state and federal laws.
17. Miscellaneous
(a) Tax Withholding. The Company may require any individual entitled to
receive a payment in respect of an Award to remit to the Company, prior to such
payment, an amount sufficient to satisfy any Federal, state or local tax
withholding requirements. The Company shall also have the right to deduct from
all cash payments made pursuant to or in connection with any Award any Federal,
state or local taxes required to be withheld with respect to such payments. In
the case of an Award payable in shares of Common Stock, the Company may permit
such individual to satisfy, in whole or in part, such obligation to remit taxes
by directing the Company to withhold shares of Common Stock that would otherwise
be received by such individual, pursuant to such rules as the Committee may
establish from time to time.
(b) No Right to Grants or Employment. No Eligible Individual or Participant
shall have any claim or right to receive grants of Awards under the Plan.
Nothing in the Plan or in any Award or Award Agreement shall confer upon any
employee of the Company any right to continued employment with the Company or
interfere in any way with the right of the Company to terminate the employment
of any of its employees at any time, with or without cause.
9
<PAGE>
(c) Other Compensation. Nothing in this Plan shall preclude or limit the
ability of the Company to pay any compensation to a Participant under the
Company's other compensation and benefit plans and programs.
(d) Other Employee Benefit Plans. Payments received by a Participant under
any Award made pursuant to the Plan shall not be included in, nor have any
effect on, the determination of benefits under any other employee benefit plan
or similar arrangement provided by the Company, unless otherwise specifically
provided for under the terms of such plan or arrangement or by the Committee.
(e) Unfunded Plan. The Plan is intended to constitute an unfunded plan for
incentive compensation. Prior to the payment or settlement of any Award, nothing
contained herein shall give any Participant any rights that are greater than
those of a general creditor of the Company. In its sole discretion, the
Committee may authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver Common Stock or payments in lieu
thereof with respect to awards hereunder.
(f) Securities Law Restrictions. The Committee may require each Eligible
Individual purchasing or acquiring shares of Common Stock pursuant to a Stock
Option or other Award under the Plan to represent to and agree with the Company
in writing that such Eligible Individual is acquiring the shares for investment
and not with a view to the distribution thereof. All certificates for shares of
Common Stock delivered under the Plan shall be subject to such stock-transfer
orders and other restrictions as the Committee may deem advisable under the
rules, regulations, and other requirements of the Securities and Exchange
Commission, any exchange upon which the Common Stock is then listed, and any
applicable federal or state securities law, and the Committee may cause a legend
or legends to be put on any such certificates to make appropriate reference to
such restrictions. No shares of Common Stock shall be issued hereunder unless
the Company shall have determined that such issuance is in compliance with, or
pursuant to an exemption from, all applicable federal and state securities laws.
(g) Compliance with Rule 16b-3. Notwithstanding anything contained in the
Plan or in any Award Agreement to the contrary, if the consummation of any
transaction under the Plan would result in the possible imposition of liability
on a Participant pursuant to Section 16(b) of the Exchange Act, the Committee
shall have the right, in its sole discretion, but shall not be obligated, to
defer such transaction or the effectiveness of such action to the extent
necessary to avoid such liability, but in no event for a period longer than six
months.
(h) Award Agreement. In the event of any conflict or inconsistency between
the Plan and any Award Agreement, the Plan shall govern, and the Award Agreement
shall be interpreted to minimize or eliminate any such conflict or
inconsistency.
(i) Expenses. The costs and expenses of administering the Plan shall be
borne by the Company.
(j) Application of Funds. The proceeds received from the Company from the
sale of Common Stock or other securities pursuant to Awards will be used for
general corporate purposes.
(k) Applicable Law. Except as to matters of federal law, the Plan and all
actions taken thereunder shall be governed by and construed in accordance with
the laws of the State of Delaware without giving effect to conflicts of law
principles.
10
<PAGE>
EXHIBIT 10.22
AMBAC 1997 EXECUTIVE INCENTIVE PLAN
1. Purposes
The purposes of the AMBAC 1997 Executive Incentive Plan (the "Plan") are to
enable AMBAC Inc. (the "Company") to attract, retain, motivate and reward
executives and key employees of the highest caliber and quality by providing
them with the opportunity to earn incentive compensation directly linked to the
Company's performance.
2. Definitions
For purposes of the Plan, the following terms shall be defined as follows:
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and the
applicable rulings and regulations (including any proposed regulations)
thereunder.
"Committee" means the Compensation and Organization Committee of the Board,
any successor committee thereto or any other committee appointed by the Board to
administer the Plan. The Committee shall consist of at least two individuals,
each of whom shall be qualified as an "outside director" (or shall satisfy any
successor standard thereto) for purposes of Section 162(m), and shall serve at
the pleasure of the Board.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Company.
"Covered Employee" means a Participant who has been designated by the
Committee as a Participant whose compensation for the relevant fiscal year may
be subject to the limit on deductible compensation imposed by Section 162(m) of
the Code.
"Disability" means eligibility for disability benefits under the terms of
the Company's long-term disability plan in effect at the time the Participant
becomes disabled.
"Equity Plan" means the AMBAC 1997 Equity Incentive Plan and any successor
or similar plan of the Company.
"Fair Market Value" means, with respect to a share of Common Stock, the
fair market value thereof as of the relevant date of determination, as
determined in accordance with a valuation methodology approved by the Committee.
In the absence of any alternative valuation methodology approved by the
Committee, the Fair Market Value of a share of Common Stock shall equal the
average of the highest and the lowest quoted selling price of a share of Common
Stock as reported on the composite tape for securities listed on the New York
Stock Exchange, or such other national securities exchange as may be designated
by the Committee, or, in the event that the Common Stock is not listed for
trading on a national securities exchange but is quoted on an automated system,
on such automated system, in any such case on the valuation date (or, if there
were no sales on the valuation date, the average of the highest and the lowest
quoted selling prices as reported on said composite tape or automated system for
the most recent day during which a sale occurred).
"Participant" means each executive officer, senior officer or key employee
of the Company or a Subsidiary whom the Committee designates as a participant
under the Plan.
"Performance Targets" means the targets related to the performance goals
designated in Section 4(d), which Performance Targets will be established by the
Committee for a Performance Period.
<PAGE>
"Performance Period" means each fiscal year of the Company or such other
period as may be designated by the Committee.
"Section 162(m)" means Section 162(m) of the Code.
"Subsidiary" means (i) a corporation or other entity with respect to which
the Company, directly or indirectly, has the power, whether through the
ownership of voting securities, by contract or otherwise, to elect at least a
majority of the members of such corporation's board of directors or analogous
governing body, or (ii) any other corporation or other entity in which the
Company, directly or indirectly, has an equity or similar interest and which the
Committee designates as a Subsidiary for purposes of the Plan.
3. Administration
(a) Power and Authority of the Committee. The Plan shall be
administered by the Committee which shall have full power and authority,
subject to the express provisions hereof:
(i) to select Participants from executive officers, senior
officers and key employees of the Company;
(ii) to establish the Performance Targets for achievement during
a Performance Period and to determine whether such Performance Targets
have been achieved;
(iii) to determine the cash amount and/or number of shares of
Common Stock payable in connection with an award;
(iv) to prescribe, amend and rescind rules and procedures
relating to the Plan;
(v) to vary the terms of awards to take account of tax,
securities law and other regulatory requirements of foreign
jurisdictions;
(vi) subject to the provisions of the Plan and subject to such
additional limitations and restrictions as the Committee may impose,
to delegate to one or more officers of the Company some or all of its
authority under the Plan;
(vii) to employ such legal counsel, independent auditors and
consultants as it deems desirable for the administration of the Plan
and to rely upon any opinion or computation received therefrom; and
(viii) to make all other determinations and to formulate such
procedures as may be necessary or advisable for the administration of
the Plan.
(b) Plan Construction and Interpretation. The Committee shall have
full power and authority, subject to the express provisions hereof, to
construe and interpret the Plan.
(c) Determinations of Committee Final and Binding. All determinations
by the Committee in carrying out and administering the Plan and in
construing and interpreting the Plan shall be final, binding and conclusive
for all purposes and upon all persons interested herein.
(d) Liability of Committee. No member of the Committee shall be liable
for any action nor determination made in good faith, and the members of the
Committee shall be entitled to indemnification and reimbursement in the
manner provided in the Company's Certificate of Incorporation as it may be
amended from time to time. In the performance of its responsibilities with
respect to the Plan, the Committee shall be entitled to rely upon
information and advice furnished by the Company's officers, the Company's
accountants, the Company's counsel and any other party the Committee deems
necessary, and
2
<PAGE>
no member of the Committee shall be liable for any action taken or not
taken in reliance upon any such advice.
4. Awards
(a) Performance Targets. The Committee shall determine in its sole
discretion whether any executive officer, senior officer or other employee
of the Company shall have the opportunity to earn incentive compensation
under this Plan during any Performance Period. If the Committee decides to
offer such opportunity to one or more executive officers, senior officers
or other employees of the Company, then no later than 90 days after the
beginning of a Performance Period (or such other time as may be required or
permitted by Section 162(m)), the Committee shall (i) designate each
Participant for the Performance Period, (ii) select from the performance
goals set forth in Section 4(d) below the performance goal or goals to be
applicable to the Performance Period, (iii) establish specific Performance
Targets related to such performance goals and the incentive amounts which
may be earned for the Performance Period by each Participant and (iv)
specify the relationship between Performance Targets and the incentive
amount to be earned by each Participant for the Performance Period. The
Committee may specify that the incentive amount for a Performance Period
will be earned if the applicable Performance Target is achieved for one
performance goal or for any one of a number of performance goals. The
Committee may also provide that the incentive amount for a Performance
Period will be earned only if a Performance Target is achieved for more
than one performance goal, or that the incentive amount to be earned for a
given Performance Period will vary based upon different levels of
achievement of the applicable Performance Targets.
(b) Following the completion of each Performance Period, the Committee
shall certify in writing whether the applicable Performance Targets have
been achieved for such Performance Period and the incentive amounts, if
any, payable to Participants for such Performance Period. In determining
the incentive amount earned by a Participant for a given Performance
Period, the Committee shall have the right to reduce (but not to increase)
the incentive amount payable at a given level of performance to take into
account additional factors that the Committee may deem relevant to the
assessment of individual or corporate performance for the Performance
Period.
(c) Payment of Awards; Maximum Limitation. Anything in this Plan to
the contrary notwithstanding, (i) the maximum aggregate incentive amount
that may be earned under the Plan by a Participant for all Performance
Periods of one year or less beginning in any given fiscal year of the
Company shall be $1,000,000, and (ii) the maximum aggregate incentive
amount that may be earned under the Plan by a Participant for all
Performance Periods of more than one year beginning in any given fiscal
year of the Company shall be $3,000,000.
(d) Performance Goals. For purposes of this Plan, the performance
goals from which the Committee shall establish Performance Targets
applicable to specific Performance Periods shall be limited to the
following:
(i) return on equity;
(ii) net income growth;
(iii) total return to stockholders;
(iv) expense management;
(v) risk management of the business portfolio;
(vi) market share;
3
<PAGE>
(vii)industry leadership;
(viii) new products; and
(ix) organizational development;
each of which may be established (x) on a corporate-wide basis or with
respect to one or more operating units, divisions, acquired businesses,
minority investments, partnerships or joint ventures, or, where applicable,
(y) on a relative or an absolute basis or (z) on a per share or an
aggregate basis.
5. Termination of Employment
If a Participant's employment with the Company or a Subsidiary terminates
during a Performance Period by reason of death, Disability or retirement or with
the approval of the Committee, the Participant shall receive a pro rata payment
based upon the number of full months during which the Participant was employed
during the Performance Period and the degree to which the Performance Targets
are determined by the Committee to have been achieved prior to the Participant's
termination. If a Participant's employment with the Company or a Subsidiary
terminates during a Performance Period for any reason other than death,
Disability or retirement or other than with the approval of the Committee, the
Participant's participation in the Plan shall terminate forthwith and he or she
shall not be entitled to an award for such Performance Period.
6. Payment of Awards
Payment of awards determined under Section 4 shall be made to each
Participant as soon as practicable after the Committee determines that the
applicable Performance Targets have been achieved. The Committee in its sole
discretion shall determine whether awards shall be payable in cash, in the form
of stock awards or restricted stock units issued pursuant to an Equity Plan or
from treasury, or in any combination thereof. If the Committee determines that
an award shall be paid in the form of stock awards or restricted stock units
issued under an Equity Plan or from treasury, then for purposes of determining
the number of shares of Common Stock subject to an award the Committee may value
such shares at a discount to Fair Market Value to reflect any restrictions,
conditions and limitations set forth in the relevant Equity Plan or the
applicable award agreement or certificate or otherwise applicable to the shares,
provided, that such discount shall not exceed 50% of the Fair Market Value as of
the relevant date of determination.
7. Effective Date; Term
The Plan shall become effective upon its adoption by the Board subject to
its approval by the stockholders of the Company. Prior to such stockholder
approval, the Committee may grant awards conditioned on stockholder approval. If
such stockholder approval is not obtained at or before the first annual meeting
of stockholders to occur after the adoption of the Plan by the Board (including
any adjournment or adjournments thereof), the Plan and any awards made hereunder
shall terminate ab initio and be of no further force and effect. Unless earlier
terminated in accordance with Section 8 below, no award shall be made under the
Plan with respect to Performance Periods beginning after January 1, 2002.
8. Amendment and Termination
Notwithstanding Section 7, the Board or the Committee may at any time
amend, suspend, discontinue or terminate the Plan; provided, however, that no
such action shall be effective without approval by the stockholders of the
Company to the extent necessary to continue to qualify the amounts payable
hereunder to Covered Employees as performance-based compensation under Section
162(m).
9. Miscellaneous
4
<PAGE>
(a) Tax Withholding. No later than the date as of which an amount
first becomes includable in the gross income of the Participant for
applicable income tax purposes with respect to any award under the Plan,
the Participant shall pay to the Company or make arrangements satisfactory
to the Committee regarding the payment of any federal, state or local taxes
of any kind required by law to be withheld with respect to such amount. In
the case of an award that is payable in shares of Common Stock, the Company
may permit the Participant to satisfy, in whole or in part, such obligation
to remit taxes by directing the Company to withhold shares of Common Stock
that would otherwise be received by such individual, pursuant to such rules
as the Committee may establish from time to time.
(b) No Rights to Awards or Employment. No Participant shall have any
claim or right to receive awards under the Plan. Nothing in the Plan shall
confer upon any employee of the Company any right to continued employment
with the Company or interfere in any way with the right of the Company to
terminate the employment of any of its employees at any time, with or
without cause.
(c) Other Compensation. Nothing in this Plan shall preclude or limit
the ability of the Company to pay any compensation to a Participant under
the Company's other compensation and benefit plans and programs, including
without limitation any Equity Plan.
(d) No Limitation on Corporate Actions. Nothing contained in the Plan
shall be construed to prevent the Company or any Subsidiary from taking any
corporate action which is deemed by it to be appropriate or in its best
interest, whether or not such action would have an adverse effect on any
awards made under the Plan. No Participant, beneficiary or other person
shall have any claim against the Company or any Subsidiary as a result of
any such action.
(e) Unfunded Plan. The Plan is intended to constitute an unfunded plan
for incentive compensation. Prior to the payment of any award, nothing
contained herein shall give any Participant any rights that are greater
than those of a general creditor of the Company. In its sole discretion,
the Committee may authorize the creation of trusts or other arrangements to
meet the obligations created under the Plan to deliver payment in cash or
Common Stock with respect to awards hereunder.
(f) Non-Transferability. Except as expressly provided herein, no
Participant or beneficiary shall have the power or right to sell, transfer,
assign, pledge or otherwise encumber or dispose of the Participant's
interest under the Plan.
(g) Designation of Beneficiary. A Participant may designate a
beneficiary or beneficiaries to receive any payments which may be made
following the Participant's death. Such designation may be changed or
canceled at any time without the consent of such beneficiary. Any such
designation, change or cancellation must be made in a form approved by the
Committee and shall not be effective until received by the Committee. If a
Participant does not designate a beneficiary, or the designated beneficiary
or beneficiaries predeceases the Participant, any payments which may be
made following the Participant's death shall be made to the Participant's
estate.
(h) Severability. If any provision of this Plan is held unenforceable,
the remainder of the Plan shall continue in full force and effect without
regard to such unenforceable provision and shall be applied as though the
unenforceable provision were not contained in the Plan.
(i) Expenses. The costs and expenses of administering the Plan shall
be borne by the Company.
(j) Governing Law. The Plan and all actions taken thereunder shall be
governed by and construed in accordance with and governed by the laws of
the State of Delaware, without reference to the principles of conflict of
laws.
5
<PAGE>
EXHIBIT 10.23
AMBAC 1997 NON-EMPLOYEE DIRECTORS EQUITY PLAN
1. Purpose
The purpose of the AMBAC 1997 Non-Employee Directors Equity Plan (the
"Plan") is to promote the long-term growth and financial success of the Company
by attracting, motivating and retaining non-employee directors of outstanding
ability and assisting the Company in promoting a greater identity of interest
between the Company's non-employee directors and its stockholders.
The Plan replaces the AMBAC Inc. 1991 Non-Employee Directors Stock Plan
(the "Predecessor Plan"). From and after the effective date of the Plan as
provided in Section 10 below, no further awards shall be made under the
Predecessor Plan.
2. Definitions
For purposes of the Plan, the following terms shall be defined as follows:
"Annual Meeting" means an annual meeting of the Company's stockholders.
"Board" means the Board of Directors of the Company.
"Change in Control" means:
(i) the acquisition by any Person of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the
Common Stock then outstanding, but shall not include any such acquisition by:
(A) the Company;
(B) any Subsidiary of the Company;
(C) any employee benefit plan of the Company or of any Subsidiary of
the Company;
(D) any Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan;
(E) any Person who as of January 31, 1996 was the beneficial owner of
15% or more of the shares of Common Stock outstanding on such date unless
and until such Person, together with all affiliates and associates of such
Person, becomes the beneficial owner of 25% or more of the shares of Common
Stock then outstanding whereupon a Change in Control shall be deemed to
have occurred; or
(F) any Person who becomes the Beneficial Owner of 20% or more, or,
with respect to a Person described in clause (E) above, 25% or more, of the
shares of Common Stock then outstanding as a result of a reduction in the
number of shares of Common Stock outstanding due to the repurchase of
shares of Common Stock by the Company unless and until such Person, after
becoming aware that such Person has become the beneficial owner of 20% or
more, or 25% or more, as the case may be, of the then outstanding shares of
Common Stock, acquires beneficial ownership of additional shares of Common
Stock representing 1% or more of the shares of Common Stock then
outstanding, whereupon a Change in Control shall be deemed to have occurred
or
(ii) individuals who, as of the date this Plan is approved by the Board,
constitute the Board, and subsequently elected members of the Board whose
election is approved or recommended by at least a majority of such current
members or their successors whose election was so approved or recommended
<PAGE>
(other than any subsequently elected members whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a person other than the Board), cease
for any reason to constitute at least a majority of such Board.
"Common Stock" means the Common Stock of the Company, par value $.01 per
share, or such other class or kind of shares or other securities as may be
applicable under Section 12 below.
"Company" means AMBAC Inc., a Delaware corporation, or any successor to
substantially all its business.
"Director Account" means the bookkeeping record established for each
Non-Employee Director. A Director Account is established only for purposes of
measuring the value of the Company's obligation to a Non-Employee Director in
respect of Director Stock Units and earnings thereon and not to segregate assets
or to identify assets that may be used to settle Director Stock Units.
"Director Option" means a right to purchase shares of Common Stock granted
to a Non-Employee Director pursuant to Section 7 hereof.
"Director Stock Unit" means a restricted stock unit granted to a
Non-Employee Director pursuant to Section 6 hereof.
"Effective Date" means the effective date of the Plan provided for in
Section 10 below.
"Fair Market Value" means the average of the highest and the lowest quoted
selling price of Common Stock as reported on the composite tape for securities
listed on the New York Stock Exchange on the applicable valuation date or, if
there were no sales on such valuation date, the average of the highest and the
lowest quoted selling prices on said composite tape for the preceding business
day.
"Non-Employee Director" means a member of the Board who is not an employee
of the Company or any of its subsidiaries.
"Permanent Disability" means a physical or mental impairment rendering a
Non-Employee Director substantially unable to function as a member of the Board
for any period of six consecutive months. Any dispute as to whether a
Non-Employee Director is Permanently Disabled shall be resolved by a physician
mutually acceptable to the Non-Employee Director and the Company, whose decision
shall be final and binding upon the Non-Employee Director and the Company.
"Person" means any individual, firm, corporation, partnership or other
entity.
"Predecessor Plan" has the meaning set forth in Section 1 above.
"Subsidiary" means (i) a corporation or other entity with respect to which
the Company, directly or indirectly, has the power, whether through the
ownership of voting securities, by contract or otherwise, to elect at least a
majority of the members of such corporation's board of directors or analogous
governing body, or (ii) any other corporation or other entity in which the
Company, directly or indirectly, has an equity or similar interest and which the
Committee designates as a Subsidiary for purposes of the Plan.
3. Administration
(a) Administration by the Board. The Plan shall be administered by the
Board, which may adopt rules and regulations it considers necessary or
appropriate to carry out the Plan's purposes. The Board's interpretation and
construction of any Plan provision shall be final and conclusive. The Board may,
but need not, from time to time delegate some or all of its authority under the
Plan to a committee consisting
2
<PAGE>
of one or members of the Board, any such delegation to be subject to the
restrictions and limits that the Board specifies at the time of such delegation
or thereafter. References in the Plan to the "Board" shall, to the extent
consistent with the terms and limitations of any such delegation, be deemed to
include a reference to any such committee to which the Board's authority
hereunder has been delegated.
(b) Award Certificate. The terms and conditions of each grant of Directors
Stock Units and Director Options under the Plan shall be embodied in an award
agreement or award certificate which shall incorporate the Plan by reference,
shall indicate the date on which the Director Stock Units or Director Options
were granted and the number of Director Stock Units or Director Options granted
on such date.
4. Shares Available
Subject to Section 12 below, the maximum number of shares of Common Stock
which may be issued under the Plan (the "Section 4 Limit") shall be 70,000
shares plus the number of shares of Common Stock that remain available for
issuance under the Predecessor Plan as of the date the Plan is approved by the
stockholders of the Company (increased by any shares of Common Stock subject to
any award (or portion thereof) outstanding under the Predecessor Plan on such
date which lapses, expires or is otherwise terminated without the issuance of
such shares or is settled by the delivery of consideration other than shares).
Subject to Section 12 below, of the shares of Common Stock available for
issuance under the Plan, no more than 25,000 shares may be issued upon
settlement of Director Units. For purposes of determining the number of shares
of Common Stock that remain available for issuance, there shall be added back to
the Section 4 Limit and again be available under the Plan any shares of Common
Stock tendered to pay the exercise price of a Director Option. Either authorized
and unissued shares of Common Stock or treasury shares may be delivered pursuant
to the Plan.
5. Eligibility
Director Stock Units and Director Options shall be granted only to
Non-Employee Directors.
6. Director Stock Units
(a) General. A Director Stock Unit shall represent the right to receive one
share of Common Stock upon satisfaction of the conditions to vesting and
settlement specified in the Plan. Director Stock Units will be settled
exclusively in Common Stock.
(b) Grants of Director Stock Units. Director Stock Units shall be awarded
under the Plan as follows:
(i) On the date of the Annual Meeting coincident with or first
succeeding a Non-Employee Director's initial election to the Board (or
reelection to the Board after a period during which the Non-Employee
Director did not serve on the Board), the Non-Employee Director shall
receive a grant of 1,500 Director Stock Units.
(ii) Upon the vesting of Director Stock Units in accordance with
Section 6(d)(i) below, or the vesting of restricted shares under the
Predecessor Plan in accordance with Section 6(c)(i) thereof, a Non-Employee
Director shall receive an additional grant of 1,500 Director Stock Units.
Such additional grants shall be made as of the date of the Annual Meeting
as of which such vesting occurs (or, if the vesting date of any restricted
shares under the Predecessor Plan does not coincide with the date of an
Annual Meeting, as of the date of the Annual Meeting that is closest in
time to the applicable vesting date) and shall be made only if (i) the
Annual Meeting as of which such additional grant is to be made occurs
during the term of the Plan as set forth in Section 10 below, and (ii) the
Non-Employee Director is standing for re-election at such Annual Meeting.
(c) Accounts. As of the date of each Annual Meeting as of which a
Non-Employee Director is granted Director Stock Units, the Director Account of
such Non-Employee Director will be credited with
3
<PAGE>
1,500 Director Stock Units. In the event that the Company pays any cash or other
dividend or makes any other distribution in respect of the Common Stock, each
Director Account will be credited with an additional number of Director Units
(including fractions thereof) determined by dividing (A) the amount of cash, or
the value (as determined by the Board) of any securities or other property, paid
or distributed in respect of one outstanding share of Common Stock by (B) the
Fair Market Value of a share of Common Stock for the date of such payment or
distribution, and multiplying the result of such division by (C) the number of
Director Stock Units that were credited to the Director Account immediately
prior to the date of the dividend or other distribution. Credits shall be made
effective as of the date of the dividend or other distribution in respect of the
Common Stock.
(d) Vesting; Accelerated Vesting; Deferral.
(i) Director Stock Units granted in respect of a given Annual Meeting,
and any additional Director Stock Units credited to a Director Account in
respect of earnings or other distributions on such Director Stock Units as
provided in Section 6(c), shall vest on the date of the Annual Meeting held
in the fifth calendar year following the date of grant and shall be settled
as soon as practicable thereafter, provided that the Non-Employee Director
shall have remained a member of the Board continuously from the date of
grant to the date of such Annual Meeting.
(ii) Notwithstanding the provisions of Section 6(d)(i) above, all
Director Stock Units granted to a Non-Employee Director shall immediately
vest upon the first to occur of (A) a Non-Employee Director ceasing to be a
member of the Board as a result of retirement from the Board in accordance
with the retirement policy then applicable to Board members, (B) a
Non-Employee Director ceasing to be a member of the Board as a result of
death or Permanent Disability or (C) a Change in Control of the Company,
and shall be settled as soon as practicable thereafter.
(iii) Notwithstanding the provisions of Sections 6(d)(i) and 6(d)(ii)
above, a Non-Employee Director may elect to defer settlement of any or all
Director Stock Units to a date subsequent to the vesting date of such
Director Stock Units, provided that no such deferral may extend beyond the
earlier of (A) the Non-Employee Director's termination of service on the
Board or (B) the Non-Employee's death. Settlement of any deferred Director
Stock Units shall be made on or as soon as practicable following the date
specified by the Non-Employee Director in the relevant deferral election
or, if applicable, the earlier of the dates specified in clauses (A) and
(B) of the preceding sentence.
(e) Forfeiture of Grant. Except as provided in Section 6(d)(ii) above, all
Director Stock Units shall be forfeited, and all rights of the Non-Employee
Director to or with respect to such Director Units shall terminate without any
obligation on the part of the Company, upon the termination of a Non-Employee
Director's service as a member of the Board prior to the date on which such
Director Stock Units vest in accordance with Section 6(d)(i) above.
(f) Delivery of Share Certificates. As soon as practicable following the
vesting of Director Units as provided in Sections 6(d)(i) and 6(d)(ii) above, or
the date for deferred settlement as provided in Section 6(d)(iii) above,
Director Stock Units shall be settled by delivery to the Non-Employee Director
of a share certificate for the number of shares corresponding to such Director
Units. Shares delivered in settlement of Director Units shall be free of all
such restrictions, except any that may be imposed under applicable law or the
Company's trading policy.
(g) No Stockholder Rights. The crediting of Director Stock Units to a
Director Account shall not confer on the relevant Non-Employee Director any
rights as a stockholder of the Company.
7. Grants of Director Options
(a) General. A Director Option shall entitle a Non-Employee Director to
purchase a specified number of shares of Common Stock during a specified period
at an exercise price per share of Common
4
<PAGE>
Stock determined as provided below. All Director Options provided for herein
shall have the general terms and conditions set forth in Section 8 below.
(b) Annual Grants of Director Options. As of the date of each Annual
Meeting, commencing with the 1997 Annual Meeting, each Non-Employee Director
shall automatically receive Director Options to purchase 1,000 shares of Common
Stock provided that the Non-Employee Director shall continue to serve as a
director of the Company after such Annual Meeting. The exercise price per share
of Common Stock of each Director Option provided for in this Section 7(b) shall
be the Fair Market Value of one share of Common Stock on the date of the
relevant Annual Meeting.
(c) Grants of Director Options to New Directors. A Non-Employee Director
who is initially elected or appointed to the Board other than in connection with
an Annual Meeting shall receive, as of the date of such initial election or
appointment, Director Options to purchase a number of shares determined by
multiplying 1,000 by a fraction, the numerator of which is the number of full
months remaining until the next Annual Meeting (starting with the month
following the date of election or appointment and counting the month in which
the next Annual Meeting is scheduled to occur as a full month) and the
denominator of which is 12. (If the date of the next Annual Meeting has not been
scheduled at the time of the Non-Employee Director's initial election or
appointment, it shall be assumed that the next Annual Meeting will occur in the
same month as the immediately preceding Annual Meeting.) The exercise price per
share of Common Stock of each Director Option provided for in this Section 7(d)
shall be the Fair Market Value of one share of Common Stock on the date of the
Non-Employee Director's election or appointment to the Board.
8. General Terms and Conditions of Directors Options
(a) Option Term. Each Director Option shall expire on the date of the
Annual Meeting held in the seventh calendar year following the date of grant,
subject to earlier expiration as provided herein, provided, however, that
Director Options granted to a Non-Employee Director whose initial election
occurs other than in connection with an Annual Meeting shall be treated for this
purpose as though they had been granted at the first Annual Meeting following
such initial election.
(b) Vesting; Accelerated Vesting; Effect of Termination of Service.
(i) Vesting Generally. Director Options shall vest and become
exercisable as of the date of the first Annual Meeting following the date
of grant, assuming that the Non-Employee Director has continued to serve as
a member of the Board until such date, provided, however, that all Director
Options awarded to a Non-Employee Director shall be considered fully vested
upon the earlier to occur of (A) termination of the Non-Employee Director's
service on the Board by reason of death or Permanent Disability or (B) a
Change in Control. If a Non-Employee Director's service on the Board
terminates for any reason other than death or Permanent Disability and
prior to a Change in Control, then any unvested Director Options shall be
forfeited to the Company, and the Non-Employee Director shall have no
further right or interest therein.
(ii) Exercise Following Termination of Service. Following termination
of a Non-Employee Director's service on the Board, the former Non-Employee
Director (or the former Non-Employee Directors' estate, personal
representative or beneficiary, as the case may be) shall have the right,
subject to the other terms and conditions hereof, to exercise all Director
Options that had vested as of or in connection with the termination of
service:
(A) at any time within three years after the date of termination
of service, if such termination was by reason of death, Permanent
Disability or retirement from the Board in accordance with the
retirement policy then in effect for Board members, or
(B) in all other cases, at any time within one year after the
date of termination of service;
5
<PAGE>
subject, in all case, to earlier expiration of the Director Option
pursuant to Section 8(a) above.
(c) Notice of Exercise. Subject to the other terms and conditions of the
Plan, a Non-Employee Director may exercise all or any portion of a vested
Director Option by giving written notice of exercise to the Company, provided,
however, that no fewer than 10 shares of Common Stock may be purchased upon any
exercise of a Director Option unless the number of shares purchased at such time
is the total number of shares in respect of which the Director Option is then
exercisable, and provided, further, that in no event shall the Option be
exercisable for a fractional share. The date of exercise of an Option shall be
the later of (i) the date on which the Company receives such written notice or
(ii) the date on which the conditions provided in Sections 8(d) and 8(e) below
are satisfied.
(d) Payment. The exercise price of a Director Option may be paid in cash or
previously owned shares or a combination thereof or by any other method approved
by the Board.
(e) Limitation on Exercise. A Director Option shall not be exercisable
unless the Common Stock subject thereto has been registered under the Securities
Act of 1933, as amended (the "1933 Act"), and qualified under applicable state
"blue sky" laws in connection with the offer and sale thereof, or the Company
has determined that an exemption from registration under the 1933 Act and from
qualification under such state "blue sky" laws is available.
(f) Issuance of Shares. Subject to the foregoing conditions, as soon as is
reasonably practicable after its receipt of a proper notice of exercise and
payment of the exercise price for the number of shares with respect to which a
Director Option is exercised, the Company shall deliver to the exercising
Non-Employee Director, at the principal office of the Company or at such other
location as may be acceptable to the Company and the Non-Employee Director, one
or more stock certificates for the appropriate number of shares of Common Stock
issued in connection with such exercise. Such shares shall be fully paid and
nonassessable and shall be issued in the name of the Non-Employee Director.
Notwithstanding the foregoing, the Board in its discretion may, subject to rules
and procedures as it may adopt or proposed from time to time, provide
Non-Employee Directors with the opportunity to defer receipt of shares of Common
Stock issuable upon exercise of Director Options.
9. Transferability
Director Stock Units (including interests in a Director Account) and
Director Options may not be transferred, pledged, assigned or otherwise disposed
of except by will or the laws of descent and distribution or pursuant to a
domestic relations order, provided, however, that Director Options may be
transferred to a member or members of a Non-Employee Director's immediate family
(as defined below) or to one or more trusts or partnerships established in whole
or in part for the benefit of one or more of such immediate family members
(collectively as "Permitted Transferees"), subject to such rules and procedures
as may from time to time be adopted or imposed by the Board. If a Director Stock
Option is transferred to a Permitted Transferee, it shall be further
transferable only by will or the laws of descent and distribution or, for no
consideration, to another Permitted Transferee of the Non-Employee Director. A
Non-Employee Director shall notify the Company in writing prior to any proposed
transfer of a Director Option to a Permitted Transferee and shall furnish the
Company, upon request, with information concerning such Permitted Transferee's
financial condition and investment experience. For purposes of the Plan, a
Non-Employee Director's "immediate family" means any child, stepchild,
grandchild, spouse, son-in-law or daughter-in-law and shall include adoptive
relationships; provided, however, that if the Company adopts a different
definition of "immediate family" (or similar term) in connection with the
transferability of employee stock options awarded to employees of the Company,
such definition shall apply, without further action of the Board, to the Plan.
10. Term
6
<PAGE>
(a) Effective Date; Expiration. The Effective Date shall be the date of the
1997 Annual Meeting, assuming the Plan is approved by the stockholders of the
Company at such Annual Meeting. Unless earlier terminated in accordance with
Section 11 below, the Plan shall expire on the date of the Annual Meeting held
in 2004. Grants of Director Stock Units and Director Options shall be made in
connection with the Annual Meeting held in 2004, and shall be the last grants
made under the Plan. Expiration of the Plan in connection with the Annual
Meeting held in 2004 shall not affect awards of Director Stock Units and
Director Options made prior to such Annual Meeting, which awards shall remain
outstanding subject to the terms hereof.
(b) Coordination with Predecessor Plan. Awards of "Directors Shares" (as
such term is defined in the Predecessor Plan) shall be made under the
Predecessor Plan in connection with the 1997 Annual Meeting. Assuming the Plan
is approved by the stockholders of the Company at the 1997 Annual Meeting, no
further awards shall be made under the Predecessor Plan after the Effective
Date. Awards outstanding under the Predecessor Plan (including awards made in
connection with the 1997 Annual Meeting) shall remain outstanding after the
Effective Date subject to the terms thereof.
11. Amendments
The Board may at any time and from time to time alter, amend, suspend or
terminate the Plan in whole of in part, including without limitation to amend
the provisions for determining the amount of Director Stock Units or Directors
Options to be issued to a Non-Employee Director, provided, however, that:
(i) any amendment which under the requirements of applicable law or
stock exchange rule must be approved by the stockholders of the Company
shall not be effective unless and until such stockholder approval has been
obtained in compliance with such law or rule;
(ii) except as provided in Section 12 below, the Board may not,
without the approval of the Company's stockholders, increase the number of
shares available for issuance under the Plan pursuant to Section 4 above or
the number of Director Stock Units to be issued to any Non-Employee
Director pursuant to Section 6 above or reduce the exercise price of a
Director Option.
No termination or amendment of the Plan that would adversely affect a
Non-Employee Director's rights under the Plan with respect to any award of
Directors Stock Units or Director Options made prior to such action shall be
effective as to such Non-Employee Director unless he or she consents thereto.
12. Adjustment of and Changes in Shares
In the event of any merger, consolidation, recapitalization,
reclassification, stock dividend, distribution of property, special cash
dividend or other change in corporate structure affecting the shares, the Board,
in its discretion, may make (i) such proportionate adjustments as it considers
appropriate in the number and kind of shares authorized for issuance hereunder
in order to preserve, but not increase, the benefits or potential benefits
intended to be made available hereunder and/or (ii) such other adjustments as it
deems appropriate. The Board's determination as to what, if any, adjustments
shall be made shall be final and binding on the Company and all Non-Employee
Directors who receive grants under the Plan.
13. No Right to Re-election
Nothing in the Plan shall be deemed to create any obligation on the part of
the Board to nominate any of its members for re-election by the Company's
stockholders, nor confer upon any Non-Employee Director the right to remain a
member of the Board for any period of time, or at any particular rate of
compensation.
14. Governing Law
7
<PAGE>
The Plan and all agreements entered into under the Plan shall be construed
in accordance with and governed by the laws of the State of Delaware.
15. No Restriction on Right of Company to Effect Corporate Changes
The Plan shall not affect in any way the right or power of the Company or
its stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of stock
or of options, warrants or rights to purchase stock or of bonds, debentures,
preferred or prior preference stocks whose rights are superior to or affect the
Common Stock or the rights thereof or which are convertible into or exchangeable
for Common Stock, or the dissolution or liquidation of the Company, or any sale
or transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
16. Unfunded Plan
The Plan is unfunded. Prior to the payment or settlement of any award of
Director Stock Units or the exercise of any Director Options, nothing contained
herein shall give any non-Employee Director any rights that are greater than
those of a general creditor of the Company. In its sole discretion, the Board
may authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver Common Stock with respect to
awards hereunder.
8
<PAGE>
EXHIBIT 10.24
SUPPLEMENTAL PENSION AGREEMENT
AGREEMENT, dated as of this 30th day of April, 1997, by and between AMBAC
INC., a Delaware corporation (the "Company"), and PHILLIP B. LASSITER (the
"Executive").
WHEREAS, the Company and the Executive have entered into an employment
agreement (the "Employment Agreement") providing for the Executive to be
employed by the Company as its Chairman and Chief Executive Officer upon the
terms and conditions set forth in such agreement; and
WHEREAS, the Company and the Executive have agreed that, as part of the
incentive for the Executive's employment with the Company and as provided in the
Employment Agreement, the Company shall provide the Executive with enhanced
pension benefits according to the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. Supplemental Retirement Benefits. Provided that the Executive
remains in the employ of the Company or its affiliates until at least the
age at which he becomes eligible for early retirement under the terms of
the Pension Plan of AMBAC Inc. (the "Retirement Plan") (or, if earlier,
until termination of his employment by reason of death or disability (as
defined in Section 4(c) of the Employment Agreement), the Company will pay
the Executive, commencing at the time payment of benefits under the
Retirement Plan commences (or, if earlier, commencing as of the first month
following termination of the Executive's employment by reason of death or
disability), an annual supplemental retirement benefit (the "ASRB")
determined by the formula "ASRB = X - (Y + Z)", where "X", "Y" and "Z" are
defined as follows:
"X" equals the annual amount that would be payable under the Retirement
Plan to the Executive commencing at his retirement (or earlier termination
of employment due to death or disability) determined as though (A) the
provisions of the Retirement Plan in effect on December 31, 1991 had
remained in effect through such retirement or earlier termination; (B) the
Executive's bonus compensation, including cash bonus and any restricted
stock or stock units awarded in lieu of cash (any such stock and units to
be considered to have the value attributed thereto by the Compensation and
Organization Committee (the "Committee") as provided in Section 3(b) of the
Employment Agreement), but excluding the value of any stock options, that
was taken into account
<PAGE>
SUPPLEMENTAL PENSION AGREEMENT
for Phillip B. Lassiter
Page 2 of 4
in computing the benefit payable thereunder; and (C) such benefit was
calculated without giving effect to the limitations provided for in
Sections 401(a)(17) and 415 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any successor provisions thereto.
"Y" equals the aggregate annual benefits payable to the Executive under any
qualified or nonqualified defined benefit retirement plan or arrangement
maintained by the Company or any of its subsidiaries or affiliates.
"Z" equals an annual amount that is the actuarial equivalent of the excess,
if any, of:
(A) the aggregate amount of employer contributions that would have
been contributed to the Executive's account under the AMBAC Inc.
Savings Incentive Plan or any successor plan thereto (the "SIP")
through the date of the Executive's retirement (or earlier termination
of employment due to death or disability), determined pursuant to the
terms of the SIP and any such other plans or arrangements as in effect
from time to time, over
(B) the amount of employer contributions that would have been so
contributed to the Executive's account under the SIP determined
pursuant to the terms of the SIP in effect on December 31, 1991,
in each such case calculated on the assumptions:
((alpha)) that Sections 401(a)(17), 402(g) and 415 of the Code did not
apply and that the Executive's annual contributions would not be
limited by operation of the actual deferral percentage or actual
contribution percentage tests under Sections 401(k) and (m),
respectively, of the Code, and
((beta)) that the Executive had deferred 6% of his salary under the
SIP,
all such amounts to be credited with interest from December 31 of the year
in respect of which any such contribution would have been made to the date
of the Executive's retirement or other termination of employment at a rate
equal to the applicable long-term federal rate compounded semiannually,
such rate to be adjusted annually on the first day of each calendar year to
reflect the rate then in effect. For this purpose, actuarial equivalence
shall be determined using the actuarial assumptions used in the valuation
of the required minimum contribution to the Retirement Plan under Section
412 of the Code for the plan year in which the Executive retires or
otherwise terminates employment.
The ASRB shall be determined and paid on the basis of the same payment
alternative that the Executive shall have elected under the Retirement Plan.
<PAGE>
SUPPLEMENTAL PENSION AGREEMENT
for Phillip B. Lassiter
Page 3 of 4
2. General Provisions.
(a) Notices. Any notice hereunder by either party to the other
shall be given in writing by personal delivery, telex, telecopy or
certified mail, return receipt requested, to the applicable address
set forth below:
(i) To the Company: AMBAC Inc.
One State Street Plaza
New York, NY 10004
Attention: General Counsel
(ii) To the Executive: Phillip B. Lassiter
16 Sutton Place
Apartment 12A
New York, New York 10022
or to such other person or other address as either party may specify
to the other in writing.
(b) Limited Waiver. The waiver by the Company or the Executive of
a violation of any of the provisions of this Agreement, whether
express or implied, shall not operate or be construed as a waiver of
any subsequent violation of any such provision.
(c) Assignment. No right, benefit or interest hereunder shall be
subject to assignment, encumbrance, charge, pledge, hypothecation or
set off by the Executive in respect of any claim, debt, obligation or
similar process. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business or assets or the Company
to assume expressly and to agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to
perform it if no such succession had taken place.
(d) Amendment. This Agreement may not be amended, modified or
canceled except by written agreement of the Executive and the Company.
(e) Severability. If any term or provision hereof is determined
to be invalid or unenforceable in a final court or arbitration
proceeding, (i) the remaining terms and provisions hereof shall be
unimpaired and (ii) the invalid or unenforceable term or provision
shall be deemed replaced by a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision.
(f) Unsecured Promise. No benefit or promise hereunder shall be
secured by any specific assets of the Company. Unless otherwise stated
herein, the Executive shall have only the rights of an unsecured
general creditor of the Company in seeking satisfaction of such
benefits or promises.
<PAGE>
SUPPLEMENTAL PENSION AGREEMENT
for Phillip B. Lassiter
Page 4 of 4
(g) Governing Law. This Agreement has been made in and shall be
governed by and construed in accordance with the laws of the State of
Delaware.
(h) Governing Terms; Single Supplemental Retirement Benefits
Arrangement. This Agreement sets forth the understanding of the
parties according to the terms of the Employment Agreement and, in the
event that any of the terms or conditions of this Agreement are
construed in a manner that varies in any respect from the construction
of the terms or conditions of the Employment Agreement, the terms and
conditions of the Employment Agreement shall govern the relationship
of the parties. The parties understand and agree that (i) this
Agreement formalizes the provision of supplemental retirement benefits
set forth in the Employment Agreement, (ii) the supplemental
retirement benefits described herein are the same benefits
contemplated by the Employment Agreement and (iii) this Agreement is
not intended to and does not entitle the Executive to any benefits in
addition to those set forth in the Employment Agreement.
(i) Headings. The headings and captions of the Sections of this
Agreement are included solely for convenience of reference and shall
not control the meaning or interpretation of any provisions of this
Agreement.
(j) Counterparts. This Agreement may be executed by the parties
hereto in counterparts, each of which shall be deemed an original, but
all such counterparts shall together constitute one and the same
document.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the day and year first written above.
AMBAC INC.
By /s/:Janice Reals Ellig
------------------------------
Name: Janice Reals Ellig
Title: Senior Vice President
THE EXECUTIVE
/s/Phillip B. Lassiter
-----------------------------------
Phillip B. Lassiter
<PAGE>
EXHIBIT 10.25
SUPPLEMENTAL PENSION AGREEMENT
AGREEMENT, dated as of this 30th day of April, 1997 (the "Effective Date"),
by and between AMBAC Inc., a Delaware corporation (the "Company"), and DAVID L.
BOYLE (the "Executive").
WHEREAS, the Company and the Executive have agreed that the Executive shall
be employed by the Company commencing on March 31, 1997; and
WHEREAS, the Company and the Executive have agreed that, as part of the
incentive for the Executive's employment with the Company, the Company shall
provide the Executive with enhanced pension benefits according to the terms and
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. Supplemental Pension. (i) Subject to the provisions included herein, the
Executive shall earn a supplemental monthly pension (the "Pension") payable in
the same manner as the Executive elects with respect to his retirement benefits
under the Pension Plan of AMBAC Inc. (the "Retirement Plan") commencing with the
month following the month in which the Executive attains age 65. The amount of
the Pension shall be determined in accordance with the benefit formula and
actuarial factors and assumptions set forth in the Retirement Plan, as in effect
on the Effective Date, except that, for purposes of calculating the amount of
the Pension, the following shall apply: (A) the Pension shall be calculated
without giving effect to the limitations provided for in Sections 401(a)(17) and
415 of the Internal Revenue Code of 1986, as amended (the "Code"), or any
successor provisions thereto; and (B) for purposes of calculating the amount of
his retirement benefits, including the Pension, the Executive shall be credited
with years of accrual service equal to the number of whole months elapsed from
March 31, 1997 to the date of the Executive's termination of employment with the
Company, up to a maximum of 120 months, excluding any leave of absence, divided
by six; (C) the Executive shall be fully vested in the Pension on the date the
Executive completes 60 months of employment with the Company (excluding any
periods spent on leave of absence); (D) the amount of the Pension shall be paid
in the form of a 50% qualified joint and survivor annuity, unless the Executive
shall elect in writing prior to his termination of employment to have the
Pension paid in another form of payment that may be elected under the Retirement
Plan; provided, however, that the Company shall have the right at any time
following the Executive's termination of employment to pay the entire amount of
the remaining Pension to the Executive (or his surviving spouse, if applicable)
in a lump sum (regardless of the amount of such lump sum) calculated in
accordance with the actuarial factors specified in the Retirement Plan
applicable to involuntary cashouts; (E) the amount of the Pension shall be
reduced by the amount of the retirement benefits payable to the Executive (or
his spouse) under the Retirement Plan, the AMBAC Inc. Supplemental Pension Plan
and the AMBAC Inc. Excess Benefits Pension Plan; and (F) the monthly payments of
the Pension shall not commence until the latest to occur of (I) the date the
Executive attains the earliest retirement age under the Retirement Plan and (II)
the date of the Executive's termination of employment. If the payment of the
Pension should commence prior to the time that the Executive
<PAGE>
Supplemental Pension Agreement
for David L. Boyle
Page 2 of 3
attains age 65, the amount of the Pension shall be reduced in accordance with
the reduction factors set forth in the Retirement Plan. The Pension to the
Executive shall terminate in the month in which the Executive dies. Any death
benefits payable to his surviving spouse, if any, and any disability benefits
shall be determined in accordance with the same terms as apply to the Retirement
Plan.
(ii) The Executive shall forfeit all right to the Pension if his
employment with the Company ends, for any reason, prior to the
completion of 60 months of employment with the Company.
2. General Provisions.
(a) Notices. Any notice hereunder by either party to the other shall
be given in writing by personal delivery, telex, telecopy or certified
mail, return receipt requested, to the applicable address set forth below:
(i) To the Company: AMBAC Inc.
One State Street Plaza
New York, NY 10004
Attention: General Counsel
(ii) To the Executive: David Boyle
440 Riversville Road
Greenwich, CT 06831
or to such other person or other address as either party may specify to the
other in writing.
(b) Limited Waiver. The waiver by the Company or the Executive of a
violation of any of the provisions of this Agreement, whether express or
implied, shall not operate or be construed as a waiver of any subsequent
violation of any such provision.
(c) Assignment. No right, benefit or interest hereunder shall be
subject to assignment, encumbrance, charge, pledge, hypothecation or set
off by the Executive in respect of any claim, debt, obligation or similar
process. The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets or the Company to assume
expressly and to agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place.
(d) Amendment. This Agreement may not be amended, modified or canceled
except by written agreement of the Executive and the Company.
<PAGE>
Supplemental Pension Agreement
for David L. Boyle
Page 3 of 3
(e) Severability. If any term or provision hereof is determined to be
invalid or unenforceable in a final court or arbitration proceeding, (i)
the remaining terms and provisions hereof shall be unimpaired and (ii) the
invalid or unenforceable term or provision shall be deemed replaced by a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision.
(f) Unsecured Promise. No benefit or promise hereunder shall be
secured by any specific assets of the Company. Unless otherwise stated
herein, the Executive shall have only the rights of an unsecured general
creditor of the Company in seeking satisfaction of such benefits or
promises.
(g) Governing Law. This Agreement has been made in and shall be
governed by and construed in accordance with the laws of the State of
Delaware.
(h) Headings. The headings and captions of the Sections of this
Agreement are included solely for convenience of reference and shall not
control the meaning or interpretation of any provisions of this Agreement.
(i) Counterparts. This Agreement may be executed by the parties hereto
in counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same document.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the day and year first written above.
AMBAC INC.
By /s/: Janice Reals Ellig
-----------------------------
Name: Janice Reals Ellig
Title: Senior Vice President
THE EXECUTIVE
/s/ David L. Boyle
----------------------------------
David L. Boyle
<PAGE>
EXHIBIT 11
Ambac Financial Group, Inc. and Subsidiaries
Statement Re Computation of Per Share Earnings
For The Three and Six Months Ended June 30, 1997
(Dollars in Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, 1997 June 30, 1997
------------- -------------
<S> <C> <C>
Net income ................................................ $53,613 $103,351
---------- ----------
Fully diluted shares:
Average number of common shares outstanding ..... 34,979 34,961
Assumed exercise of dilutive stock options (1) .. 931 931
---------- ----------
35,910 35,892
========== ==========
Earnings per share assuming full dilution (2) ............. $1.49 $2.88
========== ==========
</TABLE>
(1) As of June 30, 1997, approximately 2,113,000 stock options and restricted
stock units had been granted and were outstanding. Based upon various
exercise prices, the total consideration for the options and restricted
stock units will be approximately $90.3 million. The dilution would be the
equivalent of approximately 931,000 shares, using the treasury stock
method, based upon a market value of $76.375 per share.
(2) In accordance with Accounting Principles Board Opinion No. 15, any
reduction of less than 3% need not be considered as dilution. Accordingly,
the consolidated statements of operations on page 4 of this report reflect
net income per common share of $1.53 and $2.96 for the three and six months
ended June 30, 1997.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 5,716,838
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 5,859,175
<CASH> 6,752
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 101,391
<TOTAL-ASSETS> 6,639,835
<POLICY-LOSSES> 61,041
<UNEARNED-PREMIUMS> 1,031,131
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 223,831
0
0
<COMMON> 353
<OTHER-SE> 1,690,813
<TOTAL-LIABILITY-AND-EQUITY> 6,639,835
73,419
<INVESTMENT-INCOME> 77,705
<INVESTMENT-GAINS> 5,079
<OTHER-INCOME> 5,792
<BENEFITS> 1,392
<UNDERWRITING-AMORTIZATION> 18,824
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 130,232
<INCOME-TAX> 26,881
<INCOME-CONTINUING> 103,351
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103,351
<EPS-PRIMARY> 2.96
<EPS-DILUTED> 2.96
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<PAGE>
EXHIBIT 99.03
Ambac Assurance Corporation and Subsidiaries (a wholly
owned subsidiary of Ambac Financial Group, Inc.)
Consolidated Unaudited Financial Statements
as of June 30, 1997 and December 31, 1996
and for the periods ended June 30, 1997 and 1996
<PAGE>
Ambac Assurance Corporation and Subsidiaries
Notes to Consolidated Unaudited Financial Statements
(1) Basis of Presentation
Ambac Assurance Corporation ("Ambac Assurance") is a leading insurer of
municipal and structured finance obligations and has been assigned triple-A
claims-paying ability ratings, the highest ratings available from Moody's
Investors Service, Inc., Standard & Poor's Ratings Group, Fitch Investors
Service, L.P., and Nippon Investors Services, Inc. Financial guarantee insurance
underwritten by Ambac Assurance guarantees payment when due of the principal of
and interest on the obligation insured. In the case of a default on the insured
obligation, payments under the insurance policy may not be accelerated by the
policyholder without Ambac Assurance's consent. As of June 30, 1997, Ambac
Assurance's net insurance in force (principal and interest) was $241.6 billion.
Ambac Assurance is a wholly-owned subsidiary of Ambac Financial Group, Inc.,
which is a holding company that provides through its affiliates financial
guarantee insurance and financial services to clients in both the public and
private sectors.
American Municipal Bond Holding Company ("AMBH"), a wholly-owned subsidiary
of Ambac Assurance, is a holding company for certain real estate interests.
During the first quarter of 1997, Ambac Assurance established a new
subsidiary in the United Kingdom, AMBAC Insurance UK Limited ("AMBAC UK"), which
was authorized to conduct certain classes of general insurance business in the
United Kingdom. As of February 4, 1997, AMBAC UK is the primary vehicle for the
issuance of financial guarantee insurance policies in the United Kingdom and
Europe.
Ambac Assurance, as the sole limited partner, owns 90% of the total
partnership interests of Ambac Financial Services, Limited Partnership ("AFS"),
a limited partnership which provides interest rate swaps primarily to states,
municipalities and municipal authorities. The sole general partner of AFS, Ambac
Financial Services Holdings, Inc., a wholly-owned subsidiary Ambac Financial
Group, Inc., owns a general partnership interest representing 10% of the total
partnership interest in AFS.
Ambac Assurance's consolidated unaudited interim financial statements have
been prepared on the basis of generally accepted accounting principles ("GAAP")
and, in the opinion of management, reflect all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the Company's
financial condition, results of operations and cash flows for the periods
presented. The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported revenues
and expenses during the reporting period. Actual results could differ from those
estimates. The results of operations for the six months ended June 30, 1997 may
not be indicative of the results that may be expected for the full year ending
December 31, 1997. These financial statements and notes should be read in
conjunction with the financial statements and notes included in the audited
consolidated financial statements of Ambac Assurance Corporation and its
subsidiaries as of December 31, 1996 and 1995, and for each of the years in the
three-year period ended December 31, 1996.
<PAGE>
Ambac Assurance Corporation and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands Except Share Data)
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
(unaudited)
<S> <C> <C>
Assets
Investments:
Bonds held in available for sale account, at fair value
(amortized cost of $2,426,222 in 1997 and $2,323,259 in 1996) $2,524,873 $2,424,524
Short-term investments, at cost (approximates fair value) 98,486 91,320
---------- ----------
Total investments 2,623,359 2,515,844
Cash 4,346 5,025
Securities purchased under agreements to resell 4,832 4,369
Receivable for securities sold 57,876 18,462
Investment income due and accrued 44,263 42,263
Deferred acquisition costs 101,391 94,212
Prepaid reinsurance 169,194 168,786
Other assets 60,080 59,544
---------- ----------
Total assets $3,065,341 $2,908,505
========== ==========
Liabilities and Stockholder's Equity
Liabilities:
Unearned premiums $1,035,524 $ 995,220
Losses and loss adjustment expenses 61,041 60,220
Ceded reinsurance balances payable 11,723 7,438
Deferred income taxes 89,594 84,842
Current income taxes 7,325 8,974
Accounts payable and other liabilities 43,464 50,244
Payable for securities purchased 71,308 46,246
---------- ----------
Total liabilities 1,319,979 1,253,184
---------- ----------
Stockholder's equity:
Preferred stock, par value $1,000.00 per share; authorized
shares - 285,000; issued and outstanding shares - none -- --
Common stock, par value $2.50 per share; authorized shares
- 40,000,000; issued and outstanding shares - 32,800,000
at June 30, 1997 and December 31, 1996 82,000 82,000
Additional paid-in capital 520,381 515,684
Unrealized gains on investments, net of tax 64,123 65,822
Cumulative translation adjustment 397 --
Retained earnings 1,078,461 991,815
---------- ----------
Total stockholder's equity 1,745,362 1,655,321
---------- ----------
Total liabilities and stockholder's equity $3,065,341 $2,908,505
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
Ambac Assurance Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For The Periods Ended June 30, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Gross premiums written $ 74,593 $ 58,768 $ 126,763 $ 110,060
Ceded premiums written (7,195) (9,836) (12,627) (19,448)
--------- --------- --------- ---------
Net premiums written 67,398 48,932 114,136 90,612
Increase in unearned premiums (30,595) (8,870) (39,883) (21,940)
--------- --------- --------- ---------
Net premiums earned 36,803 40,062 74,253 68,672
Net investment income 39,363 35,584 77,894 70,489
Net realized gains 3,479 67,580 4,291 69,936
Other income 3,331 4,753 6,316 10,805
--------- --------- --------- ---------
Total revenues 82,976 147,979 162,754 219,902
--------- --------- --------- ---------
Expenses:
Losses and loss adjustment expenses 664 1,700 1,392 2,510
Underwriting and operating expenses 10,763 11,583 21,817 21,666
Interest expense 565 514 1,130 1,028
--------- --------- --------- ---------
Total expenses 11,992 13,797 24,339 25,204
--------- --------- --------- ---------
Income before income taxes 70,984 134,182 138,415 194,698
--------- --------- --------- ---------
Income tax expense:
Current taxes 12,706 38,665 24,125 52,313
Deferred taxes 2,728 806 5,667 760
--------- --------- --------- ---------
Total income taxes 15,434 39,471 29,792 53,073
--------- --------- --------- ---------
Net income $ 55,550 $ 94,711 $ 108,623 $ 141,625
========= ========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Unaudited Financial Statements
<PAGE>
Ambac Assurance Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
For The Periods Ended June 30, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 108,623 $ 141,625
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 871 950
Amortization of bond premium and discount (591) (811)
Current income taxes (1,649) 5,287
Deferred income taxes 5,667 760
Deferred acquisition costs (7,179) (5,487)
Unearned premiums 39,896 21,940
Losses and loss adjustment expenses 821 (6,567)
Ceded reinsurance balances payable 4,285 (7,889)
Gain on sales of investments (4,291) (69,936)
Other, net (4,316) (8,685)
--------- ---------
Net cash provided by operating activities 142,137 71,187
--------- ---------
Cash flows from investing activities:
Proceeds from sales of bonds at amortized cost 711,775 742,407
Proceeds from maturities of bonds at amortized cost 55,411 43,165
Purchases of bonds at amortized cost (880,479) (901,331)
Change in short-term investments (7,166) 30,324
Proceeds from sale of affiliate -- 115,865
Securities purchased under agreements to resell (463) 128
Other, net 106 (1,404)
--------- ---------
Net cash used in investing activities (120,816) 29,154
--------- ---------
Cash flows from financing activities:
Dividends paid (22,000) (135,865)
Capital contribution -- 32,500
--------- ---------
Net cash used in financing activities (22,000) (103,365)
--------- ---------
Net cash flow (679) (3,024)
Cash at January 1 5,025 6,912
--------- ---------
Cash at June 30 $ 4,346 $ 3,888
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ 22,600 $ 13,300
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
