<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Ambac Financial Group
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
Ambac Financial Group, Inc.
AMBAC Notice of
1999 Annual Meeting
of Stockholders
and
Proxy Statement
Meeting Date:
Wednesday, May 12, 1999
at 11:30 A.M. (local time)
Meeting Place:
Ambac Financial Group, Inc.
One State Street Plaza
New York, New York 10004
<PAGE>
Ambac Financial Group, Inc.
One State Street
Plaza
New York, NY 10004
212.668.0340
Phillip B. Lassiter
Chairman, President
and Chief Executive
Officer
March 30, 1999
AMBAC Dear Stockholders:
It is my pleasure to invite you to Ambac's 1999
Annual Meeting of Stockholders.
We will hold the meeting on Wednesday, May 12, 1999,
at 11:30 a.m. at our executive offices in New York
City. In addition to the formal items of business, I
will review the major developments of 1998 and answer
your questions.
This booklet includes the Notice of Annual Meeting
and the Proxy Statement. The Proxy Statement
describes the business that we will conduct at the
meeting and provides information about Ambac.
Your vote is important. Whether you plan to attend
the meeting or not, please complete, sign and return
the enclosed proxy card in the envelope provided. If
you attend the meeting and prefer to vote in person,
you may do so.
We look forward to seeing you at the meeting.
Sincerely,
/s/ P. Lassiter
<PAGE>
Ambac Financial Group, Inc.
One State Street
Plaza
New York, NY 10004
212.668.0340
Notice of 1999 Annual Meeting of Stockholders
March 30, 1999
AMBAC Dear Stockholders:
We will hold the 1999 Annual Meeting of Stockholders
on Wednesday, May 12, 1999 at 11:30 a.m. (local time)
at our executive offices at One State Street Plaza in
New York City. At our Annual Meeting, we will ask you
to:
. Elect six directors;
. Amend our 1997 Equity Plan to broaden the
definition of "Eligible Individuals";
. Ratify the selection of KPMG LLP as
independent auditors for 1999; and
. Consider any other business that is properly
presented at the Annual Meeting.
You may vote at the Annual Meeting if you were an
Ambac stockholder at the close of business on March
22, 1999.
Along with the attached Proxy Statement, we are also
sending you the Ambac 1998 Annual Report, which
includes our financial statements.
/s/ Anne G. Gill
Anne G. Gill
First Vice President, Corporate Secretary
and Assistant General Counsel
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Information About The Annual Meeting And Voting........................... 1
Why Did You Send Me this Proxy Statement?............................... 1
How Many Votes Do I Have?............................................... 1
How Do I Vote by Proxy?................................................. 1
May I Vote by Telephone or Electronically?.............................. 2
May I Revoke My Proxy?.................................................. 2
How Do I Vote in Person?................................................ 2
How Do Employees in the Ambac Stock Fund Vote?.......................... 3
What Vote Is Required to Approve Each Proposal?......................... 3
What Is the Effect of Broker Non-Votes?................................. 3
Is Voting Confidential?................................................. 3
What Are the Costs of Soliciting these Proxies?......................... 4
How Do I Obtain an Annual Report on Form 10-K?.......................... 4
Where Can I Find the Voting Results?.................................... 4
Whom Should I Call If I Have Any Questions?............................. 4
Information About Ambac Common Stock Ownership............................ 5
Which Stockholders own at least 5% of Ambac?............................ 5
How Much Stock is Owned By Directors and Executive Officers?............ 6
Did Ambac Insiders Comply with Section 16(a) Beneficial Ownership
Reporting in 1998?..................................................... 7
Information About Directors and Executive Officers........................ 8
The Board of Directors.................................................. 8
The Committees of the Board............................................. 8
How We Compensate Directors............................................. 9
The Executive Officers.................................................. 11
How We Compensate Executive Officers.................................... 13
Summary Compensation Table.............................................. 13
Option Grants in 1998................................................... 14
Aggregated Option Exercises During 1998 and Year-End Option Values...... 16
The Pension Plan........................................................ 16
Employment Agreement with the Chief Executive Officer................... 18
Management Retention Agreements with Executive Officers................. 19
Report on Executive Compensation for 1998 by the Compensation and
Organization Committee................................................. 22
Performance Graph....................................................... 26
Discussion of Proposals Recommended by the Board.......................... 27
Proposal 1: Elect Six Directors......................................... 27
Proposal 2: Amend 1997 Equity Plan to Broaden the Definition of
"Eligible Individuals"................................................. 28
Proposal 3: Ratify Selection of KPMG LLP as Independent Auditors for
1999........................................................... 31
Information About Stockholder Proposals................................... 32
</TABLE>
<PAGE>
Proxy Statement for the Ambac Financial Group, Inc.
1999 Annual Meeting of Stockholders
Information About The Annual Meeting And Voting
Why Did You Send Me this Proxy Statement?
We sent you this Proxy Statement and the enclosed proxy card
because Ambac's Board of Directors is soliciting your proxy to vote at
the 1999 Annual Meeting of Stockholders.
This Proxy Statement summarizes the information you need to know to
vote intelligently at the Annual Meeting. You do not need to attend the
Annual Meeting, however, to vote your shares. You may simply complete,
sign and return the enclosed proxy card.
We will begin mailing this Proxy Statement on March 30, 1999 to all
stockholders entitled to vote. If you owned Ambac common stock at the
close of business on March 22, 1999, you are entitled to vote. On that
date, there were 69,929,621 shares of Ambac common stock outstanding.
Ambac common stock is our only class of voting stock.
How Many Votes Do I Have?
You have one vote for each share of Ambac common stock that you
owned at the close of business on March 22, 1999. The proxy card
indicates the number.
How Do I Vote by Proxy?
If you properly fill in your proxy card and send it to us in time
to vote, your "proxy" (one of the individuals named on your proxy card)
will vote your shares as you have directed. If you sign the proxy card
but do not make specific choices, your proxy will vote your shares as
recommended by the Board:
. ""FOR'' Proposal 1 (Elect Six Directors);
. ""FOR'' Proposal 2 (Amend 1997 Equity Plan to Broaden the
Definition of "Eligible Individuals"); and
. ""FOR'' Proposal 3 (Ratify Selection of KPMG LLP as Independent
Auditors for 1999).
If any other matter is presented, your proxy will vote in
accordance with his or her best judgment. At the time we began printing
this Proxy Statement, we knew of no matters that needed to be acted on
at the Annual Meeting, other than those discussed in this Proxy
Statement.
<PAGE>
Whether you plan to attend the Annual Meeting or not, we
urge you to complete, sign and date the enclosed proxy card
and to return it promptly in the envelope provided.
Returning the proxy card will not affect your right to
attend the Annual Meeting and vote.
May I Vote by Telephone or Electronically?
Yes. Instead of submitting your vote by mail on the enclosed proxy
card, you may be able to vote electronically via the Internet or by
telephone. Please note that there are separate Internet and telephone
arrangements depending on whether you are a registered stockholder (that
is, if you hold your stock in your own name), or whether you hold your
shares in "street name" (that is, if your stock is held in the name of
your broker or bank).
If you are a registered stockholder, you may vote by telephone, or
electronically through the Internet, by following the instructions
provided on your proxy card.
If your shares are held in "street name", you will need to contact
your bank or broker to determine whether you will be able to vote by
telephone or electronically.
The telephone and Internet voting procedures are designed to
authenticate stockholders' identities, to allow stockholders to give
their voting instructions and to confirm that stockholders' instructions
have been recorded properly. Stockholders voting via the Internet should
understand that there might be costs associated with electronic access,
such as usage charges from Internet access providers and telephone
companies, that must be borne by the stockholder.
May I Revoke My Proxy?
Yes. You may change your mind after you send in your proxy card by
following any of these procedures. To revoke your proxy:
. Send in another signed proxy with a later date; or
. Send a letter revoking your proxy to Ambac's Corporate Secretary
at the address indicated on page 32 under "Information about
Stockholder Proposals"; or
. Attend the Annual Meeting and vote in person.
How Do I Vote in Person?
If you plan to attend the Annual Meeting and vote in person, we
will give you a ballot when you arrive.
If your shares are held in the name of your broker, bank or other
nominee, you must bring an account statement or letter from the nominee.
The account statement or letter must show that you were the direct or
indirect (beneficial) owner of the shares on March 22, 1999.
2
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How Do Employees in the Ambac Stock Fund Vote?
If you are an employee who participates in our Savings Incentive
Plan ("SIP"), you are receiving this material because of shares held for
you in the Ambac Stock Fund in the SIP. In that case, the SIP Trustee
will send you a voting instruction card instead of a proxy card. This
voting instruction card will indicate the number of shares of Ambac
common stock credited to your account in the Ambac Stock Fund as of
March 22, 1999.
. If you complete, sign and return the voting instruction card on
time, the SIP Trustee will vote the shares as you have directed.
. If you do not complete, sign and return the voting instruction
card on time, the SIP Trustee will not vote the shares credited
to your account.
What Vote Is Required to Approve Each Proposal?
Proposal 1: The six nominees for director who receive the
Elect Six most votes will be elected. So, if you do not
Directors vote for a nominee, or you indicate "withhold
authority to vote" for any nominee on your
proxy card, your vote will not count either for
or against the nominee.
Proposal 2: The affirmative vote of a majority of the votes
Amend 1997 present and entitled to vote at the Annual
Equity Plan Meeting is required to amend the 1997 Equity
Plan. So, if you "abstain" from voting, it has
the same effect as if you voted "against" this
proposal.
Proposal 3: The affirmative vote of a majority of the votes
Ratify Selection present and entitled to vote at the Annual
of Auditors Meeting is required to ratify the selection of
independent auditors. So, if you "abstain" from
voting, it has the same effect as if you voted
"against" this proposal.
What Is the Effect of Broker Non-Votes?
Under the current rules of the New York Stock Exchange, if your
broker holds your shares in its "street" name, the broker may vote your
shares on all three proposals even if it does not receive instructions
from you.
However, if your broker does not vote on any of the three
proposals, it will have no effect on the outcome of the proposal.
Is Voting Confidential?
We maintain a policy of keeping all the proxies, ballots and voting
tabulations confidential. The Inspectors of Election will forward to
management any written comments that you make on the proxy card.
3
<PAGE>
What Are the Costs of Soliciting these Proxies?
Ambac will pay all the costs of soliciting these proxies. Although
we are mailing these proxy materials, our directors and employees may
also solicit proxies by telephone, by fax or other electronic means of
communication, or in person. We will reimburse banks, brokers, nominees
and other fiduciaries for the expenses they incur in forwarding the
proxy materials to you. Kissel-Blake Inc. is assisting us with the
solicitation of proxies for a fee of $8,500 plus out-of-pocket expenses.
How Do I Obtain an Annual Report on Form 10-K?
If you would like a copy of our Annual Report on Form 10-K for the
year ended December 31, 1998, that we filed with the Securities and
Exchange Commission, we will send you one without charge. Please write
to:
Investor Relations
Ambac Financial Group, Inc.
One State Street Plaza
New York, New York 10004
Attention: Brian Moore, Director of Investor Relations
or contact Mr. Moore at (212) 208-3333 or at [email protected].
Where Can I Find the Voting Results?
We will publish the voting results in our Form 10-Q for the second
quarter of 1999, which we file with the SEC in August 1999. You can also
find the results on Ambac's website at www.ambac.com.
Whom Should I Call If I Have Any Questions?
If you have any questions about the Annual Meeting or voting,
please contact Anne Gill, our Corporate Secretary, at (212) 208-3355 or
at [email protected].
If you have any questions about your ownership of Ambac common
stock, please call Brian Moore, our Director of Investor Relations, at
(212) 208-3333 or at bmoore@ ambac.com.
4
<PAGE>
Information About Ambac Common Stock Ownership
Which Stockholders own at least 5% of Ambac?
The following table shows all persons we know to be direct or
indirect owners of at least 5% of Ambac common stock as of December 31,
1998. Persons who are direct or indirect owners of Ambac common stock
are sometimes referred to in this Proxy Statement as "beneficial owners"
or as persons who "beneficially own" Ambac common stock. Our information
is based on reports filed with the Securities and Exchange Commission by
each of the firms listed in the table below. If you wish, you may obtain
these reports from the SEC.
<TABLE>
<CAPTION>
Number of
Shares Owned Percent of
Name and Address of Beneficial Owner Beneficially Class
---------------------------------------------------------------
<S> <C> <C>
FMR Corp. 5,907,190 8.47%
82 Devonshire Street
Boston, Massachusetts 02109
Pioneer Investment Management, Inc. 5,758,300 8.26%
60 State Street
Boston, Massachusetts 02109
Sanford C. Bernstein & Co., Inc. 5,400,708 7.80%
767 Fifth Avenue
New York, New York 10153
</TABLE>
5
<PAGE>
How Much Stock is Owned By Directors and Executive Officers?
The following table shows the Ambac common stock owned directly or
indirectly by Ambac's directors and executive officers as of March 15,
1999. Except for Mr. Lassiter, no director or executive officer
beneficially owns 1% or more of the shares of Ambac common stock. All
directors and executive officers as a group beneficially own 2.22% of
the shares of Ambac common stock.
<TABLE>
<CAPTION>
Total
Shares Holdings
Beneficially Percent (including RSUs
Name of Beneficial Owner Owned(1)(2)(3)(4) of Class RSUs(5) PSUs(6) and PSUs)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Outside Directors
Michael A. Callen 15,658 -- 3,034 3,903 22,595
Renso L. Caporali 9,224 -- -- 2,436 11,660
Richard Dulude 9,486 -- 3,034 4,289 16,809
W. Grant Gregory 10,058 -- 3,034 5,527 18,619
C. Roderick O'Neil 20,058 -- 3,034 1,444 24,536
Executive Officers
Phillip B. Lassiter 734,660 1.05% 249,945 -- 984,605
David L. Boyle 45,085 -- -- -- 45,085
Robert J. Genader 324,750 -- 76,790 -- 401,540
Frank J. Bivona 216,099 -- 32,872 -- 248,971
Joseph V. Salzano 170,199 -- 1,448 -- 171,647
All executive officers
and directors as a
group
(10 persons) 1,555,277 2.22% 373,191 17,599 1,946,067
--------------------------------------------------------------------------------------
</TABLE>
(1) To our knowledge, except for Messrs. Lassiter and Genader, who
share voting and investment power with their spouses, each of
the directors and executive officers has sole voting and
investment power over his shares.
(2) The number of shares shown for Dr. Caporali includes 3,000
restricted shares, which were granted at the 1995 Annual Meeting
under Ambac's 1991 Non-Employee Directors Stock Plan and will
vest on May 17, 2000.
(3) The number of shares shown for each director and executive
officer includes shares that may be acquired upon exercise of
stock options that were exercisable as of March 15, 1999, or
that will become exercisable within 60 days after March 15.
These shares are shown in the following table:
<TABLE>
<CAPTION>
Outside Directors Number of Shares Executive Officers Number of Shares
----------------- ---------------- ------------------ ----------------
<S> <C> <C> <C>
Mr. Callen 4,000 Mr. Lassiter 507,812
Dr. Caporali 4,000 Mr. Boyle 45,000
Mr. Dulude 4,000 Mr. Genader 295,952
Mr. Gregory 4,000 Mr. Bivona 206,970
Mr. O'Neil 4,000 Mr. Salzano 167,501
</TABLE>
(4) The number of shares shown for each executive officer also
includes the number of shares of Ambac common stock owned
indirectly as of March 15, 1999 by these executive officers in
our SIP. Our information is based on reports from the SIP
Trustee.
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(5) This column shows the 3,000 restricted stock units ("RSUs") that
were granted to each of Messrs. Callen, Dulude, Gregory, and
O'Neil at the 1998 Annual Meeting under the 1997 Non-Employee
Directors Equity Plan and accrued dividends. These RSUs
generally will vest on the date of the Annual Meeting held in
the fifth calendar year following the date of grant. At that
time, each of these directors will receive one share of Ambac
common stock in settlement of each restricted stock unit. For
more information on these restricted stock units, see below at
page 9 under "How We Compensate Directors."
The RSUs shown for Messrs. Lassiter, Genader and Bivona are
vested RSUs that we awarded under our equity plans.
The RSUs shown for Mr. Salzano will vest in two equal
installments on the first and second anniversaries of the date of
grant, which was January 26, 1999.
(6) Under Ambac's Deferred Compensation Plan, directors may defer
their cash compensation and executives may defer their cash
bonuses. If a director or executive has elected to defer cash
compensation into Phantom Stock Units ("PSUs"), these PSUs are
shown in this column. For more information on the Deferred
Compensation Plan, see below at page 10 under "How We Compensate
Directors."
Did Ambac Insiders Comply with Section 16(a) Beneficial Ownership Reporting
in 1998?
Section 16(a) of the Securities Exchange Act of 1934 requires that
our insiders--our directors, executive officers, and greater-than-10%
stockholders--file reports with the SEC and the New York Stock Exchange
on their initial beneficial ownership of Ambac common stock and any
subsequent changes. They must also provide us with copies of the
reports.
We reviewed copies of all reports furnished to us and obtained
written representations that no other reports were required. Based on
this, we believe that all of our insiders complied with their filing
requirements for 1998, except that, due to an error in preparing a
report on Mr. Genader's behalf, an exempt transaction that Mr. Genader
engaged in during the month of May was not included on his initial Form
5 report. This transaction was reported on an amended Form 5 that was
filed two days after his initial Form 5 filing.
7
<PAGE>
Information About Directors and Executive Officers
The Board of Directors
The Board of Directors oversees the business of Ambac and monitors
the performance of management. In accordance with corporate governance
principles, the Board does not involve itself in day-to-day operations.
The directors keep themselves informed by discussing matters with the
Chairman, other key executives and our principal external advisers
(legal counsel, outside auditors, investment bankers and other
consultants), by reading the reports and other materials that we send
them regularly and by participating in Board and committee meetings.
Ambac's Board usually meets five times per year in regularly
scheduled meetings, but will meet more often if necessary. The Board met
five times during 1998. The committees of the Board met seven times. All
directors attended at least 75% of the Board meetings and meetings of
the Committees of which they were members.
Each of our directors also serves as a director of our principal
operating subsidiary, Ambac Assurance Corporation, a leading triple-A
rated financial guarantee insurance company.
The Committees of the Board
The Board has three standing committees: the Audit Committee, the
Compensation and Organization Committee and the Nominating Committee.
None of the directors who serve as members of these committees is, or
has ever been, an employee of Ambac or our subsidiaries.
The Audit The Audit Committee recommends the selection of the
Committee independent auditors to the Board, approves the scope
of the annual audit by the independent auditors and
our internal auditors, reviews audit findings and
accounting policies and oversees compliance with
Ambac's Code of Business Conduct. The Committee also
meets privately, outside the presence of Ambac
management, with both the independent auditors and
the internal auditors.
The Committee met three times during 1998.
Messrs. Callen, Dulude, Gregory and O'Neil and Dr.
Caporali currently serve as members of the Committee.
Mr. O'Neil serves as Chairman of the Committee.
The Compensation The Compensation and Organization Committee
and Organization establishes and approves all elements of compensation
Committee for the executive officers. Each year, as the SEC
requires, the Committee reports to you on executive
compensation. The Committee's Report on Executive
Compensation for 1998 is printed below at pages 22 to
25.
8
<PAGE>
The Committee administers Ambac's 1991 and 1997
equity plans and has sole authority for awards under
the plans. The Committee evaluates existing and
proposed employee benefit plans and may propose plan
changes to the Board. The Committee also administers
the 1997 Executive Incentive Plan and Ambac's
Deferred Compensation Plan for Outside Directors and
Eligible Senior Officers.
The Committee met three times during 1998.
Messrs. Callen, Dulude, Gregory and O'Neil and Dr.
Caporali currently serve as members of the Committee.
Mr. Dulude serves as Chairman of the Committee.
The Nominating In July 1998, the Board established the Nominating
Committee Committee. This Committee is responsible for
identifying and recommending qualified candidates to
the Board for election as directors. In addition, our
By-laws provide a procedure for you to recommend
candidates for director at an annual meeting. For
more information, see below at page 32 under
"Information About Stockholder Proposals."
The Committee met once during 1998.
Messrs. Callen, Dulude, O'Neil and Gregory currently
serve as members of the Committee. Mr. Gregory serves
as Chairman of the Committee.
How We Compensate Directors
Annual We compensate directors who are not employees of
Cash Fee Ambac or our subsidiaries with an annual cash fee of
$20,000 per year.
Annual Stock We also grant each non-employee director 2,000 stock
Option Award options on the date of each annual meeting. These
options have an exercise price equal to the average
of the high and low trading prices of our stock on
the New York Stock Exchange on the date of grant. The
options generally will vest on the date of the first
annual meeting following the date of the grant and
expire on the date of the annual meeting held in the
seventh calendar year following the date of the
grant.
Award of Ambac grants each non-employee director 2,000
Restricted Stock restricted stock units ("RSUs") at the annual meeting
Units Every at which the director is first elected to the Board.
Five Years
. These RSUs generally will vest on the date of the
annual meeting held in the fifth year following
the date of grant and will be settled by the
delivery of one share of Ambac common stock for
each unit.
9
<PAGE>
. If the director remains on the Board after the
first award of RSUs vests, Ambac will grant the
director a second award of 2,000 RSUs, subject to
similar vesting conditions and restrictions on
transfer.
Meeting Fees We also pay each non-employee director a meeting fee
of:
. $750 for attendance at each meeting of
stockholders and each Board meeting;
. $500 for attendance at each committee meeting held
at the same time as a stockholder or Board
meeting; and
. $750 for attendance at each committee meeting held
at a different time than a stockholder or Board
meeting.
Fee for Chairing We pay an annual fee of $1,500 to each non-employee
a Committee director who chairs a committee.
Expenses and Ambac reimburses all directors for travel and other
Benefits related expenses incurred in attending stockholder,
Board and committee meetings.
We provide non-employee directors with life and
health insurance benefits. We also allow them to
participate in our Matching Gift Program. Under this
Program, Ambac will match gifts by directors to
qualified organizations.
Directors who We do not compensate our employees or employees of
are Ambac our subsidiaries for service as a director. We do,
Employees however, reimburse them for travel and other related
expenses.
The Deferred Under our Deferred Compensation Plan, non-employee
Compensation directors may elect to defer all or part of their
Plan director compensation that is paid in cash.
. At the director's election, we credit deferrals to
a bookkeeping account that we maintain on the
director's behalf either as a cash credit (which
we periodically credit with interest), phantom
stock unit ("PSU") based on the market value of
Ambac common stock (on which we pay quarterly
dividend equivalents in additional PSUs) or as a
performance unit measured by the performance of
those mutual funds the director selects out of a
limited group of funds.
. We do not fund the Deferred Compensation Plan. We
settle accounts only in cash.
10
<PAGE>
Service on the Although Ambac Assurance does not pay its non-
Ambac Assurance employee directors an annual fee for serving on its
Board Board of Directors, it does pay them meeting fees (in
the same amounts as we do for the Ambac Board) and
reimburses all directors for expenses.
The Executive Officers
These are the biographies of Ambac's current executive officers,
except for Mr. Lassiter, the Chief Executive Officer, whose biography is
included below at page 27 under "Proposal 1: Elect Six Directors."
The Board elects the executive officers for a term of one year (or
until their successors are chosen and qualified) at its organizational
meeting each year. The organizational meeting is the first Board meeting
following the annual meeting of stockholders.
David L. Boyle Vice Chairman -- Municipal Financial Services Group.
Age 52 Mr. Boyle has been Vice Chairman -- Municipal
Financial Services Group since January 1998. The
Municipal Financial Services Group encompasses the
Public Finance Division, management of Ambac
Assurance's investment portfolio, asset and liability
management services, investment advisory and fund
administration services, and corporate marketing. Mr.
Boyle joined Ambac and Ambac Assurance in March 1997
as Senior Vice President -- Financial Management
Services Division. He became an Executive Vice
President in July 1997. Mr. Boyle joined Ambac from
Citibank, where, as a managing director, he held
various management positions in corporate banking
over a 22-year career.
Robert J. Genader Vice Chairman -- Specialized Finance Group.
Age 52 Mr. Genader has been Vice Chairman -- Specialized
Finance Group since January 1998. The Specialized
Finance Group encompasses financial guarantee
insurance for the domestic asset-backed, mortgage-
backed and financial institution markets. In
addition, this Group provides financial guarantee
insurance to the healthcare, housing, student loan
and utilities markets. This Group also includes our
joint venture with MBIA Insurance Corporation
(MBIA.Ambac International) which provides financial
guarantee insurance internationally. Mr. Genader is
also a director of Ambac Assurance (since 1992). Mr.
Genader served as an Executive Vice President of
Ambac (from 1991 to January 1998) and Ambac Assurance
(from 1986 to January 1998). He joined Ambac
Assurance from Citibank in 1986. Mr. Genader also
served as Chairman of the Association of Financial
Guaranty Insurors from January 1994 to January 1996.
11
<PAGE>
Frank J. Bivona Executive Vice President and Chief Financial Officer.
Age 43 Mr. Bivona has been Executive Vice President and
Chief Financial Officer since January 1998. Mr.
Bivona served as Senior Vice President and Chief
Financial Officer of Ambac (from 1993 to January
1998) and Ambac Assurance (from 1987 to January
1998). Mr. Bivona also served as Treasurer of Ambac
(from 1993 to July 1998) and Ambac Assurance (from
1987 to July 1998). In addition to his position as
Ambac's chief financial officer, Mr. Bivona has
executive responsibility for technology, reinsurance,
investor and public relations and corporate
administration. Mr. Bivona joined Ambac Assurance
from Citibank in 1986.
Joseph V. Salzano Executive Vice President and General Counsel.
Age 42 Mr. Salzano was named Executive Vice President and
General Counsel of Ambac in June 1998. In addition to
his position as Ambac's chief legal officer, Mr.
Salzano has executive responsibility for internal
audit. Mr. Salzano had previously served as Executive
Vice President -- Public Finance Division from 1995
until June 1998 and as such ran the day-to-day
operations of the Public Finance Division. The
Division encompasses financial guarantee insurance
for states, municipalities and other public entities.
Mr. Salzano was First Vice President, Associate
General Counsel and Head of Legal Underwriting of
Ambac Assurance (from 1989 to 1995). He became a
Senior Vice President in 1995. Mr. Salzano joined
Ambac Assurance from the New York law firm of
Hawkins, Delafield & Wood in 1987.
12
<PAGE>
How We Compensate Executive Officers
The tables on pages 13 through 16 show salaries, bonuses and other
compensation paid during the last three years, options granted in 1998,
options exercised in 1998 and option values as of year-end 1998 for the
Chief Executive Officer and our next four most highly compensated
executive officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
------------------------------------------------------
Name and Restricted Securities All Other
Principal Stock Underlying Compensation
Position Year Salary($)(1) Bonus($) Units($)(2) Options(#)(3) ($)(4)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Phillip B.
Lassiter 1998 $560,000 $840,000 0 187,811 $50,200
Chairman,
President 1997 530,000 660,000 0 100,000 47,534
and Chief 1996 530,000 425,000 $200,000 80,000 47,700
Executive
Officer
David L.
Boyle 1998 300,000 300,000 0 100,000 18,300
Vice
Chairman -- 1997 197,308 275,000 0 30,000 0
Municipal
Financial
Services
Group
Robert J.
Genader 1998 310,000 525,000 0 81,098 27,900
Vice
Chairman -- 1997 275,000 400,000 0 60,000 24,664
Specialized 1996 275,000 340,000 0 50,000 24,750
Finance
Group
Frank J.
Bivona 1998 245,000 260,000 0 42,820 22,050
Executive
Vice 1997 225,000 220,000 0 36,000 20,179
President
and Chief 1996 225,000 170,000 0 30,000 20,250
Financial
Officer
Joseph V.
Salzano 1998 225,000 80,000 80,000 4,000 20,250
Executive
Vice
President 1997 215,000 200,000 0 10,000 19,283
and General
Counsel 1996 215,000 200,000 0 108,000 19,350
- ---------------------------------------------------------------------------------
</TABLE>
(1) Mr. Boyle did not join Ambac until March 1997. The information in the
Summary Compensation Table only shows compensation we actually paid.
Mr. Boyle's annualized salary was $270,000 for 1997.
(2) The Compensation and Organization Committee determines what portion of
an executive's annual cash bonus, if any, should be paid in restricted
stock units ("RSUs"). As dividends are paid on the common stock,
dividend equivalents are accrued on the RSUs as additional RSUs and
vest according to the same schedule.
For 1996, the Committee determined that Mr. Lassiter's bonus would be
paid partly in cash and partly in RSUs. The RSUs granted to Mr.
Lassiter for 1996 vested on January 28, 1998.
13
<PAGE>
For 1998, the Committee determined that Mr. Salzano's bonus would be
paid partly in cash and partly in RSUs. The RSUs granted to Mr.
Salzano for 1998 will vest in two equal installments on the first and
second anniversaries of the date of grant, which was January 26, 1999.
The total number of RSUs held by the named executive officers as of
December 31, 1998, and the total value of these RSUs (based on the
$60.1875 per share New York Stock Exchange closing price of the common
stock on Thursday, December 31, 1998), were as follows: Mr.
Lassiter -- 249,945 RSUs ($15,043,565); Mr. Genader -- 76,790 RSUs
($4,621,798); and Mr. Bivona -- 32,872 RSUs ($1,978,484).
(3) The number of securities underlying options for 1998 includes
restoration options. Restoration options were received upon the
exercise of stock options in accordance with Ambac's Restoration
Option Program. For the specific breakdown of option and restoration
option grants, please refer below to the table under "Option Grants in
1998." For a more detailed description of our Restoration Option
Program, please see footnote 3 under the "Option Grants in 1998" table
on page 15.
(4) The column called "All Other Compensation" includes the amounts that
Ambac contributed or credited on behalf of the named officers in 1998
to (a) our Savings Incentive Plan (the "SIP"), and (b) our Non-
Qualified SIP. We credit amounts that we are precluded from
contributing to the SIP because of limitations under the Internal
Revenue Code to accounts that we maintain under Ambac's Non-Qualified
SIP.
<TABLE>
<CAPTION>
Contributions Credits to the
to the SIP Non-Qualified SIP
------------- -----------------
<S> <C> <C>
Mr. Lassiter................................ $14,400 $35,800
Mr. Boyle................................... 13,408 4,892
Mr. Genader................................. 12,934 14,966
Mr. Bivona.................................. 13,928 8,122
Mr. Salzano................................. 14,400 5,850
</TABLE>
Option Grants in 1998
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------------------
Number of Securities Percent of
Underlying Options Granted(#) Total Options
--------------------------------- Granted to Grant Date
Restoration Employees in Exercise Expiration Present
Name Options(1) Options(3) 1998 Price($/Sh)(2) Date Value($)(4)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Phillip B. Lassiter 100,000 10.35% $45.5625 1/27/05 $1,312,000
37,826 3.92 52.875 7/18/01 420,625
29,126 3.02 52.875 1/24/00 221,066
20,859 2.16 56.40625 1/30/01 229,240
David L. Boyle 100,000 10.35 45.5625 1/27/05 1,312,000
Robert J. Genader 55,000 5.69 45.5625 1/27/05 721,600
12,097 1.25 52.9063 7/18/01 134,398
14,001 1.45 52.9063 1/24/00 106,268
Frank J. Bivona 35,000 3.62 45.5625 1/27/05 459,200
7,820 0.81 51.8125 7/18/01 84,769
Joseph V. Salzano 4,000 0.41 45.5625 1/27/05 52,480
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Options awarded to the named executive officers by the Compensation
and Organization Committee were long-term incentive awards granted on
January 27, 1998. Except for Mr. Boyle's options, which vest in four
equal installments (on the first, second, third and fourth
anniversaries of the date of grant), each executive officer's
14
<PAGE>
options will vest in three equal installments (on the first, second and
third anniversaries of the date of grant). Vesting is accelerated upon
death or permanent disability. Generally, all of the executive
officers' options will expire seven years from the date of grant or,
earlier, if employment terminates.
(2) The exercise price per share is the fair market value of the common
stock on the date of grant. We determine this by calculating the
average of the high and low price of Ambac common stock on the New
York Stock Exchange on the date of grant.
(3) Restoration options were received upon the exercise of stock options
in accordance with Ambac's Restoration Option Program. If an
outstanding option includes restoration option rights, then a
restoration option is awarded automatically when the underlying
option is exercised by tendering shares of common stock to pay the
exercise price. Each restoration option is vested upon grant and has
the same exercisability and transferability provisions as its
underlying option.
(4) We calculated these values by using the Black-Scholes stock option
pricing model as follows:
For the January Grants. The model, as we applied it, uses the grant
date of January 27, 1998 and the fair market value on that date of
$45.5625 per share as we discussed above. The model also assumes: (a)
a risk-free rate of return of 5.56% (which was the yield on a U.S.
Treasury Strip zero coupon bond with a maturity that approximates the
term of the option); (b) a stock price volatility of 20.38%
(calculated using month-end closing prices of Ambac common stock on
the New York Stock Exchange for the period beginning with January 31,
1994 and ending as of the end of the month preceding the grant date);
(c) a constant dividend yield of .88% based on the quarterly cash
dividend rate of 10 cents per share on Ambac common stock; and (d) an
exercise date, on average, of 5.5 years after grant.
For the Restoration Option Grants. We use the following assumptions in
applying the model for each Restoration Option Grant: (a) a risk-free
rate of return equal to the yield on grant date of a U.S. Treasury
Strip zero coupon bond with a maturity that approximates the term of
the option; (b) stock price volatility of Ambac common stock
calculated using month-end closing prices of Ambac common stock on the
New York Stock Exchange for the three year period prior to the grant
date; (c) a constant dividend yield based on the quarterly cash
dividend of 10 cents per share on Ambac common stock; and (d) exercise
of the restoration option at the end of its term.
We did not adjust the model for non-transferability, risk of
forfeiture, or vesting restrictions. The actual value (if any) an
executive officer receives from a stock option will depend upon the
amount by which the market price of Ambac common stock exceeds the
exercise price of the option on the date of exercise. The hypothetical
values are presented pursuant to SEC rules and there can be no
assurance that the amount stated as "Grant Date Present Value" will
actually be realized.
15
<PAGE>
Aggregated Option Exercises During 1998 and Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options Held
Options Held at at December 31,
Shares December 31, 1998(#) 1998 ($)(1)
Acquired On Value ------------------------- -------------------------
Name Exercise(#)(1) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Phillip B. Lassiter 510,000 $21,874,998 306,668 301,143 $11,303,781 $5,585,287
David L. Boyle 0 0 10,000 120,000 280,625 2,023,750
Robert J. Genader 102,480 4,041,087 214,854 137,764 7,923,803 2,669,060
Frank J. Bivona 40,517 1,694,117 157,983 84,320 6,006,251 1,883,350
Joseph V. Salzano 4,950 220,312 135,834 64,666 5,133,106 2,176,792
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) This valuation represents the difference between $60.1875, the
closing price of Ambac common stock on the New York Stock Exchange on
Thursday, December 31, 1998, and the exercise price of the stock
options. "In-the-money" stock options are options for which the
exercise price is less than the market price of the underlying stock
on a particular date.
The Pension Plan
Ambac's Pension Plan is a defined benefit pension plan intended to
be tax-qualified under Section 401(a) of the Internal Revenue Code.
. In general, officers and employees of Ambac and its subsidiaries
become participants in the Pension Plan after one year of
service. All executive officers participate in the Pension Plan.
Non-employee directors of Ambac and our subsidiaries are not
eligible to participate in the Pension Plan.
. Benefits under the Pension Plan vest after five years. Upon
normal retirement at age 65, a retired employee receives an
annual pension from the Pension Plan, subject to a statutory
limit. The Pension Plan also contains provisions for early
retirement and survivor benefits.
The table below illustrates the annual pension benefits payable to
executive officers under the Pension Plan. The table also reflects the
excess and supplemental benefit plans that we have established to
provide retirement benefits over Internal Revenue Code limitations. We
calculated the benefits before offsetting (a) an employee's primary
Social Security benefit and (b) benefits payable under the retirement
plan of Citibank, N.A., Ambac's former parent company (the "Citibank
Plan"). Benefits shown in the table reflect a straight life form of
annuity benefit. If payment is made in the form of a joint and survivor
annuity, the annual amounts of benefit could be substantially below
those illustrated.
16
<PAGE>
<TABLE>
<CAPTION>
Average Years of Total Years of Service at Retirement
Covered Service at ---------------------------------------------------------
Compensation Transition Date 10 15 20 25 30 35
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 200,000 30 NA NA NA $100,000 $ 110,000 $ 120,000
15 NA $ 60,000 $ 70,000 80,000 90,000 100,000
0 $ 20,000 30,000 40,000 50,000 60,000 70,000
- ---------------------------------------------------------------------------------------
500,000 30 NA NA NA 250,000 275,000 300,000
15 NA 150,000 175,000 200,000 225,000 250,000
0 50,000 75,000 100,000 125,000 150,000 175,000
- ---------------------------------------------------------------------------------------
1,000,000 30 NA NA NA 500,000 550,000 600,000
15 NA 300,000 350,000 400,000 450,000 500,000
0 100,000 150,000 200,000 250,000 300,000 350,000
- ---------------------------------------------------------------------------------------
1,500,000 30 NA NA NA 750,000 825,000 900,000
15 NA 450,000 525,000 600,000 675,000 750,000
0 150,000 225,000 300,000 375,000 450,000 525,000
- ---------------------------------------------------------------------------------------
2,000,000 30 NA NA NA NA 1,200,000 1,300,000
15 NA 600,000 700,000 800,000 900,000 1,000,000
0 200,000 300,000 400,000 500,000 600,000 700,000
</TABLE>
Service For service on or after January 1, 1992, the annual
from 1992 retirement benefit is equal to 1% (without an offset
for any Social Security benefits) of an employee's
Average Compensation (as described in the next
sentence) multiplied by the employee's years of
credited service. "Average Compensation" is defined,
generally, as average annual base salary (which, in
the case of executive officers identified in the
Summary Compensation Table, is the amount shown under
the column called "Salary") for the five highest
consecutive paid years of the ten years of employment
preceding retirement.
Service For service prior to January 1, 1992, the annual
before 1992 retirement benefit is equal to 2% (with an offset for
Social Security benefits) of an employee's Average
Compensation (determined as if the employee retired
on December 31, 1991) multiplied by years of credited
service up to 30.
Years of Service In view of the change in the formula for determining
benefits under the Pension Plan that became effective
as of January 1, 1992 (the "Transition Date"), we
prepared the above table to show the benefits payable
depending on how many years of service the executive
officer would have:
. prior to the Transition Date, and
. at Retirement.
In order to simplify the chart, we show only 0, 15
and 30 years of service at Transition, since those
values cover the range for our executive officers.
17
<PAGE>
The years of credited service under the Pension Plan
(including credit for years of past service under the
Citibank Plan) as of December 31, 1998 for executive
officers named in the Summary Compensation Table were
as follows: Mr. Lassiter--29 years, Mr. Boyle--2
years, Mr. Genader--24 years, Mr. Bivona--21 years
and Mr. Salzano--12 years.
The benefits payable under the Pension Plan to
employees who receive credit for years of past
service under the Citibank Plan will be reduced by
the amount of any benefits payable under the Citibank
Plan.
Employment Agreement with the Chief Executive Officer
In General Ambac's employment agreement with Mr. Lassiter
provides that he shall serve as the Chairman,
President and Chief Executive Officer and as a
director.
. The agreement has a two year term, which is
extended on a daily basis, until Ambac or Mr.
Lassiter terminates it.
. Mr. Lassiter is to receive a base salary at a rate
of not less than his current rate.
. He is to participate in bonus arrangements under
which he is eligible to earn an annual bonus based
on Ambac's achieving certain performance goals to
be established by the Board.
Supplemental
Pension Benefit
Mr. Lassiter has a supplemental pension benefit that
will be based on the benefit formula of the Pension
Plan that was in effect until the end of 1991. The
formula, however, will take into account his bonus
compensation (including that portion of his bonus
paid in RSUs) and will be determined without giving
effect to provisions of the Internal Revenue Code
that limit the amount of compensation that may be
taken into account in calculating benefits and the
amount of annual benefits that may be paid. Mr.
Lassiter's supplemental pension benefit will be
reduced, however, to take account of enhancements in
Ambac's contributions to the Savings Incentive Plan
("SIP") that we introduced in 1992.
Payments and
Benefits If Mr. Lassiter's employment is terminated other than
for "Cause" (as we define it below), or if he resigns
for "Good Reason" (as we define it below), Mr.
Lassiter will:
-- After
Termination or
Resignation
. receive, for the remainder of the term (which
typically would be for two years), compensation at
an annualized rate equal to the sum of his base
annual salary and target bonus at the time of
termination;
. be fully vested in all awards under the 1991 Stock
Incentive Plan and the 1997 Equity Plan;
. receive a lump-sum payment equal to the amount
that we would have contributed to his account
under the SIP and any nonqualified plan we
maintained during the two years following
termination;
18
<PAGE>
. be credited with an additional two years of
service under the Pension Plan; and
. continue to participate in all Ambac medical and
other welfare plans for a limited time following
termination
-- After
Change in Control
All stock options and other awards under the 1997
Equity Plan that are made to Mr. Lassiter after
January 1, 1999 will vest in full upon the occurrence
of a "Change in Control" (as we define it below),
whether or not his employment is subsequently
terminated.
In addition, if Mr. Lassiter's employment terminates
following a Change in Control, his severance amount
would be calculated and paid in the same manner as we
describe below under "Management Retention Agreements
with Executive Officers."
Mr. Lassiter would also be entitled to the "gross up"
payment described in that section.
Other
Restrictions Mr. Lassiter will be subject to certain restrictions
prohibiting him from engaging in competition with
Ambac or any of our subsidiaries (except that these
restrictions will not apply following a Change in
Control) and from divulging any confidential or
proprietary information he obtained while he was our
employee.
Management Retention Agreements with Executive Officers
In General We have entered into management retention agreements
with each of our executive officers (other than Mr.
Lassiter) to provide for payments and certain
benefits if they are terminated following a "Change
in Control" (as we define it below).
Payments and
Benefits After
Change in Control
If there is a Change in Control and, within three
years of the Change in Control, the executive's
employment is terminated by Ambac or its successor
other than for "Cause" (as we define it below), or if
the executive resigns for "Good Reason" (as we define
it below), the executive will:
. receive cash payments equal to two times the sum
of (a) the executive's highest annual base salary
and (b) the product of the executive's highest
bonus percentage (as a percentage of base salary)
times his highest base salary;
. be fully vested in all stock options and other
awards under the 1991 Stock Incentive Plan and the
1997 Equity Plan;
. receive a lump-sum payment equal to the amount
that we would have contributed to the executive's
account under the SIP and any nonqualified plan we
maintained during the two years following
termination;
19
<PAGE>
. be credited with an additional two years of
service under the Pension Plan; and
. continue to participate in Ambac's medical and
other welfare benefits programs for a limited time
following termination.
All stock options and other awards under the 1997
Equity Plan that are made after January 1, 1999 will
vest in full upon the occurrence of a Change in
Control, whether or not the executive's employment is
subsequently terminated.
The agreements also provide for a "gross up" payment
in an amount that is intended to make the executive
whole, on an after-tax basis, for any excise tax (but
not any other tax) imposed on the payments described
above.
Definitions
The following definitions are used in the Management Retention
Agreements and the Employment Agreement with the Chief Executive Officer
described above:
"Change in
Control'' A "Change in Control" generally occurs if:
. an individual, entity or group acquires beneficial
ownership of 20% or more of the outstanding common
stock. Acquisitions by Ambac and its affiliates or
any employee benefit plan that they sponsor and
certain acquisitions by persons who owned at least
15% of the outstanding shares of common stock on
January 31, 1996 are not considered a change in
control;
. the individuals who, as of January 29, 1997,
constitute the Board, and subsequently elected
members of the Board whose election is approved or
recommended by at least a majority of these
members or their successors whose election was so
approved or recommended, cease for any reason to
constitute at least a majority of the Board; or
. our stockholders approve a merger or similar
business combination, or a sale of all or
substantially all of Ambac's assets, unless the
Ambac stockholders immediately prior to the
completion of the transaction will continue to own
at least 70% of outstanding shares and voting
power of the corporation that results from the
transaction.
"Cause" "Cause" for an executive's termination generally
includes:
. the willful commission of acts that are dishonest
and demonstrably and materially injurious to
Ambac;
. the conviction of certain felonies; or
20
<PAGE>
. a material breach of any of the executive's
agreements concerning confidentiality and
proprietary information.
An executive's termination will not be considered to
have been for Cause unless at least three-quarters of
the members of the Board adopt a resolution finding
that the executive has engaged in conduct that
constitutes Cause as defined in the agreement.
"Good Reason" An executive will generally have "Good Reason" to
terminate his employment if:
. there is substantial adverse change in the
executive's duties or responsibilities;
. the office of the executive is relocated more than
25 miles from the location where the executive
worked immediately prior to the Change in Control;
or
. Ambac fails to honor its obligations under the
agreement.
During a 30-day period following the first
anniversary of a Change in Control, a resignation by
the executive for any reason will be considered a
termination for Good Reason.
21
<PAGE>
Report on Executive Compensation for 1998
by the Compensation and Organization Committee
The Compensation and Organization Committee of the Board
administers Ambac's executive compensation program. The members of the
Committee are independent non-employee, non-affiliated directors. The
Committee has furnished the following report on executive compensation
for 1998:
What is Our Executive Compensation Philosophy?
The Committee has designed Ambac's executive compensation program to
support what we believe to be an appropriate relationship between
executive pay and the creation of stockholder value. To emphasize equity
incentives, we link a significant portion of executive compensation to
the market performance of Ambac common stock. The objectives of our
program are:
. To support a pay-for-performance policy that differentiates bonus
amounts among all executives based on both their individual
performance and the performance of Ambac;
. To align the interests of executives with the long-term interests
of stockholders through awards whose value over time depends upon
the market value of Ambac's common stock;
. To provide compensation comparable to that offered by other
leading companies in our industry, enabling Ambac to compete for
and retain talented executives who are critical to our long-term
success; and
. To motivate key executives to achieve strategic business
initiatives and to reward them for their achievement.
What is Our Position on Maximizing the Deductibility of Executive Compensation?
In 1997, our stockholders approved the 1997 Executive Incentive Plan
("EIP") and the 1997 Equity Plan. We designed these plans to allow Ambac
to receive a tax deduction for incentive compensation payments to our
Chief Executive Officer and our other four most highly paid executive
officers. Without these qualifying performance-based plans, Ambac could
not deduct incentive compensation payments to the extent the amounts for
any of these executive officers in any year exceeded $1 million.
The Committee intends to pursue a strategy of maximizing the
deductibility of the compensation we pay to our executives. However, we
intend to retain the flexibility to take actions that we consider to be
in the best interests of Ambac and our stockholders and which may be
based on considerations in addition to tax deductibility.
22
<PAGE>
What are the Elements of Executive Compensation?
We compensate our executives through base salary, bonus paid in cash
(or a combination of cash and restricted stock units), and long-term
incentive awards in the form of stock options. We target total
compensation for our executive officers so that at least 60% (and in the
case of the Chairman, 75%) consists of bonus and long term incentive
awards. In this way, a significant portion of the value ultimately
realized by the executives will depend upon Ambac's performance and can
be considered "at risk."
Our executives participate in a retirement plan, health plan,
savings incentive plan and other voluntary benefit plans that we make
available to all Ambac employees generally. We also provide our
executives with a nonqualified savings incentive plan and a voluntary
deferred compensation arrangement, which are similar to those typically
offered to executives by the corporations with which we compete for
talent.
Ambac has also entered into management retention agreements with our
executive officers to provide for certain payments and other benefits if
they are terminated following a change in control of Ambac. These
agreements, and the employment agreement with Ambac's Chief Executive
Officer, which includes comparable change in control provisions, are
discussed elsewhere in the Proxy Statement.
How Did We Determine Base Salaries for 1998?
In General We annually review the base salaries of our executives
to determine if adjustments are appropriate to ensure
that their salaries are competitive and that they
reflect the executive's increased responsibilities as
Ambac grows.
For executives other than the Chief Executive Officer,
we also consider the recommendations of Mr. Lassiter,
Ambac's Chairman, President and Chief Executive
Officer.
Comparative Data In conducting our review for 1998, we considered
comparative data prepared by both Ambac's senior human
resources officer and by Frederic W. Cook & Co., Inc.,
the Committee's outside consultant for executive
compensation.
The comparison group we chose for compensation
purposes (the "Comparison Group") consisted mainly of
our competitors in the financial guarantee insurance
industry. The index we chose for our performance graph
was the Investor's Business Daily Insurance
Property/Casualty/Title Index. This was the publicly
available index that we found best corresponded to our
business and included the greatest number of companies
in the Comparison Group. The performance graph follows
this Report in the Proxy Statement.
23
<PAGE>
We obtained data for the Comparison Group from a
number of sources, including proxy statements, public
information available from regulatory agencies and
surveys by consulting firms. We used this comparative
data as a benchmark in reaching our own determination
of what were appropriate salary levels for our
executives.
Base Salaries
of the
Executives
The data for the Comparison Group supported an
increase in base salaries for 1998 and the Committee
accepted Mr. Lassiter's recommendation to increase the
base salaries for all Ambac executives. We note that
the base salaries of our executives (excluding the
Chief Executive Officer) were still generally at or
below the median for salaries of executives in the
Comparison Group. The base salary for each of the
named executive officers is reported in the "Summary
Compensation Table" elsewhere in the Proxy Statement.
Base Salary
of the
Chief Executive
Officer
The Committee increased the base salary of Mr.
Lassiter for 1998 by approximately 6% from $530,000 to
$560,000. We note that Mr. Lassiter's base salary in
1998 was in the top quarter for salaries of chief
executive officers in the Comparison Group. This was
Mr. Lassiter's first base salary increase since 1996.
How Did We Determine Bonuses for 1998?
1998 Overall
Performance
In January 1999, the Committee evaluated Ambac's
performance during 1998 under each of the nine
categories set out in the EIP: return on equity; net
income growth; total return to stockholders; expense
management; risk management of the business portfolio;
market share; industry leadership; new products; and
organizational development. We did not weight the
categories but instead arrived at an overall "grade"
for corporate performance. We determined Ambac's
overall performance to be very strong based especially
on its excellent performance in the categories of
return on equity, net income growth, total return to
stockholders, risk management, industry
leadership/image building and organizational
development/corporate culture.
Bonuses for the
Executives
The Committee awarded bonus compensation for 1998 to
each executive based on the executive's scope of
responsibility, individual performance and specific
contribution to Ambac's overall performance. We again
considered the Chief Executive Officer's
recommendations and also took into account the
comparative data. The bonus for each of the named
executive officers is reported in the "Summary
Compensation Table" elsewhere in the Proxy Statement.
24
<PAGE>
Bonus
for the
Chief Executive
Officer
At our meeting in January 1998, the Committee selected
Mr. Lassiter as the only executive to participate in
the EIP. We then established a formula under the EIP
for determining Mr. Lassiter's bonus for the
performance year. The formula emphasized return on
equity and net income growth.
In January 1999, we applied the formula and awarded
Mr. Lassiter a bonus of $840,000. Although we had the
authority to award a bonus of more than the amount
determined by the formula, we determined that an
increase of $180,000 adequately compensated Mr.
Lassiter for Ambac's very strong overall performance
in 1998 under Mr. Lassiter's leadership.
For 1999, we again selected Mr. Lassiter as the only
executive officer to participate in the EIP.
What Were the Long-Term Incentive Awards in 1998?
1998 Grants In 1998, we provided long-term incentive awards for
executives by granting stock options. To increase the
importance of creating stockholder value over the
shorter term, we again limited the term of the stock
options to seven years. The size of the stock options
awarded to each of the executives (including Mr.
Lassiter) was in the top quarter of recent awards
given by companies within the Comparison Group. The
number of stock options awarded to each of the named
executive officers is reported in the "Option Grants
in 1998" table elsewhere in the Proxy Statement.
Stock
Ownership
Guidelines
The Chief Executive Officer has established stock
ownership guidelines for certain senior officers,
including all of the executive officers. The
guidelines set an appropriate level of ownership of
Ambac stock as a fixed number of shares, or, if less,
as a multiple of the officer's annual base salary
(based on the market value of Ambac common stock). The
multiple ranges from a high of five times base salary
(in the case of Mr. Lassiter) to a low of three times
base salary.
The Committee believes these guidelines have the
positive effect of further aligning the interests of
the executives with all stockholders.
The Compensation and Organization Committee
Richard Dulude, Chairman
Michael A. Callen
Renso L. Caporali
W. Grant Gregory
C. Roderick O'Neil
March 25, 1999
25
<PAGE>
Performance Graph
The graph below compares the five-year total return to stockholders
(stock price appreciation plus reinvested dividends) for Ambac common
stock with the comparable return of two indexes: the Standard & Poor's
500 Stock Index and the Investor's Business Daily Insurance Multi-Line
Index.
We have replaced the Investor's Business Daily Insurance Multi-Line
Index (the "IBD Multi-line Index") with the Investor's Business Daily
Insurance-Property/Casualty/Title Index (the "IBD Insurance Index")
because the IBD Multi-line Index was discontinued. We then determined
that the "IBD Insurance Index" was the publicly available index that
best corresponded to our businesses and that the companies in the IBD
Insurance Index comprised most of the companies in the Comparison Group
used by the Compensation and Organization Committee to determine
executive compensation.
The graph assumes that you invested $100 in Ambac common stock and
in each of the indexes on December 31, 1993, and that all dividends were
reinvested. Points on the graph represent the performance as of the last
business day of each of the years indicated.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
<S> <C> <C> <C> <C> <C> <C>
Ambac $100 $ 89.8 $114.5 $164.0 $229.4 $302.2
S&P 500 Index 100 101.3 139.4 171.4 228.5 293.8
IBD Insurance Index 100 94.7 133.5 140.7 172.4 137.7
</TABLE>
If you had invested $100 in Ambac common stock on the date of our
Initial Public Offering (July 18, 1991), your investment would have
grown to $626.97 by the end of 1998. This compares with a $100
investment growing to only $382.42 in the S&P 500 Index and to $180.45
in the IBD Insurance Index.
For this computation, we assumed that all dividends were
reinvested, just as we did for the five-year total return comparison
above.
26
<PAGE>
Discussion of Proposals Recommended by the Board
Proposal 1: Elect Six Directors
The Board has nominated six directors for election at the Annual
Meeting. Each nominee is currently serving as one of our directors. If
you re-elect them, they will hold office until the next annual meeting
or until their successors have been elected.
As we noted above, each nominee also serves as a director of Ambac
Assurance.
We know of no reason why any nominee may be unable to serve as a
director. If any nominee is unable to serve, your proxy may vote for
another nominee proposed by the Board, or the Board may reduce the
number of directors to be elected. If any director resigns, dies or is
otherwise unable to serve out his term, or the Board increases the
number of directors, the Board may fill the vacancy until the next
annual meeting.
Nominees
Phillip B. Lassiter Chairman of the Board and Chief Executive Officer
Age 55 (since 1991) and President (since 1992) of Ambac and
Director since Ambac Assurance.
1991 Mr. Lassiter joined Ambac in 1991 from Citibank,
where he was a member of the Policy Committee and
Finance Committee and served as Deputy Sector Head
for Citibank's North American investment and
corporate banking activities. Mr. Lassiter also
serves as a director of Diebold Inc. and HCIA Inc.
Michael A. Callen President, Avalon Argus Associates, LLC (financial
Age 58 consulting) since April 1996.
Director since Mr. Callen was Special Advisor to the National
1991 Commercial Bank located in Jeddah in the Kingdom of
Saudi Arabia from April 1993 through April 1996. He
was an independent consultant from January 1992 until
June 1993, and an Adjunct Professor at Columbia
University Business School during 1992. He was a
director of Citicorp and Citibank and a Sector
Executive for Citicorp from 1987 until January 1992.
Mr. Callen also serves as a director of Intervest
Corporation of New York and Intervest Bancshares
Corporation.
Renso L. Caporali Retired Chairman and Chief Executive Officer of
Age 66 Grumman Corporation (defense and aerospace)
Director since Dr. Caporali was Senior Vice President of Raytheon
1995 Company (electronics, aircraft, engineering and
construction) from April 1995 until he retired in May
1998. Previously, Dr. Caporali had retired in June
1994 as Chairman and Chief Executive Officer of
Grumman Corporation. He was Chairman and Chief
Executive Officer of Grumman Corporation from July
1990 until June 1994 and Vice Chairman of Grumman
Corporation from 1988 to July 1990.
27
<PAGE>
Richard Dulude
Age 66 Retired Vice Chairman of Corning Incorporated
Director since (diversified manufacturing).
1992 Mr. Dulude was Vice Chairman of Corning Incorporated
from November 1990 until he retired in April 1993.
Mr. Dulude was Group President of Corning
Incorporated from 1983 until 1990. Mr. Dulude also
serves as a director of Raychem Corporation, Landec
Corporation and HCIA Inc.
W. Grant Gregory Chairman of Gregory & Hoenemeyer, Inc. (merchant
Age 58 banking) since 1988.
Director since Mr. Gregory retired in 1987 as Chairman of the Board
1991 of Touche Ross & Co. (accounting firm). Mr. Gregory
also serves as a director of InaCom Corp., True North
Communications, HCIA Inc. and DoubleClick Inc.
C. Roderick O'Neil Chairman, O'Neil Associates (formerly Greenspan
Age 68 O'Neil Associates) (investment and financial
Director since consulting) since 1984.
1991 Mr. O'Neil also serves as a director of Fort Dearborn
Income Securities, Inc., Beckman Instruments, Inc.
and Cadre Institutional Investors Trust.
The Board recommends that you vote "FOR" the election of all
six nominees for director.
Proposal 2: Amend 1997 Equity Plan to Broaden the Definition of
"Eligible Individuals"
We are asking you to approve an amendment to our 1997 Equity Plan
that will broaden the group of individuals eligible for awards under our
Plan.
The Proposed
Amendment Our 1997 Equity Plan, adopted in May of 1997,
currently provides for the grant of awards to
officers and other key employees of Ambac and its
subsidiaries. Over the last few years, we have formed
an unincorporated joint venture with MBIA Insurance
Corporation to engage in the financial guarantee
business overseas. This joint venture has been
extremely successful and it is management's belief
that certain key individuals who are contributing to
the success of MBIA.Ambac International should be
awarded Ambac stock as compensation for their
contributions to our growth and profits. Management
also believes that we should have the flexibility to
make stock awards to individuals who contribute to
other joint ventures or partnerships in which Ambac
may become involved in the future. We believe that
these individuals are important to retain and
motivate.
We are also amending the 1997 Equity Plan to make
clear that independent contractors, consultants and
leased employees are not eligible to receive awards
under the Plan.
28
<PAGE>
The Board, therefore, is recommending that the
definition of Eligible Individuals in Section 6 of
the 1997 Equity Plan be amended. Additions to the
existing definition are in bold face.
"6. Eligible Individuals.
Awards may be granted by the Committee to
individuals ("Eligible Individuals") who are:
(i) officers or other key employees of the
Company; (ii) employees of joint ventures,
partnerships or similar business organizations
in which the Company has a direct or indirect
equity interest; (iii) employees of MBIA
Insurance Corporation or any of its subsidiaries
or affiliates who provide services to MBIA.Ambac
International, an unincorporated joint venture,
or its successor; and (iv) individuals who
provide services to any similar joint ventures
or business organizations in which the Company
may participate in the future. Excluded
Individuals are not eligible to receive awards
under the Plan. 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."
We are also recommending that the following
definition of Excluded Individual be added to Section
2 of the 1997 Equity Plan:
" "Excluded Individual" means (i) any individual
who is designated by the Company at the time of
hire as not eligible to participate in the Plan
or (ii) any individual who is treated or
designated by the Company as an independent
contractor, leased employee (including, without
limitation, a "leased employee" as defined in
Section 414(n) of the Code) or consultant.
Excluded Individuals are not eligible to
participate in or receive benefits under the
Plan. If any Excluded Individual pursuant to the
preceding clauses (i) or (ii) shall be
determined by a court or a federal, state or
local regulatory or administrative authority to
have served as a common law employee of the
Company, such determination shall not alter such
person's status as an Excluded Individual for
purposes of the Plan."
We describe below the other principal terms of the 1997 Equity
Plan. None of these terms will be affected by the proposed amendments.
Shares Available At the end of 1998, there were 5.94 million shares of
common stock available for award under the 1997
Equity Plan. We may adjust the number of shares
available for issuance under the 1997 Equity Plan if
there are changes in our capitalization, a merger or
a similar transaction.
Administration The Compensation and Organization Committee of the
Board administers the 1997 Equity Plan. The Committee
selects participants from among eligible individuals
and determines the form, terms and
29
<PAGE>
conditions of awards. Subject to certain limitations,
the Committee may delegate some or all of its
authority to one or more members of the Committee or
one or more officers of Ambac.
Awards
Generally The 1997 Equity Plan authorizes the following awards
based upon Ambac common stock: stock options, stock
appreciation rights, stock awards, restricted stock
units, performance units and other forms of equity-
based or equity-related awards that the Committee
determines to be consistent with the purposes of the
1997 Equity Plan and the interests of Ambac. These
awards may provide for cash payments based on the
value of common stock, for the acquisition of common
stock, or for both. Other awards may include cash
payments based on one or more criteria determined by
the Committee which are unrelated to the value of
common stock.
The Committee may issue stock options at an exercise
price no less than the fair market value of Ambac
common stock on the date of grant (subject to a
limited exception for options assumed in connection
with the acquisition of another company).
The Committee determines vesting, exercisability,
payment and other restrictions that apply to an
award. The minimum vesting for any stock option is
one year. The Committee also has authority to
determine the effect, if any, that an employee's
termination or a change in control of Ambac will have
on an award. The Plan will terminate on May 14, 2004.
Amendment The Committee may amend or terminate the 1997 Equity
Plan at any time. However, the Committee must obtain
stockholder approval to:
. Increase the maximum number of shares issuable, or
. Reduce the exercise price of a stock option or
stock appreciation right.
Also, no amendment or termination of the 1997 Equity
Plan may adversely affect a participant's rights to
previously-granted awards without that participant's
consent.
Stock Price On March 22, 1998, the closing price of Ambac common
stock on the New York Stock exchange was $55.00.
Since awards will be authorized by the Committee in its sole
discretion, it is not possible to determine the benefits or amounts that
will be received by any particular employee or group of employees in the
future. For 1998, 279 employees were granted options covering a total of
965,998 shares and seven employees were granted restricted stock units
("RSUs") covering a total of 17,828 shares. Information about stock
options and RSUs awarded to the executive officers named in the Summary
Compensation Table appears at pages 13 through 15 above.
30
<PAGE>
The following table provides information about stock options
awarded for 1998 under the 1997 Equity Plan:
<TABLE>
<CAPTION>
Number of Shares Covered
Name and Position Dollar Value(1)(2) by Stock Options and RSUs
- ------------------------------------------------------------------------------
<S> <C> <C>
All executive officers as a
group (5 persons) $5,133,646 417,177
- ------------------------------------------------------------------------------
All employees, including all
current officers who are not
executive officers, as a group $8,436,063 565,201
- ------------------------------------------------------------------------------
</TABLE>
(1) We calculated the option values using the Black-Scholes stock option
pricing model that we modified to take dividends into account. We
used the same assumptions in the calculation as those set forth at
footnote 4 under "Option Grants in 1998" above at page 15.
(2) We calculated the RSU values based on the average of the high and
low trading prices of our stock on the New York Stock Exchange on
the date of grant.
Federal Income The federal income tax consequences of issuing and
Tax Consequences exercising stock options under the 1997 Equity Plan
may be summarized as follows. All stock options
awarded under the 1997 Equity Plan have been
nonqualified stock options for federal income tax
purposes.
The grant of a nonqualified stock option has no
immediate federal income tax effect: an individual
will not recognize taxable income and Ambac will not
receive a tax deduction.
When an individual exercises the option, the
individual will recognize ordinary income in an amount
equal to the excess of the fair market value of the
common stock on the date of exercise over the exercise
price. Ambac is required to withhold tax on the amount
of income recognized. Ambac will receive a tax
deduction equal to the amount of income recognized.
When the individual sells common stock obtained from
exercising a nonqualified stock option, any gain or
loss will be taxed as a capital gain or loss (long-
term or short-term, depending on how long the shares
have been held). Certain additional rules apply if the
exercise price for an option is paid in shares
previously owned by the individual.
The Board recommends that you vote "FOR" the Amendment to
the 1997 Equity Plan.
Proposal 3: Ratify Selection of KPMG LLP as Independent Auditors for 1999
We are asking you to ratify the Board's selection of KPMG LLP,
certified public accountants, as independent auditors for 1999. The
Audit Committee recommended the selection of KPMG to the Board. KPMG has
served as the independent auditors of Ambac Assurance since 1985 and of
Ambac since our incorporation in 1991.
A representative of KPMG will attend the Annual Meeting to answer
your questions.
31
<PAGE>
We are submitting this proposal to you because the Board believes
that such action follows sound corporate practice. If you do not ratify
the selection of independent auditors, the Board will consider it a
direction to consider selecting other auditors for next year. However,
even if you ratify the selection, the Board may still appoint new
independent auditors at any time during the year if it believes that
such a change would be in the best interests of Ambac and our
stockholders.
The Board recommends that you vote "FOR" ratification of the
selection of KPMG LLP as independent auditors for 1999.
Information About Stockholder Proposals
If you wish to submit proposals to be included in our 2000 proxy
statement, we must receive them on or before Wednesday, December 1,
1999. Please address your proposals to: Anne G. Gill, Corporate
Secretary, Ambac Financial Group, Inc., One State Street Plaza, New
York, New York 10004.
Under our By-laws, if you wish to nominate a director or bring
other business before the stockholders:
. You must notify the Corporate Secretary in writing not less than
60 days nor more than 90 days before the annual meeting.
. If we give you less than 70 days' notice or prior public
disclosure of the meeting date, however, you may notify us
within 10 days after the notice was mailed or publicly
disclosed.
. Your notice must contain the specific information required in
our By-laws.
Please note that these requirements relate only to matters you wish
to bring before your fellow stockholders at an annual meeting. They do
not apply to proposals that you wish to have included in our proxy
statement.
If you would like a copy of our By-laws, we will send you one
without charge. Please write to the Corporate Secretary of Ambac.
By order of the Board of Directors,
/s/ Anne G. Gill
Anne G. Gill
First Vice President, Corporate
Secretary and Assistant General
Counsel
March 30, 1999
32
<PAGE>
AMBAC
ONE STATE STREET PLAZA, NEW YORK, NY 10004
Printed on Recycled Paper [LOGO]
<PAGE>
Vote by Telephone
Have your proxy card available when you call the Toll-Free number 1-800-250-9081
using a Touch-Tone phone. You will be prompted to enter your control number and
then you can follow the simple prompts that will be presented to you to record
your vote.
Vote by Internet
Have your proxy card available when you access the website
http://www.votefast.com. You will be prompted to enter your control number and
then you can follow the simple prompts that will be presented to you to record
your vote.
Vote by Mail
Please mark, sign and date your proxy card and return it in the postage paid
envelope provided or return it to: Corporate Election Services, P.O. Box
535600, Pittsburgh, Pennsylvania 15253.
- --------------------------------------------------------------------------------
Vote by Telephone Vote by Internet Vote by Mail
Call Toll-Free using a Access the Website and Return your proxy
Touch-Tone phone Cast your vote in the Postage-paid
1-800-250-9081 http://www.votefast.com envelope provided
-------------------------------------------------------------------------------
Vote 24 hours a day, 7 days a week!
Your telephone and internet vote must received by 5:00 p.m. eastern daylight
time on May 11, 1999 to be counter in the final tabulation.
If you vote by telephone or internet, please do not send your proxy by mail.
----------------------------------------------
Your Control Number is:
----------------------------------------------
Proxy must be signed and dated below.
Please fold and detach card at perforation before mailing.
[downward arrow] [downward arrow]
AMBAC FINANCIAL GROUP, INC. 1999 PROXY
- --------------------------------------------------------------------------------
This proxy is solicited on behalf of the Board of Directors for the Annual
Meeting of Stockholders on May 12, 1999.
The undersigned hereby appoints Phillip B. Lassiter, Joseph V. Salzano and Anne
G. Gill, and each of them, proxies, with power of substitution, to vote all
shares of Common Stock of Ambac Financial Group, Inc. which the undersigned is
entitled to vote at the Annual Meeting of Stockholders to be held on Wednesday,
May 12, 1999 at 11:30 a.m., local time, at Ambac's executive offices, One State
Street Plaza, New York, New York, and at any adjournments of the Annual Meeting.
The proxies have the authority to vote as directed on the reverse side of this
card with the same effect as though the undersigned were present in person and
voting. The proxies are further authorized in their discretion to vote upon such
other business as may properly come before the Annual Meeting and any
adjournments of the Annual Meeting. The undersigned revokes all proxies
previously given to vote at the Annual Meeting.
Sign here as name(s) appears to the left.
---------------------------------------------
---------------------------------------------
Important: Please sign EXACTLY as your
name(s) appears on the left. Joint owners
should each sign. If you are signing as an
executor, administrator, trustee, guardian,
attorney or corporate officer, please give
your full title.
Date: ------------------------------- 1999
<PAGE>
Proxy must be signed and dated on the reverse side.
Please fold and detach card at perforation before mailing.
[downward arrow] [downward arrow]
[x] Please mark your vote as in this example.
Please indicate below how you wish your shares to be voted. Unless you indicate
otherwise, your proxy will vote "FOR" all of the Proposals on this card. We
cannot vote your shares unless you sign, date and return this card.
THE BOARD OF DIRECTORS RECOMMEND THAT YOU VOTE "FOR " ALL PROPOSALS.
1. Election of Directors
Nominees: Phillip B. Lassiter, Michael A. Callen, Renso L. Caporali, Richard
Dulude, W. Grant Gregory and C. Roderick O'Neil.
[ ] FOR all nominees listed above. (except as listed to the contrary below)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed above.
To withhold authority to vote for any individual nominee, write that
nominee's name below:
-----------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Amend 1997 Equity Plan to Broaden the Definition
of "Eligible Individuals".......................... [ ] [ ] [ ]
3. Ratify Selection of KPMG LLP as independent
auditors for 1999.................................. [ ] [ ] [ ]
