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EXHIBIT 10.23
AMBAC EXECUTIVE INCENTIVE PLAN
1. Purposes
The purposes of the Ambac Executive Incentive Plan (the "Plan") are to enable
Ambac Financial Group, 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.
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"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.
"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
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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.
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 $2,000,000,
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 $6,000,000.
(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) core earnings/operating earnings growth;
(iii) total return to stockholders;
(iv) expense management;
(v) risk management
(vi) market share;
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(vii) industry leadership/image building;
(viii) new products/initiative; and
(ix) organizational development/corporate culture;
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).
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9. Miscellaneous
(a) Tax Withholding. No later than the date as of which an amount first
becomes includable in the gross income of the Participant for applicable income
tax purposes with respect to any award under the Plan, the Participant shall pay
to the Company or make arrangements satisfactory to the Committee regarding the
payment of any federal, state or local taxes of any kind required by law to be
withheld with respect to such amount. In the case of an award that is payable in
shares of Common Stock, the Company may permit the Participant to satisfy, in
whole or in part, such obligation to remit taxes by directing the Company to
withhold shares of Common Stock that would otherwise be received by such
individual, pursuant to such rules as the Committee may establish from time to
time.
(b) No Rights to Awards or Employment. No Participant shall have any claim
or right to receive awards under the Plan. Nothing in the Plan shall confer upon
any employee of the Company any right to continued employment with the Company
or interfere in any way with the right of the Company to terminate the
employment of any of its employees at any time, with or without cause.
(c) Other Compensation. Nothing in this Plan shall preclude or limit the
ability of the Company to pay any compensation to a Participant under the
Company's other compensation and benefit plans and programs, including without
limitation any Equity Plan.
(d) No Limitation on Corporate Actions. Nothing contained in the Plan shall
be construed to prevent the Company or any Subsidiary from taking any corporate
action which is deemed by it to be appropriate or in its best interest, whether
or not such action would have an adverse effect on any awards made under the
Plan. No Participant, beneficiary or other person shall have any claim against
the Company or any Subsidiary as a result of any such action.
(e) Unfunded Plan. The Plan is intended to constitute an unfunded plan for
incentive compensation. Prior to the payment of any award, nothing contained
herein shall give any Participant any rights that are greater than those of a
general creditor of the Company. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver payment in cash or Common Stock with respect
to awards hereunder.
(f) Non-Transferability. Except as expressly provided herein, no Participant
or beneficiary shall have the power or right to sell, transfer, assign, pledge
or otherwise encumber or dispose of the Participant's interest under the Plan.
(g) Designation of Beneficiary. A Participant may designate a beneficiary or
beneficiaries to receive any payments which may be made following the
Participant's death. Such designation may be changed or canceled at any time
without the consent of such beneficiary. Any such designation, change or
cancellation must be made in a form approved by the Committee and shall not be
effective until received by the Committee. If a Participant does not designate a
beneficiary, or the designated beneficiary or beneficiaries predeceases the
Participant, any payments which may be made following the Participant's death
shall be made to the Participant's estate.
(h) Severability. If any provision of this Plan is held unenforceable, the
remainder of the Plan shall continue in full force and effect without regard to
such unenforceable provision and shall be applied as though the unenforceable
provision were not contained in the Plan.
(i) Expenses. The costs and expenses of administering the Plan shall be
borne by the Company.
(j) Governing Law. The Plan and all actions taken thereunder shall be
governed by and construed in accordance with and governed by the laws of the
State of Delaware, without reference to the principles of conflict of laws.
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