<PAGE>
===============================================================================
--------------------------------
\ OMB APPROVAL \
\------------------------------\
\ OMB Number: 3235-0059 \
\ Expires: January 31, 2002 \
\ Estimated average burden \
\ hours per response....13.12 \
--------------------------------
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 [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
AMBAC FINANCIAL GROUP INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
AMBAC FINANCIAL GROUP, INC.
[LOGO OF AMBAC] NOTICE OF
2000 ANNUAL MEETING
OF STOCKHOLDERS
AND
PROXY STATEMENT
MEETING DATE:
WEDNESDAY, MAY 10, 2000
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 31, 2000
[LOGO OF AMBAC]
Dear Stockholders:
It is my pleasure to invite you to Ambac's 2000
Annual Meeting of Stockholders.
We will hold the meeting on Wednesday, May 10, 2000,
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 1999 and answer
your questions.
This booklet includes the Notice of Annual Meeting
and the Proxy Statement. The Proxy Statement
describes the business that we will conduct at the
meeting and provides information about Ambac.
Your vote is important. Whether you plan to attend
the meeting or not, please complete, sign and return
the enclosed proxy card in the envelope provided. If
you attend the meeting and prefer to vote in person,
you may do so.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Phillip B. Lassiter
<PAGE>
AMBAC FINANCIAL
GROUP, INC.
One State Street
Plaza
New York, NY 10004
212.668.0340
NOTICE OF 2000 ANNUAL MEETING OF STOCKHOLDERS
March 31, 2000
[LOGO OF AMBAC]
Dear Stockholders:
We will hold the 2000 Annual Meeting of Stockholders
on Wednesday, May 10, 2000 at 11:30 a.m. (local time)
at our executive offices at One State Street Plaza in
New York City. At our Annual Meeting, we will ask you
to:
. Elect seven directors;
. Amend our 1997 Executive Incentive Plan to (i)
increase the maximum incentive amount that may
be awarded to any participant under the Plan,
(ii) redefine the "Covered Employees"
performance goals set forth in the Plan, and
(iii) extend the term of the Plan to January
1, 2005;
. Ratify the selection of KPMG LLP as
independent auditors for 2000; 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
20, 2000.
Along with the attached Proxy Statement, we are also
sending you the Ambac 1999 Annual Report, which
includes our financial statements.
Anne G. Gill
First Vice President, Corporate Secretary
and Assistant General Counsel
<PAGE>
TABLE OF CONTENTS
<TABLE>
<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?.................................................. 4
What Are the Costs of Soliciting these Proxies?.......................... 4
How Do I Obtain an Annual Report on Form 10-K?........................... 4
Where Can I Find the Voting Results?..................................... 4
Whom Should I Call If I Have Any Questions?.............................. 4
INFORMATION ABOUT AMBAC COMMON STOCK OWNERSHIP............................. 5
Which Stockholders own at least 5% of Ambac?............................. 5
How Much Stock is Owned By Directors and Executive Officers?............. 6
Did Ambac Insiders Comply with Section 16(a) Beneficial Ownership
Reporting in 1999?...................................................... 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
The Pension Plan......................................................... 16
Employment Agreement with the Chief Executive Officer.................... 18
Management Retention Agreements with Executive Officers.................. 20
Definitions.............................................................. 21
Arrangement with Former Executive Officer................................ 22
Report on Executive Compensation for 1999 by the Compensation and
Organization Committee.................................................. 23
Performance Graph........................................................ 28
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD........................... 29
Proposal 1: Elect Seven Directors........................................ 29
Proposal 2: Amend 1997 Executive Incentive Plan.......................... 31
Proposal 3: Ratify Selection of KPMG LLP as Independent Auditors for
2000.................................................................... 34
INFORMATION ABOUT STOCKHOLDER PROPOSALS.................................... 35
</TABLE>
<PAGE>
PROXY STATEMENT FOR THE AMBAC FINANCIAL GROUP, INC.
2000 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 2000 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 31, 2000 to all
stockholders entitled to vote. If you owned Ambac common stock at the close of
business on March 20, 2000, you are entitled to vote. On that date, there were
69,788,825 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 20, 2000. The proxy card indicates the number.
HOW DO I VOTE BY PROXY?
If you properly fill in your proxy card and send it to us in time to vote,
your "proxy" (one of the individuals named on your proxy card) will vote your
shares as you have directed. If you sign the proxy card but do not make
specific choices, your proxy will vote your shares as recommended by the Board:
. "FOR" Proposal 1 (Elect Seven Directors);
. "FOR" Proposal 2 (Amend 1997 Executive Incentive Plan); and
. "FOR" Proposal 3 (Ratify Selection of KPMG LLP as Independent Auditors
for 2000).
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 may need to contact your bank
or broker to determine whether you will be able to vote by telephone or
electronically.
The telephone and Internet voting procedures are designed to authenticate
stockholders' identities, to allow stockholders to give their voting
instructions and to confirm that stockholders' instructions have been recorded
properly. 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 35 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.
2
<PAGE>
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 20, 2000.
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 20, 2000.
. 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 seven nominees for director who receive the most
ELECT SEVEN votes will be elected. If you do not vote for a
DIRECTORS nominee, or you indicate "withhold authority to
vote" for any nominee on your proxy card, your vote
will not count either for or against the nominee.
PROPOSAL 2: The affirmative vote of a majority of the votes
AMEND 1997 present and entitled to vote at the Annual Meeting
EXECUTIVE INCENTIVE is required to amend the 1997 Executive Incentive
PLAN 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 Meeting
OF AUDITORS 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.
3
<PAGE>
IS VOTING CONFIDENTIAL?
We maintain a policy of keeping all the proxies, ballots and voting
tabulations confidential. The Inspectors of Election will forward to management
any written comments that you make on the proxy card.
WHAT ARE THE COSTS OF SOLICITING THESE PROXIES?
Ambac will pay all the costs of soliciting these proxies. Although we are
mailing these proxy materials, our directors and employees may also solicit
proxies by telephone, by fax or other electronic means of communication, or in
person. We will reimburse banks, brokers, nominees and other fiduciaries for
the expenses they incur in forwarding the proxy materials to you. 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, 1999, 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
2000, which we file with the SEC in August 2000. 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, 1999. 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
NAME AND ADDRESS OF BENEFICIAL SHARES OWNED PERCENT OF
OWNER BENEFICIALLY CLASS
- --------------------------------------------------------------
<S> <C> <C>
FMR CORP. 7,685,864 10.99%
82 Devonshire Street
Boston, Massachusetts 02109
J.P. MORGAN & CO. INCORPORATED 7,283,094 10.42%
60 Wall Street
New York, New York 10260
PIONEER INVESTMENT MANAGEMENT, INC. 4,010,300 5.74%
60 State Street
Boston, Massachusetts 02109
SANFORD C. BERNSTEIN & CO., INC. 4,017,576 5.70%
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, 2000. 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 2.7% of the shares of Ambac common stock.
<TABLE>
<CAPTION>
SHARES TOTAL
BENEFICIALLY HOLDINGS
OWNED PERCENT UNVESTED (INCLUDING RSUS
NAME OF BENEFICIAL OWNER (1)(2)(3)(4)(5) OF CLASS RSUS(6) PSUS(7) AND PSUS)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OUTSIDE DIRECTORS
Michael A. Callen 17,658 -- 3,065 4,507 25,230
Renso L. Caporali 11,594 -- -- 3,041 14,635
Jill M. Considine -- -- -- -- --
Richard Dulude 11,486 -- 3,065 4,938 19,489
W. Grant Gregory 25,368 -- 3,065 6,114 34,547
C. Roderick O'Neil 22,058 -- 3,065 2,070 27,193
EXECUTIVE OFFICERS
Phillip B. Lassiter.... 935,168 1.3% 7,182 -- 942,350
David L. Boyle......... 89,677 -- 2,694 -- 92,371
Robert J. Genader...... 443,032 -- 4,668 -- 447,700
Frank J. Bivona........ 280,352 -- 2,298 -- 282,650
Joseph V. Salzano...... 208,843 -- -- -- 208,843
All executive officers
and directors as a
group (12 persons).... 1,882,533 2.7% 32,011 20,670 1,935,216
</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.
The number of shares shown for Mr. Gregory includes 3,333 shares held
in the Gregory 1997 Children's Trust, of which his daughter is a
beneficiary. Mr. Gregory disclaims beneficial ownership of these
shares.
The number of shares shown for Mr. Lassiter includes 8,000 shares owned
by his spouse. Mr. Lassiter disclaims beneficial ownership of these
shares.
(3) The number of shares shown for each director and executive officer
includes shares that may be acquired upon exercise of stock options
that were exercisable as of March 15, 2000, 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.............. 6,000 Mr. Lassiter............ 265,352
Dr. Caporali............ 6,000 Mr. Boyle............... 86,667
Mr. Dulude.............. 6,000 Mr. Genader............. 328,764
Mr. Gregory............. 6,000 Mr. Bivona.............. 223,971
Mr. O'Neil.............. 6,000 Mr. Salzano............. 205,167
</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, 2000 by these executive officers in our Savings Incentive
Plan ("SIP"). Our information on these shares is based on reports
from the SIP Trustee.
6
<PAGE>
(5) The number of shares shown for Messrs. Lassiter, Genader, Bivona and
Salzano include vested restricted stock units ("RSUS") that we
awarded under our equity plans. These RSUs are shown in the following
table:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS NUMBER OF VESTED RSUS
------------------ ---------------------
<S> <C>
Mr. Lassiter....................................... 443,642
Mr. Genader........................................ 85,354
Mr. Bivona......................................... 46,137
Mr. Salzano........................................ 732
</TABLE>
(6) This column shows the 3,000 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 RSU. For more information on these RSUs, see
below at page 9 under "How We Compensate Directors."
This column also shows RSUs for Messrs. Lassiter, Boyle, Genader and
Bivona that were awarded as part of each executive officer's 1999 bonus
pursuant to the Ambac Deferred Compensation Sub-Plan of the 1997 Equity
Plan (the "SUB-PLAN"). See page 26 for more detailed descriptions of
these awards made pursuant to the Sub-Plan. The RSUs shown for Messrs.
Lassiter, Boyle, Genader and Bivona will vest in four annual
installments on each of the first four anniversaries of the date of
grant, which was January 24, 2000.
(7) Under Ambac's Deferred Compensation Plan, directors may defer their
cash compensation. If a director has elected to defer cash
compensation into Phantom Stock Units ("PSUS"), these PSUs are shown
in this column. For more information on the Deferred Compensation
Plan, see below at page 10.
DID AMBAC INSIDERS COMPLY WITH SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING IN
1999?
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 1999.
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 1999. The committees of the Board met eight 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 1999.
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
COMMITTEE compensation for the executive officers. Each year,
as the SEC requires, the Committee reports to you on
executive compensation. The Committee's Report on
Executive Compensation for 1999 is printed below at
pages 23 to 27.
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 approve of
plan changes. The Committee also administers the
1997 Executive Incentive Plan and Ambac's Deferred
Compensation Plan for Outside Directors and Ambac's
Senior Officer Deferred Compensation Sub-Plan of the
1997 Equity Plan.
The Committee met three times during 1999.
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 Committee is responsible for
THE NOMINATING identifying and recommending qualified candidates to
COMMITTEE 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 35 under
"Information About Stockholder Proposals."
The Committee met twice during 1999.
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
We compensate directors who are not employees of
ANNUAL Ambac or our subsidiaries with an annual cash fee of
CASH FEE $20,000 per year.
ANNUAL STOCK We also grant each non-employee director 2,500 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 price 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
UNITS EVERY meeting at which the director is first elected to
FIVE YEARS the Board.
. These RSUs generally will vest on the date of the
annual meeting held in the fifth year following
the date of grant and will be settled by the
delivery of one share of Ambac common stock for
each RSU.
9
<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.
We also pay each non-employee director a meeting fee
of:
MEETING FEES
. $1,000 for attendance at each meeting of
stockholders and each Board meeting; and
. $1,000 for attendance at each committee meeting.
FEE FOR CHAIRING We pay an annual fee of $1,500 to each non-employee
A COMMITTEE director who chairs a committee.
EXPENSES AND Ambac reimburses all directors for travel and other
BENEFITS related expenses incurred in attending stockholder,
Board and committee meetings.
We provide non-employee directors with life and
health insurance benefits. We also allow them to
participate in our Matching Gift Program. 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 for Outside
COMPENSATION Directors, non-employee directors may elect to defer
PLAN all or part of their director compensation that is
paid in cash.
. At the director's election, we credit deferrals
to a bookkeeping account that we maintain on the
director's behalf either as a cash credit (which
we credit with interest quarterly), or as phantom
stock units ("PSU") based on the market value of
Ambac common stock (on which we pay quarterly
dividend equivalents in additional PSUs) or as
performance units measured by the performance of
those mutual funds the director selects out of a
limited group of funds.
. We do not fund the Deferred Compensation Plan. We
settle accounts only in cash.
SERVICE ON THE Although Ambac Assurance does not pay its non-
AMBAC ASSURANCE employee directors an annual fee for serving on its
BOARD Board of Directors, it does pay them meeting fees
(in the same amounts as we do for the Ambac Board)
and reimburses all directors for expenses.
10
<PAGE>
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 29 under "Proposal 1: Elect Seven 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--PORTFOLIO RISK MANAGEMENT GROUP.
Age 53 In January 2000, Mr. Boyle was named Vice Chairman
of Ambac's new Portfolio Risk Management Group. The
Portfolio Risk Management Group encompasses
surveillance of our specialized finance and public
finance portfolios, market risk management,
reinsurance, technology and internal audit. Mr.
Boyle previously served as Vice Chairman of the
Municipal Financial Services Group from January 1998
to January 2000. Mr. Boyle joined Ambac and Ambac
Assurance in March 1997 as Senior Vice President of
the Financial Management Services Division. He
became an Executive Vice President in July 1997. Mr.
Boyle joined Ambac from Citibank, where, as a
managing director, he held various management
positions in corporate banking over a 22-year
career.
VICE CHAIRMAN--FINANCIAL INSURANCE BUSINESS GROUP.
ROBERT J. GENADER In January 2000, Mr. Genader was named Vice Chairman
Age 53 of Ambac's Financial Insurance Business Group. The
Financial Insurance Business Group includes public
finance, which provides financial guarantees for
states, municipalities and other public entities.
This Group also provides financial guarantees for
the domestic asset-backed, mortgage-backed and
financial institution markets as well as financial
guarantees to the healthcare, housing, student loan
and utilities markets. This Group also includes our
international financial guarantee business which
provides financial guarantees for international and
project financings, asset securitizations,
structured finance transactions, credit derivatives
and obligations of financial institutions,
sovereigns and sovereign-owned enterprises. Mr.
Genader served as Vice Chairman of the Specialized
Finance Division from January 1998 to January 2000
when the Specialized Finance Division and the Public
Finance Division were combined to create the
Financial Insurance Business Group. 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
Age 44 OFFICER--FINANCE AND INVESTMENT GROUP.
Mr. Bivona has been Executive Vice President and
Chief Financial Officer since January 1998. In
January 2000, Mr. Bivona was named Executive Vice
President, Chief Financial Officer and Head of the
new Finance and Investment Group. In addition to his
position as Ambac's Chief Financial Officer, Mr.
Bivona has executive responsibility for management
of Ambac's investment portfolio, asset and liability
management services, corporate marketing, investor
and public relations and corporate administration.
Mr. Bivona served as Senior Vice President and Chief
Financial Officer of Ambac (from 1993 to January
1998) and Ambac Assurance (from 1987 to January
1998). Mr. Bivona also served as Treasurer of Ambac
(from 1993 to July 1998) and Ambac Assurance (from
1987 to July 1998). Mr. Bivona also serves as a
trustee of Cadre Institutional Investors Trust. Mr.
Bivona joined Ambac Assurance from Citibank in 1986.
GREGG L. BIENSTOCK MANAGING DIRECTOR, HUMAN RESOURCES AND EMPLOYMENT
Age 35 COUNSEL.
Mr. Bienstock has been Managing Director, Human
Resources and Employment Counsel since January 1999.
Mr. Bienstock served as First Vice President,
Director of Human Resources and Employment Counsel
of Ambac and Ambac Assurance from February 1997 to
January 1999. Mr. Bienstock joined Ambac from the
Bristol Myers-Squibb Corporation, where he served as
a Director of Human Resources from February 1996 to
February 1997. From September 1993 to February 1996,
Mr. Bienstock was an associate with the New York law
firm of Proskauer Rose LLP. Prior to joining
Proskauer, from April 1992 to September 1993, Mr.
Bienstock was an Assistant General Counsel for the
Mayor's Office of Labor Relations for the City of
New York.
MANAGING DIRECTOR AND GENERAL COUNSEL.
KEVIN J. DOYLE Mr. Doyle was named Managing Director and General
Age 43 Counsel of Ambac in January 2000. Mr. Doyle is
Ambac's chief legal officer. Since January 1996, Mr.
Doyle has also served as the Managing Director and
General Counsel of the Specialized Finance Division
of Ambac Assurance. Mr. Doyle served as First Vice
President and General Counsel of the Specialized
Finance Division of Ambac Assurance from July 1995
to January 1996. From July 1991 to July 1995, Mr.
Doyle served as a Vice President and Assistant
General Counsel of Ambac Assurance. Mr. Doyle joined
Ambac Assurance from the New York law firm LeBoeuf,
Lamb, Greene & MacRae in 1991.
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 1999, options
exercised in 1999 and option values as of year-end 1999 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
--------------------- -------------------------
RESTRICTED SECURITIES ALL OTHER
STOCK UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) UNITS($)(2) OPTIONS(#)(3) ($)(4)(5)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PHILLIP B. LASSITER 1999 $560,000 $750,000 $333,350 250,063 $52,340
Chairman, President and 1998 560,000 840,000 0 187,811 50,200
Chief Executive Officer 1997 530,000 660,000 0 100,000 47,534
DAVID L. BOYLE 1999 300,000 281,250 125,030 20,000 28,040
Vice Chairman-- 1998 300,000 300,000 0 100,000 18,300
Portfolio Risk 1997 197,308 275,000 0 30,000 0
Management Group
ROBERT J. GENADER 1999 310,000 487,500 216,650 63,888 28,973
Vice Chairman-- 1998 310,000 525,000 0 81,098 27,900
Financial Insurance 1997 275,000 400,000 0 60,000 24,664
Business Group
FRANK J. BIVONA 1999 245,000 240,000 106,650 47,150 22,615
Executive Vice 1998 245,000 260,000 0 42,820 22,050
President and Chief 1997 225,000 220,000 0 36,000 20,179
Financial Officer--
Finance and Investment
Group
JOSEPH V. SALZANO(/6/) 1999 225,000 125,000 0 18,000 20,829
Executive Vice 1998 225,000 80,000 80,000 4,000 20,250
President and General 1997 215,000 200,000 0 10,000 19,283
Counsel
</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) Pursuant to the Ambac Deferred Compensation Sub-Plan of the 1997 Equity
Plan (the "SUB-PLAN"), the Compensation and Organization Committee paid
25% of each executive officer's bonus for 1999 in restricted stock
units ("RSUS"). Amounts shown in this column are based on the market
value of the underlying Common Stock on the date of grant (January 24,
2000) and do not reflect the discount attributed to such value by the
Committee to take account of vesting requirements, restrictions on
transfer and other limitations. See page 26 for more detailed
descriptions of these awards made pursuant to the Sub-Plan. As
dividends are paid on the common stock, dividend equivalents are
accrued on the RSUs as additional RSUs and vest according to the same
schedule.
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 were scheduled to vest in two equal installments on the first and
second anniversaries of the date of grant, which was January 26, 1999. In
connection with Mr. Salzano's resignation from Ambac (described below in
footnote 6 on page 14), the second installment of RSUs was forfeited and
Ambac has made a payment to Mr. Salzano of $40,000 in lieu thereof. See
page 22 for a fuller description of the arrangements relating to Mr.
Salzano's resignation.
13
<PAGE>
The total number of RSUs held by the named executive officers as of
December 31, 1999, and the total value of these RSUs (based on the
$52.1875 per share New York Stock Exchange closing price of the common
stock on Friday, December 31, 1999), were as follows: Mr. Lassiter--
442,545 RSUs ($23,095,317); Mr. Genader--85,143 RSUs ($4,443,400); Mr.
Bivona--46,023 RSUs ($2,401,825); and Mr. Salzano--1,459 RSUs ($76,142).
(3) The number of securities underlying options for 1998 and 1999 includes
restoration options. Restoration options were awarded upon the exercise
of stock options in accordance with Ambac's Restoration Option Program.
For the specific breakdown of option and restoration option grants made
in 1999, please refer below to the table on page 15 under "Option
Grants in 1999." For a more detailed description of our Restoration
Option Program, please see footnote 3 under the "Option Grants in 1999"
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 1999
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>
CREDITS TO THE
CONTRIBUTIONS NON-QUALIFIED
TO THE SIP SIP
------------- --------------
<S> <C> <C>
Mr. Lassiter.................................... $14,400 $37,940
Mr. Boyle....................................... 13,350 14,690
Mr. Genader..................................... 12,933 16,040
Mr. Bivona...................................... 13,603 9,012
Mr. Salzano..................................... 14,200 0
</TABLE>
(5) In 1999, in lieu of crediting an additional amount to Mr. Salzano's
Non-Qualified SIP account, Ambac paid $6,629 to Mr. Salzano in cash.
(6) Mr. Salzano resigned as General Counsel effective January 18, 2000 and
as an Executive Vice President effective February 11, 2000. See page 22
for a description of the arrangements relating to Mr. Salzano's
resignation. Kevin J. Doyle replaced Mr. Salzano as General Counsel
effective as of January 18, 2000. Please see page 12 under "Executive
Officers" for Mr. Doyle's biography.
14
<PAGE>
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
INDIVIDUAL
GRANTS
---------------------------------------------------------------------------
NUMBER OF SECURITIES PERCENT OF
UNDERLYING OPTIONS GRANTED(#) TOTAL OPTIONS
--------------------------------- GRANTED TO GRANT DATE
RESTORATION EMPLOYEES IN EXERCISE EXPIRATION PRESENT
NAME OPTIONS(1) OPTIONS(3) 1999 PRICE($/SH)(2) DATE VALUE($)(4)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Phillip B. Lassiter 120,000 13.64% $55.25000 1/26/06 $2,061,600
34,567 3.93 54.53125 3/3/03 502,259
30,487 3.47 54.53125 4/26/04 509,133
29,387 3.34 54.53125 5/1/05 547,480
35,622 4.05 54.53125 4/23/03 663,638
David L. Boyle 20,000 2.27 55.25000 1/26/06 343,600
Robert J. Genader 60,000 6.82 55.25000 1/26/06 1,030,800
3,888 .44 57.03125 1/24/00 11,703
Frank J. Bivona 40,000 4.55 55.25000 1/26/06 687,200
7,150 .81 53.84375 1/24/00 33,391
Joseph V. Salzano 18,000 2.05 55.25000 1/26/06 309,240
</TABLE>
- --------------------------------------------------------------------------------
(1) Options awarded to the named executive officers by the Compensation and
Organization Committee were long-term incentive awards granted on
January 26, 1999. Each executive officer's options will vest in three
equal installments (on the first, second and third anniversaries of the
date of grant). Vesting is accelerated upon retirement, death or
permanent disability. Generally, all of the executive officers' options
will expire seven years from the date of grant or, earlier, if
employment terminates.
(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. A restoration
option is awarded automatically when the underlying option is exercised
by tendering shares of common stock to pay the exercise price. Each
restoration option will vest one year from the date of grant and has
the same exercise and transfer 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 26, 1999 and the fair market value on that date of $55.25 per
share as we discussed above. The model also assumes: (a) a risk-free rate
of return of 4.59% (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 25.97% (calculated using month-end
closing prices of Ambac common stock on the New York Stock Exchange for
the period beginning with January 31, 1996 and ending as of the end of
the month preceding the grant date); (c) a constant dividend yield of
0.72% based on the quarterly cash dividend rate at the time of grant on
Ambac common stock; and (d) an exercise date, on average, of 5.5 years
after grant.
FOR THE RESTORATION OPTION GRANTS. We use the following assumptions in
applying the model for each Restoration Option Grant: (a) a risk-free
rate of return equal to the yield on grant date of a U.S. Treasury Strip
zero coupon bond with a maturity that approximates the term of the
option; (b) stock price volatility of Ambac common stock calculated using
month-end closing prices of Ambac common stock on the New York Stock
Exchange for the three year period prior to the grant date; (c) a
constant dividend yield based on the quarterly cash dividend rate at the
time of grant on Ambac common stock; and (d) exercise of the restoration
option at the end of its term.
WE DID NOT ADJUST THE MODEL FOR NON-TRANSFERABILITY, RISK OF FORFEITURE,
OR VESTING RESTRICTIONS. THE ACTUAL VALUE (IF ANY) AN EXECUTIVE OFFICER
RECEIVES FROM A STOCK OPTION WILL DEPEND UPON THE AMOUNT BY WHICH THE
MARKET PRICE OF AMBAC COMMON STOCK EXCEEDS THE EXERCISE PRICE OF THE
OPTION ON THE DATE OF EXERCISE. THE HYPOTHETICAL VALUES ARE PRESENTED
PURSUANT TO SEC RULES AND THERE CAN BE NO ASSURANCE THAT THE AMOUNT
STATED AS "GRANT DATE PRESENT VALUE" WILL ACTUALLY BE REALIZED.
15
<PAGE>
AGGREGATED OPTION EXERCISES DURING 1999 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-
OPTIONS HELD AT MONEY OPTIONS HELD AT
NUMBER OF SHARES DECEMBER 31, 1999 DECEMBER 31, 1999 ($)(1)
ACQUIRED ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Phillip B. Lassiter 320,000 $10,357,488 187,812 350,062 $1,481,257 $1,071,863
David L. Boyle 0 0 45,000 105,000 566,875 697,500
Robert J. Genader 25,521 442,677 270,431 120,554 6,790,203 621,036
Frank J. Bivona 20,000 691,875 186,970 82,483 4,910,971 381,456
Joseph V. Salzano 0 0 167,501 50,999 4,871,754 834,144
</TABLE>
- --------------------------------------------------------------------------------
(1) This valuation represents the difference between $52.1875, the closing
price of Ambac common stock on the New York Stock Exchange on Friday,
December 31, 1999, 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 on page 17 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>
TOTAL YEARS OF SERVICE AT RETIREMENT
--------------------------------------------------------------------
AVERAGE YEARS OF
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 NA $ 120,000 $ 130,000
15 NA $ 60,000 $ 70,000 $ 80,000 90,000 100,000
0 $ 20,000 30,000 40,000 50,000 60,000 70,000
- -------------------------------------------------------------------------------------------
500,000 30 NA NA NA NA 300,000 325,000
15 NA 150,000 175,000 200,000 225,000 250,000
0 50,000 75,000 100,000 125,000 150,000 175,000
- -------------------------------------------------------------------------------------------
1,000,000 30 NA NA NA NA 600,000 650,000
15 NA 300,000 350,000 400,000 450,000 500,000
0 100,000 150,000 200,000 250,000 300,000 350,000
- -------------------------------------------------------------------------------------------
1,500,000 30 NA NA NA NA 900,000 975,000
15 NA 450,000 525,000 600,000 675,000 750,000
0 150,000 225,000 300,000 375,000 450,000 525,000
- -------------------------------------------------------------------------------------------
2,000,000 30 NA NA NA NA 1,200,000 1,300,000
15 NA 600,000 700,000 800,000 900,000 1,000,000
0 200,000 300,000 400,000 500,000 600,000 700,000
</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 on page 13, 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.
17
<PAGE>
In order to simplify the chart, we show only 0, 15
and 30 years of service at Transition, since those
values cover the range for our executive officers.
The years of credited service under the Pension Plan
(including credit for years of past service under
the Citibank Plan) as of December 31, 1999 for
executive officers named in the Summary Compensation
Table were as follows: Mr. Lassiter--30 years, Mr.
Boyle--3 years, Mr. Genader--25 years, Mr. Bivona--
22 years and Mr. Salzano --13 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 Mr. Lassiter has a supplemental pension benefit that
PENSION BENEFIT will be based on the benefit formula of the Pension
Plan that was in effect until the end of 1991. The
formula, however, will take into account his bonus
compensation (including that portion of his bonus
paid in RSUs) and will be determined without giving
effect to provisions of the Internal Revenue Code
that limit 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.
18
<PAGE>
PAYMENTS AND If Mr. Lassiter's employment is terminated other
BENEFITS than for "Cause" (as we define it below), or if he
resigns for "Good Reason" (as we define it below),
Mr. Lassiter will:
- -- AFTER . receive, for the remainder of the term (which
TERMINATION OR typically would be for two years), compensation
RESIGNATION at an annualized rate equal to the sum of his
base annual salary and target bonus at the time
of termination;
. be fully vested in all awards under the 1991
Stock Incentive Plan and the 1997 Equity Plan;
. receive a lump-sum payment equal to the amount
that we would have contributed to his account
under the SIP and any nonqualified plan we
maintained during the two years following
termination;
. be credited with an additional two years of
service under the Pension Plan; and
. continue to participate in all Ambac medical and
other welfare plans for a limited time following
termination.
- -- AFTER All stock options and other awards under the 1997
CHANGE Equity Plan that are made to Mr. Lassiter after
IN CONTROL January 1, 1998 will vest in full upon the
occurrence of a "Change in Control" (as we define it
below), whether or not his employment is
subsequently terminated.
In addition, if Mr. Lassiter's employment terminates
following a Change in Control, his severance amount
would be calculated and paid in the same manner as
we describe below under "Management Retention
Agreements with Executive Officers."
Mr. Lassiter would also be entitled to the "gross
up" payment described in that section.
OTHER Mr. Lassiter will be subject to certain restrictions
RESTRICTIONS prohibiting him from engaging in competition with
Ambac or any of our subsidiaries (except that these
restrictions will not apply following a Change in
Control) and from divulging any confidential or
proprietary information he obtained while he was our
employee.
19
<PAGE>
MANAGEMENT RETENTION AGREEMENTS WITH EXECUTIVE OFFICERS
IN GENERAL We have entered into management retention agreements
with each of our executive officers (other than Mr.
Lassiter) to provide for payments and certain
benefits if they are terminated following a "Change
in Control" (as we define it below).
PAYMENTS AND If there is a Change in Control and, within three
BENEFITS AFTER years of the Change in Control, the executive's
CHANGE IN CONTROL 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;
. be credited with an additional two years of
service under the Pension Plan; and
. continue to participate in Ambac's medical and
other welfare benefits programs for a limited
time following termination.
All stock options and other awards under the 1997
Equity Plan that are made to executive officers
after January 1, 1998 will vest in full upon the
occurrence of a Change in Control, whether or not
the executive's employment is subsequently
terminated.
The agreements also provide for a "gross up" payment
in an amount that is intended to make the executive
whole, on an after-tax basis, for any excise tax
(but not any other tax) imposed on the payments
described above.
20
<PAGE>
DEFINITIONS
The following definitions are used in the Management Retention Agreements and
the Employment Agreement with the Chief Executive Officer described above:
"CHANGE IN A "Change in Control" generally occurs if:
CONTROL"
. an individual, entity or group acquires
beneficial ownership of 20% or more of the
outstanding common stock. Acquisitions by Ambac
and 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" for an executive's termination generally
"CAUSE" includes:
. the willful commission of acts that are dishonest
and demonstrably and materially injurious to
Ambac;
. the conviction of certain felonies; or
. a material breach of any of the executive's
agreements concerning confidentiality and
proprietary information.
An executive's termination will not be considered to
have been for Cause unless at least three-quarters
of the members of the Board adopt a resolution
finding that the executive has engaged in conduct
that constitutes Cause as defined in the agreement.
"GOOD REASON" An executive will generally have "Good Reason" to
terminate his employment if:
. there is substantial adverse change in the
executive's duties or responsibilities;
. the office of the executive is relocated more
than 25 miles from the location where the
executive worked immediately prior to the Change
in Control; or
. Ambac fails to honor its obligations under the
agreement.
During a 30-day period following the first
anniversary of a Change in Control, a resignation by
the executive for any reason will be considered a
termination for Good Reason.
21
<PAGE>
ARRANGEMENT WITH FORMER EXECUTIVE OFFICER
Joseph V. Salzano, an executive officer named in the Summary Compensation
Table, resigned as General Counsel effective as of January 18, 2000 and as
Executive Vice President effective as of February 11, 2000. On December 29,
1999, Ambac entered into an Agreement and Release covering the terms of Mr.
Salzano's departure.
The Agreement provides that Mr. Salzano will remain as an Executive Vice
President until February 11, 2000 to assist Ambac in the transition and as an
employee of Ambac until April 28, 2000. Mr. Salzano will be paid his base
salary through April 28, 2000 and will be paid severance in an amount equal to
one year's salary in effect at the time of his resignation as an employee. The
Agreement also provides Mr. Salzano with certain additional benefits. These
benefits include: (i) a bonus for 1999 as set forth in the Summary Compensation
Table; (ii) $40,000 in lieu of restricted stock units granted to him in January
1999 which will expire upon his resignation; (iii) the acceleration of the
vesting of 1,333 stock options granted in January 1998 and 12,000 stock options
granted in January 1999; and (iv) three months of executive outplacement
services, which if not used by September 30, 2000 will be forfeited. In return
for the aforementioned benefits, Mr. Salzano provided Ambac with a reasonable
period of time to ensure an effective and smooth transition of responsibilities
to our new General Counsel. Additionally, Mr. Salzano agreed to extensive
restrictions with respect to non-competition, non-disclosure of proprietary
information, non-solicitation of current or former Ambac employees and
prohibition of acts detrimental to Ambac, its employees and directors or its
products.
22
<PAGE>
REPORT ON EXECUTIVE COMPENSATION FOR 1999 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 1999:
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 stock option and restricted stock unit awards whose
value over time depends upon the market value of Ambac's common stock;
. To provide compensation comparable to that offered by other leading
companies in our industry, enabling Ambac to compete for and retain
talented executives who are critical to our long-term success; and
. To motivate key executives to achieve strategic business initiatives and
to reward them for their achievement.
WHAT IS OUR POSITION ON MAXIMIZING THE DEDUCTIBILITY OF EXECUTIVE COMPENSATION?
In 1997, our stockholders approved the 1997 Executive Incentive Plan ("EIP")
and the 1997 Equity Plan. We designed these plans to allow Ambac to receive a
tax deduction for incentive compensation payments to our Chief Executive
Officer and our other four most highly paid executive officers. Without these
qualifying performance-based plans, Ambac could not deduct incentive
compensation payments to the extent the amounts paid to any of these executive
officers in any year exceeded $1 million.
The Committee intends to pursue a strategy of maximizing the deductibility of
the compensation we pay to our executives. However, we intend to retain the
flexibility to take actions that we consider to be in the best interests of
Ambac and our stockholders and which may be based on considerations in addition
to tax deductibility.
23
<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 1999?
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 1999, we considered
comparative data prepared by both Ambac's senior human
resources officer and by Johnson Associates, Inc., the
Committee's outside consultant for executive
compensation.
The comparison group we chose for compensation
purposes (the "COMPARISON GROUP") consisted mainly of
our competitors in the financial guarantee insurance
industry. The index we chose for our performance graph
was the Investor's Business Daily Insurance
Property/Casualty/Title Index. This was the publicly
available index that we found best corresponded to our
business and included the greatest number of companies
in the Comparison Group. The performance graph follows
this Report in the Proxy Statement.
24
<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 Although data for the Comparison Group supported an
OF THE annual increase in base salaries for 1999, the
EXECUTIVES Committee accepted Mr. Lassiter's recommendation to
maintain base salaries for all Ambac executives at the
1998 rate. We note that the base salaries of our
executives (excluding the Chief Executive Officer) are
generally at or below the median for salaries of
executives in the Comparison Group. The base salary
for each of the named executive officers is reported
in the "Summary Compensation Table" elsewhere in the
Proxy Statement.
BASE SALARY In light of our decision not to increase the base
OF THE salaries of Ambac's executives, the Committee did not
CHIEF EXECUTIVE increase the base salary of Mr. Lassiter for 1999. Mr.
OFFICER Lassiter's base pay therefore remained at the 1998
level of $560,000. We note that Mr. Lassiter's base
salary in 1999 was still in the top quarter for
salaries of chief executive officers in the Comparison
Group.
HOW DID WE DETERMINE BONUSES FOR 1999?
1999 OVERALL In January 2000, the Committee evaluated Ambac's
PERFORMANCE performance during 1999 under each of the nine
categories set out in the EIP: return on equity; net
income/core earnings growth; total return to
stockholders; expense management; risk management;
market share; industry leadership/image building; new
products/initiatives; and organizational
development/corporate culture. We did not weight the
categories but instead arrived at an overall "grade"
for corporate performance. We determined Ambac's
overall performance to be extremely strong based
especially on its excellent performance in the
categories of return on equity, net income/core
earnings growth, expense management, market share, new
products/initiatives and organizational
development/corporate culture.
BONUSES The Committee awarded bonus compensation for 1999 to
FOR THE each executive based on the executive's scope of
EXECUTIVES 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.
25
<PAGE>
In July 1999, the Committee adopted the Ambac Senior
Officer Deferred Compensation Sub-Plan of the 1997
Equity Plan for all executive officers and managing
directors. Under the Sub-Plan, 25% of each executive
officer's bonus is paid in RSUs unless the executive
officer has satisfied the stock ownership target under
the Ambac Stock Ownership Program. An executive who
has met the ownership target may elect to receive 25%
of their bonus in the form of RSUs. Each executive
officer other than Mr. Salzano is receiving 25% of his
bonus in the form of RSUs. Bonus amounts are reported
in the Summary Compensation Table elsewhere in this
Proxy Statement.
The value we ascribed to the RSUs awarded under the
Sub-Plan for 1999 was based on a 25% discount from the
market value of Ambac's common stock on the date of
grant. The Committee decided to discount these RSUs in
order to account for vesting requirements and
restrictions on transfer of the RSUs. Accordingly, the
value we ascribed to the RSUs differs from the amounts
reported in the Summary Compensation Table under the
column headed "Annual Compensation--Restricted Stock
Units", as those amounts, in accordance with SEC
requirements, are based on the market price of the
Common Stock on the date of grant.
BONUS At our meeting in January 1999, the Committee selected
FOR THE Mr. Lassiter as the only executive to participate in
CHIEF EXECUTIVE the EIP. We then established a formula under the EIP
OFFICER for determining Mr. Lassiter's bonus for the
performance year. The formula emphasized return on
equity, net income growth and core earnings growth.
In January 2000, we applied the formula and awarded
Mr. Lassiter a bonus of $1,000,000. Pursuant to the
terms of the EIP, we did not have the authority to
award a bonus of more than $1,000,000 although the
exceptional performance for 1999 and Mr. Lassiter's
leadership may have warranted more. Pursuant to the
Sub-Plan, Mr. Lassiter elected to receive 25% of his
bonus in the form of RSUs having the terms described
above.
For 2000, we again selected Mr. Lassiter as the only
executive officer to participate in the EIP.
26
<PAGE>
WHAT WERE THE LONG-TERM INCENTIVE AWARDS IN 1999?
1999 GRANTS In 1999, we provided long-term incentive awards for
executives by granting stock options. As we did for
1998 and 1997, we again limited the term of the stock
options to seven years. The number of stock options
awarded to each of the executives (including Mr.
Lassiter) was in the top quarter of recent awards
given by companies within the Comparison Group. The
number of stock options awarded to each of the named
executive officers is reported in the "Option Grants
in 1999" table elsewhere in the Proxy Statement.
STOCK Upon the recommendation of the Chief Executive
OWNERSHIP Officer, the Committee has decided to increase and
GUIDELINES expand our stock ownership guidelines to apply to all
managing directors and executive officers. The
guidelines set an appropriate level of ownership of
Ambac stock (based on the market value of Ambac common
stock) as a multiple of the officer's total cash
compensation (base salary plus cash bonus). The
multiple ranges from a high of seven times total cash
compensation (in the case of Mr. Lassiter) to a low of
one and one-half times total cash compensation for
managing directors.
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 27, 2000
27
<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--Property/Casualty/Title Index.
The graph assumes that you invested $100 in Ambac common stock and in each of
the indexes on December 31, 1994, 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.
[LINE GRAPH]
<TABLE>
<CAPITION>
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
<S> <C> <C> <C> <C> <C> <C>
Ambac Financial Group, Inc. $100.0 $127.5 $182.6 $255.4 $336.6 $294.1
S&P 500 Index $100.0 $137.6 $169.2 $225.6 $290.1 $351.1
IBD-INS. Property/
Casualty/Title Index $100.0 $141.0 $148.6 $182.1 $145.4 $110.8
</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
approximately $550 by the end of 1999. This compares with a $100 investment
growing to approximately $465 in the S&P 500 Index and to approximately $140 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.
28
<PAGE>
DISCUSSION OF PROPOSALS RECOMMENDED BY THE BOARD
PROPOSAL 1: ELECT SEVEN DIRECTORS
The Board has nominated seven directors for election at the Annual Meeting.
Each nominee is currently serving as one of our directors. Ms. Considine was
appointed as a director in March 2000. 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 56 (since 1991) AND PRESIDENT (since 1992) of Ambac and
Director since Ambac Assurance. Mr. Lassiter joined Ambac in 1991
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.
MICHAEL A. CALLEN PRESIDENT, AVALON ARGUS ASSOCIATES, LLC (financial
Age 57 consulting) since April 1996. Mr. Callen was Special
Director since Advisor to the National Commercial Bank located in
1991 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 67 GRUMMAN CORPORATION (defense and aerospace). Dr.
Director since 1995 Caporali was Senior Vice President of Raytheon
Company (electronics, aircraft, engineering and
construction) from April 1995 until he retired in
May 1998. Previously, Dr. Caporali had retired in
June 1994 as Chairman and Chief Executive Officer of
Grumman Corporation. He was Chairman
29
<PAGE>
and Chief Executive Officer of Grumman Corporation
from July 1990 until June 1994 and Vice Chairman of
Grumman Corporation from 1988 to July 1990. Dr.
Caporali also serves as a director of Bank of Akron.
JILL M. CONSIDINE CHAIRMAN AND CHIEF EXECUTIVE OFFICER OF THE
Age 55 DEPOSITORY & TRUST CLEARING CORPORATION since
Director since November 1999 and Chairman and Chief Executive
March 2000 Officer of The Depository Trust Company (securities
depository and clearing house) since January 1999.
Prior to joining The Depository Trust Company, Ms.
Considine served as the President of the New York
Clearing House Association, L.L.C. from 1993 to
1999. Ms. Considine served as a Managing Director,
Chief Administrative Officer and as a member of the
Board of Directors of American Express Bank Ltd.,
from 1991 to 1993. Prior to that, Ms. Considine
served as the New York State Superintendent of Banks
from 1985 to 1991. Ms. Considine also serves as a
director of the Atlantic Mutual Insurance Companies
and The Interpublic Group of Companies, Inc.
RICHARD DULUDE RETIRED VICE CHAIRMAN OF CORNING INCORPORATED
Age 67 (diversified manufacturing). Mr. Dulude was Vice
Director since Chairman of Corning Incorporated from November 1990
1992 until he retired in April 1993. Mr. Dulude was Group
President of Corning Incorporated from 1983 until
1990. Mr. Dulude also serves as a director of Landec
Corporation.
W. GRANT GREGORY CHAIRMAN OF GREGORY & HOENEMEYER, INC. (merchant
Age 59 banking) since 1988. Mr. Gregory retired in 1987 as
Director since Chairman of the Board of Touche Ross & Co., now
1991 Deloitte and Touche. Mr. Gregory also serves as a
director of DoubleClick Inc., an Internet
advertising company. In addition, Mr. Gregory serves
as a director of three private companies: yClip.com,
an e-commerce enabled incentives company;
zUniversity.com, an online network for higher
education; and Class.com, an Internet leader in
accredited distance learning.
C. RODERICK O'NEIL CHAIRMAN, O'NEIL ASSOCIATES (formerly Greenspan
Age 69 O'Neil Associates) (investment and financial
Director since consulting) since 1984. Mr. O'Neil also serves as a
1991 director of Fort Dearborn Income Securities, Inc.,
Beckman Coulter, Inc. and Cadre Institutional
Investors Trust.
The Board recommends that you vote "FOR" the election of all seven nominees for
director.
30
<PAGE>
PROPOSAL 2: AMEND 1997 EXECUTIVE INCENTIVE PLAN
We are asking you to approve amendments to our 1997 Executive Incentive Plan
that will (i) increase the maximum incentive amount that may be awarded to any
participant under the Plan; (ii) redefine the "Covered Employees" performance
goals set forth in the Plan; and (iii) extend the term of the Plan to January
1, 2005.
THE PROPOSED We adopted the 1997 Executive Incentive Plan in May
AMENDMENTS of 1997 in order to ensure that incentive
compensation paid to our most senior executives
would remain fully deductible to Ambac in light of
provisions of the Internal Revenue Code that
otherwise might limit the deductibility of these
payments. The Plan currently provides that the
maximum incentive amount that may be earned under
the Plan by a Participant during a Performance
Period of one year or less is $1.0 million and
during a Performance Period of more than one year is
$3.0 million.
Since 1997, Ambac, under Mr. Lassiter's leadership,
has experienced dynamic growth that has exceeded the
Compensation and Organization Committee's
expectations at the time the Plan was adopted.
Although required to reassess the Plan and submit it
for stockholder approval every five years, the
Committee believes that it is necessary to amend the
Plan this year so that the Committee will be able to
adequately compensate our most senior executives in
the event that Ambac's strong performance continues.
For 1999, the Committee designated Mr. Lassiter as
the only officer eligible to earn a bonus under the
Plan. Early in 1999, the Committee established a
grid that generated different amounts of incentive
compensation depending on Ambac's performance on the
various performance criteria provided for in the
Plan. Following the end of the year, the Committee
found that if it applied its grid, Mr. Lassiter
would have been entitled to incentive compensation
of up to $1.12 million. The Plan, as currently in
effect, has limited the Committee to awarding Mr.
Lassiter $1.0 million, notwithstanding the
Committee's belief that Ambac's growth and
exceptional return on equity in 1999 warranted an
award of a greater amount. In order to ensure that
the Committee has the ability to compensate Ambac's
top executives in a manner that is competitive with
industry practice and responsive to Ambac's
performance, the Board is requesting that the
maximum aggregate incentive amount that may be
awarded under the Plan be increased from $1.0
million to $2.0 million for any Performance Period
of one year or less, and that the maximum incentive
amount that may be earned under the Plan for any
Performance Periods of more than one year be
increased from $3.0 million to $6.0 million.
The Committee has also realized that some of the
performance goals listed in Section 4(d) of the
Executive Incentive Plan no longer correspond to the
ways in which the Committee believes it is
31
<PAGE>
appropriate to evaluate Ambac's performance. In
particular, the Committee believes that core
earnings/operating earnings growth is a better
measure than net income growth to determine how well
Ambac's businesses are growing. In addition, the
Committee reviews certain areas of Ambac's
performance which are not currently articulated in
the Plan's existing Performance Goals. For example,
the Committee considers not only industry leadership
(as provided for in the Plan) but also image
building. It considers not only the development of
new products but also other types of initiatives. It
reviews not only the organizational development of
Ambac but also its more general corporate culture.
Accordingly, the Committee has recommended that the
performance goals of the Plan be amended to
correspond more closely to the types of performance
goals that the Committee currently examines when it
is awarding executive compensation.
Finally, the Committee has recommended, in light of
its recommendations to revise the maximum incentive
amounts and the performance goals, that the term of
the Plan be extended from January 1, 2002 to January
1, 2005.
Upon the recommendation of the Committee, the Board,
therefore, is proposing amendments to the Plan (i)
to increase the maximum incentive amount that may be
awarded under the Plan for a Performance Period of
one year or less to $2.0 million and for all
Performance Periods of more than one year to $6.0
million, (ii) to revise the Performance Goals in
Section 4(d) of the Plan, and (iii) to extend the
term of the Plan to January 1, 2005. The text of the
Plan sections to be amended are set forth below.
Additions to the existing Plan document are in bold
face, while deleted provisions are crossed out.
"4. Awards.
(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;
32
<PAGE>
(ii) core earnings/operating earnings growth;
(iii) total return to stockholders;
(iv) expense management;
(v) risk management;
(vi) market share;
(vii) industry leadership/image building;
(viii) new products/initiatives; 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."
"7. Effective Date; Term
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, 2005."
We describe below the other principal terms of the 1997 Executive Incentive
Plan. None of these terms will be affected by the proposed amendments.
ELIGIBILITY The Committee will select participants for the
Executive Incentive Plan at the start of each annual
or other performance period from among Ambac's
executive officers, senior officers and key
employees. For 2000, the Committee has designated
Phillip B. Lassiter, Ambac's Chairman, President and
Chief Executive Officer, as the only participant in
the Executive Incentive Plan.
ADMINISTRATION The Plan is administered by the Committee. At the
beginning of a performance period, the Committee
will establish the performance targets and specify
the relationship between performance targets and the
award. The Committee will also determine the maximum
award which may be earned by each executive.
Following the completion of the performance period,
the Committee must certify in writing whether the
applicable performance targets have been achieved
and specify the incentive amounts, if any, payable
to executives. The Committee may reduce (but may not
increase) the incentive amount payable to take into
account additional factors that
33
<PAGE>
the Committee deems relevant to assess individual or
corporate performance.
PAYING AWARDS The Committee will determine whether awards will be
paid in cash, in the form of stock awards or
restricted stock units issued under the 1997 Equity
Plan (or another stock-based compensation plan of
Ambac), or in any combination. If the Committee
determines that an award will be paid in the form of
stock awards or restricted stock units, then for
purposes of determining the number of shares of
common stock subject to an award, the Committee may
value the shares at a discount to reflect any
restrictions or conditions. The discount may not
exceed 50% of the fair market value of the shares as
of the date of determination.
TERMINATION OF If an executive's employment terminates during a
EMPLOYMENT performance period by reason of death, disability or
retirement (or with the approval of the Committee),
the executive will receive a pro rata payment based
upon: the amount of time the executive was employed
during the performance period and the degree to
which the Committee determines that the performance
targets have been achieved prior to the termination.
If an executive's employment terminates during a
performance period for any other reason, the
executive will not be entitled to an award.
AMENDMENT The Board or Committee may amend or terminate the
AND TERMINATION 1997 Executive Incentive Plan at any time. However,
no action will be taken without stockholder approval
to the extent necessary to continue to qualify the
amounts payable to covered employees as performance-
based compensation under 162(m) of the Internal
Revenue Code.
The Board recommends that you vote "FOR" the Amendments to the 1997 Executive
Incentive Plan.
PROPOSAL 3: RATIFY SELECTION OF KPMG LLP AS INDEPENDENT AUDITORS FOR 2000
We are asking you to ratify the Board's selection of KPMG LLP, certified
public accountants, as independent auditors for 2000. The Audit Committee
recommended the selection of KPMG to the Board. KPMG has served as the
independent auditors of Ambac Assurance since 1985 and of Ambac since our
incorporation in 1991.
A representative of KPMG will attend the Annual Meeting to answer your
questions.
We are submitting this proposal to you because the Board believes that such
action follows sound corporate practice. If you do not ratify the selection of
independent auditors, the Board will consider it a direction to consider
selecting other auditors for next year. However, even if you ratify the
selection, the
34
<PAGE>
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 2000.
INFORMATION ABOUT STOCKHOLDER PROPOSALS
If you wish to submit proposals to be included in our 2001 proxy statement,
we must receive them on or before Friday, December 1, 2000. 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 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 31, 2000
35
<PAGE>
[LOGO OF AMBAC]
ONE STATE STREET PLAZA, NEW YORK, NY 10004
<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
1150, Pittsburgh, Pennsylvania 15230
- --------------------------------------------------------------------------------
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 be received by 11:59 p.m. eastern
daylight time on May 9, 2000 to be counted 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. -
AMBAC FINANCIAL GROUP, INC. PROXY
- --------------------------------------------------------------------------------
This proxy is solicited on behalf of the Board of Directors for the Annual
Meeting of Stockholders on May 10, 2000. The undersigned hereby appoints Phillip
B. Lassiter, Frank J. Bivona and Anne G. Gill, and each of them, proxies, with
power of substitution, to vote all shares of Common Stock of Ambac Financial
Group, Inc. which the undersigned is entitled to vote at the Annual Meeting of
Stockholders to be held on Wednesday, May 10, 2000 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: , 2000
--------------------------------------
<PAGE>
[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: (01) Phillip B. Lassiter (02) Michael A. Callen
(03) Renso L. Caporali (04) Jill M. Considine
(05) Richard Dulude (06) W. Grant Gregory
(07) C. Roderick O'Neil
[_] FOR all nominees listed above. [_] WITHHOLD AUTHORITY
(Except as listed to the contrary below.) to vote for all nominees
listed above.
To withhold authority to vote for any individual nominee, write that
nominee's name or number below:
FOR AGAINST ABSTAIN
2. Amend the 1997 Executive Incentive Plan.......... [_] [_] [_]
3. Ratify Selection of KPMG LLP as independent
auditors for 2000............................... [_] [_] [_]
