(EXHIBIT 10.01)
SECOND AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT dated as of July 18,
1991, as initially amended and restated in full as of December 30, 1994 and
subsequently further amended and restated in full as of December 2, 1997, by and
between AMBAC FINANCIAL GROUP, INC., a Delaware corporation (the "COMPANY"), and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ (the "EXECUTIVE").
WHEREAS, the Company and the Executive originally entered into this
Agreement as of July 18, 1991 providing for the Executive to be employed by the
Company as its Chairman and Chief Executive Officer upon the terms and
conditions set forth in such original agreement, the Executive's positions
having subsequently been enlarged to include President of the Company; and
WHEREAS, the Company and the Executive amended and restated this
Agreement in its entirety as of December 30, 1994 in order to reflect certain
amendments to the terms thereof; and
WHEREAS, the Company and the Executive have agreed to amend this
Agreement further, principally to conform to certain terms set forth in Amended
and Restated Management Retention Agreements between the Company and certain of
its senior officers, and to restate this Agreement in its entirety;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows
(capitalized terms used herein without definition shall have the meanings
ascribed to such terms in Section 12 below):
1. EMPLOYMENT AND DUTIES.
(a) EFFECTIVE DATE. The effective date of this Agreement (the
"EFFECTIVE DATE") was July 18, 1991, such date being the date of the
consummation of the "Equity Offerings," as such term is defined in Registration
Statement No. 33-40306 on Form S-1 of the Company.
(b) GENERAL. The Company hereby continues the employment of the
Executive, and the Executive agrees upon the terms and conditions herein set
forth to continue to serve, as the Chairman, President and Chief Executive
Officer of the Company. In addition, the Executive shall continue to serve as
the Chairman, President and Chief Executive
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Employment Agreement
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Officer of Ambac Assurance Corporation, a Wisconsin corporation that is a
wholly-owned subsidiary of the Company ("AMBAC ASSURANCE"). The Executive shall
devote his full-time working hours and best efforts to his duties hereunder. The
Company agrees to nominate the Executive for election to its Board of Directors
(the "BOARD") as a member of the management slate at each annual meeting of
stockholders (or if the members of the Board are divided into classes pursuant
to Section 141(d) of the Delaware General Corporation Law, at each annual
meeting of stockholders at which the Executive's director class comes up for
election) during his employment hereunder. The Executive agrees to serve on the
Board if elected. In addition, the Executive agrees to serve, if requested by
the Board, as an officer or director of any subsidiary or affiliate of the
Company at no additional compensation.
2. TERM OF EMPLOYMENT. The term of the Executive's employment under
this Agreement (the "TERM") commenced on the Effective Date and initially
continued until the second anniversary of the Effective Date. Starting with the
day following the Effective Date the Term has been extended, and, continuing
until the date the Executive's employment is terminated in accordance with the
terms of this Agreement, the Term shall continue to be so extended, on a daily
basis to continue until the second anniversary of the date of such extension,
provided, however, that (i) the Company or the Executive may give the other
notice that it does not wish to extend the Term beyond two years from the date
of such notice, and (ii) unless the Company shall specify in writing to the
contrary, the Term shall not extend past the Executive's sixty-fifth birthday.
Notwithstanding the preceding sentence, upon the occurrence of a Change in
Control, the Term shall be extended and shall at any time be considered to
continue until the later of (x) the third anniversary of the Change in Control
and (y) the date determined in accordance with the preceding sentence. Nothing
in this Section 2 shall limit the right of the Company to terminate the
Executive's employment hereunder on the terms and conditions set forth in
Section 4.
3. COMPENSATION AND OTHER BENEFITS. Subject to the provisions of
this Agreement, the Company shall pay and provide the following compensation and
other benefits to the Executive during the Term as compensation for services
rendered hereunder:
(a) SALARY. The Executive's rate of salary (the "SALARY") was
initially $410,000 and has subsequently been increased to $530,000. The Salary
is payable in substantially equal installments at such intervals (not less
frequently than monthly) as may be determined by the Company in accordance with
its payroll practices as established from time to time. The Compensation and
Organization Committee of the Board (or any successor thereto) (the "COMMITTEE")
shall periodically review and may increase, but not decrease, the Executive's
Salary as in effect at the time of such review.
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Employment Agreement
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(b) BONUS. The Executive shall participate for each calendar year in
a bonus arrangement pursuant to which he shall be eligible to earn an annual
bonus, based on the Company's achieving certain performance goals which the
Committee shall establish. For each such year, the bonus arrangement will
provide that, in the event that target performance goals are achieved, the bonus
for such year shall be no less than 70% of the Executive's Salary for such year
(the "TARGET BONUS") and may provide for a bonus greater or less than the Target
Bonus in the event the target performance goals for such year are exceeded or
are not met in full. The form of payment of the Executive's bonus (whether in
cash, in awards under the Company's 1997 Equity Plan, as the same may be amended
from time to time, or any successor thereto (the "EQUITY PLAN"), in a
combination of cash and such awards or in some other form), and the value to be
attributed to any non-cash component of the bonus, will be determined by the
Committee in its discretion.
(c) LONG-TERM INCENTIVE COMPENSATION. The Executive's long-term
incentive compensation awards, whether under the Equity Plan or any other plan
or program of the Company, shall be determined by the Committee in its
discretion.
(d) EXPENSES. The Company shall reimburse the Executive for
reasonable travel and other business related expenses incurred by him in
performance of the business of the Company. In addition, the Company shall
reimburse the Executive for the annual membership fees of one golf club and one
luncheon club.
(e) PENSION, WELFARE AND FRINGE BENEFITS.
(i) GENERAL. The Executive shall participate in each pension,
welfare, life insurance, health, disability and other fringe benefit plan
or program maintained by the Company for its executive officers in
accordance with the terms thereof.
(ii) PARTICIPATION IN RETIREMENT PLAN. The Executive participates,
and shall continue to participate, in the Company's Pension Plan (the
"RETIREMENT PLAN") or any successor plan thereto and has received service
credit under the Retirement Plan, in accordance with the terms thereof, for
periods of service with Citibank, N.A. and its affiliates for which he
received credit under The Retirement Plan of Citibank, N.A. and its
affiliates (the "CITIBANK PLAN"), it being understood that under the terms
of such plans amounts paid under the Citibank Plan shall reduce the amounts
payable from the Retirement Plan.
(iii) SUPPLEMENTAL RETIREMENT BENEFITS. Provided that the Executive
remains in the employ of the Company or its affiliates until at least the
age at which he becomes
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Employment Agreement
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eligible for early retirement under the terms of the Retirement Plan (or,
if earlier, until termination of his employment by reason of death or
Disability, the Company will pay the Executive, commencing at the time
payment of benefits under the Retirement Plan commences (or, if earlier,
commencing as of the first month following termination of the executive's
employment by reason of death or Disability), an annual supplemental
retirement benefit (the "ASRB") determined by the formula "ASRB = X - (Y +
Z)", where "X", "Y" and "Z" are defined as follows:
"X" equals the annual amount that would be payable under the
Retirement Plan to the Executive commencing at his retirement (or
earlier termination of employment due to death or Disability)
determined as though (A) the provisions of the Retirement Plan in
effect on December 31, 1991 had remained in effect through such
retirement or earlier termination, (B) the Executive's bonus
compensation (including cash bonus and any restricted stock or stock
units awarded in lieu of cash (any such stock and units to be
considered to have the value attributed thereto by the Committee as
provided in Section 3(b)), but excluding the value of any stock
options) were taken into account in computing the benefit payable
thereunder, and (C) such benefit were calculated without giving effect
to the limitations provided for in Sections 401(a)(17) and 415 of the
Internal Revenue Code of 1986, as amended (the "CODE"), or any
successor provisions thereto.
"Y" equals the aggregate annual benefits payable to the Executive
under any qualified or nonqualified defined benefit retirement plan or
arrangement maintained by the Company or any of its subsidiaries or
affiliates.
"Z" equals an annual amount that is the actuarial equivalent of the
excess, if any of:
(A) the aggregate amount of employer contributions that would
have been contributed to the Executive's account under the
Company's Savings Incentive Plan or any successor plan thereto
(the "SIP") through the date of the Executive's retirement (or
earlier termination of employment due to death or Disability),
determined pursuant to the terms of the SIP and any such other
plans or arrangements as in effect from time to time, over
(B) the amount of employer contributions that would have been so
contributed to the Executive's account under the SIP determined
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Employment Agreement
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pursuant to the terms of the SIP in effect on December 31, 1991,
in each such case calculated on the assumptions:
(a) that Section 401(a)(17), 402(g) and 415 of the Code did not
apply and that the Executive's annual contributions would not be
limited by operation of the actual deferral percentage or actual
contribution percentage tests under Sections 401(k) and (m),
respectively, of the Code, and
(b) that the Executive had deferred 6% of his salary under the
SIP,
all such amounts to be credited with interest from December 31 of the
year in respect of which any such contribution would have been made to
the date of the Executive's retirement or other termination of
employment at a rate equal to the applicable long-term federal rate
compounded semiannually, such rate to be adjusted annually on the
first day of each calendar year to reflect the rate then in effect.
For this purpose, actuarial equivalence shall be determined using the
actuarial assumptions used in the valuation of the required minimum
contribution to the Retirement Plan under Section 412 of the Code for
the plan year in which the Executive retires or otherwise terminates
employment.
The ASRB shall be determined and paid on the basis of the same payment
alternative that the Executive shall have elected under the Retirement
Plan.
4. TERMINATION OF EMPLOYMENT.
This Section 4 sets forth the provisions that will apply generally
upon a termination of the Executive's employment with the Company. Special
provisions that will apply in the event of a Change in Control are set forth at
Section 5 below.
(a) TERMINATION FOR CAUSE; RESIGNATION WITHOUT GOOD REASON.
(i) RIGHTS ON TERMINATION. If, prior to the expiration of the Term,
the Executive's employment is terminated by the Company for Cause, or the
Executive resigns from his employment hereunder other than for Good Reason, the
Executive shall be entitled to payment of his Salary accrued through the date of
such termination or resignation, plus any other accrued but unpaid benefits or
compensation (including any accrued but unpaid bonus compensation in respect of
a year prior to the year in which such termination or resignation
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Employment Agreement
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occurs), provided, however, that the Executive shall not be entitled to any
bonus compensation pursuant to Section 3(b) in respect of the year in which such
termination or resignation occurs. Except as may be provided under the terms of
any applicable grants to the Executive under the Stock Plan or any amended or
successor plan thereto, the Executive shall have no right under this Agreement
or otherwise to receive any other compensation, or to participate in any other
plan, arrangement or benefit, with respect to future periods after such
termination or resignation of Employment.
(ii) NOTICE OF TERMINATION OR RESIGNATION. Termination of the
Executive's employment for Cause shall be communicated by delivery to the
Executive of a copy of a resolution duly adopted by the affirmative vote of not
less than a majority (or, following a Change in Control, not less than three-
fourths) of the entire membership of the Board at a meeting of the Board called
and held for such purpose (after reasonable notice to the Executive and
reasonable opportunity for the Executive, together with the Executive's counsel,
to be heard before the Board prior to such vote), finding that in the good faith
opinion of the Board an event constituting Cause for termination in accordance
with Section 10(a) has occurred and specifying the particulars thereof (a
"NOTICE OF TERMINATION"). If the event constituting Cause for termination is of
a type specified in clause (i) or clause (iii) of the definition of Cause set
forth in Section 12, the Executive shall have 20 business days from the date of
receipt of such Notice of Termination to effect a cure of the event described
therein and, upon cure thereof by the Executive to the reasonable satisfaction
of the Company, such event shall no longer constitute Cause for purposes of this
Agreement.
(b) TERMINATION WITHOUT CAUSE; RESIGNATION FOR GOOD REASON.
(i) SEVERANCE AMOUNT. If, prior to the expiration of the Term, the
Executive's employment is terminated by the Company without Cause, or the
Executive resigns from his employment hereunder for Good Reason, the Company
shall pay to the Executive his Salary accrued up to and including the date of
such termination or resignation, plus a pro rata portion (based on the number of
days elapsed prior to such termination or resignation) of the Target Bonus for
the year in which such termination or resignation occurs, plus any other accrued
but unpaid benefits or compensation. In addition, the Company shall pay to the
Executive the Severance Amount (as hereinafter defined) over a two-year period
commencing with the date of such termination or resignation (the "SEVERANCE
PERIOD"). As used herein, the "SEVERANCE AMOUNT" shall mean the product of "A"
times "B" where "A" equals the number of years (including any fraction thereof,
based on 365 days per year) remaining in the Term as of the date of such
termination or resignation, and "B" equals the sum of the Salary as in effect on
the date of such termination or resignation and the Executive's Target Bonus for
the year in which such termination or resignation occurs (or if
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Employment Agreement
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the Executive's Target Bonus has not yet been determined for such year, his
Target Bonus for the immediately preceding year) (such sum, which shall be not
less than 170% of such Salary, is referred to as the "REFERENCE AMOUNT"). The
Severance Amount shall be payable in equal monthly installments over the
Severance Period and each such installment shall be subject to regular payroll
deductions.
(ii) BENEFITS UNDER THE STOCK PLAN. In the event of the Executive's
termination or resignation as provided in this Section 4(b), the Executive shall
be fully vested in all stock options, restricted stock, restricted stock units
and any other awards theretofore awarded to him under the Company's 1991 Stock
Incentive Plan, as amended, the Equity Plan, or any successor thereto.
(iii) OTHER BENEFITS. In the event of the Executive's termination or
resignation as provided in this Section 4(b), the Executive shall also be
entitled to the following benefits:
(A) For purposes of calculating the Executive's benefit under the
Retirement Plan, the Executive shall receive an additional two years of
credited service. In addition, for all purposes under the Retirement Plan,
including for purposes of benefit calculations, the Executive shall be
treated as having retired from service with the Company, rather than as a
"terminated vested" employee.
(B) Within five business days following the Termination Date, the
Company shall make a lump sum payment to the Executive equal to the amount
that the Company would have contributed for the Executive's account under
the SIP in respect of the two years following the Termination Date, based
on (A) the formula for determining employer contributions in effect on the
Termination Date and (B) the Salary (and, if such formula takes account of
bonus compensation, the Target Bonus) used for purposes of determining the
Reference Amount, and calculated without giving effect to the limitations
provided for in Sections 401(a)(17) and 415 of the Code, or any successor
provisions thereto.
(C) Within five business days following the Termination Date the
Executive shall receive a lump sum payment of his account balance as of the
Termination Date under any nonqualified plan maintained by the Company or
any of its Affiliates to provide benefits in excess of those permitted
under the Code to be provided by the SIP. (It is understood that no such
plan exists as of the date of this Agreement.). The Company shall remain
obligated to pay to the Executive or his beneficiaries any benefits to
which he or they may be entitled under any nonqualified plan maintained by
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Employment Agreement
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the Company or any of its Affiliates to provide benefits in excess of those
permitted under the Code to be provided by the Retirement Plan (including
without limitation benefits under the Company's Excess Benefit Plan and
Supplemental Retirement Plan or any successors to such plans, and the ASRB
provided for in Section 3(e) of this Agreement); such payments shall be
made in accordance with the terms of such plans, and benefits thereunder
shall take account of the two years of additional credited service provided
for in clause (ii) above.
(D) During the Severance Period, the Executive and his
dependents, if any, shall continue to participate (at no greater expense to
them than was the case for such coverage prior to his termination) in the
employee benefit arrangements described in Section 3(e)(i) above, provided,
however, that such benefits shall cease to the extent the Executive begins
coverage under plans of a subsequent employer.
(E) At the end of the Severance Period, the Executive and his
family shall be entitled for the remainder of his life to retiree medical
and dental benefits under the applicable plans and programs of the Company
as if he retired on the last day of the Severance Period, with such
benefits to commence immediately at the end of the Severance Period and
with the amount of contribution by the Executive to be no greater than that
of any other employee of the Company who had retired on the last day of the
Severance Period (it being understood and agreed that contribution rates
may be changed, and the terms of such benefits may be modified, to the
extent permitted under the relevant plans, from those in effect on the date
hereof).
(F) During the Severance Period, the Company shall provide the
Executive with appropriate individual outplacement services and financial
planning at the Company's expense.
(G) The Executive shall receive all amounts due to him under
any compensatory plan or arrangement of the Company and not specifically
addressed above, in accordance with the terms of the relevant plan or
arrangement.
Anything herein to the contrary notwithstanding, the Company shall have no
obligation to continue to maintain during the Severance Period any plan or
program solely as a result of the provisions of this Agreement. If, during the
Severance Period, the Executive is precluded from participating in a plan or
program by its terms or applicable law or if the Company for any reason ceases
to maintain such plan or program, the Company shall provide the Executive with
compensation or benefits the aggregate value of which is no less than the
aggregate value of the compensation or benefits that the Executive would have
received under such plan or
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Employment Agreement
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program had he been eligible to participate therein or had such plan or program
continued to be maintained by the Company.
(iv) OFFSET PROVISIONS. In the event of any termination of the
Executive's employment, the Executive shall be under no obligation to seek other
employment or otherwise to mitigate damages resulting from his termination of
employment. Nevertheless, subject to Section 5 below, amounts owed to the
Executive under Section 4(b)(i) shall be offset by the amount of cash
compensation to which the Executive becomes entitled, or which is voluntarily
deferred at his request, during the Severance Period, from a Third Party
Employer. Promptly upon becoming engaged by a Third Party Employer, the
Executive shall provide the Company with written notice of such engagement and
shall set forth the terms of his compensation, including any amount of
guaranteed or target bonus; within five business days of the receipt of such
notice, the Company shall make a lump-sum payment to the Executive equal to the
amount that remains due to the Executive under Section 4(b)(i) reduced by the
amount of cash compensation to which the Executive is expected to become
entitled during the Severance Period from the Third Party Employer (including
any amounts which are to be voluntarily deferred at his request) based on the
compensation information set forth in his notice to the Company, including
therein a pro rata portion (based on the number of days remaining in the
Severance Period) of any guaranteed or target bonus. The Company and the
Executive shall use their good faith efforts to agree upon the offset amount,
but in the event they are unable to agree, the amount proposed by the Executive,
and certified by an independent certified public account selected by the
Executive, shall control.
(v) DEATH DURING SEVERANCE PERIOD. In the event of the Executive's
death during the Severance Period, the balance of the Severance Amount will be
paid to his Beneficiary in a lump sum. "BENEFICIARY" shall mean the person or
persons designated by the Executive in writing to the Company to receive payment
under this Agreement or, if no such person or persons are designated, the
Executive's estate.
(c) TERMINATION DUE TO DEATH OR DISABILITY. In the event of the
Executive's Disability, the Company shall be entitled to terminate his
employment. Notwithstanding anything contained in this Agreement to the
contrary, if the Executive employment terminates due to death or Disability, any
Salary earned by the Executive up to the date of such termination, plus a pro
rata portion (based on the number of days elapsed prior to such termination or
resignation) of the Target Bonus for the year in which such termination occurs,
shall be paid to the Executive or his estate, as the case may be, within 30 days
of such termination. All stock options, restricted stock, restricted stock
units or other awards awarded to the Executive under the Stock Plan shall be
fully vested as of the date of death or termination of employment due to
Disability. As used in this Section 4(c), the term
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Employment Agreement
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"DISABILITY" shall be defined in the same manner as such term or a similar term
is defined in any long-term disability policy maintained by the Company which
covers the Executive and is in effect on the date of the Executive's termination
of employment with the Company, provided, however, that the Executive shall not
be "disabled" for purposes of this Section 4(c) unless he has a physical or
mental incapacity that substantially prevents him from performing his duties
hereunder, that has continued at least 180 days and that can reasonably be
expected to continue indefinitely. Any dispute as to whether or not the
Executive is disabled within the meaning of the preceding sentence shall be
resolved by a physician reasonably satisfactory to the Executive and the Board,
and the determination of such physician shall be final and binding upon both the
Executive and the Company.
5. CHANGE IN CONTROL PROVISIONS.
Notwithstanding anything in to the contrary in this Agreement, the
provisions of this Section 5 shall apply in the event there is a Change in
Control.
(a) EQUITY AWARDS. Upon the occurrence of a Change in Control, the
Executive shall be fully vested in all stock options, restricted stock,
restricted stock units and any other awards theretofore awarded to him under the
Equity Plan, or any successor thereto, on or after January 1, 1998 provided,
however, that if any Person commences a tender offer for shares of the Company's
common stock, par value $0.01 per share (the "COMMON STOCK"), which, if
successfully completed, would result in a Change in Control, then the Executive
shall be fully vested in all such stock options, restricted stock units and any
other such awards, and any such awards that by their terms are to be paid or
settled by the delivery of shares of Common Stock without the payment of any
additional consideration by the Executive shall be so paid or settled,
immediately prior to the scheduled expiration of such tender offer, and the
Company shall have instituted procedures to enable the Executive, if he so
desires, to tender the shares issued upon the exercise of such stock options or
delivered in payment or settlement of such restricted stock units or other
awards into such offer.
(b) PAYMENT OF SEVERANCE AMOUNT. If the Executive's employment with
the Company is terminated by the Executive for Good Reason or by the Company
without Cause, in either case at any time during the period beginning with a
Change in Control and ending on the third anniversary thereof, then:
(i) the Reference Amount shall equal the sum of (X) the Salary in
effect on the Termination Date and (Y) the higher of the Target Bonus for
the year in which the Termination Date occurs (or if the Executive's Target
Bonus has not yet been determined for such year, his Target Bonus for the
immediately preceding year) and the
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Employment Agreement
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highest Bonus percentage paid or payable to the Executive at any time prior
to his Termination Date times the Salary in effect on the Termination Date;
and
(ii) the Severance Amount shall equal two times the Reference Amount
and shall be paid to the Executive by the Company in a lump sum within five
business days of the Termination Date.
(c) NO OBLIGATION TO MITIGATE AND NO OFFSET. As provided above in
Section 4, upon termination of the Executive's employment, the Executive shall
be under no obligation to seek other employment or otherwise to mitigate damages
resulting from his termination of employment. In addition, notwithstanding
Section 4(b)(iv) above, if such termination occurs at any time during the period
beginning with a Change in Control and ending on the third anniversary thereof,
there shall be no offset against amounts due to the Executive under any
provision of this Agreement on account of any remuneration to which the
Executive becomes entitled from any Third Party Employer or any other Person for
whom the Executive subsequently provides services (as an officer, director,
employee, independent contractor or otherwise), other than as provided in
Section 4(b)(iii)(D) relating to continuation of benefits coverage.
(d) NO REDUCTION IN RIGHTS UNDER SECTION 4. Except as otherwise
provided in this Section 5, the rights and entitlements of the Executive upon
termination of employment incident to or following a Change in Control shall be
as provided in Section 4. In particular, nothing in this Section 5 is intended,
or shall be construed, to reduce any of the rights and entitlements of the
Executive set forth in Section 4.
6. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
6) (a "PAYMENT") would be subject to the excise tax imposed by the Code or any
interest or penalties are incurred by the Executive with respect to such excise
tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "EXCISE TAX"), then the Executive
shall be entitled to receive an additional payment (a "GROSS-UP PAYMENT") in an
amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
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Employment Agreement
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(b) Subject to the provisions of Section 6(c), all determinations
required to be made under this Section 6, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by KPMG Peat
Marwick LLP or such other certified public accounting firm as may be jointly
designated by the Executive and the Company (the "ACCOUNTING FIRM"), which shall
provide detailed supporting calculations both to the Company and the Executive
within 15 business days of the receipt of notice from the Executive that there
has been a Payment, or such earlier time as is requested by the Company. All
fees and expenses of the Accounting Firm shall be borne solely by the Company.
Any Gross-Up Payment, as determined pursuant to this Section 6, shall be paid by
the Company to the Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made ("UNDERPAYMENT"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 6(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprize the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such
claim by an attorney
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Employment Agreement
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reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively
to contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 6(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and ▇▇▇ for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and ▇▇▇ for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 6(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 6(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 6(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
Second Amended and Restated
Employment Agreement
Page 14 of 23
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
7. PROTECTION OF THE COMPANY'S INTERESTS.
(a) CONFIDENTIAL INFORMATION. Except for actions taken in the course
of his employment hereunder or as required by law, at no time shall the
Executive divulge, furnish or make accessible to any person any information of a
confidential or proprietary nature obtained by him while in the employ of the
Company. Upon termination of his employment with the Company, the Executive
shall return to the Company all such information which exists in written or
other physical form and all copies thereof in his possession or under his
control.
(b) EXCLUSIVE SERVICES. During the Term, the Executive shall not
directly or indirectly engage in competition with, or own any interest in any
business which competes with, any business of the Company or any of its
subsidiaries, provided, however, that the provisions of this Section 7 shall not
prohibit the Executive's ownership of not more than 5% of the voting stock of
any publicly held corporation, and provided, further, that the Executive's
covenant under this Section 7(b) shall not apply following termination of his
employment following a Change in Control.
8. REMEDIES. The Executive acknowledges that a breach of any of the
covenants contained in Section 7 may result in material irreparable injury to
the Company or its Affiliates for which there is no adequate remedy at law, that
it will not be possible to measure damages for such injuries precisely and that,
in the event of such breach or threat thereof, the Company shall be entitled, in
addition to any other rights or remedies it may have, to obtain a temporary
restraining order and/or a preliminary or permanent injunction enjoining or
restraining the Executive from engaging in activities prohibited by Section 7.
In no event, however, shall an asserted violation of the provisions of Section 7
constitute a basis for deferring or withholding any amounts otherwise payable to
the Executive under this Agreement, unless the Company shall have first obtained
a final decision, in an arbitration conducted in accordance with Section 11 of
this Agreement, finding that the Executive has materially breached the
provisions of Section 7.
9. INDEMNIFICATION. The Company will indemnify the Executive to the
fullest extent permitted (including payment of expenses in advance of final
disposition of a
Second Amended and Restated
Employment Agreement
Page 15 of 23
proceeding) by the laws of the State of Delaware, as in effect
at the time of the subject act or omission, or by the Certificate of
Incorporation and By-Laws of the Company, as in effect at such time or on the
Effective Date of this Agreement, whichever affords or afforded greatest
protection to the Executive, and the Executive shall be entitled to the
protection of any insurance policies the Company may elect to maintain generally
for the benefit of its directors and officers (and to the extent the Company
maintains such an insurance policy or policies, the Executive shall be covered
by such policy or policies, in accordance with its or their terms, to the
maximum extent of the coverage provided for any Company officer or director),
against all costs, charges and expenses whatsoever incurred or sustained by him
or his legal representatives at the time such costs, charges and expenses are
incurred or sustained, in connection with any action, suit or proceeding to
which he may be made a party by reason of his being or having been a director,
officer or employee of the Company or any subsidiary thereof, or his serving or
having served any other enterprise as a director, officer or employee at the
request of the Company.
10. LIMITATION OF LIABILITY. The Company hereby represents that, as
of the Effective Date, its Certificate of Incorporation and By-Laws provide the
Executive with the maximum limitation on his liability permitted by the laws of
the State of Delaware and the Company agrees that during the Term it will amend
its Certificate of Incorporation and By-Laws, to the extent necessary, to
provide the Executive the maximum limitation on his liability permitted by such
laws.
11. ARBITRATION.
(a) Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in New York, New York
in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Executive shall be entitled to seek
specific performance of the Executive's right to be paid until the Termination
Date during the pendency of any dispute or controversy arising under or in
connection with this Agreement.
(b) The Company shall promptly reimburse the Executive for all legal
fees and expenses incurred by the Executive in connection any claim to enforce
his rights under this Agreement, except for any claim which shall have been
determined, in an arbitration conducted in accordance with subsection (a) above,
to have been brought by the Executive in bad faith.
(c) In addition to the reimbursement provided for in subsection (b)
above,
Second Amended and Restated
Employment Agreement
Page 16 of 23
the Company shall reimburse the Executive for up to $15,000 in legal,
accounting and financial expenses incurred after a Change in Control in
connection with this Agreement (whether or not the Executive's employment is
terminated), including without limitation in connection with financial planning
and the investigation of the Executive's rights hereunder.
12. DEFINITIONS. For purposes of this Agreement, the following
definitions shall apply.
"AFFILIATE" includes any company or other entity or person
controlling, controlled by or under common control with the Company.
"CAUSE" means any of the following:
(i) the willful commission by the Executive of acts that are
dishonest and demonstrably and materially injurious to the Company or
any of its Affiliates, monetarily or otherwise;
(ii) the conviction of the Executive for a felonious act
resulting in material harm to the financial condition or business
reputation of the Company or any of its Affiliates; or
(iii) a material breach of any of the covenants set forth in
Section 5 of this Agreement.
A "CHANGE IN CONTROL" shall be deemed to occur on the date on which
one of the following events occurs:
(i) the acquisition by any Person of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Securities Exchange
Act of 1934, as amended) of 20% or more of the Common Stock then
outstanding, but shall not include any such acquisition by:
(A) the Company;
(B) any Subsidiary of the Company;
(C) any employee benefit plan of the Company or of any
Subsidiary of the Company;
Second Amended and Restated
Employment Agreement
Page 17 of 23
(D) any Person or entity organized, appointed or established
by the Company for or pursuant to the terms of any such plan;
(E) any Person who as of January 31, 1996 was the beneficial
owner of 15% or more of the shares of Common Stock outstanding on
such date unless and until such Person, together with all
affiliates and associates of such Person, becomes the beneficial
owner of 25% or more of the shares of Common Stock then
outstanding whereupon a Change in Control shall be deemed to have
occurred; or
(F) any Person who becomes the Beneficial Owner of 20% or
more, or, with respect to a Person described in clause (E) above,
25% or more, of the shares of Common Stock then outstanding as a
result of a reduction in the number of shares of Common Stock
outstanding due to the repurchase of shares of Common Stock by
the Company unless and until such Person, after becoming aware
that such Person has become the beneficial owner of 20% or more,
or 25% or more, as the case may be, of the then outstanding
shares of Common Stock, acquires beneficial ownership of
additional shares of Common Stock representing 1% or more of the
shares of Common Stock then outstanding, whereupon a Change in
Control shall be deemed to have occurred; or
(ii) individuals who, as of 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 such current members
or their successors whose election was so approved or recommended
(other than any subsequently elected members whose initial assumption
of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on
behalf of a person other than the Board), cease for any reason to
constitute at least a majority of such Board; or
(iii) approval by the stockholders of the Company of (A) a merger
or consolidation of the Company with any other corporation, (B) the
issuance of voting securities of the Company in connection with a
merger or consolidation of the Company (or any Subsidiary) pursuant to
applicable stock exchange requirements, or (C) sale or other
disposition of all or substantially all of the assets of the Company
or the acquisition of assets of another corporation (each, a "BUSINESS
COMBINATION"), unless, in each case, immediately following such
Second Amended and Restated
Employment Agreement
Page 18 of 23
Business Combination, all or substantially all of the individuals and
entities who were the beneficial owners of the Common Stock
outstanding immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 70% of the then
outstanding shares of common stock and 70% of the combined voting
power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the
corporation resulting from such Business Combination (including,
without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries)
in substantially the same proportions as their ownership, immediately
prior to such Business Combination, of the Common Stock.
"GOOD REASON" means, without the Executive's express written consent,
any of the following:
(i) a substantial adverse alteration in the nature or status of
the Executive's duties or responsibilities or in the Executive's
title, including the Executive's ceasing to report directly to the
Board, except that the appointment by the Company and/or Ambac
Assurance of an individual other than the Executive as its President
shall not constitute Good Reason hereunder, so long as the Executive
retains the titles and responsibilities of Chairman and Chief
Executive Officer;
(ii) a reduction in the Salary as then in effect or failure of
the Company to pay any amount owing to the Executive hereunder when
due;
(iii) the Company's requiring the Executive to be based at any
office or location more than 25 miles outside of the city limits of
New York City;
(iv) the failure to obtain a satisfactory agreement from any
successor of the Company to assume and agree to perform this
Agreement, as contemplated in Section 9(d) hereof;
(v) following a Change in Control, the failure by the Company to
continue in effect any compensation plan in which the Executive
participates as of the date of such Change in Control, or any
substitute plans adopted after the date thereof, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, or the failure by the Company
to continue the Executive's participation therein on at
Second Amended and Restated
Employment Agreement
Page 19 of 23
least as favorable a basis as that enjoyed by other similarly situated
executives of the Company and its Affiliates;
(vi) following a Change in Control, the failure by the Company
to continue to provide the Executive with benefits at least as
favorable to those enjoyed by other similarly situated executives of
the Company and its Affiliates under any of the Company's pension,
life insurance, medical, dental, health and accident, disability,
deferred compensation or savings plans, or the taking of any action by
the Company which would directly or indirectly materially reduce any
of such benefits or deprive the Executive of any material fringe
benefit enjoyed by the Executive.
provided, however, that unless the Executive provides written notification
of his intention to resign within 10 business days after the Executive has
actual knowledge of the occurrence of any such event constituting Good
Reason, the Executive shall be deemed to have consented thereto and such
event shall no longer constitute Good Reason for purposes of this
Agreement. If the Executive provides such written notice to the Company,
the Company shall have 20 business days from the date of receipt of such
notice to effect a cure of the event described therein and, upon cure
thereof by the Company to the reasonable satisfaction of the Executive,
such event shall no longer constitute Good Reason for purposes of this
Agreement.
Anything in this Agreement to the contrary notwithstanding, a
termination by the Executive for any reason during the 30-day period
immediately following the first anniversary of the occurrence of a Change
in Control shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
"PERSON" means any individual, firm, corporation, partnership or other
entity.
"SUBSIDIARY" means (i) a corporation or other entity with respect to
which the Company, directly or indirectly, has the power, whether through
the ownership of voting securities, by contract or otherwise, to elect at
least a majority of the members of such corporation's board of directors or
analogous governing body, or (ii) any other corporation or other entity in
which the Company, directly or indirectly, has an equity or similar
interest and which the Committee designates as a Subsidiary for purposes of
this Agreement.
"TERMINATION DATE" means:
Second Amended and Restated
Employment Agreement
Page 20 of 23
(i) in the case of a termination of the Executive's employment
by the Company for Cause, the effective date of such termination
specified in the Notice of Termination, which, if the event
constituting Cause for termination is of a type specified in clause
(i) or clause (iii) of the definition of Cause, shall be not less than
21 business days from receipt of the Notice of Termination by the
Executive;
(ii) in the case of a termination of the Executive's employment
by the Company without Cause, the date specified in a written notice
of termination to the Executive, such written notice to provide at
least 90 days' advance written notice of termination;
(iii) in the case of the Executive's resignation from
employment without Good Reason, the date specified in a written notice
of resignation from the Executive to the Company, such written notice
provide at least 90 days' advance written notice of resignation;
(iv) in the case of the Executive's resignation from employment
for Good Reason, the date specified in a written notice of resignation
from the Executive to the Company, provided, however, that no such
written notice shall be effective unless the cure period specified in
the definition of Good Reason has expired without the Company having
corrected, to the reasonable satisfaction of the Executive, the event
or events subject to cure;
(v) in the case of termination of employment due to the
Executive's death, the date of death; and
(vi) in the case of termination of employment due to the
Executive's Disability, the effective date of termination specified in
a written notice of termination from the Company to the Executive,
which effective date shall be not earlier than the last day of the 180
day period provided for in Section 4(c) above.
13. GENERAL PROVISIONS.
(a) NO OTHER SEVERANCE BENEFITS. Except as specifically set forth in
this Agreement, the Executive covenants and agrees that he shall not be entitled
to any other form of severance benefits from the Company, including, without
limitation, benefits otherwise payable under any of the Company's regular
severance policies, in the event his employment
Second Amended and Restated
Employment Agreement
Page 21 of 23
hereunder ends for any reason and, except with respect to obligations of the
Company expressly provided for herein, the Executive unconditionally releases
the Company and its subsidiaries and affiliates, and their respective directors,
officers, employees and stockholders, or any of them, form any and all claims,
liabilities or obligations under this Agreement or under any severance or
termination arrangements of the Company or any of its subsidiaries or affiliates
for compensation or benefits in connection with his employment or the
termination thereof.
(b) NOTICES. Any notice hereunder by either party to the other
(including, without limitation, any notice of intention to arbitrate pursuant to
Section 14) shall be given in writing by personal delivery, telex, telecopy or
certified mail, return receipt requested, to the applicable address set forth
below:
(i) To the Company: Ambac Financial Group, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: General Counsel
(ii) To the Executive: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
or to such other person or other address as either party may specify to the
other in writing.
(c) LIMITED WAIVER. The waiver by the Company or the Executive of a
violation of any of the provisions of this Agreement, whether express or
implied, shall not operate or be construed as a waiver of any subsequent
violation of any such provision.
(d) ASSIGNMENT. No right, benefit or interest hereunder shall be
subject to assignment, encumbrance, charge, pledge, hypothecation or set off by
the Executive in respect of any claim, debt, obligation or similar process. The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
or assets or the Company to assume expressly and to agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.
(e) AMENDMENT. This Agreement may not be amended, modified or
canceled except by written agreement of the Executive and the Company.
Second Amended and Restated
Employment Agreement
Page 22 of 23
(f) SEVERABILITY. If any term or provision hereof is determined to be
invalid or unenforceable in a final court or arbitration proceeding, (i) the
remaining terms and provisions hereof shall be unimpaired and (ii) the invalid
or unenforceable term or provision shall be deemed replaced by a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision.
(g) UNSECURED PROMISE. No benefit or promise hereunder shall be
secured by any specific assets of the Company. Unless otherwise stated herein,
the Executive shall have only the rights of an unsecured general creditor of the
Company in seeking satisfaction of such benefits or promises.
(h) GOVERNING LAW. This Agreement has been made in and shall be
governed by and construed in accordance with the laws of the State of Delaware.
(i) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding of the parties hereto with respect to the matters covered
hereby.
(j) HEADINGS. The headings and captions of the Sections of this
Agreement are included solely for convenience of reference and shall not control
the meaning or interpretation of any provisions of this Agreement.
(k) COUNTERPARTS. This Agreement may be executed by the parties
hereto in counterparts, each of which shall be deemed an original, but all such
counterparts shall together constitute one and the same document.
Second Amended and Restated
Employment Agreement
Page 23 of 23
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the day and year first written above.
AMBAC FINANCIAL GROUP, INC.
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Sen. Vice President, General
Counsel and Secretary
EXECUTIVE
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
