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OMB APPROVAL |
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OMB Number:
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3235-0059 |
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Expires:
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February 28, 2006 |
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12.75 |
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. )
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Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box: |
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o Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)) |
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þ Definitive Proxy Statement |
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o Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
Triad Guaranty 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):
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þ No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11. |
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1) Title of each class of securities to which transaction applies: |
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2) Aggregate number of securities to which transaction applies: |
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): |
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4) Proposed maximum aggregate value of transaction: |
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o Fee paid previously with preliminary materials. |
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o 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. |
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1) Amount Previously Paid: |
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2) Form, Schedule or Registration Statement No.: |
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SEC 1913 (02-02) |
Persons who are to respond to the collection of information
contained in this form are not required to respond unless the form displays a currently valid
OMB control number. |
TRIAD GUARANTY INC.
101 South Stratford Road
Winston-Salem, North Carolina 27104
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 17, 2006
To the Stockholders of TRIAD GUARANTY INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders
of Triad Guaranty Inc. (the Company) will be held at
the offices of Triad Guaranty Inc., 101 South Stratford Road,
Winston-Salem, North Carolina, on Wednesday, May 17, 2006,
at 2:00 p.m. Eastern Time, for the purpose of considering and
acting upon the following matters:
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1. |
To elect seven (7) directors to serve until the next annual
meeting of stockholders and until their successors are duly
elected and qualified; |
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2. |
To consider and vote upon a proposal to adopt the Companys
2006 Long-Term Stock Incentive Plan; and |
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3. |
To consider and act upon such other business as may properly
come before the meeting or any adjournments thereof. |
Stockholders of record as of the close of business on
March 31, 2006 shall be entitled to notice of and to vote
at the meeting. The transfer books will not be closed. For ten
(10) days prior to the meeting, a list of stockholders
entitled to vote at the meeting will be open to the examination
of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, at the offices of the Company,
101 South Stratford Road, Winston-Salem, North Carolina 27104.
Stockholders who do not expect to attend the meeting in person
are urged to execute and return the accompanying proxy in the
envelope enclosed. You may also vote your shares on the Internet
or by using a toll-free telephone number (see the proxy card for
complete instructions).
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By order of the Board of Directors |
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Earl F. Wall |
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Secretary |
Winston-Salem, North Carolina
April 7, 2006
PROXY STATEMENT
TRIAD GUARANTY INC.
ANNUAL MEETING OF STOCKHOLDERS
May 17, 2006
GENERAL INFORMATION
This proxy statement is being furnished to the stockholders of
Triad Guaranty Inc., a Delaware corporation (the
Company), 101 South Stratford Road, Winston-Salem,
North Carolina 27104, in connection with the solicitation of
proxies by its Board of Directors for use at the annual meeting
of stockholders to be held on Wednesday, May 17, 2006 and
at any adjournments thereof. The approximate date on which this
proxy statement and the accompanying proxy are first being sent
to stockholders is April 7, 2006.
The proxy is revocable at any time before it is voted by a
subsequently dated proxy, by written notification to the persons
named therein as proxies, which may be mailed or delivered to
the Company at the above address or sent via the Internet at
http://www.computershare.com/expressvote, by subsequently voting
on the Internet or by telephone, or by attendance at the meeting
and voting in person. All shares represented by effective
proxies will be voted at the meeting and at any adjournments
thereof.
Proxies properly submitted by mail, telephone or the Internet
will be voted by the individuals named on the proxy card in the
manner you indicate. If no specification is made, the proxy will
be voted by the persons named therein as proxies for the
election as directors of the nominees named below (or
substitutes therefor, if any nominees are unable or refuse to
serve), for adoption of the Companys 2006 Long-Term
Incentive Plan and in their discretion upon such matters not
presently known or determined which may properly come before the
meeting.
The Company is a holding company which, through its wholly-owned
subsidiary, Triad Guaranty Insurance Corporation
(Triad), provides credit enhancement solutions to
its mortgage lender customers and through the capital markets.
These solutions allow buyers to achieve home ownership sooner,
facilitate the sale of mortgage loans in the secondary market,
and protect lenders from credit default related expenses. The
Company has one class of stock outstanding, Common Stock, par
value $.01 per share (Common Stock). On
March 31, 2006, 14,831,560 shares of Common Stock were
outstanding and entitled to one vote each on all matters to be
considered at the meeting. Stockholders of record as of the
close of business on March 31, 2006, are entitled to notice
of and to vote at the meeting. There are no cumulative voting
rights with respect to the election of directors.
Inspector(s) of election will be appointed to tabulate the
number of shares of Common Stock represented at the meeting in
person or by proxy, to determine whether or not a quorum is
present and to count all votes cast at the meeting. The
inspector(s) of election will treat abstentions and broker
nonvotes as shares that are present and entitled to vote for
purposes of determining the presence of a quorum. With respect
to the tabulation of votes cast on a specific proposal presented
to the stockholders at the meeting, abstentions will be
considered as present and entitled to vote with respect to that
specific proposal, whereas broker nonvotes will not be
considered as present and entitled to vote with respect to that
specific proposal.
PRINCIPAL HOLDERS OF COMMON STOCK
The following table shows, with respect to each person who is
known to be the beneficial owner of more than 5% of the Common
Stock of the Company: (i) the total number of shares of
Common Stock beneficially owned as of February 14, 2006;
and (ii) the percent of the Common Stock so owned as of
that date:
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Amount and Nature | |
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Percent of | |
Name and Address of |
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of Beneficial | |
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Common | |
Beneficial Owner |
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Ownership(1) | |
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Stock | |
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Collateral Mortgage, Ltd.(2)(3)(7)
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2,572,550 |
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17.4% |
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T. Rowe Price Associates(8)
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1,034,349 |
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7.0% |
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The following table shows with respect to each director of the
Company, the executive officers of the Company named in the
Executive Compensation Table, and all directors and executive
officers as a group, thirteen (13) in number: (i) the
total number of shares of Common Stock beneficially owned as of
February 14, 2006; and (ii) the percent of the Common
Stock so owned as of that date:
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Amount and Nature | |
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Percent of | |
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of Beneficial | |
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Common | |
Name of Beneficial Owner |
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Ownership(1) | |
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Stock | |
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Glenn T. Austin, Jr.
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1,660 |
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William T. Ratliff, III(4)
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695,406 |
(5)(6) |
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4.7% |
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Darryl W. Thompson
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136,735 |
(5) |
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* |
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David W. Whitehurst
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39,500 |
(5) |
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* |
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Robert T. David
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15,480 |
(5) |
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* |
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Michael A. F. Roberts
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2,720 |
(5) |
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* |
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Richard S. Swanson
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1,800 |
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* |
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Mark K. Tonnesen
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Kenneth N. Lard
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30,426 |
(5) |
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* |
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Ron D. Kessinger
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32,828 |
(5) |
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* |
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Kenneth C. Foster
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31,417 |
(5) |
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Earl F. Wall
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17,749 |
(5) |
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Eric B. Dana
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3,923 |
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* |
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All directors and executive officers as a group (13 persons)
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1,009,644 |
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6.8% |
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Less than one percent (1%). |
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(1) |
Calculated pursuant to
Rule 13d-3(d) of
the Securities Exchange Act of 1934. Unless otherwise stated
below, each such person has sole voting and investment power
with respect to all such shares. Under
Rule 13d-3(d),
shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within sixty
(60) days are deemed outstanding for the purpose of
calculating the number and percentage owned by such person, but
are not deemed outstanding for the purpose of calculating the
percentage owned by each other person listed. |
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(2) |
Collat, Inc. (Collat) is the general partner of
Collateral Mortgage, Ltd. (CML) and as such may be
deemed to be the beneficial owner of the shares of Common Stock
owned by CML. Mr. Ratliff, Jr. is vice president and a
director of Collat. Mr. Ratliff, Jr. beneficially owns
29.6% of the outstanding limited partnership interests in CML.
Accordingly, Mr. Ratliff, Jr. may be deemed to be the
beneficial owner of the shares of Common Stock owned by CML. The
business address of Mr. Ratliff, Jr., CML and Collat is |
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1900 Crestwood Boulevard, Birmingham,
Alabama 35210-2034. Mr. Ratliff, Jr. is the father of
Mr. William T. Ratliff, III. |
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(3) |
2,252,500 shares of Common Stock owned by CML are pledged to
secure four (4) bank loans. |
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(4) |
Mr. Ratliff, III beneficially owns 7.7% of the outstanding
limited partnership interests in CML. Mr. Ratliff, III is
also president and a director of Collat, the general partner of
CML, and beneficially owns 50.2% of the outstanding voting
capital stock of Collat. Accordingly, Mr. Ratliff, III
may be deemed to be the beneficial owner of the shares of Common
Stock owned by CML. The business address of
Mr. Ratliff, III is 1900 Crestwood Boulevard,
Birmingham, Alabama 35210-2034. Mr. Ratliff, III is
the son of Mr. Ratliff, Jr. No other director or executive
officer of the Company beneficially owns any partnership
interests in CML. |
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(5) |
Includes shares of Common Stock which could be acquired through
the exercise of stock options as follows: Mr. Ratliff, III,
79,485 shares; Mr. Whitehurst, 24,010 shares;
Mr. David, 7,680 shares; Mr. Roberts, 920 shares;
Mr. Lard, 10,000 shares; Mr. Kessinger,
3,775 shares; Mr. Foster, 23,880 shares;
Mr. Wall, 7,722 shares; Mr. Thompson,
108,986 shares; all directors and executive officers as a
group, 266,458 shares. |
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(6) |
Includes 3,617 shares owned by
Mr. Ratliff, IIIs wife; 11,804 shares owned
by his minor children; 246,518 shares held by
Mr. Ratliff, III as one (1) of five
(5) trustees for the Grandchildrens Trust;
53,524 shares held by Mr. Ratliff, III as
custodian for his minor children; and 4,131 shares held by
Mr. Ratliff, IIIs wife as custodian for his
minor children. |
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(7) |
Number of shares reported on Schedule 13G jointly filed by
CML, Collat, Mr. Ratliff, Jr. and
Mr. Ratliff, III with the Securities and Exchange
Commission on February 14, 2006. CML has shared voting and
dispositive power with respect to all 2,572,550 shares. |
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(8) |
Number of shares reported on Schedule 13G filed by
T. Rowe Price Associates, Inc. (Price) with the
Securities and Exchange Commission on February 13, 2006.
Price has sole voting power with respect to 303,799 shares
and sole dispositive power with respect to all
1,034,349 shares. These securities are owned by various
individual investors which Price serves as investment adviser
with power to direct investments and/or sole power to vote the
securities. For purposes of the reporting requirements of the
Securities Exchange Act of 1934, Price is deemed to be a
beneficial owner of such securities; however, Price expressly
disclaims that it is, in fact, the beneficial owner of such
securities. The business address of Price is 100 E. Pratt
Street, Baltimore, Maryland 21202-1099. |
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Securities Exchange Act of 1934
requires the Companys executive officers, directors and
persons who own more than 10% of the Companys common stock
to file reports of ownership and changes in ownership with the
Securities Exchange Commission. These persons are required to
provide the Company with copies of all Section 16(a) forms
that they file. Based solely on the Companys review of
these forms and written representations from the executive
officers and directors, the Company believes that all
Section 16(a) filing requirements were met during fiscal
year 2005, except that each of CIC, William T. Ratliff, Jr. and
William T. Ratliff, III were inadvertently late in filing a
Form 4 to report the approximately 1.75% reduction of
their indirect holdings of Company common stock through CIC as a
result of CICs entry into the reorganization agreement
with the Company. See Certain Transactions.
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ELECTION OF DIRECTORS
Nominees and Directors
At the meeting, seven (7) directors are to be elected to
hold office until the next annual meeting of stockholders and
until their successors are duly elected and qualified. All of
the nominees are presently directors of the Company.
The affirmative vote of the holders of a plurality of the shares
of Common Stock represented in person or by proxy at the annual
meeting of stockholders is required to elect directors. It is
intended that, in the absence of contrary specifications, votes
will be cast pursuant to the enclosed proxies for the election
of such nominees. Should any of the nominees become unable or
unwilling to accept nomination or election, it is intended, in
the absence of contrary specifications, that the proxies will be
voted for the balance of those named and for a substitute
nominee or nominees. However, the Company now knows of no reason
to anticipate such an occurrence. All of the nominees have
consented to be named as nominees and to serve as directors if
elected.
The following persons are nominees for election as directors of
the Company:
William T.
Ratliff, III Age
52 Director since 1993
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Mr. Ratliff, III has been the Chairman of the Board of
the Company since 1993. Mr. Ratliff, III was Chairman
of the Board of Triad from 1989 to 2005 and President of
Collateral Investment Corp. (CIC), an insurance
holding company, from 1990 to 2005. Mr. Ratliff, III
has also been President of Collat, Inc. since 1995 and a
director since 1987. Collat, Inc. is the general partner of
Collateral Mortgage, Ltd. (CML), a mortgage banking
and real estate lending firm. Mr. Ratliff, III has
been Chairman of the Board of Directors of New South Federal
Savings Bank (New South) since 1986 and President
and a director of New South Bancshares, Inc., New Souths
parent company, since 1994. |
Mark K.
Tonnesen Age
54 Director since 2005
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Mr. Tonnesen became President and Chief Executive Officer
of the Company on September 14, 2005. Prior to joining the
Company, Mr. Tonnesen was employed by the Royal Bank of
Canada, where he held a number of positions, most recently Head
of Integration, Personal and Commercial Clients from 2004 to
2005, Vice Chairman and Chief Financial Officer, RBC Insurance
from 2001 to 2004 and Executive Vice President, Card Services
and Point of Sale from 1997 to 2001. |
Glenn T. Austin,
Jr. Age
57 Director since 2003
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Mr. Austin retired in 2003 as Senior Vice President of the
Southeastern Regional Office of Fannie Mae after a twenty-one
(21) year career with the company. Mr. Austin
currently serves on the board of directors of HomeBanc Corp. He
is also the Chairman of the Consumer Credit Counseling Service
of Metropolitan Atlanta. |
David W.
Whitehurst Age
56 Director since 1993
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Mr. Whitehurst is the owner of DW Investments, LLC, a real
estate and investment holding company. He was Executive Vice
President and Chief Operating Officer of CIC from 1995 to 2002.
He was a director of New South from 1989 to 2001.
Mr. Whitehurst is a certified public accountant. |
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Robert T.
David Age
67 Director since 1993
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Since 2000, Mr. David has served as President and Chief
Executive Officer of Integrated Photonics, Inc., a manufacturer
of fiber optic components and materials. |
Michael A. F.
Roberts Age
64 Director since 2002
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Mr. Roberts was an Advisory Managing Director of Salomon
Smith Barney from 1999 to 2002. Prior to that he was head of the
firms Insurance Investment Banking Group, which he
founded. Mr. Roberts currently serves as a director of HCC
Insurance Holdings, Inc. |
Richard S.
Swanson Age
56 Director since 2003
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Mr. Swanson is a principal of Hillis Clark Martin &
Peterson, a law firm located in Seattle, Washington. From 1988
to 2003, Mr. Swanson was an executive of HomeStreet Bank, a
regional savings bank and mortgage company headquartered in
Seattle, serving as President and CEO from 1990 through 2001 and
retiring as Chairman in 2003. Mr. Swanson has served as a
director and Vice Chair of the Federal Home Loan Bank of
Seattle, and currently serves as Chair of the Washington State
Tobacco Settlement Authority. |
The Board of Directors
The business and affairs of the Company are managed under the
direction of the Board of Directors. The Board of Directors has
determined that all the Companys directors, with the
exception of Messrs. Ratliff, III and Tonnesen, are
independent under the rules of the National Association of
Securities Dealers relating to the listing requirements for
inclusion in the Nasdaq Stock Market (the Nasdaq
rules). During 2005, the Board of Directors met seven
(7) times. No director attended fewer than 75% of the
aggregate number of meetings of the Board of Directors and the
committees on which he served.
Mr. Roberts has been elected by the independent directors
as the Lead Independent Director. The Lead Independent Director
is responsible for leading the executive sessions of independent
directors, advising on Board meeting schedules and agendas and
for performing such other duties as are requested by the Board.
The general authority and responsibilities of the Lead
Independent Director are established by the Board, and shall
include leading the self-evaluation of the Board. The Lead
Independent Director serves a one-year term in such capacity, or
until his or her resignation as Lead Independent Director or the
election by the independent directors of a successor Lead
Independent Director.
Board Committees
The Board of Directors has five (5) standing committees:
the Executive Committee, the Audit Committee, the Corporate
Governance and Nominating Committee, the Finance and Investment
Committee and the Compensation Committee.
The Executive Committee is empowered to exercise the authority
of the Board of Directors in the management of the business and
affairs of the Company between meetings of the Board of
Directors, except as such authority may be limited by the
provisions of the General Corporation Law of the State of
Delaware. The Executive Committee, which is composed of
Messrs. Ratliff, III (Chairman), Tonnesen and
Whitehurst, did not act during 2005.
The Audit Committee appoints the Companys independent
auditors. The Audit Committee also reviews the scope of the
annual audit, the annual and quarterly financial statements of
the Company and the auditors report
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thereon and the auditors comments relative to the adequacy
of the Companys system of internal controls and accounting
systems. In addition, the Audit Committee oversees the
Companys internal audit function. The Audit Committee,
which is composed of Messrs. Swanson (Chairman), Austin and
Whitehurst, met seventeen (17) times in 2005.
The Board of Directors has determined that each of
Mr. Swanson and Mr. Whitehurst is an audit
committee financial expert as defined in the
Sarbanes-Oxley Act of 2002 and the applicable rules and
regulations of the Securities and Exchange Commission. The Board
has also determined that all of the members of the Audit
Committee (i) are independent under Rule 10A-3(b)(1)
of the Securities Exchange Act of 1934, (ii) have not
participated in the preparation of the financial statements of
the Company or any current subsidiary during the past three
(3) years, and (iii) are able to read and understand
fundamental financial statements, including a balance sheet,
income statement and cash flow statement. In addition, the Board
has determined that Messrs. Austin, Whitehurst and Swanson
are independent under the Nasdaq rules.
The Compensation Committee makes recommendations regarding
salaries and other compensation for the Companys executive
officers, including bonuses, grants of stock options and other
incentive programs, and has also administered the Companys
1993 Long-Term Stock Incentive Plan (the 1993 Stock
Incentive Plan) and will, subject to stockholder approval,
administer the Companys 2006 Long-Term Stock Incentive
Plan (the 2006 Stock Incentive Plan). The
Compensation Committee, which is composed of
Messrs. Roberts (Chairman), Austin, David and Swanson, met
five (5) times in 2005 and acted once by unanimous written
consent. Each member of the Compensation Committee is
independent under the Nasdaq rules.
The Finance and Investment Committee reviews the capital
structure needs of the Company as well as the Companys
investment policies. The Finance and Investment Committee, which
is composed of Messrs. David (Chairman), Roberts and
Whitehurst, met five (5) times in 2005.
The Corporate Governance and Nominating Committee (hereinafter
the Nominating Committee) makes recommendations to
the Board regarding corporate governance matters and oversees
director nominations. The Nominating Committees role is to
identify and recommend the slate of director nominees for
election to the Companys Board of Directors, identify and
recommend candidates to fill vacancies occurring between annual
meetings of stockholders, and identify and recommend Board
members for service on committees of the Board. The Nominating
Committee is composed of Messrs. Roberts (Chairman),
Austin, David and Swanson. Each member of the Nominating
Committee is independent under the Nasdaq rules. The Nominating
Committee met three (3) times and acted once by
unanimous written consent in 2005.
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Operation of the Nominating Committee. The Nominating
Committee acts pursuant to a written charter adopted by the
Board, which is available at the Companys website at:
http://www.triadguaranty.com. Nominations for director submitted
to the Nominating Committee by stockholders, other directors or
management are evaluated according to the nominees
knowledge, experience and background. While the Nominating
Committee does not have any specific minimum qualifications for
director candidates, the Nominating Committee may take into
consideration such factors and criteria as it deems appropriate
in evaluating a candidate, including his or her judgment, skill,
integrity, diversity and business or other experience. |
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The process for identifying and evaluating candidates.
The Nominating Committee is responsible for identifying and
evaluating candidates for Board membership and selecting or
recommending to the Board nominees to stand for election.
Candidates may come to the attention of the Nominating Committee
through current Board members, professional search firms,
stockholders or other persons. The Nominating Committee Charter
provides that the Nominating Committee will consider candidates
recommended by stockholders |
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or members of the Board or by management. The Nominating
Committee evaluates all candidates selected for consideration,
including incumbent directors, based on the same criteria as
described above. All candidates who, after evaluation, are then
recommended by the Nominating Committee and approved by the
Board, are included in the Companys recommended slate of
director nominees in its proxy statement. |
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General Nomination Right of all Stockholders. The
Companys Certificate of Incorporation establishes
procedures, including advance notice procedures, with regard to
the nomination, other than by or at the direction of the Board
of Directors, of candidates for election as directors. In
general, notice must be received by the Company at its principal
executive offices not less than sixty (60) days nor more
than ninety (90) days prior to meetings of stockholders of
the Company. Such notice must set forth all information with
respect to each such nominee as required by the federal proxy
rules. Such notice must be accompanied by a signed statement of
such nominee consenting to be a nominee and a director, if
elected. |
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE
COMPENSATION
General
The purpose of the Companys executive compensation program
is to enable the Company to attract, retain and motivate
qualified executives to insure the long-term success of the
Company and its business strategies.
The Companys overall executive compensation philosophy is
as follows:
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to attract, retain and motivate qualified executive talent
critical for the long-term success of the Company; |
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to reinforce strategic performance objectives through the use of
incentive compensation programs; and |
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to create a mutuality of interest between executive officers and
the stockholders through compensation structures that align
compensation with the rewards and risks of strategic decision
making and successful execution of business strategy. |
The objectives of the Compensation Committee with regard to
executive compensation include linking compensation to improving
return on equity using economic value added (EVA)
concepts. (EVA is a registered trademark of Stern Stewart &
Co.) Accordingly, the Compensation Committee has developed
certain models for measuring EVA and determining the portion of
that value which will be available for incentive compensation
awards. These concepts were incorporated in a set of program
guidelines (the EVA Program) approved by the Board
of Directors.
Under the EVA Program, it is expected that the Company will
provide a return to stockholders based on the estimated current
cost of capital and market risk associated with an investment in
the Companys business. To the extent the Company provides
a rate of return in excess of this cost of capital,
there has been economic value added to the Company and a
discretionary bonus pool based on a portion of the EVA is
established to provide incentive compensation to senior
management. Awards of amounts in the bonus pool to individual
participants are based on the individuals contribution to
the Company during the year as determined by the Compensation
Committee after considering recommendations of the Chairman and
the President and an evaluation of expected operating results in
the future. The amounts allocated to the bonus pool for the
current year are based upon calculations under the EVA Program
in each of the prior three (3) years and the current year.
Awards under this program are made in the form of cash bonuses
and equity grants within guidelines established under the
EVA Program.
7
In establishing the EVA Program, it is the Compensation
Committees objective that incentive compensation (cash and
equity awards) be a significant component in the total executive
compensation package. The Compensation Committee believes this
approach will create a stronger mutuality of interests between
the Companys executive officers and stockholders by
requiring the executive officers to share in the Companys
operating results and stock market performance. Under the EVA
Program, incentive compensation awards in the future could be
significantly greater or less than awards made in 2005 and prior
years. All of the Companys executive officers currently
participate in the EVA Program.
The Company, through its wholly-owned subsidiary, Triad, has
employment agreements described elsewhere in this proxy
statement with Messrs. Tonnesen, Kessinger, Lard, Foster,
Dana and Wall. These agreements are intended to secure for the
Company the continued services of the officers and provide them
appropriate incentives for maximum effort on behalf of the
Company. Salary levels established under the employment
agreements are subject to annual review. The Company also
maintains the 1993 Stock Incentive Plan under which grants of
restricted Common Stock and options to purchase stock have been
made as described elsewhere in this proxy statement. The 1993
Stock Incentive Plan will be terminated upon approval of the
2006 Stock Incentive Plan by the Companys stockholders,
although such termination shall not affect any award made under
the 1993 Stock Incentive Plan prior to its termination. Future
grants of restricted Common Stock and stock options will be made
in accordance with the proposed 2006 Stock Incentive Plan, which
is described elsewhere in this proxy statement.
The compensation of each of the executive officers of the
Company is composed of base compensation and incentive
compensation. The 2005 compensation of the Companys
retired Chief Executive Officer, Mr. Thompson, was subject
to the same policies as are applicable to all other executive
officers of the Company. Mr. Tonnesens compensation
for 2005 was established pursuant to his employment agreement
dated September 9, 2005. All other executive compensation
awards for 2005 were determined by the Compensation Committee.
Overall executive compensation levels for 2005 were slightly
higher than for 2004. However, overall cash bonuses and equity
awards to the executive officers were slightly lower in 2005
than in 2004.
Section 162(m) under the Internal Revenue Code of 1986, as
amended (the Code), limits the deductibility for
federal income tax purposes of certain compensation paid to top
executives of publicly held corporations. Certain types of
compensation may be excluded from the limitations under
Section 162(m). The Compensation Committee believes that
the tax aspects of executive compensation awards are one of
several important considerations and it will continue to review
the applicability of the Code limitations to its executive
compensation programs. However, the Committee intends to
maintain the flexibility to take any actions which it deems to
be in the best interests of the Company and its stockholders.
Policies relative to each of the elements of compensation of the
executive officers are discussed below.
Base Compensation
The Compensation Committees approach to base compensation
is to offer competitive salaries, consistent with the objective
that base salaries be a smaller component than incentive
compensation in the total executive compensation package. Those
executive officers covered by employment agreements receive base
salaries under those agreements, subject to annual review, and
are eligible for incentive compensation awards as well.
The Compensation Committee makes salary decisions in an annual
review with input from the Chief Executive Officer. The
Compensation Committees review of the base salaries of the
executive officers considers the decision-making
responsibilities of each position and the experience, work
performance and overall contribution of the executive officer to
the Company in relationship to overall Company performance. In
establishing the 2005 salaries
8
of the Companys executive officers, the Compensation
Committee considered the responsibilities, experience and
performance of the individual in relationship to the
Companys growth and financial results. The Committee also
took into account the compensation of executives at comparable
companies (companies within the private mortgage insurance
industry as well as those outside the industry). In the case of
Mr. Thompson, the Compensation Committee received input
from the Chairman of the Board with regard to the Chief
Executive Officers performance in both qualitative and
quantitative areas, such as the performance of the business,
including the achievement of financial objectives and goals.
Mr. Tonnesens salary and compensation was determined
in accordance with his employment agreement. The total amount of
base salaries paid to the executive officers named in the
Executive Compensation Table increased by approximately 13% in
2005 over 2004.
Incentive Compensation
The Companys incentive compensation awards for 2005 were
based on the guidelines established by the Compensation
Committee under the EVA Program. Awards granted under the EVA
Program consist of a maximum of 50% in cash to the Chairman, the
President or an Executive Vice President and a maximum of 65% in
cash to a Senior Vice President or Vice President, or such
lesser cash percentages as may be determined by the Compensation
Committee. The balance of the awards are made in the form of
equity grants under the Companys 1993 Stock Incentive Plan.
Total incentive compensation for each executive under the EVA
Program is determined by the Compensation Committee. The
Compensation Committee determines the individuals to whom the
awards are granted, the type and amount of awards to be granted,
the timing of grants and the terms, conditions and provisions of
awards to be granted and the restrictions related thereto. In
making those awards, the Compensation Committee considers the
recommendations of the Companys Chairman and President,
the responsibilities of each individual, and his/her past
performance and contributions to the Company and anticipated
future contributions to the Company, in relationship to the
Companys overall performance. The total amount of
incentive compensation paid to all executive officers which
appear in the Executive Compensation Table decreased by
approximately 24% in 2005 over 2004.
Cash Awards
The average cash bonus awarded to the executive officers named
in the Executive Compensation Table was 125% of their base
salaries in 2003, 139% in 2004 and 104% in 2005. Awards for 2005
were made consistent with the guidelines established under the
EVA Program.
Equity Awards
Pursuant to the Companys 1993 Stock Incentive Plan,
certain directors, officers and key employees of the Company are
eligible to receive long-term incentives in a variety of forms
including nonqualified stock options, incentive stock options,
stock appreciation rights, restricted stock, phantom stock and
other stock-based awards. The purpose of the 1993 Stock
Incentive Plan is to enable the Company to attract and retain
the best available directors, executive personnel and other key
employees in order to provide for the Companys long-term
growth and business success. The Compensation Committee believes
that the grant of awards whose value is related to the value of
the Companys Common Stock aligns the interests of the
Companys directors, executive officers and key employees
with its stockholders.
For 2005, all awards to the executive officers under the 1993
Stock Incentive Plan represented the equity portion of the
overall incentive compensation award for such individual, except
that Mr. Tonnesens award of
9
options to acquire 108,225 shares of Common Stock and
Mr. Danas award of 2,000 restricted shares were
granted as signing bonuses in connection with their hiring by
the Company. The Compensation Committee considered grants under
the 1993 Stock Incentive Plan in the form of shares of
restricted stock valued at the market price of the
Companys Common Stock on the date of grant or in the form
of ten-year stock options exercisable at either the market price
on the date of grant or 130% of that price. The Committee
utilized a Black-Scholes pricing model and applied a discount
for non-transferability of options and deferred vesting to
determine the number of at the market options or
premium priced options which would be awarded
relative to shares of restricted stock. For 2005 the awards to
all of the executive officers were made in the form of shares of
restricted stock except that one executive took 50% in
restricted stock and 50% in options. These awards are summarized
in footnotes to the Executive Compensation Table.
The salary and incentive compensation, including cash and equity
amounts, paid by the Company to its Chief Executive Officer
(both current and retired) and the other five (5) most
highly compensated executive officers of the Company in 2005 is
set forth in the tables that follow this report. The
Compensation Committee believes that the executive officers of
the Company are dedicated to increasing profitability and
stockholder value and that the compensation policies that the
Board and the Compensation Committee have established and
administer contribute to this focus.
|
|
|
COMPENSATION COMMITTEE |
|
Michael A. F. Roberts, Chairman |
|
Glenn T. Austin, Jr. |
|
Robert T. David |
|
Richard S. Swanson |
The foregoing Report of the Board of Directors on Executive
Compensation shall not be deemed to be incorporated by reference
into any filing of the Company under the Securities Act of 1933
or the Securities Exchange Act of 1934, except to the extent
that the Company specifically incorporates such information by
reference.
10
Executive Compensation Table
The following table sets forth certain information regarding the
compensation paid or accrued by the Company to or for the
account of the Chief Executive Officer (both current and
retired) and the other five (5) most highly compensated
executive officers of the Company during each of the
Companys fiscal years ended December 31, 2005, 2004
and 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Term Compensation Awards(2) | |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Annual Compensation | |
|
|
|
Securities | |
|
All Other | |
Name and |
|
|
|
| |
|
Restricted Stock | |
|
Underlying | |
|
Compensation | |
Principal Position |
|
|
|
Salary($) | |
|
Bonus($)(1) | |
|
Awards($)(3)(4)(5)(6) | |
|
Options(#)(7) | |
|
($)(8) | |
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
Mark K. Tonnesen,
|
|
|
2005 |
|
|
$ |
134,711 |
|
|
$ |
200,000 |
|
|
$ |
|
|
|
|
108,225 |
|
|
$ |
|
|
|
Chief Executive Officer(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Darryl W. Thompson,
|
|
|
2005 |
|
|
|
194,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,000 |
|
|
Retired Chief |
|
|
2004 |
|
|
|
275,000 |
|
|
|
387,500 |
|
|
|
388,510 |
|
|
|
|
|
|
|
6,500 |
|
|
Executive Officer(9) |
|
|
2003 |
|
|
|
253,000 |
|
|
|
366,500 |
|
|
|
366,692 |
|
|
|
|
|
|
|
7,000 |
|
Ron D. Kessinger,
|
|
|
2005 |
|
|
|
240,000 |
|
|
|
342,500 |
|
|
|
342,510 |
|
|
|
|
|
|
|
7,000 |
|
|
Senior Executive |
|
|
2004 |
|
|
|
204,750 |
|
|
|
325,000 |
|
|
|
325,742 |
|
|
|
|
|
|
|
6,500 |
|
|
Vice President and |
|
|
2003 |
|
|
|
193,000 |
|
|
|
250,000 |
|
|
|
250,895 |
|
|
|
|
|
|
|
6,000 |
|
|
Assistant to the President |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth N. Lard,
|
|
|
2005 |
|
|
|
210,000 |
|
|
|
225,000 |
|
|
|
225,036 |
|
|
|
|
|
|
|
7,000 |
|
|
Executive Vice President |
|
|
2004 |
|
|
|
195,000 |
|
|
|
225,000 |
|
|
|
225,098 |
|
|
|
|
|
|
|
6,500 |
|
|
|
|
|
2003 |
|
|
|
182,000 |
|
|
|
182,000 |
|
|
|
182,274 |
|
|
|
|
|
|
|
6,000 |
|
Kenneth C. Foster,
|
|
|
2005 |
|
|
|
185,000 |
|
|
|
227,500 |
|
|
|
122,514 |
|
|
|
|
|
|
|
7,000 |
|
|
Senior Vice President |
|
|
2004 |
|
|
|
172,500 |
|
|
|
227,500 |
|
|
|
123,371 |
|
|
|
|
|
|
|
6,500 |
|
|
Risk Management |
|
|
2003 |
|
|
|
150,000 |
|
|
|
135,200 |
|
|
|
72,910 |
|
|
|
|
|
|
|
6,000 |
|
Earl F. Wall,
|
|
|
2005 |
|
|
|
165,000 |
|
|
|
178,750 |
|
|
|
96,264 |
|
|
|
|
|
|
|
7,000 |
|
|
Senior Vice President, |
|
|
2004 |
|
|
|
150,000 |
|
|
|
224,250 |
|
|
|
121,206 |
|
|
|
|
|
|
|
6,500 |
|
|
Secretary and |
|
|
2003 |
|
|
|
144,000 |
|
|
|
218,400 |
|
|
|
117,942 |
|
|
|
|
|
|
|
6,000 |
|
|
General Counsel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eric B. Dana,
|
|
|
2005 |
|
|
|
120,032 |
|
|
|
77,500 |
|
|
|
145,826 |
|
|
|
2,768 |
|
|
|
2,924 |
|
|
Senior Vice President and Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The Company maintains an executive bonus program pursuant to
which cash bonuses may be awarded annually to officers and other
key employees of the Company as a part of overall incentive
compensation awards. |
|
(2) |
Number of shares of Common Stock subject to options, or awards
of restricted stock, granted during or with respect to the year
indicated under the Companys 1993 Stock Incentive Plan.
See Report of the Compensation Committee of the
Board Incentive Compensation. |
|
(3) |
As part of its 2003 incentive compensation awards, the Company
in February 2004 granted 6,840 shares of restricted stock
to Mr. Thompson; 4,680 shares of restricted stock to
Mr. Kessinger; 3,400 shares of restricted stock to
Mr. Lard; 1,360 shares of restricted stock to
Mr. Foster; and 2,200 shares of restricted stock to
Mr. Wall under the Companys 1993 Stock Incentive
Plan. The value of shares of restricted stock is based upon the
closing price of the Companys Common Stock on the date of
grant ($53.61). One-third of the restricted shares vested on
January 1, 2005, another third became vested and
transferable on January 1, 2006, and on January 1,
2007 all of the restricted shares will be vested and
transferable. Holders of restricted stock are |
11
|
|
|
entitled to receive dividends or other distributions with
respect to such shares during the period of restriction. The
restricted stock awards become immediately vested and
transferable in the event of a change of control of the Company. |
|
(4) |
As part of its 2004 incentive compensation awards, the Company
in February 2005 granted 7,180 shares of restricted stock
to Mr. Thompson; 6,020 shares of restricted stock to
Mr. Kessinger; 4,160 shares of restricted stock to
Mr. Lard; 2,280 shares of restricted stock to Mr.
Foster; and 2,240 shares of restricted stock to
Mr. Wall under the Companys 1993 Stock Incentive
Plan. The value of shares of restricted stock is based upon the
closing price of the Companys Common Stock on the date of
grant ($54.11). One-third of the restricted shares vested on
January 1, 2006, another third will be vested and
transferable on January 1, 2007, and on January 1,
2008 all of the restricted shares will be vested and
transferable. Holders of restricted stock are entitled to
receive dividends or other distributions with respect to such
shares during the period of restriction. The restricted stock
awards become immediately vested and transferable in the event
of a change of control of the Company. |
|
(5) |
As part of its 2005 incentive compensation awards, the Company,
in January 2006 granted 8,155 shares of restricted stock to
Mr. Kessinger; 5,358 shares of restricted stock to
Mr. Lard; 2,917 shares of restricted stock to
Mr. Foster; 923 shares of restricted stock to
Mr. Dana; and 2,292 shares of restricted stock to
Mr. Wall under the Companys 1993 Stock Incentive
Plan. The value of shares of restricted stock is based upon the
closing price of the Companys Common Stock on the date of
grant ($42.00). One-third of the restricted shares will be
vested on January 1, 2007, another third will be vested and
transferable on January 1, 2008, and on January 1,
2009 all of the restricted shares will be vested and
transferable. Mr. Dana also received 2,000 shares of
restricted stock in May 2005 in connection with his hiring by
the Company. One-third of these restricted shares will be vested
and transferable on May 17, 2006, another third will be
vested and transferable on May 17, 2007, and on
May 17, 2008 all of these restricted shares will be vested
and transferable. The value of shares of restricted stock is
based upon the closing price of the Companys Common Stock
on the date of grant ($53.53). Holders of restricted stock are
entitled to receive dividends or other distributions with
respect to such shares during the period of restriction. The
restricted stock awards become immediately vested and
transferable in the event of a change of control of the Company. |
|
(6) |
The aggregate unvested restricted stock holdings as of
December 31, 2005 were as follows: 15,760 shares
valued at $693,282 for Mr. Thompson; 12,220 shares
valued at $537,558 for Mr. Kessinger; 6,427 shares
valued at $282,724 for Mr. Lard; 3,187 shares valued
at $140,196 for Mr. Foster; 2,000 shares valued at
$87,980 for Mr. Dana; and 4,954 shares valued at
$217,926 for Mr. Wall. The foregoing values were calculated
based upon the closing price of the Companys stock at
December 30, 2005 ($43.99). |
|
(7) |
As part of its 2005 incentive compensation awards, the Company
in January 2006 granted stock options to Mr. Dana to
purchase 2,768 shares of Common Stock under the Companys
1993 Stock Incentive Plan at the exercise price of
$42.00 per share. One-third of the options granted will be
vested and exercisable on December 31, 2006, another third
will be vested and exercisable on December 31, 2007, and on
December 31, 2008 all of the options granted will be vested
and exercisable. All options will become immediately vested and
exercisable in the event of a change of control of the Company.
The exercise price of $42.00 was the closing market price of the
Companys Common Stock on the date of grant.
Mr. Tonnesen also received stock options to purchase
108,225 shares of Common Stock at the exercise price of
$41.12 in September 2005 in connection with his hiring by the
Company. One-half of the options granted become vested and
exercisable on September 13, 2007, and one-half will be
vested and exercisable on September 13, 2008. |
|
(8) |
Matching contributions made by the Company pursuant to its
401(k) Profit Sharing Retirement Plan. |
12
|
|
(9) |
Mr. Thompson retired as Chief Executive Officer on
September 13, 2005. Mr. Tonnesen became Chief
Executive Officer on September 14, 2005. |
Employee Stock Options
Option Grants. The following table sets forth certain
information regarding options to purchase shares of Common Stock
granted to the executive officers of the Company named in the
Executive Compensation Table during the Companys fiscal
year ending December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Grants | |
|
|
|
|
| |
|
Potential Realizable Value | |
|
|
Number of | |
|
% of | |
|
|
|
at Assumed Annual Rates of | |
|
|
Securities | |
|
Total Options | |
|
|
|
Stock Price Appreciation | |
|
|
Underlying | |
|
Granted to | |
|
|
|
for Option Term(3) | |
|
|
Options | |
|
Employees in | |
|
Exercise Price | |
|
|
|
| |
Name |
|
Granted(#)(1) | |
|
Fiscal Year | |
|
($/Sh)(2) | |
|
Expiration Date | |
|
5%($) | |
|
10%($) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Mark K. Tonnesen
|
|
|
108,225 |
|
|
|
84.51 |
% |
|
$ |
41.12 |
|
|
|
September 13, 2015 |
|
|
$ |
2,798,714 |
|
|
$ |
7,092,492 |
|
|
|
(1) |
All options granted under the Companys 1993 Stock
Incentive Plan are nonqualified stock options. The options were
granted in September 2005. One-half of the options granted
become vested and exercisable on September 13, 2007, and
one-half will be vested and exercisable on September 13,
2008. In the event of a change of control of the Company between
the first and second anniversary dates, one third of the options
will immediately vest. |
|
(2) |
The option exercise price of $41.12 was the closing market price
of the Companys Common Stock on the date of grant. |
|
(3) |
The assumed annual rates of appreciation 5% and 10% would result
in the price of the Companys Common Stock increasing over
such ten-year periods to $66.98 and $106.65, respectively (based
on the grant date price of $41.12). |
Option Exercises. The following table sets forth certain
information regarding options to purchase shares of Common Stock
exercised during the Companys 2005 fiscal year and the
number and value of unexercised options to purchase shares of
Common Stock held at the end of the Companys 2005 fiscal
year by the executive officers of the Company named in the
Executive Compensation Table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities | |
|
|
|
|
|
|
|
|
Underlying Unexercised | |
|
Value of Unexercised | |
|
|
|
|
|
|
Options at Fiscal | |
|
In-the-Money Options at | |
|
|
Number of | |
|
|
|
Year End(#) | |
|
Fiscal Year End ($)(1) | |
|
|
Shares Acquired | |
|
Value | |
|
| |
|
| |
Name |
|
on Exercise | |
|
Realized | |
|
Exercisable/Unexercisable | |
|
Exercisable/Unexercisable | |
|
|
| |
|
| |
|
| |
|
| |
Darryl W. Thompson
|
|
|
126,289 |
|
|
$ |
3,937,566 |
|
|
|
108,986/ |
0 |
|
$ |
867,689/ |
$0 |
Ron D. Kessinger
|
|
|
0 |
|
|
|
0 |
|
|
|
3,775/ |
0 |
|
|
0/ |
0 |
Kenneth N. Lard
|
|
|
0 |
|
|
|
0 |
|
|
|
10,000/ |
0 |
|
|
108,110/ |
0 |
Kenneth C. Foster
|
|
|
0 |
|
|
|
0 |
|
|
|
23,880/ |
0 |
|
|
180,409/ |
0 |
Earl F. Wall
|
|
|
0 |
|
|
|
0 |
|
|
|
7,722/ |
0 |
|
|
13,262/ |
0 |
|
|
(1) |
Value of unexercised options is equal to the difference between
the fair market value per share of Common Stock at
December 31, 2005 and the option exercise price per share
multiplied by the number of shares subject to options. |
13
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities | |
|
|
|
Number of securities | |
|
|
to be issued | |
|
Weighted-average | |
|
remaining available | |
|
|
upon exercise of | |
|
exercise price of | |
|
for future issuance | |
|
|
outstanding options, | |
|
outstanding options, | |
|
under equity | |
Plan category |
|
warrants and rights | |
|
warrants and rights | |
|
compensation plans | |
|
|
| |
|
| |
|
| |
Equity compensation plans approved by
security holders
|
|
|
588,780 |
|
|
$ |
37.39 |
|
|
|
137,412 |
|
Equity compensation plans not approved by
security holders
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
Total
|
|
|
588,780 |
|
|
$ |
37.39 |
|
|
|
137,412 |
|
Employment Agreements
In October 1993, the Company, through its wholly-owned
subsidiary Triad, entered into employment agreements with
Messrs. Thompson and Kessinger. These agreements had
initial terms of two (2) years and upon expiration extended
automatically for successive six (6) month terms unless
terminated by either party. Mr. Thompson retired from the
Company on September 13, 2005. On January 6, 2006,
Mr. Kessinger and the Company entered into a new employment
agreement for a term of three (3) years. Beginning
January 16, 2006 and continuing until July 15, 2006,
Mr. Kessinger will work seven (7) to ten
(10) days per month at the rate of $25,000 per month.
This term may be extended on a month-to-month basis upon mutual
agreement. Following this six (6) month period, as
extended, Mr. Kessinger will resign as an officer of the
Company and as an officer and director of its subsidiaries and
affiliates. The Company may request that Mr. Kessinger work
up to ten (10) hours per month for the remainder of the
term of employment at a rate of $300.00 per hour.
On September 9, 2005, the Company and Mr. Tonnesen
entered into an employment agreement and related letter
agreement beginning September 14, 2005 and extending
through September 30, 2008 and thereafter for successive
six (6) month terms unless either party gives one
years prior written notice of nonrenewal.
Mr. Tonnesens base annual salary under the agreement
is $450,000. During each year that the agreement is in effect,
the Company will review possible increases in salary at least
annually, with any such increases subject to the determination
of the Board. For calendar year 2005, the cash bonus was
$200,000 and for calendar year 2006 the cash bonus shall not be
less than $450,000. The Company agreed to cover relocation costs
or $50,000 in lieu thereof, a monthly car allowance of $1,000
per month, reimbursement for financial planning services up to
$7,500 per year and reimbursement for the initiation fee
and annual membership dues to a country club in Winston Salem,
North Carolina, with such initiation fee and relocation expenses
subject to gross-up for federal and state tax purposes.
Mr. Tonnesen was awarded 108,225 stock options at an
exercise price of $41.12. Fifty percent (50%) vest on
September 13, 2007 and the remaining fifty percent (50%)
vest on September 13, 2008. In addition, Mr. Tonnesen
is eligible to receive a grant of 36,075 shares of restricted
stock. In the event that Mr. Tonnesens employment is
terminated by the Company or by him for good reason (as defined
in the employment agreement) or on account of a change of
control (as defined in the employment agreement) (each a
Qualifying Termination), between September 13,
2006 and September 13, 2007, Mr. Tonnesen will, on the
effective date of such termination, vest in one-third of his
stock options and will have thirty (30) days thereafter to
exercise such options. Beginning in 2007, any grants of equity
awards under the 1993 Stock Incentive Plan or any subsequent
plan will vest pro rata if there is a Qualifying Termination
following any such grant. In such an event, Mr. Tonnesen
will have thirty (30) days from his termination date to
exercise any vested equity awards.
14
The employment agreement with Mr. Tonnesen is terminable by
the Company in the event of the death of the employee, absence
over a period of time due to incapacity, a material breach of
duties and obligations under the agreement or other serious
misconduct. The agreement also is terminable by the Company
without cause; provided, however, that in such event, the
executive is entitled to his salary up to the date of
termination and a cash amount equal to the greater of
$1.8 million or 200% of the total base annual salary paid
to such executive during the two (2) previous calendar
years (a Severance Payment). The employment
agreement also provides that in the event of a change of control
of the Company (as defined in the agreement) and the termination
of the executives employment by the executive within two
(2) years of such change of control as a result of his
relocation or certain specified adverse changes in his
employment status or compensation, the executive is entitled to
a cash amount equal to the Severance Payment. The employment
agreement contains a noncompetition and nonsolicitation
provision restricting the executive from competing with the
business of the Company for a period of two (2) years
following termination of his employment.
Agreements similar to the 1993 agreements with
Messrs. Thompson and Kessinger were entered into with
Mr. Lard in January 1997 and with Messrs. Wall and
Foster in May 2002. These agreements automatically extend for
successive six (6) month terms unless either party gives
one years prior written notice of nonrenewal. On
May 19, 2005, the Company, through its wholly-owned
subsidiary Triad, entered into an employment agreement with
Eric B. Dana, Senior Vice President and Chief Financial
Officer. The agreement has an initial term of
two (2) years and upon expiration extends
automatically for successive six (6) month terms unless
non-renewed by either party. Mr. Dana was also awarded
2,000 shares of restricted stock. One-third of the restricted
shares will be vested and transferable on May 17, 2006,
another third will be vested and transferable on May 17,
2007 and on May 17, 2008 all of the restricted shares
granted will be vested and transferable. Base annual salary for
2006 under these agreements is as follows: Mr. Wall,
$165,000, Mr. Foster, $195,000, Mr. Lard, $225,000 and
Mr. Dana $175,000.
The employment agreements with Messrs. Wall, Foster, Lard
and Dana are terminable by the Company in the event of the death
of the employee, absence over a period of time due to
incapacity, a material breach of duties and obligations under
the agreement or other serious misconduct. The agreements also
are terminable by the Company without cause; provided, however,
that in such event, the executive is entitled to a cash amount
equal to 200% of the total base annual salary paid to such
executive during the two (2) previous calendar years. The
employment agreements also provide that in the event of a change
of control of the Company (as defined in the agreements) and the
termination of the executives employment by the executive
as a result of his relocation or certain specified adverse
changes in his employment status or compensation, the executive
is entitled to a cash amount equal to 200% of the total base
annual salary paid to such executive during the two
(2) previous calendar years. The employment agreements
contain certain noncompetition provisions restricting each
executive from competing with the business of the Company for a
period of two (2) years following termination of his
employment.
Directors Compensation
Directors who are employees of the Company or any of its
subsidiaries or affiliates do not receive any compensation for
serving as directors of the Company. For 2005, directors who
were not employees of the Company or any of its subsidiaries or
affiliates received an annual retainer of $80,000, $40,000 of
which was paid in cash in four quarterly installments and
$40,000 of which was paid in restricted stock on the date of the
annual meeting of stockholders and vesting in one (1) year.
Additionally, the Chairman of the Audit Committee received
$10,000, members of the Audit Committee received $5,000 and all
other committee chairman received $5,000. All directors were
reimbursed for expenses incurred in attending board meetings.
15
For 2006, each non-employee director shall receive an annual
retainer of $95,000, $30,000 of which shall be paid in cash in
four quarterly installments and $65,000 of which shall be paid
in restricted stock following the annual meeting of
stockholders. The non-executive Chairman of the Board shall
receive an annual retainer of $225,000, $112,500 of which shall
be paid in cash in four quarterly installments and $112,500 of
which shall be paid in restricted stock following the annual
meeting of stockholders. The Compensation Committee may also,
based upon the evaluation by the Corporate Governance and
Nominating Committee, recommend a discretionary payment for
services above and beyond those traditionally performed by a
non-executive Chairman of the Board. Restricted stock awards to
the non-employee directors and the non-executive Chairman of the
Board shall vest over a three year period from the date of award
as follows: 60% upon the first anniversary of issuance, 20% upon
the second anniversary of issuance and 20% upon the third
anniversary of issuance. Audit Committee members shall receive
$2,500 per meeting, up to an annual maximum of $20,000. Other
committee members shall receive $1,500 per meeting, up to an
annual maximum of $6,000. The Compensation Committee may award
fees in excess of these amounts based upon additional services
that are required by the applicable committee. The Audit
Committee chairperson shall receive a retainer of $15,000 per
year. All other chairpersons of committees shall receive a
retainer of $7,500 per year.
In 2005, Mr. Ratliff, III was eligible to receive a
directors fee and incentive compensation based upon the
Compensation Committees evaluation of his contributions to
the Company. For 2005, Mr. Ratliff, III received no salary
and was awarded a cash bonus in the amount of $171,250 and 4,078
shares of restricted stock.(1)
Compensation Committee Interlocks and Insider
Participation
Messrs. Austin, David, Roberts and Swanson served on the
Compensation Committee during fiscal year 2005. No member of the
Compensation Committee is or was formerly an officer or employee
of the Company or any of its subsidiaries.
Certain Transactions
In May 2005, the Company entered into an agreement with
Collateral Investment Corp. (CIC) in which CIC
transferred all of its 2,573,551 shares of Company common stock
to the Company in exchange for 2,528,514 newly issued shares of
Company common stock. The difference in the number of shares
represented a discount of approximately 1.75% to the Company.
The 2,573,551 shares transferred by CIC were subsequently
retired by the Company, resulting in a reduction of outstanding
shares of the Company of 45,037.
CIC was liquidated and the newly issued Company shares were
distributed to the CIC shareholders on December 31, 2005.
Resale of the new shares received by the CIC shareholders was
restricted until January 30, 2006. Also, sales of these
shares by CIC shareholders are restricted to 10,000 shares per
quarter until November 1, 2006 and until November 1,
2009 for William T. Ratliff, III and certain members of his
family.
CIC was a corporation of which the Companys chairman,
Mr. Ratliff, III was a shareholder and President. In 2005,
CIC owned approximately 17.5% of the outstanding common stock of
the Company. As a result of this transaction, William T.
Ratliff, Jr. and Mr. Ratliff, III received Company shares
as direct stockholders and indirect stockholders in various
manners, such as trustees of trusts and custodians for minors.
|
|
(1) |
One third of the restricted shares granted will be vested on
January 1, 2007, another third will be vested and
transferable on January 1, 2008 and on January 1,
2009, all of the restricted shares granted will be vested and
transferable. All restricted shares will become immediately
vested and transferable in the event of a change of control of
the Company. |
16
The Company engaged in certain transactions with CML and its
affiliate, New South Federal Savings Bank (New
South), during 2005 including those described below.
Mr. Ratliff, III, Chairman of the Board of the Company, is
also former President and former General Partner of CML, and
Chairman of the Board of New South. All transactions between the
Company and CML or New South were on terms no less favorable to
the Company than could have been obtained from unaffiliated
third parties.
Investment Advisory Agreement. Triad was a party to an
agreement with CML under which CML will monitor and provide
advice and counsel regarding the investment strategy and tactics
of an unrelated third party. The agreement was for a term of
twelve (12) months, beginning January 1, 2005, with a
renewal period of an additional twelve (12) months or
shorter. CML was compensated $25,000 per quarter, or $100,000
annually, for its work under this agreement. On or about
December 21, 2005, Triad extended this agreement for an
additional thirty (30) days up to and including
January 31, 2006, on which date it was terminated.
Administrative Services Agreement. Triad is a party to an
administrative services agreement with CML, Collat and New South
under which CML, Collat and New South provide Triad with certain
management services. Under the administrative services
agreement, Triad pays CML, Collat and New South an annual fee
based on the estimated cost of providing the services and
reimburses CML, Collat and New South for expenses related to
such services. During 2005, Triad incurred fees of $69,600
pursuant to the administrative services agreement.
In accordance with the Nasdaq rules, these agreements are
reviewed on an ongoing basis for conflicts of interest and have
been approved by the Audit Committee.
17
PERFORMANCE GRAPH
The following graph compares the cumulative total return on the
Companys Common Stock with the cumulative total return of
the Nasdaq Stock Market (U.S.) Index, the Nasdaq Financial
Stocks Index and the Nasdaq Insurance Stocks Index for the
period beginning December 31, 2000 and for each year end
through December 31, 2005.
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| |
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2000 |
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2001 |
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2002 |
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2003 |
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2004 |
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|
2005 |
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|
Triad Guaranty Inc.
|
|
|
|
100.00 |
|
|
|
|
109.48 |
|
|
|
|
111.26 |
|
|
|
|
151.98 |
|
|
|
|
182.55 |
|
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|
132.78 |
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Nasdaq Stock Market (U.S.)
|
|
|
|
100.00 |
|
|
|
|
79.32 |
|
|
|
|
54.84 |
|
|
|
|
81.99 |
|
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|
|
89.22 |
|
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|
91.12 |
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Nasdaq Finance Stocks
|
|
|
|
100.00 |
|
|
|
|
109.84 |
|
|
|
|
113.11 |
|
|
|
|
152.98 |
|
|
|
|
178.58 |
|
|
|
|
182.70 |
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|
Nasdaq Insurance Stocks
|
|
|
|
100.00 |
|
|
|
|
107.17 |
|
|
|
|
108.02 |
|
|
|
|
133.48 |
|
|
|
|
162.05 |
|
|
|
|
181.62 |
|
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|
The graph assumes $100 invested on December 31, 2000 in the
Companys Common Stock, the Nasdaq Stock Market (U.S.)
Index, the Nasdaq Financial Stocks Index and the Nasdaq
Insurance Stocks Index. The Nasdaq indices were prepared for
Nasdaq by the Center for Research in Security Prices at the
University of Chicago.
The foregoing table shall not be deemed to be incorporated by
reference into any filing of the Company under the Securities
Act of 1933 or the Securities Exchange Act of 1934, except to
the extent that the Company specifically incorporates such
information by reference.
REPORT OF THE AUDIT COMMITTEE
The following is the report of the Audit Committee with respect
to the Companys audited financial statements for the
fiscal year ended December 31, 2005. The Audit Committee
acts pursuant to the Audit Committee Charter, a copy of which
was filed as an Appendix to the Proxy Statement for the 2004
Annual Meeting of Stockholders. The Audit Committee reviews and
reassesses the adequacy of the Audit Committee Charter on an
annual basis.
18
The following report of the Audit Committee does not constitute
soliciting material and should not be deemed to be
filed with the Securities and Exchange Commission or
incorporated by reference into any other filing of the Company
under the Securities Act of 1933 or the Securities Exchange Act
of 1934, except to the extent that the Company specifically
incorporates this report by reference in any of those filings.
Financial Statements
The Audit Committee has reviewed and discussed the
Companys audited financial statements, internal controls
and the overall quality of the Companys financial
reporting with management and with Ernst & Young LLP
(E&Y), the Companys independent auditors.
The Audit Committee has discussed with E&Y the matters
required to be discussed by Statement of Auditing Standards
No. 61 which includes, among other items, matters related
to the conduct of the audit of the Companys financial
statements.
The Audit Committee has also received written disclosures and
the letter from E&Y required by Independence Standards Board
Standard No. 1, which relates to the auditors
independence from the Company and its related entities, and has
discussed with E&Y its independence from the Company.
Based on the review and discussions referred to above, the Audit
Committee recommended to the Companys Board of Directors
that the Companys audited financial statements be included
in the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2005.
Selection of Independent Auditors
The Audit Committee expects to meet prior to the annual meeting
of stockholders to select the Companys independent
auditors for fiscal year 2006.
|
|
|
AUDIT COMMITTEE |
|
Richard S. Swanson, Chairman |
|
Glenn T. Austin, Jr. |
|
David W. Whitehurst |
APPROVAL OF THE TRIAD GUARANTY INC. 2006 LONG-TERM STOCK
INCENTIVE PLAN
On March 14, 2006, the Board of Directors of the Company
adopted, subject to stockholder approval, the 2006 Long-Term
Stock Incentive Plan (the 2006 Stock Incentive
Plan). The 2006 Stock Incentive Plan is intended to, among
other things, increase the number of shares of common stock
(Shares) authorized for issuance through equity
awards. The 2006 Stock Incentive Plan is intended to be the
successor to the Companys 1993 Stock Incentive Plan. The
1993 Stock Incentive Plan will be terminated upon approval of
the 2006 Stock Incentive Plan by the Companys
stockholders, although such termination shall not affect any
award made under the 1993 Stock Incentive Plan prior to its
termination. If the stockholders approve the 2006 Stock
Incentive Plan, the remaining share reserve of the 1993 Stock
Incentive Plan, 94,624 shares, will be merged into the
reserve of the 2006 Stock Incentive Plan, and an additional
1,005,376 shares will be reserved for issuance under the
2006 Stock Incentive Plan so that a total of
1,100,000 shares of the Companys common stock will be
available for awards under the 2006 Stock Incentive Plan.
The 2006 Stock Incentive Plan is proposed to provide sufficient
Shares to cover new award grants to enable the Company to
attract, retain and motivate the best available directors,
executive personnel and key employees to be responsible for the
management, growth and success of the business. The ability to
grant equity awards in the future
19
to attract people of experience and ability to serve the Company
is critical to sustain the Companys continued growth and
success. The granting of equity awards advances the interests of
the Company and its stockholders by providing directors,
executive personnel and key employees upon whose judgment,
initiative and efforts the successful conduct of the business of
the Company largely depends, with additional incentive in the
form of a proprietary interest in the Company to perform in a
superior manner. Therefore, the Company is presenting the Triad
Guaranty Inc. 2006 Long-Term Stock Incentive Plan for
stockholder approval. A general description of the principal
terms of the 2006 Stock Incentive Plan as proposed is set forth
below. This description is qualified in its entirety by the
terms of the 2006 Stock Incentive Plan, a form of which is
attached hereto as Appendix I and incorporated herein by
reference.
Summary of the 2006 Stock Incentive Plan
Eligibility. Participants in the 2006 Stock
Incentive Plan are those directors, executive personnel and
other key employees selected by the Board of Directors or the
Compensation Committee to participate in the 2006 Stock
Incentive Plan who hold positions of responsibility and whose
participation in the 2006 Stock Incentive Plan is determined by
the Board of Directors or the Compensation Committee to be in
the best interests of the Company. Approximately
244 persons (all employees and directors) are eligible to
participate in the 2006 Stock Incentive Plan.
Administration of the 2006 Stock Incentive Plan. The 2006
Stock Incentive Plan provides that it shall be administered by
the Compensation Committee appointed by the Board of Directors
and consisting of two or more members of the Board who shall be
non-employee directors within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934, and Outside Directors
within the meaning of section 162(m) of the Internal Revenue
Code of 1986, as amended (the Code). Subject to the
provisions of the 2006 Stock Incentive Plan, the Compensation
Committee has sole and complete authority to determine the
individuals to whom awards are granted, the type and amounts of
awards to be granted, the time of all such grants and the terms,
conditions and provisions of such awards and the restrictions
related thereto. In the absence of the Compensation Committee,
the Board of Directors exercises all of the powers of the
Compensation Committee.
Types of 2006 Stock Incentive Plan Awards. The 2006 Stock
Incentive Plan provides that the Compensation Committee may
grant awards to Participants in the form of
(i) incentive stock options within the meaning
of section 422 of the Code or nonqualified stock options
(together, Options), (ii) rights to receive a
payment from the Company in cash, Common Stock, or a combination
thereof, equal to the excess of the Fair Market Value (as
defined below) of a share of Common Stock on the date of
exercise over a specified price fixed by the Compensation
Committee (Stock Appreciation Rights or
SARs), (iii) Shares subject to restrictions on
transferability (Restricted Stock), (iv) rights
to receive payment from the Company in cash, stock or a
combination thereof, in an amount determined by the Fair Market
Value of Common Stock (Phantom Stock),
(v) other stock based awards (Other Stock Based
Awards) and other benefits, or (vi) awards of any of
the preceding types that are made based on the achievement of
performance goals or criteria (Performance-Based
Awards) certain of which will be made to Covered Employees
within the meaning of Code section 162(m) and intended to be
exempt from the limits on tax deductibility under section 162(m)
(Qualified Performance-Based Awards) (collectively,
Awards). The term Covered Employee means the
Companys chief executive officer and each other person
whose compensation is required to be disclosed in the
Companys filings with the SEC by reason of that person
being among the four highest compensated officers of the Company
on the last day of a taxable year. There is a description of
each of these Awards below.
Number of Shares of Common Stock Available. The Company
has reserved 1,100,000 Shares for issuance in connection
with Awards under the 2006 Stock Incentive Plan. The number of
Shares that may be issued or sold or
20
for which Options or SARs may be granted to a Participant under
the 2006 Stock Incentive Plan during any one (1) calendar
year may not exceed 175,000. The number of Shares with respect
to Qualified Performance-Based Awards which may be issued or
sold to any Covered Employee under the 2006 Stock Incentive Plan
for a performance period may not exceed 175,000 shares. No
more than 350,000 Shares may be issued under the 2006 Stock
Incentive Plan in connection with Incentive Stock Options.
Any Shares subject to an Award that expires or otherwise
terminates unexercised will generally be restored against the
above limitations and be available for reissuance under the 2006
Stock Incentive Plan. Shares that will not be available for
issuance or reissuance under the 2006 Stock Incentive Plan
include: (i) Shares tendered by a participant as full or
partial payment for the exercise of an Option or SAR,
(ii) Shares associated with an Option or SAR if the Option
or SAR is cancelled within the meaning of Code section 162(m),
and (iii) Shares withheld by, or otherwise remitted to
satisfy a participants tax withholding obligations upon
the lapse of restrictions on a Restricted Stock or the exercise
of Options or SARs granted under the 2006 Stock Incentive Plan
or upon any other payment or issuance of Shares under the 2006
Stock Incentive Plan.
Options. The per share option price must be not less than
100% of the Fair Market Value of the Common Stock at the time
the Option is granted (110% in the case of an Option granted to
a Participant who at the time the Option is granted owns stock
possessing more than 10% of the total combined voting power of
all classes of stock of the Company). The Fair Market
Value of the Common Stock on a particular day is the
closing price for the Common Stock as reported by the Nasdaq
Stock Market on that day, or if no Common Stock was traded on
that date, the last preceding trading day on which such Common
Stock was traded. Options awarded under the 2006 Stock Incentive
Plan may be exercised at such times and shall be subject to such
restrictions and conditions, including the performance of a
minimum period of service after the grant, as the Compensation
Committee may impose. Such conditions and restrictions need not
be uniform for all Participants. No Option will be exercisable
for more than ten (10) years after the date on which it is
granted (five (5) years in the case of an incentive stock
option granted to a Participant who at the time the Option is
granted owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the
Company). The per share option price must be paid in full at the
time of exercise. The Compensation Committee may, in its
discretion, permit a Participant to make payments in cash, or in
Shares already owned by the Participant, valued at the Fair
Market Value thereof.
SARs. SARs granted pursuant to the 2006 Stock Incentive
Plan may be exercised at such times and subject to such
conditions, including the performance of a minimum period of
service, as the Compensation Committee may impose. SARs which
are granted in tandem with an Option may only be exercised upon
the surrender of the right to exercise an equivalent number of
Shares under the related Option and may be exercised only with
respect to the shares for which the related Option is then
exercisable. Upon exercise of a SAR, the Participant will be
entitled to receive payment of an amount determined by
multiplying (a) any increase in the Fair Market Value of a
share of Common Stock at the date of exercise over the Fair
Market Value of a share at the date of grant, by (b) the
number of Shares with respect to which the SAR is exercised.
However, notwithstanding the foregoing, at the time of grant the
Compensation Committee may establish a maximum amount per share
which will be payable upon exercise of a SAR. Subject to the
discretion of the Compensation Committee, payment of a SAR may
be made in cash, Shares, or any combination thereof.
Restricted Stock. Restricted Stock awarded to a
Participant by the Compensation Committee may not be sold,
transferred, pledged, assigned or otherwise alienated until such
time, or until the satisfaction of such conditions, as shall be
determined by the Compensation Committee (including, without
limitation, satisfaction of performance goals or the occurrence
of certain events). When the period of restriction on Restricted
Stock terminates, the Participant will receive unrestricted
Shares. Unless the Compensation Committee otherwise determines
at the time of grant, Participants holding Restricted Stock may
exercise full voting rights and other
21
rights as a stockholder with respect to those shares during the
period of restriction, and will be entitled to receive dividends
or other distributions paid with respect to those shares. If the
dividends or distributions are paid in Shares, such Shares will
be subject to the same forfeiture restrictions and restrictions
on transferability as the Restricted Stock with respect to which
they were paid.
Phantom Stock. Phantom Stock rights granted pursuant to
the 2006 Stock Incentive Plan cannot be sold, transferred,
pledged, assigned, or otherwise alienated until such time, or
until the satisfaction of such conditions, as shall be
determined by the Compensation Committee (including, without
limitation, satisfaction of performance goals or the occurrence
of certain events). Holders of Phantom Stock rights will not be
deemed stockholders and, except to the extent provided in
accordance with the 2006 Stock Incentive Plan, will have no
rights related to any shares. Unless the Compensation Committee
otherwise determines at the time of grant, holders of Phantom
Stock rights will not be entitled to receive cash payments equal
to any cash dividends or other distributions paid with respect
to a corresponding number of shares. At the time of the grant,
the Compensation Committee may provide for payment in respect of
Phantom Stock rights in cash, Shares, partially in cash and
partially in Shares, or in any other manner not inconsistent
with the 2006 Stock Incentive Plan.
Other Stock Based Awards and Other Benefits. The 2006
Stock Incentive Plan provides that the Compensation Committee
may also grant Other Stock Based Awards, including the grant of
Shares based on certain conditions, the payment of cash based on
the performance of the Common Stock, and the payment of Shares
in lieu of cash under other Company incentive bonus programs.
The Compensation Committee also has the authority to provide
types of awards under the 2006 Stock Incentive Plan in addition
to those specifically listed utilizing Shares or cash, or a
combination thereof, if the Compensation Committee believes that
such awards would further the purposes for which the 2006 Stock
Incentive Plan was established. Payment under or settlement of
such awards will be made in the manner and at the times
determined by the Compensation Committee.
Performance-Based Awards. The 2006 Stock Incentive Plan
provides that the Compensation Committee may grant Awards that
are subject to the achievement of performance goals as may be
determined by the Compensation Committee. To the extent
necessary for a Performance-Based Award to comply with the
Qualified Performance-Based Award requirements of section
162(m)(4)(C) of the Code, with respect to any Award that may be
granted to one or more Covered Employees and intended to comply
with the requirements for performance-based awards under section
162(m), the Compensation Committee will, in writing,
(a) designate one or more Covered Employees,
(b) select the performance criteria applicable to the
performance period, (c) establish the performance goals,
and amounts of such Awards, as applicable, which may be earned
for such performance period, and (d) specify the
relationship between performance criteria and the performance
goals and the amounts of such Awards, as applicable, to be
earned by each Covered Employee for the performance period.
Following the completion of each performance period, the
Compensation Committee will certify in writing whether the
applicable performance goals have been achieved for the
performance period. No Award or portion thereof that is subject
to the satisfaction of any condition will be considered to be
earned or vested until the Compensation Committee certifies in
writing that the conditions to which the distribution, earning
or vesting of the Award is subject have been achieved. During
the performance period, the Compensation Committee may not
increase the amount of a Qualified Performance-Based Award that
would otherwise be payable upon satisfaction of the conditions,
but may reduce or eliminate the payments as provided for in the
Award Agreement.
Adjustments for Change in Capitalization. The 2006 Stock
Incentive Plan provides that in the event of a stock dividend,
stock split, reverse stock split, Share combination, or
recapitalization or similar event affecting the capital
structure of the Company, or a merger, consolidation,
acquisition of property or Shares, separation, spinoff,
reorganization, stock rights offering, liquidation,
disaffiliation of a subsidiary, affiliate or division or similar
event affecting the Company, the Compensation Committee may in
its discretion make such substitutions or adjustments
22
as it deems appropriate and equitable to the Share reserve, the
Share limitations described above, and the purchase price and
number of Shares subject to outstanding equity or equity-based
awards.
Federal Tax Treatment. The 2006 Stock Incentive Plan is
not a qualified pension, profit-sharing or stock bonus plan
under section 401(a) of the Code. The 2006 Stock Incentive Plan
is not subject to any provisions of the Employee Retirement
Income Security Act of 1974. The following brief description of
the tax consequences of Awards under the 2006 Stock Incentive
Plan is based on federal income tax laws currently in effect and
does not purport to be a complete description of such federal
income tax consequences.
Incentive Stock Options. A grantee generally will have no
taxable income upon either the grant or exercise of an incentive
stock option. If the grantee does not dispose of shares acquired
pursuant to the exercise of an incentive stock option within two
(2) years of the grant or one (1) year of the
exercise, any gain or loss realized in his subsequent
disposition will be capital gain or loss. If such holding period
requirements are not satisfied, the grantee will generally
realize ordinary income at the time of disposition in an amount
equal to the excess of the Fair Market Value of the shares on
the date of exercise (or if less, the amount realized upon
disposition) over the option price. Any remaining gain is taxed
as long-term or short-term capital gain.
Nonqualified Stock Options. The grant of a nonqualified
stock option generally is not a taxable event for the optionee.
Upon exercise of the option, the optionee generally will
recognize ordinary income in an amount equal to the excess of
the Fair Market Value of the stock acquired upon exercise
(determined as of the date of exercise) over the exercise price
of such option. The Company will be entitled to a deduction
equal to the amount of ordinary income recognized by the
optionee in the year in which such taxable income is recognized
and the Company is required to withhold federal income taxes
with respect to any amounts included in the optionees
taxable income.
Stock Appreciation Rights. The grant of a SAR generally
is not a taxable event for the grantee. However, upon exercise
of the SAR, the grantee generally will recognize ordinary income
equal to the amount of any cash received or the Fair Market
Value of any Common Stock received.
Restricted Stock Awards. A grant of restricted stock
generally is not a taxable event for the grantee. However, when
the applicable restrictions lapse, the grantee generally will
recognize ordinary income equal to the excess of the Fair Market
Value of such stock on the date of lapse over the amount, if
any, paid for such stock and the Company is permitted a
commensurate compensation expense deduction for income tax
purposes. Alternatively, the grantee may file an election under
section 83(b) of the Code, in which case the grantee will
recognize ordinary income on the date of grant equal to the
excess of the Fair Market Value of such stock on the date of
grant over the amount, if any, paid for such stock.
Phantom Stock Rights. A grant of phantom stock rights
generally is not a taxable event for the grantee. However, when
the applicable restrictions lapse, the grantee generally will
recognize ordinary income equal to the amount of any cash
received or the Fair Market Value of any Common Stock received,
and the Company is permitted a commensurate compensation expense
deduction for income tax purposes.
Cash Awards. Generally, a grantee will recognize ordinary
income and the Company will be entitled to a deduction (and will
be required to withhold federal income taxes) with respect to
cash awards at the earliest time at which the grantee has an
unrestricted right to receive the amount of such cash payment.
The timing of such income recognition will depend upon the
specific terms and conditions of the cash award.
Other Stock Based Awards. Awards may be granted under the
2006 Stock Incentive Plan that do not fall clearly into the
categories described above. The federal income tax treatment of
these awards will depend upon the specific terms of the awards.
Generally, the Company will be entitled to a deduction and will
be required to withhold
23
applicable taxes with respect to any ordinary income recognized
by a grantee in connection with awards made under the 2006 Stock
Incentive Plan.
Performance-Based Awards. Generally, the Company will be
entitled to a deduction for federal income tax purposes equal to
the amount of any ordinary income the participant recognizes;
however section 162(m) of the Code generally disallows a public
companys tax deduction for compensation in excess of
$1 million paid in any taxable year to a Covered Employee.
Compensation that qualifies as performance-based
compensation, however, is excluded from the
$1 million deductibility cap. The Company intends that some
of the Awards granted to employees whom the Compensation
Committee expects to be Covered Employees at the time a
deduction arises in connection with the Awards qualify as
performance-based compensation so that deductions
with respect to those Awards will not be subject to the
$1 million cap under section 162(m) of the Code. Future
changes in section 162(m) of the Code or the regulations
thereunder may adversely affect the ability of the Company to
ensure that Awards under the 2006 Stock Incentive Plan will
qualify as performance based compensation so that
deductions are not limited by section 162(m) of the Code.
Amendment, Modification and Termination. The Board of
Directors at any time may terminate or suspend the 2006 Stock
Incentive Plan, and from time to time may amend or modify the
2006 Stock Incentive Plan. The 2006 Stock Incentive Plan will
remain in effect until it is terminated by the Board. No
amendment, modification, or termination of the 2006 Stock
Incentive Plan will in any manner adversely affect any award
theretofore granted under the 2006 Stock Incentive Plan without
the consent of the Participant. In no event will the 2006 Stock
Incentive Plan or an Award be amended to allow any Option or SAR
to be granted with an exercise price below the Fair Market Value
of the common stock on the date of grant or to allow the
exercise price of any Option or SAR previously granted to be
reduced subsequent to the date of award.
2006 Stock Incentive Plan Benefits. The grant of Awards
under the 2006 Stock Incentive Plan is within the discretion of
the Compensation Committee. Therefore, the Company is unable to
determine the benefits or amounts that will be allocated to any
Participant under the 2006 Stock Incentive Plan.
Vote Required. If approved by the stockholders, the 2006
Stock Incentive Plan would become effective immediately.
Adoption of the 2006 Stock Incentive Plan requires the
affirmative vote of the holders of a majority of the Shares
represented in person or by proxy at the Meeting. The Board
recommends a vote FOR the approval and adoption of the 2006
Stock Incentive Plan as described above. Proxies solicited by
the Board will be voted in favor of the 2006 Stock Incentive
Plan unless stockholders specify to the contrary in their
proxies.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Companys consolidated financial statements for the
year ended December 31, 2005 were audited by E&Y,
independent auditors. Representatives of E&Y are expected to
attend the annual meeting of stockholders to respond to
appropriate questions and to make an appropriate statement if
they desire to do so.
Audit Fees
The aggregate fees, including expenses reimbursed, billed by
E&Y for professional services rendered for the audit of the
consolidated financial statements of the Company and its
subsidiaries and for the reviews of the Companys quarterly
financial statements were $541,627 for fiscal year 2005 and
$544,180 for fiscal year 2004.
24
Audit Related Services
The aggregate fees, including expenses reimbursed, billed by
E&Y for services related to the audit and review of the
Companys financial statements were $66,044 in fiscal year
2005 and $37,270 in fiscal year 2004. These services included an
actuarial certification and an audit of the Companys
401(k) plan.
Tax Fees
The Company did not engage E&Y for tax services in fiscal
year 2005. The aggregate fees, including expenses reimbursed,
billed by E&Y for tax compliance, tax advice and tax
planning services were $6,712 in fiscal year 2004.
All Other Fees
The aggregate fees, including expenses reimbursed, billed by
E&Y for services rendered to the Company and its
subsidiaries, other than the services described above, were
$2,000 in fiscal year 2005 and $1,700 for fiscal year 2004. The
majority of these fees was for a subscription to E&Ys
online accounting and reporting database.
The Audit Committee pre-approves all auditing services and
permitted non-audit services, including the fees and terms
thereof, to be performed for the Company by its independent
auditor, subject to the de minimus exceptions for
non-audit services as provided for in the Sarbanes-Oxley Act and
the rules and regulations of the Securities and Exchange
Commission. The Audit Committee may form and delegate authority
to subcommittees, consisting of one or more members, to grant
pre-approvals of permitted non-audit services, provided that
decisions of such subcommittees to grant pre-approvals are
presented to the full Audit Committee at its next scheduled
meeting. In fiscal year 2005, all non-audit services were
approved by the Audit Committee.
COMMUNICATIONS WITH DIRECTORS
The Board of Directors of the Company believes that it is
important for stockholders to have a means of communicating with
the Board. Accordingly, stockholders desiring to send a
communication to the Board of Directors, or to a specific
director, may do so by delivering a letter to the Secretary of
the Company at Triad Guaranty Inc., 101 South Stratford Road,
Winston-Salem, North Carolina 27104. The mailing envelope must
contain a clear notation indicating that the enclosed letter is
a stockholder-board communication or
stockholder-director communication, as applicable.
All such letters must identify the author as a stockholder and
clearly state whether the intended recipients of the letter are
all members of the Board of Directors or certain specified
individual directors. The Secretary will open such
communications and make copies, and then circulate them to the
appropriate director or directors.
The Company strongly encourages all directors to attend the
annual meetings of stockholders. All of the directors were in
attendance at the 2005 Annual Meeting of Stockholders.
CODE OF ETHICS
The Board of Directors has adopted a Code of Ethics for the
Companys principal executive and senior financial officers
which is available at the Companys website at:
http://www.triadguaranty.com. This Code supplements the
Companys Code of Conduct applicable to all employees and
directors and is intended to promote honest and ethical conduct,
full and accurate reporting and compliance with laws as well as
other matters.
25
STOCKHOLDER PROPOSALS FOR 2007 ANNUAL MEETING OF
STOCKHOLDERS
Stockholders intending to present a proposal for consideration
at the Companys next annual meeting of stockholders may do
so by following the procedures prescribed in
Rule 14a-8 under
the Securities Exchange Act of 1934 and the Companys
Certificate of Incorporation. To be eligible for inclusion in
the Companys proxy statement, stockholder proposals must
be received by the Company no later than December 9, 2006.
Notice to the Company of a stockholder proposal submitted
otherwise than pursuant to
Rule 14a-8 will be
considered untimely if received by the Company after
February 22, 2007, and the proxies named in the
accompanying form of proxy may exercise discretionary voting
power with respect to any such proposal as to which the Company
does not receive a timely notice.
OTHER MATTERS
The Company is not aware of any matters, other than those
referred to herein, which will be presented at the meeting. If
any other appropriate business should properly be presented at
the meeting, the proxies named in the accompanying form of proxy
will vote the proxies in accordance with their best judgment.
EXPENSES OF SOLICITATION
All expenses incident to the solicitation of proxies by the
Company will be paid by the Company. In addition to solicitation
by mail, arrangements have been made with brokerage houses and
other custodians, nominees, and fiduciaries to send the proxy
material to their principals, and the Company will reimburse
them for their reasonable
out-of-pocket expenses
in doing so. Proxies may also be solicited personally or by
telephone or email by employees of the Company.
Winston-Salem, North Carolina
April 7, 2006
26
APPENDIX I
TRIAD GUARANTY INC.
FORM OF 2006 LONG-TERM STOCK INCENTIVE PLAN
SECTION 1
Objective
The objective of the Triad Guaranty Inc. 2006 Long-Term
Stock Incentive Plan (the Plan) is to attract and
retain the best available directors, executive personnel and key
employees to be responsible for the management, growth and
success of the business, and to provide an incentive for such
individuals to exert their best efforts on behalf of the Company
and its stockholders.
SECTION 2
Definitions
2.1 General Definitions. The
following words and phrases, when used herein, shall have the
following meanings:
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(a) Agreement The written
document which evidences the grant of any Award under the Plan
and which sets forth the terms, conditions, and limitations
relating to such Award. No Award shall be valid until so
evidenced. |
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(b) Award The grant of any
Option, Stock Appreciation Right, Restricted Stock, Phantom
Stock, Other Stock Based Award, or any combination thereof. |
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(c) Board The Board of
Directors of Triad Guaranty Inc. |
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(d) Code The Internal
Revenue Code of 1986, as amended, and including the regulations
promulgated pursuant thereto. |
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(e) Committee The
Compensation Committee of the Board of Directors of the Company,
which shall consist of two or more members of the Board. The
members of the Committee shall be non-employee directors within
the meaning of
Rule 16b-3 under
the Act, as the same may be amended or supplemented from time to
time, as promulgated under the Act, and outside directors within
the meaning of section 162(m) of the Code. |
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(f) Common Stock The present
shares of Common Stock of the Company, and any shares into which
such shares are converted, changed or reclassified. |
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(g) Company Triad Guaranty
Inc., a Delaware corporation, and its groups, divisions, and
subsidiaries. |
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(h) Covered Employee An
Employee who is, or is determined by the Committee may possibly
become, a covered employee within the meaning of
section 162(m) of the Code (or any successor provision),
which generally means, the chief executive officer and the four
other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under
the Securities Exchange Act of 1934. |
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(i) Disaffiliation A
subsidiarys or affiliates ceasing to be a subsidiary
or affiliate of the Company for any reason (including, without
limitation, as a result of a public offering, or a spinoff or
sale by the Company, of the stock of the subsidiary or
affiliate) or a sale of a division of the Company and its
affiliates. |
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(j) Employee Any person
employed by the Company as an employee or any director of the
Company, regardless of whether the director is an employee of
the Company. |
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(k) Fair Market Value The
fair market value of Common Stock on a particular day shall be
the closing price of the Common Stock on the Nasdaq National
Market System or any national stock exchange on which the Common
Stock is traded, on that date, or if no Common Stock was traded
on that date, the last preceding trading day on which such
Common Stock was traded. |
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(l) Family Members With
respect to a Participant, any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, former spouse, sibling,
niece, nephew,
mother-in-law,
father-in-law,
son-in-law,
daughter-in-law,
brother-in-law, or
sister-in-law,
including adoptive relationships, any person sharing the
Participants household (other than a tenant or employee),
a trust in which these persons have more than fifty percent of
the beneficial interest, a foundation in which any of these
persons (or the Participant) controls the management of assets,
and any other entity in which any of these persons (or the
Participant) owns more than fifty percent of the voting
interests. |
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(m) Option A right granted
under Section 6 hereof to purchase Common Stock of the
Company at a stated price for a specified period of time. |
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(n) Other Stock Based Award
An Award granted under Section 9 hereof that is valued
in whole or in part by reference to, or is otherwise based on,
the Companys Common Stock. |
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(o) Participant Any Employee
designated by the Committee to participate in the Plan. |
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(p) Performance Criteria
Criteria that the Committee selects for purposes of
establishing the Performance Goal or Performance Goals for a
Participant for a Performance Period. The Performance Criteria
that will be used to establish Performance Goals are limited to
the following: net earnings (either before or after interest,
taxes, depreciation and amortization); economic value-added (as
determined by the Committee); sales or revenue; net income
(either before or after taxes); operating earnings; cash flow
(including, but not limited to, operating cash flow and free
cash flow); cash flow return on capital; return on net assets;
return on stockholders equity; return on assets; return on
capital; stockholder returns; return on sales; gross or net
profit margin; productivity; expense; margins; operating
efficiency; customer satisfaction; working capital; earnings per
share; price per share of Stock; and market share, any of which
may be measured either in absolute terms or as compared to any
incremental increase or as compared to results of a peer group.
The Committee shall, within the time prescribed by
section 162(m) of the Code, define in an objective fashion
the manner of calculating the Performance Criteria it selects to
use for such Performance Period for such Participant. Awards
that are not intended to qualify as Qualified Performance-Based
Awards may be based on the Performance Criteria set forth above
or such other measures as the Committee may in its discretion
determine. |
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(q) Performance Goals Goals
established in writing by the Committee for the Performance
Period based upon the Performance Criteria. Depending on the
Performance Criteria used to establish such Performance Goals,
the Performance Goals may be expressed in terms of overall
Company performance or the performance of a division, business
unit, or an individual. The Committee shall establish
Performance Goals for each Performance Period prior to, or as
soon as practicable after, the commencement of such Performance
Period to the extent permitted by section 162(m) of the
Code. The Committee, in its discretion, may, within |
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the time prescribed by section 162(m) of the Code, adjust
or modify the calculation of Performance Goals for such
Performance Period in order to prevent the dilution or
enlargement of the rights of Participants (i) in the event
of, or in anticipation of, any unusual or extraordinary
corporate item, transaction, event, or development, or
(ii) in recognition of, or in anticipation of, any other
unusual or nonrecurring events affecting the Company, or the
financial statements of the Company, or in response to, or in
anticipation of, changes in applicable laws, regulations,
accounting principles, or business conditions, provided that the
adjustment or modification complies with the requirements of
section 162(m) of the Code. |
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(r) Performance Period The
designated period during which the Performance Goals must be
satisfied with respect to the Award to which the Performance
Goals relate. |
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(s) Period of Restriction
The period during which Shares of Restricted Stock or
Phantom Stock rights are subject to forfeiture or restrictions
on transfer pursuant to Section 8 of the Plan. |
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(t) Phantom Stock A right
granted under Section 8 hereof to receive payment from the
Company in cash, stock, or in combination thereof, in an amount
determined by the Fair Market Value. |
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(u) Qualified Performance-Based
Award Award granted under Section 10
hereof that is intended to qualify as qualified
performance-based compensation within the meaning of
section 162(m) of the Code. |
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(v) Restricted Stock Shares
granted to a Participant which are subject to restrictions on
transferability pursuant to Section 8 of the Plan. |
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(w) Shares Shares of Common
Stock. |
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(x) Stock Appreciation Right or
SAR The right granted under
Section 7 hereof to receive a payment from the Company in
cash, Common Stock, or in combination thereof, equal to the
excess of the Fair Market Value of a share of Common Stock on
the date of exercise over a specified price fixed by the
Committee, but subject to such maximum amounts as the Committee
may impose. |
2.2 Other Definitions. In
addition to the above definitions, certain words and phrases
used in the Plan and any Agreement may be defined elsewhere in
the Plan or in such Agreement.
SECTION 3
Common Stock
3.1 Number of Shares.
Subject to adjustment pursuant to the provisions of
Section 11:
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(a) the number of Shares which may be issued or sold in
connection with Awards granted under the Plan may not exceed
1,100,000 Shares; |
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(b) the number of Shares which may be issued or sold or for
which Options or Stock Appreciation Rights may be granted to a
Participant under the Plan during any calendar year may not
exceed 175,000 Shares; |
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(c) the number of Shares with respect to Qualified
Performance-Based Awards which may be issued or sold to any
Covered Employee under the Plan for a Performance Period may not
exceed 175,000 Shares; and |
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(d) the number of Shares for which Options may be granted
under the Plan that are incentive stock option
within the meaning of section 422 of the Code may not
exceed 350,000 Shares. |
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3.2 Re-usage.
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(a) The number of Shares associated with an Award
originally counted against the limitations of Section 3.1
as the result of the grant of the Award shall be restored
against the limitations and be available for reissuance under
this Plan if and to the extent the Award is surrendered,
expires, terminates or forfeited for any reason (other than a
cancellation within the meaning of Code section 162(m)). |
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(b) The following Shares shall not become available for
issuance or reissuance under the Plan: |
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(i) Shares tendered by a Participant as full or partial
payment to the Company upon exercise of an Option or SAR; |
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(ii) Shares associated with an Option or SAR if the Option
or SAR is cancelled within the meaning of Code
section 162(m); and |
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(iii) Shares withheld by, or otherwise remitted to satisfy
a Participants tax withholding obligations upon the lapse
of restrictions on Restricted Stock or Other Stock Based Award
or the exercise of Options or SARs granted under the Plan or
upon any other payment or issuance of Shares under the Plan. |
SECTION 4
Eligibility and Participation
Participants in the Plan shall be those individuals selected by
the Committee to participate in the Plan who hold positions of
responsibility and whose participation in the Plan the Committee
determines to be in the best interests of the Company.
SECTION 5
Administration
5.1 Committee. The Plan
shall be administered by the Compensation Committee of the
Company, which shall consist of two or more members of the
Board. The members of the Committee shall be appointed by and
shall serve at the pleasure of the Board, which may from time to
time change the Committees membership. In the absence of a
Committee, the Board shall exercise all of the powers of the
Committee hereunder.
5.2 Authority. The Committee
shall have the sole and complete authority to:
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(a) determine the individuals to whom Awards are granted,
the type and amounts of Awards to be granted and the time of all
such grants; |
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(b) determine the terms, conditions and provisions of, and
restrictions relating to, each Award granted; |
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(c) interpret and construe the Plan and all Agreements; |
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(d) prescribe, amend and rescind rules and regulations
relating to the Plan; |
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(e) determine the content and form of all Agreements; |
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(f) determine all questions relating to Awards under the
Plan, including whether any conditions relating to an Award have
been met; |
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(g) consistent with the Plan and with the consent of the
Participant, as appropriate, amend any outstanding Award or
amend the exercise date or dates thereof, provided that the
Committee shall not have any discretion or authority to make
changes to any Award that is intended to qualify as a Qualified
Performance-Based Award to the extent that the existence of such
discretion or authority would cause such Award not to so qualify; |
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(h) determine the duration and purpose of leaves of absence
that may be granted to a Participant without constituting
termination of the Participants employment for the purpose
of the Plan or any Award; |
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(i) maintain accounts, records and ledgers relating to
Awards; |
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(j) maintain records concerning its decisions and
proceedings; |
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(k) employ agents, attorneys, accountants or other persons
for such purposes as the Committee considers necessary or
desirable; and |
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(l) do and perform all acts which it may deem necessary or
appropriate for the administration of the Plan and to carry out
the objectives of the Plan. |
5.3 Determinations. All
determinations, interpretations, or other actions made or taken
by the Committee pursuant to the provisions of the Plan shall be
final, binding, and conclusive for all purposes and upon all
persons.
5.4 Delegation. The
Committee may delegate to appropriate senior officers of the
Company its duties under the Plan pursuant to such conditions
and limitations as the Committee may establish.
SECTION 6
Stock Options
6.1 Type of Option. Each
Option granted under this Plan shall be of one of two types:
(i) an incentive stock option within the
meaning of section 422 of the Code (or any successor
provision), or (ii) a non-qualified stock option.
6.2 Grant of Option. Options
may be granted to Participants at such time or times as shall be
determined by the Committee. Each Option shall be evidenced by a
written Agreement that shall specify the exercise price, the
duration of the Option, the number of Shares to which the Option
applies, and such other terms and conditions not inconsistent
with the Plan as the Committee shall determine. Such Agreement
shall also designate the Option as an incentive stock option if
it is intended as such. Notwithstanding any such designation, to
the extent that the aggregate Fair Market Value (determined as
of the time the Option is granted) of Shares with respect to
which Options designated as incentive stock options are
exercisable for the first time by a Participant during any
calendar year (under this Plan or any other plan of the Company,
or any parent or subsidiary as defined in section 424 of the
Code) exceeds $100,000, such Options shall constitute
non-qualified stock options. For purposes of the preceding
sentence, incentive stock options shall be taken into account in
the order in which they are granted. No incentive stock options
may be awarded after the tenth anniversary of the date this Plan
is adopted by the Board.
6.3 Option Price. The per
share option price shall be not less than 100 percent of
the Fair Market Value at the time the Option is granted
(110 percent in the case of an incentive stock option
granted to a Participant who at the time the Option is granted
owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company or
of its parent).
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6.4 Exercise of Options.
Options awarded under the Plan shall be exercisable at such
times and shall be subject to such restrictions and conditions,
including the performance of a minimum period of service after
the grant, as the Committee may impose, which need not be
uniform for all Participants; provided, however, that no Option
shall be exercisable for more than 10 years after the date
on which it is granted (5 years in the case of an incentive
stock option granted to a Participant who at the time the Option
is granted owns stock possessing more than 10 percent of
the total combined voting power of all classes of stock of the
Company or of its parent).
6.5 Payment. The Committee
shall determine the procedures governing the exercise of
Options, and shall require that the per share option price be
paid in full at the time of exercise. The Committee may, in its
discretion, permit a Participant to make payment in cash, or in
Shares already owned by the Participant, valued at the Fair
Market Value thereof, as partial or full payment of the exercise
price. As soon as practical after full payment of the exercise
price, the Company shall deliver to the Participant a
certificate or certificates (which may be in book entry form)
representing the acquired Shares.
6.6 Rights as a Stockholder.
Until the exercise of an Option and the issuance of the
Share in respect thereof, a Participant shall have no rights as
a stockholder with respect to the Shares covered by such Option.
SECTION 7
Stock Appreciation Rights
7.1 Grant of Stock Appreciation
Rights. Stock Appreciation Rights may be granted to
Participants at such time or times as shall be determined by the
Committee and shall be subject to such terms and conditions as
the Committee may decide. A grant of a SAR shall be made
pursuant to a written Agreement containing such provisions not
inconsistent with the Plan as the Committee shall approve.
7.2 Exercise of SARS. SARs
may be exercised at such times and subject to such conditions,
including the performance of a minimum period of service, as the
Committee shall impose. Any SAR related to a non-qualified stock
option may be granted at the same time such Option is granted or
at any time thereafter before exercise or expiration of such
Option. Any SAR related to an incentive stock option shall be
granted at the same time such Option is granted. SARs which are
granted in tandem with an Option may only be exercised upon the
surrender of the right to exercise an equivalent number of
Shares under the related Option and may be exercised only with
respect to the Shares for which the related Option is then
exercisable.
7.3 Payment of SAR Amount.
Upon exercise of a SAR, the Participant shall be entitled to
receive payment of an amount determined by multiplying:
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(a) any increase in the Fair Market Value of a Share at the
date of exercise over the Fair Market Value of a Share at the
date of grant, by |
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(b) the number of Shares with respect to which the SAR is
exercised; provided, however, that at the time of grant, the
Committee may establish, in its sole discretion, a maximum
amount per Share which will be payable upon exercise of a SAR. |
7.4 Method of Payment.
Subject to the discretion of the Committee, which may be
exercised at the time of grant, the time of payment, or any
other time, payment of a SAR may be made in cash, Shares or any
combination thereof.
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SECTION 8
Restricted Stock or Phantom Stock
8.1 Grant of Restricted Stock or
Phantom Stock. The Committee may grant Shares of Restricted
Stock or Phantom Stock rights to such Participants at such times
and in such amounts, and subject to such other terms and
conditions not inconsistent with the Plan as it shall determine.
Each grant of Restricted Stock or Phantom Stock rights shall be
evidenced by a written Agreement setting forth the terms of such
Award.
8.2 Restrictions on
Transferability. Restricted Stock or Phantom Stock rights
may not be sold, transferred, pledged, assigned, or otherwise
alienated until such time, or until the satisfaction of such
conditions as shall be determined by the Committee (including
without limitation, the satisfaction of performance goals or the
occurrence of such events as shall be determined by the
Committee). At the end of the Period of Restriction applicable
to any Restricted Stock, such Shares will be transferred to the
Participant free of all restrictions.
8.3 Rights as a Stockholder.
Unless otherwise determined by the Committee at the time of
grant, Participants holding Restricted Stock granted hereunder
may exercise full voting rights and other rights as a
stockholder with respect to those Shares during the Period of
Restriction. Holders of Phantom Stock rights shall not be deemed
stockholders and, except to the extent provided in accordance
with the Plan, shall have no rights related to any Shares.
8.4 Dividends and Other
Distributions. Unless otherwise determined by the Committee
at the time of grant, Participants holding Restricted Stock
shall be entitled to receive all dividends and other
distributions paid with respect to those Shares, provided that
if any such dividends or distributions are paid in shares of
stock, such shares shall be subject to the same forfeiture
restrictions and restrictions on transferability as apply to the
Restricted Stock with respect to which they were paid. Unless
otherwise determined by the Committee at the time of grant,
Participants holding Phantom Stock rights shall not be entitled
to receive cash payments equal to any cash dividends and other
distributions paid with respect to a corresponding number of
Shares.
8.5 Payment of Phantom Stock
Rights. The Committee may, at the time of grant, provide for
payment in respect of Phantom Stock rights in cash, Shares,
partially in cash and partially in Shares, or in any other
manner not inconsistent with this Plan.
SECTION 9
Other Stock Based Awards and Other Benefits
9.1 Other Stock Based Awards.
The Committee shall have the right to grant Other Stock
Based Awards which may include, without limitation, the grant of
Shares based on certain conditions, the payment of cash based on
the performance of the Common Stock, and the payment of Shares
in lieu of cash under other Company incentive bonus programs. A
Grant of an Other Stock Based Award shall be made in such manner
and at such times as the Committee may determine.
9.2 Other Benefits. The
Committee shall have the right to provide types of Awards under
the Plan in addition to those specifically listed utilizing
shares of stock or cash, or a combination thereof, if the
Committee believes that such Awards would further the purposes
for which the Plan was established. Payment under or settlement
of any such Awards shall be made in such manner and at such
times as the Committee may determine.
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SECTION 10
Performance-Based Awards
10.1 Purpose. The purpose of
this Section 10 is to provide the Committee the ability to
qualify any Award as a Qualified Performance-Based Award. If the
Committee, in its discretion, decides to grant to a Covered
Employee an Award that is intended to constitute a Qualified
Performance-Based Award, the provisions of this Section 10
shall control over any contrary provision contained herein;
provided, however, that the Committee may in its
discretion grant Awards to Covered Employees that are based on
Performance Criteria or Performance Goals but that do not
satisfy the requirements of this Section 10.
10.2 Applicability. This
Section 10 shall apply only to those Covered Employees
selected by the Committee to receive Qualified Performance-Based
Awards. The designation of a Covered Employee as a Participant
for a Performance Period shall not in any manner entitle the
Participant to receive an Award for the relevant Performance
Period. Moreover, designation of a Covered Employee as a
Participant for a particular Performance Period shall not
require designation of such Covered Employee as a Participant in
any subsequent Performance Period and designation of one Covered
Employee as a Participant shall not require designation of any
other Covered Employees as a Participant in such period or in
any other period.
10.3 Procedures with Respect to
Qualified Performance-Based Awards. To the extent necessary
to comply with the Qualified Performance-Based Award
requirements of section 162(m)(4)(C) of the Code, with respect
to any Award which may be granted to one or more Covered
Employees, no later than 90 days following the commencement
of any fiscal year in question or any other designated fiscal
period or period of service (or such other time as may be
required or permitted by section 162(m) of the Code), the
Committee shall, in writing, (a) designate one or more
Covered Employees, (b) select the Performance Criteria
applicable to the Performance Period, (c) establish the
Performance Goals, and amounts of such Awards, as applicable,
which may be earned for such Performance Period, and
(d) specify the relationship between Performance Criteria
and the Performance Goals and the amounts of such Awards, as
applicable, to be earned by each Covered Employee for such
Performance Period. Following the completion of each Performance
Period, the Committee shall certify in writing whether the
applicable Performance Goals have been achieved for such
Performance Period. In determining the amount earned by a
Covered Employee, the Committee shall have the right to reduce
or eliminate (but not to increase) the amount payable at a given
level of performance to take into account additional factors
that the Committee may deem relevant to the assessment of
individual or corporate performance for the Performance Period.
10.4 Payment of Qualified
Performance-Based Awards. Unless otherwise provided in the
applicable Agreement, a Participant must be employed by the
Company or a subsidiary on the day a Qualified Performance-Based
Award for such Performance Period is paid to the Participant.
Furthermore, a Participant shall be eligible to receive payment
pursuant to a Qualified Performance-Based Award for a
Performance Period only if the Performance Goals for such period
are achieved.
10.5 Additional Limitations.
Notwithstanding any other provision of the Plan, any Award
which is granted to a Covered Employee and is intended to
constitute a Qualified Performance-Based Award shall be subject
to any additional limitations set forth in section 162(m)
of the Code (including any amendment to section 162(m) of
the Code) or any regulations or rulings issued thereunder that
are requirements for qualification as qualified
performance-based compensation as described in
section 162(m)(4)(C) of the Code, and the Plan shall be
deemed amended to the extent necessary to conform to such
requirements.
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SECTION 11
Adjustments Upon Changes in Capitalization, Etc.
11.1 Adjustment Clause. In
the event of (i) a stock dividend, stock split, reverse
stock split, share combination, or recapitalization or similar
event affecting the capital structure of the Company (each, a
Share Change), or (ii) a merger, consolidation,
acquisition of property or shares, separation, spinoff,
reorganization, stock rights offering, liquidation,
Disaffiliation, or similar event affecting the Company or any of
its subsidiaries (each, a Organic Change), the
Committee may in its discretion make such substitutions or
adjustments as it deems appropriate and equitable to
(i) the Share limitations set forth in Section 3.1,
(ii) the number and kind of Shares covered by each
outstanding Award, and (iii) the price per Share subject to
each such outstanding Award. In the case of Organic Changes,
such adjustments may include, without limitation:
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(a) the cancellation of outstanding Awards in exchange for
payments of cash, property or a combination thereof having an
aggregate value equal to the value of such Awards, as determined
by the Committee or the Board in its sole discretion (it being
understood that in the case of an Organic Change with respect to
which stockholders receive consideration other than publicly
traded equity securities of the ultimate surviving entity, any
such determination by the Committee that the value of an Option
or Stock Appreciation Right shall for this purpose be deemed to
equal the excess, if any, of the value of the consideration
being paid for each Share pursuant to such Organic Change over
the exercise price of such Option or Stock Appreciation Right
shall conclusively be deemed valid); |
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(b) the substitution of other property (including, without
limitation, cash or other securities of the Company and
securities of entities other than the Company) for the Shares
subject to outstanding Awards; and |
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(c) in connection with any Disaffiliation, arranging for
the assumption of Awards, or replacement of Awards with new
awards based on other property or other securities (including,
without limitation, other securities of the Company and
securities of entities other than the Company), by the affected
subsidiary, affiliate, or division or by the entity that
controls such subsidiary, affiliate, or division following such
Disaffiliation (as well as any corresponding adjustments to
Awards that remain based upon Company securities). |
11.2 Section 409A.
Notwithstanding the foregoing: (i) any adjustments made
pursuant to Section 11.1 hereof to Awards that are
considered deferred compensation within the meaning
of section 409A of the Code shall be made in compliance with the
requirements of section 409A of the Code; (ii) any
adjustments made pursuant to Section 11.1(a) of the Plan to
Awards that are not considered deferred compensation
subject to section 409A of the Code shall be made in such a
manner as to ensure that after such adjustment, the Awards
either continue not to be subject to section 409A of the Code or
comply with the requirements of section 409A of the Code; and
(iii) the Committee shall not have the authority to make
any adjustments pursuant to Section 11.1(a) of the Plan to
the extent that the existence of such authority would cause an
Award that is not intended to be subject to section 409A of the
Code to be subject thereto.
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SECTION 12
Amendment, Modification, and Termination of Plan
The Board of Directors at any time may terminate or suspend the
Plan, and from time to time may amend or modify the Plan,
subject to the following restrictions:
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(a) No amendment, modification, or termination of the Plan
shall in any manner materially adversely affect any Award
theretofore granted under the Plan to a Participant without the
consent of the Participant. |
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(b) No repricing of Options or SARs shall be permitted. For
this purpose, a repricing means any of the following (or any
other action that has the same effect as any of the following):
(A) changing the terms of an Option or SAR to lower its
exercise price; (B) any other action that is treated as a
repricing under generally accepted accounting principles; and
(C) canceling an Option or SAR at a time when its exercise
price is equal to or greater than the fair market value of the
underlying stock in exchange for another Option, or SAR, Stock
Award or other equity award, unless the cancellation and
exchange occurs in connection with an event set forth in
Section 11. Such cancellation and exchange would be
considered a repricing regardless of whether it is treated as a
repricing under generally accepted accounting principles and
regardless of whether it is voluntary on the part of the
Participant. |
SECTION 13
Termination of Employment
13.1 Termination of Employment
Due to Death or Disability. Unless otherwise determined by
the Committee, whether at the time of grant or thereafter, in
the event a Participants employment with the Company is
terminated by reason of death or disability, any Option or SAR
granted to such Participant which is then outstanding may be
exercised by the Participant or the Participants legal
representative at any time prior to the expiration date of the
term of the Option or SAR or within three years following the
Participants termination of employment, whichever period
is shorter, and any Restricted Stock, Phantom Stock rights, or
other Award then outstanding shall become nonforfeitable and
shall become transferable or payable, as the case may be, as
though any restriction had expired.
13.2 Termination of Employment
for Misconduct. If the employment of a Participant is
terminated by the Company by reason of the Participants
misconduct, any outstanding Option or SAR granted to such
Participant which is then outstanding may be exercised by the
Participant at any time prior to the expiration date of the term
of the Option or SAR or within three months following the
Participants termination of employment, whichever period
is shorter; any Restricted Stock, Phantom Stock rights, or other
Award then outstanding for which any restriction has not lapsed
prior to the date of termination of employment shall be
forfeited upon termination of employment. As used herein,
misconduct means: (i) one or more demonstrable
and material acts of dishonesty, disloyalty, insubordination or
willful misconduct; (ii) the continued failure, in the
judgment of the Chief Executive Officer of the Company or the
Board, by the Participant to substantially perform his duties
(other than any such failure resulting from his death or
disability); or (iii) the termination of the
Participants employment with the Company for
cause within the meaning of any written employment
agreement between the Participant and the Company. The Committee
shall determine whether a Participants employment is
terminated by reason of misconduct.
13.3 Termination of Employment
for Any Other Reason. Unless otherwise determined by the
Committee, whether at the time of grant or thereafter, in the
event the employment of the Participant with the Company shall
terminate for any reason other than death, disability or
misconduct, any Option or SAR granted to such Participant
10
which is then outstanding may be exercised by the Participant at
any time prior to the expiration date of the term of the Option
or SAR or within three months following the Participants
termination of employment, whichever period is shorter; any
Restricted Stock, Phantom Stock rights, or other Award then
outstanding for which any restriction has not lapsed prior to
the date of termination of employment shall be forfeited upon
termination of employment.
SECTION 14
Miscellaneous Provisions
14.1 Non-transferability of
Awards. An Award that is an incentive stock option is not
transferable other than as designated by the Participant by will
or by the laws of descent and distribution, and during the
Participants life, may be exercised only by the
Participant. With the approval of the Committee, a Participant
may transfer an Award (other than an incentive stock option) for
no consideration to or for the benefit of one or more Family
Members of the Participant subject to such limits as the
Committee may establish, and the transferee shall remain subject
to all the terms and conditions applicable to the Award prior to
such transfer. The transfer of an Award pursuant to this
Section 14.1 shall include transfer of the right set forth
in Section 12 hereof to consent to an amendment,
modification or termination of the Plan and, in the discretion
of the Committee, shall also include transfer of ancillary
rights associated with the Award.
14.2 No Guarantee of Employment
or Participation. Nothing in the Plan shall interfere with
or limit in any way the right of the Company to terminate any
Participants employment at any time, nor confer upon any
Participant any right to continue in the employment of the
Company. No employee shall have a right to be selected, to
receive any future Awards.
14.3 Tax Withholding. The
Company shall have the authority to withhold, or require a
Participant to remit to the Company, an amount sufficient to
satisfy the minimum statutory federal, state, and local
withholding tax requirements on any Award under the Plan, and
the Company may defer payment of cash or issuance of Shares
until such requirements are satisfied. The Committee may, in its
discretion, permit a Participant to elect, subject to such
conditions as the Committee shall require, to have Shares
otherwise issuable under the Plan withheld by the Company and
having a Fair Market Value sufficient to satisfy all or part of
the Participants minimum statutory federal, state, and
local tax obligation associated with the transaction.
14.4 Governing Law. The Plan
and all determinations made and actions taken pursuant hereto,
to the extent not otherwise governed by the Code, shall be
governed by the law of the State of Delaware and construed in
accordance therewith.
14.5 Effective Date. The
Plan shall be effective immediately upon such approval by the
stockholders of the Company, provided, however, that no Award
requiring the issuance of Shares shall be exercised or paid out
unless at the time of such exercise or payout (i) such
Shares are covered by a currently effective registration
statement filed under the Securities Act of 1933, as amended, if
one is then required, or in the sole opinion of the Company and
its counsel such issuance of Shares is otherwise exempt from the
registration requirements of such act, and (ii) such Shares
are listed on any securities exchange upon which the Common
Stock of the Company is listed.
14.6 Unfunded Plan. Insofar
as the Plan provides for Awards of cash, Shares, rights or a
combination thereof, the Plan shall be unfunded. The Company may
maintain bookkeeping accounts with respect to Participants who
are entitled to Awards under the Plan, but such accounts shall
be used merely for bookkeeping convenience. The Company shall
not be required to segregate any assets that may at any time be
represented by interests in Awards nor shall the Plan be
construed as providing for any such segregation. None of the
Committee, the Company or its Board of Directors shall be deemed
to be a trustee of any cash, Shares or rights to Awards granted
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under the Plan. Any liability of the Company to any Participant
with respect to an Award or any rights thereunder shall be based
solely upon any contractual obligations that may be created by
the Plan and any Agreement, and no obligation of the Company
under the Plan shall be deemed to be secured by any pledge or
other encumbrance on any property of the Company.
14.7 Section 409A. It
is the intention of the Company that no Award shall be
deferred compensation subject to section 409A
of the Code, unless and to the extent that the Committee
specifically determines otherwise, and the Plan and the terms
and conditions of all Awards shall be interpreted accordingly;
provided, however, that no guaranty is made by the Company that
any Award hereunder will not be subject to section 409A of
the Code. The terms and conditions governing any Awards that the
Committee determines will be subject to section 409A of the
Code, including any rules for elective or mandatory deferral of
the delivery of cash or Shares pursuant thereto, shall be set
forth in the applicable Agreement, and shall comply in all
respects with section 409A of the Code.
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Election of Directors
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PLEASE REFER TO THE REVERSE SIDE FOR TELEPHONE AND INTERNET VOTING INSTRUCTIONS. |
1. The Board of Directors recommends a vote FOR the listed nominees.
Nominees.
01 William T. Ratliff, III, 02 Mark K. Tonnesen, 03 Glenn T. Austin, Jr., 04 David W. Whitehurst,
05 Robert T. David, 06 Michael A. F. Roberts, 07 Richard S. Swanson
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o To Vote FOR All Nominees*
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o To WITHHOLD Vote From All Nominees |
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o For All Except -
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To withhold a vote for one or
more nominee(s), mark the box with an X
and the appropriately numbered box(es) from the list at the right. Your
shares will be voted for the remaining nominees. |
*For all listed nominees or a substitute therefor if any nominee is unable, or for good cause, refuses to serve.
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01 - o
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02 -o
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03 -o
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04 -o |
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05 - o
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06 -o
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07 -o |
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Issues
The Board of Directors recommends a vote FOR the following proposal.
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For
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Against
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Abstain |
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2.
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Approval of the proposal to adopt
the Triad Guaranty Inc. 2006 Long
Term Stock Incentive Plan.
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This Proxy is solicited on behalf of the Board of Directors.
This proxy, when properly executed, will be voted in the
manner directed herein by the undersigned stockholder. If
no direction is made, this proxy will be voted FOR
Proposal 1 and FOR Proposal 2. This proxy is revocable
at any time.
In their discretion, the Proxies are authorized to vote
upon such other business as may properly come before the
meeting.
Authorized Signatures Sign Here This section must be completed for your instructions to be executed.
NOTE: Please sign your name(s) EXACTLY as your name(s) appear(s) on this proxy. All joint
holders must sign. When signing as attorney, trustee, executor, administrator, guardian or
corporate officer, please provide your FULL title.
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Signature 1 - Please keep signature within the box |
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Signature 2 - Please keep signature within the box
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Date (mm/dd/yyyy) |
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Proxy Triad Guaranty Inc.
Triad
Guaranty Inc.
101 South Stratford Road
Winston-Salem, North Carolina 27104
Proxy Solicited by Board of Directors for Annual Meeting May 17, 2006
Dear Stockholder,
Your vote is important to us, and we encourage you to exercise your right to vote your shares of
common stock. On behalf of the Board of Directors, we urge you to sign, date and return the proxy
card in the enclosed postage-paid envelope as soon as possible. You may also vote by Internet or
telephone using the instructions below.
We appreciate your confidence in us and your cooperation with this solicitation.
Sincerely,
Triad Guaranty Inc.
The holder(s) signing on the reverse side hereby appoint(s) William T. Ratliff, III and David W.
Whitehurst, or either of them, as attorneys and proxies, each with the power to appoint a
substitute, and hereby authorize(s) them to represent and to vote, as designated on the reverse
side, all the shares of Common Stock of Triad Guaranty Inc. held of record by such holder(s) on
March 31, 2006, at the Annual Meeting of Stockholders to be held on May 17, 2006 or any adjournment
thereof.
Telephone and Internet Voting Instructions
You can vote by telephone OR Internet! Available 24 hours a day 7 days a week!
Instead of mailing your proxy, you may choose one of the two voting methods outlined below to vote your proxy.
VALIDATION DETAILS ARE LOCATED ON THE FRONT OF THIS FORM IN THE COLORED BAR.
If you vote by telephone or the Internet, please DO NOT mail back this proxy card.
Proxies submitted by telephone or the Internet must be received by 12:00 a.m., Eastern Time, on May 17, 2006.
THANK YOU FOR VOTING