Exhibit 10.32
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made as of the 9th day of
September 2005, by and between Triad Guaranty Inc., a Delaware corporation (the
"Company"), and Mark K. Tonnesen ("Employee").
WITNESSETH:
WHEREAS, the Company desires to employ Employee and Employee is willing to
accept such employment, all upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and obligations
hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT AND TERM. The Company hereby employs Employee and Employee
accepts employment with the Company as President and Chief Executive
Officer of the Company, on the terms and conditions herein set forth, for a
period commencing on September 14, 2005, and expiring on September 30,
2008, and thereafter for successive six (6) month periods unless either
party gives written notice of the nonrenewal of this Agreement at least one
year prior to the commencement of any such additional six (6) month period.
Employee shall have such duties, responsibilities and authority as is
commensurate with his position, and shall report to the Chairman of the
Company's Board of Directors (the "Board"). Employee shall also perform
such other or additional duties on behalf of the Company and its
subsidiaries and affiliates as may be reasonably assigned to him by the
Board from time to time.
2. EXTENT OF SERVICES. During the term hereof, Employee shall devote his
entire attention and energy to the business and affairs of the Company on a
full-time basis and shall not be engaged in any other business activity,
regardless of whether such business activity is pursued for gain, profit or
other pecuniary advantage, unless the Company otherwise consents; but this
shall not be construed as preventing Employee from investing his assets in
such form or manner as will not require any services on the part of
Employee in the operation of the affairs of the companies in which such
investments are made and will not otherwise conflict with the provisions of
this Agreement. Full-time, as used above, shall mean a forty (40) hour work
week, or such longer work week, as the Board shall from time to time adopt.
The foregoing shall not be deemed to prevent Employee from participating in
any charitable or not-for-profit organization to a reasonable extent,
provided however that Employee does not receive any salary or other
remuneration from such charity or not-for-profit organization. Employee
will be subject to and shall comply with all codes of conduct, personnel
policies and procedures applicable to senior executives of the Company
including, without limitation, policies regarding sexual harassment,
conflicts of interest and insider trading, of which he shall have received
in writing.
3. COMPENSATION.
(a) SALARY. During the term of this Agreement, the Company shall pay
Employee an annual salary of not less than $450,000.00 ("Annual
Salary"), payable in accordance with the Company's regular payroll
procedures. During each year that this Agreement is in effect, the
Company will review possible increases in Employee's salary at least
annually, with any such increases subject to the determination of the
Board.
(b) BONUS. In addition to his Annual Salary, Employee shall be eligible to
receive an annual bonus in an amount as may be determined by the
Board, pursuant to a bonus plan which may then be in effect or
otherwise. For calendar year 2005, the cash bonus shall be $200,000.
For calendar year 2006, the cash bonus shall not be less than
$450,000. For calendar years after 2006 the Company intends to adopt a
bonus plan, and Employee shall be entitled to participate in any bonus
plan for senior executives that the Company adopts.
4. BENEFITS. Employee shall be entitled to participate in all medical and
other employee plans of the Company, if any, on the same basis as other
executives of the Company, subject in all cases to the respective terms of
such plans.
5. PTO. Employee shall be entitled to paid time off ("PTO") in accordance with
the Company's PTO policy in effect at the time the PTO is taken as if
Employee had at least ten (10) years of service with the Company. In the
event that the full PTO is not taken by Employee, no PTO time shall accrue
for use in future years, except in accordance with the Company's then
existing policy for the carry forward of accrued PTO.
6. EXPENSES. Employee shall be entitled to prompt reimbursement for all
reasonable expenses incurred by him in furtherance of the business of the
Company in connection with his performance of his duties hereunder, in
accordance with the policies and procedures established for executive
officers of the Company, and provided Employee properly accounts for such
expenses.
7. TERMINATION.
(a) DEATH. This Agreement and Employee's employment hereunder shall
terminate immediately upon Employee's death. In such event, the
Company shall be obligated to pay only (i) Employee's salary to the
end of the month in which he dies; and (ii) a lump sum death benefit
to Employee's estate equal to Employee's Annual Salary at the time of
his death.
(b) INCAPACITY. To the extent permitted by law, if Employee is absent from
his employment for reasons of illness or other physical or mental
incapacity which renders him unable to perform the essential functions
of his position, with or without reasonable accommodation, for more
than an aggregate of ninety (90) days, whether or not consecutive, in
any period of twelve (12) consecutive months, then upon at least sixty
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(60) days' prior written notice to Employee, if such is consistent
with applicable law, the Company may terminate this Agreement and
Employee's employment hereunder, unless, within that notice period,
Employee shall have resumed performance of the essential functions of
his positions, with or without reasonable accommodation. In the event
of a termination of employment under this Section 7(b), the Company
shall be obligated to pay Employee his salary from the date of such
termination until the earlier of (i) the date on which coverage
commences under the long-term disability insurance policy maintained
by the Company for the benefit of Employee, if any, or (ii) the date
two (2) months after the date of such termination.
(c) TERMINATION BY THE COMPANY.
(i) The Company may terminate this Agreement and Employee's
employment hereunder at any time for Cause. As used herein,
"Cause" shall mean:
(A) a material breach by Employee of his duties and obligations
hereunder, including but not limited to gross negligence in
the performance of his duties and responsibilities or the
willful failure to follow the Board's directions; provided,
however, that Cause shall not exist unless the Company has
provided Employee with written notice setting forth the
existence of the non-performance, failure or breach and
Employee shall not have cured same within thirty (30) days
after receiving such notice;
(B) willful misconduct by Employee which in the reasonable
determination of the Board has caused or is likely to cause
material injury to the reputation or business of the
Company;
(C) any act of fraud, material misappropriation or other
dishonesty by Employee; or
(D) Employee's conviction of a felony.
In the event of termination for Cause, the Company shall pay Employee
his salary up to the date that is thirty (30) days after the delivery
to him of the notice of termination, which date shall be for all
purposes of this Section 7(c)(i) the date of termination of his
employment, unless there has been a cure under Section 7(c)(i)(A). In
the event of termination for Cause, Employee shall not receive any
previously unpaid bonus or bonuses except any earned but unpaid bonus
with respect to any calendar year ended prior to the date of
termination.
(ii) Notwithstanding anything contained herein to the contrary, the
Company also may terminate this Agreement and Employee's
employment hereunder for any reason whatsoever, upon no less than
sixty (60) days' prior written notice to Employee. In the event
that the Company terminates this Agreement pursuant to the
provisions of this Section 7(c)(ii), Employee shall be entitled
to receive (i) his salary up to the date of termination set forth
in the notice of termination, and (ii) a severance payment equal
to the greater of $1.8 million or two hundred percent (200%) of
the total Annual Salary paid to Employee by the Company during
each of the two calendar years prior to the year of termination
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(the "Severance Payment"). Subject to Section 13(c) hereof, at
the option of the Company, the Severance Payment shall be payable
either in a lump sum cash payment or in twenty-four (24) monthly
installments commencing on the first day of the month following
termination of this Agreement. If for any reason any court
determines that any of the restrictions contained in Section 8
hereof are not enforceable, the Company shall have no obligation
to pay the Severance Payment or any remaining installment thereof
to Employee.
(iii)If the Company is obligated by law (including the WARN Act or any
similar state or foreign law) to pay Employee severance pay, a
termination indemnity, notice pay, or the like, then any
Severance Payments hereunder shall be reduced by the amount of
any such other severance pay, termination indemnity, notice pay
or the like, as applicable.
(iv) Notwithstanding anything herein to the contrary, the payment of
any Severance Payments hereunder to Employee shall be subject to
the execution by Employee (and failure to revoke) of a general
release of the Company and its affiliates of any and all claims
under this Agreement or related to or arising out of Employee's
employment hereunder, in a form and manner satisfactory to the
Company and Employee.
(d) TERMINATION BY EMPLOYEE. Employee may terminate this Agreement and his
employment hereunder for any reason whatsoever, upon no less than
sixty (60) days' prior written notice to the Company. In the event
that Employee terminates this Agreement pursuant to the provisions of
this Section 7(d) without "Good Reason" as hereinafter defined,
Employee shall be entitled to receive his salary up to the date of
termination set forth in the notice of termination, and in such event,
Employee shall not receive any previously unpaid bonus or bonuses
except any earned but unpaid bonus with respect to any calendar year
ended prior to the date of termination. If Employee resigns for Good
Reason, then Employee's termination shall be treated as a termination
by the Company without Cause pursuant to Section 7(c)(ii) hereof. As
used herein, "Good Reason" shall mean:
(i) a material breach by the Company of its obligations hereunder,
including but not limited to a material and adverse change in the
status or position of Employee as an executive officer of the
Company including, without limitation, a material diminution in
duties, responsibilities or authority, except in connection with
the incapacity of Employee, or non-payment of Annual Salary or
other compensation due hereunder; or
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(ii) the Company, without Employee's consent (such consent not to be
unreasonably withheld), transfers or relocates the office of
Employee which would, after the initial relocation contemplated
by this Agreement, require Employee to be based more than fifty
(50) miles distance from his initial office in Winston-Salem,
North Carolina;
provided, however, that Good Reason shall not exist unless Employee
has provided the Company with a written notice setting forth the
reasons for the existence of Good Reason, and Company has not cured
the reasons for the existence of Good Reason within thirty (30) days
after receiving such notice.
8. RESTRICTIVE COVENANT. During the term of this Agreement and for a period of
two (2) years after the termination of this Agreement by the Company or
Employee, except pursuant to the provisions of Section 1 above, Employee
shall not, either as an individual on his own account; as a partner, joint
venturer, employee, agent, or salesman for any person; as an officer,
director or stockholder (other than a beneficial holder of not more than
five percent (5%) of the outstanding voting stock of a company having at
least two hundred and fifty (250) holders of voting stock) of a
corporation; or otherwise, directly or indirectly:
(a) enter into or engage in the private mortgage insurance business or any
other credit enhancement business in which, as of the date of such
termination, the Company is then engaged or actively considering being
engaged within:
(i) any area of the United States or any foreign country in which the
Company is then doing business;
(ii) in the event that any court determines that the area set forth in
the preceding subparagraph is too broad to be enforceable, each
and every state of the United States or foreign country in which
the Company had a market share, based on industry data, of at
least four percent (4%) of net new mortgage insurance written as
of the end of the quarter next preceding the date of termination
of this Agreement; or
(iii)in the event that any court determines that the area set forth
in the preceding subparagraphs is too broad to be enforceable,
each and every metropolitan statistical area of the United States
or any foreign country in which the Company had a market share,
based on industry data, of at least four percent (4%) of net new
mortgage insurance written as of the end of the quarter next
preceding the date of termination of this Agreement; or
(iv) in the event that any court determines that the area set forth in
the preceding subparagraphs is too broad to be enforceable, the
States of Florida, Illinois and North Carolina; or
(v) in the event that any court determines that the area set forth in
the preceding subparagraphs is too broad to be enforceable, the
State of North Carolina.
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(b) solicit or attempt to solicit any of the Company's customers or
prospective customers with whom Employee has had substantive business
communications as an employee of the Company in the performance of his
duties and responsibilities hereunder with the intent or purpose to
perform for such customer the same or similar services or to sell to
such customer the same or similar products, including other credit
enhancement products, which Employee performed for or sold to such
customer during the term of his employment hereunder; or
(c) solicit or recruit any person who is an employee or agent of the
Company, for employment in the private mortgage insurance business or
any other credit enhancement business or for the purpose of soliciting
or attempting to solicit any of the Company's customers or prospective
customers as prohibited by Section 8(b) above.
Employee and the Company agree and acknowledge that the Company does
business on a nationwide basis, with customers located throughout the
United States, and may do business world wide with customers located
throughout the world and that any breach by Employee of the
restrictive covenant contained herein would immeasurably and
irreparably damage the Company. Employee and the Company agree and
acknowledge that the duration, scope and geographic areas applicable
to the noncompetition covenants in this Section 8 are fair, reasonable
and necessary to protect legitimate business interests of the Company,
and that adequate compensation has been received by Employee for such
obligations.
9. CONFIDENTIAL INFORMATION AND DISCOVERIES. Employee acknowledges that he
will, as a result of his duties as an employee of the Company, have access
to and be in a position to receive confidential information, including
trade secrets, relating to the Company. Therefore, Employee agrees that
during his employment by the Company and thereafter he will not divulge to,
or use for the benefit of, himself or any other person, any information
concerning any inventions, discoveries, improvements, processes, methods,
trade secrets, research or secret data (including, without limitation,
customer or supplier lists, formulas, computer programs, software
development or executive monitor systems), or other confidential matters
possessed, owned or used by the Company that may be obtained or learned by
Employee in the course of or as a result of his employment hereunder unless
(i) such disclosure is authorized by the Company, (ii) such confidential
information becomes generally available to and known by the public (other
than as a result of disclosure directly or indirectly by the Employee) or
(iii) such confidential information becomes available to Employee on a
nonconfidential basis from a source other than the Company, or its
employees or agents, provided that such source is not and was not bound by
a confidentiality agreement with or other obligation of secrecy to the
Company. The expiration or termination of employment shall not be deemed to
release Employee from his duties hereunder not to convert to his own use or
the use of others the rights or properties of the Company as described
herein.
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10. CHANGE IN CONTROL.
(a) CHANGE IN CONTROL SEVERANCE COMPENSATION. If within two (2) years
following a Change in Control (as defined below), in the event of (i)
a material and adverse change in the status or position of Employee as
an executive officer of the Company including, without limitation, a
material diminution in duties or responsibilities, except in
connection with the incapacity of Employee, (ii) the transfer or
relocation by the Company of the office of Employee which would
require Employee to be based more than 50 miles distant from the
location of his office immediately prior to such transfer or
relocation, or (iii) the discontinuance of any bonus or incentive
compensation plan for which the Company has determined Employee to be
eligible and which represents a material portion of Employee's annual
compensation, then Employee shall be entitled to terminate this
Agreement and his employment hereunder and receive from the Company a
payment equal to the amount of the Severance Payment specified in
Section 7(c)(ii) of this Agreement (the "Change in Control
Compensation"). Subject to Section 13(c) hereof, at the option of the
Company, the Change in Control Compensation shall be payable either in
a lump sum cash payment or in twenty-four (24) monthly installments
commencing on the first day of the month following termination of this
Agreement. If for any reason any court determines that any of the
restrictions contained in Section 8 hereof are not enforceable, the
Company shall have no obligation to pay the Change in Control
Compensation or any remaining installment thereof to Employee.
(b) CHANGE IN CONTROL. For purposes of this Agreement, "Change in Control"
shall mean the occurrence of any of the following events:
(i) any person or persons acting as a group, other than a person
which as of the date of this Agreement is the beneficial owner of
voting securities of the Company, or any employee benefit plan of
the Company or its subsidiaries or affiliates, or Employee or a
group including Employee, shall become the beneficial owner of
securities of the Company representing the greater of (i) at
least twenty-five percent (25%) of the combined voting power of
the Company's then outstanding securities, or (ii) at least the
combined voting power of the Company's outstanding securities
then held by Collateral Investment Corp., a Delaware corporation,
and Collateral Mortgage, Ltd., an Alabama limited partnership,
and any of their affiliates; or
(ii) individuals who at any time during the term of this Agreement
constitute the board of directors of the Company (the "Incumbent
Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent
to the date hereof whose election or nomination for election was
approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board (either by a specific vote or by
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approval of the proxy statement of the Company in which such
person is named as a nominee for director, without objection to
such nomination) shall be, for purposes of this clause (ii)
considered as though such person were a member of the Incumbent
Board; or
(iii)any consolidation or merger to which the Company is a party, if
following such consolidation or merger, stockholders of the
Company immediately prior to such consolidation or merger shall
not beneficially own securities representing at least fifty-one
percent (51%) of the combined voting power of the outstanding
voting securities of the surviving or continuing corporation; or
(iv) any sale, lease, exchange or other transfer (in one transaction
or in a series of related transactions) of all, or substantially
all, of the assets of the Company, other than to an entity (or
entities) of which the Company or the stockholders of the Company
immediately prior to such transaction beneficially own securities
representing at least fifty-one percent (51%) of the combined
voting power of the outstanding voting securities.
(c) NONDUPLICATION OF BENEFITS. If Employee receives any Change in Control
Compensation under this Section 10, he or she shall not be entitled to
receive any Severance Payments under Section 7 hereof.
11. ENFORCEMENT. Both parties recognize that the services to be rendered under
this Agreement by Employee are special, unique and of extraordinary
character and that in the event of the breach by Employee of any of the
terms and conditions of Section 8 or 9 of this Agreement to be performed by
him, then the Company shall be entitled, if it so elects, to institute and
prosecute proceedings in any court of competent jurisdiction, either in law
or in equity, to obtain damages for any breach hereof, or to enforce the
specific performance hereof by Employee or to enjoin Employee from
performing acts prohibited above during the period herein covered, but
nothing herein contained shall be construed to prevent such other remedy in
the courts as the Company may elect to invoke.
12. RETURN OF DOCUMENTS. Upon the termination of this Agreement for any reason,
Employee shall forthwith return and deliver to the Company and shall not
retain any original or copies of any books, papers, price lists or customer
contracts, bids or customer lists, files, books of account, notebooks and
other documents and data relating to the performance by Employee of his
duties hereunder, all of which materials are hereby agreed to be the
property of the Company.
13. TAX AND OTHER RESTRICTIONS. Notwithstanding anything herein to the
contrary:
(a) EXCESS PARACHUTE PAYMENTS. In the event that payment of any amount
under this Agreement, including, but not limited to, any Severance
Payment under Section 7(c) or Change in Control Compensation under
Section 10, would cause Employee to be the recipient of an excess
parachute payment within the meaning of section 280G(b) of the
Internal Revenue Code of 1986, as amended (the "Code"), the amount of
the payments to be made to Employee pursuant to this Agreement shall
be reduced to an amount equal to one dollar less than the amount that
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would cause the payments hereunder to be excess parachute payments.
The manner in which such reduction occurs, including the items of
payment and amounts thereof to be reduced, shall be agreed to by
Employee and the Company.
(b) PAYMENTS IN EXCESS OF $1 MILLION. If any payment hereunder, including
but not limited to, a Severance Payment under Section 7(c) or Change
in Control Compensation under Section 10, would not be deductible by
the Company for federal income tax purposes by reason of Code section
162(m), or any similar or successor statute (excluding Code section
280G), such payment shall be deferred and the amount thereof shall be
paid to Employee at the earliest time that such payment shall be
deductible by the Company.
(c) DEFERRED COMPENSATION PAYMENTS. Notwithstanding any provision of this
Agreement other than this Section 13(c) to the contrary, no Severance
Payment under Section 7(c) or Change in Control Compensation under
Section 10 will be provided under this Agreement until the earliest of
(A) the date of Employee's termination of employment, or if Employee
is a "specified employee" as defined in Code section 409A, the date
which is six (6) months after Employee's termination of employment for
any reason, other than death or "disability" (as such term is used in
Code section 409A(a)(2)(C)), (B) the date of Employee's death or
"disability" (as such term is used in Code section 409A(a)(2)(C)) or
(C) the effective date of a "change in the ownership or effective
control" of the Company (within the meaning of Code section
409A(a)(2)(A)(v)). The first sentence of this Section 13(c) shall only
apply to the extent required to avoid Employee's incurrence of any
additional tax or interest under Code section 409A or any regulations
or Treasury guidance promulgated thereunder. In addition, if any
provision of this Agreement (or of any award of compensation,
including equity compensation) would cause Employee to incur any
additional tax or interest under Code section 409A or any regulations
or Treasury guidance promulgated thereunder, the Company shall reform
such provision; provided that the Company shall: (i) maintain, to the
maximum extent practicable, the original intent of the applicable
provision without violating the provisions of Code section 409A and
(ii) notify and consult with the Employee regarding such amendments or
modifications prior to the effective date of any such change.
14. MISCELLANEOUS.
(a) NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if sent by registered
or certified mail to Employee or the Company at the address set forth
below their signatures at the end of this Agreement or to such other
address as they shall notify each other in writing.
(b) ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of the Company and its successors and permitted assigns and
Employee and his personal representatives, heirs, legatees and
beneficiaries. This Agreement may be assigned by the Company with the
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consent of Employee to a fiscally responsible entity that assumes the
obligations set forth herein, but shall not be assignable by Employee.
(c) APPLICABLE LAW. THIS AGREEMENT shall be construed in accordance with
the laws of the State of North Carolina in every respect, including,
without limitation, validity, interpretation and performance. Any
dispute between the parties hereto, arising under or relating to this
Agreement or the Letter Agreement (as hereinafter defined), or
Employee's employment with the Company, other than for an action by
the Company under Section 11 hereof for specific performance,
injunction or other equitable remedy to enforce Sections 8 and 9
hereof shall be settled by arbitration in Winston-Salem, North
Carolina before a single arbitrator in accordance with the then
applicable rules of the American Arbitration Association. Such
arbitrator may award the prevailing party its reasonable attorneys'
fees and expenses, and judgment upon the award rendered may be entered
in any court having jurisdiction thereof.
(d) HEADINGS. Section headings and numbers herein are included for
convenience of reference only and this Agreement is not to be
construed with reference thereto. If there be any conflict between
such numbers and headings and the text hereof, the text shall control.
(e) SEVERABILITY. If for any reason any portion of this Agreement shall be
held invalid or unenforceable, it is agreed that the same shall not
affect the validity or enforceability of the remainder hereof. The
portion of the Agreement which is not invalid or unenforceable shall
be considered enforceable and binding on the parties and the invalid
or unenforceable provision(s), clause(s) or sentence(s) shall be
deemed excised, modified or restricted to the extent necessary to
render the same valid and enforceable and this Agreement shall be
construed as if such invalid or unenforceable provision(s), clause(s),
or sentences(s) were omitted. The provisions of this Section 14(e), as
well as Sections 8 and 9 hereof, shall survive the termination of this
Agreement. The provisions of Section 7(c)(ii) hereof (whether directly
or indirectly as the result of a resignation by Employee for Good
Reason pursuant to Section 7(d) hereof) shall also survive the
termination of this Agreement on account of the failure of the Company
to renew this Agreement pursuant to Section 1 hereof.
(f) ENTIRE AGREEMENT. This Agreement and the contemporaneously executed
letter agreement dated September 9, 2005 (the "Letter Agreement")
contain the entire agreement of the parties with respect to its
subject matter and supersedes all previous agreements between the
parties. No officer, employee, or representative of the Company has
any authority to make any representation or promise in connection with
this Agreement or the Letter Agreement or the subject matter thereof
that is not contained therein, and Employee represents and warrants he
has not executed this Agreement in reliance upon any such
representation or promise, except as contained in the Letter
Agreement. No modification of this Agreement or of the Letter
Agreement shall be valid unless made in writing and signed by the
parties hereto.
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(g) WAIVER OF BREACH. The waiver by either party of a breach of any
provision of this Agreement or the Letter Agreement by the other party
shall not operate or be construed as a waiver of any subsequent breach
by the breaching party.
(h) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and Employee has signed this Agreement all on the
day and year first above written.
TRIAD GUARANTY INC.
a Delaware corporation
By: /s/William T. Ratliff, III
------------------------------------
William T. Ratliff, III
Chairman of the Board
Address: 101 South Stratford Road
Winston-Salem, N. C. 27104
MARK K. TONNESEN
/s/Mark K. Tonnesen
-------------------------------------
Address: 45 Valecrest Drive
Toronto, Ontario, Canada M9A4P
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September 9, 2005
Mr. Mark K. Tonnesen
45 Valecrest Drive
Toronto, Ontario M9A 4P5
Re: Letter of Agreement
Dear Mr. Tonnesen:
This letter will set forth certain mutual understandings between you and Triad
Guaranty Inc. (the "Company"). Specifically, this letter covers matters not
included in your Employment Agreement executed as of the same date which will
govern the terms of your continuing employment with the Company, and this letter
incorporates by reference that Agreement.
1. RELOCATION COST. The Company agrees to cover certain costs you and your
family will incur in relocating to Winston-Salem, North Carolina. These costs
are to be itemized and estimated on the attached worksheet, incorporated into
this agreement as Exhibit A. A significant portion of these expenses will be
paid to you in a lump sum in advance. You hereby agree to provide documentation
of these expenses to the Company and a final reconciliation of these costs will
be conducted once all costs have been incurred. Following this final
reconciliation, the Company will also pay to you a one-time payment to reimburse
you for taxes payable on these relocation expenses. This payment will equal 55
percent of the total taxable income to you related to funds paid to you in
reimbursement of relocation related costs and it is agreed by both parties that
all efforts will be made to reduce the taxable income to you to the maximum
extent permissible under law and IRS Code provisions. This payment will equal 65
percent of the total taxable income to you with respect to such funds as are
determined to be taxable by the State of North Carolina as well as by the IRS.
2. INITIAL STOCK AND STOCK OPTION AWARDS. Once you have become employed full
time by the Company and become domiciled in North Carolina, you will also be
eligible to receive, and the Company shall award a one-time grant of restricted
stock equal in value to $1.5 million pursuant to the Company's 1993 Long-Term
Stock Incentive Plan (the "LSIP"). The restricted stock granted will be
calculated by dividing $1.5 million by the Applicable Price. The Applicable
Price will be calculated by averaging the closing price of Triad Guaranty common
stock on the last three trading days prior to the date of execution of this
agreement. You will also be eligible for a grant of stock options with a strike
price at the closing price of Triad common stock on the date of the grant of
such options. You will be eligible to receive three times as many options as the
Mr. Mark K. Tonnesen
September 9, 2005
Page 2
number of shares of restricted stock you receive in the grant described above.
Fifty percent of these stock and option grants will vest at the second
anniversary date of your employment and fifty percent will vest at the third
anniversary date of your employment by the Company. In the event that your
employment should be terminated without cause by the Company or by you for Good
Reason or on account of a Change in Control, all as defined in your Employment
Agreement, (hereinafter, a "Qualifying Termination"), between the first and
second anniversary dates of your employment, you will, on the effective date of
such termination, vest in one-third of your restricted stock and options and
will have thirty (30) days in which to exercise your options from the date of
your termination.
3. SUBSEQUENT EQUITY AWARDS. We have also agreed that you will be eligible for
future equity grants under the LSIP or subsequent plans starting with grants
made in 2007. With respect to any such grant of stock, stock options or other
equity or equity equivalents (an "Equity Award"), if there is a Qualifying
Termination following any such grant, you will vest pro rata in such Equity
Award. The pro-rata calculation will be based upon the percentage of time
elapsed from the original date of such grant to the vesting date, each award
having multiple vesting dates utilized in the calculation (e.g. - a grant which
vests equally in thirds over a three year period would have three vesting
dates.) As an example, the calculation for a stock award which is six (6) months
through a twelve (12) month vesting timeframe would vest 50 percent of its
portion of the associated award, while that which is six (6) months through a
twenty-four (24) month vesting timeframe would vest 25 percent of its portion of
the associated award, and that which is six (6) months through a thirty-six (36)
month vesting timeframe would best one-sixth of its portion of the associated
award. In the event of such a termination, any options which might vest as the
result of your termination and any other options already vested as of the
termination date must be exercised within thirty (30) days of your termination
date.
4. SUPPLEMENTAL BENEFITS. In addition to other cash compensation covered in the
Employment Agreement referenced above, you will be paid a 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 the Winston-Salem, North Carolina vicinity. Such initiation fee
to be subject to gross-up for federal and state tax purposes on the same terms
as in number one (1) above.
5. MISCELLANEOUS. All compensation agreements and terms contained herein are
subject to the limitations outlined in Section 13 of the Employment Agreement
referenced above. This letter is not intended to contradict any of the terms or
conditions of the Employment Agreement but is intended as a supplement thereto.
Mr. Mark K. Tonnesen
September 9, 2005
Page 3
We have requested and you have agreed to assume the title of President and Chief
Executive Officer of Triad Guaranty Inc. as of September 14, 2005. Both parties
understand and hereby acknowledge that you will be making all efforts
practicable to move your place of domicile to the Winston-Salem area and that
your efforts from September 14, 2005, forward will be dedicated solely for the
benefit of the Company and you will be working full-time for the Company as
defined in your Employment Agreement.
Any termination or severance from employment with the Company following the
seventh anniversary of the date of your employment shall be deemed a retirement
for purposes of this agreement and all future awards made under the current or
any subsequent long-term incentive plans or equity award programs of the
Company.
Please acknowledge your agreement with the terms and arrangements put forth in
this letter by signing and dating a copy of this letter in the space provided
below. Once executed, the Employment Agreement of the same date between the
parties and this letter as a supplement thereto will constitute the entire
agreement between the parties and can only be amended if done so in writing by
mutual agreement.
TRIAD GUARANTY INC.
a Delaware corporation
By: /s/William T. Ratliff, III
------------------------------
William T. Ratliff, III
Chairman of the Board
Address: 101 South Stratford Road
Winston-Salem, N.C. 27104
MARK K. TONNESEN
/s/Mark K Tonnesen
------------------------------
Address: 45 Valecrest Drive
Toronto, Ontario, Canada M9