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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by Registrant: /X/
Filed by a Party other than the Registrant: / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Materials Pursuant to Section 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):
/x / No fee required.
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
/ / Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of
its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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[TRIAD GUARANTY INC. LOGO]
TRIAD GUARANTY INC.
101 South Stratford Road, Suite 500
Winston-Salem, North Carolina 27104
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 10, 2001
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 Adam's Mark, 425 North Cherry
Street, Winston-Salem, North Carolina, on Thursday, May 10, 2001, at 2:00 p.m.
Eastern Time, for the purpose of considering and acting upon the following
matters:
1. To elect five directors to serve until the next annual meeting of
stockholders and until their successors are duly elected and qualified;
2. To consider and vote upon a proposal to amend the Company's 1993
Long-Term Stock Incentive Plan to increase the number of shares of the
Company's Common Stock, par value $.01 per share, reserved for issuance
thereunder from 2,100,000 shares to 2,600,000 shares; and
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 April 2, 2001 shall
be entitled to notice of and to vote at the meeting. The transfer books will not
be closed. For ten 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, Suite 500, 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.
By order of the Board of Directors
Earl F. Wall
Secretary
Winston-Salem, North Carolina
April 9, 2001
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PROXY STATEMENT
TRIAD GUARANTY INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 10, 2001
GENERAL INFORMATION
This proxy statement is being furnished to the stockholders of Triad
Guaranty Inc., a Delaware corporation (the "Company"), 101 South Stratford Road,
Suite 500, 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 Thursday, May 10, 2001 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 9, 2001.
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 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.
If the enclosed proxy is properly executed and returned in time for voting
with a choice specified thereon, the shares represented thereby will be voted as
indicated thereon. If no specification is made, the proxy will be voted by the
proxy committee for the election as directors of the nominees named below (or
substitutes therefor, if any nominees are unable or refuse to serve), for
approval of the amendment to the Company's 1993 Long-Term Stock Incentive Plan,
and in its discretion upon such matters not presently known or determined which
may properly come before the meeting.
The Company has one class of stock outstanding, Common Stock, par value
$.01 per share ("Common Stock"). On April 2, 2001, 13,356,610 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
April 2, 2001 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.
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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 April 2, 2001;
and (ii) the percent of the Common Stock so owned as of that date:
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP(1) COMMON STOCK
- ------------------- ----------------- ------------
Collateral Investment Corp.(2)(3)(6)................ 2,677,500 20.1%
Collateral Mortgage, Ltd.(4)(5)(7).................. 2,572,500 19.3%
Salem Investment Counselors, Inc.................... 790,349 5.9%
The following table shows with respect to each director and nominee for
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, ten in number: (i) the total number of shares of Common Stock
beneficially owned as of April 2, 2001; and (ii) the percent of the Common Stock
so owned as of that date:
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP(1) COMMON STOCK
- ------------------------ ----------------- ------------
William T. Ratliff, III(8).............................. 201,324(10)(11) 1.5%
Darryl W. Thompson...................................... 428,579(10)(12) 3.2%
David W. Whitehurst(9).................................. 123,930(10) *
Robert T. David......................................... 24,132(10) *
Raymond H. Elliott...................................... 33,657(10)(14) *
John H. Williams........................................ 286,828(10)(15) 2.1%
Ron D. Kessinger........................................ 82,622(10) *
Henry B. Freeman........................................ 84,574(10)(13) *
Earl F. Wall............................................ 31,354(10) *
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1,297,000
All directors and executive officers as a group (10
persons) (8)(9)....................................... 1,329,017(10) 10.0%
- ---------------
* Less than one percent.
(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 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.
(2) The business address of Collateral Investment Corp., an insurance holding
company ("CIC"), is 1900 Crestwood Boulevard, Birmingham, Alabama
35210-2034.
(3) Mr. William T. Ratliff, Jr. is a vice president and director of CIC and
beneficially owns 48.67% of the outstanding voting capital stock of CIC.
Accordingly, Mr. Ratliff, Jr. may be deemed to be the beneficial owner of
the shares of Common Stock owned by CIC. The business address of Mr.
Ratliff, Jr. is 1900
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Crestwood Boulevard, Birmingham, Alabama 35210-2034. Mr. Ratliff, Jr. is the
father of Mr. William T. Ratliff, III.
(4) The business address of Collateral Mortgage, Ltd., a mortgage banking and
real estate lending firm ("CML"), is 1900 Crestwood Boulevard, Birmingham,
Alabama 35210-2034.
(5) Collat, Inc. ("Collat") is the general partner of 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 and
beneficially owns 15.2% of the outstanding voting capital stock of Collat.
Mr. Ratliff, Jr. also beneficially owns 30.13% 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 Collat and Mr. Ratliff, Jr. is 1900 Crestwood
Boulevard, Birmingham, Alabama 35210-2034.
(6) 1,700,000 shares of Common Stock owned by CIC are pledged to secure two
bank loans.
(7) 2,122,500 shares of Common Stock owned by CML are pledged to secure two
bank loans.
(8) Mr. William T. Ratliff, III is president and a director of CIC and
beneficially owns 2.8% of the outstanding voting capital stock of CIC. Mr.
Ratliff, III beneficially owns 7.42% 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 35% 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 CIC and 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 capital stock of CIC or partnership interests
in CML.
(9) Mr. David W. Whitehurst is executive vice president of CIC. Accordingly,
Mr. Whitehurst may be deemed to be the beneficial owner of the shares of
Common Stock owned by CIC. The business address of Mr. Whitehurst is 1900
Crestwood Boulevard, Birmingham, Alabama 35210-2034.
(10) Includes shares of Common Stock which could be acquired through the
exercise of stock options as follows: Mr. Ratliff, III, 142,712 shares; Mr.
Thompson, 365,890 shares; Mr. Whitehurst, 110,240 shares; Mr. David, 18,132
shares; Mr. Elliott, 18,657 shares; Mr. Williams, 246,328 shares; Mr.
Freeman, 60,319 shares; Mr. Kessinger, 49,000 shares; Mr. Wall, 22,949
shares; all directors and executive officers as a group, 1,064,329 shares.
(11) Includes 1,500 shares owned by Mr. Ratliff's wife and 5,900 shares owned by
his minor children.
(12) Includes 1,800 shares owned by Mr. Thompson's wife.
(13) Includes 600 shares owned by Mr. Freeman's wife.
(14) Includes 15,000 shares owned by Mr. Elliott's wife.
(15) Includes 300 shares owned by Mr. Williams' minor children.
(16) Number of shares reported on Schedule 13G filed by Salem Investment
Counselors, Inc. ("Salem") with the Securities and Exchange Commission.
Salem has sole voting power and sole dispositive power with respect to all
790,349 shares. The business address of Salem is P.O. Box 25427,
Winston-Salem, North Carolina 27114-5427.
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ELECTION OF DIRECTORS
NOMINEES AND DIRECTORS
At the meeting, five 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 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 Company was incorporated on August 16, 1993 for the purpose of holding
all of the outstanding stock of Triad Guaranty Insurance Corporation, an
Illinois insurance company ("Triad"), and to undertake the Company's initial
public offering.
The following persons are nominees for election as directors of the
Company:
WILLIAM T. RATLIFF, III Age -- 47 Director since -- 1993
Mr. Ratliff has been the Chairman of the Board of the Company since
1993. Mr. Ratliff has also been Chairman of the Board of Triad since
1989, President of Collateral Investment Corp. ("CIC") since 1990 and
was President and General Partner of Collateral Mortgage, Ltd. ("CML")
from 1987 to 1995. Mr. Ratliff has been Chairman of New South Federal
Savings Bank ("New South") since 1986 and President and a director of
New South Bancshares, Inc., New South's parent company, since 1995. From
March 1994 until December 1996, Mr. Ratliff served as President of
Southwide Life Insurance Corp., of which he had been Executive Vice
President since 1983. Mr. Ratliff joined CML in 1981 after completing
his doctoral degree with a study of planning processes in an insurance
company. Previously, he trained and worked as an educator, counselor and
organizational consultant.
DARRYL W. THOMPSON Age -- 60 Director since -- 1993
Mr. Thompson has been President and Chief Executive Officer of the
Company since 1993. Mr. Thompson has also been President, Chief
Executive Officer and a Director of Triad since its inception in 1987.
From 1986 to 1989, Mr. Thompson also served as President and Chief
Executive Officer of Triad Life Insurance Company, which sold mortgage
insurance products. From 1976 to 1985, Mr. Thompson served as Senior
Vice President/Southeast Division Manager of Mortgage Guaranty Insurance
Corporation. Mr. Thompson joined Mortgage Guaranty Insurance Corporation
in 1972.
DAVID W. WHITEHURST Age -- 51 Director since -- 1993
Mr. Whitehurst was Executive Vice President, Chief Financial Officer and
Treasurer of the Company from 1993 until 1999, and served as Secretary
of the Company from 1993 until 1996. Mr. Whitehurst has also been a
Director of Triad since 1989 and was a Vice President from 1989 until
1999. He has been Executive Vice President of CIC since 1995 and has
been a director of New South since 1989. Mr. Whitehurst was President,
Treasurer and a Director of Southland National Insurance Corp. and its
subsidiaries from 1997 until July 2000. Mr. Whitehurst is a certified
public accountant.
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ROBERT T. DAVID Age -- 62 Director since -- 1993
Mr. David is President and Chief Executive Officer of Polatomic, Inc., a
manufacturer of laser optic instruments. From 1995 until 1996, Mr. David
was the Garrett Professor of Business Administration at Berry College in
Rome, Georgia. From 1988 through 1994, Mr. David was Vice President and
Dean of the Samford University School of Business.
RAYMOND H. ELLIOTT Age -- 70 Director since -- 1993
Mr. Elliott was Chairman of Flag Development Company, a partnership
representing international and domestic investors involved with land
development, from 1986 to 1996. Mr. Elliott has been a Trustee of
Neighborhood Housing Services of America, Inc. since 1987. From 1973 to
1985, Mr. Elliott served as President of the Federal Home Loan Bank of
Boston.
THE BOARD OF DIRECTORS
The business and affairs of the Company are managed under the direction of
the Board of Directors. During 2000, the Board of Directors met five times and
acted twice by written consent. No director attended fewer than 75% of the
aggregate number of meetings of the Board of Directors and the committees on
which he served.
BOARD COMMITTEES
The Board of Directors has three standing committees, the Executive
Committee, the Audit 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
(Chairman), Thompson and Whitehurst, did not act during 2000.
The Audit Committee recommends to the Board of Directors the appointment of
the independent auditors for the following year. The Audit Committee also
reviews the scope of the annual audit, the annual financial statements of the
Company and the auditor's report thereon and the auditor's comments relative to
the adequacy of the Company's system of internal controls and accounting
systems. The Audit Committee, which is composed of Messrs. Elliott (Chairman),
David and Whitehurst, met four times in 2000. Mr. Whitehurst was appointed to
the Audit Committee in January 2001.
The Compensation Committee reviews management compensation levels and
provides recommendations regarding salaries and other compensation for the
Company's officers, including bonuses, grants of stock options and other
incentive programs. The Compensation Committee serves as the committee that
administers the Company's 1993 Long-Term Stock Incentive Plan. The Compensation
Committee, which is composed of Messrs. David (Chairman) and Elliott, met nine
times in 2000.
The Company does not have a standing nominating committee of the Board of
Directors. This function is performed by the Board of Directors. The Company's
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
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executive offices not less than 60 days nor more than 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 Company's 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 Company's overall compensation philosophy is as follows:
- to attract, retain and motivate qualified executive talent critical for
the long-term success of the Company;
- to reinforce strategic performance objectives through the use of
incentive compensation programs; and
- 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.
The Compensation Committee's objectives include linking compensation to
improving return on equity using economic value added ("EVA") concepts. (EVA is
a registered trademark of Stern Stewart & Co.) Accordingly, beginning with the
1996 calendar year, the Compensation Committee 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 and
implemented for 1996. Under the EVA Program as established by the Compensation
Committee and the Board of Directors, 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 Company's 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 individual's contribution to the
Company during the year as determined by the Committee after considering
recommendations of the Chairman and the President and an evaluation of expected
operating results in the future. It is intended that any amounts allocated to
the bonus pool be payable to participants over a four year period, subject to
the right of the Committee to reduce or suspend any such payouts, and subject to
review of the individual participants on an annual basis. Awards under the
Program are made in the form of cash bonuses and equity grants within guidelines
established under the EVA Program. In establishing the EVA Program, it is the
Committee's long-term objective that incentive compensation (cash and equity
awards) become a more significant component in the total executive compensation
package. The Committee believes this approach will create a stronger mutuality
of interests between the Company's executive officers and stockholders by
requiring the executive officers to share in the Company's 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 2000
and prior years. All of the Company's 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. Thompson,
Williams, Kessinger and Freeman. 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
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review. The Company also maintains the 1993 Long-Term Stock Incentive Plan (the
"Stock Incentive Plan" or "Plan") under which grants of restricted Common Stock
and options to purchase stock have been made as 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 (Messrs. Ratliff and
Whitehurst are eligible to receive only incentive compensation as discussed
below). The 2000 compensation of the Company's Chief Executive Officer, Mr.
Thompson, was subject to the same policies as are applicable to all other
executive officers of the Company. All executive compensation awards for 2000
were determined by the Compensation Committee. The Committee has been further
assisted by independent compensation consultants regarding Company-wide benefits
as well as the ongoing structure of the overall compensation package for the
executive officers, including the development of the EVA Program.
Messrs. Ratliff and Whitehurst are employed by New South or CIC and do not
receive separate salaries from the Company for their services to the Company.
Triad is party to an Administrative Services Agreement with CIC and New South
described elsewhere herein. The services of Messrs. Ratliff and Whitehurst to
the Company are charged to the Company under the Administrative Services
Agreement. The Compensation Committee believes that the terms of this agreement
are no less favorable to the Company than could be obtained from unaffiliated
third parties. Messrs. Ratliff and Whitehurst are also eligible to participate
in the EVA Program and to receive incentive compensation based upon the
Compensation Committee's evaluation of their contributions to the Company. See
"Directors' Compensation."
Overall executive compensation levels for 2000 were slightly higher than
for 1999. Consistent with the Company's results for 2000, cash bonuses and stock
option awards to the executive officers were also slightly higher in 2000 than
in 1999.
Section 162(m) under the Internal Revenue Code (the "Code") adopted in 1993
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 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 Committee's approach to base compensation is to offer competitive
salaries, consistent with its long-term objective that base salaries become a
smaller component 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 Committee makes salary decisions in an annual review with input from
the Chief Executive Officer. In the case of Mr. Thompson, the Committee is
guided by the recommendation of the Chairman of the Board. The Committee's
review 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 general, the
salary decisions are subjective with no quantitative measures utilized. In
establishing the 2000 salaries of the Company's executive officers, the
Compensation Committee considered the responsibilities, experience and
performance of the individual in relationship to the Company's growth and
financial results. The
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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). The 2000 average base salaries of the executive
officers which appear in the Executive Compensation Table increased 6.3% in
2000.
INCENTIVE COMPENSATION
The Company's incentive compensation awards for 2000 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 75% in
cash to a Senior Vice President or Vice President, or such lesser cash
percentages as may be determined by the Committee. The balance of the awards are
made in the form of equity grants under the Company's 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 Committee considers the recommendations of the Company's Chairman
and President, the responsibilities of each individual, and his past performance
and contributions to the Company and anticipated future contributions to the
Company, in relationship to the Company's overall performance.
CASH AWARDS
The average cash bonus awarded to the executive officers named in the
Executive Compensation Table was 100% of their base salaries in 2000 and 107.9%
in 1999. Awards for 2000 were made consistent with the guidelines established
under the EVA Program.
EQUITY AWARDS
Pursuant to the Company's 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 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 Company's long-term growth
and business success. The Compensation Committee believes that the grant of
awards whose value is related to the value of the Company's Common Stock aligns
the interests of the Company's directors, executive officers and key employees
with its stockholders.
For 2000, all awards to the executive officers under the Stock Incentive
Plan represented the equity portion of the overall incentive compensation award
for such individual. The Committee considered grants under the Plan in the form
of shares of restricted stock valued at the market price of the Company's 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 percent 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 2000, the awards to all of the
executive officers were made in the form of shares of restricted stock and at
the market or premium priced options for ten years. These awards are summarized
in footnotes to the Executive Compensation Table elsewhere herein.
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The salary and incentive compensation, including cash and equity amounts,
paid by the Company to its chief executive officer and the other four most
highly compensated executive officers of the Company in 2000 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
Robert T. David, Chairman
Raymond H. Elliott
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.
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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 and the four most highly compensated executive officers of the
Company during each of the Company's fiscal years ended December 31, 2000, 1999
and 1998:
LONG TERM
COMPENSATION
AWARDS(2)
-----------------------------
SECURITIES
ANNUAL COMPENSATION RESTRICTED UNDERLYING ALL OTHER
------------------------ STOCK OPTIONS(#) COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) AWARDS(3)(4)(5) (6)(7)(8) ($)(9)
- --------------------------- ---- --------- ----------- --------------- ---------- ------------
Darryl W. Thompson,............ 2000 $232,183 $287,500 47,925 $5,250
Chief Executive Officer 1999 232,183 290,000 67,450 5,000
1998 232,183 179,591 57,525 5,000
Ron D. Kessinger,.............. 2000 180,000 200,000 3,350 10,000 5,250
Executive Vice President and 1999 146,000 200,000 7,000 7,000 5,000
Chief Financial Officer 1998 143,000 103,397 5,825 4,200 5,000
John H. Williams,.............. 2000 178,120 95,000 15,850 5,250
Executive Vice President 1999 178,120 105,000 24,425 5,000
of Triad 1998 178,120 103,397 33,125 5,000
Henry B. Freeman,.............. 2000 121,000 105,000 5,850 5,250
Senior Vice President 1999 121,000 112,500 8,725 5,000
of Triad 1998 121,000 69,378 7,425 5,000
Earl F. Wall,.................. 2000 115,000 135,000 7,500 5,250
Senior Vice President, 1999 100,000 131,250 10,175 5,000
Secretary and 1998 90,000 58,733 7,100 5,000
General Counsel
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(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
Company's Stock Incentive Plan. See "Report of the Compensation Committee of
the Board -- Incentive Compensation."
(3) As part of its 2000 incentive compensation awards, the Company in January
2001 granted 3,350 shares of restricted stock to Mr. Kessinger under the
Company's Stock Incentive Plan. The value of shares of restricted stock is
based upon the closing price of the Company's Common Stock on the date of
grant ($30.00). One-third of the restricted shares will be vested and
transferable on January 1, 2002, another third will be vested and
transferable on January 1, 2003, and on January 1, 2004 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.
(4) As part of its 1999 incentive compensation awards, the Company in January
2000 granted 7,000 shares of restricted stock to Mr. Kessinger under the
Company's Stock Incentive Plan. The value of shares of restricted
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stock is based upon the closing price of the Company's Common Stock on the
date of grant ($21.50). One-third of the restricted shares granted became
vested and transferable on January 1, 2001, another third will be vested and
transferable on January 1, 2002, and on January 1, 2003 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 a part of its 1998 incentive compensation awards, the Company in January
1999 granted 5,825 shares of restricted stock to Mr. Kessinger under the
Company's Stock Incentive Plan. The value of shares of restricted stock is
based upon the closing price of the Company's Common Stock on the date of
grant ($17.88). One-third of the restricted shares granted became vested and
transferable on January 1, 2000, another third became vested and
transferable on January 1, 2001, and on January 1, 2002 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.
(6) As a part of its 2000 incentive compensation awards, the Company in January
2001 granted stock options to the named executive officers to purchase
shares of Common Stock under the Company's Stock Incentive Plan in the
amounts and at the exercise prices indicated: Mr. Thompson, 47,925 shares at
$39.00 per share; Mr. Williams, 15,850 shares at $39.00 per share; Mr.
Kessinger, 10,000 shares at $30.00 per share; Mr. Freeman, 5,850 shares at
$39.00 per share; and Mr. Wall, 7,500 shares at $39.00 per share. One-third
of the options granted will be vested and exercisable on December 31, 2001,
another third will be vested and exercisable on December 31, 2002, and on
December 31, 2003 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 $30.00 was the
closing market price of the Company's Common Stock on the date of grant. The
exercise price of $39.00 is 130% of the closing market price of the
Company's Common Stock on the date of grant.
(7) As a part of its 1999 incentive compensation awards, the Company in January
2000 granted stock options to the named executive officers to purchase
shares of Common Stock under the Company's Stock Incentive Plan in the
amounts and at the exercise prices indicated: Mr. Thompson, 67,450 shares at
$27.95 per share; Mr. Kessinger, 7,000 shares at $21.50 per share; Mr.
Williams, 24,425 shares at $27.95 per share; Mr. Freeman, 8,725 shares at
$27.95 per share; and Mr. Wall, 10,175 shares at $27.95 per share. One-third
of the options granted became vested and exercisable on December 31, 2000,
another third will be vested and exercisable on December 31, 2001, and on
December 31, 2002 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 $21.50 was the
closing market price of the Company's Common Stock on the date of grant. The
exercise price of $27.95 is 130% of the closing market price of the
Company's Common Stock on the date of grant.
(8) As a part of its 1998 incentive compensation awards, the Company in January
1999 granted stock options to the named executive officers to purchase
shares of Common Stock under the Company's Stock Incentive Plan in the
amounts and at the exercise prices indicated: Mr. Thompson, 57,525 shares at
$23.24 per share; Mr. Kessinger, 4,200 shares at $23.24 per share; Mr.
Williams, 33,125 shares at $23.24 per share; Mr. Freeman, 7,425 shares at
$23.24 per share; and Mr. Wall, 7,100 shares at $23.24 per share. One-third
of the options granted became vested and exercisable on December 31, 1999,
another third became vested and exercisable on December 31, 2000, and on
December 31, 2001 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
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the Company. The exercise price of $23.24 is 130% of the closing market price of
the Company's Common Stock on the date of grant ($17.88).
(9) Matching contributions made by the Company pursuant to its 401(k) Profit
Sharing Retirement Plan.
EMPLOYEE STOCK OPTIONS
Option Grants. The following table sets forth certain information regarding
options to purchase shares of Common Stock granted to the executive officers of
the Company named in the Executive Compensation Table during the Company's 2000
fiscal year:
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
------------------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE ---------------------------
NAME GRANTED (#)(1) FISCAL YEAR ($/SH)(2) EXPIRATION DATE 5% ($) 10% ($)
- ---- -------------- ------------ --------- --------------- ------ -------
Darryl W. Thompson.... 67,450 34.79% $27.95 January 17, 2010 $476,948 $1,876,149
Ron D. Kessinger...... 7,000 3.61 21.50 January 17, 2010 94,648 239,858
John H. Williams...... 24,425 12.60 27.95 January 17, 2010 172,712 679,391
Henry B. Freeman...... 8,725 4.50 27.95 January 17, 2010 61,696 242,689
Earl F. Wall.......... 10,175 5.25 27.95 January 17, 2010 71,949 283,022
- ---------------
(1) All options granted under the Company's Stock Incentive Plan are
nonqualified stock options. The options were granted in January 2000. One
third of the options granted became vested and exercisable on December 31,
2000, one-third will be vested and exercisable on December 31, 2001, and
one-third will be vested and exercisable on December 31, 2002. All options
will become immediately vested and exercisable in the event of a change of
control of the Company.
(2) The option exercise price of $21.50 was the closing market price of the
Company's Common Stock on the date of grant. The option exercise price of
$27.95 is equal to 130% of the closing market price of the Company's Common
Stock on the date of grant.
(3) The assumed annual rates of appreciation of 5% and 10% would result in the
price of the Company's Common Stock increasing over such ten-year periods to
$35.02 and $55.77, respectively (based on the grant date price of $21.50).
Option Exercises. The following table sets forth certain information
regarding options to purchase shares of Common Stock exercised during the
Company's 2000 fiscal year and the number and value of unexercised options
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to purchase shares of Common Stock held at the end of the Company's 2000 fiscal
year by the executive officers of the Company named in the Executive
Compensation Table:
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
NUMBER OF YEAR END (#) FISCAL YEAR END ($)(1)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- --------------- -------- ------------------------- -------------------------
Darryl W. Thompson.............. -- -- 365,890/64,142 $7,358,102/422,297
Ron D. Kessinger................ -- -- 49,000/6,067 753,491/68,096
John H. Williams................ -- -- 246,328/27,326 5,251,648/193,447
Henry B. Freeman................ -- -- 60,319/8,292 1,304,045/54,575
Earl F. Wall.................... -- -- 22,949/9,151 230,469/58,511
- ---------------
(1) Value of unexercised options is equal to the difference between the fair
market value per share of Common Stock at December 31, 2000 and the option
exercise price per share multiplied by the number of shares subject to
options.
EMPLOYMENT AGREEMENTS
In October 1993, the Company, through its wholly-owned subsidiary Triad,
entered into employment agreements with Messrs. Thompson, Kessinger, Williams,
and Freeman. These agreements had initial terms of two years and upon expiration
extend automatically for successive one-year terms unless terminated by either
party. Base annual salary for 2001 under the agreements is as follows: Mr.
Thompson, $232,183; Mr. Kessinger, $180,000; Mr. Williams, $178,120; and Mr.
Freeman, $121,000. The agreements are terminable by Triad in the event of the
death of the employee, absence over a period of time due to incapacity, a
material breach of his duties and obligations under the agreement or other
serious misconduct. The agreements also are terminable by Triad without cause;
provided, however, that in such event, the executive is entitled to a cash
amount equal, in the case of Messrs. Thompson, Kessinger, and Williams, to 200%
of the total base annual salary paid to such executive during the two previous
calendar years and, in the case of Mr. Freeman, 160% of the total base annual
salary paid to such executive during the previous calendar year.
The employment agreements provide that in the event of a change of control
of the Company (as defined in the agreements) and the termination of the
executive's 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, in the case of Messrs. Thompson,
Kessinger and Williams, to 200% of the total base annual salary paid to such
executive during the two previous calendar years and, in the case of Mr.
Freeman, 160% of the total base annual salary paid to such executive during the
previous calendar year.
The employment agreements contain certain noncompetition provisions
restricting each executive from competing with the business of Triad for a
period of two years, in the case of Messrs. Thompson, Kessinger and Williams,
and one year, in the case of Mr. Freeman, following termination of his
employment.
DIRECTORS' COMPENSATION
Directors who are employees of the Company or any of its subsidiaries do
not receive any compensation for serving as directors of the Company. For 2000,
directors who were not employees of the Company or any of its subsidiaries or
affiliates received an annual retainer of $30,000 of which at least 25% must be
paid in the form of restricted shares of Common Stock or options to purchase
shares of Common Stock. In addition, Messrs. Ratliff and
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Whitehurst are eligible to participate in the EVA Program and to receive
incentive compensation based upon the Compensation Committee's evaluation of
their contributions to the Company. For 2000, Messrs. Ratliff and Whitehurst
were awarded cash bonuses in the amount of $82,500 and $30,500, respectively,
and stock options to purchase 13,750 and 5,100 shares of Common Stock,
respectively, at $39.00 per share.(1) All directors are reimbursed for expenses
incurred in attending board meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed of Messrs. David and Elliott.
Neither member of the Compensation Committee is or was formerly an officer or
employee of the Company or any of its subsidiaries.
CERTAIN TRANSACTIONS
The Company engaged in certain transactions with CIC, CML and their
affiliates New South Federal Savings Bank and Southland National Insurance Corp.
("Southland") during 2000 including those described below. CIC and CML own 20.1%
and 19.3%, respectively, of the Common Stock of the Company. Mr. Ratliff,
Chairman of the Board of the Company, is also President of CIC, former President
and former General Partner of CML, and Chairman of the Board of New South. Mr.
Whitehurst, a director of the Company, is Executive Vice President of CIC and a
director of New South. All transactions between the Company and CIC, CML, New
South or Southland have been, and will be, on terms no less favorable to the
Company than could have been, or than could be, obtained from unaffiliated third
parties.
Investment Advisory Agreement. Triad is a party to an investment advisory
agreement with CML under which CML provides investment advice and services to
Triad and assists Triad in executing purchases and sales of investments. Under
the investment advisory agreement, Triad pays CML a quarterly fee based upon the
value of assets under supervision. During 2000, Triad incurred fees of $298,872
pursuant to the investment advisory agreement.
Administrative Services Agreement. Triad is a party to an administrative
services agreement with CIC and New South under which CIC or New South provide
Triad with certain management services. Under the administrative services
agreement, Triad pays CIC and New South an annual fee based on the estimated
cost of providing the services. During 2000, Triad incurred fees of $100,000
pursuant to the administrative services agreement.
- ---------------
(1) One-third of the options granted will be vested and exercisable on December
31, 2001, another third will be vested and exercisable on December 31, 2002,
and on December 31, 2003 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
$39.00 is 130% of the closing market price of the Company's Common Stock on
the date of grant ($30.00).
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PERFORMANCE GRAPH
The following graph compares the cumulative total return on the Company's
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 on October 22, 1993 (the date of the Company's initial
public offering) and for each year end through December 31, 2000.
[PERFORMANCE GRAPH]
NASDAQ STOCK NASDAQ FINANCE NASDAQ INSURANCE
TRIAD GUARANTY INC. MARKET (U.S.) STOCKS STOCKS
------------------- ------------- -------------- ----------------
10/22/93 100.00 100.00 100.00 100.00
1993 101.56 99.70 98.79 94.72
1994 79.69 97.51 99.04 89.16
1995 165.62 137.82 144.29 126.65
1996 269.52 169.56 185.21 144.37
1997 543.73 207.68 283.25 211.77
1998 413.66 292.87 275.20 188.68
1999 426.55 544.27 273.37 146.36
2000 621.07 327.48 298.72 183.80
- ----------------------------------------------------------------------------------------------------------------------
10/22/93 1993 1994 1995 1996 1997 1998 1999 2000
- ----------------------------------------------------------------------------------------------------------------------
Triad Guaranty Inc. 100 101.56 79.69 165.62 269.52 543.73 413.66 426.55 621.07
- ----------------------------------------------------------------------------------------------------------------------
NASDAQ Stock Market
(U.S.) 100 99.70 97.51 137.82 169.56 207.68 292.87 544.27 327.48
- ----------------------------------------------------------------------------------------------------------------------
NASDAQ Finance Stocks 100 98.79 99.04 144.29 185.21 283.25 275.20 273.37 298.72
- ----------------------------------------------------------------------------------------------------------------------
NASDAQ Insurance
Stocks 100 94.72 89.16 126.65 144.37 211.77 188.68 146.36 183.80
- ----------------------------------------------------------------------------------------------------------------------
The graph assumes $100 invested on October 22, 1993 in the Company's 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.
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REPORT OF THE AUDIT COMMITTEE
The following is the report of the Audit Committee with respect to the
Company's audited financial statements for the fiscal year ended December 31,
2000. The Audit Committee acts pursuant to the Audit Committee Charter, a copy
of which is attached as Appendix "1" to this Proxy Statement.
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 Company's audited
financial statements, internal controls and the overall quality of the Company's
financial reporting with management and with Ernst & Young LLP, the Company's
independent auditors. The Audit Committee has discussed with Ernst & Young LLP
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 Company's financial statements.
The Audit Committee has also received written disclosures and the letter
from Ernst & Young LLP 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 Ernst & Young LLP its independence from the
Company.
Based on the review and discussions referred to above, the Audit Committee
recommended to the Company's Board of Directors that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000.
INDEPENDENCE
The Audit Committee Charter provides that the Audit Committee shall consist
of at least three directors, each of whom, in the opinion of the Board of
Directors, has no relationship which would interfere with the exercise of
independent judgment as a director. The Charter further provides that subject to
the applicable rules of the National Association of Securities Dealers ("NASD"),
a director who is not "independent" as defined under the NASD rules may be
appointed to the Audit Committee if the Board of Directors determines that such
appointment is in the best interests of the Company and its stockholders.
Two of the members of the Audit Committee, Messrs. Elliott and David, are
independent under the NASD rules. The third member, Mr. Whitehurst, is not
independent under the NASD rules because he has been employed by CIC, an
affiliate of the Company, for the current year, and has received compensation
from the Company and its affiliates in excess of $60,000 during the previous
fiscal year. The NASD rules permit the Company to appoint one non-independent
director to the Audit Committee if the Company's Board, under exceptional and
limited circumstances, determines that membership on the Committee by a
non-independent director is required by the best interests of the Company and
its stockholders. The Board believes that Mr. Whitehurst's extensive background
in financial, business, accounting and financial oversight matters allows him to
provide valuable advice and counsel to the Audit Committee. The Board therefore
has determined that Mr. Whitehurst's service on the Audit Committee is in the
best interests of the Company and its stockholders.
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SELECTION OF INDEPENDENT AUDITORS
The Audit Committee has recommended to the Board the selection of Ernst &
Young LLP as the Company's independent auditors for fiscal year 2001.
AUDIT COMMITTEE
Raymond H. Elliott, Chairman
Robert T. David
David W. Whitehurst
PROPOSED AMENDMENT TO THE COMPANY'S 1993
LONG-TERM STOCK INCENTIVE PLAN
The Company proposes to amend its 1993 Long-Term Incentive Plan (the
"Plan") to increase the number of shares of the Company's Common Stock reserved
for issuance thereunder from 2,100,000 shares to 2,600,000 shares.
THE AMENDMENT
The Board has approved and recommends to the stockholders of the Company
for their approval and adoption an amendment to the Plan to increase the number
of shares of Common Stock available for awards thereunder from 2,100,000 shares
to 2,600,000 shares.
If the proposed amendment is approved, Section 3.1 of the Plan would be
amended to read as follows:
"3.1 Number of Shares. Subject to the provisions of Section 3.3:
(a) the number of Shares which may be issued or sold or for which
Options or Stock Appreciation Rights may be granted under the Plan may
not exceed 2,600,000 Shares; and"
REASONS FOR AMENDING THE PLAN
The Plan authorizes the grant of awards for up to 2,100,000 shares of
Common Stock, of which options for 1,854,767 shares, and restricted stock awards
for 137,675 shares, have been granted. Accordingly, only 107,558 shares are
currently available for awards under the Plan.
The Board believes that the Plan has accomplished its purpose in the past
and that the Plan will continue to be instrumental in attracting, retaining and
motivating the Company's executive officers, directors and key employees.
Accordingly, the Board has approved and recommends to the stockholders of the
Company for their approval and adoption amendments to the Plan to increase the
number of shares of Common Stock available for awards thereunder from 2,100,000
to 2,600,000, subject to adjustment as provided in Section 3.3
DESCRIPTION OF THE PLAN
PURPOSE AND ELIGIBILITY. The purpose of the Plan is to attract and retain
the best available directors, executive personnel and other key employees to be
responsible for the management, growth and success of the business and to
provide an incentive for them to exert their best efforts on behalf of the
Company and its stockholders. The Plan was approved by the stockholders of the
Company on October 18, 1993.
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"Participants" in the Plan are those directors, executive personnel and
other key employees selected by the Board of Directors or the Compensation
Committee to participate in the Plan who hold positions of responsibility and
whose participation in the Plan is determined by the Board of Directors or the
Compensation Committee to be in the best interests of the Company. Approximately
180 persons are eligible to participate in the Plan. As of April 2, 2001, awards
have been granted to 55 participants under the Plan.
ADMINISTRATION OF THE PLAN. The Plan provides that it shall be
administered by the Compensation Committee (the "Committee") appointed by the
Board of Directors and consisting of two or more members of the Board who shall
be disinterested persons 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 Code. Subject to the provisions of the Plan, the 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 a Committee, the Board of Directors exercises all of
the powers of the Committee.
DESCRIPTION OF PLAN AWARDS. The Plan provides that the 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 ("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 Committee ("Stock Appreciation Rights" or "SARs"), (iii) shares of
Common Stock 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"), or (v) other stock based awards ("Other Stock Based Awards")
and other benefits. A description of each of these awards follows.
Options. The per share option price must be not less than 85% of the Fair
Market Value of the Common Stock at the time the Option is granted (100% in the
case of an incentive stock option, or 110% 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% 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 the last preceding trading day on which such Common Stock
was traded. Options awarded under the 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 Committee may impose.
Such conditions and restrictions need not be uniform for all Participants. No
Option will 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% 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 Committee may, in its discretion, permit a Participant to make
payments in cash, or in shares of Common Stock already owned by the Participant,
valued at the Fair Market Value thereof.
SARs. SARs granted pursuant to the Plan may be exercised at such times and
subject to such conditions, including the performance of a minimum period of
service, as the 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 of Common Stock under the related Option and may be
exercised only with respect to the shares for which the related Option is then
exercisable. The Committee may limit the time of exercise of a SAR to specified
periods, as may be required to satisfy the applicable provisions of Rule 16b-3
of the Securities Exchange Act of 1934. 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
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Value of a share at the date of grant, by (b) the number of shares of Common
Stock with respect to which the SAR is exercised. However, notwithstanding the
foregoing, at the time of grant the Committee may establish a maximum amount per
share which will be payable upon exercise of a SAR. Subject to the discretion of
the Committee, payment of a SAR may be made in cash, shares of Common Stock, or
any combination thereof.
Restricted Stock. Restricted Stock awarded to a Participant by the
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 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 of Common Stock. Unless the Committee otherwise determines
at the time of grant, Participants holding Restricted Stock may exercise full
voting rights and other 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 of Common Stock, 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 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
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
Plan, will have no rights related to any shares. Unless the 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 Committee may provide for payment in respect of Phantom Stock
rights in cash, shares of Common Stock, partially in cash and partially in
shares, or in any other manner not inconsistent with the Plan.
Other Stock Based Awards and Other Benefits. The Plan provides that the
Committee may also grant Other Stock Based Awards, including the grant of shares
of Common Stock based on certain conditions, the payment of cash based on the
performance of the Common Stock, and the payment of shares of Common Stock in
lieu of cash under other Company incentive bonus programs. The Committee also
has the authority to provide types of awards under the Plan in addition to those
specifically listed utilizing shares of Common 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 such awards
will be made in the manner and at the times determined by the Committee.
PLAN BENEFITS
The grant of awards under the Plan is within the discretion of the
Committee. Therefore, the Company is unable to determine the benefits or amounts
that will be allocated to any Participant under the Plan.
The following table sets forth certain information regarding awards of
Restricted Stock and Options to purchase shares of Common Stock granted under
the Plan to the executive officers of the Company named in the Executive
Compensation Table, each nominee for election as a director who was granted an
award and the indicated groups during the period January 1, 2001 through April
1, 2001. No other awards are expected to be made to such
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persons during 2001. However, the Company may grant awards under the Plan to
other employees of Triad during 2001.
NUMBER OF
SECURITIES
RESTRICTED STOCK UNDERLYING OPTIONS EXERCISE PRICE
NAME AWARDS(1) (#)(2) ($/SH)(3)
- ---- ---------------- ------------------ --------------
William T. Ratliff, III............................. 13,750 $39.00
Chairman of the Board
Darryl W. Thompson.................................. 47,925 $39.00
Chief Executive Officer and Director
Ron D. Kessinger.................................... 3,350 10,000 $30.00
Executive Vice President and Chief Financial
Officer
John H. Williams.................................... 15,850 $39.00
Executive Vice President of Triad
Henry B. Freeman.................................... 5,850 $39.00
Senior Vice President of Triad
Earl F. Wall........................................ 7,500 $39.00
Senior Vice President, Secretary and General
Counsel
Robert T. David,.................................... 1,000 $30.00
Director
Raymond H. Elliott,................................. 1,000 $30.00
Director
David W. Whitehurst................................. 5,100 $39.00
Director
All current executive officers as a group (7
persons).......................................... 10,000 $30.00
96,925 $39.00
All current directors who are not executive officers
as a group (3 persons)............................ 2,000 $30.00
5,100 $39.00
All employees, including all current officers who
are not executive officers, as a group (8
persons).......................................... 17,250 $30.00
- ---------------
(1) One-third of the restricted shares will be vested and transferable on
January 1, 2002, another third will be vested and transferable on January 1,
2003, and on January 1, 2004 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.
(2) One-third of the Options granted will be vested and exercisable on December
31, 2001, another third will be vested and exercisable on December 31, 2002,
and on December 31, 2003 all of the Options granted will be vested and
exercisable. All Options become immediately vested and exercisable in the
event of a change of control of the Company.
(3) The Option exercise price of $30.00 was the closing price of the Company's
Common Stock on the date of grant. The Option exercise price of $39.00 is
equal to 130% of the closing price of the Company's Common Stock on the date
of grant.
As of March 27, 2001, 1,992,442 shares of common stock were subject to
outstanding awards under the Plan and 107,558 shares were available for future
grants. As of March 27, 2001, the exercise prices and expiration dates
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of options outstanding under the Plan ranged from $4.58 to $49.08 per share and
from October 29, 2003 to January 23, 2011. As of March 27, 2001, the closing
sale price of the Company's Common Stock was $30.19 per share as reported by the
Nasdaq Stock Market.
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. The Plan will remain in effect until it is terminated by the
Board. No amendment, modification, or termination of the Plan will in any manner
adversely affect any award theretofore granted under the Plan without the
consent of the Participant.
FEDERAL TAX TREATMENT. The Plan is not a qualified pension, profit-sharing
or stock bonus plan under Section 401(a) of the Code. The Plan is not subject to
any provisions of the Employee Retirement Income Security Act of 1974.
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 years of the grant or one 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 optionee's 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. 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.
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 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
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awards. Generally, the Company will be entitled to a deduction and will be
required to withhold applicable taxes with respect to any ordinary income
recognized by a grantee in connection with awards made under the Plan.
Section 162(m) of the Code. Section 162(m) of the Code provides that the
deduction by a publicly-held corporation for compensation paid in a taxable year
to the chief executive officer and the four other most highly compensated
executive officers of the corporation is limited to $1 million for each
individual officer. For purposes of Section 162(m), compensation which is
performance-based is not counted as subject to the deductibility limitation.
Income pursuant to Options and SARs having an exercise price or base value equal
to the fair market value of the shares of the Company's Common Stock on the date
of grant under the Plan is intended to be fully deductible by the Company, by
qualifying such income as performance-based compensation and, therefore, exempt
from the limitations of Section 162(m). Income pursuant to Restricted Stock,
Phantom Stock and other Awards under the Plan would be subject to the
deductibility limitations of Section 162(m).
VOTE REQUIRED
If approved by the stockholders, the proposed amendment to the Plan would
become effective immediately.
Adoption of the amendment to the Plan requires the affirmative vote of the
holders of a majority of the shares of Common Stock represented in person or by
proxy at the Meeting.
The Board recommends a vote FOR the approval and adoption of the amendment
to the Plan as described above. Proxies solicited by the Board will be voted in
favor of the proposed amendment unless stockholders specify to the contrary in
their proxies.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The Company's consolidated financial statements for the year ended December
31, 2000 were audited by Ernst & Young LLP, independent auditors. Ernst & Young
LLP has been selected as the Company's independent auditors for fiscal year
2001. Representatives of Ernst & Young LLP are expected to attend the annual
meeting 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 Ernst & Young
LLP for professional services rendered for the audit of the consolidated
financial statements of the Company and its subsidiaries for fiscal year 2000,
the reviews of the Company's quarterly financial statements during fiscal year
2000 and audit related services were $145,200.
ALL OTHER FEES
The aggregate fees, including expenses reimbursed, billed by Ernst & Young
LLP for services rendered to the Company and its subsidiaries, other than the
services described above, for fiscal year 2000 were $46,490. The Audit Committee
has considered whether the provision of the non-audit services provided by Ernst
& Young LLP to the Company is compatible with maintaining Ernst & Young LLP's
independence.
STOCKHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
Stockholders intending to present a proposal for consideration at the
Company's next annual meeting may do so by following the procedures prescribed
in Rule 14a-8 under the Securities Exchange Act of 1934 and the
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Company's Certificate of Incorporation. To be eligible for inclusion in the
Company's proxy statement, stockholder proposals must be received by the Company
no later than December 10, 2001. 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 23, 2002, 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 telegraph by regular employees of the
Company.
Winston-Salem, North Carolina
April 9, 2001
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APPENDIX 1
TRIAD GUARANTY INC.
AUDIT COMMITTEE CHARTER
ORGANIZATION
This charter governs the operations of the audit committee. The committee
shall review and reassess the adequacy of the charter at least annually.
The committee shall be appointed by the board of directors and shall
consist of at least three directors, each of whom is independent of management
and the Company. Members of the committee shall be considered independent if
they have no relationship which, in the opinion of the board of directors, would
interfere with the exercise of independent judgment as a director. Subject to
applicable requirements of the National Association of Securities Dealers, Inc.
("NASD"), a director who is not independent as defined under the NASD rules may
be appointed to the Committee if the board of directors determines that such
appointment is in the best interests of the Company and its stockholders. All
committee members shall be financially literate, or shall become financially
literate within a reasonable period of time after appointment to the committee,
and at least one member shall have professional accounting or related financial
management experience which attests to such person's financial sophistication.
STATEMENT OF POLICY
The audit committee shall provide assistance to the board of directors in
fulfilling its oversight responsibility to the Company's stockholders, the
investment community and others relating to:
(1) the Company's financial statements and the financial reporting
process,
(2) the Company's systems of internal accounting and financial
controls
(3) the annual independent audit of the Company's financial
statements, and
(4) legal compliance and ethics programs as may be established by
Company management and the board.
In so doing, it is the responsibility of the committee to maintain free and
open communication between the committee, the independent auditors and
management of the Company. In discharging its oversight role, the committee
shall have full access to all books, records, facilities, and personnel of the
Company and the authority to retain outside counsel or other experts in order to
fully and properly discharge its responsibilities.
SCOPE OF RESPONSIBILITIES AND FUNCTIONS
Management shall be responsible for preparing the Company's financial
statements, and the independent auditors shall be responsible for auditing those
financial statements. The primary responsibility of the audit committee shall be
to oversee the Company's financial reporting process on behalf of the board and
report the results of its activities to the board.
The following shall be the principal functions of the audit committee in
carrying out its oversight responsibilities. These are set forth as a guide,
with the understanding that the committee may supplement them as it deems
appropriate.
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- The committee shall annually review and recommend to the board the
selection of the Company's independent auditors. The committee shall
establish a clear understanding with management and the independent
auditors that the independent auditors are ultimately accountable to the
board and to the audit committee, as representatives of the Company's
stockholders. The board and the committee shall have the ultimate
authority and responsibility to evaluate and, where appropriate, replace
the independent auditors. The committee shall annually discuss with the
auditors their independence from management and the Company and the
matters included in the written disclosures required by the Independent
Standards Board.
- The committee shall discuss with the independent auditors the overall
scope and plans for their audits, including the adequacy of staffing and
compensation. Also, the committee shall discuss with management and the
independent auditors the adequacy and effectiveness of the Company's
accounting and financial controls, including the Company's system to
monitor and manage business risk, and any legal and ethical compliance
programs. Further, the committee shall meet separately with the
independent auditors, with and without management present, to discuss the
results of their examinations.
- The committee shall review and discuss with management and the
independent auditors the Company's interim financial statements prior to
the filing of the Company's Quarterly Report on Form 10-Q. Also, the
committee shall discuss the results of the quarterly review and any other
matters required to be communicated to the committee by the independent
auditors under generally accepted auditing standards. The chair of the
committee may represent the entire committee for purposes of this review.
- The committee shall review and discuss with management and the
independent auditors its recommendation regarding the inclusion of the
annual audited financial statements in the Company's Annual Report on
Form 10-K (or the annual report to stockholders if distributed prior to
the filing of Form 10-K). The committee also shall discuss with the
independent auditors the results of the annual audit and any other
matters required to be communicated to the committee by the independent
auditors under generally accepted auditing standards.
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TRIAD GUARANTY INC.
1993 LONG-TERM STOCK INCENTIVE PLAN
as amended through March 21, 2001
SECTION I
OBJECTIVE
The objective of the Triad Guaranty Inc. 1993 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
shareholders.
SECTION 2
DEFINITIONS
2.1 GENERAL DEFINITIONS. The following words and phrases, when used
herein, shall have the following meanings:
(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.
(b) "AWARD" -- The grant of any Option, Stock Appreciation Right,
share of Restricted Stock, share of Phantom Stock, Other Stock Based Award,
or any combination thereof.
(c) "BOARD" -- The Board of Directors of Triad Guaranty Inc.
(d) "CODE" -- The Internal Revenue Code of 1986, as amended, and
including the regulations promulgated pursuant thereto.
(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 disinterested persons 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.
(f) "COMMON STOCK" -- The present shares of Common Stock of the
Company, and any shares into which such shares are converted, changed or
reclassified.
(g) "COMPANY" -- Triad Guaranty Inc., a Delaware corporation, and its
groups, divisions, and subsidiaries.
(h) "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.
(i) "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 the last preceding trading day on which such Common
Stock was traded.
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(j) "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 Participant's 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.
(k) "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.
(l) "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 Company's Common Stock.
(m) "PARTICIPANT" -- Any Employee designated by the Committee to
participate in the Plan.
(n) "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.
(o) "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.
(p) "RESTRICTED STOCK" -- Shares granted to a Participant which are
subject to restrictions on transferability pursuant to Section 8 of the
Plan.
(q) "SHARES" -- Shares of Common Stock.
(r) "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 the provisions of section 3.3:
(a) the number of Shares which may be issued or sold or for which
Options or Stock Appreciation Rights may be granted under the Plan may not
exceed 2,600,000 Shares; and
(b) the maximum 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 225,000 Shares.
3.2 RE-USAGE. If an Option or SAR expires or is terminated, surrendered,
or canceled without having been fully exercised, or if any other grant (other
than Restricted Stock) results in any Shares not being issued, the Shares
covered by such Option, SAR, or other grant, as the case may be, shall again be
immediately available for Awards under the Plan.
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30
3.3 ADJUSTMENTS. In the event of any change in the outstanding Common
Stock by reason of a stock split, stock dividend, combination, reclassification
or exchange of Shares, recapitalization, merger, consolidation or other similar
event, the number of SARs and the number of Shares available for Options, grants
of Restricted Stock, and Other Stock Based Awards as specified in Section
3.1(a), and the number of Shares subject to outstanding Options, SARs, grants of
Restricted Stock, and Other Stock Based Awards, and the price thereof, the Fair
Market Value and the maximum 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 as specified in Section 3.1(b), as applicable,
shall be appropriately adjusted by the Committee in its sole discretion and any
such adjustment shall be binding and conclusive on all parties. Any fractional
Shares resulting from any such adjustment shall be disregarded.
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 in 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 Committee's 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:
(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;
(b) determine the terms, conditions and provisions of, and
restrictions relating to, each Award granted;
(c) interpret and construe the Plan and all Agreements;
(d) prescribe, amend and rescind rules and regulations relating to the
Plan:
(e) determine the content and form of all Agreements;
(f) determine all questions relating to Awards under the Plan,
including whether any conditions relating to an Award have been met;
(g) maintain accounts, records and ledgers relating to Awards;
(h) maintain records concerning its decisions and proceedings;
(i) employ agents, attorneys, accountants or other persons for such
purposes as the Committee considers necessary or desirable; and
(j) 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.
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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. An Option 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. 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 85
percent of the Fair Market Value at the time the Option is granted (100 percent
in the case of an incentive stock option, or 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).
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 representing the acquired Shares.
6.6 RIGHTS AS A SHAREHOLDER. Until the exercise of an Option and the
issuance of the Share in respect thereof, a Participant shall have no rights as
a Shareholder 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 an SAR shall be made pursuant to a written Agreement
containing such provisions not inconsistent with the Plan as the Committee shall
approve.
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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. Notwithstanding any other provision of
the Plan, the Committee may impose conditions on the exercise of an SAR,
including, without limitation, the right of the Committee to limit the time of
exercise to specified periods, as may be required to satisfy the applicable
provisions of Rule 16b-3 as promulgated under the Securities Exchange Act of
1934, as amended, or any successor rule.
7.3 PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, the Participant shall
be entitled to receive payment of an amount determined by multiplying:
(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
(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 an 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 an SAR may be made in cash, Shares or any combination thereof.
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 Restrict 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 SHAREHOLDER. 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 Shareholder with respect
to those Shares during the period of restriction. Holders of Phantom Stock
rights shall not be deemed Shareholders 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
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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.
SECTION 10
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. No amendment, modification, or
termination of the Plan shall in any manner adversely affect any Award
theretofore granted under the Plan without the consent of the Participant.
SECTION 11
TERMINATION OF EMPLOYMENT
11.1 TERMINATION OF EMPLOYMENT DUE TO RETIREMENT. Unless otherwise
determined by the Committee at the time of grant, in the event a participant's
employment with the Company terminates by reason of retirement after age 65, any
Option or SAR granted to such Participant which is then outstanding may be
exercised at any time prior to the expiration of the term of the Option or SAR
or within three (3) years following the participant's termination of employment,
whichever period is shorter, and any Restricted Stock, Phantom Stock rights, or
other Award then outstanding for which any restriction has not lapsed prior to
the effective date of retirement shall be forfeited.
11.2 TERMINATION OF EMPLOYMENT DUE TO DEATH OR DISABILITY. Unless
otherwise determined by the Committee at the time of grant, in the event a
participant's employment with the Company is terminated by reason of death or
incapacity, any Option or SAR granted to such Participant which is then
outstanding may be exercised by the Participant or the participant's legal
representative at any time prior to the expiration date of the term of the
Option or SAR or within three (3) years following the participant's termination
of employment, whichever period is
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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.
11.3 TERMINATION OF EMPLOYMENT FOR ANY OTHER REASON. Unless otherwise
determined by the Committee at the time of grant, in the event the employment of
the Participant with the Company shall terminate for any reason other than
misconduct or one described in Section 11.1 or 11.2, any 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 (3) months following the Participant's 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. If the employment of a Participant is terminated by
the Company by reason of the Participant's misconduct, any outstanding Option or
SAR shall cease to be exercisable on the date of the participant's termination
of employment; 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 Participant's 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 Participant's employment is
terminated by reason of misconduct.
11.4 ACCRUAL OF RIGHT AT DATE OF TERMINATION. Unless otherwise determined
by the Committee at the time of grant, the participant shall have the right to
exercise an Option or SAR as indicated in Section 11.1, 11.2, and 11.3 only to
the extent the Participant's right to exercise such Option or SAR had accrued at
the date of termination of employment pursuant to the terms of the applicable
Agreement and had not previously been exercised.
SECTION 12
MISCELLANEOUS PROVISIONS
12.1 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 Participant's 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 12.1 shall include transfer of the right set forth in Section 10 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.
12.2 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 Participant's 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.
12.3 TAX WITHHOLDING. The Company shall have the authority to withhold,
or require a participant to remit to the Company, an amount sufficient to
satisfy federal, sate, and local withholding tax requirements on any Award
7
35
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
Participant's estimated total federal, state, and local tax obligation
associated with the transaction.
12.4 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.
12.5 EFFECTIVE DATE. The Plan shall be effective immediately upon such
approval by the Shareholders 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.
12.7 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 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.
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36
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
PROXY
================================================================== 1. Election of Directors,
TRIAD GUARANTY INC. Nominees are:
==================================================================
This Proxy is Solicited on Behalf of the Board of Directors Robert T. David
Raymond H. Elliott For With- For All
This proxy, when properly executed, will be voted in the manner William T. Ratliff, III All* hold Except
directed herein by the undersigned stockholder. If no direction Darryl W. Thompson
is made, this proxy will be voted FOR Proposal 1 and Proposal 2. David W. Whitehurst [ ] [ ] [ ]
This proxy is revocable at any time.
* FOR all listed nominees or a substitute therefor if any
Mark box at right if an address change has been noted on the [ ] nominee is unable or, for good cause, refuses to serve.
reverse side of this card. If you do not wish your shares voted "For" a particular
nominee, mark the "For All Except" box and strike a
CONTROL NUMBER: line through the name(s) of the nominee(s). Your shares
will be voted for the remaining nominee(s).
RECORD DATE SHARES:
2. Approval of the proposal to amend the Company's 1993 Long-
Term Stock Incentive Plan to increase the number of shares
of the Company's Common Stock reserved for issuance
thereunder from 2,100,000 to 2,600,000.
[ ] For [ ] Against [ ] Abstain
In their discretion, the Proxies are authorized to vote
upon such other business as may properly come before the
meeting.
------------------------
Please be sure to date this proxy and Date IMPORTANT: Please sign exactly as your name(s) appear(s)
sign your name exactly as it appears above. to the left. In the case of joint holders, all should
- - -------------------------------------------------------------------- sign. When signing as an attorney, executor,
administrator, trustee, or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by President or other authorized officer.
If a partnership, please sign in partnership name by
- - ---- Stockholder sign here ------------------Co-owner sign here----- authorized person.
DETACH CARD DETACH CARD
TRIAD GUARANTY INC.
101 SOUTH STRATFORD ROAD, SUITE 500
WINSTON-SALEM, NORTH CAROLINA 27104
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.
We appreciate your confidence in us and your cooperation with this solicitation.
Sincerely,
Triad Guaranty Inc.
37
[REVERSE SIDE]
TRIAD GUARANTY INC.
101 SOUTH STRATFORD ROAD
SUITE 500
WINSTON-SALEM, NORTH CAROLINA 27104
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
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 authorizes them to represent
and to vote, as designated on the reverse side, all the shares of Common Stock
of Triad Guaranty Inc. (the "Company") held of record by such holder(s) on April
2,2001 at the Annual Meeting of Stockholders to be held on May 10, 2001, or any
adjournment thereof.
[ PLEASE VOTE, DATE, AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. ]
HAS YOUR ADDRESS CHANGED?
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