SCHEDULE 14-A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
First Federal of Northern Michigan Bancorp, Inc.
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(Name of Registrant as Specified In Its Charter)
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(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), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] 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:
.......................................................................
[ ] 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:
April 10, 2006
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of First
Federal of Northern Michigan Bancorp, Inc. (the "Company"). The Annual Meeting
will be held at the Thunder Bay Recreational Center, 701 Woodward Avenue,
Alpena, Michigan, at 1:00 p.m. (Michigan time) on May 17, 2006.
The enclosed Notice of Annual Meeting and proxy statement describe the formal
business to be transacted. During the Annual Meeting we will also report on the
operations of the Company. Directors and officers of the Company will be present
to respond to any questions that stockholders may have. Also enclosed for your
review is our Annual Report to Stockholders, which contains detailed information
concerning the activities and operating performance of the Company.
The Annual Meeting is being held so that stockholders will be given an
opportunity to elect two directors, approve the First Federal of Northern
Michigan Bancorp, Inc. 2006 Stock-Based Incentive Plan and ratify the
appointment of Plante & Moran, PLLC as independent registered public accountants
for the Company for the year ending December 31, 2006.
For the reasons set forth in the proxy statement, the Board of Directors
unanimously recommends a vote "FOR" the election of directors, "FOR" the
approval of the 2006 Stock-Based Incentive Plan and "FOR" the ratification of
the appointment of Plante & Moran, PLLC as the Company's independent registered
public accountants for the 2006 fiscal year.
On behalf of the Board of Directors, we urge you to sign, date and return the
enclosed proxy card as soon as possible even if you currently plan to attend the
Annual Meeting. Your vote is important, regardless of the number of shares that
you own. Voting by proxy will not prevent you from voting in person, but will
assure that your vote is counted if you are unable to attend the meeting.
Sincerely,
/s/ Martin A. Thomson
Martin A. Thomson
Chief Executive Officer
First Federal of Northern Michigan Bancorp, Inc.
100 South Second Avenue
Alpena, Michigan 49707
(989) 356-9041
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 17, 2006
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of First Federal of Northern Michigan Bancorp, Inc. (the "Company")
will be held at the Thunder Bay Recreational Center, 701 Woodward Avenue,
Alpena, Michigan 49707 on May 17, 2006 at 1:00 p.m., Michigan time.
A proxy statement and proxy card for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The election of two directors of the Company;
2. The approval of the First Federal of Northern Michigan
Bancorp, Inc. 2006 Stock-Based Incentive Plan;
3. The ratification of the appointment of Plante & Moran, PLLC as
the Company's independent registered public accountants for
the year ending December 31, 2006; and
such other matters as may properly come before the Meeting, or any adjournments
thereof. The Board of Directors is not aware of any other business to come
before the Meeting.
Any action may be taken on the foregoing proposals at the Meeting on
the date specified above, or on any date or dates to which the Meeting may be
adjourned. Stockholders of record at the close of business on March 20, 2006 are
the stockholders entitled to vote at the Meeting, and any adjournments thereof.
EACH STOCKHOLDER, WHETHER HE OR SHE PLANS TO ATTEND THE MEETING, IS
REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WITHOUT DELAY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN BY THE STOCKHOLDER MAY BE
REVOKED AT ANY TIME BEFORE IT IS EXERCISED. A PROXY MAY BE REVOKED BY FILING
WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION OR A DULY EXECUTED PROXY
BEARING A LATER DATE. ANY STOCKHOLDER PRESENT AT THE MEETING MAY REVOKE HIS OR
HER PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE MEETING.
HOWEVER, IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN
NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER IN ORDER TO
VOTE PERSONALLY AT THE MEETING.
By Order of the Board of Directors
/s/ Amy E. Essex
Amy E. Essex
Chief Financial Officer and Corporate Secretary
Alpena, Michigan
April 10, 2006
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IMPORTANT: A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO
POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
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PROXY STATEMENT
FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
100 South Second Avenue
Alpena, Michigan 49707
(989) 356-9041
ANNUAL MEETING OF STOCKHOLDERS
MAY 17, 2006
This proxy statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of First Federal of Northern
Michigan Bancorp, Inc. (the "Company") to be used at the Annual Meeting of
Stockholders of the Company (the "Meeting"), which will be held at the Thunder
Bay Recreational Center, 701 Woodward Avenue, Alpena, Michigan on May 17, 2006
at 1:00 p.m., Michigan time, and all adjournments thereof. The accompanying
Notice of Annual Meeting of Stockholders and this proxy statement are first
being mailed to stockholders on or about April 10, 2006.
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REVOCATION OF PROXIES
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Stockholders who execute proxies in the form solicited hereby retain
the right to revoke them in the manner described below. Unless so revoked, the
shares represented by such proxies will be voted at the Meeting and all
adjournments thereof. Proxies solicited on behalf of the Board of Directors of
the Company will be voted in accordance with the directions given thereon. Where
no instructions are indicated, signed proxies will be voted "FOR" the proposals
set forth in this proxy statement for consideration at the Meeting.
A proxy may be revoked at any time prior to its exercise by sending
written notice of revocation to the Secretary of the Company, Amy E. Essex, at
the Company's address shown above, or by filing a duly executed proxy bearing a
later date or by voting in person at the Meeting. The presence at the Meeting of
any stockholder who had given a proxy shall not revoke such proxy unless the
stockholder delivers his or her ballot in person at the Meeting or delivers a
written revocation to the Secretary of the Company prior to the voting of such
proxy.
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VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
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Except as otherwise noted below, holders of record of the Company's
common stock ("common stock") at the close of business on March 20, 2006 (the
"Voting Record Date") are entitled to one vote for each share held. As of the
Voting Record Date, there were 3,120,344 shares of common stock issued and
outstanding. The presence in person or by proxy of at least a majority of the
issued and outstanding shares of common stock entitled to vote is necessary to
constitute a quorum at the Meeting.
In accordance with the provisions of the Articles of Incorporation of
the Company, record holders of common stock who beneficially own in excess of
10% of the outstanding shares of common stock (the "Limit") are not entitled to
any vote with respect to the shares held in excess of the Limit. The Company's
Articles of Incorporation authorize the Board of Directors (i) to make all
determinations necessary to implement and apply the Limit, including determining
whether persons or entities are acting in concert, and (ii) to demand that any
person who is reasonably believed to beneficially own stock in excess of the
Limit supply information to the Company to enable the Board of Directors to
implement and apply the Limit.
Persons and groups who beneficially own in excess of five percent of
the Company's common stock are required to file certain reports with the
Securities and Exchange Commission (the "SEC") regarding such ownership pursuant
to the Exchange Act.
The following table sets forth the beneficial ownership of our common
stock held by our directors and executive officers, individually and as a group,
and all individuals known to management to own more than 5% of our common stock
as of the Voting Record Date. The business address of each director and
executive officer and of the First Federal of Northern Michigan Employee Stock
Ownership Plan is 100 South Second Avenue, Alpena, Michigan 49707.
Number of Shares of
Common Stock Percent of All Common
Name of Beneficial Owner Beneficially Owned (1) Stock Outstanding
----------------------------------------------------------------- --------------------- ---------------------
James C. Rapin 35,456 1.1%
Martin A. Thomson 59,312 1.9
Thomas R. Townsend 9,111 *
Gary C. VanMassenhove 5,308 *
Keith D. Wallace 32,243 1.0
Michael W. Mahler 3,243 *
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All directors and executive officers as a group (8 persons) 156,822 5.0%
First Federal of Northern Michigan Employee Stock Ownership Plan 180,491 5.8%
Financial & Investment Management Group, Ltd.
417 St. Joseph Street
P.O. Box 40
Suttons Bay, Michigan 49682 (2)(3) 222,396 7.1%
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* Less than 1%.
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to
be the beneficial owner for purposes of this table of any shares of common
stock if he has sole or shared voting or investment power with respect to
such security, or has a right to acquire beneficial ownership at any time
within 60 days from the date as of which beneficial ownership is being
determined. As used herein, "voting power" is the power to vote or direct
the voting of shares and "investment power" is the power to dispose or
direct the disposition of shares.
(2) Although not reflected in the Schedule 13G, share amount reflects a
1.8477-for-1 stock split effective as of the close of business on April 1,
2005 in connection with the closing of the mutual-to-stock conversion of
Alpena Bancshares, M.H.C.
(3) Based on a Schedule 13G filed with the Securities and Exchange Commission
on February 15, 2002.
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VOTING PROCEDURES AND METHOD OF COUNTING VOTES
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As to the election of directors, the proxy card provided by the Board
of Directors enables a stockholder to vote "FOR" the election of the two
nominees proposed by the Board of Directors or to "WITHHOLD AUTHORITY" to vote
for the nominees being proposed. Under Maryland law and the Company's Articles
of Incorporation and Bylaws, directors are elected by a plurality of the shares
voted at the Meeting without regard to either broker non-votes or proxies as to
which the authority to vote for the nominee is withheld.
As to the approval of the First Federal of Northern Michigan Bancorp,
Inc. 2006 Stock-Based Incentive Plan (the "Incentive Plan"), by checking the
appropriate box, a stockholder may: (i) vote FOR the approval of the Incentive
Plan; (ii) vote AGAINST the approval of the Incentive Plan; or (iii) ABSTAIN
from voting on the approval of the Incentive Plan. The approval of this matter
requires the affirmative vote of a majority of the shares voted at the Meeting
without regard to broker non-votes or proxies marked abstain.
As to the ratification of Plante & Moran, PLLC as independent
registered public accountants of the Company, by checking the appropriate box a
stockholder may vote "FOR" the item, vote "AGAINST" the item or "ABSTAIN" from
voting on the item. The ratification of independent registered public
accountants must be approved by a majority of the shares voted at the Meeting
without regard to broker non-votes or proxies marked abstain.
In the event at the time of the Meeting there are not sufficient votes
for a quorum or to approve or ratify any matter being presented, the Meeting may
be adjourned in order to permit the further solicitation of proxies.
Proxies solicited hereby will be returned to the Company and will be
tabulated by the Internal Auditor of First Federal of Northern Michigan, the
inspector of election designated by the Board of Directors of the Company.
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PROPOSAL I--ELECTION OF DIRECTORS
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The Company's Board of Directors is currently composed of five persons,
and is divided into three classes with one class of directors elected each year.
Directors are generally elected to serve for a three year period or until their
respective successors shall have been elected and shall qualify. Two directors
will be elected at the Meeting. The Nominating Committee of the Board of
Directors has nominated Gary C. VanMassenhove and Thomas R. Townsend for
three-year terms, each of whom has agreed to serve if elected.
The table below sets forth certain information, as of the Voting Record
Date, regarding the Board of Directors and executive officers. It is intended
that the proxies solicited on behalf of the Board of Directors (other than
proxies in which the vote is withheld as to one or more nominees) will be voted
at the Meeting for the election of the nominees identified below. If any nominee
is unable to serve, the shares represented by all such proxies will be voted for
the election of such substitute as the Board of Directors may recommend. At this
time, the Board of Directors knows of no reason why any of the nominees might be
unable to serve, if elected. There are no arrangements or understandings between
any nominee and any other person pursuant to which such nominee was selected.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" EACH OF
THE NOMINEES LISTED IN THIS PROXY STATEMENT.
Director Term
Name Age Positions Held Since Expires
---------------------------- --- --------------------------------------------------- -------- ---------
NOMINEES
Gary C. VanMassenhove 59 Director 2001 2006
Thomas R. Townsend 54 Director 2002 2006
DIRECTORS
Keith D. Wallace 64 Director 1988 2007
James C. Rapin 65 Chairman of the Board 1985 2008
Martin A. Thomson 57 Chief Executive Officer and Director 1986 2008
EXECUTIVE OFFICERS
Michael W. Mahler 42 President and Chief Operating Officer N/A N/A
Amy E. Essex 42 Chief Financial Officer, Treasurer and Corporate N/A N/A
Secretary
Jerome W. Tracey 46 Executive Vice President, Chief Lending Officer N/A N/A
Set forth below is biographical information regarding directors and
executive officers of the Company and First Federal of Northern Michigan (the
"Bank"). References to the Company include its predecessor, Alpena Bancshares,
Inc.
Directors
James C. Rapin was elected as the Chairman of the Board of Directors of
the Company and the Bank in March 2002. He has been a director of the Bank since
1985, and a director of the Company since its formation in November 2000, and
had been Vice Chairman of the Board since April 2001. Mr. Rapin retired as a
pharmacist with LeFave Pharmacy, Alpena, Michigan in 2004.
Martin A. Thomson is Chief Executive Officer of the Company and the
Bank. He was named Acting President and Chief Executive Officer of the Company
and the Bank in May 2001 and later named President and Chief Executive Officer
in October 2001. Mr. Thomson previously held the position of President and Chief
Executive Officer of Presque Isle Electric and Gas Cooperative, Inc., Onaway,
Michigan. Mr. Thomson has been a director of the Bank since 1986, and a director
of the Company since its formation in November 2000.
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Thomas R. Townsend is the President of R.A. Townsend Co., a plumbing,
heating and air conditioning distributor located in Alpena, Michigan, where he
has been employed for the past 29 years. Mr. Townsend has been a director of the
Company and the Bank since April 2002.
Gary C. VanMassenhove is a partner in VanMassenhove, Kearly, Taphouse &
Faulman, CPAs. Mr. VanMassenhove has been a Certified Public Accountant for 34
years. He has been a director of the Company and the Bank since September 2001.
Keith D. Wallace is the senior partner of the law firm of Isackson and
Wallace, P.C., located in Alpena, Michigan and local counsel to the Company and
the Bank. Mr. Wallace has been a practicing attorney for 38 years. He has been a
director of the Bank since 1988, and a director of the Company since its
formation in November 2000.
Michael W. Mahler was appointed President and Chief Operating Officer
of the Company and the Bank in January 2006. Prior to this appointment, Mr.
Mahler was Executive Vice President since November 2004. Prior to this
appointment, since November 2002, Mr. Mahler was the Company's Chief Financial
Officer. From September 2000 until November 2002, Mr. Mahler was Corporate
Controller at Besser Company, Alpena, Michigan, an international producer of
concrete products equipment. From 1990 until 2000, Mr. Mahler was employed at
LTV Steel Company, East Chicago, Indiana where he served in financial roles of
increasing responsibility and served, from 1997 until 2000, as Controller for a
northeast Michigan division.
Amy E. Essex was appointed Chief Financial Officer, Treasurer and
Corporate Secretary of the Company and the Bank in January 2006. Prior to this
appointment, Ms. Essex was Chief Financial Officer since November 2004. From
March 2003 until November 2004, Ms. Essex was the Internal Auditor and
Compliance Officer for the Company. Prior to March 2003, Ms. Essex spent eight
years as the Director of Tax and Risk for Besser Company, Alpena, Michigan, an
international producer of concrete products equipment. Ms. Essex is a certified
public accountant.
Jerome W. Tracey was appointed Executive Vice President and Chief
Lending Officer of the Company and the Bank in January 2006. Prior to this
appointment, Mr. Tracey was Senior Vice President, Senior Lender of the Company
and the Bank since September 2001, after joining the Bank in November 1999 to
serve as Vice President of Commercial Services. Prior to joining the Bank, Mr.
Tracey served as Vice President of Commercial Lending for National City Bank,
Alpena, Michigan, a position he held since 1996. Mr. Tracey has been in the
banking profession since 1981.
Board Independence
The Board of Directors has determined that, except for Mr. Thomson,
each member of the Board is an "independent director" within the meaning of the
Nasdaq corporate governance listing standards. Mr. Thomson is not considered
independent because he is an executive officer of the Company. Mr. Wallace is
not considered independent under Securities Exchange Act Rule 10A-3 for purposes
of Audit Committee membership because Mr. Wallace is the senior partner of
Isackson and Wallace, P.C., a law firm that performs legal work for the Company.
Meetings and Committees of the Board of Directors
General. The business of the Company's Board is conducted at regular
and special meetings of the full Board and its standing committees. The standing
committees include the Executive, Audit, Nominating and Compensation Committees.
During the year ended December 31, 2005, the Board of Directors of the Company
held 12 regular meetings and two special meetings. No member of the Board or any
committee thereof attended fewer than 75% of said meetings. Executive sessions
of the independent directors are held on a regularly scheduled basis. While the
Company has no formal policy on director attendance at annual meetings of
stockholders, directors are encouraged to attend. All directors attended the
last Annual Meeting of Stockholders held on May 25, 2005.
Executive Committee. The Executive Committee is authorized to act with
the same authority as the Board of Directors between meetings of the Board, and
is comprised of the full Board. The Executive Committee met 12 times during
2005.
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Compensation Committee. The Compensation Committee meets periodically
to review the performance of officers and to determine compensation of officers
to be recommended to the Board. It is comprised of Messrs. Rapin, Townsend,
VanMassenhove and Wallace. The Compensation Committee met three times in 2005.
Nominating Committee. The Nominating Committee, which consists of
Directors Rapin, Townsend, VanMassenhove and Wallace, nominates individuals for
election as directors. Each member of the Nominating Committee is considered
"independent" as defined in the Nasdaq corporate governance listing standards.
The Company's Board of Directors has adopted a written charter for the
Nominating Committee, which is available at the Company's website at
www.first-federal.com. The Committee met one time during 2005.
The functions of the Nominating Committee include the following:
o to lead the search for individuals qualified to become members of
the Board and to select director nominees to be presented for
stockholder approval;
o to review and monitor compliance with the requirements for Board
independence;
o to review the committee structure and make recommendations to the
Board regarding committee membership;
o to develop and recommend to the Board for its approval a set of
corporate governance guidelines; and
o to develop and recommend to the Board for its approval a
self-evaluation process for the Board and its committees.
The Nominating Committee identifies nominees by first evaluating the
current members of the Board of Directors willing to continue in service.
Current members of the Board with skills and experience that are relevant to the
Company's business and who are willing to continue in service are first
considered for re-nomination, balancing the value of continuity of service by
existing members of the Board with that of obtaining a new perspective. If any
member of the Board does not wish to continue in service, or if the Committee or
the Board decides not to re-nominate a member for re-election, or if the size of
the Board is increased, the Committee would solicit suggestions for director
candidates from all Board members. In addition, the Committee is authorized by
its charter to engage a third party to assist in the identification of director
nominees. The Nominating Committee would seek to identify a candidate who at a
minimum satisfies the following criteria:
o has the highest personal and professional ethics and integrity and
whose values are compatible with the Company's;
o has had experiences and achievements that have given him or her the
ability to exercise and develop good business judgment;
o is willing to devote the necessary time to the work of the Board and
its committees, which includes being available for Board and
committee meetings;
o is familiar with the communities in which the Company and the Bank
operate and/or is actively engaged in community activities;
o is involved in other activities or interests that do not create a
conflict with his or her responsibilities to the Company and its
stockholders; and
o has the capacity and desire to represent the balanced, best
interests of the stockholders of the Company as a group, and not
primarily a special interest group or constituency.
In addition, the Nominating Committee will determine whether a
candidate satisfies the qualifications requirements of the Company's Bylaws,
which require any person appointed or elected to the Board of Directors to
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reside or work in a county in which the Bank maintains an office (at the time of
appointment or election) or in a county contiguous to a county in which the Bank
maintains an office.
Finally, the Nominating Committee will take into account whether a
candidate satisfies the criteria for "independence" under the Nasdaq corporate
governance listing standards, and if a nominee is sought for service on the
audit committee, the financial and accounting expertise of a candidate,
including whether the individual qualifies as independent for audit committee
standards under the federal securities rules and as an audit committee financial
expert.
Procedures for the Nomination of Directors by Stockholders. The
Nominating Committee has adopted procedures for the submission of director
nominees by stockholders. If a determination is made that an additional
candidate is needed for the Board, the Nominating Committee will consider
candidates submitted by the Company's stockholders. Stockholders can submit
qualified names of candidates for director by writing to our Corporate Secretary
at 100 South Second Avenue, Alpena, Michigan 49707. The Corporate Secretary must
receive a submission not less than ninety (90) days prior to the anniversary
date of the Company's proxy materials for the preceding year's annual meeting
for a candidate to be considered for next year's annual meeting of stockholders.
The submission must include the following information:
o a statement that the writer is a stockholder and is proposing a
candidate for consideration by the Nominating Committee;
o the qualifications of the candidate and why the candidate is being
proposed;
o the name and address of the stockholder as they appear on the
Company's books, and number of shares of the Company's common stock
that are owned beneficially by such stockholder (if the stockholder
is not a holder of record, appropriate evidence of the stockholder's
ownership will be required);
o the name, address and contact information for the candidate, and the
number of shares of common stock of the Company that are owned by
the candidate (if the candidate is not a holder of record,
appropriate evidence of the stockholder's ownership will be
required);
o a statement of the candidate's business and educational experience;
o such other information regarding the candidate as would be required
to be included in the proxy statement pursuant to SEC Rule 14A;
o a statement detailing any relationship between the candidate and the
Company;
o a statement detailing any relationship between the candidate and any
customer, supplier or competitor of the Company;
o detailed information about any relationship or understanding between
the proposing stockholder and the candidate; and
o a statement that the candidate is willing to be considered and
willing to serve as a director if nominated and elected.
Submissions that are received and that meet the criteria outlined above
are forwarded to the Chairman of the Nominating Committee for further review and
consideration. A nomination submitted by a stockholder for presentation by the
stockholder at an annual meeting of stockholders must comply with the procedural
and informational requirements described in this proxy statement under the
heading "Stockholder Proposals." No submissions for Board nominees were received
by the Company for the Meeting.
Stockholder Communications with the Board. A stockholder of the Company
who wishes to communicate with the Board or with any individual director may
write to the Corporate Secretary of the Company, 100 South Second Avenue,
Alpena, Michigan 49707, Attention: Board Administration. The letter should
indicate
6
that the author is a stockholder and if shares are not held of record, should
include appropriate evidence of stock ownership. Depending on the subject
matter, management will:
o forward the communication to the director or directors to whom it is
addressed;
o attempt to handle the inquiry directly, for example where it is a
request for information about the Company or a stock-related matter;
or
o not forward the communication if it is primarily commercial in
nature, relates to an improper or irrelevant topic, or is unduly
hostile, threatening, illegal or otherwise inappropriate.
At each Board meeting, management will present a summary of all
communications received since the last meeting that were not forwarded and make
those communications available to the directors.
The Audit Committee. The Audit Committee reviews our records and
affairs to determine our financial condition, reviews with management and the
independent auditors the systems of internal control, and monitors adherence in
accounting and financial reporting to accounting principles generally accepted
in the United States of America. The Audit Committee consists of Directors
Rapin, Townsend and VanMassenhove. Each member of the Audit Committee is
considered "independent" as defined in the Nasdaq corporate governance listing
standards and under SEC Rule 10A-3. The Board of Directors has determined that
Gary C. VanMassenhove, a certified public accountant, qualifies as an "audit
committee financial expert" as that term is defined by the rules and regulations
of the SEC. The Audit Committee met four times during the year ended December
31, 2005. The Audit Committee reports to the Board on its activities and
findings. The duties and responsibilities of the Audit Committee include, among
other things:
o retaining, overseeing and evaluating a firm of independent certified
public accountants to audit the Company's annual financial
statements;
o in consultation with the independent registered public accountants
and the internal auditor, reviewing the integrity of the Company's
financial reporting processes, both internal and external;
o approving the scope of the audit in advance;
o reviewing the financial statements and the audit report with
management and the independent registered public accountants;
o considering whether the provision by the external independent
registered public accountants of services not related to the annual
audit and quarterly reviews is consistent with maintaining the
independent registered public accounting firm's independence;
o reviewing earnings and financial releases and quarterly reports
filed with the SEC;
o consulting with the internal audit staff and reviewing management's
administration of the system of internal accounting controls;
o approving all engagements for audit and non-audit services by the
independent registered public accountants; and
o reviewing the adequacy of the audit committee charter.
Audit Committee Report
The Audit Committee operates under a written charter adopted by the
Board of Directors which is available on the Company's website at
www.first-federal.com.
7
Management has the primary responsibility for the Company's internal
controls and financial reporting processes. The independent registered public
accountants are responsible for performing an independent audit of the Company's
consolidated financial statements in accordance with auditing standards
generally accepted in the United States and issuing a report thereon. The Audit
Committee's responsibility is to monitor and oversee these processes.
As part of its ongoing activities, the Audit Committee has:
o reviewed and discussed with management, and the independent
registered public accountants, the Company's audited consolidated
financial statements for the year ended December 31, 2005;
o discussed with the independent registered public accountants the
matters required to be discussed by Statement on Auditing Standards
No. 61, Communications with Audit Committees, as amended; and
o received the written disclosures and the letter from the independent
registered public accountants required by Independence Standards
Board Standard No. 1, Independence Discussions with Audit
Committees, and has discussed with the independent registered public
accountants their independence from the Company.
Based on the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited consolidated
financial statements be included in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 2005 and be filed with the SEC. In addition, the
Audit Committee engaged Plante & Moran, PLLC as the Company's independent
registered public accountants for the year ending December 31, 2006, subject to
the ratification of this appointment by the stockholders of the Company.
This report shall not be deemed incorporated by reference by any
general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933, as amended, or the Exchange Act, except
to the extent that the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.
The Audit Committee
James C. Rapin (Chairman)
Gary C. VanMassenhove
Thomas R. Townsend
Code of Ethics
The Company has adopted a Code of Ethics that is applicable to the
officers and employees of the Company, including its principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions. The Code of Ethics is
available on the Company's website at www.first-federal.com. Amendments to and
waivers from the Code of Ethics will also be disclosed on the Company's website.
There were no such amendments or waivers in 2005.
Directors' Compensation
Directors' Fees. Directors of the Company are not compensated for
service on the Company's Board of Directors or Board committees.
In 2005, each director of the Bank received a $700 monthly meeting fee,
payable only if the director attended the meeting. Each director is paid for one
excused absence. The Chairman of the Board received $850 for each regular
meeting attended, and each director received $300 for each special Board meeting
attended.
In addition to the foregoing, during 2005, Messrs. Rapin, Thomson,
Wallace, VanMassenhove and Townsend received $4,400, $3,300, $3,300, $4,400 and
$4,400, respectively, for their services as members of the Bank's Executive and
Audit Committees.
8
First Federal of Northern Michigan paid a total of $70,600 in director
and committee fees to members of the Board of Directors during the year ended
December 31, 2005.
Executive Compensation
The following table sets forth for the years ended December 31, 2005,
2004 and 2003, certain information as to the total remuneration paid by the Bank
and the Company to the Chief Executive Officer of the Company and the other
named executive officers (the "Named Executive Officers"). No other executive
officer of the Company or the Bank received total annual compensation in excess
of $100,000 during the year ended December 31, 2005.
===============================================================================================================================
SUMMARY COMPENSATION TABLE
===============================================================================================================================
Long-Term
Annual Compensation Compensation Awards
-------------------------------------------------------------------------------------------------------------------------------
Other Restricted
Years Annual Stock Options/ All Other
Name and Ended Salary Bonus Compensation Award(s) SARs Compensation
Principal Position December 31, ($) (1) ($) ($) (2) ($) (#) Payouts ($) (3)
-------------------------------------------------------------------------------------------------------------------------------
Martin A. Thomson 2005 $150,020 $ -- $ 12,400 $ -- -- $ -- $ 5,801
Chief Executive Officer 2004 142,358 36,876 13,900 -- -- -- 4,554
2003 131,722 35,067 11,600 -- -- -- 4,446
-------------------------------------------------------------------------------------------------------------------------------
Michael W. Mahler 2005 $102,895 $ -- $ 300 $ -- -- $ -- $ 7,737
President and Chief 2004 98,196 18,538 200 -- -- -- 3,545
Operating Officer 2003 80,600 1,786 200 -- -- -- 3,118
===============================================================================================================================
(1) Amounts shown are gross earnings.
(2) For Mr. Thomson, includes fees for services on the Board of Directors and
Board Committees of the Company and the Bank. The Bank also provides the
Chief Executive Officer with the use of an automobile, insurance and other
personal benefits that are not included in the Summary Compensation Table
because such benefits do not exceed $50,000 or 10% of the officer's cash
compensation for the year ended December 31, 2005.
(3) Includes a contribution to the 401(k) plan, and director fees for service
on the Board of the subsidiaries, Financial Services & Mortgage Corporation
and InsuranCenter of Alpena. For Mr. Mahler, includes fees for service on
the board of First Federal Community Foundation.
Benefit Plans
Defined Benefit Plan. The Bank maintains a noncontributory defined
benefit plan (the "Retirement Plan"). All employees age 21 or older, who have
worked at the Bank for a period of one year and have been credited with 1,000 or
more hours of employment with the Bank during the year, are eligible to accrue
benefits under the Retirement Plan. The Bank annually contributes an amount to
the Retirement Plan necessary to satisfy the actuarially determined minimum
funding requirements in accordance with the Employment Retirement Income
Security Act of 1974, as amended ("ERISA").
At the normal retirement age of 65, the Retirement Plan is designed to
provide a life annuity. The retirement benefit provided is an amount equal to
2.5% of a participant's average salary based on the average of the five
consecutive years during the participant's years of employment which provide the
highest average annual salary multiplied by the participant's years of credited
service to the normal retirement date. Retirement benefits are also payable upon
retirement due to early and late retirement. Benefits are also paid from the
Retirement Plan upon a participant's disability or death. A reduced benefit is
payable upon early retirement at or after age 55. Upon termination of employment
other than as specified above, a participant who was employed by the Bank for a
minimum of five years is eligible to receive his or her accrued benefit reduced
for early retirement or a deferred retirement benefit commencing on such
participant's normal retirement date. Benefits are payable in various annuity
forms as well as in the form of a single lump sum payment. For the year ended
December 31, 2005, the Bank made contributions to the Retirement Plan of
$236,284.
In 2004, the Board amended the Retirement Plan and set a 20-year
limitation as the maximum number of employment years an employee is entitled to
under the Retirement Plan. On April 19, 2005, the Board froze the Retirement
Plan as to current participants and excluded from the Retirement Plan new
employees hired after July 1, 2004.
The following table indicates the annual retirement benefit that would
be payable under the Retirement Plan upon retirement at age 65 in plan year
2005, expressed in the form of a single life annuity for the final average
9
salary and benefit service classification specified below. As of December 31,
2005, Messrs. Thomson and Mahler had five years and three years credited service
(i.e., benefit service) with the Bank, respectively.
====================================================================
High 5-Year
Average Salary 10 15 20
--------------------------------------------------------------------
$15,000 $3,750 $5,625 $7,500
--------------------------------------------------------------------
$25,000 $6,250 $9,375 $12,500
--------------------------------------------------------------------
$50,000 $12,500 $18,750 $25,000
--------------------------------------------------------------------
$100,000 $25,000 $37,500 $50,000
--------------------------------------------------------------------
$150,000 $37,500 $56,250 $75,000
====================================================================
Employee Stock Ownership Plan and Trust. The Bank established an
employee stock ownership plan ("ESOP") and related trust for eligible employees
in connection with its initial mutual holding company reorganization and stock
offering in 1994. The ESOP borrowed funds from an unrelated third party lender
and used the funds to purchase 48,000 shares of the common stock issued in the
Bank's stock offering (all of which have been allocated to ESOP participants).
The loan was repaid principally from the Bank's contributions to the ESOP and
was fully paid during 1999. The ESOP purchased an additional 138,709 shares of
the Company's common stock in the Company's offering that was completed on April
1, 2005. The ESOP obtained a loan from the Company to purchase these shares. The
ESOP loan amortizes over a 15-year period, but the ESOP is entitled to pay off
the loan at any time without incurring a penalty. Collateral for the loan is the
common stock purchased by the ESOP.
The ESOP is a tax-qualified plan subject to the requirements of ERISA
and the Internal Revenue Code of 1986 (the "Code"). Employees with a 12-month
period of employment with the Bank during which they worked at least 1,000 hours
and who have attained age 21 are eligible to participate.
Contributions to the ESOP and shares released from the suspense account
in an amount proportional to the repayment of the ESOP loan are allocated among
participants on the basis of compensation in the year of allocation, up to an
annual adjusted maximum level of compensation. Benefits generally become 100%
vested after five years of credited service. Forfeitures will be reallocated
among remaining participating employees in the same proportion as contributions.
Benefits are payable upon death, retirement, early retirement, disability or
separation from service. The Bank's contributions to the ESOP are not fixed, so
benefits payable under the ESOP cannot be estimated.
The Bank's Board of Directors administers the ESOP. The Bank has
appointed First Bankers Trust Company, Quincy, Illinois to serve as trustee of
the ESOP. The ESOP Committee may instruct the trustee regarding investment of
funds contributed to the ESOP. The ESOP trustee, subject to its fiduciary duty,
must vote all allocated shares held in the ESOP in accordance with the
instructions of participating employees. Under the ESOP, nondirected shares will
be voted in a manner calculated to most accurately reflect the instructions it
has received from participants regarding the allocated stock so long as such
vote is in accordance with the provisions of ERISA. At December 31, 2005, there
were 118,694 unallocated shares held in the ESOP.
401(k) Plan. The Bank maintains a 401(k) Plan for Bank employees. The
Plan is tax qualified and permits participants to elect to defer up to 50% of
the participant's eligible annual compensation into the Plan. Until 2004, the
Bank made matching contributions of 50% of the participant's contribution, with
the match being up to 3% of the participant's eligible annual compensation for
the year. In July 2005, at the time the Company froze the Defined Benefit Plan,
as described above, the Company modified the matching schedule to be 100% on the
first 2% of contributions and 50% on the next 2% of contributions. The vesting
schedule for matching contributions is 20% per year of service over a five-year
period. Forfeitures of discretionary contributions are used to reduce the Bank's
contributions in succeeding plan years. In connection with the Company's 2005
stock offering, the 401(k) Plan was amended to permit participants to direct the
investment of their 401(k) Plan account balances. Participants are permitted to
invest their account balances in shares of the Company's common stock through an
employer stock fund that has been established in the Plan.
Stock Option Plan. Certain employees and non-employee directors of the
Bank and the Company are eligible to participate in the Bank's 1996 Stock Option
Plan (the "Stock Option Plan"). The Stock Option Plan authorizes the grant of
stock options and limited rights to purchase 69,000 shares, or 10% of the shares
of common stock issued to minority stockholders in the 1994 initial public
offering by the Bank. Upon the closing of the Company's 2005 stock offering, the
shares of common stock subject to the Stock Option Plan were adjusted
10
pursuant to the exchange ratio and became the shares of the Company's common
stock. Pursuant to the Stock Option Plan, grants may be made of (i) options to
purchase common stock intended to qualify as incentive stock options under
Section 422 of the Code, (ii) options that do not so qualify ("non-statutory
options") and (iii) limited rights (described below) that are exercisable only
upon a change in control of the Bank or the Company. Non-employee directors are
only eligible to receive non-statutory options.
The Stock Option Plan is administered by a committee consisting of
certain non-employee directors of the Board of Directors (the "Committee"). In
granting options, the Committee considers factors such as salary, length of
employment with the Bank, and the employee's overall performance. All stock
options are exercisable in five equal annual installments of 20% commencing one
year from the date of grant; provided, however, that all options will be 100%
exercisable in the event the optionee terminates his service due to normal
retirement, death or disability, or in the event of a change in control of the
Company or the Bank. Options may be exercised within 10 years from the date of
grant. Stock options may be exercised up to one year following termination of
service or such later period as determined by the Committee. The exercise price
of the options will be at least 100% of the fair market value of the underlying
common stock at the time of the grant. The exercise price may be paid in cash or
common stock.
Incentive stock options will only be granted to employees of the Bank
and/or the Company. Non-employee directors will be granted non-statutory stock
options. No incentive stock option granted in connection with the Stock Option
Plan may be exercisable more than three months after the date on which the
optionee ceases to perform services for the Bank and/or the Company, except that
in the event of death, disability, normal retirement, or a change in control of
the Bank or the Company, incentive stock options may be exercisable for up to
one year; provided, however, that if an optionee ceases to perform services for
the Bank or the Company due to retirement or following a change in control (as
defined in the Stock Option Plan), any incentive stock options exercised more
than three months following the date the optionee ceases to perform services
shall be treated as a non-statutory stock option as described above.
Upon the exercise of "limited rights" in the event of a change in
control, the optionee will be entitled to receive a lump sum cash payment, or in
certain cases, common stock, equal to the difference between the exercise price
of the option and the fair market value of the shares of common stock subject to
the option on the date of exercise of the right in lieu of purchasing the stock
underlying the option. In the event of death or disability, the Bank and/or the
Company, if requested by the optionee or beneficiary, may elect, in exchange for
the option, to pay the optionee, or beneficiary in the event of death, the
amount by which the fair market value of the common stock exceeds the exercise
price of the option on the date of the optionee's termination of service for
death or disability.
Pursuant to the Stock Option Plan, non-employee directors at the
inception of the Plan on April 17, 1996, Messrs. Rapin, Thomson, and Wallace,
were each granted options to purchase 6,037 shares of common stock. These
options were granted at an exercise price of $10.00 per share and have all been
vested. The number of options and the exercise price of the options were
converted pursuant to the 1.8477-for-1 stock split effective as of the close of
business on April 1, 2005 in connection with the closing of the mutual-to-stock
conversion of Alpena Bancshares, M.H.C. Messrs. VanMassenhove and Townsend, who
were appointed to the Board of Directors in September 2001 and April 2002,
respectively, have not been awarded options under the Plan. No stock options
were granted under the Stock Option Plan during the year ended December 31,
2005.
11
Set forth below is certain information concerning options outstanding
to the Named Executive Officers at December 31, 2005.
=================================================================================================================
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
=================================================================================================================
Number of Unexercised Value of Unexercised In-
Options at The-Money Options at
Year-End Year-End
-----------------------------------------------------------------------------------------------------------------
Shares
Acquired
upon Value Exercisable/Unexercisable Exercisable/Unexercisable
Name Exercise Realized (#) ($)
=================================================================================================================
Martin A. Thomson 11,155 $46,010 1,109/739 $1,453 / $968
-----------------------------------------------------------------------------------------------------------------
Michael W. Mahler -- -- --/-- --/--
=================================================================================================================
Recognition and Retention Plan. Certain employees and non-employee
directors of the Bank and the Company are eligible to participate in the Bank's
Recognition and Retention Plan, which was adopted in 1996 (the "Recognition
Plan"). A Committee of the Board of Directors composed of "disinterested"
directors (the "Recognition Plan Committee") administers the Recognition Plan
and makes awards to executive officers and employees. Participants in the
Recognition Plan earn (become vested in) shares of Restricted Stock covered by
an award and all restrictions lapse over a period of time commencing from the
date of the award; provided, however, that the Recognition Plan Committee may
accelerate or extend the earnings rate on any awards made to officers and
employees under the Recognition Plan. Awards to non-employee directors vest at
the rate of 20% of the amount initially awarded commencing one year from the
date of the award. Awards to executive officers and employees become fully
vested upon termination of employment or service due to death, disability or
normal retirement or following a termination of employment or service in
connection with a change in the control of the Bank or the Company. Upon
termination of employment or service for another reason, unvested shares are
forfeited. At the inception of the Recognition and Retention Plan in 1996,
non-employee directors Rapin, Thomson, and Wallace were each granted 2,415
shares of common stock, which shares have been earned and issued. Messrs.
VanMassenhove and Townsend, who were appointed to the Board of Directors in
September 2001 and April 2002, respectively, have not been awarded any shares
under the Recognition and Retention Plan. Awards to non-employee directors fully
vest upon a non-employee director's disability, death, normal retirement, or
following termination of service in connection with a change in control of the
Bank or the Company. Unvested shares of Restricted Stock will be forfeited by a
non-employee director upon failure to seek reelection, failure to be reelected,
or resignation from the Board (other than in connection with normal retirement,
as defined by the Recognition Plan).
Set forth below is information as of December 31, 2005 regarding equity
compensation plans categorized by those plans that have been approved by
stockholders and those plans that have not been approved by stockholders.
-------------------------------------------------------------------------------------------------------------------
Plan Number of securities to be Weighted average Number of securities
issued upon exercise of remaining available for
outstanding options and rights exercise price issuance under plan
-------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by stockholders 24,642 $5.80 40,112 (1)
-------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by stockholders -- -- --
-------------------------------------------------------------------------------------------------------------------
Total 24,642 $5.80 40,112
-------------------------------------------------------------------------------------------------------------------
(1) Consists of 78 shares available for future issuance pursuant to the 1996
Recognition and Retention Plan and 40,034 shares underlying options
available for future issuance pursuant to the 1996 Stock Option Plan.
Change in Control Agreements. The Bank has entered into change in
control agreements with Martin A. Thomson, Chief Executive Officer, and Michael
W. Mahler, President and Chief Operating Officer, which provide certain benefits
in the event of a change in control of the Bank or the Company. Each of the
change in control agreements provides for a term of up to 36 months. Commencing
on each anniversary date, the Board of Directors may extend the change in
control agreements for an additional year. The change in control agreements
enable the Bank to offer to designated officers certain protections against
termination without cause in the event of a change in
12
control (as defined in the agreements). These protections against termination
without cause in the event of a change in control are frequently offered by
other financial institutions, and the Bank may be at a competitive disadvantage
in attracting and retaining key employees if it does not offer similar
protections.
Following a change in control of the Company or the Bank, an officer is
entitled to a payment under the change in control agreement if the officer's
employment is involuntarily terminated during the term of such agreement, other
than for cause, as defined, death or disability. Involuntary termination
includes the officer's termination of employment during the term of the
agreement and following a change in control as the result of a demotion, loss of
title, office or significant authority, reduction in the officer's annual
compensation or benefits, or relocation of the officer's principal place of
employment by more than 25 miles from its location immediately prior to the
change in control. In addition, for the first 12 months following a change in
control, if the Bank (or its successor) fails to renew the change in control
agreement, the executive can voluntarily resign and receive the severance
payment. In the event that an officer who is a party to a change in control
agreement is entitled to receive payments pursuant to the change in control
agreement, the officer will receive a cash payment of up to a maximum of two
times the sum of base salary and highest rate of bonuses awarded to the officer
over the prior three years, subject to applicable withholding taxes. Under the
change in control agreements, Messrs. Thomson and Mahler would receive an
aggregate of $700,800 upon a change in control, based upon current levels of
compensation. In addition to the severance payment, each covered officer is
entitled to receive life, medical and dental coverage for a period of up to 24
months from the date of termination, as well as a lump-sum payment equal to the
excess, if any, of (a) the present value of benefits to which the officer would
be entitled under the Bank's defined benefit plan if the officer had the
additional years of service that he would have had if he had continued working
for the Bank for 24 months following his termination, over (b) the present value
of the benefits to which the officer is actually entitled under the Bank's
defined benefit plan as of the date of his termination. Notwithstanding any
provision to the contrary in the change in control agreement, payments under the
change in control agreements are limited so that they will not constitute an
excess parachute payment under Section 280G of the Internal Revenue Code.
Transactions with Certain Related Persons
In the ordinary course of business, the Bank makes loans available to
its directors, officers and employees. These loans are made in the ordinary
course of business on substantially the same terms (including interest rate),
including collateral, as comparable loans to other borrowers. Management
believes that these loans neither involve more than the normal risk of
collectibility nor present other unfavorable features. Federal regulations
permit executive officers and directors to participate in loan programs that are
available to other employees, as long as the director or executive officer is
not given preferential treatment compared to other participating employees.
Loans made to directors or executive officers, including any modification of
such loans, must be approved by a majority of disinterested members of the Board
of Directors. The interest rate on loans to directors and officers is the same
as that offered to other employees.
Section 16(a) Beneficial Ownership Reporting Compliance
The common stock of the Company is registered with the SEC pursuant to
Section 12(g) of the Exchange Act. The officers and directors of the Company and
beneficial owners of greater than 10% of First Federal of Northern Michigan
Bancorp, Inc.'s common stock ("10% beneficial owners") are required to file
reports on Forms 3, 4, and 5 with the SEC disclosing beneficial ownership and
changes in beneficial ownership of the common stock. SEC rules require
disclosure in the Company's Proxy Statement or Annual Report on Form 10-KSB of
the failure of an officer, director, or 10% beneficial owner of the Company's
common stock to file a Form 3, 4, or 5 on a timely basis. Based on the Company's
review of ownership reports, all of the Company's officers and directors filed
these reports on a timely basis for 2005.
--------------------------------------------------------------------------------
PROPOSAL II--APPROVAL OF FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
2006 STOCK-BASED INCENTIVE PLAN
--------------------------------------------------------------------------------
The Board of Directors has adopted, subject to stockholder approval,
the First Federal of Northern Michigan Bancorp, Inc. 2006 Stock-Based Incentive
Plan (the "Incentive Plan"), to provide officers, employees and directors of the
Company and First Federal of Northern Michigan with additional incentives to
promote the growth and performance of the Company. The following is a summary of
the material features of the Incentive Plan, which is qualified in its entirety
by reference to the provisions of the Incentive Plan, attached hereto as
Appendix A.
13
General
The Incentive Plan will remain in effect for a period of ten years
following adoption by stockholders. The Incentive Plan authorizes the issuance
of up to 242,740 shares of Company common stock pursuant to grants of incentive
and non-statutory stock options, reload options, stock appreciation rights and
restricted stock awards, provided that no more than 69,354 shares may be issued
as restricted stock awards, and no more than 173,386 shares may be issued
pursuant to the exercise of stock options.
The Incentive Plan will be administered by a committee (the "Committee)
appointed by the Chairman of the Board of Directors, which will include two or
more disinterested directors of the Company who must be "non-employee
directors," as that term is defined for purposes of Rule 16b of the Exchange
Act. The Committee has full and exclusive power within the limitations set forth
in the Incentive Plan to make all decisions and determinations regarding the
selection of participants and the granting of awards; establishing the terms and
conditions relating to each award; adopting rules, regulations and guidelines
for carrying out the Incentive Plan's purposes; and interpreting and otherwise
construing the Incentive Plan. The Incentive Plan also permits the Board of
Directors or the Committee to delegate to one or more officers of the Company
the Committee's power to (i) designate officers and employees who will receive
awards, and (ii) determine the number of awards to be received by them.
Eligibility
Employees and outside directors of the Company or its subsidiaries are
eligible to receive awards under the Incentive Plan.
Types of Awards
The Committee may determine the type and terms and conditions of awards
under the Incentive Plan. Awards may be granted in a combination of incentive
and non-statutory stock options, stock appreciation rights, reload options or
restricted stock awards, as follows.
Stock Options. A stock option gives the recipient or "optionee" the
right to purchase shares of common stock at a specified price for a specified
period of time. The exercise price may not be less than the fair market value on
the date the stock option is granted. Fair market value for purposes of the
Incentive Plan means the final sales price of Company's common stock as reported
on the Nasdaq National Market on the date the option is granted, or if the
Company's common stock was not traded on such date, then on the day prior to
such date or on the next preceding day on which the Company's common stock was
traded, and without regard to after-hours trading activity. However, if the
Company's common stock is not reported on the Nasdaq stock market (or over the
counter market), fair market value will mean the average sale price of all
shares of Company common stock sold during the 30 day period immediately
preceding the date on which such stock option was granted, and if no shares of
stock have been sold within such 30 day period, the average sale price of the
last three sales of Company common stock sold during the 90 day period
immediately preceding the date on which such stock option was granted. The
Committee will determine the fair market value if it cannot be determined in the
manner described above.
Stock options are either "incentive" stock options or "non-qualified"
stock options. Incentive stock options have certain tax advantages and must
comply with the requirements of Section 422 of the Internal Revenue Code. Only
employees are eligible to receive incentive stock options. Shares of common
stock purchased upon the exercise of a stock option must be paid for in full at
the time of exercise (i) either in cash or with stock of the Company which was
owned by the participant for at least six months prior to delivery, or (ii) by
reduction in the number of shares deliverable pursuant to the stock option, or
(iii) subject to a "cashless exercise" through a third party. Cash may be paid
in lieu of any fractional shares under the Incentive Plan and generally no fewer
than 100 shares may be purchased on exercise of an award unless the total number
of shares available for purchase or exercise pursuant to an award is less than
100 shares. Stock options are subject to vesting conditions and restrictions as
determined by the Committee.
Stock Appreciation Rights. Stock appreciation rights may be granted in
tandem with stock options, and give the recipient the right to receive a payment
in Company common stock of an amount equal to the excess of the fair market
value of a specified number of shares of Company common stock on the date of
exercise of the stock appreciation rights over the fair market value of the
common stock on the date of the grant of the stock appreciation
14
rights, as set forth in the recipient's award agreement. Stock appreciation
rights will not be granted unless (i) the stock appreciation right is settled
solely in Company common stock, and (ii) there is no further ability to defer
the income received upon exercise of the stock appreciation right. Upon the
exercise of a stock appreciation right, the related option will be cancelled.
Reload Options. Reload options entitle the holder, who has delivered
shares that he or she owns as payment of the exercise price for option stock, to
a new option to acquire additional shares equal in amount to the shares he or
she has traded. Reload options may also be granted to replace option shares
retained by the employer for payment of the option holder's withholding tax. The
option price at which additional shares of stock can be purchased by the option
holder through the exercise of a reload option is equal to the market value of
the shares on the date the original option is exercised. The option period
during which the reload option may be exercised expires at the same time as that
of the original option that the holder has exercised. Reload options issued on
the exercise of incentive stock options may be incentive stock options or
non-statutory stock options.
Stock Awards. Stock awards under the Incentive Plan will be granted
only in whole shares of common stock. Stock awards will be subject to conditions
established by the Committee which are set forth in the award agreement. Any
stock award granted under the Incentive Plan will be subject to vesting as
determined by the Committee. Awards will be evidenced by agreements approved by
the Committee, which set forth the terms and conditions of each award.
Generally, all awards, except non-statutory stock options, granted
under the Incentive Plan will be nontransferable except by will or in accordance
with the laws of intestate succession. Stock awards may be transferable pursuant
to a qualified domestic relations order. At the Committee's sole discretion,
non-statutory stock options may be transferred for valid estate planning
purposes that are permitted by the Code and the Exchange Act. During the life of
the participant, awards can only be exercised by him or her. The Committee may
permit a participant to designate a beneficiary to exercise or receive any
rights that may exist under the Incentive Plan upon the participant's death.
Change in Control. Upon the occurrence of an event constituting a
change in control of the Company as defined in the Incentive Plan, all stock
options will become fully vested, and all stock awards then outstanding will
vest free of restrictions.
Tax Consequences
The following are the material federal tax consequences generally
arising with respect to awards granted under the Incentive Plan. The grant of an
option will create no tax consequences for an optionee or the Company. The
optionee will have no taxable income upon exercising an incentive stock option
and the Company will receive no deduction when an incentive stock option is
exercised. Upon exercising a non-statutory stock option, the optionee must
recognize ordinary income equal to the difference between the exercise price and
the fair market value of the stock on the date of exercise, and the Company will
be entitled to a deduction for the same amount. The tax treatment for an
optionee on a disposition of shares acquired through the exercise of an option
depends on how long the shares have been held and whether such shares were
acquired by exercising an incentive stock option or a non-statutory stock
option. Generally, there will be no tax consequences to the Company in
connection with the disposition of shares acquired pursuant to an option, except
that the Company may be entitled to a deduction if shares acquired pursuant to
an incentive stock option are sold before the required holding periods have been
satisfied.
With respect to other awards granted under the Incentive Plan that are
settled either in cash or in stock, the participant must recognize ordinary
income equal to the cash or the fair market value of shares or other property
received and the Company will be entitled to a deduction for the same amount.
With respect to awards that are settled in stock the participant must recognize
ordinary income equal to the fair market value of the shares received at the
time the shares became transferable or not subject to substantial risk of
forfeiture, whichever occurs earlier. The Company will be entitled to a
deduction for the same amount.
There are four outside directors of the Company and 126 employees
eligible to participate in the Incentive Plan.
15
Required Vote and Recommendation of the Board of Directors
In order to approve the Incentive Plan, the proposal must receive the
affirmative vote of a majority of the shares voted at the Meeting, either in
person or by proxy, without regard to broker non-votes or proxies marked
abstain.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC. 2006 STOCK-BASED INCENTIVE
PLAN.
--------------------------------------------------------------------------------
PROPOSAL III--RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
The Company's independent registered public accountants for the year
ended December 31, 2005 were Plante & Moran, PLLC. The Audit Committee has
engaged Plante & Moran, PLLC to be the Company's independent registered public
accountants for the 2006 fiscal year, subject to the ratification of the
engagement by the Company's stockholders. At the Meeting, stockholders will
consider and vote on the ratification of the engagement of Plante & Moran, PLLC
for the Company's fiscal year ending December 31, 2006. A representative of
Plante & Moran, PLLC is expected to attend the Meeting to respond to appropriate
questions and to make a statement if he so desires.
Stockholder ratification of the selection of Plante & Moran, PLLC is
not required by the Company's bylaws or otherwise. However, the Board of
Directors is submitting the selection of the independent registered public
accountants to the stockholders for ratification as a matter of good corporate
practice. If the stockholders fail to ratify the selection of Plante & Moran,
PLLC, the Audit Committee will reconsider whether or not to retain that firm.
Even if the selection is ratified, the Audit Committee in its discretion may
direct the appointment of a different independent accounting firm at any time
during the year if it determines that such change is in the best interests of
the Company and its stockholders.
Fees Paid to Plante & Moran, PLLC
Set forth below is certain information concerning aggregate fees billed
for professional services rendered by Plante & Moran, PLLC during 2005 and 2004:
Audit Fees. The aggregate fees billed to the Company by Plante & Moran,
PLLC for professional services rendered by Plante & Moran, PLLC for the audit of
the Company's annual financial statements, review of the financial statements
included in the Company's Quarterly Reports on Form 10-QSB and services that are
normally provided by Plante & Moran, PLLC in connection with statutory and
regulatory filings and engagements were $76,525 and $73,150 during the years
ended December 31, 2005 and 2004, respectively.
Audit-Related Fees. The aggregate fees billed to the Company by Plante
& Moran, PLLC for assurance and related services rendered by Plante & Moran,
PLLC that are reasonably related to the performance of the audit of and review
of the financial statements and that are not already reported in "Audit Fees,"
above, were $0 and $0 during the years ended December 31, 2005 and 2004,
respectively.
Tax Fees. The aggregate fees billed to the Company by Plante & Moran,
PLLC for professional services rendered by Plante & Moran, PLLC for tax
compliance, tax advice and tax planning were $6,500 and $6,780 during the years
ended December 31, 2005 and 2004, respectively. These services included
consultation on a discrepancy between IRS and SSA Records and research on
taxability of gifts and disbursements to terminated employees.
All Other Fees. The aggregate fees billed to the Company by Plante &
Moran, PLLC that are not described above were $48,850 and $38,900 during the
years ended December 31, 2005 and 2004, respectively. For 2005 and 2004, these
services included consultation in connection with the Company's 2005 stock
offering, including the preparation of the Company's SEC registration statement
on Form SB-2.
The Audit Committee has considered whether the provision of non-audit
services is compatible with maintaining Plante & Moran, PLLC's independence. The
Audit Committee concluded that performing such
16
services does not affect Plante & Moran, PLLC's independence in performing its
function as auditor of the Company.
Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of
Independent Auditor
The Audit Committee's policy is to pre-approve all audit and non-audit
services provided by the independent auditors. These services may include audit
services, audit-related services, tax services and other services. Pre-approval
is generally provided for up to one year and any pre-approval is detailed as to
particular service or category of services and is generally subject to a
specific budget. The Audit Committee has delegated pre-approval authority to its
Chairman when expedition of services is necessary. The independent auditors and
management are required to periodically report to the full Audit Committee
regarding the extent of services provided by the independent auditors in
accordance with this pre-approval, and the fees for the services performed to
date. For 2005, all services were pre-approved by the Audit Committee.
Required Vote and Recommendation of the Board of Directors.
In order to ratify the selection of Plante & Moran, PLLC as independent
auditors for the 2006 fiscal year, the proposal must receive the affirmative
vote of at least a majority of the votes cast at the Annual Meeting, either in
person or by proxy, without regard to broker non-votes or proxies marked
abstain.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE RATIFICATION OF PLANTE & MORAN, PLLC AS INDEPENDENT AUDITORS
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STOCKHOLDER PROPOSALS
--------------------------------------------------------------------------------
In order to be eligible for inclusion in the Company's proxy materials
for next year's Annual Meeting of Stockholders, any stockholder proposal to take
action at such meeting must be received at the Company's executive office, 100
South Second Avenue, Alpena, Michigan 49707, no later than December 10, 2006.
Any such proposal shall be subject to the requirements of the proxy rules
adopted under the Exchange Act.
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OTHER MATTERS AND ADVANCE NOTICE PROCEDURES
--------------------------------------------------------------------------------
The Board of Directors is not aware of any business to come before the
Annual Meeting other than the matters described above in this proxy statement.
However, if any matters should properly come before the Annual Meeting, it is
intended that holders of the proxies will act as directed by a majority of the
Board of Directors, except for matters related to the conduct of the Annual
Meeting, as to which they shall act in accordance with their best judgment. The
Board of Directors intends to exercise its discretionary authority to the
fullest extent permitted under the Exchange Act.
The Company's Bylaws provide an advance notice procedure for certain
business, or nominations to the Board of Directors, to be brought before an
annual meeting of stockholders. In order for a stockholder to properly bring
business before an annual meeting, or to propose a nominee to the Board of
Directors, the stockholder must give written notice to the Secretary of the
Company not less than ninety (90) days prior to the date of the Company's proxy
materials for the preceding year's annual meeting; provided, however, that if
the date of the annual meeting is advanced more than twenty (20) days prior to
or delayed by more than sixty (60) days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be received
not earlier than the close of business on the 120th day prior to the date of
such annual meeting and not later than the close of business on the later of (A)
the 90th day prior to the date of such annual meeting or (B) the tenth day
following the first to occur of (i) the day on which notice of the date of the
annual meeting was mailed or otherwise transmitted or (ii) the day on which
public announcement of the date of the annual meeting was first made by the
Company. The notice must include the stockholder's name, record address, and
number of shares owned, describe briefly the proposed business, the reasons for
bringing the business before the annual meeting, and any material interest of
the stockholder in the proposed business. In the case of nominations to the
Board of Directors, certain information regarding the nominee must be provided.
Nothing in this paragraph shall be deemed to require the Company to include in
its proxy statement and proxy relating to an annual meeting any stockholder
proposal that does not meet all of the
17
requirements for inclusion established by the Securities and Exchange Commission
in effect at the time such proposal is received.
Advance written notice of business or nominations to the Board of
Directors to be brought before the 2007 Annual Meeting of Stockholders must be
given to the Company no later than January 10, 2007. The date on which the 2007
Annual Meeting of Stockholders is expected to be held is May 16, 2007.
--------------------------------------------------------------------------------
MISCELLANEOUS
--------------------------------------------------------------------------------
The cost of solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending proxy materials
to the beneficial owners of Common Stock. In addition to solicitations by mail,
directors, officers, and regular employees of the Company may solicit proxies
personally or by telegraph or telephone without additional compensation.
Additionally, the Company has retained Regan & Associates, Inc., a proxy
solicitation firm, to provide advisory services in connection with the
solicitation of proxies and will pay Regan & Associates, Inc. a fee of $4,500
for these services.
A COPY OF THE COMPANY'S REPORT ON FORM 10-KSB FOR THE YEAR ENDED
DECEMBER 31, 2005 WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE
VOTING RECORD DATE UPON WRITTEN REQUEST TO AMY E. ESSEX, SECRETARY, FIRST
FEDERAL OF NORTHERN MICHIGAN BANCORP, INC., 100 SOUTH SECOND AVENUE, ALPENA,
MICHIGAN 49707.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Amy E. Essex
Amy E. Essex
Secretary
Alpena, Michigan
April 10, 2006
18
APPENDIX A
FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
2006 STOCK-BASED INCENTIVE PLAN
1. PURPOSE OF PLAN.
The purposes of this 2006 Stock-Based Incentive Plan are to provide
incentives and rewards to employees and directors who are largely responsible
for the success and growth of First Federal of Northern Michigan Bancorp, Inc.
and its Affiliates, and to assist all such entities in attracting and retaining
experienced and qualified directors, executives and other key employees.
2. DEFINITIONS.
(a) "Affiliate" means any "parent corporation" or "subsidiary
corporation" of the Company, as such terms are defined in Sections 424(e) and
424(f) of the Code.
(b) "Award" means one or more of the following: Restricted Stock
Awards, Stock Options and other types of Awards, as set forth in Section 6 of
the Plan.
(c) "Award Agreement" means the agreement between the Company or an
Affiliate and a Participant evidencing an Award under the Plan.
(d) "Bank" means First Federal of Northern Michigan and any entity that
succeeds to the business of First Federal of Northern Michigan.
(e) "Board of Directors" means the board of directors of the Company.
(f) A "Change in Control" of the Bank or the Company means a change in
control of a nature that:
(i) would be required to be reported in response to Item
5.01 of the Current Report on Form 8-K, as in effect
on the date hereof, pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (the "Exchange
Act"); or
(ii) results in a Change in Control of the Bank or the
Company within the meaning of the Home Owners' Loan
Act, as amended ("HOLA"), and applicable rules and
regulations promulgated thereunder, as in effect at
the time of the Change in Control; or
(iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as (a) any
"person" (as the term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of
the combined voting power of Company's outstanding
securities except for any securities purchased by the
Bank's employee stock ownership plan or trust; or (b)
individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason
to constitute at least a majority thereof, provided
that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising
the Incumbent Board, or whose nomination for election
by the Company's stockholders was approved by the
same Nominating Committee serving under an Incumbent
Board, shall be, for purposes of this clause (b),
considered as though he were a member of the
Incumbent Board; or (c) a plan of reorganization,
merger, consolidation, sale of all or substantially
all the assets of the Bank or the Company or similar
transaction in which the Bank or Company is not the
surviving corporation occurs; or (d) a proxy
statement is distributed soliciting proxies from
stockholders of the Company, by someone other than
the current Board of Directors of the Company,
seeking stockholder approval of a plan of
reorganization, merger or
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consolidation of the Company or similar transaction
with one or more corporations as a result of which
the outstanding shares of the common stock of the
Company are exchanged for or converted into cash or
property or securities not issued by the Company; or
(e) a tender offer is made for 25% or more of the
voting securities of the Company and the shareholders
owning beneficially or of record 25% or more of the
outstanding securities of the Company have tendered
or offered to sell their shares pursuant to such
tender offer and such tendered shares have been
accepted by the tender offeror.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means the committee designated, pursuant to Section 3
of the Plan, to administer the Plan.
(i) "Common Stock" means the common stock of the Company, par value
$0.01 per share.
(j) "Company" means First Federal of Northern Michigan Bancorp, Inc.
and any entity that succeeds to the business of First Federal of Northern
Michigan Bancorp, Inc.
(k) "Disability" means the inability to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which lasted or can be
expected to last for a continuous period of not less than 12 months. An
individual shall not be considered to be permanently and totally disabled unless
he furnishes proof of the existence thereof in such form and manner, and at such
times, as the Secretary of the Treasury may require, in accordance with Section
22(e)(3) of the Code.
(l) "Employee" means any person employed by the Company or an
Affiliate. Directors who are also employed by the Company or an Affiliate shall
be considered Employees under the Plan.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(n) "Exercise Price" means the price at which an individual may
purchase a share of Common Stock pursuant to an Option.
(o) "Fair Market Value" means, when used in connection with the Common
Stock on a certain date, the final sales price of the Common Stock as reported
on the Nasdaq stock market (or over-the-counter market) on such date, or if the
Common Stock was not traded on such date, then on the day prior to such date or
on the next preceding day on which the Common Stock was traded, and without
regard to after hours trading activity; provided, however, that if the Common
Stock is not reported on the Nasdaq stock market (or over the counter market),
Fair Market Value shall mean the average sale price of all shares of Common
Stock sold during the 30 day period immediately preceding the date on which such
stock option was granted, and if no shares of stock have been sold within such
30 day period, the average sale price of the last three sales of Common Stock
sold during the 90 day period immediately preceding the date on which such stock
option was granted. In the event Fair Market Value cannot be determined in the
manner described above, then Fair Market Value shall be determined by the
Committee. The Committee is authorized, but is not required, to obtain an
independent appraisal to determine the Fair Market Value of the Common Stock.
(p) "Incentive Stock Option" means a Stock Option granted under the
Plan, that is intended to meet the requirements of Section 422 of the Code.
(q) "Non-Statutory Stock Option" means a Stock Option granted to an
individual under the Plan that is not intended to be and is not identified as an
Incentive Stock Option, or an Option granted under the Plan that is intended to
be and is identified as an Incentive Stock Option, but that does not meet the
requirements of Section 422 of the Code.
(r) "OTS" means the Office of Thrift Supervision.
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(s) "Option" or "Stock Option" means an Incentive Stock Option or a
Non-Statutory Stock Option, as applicable.
(t) "Outside Director" means a member of the Board(s) of Directors of
the Company or an Affiliate who is not also an Employee.
(u) "Participant" means an Employee or Outside Director who is granted
an Award pursuant to the terms of the Plan.
(v) "Plan" means this First Federal of Northern Michigan Bancorp, Inc.
2006 Stock-Based Incentive Plan.
(w) "Reload Option" means an option to acquire shares of Common Stock
equivalent to the number of shares (i) used by a Participant to pay for an
Option, or (ii) deducted from any distribution in order to satisfy income tax
required to be withheld, based upon the terms set forth in Section 6(b) of the
Plan.
(x) "Restricted Stock" means shares of Common Stock that may be granted
under the Plan that are subject to forfeiture until satisfaction of the
conditions of their grant.
(y) "Restricted Stock Award" means an Award of shares of Restricted
Stock granted to an individual pursuant to Section 6(c) of the Plan.
(z) "Retirement" means retirement from employment with the Company or
an Affiliate on or after the Employee's attainment of age 65; provided, however,
that unless the Committee specifies otherwise, an Employee who is also a member
of the Board of Directors shall not be deemed to have retired until both service
as an Employee and service as a member of the Board of Directors have ceased.
"Retirement" with respect to an Outside Director means termination of service on
the board(s) of directors of the Company or any Affiliate in accordance with
applicable Company policy following the provision of written notice to such
board(s) of directors of the Outside Director's intention to retire.
Notwithstanding the foregoing, unless the Committee specifies otherwise, a
director shall not be deemed to have retired if such director becomes a director
emeritus following his termination of service as a director.
(aa) "Stock Appreciation Right" means the right, as defined in Section
6(d), that may be granted to a Participant in tandem with the grant of a Stock
Option.
3. ADMINISTRATION.
3.1 The Committee shall administer the Plan. The Committee shall
consist of either (i) two or more disinterested directors of the Company, who
shall be appointed by the Board of Directors or (ii) the full Board of
Directors. A member of the Board of Directors shall be deemed to be
disinterested only if he or she satisfies: (i) such requirements as the
Securities and Exchange Commission may establish for non-employee directors
administering plans intended to qualify for exemption under Rule 16b-3 (or its
successor) of the Exchange Act; and (ii) if considered appropriate by the Board
of Directors in its sole discretion, such requirements as the Internal Revenue
Service may establish for outside directors acting under plans intended to
qualify for exemption under Section 162(m)(4)(C) of the Code. The Board of
Directors or the Committee may also delegate, to the extent permitted by
applicable law and not inconsistent with Rule 16b-3, to one or more officers of
the Company, its powers under this Plan to (a) designate the officers and
employees of the Company who will receive Awards and (b) determine the number of
Awards to be received by them, pursuant to a resolution that specifies the total
number of rights or options that may be granted under the delegation, provided
that no officer may be delegated the power to designate himself or herself as a
recipient of such options or rights.
3.2 Subject to Section 3.1, the Committee shall:
(i) select the individuals who are to receive grants of
Awards under the Plan;
(ii) determine the type, number, vesting requirements and
other features and conditions of Awards made under
the Plan;
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(iii) interpret the Plan and Award Agreements (as defined
below); and
(iv) make all other decisions related to the operation of
the Plan.
3.3 Each Award granted under the Plan shall be evidenced by a written
agreement (i.e., an "Award Agreement"). Each Award Agreement shall constitute a
binding contract between the Company or an Affiliate and the Participant, and
every Participant, upon acceptance of an Award Agreement, shall be bound by the
terms and restrictions of the Plan and the Award Agreement. The terms of each
Award Agreement shall be set in accordance with the Plan, but each Award
Agreement may also include any additional provisions and restrictions determined
by the Committee. In particular, and at a minimum, the Committee shall set forth
in each Award Agreement:
(i) the type of Award granted;
(ii) the Exercise Price for any Option;
(iii) the number of shares or rights subject to the Award;
(iv) the expiration date of the Award;
(v) the manner, time and rate (cumulative or otherwise)
of exercise or vesting of the Award; and
(v) the restrictions, if any, placed on the Award, or
upon shares which may be issued upon the exercise or
vesting of the Award.
The Chairman of the Committee and such other directors and employees as
shall be designated by the Committee are hereby authorized to execute Award
Agreements on behalf of the Company or an Affiliate and to cause them to be
delivered to the recipients of Awards granted under the Plan.
4. ELIGIBILITY.
Subject to the terms of the Plan, Employees and Outside Directors, as
the Committee shall determine from time to time, shall be eligible to
participate in the Plan.
5. SHARES OF COMMON STOCK SUBJECT TO THE PLAN; SHARE LIMITS.
5.1 Shares Available. Subject to the provisions of Section 8, the
-----------------
capital stock that may be delivered under this Plan shall be shares of the
Company's authorized but unissued Common Stock and any shares of its Common
Stock held as treasury shares, including shares repurchased in the open market
or directly from shareholders of the Company.
5.2 Share Limits. Subject to adjustments, if any, provided in Section 9
------------
(and except for shares awarded pursuant to the exercise of a Reload Option) the
maximum number of shares of Common Stock that may be delivered pursuant to
Awards granted under this Plan (the "Share Limit") equals 242,740 shares. The
following limits also apply with respect to Awards granted under this Plan:
(i) The maximum number of shares of Common Stock that may
be delivered pursuant to Stock Options granted under
this Plan is 173,386 shares. The maximum number of
Stock Options that may be granted to any Employee is
43,346 shares. The maximum number of shares of Common
Stock that may be delivered pursuant to the exercise
of Incentive Stock Options is 173,386 shares.
(ii) The maximum number of shares of Common Stock that may
be delivered pursuant to Restricted Stock Awards
granted under this Plan is 69,354 shares.
5.3 Reissue of Awards and Shares. Shares that are subject to or
-------------------------------
underlie Awards which expire or, for any reason, are cancelled or terminated,
are forfeited, fail to vest, or, for any other reason, are not paid or delivered
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under this Plan, including due to the exercise of Stock Appreciation Rights in
lieu of Options, shall again be available for subsequent Awards under this Plan.
Shares that are exchanged by a Participant or withheld by the Company as full or
partial payment in connection with any Award under the Plan, as well as any
shares exchanged by a Participant or withheld by the Company to satisfy the tax
withholding obligations related to any Award under the Plan, shall be available
for subsequent Awards under this Plan. If Stock Appreciation Rights are
exercised for shares of Common Stock, only the number of shares of Common Stock
issued upon exercise of such Stock Appreciation Right will be deemed to be
delivered for purposes of determining the maximum number of shares available for
delivery under the Plan. Upon the exercise of the Stock Appreciation Rights, the
related Options will be cancelled. In such case, a number of new Options (and
related Stock Appreciation Rights) equal to the difference between (i) the
number of Options (and related Stock Appreciation Rights) that were cancelled
and (ii) the number of shares of Common Stock deemed to be delivered upon such
exercise, will be available for future Awards under the Plan.
5.4 Reservation of Shares; No Fractional Shares; Minimum Issue. The
-------------------------------------------------------------
Company shall at all times reserve a number of shares of Common Stock sufficient
to cover the Company's obligations and contingent obligations to deliver shares
with respect to Awards then outstanding under this Plan. No fractional shares
shall be delivered under this Plan. The Committee may pay cash in lieu of any
fractional shares in settlements of Awards under this Plan. No fewer than 100
shares may be purchased on exercise of any Award unless the total number
purchased or exercised is the total number at the time available for purchase or
exercise under the Award.
6. AWARDS.
The Committee shall determine the type or types of Award(s) to be made
to each selected eligible individual. Awards may be granted singly, in
combination or in tandem. Awards also may be made in combination or in tandem
with, in replacement of, as alternatives to, or as the payment form for grants
or rights under any other employee or compensation plan of the Company. The
types of Awards that may be granted under this Plan are:
(a) STOCK OPTIONS.
The Committee may, subject to the limitations of this Plan and
the availability of shares of Common Stock reserved but not previously awarded
under the Plan, grant Stock Options to Employees and Outside Directors, subject
to terms and conditions as it may determine, to the extent that such terms and
conditions are consistent with the following provisions:
Exercise Price. The Exercise Price shall not be less than one
--------------
hundred percent (100%) of the Fair Market Value of the Common Stock on the date
of grant.
Terms of Options. In no event may an individual exercise an
----------------
Option, in whole or in part, more than ten (10) years from the date of grant.
Non-Transferability. Unless otherwise determined by the
-------------------
Committee, an individual may not transfer, assign, hypothecate, or dispose of an
Option in any manner, other than by will or the laws of intestate succession.
The Committee may, however, in its sole discretion, permit the transfer or
assignment of a Non-Statutory Stock Option, if it determines that the transfer
or assignment is for valid estate planning purposes and is permitted under the
Code and Rule 16b-3 of the Exchange Act. For purposes of this Section 6(a), a
transfer for valid estate planning purposes includes, but is not limited to,
transfers:
(1) to a revocable inter vivos trust, as to
which an individual is both settlor and
trustee;
(2) for no consideration to: (a) any member of
the individual's Immediate Family; (b) a
trust solely for the benefit of members of
the individual's Immediate Family; (c) any
partnership whose only partners are members
of the individual's Immediate Family; or (d)
any limited liability corporation or other
corporate entity whose only members or
equity owners are members of the
individual's Immediate Family.
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(3) For purposes of this Section, "Immediate
Family" includes, but is not necessarily
limited to, a Participant's parents,
grandparents, spouse, children,
grandchildren, siblings (including half
brothers and sisters), and individuals who
are family members by adoption. Nothing
contained in this Section shall be construed
to require the Committee to give its
approval to any transfer or assignment of
any Non-Statutory Stock Option or portion
thereof, and approval to transfer or assign
any Non-Statutory Stock Option or portion
thereof does not mean that such approval
will be given with respect to any other
Non-Statutory Stock Option or portion
thereof. The transferee or assignee of any
Non-Statutory Stock Option shall be subject
to all of the terms and conditions
applicable to such Non-Statutory Stock
Option immediately prior to the transfer or
assignment and shall be subject to any other
conditions prescribed by the Committee with
respect to such Non-Statutory Stock Option.
Special Rules for Incentive Stock Options. Notwithstanding the
-----------------------------------------
foregoing provisions, the following rules shall further apply to grants of
Incentive Stock Options:
(1) If an Employee owns or is treated as owning,
for purposes of Section 422 of the Code,
Common Stock representing more than ten
percent (10%) of the total combined voting
securities of the Company at the time the
Committee grants the Incentive Stock Option
(a "10% Owner"), the Exercise Price shall
not be less than one hundred ten percent
(110%) of the Fair Market Value of the
Common Stock on the date of grant.
(2) An Incentive Stock Option granted to a 10%
Owner shall not be exercisable more than
five (5) years from the date of grant.
(3) To the extent the aggregate Fair Market
Value of shares of Common Stock with respect
to which Incentive Stock Options are
exercisable for the first time during any
calendar year under the Plan or any other
stock option plan of the Company, exceeds
$100,000, or such higher value as may be
permitted under Section 422 of the Code,
Incentive Stock Options in excess of the
$100,000 limit shall be treated as
Non-Statutory Stock Options. Fair Market
Value shall be determined as of the date of
grant for each Incentive Stock Option.
(4) Each Award Agreement for an Incentive Stock
Option shall require the individual to
notify the Committee within ten (10) days of
any disposition of shares of Common Stock
under the circumstances described in Section
421(b) of the Code (relating to certain
disqualifying dispositions).
(b) RELOAD OPTIONS.
Simultaneously with the grant of any Option to a Participant,
the Committee may grant the Participant the right to receive a Reload Option
with respect to all or some of the shares covered by such Option. The right to
receive a Reload Option may be granted to a Participant who satisfies all or
part of the exercise price of the Option with shares of Common Stock (as
described in Section 7.2 below), provided, however, that the right to receive a
Reload Option upon the exercise of an Option shall expire upon termination of
employment or service. The Reload Option represents an additional Option to
acquire the same number of shares of Common Stock as is used by the Participant
to pay for the original Option or to replace Common Stock withheld by the
Company for payment of a Participant's withholding tax under Section 10.5. A
Reload Option is subject to all of the same terms and conditions as the original
Option, including the remaining Option exercise term, except that (i) the
exercise price of the shares of Common Stock subject to the Reload Option will
be determined at the time the original Option is exercised, (ii) such Reload
Option will conform to all provisions of the Plan at the time the original
Option is exercised, and (iii) a Reload Option issued on the exercise of an
Incentive Stock Option may be an Incentive Stock Option or a Non-statutory Stock
Option, subject to the application of the limitation set forth in Code Section
422(d). Once a Reload Option is issued on the exercise of an Option, no further
reload will be permitted on the exercise of such Reload Option.
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(c) RESTRICTED STOCK AWARDS.
The Committee may make grants of Restricted Stock Awards,
which shall consist of the grant of some number of shares of Common Stock to an
individual upon such terms and conditions as it may determine, to the extent
such terms and conditions are consistent with the following provisions:
(i) Grants of Stock. Restricted Stock Awards may only be
---------------
granted in whole shares of Common Stock.
(ii) Non-Transferability. Except to the extent permitted
-------------------
by the Code, the rules promulgated under Section
16(b) of the Exchange Act or any successor statutes
or rules:
(1) The recipient of a Restricted Stock Award
grant shall not sell, transfer, assign,
pledge, or otherwise encumber shares subject
to the grant until full vesting of such
shares has occurred. For purposes of this
section, the separation of beneficial
ownership and legal title through the use of
any "swap" transaction is deemed to be a
prohibited encumbrance.
(2) Unless otherwise determined by the
Committee, and except in the event of the
Participant's death or pursuant to a
qualified domestic relations order, a
Restricted Stock Award grant is not
transferable and may be earned only by the
individual to whom it is granted during his
or her lifetime. Upon the death of a
Participant, a Restricted Stock Award is
transferable by will or the laws of descent
and distribution. The designation of a
beneficiary shall not constitute a transfer.
(3) If the recipient of a Restricted Stock Award
is subject to the provisions of Section 16
of the Exchange Act, shares of Common Stock
subject to the grant may not, without the
written consent of the Committee (which
consent may be given in the Award
Agreement), be sold or otherwise disposed of
within six (6) months following the date of
grant.
(iii) Issuance of Certificates or Electronic Certification
-----------------------------------------------------
of Awards. The Company may cause to be issued a stock
---------
certificate evidencing such shares, registered in the
name of the Participant to whom the Restricted Stock
Award was granted; provided, however, that the
Company may not cause a stock certificate to be
issued unless it has received a stock power duly
endorsed in blank with respect to such shares. Each
stock certificate shall bear the following legend:
"The transferability of this certificate and the
shares of stock represented hereby are subject to
the restrictions, terms and conditions (including
forfeiture provisions and restrictions against
transfer) contained in the First Federal of
Northern Michigan Bancorp, Inc. 2006 Stock-Based
Incentive Plan and the related Award Agreement
entered into between the registered owner of such
shares and First Federal of Northern Michigan
Bancorp, Inc. or its Affiliates. A copy of the
Plan and Award Agreement is on file in the office
of the Corporate Secretary of First Federal of
Northern Michigan Bancorp, Inc.
This legend shall not be removed until the
individual becomes vested in such shares pursuant
to the terms of the Plan and Award Agreement. Each
certificate issued pursuant to this Section 6(c)
shall be held by the Company or its Affiliates,
unless the Committee determines otherwise.
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Notwithstanding the foregoing, the Company may in its
sole discretion issue Restricted Stock Awards in any
other approved format (e.g. DTC) in order to
facilitate the paperless transfer of such Awards. In
the event Restricted Stock Awards are not issued in
certificate form, the Company and the transfer agent
shall maintain appropriate bookkeeping entries that
evidence Participants' ownership of such Awards.
Restricted Stock Awards that are not issued in
certificate form shall be subject to the same terms
and conditions of this Plan, including Section
6(c)(iv) and 6(c)(v), as any Restricted Stock Awards
granted in certificated form.
(iv) Treatment of Dividends. Participants are entitled to
----------------------
all dividends and other distributions declared and
paid on all shares of Common Stock subject to a
Restricted Stock Award, from and after the date such
shares are awarded or from and after such later date
as may be specified by the Committee in the Award
Agreement, and the Participant shall not be required
to return any such dividends or other distributions
to the Company in the event of forfeiture of the
Restricted Stock Award.
(v) Voting of Restricted Stock Awards. Participants who
----------------------------------
are granted Restricted Stock Awards may vote all
unvested shares of Common Stock subject to their
Restricted Stock Awards.
(d) STOCK APPRECIATION RIGHTS.
A Stock Appreciation Right is the right to receive a payment
in Common Stock equal to the excess of the Fair Market Value of a specified
number of shares of Common Stock on the date the Stock Appreciation Right is
exercised over the Fair Market Value of the Common Stock on the date of grant of
the Stock Appreciation Right as set forth in the applicable award agreement. No
Stock Appreciation Right shall be granted unless (i) the Stock Appreciation
Right is settled solely in Common Stock of the Company, and (ii) there is no
opportunity to further defer the income received on the exercise of the Stock
Appreciation Right.
7. PAYMENTS; CONSIDERATION FOR AWARDS.
7.1 Payments. Payment for Awards may be made in the form of cash,
--------
Common Stock, or combinations thereof as the Committee shall determine, and with
such restrictions as it may impose.
7.2 Consideration for Awards. The Exercise Price for any Award granted
------------------------
under this Plan or the Common Stock to be delivered pursuant to an Award, as
applicable, may be paid by means of any lawful consideration as determined by
the Committee, including, without limitation, one or a combination of the
following methods:
(i) cash, check payable to the order of the Company, or
electronic funds transfer;
(ii) the delivery of previously owned shares of Common
Stock;
(iii) reduction in the number of shares otherwise
deliverable pursuant to the Award; or
(iv) subject to such procedures as the Committee may
adopt, pursuant to a "cashless exercise" with a third
party who provides financing for the purposes of (or
who otherwise facilitates) the purchase or exercise
of Awards.
In no event shall any shares newly issued by the Company be issued for
less than the minimum lawful consideration for such shares or for consideration
other than consideration permitted by applicable state law. In the event that
the Committee allows a Participant to exercise an Award by delivering shares of
Common Stock previously owned by such Participant and unless otherwise expressly
provided by the Committee, any shares delivered which were initially acquired by
the Participant from the Company (upon exercise of a stock option or otherwise)
must have been owned by the Participant at least six months as of the date of
delivery. Shares of Common Stock used to satisfy the Exercise Price of an Option
shall be valued at their Fair Market Value on the date of exercise. The Company
will not be obligated to deliver any shares unless and until it receives full
payment of the
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Exercise Price and any related withholding obligations under Section 10.5, or
until any other conditions applicable to exercise or purchase have been
satisfied. Unless expressly provided otherwise in the applicable Award
Agreement, the Committee may at any time eliminate or limit a Participant's
ability to pay the purchase or Exercise Price of any Award or shares by any
method other than cash payment to the Company.
8. EFFECT OF TERMINATION OF SERVICE ON AWARDS.
8.1 General. The Committee shall establish the effect of a termination
-------
of employment or service on the continuation of rights and benefits available
under an Award or this Plan and, in so doing, may make distinctions based upon,
among other things, the cause of termination and type of Award. Unless the
Committee shall specifically state otherwise at the time an Award is granted,
all Awards to an Employee or Outside Director shall vest immediately upon such
individual's death, Disability or Retirement.
8.2 Events Not Deemed Terminations of Employment or Service. Unless
----------------------------------------------------------
Company or Bank policy or the Committee provides otherwise, the employment
relationship shall not be considered terminated in the case of (a) sick leave,
(b) military leave, or (c) any other leave of absence authorized by the Company,
the Bank or the Committee; provided that, unless reemployment upon the
expiration of such leave is guaranteed by contract or law, such leave is for a
period of not more than 90 days. In the case of any Employee on an approved
leave of absence, continued vesting of the Award while on leave may be suspended
until the Employee returns to service, unless the Committee otherwise provides
or applicable law otherwise requires. In no event shall an Award be exercised
after the expiration of the term set forth in the Award Agreement.
8.3 Effect of Change of Affiliate Status. For purposes of this Plan and
------------------------------------
any Award, if an entity ceases to be an Affiliate of the Company, a termination
of employment or service shall be deemed to have occurred with respect to each
individual who does not continue as an Employee or Outside Director with another
entity within the Company after giving effect to the Affiliate's change in
status.
9. ADJUSTMENTS; ACCELERATION UPON A CHANGE IN CONTROL.
9.1 Adjustments. Upon, or in contemplation of, any reclassification,
-----------
recapitalization, stock split (including a stock split in the form of a stock
dividend) or reverse stock split ("stock split"); any merger, combination,
consolidation, or other reorganization; any spin-off, split-up, or similar
extraordinary dividend distribution with respect to the Common Stock (whether in
the form of securities or property); any exchange of Common Stock or other
securities of the Company, or any similar, unusual or extraordinary corporate
transaction affecting the Common Stock; or a sale of all or substantially all
the business or assets of the Company in its entirety; then the Committee, in
its sole discretion, shall, in such manner, to such extent (if any) and at such
times as it deems appropriate and equitable under the circumstances:
(a) proportionately adjust any or all of: (1) the number and type of
shares of Common Stock (or other securities) that thereafter may be made the
subject of Awards (including the specific Share Limits, maximums and numbers of
shares set forth elsewhere in this Plan); (2) the number, amount and type of
shares of Common Stock (or other securities or property) subject to any or all
outstanding Awards; (3) the grant, purchase, or Exercise Price of any or all
outstanding Awards; (4) the securities, cash or other property deliverable upon
exercise or payment of any outstanding Awards; or (5) the performance standards
applicable to any outstanding Awards; or
(b) make provision for a cash payment or for the assumption,
substitution or exchange of any or all outstanding Awards, based upon the
distribution or consideration payable to holders of the Common Stock.
9.2 The Committee may adopt such valuation methodologies for
outstanding Awards as it deems reasonable in the event of a cash or property
settlement and, in the case of Options, may base such settlement solely upon the
excess if any of the per share amount payable upon or in respect of such event
over the Exercise Price or base price of the Award. With respect to any Award of
an Incentive Stock Option, the Committee may not make an adjustment that causes
the Option to cease to qualify as an Incentive Stock Option without the consent
of the affected Participant.
9.3 Upon any of the events set forth in Section 9.1, the Committee may
take such action prior to such event to the extent that the Committee deems the
action necessary to permit the Participant to realize the benefits
A-9
intended to be conveyed with respect to the Awards in the same manner as is or
will be available to stockholders of the Company generally. In the case of any
stock split or reverse stock split, if no action is taken by the Committee, the
proportionate adjustments contemplated by Section 9.1 above shall nevertheless
be made.
9.4 Automatic Acceleration of Awards. Upon a Change in Control of the
---------------------------------
Company, each Option then outstanding shall become fully vested and all
Restricted Stock Awards then outstanding shall fully vest free of restrictions.
10. MISCELLANEOUS PROVISIONS.
10.1 Compliance with Laws. This Plan, the granting and vesting of
---------------------
Awards under this Plan, the offer, issuance and delivery of shares of Common
Stock, the acceptance of promissory notes and/or the payment of money under this
Plan or under Awards are subject to all applicable federal and state laws, rules
and regulations (including, but not limited to, state and federal securities
laws) and to such approvals by any listing, regulatory or governmental authority
as may, in the opinion of securities law counsel for the Company, be necessary
or advisable in connection therewith. The person acquiring any securities under
this Plan will, if requested by the Company, provide such assurances and
representations to the Company as may be deemed necessary or desirable to assure
compliance with all applicable legal and accounting requirements.
10.2 Claims. No person shall have any claim or rights to an Award (or
------
additional Awards, as the case may be) under this Plan, subject to any express
contractual rights to the contrary (set forth in a document other than this
Plan).
10.3 No Employment/Service Contract. Nothing contained in this Plan (or
------------------------------
in any other documents under this Plan or in any Award Agreement) shall confer
upon any Participant any right to continue in the employ or other service of the
Bank or the Company, constitute any contract or agreement of employment or other
service or affect an Employee's status as an employee-at-will, nor interfere in
any way with the right of the Bank or the Company to change a Participant's
compensation or other benefits, or terminate his or her employment or other
service, with or without cause. Nothing in this Section 10.3, however, is
intended to adversely affect any express independent right of such Participant
under a separate employment or service contract other than an Award Agreement.
10.4 Plan Not Funded. Awards payable under this Plan shall be payable
---------------
in shares of Common Stock or from the general assets of the Company. No
Participant, beneficiary or other person shall have any right, title or interest
in any fund or in any specific asset (including shares of Common Stock, except
as expressly provided otherwise) of the Company by reason of any Award
hereunder. Neither the provisions of this Plan (or of any related documents),
nor the creation or adoption of this Plan, nor any action taken pursuant to the
provisions of this Plan shall create, or be construed to create, a trust of any
kind or a fiduciary relationship between the Company and any Participant,
beneficiary or other person. To the extent that a Participant, beneficiary or
other person acquires a right to receive payment pursuant to any Award
hereunder, such right shall be no greater than the right of any unsecured
general creditor of the Company.
10.5 Tax Withholding. Upon any exercise, vesting, or payment of any
----------------
Award, or upon the disposition of shares of Common Stock acquired pursuant to
the exercise of an Incentive Stock Option prior to satisfaction of the holding
period requirements of Section 422 of the Code, the Company shall have the
right, at its option, to:
(i) require the Participant (or the Participant's
personal representative or beneficiary, as the case
may be) to pay or provide for payment of at least the
minimum amount of any taxes which the Company may be
required to withhold with respect to such Award or
payment; or
(ii) deduct from any amount otherwise payable in cash to
the Participant (or the Participant's personal
representative or beneficiary, as the case may be)
the minimum amount of any taxes which the Company may
be required to withhold with respect to such cash
payment.
A-10
In any case where a tax is required to be withheld in connection with
the delivery of shares of Common Stock under this Plan, the Committee may, in
its sole discretion (subject to Section 10.1) grant (either at the time of the
Award or thereafter) to the Participant the right to elect, pursuant to such
rules and subject to such conditions as the Committee may establish, to have the
Company reduce the number of shares to be delivered by (or otherwise reacquire)
the appropriate number of shares, valued in a consistent manner at their Fair
Market Value or at the sales price, in accordance with authorized procedures for
cashless exercises, necessary to satisfy the minimum applicable withholding
obligation on exercise, vesting or payment. In no event shall the shares
withheld exceed the minimum whole number of shares required for tax withholding
under applicable law. The Company may, with the Committee's approval, accept one
or more promissory notes from any Participant in connection with taxes required
to be withheld upon the exercise, vesting or payment of any Award under this
Plan; provided, however, that any such note shall be subject to terms and
conditions established by the Committee and the requirements of applicable law.
10.6 Effective Date, Termination and Suspension, Amendments. This Plan
-------------------------------------------------------
is effective upon receipt of shareholder approval. Unless earlier terminated by
the Board, this Plan shall terminate at the close of business on the day before
the tenth anniversary of the effective date. After the termination of this Plan
either upon such stated expiration date or its earlier termination by the Board,
no additional Awards may be granted under this Plan, but previously granted
Awards (and the authority of the Committee with respect thereto, including the
authority to amend such Awards) shall remain outstanding in accordance with
their applicable terms and conditions and the terms and conditions of this Plan.
(i) Termination; Amendment. Subject to applicable laws
-----------------------
and regulations, the Board of Directors may, at any
time, terminate or, from time to time, amend, modify
or suspend this Plan, in whole or in part; provided,
however, that no amendment may have the effect of
repricing Options. No Awards may be granted during
any period that the Board of Directors suspends this
Plan.
(ii) Stockholder Approval. Any amendment to this Plan
---------------------
shall be subject to stockholder approval to the
extent then required by applicable law or any
applicable listing agency or required under Sections
162, 422 or 424 of the Code to preserve the intended
tax consequences of this Plan, or deemed necessary or
advisable by the Board.
(iii) Limitations on Amendments to Plan and Awards. No
------------------------------------------------
amendment, suspension or termination of this Plan or
change affecting any outstanding Award shall, without
the written consent of the Participant, affect in any
manner materially adverse to the Participant any
rights or benefits of the Participant or obligations
of the Company under any Award granted under this
Plan prior to the effective date of such change.
Changes, settlements and other actions contemplated
by Section 9.1 shall not be deemed to constitute
changes or amendments for purposes of this Section
10.6.
(iv) No Cash Settlement of Awards Outside of Company
-----------------------------------------------------
Discretion. Notwithstanding anything in this Plan to
----------
the contrary, no provision of this Plan shall operate
to require the cash settlement of a Stock Option or
Reload Option under any circumstances not within the
sole discretion of the Company.
10.7 Governing Law; Compliance with Regulations; Construction;
-------------------------------------------------------------
Severability.
------------
(i) Governing Law. This Plan, the Awards, all documents
-------------
evidencing Awards and all other related documents
shall be governed by, and construed in accordance
with, the laws of the State of Michigan, except to
the extent that federal law shall apply.
(ii) Severability. If a court of competent jurisdiction
------------
holds any provision invalid and unenforceable, the
remaining provisions of this Plan shall continue in
effect.
(iii) Plan Construction; Rule 16b-3. It is the intent of
-------------------------------
the Company that the Awards and transactions
permitted by Awards be interpreted in a manner that,
in the case of Participants who are or may be subject
to Section 16 of the Exchange Act, qualify, to the
A-11
maximum extent compatible with the express terms of
the Award, for exemption from matching liability
under Rule 16b-3 promulgated under the Exchange Act.
Notwithstanding the foregoing, the Company shall have
no liability to any Participant for Section 16
consequences of Awards or events affecting Awards if
an Award or event does not so qualify.
10.8 Captions. Captions and headings are given to the sections and
--------
subsections of this Plan solely as a convenience to facilitate reference. Such
headings shall not be deemed in any way material or relevant to the construction
or interpretation of this Plan or any provision thereof.
10.9 Non-Exclusivity of Plan. Nothing in this Plan shall limit or be
------------------------
deemed to limit the authority of the Board of Directors or the Committee to
grant Awards or authorize any other compensation, with or without reference to
the Common Stock, under any other plan or authority.
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REVOCABLE PROXY
FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
ANNUAL MEETING OF STOCKHOLDERS
May 17, 2006
The undersigned hereby appoints the full Board of Directors, with full
powers of substitution to act as attorneys and proxies for the undersigned to
vote all shares of common stock of First Federal of Northern Michigan Bancorp,
Inc. which the undersigned is entitled to vote at the Annual Meeting of
Stockholders (the "Meeting") to be held at the Thunder Bay Recreational Center,
701 Woodward Avenue, Alpena, Michigan, at 1:00 p.m. (Michigan time) on May 17,
2006. The official proxy committee is authorized to cast all votes to which the
undersigned is entitled as follows:
VOTE
FOR WITHHELD
--- --------
1. The election as Directors of all nominees
listed below, each to serve for a three-year |_| |_|
term
Gary C. VanMassenhove
Thomas R. Townsend
INSTRUCTION: To withhold your vote for one
or more nominees, write the name of the
nominee(s) on the line(s) below.
__________________________
__________________________
FOR AGAINST ABSTAIN
--- -------- -------
2. The approval of the First Federal of Northern
Michigan Bancorp, Inc. 2006 Stock-Based |_| |_| |_|
Incentive Plan
FOR AGAINST ABSTAIN
--- -------- -------
3. The ratification of the appointment of
Plante & Moran, PLLC as independent |_| |_| |_|
registered public accountants for the year
ending December 31, 2005.
The Board of Directors recommends a vote "FOR" each of the listed proposals.
--------------------------------------------------------------------------------
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED ABOVE. IF ANY OTHER
BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THE
ABOVE-NAMED PROXIES AT THE DIRECTION OF A MAJORITY OF THE BOARD OF DIRECTORS. AT
THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE
PRESENTED AT THE MEETING.
--------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the above-signed be present and elect to vote at the Meeting or at
any adjournment thereof and after notification to the Secretary of First Federal
of Northern Michigan Bancorp, Inc. at the Meeting of the stockholder's decision
to terminate this proxy, then the power of said attorneys and proxies shall be
deemed terminated and of no further force and effect. This proxy may also be
revoked by sending written notice to the Secretary of First Federal of Northern
Michigan Bancorp, Inc. at the address set forth on the Notice of Annual Meeting
of Stockholders, or by the filing of a later-dated proxy prior to a vote being
taken on a particular proposal at the Meeting.
The above-signed acknowledges receipt from First Federal of Northern
Michigan Bancorp, Inc. prior to the execution of this proxy of a Notice of the
Meeting and a proxy statement dated April 10, 2006. Please sign exactly as your
name appears on this proxy. When signing as attorney, executor, administrator,
trustee, or guardian, please give your full title. If shares are held jointly,
each holder should sign.
Dated:___________________, 2006 |_| Check Box if You Plan
to Attend Meeting
___________________________________ ________________________________________
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
___________________________________ ________________________________________
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this card. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If
shares are held jointly, each holder should sign.
--------------------------------------------------------------------------------
Please complete and date this proxy and return it promptly
in the enclosed postage-prepaid envelope.
--------------------------------------------------------------------------------