SECURITIES AND EXCHANGE COMMISSION
SCHEDULE 14A INFORMATION
Securities Exchange Act of 1934
(Amendment No. ) Filed by the Registrantx Filed by a Party other than the Registrant ¨ Check the appropriate box: ¨ Preliminary Proxy Statement ¨Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) x Definitive Proxy Statement ¨ Definitive Additional Materials ¨ Soliciting Material Pursuant to §240.14a-12 |
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ARMOUR Residential REIT, Inc.
(Name of Registrant as Specified In Its Charter)
Not Applicable
Not Applicable |
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) |
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| Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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April 13, 2015.
3001 Ocean Drive
Suite 201
Vero Beach, Florida 32963
Telephone: (772) 617-4340March 19, 201320142015 annual meeting of stockholders of ARMOUR Residential REIT, Inc. We will hold the meeting on Thursday,Wednesday, May 8, 2014,27, 2015, at 8:00 a.m. (EDT) at the Vero Beach Hotel & Spa, 3500 Ocean Drive, Vero Beach, Florida 32963. We hope that you will be able to attend.Of particular importance is Proposal No. 2, which requests stockholder approval of an amendment to our Amended and Restated 2009 Stock Incentive Plan under which we grant equity to our executive officers and other key professionals. Equity is a fundamental part of our compensation philosophy and our success is dependent, in large part, on our ability to attract, retain and motivate high-performing senior executives who are committed to our core values. We strongly believe that offering incentives in the form of equity awards is critical to our ability to do so and aligns the interests of our executive officers and other key professionals with those of our stockholders. We take a disciplined approach to the management of our compensation programs. We have proactively managed the overall affordability of our equity compensation programs to prevent dilutive effects to our stockholders and, in each year since our initial public offering, have consistently returned a significant amount of cash to our stockholders through dividends and, beginning in 2013, share repurchases. We believe that the proposed amendment to our Amended and Restated 2009 Stock Incentive plan is essential to our ability to achieve our objectives and to continue to create long-term value for our stockholders. Therefore, our Board of Directors urges you to vote “FOR” this proposal.or by completing and returning a proxy card.card or by telephone or Internet, as further explained in the proxy statement. Submitting a vote before the annual meeting will not preclude you from voting in person at the annual meeting should you decide to attend. In addition, this proxy statement, the notice of annual meeting, the proxy card and our 20132014 annual report will be mailed or made accessible via the Internet on the Company’s website athttp://investor.armourreit.comwww.armourreit.com on or about March 19, 2014.
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27, 2015
(1)
To elect nine (9) directors to ARMOUR’s Board of Directors until our 2015 annual meeting of stockholders and until their successors are duly elected and qualified;
(2)
To approve an amendment to ARMOUR’s Amended and Restated 2009 Stock Incentive Plan to increase the aggregate number of shares of common stock authorized for issuance thereunder from 2,000,000 shares to 15,000,000 shares;
(3)
To ratify the appointment of Deloitte & Touche LLP (“Deloitte”) as ARMOUR’s independent registered certified public accountants for fiscal year 2014; and
(4)
To transact any other business as may properly come before the annual meeting or any adjournments or postponements of the meeting.
(1) | To elect nine (9) directors to ARMOUR’s Board of Directors until our 2016 annual meeting of stockholders and until their successors are duly elected and qualified; |
(2) | To ratify the appointment of Deloitte & Touche LLP (“Deloitte”) as ARMOUR’s independent registered certified public accountants for fiscal year 2015; |
(3) | To approve, by a non-binding vote, ARMOUR's 2014 executive compensation; |
(4) | To approve, by a non-binding vote, the frequency of future stockholder advisory votes relating to ARMOUR's executive compensation; and |
(5) | To transact any other business as may properly come before the annual meeting or any adjournments or postponements of the meeting. |
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
The accompanying proxy statement
http://investor.armourreit.com
3 and “ONE (1) YEAR” for proposal 4.
March 19,
annual report, to our stockholders via the Internet. On April 13, 2015, we began mailing to certain of our stockholders a Notice of Internet Availability of Proxy Materials (the “Notice of Internet Availability”) that contains instructions on how to access our proxy materials on the Internet. The Notice of Internet Availability also contains instructions on how to vote via the Internet or by telephone. Other stockholders, in accordance with their prior requests, received an email with instructions on how to access our proxy materials and vote via the Internet, or have been mailed paper copies of our proxy materials and a proxy card or voting form. Stockholders may request to receive all future proxy materials in printed form by mail or electronically by email by following the instructions contained in the Notice of Internet Availability.
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April 6, 2015.
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Election of nine (9) members of ARMOUR’s Board of Directors;
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(2) | Ratification of the appointment of Deloitte & Touche LLP (“Deloitte”) as ARMOUR’s independent registered certified public |
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(1) | “FOR” the election of each of the |
(2) | “FOR” the |
(3) | “FOR” the
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(4) | “ONE (1) YEAR” with respect to |
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Director Nominees | Age | Director Since | Current Positions | |||
Scott J. Ulm | 56 | 2009 | Co-Chief Executive Officer, Co-Vice Chairman, Chief Investment Officer and Head of Risk Management | |||
Jeffrey J. Zimmer | 57 | 2009 | Co-Chief Executive Officer, Co-Vice Chairman and President | |||
Daniel C. Staton | 62 | 2009 | Non-Executive Chairman | |||
Marc H. Bell | 47 | 2009 | Director | |||
Carolyn Downey | 65 | 2013 | Independent Director | |||
Thomas K. Guba | 64 | 2009 | Lead Independent Director | |||
Robert C. Hain | 62 | 2009 | Independent Director | |||
John P. Hollihan, III | 65 | 2009 | Independent Director | |||
Stewart J. Paperin | 67 | 2009 | Independent Director |
Director Nominees |
| Age |
| Director Since |
| Current Positions |
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Scott J. Ulm |
| 55 |
| 2009 |
| Co-Chief Executive Officer, Co-Vice Chairman, Chief Investment Officer and Head of Risk Management |
Jeffrey J. Zimmer |
| 56 |
| 2009 |
| Co-Chief Executive Officer, Co-Vice Chairman and President |
Daniel C. Staton |
| 61 |
| 2009 |
| Non-Executive Chairman |
Marc H. Bell |
| 46 |
| 2009 |
| Director |
Carolyn Downey |
| 64 |
| 2013 |
| Independent Director |
Thomas K. Guba |
| 63 |
| 2009 |
| Lead Independent Director |
Robert C. Hain |
| 60 |
| 2009 |
| Independent Director |
John P. Hollihan, III |
| 64 |
| 2009 |
| Independent Director |
Stewart J. Paperin |
| 66 |
| 2009 |
| Independent Director |
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purchase, transportation and sale of liquefied petroleum gas. Prior to joining the Soros organizations, Mr. Paperin served as President of Brooke Group International, an investment firm concentrated on the former Soviet Union, from 1990 to 1993, and as Senior Vice President and Chief Financial Officer of Western Union Corporation, a provider of money transfer and message services which was controlled by Brooke Group, from 1988 to 1990. Prior to Western Union Corporation, Mr. Paperin served as Chief Financial Officer of Timeplex Corporation, a telecommunications equipment provider, from 1986 to 1988 and of Datapoint Corporation, a computer equipment manufacturer, from 1985 to 1986. Prior to Datapoint Corporation, Mr. Paperin served as a financial officer of Pepsico Corporation from 1980 to 1985 and as a management consultant at Cresap McCormick & Paget from 1975 to 1980. Mr. Paperin also served as a member of the Board of Directors of Community Bankers Acquisition Corp., a blank check company formed to acquire an operating business in the banking industry (NYSE MKT LLC: BTC). Mr. Paperin holds a B.A. degree and an M.S. degree from the State University of New York at Binghamton. He is a member of the Council on Foreign Relations and was awarded an honorary Doctor of Humane Letters by the State University of New York.
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2014. ACM; certain relationships and related-party transactions.. Board of Directors. Name Fees Earned or Paid in Cash Stock Awards(1) Total Daniel C. Staton(1) $ 91,000 $ 74,325 $ 165,325 Marc H. Bell(1) $ 66,000 $ 74,325 $ 140,325 Carolyn Downey(1) (2) $ 22,000 $ 22,000 $ 44,000 Thomas K. Guba(1) $ 66,000 $ 74,325 $ 140,325 Robert C. Hain(1) $ 66,000 $ 74,325 $ 140,325 John P. Hollihan, III(1) $ 66,000 $ 74,325 $ 140,325 Stewart J. Paperin(1) $ 91,000 $ 74,325 $ 165,325 Jordan Zimmerman(1) (3) $ 38,918 $ 42,761 $ 81,679 Includes each quarter. As of December 31, 2014, the aggregate number of unvested shares outstanding from the 2011 award for each of our non-executive directors was as follows: Mr. Bell: 984, Mr. Guba: 984, Mr. Hain: 984, Mr. Hollihan: 984, Mr. Paperin: 984, and Ms. Downey: 0. “Governance Documents.��
CORPORATE GOVERNANCE INFORMATION2013,2014, our Board of Directors held three meetings.four meetings and acted by written consent in lieu of a meeting on four occasions. Our audit committeeAudit Committee held threefive meetings, our Compensation Committee held two meetings and our compensation committeeNominating and nominating and corporate governance committee eachCorporate Governance Committee held one meeting.three meetings. Each of our directors attended at least 75% of the meetings of the Board of Directors and of the Board’s committees on which they served during 2013.lead independent directorLead Independent Director has the following additional responsibilities and authority:········During 2013 and until2013,2014, Mr. Guba, our lead independent director, presidesbegan presiding over executive sessions of our Board of Directors.9http://investor.armourreit.comwww.armourreit.com under “Corporate Governance.“Governance Documents.” Informationaudit committeeAudit Committee are Mr. Paperin, Mr. Hain and Mr. Hollihan, with Mr. Paperin serving as chairman. The Audit Committee is responsible for, among other things:·······http://investor.armourreit.comwww.armourreit.com under “Corporate Governance.“Governance Documents.”standards.standards and Rule 10A-3(b)(1) of the Exchange Act. The definition of “financially literate” generally means being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement.compensation committee.Compensation Committee. The Compensation Committee is responsible for, among other things:····ARRM;·ARRMACM under the management agreement;·ARRMACM who provide services to us;··http://investor.armourreit.comwww.armourreit.com under “Corporate Governance.“Governance Documents.”10subsidiaries or hadsubsidiaries. There were no transactions during the 2014 fiscal year between us and any relationship requiringof the directors who served as members of the Compensation Committee for any part of the 2014 fiscal year that would require disclosure by us under Item 404the SEC's rules requiring disclosure of Regulation S-K. None of our executive officers serve as a member of the board of directors or compensation committee of any company that has one or more of its executive officers serving as a member of our board of directors or compensation committee.nominatingNominating and corporate governance committee.Corporate Governance Committee. The Nominating and Corporate Governance Committee is responsible for, among other things:·····http://investor.armourreit.comwww.armourreit.com under “Corporate Governance.“Governance Documents.”Following completion of our business combination with Enterprise, each of our directors waived their right to receive fees or stock for the fiscal year ended 2009. From January 1, 2010 through December 21, 2010, independent directors were paid $1,500 for each meeting attended. Due to our equity capital raise completed on December 22, 2010, our equity capital exceeded $100 million and we began paying an annual director’s fee of $50,000 to each of our independent directors, payable quarterly in four equal amounts, and at the director’s choice, either all in cash or half in cash and half in shares of stock. For the year ended December 31, 2010, fees were prorated and each independent director was paid for nine days of compensation for the period of December 22, 2010 through December 31, 2010 under our new compensation system. In 2011,independentnon-executive directors each an annual fee of $50,000, with $25,000 additional being paid to our audit committee chairman. In 2012, we increased annual independent director’s fees to $110,000; 60%$132,000; 50%, or $66,000 of this fee, was payable in cash and 40%, or $44,000 was payable in stock or cash at the option of the director. We also began paying an annual fee of $25,000 to the chairman of our audit committee, payable in cash. Beginning in 2013, we increased annual independent director’s fees to $132,000; 50%, or $66,000 of this fee, iswas payable in cash and 50%, or $66,000 of this fee is payable incommon stock, or a combination of stock and cash (e.g. to cover estimated income taxes) at the option of the director, and began paying director compensation of $132,000 to each of Messrs. Staton and Bell, as non-employee directors, payable in the same manner as to our independent directors. In addition, in 2013 we began paying an annual fee of $25,000 to Mr. Staton, in his role as our non-executive Chairman, payable in cash.director. Beginning in 2014, we began paying our new lead independent director, Mr. Guba, an annual fee of $35,000 for the additional boardBoard responsibilities associated with the role and began paying an annual fee of $25,000 each to Mr. Hollihan as our compensation committeeCompensation Committee chairman and Mr. Hain as our nominatingNominating and corporation governance committeeCorporate Governance Committee chairman for the additional Board responsibilities associated with the roles. Also, beginning in 2014, we increased the annual fee paid to Mr. Staton as our non-executive Chairmanchairman and Mr. Paperin as our audit committeeAudit Committee chairman to $35,000 each.No equity-based We have not made any changes to the annual directors' fees in 2015.was paidlevels and program. On April 7, 2015, we adopted a policy designed to ensure that non-executive directors attain and maintain meaningful levels of stock ownership over time to better align their interests with the interests of ARMOUR's stockholders. We have established stock ownership targets for non-executive directors to beneficially own ARMOUR common shares with a basis equal to a minimum of three times their annual base cash retainer (currently $66,000), or $198,000. Target ownership levels are to be achieved within five years or less and all ARMOUR shares received as compensation (on an after tax basis) are to be retained until the individual’s share ownership targets are met.2010. In 2011,any hedging transactions (including short-selling, options, puts, and calls, as well as derivatives such as swaps, forwards, and futures transactions) with respect to securities of the Company, and (ii) making orcompensation committee approved grants totaling an aggregatedirectors that provide for pension benefits or the deferral of 3,750 shares of stock to eachcompensation.non-employee directors. For each non-employee director, 188 shares vest on the last dayBoard of each fiscal quarter commencing on March 31, 2011 and ending on September 30, 2015. On December 31, 2015, 178 shares will vest at which time all 3,750 sharesDirectors who is also an officer or employee of stock will have vested. In 2012, ourARMOUR or its affiliates does not receive any compensation committee determined that certain performance criteria had been met and therefore approved grants totaling an aggregate of 1,250 additional shares of stock to each of our non-employee directors, subject to the same vesting schedule as the 2011 grants. For each non-employee director, 315 of the director’s 1,250 shares vested on the last day of the first fiscal quarter of 2012 and 63 shares vest on the last day of each fiscal quarter commencing on June 30, 2012 and ending on September 30, 2015. On December 31, 2015, 53 shares will vest, at which time all of the remaining 935 shares of stock will have vested. No additional equity-based compensation was paid to our directors in 2013. See the section titled, “Executive Officer Compensation – ARMOUR Amended and Restated 2009 Stock Incentive Plan”from us for more informationserving on our directors’ equity compensation.11Any member of our Board of Directors who is also an officer, employee or a member of ARMOUR or its affiliates does not receive any compensation from us for serving on our Board of Directors.non-employeenon-executive directors in 2013.20132014.Name Total Daniel C. Staton (1) $ 101,000 $ 66,000 $ 167,000 Marc H. Bell (1) $ 99,000 $ 33,000 $ 132,000 Carolyn Downey (1) $ 92,400 $ 39,600 $ 132,000 Thomas K. Guba (1) $ 101,000 $ 66,000 $ 167,000 Robert C. Hain (1) $ 130,600 $ 26,400 $ 157,000 John P. Hollihan, III (1) $ 117,400 $ 39,600 $ 157,000 Stewart J. Paperin (1) $ 101,000 $ 66,000 $ 167,000 (i) up to $66,000 payable in stock, or a combination of stock and cash at the option of the director, to each of our non-employee directors and (ii) $53,795 in stock awards that were granted to our non-employee directors pursuant to the ARMOUR Amended and Restated 2009 Stock Incentive Plan. The dollar value is computed in accordance with FASB ASC Topic 718. See Note 10 to our consolidated financial statements included in our Annual Report on Form 10-K for a discussion of our accounting of shares of stock and the assumptions used. These awards are based on a weighted average grant date fair value of $6.78 per share. During 2013, the aggregate number of stock awards received by each of our non-employee directors pursuant to the vesting of previous grants was as follows: Mr. Staton: 1004, Mr. Bell: 1004, Ms. Downey: 0, Mr. Guba: 1004, and Mr. Hain: 1004, Mr. Hollihan: 1004, Mr. Paperin: 1004 and Mr. Zimmerman: 502.non-executive directors. Certain of our non-employeenon-executive directors elected to receive a portion of their stock-based board compensationfees in cash to cover estimated income taxes.(2)Ms. Downey joined our Board as a director effective September 2, 2013.Ms. Downey's compensation was pro-rated for Shares are distributed quarterly with the period from September 3, 2013 untilactual number of shares being based on the reported closing trade price of ARMOUR common stock on the NYSE at the end of 2013.(3)Zimmerman resigned from our Board effective August 2, 2013.Staton: 984, Mr. Zimmerman's compensation represents his compensation for 2013 pro-rated for the period from January 1, 2013 through August, 2013.We anticipate that any waivers of our code of business conduct and ethics will be posted on our website. The code of business conduct and ethics is available at our website athttp://investor.armourreit.comwww.armourreit.com under “Corporate Governance.“Governance Documents.”ARRM has also adopted policies applying to its employees, which prohibit insider trading, tipping and certain transactions in ARMOUR stock including margining, short selling and transactions in options on ARMOUR stock.http://investor.armourreit.comwww.armourreit.com under “Corporate Governance.”http://investor.armourreit.comwww.armourreit.com. Copies of these documents are also available in print to any stockholder who requests them. Requests should be sent to: ARMOUR Residential REIT, Inc., 3001 Ocean Drive, Suite 201, Vero Beach, Florida 32963, Attention: James R. Mountain.
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below:
below:
Director
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Name | Age | Position | ||
Scott J. Ulm |
| Co-Chief Executive Officer, Co-Vice Chairman, Chief Investment Officer and Head of Risk Management | ||
Jeffrey J. Zimmer |
| Co-Chief Executive Officer, Co-Vice Chairman and President | ||
James R. Mountain |
| Chief Financial Officer, Treasurer and Secretary | ||
Mark Gruber |
| Chief Operating Officer and Head of Portfolio Management |
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total equity awards granted in a fiscal year divided by total weighted-average shares of common stock outstanding for the year) was 0.31%, 0.29%, 0.35% and 0.35%0% (since no equity awards were granted in 2014), respectively. Some analysts weight full value awards, such as those granted by ARMOUR, more heavily than equity option awards. For example, weighting our awards by a factor of 2.5 results in an adjusted burn rate of 0.78%, 0.73%, 0.88% and 0.88%0%, respectively. The substantial majority of our awards to date vest ratably over a period of 20 quarters. These vesting schedules are designed to both further the retention, incentive and goal alignment objectives of the awards as well as to appropriately apportion the expense of the awards. The resulting realized dilution rate (which is the total shares issued upon vesting, net of withholdings divided by total weighted-average shares of common stock outstanding for the year) was 0.03%, 0.05%, 0.08% and 0.08%, respectively. The expense recognized by ARMOUR is based on the closing market price on the days that shares vest.
2014.
The Compensation Committee believes that the 2013 grants, together with our prior equity grants, fairly reflect our overall prior performance and continue to motivate our senior management team to enhance long-term stockholder value.
Compensation Committee.
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We have determined that the Second Amended Plan is necessary because our success is dependent, in large part, on our ability through our management agreement with ARRM and our equity incentive program to attract, motivate and retain high-performing senior executives who are committed to our core values of stockholder value, prudent risk-taking and integrity.
Since we began awarding equity compensation in 2011, the number of our executive officers has doubled from two to four and the number of our equity award recipients has tripled from two to six. We believe that if approved, the Second Amended Plan would be a significant factor in our continued ability to motivate and retain our existing executive officers and other key professionals and to attract the additional personnel necessary for our future growth. We do not believe that having an “evergreen plan” (which sets the aggregate number of authorized plan shares equal to a fixed percentage of shares issued and outstanding from time to time) is necessary to achieve these goals. Accordingly, we are not requesting, and do not intend to request, that our stockholders approve an amendment to make our Amended Plan an “evergreen plan.” Based on our prior experience and current expectations, we believe that the 13,000,000 additional shares will provide us with an opportunity to grant equity awards for three to seven years, depending on the performance and growth of ARMOUR.
The Amended Plan allows for the Compensation Committee or the Board to expand the types of awards available under the Amended Plan. The maximum number of shares that may underlie awards in any one year to any eligible person will be determined by the Compensation Committee or the Board. If an award granted under the Plan expires or terminates, the shares subject to any portion of the award that expires or terminates without having been exercised or paid, as the case may be, will again become available for the issuance of additional awards.
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Because we have exhausted the 2,000,000 shares available for equity grants under the Amended Plan, approval of the Second Amended Plan is critical to achieving these objectives and our continued success. We believe that equity compensation is an essential part of our compensation program to help us attract and retain talent in order to create stockholder value and the combination of our management agreement and our equity compensation provides the appropriate balance to encourage long-term performance without excessive risk taking. Failure to approve the Second Amended Plan would be disruptive because it would force our compensation committee to rely exclusively on cash to compensate and incentivize our executive officers and other key professionals, which would increase cash compensation expense and reduce cash flow available for distribution to our stockholders. Alternatively, if the Second Amended Plan is not approved, we may need to implement cash-based incentive plans in order to attempt to achieve these objectives. We believe that equity awards under the Second Amended Plan represent the superior alternative, in terms of both efficiency and effectiveness. Not only would continuing the current approach avoid potential disruptions in our relationship with our executive officers and other key professionals, but it would reduce the likelihood that we would need to rely on cash incentive awards in the future and reduce cash flow available for distribution to our stockholders.
Plan Category |
| Number of Securities to be Issued upon the Vesting of Stock Awards |
| Weighted-Average Price of Restricted Stock |
| Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans |
Equity Compensation Plans Approved by Stockholders(1) |
| 2,000,000 | $ | 7.01 |
| 0 |
Equity Compensation Plans Not Approved by Stockholders |
| – |
| – |
| – |
Total |
| 2,000,000 | $ | 7.01 |
| 0 |
Plan Category | Number of Securities to be Issued upon the Vesting of Stock Awards | Weighted-Average Price of Restricted Stock | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans | |||||||
Equity Compensation Plans Approved by Stockholders (1) | 2,126,219 | $ | 6.51 | 12,873,781 | ||||||
Equity Compensation Plans Not Approved by Stockholders | — | – | — | |||||||
Total | 2,126,219 | $ | 6.51 | 12,873,781 |
Consists of our Amendedthe Plan under which the Compensation Committee or Board of Directors generally grants common stock, restricted shares of common stock, stock options, performance units, RSUs and stock appreciation rights to employees, officers and directors of ARMOUR and employees of our manager, ARRM.
ACM.
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Name and Principal Position | Year | Stock Awards (1) | All Other Compensation (2) | Total | ||||
Scott J. Ulm Co-Chief Executive Officer, Chief Investment Officer, Head of Risk Management and Co-Vice Chairman | 2014 | $0 | $334,340 | $334,340 | ||||
2013 | $3,593,915 | $602,654 | $4,196,569 | |||||
2012 | $1,920,746 | $421,055 | $2,341,801 | |||||
Jeffrey J. Zimmer Co-Chief Executive Officer, Co-Vice Chairman and President | 2014 | $0 | $334,340 | $334,340 | ||||
2013 | $3,593,915 | $602,654 | $4,196,569 | |||||
2012 | $1,920,746 | $421,055 | $2,341,801 | |||||
James R. Mountain Chief Financial Officer, Treasurer and Secretary | 2014 | $0 | $35,978 | $35,978 | ||||
2013 | $560,747 | $62,526 | $623,273 | |||||
2012(3) | $0 | $0 | $0 | |||||
Mark Gruber (4) Chief Operating Officer and Head of Portfolio Management | 2014 | $0 | $40,837 | $40,837 | ||||
2013 | $458,796 | $73,298 | $532,094 | |||||
2012 | $214,200 | $42,180 | $256,380 |
Name and Principal Position |
| Year |
| Stock Awards (1) |
| All Other Compensation (2) |
| Total |
Scott J. Ulm Co-Chief Executive Officer, Chief Investment |
| 2013 | $ | 871,904 | $ | 602,654 | $ | 1,474,558 |
Officer, Head of Risk Management and |
| 2012 |
| 545,803 |
| 421,055 |
| 966,858 |
Co-Vice Chairman |
| 2011 |
| 105,211 |
| 92,611 |
| 197,822 |
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Jeffrey J. Zimmer |
| 2013 | $ | 871,904 | $ | 602,654 | $ | 1,474,558 |
Co-Chief Executive Officer, |
| 2012 |
| 545,803 |
| 421,055 |
| 966,858 |
Co-Vice Chairman and President |
| 2011 |
| 105,211 |
| 92,611 |
| 197,822 |
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James R. Mountain |
| 2013 | $ | 80,425 | $ | 62,526 | $ | 142,951 |
Chief Financial Officer, Treasurer and Secretary |
| 2012(3) |
| – |
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| 2011(3) |
| – |
| – |
| – |
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Mark Gruber (4) |
| 2013 | $ | 104,699 | $ | 73,298 | $ | 177,997 |
Chief Operating Officer and |
| 2012 |
| 55,980 |
| 42,180 |
| 98,160 |
Head of Portfolio Management |
| 2011 |
| 14,385 |
| 13,065 |
| 27,450 |
(1)
Includes 73,125 shares granted to each of Messrs. Ulm and Zimmer and 10,000 shares granted to Mr. Gruber pursuant to our Amended Plan in the first three months of 2011, which began vesting on a quarterly basis on March 31, 2011 at the rate of 3,657 shares per quarter with respect to each of Messrs. Ulm and Zimmer and at the rate of 500 shares per quarter with respect to Mr. Gruber, provided the named executive officer remains an employee or director of our company on the vesting date. In 2012, our compensation committee determined that certain performance criteria had been met and therefore approved grants totaling an aggregate of 24,375 additional shares of stock each to Messrs. Ulm and Zimmer, subject to the same vesting schedule as the 2011 grants. 6,090 of the 24,375 shares vested on the last day of the first fiscal quarter of 2012 and 1,218 shares vest on the last day of each fiscal quarter commencing on June 30, 2012 and ending on September 30, 2015. On December 31, 2015, 1,233 shares will vest at which time all the remaining 18,285 shares of stock will have vested; also includes 269,012 shares granted to each of Messrs. Ulm and Zimmer and 30,000 shares granted to Mr. Gruber pursuant to our Amended Plan in 2012 multiplied by the first three monthsclosing trade price of 2012, which began vesting on a quarterly basis on March 31, 2012 at the rate of 13,450 shares per quarter with respect to each of Messrs. Ulm and Zimmer and at the rate of 1,500 shares per quarter with respect to Mr. Gruber, provided the named executive officer remains an employee or director of our companyARMOUR common stock on the vesting date; also includesNYSE as of the date of the grants. For 2013, this column represents the 530,067 shares granted to each of Messrs. Ulm and Zimmer, 82,706 shares granted to Mr. Mountain, and 67,669 shares granted to Mr. Gruber pursuant to our Amendedthe Plan in 2013 multiplied by the first three monthsclosing trade price of 2013, which began vesting on a quarterly basis on March 31, 2013 at the rate of 26,504 shares per quarter with respect to each of Messrs. Ulm and Zimmer, at the rate of 4,135 shares per quarter with respect to Mr. Mountain, and at the rate of 3,383 shares per quarter with respect to Mr. Gruber, provided the named executive officer remains an employee or director of our companyARMOUR common stock on the vesting date. 75,104 shares eachNYSE as of the 530,076 shares granted to Messrs. Ulm and Zimmer are subject to the stockholders' approvaldate of the Second Amended Plan set forthgrants. There were no grants of equity-based compensation in Proposal 2 below. These awards are based2014. See "Note 10 - Stock Based Compensation" to our financial statements contained in our Annual Report on Form 10-K for the fair value of the vested shares on each vesting date. For additional information, see the section titled, “Executive Officer Compensation— ARMOUR Amended and Restated 2009 Stock Incentive Plan”
year ended December 31, 2014.
All other compensation represents dividends and distributions on unvested shares of stock.
Mr. Mountain’s employment commenced on September 1, 2012. Like Messrs. Ulm and Zimmer, he is compensated by ARRMACM for his service to ARMOUR. Mr. Mountain was not granted any equity-based compensation in 2012.
Mr. Gruber became our Chief Operating Officer on September 3, 2013. Like Messrs. Ulm, Zimmer, and Mountain, he is compensated by ARRMACM for his service to ARMOUR. Mr. Gruber began receiving equity-based compensation before being appointed to Chief Operating Officer.
19
2013
The following table sets forth information with respect to plan-based stock
Name |
| Date of Grant |
| Stock Awards: Number of Shares (1) |
| Weighted Average Grant Date Fair Value of Stock Awards (2) |
Scott J. Ulm |
| March 18, 2013 |
| 530,076(3) | $ | 3,593,915 |
Jeffrey J. Zimmer |
| March 18, 2013 |
| 530,076(3) | $ | 3,593,915 |
James R. Mountain |
| March 18, 2013 |
| 82,706 | $ | 560,746 |
Mark Gruber (4) |
| March 18, 2013 |
| 67,669 | $ | 458,795 |
(1)
These shares were granted pursuant2014, based on 2013 performance, and we do not intend to make any such equity based compensation awards in 2015, based on 2014 performance. We awarded equity compensation to our Amended Plan and began vesting on a quarterly basis on March 31, 2013 at the rate of 26,504 shares per quarter with respect to Messrs. Ulm and Zimmer, at the rate of 4,135 shares per quarter with respect to Mr. Mountain, and at the rate of 3,383 shares per quarter with respect to Mr. Gruber, provided the named executive officer remains an employee or director of our company on the vesting date. These awards areofficers in 2013, based on a weighted average grant date fair valuecompany and individual performance in 2012. The following table reflects grants of $6.78 per share. For additional information, see the section titled, “Executive Officer Compensation— ARMOUR Amended and Restated 2009 Stock Incentive Plan.”
(2)
Based on a weighted average grant date fair value of $6.78 per share. Based on $4.01 per share, the closing price of our common stock on the NYSE on December 31, 2013, the value of the stockplan-based awards for Messrs. Ulm, Zimmer, Mountain and Gruber are $2,125,604, $2,125,604, $331,651 and $271,532, respectively.
(3)
75,104 shares each of the 530,076 shares granted to Messrs. Ulm and Zimmer are subject to the stockholders' approval of the Second Amended Plan set forth in Proposal 2 below.
(4)
Mr. Gruber became our Chief Operating Officer on September 3, 2013. Mr. Gruber began receiving equity-based compensation before being appointed to Chief Operating Officer.
2014.
Name | Date of Grant | Stock Awards: Number of Shares | Weighted Average Grant Date Fair Value of Stock Awards | |||||||
Scott J. Ulm | — | 0 | $ | 0 | ||||||
Jeffrey J. Zimmer | — | 0 | $ | 0 | ||||||
James R. Mountain | — | 0 | $ | 0 | ||||||
Mark Gruber | — | 0 | $ | 0 |
2014
2014:
|
| Stock Awards | ||
Name |
| Number of Shares or Units of Stock that Have Not Vested (1) |
| Market Value of Shares or Units of Stock That Have Not Vested (2) |
Scott J. Ulm |
| 624,476 | $ | 2,504,148 |
Jeffrey J. Zimmer |
| 624,476 | $ | 2,504,148 |
James R. Mountain |
| 66,166 | $ | 265,325 |
Mark Gruber |
| 76,137 | $ | 305,309 |
Stock Awards | ||||
Name | Number of Shares or Units of Stock that Have Not Vested (1) | Market Value of Shares or Units of Stock That Have Not Vested (2) | ||
Scott J. Ulm | 445,164 | $1,638,204 | ||
Jeffrey J. Zimmer | 445,164 | $1,638,204 | ||
James R. Mountain | 49,626 | $182,624 | ||
Mark Gruber | 54,605 | $200,946 |
Mr. Mountain's stock awards in the table above reflect shares granted to Mr. Mountain which vest at the rate of 4,135 shares per quarter, beginning on March 31, 2013.
Based on $4.01$3.68 per share, the closing trade price of ourARMOUR common stock on the NYSE on December 31, 2013.
2014.
2014
|
| Stock Awards | ||
Name |
| Number of Shares Acquired on Vesting |
| Value Realized on Vesting (1) |
Scott J. Ulm |
| 179,312 | $ | 871,904 |
Jeffrey J. Zimmer |
| 179,312 | $ | 871,904 |
James R. Mountain |
| 16,540 | $ | 80,425 |
Mark Gruber |
| 21,532 | $ | 104,699 |
(1)
Based
Stock Awards | ||||
Name | Number of Shares Acquired on Vesting | Value Realized on Vesting (1) | ||
Scott J. Ulm | 179,312 | $716,351 | ||
Jeffrey J. Zimmer | 179,312 | $716,351 | ||
James R. Mountain | 16,540 | $66,077 | ||
Mark Gruber | 21,532 | $86,020 |
20
·
·
·
·
Name |
| Value of Vesting Stock Awards (1) |
Scott J. Ulm | $ | 2,504,148 |
Jeffrey J. Zimmer | $ | 2,504,148 |
James R. Mountain | $ | 265,325 |
Mark Gruber | $ | 305,309 |
Name | Value of Vesting Stock Awards (1) | |||
Scott J. Ulm | $ | 1,638,204 | ||
Jeffrey J. Zimmer | $ | 1,638,204 | ||
James R. Mountain | $ | 182,624 | ||
Mark Gruber | $ | 200,946 |
Consists of all outstanding plan-based stock awards held by such named executive officer that had not vested as of December 31, 2013. Based2014. The values are based on $4.01$3.68 per share, the closing price of ourARMOUR common stock on the NYSE on December 31, 2013.
2014
.21
1.
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K set forth elsewhere in this Proxy Statement; and
2.
Based on the review and discussion referred to in the preceding paragraph, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.
1. | The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K set forth elsewhere in this Proxy Statement; and |
2. | Based on the review and discussion referred to in the preceding paragraph, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement. |
22
·
·
·
Name and Address of Beneficial Owner (1) |
| Amount and Nature of Beneficial Ownership (2) |
| Approximate Percentage of Outstanding Common Stock |
|
|
|
|
|
Officers and Directors |
|
|
|
|
|
|
|
|
|
Scott J. Ulm |
| 208,896 |
| * |
Jeffrey J. Zimmer |
| 80,151 |
| * |
James R. Mountain |
| 26,540 |
| * |
Mark Gruber |
| 23,116 |
| * |
Daniel C. Staton |
| 2,058,951(3) |
| * |
Marc H. Bell |
| 1,886,914(4) |
| * |
Carolyn Downey |
| 3,253 |
| * |
Thomas K. Guba |
| 198,396 |
| * |
Robert C. Hain |
| 11,164(5) |
| * |
John P. Hollihan, III |
| 49,796 |
| * |
Stewart J. Paperin |
| 23,396 |
| * |
All directors and executive officers as a group (11 individuals) |
| 4,570,573 |
| 1.28% |
|
|
|
|
|
5% Holders |
|
|
|
|
|
|
|
|
|
BlackRock, Inc. |
| 30,377,102(6) |
| 8.49% |
The Vanguard Group Inc. |
| 20,165,015(7) |
| 5.64% |
Name and Address of Beneficial Owner (1) | Amount and Nature of Beneficial Ownership (2) | Approximate Percentage of Outstanding Common Stock | |||
Officers and Directors | |||||
Scott J. Ulm | 307,516 | * | |||
Jeffrey J. Zimmer | 229,806 | * | |||
James R. Mountain | 47,215 | * | |||
Mark Gruber | 43,278 | * | |||
Daniel C. Staton | 2,058,730 | (3) | * | ||
Marc H. Bell | 117,194 | * | |||
Carolyn Downey | 35,407 | * | |||
Thomas K. Guba | 241,437 | * | |||
Robert C. Hain | 21,133 | (4) | * | ||
John P. Hollihan, III | 64,123 | * | |||
Stewart J. Paperin | 46,437 | (5) | * | ||
All directors and executive officers as a group (11 individuals) | 3,212,277 | * | |||
5% Holders | |||||
BlackRock, Inc. | 30,871,345 | (6) | 8.76% | ||
The Vanguard Group Inc. | 20,809,947 | (7) | 5.91% |
Unless otherwise noted, the business address of each of the following is 3001 Ocean Drive, Suite 201, Vero Beach, Florida 32963.
Includes shares of common stock which the person has the right to acquire within 60 days of March 17, 2014.
April 6, 2015.
Includes 1,756,793 Represents 2,056,918 shares ownedheld by DM Staton Family Investments, Ltd.Limited Partnership and 1,812 shares held by Mr. Staton's spouse. These shares are pledged as security for a line of credit with Credit Suisse. Mr. Staton is a membergeneral partner and a limited partner of DM Staton Family Investments, Ltd and has sole voting and investment power over the 1,756,793 shares of common stock owned by Staton Family Investments, Ltd. Also includes shares of common stock owned by Staton Bell Blank Check LLC (“SBBC”).Limited Partnership. Mr. Staton is a 50% owner of SBBCdeemed to beneficially own and has a pecuniary interest in the shares owned therein. Mr. Staton is deemed the beneficial owner of 75,075 shares of common stock, representing 50% of the 150,150 total shares owned outright by SBBC.
these shares.
Includes Represents shares of common stock held by SBBC. Mr. Bell is a 50% owner of SBBC and has a pecuniary interest in the shares owned therein. Mr. Bell is deemed the beneficial owner of 75,075 shares of common stock, representing 50% of the 150,150 total shares owned outright by SBBC. Also, includes shares of common stock owned by Barbicon Capital REIT Fund, LLC (“Barbicon”), formerly known as Blackbeard Capital Domestic REIT Fund, L.P. Mr. Bell is a managing member of the limited liability company that serves as the general partner of Barbicon and is deemed to beneficially own 50% of the shares owned by Barbicon and has a pecuniary interest therein. Mr. Bell may be deemed the beneficial owner of 1,756,792 shares of common stock, representing 50% of the 3,513,585 shares owned by Barbicon.
(5)
Includes 8,387 shares of common stock owned indirectly throughRCH Guernsey Trust with HW Trust Company Limited acting as Trusteesthe trustee of the RCH Guernsey Trust. Mr. Hain is deemed to beneficially own the 8,387 shares held by the HW Trust Company Limited as Trustee of The RCH Guernsey Trust and has a pecuniary interest in the shares held therein.
Based on a Schedule 13G/A filed with the SEC on January 28, 2014,22, 2015, BlackRock, Inc., a Delaware corporation, which serves as the parent holding company or control person of its subsidiaries, BlackRock Advisors (UK) Limited, Blackrock Advisors, LLC, Blackrock Asset Management Canada Limited, BlackRock Asset Management Ireland Limited, Blackrock Fund Advisors, Blackrock Institutional Trust Company, N.A., Blackrock InternationalInvestment Management (Australia) Limited, Blackrock Investment Management (UK) Ltd., and Blackrock Investment Management, LLC and BlackRock Life Limited, through which it acquired the shares of common stock held directly by BlackRock, Inc., has sole voting and dispositive power with respect to 29,059,143 shares30,041,888 and 30,377,10230,871,345 shares, respectively, and shared voting and dispositive power with respect to no shares. The address of BlackRock, Inc. is 40 East 52nd Street, New York, NY, 10022.
Based on a Schedule 13G13G/A filed with the SEC on February 11, 2014.10, 2015. The Vanguard Group Inc. has sole voting and dispositive power with respect to 564,851507,974 shares and 19,628,66420,330,473 shares, respectively, and shared voting and dispositive power with respect to no shares and 536,351479,474 shares, respectively. The Vanguard Group Inc.'s address is 100 Vanguard Blvd., Malvern, PA, 19355.
23
On November 5,
SBBC elected not to exercise this termination option at the expiration of the Initial Term.
24
(calculated (calculated before underwriting fees and distribution expenses, if any), less (1) capital returned to our stockholders (whichincludes (i) the purchase price of equity securities we repurchase, and (ii) dividends we pay to the extent that such dividends are deemed a return of capital for tax purposes), as adjusted to exclude one-time charges pursuant to changes in generally accepted accounting principles ("GAAP") and certain non-cash charges after discussion between ARRMour manager and the Board and approved by a majority of the Board, until gross equity raised reached $1 billion, and (b) 0.75% of the gross equity raised in excess of $1 billion, divided by twelve, which is our current management fee rate, calculated and payable monthly in arrears.
ARRM
ARRM
If
ARRMInitial Term.
25
At the annual meeting, we are asking our stockholders to approve an amendment to the ARMOUR Amended and Restated 2009 Stock Incentive Plan (the “Amended Plan”), which would have the effect of increasing the aggregate number of shares of common stock authorized for issuance pursuant to the Amended Plan from 2,000,00 shares of common stock to 15,000,000 shares. Our Board has approved the amendment to the Amended Plan. The proposed Second Amended and Restated 2009 Stock Incentive Plan the (the “Second Amended Plan”) is attached to this proxy statement asAppendix A.
The Amended Plan is intended to attract, retain and reward directors, officers and other employees, and other persons who provide services to us (“Eligible Individuals”). The Amended Plan allows us to grant a variety of stock-based and cash-based awards to Eligible Individuals.
The Amended Plan is administered by our compensation committee, which consists solely of independent directors. The Compensation Committee, appointed by the Board, has the full authority to administer and interpret the Amended Plan, to authorize the granting of awards, to determine the eligibility to receive an award, to determine the number of shares of common stock to be covered by each award (subject to the limitations provided in the Amended Plan), to determine the terms, provisions and conditions of each award (which may not be inconsistent with the terms of the Amended Plan), to prescribe the form of instruments evidencing awards and to take any other actions and make all other determinations that it deems necessary or appropriate in connection with the Amended Plan or the administration or interpretation thereof. In connection with this authority, the Compensation Committee may, among other things, establish required periods of employment and/or performance goals that must be met in order for awards to be granted or to vest, or for the restrictions on any such awards to lapse. The Compensation Committee administering the Amended Plan consists of independent directors as defined by the listing standards of the NYSE and will, at such times as we are subject to Section 162(m) of the Code, qualify as an outside director for purposes of Section 162(m) of the Code.
Why our Board of Directors Believes our Stockholders Should Approve the Second Amended Plan.
We have determined that the Second Amended Plan is necessary because our success is dependent, in large part, on our ability through our management agreement with ARRM and our equity incentive program to attract, motivate and retain high-performing senior executives who are committed to our core values of stockholder value, prudent risk-taking and integrity. The REIT and mortgage investment industry is highly competitive and attracting and retaining experienced professionals represents a comparative advantage. We compete with a large number of REIT companies, funds, financial institutions and specialty finance companies for executive talent which has significant career mobility. Many of those companies are privately owned and/or have significantly larger market capitalization than we do. Accordingly, they may have significantly more flexibility and resources as it relates to compensating their key professionals. We are a specialized company in a highly competitive industry and our ability to attract, retain and reward our executive officers and other key professionals is essential to maintaining our competitive position. We strongly believe that offering incentives in the form of equity awards is critical to our ability to do so and aligns the interests of our executive officers and other key professionals with those of our stockholders.
Since we began awarding equity compensation in 2011, the number of our executive officers has doubled from two to four and the number of our equity award recipients has tripled from two to six. We believe that if approved, Second Amended Plan would be a significant factor in our continuing ability to motivate and retain our existing executive officers and other key professionals and to attract the additional personnel necessary for our future growth. We do not believe that having an “evergreen plan” (which sets the aggregate number of authorized plan shares equal to a fixed percentage of shares issued and outstanding from time to time) is necessary to achieve these goals. Accordingly, we are not requesting, and do not intend to request, that our stockholders approve an amendment to make our Amended Plan an “evergreen plan.” Based on our prior experience and current expectations, we believe that the 13,000,000 additional shares will provide us an opportunity to grant equity awards for three to seven years, depending on the performance and growth of ARMOUR.
The Compensation Committee’s objectives in developing and administering our equity compensation program are to:
·
focus decision-making and behavior on goals that are consistent with our overall business strategy without threatening the long-term viability of our company;
·
attract, retain and motivate highly-skilled executive officers that will contribute to our successful performance;
·
align the interests of our executive officers with the interests of our stockholders by motivating executives to increase long-term stockholder value;
·
provide compensation opportunities that are competitive within industry standards thereby reflecting the value of the position in the marketplace;
·
support a culture committed to paying for performance where compensation is commensurate with the level of performance achieved; and
·
maintain flexibility and discretion to allow us to recognize the unique characteristics of our operations and strategy, and our prevailing business environment, as well as changing labor market dynamics.
26
Because we have exhausted the 2,000,000 shares available for equity grants under the Amended Plan, approval of the Second Amended Plan is critical to achieving these objectives and our continued success. We believe that equity compensation is an essential part of our compensation program to help us attract and retain talent in order to create stockholder value and the combination of our management agreement and our equity compensation provides the appropriate balance to encourage long-term performance without excessive risk taking. Failure to approve the Second Amended Plan would be disruptive because it would force our compensation committee to rely exclusively on cash to compensate and incentivize our executive officers and other key professionals, which would increase cash compensation expense and reduce cash flow available for distribution to our stockholders. Alternatively, if the Second Amended Plan is not approved, we may need to implement cash-based incentive plans in order to attempt to achieve these objectives. We believe that equity awards under the Second Amended Plan represent the superior alternative, in terms of both efficiency and effectiveness. Not only would continuing the current approach avoid potential disruptions in our relationship with our executive officers and other key professionals, but it would reduce the likelihood that we would need to rely on cash incentive awards in the future and reduce cash flow available for distribution to our stockholders.
The use of our stock as part of our compensation program is also important to our continued success because it fosters a pay-for-performance culture, which is an important element of our overall compensation program. We believe that equity compensation motivates our named executive officers and other key professionals to create stockholder value because the value they realize from equity compensation is based on our common stock performance.
Finally, we believe that we have demonstrated our commitment to sound equity compensation practices. We recognize that equity compensation awards dilute stockholder equity and, therefore, we have carefully managed our equity incentive compensation. Our equity compensation practices are targeted to be consistent with market norms and we believe our historical share usage has been responsible and mindful of stockholder interests, as described further below.
Available Shares
The Amended Plan provides for grants of common stock, restricted shares of common stock, stock options, performance shares, performance units, stock appreciation rights and other equity-based and cash-based awards. The Board initially allocated up to 250,000 shares to be available under the ARMOUR 2009 Stock Incentive Plan (the “Plan”). In the first three months of 2011, we granted a total of 192,500 shares of stock, which vests over quarterly periods commencing on March 31, 2011 and ending on December 31, 2015. On July 18, 2011, the Plan was amended and restated to allocate up to 2,000,000 shares to be available under the Amended Plan. In the first three months of 2012, we granted a total of 655,524 shares of stock, 598,024 of which vest equally over quarterly periods commencing on March 31, 2012 and ending on December 31, 2016. In the first three months of 2013, we granted a total of 1,278,195 shares of stock, which vests equally over quarterly periods commencing on March 31, 2013 and ending on December 31, 2017. The 2011, 2012 and 2013 grants described above, together with separate equity grants in the aggregate amount of 23,989 shares which formed a portion of the directors’ fees of our independent directors, collectively exceeds the 2,000,000 shares available under the Amended Plan by 150,208 shares. Therefore, of the 1,278,195 share awards granted in 2013, 150,208 of the share awards were granted subject to stockholders approval of the Second Amended Plan, as follows:
NEW PLAN BENEFITS
ARMOUR Second Amended and Restated 2009 Stock Incentive Plan | |||||
|
|
|
|
| |
Name and Position |
| Dollar Value (1) |
| Number of Shares (2) | |
Scott J. Ulm, Co-Chief Executive Officer | $ | 301,667 |
| 75,104 |
|
Jeffrey J. Zimmer, Co-Chief Executive Officer | $ | 301,667 |
| 75,104 |
|
Total | $ | 602,334 |
| 150,208 | (3) |
(1)
Based on a share price of $4.01 per share, the closing price of our common stock on the NYSE on December 31, 2013.
(2)
Represents share awards to grantee that are subject to stockholder approval of the Second Amended Plan.
(3)
While other individuals have received a substantial portion of the 1,278,195 share grants in 2013, Messrs. Ulm and Zimmer have agreed to cover the entire 150,208 share excess in the event our stockholders do not approve the Second Amended Plan.
We are now seeking stockholder approval of the Second Amended Plan to increase the aggregate number of shares of common stock authorized for issuance under the Amended Plan from 2,000,000 shares of common stock to 15,000,000 shares. The Second Amended Plan will remain identical to the Amended Plan in all other respects. The Board believes that 13,000,000 additional shares represents a reasonable amount of potential equity dilution and provides a powerful incentive for our executive officers and key professionals to increase the value of the Company for all stockholders. In order to determine the number of shares to be authorized under the Second Amended Plan, the Compensation Committee and the Board considered the need for the shares and the potential dilution that awarding the requested shares may have on current stockholders.
27
The Amended Plan allows for the Board to expand the types of awards available under the Amended Plan. The maximum number of shares that may underlie awards in any one year to any eligible person will be determined by the Compensation Committee or the Board. If an award granted under the Amended Plan expires or terminates, the shares subject to any portion of the award that expires or terminates without having been exercised or paid, as the case may be, will again become available for the issuance of additional awards.
Our compensation committee has not awarded, and does not intend to award, any equity compensation to our executive officers based on 2013 performance. The compensation committee has not granted, and does not intend to grant, awards to continuing officers and other key professionals with respect to years where either total stockholder return or total economic return are negative. The Amended and Restated 2009 Stock Incentive Plan also prohibits the repricing of previous awards. We will continue to monitor our use of equity compensation in the future to ensure that our overhang and burn rate are maintained at or below comparative market values.
In the first quarter of 2013, our compensation committee awarded the equity compensation disclosed in this proxy statement based on company and individual performance in 2012. The Compensation Committee determined the equity compensation awarded in 2013 was commensurate with our 2012 performance and was comparable to other agency mortgage REITs. These and previous equity grants were deemed necessary to attract, retain and motivate our senior management team and have provided increased goal alignment between the participants and the company. For example, the 2013 equity awards have decreased substantially in value compared to their grant-date value as disclosed in this proxy statement, which parallels the performance of our common stock during that time period.
Overhang, Burn Rate and Dilution
We take a disciplined approach to the expense management of our compensation programs. The compensation committee has historically limited, and intends to continue to limit, the total equity awards granted in any given year to no more 1.25% of the weighted-average shares of common stock outstanding for the year. For fiscal years 2011, 2012 and 2013, our burn rate (which is total equity awards granted in a fiscal year divided by total weighted-average shares of common stock outstanding for the year) was 0.31%, 0.29% and 0.35%, respectively. Some analysts weight full value awards, such as those granted by ARMOUR, more heavily than equity option awards. For example, weighting our awards by a factor of 2.5 results in an adjusted burn rate of 0.78%, 0.73% and 0.88%, respectively. The substantial majority of our awards to date vest ratably over a period of 20 quarters. These vesting schedules are designed to both further the retention, incentive and goal alignment objectives of the awards as well as to appropriately apportion the expense of the awards. The resulting realized dilution rate (which is the total shares issued upon vesting, net of withholdings divided by total weighted-average shares of common stock outstanding for the year) was 0.03%, 0.05% and 0.08%, respectively. The expense recognized by ARMOUR is based on the closing market price of the common stock on the days that shares vest.
We have proactively managed the overall affordability of our equity compensation programs to prevent dilutive effects to our stockholders and, in each year since our initial public offering, have consistently returned a significant amount of cash to our stockholders through dividends and, beginning in 2013, share repurchases. Since July of 2011, when our Amended Plan was last amended to increase the number of shares authorized to 2,000,000, we have accretively grown ARMOUR’s common share base by 378% from 74,781,000 common shares to 357,613,485 common shares outstanding at December 31, 2013, thereby significantly reducing the relative overhang of our equity awards on stockholders. Dividends paid on our common stock totaled more than $650 million for 2011, 2012, and 2013. Additionally, during 2013 we repurchased 16,771,000 common shares, capturing an estimated $14 million in value for continuing stockholders, as compared to the total dilutive charges to equity of approximately $2.5 million for our Amended Plan from its inception through December 31, 2013.
The overhang and burn rate of grants to date under the Amended Plan we believe to be exceptionally low and well below the median for S&P 500 companies and companies within the mortgage REIT industry. As of December 31, 2013, 357,613,485 shares of our common stock were outstanding and 1,479,318 shares were subject to outstanding unvested equity awards under the Amended Plan, 150,208 shares of which are subject to stockholder approval of the Second Amended Plan. Thus, our year-end overhang (which are shares granted but not yet vested under equity compensation awards outstanding divided by shares outstanding) for each of the last three years has been less than 0.5%.
Awards Under the Amended Plan
Restricted Shares of Common Stock. A restricted share award is an award of shares of common stock that is subject to restrictions on transferability and such other restrictions, if any, the Compensation Committee may impose at the date of grant. Grants of restricted shares of common stock will be subject to vesting schedules as determined by the Compensation Committee. The restrictions may lapse separately or in combination at such times, under such circumstances, including, without limitation, a specified period of employment or the satisfaction of pre-established criteria, in such installments or otherwise, as the Compensation Committee may determine. Except to the extent restricted under the award agreement relating to the restricted shares of common stock, a participant granted restricted shares of common stock has all of the rights of a stockholder, including, without limitation, the right to vote and the right to receive dividends or distributions on the restricted shares of common stock. Such dividends and distributions, however, may be held in escrow until all restrictions on the underlying shares have lapsed. Although dividends may be paid on restricted shares of common stock, whether or not vested, at the same rate and on the same date as on shares of our common stock, holders of restricted shares of common stock are generally prohibited from selling such shares until they vest.
28
Stock Options and Stock Appreciation Rights. A stock option is a right to purchase a specified number of shares of our common stock at an exercise price established at the date of grant. Stock options granted may be either non − qualified stock options or incentive stock options (which are intended to qualify as “incentive stock options” within Section 422 of the Code). A stock appreciation right (“SAR”) entitles the recipient to receive, upon surrender of the SAR, an amount of cash or number of shares of our common stock having a fair market value equal to the positive difference, if any, between the fair market value of one share of common stock on the date of exercise and the exercise price of the SAR. The Compensation Committee will specify at the time an option or SAR is granted when and in what proportions an option or SAR becomes vested and exercisable in accordance with the Plan.
Performance-Based Awards. The Compensation Committee may grant performance awards, which may be cash or equity based, including performance units and performance shares. Generally, performance awards require satisfaction of pre-established performance goals, consisting of one or more business criteria and a targeted performance level with respect to such criteria as a condition of awards being granted, becoming exercisable or settleable, or as a condition to accelerating the timing of such events. The Compensation Committee will set the performance goals used to determine the amount payable pursuant to a performance award.
Other Awards. The Compensation Committee may also award to certain eligible persons shares of our common stock, or RSUs or other awards whose value is based, in whole or in part, on our common stock. Such awards may be in addition to any other awards made under the Amended Plan, and subject to such other terms and restrictions as determined by the Compensation Committee in its discretion.
Change in Control
Upon a change in control, as defined in the Amended Plan, the Compensation Committee may make certain adjustments which it, in its discretion, determines are necessary or appropriate in light of the change in control. These include, accelerating the vesting of some or all of the awards under the Amended Plan, terminating all awards under the Amended Plan (allowing for either the exercise of vested awards or a cash payment in lieu of vested awards), converting the awards to the right to receive proceeds in the event of liquidation, or a combination of any of the foregoing. In the event that the Compensation Committee does not terminate or convert an award upon a change in control, then the award shall be assumed, or substantially equivalent awards shall be substituted, by the acquiring, or succeeding corporation (or an affiliate thereof).
Our Board may amend, alter or discontinue the Amended Plan but cannot take any action that would impair the rights of a participant without such participant’s consent. To the extent necessary and desirable, the Board must obtain approval of our stockholders for any amendment that would:
·
other than through adjustment as provided in the Amended Plan, increase the total number of shares of common stock reserved for issuance under the Amended Plan;
·
change the class of persons eligible to participate in the Amended Plan;
·
reprice any stock option awards under the Amended Plan; or
·
otherwise require such approval.
The Compensation Committee may amend the terms of any award granted under the Amended Plan, prospectively or retroactively, but generally may not impair the rights of any participant without his or her consent.
Recommendation of the Board of Directors
ARMOUR’s Board of Directors unanimously recommends a vote“FOR” approval of an amendment to our Amended Plan to increase the aggregate number of shares of common stock authorized for issuance thereunder from 2,000,000 shares to 15,000,000 shares. Our Board has approved the amendment to the Amended Plan.
29
PROPOSAL 3 - RATIFICATION OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTANTS
|
| Year Ended December 31, 2013 |
| Year Ended December 31, 2012 |
Audit Fees | $ | 675,000 | $ | 659,698 |
Audit-Related Fees |
| 150,000 |
| 450,000 |
Tax Fees |
| 23,400 |
| 20,000 |
All Other Fees |
| — |
| — |
|
|
|
|
|
Total | $ | 848,400 | $ | 1,129,398 |
Year Ended December 31, 2014 | Year Ended December 31, 2013 | |||||||
Audit Fees | $ | 600,000 | $ | 675,000 | ||||
Audit-Related Fees | 30,000 | 150,000 | ||||||
Tax Fees | 57,640 | 23,400 | ||||||
All Other Fees | — | — | ||||||
Total | $ | 687,640 | $ | 848,400 |
2013.
30
2014.
31
with.
December 15, 2015.
March 19, 2014
32
ARMOUR RESIDENTIAL REIT, INC. | Your phone or Internet vote authorizes the named proxies to vote your shares int he same manner as if you marked, signed and returned your proxy card. Votes submitted electronically over the Internet or by telephone must be received by 7:00 p.m., Eastern Time, on May 26, 2015. | ||
:INTERNET/MOBILE - | |||
www.cstproxyvote.com | |||
Use the Internet to vote your proxy. Have your proxy card available when you access the above website. Follow the prompts to vote your shares. | |||
(PHONE - 1-(866) 894-0537 | |||
Use a touch-tone telephone to vote your proxy. Have your proxy card available when you call. Follow the voting instructions to vote your shares. | |||
PLEASE DO NOT RETURN THE PROXY CARD IF YOU ARE VOTING ELECTRONICALLY OR BY PHONE. | *MAIL - Mark, sign and date your proxy card and return it in the postage-paid envelope provided. |
PROXY | Please mark your votes like this | x | ||||||||||
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" PROPOSALS 1, 2 AND 3 AND "ONE (1) YEAR" FOR PROPOSAL 4 | ||||||||||||
FOR | AGAINST | ABSTAIN | ||||||||||
Proposa1 1 - To elect nine (9) directors to ARMOUR's Board of Directors as listed below to serve until ARMOUR's 2016 annual meeting of stockholders and until his or her successor is duly elected and qualified. | FOR All Nominees o | WITHHELD As to All Nominees o | Proposal 3 - Advisory approval of ARMOUR's 2014 executive compensation. | ooo | ||||||||
Proposal 4 - Advisory approval of the frequency of future stockholder advisory votes relating to ARMOUR's executive compensation. | ||||||||||||
ONE (1) YEAR | TWO (2) YEARS | THREE (3) YEARS | ABSTAIN | |||||||||
NOMINEES: 01 Scott J. Ulm 06 Thomas K. Guba 02 Jeffrey J. Zimmer 07 Robert C. Hain 03 Daniel C. Staton 08 John P. Hollihan, III 04 Marc H. Bell 09 Stewart J. Paperin 05 Carolyn Downey | o | o | o | o | ||||||||
(Instruction: To withhold authority to vote for any individual nominee, strike a line through that nominee's name in the list above) | o | Please check the box if you plan on attending the Annual Meeting. | ||||||||||
IN THEIR DISCRETION THE PROXIES ARE AUTHORIZED AND EMPOWERED TO BOTE UPON OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING OF STOCKHOLDERS AND ALL CONTINUATIONS, ADJOURNMENTS OR POSTPONEMENTS THEREOF. | ||||||||||||
FOR | AGAINST | ABSTAIN | ||||||||||
Proposal 2 - To ratify the appointment of Deloitte & Touche LLP as ARMOUR's independent registered certified public accountants for the fiscal year 2015. | ooo | |||||||||||
COMPANY ID: | ||||||||||||
PROXY NUMBER: | ||||||||||||
ACCOUNT NUMBER: |
Signature | Signature, if held jointly | Date | , 2015. | |||
Note: Please sign exactly as name appears hereon. When shares are held by joint owners, both should sign. When signing as attorney, executor, administrator, trustee, guardian, or corporate officer, please give title as such. |
ANNEX A
SECOND AMENDED AND RESTATED
(As proposed to be amended)
1.
ESTABLISHMENT, EFFECTIVE DATE AND TERM
ARMOUR Residential REIT, Inc., a Maryland corporation hereby establishes the ARMOUR Residential REIT, Inc. Second Amended and Restated 2009 Stock Incentive Plan. The Effective Date of the Plan shall be the date that the Plan was approved by the Board in accordance with the laws of the State of Maryland or such later date as provided in the resolutions adopting the Plan; provided, however, that the shareholders of ARMOUR shall have approved this Plan within twelve months following such approval by the Board. Any Award issued under the Plan prior to the shareholders’ approval of the Plan shall be contingent on such approval.
2.
PURPOSE
The purpose of the Plan is to enable ARMOUR to attract, retain, reward and motivate Eligible Individuals by providing them with an opportunity to acquire or increase a proprietary interest in ARMOUR and to incentivize them to expend maximum effort for the growth and success of the Company, so as to strengthen the mutuality of the interests between the Eligible Individuals and the shareholders of ARMOUR.
3.
ELIGIBILITY
Awards may be granted under the Plan to any Eligible Individual, as determined by the Committee from time to time, on the basis of their importance to the business of the Company pursuant to the terms of the Plan.
4.
ADMINISTRATION
(a)
Committee. The Plan shall be administered by the Committee, which shall have the full power and authority to take all actions, and to make all determinations not inconsistent with the specific terms and provisions of the Plan deemed by the Committee to be necessary or appropriate to the administration of the Plan, any Award granted or any Award Agreement entered into hereunder. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Award Agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect as it may determine in its sole discretion. The decisions by the Committee shall be final, conclusive and binding with respect to the interpretation and administration of the Plan, any Award or any Award Agreement entered into under the Plan.
(b)
Delegation to Officers or Employees. The Committee may designate officers or employees of the Company to assist the Committee in the administration of the Plan. The Committee may delegate authority to officers or employees of the Company to grant Awards and execute Award Agreements or other documents on behalf of the Committee in connection with the administration of the Plan, subject to whatever limitations or restrictions the Committee may impose and in accordance with applicable law.
(c)
Designation of Advisors. The Committee may designate professional advisors to assist the Committee in the administration of the Plan. The Committee may employ such legal counsel, consultants, and agents as it may deem desirable for the administration of the Plan and may rely upon any advice and any computation received from any such counsel, consultant, or agent. The Company shall pay all expenses and costs incurred by the Committee for the engagement of any such counsel, consultant, or agent.
(d)
Participants Outside the U.S. In order to conform with the provisions of local laws and regulations in foreign countries in which the Company operates, the Committee shall have the sole discretion to (i) modify the terms and conditions of the Awards granted under the Plan to Eligible Individuals located outside the United States; (ii) establish subplans with such modifications as may be necessary or advisable under the circumstances present by local laws and regulations; and (iii) take any action which it deems advisable to comply with or otherwise reflect any necessary governmental regulatory procedures, or to obtain any exemptions or approvals necessary with respect to the Plan or any subplan established hereunder.
(e)
Liability and Indemnification. No Covered Individual shall be liable for any action or determination made in good faith with respect to the Plan, any Award granted hereunder or any Award Agreement entered into hereunder. The Company shall, to the maximum extent permitted by applicable law and the Articles of Incorporation and Bylaws of ARMOUR, indemnify and hold harmless each Covered Individual against any cost or expense (including reasonable attorney fees reasonably acceptable to the Company) or liability (including any amount paid in settlement of a claim with the approval of the Company), and amounts advanced to such Covered Individual necessary to pay the foregoing at the earliest time and to the fullest extent permitted, arising out of any act
A-1
or omission to act in connection with the Plan, any Award granted hereunder or any Award Agreement entered into hereunder. Such indemnification shall be in addition to any rights of indemnification such individuals may have under applicable law or under the Articles of Incorporation or Bylaws of ARMOUR. Notwithstanding anything else herein, this indemnification will not apply to the actions or determinations made by a Covered Individual with regard to Awards granted to such Covered Individual under the Plan or arising out of such Covered Individual’s own fraud or bad faith.
5.
SHARES OF COMMON STOCK SUBJECT TO PLAN
(a)
Shares Available for Awards. The Common Stock that may be issued pursuant to Awards granted under the Plan shall be treasury shares or authorized but unissued shares of the Common Stock. The total number of shares of Common Stock that may be issued pursuant to Awards granted under the Plan shall be 15,000,000 shares of Common Stock.
(b)
Certain Limitations on Specific Types of Awards. The granting of Awards under this Plan shall be subject to the following limitations:
(i)
With respect to the shares of Common Stock reserved pursuant to this Section, a maximum of one hundred percent (100%) of such shares may be issued in connection with Awards, other than Options and Stock Appreciation Rights, that are settled in Common Stock;
(ii)
With respect to the shares of Common Stock reserved pursuant to this Section, a maximum of six million (6,000,000) of such shares may be subject to grants of Options or Stock Appreciation Rights to any one Eligible Individual during any one fiscal year;
(iii)
With respect to the shares of Common Stock reserved pursuant to this Section, a maximum of six million (6,000,000) of such shares may be subject to grants of Performance Shares, Restricted Stock, and Awards of Common Stock to any one Eligible Individual during any one fiscal year; and
(iv)
The maximum value at Grant Date of grants of Performance Units which may be granted to any one Eligible Individual during any one fiscal year shall be one million dollars ($1,000,000).
(c)
Reduction of Shares Available for Awards. Upon the granting of an Award, the number of shares of Common Stock available under this Section hereof for the granting of further Awards shall be reduced as follows:
(i)
In connection with the granting of an Option or Stock Appreciation Right, the number of shares of Common Stock shall be reduced by the full number of shares of Common Stock subject to the Option or Stock Appreciation Right; and
(ii)
In connection with the granting of an Award that may be settled in Common Stock, other than the granting of an Option or Stock Appreciation Right, the number of shares of Common Stock shall be reduced by the full number of shares of Common Stock subject to the Award.
(d)
Cancelled, Forfeited, or Surrendered Awards. Notwithstanding anything to the contrary in this Plan, if any Award that may be settled in Common Stock is cancelled, forfeited, terminated or settled in cash for any reason, the shares of Common Stock that were subject to such Award shall, to the extent cancelled, forfeited, terminated or settled in cash, immediately become available for future Awards granted under the Plan as if said Award had never been granted; provided, however, that any shares of Common Stock subject to an Award which are tendered cancelled, forfeited, withheld or terminated in order to pay the Exercise Price, purchase price or any taxes or tax withholdings on an Award shall not be available for future Awards granted under the Plan.
(e)
Recapitalization. If the outstanding shares of Common Stock are increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of ARMOUR by reason of any recapitalization, reclassification, reorganization, stock split, reverse split, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock of ARMOUR or other increase or decrease in such shares effected without receipt of consideration by ARMOUR occurring after the Effective Date, an appropriate and proportionate adjustment shall be made by the Committee to (i) the aggregate number and kind of shares of Common Stock available under the Plan, (ii) the aggregate limit of the number of shares of Common Stock that may be granted pursuant to an Incentive Stock Option, (iii) the aggregate limit of the number of shares of Common Stock that may be issued in connection with Awards, other than Stock Options and Stock Appreciation Rights, that are settled in Common Stock, (iv) the limits on the number of shares of Common Stock that may be granted to an Eligible Employee in any one fiscal year, (v) the calculation of the reduction or increase of shares of Common Stock available under the Plan, (vi) the number and kind of shares of Common Stock issuable upon exercise (or vesting) of outstanding Awards granted under the Plan; and/or (vii) the Exercise Price of outstanding Options granted under the Plan. No fractional shares of Common Stock or units of other securities shall be issued pursuant to any such adjustment under this Section 5(e), and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole share or unit. Any adjustments made under this Section 5(e) with respect to any Incentive Stock Options must be made in accordance with Code Section 424.
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6.
OPTIONS
(a)
Grant of Options. Subject to the terms and conditions of the Plan, the Committee may grant to such Eligible Individuals as the Committee may determine, Options to purchase such number of shares of Common Stock and on such terms and conditions as the Committee shall determine in its sole and absolute discretion. Each grant of an Option shall satisfy the requirements set forth in this Section.
(b)
Type of Options. Each Option granted under the Plan may be designated by the Committee, in its sole discretion, as either (i) an Incentive Stock Option, or (ii) a Non-Qualified Stock Option. Options designated as Incentive Stock Options that fail to continue to meet the requirements of Code Section 422 shall be re-designated as Non-Qualified Stock Options automatically on the date of such failure to continue to meet such requirements without further action by the Committee. In the absence of any designation, Options granted under the Plan will be deemed to be Non-Qualified Stock Options.
(c)
Exercise Price. Subject to the limitations set forth in the Plan relating to Incentive Stock Options, the Exercise Price of an Option shall be fixed by the Committee and stated in the respective Award Agreement, provided that the Exercise Price of the shares of Common Stock subject to such Option may not be less than Fair Market Value of such Common Stock on the Grant Date, or if greater, the par value of the Common Stock.
(d)
Limitation on Repricing. Unless such action is approved by ARMOUR’s shareholders in accordance with applicable law: (i) no outstanding Option granted under the Plan may be amended to provide an Exercise Price that is lower than the then-current Exercise Price of such outstanding Option (other than adjustments to the Exercise Price pursuant to Sections 5(e) and 11); (ii) the Committee may not cancel any outstanding Option and grant in substitution therefore new Awards under the Plan covering the same or a different number of shares of Common Stock and having an Exercise Price lower than the then-current Exercise Price of the cancelled Option (other than adjustments to the Exercise Price pursuant to Sections 5(e) and 11); (iii) the Committee may not authorize the repurchase of an outstanding Option which has an Exercise Price that is higher than the then-current fair market value of the Common Stock (other than adjustments to the Exercise Price pursuant to Sections 5(e) and 11); and (iv) the Committee may not cancel any outstanding Option and grant in substitution therefore new Awards as part of a strategy to materially enhance the position of the holder of such Options or Stock Appreciation Rights with respect to their value as of the time of such substitution (other than adjustments pursuant to Sections 5(e) and 11).
(e)
Limitation on Option Period. Subject to the limitations set forth in the Plan relating to Incentive Stock Options and unless otherwise provided by the Committee, Options granted under the Plan and all rights to purchase Common Stock thereunder shall terminate no later than the tenth anniversary of the Grant Date of such Options, or on such earlier date as may be stated in the Award Agreement relating to such Option. In the case of Options expiring prior to the tenth anniversary of the Grant Date, the Committee may in its discretion, at any time prior to the expiration or termination of said Options, extend the term of any such Options for such additional period as it may determine, but in no event beyond the tenth anniversary of the Grant Date thereof.
(f)
Limitations on Incentive Stock Options. Notwithstanding any other provisions of the Plan, the following provisions shall apply with respect to Incentive Stock Options granted pursuant to the Plan.
(g)
Limitation on Grants. Incentive Stock Options may only be granted to Section 424 Employees. The aggregate Fair Market Value (determined at the time such Incentive Stock Option is granted) of the shares of Common Stock for which any individual may have Incentive Stock Options which first become vested and exercisable in any calendar year (under all incentive stock option plans of the Company) shall not exceed $100,000. Options granted to such individual in excess of the $100,000 limitation, and any Options issued subsequently which first become vested and exercisable in the same calendar year, shall automatically be treated as Non-Qualified Stock Options.
(i)
Minimum Exercise Price. In no event may the Exercise Price of a share of Common Stock subject an Incentive Stock Option be less than 100% of the Fair Market Value of such share of Common Stock on the Grant Date.
(ii)
Ten Percent Shareholder. Notwithstanding any other provision of the Plan to the contrary, in the case of Incentive Stock Options granted to a Section 424 Employee who, at the time the Option is granted, owns (after application of the rules set forth in Code Section 424(d)) stock possessing more than ten percent of the total combined voting power of all classes of stock of ARMOUR, such Incentive Stock Options (i) must have an Exercise Price per share of Common Stock that is at least 110% of the Fair Market Value as of the Grant Date of a share of Common Stock, and (ii) must not be exercisable after the fifth anniversary of the Grant Date.
(h)
Vesting Schedule and Conditions. No Options may be exercised prior to the satisfaction of the conditions and vesting schedule provided for in the Award Agreement relating thereto or in the Plan.
(i)
Exercise. When the conditions to the exercise of an Option have been satisfied, the Participant may exercise the Option only in accordance with the following provisions. The Participant shall deliver to ARMOUR a written notice
A-3
stating that the Participant is exercising the Option and specifying the number of shares of Common Stock which are to be purchased pursuant to the Option, and such notice shall be accompanied by payment in full of the Exercise Price of the shares for which the Option is being exercised, by one or more of the methods provided for in the Plan. Unless otherwise provided by the Committee, said notice must be delivered to ARMOUR at its principal office and addressed to the attention of Chief Financial Officer. An attempt to exercise any Option granted hereunder other than as set forth in the Plan shall be invalid and of no force and effect.
(j)
Payment. Payment of the Exercise Price for the shares of Common Stock purchased pursuant to the exercise of an Option shall be made by one of the following methods:
(i)
by cash, certified or cashier’s check, bank draft or money order;
(ii)
through the delivery to ARMOUR of shares of Common Stock which have been previously owned by the Participant for the requisite period necessary to avoid a charge to ARMOUR’s earnings for financial reporting purposes; such shares shall be valued, for purposes of determining the extent to which the Exercise Price has been paid thereby, at their Fair Market Value on the date of exercise; without limiting the foregoing, the Committee may require the Participant to furnish an opinion of counsel acceptable to the Committee to the effect that such delivery would not result in ARMOUR incurring any liability under Section 16(b) of the Exchange Act;
(iii)
through a “cashless exercise sale and remittance procedure” pursuant to which the Participant shall concurrently provide irrevocable instructions (A) to a brokerage firm approved by the Committee to effect the immediate sale of the purchased shares and remit to ARMOUR, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate Exercise Price payable for the purchased shares plus all applicable federal, state and local income, employment, excise, foreign and other taxes required to be withheld by the Company by reason of such exercise and (B) to ARMOUR to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale; or
(iv)
by any other method which the Committee, in its sole and absolute discretion and to the extent permitted by applicable law, may permit.
(k)
Termination of Employment, Disability or Death. Unless otherwise provided in an Award Agreement, upon the termination of the employment or other service of a Participant with Company for any reason, all of the Participant’s outstanding Options (whether vested or unvested) shall be subject to the rules of this paragraph. Upon such termination, the Participant’s unvested Options shall expire. Notwithstanding anything in this Plan to the contrary, the Committee may provide, in its sole and absolute discretion, that following the termination of employment or other service of a Participant with the Company for any reason (i) any unvested Options held by the Participant that vest solely upon a future service requirement shall vest in whole or in part, at any time subsequent to such termination of employment or other service, and or (ii) a Participant or the Participant’s estate, devisee or heir at law (whichever is applicable), may exercise an Option, in whole or in part, at any time subsequent to such termination of employment or other service and prior to the termination of the Option pursuant to its terms. Unless otherwise determined by the Committee, temporary absence from employment because of illness, vacation, approved leaves of absence or military service shall not constitute a termination of employment or other service.
(i)
Termination for Reason Other Than Cause, Disability or Death. If a Participant’s termination of employment or other service is for any reason other than death, Disability, Cause or a voluntary termination within ninety (90) days after occurrence of an event which would be grounds for termination of employment or other service by the Company for Cause, any Option held by such Participant, may be exercised, to the extent exercisable at termination, by the Participant at any time within a period not to exceed ninety (90) days from the date of such termination, but in no event after the termination of the Option pursuant to its terms.
(ii)
Disability. If a Participant’s termination of employment or other service with the Company is by reason of a Disability of such Participant, the Participant shall have the right at any time within a period not to exceed one (1) year after such termination, but in no event after the termination of the Option pursuant to its terms, to exercise, in whole or in part, any vested portion of the Option held by such Participant at the date of such termination;provided, however, that if the Participant dies within such period, any vested Option held by such Participant upon death shall be exercisable by the Participant’s estate, devisee or heir at law (whichever is applicable) for a period not to exceed one (1) year after the Participant’s death, but in no event after the termination of the Option pursuant to its terms.
(iii)
Death. If a Participant dies while in the employment or other service of the Company, the Participant’s estate or the devisee named in the Participant’s valid last will and testament or the Participant’s heir at law who inherits the Option has the right, at any time within a period not to exceed one (1) year after the date of such Participant’s death, but in no event after the termination of the Option pursuant to its terms, to exercise, in whole or in part, any portion of the vested Option held by such Participant at the date of such Participant’s death.
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(iv)
Termination for Cause. In the event the termination is for Cause or is a voluntary termination within ninety (90) days after occurrence of an event which would be grounds for termination of employment or other service by the Company for Cause (without regard to any notice or cure period requirement), any Option held by the Participant at the time of such termination shall be deemed to have terminated and expired upon the date of such termination.
7.
STOCK APPRECIATION RIGHTS
(a)
Grant of Stock Appreciation Rights. Subject to the terms and conditions of the Plan, the Committee may grant to such Eligible Individuals as the Committee may determine, Stock Appreciation Rights, in such amounts and on such terms and conditions as the Committee shall determine in its sole and absolute discretion. Each grant of a Stock Appreciation Right shall satisfy the requirements as set forth in this Section.
(b)
Terms and Conditions of Stock Appreciation Rights. The terms and conditions (including, without limitation, the limitations on the Exercise Price, exercise period, repricing (as set forth in Section 6(d) hereof) and termination) of the Stock Appreciation Right shall be substantially identical (to the extent possible taking into account the differences related to the character of the Stock Appreciation Right) to the terms and conditions that would have been applicable under Section 6 above were the grant of the Stock Appreciation Rights a grant of an Option.
(c)
Exercise of Stock Appreciation Rights. Stock Appreciation Rights shall be exercised by a Participant only by written notice delivered to the Chief Financial Officer of ARMOUR, specifying the number of shares of Common Stock with respect to which the Stock Appreciation Right is being exercised.
(d)
Payment of Stock Appreciation Right. Unless otherwise provided in an Award Agreement, upon exercise of a Stock Appreciation Right, the Participant or Participant’s estate, devisee or heir at law (whichever is applicable) shall be entitled to receive payment, in cash, in shares of Common Stock, or in a combination thereof, as determined by the Committee in its sole and absolute discretion. The amount of such payment shall be determined by multiplying the excess, if any, of the Fair Market Value of a share of Common Stock on the date of exercise over the Fair Market Value of a share of Common Stock on the Grant Date, by the number of shares of Common Stock with respect to which the Stock Appreciation Rights are then being exercised. Notwithstanding the foregoing, the Committee may limit in any manner the amount payable with respect to a Stock Appreciation Right by including such limitation in the Award Agreement.
8.
RESTRICTED STOCK
(a)
Grant of Restricted Stock. Subject to the terms and conditions of the Plan, the Committee may grant to such Eligible Individuals as the Committee may determine, Restricted Stock, in such amounts and on such terms and conditions as the Committee shall determine in its sole and absolute discretion. Each grant of Restricted Stock shall satisfy the requirements as set forth in this Section.
(b)
Restrictions. The Committee shall impose such restrictions on any Restricted Stock granted pursuant to the Plan as it may deem advisable including, without limitation; time based vesting restrictions, or the attainment of Performance Goals. Shares of Restricted Stock subject to the attainment of Performance Goals will be released from restrictions only after the attainment of such Performance Goals has been certified by the Committee in accordance with Section 9(d).
(c)
Certificates and Certificate Legend. With respect to a grant of Restricted Stock, ARMOUR may issue a certificate evidencing such Restricted Stock to the Participant or issue and hold such shares of Restricted Stock for the benefit of the Participant until the applicable restrictions expire. ARMOUR may legend the certificate representing Restricted Stock to give appropriate notice of such restrictions. In addition to any such legends, each certificate representing shares of Restricted Stock granted pursuant to the Plan shall bear the following legend:
“The sale or other transfer of the shares of stock represented by this certificate, whether voluntary, involuntary, or by operation of law, are subject to certain terms, conditions, and restrictions on transfer as set forth in The ARMOUR Residential REIT, Inc. 2009 Stock Incentive Plan (the “Plan”), and in an Agreement entered into by and between the registered owner of such shares and the ARMOUR Residential REIT, Inc. (the “Company”), dated _____________ (the “Award Agreement”). A copy of the Plan and the Award Agreement may be obtained from the Secretary of the Company.”
(d)
Removal of Restrictions. Except as otherwise provided in the Plan, shares of Restricted Stock shall become freely transferable by the Participant upon the lapse of the applicable restrictions. Once the shares of Restricted Stock are released from the restrictions, the Participant shall be entitled to have the legend required by paragraph (c) above removed from the share certificate evidencing such Restricted Stock and the Company shall pay or distribute to the Participant all dividends and distributions, if any, held in escrow by the Company with respect to such Restricted Stock.
A-5
(e)
Shareholder Rights. Unless otherwise provided in an Award Agreement, until the expiration of all applicable restrictions, (i) the Restricted Stock shall be treated as outstanding, (ii) the Participant holding shares of Restricted Stock may exercise full voting rights with respect to such shares, and (iii) the Participant holding shares of Restricted Stock shall be entitled to receive all dividends and other distributions paid with respect to such shares while they are so held. If any such dividends or distributions are paid in shares of Common Stock, such shares shall be subject to the same restrictions on transferability and forfeitability as the shares of Restricted Stock with respect to which they were paid. Notwithstanding anything to the contrary, at the discretion of the Committee, all such dividends and distributions may be held in escrow by the Company (subject to the same restrictions on forfeitability) until all restrictions on the respective Restricted Stock have lapsed.
(f)
Termination of Service. Unless otherwise provided in an Award Agreement, if a Participant’s employment or other service with the Company terminates for any reason, all unvested shares of Restricted Stock held by the Participant and any dividends or distributions held in escrow by ARMOUR with respect to such Restricted Stock shall be forfeited immediately and returned to the Company. Notwithstanding this paragraph, all grants of Restricted Stock that vest solely upon the attainment of Performance Goals shall be treated pursuant to the terms and conditions that would have been applicable under Section 9(e) as if such grants of Restricted Stock were Awards of Performance Shares. Notwithstanding anything in this Plan to the contrary, the Committee may provide, in its sole and absolute discretion, that following the termination of employment or other service of a Participant with the Company for any reason, any unvested shares of Restricted Stock held by the Participant that vest solely upon a future service requirement shall vest in whole or in part, at any time subsequent to such termination of employment or other service.
9.
PERFORMANCE SHARES AND PERFORMANCE UNITS
(a)
Grant of Performance Shares and Performance Units. Subject to the terms and conditions of the Plan, the Committee may grant to such Eligible Individuals as the Committee may determine, Performance Shares and Performance Units, in such amounts and on such terms and conditions as the Committee shall determine in its sole and absolute discretion. Each grant of a Performance Share or a Performance Unit shall satisfy the requirements as set forth in this Section.
(b)
Performance Goals. Performance Goals will be based on one or more of the following criteria, as determined by the Committee in its absolute and sole discretion: (i) the attainment of certain target levels of, or a specified increase in, ARMOUR’s enterprise value or value creation targets; (ii) the attainment of certain target levels of, or a percentage increase in, ARMOUR’s after-tax or pre-tax profits including, without limitation, that attributable to ARMOUR’s continuing and/or other operations; (iii) the attainment of certain target levels of, or a specified increase relating to, ARMOUR’s operational cash flow or working capital, or a component thereof; (iv) the attainment of certain target levels of, or a specified decrease relating to, ARMOUR’s operational costs, or a component thereof (v) the attainment of a certain level of reduction of, or other specified objectives with regard to limiting the level of increase in all or a portion of bank debt or other of ARMOUR’s long-term or short-term public or private debt or other similar financial obligations of ARMOUR, which may be calculated net of cash balances and/or other offsets and adjustments as may be established by the Committee; (vi) the attainment of a specified percentage increase in earnings per share or earnings per share from ARMOUR’s continuing operations; (vii) the attainment of certain target levels of, or a specified percentage increase in, ARMOUR’s net sales, revenues, net income or earnings before income tax or other exclusions; (viii) the attainment of certain target levels of, or a specified increase in, ARMOUR’s return on capital employed or return on invested capital; (ix) the attainment of certain target levels of, or a percentage increase in, ARMOUR’s after-tax or pre-tax return on shareholder equity; (x) the attainment of certain target levels in the fair market value of ARMOUR’s Common Stock; (xi) the growth in the value of an investment in the Common Stock assuming the reinvestment of dividends; (xii) successful mergers, acquisitions of other companies or assets and any cost savings or synergies associated therewith and/or (xiii) the attainment of certain target levels of, or a specified increase in, EBITDA (earnings before income tax, depreciation and amortization). In addition, Performance Goals may be based upon the attainment by a subsidiary, division or other operational unit of ARMOUR of specified levels of performance under one or more of the measures described above. Further, the Performance Goals may be based upon the attainment by ARMOUR (or a subsidiary, division, facility or other operational unit of ARMOUR) of specified levels of performance under one or more of the foregoing measures relative to the performance of other corporations. With respect to Awards intended to qualify as performance-based compensation under Section 162(m) of the Code, to the extent permitted under Section 162(m) of the Code (including, without limitation, compliance with any requirements for shareholder approval), the Committee may, in its sole and absolute discretion: (i) designate additional business criteria upon which the Performance Goals may be based; (ii) modify, amend or adjust the business criteria described herein; or (iii) incorporate in the Performance Goals provisions regarding changes in accounting methods, corporate transactions (including, without limitation, dispositions or acquisitions) and similar events or circumstances. Performance Goals may include a threshold level of performance below which no Award will be earned, levels of performance at which an Award will become partially earned and a level at which an Award will be fully earned.
(c)
Terms and Conditions of Performance Shares and Performance Units. The applicable Award Agreement shall set forth (i) the number of Performance Shares or the dollar value of Performance Units granted to the Participant; (ii) the Performance Period and Performance Goals with respect to each such Award; (iii) the threshold, target and maximum shares of Common Stock or dollar values of each Performance Share or Performance Unit and corresponding Performance Goals, and (iv) any other terms and conditions as the Committee determines in its sole and absolute discretion. The Committee shall establish, in its sole and absolute discretion, the Performance Goals for the applicable Performance Period for each Performance Share or Performance
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Unit granted hereunder. Performance Goals for different Participants and for different grants of Performance Shares and Performance Units need not be identical. A holder of Performance Shares or Performance Units is not entitled to the rights of a holder of our Common Stock. No payments shall be made with respect to unvested Performance Shares and Performance Units.
(d)
Determination and Payment of Performance Units or Performance Shares Earned. As soon as practicable after the end of a Performance Period, the Committee shall determine the extent to which Performance Shares or Performance Units have been earned on the basis of the Company’s actual performance in relation to the established Performance Goals as set forth in the applicable Award Agreement and shall certify these results in writing. No later than the last day of the second month following the end of the calendar year in which the applicable Performance Period ends, the amounts payable or distributable with respect to Performance Shares or Performance Units shall be paid or distributed to the Participant or the Participant’s estate, devisee or heir at law (whichever is applicable). Unless otherwise provided in an Award Agreement, the Committee shall determine in its sole and absolute discretion whether payment with respect to the Performance Share or Performance Unit shall be made in cash, in shares of Common Stock, or in a combination thereof. For purposes of making payment or a distribution with respect to a Performance Share or Performance Unit, the cash equivalent of a share of Common Stock shall be determined by the Fair Market Value of the Common Stock on the day the Committee designates the Performance Shares or Performance Units to be payable.
(e)
Termination of Employment. Unless otherwise provided in an Award Agreement, if a Participant’s employment or other service with the Company terminates for any reason, all of the Participant’s outstanding Performance Shares and Performance Units shall be subject to the rules of this Section.
(i)
Termination for Reason Other Than Death or Disability. If a Participant’s employment or other service with the Company terminates prior to the expiration of a Performance Period with respect to any Performance Units or Performance Shares held by such Participant for any reason other than death or Disability, the outstanding Performance Units or Performance Shares held by such Participant for which the Performance Period has not yet expired shall terminate upon such termination and the Participant shall have no further rights pursuant to such Performance Units or Performance Shares.
(ii)
Termination of Employment for Death or Disability. If a Participant’s employment or other service with the Company terminates by reason of the Participant’s death or Disability prior to the end of a Performance Period, the Participant, or the Participant’s estate, devisee or heir at law (whichever is applicable) shall be entitled to a payment of the Participant’s outstanding Performance Units and Performance Share at the end of the applicable Performance Period, pursuant to the terms of the Plan and the Participant’s Award Agreement;provided, however, that the Participant shall be deemed to have earned only that proportion (to the nearest whole unit or share) of the Performance Units or Performance Shares granted to the Participant under such Award as the number of full months of the Performance Period which have elapsed since the first day of the Performance Period for which the Award was granted to the end of the month in which the Participant’s termination of employment or other service, bears to the total number of months in the Performance Period, subject to the attainment of the Performance Goals associated with the Award as certified by the Committee. The right to receive any remaining Performance Units or Performance Shares shall be canceled and forfeited.
10.
OTHER AWARDS
Awards of shares of Common Stock, phantom stock, restricted stock units and other awards that are valued in whole or in part by reference to, or otherwise based on, Common Stock, may also be made, from time to time, to Eligible Individuals as may be selected by the Committee. Such Common Stock may be issued in satisfaction of awards granted under any other plan sponsored by the Company or compensation payable to an Eligible Individual. In addition, such awards may be made alone or in addition to or in connection with any other Award granted hereunder. The Committee may determine the terms and conditions of any such award. Each such award shall be evidenced by an Award Agreement between the Eligible Individual and the Company which shall specify the number of shares of Common Stock subject to the award, any consideration therefore, any vesting or performance requirements and such other terms and conditions as the Committee shall determine in its sole and absolute discretion.
11.
CHANGE IN CONTROL
Unless otherwise provided in an Award Agreement, upon the occurrence of a Change in Control of ARMOUR, the Committee may in its sole and absolute discretion, provide on a case by case basis that (i) some or all outstanding Awards may become immediately exercisable or vested, without regard to any limitation imposed pursuant to this Plan, (ii) that all Awards shall terminate, provided that Participants shall have the right, immediately prior to the occurrence of such Change in Control and during such reasonable period as the Committee in its sole discretion shall determine and designate, to exercise any vested Award in whole or in part, (iii) that all Awards shall terminate, provided that Participants shall be entitled to a cash payment equal to the Change in Control Price with respect to shares subject to the vested portion of the Award net of the Exercise Price thereof (if applicable), (iv) provide that, in connection with a liquidation or dissolution of ARMOUR, Awards shall convert into the right to receive liquidation proceeds net of the Exercise Price (if applicable) and (v) any combination of the foregoing. In the event that the Committee does not terminate or convert an Award upon a Change in Control of ARMOUR, then the Award shall be assumed, or substantially equivalent Awards shall be substituted, by the acquiring, or succeeding corporation (or an affiliate thereof).
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12.
CHANGE IN STATUS OF PARENT OR SUBSIDIARY
Unless otherwise provided in an Award Agreement or otherwise determined by the Committee, in the event that an entity or business unit which was previously a part of the Company is no longer a part of the Company, as determined by the Committee in its sole discretion, the Committee may, in its sole and absolute discretion: (i) provide on a case by case basis that some or all outstanding Awards held by a Participant employed by or performing service for such entity or business unit may become immediately exercisable or vested, without regard to any limitation imposed pursuant to this Plan; (ii) provide on a case by case basis that some or all outstanding Awards held by a Participant employed by or performing service for such entity or business unit may remain outstanding, may continue to vest, and/or may remain exercisable for a period not exceeding one (1) year, subject to the terms of the Award Agreement and this Plan; and/or (ii) treat the employment or other services of a Participant employed by such entity or business unit as terminated if such Participant is not employed by ARMOUR or any entity that is a part of the Company immediately after such event.
13.
REQUIREMENTS OF LAW
(a)
Violations of Law. The Company shall not be required to sell or issue any shares of Common Stock under any Award if the sale or issuance of such shares would constitute a violation by the individual exercising the Award, the Participant or the Company of any provisions of any law or regulation of any governmental authority, including without limitation any provisions of the Sarbanes-Oxley Act, and any other federal or state securities laws or regulations. Any determination in this connection by the Committee shall be final, binding, and conclusive. The Company shall not be obligated to take any affirmative action in order to cause the exercise of an Award, the issuance of shares pursuant thereto or the grant of an Award to comply with any law or regulation of any governmental authority.
(b)
Registration. At the time of any exercise or receipt of any Award, the Company may, if it shall determine it necessary or desirable for any reason, require the Participant (or Participant’s heirs, legatees or legal representative, as the case may be), as a condition to the exercise or grant thereof, to deliver to the Company a written representation of present intention to hold the shares for their own account as an investment and not with a view to, or for sale in connection with, the distribution of such shares, except in compliance with applicable federal and state securities laws with respect thereto. In the event such representation is required to be delivered, an appropriate legend may be placed upon each certificate delivered to the Participant (or Participant’s heirs, legatees or legal representative, as the case may be) upon the Participant’s exercise of part or all of the Award or receipt of an Award and a stop transfer order may be placed with the transfer agent. Each Award shall also be subject to the requirement that, if at any time the Company determines, in its discretion, that the listing, registration or qualification of the shares subject to the Award upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of or in connection with, the issuance or purchase of the shares thereunder, the Award may not be exercised in whole or in part and the restrictions on an Award may not be removed unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company in its sole discretion. The Participant shall provide the Company with any certificates, representations and information that the Company requests and shall otherwise cooperate with the Company in obtaining any listing, registration, qualification, consent or approval that the Company deems necessary or appropriate. The Company shall not be obligated to take any affirmative action in order to cause the exercisability or vesting of an Award, to cause the exercise of an Award or the issuance of shares pursuant thereto, or to cause the grant of Award to comply with any law or regulation of any governmental authority.
(c)
Withholding. The Committee may make such provisions and take such steps as it may deem necessary or appropriate for the withholding of the minimum amount of taxes that the Company is required by any law or regulation of any governmental authority, whether federal, state or local, domestic or foreign, to withhold in connection with the grant or exercise of an Award, or the removal of restrictions on an Award including, but not limited to: (i) the withholding of delivery of shares of Common Stock until the holder reimburses the Company for the amount the Company is required to withhold with respect to such taxes; (ii) the canceling of any number of shares of Common Stock issuable in an amount sufficient to reimburse the Company for the amount it is required to so withhold; (iii) withholding the amount due from any such person’s wages or compensation due to such person; or (iv) requiring the Participant to pay the Company cash in the amount the Company is required to withhold with respect to such taxes.
(d)
Governing Law. The Plan shall be governed by, and construed and enforced in accordance with, the laws of the State of Maryland.
14.
GENERAL PROVISIONS
(a)
Award Agreements. All Awards granted pursuant to the Plan shall be evidenced by an Award Agreement. Each Award Agreement shall specify the terms and conditions of the Award granted and shall contain any additional provisions as the Committee shall deem appropriate, in its sole and absolute discretion (including, to the extent that the Committee deems appropriate, provisions relating to confidentiality, non-competition, non-solicitation and similar matters). The terms of each Award Agreement need not be identical for Eligible Individuals provided that all Award Agreements comply with the terms of the Plan.
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(b)
Purchase Price. To the extent the purchase price of any Award granted hereunder is less than par value of a share of Common Stock and such purchase price is not permitted by applicable law, the per share purchase price shall be deemed to be equal to the par value of a share of Common Stock.
(c)
Dividends and Dividend Equivalents. Except as provided by the Committee in its sole and absolute discretion or as otherwise provided in Section 5 (e) and subject to Section 8(e) and 9(c) of the Plan, a Participant shall not be entitled to receive, currently or on a deferred basis, cash or stock dividends, Dividend Equivalents, or cash payments in amounts equivalent to cash or stock dividends on shares of Common Stock covered by an Award which has not vested or an Option. The Committee in its absolute and sole discretion may credit a Participant’s Award with Dividend Equivalents with respect to any Awards. To the extent that dividends and distributions relating to an Award are held in escrow by the Company, or Dividend Equivalents are credited to an Award, a Participant shall not be entitled to any interest on any such amounts. The Committee may not grant Dividend Equivalents to an Award subject to performance-based vesting to the extent that the grant of such Dividend Equivalents would limit the Company’s deduction of the compensation payable under such Award for federal tax purposes pursuant to Code Section 162(m).
(d)
Deferral of Awards.. The Committee may from time to time establish procedures pursuant to which a Participant may elect to defer, until a time or times later than the vesting of an Award, receipt of all or a portion of the shares of Common Stock or cash subject to such Award and to receive Common Stock or cash at such later time or times, all on such terms and conditions as the Committee shall determine. The Committee shall not permit the deferral of an Award unless counsel for ARMOUR determines that such action will not result in adverse tax consequences to a Participant under Section 409A of the Code. If any such deferrals are permitted, then notwithstanding anything to the contrary herein, a Participant who elects to defer receipt of Common Stock shall not have any rights as a shareholder with respect to deferred shares of Common Stock unless and until shares of Common Stock are actually delivered to the Participant with respect thereto, except to the extent otherwise determined by the Committee.
(e)
Prospective Employees. Notwithstanding anything to the contrary, any Award granted to a Prospective Employee shall not become vested prior to the date the Prospective Employee first becomes an employee of the Company.
(f)
Issuance of Certificates; Shareholder Rights. ARMOUR shall deliver to the Participant a certificate evidencing the Participant’s ownership of shares of Common Stock issued pursuant to the exercise of an Award as soon as administratively practicable after satisfaction of all conditions relating to the issuance of such shares. A Participant shall not have any of the rights of a shareholder with respect to such Common Stock prior to satisfaction of all conditions relating to the issuance of such Common Stock, and, except as expressly provided in the Plan, no adjustment shall be made for dividends, distributions or other rights of any kind for which the record date is prior to the date on which all such conditions have been satisfied.
(g)
Transferability of Awards. A Participant may not Transfer an Award other than by will or the laws of descent and distribution. Awards may be exercised during the Participant’s lifetime only by the Participant. No Award shall be liable for or subject to the debts, contracts, or liabilities of any Participant, nor shall any Award be subject to legal process or attachment for or against such person. Any purported Transfer of an Award in contravention of the provisions of the Plan shall have no force or effect and shall be null and void, and the purported transferee of such Award shall not acquire any rights with respect to such Award. Notwithstanding anything to the contrary, the Committee may in its sole and absolute discretion permit the Transfer of an Award to a Participant’s “family member” as such term is defined in the Form 8-A Registration Statement under the Securities Act of 1933, as amended, under such terms and conditions as specified by the Committee. In such case, such Award shall be exercisable only by the transferee approved of by the Committee. To the extent that the Committee permits the Transfer of an Incentive Stock Option to a “family member”, so that such Option fails to continue to satisfy the requirements of an incentive stock option under the Code such Option shall automatically be re-designated as a Non-Qualified Stock Option.
(h)
Buyout and Settlement Provisions. Except as prohibited in Section 6(d) of the Plan, the Committee may at any time on behalf of ARMOUR offer to buy out any Awards previously granted based on such terms and conditions as the Committee shall determine which shall be communicated to the Participants at the time such offer is made.
(i)
Use of Proceeds. The proceeds received by ARMOUR from the sale of Common Stock pursuant to Awards granted under the Plan shall constitute general funds of ARMOUR.
(j)
Modification or Substitution of an Award. Subject to the terms and conditions of the Plan, the Committee may modify outstanding Awards. Notwithstanding the following, no modification of an Award shall adversely affect any rights or obligations of the Participant under the applicable Award Agreement without the Participant’s consent. The Committee in its sole and absolute discretion may rescind, modify, or waive any vesting requirements or other conditions applicable to an Award. Notwithstanding the foregoing, without the approval of the shareholders of ARMOUR in accordance with applicable law, an Award may not be modified to reduce the exercise price thereof nor may an Award at a lower price be substituted for a surrender of an Award, provided that the foregoing shall not apply to adjustments or substitutions in accordance with Section 5 or Section 12.
(k)
Amendment and Termination of Plan. The Board may, at any time and from time to time, amend, suspend or terminate the Plan as to any shares of Common Stock as to which Awards have not been granted;provided, however, that the approval of the shareholders of ARMOUR in accordance with applicable law and the Articles of Incorporation and Bylaws of
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ARMOUR shall be required for any amendment: (i) that changes the class of individuals eligible to receive Awards under the Plan: (ii) that increases the maximum number of shares of Common Stock in the aggregate that may be subject to Awards that are granted under the Plan (except as permitted under Section 5 or Section 12 hereof): (iii) the approval of which is necessary to comply with federal or state law (including without limitation Section 162(m) of the Code and Rule 16b-3 under the Exchange Act) or with the rules of any stock exchange or automated quotation system on which the Common Stock may be listed or traded; or (iv) that proposes to eliminate a requirement provided herein that the shareholders of ARMOUR must approve an action to be undertaken under the Plan. Except as permitted under Section 5 or Section 12 hereof, no amendment, suspension or termination of the Plan shall, without the consent of the holder of an Award, alter or impair rights or obligations under any Award theretofore granted under the Plan. Awards granted prior to the termination of the Plan may extend beyond the date the Plan is terminated and shall continue subject to the terms of the Plan as in effect on the date the Plan is terminated.
(l)
Section 409A of the Code. The Plan is intended not to provide for deferral of compensation for purposes of Section 409A of the Code, by means of complying with Section 1.409A-1(b)(4) and/or Section 1.409A-1(b)(5) of the final Treasury regulations issued under Section 409A of the Code. The provisions of the Plan shall be interpreted in a manner that satisfies the requirements of Section 1.409A-1(b)(4) and/or Section 1.409A-1(b)(5) of the final Treasury regulations issued under Section 409A of the Code and the Plan shall be operated accordingly. If any provision of the Plan or any term or condition of any Award would otherwise frustrate or conflict with this intent, the provision, term or condition will be interpreted and deemed amended so as to avoid this conflict.
In the event that following the application of the immediately preceding paragraph, any Award is subject to Section 409A of the Code, the provisions of Section 409A of the Code and the regulations issued thereunder are incorporated herein by reference to the extent necessary for any Award that is subject Section 409A of the Code to comply therewith. In such event, the provisions of the Plan shall be interpreted in a manner that satisfies the requirements of Section 409A of the Code and the related regulations, and the Plan shall be operated accordingly. If any provision of the Plan or any term or condition of any Award would otherwise frustrate or conflict with this intent, the provision, term or condition will be interpreted and deemed amended so as to avoid this conflict.
Notwithstanding any other provisions of the Plan, the Company does not guarantee to any Participant or any other person that any Award intended to be exempt from Section 409A of the Code shall be so exempt, nor that any Award intended to comply with Section 409A of the Code shall so comply, nor will the Company indemnify, defend or hold harmless any individual with respect to the tax consequences of any such failure.
(m)
Notification of 83(b) Election. If in connection with the grant of any Award, any Participant makes an election permitted under Code Section 83(b), such Participant must notify the Company in writing of such election within ten (10) days of filing such election with the Internal Revenue Service.
(n)
Detrimental Activity. All Awards shall be subject to cancellation by the Committee in accordance with the terms of this Section 14(n) if the Participant engages in any Detrimental Activity. To the extent that a Participant engages in any Detrimental Activity at any time prior to, or during the one year period after, any exercise or vesting of an Award but prior to a Change in Control, the Company shall, upon the recommendation of the Committee, in its sole and absolute discretion, be entitled to (i) immediately terminate and cancel any Awards held by the Participant that have not yet been exercised, and/or (ii) with respect to Awards of the Participant that have been previously exercised, recover from the Participant at any time within two (2) years after such exercise but prior to a Change in Control (and the Participant shall be obligated to pay over to the Company with respect to any such Award previously held by such Participant): (A) with respect to any Options exercised, an amount equal to the excess of the Fair Market Value of the Common Stock for which any Option was exercised over the Exercise Price paid (regardless of the form by which payment was made) with respect to such Option; (B) with respect to any Award other than an Option, any shares of Common Stock granted and vested pursuant to such Award, and if such shares are not still owned by the Participant, the Fair Market Value of such shares on the date they were issued, or if later, the date all vesting restrictions were satisfied; and (C) any cash or other property (other than Common Stock) received by the Participant from the Company pursuant to an Award. Without limiting the generality of the foregoing, in the event that a Participant engages in any Detrimental Activity at any time prior to any exercise of an Award and the Company exercises its remedies pursuant to this Section 14(n) following the exercise of such Award, such exercise shall be treated as having been null and void, provided that the Company will nevertheless be entitled to recover the amounts referenced above.
(o)
Disclaimer of Rights. No provision in the Plan, any Award granted hereunder, or any Award Agreement entered into pursuant to the Plan shall be construed to confer upon any individual the right to remain in the employ of or other service with the Company or to interfere in any way with the right and authority of the Company either to increase or decrease the compensation of any individual, including any holder of an Award, at any time, or to terminate any employment or other relationship between any individual and the Company. The grant of an Award pursuant to the Plan shall not affect or limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge, consolidate, dissolve or liquidate, or to sell or transfer all or any part of its business or assets.
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(p)
Unfunded Status of Plan. The Plan is intended to constitute an “unfunded” plan for incentive and deferred compensation. With respect to any payments as to which a Participant has a fixed and vested interest but which are not yet made to such Participant by the Company, nothing contained herein shall give any such Participant any rights that are greater than those of a general creditor of the Company.
(q)
Nonexclusivity of Plan. The adoption of the Plan shall not be construed as creating any limitations upon the right and authority of the Board to adopt such other incentive compensation arrangements (which arrangements may be applicable either generally to a class or classes of individuals or specifically to a particular individual or individuals) as the Board in its sole and absolute discretion determines desirable.
(r)
Other Benefits. No Award payment under the Plan shall be deemed compensation for purposes of computing benefits under any retirement plan of the Company or any agreement between a Participant and the Company, nor affect any benefits under any other benefit plan of the Company now or subsequently in effect under which benefits are based upon a Participant’s level of compensation.
(s)
Headings . The section headings in the Plan are for convenience only; they form no part of this Agreement and shall not affect its interpretation.
(t)
Pronouns . The use of any gender in the Plan shall be deemed to include all genders, and the use of the singular shall be deemed to include the plural and vice versa, wherever it appears appropriate from the context.
(u)
Successors and Assigns . The Plan shall be binding on all successors of the Company and all successors and permitted assigns of a Participant, including, but not limited to, a Participant’s estate, devisee, or heir at law.
(v)
Severability . If any provision of the Plan or any Award Agreement shall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall be severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction.
(w)
Notices . Unless otherwise provided by the Committee, any communication or notice required or permitted to be given under the Plan shall be in writing, and mailed by registered or certified mail or delivered by hand, to ARMOUR, to its principal place of business, attention: Chief Financial Officer, ARMOUR Residential REIT, Inc., and if to the holder of an Award, to the address as appearing on the records of the Company.
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APPENDIX A
DEFINITIONS
“ARMOUR” means ARMOUR Residential REIT, Inc., a Maryland Corporation, including any successor thereto by merger, consolidation, acquisition or otherwise.
“Award” means any Common Stock, Option, Performance Share, Performance Unit, Restricted Stock, Stock Appreciation Right or any other award granted pursuant to the Plan.
“Award Agreement” means a written agreement entered into by ARMOUR and a Participant setting forth the terms and conditions of the grant of an Award to such Participant.
“Board” means the board of directors of ARMOUR.
“Cause” means, with respect to a termination of employment or other service with the Company, a termination of employment or other service due to a Participant’s dishonesty, fraud, insubordination, willful misconduct, refusal to perform services (for any reason other than illness or incapacity) or materially unsatisfactory performance of the Participant’s duties for the Company;provided, however, that if the Participant and the Company have entered into an employment agreement or consulting agreement which defines the term Cause, the term Cause shall be defined in accordance with such agreement with respect to any Award granted to the Participant on or after the effective date of the respective employment or consulting agreement. The Committee shall determine in its sole and absolute discretion whether Cause exists for purposes of the Plan.
“Change in Control” shall be deemed to occur upon:
(a)
any “person” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than ARMOUR, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any company owned, directly or indirectly, by the shareholders of ARMOUR in substantially the same proportions as their ownership of common stock of ARMOUR), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of ARMOUR representing thirty percent (30%) or more of the combined voting power of ARMOUR’s then outstanding securities;
(b)
during any period of two (2) consecutive years, individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in paragraph (a), (c), or (d) of this Section) whose election by the Board or nomination for election by ARMOUR’s shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the Board;
(c)
a consummation of a merger, consolidation, reorganization, or other business combination of ARMOUR with any other entity, other than a merger or consolidation which would result in the voting securities of ARMOUR outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of ARMOUR or such surviving entity outstanding immediately after such merger or consolidation; provided, however, that a merger or consolidation effected to implement a recapitalization of ARMOUR (or similar transaction) in which no person acquires thirty percent (30%) or more of the combined voting power of ARMOUR’s then outstanding securities shall not constitute a Change in Control; or
(d)
complete liquidation of ARMOUR or the consummation of the sale or disposition by ARMOUR of all or substantially all of ARMOUR’s assets other than (x) the sale or disposition of all or substantially all of the assets of ARMOUR to a person or persons who beneficially own, directly or indirectly, at least fifty percent (50%) or more of the combined voting power of the outstanding voting securities of ARMOUR at the time of the sale or (y) pursuant to a spin-off type transaction, directly or indirectly, of such assets to the shareholders of ARMOUR.
However, to the extent that Section 409A of the Code would cause an adverse tax consequence to a Participant using the above definition, the term “Change in Control” shall have the meaning ascribed to the phrase “Change in the Ownership or Effective Control of a Corporation or in the Ownership of a Substantial Portion of the Assets of a Corporation” under Treasury Department Regulation 1.409A-3(i)(5), as revised from time to time, and in the event that such regulations are withdrawn or such phrase (or a substantially similar phrase) ceases to be defined, as determined by the Committee.
“Change in Control Price” means the price per share of Common Stock paid in any transaction related to a Change in Control of ARMOUR.
“Code” means the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder.
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“Committee” means a committee or sub-committee of the Board consisting of two or more members of the Board, none of whom shall be an officer or other salaried employee of the Company, and each of whom shall qualify in all respects as a “non-employee director” as defined in Rule 16b-3 under the Exchange Act, and as an “outside director” for purposes of Code Section 162(m). If no Committee exists, the functions of the Committee will be exercised by the Board;provided, however, that a Committee shall be created prior to the grant of Awards to a Covered Employee and that grants of Awards to a Covered Employee shall be made only by such Committee. Notwithstanding the foregoing, with respect to the grant of Awards to non-employee directors, the Committee shall be the Board.
“Common Stock” means the common stock, par value $0.001 per share, of ARMOUR.
“Company” means ARMOUR, the subsidiaries of ARMOUR, and all other entities whose financial statements are required to be consolidated with the financial statements of ARMOUR pursuant to United States generally accepted accounting principles, and any other entity determined to be an affiliate of ARMOUR as determined by the Committee in its sole and absolute discretion.
“Covered Employee” means “covered employee” as defined in Code Section 162(m)(3).
“Covered Individual” means any current or former member of the Committee, any current or former officer or director of the Company, or any individual designated pursuant to Section 4(c).
“Detrimental Activity” means any of the following: (i) the disclosure to anyone outside the Company, or the use in other than the Company’s business, without written authorization from the Company, of any confidential information or proprietary information, relating to the business of the Company, acquired by a Participant prior to a termination of the Participant’s employment or service with the Company; (ii) activity while employed or providing services that is classified by the Company as a basis for a termination for Cause; (iii) the Participant’s Disparagement, or inducement of others to do so, of the Company or its past or present officers, directors, employees or services; or (iv) any other conduct or act determined by the Committee, in its sole discretion, to be injurious, detrimental or prejudicial to the interests of the Company. For purposes of subparagraph (i) above, the Chief Executive Officer and the General Counsel of the Company shall each have authority to provide the Participant with written authorization to engage in the activities contemplated thereby and no other person shall have authority to provide the Participant with such authorization.
“Disability” means a “permanent and total disability” within the meaning of Code Section 22(e)(3);provided, however, that if a Participant and the Company have entered into an employment or consulting agreement which defines the term Disability for purposes of such agreement, Disability shall be defined pursuant to the definition in such agreement with respect to any Award granted to the Participant on or after the effective date of the respective employment or consulting agreement. The Committee shall determine in its sole and absolute discretion whether a Disability exists for purposes of the Plan.
“Disparagement” means making any comments or statements to the press, the Company’s employees, clients or any other individuals or entities with whom the Company has a business relationship, which could adversely affect in any manner: (i) the conduct of the business of the Company (including, without limitation, any products or business plans or prospects), or (ii) the business reputation of the Company or any of its products, or its past or present officers, directors or employees.
“Dividend Equivalents” means an amount equal to the cash dividends paid by the Company upon one share of Common Stock subject to an Award granted to a Participant under the Plan.
“Effective Date” shall mean the date that the Plan was approved by the shareholders of ARMOUR in accordance with the laws of the State of Maryland or such later date as provided in the resolutions adopting the Plan.
“Eligible Individual” means any employee, officer, director (employee or non-employee director) or consultant of the Company and any Prospective Employee to whom Awards are granted in connection with an offer of future employment with the Company, provided, however, that for purposes of granting Options and Stock Appreciation Rights there shall be excluded from the definition of Eligible Individual any individual performing services for the Company, who does not perform services for ARMOUR or any other entity with respect which Common Stock is “service recipient stock” as such term is defined for purposes of the Treasury regulations promulgated under Section 409A of the Code.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Exercise Price” means the purchase price per share of each share of Common Stock subject to an Award.
“Fair Market Value” means, unless otherwise required by the Code, as of any date, the last sales price reported for the Common Stock on the day immediately prior to such date (i) as reported by the national securities exchange in the United States on which it is then traded, or (ii) if not traded on any such national securities exchange, as quoted on an automated quotation system sponsored by the National Association of Securities Dealers, Inc., or if the Common Stock shall not have been reported or quoted on such date, on the first day prior thereto on which the Common Stock was reported or quoted;provided, however, that the Committee
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may modify the definition of Fair Market Value to reflect any changes in the trading practices of any exchange or automated system sponsored by the National Association of Securities Dealers, Inc. on which the Common Stock is listed or traded. If the Common Stock is not readily traded on a national securities exchange or any system sponsored by the National Association of Securities Dealers, Inc., the Fair Market Value shall be determined in good faith by the Committee.
“Grant Date” means the date on which the Committee approves the grant of an Award or such later date as is specified by the Committee and set forth in the applicable Award Agreement.
“Incentive Stock Option” means an “incentive stock option” within the meaning of Code Section 422.
“Non-Qualified Stock Option” means an Option which is not an Incentive Stock Option.
“Option” means an option to purchase Common Stock granted pursuant to Sections 6 of the Plan.
“Participant” means any Eligible Individual who holds an Award under the Plan and any of such individual’s successors or permitted assigns.
“Performance Goals” means the specified performance goals which have been established by the Committee in connection with an Award.
“Performance Period” means the period during which Performance Goals must be achieved in connection with an Award granted under the Plan.
“Performance Share” means a right to receive a fixed number of shares of Common Stock, or the cash equivalent, which is contingent on the achievement of certain Performance Goals during a Performance Period.
“Performance Unit” means a right to receive a designated dollar value, or shares of Common Stock of the equivalent value, which is contingent on the achievement of Performance Goals during a Performance Period.
“Person” shall mean any person, corporation, partnership, joint venture or other entity or any group (as such term is defined for purposes of Section 13(d) of the Exchange Act), other than a parent or subsidiary of ARMOUR.
“Plan” means this ARMOUR Residential REIT, Inc. Second Amended and Restated 2009 Stock Incentive Plan.
“Prospective Employee” means any individual who has committed to become an employee of the Company within sixty (60) days from the date an Award is granted to such individual, provided, however, that for purposes of granting Options and Stock Appreciation Rights there shall be excluded for the definition of Prospective Employee any individual who does commit to perform services for ARMOUR or any other entity with respect which Common Stock is “service recipient stock” as such term is defined for purposes of the Treasury regulations promulgated under Section 409A of the Code.
“Restricted Stock” means Common Stock subject to certain restrictions, as determined by the Committee, and granted pursuant to Section 8 hereunder.
“Section 424 Employee” means an employee of ARMOUR or any “subsidiary corporation” or “parent corporation” as such terms are defined in and in accordance with Code Section 424. The term “Section 424 Employee” also includes employees of a corporation issuing or assuming any Options in a transaction to which Code Section 424(a) applies.
“Stock Appreciation Right” means the right to receive all or some portion of the increase in value of a fixed number of shares of Common Stock granted pursuant to Section 7 hereunder.
“Transfer” means, as a noun, any direct or indirect, voluntary or involuntary, exchange, sale, bequeath, pledge, mortgage, hypothecation, encumbrance, distribution, transfer, gift, assignment or other disposition or attempted disposition of, and, as a verb, directly or indirectly, voluntarily or involuntarily, to exchange, sell, bequeath, pledge, mortgage, hypothecate, encumber, distribute, transfer, give, assign or in any other manner whatsoever dispose or attempt to dispose of.
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PROXY
ARMOUR RESIDENTIAL REIT, INC.
▼ FOLD AND DETACH HERE AND READ THE REVERSE SIDE ▼
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PROXY
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” PROPOSALS 1, 2 AND 3.
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