SCHEDULE 14-A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
First Federal of Northern Michigan Bancorp, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
.......................................................................
2) Aggregate number of securities to which transaction applies:
.......................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
.......................................................................
4) Proposed maximum aggregate value of transaction:
.......................................................................
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<page>
April 16, 2007
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of First
Federal of Northern Michigan Bancorp, Inc. The Annual Meeting will be held at
Thunder Bay National Marine Sanctuary, 145 Water Street, Alpena, Michigan, at
1:00 p.m. Michigan time on May 16, 2007.
The enclosed Notice of Annual Meeting and proxy statement describe the formal
business to be transacted. During the Annual Meeting we will also report on our
operations. Our directors and officers will be present to respond to any
questions that stockholders may have. Also enclosed for your review is our
Annual Report to Stockholders, which contains detailed information concerning
our activities and operating performance.
The Annual Meeting is being held so that stockholders will be given an
opportunity to elect one director and ratify the appointment of Plante & Moran,
PLLC as our independent registered public accountants for the year ending
December 31, 2007.
For the reasons set forth in the proxy statement, the Board of Directors
unanimously recommends a vote "FOR" the election of the director and "FOR" the
ratification of the appointment of Plante & Moran, PLLC as our independent
registered public accountants for the 2007 fiscal year.
On behalf of the Board of Directors, we urge you to sign, date and return the
enclosed proxy card as soon as possible even if you currently plan to attend the
Annual Meeting. Your vote is important, regardless of the number of shares that
you own. Voting by proxy will not prevent you from voting in person, but will
assure that your vote is counted if you are unable to attend the meeting.
Sincerely,
/s/ Martin A. Thomson
Martin A. Thomson
Chief Executive Officer
<page>
First Federal of Northern Michigan Bancorp, Inc.
100 South Second Avenue
Alpena, Michigan 49707
(989) 356-9041
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 16, 2007
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of First Federal of Northern Michigan Bancorp, Inc. will be held at
Thunder Bay National Marine Sanctuary, 145 Water Street, Alpena, Michigan on May
16, 2007 at 1:00 p.m., Michigan time.
A proxy statement and proxy card for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The election of one director of First Federal of Northern
Michigan Bancorp, Inc.;
2. The ratification of the appointment of Plante & Moran, PLLC as
our independent registered public accountants for the year
ending December 31, 2007; and
such other matters as may properly come before the Meeting, or any adjournments
thereof. The Board of Directors is not aware of any other business to come
before the Meeting.
Any action may be taken on the foregoing proposals at the Meeting on
the date specified above, or on any date or dates to which the Meeting may be
adjourned. Stockholders of record at the close of business on March 19, 2007 are
the stockholders entitled to vote at the Meeting, and any adjournments thereof.
EACH STOCKHOLDER, WHETHER HE OR SHE PLANS TO ATTEND THE MEETING, IS
REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WITHOUT DELAY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN BY THE STOCKHOLDER MAY BE
REVOKED AT ANY TIME BEFORE IT IS EXERCISED. A PROXY MAY BE REVOKED BY FILING
WITH OUR SECRETARY A WRITTEN REVOCATION OR A DULY EXECUTED PROXY BEARING A LATER
DATE. ANY STOCKHOLDER PRESENT AT THE MEETING MAY REVOKE HIS OR HER PROXY AND
VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE MEETING. HOWEVER, IF YOU ARE A
STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN NAME, YOU WILL NEED
ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER IN ORDER TO VOTE PERSONALLY AT
THE MEETING.
By Order of the Board of Directors
/s/ Amy E. Essex
Amy E. Essex
Chief Financial Officer, Treasurer and Corporate Secretary
Alpena, Michigan
April 16, 2007
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IMPORTANT: A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO
POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
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<page>
PROXY STATEMENT
FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
100 South Second Avenue
Alpena, Michigan 49707
(989) 356-9041
ANNUAL MEETING OF STOCKHOLDERS
MAY 16, 2007
This proxy statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of First Federal of Northern
Michigan Bancorp, Inc. to be used at our Annual Meeting of Stockholders (the
"Meeting"), which will be held at Thunder Bay National Marine Sanctuary, 145
Water Street, Alpena, Michigan on May 16, 2007 at 1:00 p.m., Michigan time, and
all adjournments thereof. The accompanying Notice of Annual Meeting of
Stockholders and this proxy statement are first being mailed to stockholders on
or about April 16, 2007.
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REVOCATION OF PROXIES
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Stockholders who execute proxies in the form solicited hereby retain
the right to revoke them in the manner described below. Unless so revoked, the
shares represented by such proxies will be voted at the Meeting and all
adjournments thereof. Proxies solicited on behalf of our Board of Directors will
be voted in accordance with the directions given thereon. Where no instructions
are indicated, signed proxies will be voted "FOR" the proposals set forth in
this proxy statement for consideration at the Meeting.
A proxy may be revoked at any time prior to its exercise by sending
written notice of revocation to our Secretary, Amy E. Essex, at our address
shown above, or by filing a duly executed proxy bearing a later date or by
voting in person at the Meeting. The presence at the Meeting of any stockholder
who had given a proxy shall not revoke such proxy unless the stockholder
delivers his or her ballot in person at the Meeting or delivers a written
revocation to the our Secretary prior to the voting of such proxy.
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VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
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Except as otherwise noted below, holders of record of our common stock
("common stock") at the close of business on March 19, 2007 (the "Voting Record
Date") are entitled to one vote for each share held. As of the Voting Record
Date, there were 3,034,999 shares of common stock outstanding. The presence in
person or by proxy of at least a majority of the outstanding shares of common
stock entitled to vote is necessary to constitute a quorum at the Meeting.
In accordance with the provisions of our Articles of Incorporation,
record holders of common stock who beneficially own in excess of 10% of the
outstanding shares of common stock (the "Limit") are not entitled to any vote
with respect to the shares held in excess of the Limit. Our Articles of
Incorporation authorize the Board of Directors (i) to make all determinations
necessary to implement and apply the Limit, including determining whether
persons or entities are acting in concert, and (ii) to demand that any person
who is reasonably believed to beneficially own stock in excess of the Limit
supply information to us to enable the Board of Directors to implement and apply
the Limit.
Persons and groups who beneficially own in excess of five percent of
our common stock are required to file certain reports with the Securities and
Exchange Commission (the "SEC") regarding such ownership pursuant to the
Exchange Act.
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<page>
The following table sets forth the beneficial ownership of our common
stock held by our directors and executive officers, individually and as a group,
and all individuals known to management to own more than 5% of our common stock
as of the Voting Record Date. The business address of each director and
executive officer and of the First Federal of Northern Michigan Employee Stock
Ownership Plan is 100 South Second Avenue, Alpena, Michigan 49707.
<table>
<caption>
Number of Shares of
Common Stock Percent of All Common
Name of Beneficial Owner Beneficially Owned (1) Stock Outstanding
- --------------------------------------------------------------- ---------------------- ---------------------
<s> <c> <c>
Five Percent Stockholders:
- --------------------------
Tontine Associates, LLC
3500 Lenox Road, Suite 1830
Atlanta, Georgia 30326 255,961 8.43%
Thomson Horstmann & Bryant, Inc.
Park 80 West, Plaza One
Saddle Brook, New Jersey 07663 ((2)) 182,500 6.01
First Federal of Northern Michigan Employee Stock Ownership Plan 174,240 5.74
Directors and Executive Officers:
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James C. Rapin 30,081 *
Martin A. Thomson 63,522 2.09
Thomas R. Townsend 14,891 *
Gary C. VanMassenhove 11,880 *
Keith D. Wallace 26,313 *
Michael W. Mahler 16,805 *
Amy E. Essex 13,491 *
Jerome W. Tracey 19,889 *
------
All directors and executive officers as a group (8 persons) 196,872 6.49%
</table>
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* Less than 1%.
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to
be the beneficial owner for purposes of this table of any shares of common
stock if he has sole or shared voting or investment power with respect to
such security, or has a right to acquire beneficial ownership at any time
within 60 days from the date as of which beneficial ownership is being
determined. As used herein, "voting power" is the power to vote or direct
the voting of shares and "investment power" is the power to dispose or
direct the disposition of shares.
(2) Based on a Schedule 13G filed with the Securities and Exchange Commission
on January 29, 2007.
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VOTING PROCEDURES AND METHOD OF COUNTING VOTES
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As to the election of the director, the proxy card provided by the
Board of Directors enables a stockholder to vote "FOR" the election of the
nominee proposed by the Board of Directors or to "WITHHOLD AUTHORITY" to vote
for the nominee being proposed. Under Maryland law and our Articles of
Incorporation and Bylaws, directors are elected by a plurality of the shares
voted at the Meeting without regard to either broker non-votes or proxies as to
which the authority to vote for the nominee is withheld. Plurality means that
individuals who receive the largest number of votes cast are elected, up to the
maximum number of directors to be elected at the Meeting.
As to the ratification of Plante & Moran, PLLC as our independent
registered public accountants, by checking the appropriate box a stockholder may
vote "FOR" the item, vote "AGAINST" the item or "ABSTAIN" from voting on the
item. The ratification of independent registered public accountants must be
approved by a majority of the shares voted at the Meeting without regard to
broker non-votes or proxies marked "ABSTAIN."
In the event at the time of the Meeting there are not sufficient votes
for a quorum or to approve or ratify any matter being presented, the Meeting may
be adjourned in order to permit the further solicitation of proxies.
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Proxies solicited hereby will be returned to us and will be tabulated
by the Internal Auditor of First Federal of Northern Michigan, the inspector of
election designated by our Board of Directors.
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PROPOSAL I--ELECTION OF DIRECTOR
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Our Board of Directors is comprised of five persons, and is divided
into three classes with one class of directors elected each year. Directors are
generally elected to serve for a three-year period or until their respective
successors shall have been elected and shall qualify. Our Nominating Committee,
which is comprised of all of our independent directors, has nominated Keith D.
Wallace to serve as a director for a three-year term. Mr. Wallace is currently a
member of the Board of Directors and has agreed to serve, if elected.
The table below sets forth certain information, as of the Voting Record
Date, regarding the Board of Directors and executive officers. It is intended
that the proxies solicited on behalf of the Board of Directors (other than
proxies in which the vote is withheld as to the nominee) will be voted at the
Meeting for the election of the nominee identified below. If the nominee is
unable to serve, the shares represented by all such proxies will be voted for
the election of such substitute as the Board of Directors may recommend. At this
time, the Board of Directors knows of no reason why the nominee might be unable
to serve, if elected. There are no arrangements or understandings between the
nominee and any other person pursuant to which the nominee was selected.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE NOMINEE
LISTED IN THIS PROXY STATEMENT.
<table>
<caption>
Director Term
Name Age Positions Held Since Expires
- ---------------------------- ----- ------------------------------------------------ ---------- -------
<s> <c> <c> <c> <c>
NOMINEE
Keith D. Wallace 65 Director 1988 2007
DIRECTORS
James C. Rapin 66 Chairman of the Board 1985 2008
Martin A. Thomson 58 Chief Executive Officer and Director 1986 2008
Gary C. VanMassenhove 60 Director 2001 2009
Thomas R. Townsend 55 Director 2002 2009
EXECUTIVE OFFICERS
Michael W. Mahler 43 President and Chief Operating Officer N/A N/A
Amy E. Essex 43 Chief Financial Officer, Treasurer and Corporate N/A N/A
Secretary
Jerome W. Tracey 47 Executive Vice President, Chief Lending Officer N/A N/A
</table>
The business experience for the past five years of each of our
directors and executive officers is set forth below. Unless otherwise indicated,
directors and executive officers have held their positions for the past five
years.
Directors
James C. Rapin is Chairman of the Board of Directors. He has been a
director of First Federal of Northern Michigan since 1985. Mr. Rapin retired as
a pharmacist with LeFave Pharmacy, Alpena, Michigan in 2004.
Martin A. Thomson is our Chief Executive Officer and from 2001 until
2006 was also our President. Mr. Thomson previously held the position of
President and Chief Executive Officer of Presque Isle Electric and Gas
Cooperative, Inc., Onaway, Michigan. Mr. Thomson has been a director of First
Federal of Northern Michigan since 1986.
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Thomas R. Townsend is the President of R.A. Townsend Co., a plumbing,
heating and air conditioning distributor located in Alpena, Michigan, where he
has been employed for the past 30 years. Mr. Townsend has been a director since
2002.
Gary C. VanMassenhove is a partner in VanMassenhove, Kearly, Taphouse &
Faulman, CPAs. Mr. VanMassenhove has been a Certified Public Accountant for 35
years. He has been a director since 2001.
Keith D. Wallace is the senior partner of the law firm of Isackson and
Wallace, P.C., located in Alpena, Michigan and local counsel to First Federal of
Northern Michigan. Mr. Wallace has been a practicing attorney for 39 years. He
has been a director since 1988.
Executive Officers Who Are Not Directors
Michael W. Mahler was appointed as our President and Chief Operating
Officer in January 2006. Prior to this appointment, Mr. Mahler was our Executive
Vice President since November 2004. Prior to this appointment, since November
2002, Mr. Mahler was our Chief Financial Officer. From September 2000 until
November 2002, Mr. Mahler was Corporate Controller at Besser Company, Alpena,
Michigan, an international producer of concrete products equipment. From 1990
until 2000, Mr. Mahler was employed at LTV Steel Company, East Chicago, Indiana
where he served in financial roles of increasing responsibility and served, from
1997 until 2000, as Controller for a northeast Michigan division.
Amy E. Essex was appointed as our Chief Financial Officer, Treasurer
and Corporate Secretary in January 2006. Prior to this appointment, Ms. Essex
was our Chief Financial Officer since November 2004. From March 2003 until
November 2004, Ms. Essex was our Internal Auditor and Compliance Officer. Prior
to March 2003, Ms. Essex spent eight years as the Director of Tax and Risk for
Besser Company, Alpena, Michigan, an international producer of concrete products
equipment. Ms. Essex is a certified public accountant.
Jerome W. Tracey was appointed as our Executive Vice President and
Chief Lending Officer in January 2006. Prior to this appointment, Mr. Tracey was
Senior Vice President, Senior Lender since September 2001. Prior to joining
First Federal of Northern Michigan, Mr. Tracey served as Vice President of
Commercial Lending for National City Bank, Alpena, Michigan, a position he held
since 1996. Mr. Tracey has been in the banking profession since 1981.
Board Independence
The Board of Directors has determined that, except for Mr. Thomson,
each member of the Board is an "independent director" within the meaning of the
Nasdaq corporate governance listing standards. Mr. Thomson is not considered
independent because he is one of our executive officers.
In determining the independence of the directors, the Board of
Directors reviewed and considered legal fees of approximately $22,500 paid to
the law firm of Isackson and Wallace, P.C., of which Director Wallace is a
senior partner, for legal work for First Federal of Northern Michigan;
In addition, the following loans by First Federal of Northern Michigan
to directors were reviewed by the Board of Directors in determining the
independence of directors. All such loans were made in the ordinary course of
business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
persons not related to First Federal of Northern Michigan Bancorp, Inc., and, in
the judgment of management, did not involve more than the normal risk of
collectibility or present other unfavorable features.
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Aggregate Amount Outstanding at
Independent Director December 31, 2006
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James C. Rapin $ 22,650
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Keith D. Wallace $ 199,514
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Gary C. VanMassenhove $ 86,976
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Thomas R. Townsend $ 2,373,609
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4
<page>
Meetings and Committees of the Board of Directors
General. Our Board of Directors meets on a monthly basis and may hold
additional special meetings.
During the year ended December 31, 2006, our Board of Directors held 12
regular meetings and two special meetings. No member of the Board or any
committee thereof attended fewer than 75% of the aggregate of: (i) the total
number of meetings of the Board of Directors (held during the period for which
he has been a director); and (ii) the total number of meetings held by all
committees of the board on which he served (during the periods that he served).
Executive sessions of the independent directors are held on a regularly
scheduled basis.
Our standing board committees include the Executive, Audit, Nominating
and Compensation Committees. The Board of Directors appoints all committee
members.
Executive Committee. The Executive Committee is authorized to act with
the same authority as the Board of Directors between meetings of the Board, and
is comprised of the full Board. The Executive Committee met six times during
2006.
Compensation Committee. The Compensation Committee meets periodically
to review the performance of officers and to determine compensation of officers
to be recommended to the Board. It is comprised of Messrs. Rapin, Townsend,
VanMassenhove and Wallace, each of whom is considered independent as defined in
the Nasdaq corporate governance listing standards. Our Board of Directors has
adopted a written charter for the Compensation Committee, which is available on
our website at www.first-federal.com. The Compensation Committee met one time in
2006.
The Compensation Committee reviews annually the compensation levels of
the executive officers and the fee level of directors and recommends
compensation and fee changes to the full Board of Directors. The Committee
intends that executive compensation be structured so as to attract, develop and
retain talented executive officers and directors who are capable of maximizing
our performance for the benefit of our stockholders. The Committee also seeks to
set compensation and fee levels that are competitive in the markets in which we
operate.
As described immediately below, our compensation program is primarily
comprised of two fundamental components: (1) base salary and (2) annual
performance-based cash bonuses. In addition to these two primary elements, we
have adopted a stock-based compensation plan, an employee stock ownership (ESOP)
plan and Bank-wide retirement benefits.
Base Salary - Base salaries for all employees, including executive
officers, are based on pay ranges that are first recommended by Clark Consulting
and then approved by the Compensation Committee. Clark Consulting is an employee
compensation consulting firm engaged by us at the recommendation of management
and with the concurrence of the Compensation Committee. In general, these pay
ranges are re-evaluated by the Committee every two years. However, they are also
reviewed if a new job classification is added or if the responsibilities of a
job classification are change substantially. Actual base salaries within those
ranges are then established by the Compensation Committee after performance
reviews by the Committee and consideration of management recommendations for
base salary levels. The Compensation Committee conducts a performance review of
the Chief Executive Officer. The Chief Executive Officer, in turn, conducts a
performance review of the President and Chief Operating Officer. The President
and Chief Operating Officer conducts the performance reviews of the Executive
Vice President and the Chief Financial Officer. However, the Compensation
Committee retains complete authority to establish base salaries, after such
performance reviews and management recommendations.
Annual Cash Bonuses - All employees, including executive officers, are
eligible to receive annual cash bonuses pursuant to our "Staff Incentive Plan"
if the Bank meets a net after-tax income goal, which is established annually by
the Board of Directors based on the recommendation of management. No executive
officer received a bonus in 2006 because we did not meet our financial
performance targets for the year.
Stock-Based Compensation - Our 2006 Stock-Based Incentive Plan, which
was approved by our shareholders on May 17, 2006, permits the award of up to
173,386 stock options and 69,354 restricted shares of common stock. Individual
awards of options and restricted stock to executive officers and directors,
reported on
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<page>
elsewhere in this proxy statement, were established by the Committee based on
the relative positions of the executive officers within our organization, as
well as a review of awards made at similarly sized institutions.
Employee Stock Ownership Plan - We have established an employee stock
ownership plan that covers substantially all employees who have completed one
year of service, attained age 21, and worked at least 1,000 hours during the
year. Shares of common stock are allocated annually to employees based on each
employee's relative compensation for each year.
Retirement Benefits - Like all employees, each executive officer is
covered under our defined benefit retirement plan, which was frozen effective
July 1, 2005. In addition, each executive officer is eligible to participate in
our 401(k) plan.
We encourage directors, officers and employees to own shares of our
common stock, as their means permit. However, we do not currently have any stock
ownership guidelines for our executive officers or directors.
Nominating Committee. The Nominating Committee, which consists of
Directors Rapin, Townsend, VanMassenhove and Wallace, nominates individuals for
election as directors. Each member of the Nominating Committee is considered
"independent" as defined in the Nasdaq corporate governance listing standards.
Our Board of Directors has adopted a written charter for the Nominating
Committee, which is available on our website at www.first-federal.com. The
Committee met once during 2006.
The functions of the Nominating Committee include the following:
o to lead the search for individuals qualified to become members of
the Board and to select director nominees to be presented for
stockholder approval;
o to review and monitor compliance with the requirements for Board
independence;
o to review the committee structure and make recommendations to the
Board regarding committee membership;
o to develop and recommend to the Board for its approval a set of
corporate governance guidelines; and
o to develop and recommend to the Board for its approval a
self-evaluation process for the Board and its committees.
The Nominating Committee identifies nominees by first evaluating the
current members of the Board of Directors willing to continue in service.
Current members of the Board with skills and experience that are relevant to our
business and who are willing to continue in service are first considered for
re-nomination, balancing the value of continuity of service by existing members
of the Board with that of obtaining a new perspective. If any member of the
Board does not wish to continue in service, or if the Committee or the Board
decides not to re-nominate a member for re-election, or if the size of the Board
is increased, the Committee would solicit suggestions for director candidates
from all Board members. In addition, the Committee is authorized by its charter
to engage a third party to assist in the identification of director nominees.
The Nominating Committee would seek to identify a candidate who at a minimum
satisfies the following criteria:
o has the highest personal and professional ethics and integrity;
o has had experiences and achievements that have given him or her the
ability to exercise and develop good business judgment;
o is willing to devote the necessary time to the work of the Board and
its committees, which includes being available for Board and
committee meetings;
o is familiar with the communities in which we operate and/or is
actively engaged in community activities;
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<page>
o is involved in other activities or interests that do not create a
conflict with his or her responsibilities to the us and our
stockholders; and
o has the capacity and desire to represent the balanced, best
interests of our stockholders as a group, and not primarily a
special interest group or constituency.
In addition, the Nominating Committee will determine whether a
candidate satisfies the qualifications requirements of our Bylaws, which require
any person appointed or elected to the Board of Directors to reside or work in a
county in which First Federal of Northern Michigan maintains an office (at the
time of appointment or election) or in a county contiguous to a county in which
we maintain an office.
Finally, the Nominating Committee will take into account whether a
candidate satisfies the criteria for "independence" under the Nasdaq corporate
governance listing standards, and if a nominee is sought for service on the
audit committee, the financial and accounting expertise of a candidate,
including whether the individual qualifies as independent for audit committee
standards under the federal securities rules and as an audit committee financial
expert.
Procedures for the Nomination of Directors by Stockholders. The
Nominating Committee has adopted procedures for the submission of director
nominees by stockholders. There have been no material changes to these
procedures since they were previously disclosed in the proxy statement for our
last annual meeting of stockholders. If a determination is made that an
additional candidate is needed for the Board, the Nominating Committee will
consider candidates submitted by our stockholders. Stockholders can submit
qualified names of candidates for director by writing to our Corporate Secretary
at 100 South Second Avenue, Alpena, Michigan 49707. The Corporate Secretary must
receive a submission not less than ninety (90) days prior to the anniversary
date of our proxy materials for the preceding year's annual meeting for a
candidate to be considered for next year's annual meeting of stockholders. The
submission must include the following information:
o a statement that the writer is a stockholder and is proposing a
candidate for consideration by the Nominating Committee;
o the qualifications of the candidate and why the candidate is being
proposed;
o the name and address of the stockholder as they appear on our books,
and number of shares of our common stock that are owned beneficially
by such stockholder (if the stockholder is not a holder of record,
appropriate evidence of the stockholder's ownership will be
required);
o the name, address and contact information for the candidate, and the
number of shares of our common stock that are owned by the candidate
(if the candidate is not a holder of record, appropriate evidence of
the stockholder's ownership will be required);
o a statement of the candidate's business and educational experience;
o such other information regarding the candidate as would be required
to be included in the proxy statement pursuant to SEC Rule 14A;
o a statement detailing any relationship between the candidate and us;
o a statement detailing any relationship between the candidate and any
of our customers, suppliers or competitors;
o detailed information about any relationship or understanding between
the proposing stockholder and the candidate; and
o a statement that the candidate is willing to be considered and
willing to serve as a director if nominated and elected.
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Submissions that are received and that meet the criteria outlined above
are forwarded to the Chairman of the Nominating Committee for further review and
consideration. A nomination submitted by a stockholder for presentation by the
stockholder at an annual meeting of stockholders must comply with the procedural
and informational requirements described in this proxy statement under the
heading "Stockholder Proposals." We did not receive any outside submissions for
Board nominees for the Meeting.
Stockholder Communications with the Board. Any of our stockholders who
wish to communicate with the Board or with any individual director may write to
our Corporate Secretary, 100 South Second Avenue, Alpena, Michigan 49707,
Attention: Board Administration. The letter should indicate that the author is a
stockholder and if shares are not held of record, should include appropriate
evidence of stock ownership. Depending on the subject matter, management will:
o forward the communication to the director or directors to whom it is
addressed;
o attempt to handle the inquiry directly, for example where it is a
request for information about us or a stock-related matter; or
o not forward the communication if it is primarily commercial in
nature, relates to an improper or irrelevant topic, or is unduly
hostile, threatening, illegal or otherwise inappropriate.
At each Board meeting, management will present a summary of all
communications received since the last meeting that were not forwarded and make
those communications available to the directors.
The Audit Committee. The Audit Committee reviews our records and
affairs to determine our financial condition, reviews with management and the
independent auditors the systems of internal control, and monitors adherence in
accounting and financial reporting to accounting principles generally accepted
in the United States of America. The Audit Committee consists of Directors
Rapin, Townsend and VanMassenhove. Each member of the Audit Committee is
considered "independent" as defined in the Nasdaq corporate governance listing
standards and under SEC Rule 10A-3. The Board of Directors has determined that
Gary C. VanMassenhove, a certified public accountant, qualifies as an "audit
committee financial expert" as that term is defined by the rules and regulations
of the SEC. The Audit Committee met four times during the year ended December
31, 2006. The Audit Committee reports to the Board on its activities and
findings. The duties and responsibilities of the Audit Committee include, among
other things:
o retaining, overseeing and evaluating a firm of independent certified
public accountants to audit our annual financial statements;
o in consultation with the independent registered public accountants
and the internal auditor, reviewing the integrity of our financial
reporting processes, both internal and external;
o approving the scope of the audit in advance;
o reviewing the financial statements and the audit report with
management and the independent registered public accountants;
o considering whether the provision by the external independent
registered public accountants of services not related to the annual
audit and quarterly reviews is consistent with maintaining the
independent registered public accounting firm's independence;
o reviewing earnings and financial releases and quarterly reports
filed with the SEC;
o consulting with the internal audit staff and reviewing management's
administration of the system of internal accounting controls;
o approving all engagements for audit and non-audit services by the
independent registered public accountants; and
8
<page>
o reviewing the adequacy of the audit committee charter.
The Audit Committee operates under a written charter adopted by the
Board of Directors which is available on our website at www.first-federal.com.
Audit Committee Report
Management has the primary responsibility for our internal controls and
financial reporting processes. The independent registered public accountants are
responsible for performing an independent audit of our consolidated financial
statements in accordance with auditing standards generally accepted in the
United States and issuing a report thereon. The Audit Committee's responsibility
is to monitor and oversee these processes.
As part of its ongoing activities, the Audit Committee has:
o reviewed and discussed with management, and the independent
registered public accountants, our audited consolidated financial
statements for the year ended December 31, 2006;
o discussed with the independent registered public accountants the
matters required to be discussed by Statement on Auditing Standards
No. 61, as amended, Communications with Audit Committees, as
amended; and
o received the written disclosures and the letter from the independent
registered public accountants required by Independence Standards
Board Standard No. 1, Independence Discussions with Audit
Committees, and has discussed with the independent registered public
accountants their independence.
Based on the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited consolidated
financial statements be included in our Annual Report on Form 10-KSB for the
year ended December 31, 2006 and be filed with the SEC. In addition, the Audit
Committee engaged Plante & Moran, PLLC as our independent registered public
accountants for the year ending December 31, 2007, subject to the ratification
of this appointment by our stockholders.
Plante & Moran, PLLC did not use the services of any persons other than
its full-time permanent employees on its audit of our 2006 consolidated
financial statements.
This report shall not be deemed incorporated by reference by any
general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933, as amended, or the Exchange Act, except
to the extent that we specifically incorporate this information by reference,
and shall not otherwise be deemed filed under such Acts.
The Audit Committee
James C. Rapin (Chairman)
Gary C. VanMassenhove
Thomas R. Townsend
Code of Ethics
We have adopted a Code of Ethics that is applicable to our officers and
employees, including our principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing
similar functions. The Code of Ethics is available on our website at
www.first-federal.com. Amendments to and waivers from the Code of Ethics will
also be disclosed on our website. There were no such amendments or waivers in
2006.
Attendance at Annual Meetings of Stockholders
We do not have a policy regarding director attendance at annual
meetings of stockholders, although directors are requested to attend these
meetings absent unavoidable conflicts. All of our directors attended our 2006
annual meeting of stockholders.
9
<page>
Executive Compensation
The following table sets forth for the year ended December 31, 2006
certain information as to the total remuneration paid by us to Martin A.
Thomson, who serves as our Chief Executive Officer, and our three most highly
compensated executive officers other than Mr. Thomson (the "Named Executive
Officers"). For a narrative description of information included in this table,
please see the discussion in this proxy statement under the heading "Benefit
Plans."
<table>
<caption>
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------------------------------------------
Nonqualified
Non-equity deferred
Stock Option incentive plan compensation All other
Name and principal awards(1) awards(2) compensation earnings compensation
position Year Salary ($) Bonus ($) ($) ($) ($) ($) ($) Total ($)
- ----------------------- ---- ----------- ---------- ---------- --------- -------------- ------------ ------------- ----------
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Martin A. Thomson 2006 $ 156,806 $ -- $ 11,386 $ 5,340 $ -- $ -- $ 28,567(3) $ 202,099
Chief Executive Officer
Michael W. Mahler 2006 $ 133,521 $ -- $ 10,679 $ 4,078 $ -- $ -- $ 21,062(4) $ 169,340
President and Chief
Operating Officer
Amy E. Essex 2006 $ 94,827 $ -- $ 9,103 $ 2,788 $ -- $ -- $ 10,611(5) $ 117,329
Chief Financial
Officer, Treasurer and
Corporate Secretary
Jerome W. Tracey 2006 $ 100,341 $ -- $ 9,103 $ 3,329 $ -- $ -- $ 9,290(6) $ 122,063
Executive Vice
President and Chief
Lending Officer
</table>
- ------------------------------
(1) All stock awards to the Named Executive Officers were made on May 17, 2006
and were valued under SFAS 123R at the grant date market value of $9.65 per
share. The stock awards vest over five years commencing one year from the
grant date.
(2) Option awards to the Named Executive Officers were made on March 14, 2006
and on May 17, 2006 and were valued at $1.94 and $2.15 per option,
respectively, based upon the Black-Scholes valuation model using the
following assumptions: (1) expected term of option, eight years; (2) annual
volatility of common stock, 13.9%; (3) expected dividend yield of common
stock, 2.16%; and (4) risk-free interest rate, 4.70% and 5.08%,
respectively, per annum. The options vest over five years commencing one
year from the grant date.
(3) Consists of $12,800 of director fees for service on our Board; $1,200 of
director fees for service on the Board of InsuranCenter of Alpena, an
affiliate of First Federal of Northern Michigan Bancorp, Inc.; a
contribution of $7,935 pursuant to our 401(k) plan; $5,747 relating to the
value of issued ESOP shares; and $885 for dividends received on unvested
stock awards. For the year ended December 31, 2006, Mr. Thomson did not
receive perquisites or personal benefits, which exceeded $10,000.
4 Consists of $1,800 and $1,200, respectively, of director fees for service
on the Board of First Federal Community Foundation, a foundation
established and funded by First Federal of Northern Michigan and for
service on the Board of InsuranCenter of Alpena; a contribution of $6,250
pursuant to our 401(k) plan; $4,682 relating to the value of issued ESOP
shares; a $6,000 car allowance for service as Chief Executive Officer of
InsuranCenter of Alpena; and $830 for dividends received on unvested stock
awards. For the year ended December 31, 2006, Mr. Mahler did not receive
perquisites or personal benefits, which exceeded $10,000.
10
<page>
5 Consists of $1,800 of director fees for service on the FFCF, an affiliate
of First Federal of Northern Michigan Bancorp, Inc.; a contribution of
$4,667 pursuant to our 401(k) plan; $3,436 relating to the value of issued
ESOP shares; and $708 for dividends received on unvested stock awards. For
the year ended December 31, 2006, Ms. Essex did not receive perquisites or
personal benefits, which exceeded $10,000.
6 Consists of a contribution of $4,971 pursuant to our 401(k) plan; $3,611
relating to the value of issued ESOP shares; and $708 for dividends
received on unvested stock awards. For the year ended December 31, 2006,
Mr. Tracey did not receive perquisites or personal benefits, which exceeded
$10,000.
11
<page>
Outstanding Equity Awards at Year End. The following table sets forth
information with respect to outstanding equity awards as of December 31, 2006
for the Named Executive Officers. All awards of common stock and options vest at
a rate of 20% per year beginning on the first anniversary of the grants. The
other terms of the awards are described in this proxy statement under the
heading "Benefit Plans."
<table>
<caption>
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2006
- ------------------------------------------------------------------------------------------------------------------------------------
Option awards Stock awards
--------------------------------------------------------------- --------------------------------------------
Equity
incentive
plan
awards:
Equity market
Equity incentive or
incentive plan payout
plan awards: value of
awards: Market number of unearned
Number Number number Number value unearned shares,
of of of of shares of shares shares, units
Securities Securities securities or units or units units or other
Underlying Underlying underlying of stock of or other rights
Unexercised Unexercised unexercised that stock that rights that that
options Options earned Option Option have not have not have not have not
(#) (#) options Exercise Expiration vested vested(1) vested vested
Name exercisable unexercisable (#) price ($) date (#) ($) (#) ($)
- ------------------------ ----------- -------------- ----------- --------- -------------- --------- ---------- ------------ ---------
<s>
Martin A. Thomson
Chief Executive Officer N/A N/A
March 27, 2002 Options 1,848 -- $ 7.44 March 27, 2012
March 14, 2006 Options 500 2,000 $ 9.20 March 14, 2016
May 17, 2006 Options 4,420 17,680 $ 9.65 May 17, 2016
May 17, 2006 Share 7,080 $ 64,428
Awards
Michael W. Mahler
President and Chief
Operating Officer N/A N/A
March 14, 2006 Options 500 2,000 $ 9.20 March 14, 2016
May 17, 2006 Options 3,680 14,720 $ 9.65 May 17, 2016
May 17, 2006 Share 6,640 $ 60,424
Awards
Amy E. Essex
Chief Financial Officer N/A N/A
March 14, 2006 Options 500 2,000 $ 9.20 March 14, 2016
May 17, 2006 Options 2,358 9,432 $ 9.65 May 17, 2016
May 17, 2006 Share 5,660 $ 51,506
Awards
Jerome W. Tracey
Executive Vice President
and Chief Lending Officer
March 27, 2002 Options 1,848 $ 7.44 March 27, 2012 N/A N/A
March 14, 2006 Options 500 2,000 $ 9.20 March 14, 2016
May 17, 2006 Options 2,358 9,432 $ 9.65 May 17, 2016
May 17, 2006 Share 5,660 $ 51,506
Awards
</table>
- ---------------------
(1) The amounts in this column are based on the fair market value of our common
stock on December 31, 2006 of $9.10.
12
<page>
Benefit Plans
Defined Benefit Plan. First Federal of Northern Michigan maintains a
noncontributory defined benefit plan (the "Retirement Plan"). All employees age
21 or older, who have worked at First Federal of Northern Michigan for a period
of one year and have been credited with 1,000 or more hours of employment with
the Bank during the year, are eligible to accrue benefits under the Retirement
Plan. The Bank annually contributes an amount to the Retirement Plan necessary
to satisfy the actuarially determined minimum funding requirements in accordance
with the Employment Retirement Income Security Act of 1974, as amended
("ERISA").
At the normal retirement age of 65, the Retirement Plan is designed to
provide a life annuity. The retirement benefit provided is an amount equal to
2.5% of a participant's average salary based on the average of the five
consecutive years during the participant's years of employment which provide the
highest average annual salary multiplied by the participant's years of credited
service to the normal retirement date. Retirement benefits are also payable upon
retirement due to early and late retirement. Benefits are also paid from the
Retirement Plan upon a participant's disability or death. A reduced benefit is
payable upon early retirement at or after age 55. Upon termination of employment
other than as specified above, a participant who was employed by the Bank for a
minimum of five years is eligible to receive his or her accrued benefit reduced
for early retirement or a deferred retirement benefit commencing on such
participant's normal retirement date. Benefits are payable in various annuity
forms as well as in the form of a single lump sum payment. For the year ended
December 31, 2006, the Bank made contributions to the Retirement Plan of
$116,689.
In 2004, the Board amended the Retirement Plan and set a 20-year
limitation as the maximum number of employment years an employee is entitled to
under the Retirement Plan. In April 2005, the Board froze the Retirement Plan as
to current participants and excluded from the Retirement Plan new employees
hired after July 1, 2004.
The following table indicates the annual retirement benefit that would
be payable under the Retirement Plan upon retirement at age 65 in plan year
2006, expressed in the form of a single life annuity for the final average
salary and benefit service classification specified below. As of December 31,
2006, Messrs. Thomson, Mahler and Tracey and Ms. Essex had six years, four
years, seven years and three years credited service (i.e., benefit service) with
the Bank, respectively.
=========================================================
High 5-Year
Average Salary 10 15 20
---------------------------------------------------------
$15,000 $3,750 $5,625 $7,500
---------------------------------------------------------
$25,000 $6,250 $9,375 $12,500
---------------------------------------------------------
$50,000 $12,500 $18,750 $25,000
---------------------------------------------------------
$100,000 $25,000 $37,500 $50,000
---------------------------------------------------------
$150,000 $37,500 $56,250 $75,000
=========================================================
Employee Stock Ownership Plan and Trust. The Bank has an employee stock
ownership plan ("ESOP") and related trust for eligible employees. The ESOP
purchased 138,709 shares of our common stock in our offering that was completed
in April 2005. The ESOP obtained a loan from us to purchase these shares. The
ESOP loan amortizes over a 15-year period, but the ESOP is entitled to pay off
the loan at any time without incurring a penalty. Collateral for the loan is the
common stock purchased by the ESOP.
The ESOP is a tax-qualified plan subject to the requirements of ERISA
and the Internal Revenue Code of 1986 (the "Code"). Employees with a 12-month
period of employment with the Bank during which they worked at least 1,000 hours
and who have attained age 21 are eligible to participate.
Contributions to the ESOP and shares released from the suspense account
in an amount proportional to the repayment of the ESOP loan are allocated among
participants on the basis of compensation in the year of allocation, up to an
annual adjusted maximum level of compensation. Benefits generally become 100%
vested after five years of credited service. Forfeitures will be reallocated
among remaining participating employees in the same proportion as contributions.
Benefits are payable upon death, retirement, early retirement, disability or
separation from service. The Bank's contributions to the ESOP are not fixed, so
benefits payable under the ESOP cannot be estimated.
13
<page>
The Bank's Board of Directors administers the ESOP. The Bank has
appointed First Bankers Trust Company, Quincy, Illinois to serve as trustee of
the ESOP. The ESOP Committee may instruct the trustee regarding investment of
funds contributed to the ESOP. The ESOP trustee, subject to its fiduciary duty,
must vote all allocated shares held in the ESOP in accordance with the
instructions of participating employees. Under the ESOP, nondirected shares will
be voted in a manner calculated to most accurately reflect the instructions it
has received from participants regarding the allocated stock so long as such
vote is in accordance with the provisions of ERISA. At December 31, 2006, there
were 107,010 unallocated shares held in the ESOP.
401(k) Plan. First Federal of Northern Michigan maintains a 401(k) Plan
for our employees. The Plan is tax-qualified and permits participants to elect
to defer up to 50% of the participant's eligible annual compensation into the
Plan. Until 2004, the Bank made matching contributions of 50% of the
participant's contribution, with the match being up to 3% of the participant's
eligible annual compensation for the year. In July 2005, at the time we froze
the Defined Benefit Plan, as described above, we modified the matching schedule
to be 100% on the first 2% of contributions and 50% on the next 2% of
contributions. The vesting schedule for matching contributions is 20% per year
of service over a five-year period. Forfeitures of discretionary contributions
are used to reduce our contributions in succeeding plan years. In connection
with our 2005 stock offering, the 401(k) Plan was amended to permit participants
to direct the investment of their 401(k) Plan account balances. Participants are
permitted to invest their account balances in shares of our common stock through
an employer stock fund that has been established in the Plan.
2006 Stock-Based Incentive Plan. In May 2006, our stockholders approved
the 2006 First Federal of Northern Michigan Bancorp, Inc. Stock-Based Incentive
Plan (the "Incentive Plan") to provide our officers, employees and directors
with additional incentives to promote our growth and performance. The Incentive
Plan will remain in effect for a period of ten years following adoption by
stockholders.
The Incentive Plan authorizes the issuance of up to 242,740 shares of
our common stock pursuant to grants of incentive and non-statutory stock
options, reload options, stock appreciation rights and restricted stock awards,
provided that no more than 69,354 shares may be issued as restricted stock
awards, and no more than 173,386 shares may be issued pursuant to the exercise
of stock options. The Incentive Plan is administered by a committee (the
"Committee") appointed by the Chairman of the Board of Directors, which includes
two or more of our disinterested directors who are "non-employee directors," as
that term is defined for purposes of Rule 16b under the Securities Exchange Act
of 1934. The Incentive Plan also permits the Board of Directors or the Committee
to delegate to one or more of our officers the Committee's power to (i)
designate officers and employees who will receive awards, and (ii) determine the
number of awards to be received by them.
Our employees and outside directors are eligible to receive awards
under the Incentive Plan. Awards may be granted in a combination of incentive
and non-statutory stock options, stock appreciation rights or restricted stock
awards. The exercise price of options granted under the plan may not be less
than the fair market value on the date the stock option is granted. Stock
options are either "incentive" stock options or "non-qualified" stock options.
Stock options are subject to vesting conditions and restrictions as determined
by the Committee.
The Compensation Committee of the Board of Directors approved awards
under the Incentive Plan on May 17, 2006. All awards of common stock and options
on common stock reported in the Summary Compensation Table and the Directors'
Compensation Table reflect a five-year vesting schedule (20% per year). Pursuant
to the awards, all awardees are entitled to cash dividends on common stock
awards, whether such awards are vested or not. Currently, the quarterly cash
dividend on common stock is $0.05 per share. Apart from the vesting schedule,
there are no performance-based conditions or any other material conditions
applicable to the awards made on May 17, 2006.
Stock appreciation rights may be granted in tandem with stock options
and give the recipient the right to receive a payment in our common stock of an
amount equal to the excess of the fair market value of a specified number of
shares of our common stock on the date of the exercise of the stock appreciation
rights over the fair market value of the common stock on the date of grant of
the stock appreciation right, as set forth in the recipient's award agreement.
Stock appreciation rights will not be granted unless (i) the stock appreciation
right is settled solely in our common stock; and (ii) there is no further
ability to defer the income received on the exercise of the stock appreciation
right. The grant of awards on May 17 2006 included stock appreciation rights.
14
<page>
Stock awards under the Incentive Plan will be granted only in whole
shares of common stock. Stock awards will be subject to conditions established
by the Committee which are set forth in the award agreement. Any stock award
granted under the Incentive Plan will be subject to vesting as determined by the
Committee.
Upon the occurrence of an event constituting a change in control of
First Federal of Northern Michigan Bancorp, Inc., as defined in the Incentive
Plan, all stock options will become fully vested, and all stock awards then
outstanding will vest free of restrictions.
1996 Stock Option Plan. Certain of our employees and non-employee
directors are eligible to participate in our 1996 Stock Option Plan (the "1996
Option Plan"). The 1996 Option Plan authorizes the grant of stock options and
limited rights to purchase 69,000 shares (10% of the shares of common stock
issued to minority stockholders in our initial 1994 public offering). Upon the
closing of our 2005 stock offering, the shares of common stock subject to the
1996 Option Plan were adjusted pursuant to the exchange ratio. Pursuant to the
1996 Option Plan, grants may be made of (i) options to purchase common stock
intended to qualify as incentive stock options under Section 422 of the Code,
(ii) options that do not so qualify ("non-statutory options") and (iii) limited
rights (described below) that are exercisable only upon a change in control of
the Bank or the Company.
The 1996 Option Plan is administered by a committee consisting of
certain non-employee directors of the Board of Directors (the "Committee"). In
granting options, the Committee considers factors such as salary, length of
employment with us, and the employee's overall performance. All stock options
are exercisable in five equal annual installments of 20% commencing one year
from the date of grant; provided, however, that all options will be 100%
exercisable in the event the optionee terminates his service due to normal
retirement, death or disability, or in the event of a change in control of the
Company or the Bank. Options must be exercised within 10 years from the date of
grant. Stock options may be exercised up to one year following termination of
service or such later period as determined by the Committee. The exercise price
of the options will be at least 100% of the fair market value of the underlying
common stock at the time of the grant. The exercise price may be paid in cash or
common stock.
Incentive stock options will only be granted to our employees.
Non-employee directors will be granted non-statutory stock options. No incentive
stock option granted in connection with the 1996 Option Plan may be exercisable
more than three months after the date on which the optionee ceases to perform
services for us, except that in the event of death, disability, normal
retirement, or a change in control of the Bank or the Company, incentive stock
options may be exercisable for up to one year; provided, however, that if an
optionee ceases to perform services for us due to retirement or following a
change in control (as defined in the 1996 Option Plan), any incentive stock
options exercised more than three months following the date the optionee ceases
to perform services shall be treated as a non-statutory stock option as
described above.
Upon the exercise of "limited rights" in the event of a change in
control, the optionee will be entitled to receive a lump sum cash payment, or in
certain cases, common stock, equal to the difference between the exercise price
of the option and the fair market value of the shares of common stock subject to
the option on the date of exercise of the right in lieu of purchasing the stock
underlying the option. In the event of death or disability, if requested by the
optionee or beneficiary, we may elect, in exchange for the option, to pay the
optionee, or beneficiary in the event of death, the amount by which the fair
market value of the common stock exceeds the exercise price of the option on the
date of the optionee's termination of service for death or disability.
Pursuant to the 1996 Option Plan, non-employee directors at the
inception of the Plan on April 17, 1996, Messrs. Rapin, Thomson, and Wallace,
were each granted options to purchase 6,037 shares of common stock. These
options were granted at an exercise price of $10.00 per share and have all been
vested. The number of options and the exercise price of the options were
converted pursuant to the 1.8477-for-1 stock split effective as of the close of
business on April 1, 2005 in connection with the closing of the mutual-to-stock
conversion of Alpena Bancshares, M.H.C. There were options granted under this
Plan in 2006.
1996 Recognition and Retention Plan. Certain of our employees and
non-employee directors are eligible to participate in our 1996 Recognition and
Retention Plan (the "Recognition Plan"). A Committee of the Board of Directors
composed of "disinterested" directors (the "Recognition Plan Committee")
administers the Recognition Plan and makes awards to executive officers and
employees. Participants in the Recognition Plan earn (become vested in) shares
of Restricted Stock covered by an award and all restrictions lapse over a period
of time commencing from the date of the award; provided, however, that the
Recognition Plan Committee may accelerate or
15
<page>
extend the earnings rate on any awards made to officers and employees under the
Recognition Plan. Awards to non-employee directors vest at the rate of 20% of
the amount initially awarded commencing one year from the date of the award.
Awards to executive officers and employees become fully vested upon termination
of employment or service due to death, disability or normal retirement or
following a termination of employment or service in connection with a change in
the control of the Bank or the Company. Upon termination of employment or
service for another reason, unvested shares are forfeited.
At the inception of the Recognition and Retention Plan in 1996,
non-employee directors Rapin, Thomson, and Wallace were each granted 2,415
shares of common stock, which shares have been earned and issued. Messrs.
VanMassenhove and Townsend, who were appointed to the Board of Directors in
September 2001 and April 2002, respectively, have not been awarded any shares
under the Recognition and Retention Plan. Awards to non-employee directors fully
vest upon a non-employee director's disability, death, normal retirement, or
following termination of service in connection with a change in control of the
Bank or the Company. Unvested shares of Restricted Stock will be forfeited by a
non-employee director upon failure to seek reelection, failure to be reelected,
or resignation from the Board (other than in connection with normal retirement,
as defined by the Recognition Plan).
Change in Control Agreements. The Bank has entered into change in
control agreements with Martin A. Thomson, Chief Executive Officer, and Michael
W. Mahler, President and Chief Operating Officer, which provide certain benefits
in the event of a change in control of the Bank or the Company. Each of the
change in control agreements provides for a term of up to 36 months. Commencing
on each anniversary date, the Board of Directors may extend the change in
control agreements for an additional year. The change in control agreements
enable us to offer to designated officers certain protections against
termination without cause in the event of a change in control (as defined in the
agreements). These protections against termination without cause in the event of
a change in control are frequently offered by other financial institutions, and
we may be at a competitive disadvantage in attracting and retaining key
employees if we do not offer similar protections.
Following a change in control of the Company or the Bank, an officer is
entitled to a payment under the change in control agreement if the officer's
employment is involuntarily terminated during the term of such agreement, other
than for cause, as defined, death or disability. Involuntary termination
includes the officer's termination of employment during the term of the
agreement and following a change in control as the result of a demotion, loss of
title, office or significant authority, reduction in the officer's annual
compensation or benefits, or relocation of the officer's principal place of
employment by more than 25 miles from its location immediately prior to the
change in control. In addition, for the first 12 months following a change in
control, if we (or our successor) fail to renew the change in control agreement,
the executive can voluntarily resign and receive the severance payment. In the
event that an officer who is a party to a change in control agreement is
entitled to receive payments pursuant to the change in control agreement, the
officer will receive a cash payment of up to a maximum of two times the sum of
base salary and highest rate of bonuses awarded to the officer over the prior
three years, subject to applicable withholding taxes. Under the change in
control agreements, Messrs. Thomson and Mahler would receive an aggregate of
$706,800 upon a change in control, based upon current levels of compensation. In
addition to the severance payment, each covered officer is entitled to receive
life, medical and dental coverage for a period of up to 24 months from the date
of termination, as well as a lump-sum payment equal to the excess, if any, of
(a) the present value of benefits to which the officer would be entitled under
our defined benefit plan if the officer had the additional years of service that
he would have had if he had continued working for us for 24 months following his
termination, over (b) the present value of the benefits to which the officer is
actually entitled under our defined benefit plan as of the date of his
termination. Notwithstanding any provision to the contrary in the change in
control agreement, payments under the change in control agreements are limited
so that they will not constitute an excess parachute payment under Section 280G
of the Internal Revenue Code.
Equity Compensation Plan Disclosure
Set forth below is information as of December 31, 2006 regarding
compensation plans under which equity securities of First Federal of Northern
Michigan Bancorp, Inc. are authorized for issuance:
16
<page>
<table>
<caption>
=======================================================================================================
Number of Securities to be
Issued upon Exercise of Number of Securities
Outstanding Options and Weighted Average Remaining Available for
Plan Rights Exercise Price Issuance under Plan
- -------------------------------------------------------------------------------------------------------
<s> <c> <c> <c>
Equity compensation plans 198,590 $ 9.56 20,500
approved by stockholders
- -------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by stockholders -- -- --
- -------------------------------------------------------------------------------------------------------
Total 198,590 $ 9.56 20,500
=======================================================================================================
</table>
17
<page>
Directors' Compensation
The following table sets forth for the year ended December 31, 2006
certain information as to the total remuneration we paid to our directors other
than Mr. Thomson. Compensation paid to Mr. Thomson for his services as a
Director is included in "Executive Compensation--Summary Compensation Table."
<table>
<caption>
DIRECTOR COMPENSATION TABLE FOR THE YEAR ENDED DECEMBER 31, 2006
- ------------------------------------------------------------------------------------------------------------------------------------
Non-equity Nonqualified
incentive plan deferred
Fees earned or Stock Option compensation compensation All other
Name paid in cash ($) awards(1) ($) awards(2) ($) ($) earnings ($) compensation ($) Total ($)
- --------------------- ---------------- -------------- -------------- ------------- ------------- ---------------- ----------
<s> <c> <c> <c> <c> <c> <c> <c>
James C. Rapin $ 15,700 $ 5,275 $ 1,895 $ -- N/A $ 1,610(3) $ 32,105
Thomas R. Townsend $ 13,900 $ 5,275 $ 1,895 $ -- N/A $ 410(4) $ 21,480
Gary C. VanMassenhove $ 14,000 $ 5,275 $ 1,895 $ -- N/A $ 2,210(5) $ 23,380
Keith D. Wallace $ 12,800 $ 5,275 $ 1,895 $ -- N/A $ 410(6) $ 28,271
</table>
- ----------------------------
(2) All stock awards to the directors were made on May 17, 2006 and were valued
under SFAS 123R at the grant date market value of $9.65 per share. The
stock awards vest over five years commencing one year from the grant date.
(2) Option awards to the directors were made on March 14, 2006 and on May 17,
2006 and were valued at $1.94 and $2.15 per option, respectively, based
upon the Black-Scholes valuation model using the following assumptions: (1)
expected term of option, eight years; (2) annual volatility of common
stock, 13.9%; (3) expected dividend yield of common stock, 2.16%; and (4)
risk-free interest rate, 4.70% and 5.08%, respectively, per annum. The
options vest over five years commencing one year from the grant date.
(3) Consists of $1,200 of director fees for service on the Board of
InsuranCenter of Alpena, an affiliate of First Federal of Northern Michigan
Bancorp, Inc.; and $410 for dividends received on unvested stock awards.
For the year ended December 31, 2006, Mr. Rapin did not receive perquisites
or personal benefits, which exceeded $10,000.
(4) Consists of dividends received on unvested stock awards. For the year ended
December 31, 2006, Mr. Townsend did not receive perquisites or personal
benefits, which exceeded $10,000.
(5) Consists of $1,800 of director fees for service on the Board of First
Federal Community Foundation, a foundation established and funded by First
Federal of Northern Michigan; and $410 for dividends received on unvested
stock awards. For the year ended December 31, 2006, Mr. VanMassenhove did
not receive perquisites or personal benefits, which exceeded $10,000.
(6) Consists of dividends received on unvested stock awards. For the year ended
December 31, 2006, Mr. Wallace did not receive perquisites or personal
benefits, which exceeded $10,000.
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Directors' Fees. Each of the individuals who currently serves as one of
our directors also serves as a director of First Federal of Northern Michigan
and earns director and committee fees in that capacity.
In 2006, each director of the Bank received a $700 monthly meeting fee,
payable only if the director attended the meeting. Each director is paid for one
excused absence. The Chairman of the Board received $850 for each regular
meeting attended, and each director received $300 for each special Board meeting
attended.
In addition to the foregoing, during 2006, Messrs. Rapin, Thomson,
Wallace, VanMassenhove and Townsend received $3,000, $1,800, $1,800, $3,000 and
$3,000, respectively, for their services as members of the Bank's Executive and
Audit Committees.
First Federal of Northern Michigan paid a total of $69,200 in director
and committee fees to members of the Board of Directors during the year ended
December 31, 2006.
Transactions with Certain Related Persons
In the ordinary course of business, First Federal of Northern Michigan
makes loans available to its directors, officers and employees. These loans are
made in the ordinary course of business on substantially the same terms,
including interest rate and collateral, as comparable loans to other borrowers.
Loans made to directors or executive officers, including any modification of
such loans, must be approved by a majority of disinterested members of the Board
of Directors. Management believes that these loans neither involve more than the
normal risk of collectibility nor present other unfavorable features.
Section 402 of the Sarbanes-Oxley Act of 2002 generally prohibits an
issuer from: (1) extending or maintaining credit; (2) arranging for the
extension of credit; or (3) renewing an extension of credit in the form of a
personal loan for an officer or director. There are several exceptions to this
general prohibition, one of which is applicable to us. Sarbanes-Oxley does not
apply to loans made by a depository institution that is insured by the Federal
Deposit Insurance Corporation and is subject to the insider lending restrictions
of the Federal Reserve Act. All loans to our directors and officers are made in
conformity with the Federal Reserve Act and applicable regulations.
Section 16(a) Beneficial Ownership Reporting Compliance
Our common stock is registered with the SEC pursuant to Section 12(g)
of the Exchange Act. Our officers and directors and beneficial owners of greater
than 10% of our common stock ("10% beneficial owners") are required to file
reports on Forms 3, 4, and 5 with the SEC disclosing beneficial ownership and
changes in beneficial ownership of the common stock. SEC rules require
disclosure in our Proxy Statement or Annual Report on Form 10-KSB of the failure
of an officer, director, or 10% beneficial owner of our common stock to file a
Form 3, 4, or 5 on a timely basis. Based on our review of ownership reports,
Messrs. Mahler, Rapin, Thomson, Townsend, Tracey, VanMassenhove, Wallace and Ms.
Essex each filed one Form 4 reporting one late transaction during the year ended
December 31, 2006. Based on our review of such ownership reports, no other
officer, director or 10% beneficial owner of our common stock failed to file
such ownership reports on a timely basis for the year ended December 31, 2006.
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PROPOSAL II--RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTANTS
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Our independent registered public accountants for the year ended
December 31, 2006 were Plante & Moran, PLLC. The Audit Committee has engaged
Plante & Moran, PLLC to be the our independent registered public accountants for
the 2007 fiscal year, subject to the ratification of the engagement by our
stockholders. At the Meeting, stockholders will consider and vote on the
ratification of the engagement of Plante & Moran, PLLC for the year ending
December 31, 2007. A representative of Plante & Moran, PLLC is expected to
attend the Meeting to respond to appropriate questions and to make a statement
if he so desires.
Stockholder ratification of the selection of Plante & Moran, PLLC is
not required by our bylaws or otherwise. However, the Board of Directors is
submitting the selection of the independent registered public
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accountants to the stockholders for ratification as a matter of good corporate
practice. If the stockholders fail to ratify the selection of Plante & Moran,
PLLC, the Audit Committee will reconsider whether or not to retain that firm.
Even if the selection is ratified, the Audit Committee in its discretion may
direct the appointment of a different independent accounting firm at any time
during the year if it determines that such change is in our best interests of
our stockholders.
Fees Paid to Plante & Moran, PLLC
Set forth below is certain information concerning aggregate fees billed
for professional services rendered by Plante & Moran, PLLC during 2006 and 2005:
Audit Fees. The aggregate fees billed to us by Plante & Moran, PLLC for
professional services rendered by Plante & Moran, PLLC for the audit of our
annual financial statements, review of the financial statements included in our
Quarterly Reports on Form 10-QSB and services that are normally provided by
Plante & Moran, PLLC in connection with statutory and regulatory filings and
engagements were $86,800 and $76,525 during the years ended December 31, 2006
and 2005, respectively.
Audit-Related Fees. The aggregate fees billed to us by Plante & Moran,
PLLC for assurance and related services rendered by Plante & Moran, PLLC that
are reasonably related to the performance of the audit of and review of the
financial statements and that are not already reported in "Audit Fees," above,
were $9,285 and $0 during the years ended December 31, 2006 and 2005,
respectively.
Tax Fees. The aggregate fees billed to us by Plante & Moran, PLLC for
professional services rendered by Plante & Moran, PLLC for tax compliance, tax
advice and tax planning were $9,000 and $6,500 during the years ended December
31, 2006 and 2005, respectively.
All Other Fees. The aggregate fees billed to us by Plante & Moran, PLLC
that are not described above were $9,250 and $48,850 during the years ended
December 31, 2006 and 2005, respectively. For 2005, these services included
consultation in connection with our 2005 stock offering, including the
preparation of our SEC registration statement on Form SB-2. For 2006, these
services included consultation on compliance with Section 404 of the
Sarbanes-Oxley Act of 2002.
The Audit Committee has considered whether the provision of non-audit
services is compatible with maintaining Plante & Moran, PLLC's independence. The
Audit Committee concluded that performing such services does not affect Plante &
Moran, PLLC's independence in performing its function as our auditor.
Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of
Independent Auditor
The Audit Committee's policy is to pre-approve all audit and non-audit
services provided by the independent auditors. These services may include audit
services, audit-related services, tax services and other services. Pre-approval
is generally provided for up to one year and any pre-approval is detailed as to
particular service or category of services and is generally subject to a
specific budget. The Audit Committee has delegated pre-approval authority to its
Chairman when expedition of services is necessary. The independent auditors and
management are required to periodically report to the full Audit Committee
regarding the extent of services provided by the independent auditors in
accordance with this pre-approval, and the fees for the services performed to
date. For 2006, all services were pre-approved by the Audit Committee.
Required Vote and Recommendation of the Board of Directors.
In order to ratify the selection of Plante & Moran, PLLC as independent
auditors for the 2007 fiscal year, the proposal must receive the affirmative
vote of at least a majority of the votes cast at the Annual Meeting, either in
person or by proxy, without regard to broker non-votes or proxies marked
abstain.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
THE RATIFICATION OF PLANTE & MORAN, PLLC AS INDEPENDENT AUDITORS
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STOCKHOLDER PROPOSALS
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In order to be eligible for inclusion in our proxy materials for next
year's Annual Meeting of Stockholders, any stockholder proposal to take action
at such meeting must be received at our executive office, 100 South Second
Avenue, Alpena, Michigan 49707, no later than December 17, 2007. Any such
proposal shall be subject to the requirements of the proxy rules adopted under
the Exchange Act.
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OTHER MATTERS AND ADVANCE NOTICE PROCEDURES
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The Board of Directors is not aware of any business to come before the
Annual Meeting other than the matters described above in this proxy statement.
However, if any matters should properly come before the Annual Meeting, it is
intended that holders of the proxies will act as directed by a majority of the
Board of Directors, except for matters related to the conduct of the Annual
Meeting, as to which they shall act in accordance with their best judgment. The
Board of Directors intends to exercise its discretionary authority to the
fullest extent permitted under the Exchange Act.
Our bylaws provide an advance notice procedure for certain business, or
nominations to the Board of Directors, to be brought before an annual meeting of
stockholders. In order for a stockholder to properly bring business before an
annual meeting, or to propose a nominee to the Board of Directors, the
stockholder must give written notice to our Secretary not less than ninety (90)
days prior to the date of our proxy materials for the preceding year's annual
meeting; provided, however, that if the date of the annual meeting is advanced
more than twenty (20) days prior to or delayed by more than sixty (60) days
after the anniversary of the preceding year's annual meeting, notice by the
stockholder to be timely must be received not earlier than the close of business
on the 120th day prior to the date of such annual meeting and not later than the
close of business on the later of (A) the 90th day prior to the date of such
annual meeting or (B) the tenth day following the first to occur of (i) the day
on which notice of the date of the annual meeting was mailed or otherwise
transmitted or (ii) the day on which we first made public announcement of the
date of the annual meeting. The notice must include the stockholder's name,
record address, and number of shares owned, describe briefly the proposed
business, the reasons for bringing the business before the annual meeting, and
any material interest of the stockholder in the proposed business. In the case
of nominations to the Board of Directors, certain information regarding the
nominee must be provided. Nothing in this paragraph shall be deemed to require
us to include in our proxy statement and proxy relating to an annual meeting any
stockholder proposal that does not meet all of the requirements for inclusion
established by the Securities and Exchange Commission in effect at the time such
proposal is received.
Advance written notice of business or nominations to the Board of
Directors to be brought before the 2007 Annual Meeting of Stockholders must be
given to us no later than January 16, 2008. The date on which the 2007 Annual
Meeting of Stockholders is expected to be held is May 21, 2008.
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MISCELLANEOUS
- --------------------------------------------------------------------------------
We will bear the cost of solicitation of proxies. We will reimburse
brokerage firms and other custodians, nominees and fiduciaries for reasonable
expenses incurred by them in sending proxy materials to the beneficial owners of
our common stock. In addition to solicitations by mail, directors, officers, and
our regular employees may solicit proxies personally or by telegraph or
telephone without additional compensation.
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A COPY OF OUR REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31,
2006 WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE VOTING RECORD
DATE UPON WRITTEN REQUEST TO AMY E. ESSEX, SECRETARY, FIRST FEDERAL OF NORTHERN
MICHIGAN BANCORP, INC., 100 SOUTH SECOND AVENUE, ALPENA, MICHIGAN 49707.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Amy E. Essex
----------------------------------
Amy E. Essex
Secretary
Alpena, Michigan
April 16, 2007
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REVOCABLE PROXY
FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
ANNUAL MEETING OF STOCKHOLDERS
May 16, 2007
The undersigned hereby appoints the full Board of Directors, with full
powers of substitution to act as attorneys and proxies for the undersigned to
vote all shares of common stock of First Federal of Northern Michigan Bancorp,
Inc. which the undersigned is entitled to vote at the Annual Meeting of
Stockholders (the "Meeting") to be held at Thunder Bay National Marine
Sanctuary, 145 Water Street, Alpena, Michigan, at 1:00 p.m. Michigan time on May
16, 2007. The official proxy committee is authorized to cast all votes to which
the undersigned is entitled as follows:
VOTE
FOR WITHHELD
--- --------
1. The election as director of the nominee listed [_] [_]
below to serve for a three-year term
Keith D. Wallace
FOR AGAINST ABSTAIN
--- ------- -------
2. The ratification of the appointment of Plante & [_] [_] [_]
Moran, PLLC as independent registered public
accountants for the year ending December 31, 2007.
The Board of Directors recommends a vote "FOR" each of the
listed proposals.
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THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED ABOVE. IF ANY OTHER
BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THE
ABOVE-NAMED PROXIES AT THE DIRECTION OF A MAJORITY OF THE BOARD OF DIRECTORS. AT
THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE
PRESENTED AT THE MEETING.
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting or
at any adjournment thereof and after notification to the Secretary of First
Federal of Northern Michigan Bancorp, Inc. at the Meeting of the stockholder's
decision to terminate this proxy, then the power of said attorneys and proxies
shall be deemed terminated and of no further force and effect. This proxy may
also be revoked by sending written notice to the Secretary of First Federal of
Northern Michigan Bancorp, Inc. at the address set forth on the Notice of Annual
Meeting of Stockholders, or by the filing of a later proxy statement prior to a
vote being taken on a particular proposal at the Meeting.
The undersigned acknowledges receipt from First Federal of Northern
Michigan Bancorp, Inc. prior to the execution of this proxy of a Notice of the
Meeting and a proxy statement dated April 16, 2007.
Dated: ___________________, 2007 [_] Check Box if You Plan
to Attend Meeting
- ------------------------- -------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
- ------------------------- -------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this card. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If
shares are held jointly, each holder should sign.
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Please complete and date this proxy and return it promptly
in the enclosed postage-prepaid envelope.
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