FIRST FEDERAL OF NORTHERN MICHIGAN BANCORP, INC.
2006 STOCK-BASED INCENTIVE PLAN
FORM OF
STOCK OPTION AGREEMENT
(OUTSIDE DIRECTORS)
A. STOCK OPTIONS for a total of ____________ shares of Common Stock, par
value $0.01 per share, of First Federal of Northern Michigan Bancorp, Inc. (the
"Company") are hereby granted to ___________ (the "Participant"). Stock
Appreciation Rights with respect to a total of _____________ shares are also
granted to the Participant and relate to the Options granted hereunder. The
grant and terms of the Options and Stock Appreciation Rights shall be subject in
all respects to the First Federal of Northern Michigan Bancorp, Inc. 2006
Stock-Based Incentive Plan (the "Plan"). The terms of this Stock Option
Agreement are subject to the terms and conditions of the Plan.
B. The Option exercise price of Common Stock is $9.65 per share, the Fair
Market Value (as defined in the Plan) of the Common Stock on May 17, 2006, the
date of grant.
C. The Options granted hereunder shall vest in five equal annual
installments, with the first installment becoming exercisable on the first
anniversary of the date of grant, or May 17, 2007, and succeeding installments
on each anniversary thereafter through May 17, 2011. The Options granted
hereunder may be exercised for up to ten (10) years from the date of grant,
subject to sub-paragraph D below.
D. If Participant ceases to maintain service with the Company or its
affiliates, including First Federal of Northern Michigan (the "Bank") for any
reason other than Disability (as defined in the Plan), death, Retirement (as
defined in the Plan) or following a Change in Control (as defined in the Plan),
unvested Options will be forfeited and vested Options will be exercisable for a
period of up to one (1) year following such cessation of service. If Participant
ceases to maintain service with the Bank or the Company due to death,
Disability, Retirement or following a Change in Control, Options granted
hereunder, whether or not exercisable at such time, will become exercisable by
the Participant (or his/her legal representative or beneficiary) for one (1)
year following the date of termination of service. In no event will the period
of exercise extend beyond the expiration of the Option term.
E. Stock Appreciation Rights ("SARs") are hereby granted with respect to
all Options granted hereunder. SARs are granted in tandem with the Options
granted hereunder and the exercise of one will cause the cancellation of the
other. If the Participant exercises SARs, the Participant will not be required
to pay the exercise price of the related Option and will be entitled to receive
Common Stock of the Company equal in value to the difference between the Fair
Market Value of the Common Stock on the date of exercise and the exercise price
of the related Options (which will be cancelled).
Example: Participant receives 1,000 Options and related SARs. The Options
have an exercise price of $12. When the Company Stock is trading at $18,
the Participant exercises 300 SARs. Because the Participant has exercised
SARs, the Participant does not have to pay the exercise price. The
Participant receives 100 shares of the Company stock.
$18 Common Stock
- $12 exercise price
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$6 SAR value
x 300 SARs exercised
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$1,800/18 Common Stock = 100 shares
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F. Options may not be exercised if the issuance of shares of Common Stock
of the Company upon such exercise would constitute a violation of any applicable
federal or state securities or other law or regulation. The Participant, as a
condition to exercise of the Options, shall represent to the Company that the
shares of Common Stock of the Company that he acquires pursuant to such exercise
are being acquired by such Participant for investment and not with a present
view to distribution or resale, unless counsel for the Company is then of the
opinion that such a representation is not required under the Securities Act of
1933 or any other applicable law, regulation, or rule of any governmental
agency.
G. In the discretion of the Committee, vested Options may be transferred,
subject to any limitations on transferability imposed by the Committee.
H. A copy of the Plan is enclosed and your attention is invited to all the
provisions of the Plan. You will observe that you are not required to exercise
the Options as to any particular number or shares at one time, but the Options
must be exercised, if at all and to the extent exercised, by no later than ten
years and one day from the date of grant. The Options may be exercised during
such term only in accordance with the terms of the Plan. In the event of any
inconsistency between this Stock Option Agreement and the Plan, the terms of the
Plan will control.
I. All exercises of the Options must be made by executing and returning the
Notice of Exercise of Stock Options attached hereto as Exhibit A, and upon
receipt of any shares of Common Stock upon the exercise of any Options, the
recipient shall complete and return to the Company the Acknowledgment of Receipt
of Stock Option Shares attached hereto as Exhibit B.
J. The Participant acknowledges receipt of a copy of the First Federal of
Northern Michigan Bancorp, Inc. 2006 Stock-Based Incentive Plan and represents
that he is familiar with the terms and provisions thereof. The Participant
hereby accepts the Options subject to all the terms and provisions of such Plan.
The Participant hereby agrees to accept as binding, conclusive, and final all
decisions and interpretations of the Committee established to administer such
Plan upon any questions arising under such plan.
Dated:
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ATTEST: FIRST FEDERAL OF NORTHERN MICHIGAN
BANCORP, INC.
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WITNESS: PARTICIPANT
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This Stock Option Agreement must be executed in duplicate originals, with
one original retained by the Company and one original retained by the
Participant
2
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EXHIBIT A
NOTICE OF EXERCISE OF STOCK OPTIONS
(BY OUTSIDE DIRECTORS)
I hereby exercise the stock option (the "Option") granted to me by First
Federal of Northern Michigan Bancorp, Inc. (the "Company") or its affiliate,
subject to all the terms and provisions set forth in the Stock Option Agreement
(the "Agreement") and the First Federal of Northern Michigan Bancorp, Inc. 2006
Stock-Based Incentive Plan (the "Plan") referred to therein, and notify you of
my desire to purchase __________________ shares of common stock of the Company
("Common Stock") for a purchase price of $_________ per share.
Enclosed please find (check one):
___ Cash, my check in the sum of $_______, or electronic funds transfer
(EFT) in the sum of $__________ in full payment of the purchase price.
___ Stock of the Company with a fair market value of $______ in full
payment of the purchase price.*
___ My check in the sum of $_______ and stock of the Company with a fair
market value of $______, in full payment of the purchase price.*
___ Please sell ______ Shares from my Option Shares through a broker in
full/partial payment of the purchase price.
I understand that after this exercise, ____________ shares of Common Stock
remain subject to the Option, subject to all terms and provisions set forth in
the Agreement and the Plan.
I hereby represent that it is my intention to acquire these shares for the
following purpose:
___ investment
___ resale or distribution
Please note: if your intention is to resell (or distribute within the
meaning of Section 2(11) of the Securities Act of 1933) the shares you acquire
through this Option exercise, the Company or transfer agent may require an
opinion of counsel that such resale or distribution would not violate the
Securities Act of 1933 prior to your exercise of such Option.
Dated: ____________, _____. _____________________________________
Participant's signature
* If I elect to exercise by exchanging shares I already own, I will
constructively return shares that I already own to purchase the new option
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shares. If my shares are in certificate form, I must attach a separate statement
indicating the certificate number of the shares I am treating as having
exchanged. If the shares are held in "street name" by a registered broker, I
must provide the Company with a notarized statement attesting to the number of
shares owned that will be treated as having been exchanged. I will keep the
shares that I already own and treat them as if they are shares acquired by the
option exercise. In addition, I will receive additional shares equal to the
difference between the shares I constructively exchange and the total new option
shares that I acquire.
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EXHIBIT B
ACKNOWLEDGMENT OF RECEIPT OF STOCK OPTION SHARES
I hereby acknowledge the delivery to me by First Federal of Northern
Michigan Bancorp, Inc. (the "Company") or its affiliate on
__________________________________, of stock certificates for
____________________shares of common stock of the Company purchased by me
pursuant to the terms and conditions of the Stock Option Agreement and the First
Federal of Northern Michigan Bancorp, Inc. 2006 Stock-Based Incentive Plan, as
applicable, which shares were transferred to me on the Company's stock record
books on ____________________.
Dated:
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Participant's signature