FORM DEF 14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.)
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
o Preliminary Proxy Statement
o Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
þ Definitive Proxy Statement
o Definitive Additional Materials
o Soliciting Material Pursuant to §240.14a-12
Flagstar Bancorp, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Title of each class of securities to which transaction applies: |
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Aggregate number of securities to which transaction applies: |
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Per unit price or other underlying value of transaction computed pursuant to Exchange
Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it
was determined): |
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Proposed maximum aggregate value of transaction: |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and
identify the filing for which the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule and the date of its filing. |
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Amount Previously Paid: |
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Form, Schedule or Registration Statement No.: |
April 27, 2009
To our stockholders:
We invite you to attend our Annual Meeting of Stockholders of
Flagstar Bancorp, Inc. to be held at the national headquarters
of the Company, 5151 Corporate Dr., Troy, Michigan on Tuesday,
May 26, 2009 at 1:00 p.m., local time.
On January 30, 2009, we announced that the United States
Department of the Treasury, pursuant to the TARP Capital
Purchase Program, purchased 266,657 shares of our preferred
stock, and warrants to purchase 64,513,790 shares of common
stock of the Company, for approximately $266.6 million. In
addition, we raised an aggregate of approximately
$255.3 million through the sale of equity securities to MP
Thrift Investments L.P. (MatlinPatterson), an entity
formed by MP (Thrift) Global Partners III LLC, an affiliate
of MatlinPatterson Global Advisers LLC, for $250 million
and through the sale of common stock to Mark T. Hammond, our
Vice Chairman, President and Chief Executive Officer, to various
directors and members of management and to me for
$5.3 million. With the proceeds of these offerings, we
fortified our balance sheet and strengthened our regulatory
capital position, such that we are positioned to grow our
banking franchise and to continue our mission of being a top
national originator and servicer of high quality residential
mortgage loans.
In the offering to MatlinPatterson, we sold 250,000 shares
of our convertible participating voting preferred stock with a
liquidation preference of $1,000 per share for a total of
$250 million. Subsequent to the offering, we sold to
MatlinPatterson an additional 50,000 shares of our
convertible participating voting preferred stock with a
liquidation preference of $1,000 per share for $50 million
and also expect to sell to MatlinPatterson trust preferred
securities having an aggregate liquidation preference of
$50 million for a total of $100 million. Upon approval
by our stockholders of the proposals at the Annual Meeting, the
total of 300,000 shares of convertible preferred stock held
by MatlinPatterson will automatically convert into approximately
375,000,000 shares of our common stock, based upon a per
share conversion price of $0.80. As a result of these offerings,
MatlinPatterson obtained the power to control our affairs and
operations.
At the Annual Meeting, holders of our shares of common stock and
certain other holders entitled to vote will be asked to consider
and vote on proposals to, among other things, elect directors,
approve an increase in the number of our authorized shares of
common stock, approve other related matters which are required
to be presented pursuant to the transactions described above and
approve matters submitted at the direction of our Board of
Directors. Our Board of Directors (as constituted prior and
subsequent to the offerings) unanimously approved these
proposals and recommended that our stockholders vote for these
proposals. Many of our directors and officers as well as
representatives of Virchow, Krause & Company, LLP, our
registered public accountants for 2008, will be present at the
Annual Meeting to respond to questions that you may have.
Please read the attached proxy statement carefully for
information about the matters you are being asked to consider
and vote upon. Your vote is very important to us. On behalf of
the Board of Directors, we urge you to sign, date and return the
enclosed proxy as soon as possible, even if you currently plan
to attend the Annual Meeting. This will not prevent you from
voting in person, but will assure that your vote is counted if
you are unable to attend the Annual Meeting.
Thank you for your continuing support.
Sincerely,
Thomas J. Hammond
Chairman of the Board
FLAGSTAR
BANCORP, INC.
5151 CORPORATE DR.
TROY, MI 48098
(248) 312-2000
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 26, 2009
NOTICE IS HEREBY GIVEN that the 2009 Annual Meeting of
Stockholders (the Annual Meeting) of Flagstar
Bancorp, Inc. (the Company) will be held on Tuesday,
May 26, 2009 at 1:00 p.m., local time, at the national
headquarters of the Company, 5151 Corporate Dr., Troy, Michigan.
A proxy card and a proxy statement for the Annual Meeting are
enclosed. We are also enclosing a copy of our 2008 Annual Report
to Stockholders.
The Annual Meeting is for the purpose of considering and acting
upon the following matters:
1. to elect ten directors to the Board of Directors to hold
office for a term of two years and until their successors shall
have been duly elected and qualified;
2. to amend the Companys Amended and Restated
Articles of Incorporation to increase the number of authorized
shares of common stock from 150,000,000 shares to
750,000,000 shares, as the number of common stock currently
authorized is insufficient to provide for the conversion of the
May Investor Warrants, the Treasury Warrant, the Investor
Securities and the Additional Investor Securities (all of which
are described in the attached proxy statement);
3. to amend the Companys Amended and Restated
Articles of Incorporation to revise Article IX(B) thereof
to delete the requirement to divide the Board of Directors into
two classes of directors;
4. to amend the Companys Amended and Restated
Articles of Incorporation to delete references to
Chapter 7B of the Michigan Business Corporation Act, which
has been rescinded by the Michigan legislature;
5. to approve the issuance of common stock issuable upon
exercise of the warrant issued to the United States Department
of the Treasury in connection with the TARP Capital Purchase
Program, as described in the attached proxy statement;
6. to approve the issuance of common stock upon exercise of
the May Investor Warrants that were issued in connection with
amendments to the Purchase Agreement dated May 14, 2008.
The May Investor Warrants were issued to certain institutional
investors as described in the attached proxy statement;
7. to amend the Companys Amended and Restated
Articles of Incorporation to require majority voting for the
election of directors in non-contested elections;
8. to amend the Companys Amended and Restated
Articles of Incorporation to reduce, to a majority of the Board
of Directors, the vote required by directors to adopt, repeal,
alter, amend and rescind the Companys bylaws;
9. to ratify the appointment of Virchow, Krause &
Company, LLP as the Companys independent registered public
accountants for the year ending December 31, 2009;
10. to consider and approve an advisory (non-binding)
proposal relating to the executive pay-for-performance
compensation employed by the Company;
11. to approve amendments to the Companys 2006 Equity
Incentive Plan to increase the maximum number of shares
available for awards and to increase the individual award
limits; and
12. to transact such other business as may properly come
before the Annual Meeting.
NOTE: The Board of Directors is not aware of any
other business to come before the Annual Meeting.
These items of business are more fully described in the proxy
statement accompanying this Notice. Submission of
Proposals 2, 3, 4, and 11 to our stockholders is required
under the terms of the Investment
Agreement dated as of December 17, 2008 between the Company
and to MP Thrift Investments L.P., an entity formed by MP
(Thrift) Global Partners III LLC, an affiliate of
MatlinPatterson Global Advisers LLC, in connection with our
recent January 2009 equity investment transaction, submission of
Proposals 5 and 6 is required by the rules of the New York
Stock Exchange, submission of Proposal 10 is required by
the American Recovery and Reinvestment Act of 2009, and
submission of the remaining proposals is made at the direction
of the Board of Directors.
The Board of Directors recommends that stockholders vote FOR
all of the proposals.
Any action may be taken on any one of the foregoing proposals at
the Annual Meeting on the date specified above or on any date or
dates to which, by original or later adjournments, the Annual
Meeting may be adjourned. Stockholders of record of our common
stock and certain holders of our preferred stock at the close of
business on April 7, 2009 will be entitled to vote at the
Annual Meeting and any adjournments or postponements thereof.
You are requested to fill in and sign the enclosed form of
proxy, which is solicited by the Board of Directors, and to mail
it promptly in the enclosed envelope. This will ensure the
presence of a quorum at the Annual Meeting and will save us the
expense of additional solicitations. The proxy will not be used
if you attend and choose to vote in person at the Annual Meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Mary Kay Ruedisueli
Secretary
Troy, Michigan
April 27, 2009
It is important that proxies be returned promptly. Therefore,
whether or not you plan to be present in person at the Annual
Meeting, please sign, date, and complete the enclosed proxy card
and return it in the enclosed envelope. No postage is required
if mailed in the United States.
TABLE OF
CONTENTS
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C-1
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PROXY
STATEMENT
OF
FLAGSTAR BANCORP,
INC.
5151 CORPORATE DR.
TROY, MI 48098
(248) 312-2000
ANNUAL
MEETING OF STOCKHOLDERS
MAY 26,
2009
This proxy statement (Proxy Statement) and the
enclosed Proxy Card are furnished in connection with the
solicitation of proxies by the Board of Directors (the
Board) of Flagstar Bancorp, Inc. (the
Company). They will be used at the Annual Meeting of
Stockholders of the Company (the Annual Meeting) to
be held on Tuesday, May 26, 2009 at 1:00 p.m., local
time, at the national headquarters of the Company and Flagstar
Bank, fsb (the Bank), 5151 Corporate Dr., Troy,
Michigan. The accompanying Notice of Annual Meeting, this Proxy
Statement, and the Proxy Card are being first mailed to
stockholders entitled to vote at the Annual Meeting on or about
April 27, 2009. As used in this Proxy Statement, the terms
we, us, and our refer to the
Company.
QUESTIONS
AND ANSWERS
Why am I
receiving these materials?
Although certain aspects of our business model performed well in
2008, the market outlook for continuing weak domestic economic
conditions caused us to take steps to increase capital levels
that could help us weather the current economic downturn. In
this regard, we recently participated in an investment by the
United States Department of the Treasury (Treasury)
under its Troubled Asset Relief Program Capital Purchase Program
(the TARP Capital Purchase Program) established
pursuant to the Emergency Economic Stabilization Act of 2008.
The TARP Capital Purchase Program allows Treasury to invest in
preferred stock and warrants of U.S. financial
institutions. On December 19, 2008, we were preliminarily
approved by Treasury (the Preliminary Approval) for
participation in the TARP Capital Purchase Program through an
investment by Treasury in our preferred stock and warrants in
the amount of approximately $266.6 million. As a condition
of the Preliminary Approval, we were required to raise an
aggregate of not less than $250 million in private capital,
which we accomplished through the equity investment transaction
defined and described below.
On December 17, 2008, we entered into an investment
agreement (the investment agreement) to raise an
aggregate of $250 million through the direct sale of equity
securities to an institutional investor, MP Thrift Investments
L.P. (MatlinPatterson), an entity formed by MP
(Thrift) Global Partners III LLC, an affiliate of
MatlinPatterson Global Advisers LLC, and to raise approximately
$5 million by the sale of common stock to individual
investors, including Thomas J. Hammond, our Chairman, Mark T.
Hammond, our Vice Chairman, President and Chief Executive
Officer and certain other members of management and the Board
(the Individual Investors, and together with
MatlinPatterson, the Investors). As a condition to
the investment by MatlinPatterson, we were required to raise at
least $250 million in capital through the TARP Capital
Purchase Program.
The approximately $266.6 million investment by Treasury,
the $250 million investment by MatlinPatterson and the
$5.3 million investment by the Individual Investors were
closed on January 30, 2009. Pursuant to the TARP Capital
Purchase Program, Treasury acquired 266,657 shares of our
Fixed Rate Cumulative Perpetual Preferred Stock, Series C
(the Treasury Preferred Stock) at a purchase price
and liquidation preference of $1,000 per share, and a warrant to
purchase 64,513,790 shares of our common stock (the
Treasury Warrant and together with the Treasury
Preferred Stock, the Treasury Securities) with an
exercise price of $0.62 per share, subject to anti-dilution
provisions and certain other adjustments. Pursuant to the
investment agreement, MatlinPatterson acquired
250,000 shares of our Convertible Participating Voting
Preferred Stock, Series B (the Investor Preferred
Stock), at a purchase price and liquidation preference of
$1,000 per share and convertible into common stock at $0.80 per
share. In addition, we issued 6,650,000 shares of our
common stock (the Investor Common Stock and,
together with the Investor Preferred Stock, the Investor
Securities) to the Individual Investors at a price of
$0.80 per share for an aggregate purchase price of
$5.3 million. On January 30, 2009, the closing price
of our common stock was $0.60 per share. We refer to the
transaction pursuant to the TARP Capital Purchase Program as the
TARP transaction and transactions contemplated by
the investment agreement as the equity investment
transaction, and we refer to the Treasury Preferred Stock
and the Investor Preferred Stock collectively herein as the
Preferred Stock.
In addition, we entered into a closing agreement (the
closing agreement) dated as of January 30, 2009
with MatlinPatterson which, among other things, waived certain
conditions to closing that had not been and could not be
satisfied and which obligated MatlinPatterson to acquire
subsequent to the closing of the equity investment transaction
(i) an additional 50,000 shares of our Convertible
Participating Voting Preferred Stock, Series B (the
Additional Investor Preferred Stock) for
$50 million and (ii) trust preferred securities (the
Trust Preferred Securities and together with
the Additional Investor Preferred Stock, the Additional
Investor Securities) for $50 million. The Additional
Investor Securities are convertible into shares of our common
stock.
As a condition to our sale of the Investor Preferred Stock, we
agreed to seek stockholder approval, at a meeting of
stockholders, to amend our Amended and Restated Articles of
Incorporation (our articles of incorporation) to
increase the number of our authorized shares of common stock to
an amount that will allow for the conversion of the Investor
Preferred Stock, to delete the requirement to divide our Board
into two classes of directors, to opt out of Chapter 7B of
the Michigan Business Corporation Act (the MBCA),
which Chapter had previously been rescinded from the Act and to
amend our 2006 Equity Incentive Plan These proposals are
contained in this Proxy Statement (Proposals 2, 3, 4 and
11) and are sometimes referred to herein as the
Investor Proposals. In addition, we are seeking
stockholder approval of Proposal 2, as well as
Proposal 5, required by the rules of the New York Stock
Exchange (NYSE), allowing for the full exercise of
the Treasury Warrant. Moreover, as a condition to obtaining
waivers from certain investors (the May Investors)
in our May 2008 private placement capital raise relating to the
anti-dilution provisions applicable to them, we are required by
the rules of the NYSE to seek stockholder approval allowing for
the full exercise of the common stock warrants (the May
Investor Warrants) that we granted to the May Investors in
connection with obtaining those waivers and we are doing so
through Proposal 6. We are also seeking, at the direction
of the Board, approval of amendments to our articles of
incorporation to provide for majority voting for the election of
directors in non-contested elections (Proposal 7) and
to reduce the vote required by directors to amend our bylaws
(Proposal 8). Lastly, we are seeking an advisory vote on
our executive pay-for-performance compensation
(Proposal 10).
Accordingly, the Board is providing these proxy materials to you
in connection with the Annual Meeting to be held on May 26,
2009. As a stockholder of record of our common stock on the
Record Date, you are invited to attend the Annual Meeting and
are entitled and requested to vote on the items of business
described in this Proxy Statement. In addition to the proposals
discussed above, you will be voting on the election of ten
members to our Board and the ratification of the appointment of
our independent registered public accountants. Pursuant to the
Michigan Business Corporation Act, holders of the Preferred
Stock are also receiving these proxy materials. Holders of the
Treasury Preferred Stock are not entitled to vote those shares
with respect to these proposals, but the holder of the Investor
Preferred Stock and the Additional Investor Preferred Stock is
entitled to vote those shares on an as-converted basis (i.e.
equal to 375 million shares of common stock) with respect
to these proposals together with the holders of our common
stock. Many of our directors and officers as well as
representatives of Virchow, Krause & Company, LLP, our
independent registered public accountants for 2008, will be
present to respond to questions that you may have.
See BACKGROUND TO CERTAIN OF THE PROPOSALS for more
information relating to the TARP transaction and the equity
investment transaction.
2
Who is
entitled to vote?
Only holders of record of the common stock, the Investor
Preferred Stock and the Additional Investor Preferred Stock at
the close of business on April 7, 2009 (the Record
Date) will be entitled to notice of and vote at the Annual
Meeting.
What
information is contained in this Proxy Statement?
This information relates to the proposals to be voted on at the
Annual Meeting, compensation of our directors and senior
executive officers, the voting process and certain other
information required to be disclosed in this Proxy Statement.
Who is
soliciting my vote pursuant to this Proxy Statement?
The Board is soliciting your vote at the Annual Meeting. In
addition, certain of our officers and employees may solicit, or
be deemed to be soliciting, your vote.
How many
shares are eligible to be voted?
As of the Record Date, we had 90,380,043 shares of common
stock outstanding and entitled to vote. In addition, the
Investor Preferred Stock and the Additional Investor Preferred
Stock are entitled to vote on an as-converted basis together
with our common stock on all matters on which our common stock
is entitled to vote unless otherwise required by Michigan law.
For voting purposes, the Investor Preferred Stock and Additional
Investor Preferred Stock shall be entitled to an aggregate
number of votes equal to 375 million shares of common
stock. Our common stock outstanding on the Record Date and our
common stock deemed issuable upon conversion of our Investor
Preferred Stock and Additional Investor Preferred Stock are
sometimes referred to collectively herein as our voting
stock. Each outstanding share of voting stock will be
entitled to one vote on each matter to be voted upon at the
Annual Meeting. For information regarding security ownership by
the beneficial owners of more than 5% of our voting stock and by
management, see SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS and SECURITY OWNERSHIP OF MANAGEMENT.
What am I
voting on?
You are voting on the following matters:
1. to elect ten directors to the Board. Our nominees are
Walter N. Carter, James D. Coleman Gregory Eng, Lesley
Goldwasser, Mark T. Hammond, Jay J. Hansen, David J. Matlin,
Mark Patterson, B. Brian Tauber, and David L. Treadwell. Each
will serve a term of two years. No other nominations have been
received;
2. to amend our Amended and Restated Articles of
Incorporation to increase the number of authorized shares of
common stock from 150,000,000 shares to
750,000,000 shares, as the number of common stock currently
authorized is insufficient to provide for the conversion of the
May Investor Warrants, the Treasury Warrant, the Investor
Securities and the Additional Investor Securities (all of which
are described in greater detail herein);
3. to amend our Amended and Restated Articles of
Incorporation to revise Article IX(B) thereof to delete the
requirement to divide our Board into two classes of directors;
4. to amend our Amended and Restated Articles of
Incorporation to delete references to Chapter 7B of the
MBCA, which has been rescinded by the Michigan legislature;
5. to approve the issuance of common stock issuable upon
exercise of the Treasury Warrant;
6. to approve the issuance of common stock issuable upon
exercise of the May Investor Warrants, which were issued in
connection with amendments to the Purchase Agreement dated
May 14, 2008;
7. to amend our Amended and Restated Articles of
Incorporation to require majority voting for the election of
directors in non-contested elections;
3
8. to amend our Amended and Restated Articles of
Incorporation to reduce, to a majority of the Board, the vote
required by directors to adopt, repeal, alter, amend and rescind
our bylaws;
9. to ratify the appointment of Virchow, Krause &
Company, LLP as our independent registered public accountants
for the year ending December 31, 2009;
10. to consider and approve an advisory (non-binding)
proposal relating to the executive pay-for-performance
compensation employed by us; and
11. to approve amendments to our 2006 Equity Incentive Plan
to increase the maximum number of shares available for awards
and to increase the individual award limits.
You will also be entitled to vote on any other business that
properly comes before the Annual Meeting or any adjournments
thereof.
What
securities did we issue in the TARP transaction?
We issued a total of 266,657 shares of Fixed Rate
Cumulative Perpetual Preferred Stock, Series C (the
Treasury Preferred Stock), and we also issued a
warrant to purchase 64,513,790 shares of our common stock
(the Treasury Warrant) in the TARP transaction. The
Treasury Preferred Stock, which is not convertible into our
common stock, has a liquidation preference of $1,000 per share,
and the Treasury Warrant is exercisable at $0.62 per share,
subject to anti-dilution provisions and certain other
adjustments.
What
securities did we issue in the equity investment
transaction?
We issued a total of 250,000 shares of Investor Preferred
Stock and a total of 6,650,000 shares of common stock in
the equity investment transaction. The Investor Preferred Stock
has a liquidation preference of $1,000 per share and is
automatically convertible, subject to anti-dilution provisions,
into 312,500,000 shares of our common stock, based on a
conversion price of $0.80 per share of common stock, upon
receipt of stockholder approval of Proposal 2.
What
securities will we issue under the closing agreement?
Pursuant to the closing agreement, we issued a total of
50,000 shares of our Additional Investor Preferred Stock
and expect to issue 50,000 shares of our
Trust Preferred Securities in the future. The Additional
Investor Preferred Stock has a liquidation preference of $1,000
per share and will automatically convert, subject to
anti-dilution provisions, into 62,500,000 shares of our
common stock, based on a conversion price of
$0.80 per share of common stock, upon receipt of
stockholder approval of Proposal 2. The
Trust Preferred Securities will have an aggregate
liquidation preference of $50 million and, subject to
stockholder approval of Proposal 2, will be convertible
into shares of our common stock, in whole or in part, at the
option of the holder on April 1, 2010 at a conversion price
equal to 90% of the volume-weighted average price per share of
our common stock during the period from February 1, 2009 to
April 1, 2010, subject to a per share conversion price
minimum of $0.80 and maximum of $2.00.
How will
the conversion of the Investor Preferred Stock and the
Additional Investor Preferred Stock occur?
Upon receipt of stockholder approval of Proposal 2, each
share of Investor Preferred Stock and Additional Investor
Preferred Stock will automatically convert into a number of
shares of common stock determined by dividing (i) $1,000
(the purchase price per share of the Investor Preferred Stock
and of the Additional Investor Preferred Stock) by (ii) the
conversion price of the Preferred Stock then in effect, subject
to certain adjustments. For example, the initial conversion
price of the Investor Preferred Stock and the Additional
Investor Preferred Stock is $0.80 per share, which would result
in an initial conversion rate of 1,250 shares of common
stock for each share of Investor Preferred Stock or Additional
Investor Preferred Stock.
4
Why is
our Board seeking stockholder approval of the
proposals?
Our Board is seeking stockholder approval of Proposals 2,
3, 4 and 11 in order to fulfill the requirements of the
investment agreement and the closing agreement. Proposal 2
authorizes sufficient common stock to provide for the conversion
of the Investor Securities and the Additional Investor
Securities and, should they be exercised, the May Investor
Warrants and the Treasury Warrant. The number of shares of
common stock currently authorized is 150,000,000, which is
insufficient to provide for the conversion of the Investor
Securities and the Additional Investor Securities and, should
they be exercised, the May Investor Warrants and the Treasury
Warrant Proposals 3 and 4 effect corporate governance
changes required under the investment agreement. With respect to
Proposal 11, we are required to receive stockholder
approval pursuant to Section 312.03 of the NYSE Listed
Company Manual (the NYSE Manual), because we are
increasing the number shares of common stock issuable under and
otherwise materially amending the 2006 Equity Incentive Plan.
With respect to Proposals 5 and 6, Section 312.03 of
the NYSE Manual requires stockholder approval prior to any
issuance or sale of common stock, or securities convertible into
or exercisable for common stock, in any transaction or series of
transactions (i) if the common stock to be issued has, or
will have upon issuance, voting power equal to 20% or more of
the voting power outstanding before the issuance, or
(ii) if the number of shares of common stock to be issued
is, or will be upon issuance, equal to 20% or more of the number
of shares of common stock outstanding before the issuance. The
exercise of each of the Treasury Warrant and the May Investor
Warrants falls under this rule because the aggregate amount of
shares of common stock to be issued upon conversion of
(i) the Treasury Warrant or (ii) the May Investor
Warrants combined with the common stock issued to the May
Investors in the May 2008 private placement, will exceed 20% of
both the voting power and number of shares of our common stock
outstanding before either such issuance.
Our Board is seeking stockholder approval of
(i) Proposal 7 to provide stockholders a more
meaningful role in the election of our directors and
(ii) Proposal 8 to provide greater flexibility to our
Board in adopting, repealing, altering, amending and rescinding
the provisions of our bylaws. Our Board is seeking approval of
Proposal 10 as required by the American Recovery and
Reinvestment Act of 2009. The remaining proposals are being
submitted at the direction of the Board.
If all stockholder approvals are received as noted above, there
will be 750,000,000 shares of common stock authorized and
465,380,043 shares of common stock issued and outstanding,
subject to issuance under the terms of the conversion features
of the securities described.
How does
the Board recommend that I vote?
The Board unanimously recommends that you vote FOR
each director nominee and FOR the approval of each
of the proposals presented at this Annual Meeting.
Why is
the Board recommending approval of the proposals related to the
TARP Capital Purchase Programs and equity investment transaction
(Proposals 2, 3, 4, 5, 6, 10 and 11)?
In the current banking and credit environment, the Board
determined that it would be necessary to seek significant equity
capital in order to strengthen our capital ratios in light of
the deteriorating conditions in the U.S. housing and credit
markets and resulting elevated credit losses in our loan
portfolio. The Board also concluded that in light of a variety
of factors, including the weakening economy, increasing loan
delinquencies, and capital markets volatility, it was important
that we raise additional equity promptly and with a high degree
of certainty of completion. After exploring and considering a
broad range of potential financings and other alternatives, the
Board determined that the TARP Capital Purchase Program and the
equity investment transaction were the only means readily
available to address our capital needs on a timely basis and was
in the best interests of our stockholders. Accordingly, the
Board unanimously recommends that stockholders vote
FOR all of the proposals related to the TARP Capital
Purchase Program and the equity investment transactions, as well
as the other proposals set forth herein.
5
What
happens if stockholder approval is received?
If, with respect to the Investor Preferred Stock and the
Additional Investor Preferred Stock, Proposal 2 is approved
at the Annual Meeting, each share of Investor Preferred Stock
and each share of Additional Investor Preferred Stock will
automatically convert into the number of shares of common stock
equal to $1,000 divided by the then-applicable conversion price
(currently, $0.80 per share). Upon the conversion, all rights
with respect to the Investor Preferred Stock and Additional
Investor Preferred Stock will terminate and all shares of
Investor Preferred Stock and Additional Investor Preferred Stock
will be cancelled.
If Proposal 3 is approved, then beginning in 2010, each
director nominee will be elected for one-year terms instead of
two-year terms as currently provided. If Proposal 4 is
approved, we will delete all references to Chapter 7B of
the MBCA relating to control share acquisitions in
our articles of incorporation. If Proposals 5 and 6, as
well as Proposal 2, are approved at the Annual Meeting, the
holders of the Treasury Warrant and the May Warrants will be
entitled to exercise their warrants to purchase shares of our
common stock at a price of $0.62 per share If Proposal 7 is
approved, our directors may only be elected in the future by a
majority vote of stockholders in non-contested elections; and if
Proposal 8 is approved, a vote by only the majority of our
directors will be required to adopt, repeal, alter, amend and
rescind our bylaws. If Proposal 9 is ratified, we may
retain Virchow, Krause & Company, LLC as our
independent registered public accountants for the year ended
December 31, 2009. If Proposal 10, which is an
advisory vote only, is approved, our Compensation Committee will
consider the vote in determining the compensation of our
executives in the future. If Proposal 11 is approved,
additional shares of common stock will be issuable under the
2006 Equity Incentive Plan and the individual plan limits will
be increased.
What
happens if stockholder approval is not received?
If stockholder approval of Proposal 2 is not received at
the Annual Meeting, the Investor Preferred Stock and the
Additional Investor Preferred Stock will remain outstanding in
accordance with their terms and continue to rank senior to our
common stock unless our stockholders approve similar proposals
at a subsequent meeting. Moreover, if stockholder approval of
Proposal 2 is not received by July 30, 2009, the
exercise price of the Treasury Warrant will be reduced. We have
agreed, pursuant to the investment agreement with
MatlinPatterson and the securities purchase agreement with
Treasury, to continue to seek to obtain stockholder approval
until such approval of all the Investor Proposals is obtained.
If Proposal 3 is not approved, the Board will continue to
be classified and directors will continue to be elected for
two-year terms. If Proposal 4 is not approved, we will
continue to be subject to Chapter 7B of the MBCA relating
to control share acquisitions as was in effect on
the date of filing the articles of incorporation relating
thereto (February 11, 1997).
If Proposal 5 or Proposal 6 is not approved at the
Annual Meeting, the holders of the Treasury Warrant and May
Warrants, as the case may be, will not be entitled to exercise
their warrants. In addition, if stockholder approval of
Proposal 5 is not received by July 30, 2009, the
exercise price of the Treasury Warrant will be reduced. However,
we have agreed, pursuant to the provisions of the Treasury
Warrant (i.e, the securities purchase agreement with Treasury)
and the May Warrants, to continue to seek to obtain stockholder
approval until stockholder approval of Proposals 5 and 6 is
obtained. If Proposal 7 is not approved, we will continue
to elect our directors by a plurality of votes cast at the
meetings set for their election. If Proposal 8 is not
approved, we will continue to require a two-thirds vote of our
directors to approve any changes to our bylaws proposed by the
Board. If Proposal 9 is not ratified, the Audit Committee
will reconsider whether to retain our independent registered
public accountants for the year ended December 31, 2009. If
Proposal 10 is not approved, our Compensation Committee
will consider vote in determining the compensation of our
executives in the future. If Proposal 11 is not approved,
we have agreed, pursuant to the provisions of the investment
agreement, to continue to seek to obtain stockholder approval
until stockholder approval of Proposal 11 is obtained.
How will
the Investors vote?
All of the Investors, who own or control approximately 84% of
our voting stock and approximately 29% of our outstanding common
stock on the Record Date, have indicated their intention to vote
in favor of all
6
proposals for which they are entitled to vote, thereby assuring
approval of the proposals except with respect to
Proposal 2. Proposal 2 requires the affirmative vote
of both a majority of our voting stock and a majority of our
common stock, because Michigan law requires that the shares of a
class, such as common stock, vote in favor of an increase in the
aggregate number of authorized shares of such class. Failure to
vote, broker non-votes and abstentions will have the same effect
as a vote against this proposal.
In addition, pursuant to the investment agreement,
MatlinPatterson is required to vote in favor of the Investor
Proposals.
How many
votes are required to hold the Annual Meeting and what are the
voting procedures?
Quorum Requirement: Michigan law and
our bylaws provides that a quorum be present to allow any
stockholder action at a meeting. A quorum consists of a majority
of all of our outstanding voting stock that is entitled to vote
at the Annual Meeting. Therefore, at the Annual Meeting, the
presence, in person or by proxy, of the holders of at least
232,690,022 shares of our voting stock will be required to
establish a quorum. Stockholders of record who are present at
the Annual Meeting in person or by proxy, but who abstain from
voting are still counted towards the establishment of a quorum.
This will include brokers holding customers shares of
record even though they may abstain from certain votes.
Required Vote:
1. Proposal 1:
The ten nominees who receive the greatest number of votes cast
for directors will be elected. There is no cumulative voting
allowed on our director nominees.
2. Proposal 2:
This proposal will be approved if greater than a majority of the
shares of both voting stock and common stock outstanding as of
the Record Date are cast for it. Approval of a majority of our
common stock is required, because Michigan law requires that the
shares of a class vote in favor of an increase in the aggregate
number of authorized shares of such class. Failure to vote,
broker non-votes and abstentions will have the same effect as a
vote against this proposal.
3. Proposals 3, 4, 7, and 8:
Each of these proposals will be approved if greater than a
majority of the shares of voting stock outstanding as of the
Record Date are cast for it. Failure to vote, broker non-votes
and abstentions will have the same effect as a vote against
these proposals.
4. Proposals 5, 6, 9, 10, and 11:
Each of these proposals will be approved if greater than a
majority of the shares of voting stock represented at the Annual
Meeting, either in person or by proxy, entitled to vote are cast
for it. Failure to vote and broker non-votes will have no effect
because these shares will not be considered shares entitled to
vote and therefore will not be counted as votes for or against.
However, abstentions will have the same effect as voting against
the approval of these proposals.
What is a
broker non-vote?
If you hold your shares in street name through a
broker or other nominee, whether the broker may vote your shares
in its discretion depends on the proposals before the meeting.
Under the rules of the NYSE, your broker may vote your shares in
its discretion on routine matters. For example,
election of directors and ratification of independent registered
public accountants are currently considered routine matters.
Proposals that are considered non-routine cannot be
voted unless you specifically instruct your broker. The
proposals being presented at the Annual Meeting are
non-routine matters except Proposals 1 and 9.
Accordingly, if your broker has not received your voting
instructions with respect to these non-routine proposals, your
broker cannot vote your shares on those proposals. This is
referred to as a broker non-vote.
7
How may I
cast my vote?
If you are the stockholder of
record: You may vote by one of the following
methods:
1. in person at the Annual Meeting; or
2. by mail by completing the proxy card and
returning it.
Whichever method you use, the proxies identified on the proxy
card will vote the shares of which you are the stockholder of
record in accordance with your instructions. If you submit a
signed proxy card without giving specific voting instructions,
the proxies will vote the shares as recommended by the Board.
If you own your shares in street name, that
is, through a brokerage account or in another nominee
form: You must provide instructions to the
broker or nominee as to how your shares should be voted. Brokers
do not have the discretion to vote on the proposals considered
non-routine and will only vote on such proposals at
the direction of the underlying beneficial owners of the shares
of voting stock. Accordingly, if you do not instruct your broker
to vote your shares, your broker will not have the discretion to
vote your shares. Your broker or nominee will usually provide
you with the appropriate instruction forms at the time you
receive this Proxy Statement. If you own your shares in this
manner, you cannot vote in person at the Annual Meeting unless
you receive a proxy to do so from the broker or the nominee, and
you bring the proxy to the Annual Meeting.
How may I
revoke or change my vote?
If you are the record owner of your shares, you may revoke your
proxy at any time before it is voted at the Annual Meeting by:
1. submitting a new proxy card bearing a later date;
2. delivering written notice to our Secretary prior to
May 26, 2009, stating that you are revoking your
proxy; or
3. attending the Annual Meeting and voting your shares in
person.
If your shares are held in street name and you have instructed a
broker, bank or other nominee to vote your shares of voting
stock, you may revoke those instructions by following the
directions received from your broker, bank or other nominee to
change those instructions.
Please note that your attendance at the Annual Meeting will not,
by itself, constitute revocation of your proxy.
Who is
paying for the costs of this proxy solicitation?
We will bear the cost of preparing, printing and mailing the
materials in connection with this solicitation of proxies. In
addition to mailing these materials, our officers and regular
employees may, without being additionally compensated, solicit
proxies personally and by mail, telephone, facsimile or
electronic communication. We usually reimburse banks and brokers
for their reasonable out-of-pocket expenses related to
forwarding proxy materials to beneficial owners of stock or
otherwise in connection with this solicitation.
Who will
count the votes?
Matthew I. Roslin and Mary Kay Ruedisueli, our inspectors of
election for the Annual Meeting, will receive and tabulate the
ballots and voting instruction forms.
What
happens if the Annual Meeting is postponed or
adjourned?
Your proxy will still be effective and may be voted at the
postponed meeting. You will still be able to change or revoke
your proxy until it is voted.
8
What
happens if a nominee is unable to serve, new business is
introduced or procedural matters are voted upon?
Your proxy confers discretionary authority on the persons named
therein to vote with respect to the election of any person as a
director where the nominee is unable to serve or for good cause
will not serve, with respect to matters incident to the conduct
of the Annual Meeting and with respect to any other matter
presented to the Annual Meeting if notice of such matter has not
been delivered to us in accordance with the articles of
incorporation. For more information on submitting matters to us,
see STOCKHOLDER PROPOSALS FOR THE 2010 ANNUAL
MEETING herein. If any other matters are properly brought
before the Annual Meeting, the persons named in the proxy will
vote the shares represented by such proxies on such matters as
determined by a majority of the Board. Except for procedural
matters incident to the conduct of the Annual Meeting, we do not
know of any other matters that are to come before the Annual
Meeting.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement and the documents incorporated by reference
into this Proxy Statement contains certain forward-looking
statements with respect to our financial condition, results of
operations, plans, objectives, future performance and business
and these statements are subject to risk and uncertainty.
Forward-looking statements, within the meaning of the Private
Securities Litigation Reform Act of 1995, include those using
words or phrases such as believes,
assumes, expects,
anticipates, plans, trend,
objective, continue, remain,
pattern or similar expressions or future or
conditional verbs such as will, would,
should, could, might,
can, may or similar expressions.
There are a number of important factors that could cause future
results to differ materially from historical performance and
these forward-looking statements. Factors that might cause such
a difference include, but are not limited to, those discussed
under the heading Risk Factors in Part I,
Item 1A of our Annual Report on
Form 10-K
for the year ended December 31, 2008, including:
(1) our business has been and may continue to be adversely
affected by conditions in the global financial markets and
economic conditions generally; (2) general business,
economic and political conditions may significantly affect our
earnings; (3) we depend on our institutional counterparties
to provide services that are critical to our business. If one or
more of our institutional counterparties defaults on its
obligations to us or becomes insolvent, it could have a material
adverse affect our earnings, liquidity, capital position and
financial condition; (4) defaults by another larger
financial institution could adversely affect financial markets
generally; (5) if we cannot effectively manage the impact
of the volatility of interest rates our earnings could be
adversely affected; (6) the value of our mortgage servicing
rights could decline with reduction in interest rates;
(7) certain hedging strategies that we use to manage our
investment in mortgage servicing rights may be ineffective to
offset any adverse changes in the fair value of these assets due
to changes in interest rates; (8) we use estimates in
determining the fair value of certain of our assets, which
estimates may prove to be incorrect and result in significant
declines in valuation; (9) changes in the fair value or
ratings downgrades of our securities may reduce our
stockholders equity, net earnings, or regulatory capital
ratios; (10) current and further deterioration in the
housing and commercial real estate markets may lead to increased
loss severities and further increases in delinquencies and
non-performing assets in our loan portfolios. Additionally, the
performance of our standby and commercial letters of credit may
be adversely affected as well. Consequently, our allowance for
loan losses and guarantee liability may not be adequate to cover
actual losses, and we may be required to materially increase our
reserves; (11) our secondary market reserve for losses
could be insufficient; (12) our home lending profitability
could be significantly reduced if we are not able to resell
mortgages; (13) our commercial real estate and commercial
business loan portfolios carry heightened credit risk;
(14) our ability to borrow funds, maintain or increase
deposits or raise capital could be limited, which could
adversely affect our liquidity and earnings; (15) our
inability to realize our deferred tax assets may have a material
adverse affect on our consolidated results of operations and our
financial condition; (16) we may be required to raise
capital at terms that are materially adverse to our
stockholders; (17) our holding company is dependent on the
Bank for funding of obligations and dividends; (18) future
dividend payments and common stock repurchases are restricted by
the terms of the Treasurys equity investment in us;
(19) we may not be able to replace key members of senior
management or attract and retain qualified relationship managers
in the future; (20) the network and computer systems on
9
which we depend could fail or experience a security breach;
(21) our business is highly regulated; (22) our
business has volatile earnings because it operates based on a
multi-year cycle; (23) our loans are geographically
concentrated in only a few states; (24) we are subject to
heightened regulatory scrutiny with respect to bank secrecy and
anti-money laundering statutes and regulations; and (25) we
are a controlled company that is exempt from certain NYSE
corporate governance requirements.
We do not undertake, and specifically disclaim any obligation,
to update any forward-looking statements to reflect occurrences
or unanticipated events or circumstances after the date of such
statements.
BACKGROUND
TO CERTAIN OF THE PROPOSALS
In September 2008, our Board determined that it would be
necessary to seek significant additional capital in order to
maintain our capital ratios at well above previous target
levels, to address asset quality and liquidity challenges posed
by continuing disruptions in the credit and housing markets, and
to continue investing in our core businesses. Our Board also
concluded that in light of a variety of factors, including
capital markets volatility and general economic uncertainties,
it was important that any process to raise additional common
equity be executed promptly and with a high degree of certainty
of completion.
At the direction of the Board, management began exploring its
ability to raise additional capital. In October 2008, management
met with a number of financial advisors, and, on
October 14, 2008, engaged Keefe, Bruyette and Woods to act
as our financial advisor. Also, on October 14, 2008, the
United States Department of the Treasury announced the TARP
Capital Purchase Program. With our financial advisor, we began
exploring possible strategic and capital raise transaction
options. As part of this process, our financial advisor made
initial approaches to private equity and other investors
(including MatlinPatterson) regarding a potential equity
investment in us. These investors were selected based on their
financial ability and likely level of interest in completing a
transaction with us in the time frame that we required.
Confidentiality agreements were executed by nineteen of these
potential investors, and each of the investors commenced
preliminary due diligence. After conducting preliminary due
diligence, sixteen of the investors met in person or by
telephone with our financial advisors, and, after such meetings,
four of the investors met in person or by telephone with
management. After the meetings with management, we believed that
MatlinPatterson was the only party capable of moving forward
with the capital raising process in the time frame required.
In addition to our pursuit of private equity capital, on
October 24, 2008, we filed an application to participate in
the TARP Capital Purchase Program with our primary regulator,
the Office of Thrift Supervision (the OTS). During
the following weeks, we worked diligently to provide the OTS
with the information necessary to support our application.
However, in November 2008, based on informal discussions with
the OTS and on market events, management believed that the
acceptance of our application for participation in the TARP
Capital Purchase Program would be materially enhanced by the
execution of a definitive agreement with a private equity
investor. As a result, we worked diligently to finalize an
agreement with MatlinPatterson pursuant to which we would sell
equity securities in an aggregate dollar amount approximating
the aggregate dollar amount of the equity securities that we
proposed to sell under the TARP Capital Purchase Program. On
December 17, 2008, we entered into the investment agreement
with MatlinPatterson. Upon execution of the investment
agreement, we submitted a copy to the OTS for consideration in
connection with our application for participation in the TARP
Capital Purchase Program.
Pursuant to the investment agreement, we agreed to issue to
MatlinPatterson 250,000 shares of the Investor Preferred
Stock at a purchase price and liquidation preference of $1,000
per share based upon a conversion stock price of $0.80 per share
of common stock. This issuance would result in MatlinPatterson
having control of approximately 70% of our common stock on a
fully-diluted basis. In addition, as a condition of closing
under the investment agreement, on January 30, 2009, we
entered into separate subscription agreements with each of
Thomas J. Hammond, our Chairman, Mark T. Hammond, our
Vice-Chairman, President and Chief Executive Officer, and other
members of senior management and the Board to issue
$5.3 million shares of our common stock at a price of $0.80
per share.
10
As a further condition to closing the equity investment
transaction, we were required to apply for and did receive an
exception from the NYSE stockholder approval requirements that
usually apply to
change-in-control
transactions. Paragraph 312.03 of the NYSE Manual provides
that stockholder approval is required prior to issuing stock in
a transaction that would, among other things, constitute a
change in control, as is the case with the equity investment
transaction, since MatlinPatterson would then control
approximately 70% of our outstanding voting power on a
fully-diluted basis. However, Paragraph 312.05 of the NYSE
Manual provides that the NYSE may make an exception if the delay
in securing stockholder approval would seriously jeopardize the
financial viability of the affiliated company and if our
reliance on this exception is expressly approved by the audit
committee of the Board. At a meeting on December 16, 2008,
our audit committee reached this conclusion after considering
factors specific to us and factors of general applicability,
such as the highly uncertain economic, financial and political
environment and the experience of other financial institutions.
The audit committee believed that without the immediate receipt
of additional capital, rather than awaiting stockholder
approval, significant disruption to our operations could result
as our business model is reliant on selling assets, hedging
interest rate risk and obtaining funding from counterparties,
including the government sponsored entities, the Federal Home
Loan Bank of Indianapolis and certain depositors and other
customers, who are increasingly seeking to do business with
financial institutions operating at enhanced capital levels due
to the uncertainty in the current marketplace. Further, our
audit committee believed that the immediate receipt of private
equity capital would enhance our position with banking
regulators and the Treasury in connection with our application
to participate in the TARP Capital Purchase Program. The Board
concurred with the determination of the audit committee.
On December 31, 2008, we were notified by the NYSE that it
had approved our application for an exception from the NYSE
stockholder approval requirements. Also, on December 31,
2008, we were notified that, effective on December 19,
2008, we received preliminary approval from Treasury to issue
266,657 shares of Treasury Preferred Stock at a purchase
price and liquidation preference of $1,000 per share. As a
condition of the Preliminary Approval, we were required to raise
an aggregate of not less than $250 million of private
capital prior to the closing of the TARP transaction, which we
accomplished pursuant to the investment agreement. Pursuant to
the TARP transaction, we were also required to issue the
Treasury Warrant to purchase 64,513,790 shares of common
stock at a price per share of $0.62. Further, in anticipation of
the preliminary approval and in full satisfaction of the May
Investors anti-dilutions protections, we agreed with the
May Investors to issue to them the May Investors Warrants on
December 16 and 17, 2008, upon the consummation of the TARP
transaction. Under the May Investor Warrants, the May Investors
are entitled to purchase 14,259,794 shares of common stock
at a price of $0.62 per share.
On January 29, 2009, MatlinPatterson received the OTS
approvals necessary to close the equity investment transaction,
and the closing of the TARP transaction and the equity
investment transaction occurred on January 30, 2009 (the
Closing). Also on January 30, 2009, we entered
into the closing agreement with MatlinPatterson to waive certain
closing conditions and which obligated MatlinPatterson to
acquire, subject to customary terms and conditions, the
Additional Investor Securities for $100 million.
The shares of Treasury Preferred Stock, Investor Preferred Stock
and common stock issued and sold to the Individual Investors,
and the Additional Investor Securities, were issued from our
authorized share capital, and stockholders are not being asked
to vote upon the issuance and sale of those securities. However,
stockholders are voting on an increase in the number of our
authorized shares of common stock in order to permit
(i) the automatic conversion of the Investor Preferred
Stock and the Additional Investor Securities into shares of our
common stock and (ii) the full exercise of the Treasury
Warrant, the May Investor Warrants and the Trust Preferred
Securities.
Pursuant to the TARP transaction and the equity investment
transaction, we received aggregate consideration of
$523 million, and pursuant to the closing agreement, we
received further consideration of $50 million in February
2009 and expect to receive the remaining $50 million in the
near future upon the closing of the Trust Preferred
Securities transaction. Of the initial aggregate consideration
of $523 million, we contributed $475 million of the
proceeds to the Bank, our principal thrift subsidiary, as
additional capital. Of the additional consideration of
$50 million received to date, we contributed
$50 million of the proceeds to the Bank as additional
capital. With respect to the Trust Preferred Securities
transaction, we will determine the actual use
11
of proceeds upon closing. We retained the remaining net proceeds
from the transactions, which we intend to use, on a consolidated
basis, to enhance the capital ratios of the Company and provide
for payment of dividends on the Treasury Preferred Stock and
other long-term obligations, as well as for general corporate
purposes. As set forth under the heading PRO FORMA
FINANCIAL INFORMATION below, we have used the funds from
the closed transactions to meet the growing demands of consumers
for single-family residential mortgages, which are included in
our mortgage loans available for sale portfolio until sold into
the secondary market. Further, we have assumed that the proceeds
from the Trust Preferred Securities transaction will initially
be invested in agency securities, such as those issued by Fannie
Mae or Freddie Mac.
DESCRIPTION
OF THE TARP CAPITAL PURCHASE PROGRAM
General
On October 14, 2008, Treasury announced the creation of the
TARP Capital Purchase Program. This program encourages
U.S. financial institutions to build capital to increase
the flow of financing to U.S. businesses and consumers and
to support the U.S. economy. Under the program, Treasury
has and will purchase shares of senior preferred stock from
qualifying banks, bank holding companies and other financial
institutions.
Under the TARP Capital Purchase Program, eligible financial
institutions can generally apply to issue senior preferred
shares to the Treasury in aggregate amounts between 1% and 3% of
the institutions risk-weighted assets, up to a maximum of
$25 billion. We received preliminary approval of our
application from Treasury on December 19, 2008 in the
amount of approximately $266.6 million and closed the TARP
transaction on January 30, 2009. The following sections
describe the securities issued by us to Treasury pursuant to the
TARP Capital Purchase Program which are consistent with the
general parameters to the program. Stockholders can find a copy
of the Securities Purchase Agreement dated as of
January 30, 2009 that we entered into with Treasury
pursuant to the TARP Capital Purchase Program and further
information about the TARP transaction, including the Treasury
Certificate of Designations, in our Current Report on
Form 8-K
that was filed with the SEC on February 2, 2009. For
information about accessing this Current Report on
Form 8-K
and other information that we file with the SEC, see WHERE
CAN YOU FIND MORE INFORMATION below.
Description
of the Treasury Securities
The following is a summary of the material terms and provisions
of the preferences, limitations, voting powers and relative
rights of the Treasury Preferred Stock as contained in the
Certificate of Designations relating to the Treasury Preferred
Stock that we filed with the Michigan Department of Labor and
Economic Growth on January 28, 2009 (the Treasury
Certificate of Designations), and the Treasury Warrant.
This summary of the Treasury Certificate of Designations and the
Treasury Warrant does not purport to be a complete description
of all of their terms. Stockholders are urged to read the
Treasury Certificate of Designations relating to the Treasury
Preferred Stock and the Treasury Warrant in their entirety.
Terms of the Investment. Under the TARP
transaction, Treasury purchased 266,657 shares of our Fixed
Rate Cumulative Perpetual Preferred Stock, Series C,
liquidation amount $1,000 per share, from us (i.e., the Treasury
Preferred Stock) for approximately $266.6 million and
received warrants (i.e., the Treasury Warrant) to purchase
64,513,790 shares of our common stock at an exercise price
of $0.62 per share, subject to anti-dilution provisions and
certain other adjustments.
Capital Treatment. The Treasury Preferred
Stock qualifies as Tier 1 capital for regulatory purposes.
Rank of Treasury Preferred Stock. The Treasury
Preferred Stock will rank senior to common stock and at an equal
level in the capital structure with any existing preferred
shares other than preferred shares that by their terms rank
junior to any other existing preferred shares. The Investor
Preferred Stock is junior to the Treasury Preferred Stock.
Dividends. The Treasury Preferred Stock will
receive a cumulative dividend rate of 5% per annum for the first
five years they are outstanding and thereafter at a rate of 9%
per annum. The dividend will be payable quarterly in arrears.
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Voting. The Treasury Preferred Stock is
non-voting, other than voting rights as required by law and
class voting rights on certain matters that could adversely
affect the shares and including:
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any authorization or issuance of shares ranking senior to the
Treasury Preferred Stock,
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any amendment to the rights of the holders of the Treasury
Preferred Stock, or
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any merger, exchange or similar transaction which would
adversely affect the rights of the Treasury Preferred Stock.
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If dividends on the Treasury Preferred Stock are not paid in
full for six dividend periods, whether or not consecutive, the
Treasury Preferred Stock will have the right to elect two
directors. The right to elect directors will end when all
accrued but unpaid dividends for all past dividend periods on
all outstanding shares of Treasury Preferred Stock have been
declared and paid in full.
Redemption. By its terms, the Treasury
Preferred Stock is callable by us at par (100% of the issue
price of $1,000 per share) plus accrued and unpaid dividends
after three years. As initially designed, the Treasury Preferred
Stock could only be redeemed at par with the proceeds from one
or more qualifying equity offerings of Tier 1 perpetual
preferred stock or common stock, resulting in aggregate gross
proceeds of not less than $66,664,250 from one or more qualified
equity offerings. The equity investment transaction is not a
qualifying equity offering for this purpose. However, subsequent
to our issuance of the Treasury Preferred Stock and pursuant to
the Recovery Act (as defined below), we are now permitted to
repay any TARP funds without regard to whether we have received
replacement funds and to any waiting period.
Transfer. Treasury may transfer the Treasury
Preferred Stock to a third party at any time.
Issuance of Common Stock Warrants. In
conjunction with the sale of Treasury Preferred Stock, we issued
the Treasury Warrant to purchase 64,513,790 shares of
common stock at an exercise price of $0.62 per share.
If stockholder approval of either Proposal 2 or
Proposal 5 is not received by July 30, 2009, the
exercise price of the Treasury Warrant will be reduced by $0.09
per share, and will be further reduced by $0.09 per share on
each six-month anniversary thereafter until stockholder approval
has been obtained, subject to a maximum reduction of $0.28 per
share. The initial exercise price on the Treasury Warrant, and
the market price for determining the number of shares of common
stock subject to the Treasury Warrant, was calculated on a
20-trading-day trailing average prior to the date of receipt of
preliminary Treasury approval. The warrant is subject to
anti-dilution adjustments and has a
10-year term.
Treasury has agreed not to exercise voting power with respect to
any shares of common stock that it acquires upon exercise of the
Treasury Warrant.
Registration Rights. We are required to file a
shelf registration statement covering the Treasury
Preferred Stock, the Treasury Warrant and the common stock
underlying the Treasury Warrant with the SEC as promptly as
practicable after the date of the investment and are required to
take all action required to cause the shelf registration
statement to be declared effective as soon as possible unless we
are not eligible to file a registration statement on
Form S-3.
In that case, we will only be required to file the shelf
registration statement upon Treasury request.
We also granted to the Treasury piggyback
registration rights for the Treasury Preferred Stock, the
Treasury Warrant and the common stock underlying the Treasury
Warrant, which gives Treasury the right to have these securities
included in a registration statement we may later file with the
SEC for other securities, subject to certain conditions. We are
also required to take such other steps as may be reasonably
requested to facilitate the transfer of the Treasury Preferred
Stock, the Treasury Warrant and the common stock underlying the
Treasury Warrant.
We will be required to list the common stock underlying the
Treasury Warrant for trading on the NYSE and may, if requested
by the Treasury, be required to apply for such listing for the
Treasury Preferred Stock.
13
Executive Compensation. To participate in the
TARP Capital Purchase Program, we were required to meet
standards related to executive compensation and corporate
governance during the period in which Treasury holds securities
issued under the TARP Capital Purchase Program, including:
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ensuring that incentive compensation for senior executives does
not encourage unnecessary and excessive risks that threaten the
value of the company;
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requiring a claw-back of any bonus or incentive compensation
paid to a senior executive based on statements of earnings,
gains or other criteria that are later proven to be materially
inaccurate;
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prohibiting us from making any golden parachute payment to a
senior executive based on the Internal Revenue Code (the
Code) provision; and
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agreeing not to deduct for tax purposes executive compensation
in excess of $500,000 for each senior executive.
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To ensure compliance with the executive compensation limitations
imposed by the TARP Capital Purchase Program, we have entered
into agreements with our senior executive officers who are
subject to these limitations. The agreements document each
executives agreement to, among other things,
clawback provisions relating to the repayment of
incentive compensation based on materially inaccurate financial
statements or performance metrics and limitations on certain
post-termination parachute payments. A form of the
agreement was included as Exhibit 10.3 to our Current
Report on
Form 8-K
filed with the SEC on February 2, 2009.
Subsequent to the closing of the TARP transaction on
January 30, 2009, as a result of the passage of the
American Recovery and Reinvestment Act of 2009 (the
Recovery Act) in February 2009, the executive
compensation restrictions set forth above will apply to the
senior executive officers and may apply to certain non-executive
officers. In addition, the Recovery Act added the additional
executive compensation restrictions discussed under the
COMPENSATION DISCUSSION AND ANALYSIS The
Impact of Current Treasury Programs and New Federal Legislation
on Executive Compensation in this Proxy Statement.
Restrictions on Dividends and Repurchases. For
as long as any Treasury Preferred Stock remains outstanding, no
dividends may be declared or paid on junior preferred stock,
preferred stock ranking pari passu with the Treasury
Preferred Stock, or common stock (other than in the case of
pari passu preferred shares, dividends on a pro rata
basis with the Treasury Preferred Stock), nor may we repurchase
or redeem any junior preferred stock, preferred stock ranking
pari passu with the Treasury Preferred Stock or common
stock, unless all accrued and unpaid dividends for all past
dividend periods on the Treasury Preferred Stock are fully paid.
In addition, Treasurys consent will be required for any
increase in the per share dividend amount on our common stock
until the third anniversary of the date of the Treasury
Preferred Stock investment unless prior to such third
anniversary, the Treasury Preferred Stock is redeemed in whole
or the Treasury has transferred all of the Treasury Preferred
Stock to third parties.
Treasurys consent will be required for certain equity and
trust preferred securities repurchases until the third
anniversary of the date of this investment unless prior to such
third anniversary either the Treasury Preferred Stock issued to
the Treasury is redeemed in whole or the Treasury has
transferred all of the Treasury Preferred Stock to third parties.
DESCRIPTION
OF THE INVESTMENT AGREEMENT
As described above, MatlinPatterson entered into the investment
agreement with us to purchase the Investor Preferred Stock.
MatlinPatterson is an entity formed by MP (Thrift) Global
Partners III LLC, an affiliate of MatlinPatterson Global
Advisers LLC. Certain terms and conditions of the investment
agreement are described below. However, this description of the
investment agreement is a summary of the material terms of such
agreement and does not purport to be a complete description of
all of the terms of such agreement. Stockholders can find a copy
of the investment agreement and further information about the
equity investment
14
transaction, including the Investor Certificate of Designations,
in our Current Reports on
Form 8-K
that we filed with the SEC on December 17, 2008 and
February 2, 2009. For more information about accessing this
Current Report on
Form 8-K
and the other information we file with the SEC, see WHERE
YOU CAN FIND MORE INFORMATION below.
Representations
And Warranties
We made customary representations and warranties to
MatlinPatterson relating to us, our business and the issuance of
the Preferred Stock and agreed to indemnify MatlinPatterson for
breaches of our representations and warranties in certain
circumstances. These provisions do not apply to the Individual
Investors. MatlinPatterson made customary representations and
warranties to us about it and its compliance with the securities
laws.
Certain
of Our Agreements
We agreed in the investment agreement, among other things,
(i) to issue and sell to the Individual Investors, shares
of our common stock for an aggregate purchase price of not less
than $4 million and not more than $5 million
(subsequently amended to $5.3 million pursuant to the
closing agreement) at a price per share of $0.80; and
(ii) to make an application to Treasury for the TARP
Capital Purchase Program.
Change of
Control and Governance Matters
Pursuant to the investment agreement, MatlinPatterson acquired
the Investor Preferred Stock which is automatically convertible
into 312,500,000 shares of our common stock upon
stockholder approval of Proposal 2. Upon such conversion,
MatlinPatterson will own approximately 80% of our common stock
on a non-diluted basis which will give it the power to control
our affairs and operations, although our executive officers are
currently expected to remain unchanged. In addition, as
described below, pursuant to the closing agreement,
MatlinPatterson acquired the Additional Investor Preferred Stock
that are convertible into an aggregate of 62,500,000 shares
of our common stock. Further, MatlinPatterson has the ability to
cast votes equal to the amount of common shares underlying the
Investor Preferred Stock and the Additional Investor Preferred
Stock on an as-converted basis on all matters on which our
common stock is entitled to vote unless otherwise required by
Michigan law. As a result of the beneficial ownership of our
common stock by MatlinPatterson, we have become a
controlled company as defined in the NYSE Manual. A
company that is considered a controlled company is exempt from
the NYSE requirement to have a majority of directors be
independent although the rules relating to independence of the
audit committee and meetings of the independent directors are
still applicable. Therefore, the right to nominate, elect and
remove directors rests solely with the representatives of our
controlling stockholder group, and our stockholders do not have
all of the protections that these rules are intended to provide.
We understand solely from MatlinPattersons Form 13D
filed with respect to the investment agreement that the funding
for this transaction came primarily from investors in existing
funds managed by MatlinPatterson Global Advisers LLC, namely,
MatlinPatterson Global Opportunities Partners III L.P. and
MatlinPatterson Global Opportunities Partners (Cayman) III L.P.
These funds were used to purchase a 100% interest in
MatlinPatterson, and MatlinPatterson, in turn, used the funds to
consummate the transaction with us.
In addition, pursuant to the investment agreement, we were
required to and did develop an operating plan with respect to
the conduct of our business, which was reasonably satisfactory
to MatlinPatterson, and we have agreed that we will cause such
number of persons to be nominated to our Board that are
designated by MatlinPatterson as will represent up to
MatlinPattersons pro rata share of the common stock owned
or deemed to be owned upon conversion of the Investor Preferred
Stock to the total number of issued shares of common stock
(including common stock deemed to be owned by conversion of the
Investor Preferred Stock). Our Board appointed three directors
designated by MatlinPatterson at the Closing of the equity
investment, and our Board nominated an additional three
directors designated by MatlinPatterson for election at the
Annual
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Meeting pending preliminary regulatory approval to serve at the
Bank level. At this and subsequent annual meetings of
stockholders, MatlinPatterson will continue to be entitled to
designate nominees to the Board representing at least 80% of our
directors, or such other percentage as is equivalent to the
voting percentage that it then owns, but is not required to
exercise that entitlement. Pursuant to OTS approval of the
acquisition of the Investor Preferred Stock by MatlinPatterson,
at least 40% of the directors of the Bank must be independent of
us and MatlinPatterson. In addition, at least one of the
Banks directors must be independent on the Bank. This
entitlement to designate a pro rata share of Board
representatives will continue so long as MatlinPatterson holds
at least 10% of our voting power. MatlinPatterson is also
entitled to appoint two observers to the Board who are
reasonably acceptable to the Board.
The remaining material governance matters that we agreed to in
the investment agreement are represented by the Investor
Proposals described in this Proxy Statement.
Agreement
to Seek Stockholder Approval
We agreed to promptly call a meeting of our stockholders and to
provide each stockholder a Proxy Statement soliciting their
affirmative vote for approval of the Investor Proposals. We are
obligated to seek to obtain the stockholder approval as promptly
as practicable following the Closing but in no event later than
our next annual meeting of stockholders. If we are unable to
obtain the approval of such stockholders for the Investor
Proposals, we have undertaken to obtain such approval at a
meeting of the stockholders no less than once in each subsequent
six-month period beginning March 1, 2009 until all such
approvals are obtained or made. In addition, we agreed to seek
stockholder approval to amend our existing equity compensation
plans and submit amendments to our 2006 Equity Incentive Plan.
Registration
Rights
We granted MatlinPatterson shelf registration rights
with respect to the common stock issuable upon conversion of the
Investor Preferred Stock, purchased by them in the equity
investment transaction, which may be used to effect sales of
such common stock. We are required to file the registration
statement no later than six months after the Closing. Our filing
of a shelf registration statement is subject to our
ability to qualify for such filing under SEC rules. In addition,
we have also granted MatlinPatterson certain demand
and piggyback registration rights, and we have
granted the Individual Investors piggyback
registration rights. We have the right to suspend the use of the
prospectus forming a part of the registration statement under
certain circumstances.
Voting
Agreement
Pursuant to the investment agreement, the Board has agreed to
unanimously recommend to our stockholders that they vote in
favor of the Investor Proposals, and MatlinPatterson has agreed
to vote in favor of the Investor Proposals.
Closing
Agreement
On the Closing Date, as part of the Closing, we entered into the
closing agreement pursuant to which we agreed to issue and sell
to MatlinPatterson (i) an additional $50 million of
Additional Investor Preferred Stock, in two equal parts, on the
same terms as the Investor Preferred Stock, and
(ii) $50 million of Trust Preferred Securities
with a 10% coupon and convertible into our common stock. The
closing agreement also amended the investment agreement to waive
certain closing conditions contained therein.
The Additional Investor Preferred Stock will automatically
convert into 62,500,000 shares of common stock, subject to
customary anti-dilution provisions. Subject to approval of
Proposal 2, the Trust Preferred Securities, if and
when issued, will also be convertible into our common stock at
the option of MatlinPatterson on April 1, 2010 or will be
callable by us at any time after January 30, 2001 if not so
converted. The
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Additional Investor Preferred Stock will have terms and rights
identical to the Investor Preferred Stock described in this
section.
The May
Investor Warrants
The investment agreement required that we obtain the waivers of
our May Investors with respect to the anti-dilution provisions
contained in our Purchase Agreement dated May 14, 2008. As
a result, we amended the Purchase Agreement with our May
Investors who continued to own the common stock sold in that
offering and issued the May Warrants. If the amendments had not
been obtained, we would have been required to pay the May
Investors an aggregate amount of approximately $25 million
pursuant to those anti-dilution provisions.
The May Warrants have a
10-year term
and entitle their holders to acquire an aggregate of
14,259,794 shares of our common stock upon exercise at a
price of $0.62 per share, subject to customary anti-dilution
provisions.
Description
of the Investor Preferred Stock and the Additional Investor
Preferred Stock
The following is a summary of the material terms and provisions
of the preferences, limitations, voting powers and relative
rights of the Investor Preferred Stock and the Additional
Investor Preferred Stock as contained in the Certificate of
Designations that we filed with the Michigan Department of Labor
and Economic Growth on January 28, 2009 (the Investor
Certificate of Designations). This summary of the Investor
Certificate of Designations does not purport to be a complete
description of all of its terms. Stockholders are urged to read
the Investor Certificate of Designations relating to the
Investor Preferred Stock and the Additional Investor Preferred
Stock in its entirety.
Authorized Shares And Liquidation
Preference. The Investor Preferred Stock and the
Additional Investor Preferred Stock are designated as the
Convertible Participating Voting Preferred Stock,
Series B. The number of authorized shares of the
Investor Preferred Stock and the Additional Investor Preferred
Stock initially is 500,000. Shares of the Investor Preferred
Stock and the Additional Investor Preferred Stock have a
$0.01 par value per share and the liquidation
preference of each of the Investor Preferred Stock and the
Additional Investor Preferred Stock is $1,000 per share.
Ranking. The Investor Preferred Stock and the
Additional Investor Preferred Stock rank junior as to dividends,
proceeds upon liquidation or dissolution, or special voting
rights, to all other of our preferred stock (including the
Treasury Preferred Stock), other than a class or series of
preferred stock established after the date on which shares of
the Investor Preferred Stock and the Additional Investor
Preferred Stock are first issued. The Investor Preferred Stock
and the Additional Investor Preferred Stock will also rank
junior in payment to our trust preferred securities and our
Treasury Preferred Stock.
Dividends. If the Board declares and pays a
dividend in the form of cash or other assets (other than shares
of common stock or rights or warrants to subscribe for common
stock) in respect of any shares of our common stock, par value
$0.01 per share, then the Board shall declare and pay to the
holders of the Investor Preferred Stock and the Additional
Investor Preferred Stock a dividend in an amount per share of
Investor Preferred Stock and the Additional Investor Preferred
Stock equal to the product of (i) the per share dividend
declared and paid in respect of each share of common stock and
(ii) the number of shares of common stock into which such
share of Investor Preferred Stock and the Additional Investor
Preferred Stock is then convertible and for the purpose of such
calculation, shares of common stock sufficient for the full
conversion of all shares of Investor Preferred Stock and the
Additional Investor Preferred Stock shall be deemed to be
authorized for issuance under the articles of incorporation on
the Record Date.
Dividends on the Investor Preferred Stock and the Additional
Investor Preferred Stock are not cumulative. Accordingly, if for
any reason the Board does not declare a dividend with respect to
the Investor Preferred Stock or the Additional Investor
Preferred Stock for a dividend period, that dividend will not
accrue and we will have no obligation to pay a dividend for that
dividend period or at any time in the future, whether or not
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the Board declares a dividend on the Investor Preferred Stock
and the Additional Investor Preferred Stock or any other series
of our capital stock for any future dividend period.
Liquidation. In the event of any liquidation,
dissolution or winding up of the affairs of ours, whether
voluntary or involuntary, the holders of full and fractional
shares of Investor Preferred Stock and the Additional Investor
Preferred Stock will be entitled, before any distribution or
payment is made on any date to the holders of the common stock
or any other stock of ours ranking junior to Investor Preferred
Stock and the Additional Investor Preferred Stock upon
liquidation, to receive in full an amount per share equal to the
greater of (the liquidation preference)
(i) $0.01 plus an amount equal to any dividends that have
been declared on Investor Preferred Stock and the Additional
Investor Preferred Stock but not paid and (ii) the amount
that a holder of one share of Investor Preferred Stock and the
Additional Investor Preferred Stock would be entitled to receive
if such share were converted into common stock immediately prior
to such liquidation, dissolution or winding up, together with
any declared but unpaid dividend prior to such distribution or
payment date, and, for the purpose of such calculation, shares
of common stock sufficient for the full conversion of all shares
of Investor Preferred Stock and the Additional Investor
Preferred Stock shall be deemed to be authorized for issuance
under the articles of incorporation on such date. If such
payment has been made in full to all holders of shares of
Investor Preferred Stock and the Additional Investor Preferred
Stock, the holders of shares of Investor Preferred Stock and the
Additional Investor Preferred Stock will have no right or claim
to any of our remaining assets.
If our assets available for distribution to the holders of
shares of Investor Preferred Stock and the Additional Investor
Preferred Stock upon any liquidation, dissolution or winding up
of ours, whether voluntary or involuntary, are insufficient to
pay in full all amounts to which such holders are entitled
pursuant to Section 5(a) of the Investor Certificate of
Designations, no such distribution will be made on account of
any shares of any other class or Investor Preferred Stock
ranking on a parity with the shares of Investor Preferred Stock
and the Additional Investor Preferred Stock upon such
liquidation, dissolution or winding up unless proportionate
distributive amounts are paid on account of the shares of
Investor Preferred Stock and the Additional Investor Preferred
Stock, ratably in proportion to the full distributable amounts
for which holders of all such parity shares are respectively
entitled upon such liquidation, dissolution or winding up.
Redemption. The Investor Preferred Stock and
the Additional Investor Preferred Stock are not redeemable
either at our option or at the option of holders of the Investor
Preferred Stock and the Additional Investor Preferred Stock at
any time.
Conversion Terms.
Conversion Price. The Investor
Preferred Stock and the Additional Investor Preferred Stock will
be convertible, on the terms at such time as set forth below,
into approximately 375,000,000 shares of our common stock,
based on a conversion price of $0.80 per share of common stock
(as it may be adjusted, the conversion price).
Mandatory Conversion. Each share of
Investor Preferred Stock and the Additional Investor Preferred
Stock will automatically convert into shares of our common stock
based on the conversion price upon stockholder approval of
Proposal 2. If we are unable to obtain stockholder
approval, then holders of the Investor Preferred Stock and the
Additional Investor Preferred Stock will retain their shares of
Investor Preferred Stock and the Additional Investor Preferred
Stock, respectively, until stockholder approval of
Proposal 2 has been obtained, at which point conversion
shall be immediate and mandatory.
Fractional Shares. No fractional shares
of common stock will be issued upon conversion. In lieu of any
fractional share of common stock, we will pay an amount in cash
in lieu of fractional shares based on the closing price of our
common stock determined as of the second trading day immediately
preceding the date of the mandatory conversion.
Preemptive Rights. Holders of the Investor
Preferred Stock and the Additional Investor Preferred Stock have
no preemptive rights.
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Anti-Dilution Adjustments. The conversion
price is subject to customary anti-dilution provisions for
(i) stock dividends and distributions;
(ii) subdivisions, splits and combinations of our common
stock; (iii) issuance of stock purchase rights;
(iv) self tender offers and exchange offers; and
(v) the existence of rights plans in effect on the
mandatory conversion date.
Reorganization Events. In the event of:
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any consolidation or merger of us with or into another person in
each case pursuant to which our common stock will be converted
into cash, securities or other property of us or another person;
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any sale, transfer, lease or conveyance to another person of all
or substantially all of the property and assets of us, in each
case pursuant to which our common stock will be converted into
cash, securities or other property of us or another
person; or
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any reclassification of our common stock into securities other
than the common stock,
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each of which is referred to as a reorganization
event, each share of the Investor Preferred Stock and the
Additional Investor Preferred Stock outstanding immediately
prior to such reorganization event will, without the consent of
holders, become convertible, on an as converted basis, into the
kinds of securities, cash, and other property receivable in such
reorganization event by a holder of shares of common that was
not a counterparty to such reorganization event or an affiliate
of such party. In the event that holders of the shares of our
common stock have the opportunity to elect the form of
consideration to be received in such transaction, the
consideration that the holders of the Investor Preferred Stock
and the Additional Investor Preferred Stock are entitled to
receive will be deemed to be the types and amounts of
consideration received by the majority of the holders of the
shares of our common stock that affirmatively make an election.
Voting Rights. The holders of the Investor
Preferred Stock and the Additional Investor Preferred Stock vote
together with the holders of our common stock on all matters
upon which the holders of common stock are entitled to vote.
Each share of Investor Preferred Stock and the Additional
Investor Preferred Stock will be entitled to such number of
votes as the number of shares of common stock into which such
share of Investor Preferred Stock and the Additional Investor
Preferred Stock are convertible at the time of the record date
for any such vote, and for the purpose of such calculation,
shares of common stock sufficient for the full conversion of all
shares of the Investor Preferred Stock and the Additional
Investor Preferred Stock shall be deemed to be authorized for
issuance on such date and shall be included in such calculation.
If approval or other action of stockholders voting as a separate
class is required by Michigan law or our articles of
incorporation, each share of Investor Preferred Stock and the
Additional Investor Preferred Stock shall be entitled to one
vote. The affirmative vote of a majority of such shares at a
meeting at which a majority of such shares are present or
represented shall be sufficient to constitute such approval or
other action unless a higher percentage is otherwise required.
So long as any shares of Investor Preferred Stock and the
Additional Investor Preferred Stock are outstanding, the vote or
consent of the holders of a majority of the shares of Investor
Preferred Stock and the Additional Investor Preferred Stock at
the time outstanding, voting as a single class, given in person
or by proxy, either in writing without a meeting or by vote at
any meeting called for the purpose, will be necessary for
effecting or validating any of the following actions, whether or
not such approval is required by Michigan law:
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any amendment, alteration or repeal of any provision of the
articles of incorporation, the Investor Certificate of
Designations, or our bylaws (whether by merger, consolidation,
business combination or otherwise) that would alter or change
the voting powers, preferences or special rights of the Investor
Preferred Stock and the Additional Investor Preferred Stock so
as to affect them adversely; or
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the consummation of certain binding share exchanges or
reclassifications involving our common stock or a merger or
consolidation of us with another entity, as further described in
the Investor Certificate of Designations.
|
If an amendment, alteration, repeal, share exchange,
reclassification, merger or consolidation described above would
adversely affect one or more but not all series of preferred
stock with like voting rights
19
(including the Investor Preferred Stock and the Additional
Investor Preferred Stock for this purpose), then only the series
affected and entitled to vote shall vote as a class in lieu of
all such series of preferred stock.
Description
of the Trust Preferred Securities
Pursuant to the terms and conditions in the closing agreement,
we intend to issue $50 million of Trust Preferred
Securities to MatlinPatterson. The Trust Preferred
Securities, upon issuance, will have the following rights and
preferences:
Liquidation Preference. The
Trust Preferred Securities will have a liquidation
preference of $1,000 per shares, for an aggregate
liquidation preference of $50 million.
Ranking. The Trust Preferred Securities
will rank as to dividends, proceeds upon liquidation or
dissolution or special voting rights, junior to our Treasury
Preferred Stock, Investor Preferred Stock and Additional
Investor Preferred Stock, other than a class or series of
preferred stock established after the Closing Date, and senior
to our common stock.
Dividends. The Trust Preferred Securities
will be entitled to receive dividends in the amount of 10% of
the aggregate liquidation preference. Dividend payment dates are
scheduled to occur quarterly on March 15, June 15,
September 15 and December 15 of each year.
Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
affairs of ours, the holders of full and fractional shares of
Trust Preferred Securities may be entitled to receive out
of the assets of the trust, which will include our junior
subordinated debentures, before any distribution or payment is
made on any date to the holders of the common stock or any other
stock of ours ranking junior to Trust Preferred Securities
upon liquidation, an amount per share equal to the liquidation
preference.
If our assets available for distribution to the holders of
shares of Trust Preferred Securities upon any liquidation,
dissolution or winding up of ours, whether voluntary or
involuntary, are insufficient to pay in full all amounts to
which such holders are entitled, no such distribution will be
made on account of any shares of any other class or
Trust Preferred Securities ranking on a parity with the
shares of Trust Preferred Securities upon such liquidation,
dissolution or winding up unless proportionate distributive
amounts are paid on account of the shares of
Trust Preferred Securities, ratably in proportion to the
full distributable amounts for which holders of all such parity
shares are respectively entitled upon such liquidation,
dissolution or winding up.
Redemption. Provided that they are not
converted into shares of common stock, the Trust Preferred
Securities will be redeemable, at our option, in whole or in
part, on January 30, 2011 and any March 15,
June 15, September 15 or December 15 on or after
January 30, 2011 at a redemption price equal to the
aggregate liquidation preference being redeemed plus accrued and
unpaid dividends to the date set for redemption.
Conversion Terms. The Trust Preferred
Securities are convertible at the option of the holder, in whole
or in part, into shares of our common stock on April 1,
2010 at a conversion price per share equal to 90% of the
volume-weighted average price per share of our common stock
during the period from February 1, 2009 to April 1,
2010, subject to a minimum per share conversion price of $0.80
and a maximum of $2.00. The conversion right will terminate if
not exercised on April 1, 2010.
Voting Rights. The holders of the
Trust Preferred Securities will have no voting rights prior
to conversion, except with respect to the administration,
operation and management of the trust and the amendment of the
trust agreement or guarantee agreement.
CONSEQUENCES
IF PROPOSALS ARE APPROVED
The
Investor Proposals
Rights of Institutional Investor. If
stockholder approval is received for Proposal 2, the rights
and privileges associated with the common stock issued upon
conversion of the Investor Preferred Stock and the Additional
Investor Preferred Stock will be identical to the rights and
privileges associated with the common
20
stock held by our existing common stockholders, including voting
rights. However, MatlinPatterson will be entitled to the
registration rights and anti-dilution protections discussed in
DESCRIPTION OF THE INVESTMENT AGREEMENT above.
Dilution. If stockholder approval is received
for Proposal 2, we will issue pursuant to the automatic
conversion of the Investor Preferred Stock and the Additional
Investor Preferred Stock approximately 375,000,000 shares
of common stock (in addition to the 6,650,000 shares of
common stock previously issued at the Closing to the Individual
Investors). In addition, if stockholder approval is received for
Proposal 11, we will be entitled to grant awards to
employees and directors that, upon vesting or exercise, will
require the issuance of up to 75,000,000 shares of common
stock. As a result, our existing stockholders could own a
smaller percentage of our outstanding common stock.
Elimination of Liquidation Rights of Holders of Investor
Preferred Stock and Additional Investor Preferred
Stock. If stockholder approval is received for
Proposal 2, all shares of Investor Preferred Stock and
Additional Investor Preferred Stock will be cancelled. As a
result, approval of Proposal 2 will result in the
elimination of the liquidation preference existing in favor of
the Investor Preferred Stock and Additional Investor Preferred
Stock.
Classified Board. If stockholder approval is
received for Proposal 3, beginning with our annual meeting
of stockholders in 2010, director nominees whose terms then
expire will be elected for one-year terms. In addition, since we
have director nominees proposed for election with a term to
expire in 2011, beginning with our annual meeting in 2011, all
director nominees will thereafter be elected for one-year terms
or until their successors are duly elected and qualified.
Control Share Acquisition. If Proposal 4
is approved, we will delete all references to Chapter 7B of
the MBCA in our articles of incorporation which relates to
control share acquisitions, and we will no longer be
subject to the Chapter 7B of the MBCA.
Proposals 5
and 6
If stockholder approval is received for Proposals 5 and 6,
as well as approval of Proposal 2, the holders of the
Treasury Warrant and the May Investor Warrants will be entitled
to exercise their respective warrants in full. This would
result, if exercised in full, in the issuance of
64,513,790 shares and 14,259,794 shares of our common
stock to the holders of the Treasury Warrant and the May
Investor Warrants, respectively (assuming that the customary
anti-dilution provisions are not triggered). As a result, our
existing stockholders could incur substantial dilution to their
voting interests and could own a smaller percentage of our
outstanding common stock.
Proposals 7
and 8
If Proposal 7 is approved, our directors will be elected in
the future by a majority vote in non-contested elections. If
Proposal 8 is approved, a majority of our directors will be
entitled to adopt, repeal, alter, amend and rescind our bylaws.
Proposals 9
and 10
If Proposal 9 is ratified, we may continue to retain the
appointment of Virchow, Krause & Company, LLC as our
independent registered public accountants for the year ended
December 31, 2009. If Proposal 10, which is an
advisory vote only, is approved, our Compensation Committee will
consider their vote of approval in determining the compensation
of our executives in the future.
21
CONSEQUENCES
IF PROPOSALS ARE NOT APPROVED
The
Investor Proposals
Stockholders Meeting. If stockholder
approval is not received on the proposals, the Investor
Preferred Stock and the Additional Investor Preferred Stock will
remain outstanding in accordance with their terms and we have
agreed, in accordance with the terms of the investment
agreement, to seek stockholder approvals at a meeting of our
stockholders no less than once in each subsequent six-month
period beginning March 1, 2009 until all approvals are
obtained or made.
Liquidation Preference. For as long as the
Investor Preferred Stock and the Additional Investor Preferred
Stock remain outstanding, they will retain a senior liquidation
preference over shares of our common stock in connection with
any liquidation of it and, accordingly, no payments will be made
to holders of our common stock upon any liquidation of us unless
the full liquidation preference on the Investor Preferred Stock,
the Additional Investor Common Stock and the Trust Preferred
Securities is made. After payment of the full liquidation
preference on the Investor Preferred Stock and the Additional
Investor Preferred Stock, holders of Investor Preferred Stock
and the Trust Preferred Securities will be entitled to
participate in any further distribution of our remaining assets
based on their as-converted ownership percentage of the our
common stock.
Class Voting of Holders of Investor Preferred Stock and
Additional Investor Preferred Stock. If
stockholder approval is not received for Proposal 2, all shares
of Investor Preferred Stock and Additional Investor Preferred
Stock will remain unconverted and, pursuant to their terms,
continue to be entitled to a separate class vote on any
potential merger or acquisition of the Company. Therefore,
holders of the Investor Preferred Stock and Additional Investor
Preferred Stock would have the ability to negotiate for higher
proportionate consideration to be paid for their shares than for
the common stock in any potential merger or acquisition, which
could result in a reduction in the market price of the common
stock.
Treasury Warrant. If stockholder approval of
either Proposal 2 or Proposal 5 is not received by
July 30, 2009, the exercise price of the Treasury Warrant
will be reduced by $0.09 per share. The exercise price will be
further reduced by $0.09 per share on each six-month anniversary
thereafter until stockholder approval has been obtained, up to a
maximum reduction of $0.28 per share.
Classified Board. If stockholder approval is
not received for Proposal 3, then director nominees will be
elected for two-year terms at subsequent annual meetings of
stockholders.
Control Share Acquisitions. If Proposal 4
is not approved, we will continue to be subject to
Chapter 7B of the MBCA which relates to control share
acquisitions as was in effect on the date of filing the
articles of incorporation relating thereto (February 11,
1997) even though Chapter 7B of the MBCA was repealed
by the Michigan legislature effective January 6, 2009.
Proposals 5
and 6
If stockholder approval is not received on Proposal 5 or
Proposal 6, the Treasury Warrant and the May Investor
Warrants, as the case may be, will remain outstanding but
unexercisable. However, we are required to continue to seek
stockholder approvals at future meetings of our stockholders for
these proposals. If stockholder approval of Proposal 6 is
not received by July 30, 2009, the exercise price will be
reduced in the manner discussed above. Moreover, if stockholder
approval is not received by July 30, 2010, until such time
as the stockholder approval is received, Treasury may cause us
to exchange all or a portion of the Treasury Warrant for an
economic interest classified as permanent equity under generally
accepted accounting principles having a value equal to the fair
market value of such exchanged portion.
Proposals 7
and 8
If Proposal 7 is not approved by stockholders, our
directors will continue to be elected in the future by a
plurality of votes cast at the meetings called for their
election and if Proposal 8 is not approved, we will
continue to require a two-thirds vote of our directors to
approve changes to our bylaws.
22
Proposals 9
and 10
If Proposal 9 is not ratified, the Audit Committee may
reconsider whether to retain Virchow, Krause &
Company, LLP as its independent registered public accountants
for the year ended December 31, 2009. If Proposal 10,
which is an advisory vote only, is not approved, our
Compensation Committee will consider the vote in determining the
compensation of our executives in the future.
USE OF
PROCEEDS
We received aggregate consideration of $523 million in the
TARP transaction and the equity investment transaction and an
additional $100 million pursuant to the closing agreement.
Of the initial aggregate consideration of $523 million, we
contributed $475 million of the proceeds to the Bank, our
principal bank subsidiary, as additional capital. Of the
additional aggregate consideration of $50 million received
to date, we contributed $50 million of the proceeds to the
Bank as additional capital. With respect to the
Trust Preferred Securities transaction, we will determine
the actual use of proceeds upon closing. We have retained the
remaining net proceeds, which we intend to use, on a
consolidated basis, to enhance the capital ratios of the
Company, and provide for payments of dividends on the Treasury
Preferred Stock and other long-term obligations, as well as for
general corporate purposes. As set forth under the heading
PRO FORMA FINANCIAL INFORMATION below, we have used
the funds from the closed transactions to meet the growing
demands of consumers for single-family residential mortgages,
which are included in our mortgage loans available for sale
portfolio until sold into the secondary market. Further, we have
assumed that the proceeds from the Trust Preferred
Securities transaction will initially be invested in agency
securities, such as those issued by Fannie Mae or Freddie Mac.
PRO FORMA
FINANCIAL INFORMATION
The following unaudited pro forma condensed financial
information for the fiscal year ended December 31, 2008
show the effects of the Treasury Securities issued to the
Treasury pursuant to the TARP transaction, the Investor
Securities issued to the Investors pursuant to the equity
investment transaction and the Additional Investor Securities
issued pursuant to the closing agreement. We have included the
following unaudited pro forma consolidated financial data solely
for the purpose of providing stockholders with information that
may be useful for purposes of considering and evaluating the
proposals. The key assumptions in the following financial
information include the following for the closed transactions:
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|
|
|
|
The issuance of the Treasury Securities for $266.6 million;
|
|
|
|
The issuance of the Investor Preferred Stock for
$250 million;
|
|
|
|
The issuance of the Investor Common Stock for
$5.32 million; and
|
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|
|
The issuance of the Additional Investor Preferred Stock for
$50 million.
|
The pro forma financial information for the closed investment
transactions listed above is based on the actual utilization of
the proceeds. The key assumptions in the following financial
information include the following for the transaction not yet
closed:
|
|
|
|
|
The issuance of the Trust Preferred Securities for
$50 million.
|
The pro forma financial information for the transaction not yet
closed may change materially based upon the timing and
utilization of the proceeds, as well as other factors including
any subsequent changes in the market price of our common stock.
The following data should be read in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements and the notes thereto from our Annual
Reports on
Form 10-K
for the fiscal year ended December 31, 2008 incorporated by
reference into this Proxy Statement.
23
FLAGSTAR
BANCORP, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION
(In thousands, except for share data)
(unaudited)
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
Adjustments
|
|
|
|
|
|
Pro Forma
|
|
|
|
|
|
|
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
(Additional
|
|
|
Pro Forma
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
|
|
|
|
(Treasury
|
|
|
(Investor
|
|
|
(Investor
|
|
|
Investor
|
|
|
(With Closed
|
|
|
(Trust
|
|
|
(With All
|
|
|
|
Historical
|
|
|
Preferred
|
|
|
Preferred
|
|
|
Common
|
|
|
Preferred
|
|
|
Transactions)
|
|
|
Preferred
|
|
|
Transactions)
|
|
|
|
31-Dec-08
|
|
|
Stock)
|
|
|
Stock)
|
|
|
Stock)
|
|
|
Stock)
|
|
|
31-Dec-08
|
|
|
Securities)
|
|
|
31-Dec-08
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
506,905
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
506,905
|
|
|
$
|
|
|
|
$
|
506,905
|
|
Securities classified as trading
|
|
|
542,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
542,539
|
|
|
|
|
|
|
|
542,539
|
|
Securities classified as available for sale(4)
|
|
|
1,118,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,118,453
|
|
|
|
50,000
|
|
|
|
1,168,453
|
|
Other investments
|
|
|
34,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,532
|
|
|
|
|
|
|
|
34,532
|
|
Loans available for sale(1)(2)(3)
|
|
|
1,484,680
|
|
|
|
266,657
|
|
|
|
228,100
|
|
|
|
5,320
|
|
|
|
50,000
|
|
|
|
2,034,757
|
|
|
|
|
|
|
|
2,034,757
|
|
Loans held for investment, net
|
|
|
8,706,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,706,121
|
|
|
|
|
|
|
|
8,706,121
|
|
Other assets
|
|
|
1,810,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,810,427
|
|
|
|
|
|
|
|
1,810,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
14,203,657
|
|
|
$
|
266,657
|
|
|
$
|
228,100
|
|
|
$
|
5,320
|
|
|
$
|
50,000
|
|
|
$
|
14,753,734
|
|
|
$
|
50,000
|
|
|
$
|
14,803,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
7,841,005
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,841,005
|
|
|
$
|
|
|
|
$
|
7,841,005
|
|
Federal Home Loan Bank advances
|
|
|
5,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,200,000
|
|
|
|
|
|
|
|
5,200,000
|
|
Other borrowed funds(4)
|
|
|
356,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
356,660
|
|
|
|
50,000
|
|
|
|
406,660
|
|
Other liabilities(5)(6)
|
|
|
333,699
|
|
|
|
27,741
|
|
|
|
6,132
|
|
|
|
|
|
|
|
|
|
|
|
367,572
|
|
|
|
|
|
|
|
367,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
13,731,364
|
|
|
|
27,741
|
|
|
|
6,132
|
|
|
|
0
|
|
|
|
0
|
|
|
|
13,765,237
|
|
|
|
50,000
|
|
|
|
13,815,237
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock $0.01 par value, 25,000,000 shares
authorized; no shares outstanding; $1,000 liquidation value(1)(6)
|
|
|
|
|
|
|
238,916
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
238,916
|
|
|
|
|
|
|
|
238,916
|
|
Preferred stock $0.01 par value, 25,000,000 shares
authorized; no shares outstanding(2)
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
Common stock $0.01 par value, 150,000,000 shares
authorized; 83,626,726 shares issued and outstanding at
September 30, 2008(1)(3)
|
|
|
836
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
843
|
|
|
|
|
|
|
|
843
|
|
Additional paid in capital(2)(5)(6)
|
|
|
119,024
|
|
|
|
|
|
|
|
221,966
|
|
|
|
5,313
|
|
|
|
49,999
|
|
|
|
396,302
|
|
|
|
|
|
|
|
396,302
|
|
Accumulated other comprehensive loss
|
|
|
(81,742
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(81,742
|
)
|
|
|
|
|
|
|
(81,742
|
)
|
Retained earnings
|
|
|
434,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
434,175
|
|
|
|
|
|
|
|
434,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
472,293
|
|
|
|
238,916
|
|
|
|
221,968
|
|
|
|
5,320
|
|
|
|
50,000
|
|
|
|
988,497
|
|
|
|
|
|
|
|
988,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
14,203,657
|
|
|
$
|
266,657
|
|
|
$
|
228,100
|
|
|
$
|
5,320
|
|
|
$
|
50,000
|
|
|
$
|
14,753,734
|
|
|
$
|
50,000
|
|
|
$
|
14,803,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
(1) |
|
Reflects the issuance of $266,657,000 of Fixed-Rate Cumulative
Perpetual Preferred Stock, Series C to the Treasury,
together with 64,513,790 common stock warrants. Upon receipt of
stockholder approval to authorize more common shares, the common
stock warrants will be reclassified from Other Liabilities to
Additional Paid in Capital within the Stockholders Equity
section. Proceeds have been initially invested in new
conventional residential mortgage loan originations. These new
originations are held in our mortgage loan held for sale
portfolio until sold into the secondary market and the proceeds
from those sales will then be reinvested in additional loan
originations. |
|
|
|
(2) |
|
Reflects the issuance of $300,000,000 in Convertible
Participating Voting Preferred Stock, Series B, to
MatlinPatterson, net of transaction expenses of $28,032,000.
These preferred shares will convert to common stock once
stockholder approval is received. Proceeds have been initially
invested in new conventional residential mortgage loan
originations. These new originations are held in our mortgage
loan held for sale portfolio until sold into the secondary
market and the proceeds from those sales will then be reinvested
in additional loan originations. |
|
|
|
(3) |
|
Reflects the issuance of the $5,320,000 of common stock to the
Individual Investors. Proceeds have been initially invested in
new conventional residential mortgage loan originations. These
new originations are held in our mortgage loan held for sale
portfolio until sold into the secondary market and the proceeds
from those sales will then be reinvested in additional loan
originations. |
|
|
|
(4) |
|
Reflects the issuance of $50,000,000 shares of trust
preferred securities to MatlinPatterson, with an aggregate
liquidation preference of $50,000,000 and a dividend rate of
10%, convertible, in whole or in part, into common stock.
Proceeds when received are assumed to be initially invested in
agency securities, such as those issued by Fannie Mae and
Freddie Mac and which will be classified as available for sale. |
|
|
|
(5) |
|
The carrying value of the common stock warrants related to both
the Treasury Warrant and the May Investor Warrants is based on
their fair value at issue date. The fair value of the common
stock warrants was estimated to be $0.43 per share and
determined using the binomial lattice model with the following
assumptions: no dividend yield; risk-free rate, 3.38%; expected
life 10.0 years; and volatility 62.0%. |
|
|
|
(6) |
|
The discount on the Fixed-Rate Cumulative Perpetual Preferred
Stock, Series C to the Treasury which is represented by the
initial fair value of the Treasury Warrant and is amortized over
its estimated life of seven years using the effective yield
method. |
25
FLAGSTAR
BANCORP, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
|
|
|
Pro Forma(1)
|
|
|
|
|
|
|
|
|
|
Pro Forma
|
|
|
Pro Forma
|
|
|
Adjustments
|
|
|
(With Closed
|
|
|
Pro Forma
|
|
|
(With All
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
Adjustments
|
|
|
Adjustments
|
|
|
(Additional
|
|
|
Transactions)
|
|
|
Adjustments
|
|
|
Transactions)
|
|
|
|
Twelve Months
|
|
|
Adjustments
|
|
|
(Investor
|
|
|
(Investor
|
|
|
Investor
|
|
|
Twelve Months
|
|
|
(Trust
|
|
|
Twelve Months
|
|
|
|
Ended
|
|
|
(Treasury
|
|
|
Preferred
|
|
|
Common
|
|
|
Preferred
|
|
|
Ended
|
|
|
Preferred
|
|
|
Ended
|
|
|
|
31-Dec-08
|
|
|
Securities)
|
|
|
Stock)
|
|
|
Stock)
|
|
|
Stock)
|
|
|
31-Dec-08
|
|
|
Securities)
|
|
|
31-Dec-08
|
|
|
Total Interest Income(1)(2)
|
|
$
|
777,997
|
|
|
$
|
13,386
|
|
|
$
|
11,451
|
|
|
$
|
267
|
|
|
$
|
2,510
|
|
|
$
|
805,611
|
|
|
$
|
2,205
|
|
|
$
|
807,816
|
|
Total Interest Expense(3)
|
|
|
555,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
555,472
|
|
|
|
5,000
|
|
|
|
560,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
222,525
|
|
|
|
13,386
|
|
|
|
11,451
|
|
|
|
267
|
|
|
|
2,510
|
|
|
|
250,139
|
|
|
|
(2,795
|
)
|
|
|
247,344
|
|
Provision for loan losses
|
|
|
343,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
343,963
|
|
|
|
|
|
|
|
343,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (loss) after provision for loan losses
|
|
|
(121,438
|
)
|
|
|
13,386
|
|
|
|
11,451
|
|
|
|
267
|
|
|
|
2,510
|
|
|
|
(93,284
|
)
|
|
|
(2, 795
|
)
|
|
|
(96,079
|
)
|
Total Non-Interest Income
|
|
|
130,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,123
|
|
|
|
|
|
|
|
130,123
|
|
Non-Interest Expense
|
|
|
432,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
432,052
|
|
|
|
|
|
|
|
432,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before federal income taxes
|
|
|
(423,367
|
)
|
|
|
13,386
|
|
|
|
11,451
|
|
|
|
267
|
|
|
|
2,510
|
|
|
|
(395,753
|
)
|
|
|
(2,795
|
)
|
|
|
(398,008
|
)
|
Benefit for federal income taxes(1)(2)
|
|
|
(147,960
|
)
|
|
|
4,685
|
|
|
|
4,008
|
|
|
|
93
|
|
|
|
879
|
|
|
|
(142,396
|
)
|
|
|
(849
|
)
|
|
|
(143,245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Loss) Earnings
|
|
$
|
(275,407
|
)
|
|
$
|
8,701
|
|
|
$
|
7,443
|
|
|
$
|
174
|
|
|
$
|
1,631
|
|
|
$
|
(253,357
|
)
|
|
$
|
(1,946
|
)
|
|
|
(254,763
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective dividend on preferred stock(4)(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(272,059
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share Basic
|
|
$
|
(3.82
|
)
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
$
|
0.10
|
|
|
$
|
(0.56
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.60
|
)
|
Diluted
|
|
$
|
(3.82
|
)
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
$
|
0.12
|
|
|
$
|
0.10
|
|
|
$
|
(0.56
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.60
|
)
|
Weighted Average Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
72,153
|
|
|
|
72,153
|
|
|
|
72,153
|
|
|
|
72,153
|
|
|
|
319,150
|
|
|
|
453,803
|
|
|
|
62,500
|
|
|
|
453,803
|
|
Diluted
|
|
|
72,153
|
|
|
|
72,153
|
|
|
|
72,153
|
|
|
|
72,153
|
|
|
|
319,150
|
|
|
|
453,803
|
|
|
|
62,500
|
|
|
|
453,803
|
|
|
|
|
(1) |
|
The funds received from the closed investment transactions have
been initially invested in new conventional residential mortgage
loan originations and are assumed to earn interest income at an
average rate of 5.02%, which is the average rate of those loans
actually originated subsequent to the receipt of the proceeds of
the closed investment transactions. These new originations held
in our for sale portfolio until sold into the secondary market
and the proceeds from those sales will then be reinvested into
additional originations. An incremental tax rate of 35% was
assumed. |
|
|
|
(2) |
|
The funds from the Trust Preferred Securities, when
received, are assumed to be invested in agency securities, such
as those issued by Fannie Mae and Freddie Mac, which will be
classified as available for sale and have a yield at current
market rates of 4.41%. An incremental tax rate of 35% was
assumed. |
|
|
|
(3) |
|
Consists of dividends (treated as interest) of $5,000,000 on
Trust Preferred Securities at 10% annual rate. |
|
|
|
(4) |
|
Consists of dividends of $13,333,000 on Treasury Preferred Stock
at 5% annual rate. |
|
|
|
(5) |
|
Includes the accretion of $3,963,000 related to the preferred
stock discount. The discount is based on the value that is
allocated to the Treasury Warrants upon issuance. The discount
is accreted back to par value on an effective yield method over
a seven year amortization term, which is the expected life of
the preferred stock upon issuance. |
26
FLAGSTAR
BANK, FSB
PRO FORMA CONSOLIDATED REGULATORY RATIOS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended
|
|
|
Pro Forma as of
|
|
|
|
December 31,
|
|
|
Twelve Months Ended
|
|
|
|
2008
|
|
|
December 31,
|
|
|
|
Actual
|
|
|
2008(1)
|
|
|
Tier 1 Leverage Ratio
|
|
|
4.95
|
%
|
|
|
8.67
|
%
|
Tier 1 Risk Based Ratio
|
|
|
7.83
|
%
|
|
|
13.87
|
%
|
Total Risk Based Ratio
|
|
|
9.10
|
%
|
|
|
15.14
|
%
|
|
|
|
(1) |
|
Assumes that Flagstar invested $525 million of the offering
proceeds into Flagstar Bank as equity capital |
PROPOSAL 1
-
ELECTION
OF DIRECTORS
The Board is currently composed of eleven directors. At this
Annual Meeting, the terms of seven of the current
directors James D. Coleman, Gregory Eng, Mark T.
Hammond, Jay J. Hansen, David J. Matlin, Mark Patterson, and B.
Brian Tauber will expire. The Board has nominated
each of them to serve for a new two-year term and until their
respective successors are duly elected and qualified. In
addition, the Board has nominated Walter N. Carter, Lesley
Goldwasser and David L. Treadwell, each designated by
MatlinPatterson, to serve for a two-year term and until their
respective successors are duly elected and qualified. In
connection their nomination and assuming Proposal 1 is
approved, Michael Lucci, Sr., Robert W. DeWitt, and William
F. Pickard will resign from the Board at the Annual Meeting.
It is currently our policy that the membership of our Board and
the board of directors of the Bank be identical. While
Messrs. Carter and Treadwell and Ms. Goldwasser may be
elected to our Board without regulatory approval, stockholders
should note that their election to the board of directors of the
Bank requires regulatory non-objection pursuant to the
conditions set forth in the OTS approval of the equity
investment transaction. If the OTS objects to the election of
Messrs. Carter or Treadwell or Ms. Goldwasser to the
board of directors of the Bank, then our Board may
(i) request that such director resign and (ii) appoint
a replacement director, whose election to the board of directors
of the Bank will also require OTS non-objection.
Stockholders should also note that, assuming Proposal 3 is
approved, beginning with our annual meeting of stockholders in
2010, director nominees whose terms do not then expire will be
elected for one-year terms. Since we have director nominees
proposed for election with a term to expire in 2011 as indicated
below, beginning with our annual meeting in 2011, all director
nominees will thereafter be elected for one-year terms or until
their successors are duly elected and qualified.
It is intended that the persons named in the proxies solicited
by the Board will vote for the election of each of these
nominees. If the nominee is unable to serve, the shares
represented by all properly executed proxies which have not been
revoked will be voted for the election of such substitute as the
Board may recommend, or the size of the Board may be reduced to
eliminate the vacancy. At this time, the Board does not know of
any reason why any nominee might be unable to serve.
The Board recommends a vote FOR election as
directors of all of the nominees listed below.
The following table sets forth, for the nominees and each
continuing director, his or her name, that persons age as
of the Record Date, the year he or she first became our director
and the expiration of his or her current term. Each of the
nominees listed below has consented to serve if elected.
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Age as
|
|
|
Year First
|
|
|
Current
|
|
|
|
of the
|
|
|
Elected
|
|
|
Term
|
|
|
|
Record
|
|
|
Director of
|
|
|
to
|
|
Name
|
|
Date
|
|
|
the Company
|
|
|
Expire
|
|
|
Board Nominees for Terms to Expire in 2011
|
Mark T. Hammond
|
|
|
43
|
|
|
|
1993
|
|
|
|
2009
|
|
B. Brian Tauber
|
|
|
43
|
|
|
|
2005
|
|
|
|
2009
|
|
Jay J. Hansen
|
|
|
45
|
|
|
|
2005
|
|
|
|
2009
|
|
James D. Coleman
|
|
|
62
|
|
|
|
1993
|
|
|
|
2009
|
|
David J. Matlin
|
|
|
47
|
|
|
|
2009
|
(1)
|
|
|
2009
|
(1)
|
Mark Patterson
|
|
|
57
|
|
|
|
2009
|
(1)
|
|
|
2009
|
(1)
|
Gregory Eng
|
|
|
43
|
|
|
|
2009
|
(1)
|
|
|
2009
|
(1)
|
Walter N. Carter
|
|
|
58
|
|
|
|
|
|
|
|
|
(2)
|
Lesley Goldwasser
|
|
|
47
|
|
|
|
|
|
|
|
|
(2)
|
David L. Treadwell
|
|
|
54
|
|
|
|
|
|
|
|
|
(2)
|
Directors Continuing in Office
|
Thomas J. Hammond
|
|
|
65
|
|
|
|
1993
|
|
|
|
2010
|
|
Directors Not Continuing in Office
|
Michael Lucci, Sr.
|
|
|
69
|
|
|
|
2004
|
|
|
|
2010
|
(3)
|
Robert W. DeWitt
|
|
|
69
|
|
|
|
2004
|
|
|
|
2010
|
(3)
|
William F. Pickard
|
|
|
68
|
|
|
|
2008
|
|
|
|
2010
|
(3)
|
|
|
|
(1) |
|
Messrs. Matlin, Patterson and Eng were not previously
elected as directors, but instead were appointed to fill
vacancies on the Board on January 30, 2009 created by the
resignations of Robert O. Rondeau, Jr., Kirstin A. Hammond and
Richard S. Elsea, respectively. |
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(2) |
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Messrs. Carter, Eng and Treadwell and Ms. Goldwasser
will be considered members of the class of directors continuing
in office. |
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(3) |
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Assuming Proposal 1 is approved, Michael Lucci, Sr., Robert
W. DeWitt, and William F. Pickard will resign from the Board at
the Annual Meeting. |
The following sets forth the business experience of each of our
director nominees.
Mark T. Hammond has served as Vice Chairman of our Board
and of the Bank since 1993, as our President and that of the
Bank since 1995, and as our Chief Executive Officer and that of
the Bank since 2002. Prior to being named President,
Mr. Hammond was a Senior Vice President responsible for
sales and secondary marketing and served in various other
positions in the Bank since 1987. Mr. Hammond is a graduate
of the Wharton School of Business (University of Pennsylvania),
where he received a bachelors degree in 1987, and has
served on the Presidents Advisory Board of Fannie Mae.
Mr. Hammond is the son of Thomas J. Hammond.
B. Brian Tauber has served as a member of our Board
and the Bank since 2005. Mr. Tauber has served as Chief
Executive Officer and President of Carolina Precision Plastics,
LLC, an injection molder and assembler located in Ashboro, North
Carolina, since 2001. Since 2003, Mr. Tauber has also
served as President and Chief Executive Officer of C
Enterprises, L.P., a custom cable assembly manufacturer located
in Vista, California serving the data and telecom industries.
Mr. Tauber is also a principal of BLT Ventures, LLC, which
acquires majority interests in mid-market manufacturing
companies. Mr. Tauber received his masters degree in
business administration and law degree from the University of
Michigan in 1992, and his undergraduate degree from the
University of Pennsylvania in 1988.
Jay J. Hansen has served as a member of our Board and the
Bank since 2005. Mr. Hansen is President and Chief
Executive Officer of Hansen Enterprises Ltd LLC, a Michigan
based company that he founded in 2009 to provide consulting
services to manufacturing, distribution and financial services
companies. Prior to that, Mr. Hansen served as Senior Vice
President of Tweddle Group, a global market leader in technical
28
publishing, providing content development, management, and
delivery to the automotive and other manufacturing industries.
During 2007, Mr. Hansen provided financial, operational,
acquisition, strategic planning and integration services to
several financial and manufacturing businesses, including
integration, corporate development and strategic planning
project work for Noble International, Ltd. Prior to December
2006, Mr. Hansen was Chief Operating Officer of Noble
International, Ltd., a Nasdaq-listed company and a supplier of
automotive parts, component assemblies and value-added services
to the automotive industry, from February 2006 to December 2006,
Vice President and Chief Financial Officer from May 2003 to
February 2006, and Vice President of Corporate Development from
2002 to 2003. Mr. Hansen was Vice President at Oxford
Investment Group, a privately held merchant bank with holdings
in a variety of business segments, from 1994 to 2002.
Mr. Hansen is a graduate of the Wharton School of Business
(University of Pennsylvania), where he received a
bachelors degree in 1985.
Dr. James D. Coleman has served as a member of our
Board since 1993 and of the Bank since 1987. He is a board
certified physician who owned and operated several Emergency
Room Staffing Companies prior to his retirement in 1997.
David J. Matlin became a director of Flagstar on
January 30, 2009, effective as of the Closing and pursuant
to the investment agreement. Mr. Matlin is the Chief
Executive Officer of MatlinPatterson Global Advisers LLC, a
$9.0 billion private equity firm, which he co-founded in
July 2002. Prior to forming MatlinPatterson, Mr. Matlin was
a Managing Director at Credit Suisse First Boston, and headed
their Distressed Securities Group since its inception in 1994.
Mr. Matlin was also a Managing Director and a founding
partner of Merrion Group, L.P., a successor to Scully
Brothers & Foss L.P., from 1988 to 1994.
Mr. Matlin serves on the board of directors of Global
Aviation Holdings and Standard Pacific Corp. Mr. Matlin
holds a JD degree from the Law School of the University of
California at Los Angeles and a BS in Economics from the Wharton
School of the University of Pennsylvania.
Mark Patterson became a director of Flagstar on
January 30, 2009, effective as of the Closing and pursuant
to the investment agreement. Mr. Patterson is the Chairman
of MatlinPatterson Global Advisers LLC, a $9.0 billion
private equity firm, which he co-founded in July 2002.
Mr. Patterson is also a Director of Broadpoint Securities
Group, Inc., Polymer Group, Inc., and Allied World Assurance
Holdings, Ltd.. Mr. Patterson has over 30 years of
commercial, investment and merchant banking experience. Prior to
the formation of MatlinPatterson Global Advisors LLC,
Mr. Patterson was a Managing Director at Credit Suisse
First Boston, where he served as Vice Chairman from 2000 to
2002. Mr. Patterson holds a BA (Law) 1972 and a
BA Honors (Economics) 1974 from South Africas
Stellenbosch University and an MBA (with distinction)
1986 from New York Universitys Stern School of
Business.
Gregory Eng became a director of Flagstar on
January 30, 2009, effective as of the Closing and pursuant
to the investment agreement. Mr. Eng is a Partner at
MatlinPatterson Global Advisers LLC, which he joined in August
2002. Mr. Eng holds a masters degree in business
administration from London Business School and his undergraduate
degree from Lafayette College.
Walter N. Carter was nominated to the Board for election
at the Annual Meeting. Mr. Carter is currently a Managing
Principal at Gateway Asset Management Company. Previously,
Mr. Carter was Senior Vice President and Director of
Consumer Lending at Fifth Third Bank, served as a consultant to
the chief executive officer of the direct to consumer retail
non-conforming mortgage business for G.E., and President,
Manufactured Housing at Green Tree Servicing/Conseco Financial
Corp. Mr. Carter received his masters degree in
business administration from Rockhurst College and his
undergraduate degree in Finance from Georgia State University.
Lesley Goldwasser was nominated to the Board for election
at the Annual Meeting. Ms. Goldwasser is a partner at
Irving Place Capital, which she joined in 2008, focusing on new
business development. From 1996 to 2008, Ms. Goldwasser was
a senior managing director at Bear Stearns & Co. Inc.
and head of Global CDOs, co-head of Equity Capital,
Markets, Debt Capital Markets, Hybrids, and Structured
Solutions, and co-head of Asset-Backed Securities.
Ms. Goldwasser is a graduate of the University of Cape Town.
29
David L. Treadwell was nominated to the Board for
election at the Annual Meeting. Mr. Treadwell has been
President and Chief Executive Officer of EaglePicher
Corporation, a $600 million diversified industrial products
company, since August 2006, was Chief Operating Officer from
November 2005 until August 2006, and was a division president
from July 2005 until November 2005. From August 2004 until March
2005, Mr. Treadwell was Chief Executive Officer of Oxford
Automotive, a $1 billion Tier 1 automotive supplier of
stampings and welded assemblies, and from 2002 until August
2004, Mr. Treadwell provided business consulting services.
Mr. Treadwell received his undergraduate degree from the
University of Michigan.
The following sets forth the business experience of each of our
continuing directors:
Thomas J. Hammond has served as Chairman of our Board
since 1993, and served as President from 1993 through 1995 and
Chief Executive Officer from 1993 through 2002. Mr. Hammond
founded the Bank in 1987 and has served as Chairman of its Board
since that time. Mr. Hammond is the father of Mark T.
Hammond, President, Chief Executive Officer and Vice Chairman of
the Board.
The following sets forth the business experience of each of our
directors that will not continue:
Michael Lucci, Sr. has served as a member of our
Board since 2004. Mr. Lucci retired from his position as
the President and Chief Operating Officer of Ballys Total
Fitness Corporation in 1996, and is currently a managing partner
of Venture Contracting, a Michigan-based construction company
which he founded in 1997, and Michigan Multi-King, a
Michigan-based owner and operator of fast food franchises which
he founded in 1980.
Robert W. DeWitt has served as a member of our Board and
of the Bank since 2004. Mr. DeWitt is the President of
DeWitt Building Co, a Michigan-based builder of custom homes and
remodeling projects that he founded in 1979. Mr. DeWitt has
been in the home building and remodeling business for
43 years.
William F Pickard has served as a member of our Board and
the Bank since early 2008. He is chairman and CEO of VITEC, LLC
and chairman and CEO of Global Automotive Alliance LLC of
Detroit. Since 1994, Dr. Pickard has served as a member of
the board of directors of Asset Acceptance Capital Corp. and
serves on its audit and compensation committees.
Dr. Pickard holds a masters degree from the
University of Michigan and a Ph.D. from Ohio State University.
He currently serves as adjunct professor at the University of
Michigan School of Business. Dr. Pickard was named
Michiganian of the Year for his mentorship of new entrepreneurs
and his leadership of Global Automotive Alliance.
Board and
Committee Meetings and Committees
The Board generally meets on a monthly basis, or as needed.
During the year ended December 31, 2008, the Board met 15
times. No director attended fewer than 87% of the aggregate of
(i) the total number of meetings of the Board during 2008,
and (ii) the total number of meetings held by all
committees of the Board on which that director served.
While we do not have a policy regarding director attendance at
the annual meeting of stockholders, we encourage directors to
attend every annual meeting. Ten out of thirteen of our
directors attended last years annual meeting of
stockholders held on May 23, 2008.
Nominating/Corporate
Governance Committee
During 2008, the Nominating/Corporate Governance Committee
consisted of directors James D. Coleman and Robert W. DeWitt. On
January 30, 2009, Dr. Coleman resigned from his
position on the Nominating/Corporate Governance Committee and
David J. Matlin and Gregory Eng were then added to the
Committee. The Nominating/Corporate Governance Committee met
four times in 2008.
On January 30, 2009, we became a controlled company as a
result of the equity investment transaction. As a controlled
company within the meaning of Section 303A.00 of the NYSE
Manual, we are exempt from the requirement that director
nominees be selected, or recommended for the Boards
selection, by either a
30
nominating committee comprised solely of independent directors
or by a majority of the independent directors. Notwithstanding
this exemption, our Nominating/Corporate Governance Committee
includes one independent director, Robert W. DeWitt, who is the
chairman of the Committee. Assuming Proposal 1 is approved
and Mr. DeWitt resigns from the Board, the Board may
appoint a new member and chairman of the Nominating/Corporate
Governance Committee.
Among other things, the Nominating/Corporate Governance
Committee is responsible for reviewing annually the requisite
skills and characteristics required of Board members, selecting,
evaluating and recommending nominees for election by our
stockholders and reviewing and assessing the adequacy of our
policies and practices on corporate governance, including the
Corporate Governance Guidelines. The charter of the
Nominating/Corporate Governance Committee, as well as the
Corporate Governance Guidelines, can be found on our website at
www.flagstar.com.
The Nominating/Corporate Governance Committee will consider
prospective nominees for the Board based on the need to fill
vacancies or the Boards determination to expand the size
of the Board. This initial determination is based on information
provided to the Committee with the recommendation of the
prospective candidate, as well as the Committees own
knowledge of the prospective candidate, which may be
supplemented by inquiries to the person making the
recommendation. The Committee then evaluates the prospective
nominee against the standards and qualifications set forth
below, including relevant experience, industry expertise,
intelligence, independence, diversity of background and outside
commitments.
The general criteria for nomination to the Board include the
following:
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Directors should possess personal and professional ethics,
integrity and values, and be committed to representing the
long-term interests of our stockholders and other constituencies.
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Directors should have reputations, both personal and
professional, consistent with our image and reputation.
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Each director should have relevant experience and expertise and
be able to add value and offer advice and guidance to the Chief
Executive Officer based on that experience and expertise.
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Directors should have current knowledge and contacts in our
industry and other industries relevant to our business, ability
to work with others as an effective group and ability to commit
adequate time as a director.
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Each director should have the ability to exercise sound business
judgment.
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Directors should be selected so that the Board is a diverse body
reflecting gender, ethnic background, professional experience,
current responsibilities and community involvement.
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The Nominating/Corporate Governance Committee recommends to the
Board the slate of directors to be nominated for election at the
annual meeting of stockholders, but the Board is responsible for
making interim appointments of directors in accordance with our
articles of incorporation and Fourth Amended and Restated Bylaws.
On January 30, 2009, the Board appointed David J. Matlin,
Mark Patterson and Gregory Eng as directors for terms to expire
at this Annual Meeting. The appointment of these directors
resulted from the provisions of the investment agreement. The
Nominating/Corporate Governance Committee also recommended that
the Board nominate these directors for election at the Annual
Meeting. Subsequently, the Nominating/Corporate Governance
Committee recommended to the Board that Walter N. Carter, Lesley
Goldwasser, and David L. Treadwell, each of whom was designated
by MatlinPatterson, be nominated for election to the Board. The
nomination of these directors resulted from the provisions of
the investment agreement.
Compensation
Committee
During 2008, the Compensation Committee consisted of directors
James D. Coleman, Robert W. DeWitt and Frank DAngelo. On
January 30, 2009, Mr. DAngelo resigned from the
Board and the Compensation
31
Committee, Mr. DeWitt resigned from the Compensation
Committee, and David J. Matlin and Gregory Eng were appointed to
the Committee. The Compensation Committee met four times in
2008. The charter of the Compensation Committee can be found on
our website at www.flagstar.com.
On January 30, 2009, we became a controlled company as a
result of the equity investment transaction.
Section 303A.00 of the NYSE Manual exempts a controlled
company from the rules that require that (1) the
compensation of the chief executive officer of the company be
determined, or recommended to the board of directors for
determination, either by a compensation committee comprised of
independent directors or by a majority of the independent
directors on its board of directors, (2) the chief
executive officer may not be present during voting or
deliberations, and (3) compensation for all other officers
must be determined, or recommended to the board of directors for
determination, either by the compensation committee or a
majority of the independent directors on the board of directors.
Accordingly, as a controlled company, we are not required to
have officer compensation, including the compensation of the
chief executive officer, determined or approved by a
compensation committee or a majority of the independent
directors on our Board. Notwithstanding this exemption, the
directors that serve on the Compensation Committee satisfy the
independence tests set forth in the regulations under
Section 162 of the Code and Section 16 of the
Securities Exchange Act of 1934, as amended (the Exchange
Act).
The Compensation Committee is responsible for establishing the
policies that govern executive compensation and for recommending
the components and structure of executive compensation. The
Compensation Committee reviews and approves corporate goals and
objectives relevant to compensation of the Chairman and of the
Chief Executive Officer, evaluates performance in light of such
goals and objectives, determines compensation of the Chairman
and of the Chief Executive Officer based on such respective
evaluations, and makes compensation recommendations to the Board
related to other executive officers.
The Compensation Committee may delegate its authority to a
subcommittee composed solely of directors that satisfy its
membership criteria but has never done so. However, the
Compensation Committee frequently requests that management
assist in evaluating employee performance, recommending factors
and targets for performance-based incentive compensation,
recommending compensation levels and forms of awards, and
providing information with respect to, among other things,
strategic objectives and the current market environment. The
Compensation Committee has historically engaged Amalfi
Consulting, LLC, an independent compensation consultant and
formerly the compensation consulting division of Clark
Consulting, to conduct an annual review of its compensation
program and provide relevant market data and alternatives to
consider when making compensation decisions.
Audit
Committee
During 2008, the Audit Committee consisted of directors Charles
Bazzy, Richard S. Elsea, Jay J. Hansen and B. Brian Tauber. On
January 30, 2009, Messrs. Bazzy and Elsea resigned
from the Board and the Audit Committee, and William F. Pickard
was added to the Committee. The chairman of the Audit Committee
is Mr. Hansen. The Audit Committee met eight times in 2008.
The Board has determined that Mr. Hansen qualifies as an
audit committee financial expert, as defined by the
rules and regulations of the SEC. Further, the Board certifies
that each member of the Audit Committee is financially literate
and has accounting or related financial management expertise, as
such qualifications are defined by the rules of the NYSE.
Assuming Proposal 1 is approved and Dr. Pickard
resigns from the Board, the Board will appoint a new member to
the Audit Committee. The charter of the Audit Committee can be
found on our website at www.flagstar.com.
The Audit Committee is responsible for reviewing our audit
programs and the activity of the Bank. The Audit Committee
oversees the quarterly regulatory reporting process, oversees
the internal compliance audits as necessary, receives and
reviews the results of each external audit, reviews
managements responses to independent registered public
accountants recommendations, and reviews managements
reports on cases of financial misconduct by employees, officers
or directors. The Audit Committee is also responsible for
engaging our independent registered public accountants and for
the compensation and oversight of the work of the independent
registered public accountants for the purpose of preparing or
issuing an audit report or related work or performing other
audit, review or attest services for us.
32
The Audit Committee adopted the Flagstar Bancorp, Inc. Audit
Committee Pre-Approval Policy (the Pre-Approval
Policy), which requires the committee to pre-approve the
audit and non-audit services performed by the independent
registered public accountants and confirm that such services do
not impair the independent registered public accountants
independence. Among other things, the Pre-Approval Policy
provides that unless a service to be provided by the independent
registered public accountants has received general pre-approval,
it requires specific pre-approval by the Audit Committee.
Further, the Pre-Approval Policy provides that any services
exceeding pre-approval cost levels will require specific
pre-approval by the Audit Committee. In 2008, all of the fees
paid to our independent registered public accountants were
pre-approved by the Audit Committee.
Director
Compensation
Our general policy is to provide non-management directors with
compensation that is intended to assist us in attracting and
retaining qualified non-management directors. We do not pay
director compensation to directors who are also our employees.
In addition, directors David J. Matlin, Mark Patterson and
Gregory Eng have waived the receipt of compensation for serving
on the Board or its committees.
The Nominating/Corporate Governance Committee, which consists
solely of independent directors, has the primary responsibility
to review director compensation and benefits on an annual basis
and recommend any revisions to the Board. Other than
compensation for attending monthly Board meeting, the
compensation of non-management directors for their service on
the Board and its committees has not changed since 2007 and will
be determined as follows:
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For each monthly Board meeting, $3,750 for attendance in person
and $1,875 for attendance by telephone;
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For each special telephone Board meeting, $500;
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For each Audit Committee meeting, $1,500 for attendance in
person and $750 for attendance by telephone;
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Annual retainer fee for the chairman of the Audit Committee,
$15,000;
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For each special required attendance for an out of office
meeting, $500;
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For each special telephone Audit Committee meeting, $300;
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For each Compensation Committee meeting, $600 for attendance in
person and $300 for attendance by telephone;
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Annual retainer fee for the chairman of the Compensation
Committee, $15,000;
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For each Nominating/Corporate Governance Committee meeting, $300
for attendance in person and $200 for attendance by telephone;
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For each meeting of non-management directors held the same day
as the Board meeting, $300 for attendance in person and $150 for
attendance by telephone; and
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For each meeting of non-management directors not held the same
day as the Board meeting, $800 for attendance in person and $300
for attendance by telephone.
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We reimburse non-management directors that attend meetings of
the Board or its committees from out-of-town for reasonable
travel expenses, including accommodations. Directors Matlin,
Patterson and Eng have waived reimbursement of their travel
expenses.
In addition, non-management directors are eligible to receive
equity-based compensation under the 2006 Equity Incentive Plan.
Non-management directors did not receive equity-based
compensation in 2008.
33
The table below details the compensation earned by our
non-management directors in 2008.
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Fees Earned
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or Paid in
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Name
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Cash
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Total
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Charles Bazzy(1)(2)
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$
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57,450
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$
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57,450
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James D. Coleman(1)
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63,425
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63,425
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Richard S. Elsea(1)(2)(3)
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58,200
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58,200
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Michael Lucci, Sr.(1)
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45,525
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45,525
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Frank DAngelo(1)(2)
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49,200
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49,200
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Robert DeWitt(1)
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50,300
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50,300
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B. Brian Tauber(1)
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47,350
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47,350
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Jay J. Hansen(1)
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73,200
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73,200
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William F. Pickard
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38,025
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38,025
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(1) |
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As of December 31, 2008, each director had the following
number of stock options outstanding, all of which were awarded
prior to 2007: Charles Bazzy 2,500; James D.
Coleman 5,500; Richard S. Elsea 2,500;
Michael Lucci, Sr. 2,500; Frank
DAngelo 2,500; Robert DeWitt
2,500; B. Brian Tauber 1,500; and Jay J.
Hansen 1,500. |
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Messrs. Bazzy, Elsea and DAngelo resigned from the
Board on January 30, 2009. |
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(3) |
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As of December 31, 2008, Richard S. Elsea held
14,400 shares of restricted stock in a deferred
compensation trust. |
CORPORATE
GOVERNANCE
General
We initially adopted Corporate Governance Guidelines in 2004,
and the Nominating/Corporate Governance Committee reviews and
assesses the adequacy of those guidelines annually and
recommends amendments as necessary. You may obtain the Corporate
Governance Guidelines and the charters of each of the
Boards committees, including the Audit Committee, the
Compensation Committee and Nominating/Corporate Governance
Committee, on our website, www.flagstar.com. These documents are
also available in print upon written request to Paul Borja, CFO,
Flagstar Bancorp, Inc., 5151 Corporate Drive, Troy, Michigan
48098.
Code of
Business Conduct and Ethics
The Board has adopted a Code of Business Conduct and Ethics (the
Code of Conduct) that applies to actions of our
employees, officers and directors including the principal
executive officer, principal financial officer, and principal
accounting officer. Among other things, the Code of Conduct
requires compliance with laws and regulations, avoidance of
conflicts of interest and insider trading, and reporting of
illegal or unethical behavior. Further, the Code of Conduct
provides for special ethics obligations for employees with
financial reporting obligations. A copy of the Code of Conduct
may be found on our website at www.flagstar.com. Also, the Code
of Conduct is available in print upon written request to Paul
Borja, CFO, Flagstar Bancorp, Inc., 5151 Corporate Drive, Troy,
Michigan 48098.
Stockholder
Nominations
While the Nominating/Corporate Governance Committee will
consider nominees recommended by stockholders, it has not
actively solicited recommendations from our stockholders for
nominees. Stockholders who wish to nominate candidates for
election to the Board at the Annual Meeting must follow the
procedures outlined in STOCKHOLDER PROPOSALS FOR THE
2010 ANNUAL MEETING. The Nominating/Corporate Governance
Committee will evaluate candidates properly proposed by
stockholders in the same
34
manner as all other candidates, as set forth above under
PROPOSAL 1 ELECTION OF DIRECTORS
Nominating/Corporate Governance Committee.
All stockholder nominations for new directors must be in writing
and must set forth as to each director candidate recommended the
following: (1) name, age, business address and, if known,
residence address of the nominee; (2) the principal
occupation or employment of the nominees; (3) the number of
shares of Common Stock that are beneficially owned by the
nominee; and (4) any other information relating to the
person that would be required to be included in a proxy
statement prepared in connection with the solicitation of
proxies for an election of directors pursuant to applicable law
and regulations. Certain information as to the stockholder
nominating the nominee for director must be included, such as
the name and address of the stockholder and the number of shares
of Common Stock which are beneficially owned by the stockholder.
The stockholder must promptly provide any other information
requested by us.
Independence
Section 303A.00 of the NYSE Manual applicable to companies
listed on the NYSE exempts a controlled company (defined as a
company with over 50% of the voting power held by an individual,
group or other company) from the requirements that a majority of
its board of directors be comprised of independent
directors, that the compensation of our chief executive officer
and all of our other executive officers be determined or
recommended to the board of directors for determination either
by a majority of independent directors or a compensation
committee comprised solely of independent directors, and that
director nominees either be selected or recommended for
selection by the board of directors by a majority of independent
directors or a nominations committee comprised solely of
independent directors. The Audit Committee of our Board is
comprised of the following three members: Jay J. Hansen, B.
Brian Tauber and William F. Pickard, each of whom is
independent, as that term is defined by
Section 303A.02 of the NYSE Manual, and the constitution of
the Audit Committee complies with the NYSE independence
standards for audit committees and the regulations of the
Securities and Exchange Commission applicable to audit
committees. None of Messrs. Hansen, Tauber or Pickard has
any relationships or has been involved in any transactions or
arrangements with us that required consideration by the Board
under the applicable independence standards in determining that
such director is independent.
The Board has conducted its annual review of director
independence. During this review, the Board considered
relationships and transactions during the past three years
between each director or any member of his or her immediate
family and us and our subsidiaries and affiliates, including
those reported under CERTAIN TRANSACTIONS AND BUSINESS
RELATIONSHIPS. The purpose of the review was to determine
whether any such relationship or transactions were inconsistent
with a determination that the director is independent.
Based on its review, the Board has affirmatively determined that
directors James D. Coleman, Robert W. DeWitt, B. Brian Tauber,
Jay J. Hansen, and William F. Pickard are independent in
accordance with applicable SEC and NYSE rules. Further, the
Board has affirmatively determined that director nominees Lesley
Goldwasser and David L. Treadwell are independent in accordance
with applicable SEC and NYSE rules. The Board considered all
relevant facts and circumstances in concluding that such persons
are independent and have no material relationship with us. As of
and after the Annual Meeting, the entirety of the Boards
audit committee will be composed of independent directors.
However, a majority of the Board and the entirety of the
Boards compensation committee and nominating/corporate
governance committee are not independent.
Director
and Executive Officer Stock Ownership Guidelines
The Board previously adopted stock ownership requirements for
our directors and executive officers. Independent directors must
meet or exceed these requirements within one year of joining the
Board. The requirements specify that non-management directors
are expected to own or have stock options to purchase at least
1,000 shares of Common Stock. Each of the independent
directors meet or exceed the requirement set forth in the stock
ownership guidelines.
35
Our Senior officers are expected to own at least
100 shares, which includes shares held in the Flagstar Bank
401(k) Plan and certain awards issued under our 2006 Equity
Incentive Plan.
Executive
Sessions of Non-Management Directors
All non-management directors meet in executive session at least
four times per year. No employee of ours may attend or
participate in such executive sessions. The Board will annually
designate the lead non-management director, or Lead Director, to
chair the executive sessions and to establish and distribute an
agenda for each such meeting. Mr. DeWitt has been
designated the Lead Director for 2009. If Proposal 1 is
approved and Mr. DeWitt resigns from the Board, the Board
will designate a new lead non-management director.
Communications
with the Board or the Lead Director
Individuals who have an interest in communicating directly with
a member of the Board, the Board or the non-management members
of the Board may do so by directing the communication to the
Board of Directors [name of individual
director], Board of Directors, or Lead
Director, respectively. The Lead Director is the presiding
director for non-management sessions of the Board. Following
each meeting of the non-management directors, the Lead Director
determines whether any communication necessitates discussion by
the full Board. Any communications should be sent to the
following address: Flagstar Bancorp, Inc., ATTN: Corporate
Secretary, 5151 Corporate Drive, Troy, Michigan, 48098.
Succession
Plan
Pursuant to the Corporate Governance Guidelines, the Chief
Executive Officer and the Nominating/Corporate Governance
Committee review succession planning with the Board on an annual
basis. The Board has adopted a succession plan that is
consistent with industry practice and would provide for an
orderly transition in case of a catastrophic event involving the
Chairman or the Chief Executive Officer.
36
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Persons and groups beneficially owning more than 5% of our
voting stock are generally required under federal securities
laws to file certain reports with the SEC detailing such
ownership. The term beneficial ownership includes
the shares held as of the Record Date plus shares underlying any
options or securities that are exercisable as of or within
60 days before or after the Record Date. The following
table sets forth, as of the Record Date, certain information as
to our voting stock beneficially owned by any person or group of
persons who are known to us to be the beneficial owners of more
than 5% of our voting stock. Other than as disclosed below,
management knows of no person who beneficially owned more than
5% of our voting stock at the Record Date. This table is based
on information supplied to us by persons named therein and from
Schedule 13Gs and Schedule 13Ds filed with the SEC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Voting Preferred Stock
|
|
|
|
|
Percent of
|
|
|
|
Percent of
|
Name and Address of Beneficial Owner
|
|
Shares
|
|
Class(a)
|
|
Shares
|
|
Class
|
|
Thomas J. Hammond(b)
|
|
|
13,391,897
|
(c)
|
|
|
14.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark T. Hammond(b)
|
|
|
9,527,847
|
(c)
|
|
|
10.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(e)
|
|
|
|
|
|
|
|
|
|
|
|
|
c/o Flagstar
Bancorp, Inc.
5151 Corporate Drive
Troy, Michigan 48098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elliott Associates, L.P.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elliott International, L.P.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Elliott International Capital Advisors Inc.
|
|
|
5,151,351
|
(f)
|
|
|
5.7
|
|
|
|
|
|
|
|
|
|
717 Fifth Avenue, 36th Floor
New York, New York 10019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wellington Management Company, LLP
|
|
|
7,412,696
|
(g)
|
|
|
8.2
|
|
|
|
|
|
|
|
|
|
75 State Street
Boston, MA 02109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MP Thrift Investments L.P.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MPGOP III Thrift AV-I L.P.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MPGOP (Cayman) III Thrift AV-I L.P.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MP (Thrift) Global Partners III LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MP (Thrift) Asset Management LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MP (Thrift) LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David J. Matlin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark R. Patterson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MatlinPatterson Global Advisers LLC
|
|
|
|
(h)
|
|
|
|
|
|
|
300,000
|
(h)
|
|
|
100
|
%
|
c/o MatlinPatterson
Global Advisers LLC
520 Madison Avenue, 35th Floor
New York, New York 10022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The percentage owned is calculated for each stockholder by
dividing (i) the total number of outstanding shares
beneficially owned by such stockholder as of the Record Date
plus the number of shares such person has the right to acquire
within 60 days of the Record Date, into (ii) the total
number of outstanding shares as of the Record Date plus the
total number of shares that such person has the right to acquire
within 60 days of the Record Date. |
|
(b) |
|
Mr. Mark Hammond is the son of Mr. Thomas Hammond. |
|
(c) |
|
These amounts include beneficial ownership of shares with
respect to which voting or investment power may be deemed to be
directly or indirectly controlled, but does not include stock
owned by each stockholders spouse, as to which the
respective person disclaims beneficial ownership. |
37
|
|
|
(d) |
|
This amount includes 10,305,157 shares held indirectly in a
revocable living trust, 116,137 shares held indirectly in
the Flagstar Bank 401(k) Plan, 23,178 shares of restricted
stock, and stock options exercisable as of the Record Date, or
that will become exercisable within 60 days thereafter, to
purchase 100,452 shares of Common Stock. |
|
(e) |
|
This amount includes 5,533,847 shares held indirectly in a
revocable living trust, 104,171 shares held indirectly in
the Flagstar Bank 401(k) plan, 38,629 shares of restricted
stock, and stock options exercisable as of the Record Date, or
that will become exercisable within 60 days thereafter, to
purchase 984,595 shares of Common Stock. |
|
(f) |
|
Based solely on a Schedule 13G filed with the SEC on
February 17, 2009. Elliott Associates, L.P. beneficially
owns and has sole power to vote and dispose of
2,058,554 shares of common stock. Elliott International,
L.P. and Elliott International Capital Advisors Inc.
beneficially own and share the power to vote and dispose of
3,092,797 shares of common stock. |
|
(g) |
|
Based solely on a Schedule 13G filed with the SEC on
February 17, 2009. Wellington Management Company, LLC has
shared voting power over 5,324,738 shares of common stock
and shared dispositive power over 5,747,796 shares of
common stock. The number set forth in the table above does not
include 4,255,744 shares of common stock underlying
warrants that are not exercisable without stockholder approval. |
|
(h) |
|
These persons beneficially own, and are the record holder of
300,000 shares of Investor Preferred Stock over which they
have shared voting power. The Investor Preferred Stock
represents approximately 80% of the total voting power of our
voting stock and votes on an as-converted basis with our common
stock (assuming that a sufficient number of shares of common
stock were authorized for issuance) in an amount equal to
375 million shares of common stock. The Investor Preferred
Stock is automatically convertible into common stock upon
receipt of stockholder approval for Proposal 2. |
38
EXECUTIVE
OFFICERS
The following table sets forth the name and age (as of the
Record Date) of our executive officers.
|
|
|
Name and Age
|
|
Position(s) Held In 2008
|
|
Thomas J. Hammond, 65
|
|
Chairman of our Board and the Bank
|
Mark T. Hammond, 43
|
|
Vice Chairman, President and Chief Executive Officer of the
Company and the Bank
|
Paul D. Borja, 48
|
|
Executive Vice President and Chief Financial Officer of the
Company and the Bank
|
Kirstin A. Hammond, 43
|
|
Executive Vice President and Chief Investment Officer of the
Company and the Bank, President of Flagstar Capital Markets
Corporation.
|
Matthew I. Roslin, 41
|
|
Executive Vice President of the Company and the Bank and Chief
Legal Officer and Chief Administrative Officer of the Bank
|
Thomas J. Hammond has served as Chairman of our Board
since 1993, and served as President from 1993 through 1995 and
Chief Executive Officer from 1993 through 2002. Mr. Hammond
founded the Bank in 1987 and he has served as Chairman of the
Board of the Bank since that time. Mr. Hammond is the
father of Mark T. Hammond, President, Chief Executive Officer
and Vice Chairman of the Board, and is the
father-in-law
of Kirstin A. Hammond, who is an Executive Vice President of the
Company and the Bank.
Mark T. Hammond has served as Vice Chairman of our Board
and of the Bank since 1993, as President of the Company and the
Bank since 1995, and as Chief Executive Officer of the Company
and the Bank since 2002. Prior to being named President,
Mr. Hammond was a Senior Vice President responsible for
sales and secondary marketing and served in various other
positions in the Bank since 1987. Mr. Hammond is a graduate
of the Wharton School of Business (University of Pennsylvania),
where he received a bachelors degree in 1987, and has
served on the Presidents Advisory Board of Fannie Mae.
Mr. Hammond is the son of Thomas J. Hammond and the husband
of Kirstin A. Hammond.
Paul D. Borja has served as Executive Vice President of
the Company and the Bank since May 2005, and also as its Chief
Financial Officer since June 2005. Previously, he practiced law
with various firms in Washington DC from 1990 through 2005,
focusing on federal tax, banking, corporate law and federal
securities law matters. Prior to practicing law, Mr. Borja
was a CPA with Peat Marwick Mitchell, a predecessor to KPMG,
from 1982 through 1987, primarily as an auditor of banks and
savings and loans. Mr. Borja received his masters
degree in tax law from Georgetown University in 1991, his law
degree from George Washington University in 1990, and his
bachelors degree in accountancy from the University of
Notre Dame in 1982.
Kirstin A. Hammond has served as a member of our Board
from 2002 until 2009. She also serves as an Executive Vice
President of the Company and the Bank where she has been
employed since 1991 and as President of Flagstar Capital Markets
Corporation, a wholly-owned subsidiary of the Bank, since its
formation in 2006. Prior to joining the Bank, Ms. Hammond
worked as an Investment Analyst at Manufacturers National
Bank from 1987 to 1991. Ms. Hammond graduated from the
University of Michigan with a masters degree in Business
Administration in 1991 and from the Wharton School of Business
(University of Pennsylvania) with a bachelors degree in
1987. Ms. Hammond is the wife of Mark T. Hammond and the
daughter-in-law
of Thomas J. Hammond.
Matthew I. Roslin has served as Chief Legal Officer of
the Bank since April 2004,as an Executive Vice President of the
Company and the Bank since 2005 and concurrently as its Chief
Administrative Officer since 2009. Prior to joining the Bank,
Mr. Roslin was Executive Vice President of MED3000 Group,
Inc., a privately held healthcare management company that he
joined in 1996 as its General Counsel. Mr. Roslin practiced
corporate law, with a focus on mergers and acquisitions and
federal securities law from 1994 to 1996 as an associate with
Dewey Ballantine, and from 1991 to 1993 as an associate with
Jones Day. Mr. Roslin received his law degree from the UCLA
School of Law in 1991 and his bachelors degree in
economics from the Wharton School of Business (University of
Pennsylvania) in 1988.
39
SECURITY
OWNERSHIP OF MANAGEMENT
This table and the accompanying footnotes provide a summary of
the beneficial ownership of our equity securities as of the
Record Date by all of our directors and executive officers as a
group. A total of 90,380,043 shares of common stock were
issued and outstanding as of the Record Date and a total of
300,000 shares of Investor Preferred Stock and Additional
Investor Preferred Stock were issued and outstanding as of the
Record Date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Investor Preferred Stock
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
Name of Beneficial Owner
|
|
Shares(a)(b)
|
|
|
of Class
|
|
|
Shares(a)
|
|
|
of Class
|
|
|
Thomas J. Hammond
|
|
|
13,391,897
|
(c)
|
|
|
14.8
|
%
|
|
|
|
|
|
|
|
|
Mark T. Hammond
|
|
|
9,527,847
|
(d)
|
|
|
10.4
|
|
|
|
|
|
|
|
|
|
James D. Coleman
|
|
|
471,665
|
(e)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Michael Lucci, Sr.
|
|
|
27,500
|
(f)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Robert Dewitt
|
|
|
23,874
|
(g)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
B. Brian Tauber
|
|
|
153,500
|
(h)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Jay J. Hansen
|
|
|
90,268
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
William F. Pickard
|
|
|
31,250
|
(i)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
David J. Matlin
|
|
|
0
|
(j)
|
|
|
*
|
|
|
|
300,000
|
|
|
|
100
|
%
|
Mark R. Patterson
|
|
|
0
|
(j)
|
|
|
*
|
|
|
|
300,000
|
|
|
|
100
|
%
|
Gregory Eng
|
|
|
0
|
(j)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Walter N. Carter
|
|
|
0
|
(k)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Lesley Goldwasser
|
|
|
0
|
(k)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
David L. Treadwell
|
|
|
0
|
(k)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Paul D. Borja
|
|
|
179,753
|
(l)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Kirstin A. Hammond
|
|
|
270,967
|
(m)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Robert O. Rondeau
|
|
|
383,834
|
(n)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group(18)
|
|
|
24,731,024
|
|
|
|
27.0
|
%
|
|
|
300,000
|
|
|
|
100
|
%
|
|
|
|
* |
|
Less than 1.0% |
|
(a) |
|
These amounts include beneficial ownership of shares with
respect to which voting or investment power may be deemed to be
directly or indirectly controlled, but does not include stock
owned by each stockholders spouse, as to which the
respective person disclaims beneficial ownership. |
|
(b) |
|
These amounts also include shares of common stock underlying
options exercisable as of the Record Date, or that will become
exercisable within 60 days thereafter, regardless of
exercise price, to purchase shares of common stock for the
following persons: Mr. Thomas Hammond, 100,452 shares,
Mr. Mark Hammond, 984,595 shares, Dr. Coleman,
3,500 shares, Mr. Lucci, 2,500 shares,
Mr. DeWitt, 2,500 shares, Mr. Hansen,
1,500 shares, Mr. Tauber, 1,500 shares,
Mr. Borja, 11,429 shares, Ms. Hammond,
105,719 shares, and Mr. Rondeau, 96,379 shares,
and all directors and executive officers as a group,
1,312,585 shares. |
|
(c) |
|
This amount includes 10,305,157 shares held indirectly in a
revocable living trust, 116,137 shares held indirectly in
the Flagstar Bank 401(k) Plan, and 23,178 shares of
restricted stock. |
|
(d) |
|
This amount includes 5,533,847 shares held indirectly in a
revocable living trust, 104,171 shares held indirectly in
the Flagstar Bank 401(k) plan, and 38,629 shares of
restricted stock. |
|
(e) |
|
This amount includes 45,000 shares held indirectly by
Dr. Colemans wife. |
|
(f) |
|
If Proposal 1 is approved, Mr. Lucci will resign from
our board of directors at the Annual Meeting. This amount
includes 25,000 shares held indirectly in a revocable
living trust. |
40
|
|
|
(g) |
|
If Proposal 1 is approved, Mr. DeWitt will resign from
our board of directors at the Annual Meeting. This amount
includes 6,470 shares held indirectly in an individual
retirement account, 3,692 shares held indirectly by
Mr. DeWitts wifes individual retirement
account, and 2,000 shares held indirectly by
Mr. DeWitts wifes trust and 1,350 shares
held indirectly by Mr. DeWitts wife. |
|
(h) |
|
This amount includes 152,000 shares held indirectly in a
revocable living trust. |
|
(i) |
|
If Proposal 1 is approved, Dr. Pickard will resign
from our board of directors at the Annual Meeting. |
|
(j) |
|
Messrs. Matlin, Patterson and Eng were appointed to our
Board on January 30, 2009. Please see footnote (h) to
the SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
table above for further information with respect to the share
holdings of Messrs. Matlin and Patterson. |
|
(k) |
|
Messrs. Carter and Treadwell and Ms. Goldwasser are
nominees to our board of directors. |
|
(l) |
|
This amount includes 3,863 shares of restricted stock. |
|
|
|
(m) |
|
This amount includes 52,742 shares held indirectly in a
revocable living trust, 2,704 shares of restricted stock
and 31,354 shares held indirectly in the Flagstar Bank
401(k) Plan. |
|
|
|
(n) |
|
Mr. Rondeau resigned from our Board and from his position
of Executive Director on January 30, 2009. This amount
includes 106,567 shares held indirectly in a revocable
living trust, 2,704 shares of restricted stock and
99,736 shares held indirectly in the Flagstar Bank 401(k)
Plan. |
COMPENSATION
DISCUSSION AND ANALYSIS
Throughout this Proxy Statement, we refer to the Chairman, the
Chief Executive Officer, the Chief Financial Officer, and the
other executive officers included in the Summary Compensation
Table as the Named Executive Officers. For 2008, our
Named Executive Officers were Thomas J. Hammond, Chairman of the
Board, Mark T. Hammond, Vice Chairman, President and Chief
Executive Officer, Paul D. Borja, Executive Vice President and
Chief Financial Officer, Kirstin A. Hammond, Executive Director
and Chief Investment Officer, and Robert O. Rondeau, Jr.,
Executive Director. Mr. Rondeau resigned from his position
with us on January 30, 2009 but is included in this section
because he served as one of our highest paid executive officers
during 2008.
Overview
The current economic downturn had a significant negative impact
on our 2008 results of operations and financial condition, on
the price of our common stock and on our ability to successfully
execute on our business plan. Consistent with our
pay-for-performance philosophy, these factors were reflected in
the compensation of the Named Executive Officers for 2008, as
well as the actions of the Compensation Committee in 2009. For
2008, we achieved 54% of our target, as measured by the five
performance goals (Return on Equity, Net Interest Margin, Loan
Production, Gain on Sale Margin, Net Increase in the Number of
Retail Deposit Accounts) that had been established by the
Compensation Committee at the beginning of the year. See
COMPENSATION DISCUSSION AND ANALYSIS Setting
Executive Compensation Performance-Based
Incentive Compensation, below. The Compensation
Committee reduced the amount of performance-based incentive
compensation that was otherwise due the Named Executive Officers
by 44%. More specifically, the Compensation Committee determined
not to grant any stock appreciation rights or restricted stock,
which was 40% of the total performance-based incentive
compensation award. In addition, the Compensation Committee
reduced the cash portion of the performance-based incentive
compensation, which, pursuant to our compensation plan, is 60%
of the total award, to pay out at 50% of the target,
rather than the 54% that was achieved. This reduced the cash
amount, which was paid in December 2008, by 7.4% from
$2.99 million to $2.76 million, in the aggregate, for
the five Named Executive Officers.
In connection with the current economic downturn, we took the
following steps to increase our capital (i) we entered into
an investment agreement to raise an aggregate of
$250 million through the direct sale of equity securities
to MatlinPatterson and (ii) we received preliminary
approval to participate in the TARP Capital Purchase Program.
Both transactions closed on January 30, 2009. In connection
with the investment agreement, also on January 30, 2009,
the Named Executive Officers purchased, in the aggregate,
5.3 million shares of our common stock for
$4.24 million, or $0.80 per share. On January 30,
2009, the closing price of
41
our common stock was $0.60 per share. We note that the cash
portion of our performance-based incentive compensation was paid
prior to the TARP closing, so no money from Treasury received by
us in connection with our participation in the TARP Capital
Purchase Program was used to pay compensation to our Named
Executive Officers or in determining whether our Named Executive
Officers achieved performance goals.
With respect to 2009, the Compensation Committee has taken a
number of actions in response to the adverse economic
conditions. These actions include a current freeze on all Named
Executive Officer base salaries for 2009 and revisiting our
compensation programs for 2009. Furthermore, we and the
Compensation Committee have taken and will continue to take all
steps necessary to comply with the requirements imposed in
connection with our participation in the TARP Capital Purchase
Program. These steps have included the Compensation Committee
undertaking an analysis to review the relationship between our
risk management policies and practices and performance-based
incentive compensation arrangements for the Named Executive
Officers in order to identify any features in the compensation
program that might lead to unnecessary or excessive risk taking.
As described in more detail below, the recently enacted American
Recovery and Reinvestment Act of 2009 (the Recovery
Act) contains a number of significant new limitations on
executive compensation for TARP Capital Purchase Program
participants. Because of the lack of regulatory guidance to date
under the Recovery Act, the impact of these limitations on our
compensation program is uncertain. As a result, the Compensation
Committee continues to evaluate the procedures and policies
necessary to implement all of the Recovery Acts
requirements.
We remain committed to the compensation philosophy, policies and
objectives outlined below, and the compensation for 2008
reflects the effectiveness of our compensation program in
fulfilling its objectives during financial downturns. The
Compensation Committee will continue to review our compensation
program and take any steps it deems necessary to continue to
fulfill these objectives.
Impact of
EESA and the Recovery Act
Prior to our issuance to the Treasury of the Treasury Preferred
Stock and the Treasury Warrant on January 30, 2009, and our
related execution of the Letter Agreement with the Treasury, we
amended our compensation, bonus, incentive and other benefit
plans, arrangements and agreements, including severance and
employment agreements, to comply with the executive compensation
and corporate governance requirements of Section 111(b) of
EESA and with the applicable guidance or regulations as issued
by the Secretary of the Treasury on or prior to January 30,
2009. Under EESA, the applicable executive compensation
restrictions apply beginning in 2009 to the compensation of our
Chief Executive Officer, Chief Financial Officer and three other
most highly compensated executive officers (collectively, the
senior executive officers, which for 2009, will be
the Named Executive Officers with the exception of
Mr. Rondeau, who resigned from the Company effective
January 30, 2009, thus causing Mr. Roslin to be
included as a senior executive officer). Those
restrictions include, among other things, limits on compensation
to exclude incentives for senior executive officers to take
unnecessary and excessive risks that threaten the value of the
institution receiving funds made available by the Treasury under
the TARP Capital Purchase Program or any other obligation
arising from financial assistance provided under TARP during the
period while any TARP obligation remains outstanding. In
addition, in connection with the issuance of the Treasury
Preferred Stock, each of the senior executive officers was
required to and did execute a waiver of any claim against the
United States or us for any changes to his or her compensation
or benefits that are required in order to comply with the
regulation issued by the Treasury as published in the Federal
Register on October 20, 2008.
On February 17, 2009, the Recovery Act was signed into law.
The Recovery Act amended Section 111(b) of EESA in its
entirety. The Recovery Act has significant implications on the
compensation arrangements of institutions that have accepted or
will accept government funds under the TARP Capital Purchase
Program or other assistance under TARP. The Recovery Act directs
the Secretary of the Treasury to establish standards and
promulgate regulations on executive compensation practices of
TARP recipients. While some of the executive compensation
restrictions were effective upon passage of the Recovery Act on
February 17, 2009, some have been interpreted to only be
effective upon issuance of additional guidance by the Treasury.
The
42
Recovery Acts restrictions will nevertheless apply to us,
our compensation policies, our senior executive officers and
other highly paid employees in several ways, including the
following:
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Bonuses and Incentive Compensation: Limitation
on the amount of bonus and incentive compensation payments to
our senior executive officers and the next ten highly
compensated employees.
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Golden Parachutes: TARP imposed limitations on
our ability to make golden parachute payments to our
top five senior executive officers. A golden parachute payment
was previously defined under TARP as a payment on account of an
involuntary departure of our executive officer in an amount
equal to or more than three times the average annual taxable
compensation for the five years prior to termination. The
Recovery Act expands the golden parachute payment limitations to
our next five most highly compensated employees. The meaning of
the term golden parachute payment has been broadened
under the Recovery Act to include any payment for departure from
a company for any reason regardless of the amount paid, except
for payments for services performed or benefits accrued.
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Clawbacks: TARP required recipients to recover
(clawback) any bonus, retention award, or incentive
compensation paid to any one of its senior executive officers
based on statements of earnings, revenues, gains, or other
criteria that are later found to be materially inaccurate. The
Recovery Act expands the TARPs clawback rule
to apply not only to the senior executive officers, but also to
the next 20 most highly compensated employees.
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Anti-Manipulation: The Recovery Act prohibits
any compensation plan that would encourage manipulation of
reported earnings to enhance the compensation of any of our
employees.
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CEO and CFO Certifications: Our Chief
Executive Officer and Chief Financial Officer must provide a
written certification to the SEC of compliance with the
executive compensation restrictions described in TARP, as
modified by the Recovery Act.
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Limitations on Luxury Expenditures: Our Board
must enact a company-wide policy regarding excessive or luxury
expenditures. This includes policies on entertainment, events,
office and facility renovations, air and other travel and other
activities or events that are not reasonable expenditures for
staff development, reasonable performance incentives or other
similar measures conducted in the normal course of business.
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Say on Pay Vote by Stockholders: Our
stockholders may have a separate
say-on-pay
vote at each annual or other stockholders meeting to approve the
compensation of the named executive officers. This vote is only
an advisory vote and will not be binding on the Board.
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Expanded Compensation Deduction Limit: For
years in which the Treasury owns the Treasury Preferred Stock,
we may not claim a deduction on compensation paid to a senior
executive officer in excess of the $500,000 compensation
deduction limit of Section 162(m)(5) of the Code. Moreover, the
exception for performance-based pay not counting against this
limit, contained in Section 162(m), will not be available
to us.
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In addition to the foregoing restrictions, in connection with
its participation in the TARP Capital Purchase Program, the
Compensation Committee is required to meet at least annually
with our chief risk officer or other senior risk officers to
discuss and review the relationship between our risk management
policies and practices and our senior executive officers
incentive compensation arrangements, identifying and making
reasonable efforts to limit any features in such compensation
arrangements that might lead to our senior executive officers
taking unnecessary or excessive risks that could threaten our
value. The Compensation Committee, on our behalf, must certify
that it has completed the review and taken any necessary actions.
In response to these requirements, the Compensation Committee
met with our enterprise risk manager (the Chief Risk
Officer). The Chief Risk Officer presented the
Compensation Committee with an overview of our overall risk
structure, and discussed the process by which the risks were
analyzed. This process included, among other things, a
comprehensive review of the program and discussions with senior
human resources personnel. In addition, the Compensation
Committee reviewed with the Chief Risk Officer the structure of
our overall compensation program. This review included, without
limitation, our practice since
43
2007 to originate virtually all of our loans for sale through
Fannie Mae, Freddie Mac and Ginnie Mae, and the extent to which
the Compensation Committee, our management and the Office of
Thrift Supervision oversee this practice. Based on its analysis
of these and other factors, the Compensation Committee
determined that our compensation program does not encourage our
senior executive officers to take unnecessary and excessive
risks that threaten our value, and that no changes to the
program were required for this purpose. The required
certification of the Compensation Committee is provided in the
Compensation Committee Report set forth following this
Compensation Discussion and Analysis.
Moreover, in accordance with the Recovery Act and based on
recent guidance issued by the SEC, the Board authorized a
non-binding advisory shareholder vote on our executive
compensation plans, programs and arrangements. See
Proposal 10 Advisory Vote on Executive
Pay-For-Performance Compensation Employed by the Company
in this Proxy Statement.
Given the recent enactment of the Recovery Act, the last minute
changes added in the Congressional conference committee, and the
lack of significant regulatory guidance to date, the
Compensation Committee continues to evaluate the procedures and
policies necessary to implement all of the Recovery Acts
requirements. We will comply with the applicable regulations and
guidance issued by the federal government as applied to us as a
recipient of TARP funds. As a result, our executive compensation
program in 2009 and beyond could be substantially different than
2008.
Compensation
Committee
The Compensation Committee is responsible for establishing the
policies that govern executive compensation and for recommending
the components and structure of executive compensation. More
specifically, the Compensation Committee reviews and approves
corporate goals and objectives relevant to compensation of the
Chairman and of the Chief Executive Officer, evaluates the
Chairmans and the Chief Executive Officers
performance in light of such goals and objectives, determines
compensation of the Chairman and of the Chief Executive Officer
based on such respective evaluations, and makes compensation
recommendations to the Board related to other senior executive
officers.
Compensation
Philosophy and Objectives
We have historically compensated our senior executive officers
through a combination of base salary, performance-based
incentive compensation, and other benefits designed to embody a
pay-for-performance philosophy. We have designed our policies
and plans to encourage the achievement of specific objectives
set by the Board and the Compensation Committee, reward
exceptional performance, and be competitive with the financial
services market. We also seek to align the long-term interests
of our senior management with stockholders. Our primary
objective is to provide competitive compensation that enhances
performance and stockholder return without encouraging
unnecessary or excessive risk to us.
Setting
Executive Compensation
Based on the forgoing objectives, the Compensation Committee has
historically structured the base salary and performance-based
incentive compensation to motivate the senior executive officers
to achieve the business goals set by us and the Compensation
Committee and to reward the senior executive officers for
achieving such goals. In furtherance of this, the Compensation
Committee engaged Amalfi Consulting, LLC, an independent
compensation consultant, to conduct an annual review of its
compensation program for the senior executive officers. Amalfi
Consulting provides the Compensation Committee and the Board
with relevant market data and alternatives to consider when
making compensation decisions for the Named Executive Officers.
Managements Role. Our management plays
an important role in setting compensation by assisting the
Compensation Committee in evaluating employee performance,
recommending the factors and targets for performance-based
compensation, and recommending compensation levels and forms of
compensation awards. As part of this process, we provide the
Compensation Committee with information on our strategic
objectives,
44
our past and expected future performance in light of relevant
market conditions, and other information as the Compensation
Committee may request to evaluate compensation and make informed
decisions.
Peer Group Analysis and Benchmarking. In
making compensation decisions, the Compensation Committee has
historically reviewed prior years total compensation and
operating performance to determine an estimated level of total
compensation for the following year. The Compensation Committee
also compares our compensation against compensation of peer
companies, including savings and loan holding companies, bank
holding companies, commercial banks and mortgage lending
institutions. The peer companies are selected based on size,
market capitalization, scope of operations or other
characteristics to ensure that estimated compensation is
reasonable and competitive.
At the Compensation Committees direction, Amalfi
Consulting used one peer group when comparing our executive
compensation to peer companies in 2008. In previous years, the
Compensation Committee directed Amalfi Consulting to use two
peer groups companies that split the position of
chairman and chief executive officer and companies that reported
a significant portion of their business as residential mortgage
lending. However, many companies in the separate peer groups no
longer split the chairman and chief executive officer positions
or are no longer in business or changed their business model so
that they may no longer serve as a competitor for this purpose.
Therefore, following the recommendation of Amalfi Consulting,
the Compensation Committee used a single peer group in 2008 to
facilitate a simpler and more straightforward comparison. For
2008, the peer group consisted of that following 20 banks that
have a significant focus in mortgage lending business or are
otherwise comparable to us:
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Sovereign Bancorp, Inc.
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Astoria Financial Corp.
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Fremont General Corporation
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Northern Trust Corp.
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Webster Financial Corp.
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Valley National Bancorp
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UnionBanCal Corp.
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Downey Financial Corp.
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BancorpSouth Inc.
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Commerce Bancorp Inc.
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City National Corp.
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Peoples United Financial Inc.
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First Horizon National Corp.
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TCF Financial Corp.
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FirstFed Financial Corp.
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Hudson City Bancorp Inc.
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BankUnited Financial Corp.
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Washington Federal, Inc.
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IndyMac Bancorp Inc.
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Capital Federal Financial
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However, during 2008, some of the peer companies listed above
went out of business or were acquired. Accordingly, the
Compensation Committee directed Amalfi Consulting to analyze
2008 compensation using a new peer group. The peer group
consisted of the following 28 banks that have a significant
focus in mortgage lending business and a comparable size to us:
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Fulton Financial Corp.
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First Citizens Bancshares Inc.
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Marshall & Ilsley Corp.
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Northern Trust Corp.
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Webster Financial Corp.
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Valley National Bancorp
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Associated Banc-Corp.
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Colonial BankGroup Inc.
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BancorpSouth Inc.
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Commerce Bancshares Inc.
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City National Corp.
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Peoples United Financial Inc.
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First Horizon National Corp.
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TCF Financial Corp.
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Synovus Financial Corp.
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Hudson City Bancorp Inc.
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CIT Group Inc.
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Citizens Republic Bancorp Inc.
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First Niagara Financial Group
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Bank of Hawaii Corp.
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Park National Corp.
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TFS Financial Corporation
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F.N.B. Corp.
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PHH Corporation
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National Penn Bancshares Inc.
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NewAlliance Bancshares Inc.
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Capital Federal Financial
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Cullen/Frost Bankers Inc.
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Generally, we establish a maximum total compensation at the
target performance level for each of the Named
Executive Officers that is at approximately the following levels
of our peer group based on benchmarking studies:
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Chairman and Chief Executive Officer
75th percentile;
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Chief Financial Officer
50th percentile; and
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Other Named Executive Officers between 25th and
50th percentile.
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45
The Named Executive Officers were benchmarked to executive
in the peer companies based on two factors: (1) executives
with similar salary rank within their respective companies; and
(2) executives with similar functional job roles. Using the
new peer group, for 2008, actual compensation was at
approximately the following percentiles when compared to our
peer companies:
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Thomas J. Hammond 48th percentile;
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Mark T. Hammond 68th percentile;
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Paul D. Borja 27th percentile;
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Kirstin A. Hammond 24th percentile; and
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Robert O. Rondeau 24th percentile.
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Allocation of Total Compensation. A
significant percentage of total compensation has historically
been allocated to incentives as a result of the
pay-for-performance philosophy discussed herein. However, there
is no pre-established policy or target for allocation between
performance-based and nonperformance-based compensation.
Instead, the Compensation Committee annually reviews information
provided by Amalfi Consulting and gathered through other sources
to determine the appropriate level and mix of compensation each
year. For 2008, actual performance-based compensation as a
percentage of actual total compensation for the Named Executive
Officers was:
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59% for Thomas J. Hammond
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66% for Mark T. Hammond
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24% for Kirstin A. Hammond
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26% For Robert O. Rondeau
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Stock Ownership. To further align the
interests of executive officers with the interests of the
stockholders, we require that each senior officer maintain a
minimum ownership in us. Currently, all of our senior officers,
including Named Executive Officers, are expected to own at least
100 shares, which includes shares held in an account under
our 401(k) plan. Currently, the Named Executive Officers own 27%
of our outstanding common stock in the aggregate, and the
individual Named Executive Officers own the amounts set forth in
the section entitled SECURITY OWNERSHIP OF
MANAGEMENT on page 40 of this Proxy Statement. Based
upon current ownership percentages, we believe that the Named
Executive Officers interests are sufficiently aligned with
our stockholders.
2008
Executive Compensation Components
For the year ended December 31, 2008, the Compensation
Committee determined that the executive compensation program
should have the following components: base salary;
performance-based incentive compensation; and other benefits.
The following discusses each of the components of the
compensation of the Named Executive Officers for 2008.
Base Salary. We provide the Named Executive
Officers with a base salary for services rendered during the
fiscal year. The Compensation Committee has determined that the
base salary for each Named Executive Officer should be based on
personal performance, effectiveness, level of responsibility,
past and potential future contributions to us, and internal pay
equity relationships, with consideration given to the salaries
paid to executives of our peer companies having comparable
responsibilities. We do not apply any specific weighting to
these criteria; rather, the Compensation Committee uses its
judgment and discretion in determining these amounts. the
salaries paid to executives of our peer companies having
comparable responsibilities, as well as personal performance,
effectiveness, and duties and requirements of each Named
Executive Officer. The base salaries are designed to attract and
retain highly qualified executives. For 2008, the base salary
was $800,000 for Thomas J. Hammond, $1,000,000 for Mark T.
Hammond, $464,243 for Paul D. Borja, $428,754 for Kirstin
46
A. Hammond, and $384,540 for Robert O. Rondeau. For 2009, the
Compensation Committee has determined that the base salaries
should currently be frozen at the 2008 amount, subject to
consideration of the effects of TARP and the Recovery Act.
Performance-Based Incentive Compensation. A
significant aspect of our compensation package for Named
Executive Officers has been annual performance-based incentive
compensation. In 2008, the Compensation Committee set
performance goals for return on equity, net interest margin of
Flagstar Bank, loan production, gain on sale, and the net
increase in number of retail deposit accounts. For 2009, the
Compensation Committee believes that it should keep the
performance goals, as well as the performance-based incentive
compensation methodology, the same, but the Compensation
Committee is awaiting further guidance under TARP and the
Recovery Act before instituting the performance-based incentive
compensation plan for 2009. However, as permitted by law or
regulation, the performance goals may include a combination of
other business related performance metrics and subjective
factors as the Compensation Committee determines. As discussed
above, these performance goals will be structured in a manner
that does not encourage executives to not take unnecessary or
excessive risks. Because our performance goals related to our
long-term strategic plan, we have historically used the same
performance goals for all executive officers.
After identifying the performance factors, the Compensation
Committee assigned a goal for each factor at the threshold,
target and superior levels. Each of the levels corresponded to
0%, 100% and 200% payouts, respectively. The Compensation
Committee also assigned a weight to each factor depending on its
level of significance to our overall goals. Once the annual
performance period was complete, the factor was assigned a
payout percentage based on our actual performance. The value of
the payout percentage was then multiplied by the factor weight
to determine an actual payment percentage. For 2008, the
targets, actual results, payout percentages, factor weights and
actual payment percentages were as follows:
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Actual
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Threshold
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Target
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Superior
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Actual
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Payout
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Factor
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Payment
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(0%)
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(100%)
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(200%)
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Result
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Percentage
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Weight
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Percentage
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Return on Equity
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<4.25%
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6%
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20%
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(37.1)%
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0
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%
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20
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%
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0
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%
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Net Interest Margin
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<1.40
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1.74
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2.03
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1.78%
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110
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%
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20
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%
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22
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%
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Loan Production
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<$20B
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$34B
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$47B
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$28.4B
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70
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%
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20
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%
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14
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%
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Gain on Sale
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<0.41
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0.55
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0.75
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0.53
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90
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%
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20
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%
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18
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%
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Net Increase in the Number of Retail Deposit Accounts
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<12,000
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26,000
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46,000
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7,657
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0
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%
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20
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%
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0
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%
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Total
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100
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%
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54
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%
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The Compensation Committee determined the targets, factor
weights and the target performance-based incentive
compensation in significant part based on our strategic
objectives, information provided by Amalfi Consulting, including
affirmation that payouts at 200% are comparable in the broader
industry, our desired long-term success, and the desire to
motivate a performance above the projected performance of peers.
In 2008, we met 54% of the financial performance goals set by
the Compensation Committee. However, as discussed below, the
Compensation Committee determined that the performance-based
incentive compensation should be significantly reduced in light
of the performance of the Company in 2008 and other factors.
Once the annual performance period is complete and the actual
payment percentage for each performance factor has been
determined, the total compensation payout is figured by adding
together the actual payment percentages and multiplying this sum
by the performance-based incentive compensation figure set for
each Named Executive Officer at the start of the performance
period. For 2008, the Compensation Committee
47
determined that the performance-based incentive compensation at
the target level for each Named Executive Officer
was as follows:
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Thomas J. Hammond
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$
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3,000,000
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Mark T. Hammond
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$
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5,000,000
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Paul D. Borja
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$
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500,000
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Kirstin A. Hammond
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$
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350,000
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Robert O. Rondeau
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$
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350,000
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The performance-based incentive compensation figures have not
changed since 2006, because these figures are still competitive
with the market and are consistent with compensation amount at
our targeted percentiles in comparison to our peer companies, as
discussed above. Notwithstanding that the target
performance-based incentive compensation remained the same from
2006 to 2008, the total performance-based incentive compensation
amount for 2008 was a 43% decrease from 2007 and a 25% decrease
from 2006. These decreases are a result of our
pay-for-performance philosophy.
Once the annual performance period is complete and the
Compensation Committee determines a total compensation payout,
payout is made through the 2006 Equity Incentive Plan. The 2006
Equity Incentive Plan permits the Compensation Committee to
issue compensation in a number of forms, including incentive
stock options, nonqualified stock options, restricted stock,
performance-based cash payments, stock appreciation rights,
restricted stock units, performance units, performance shares
and cash. The 2006 Equity Incentive Plan provides the
Compensation Committee with the flexibility to design
compensatory awards that are responsive to our needs and
competitive in the market. Further, the 2006 Equity Incentive
Plan permits the Compensation Committee to grant equity-based
compensation that encourages our employees, including the Named
Executive Officers, to focus on managing us from the perspective
of an equity owner.
While the 2006 Equity Incentive Plan is designed to provide a
wide array of awards, including those unrelated to performance,
in 2008, the 2006 Equity Incentive Plan was used to make awards
to the Named Executive Officers only after they satisfied
predetermined business objectives. Unlike previous years and in
light of extraordinary market conditions, the Compensation
Committee recommended to the Board that we pay only a portion of
the actual performance-based incentive compensation payout to
Named Executive Officers as determined above. The Compensation
Committee retains the discretion to recommend a payment to any
Named Executive Officer below that which the Named Executive
Officer otherwise would be entitled under the predetermined
mathematical formula. The Compensation Committee exercised that
discretion in 2008.
Pursuant to the Compensation Committees initial award, the
2008 performance-based incentive compensation was to be
allocated 60% to cash bonus, 20% to stock appreciation rights,
and 20% to restricted stock. As has been the case in recent
years, the Compensation Committee believed that this allocation
provides for a balance between short and long-term incentive to
the Named Executive Officers. The Compensation Committee
determined that performance-based cash, stock appreciation
rights and restricted stock were the appropriate way to
compensate performance under the 2006 Equity Incentive Plan.
However, in 2008, the Compensation Committee determined that we
should only pay the cash bonus equal to 60% of the
performance-based incentive compensation awards, and not the
stock appreciation rights equal to 20% of the cash value of the
performance-based incentive compensation awards or the
restricted stock equal to 20% of the cash value of the
performance-based incentive compensation. In addition, the
Compensation Committee determined that the cash portion of the
performance-based incentive compensation awards should only be
paid at the 50% level, rather than the 54% level of goals that
were achieved. The Named Executive Officers agreed that the
Compensation Committees decision was necessary and prudent
in light of our operating results and the extraordinary market
conditions. Therefore, the Named Executive Officers received the
following performance-based incentive compensation amounts for
2008 in comparison to target performance-based
incentive
48
compensation and the amount of performance-based incentive
compensation that the Compensation Committee could have awarded
to the Named Executive Officers:
Thomas J.
Hammond
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Actual
|
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Earned
|
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|
(50% of Target-
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Target
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(54% of Target)
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Cash Only)
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Cash
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|
$
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1,800,000
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|
$
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972,000
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|
$
|
900,000
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Restricted Stock
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$
|
600,000
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|
$
|
324,000
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|
|
$
|
0
|
|
Stock Appreciation Rights
|
|
$
|
600,000
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|
$
|
324,000
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|
$
|
0
|
|
Total
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$
|
3,000,000
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|
|
$
|
1,620,000
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$
|
900,000
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|
Mark T.
Hammond
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|
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|
|
Actual
|
|
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|
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|
Earned
|
|
|
(50% of Target-
|
|
|
|
Target
|
|
|
(54% of Target)
|
|
|
Cash Only)
|
|
|
Cash
|
|
$
|
3,000,000
|
|
|
$
|
1,620,000
|
|
|
$
|
1,500,000
|
|
Restricted Stock
|
|
$
|
1,000,000
|
|
|
$
|
540,000
|
|
|
$
|
0
|
|
Stock Appreciation Rights
|
|
$
|
1,000,000
|
|
|
$
|
540,000
|
|
|
$
|
0
|
|
Total
|
|
$
|
5,000,000
|
|
|
$
|
2,700,000
|
|
|
$
|
1,500,000
|
|
Paul D.
Borja
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
|
|
|
Earned
|
|
|
(50% of Target-
|
|
|
|
Target
|
|
|
(54% of Target)
|
|
|
Cash Only)
|
|
|
Cash
|
|
$
|
300,000
|
|
|
$
|
162,000
|
|
|
$
|
150,000
|
|
Restricted Stock
|
|
$
|
100,000
|
|
|
$
|
54,000
|
|
|
$
|
0
|
|
Stock Appreciation Rights
|
|
$
|
100,000
|
|
|
$
|
54,000
|
|
|
$
|
0
|
|
Total
|
|
$
|
500,000
|
|
|
$
|
270,000
|
|
|
$
|
150,000
|
|
Kirstin
A. Hammond
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
|
|
|
Earned
|
|
|
(50% of Target-
|
|
|
|
Target
|
|
|
(54% of Target)
|
|
|
Cash Only)
|
|
|
Cash
|
|
$
|
210,000
|
|
|
$
|
113,400
|
|
|
$
|
105,000
|
|
Restricted Stock
|
|
$
|
70,000
|
|
|
$
|
37,800
|
|
|
$
|
0
|
|
Stock Appreciation Rights
|
|
$
|
70,000
|
|
|
$
|
37,800
|
|
|
$
|
0
|
|
Total
|
|
$
|
350,000
|
|
|
$
|
189,000
|
|
|
$
|
105,000
|
|
Robert O.
Rondeau
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
|
|
|
Earned
|
|
|
(50% of Target-
|
|
|
|
Target
|
|
|
(54% of Target)
|
|
|
Cash Only)
|
|
|
Cash
|
|
$
|
210,000
|
|
|
$
|
113,400
|
|
|
$
|
105,000
|
|
Restricted Stock
|
|
$
|
70,000
|
|
|
$
|
37,800
|
|
|
$
|
0
|
|
Stock Appreciation Rights
|
|
$
|
70,000
|
|
|
$
|
37,800
|
|
|
$
|
0
|
|
Total
|
|
$
|
350,000
|
|
|
$
|
189,000
|
|
|
$
|
105,000
|
|
Subsequent to the receipt of the cash bonus, the Named Executive
Officers reinvested all or a portion of their cash bonus into us
by purchasing, in the aggregate, 5.3 million shares of our
common stock for $4.24 million (in after-tax dollars,
whereas the cash bonus paid was in pre-tax dollars), or $0.80
per share.
49
Specifically, Thomas J. Hammond, Mark T. Hammond, Paul D. Borja,
Kirstin A. Hammond, and Robert O. Rondeau invested
$2 million, $2 million, $120,000, $60,000, and
$60,000, respectively, in our common stock, which the
Compensation Committee believes further aligns the interests of
management with stockholders. The cash bonus was paid prior to
the TARP closing, so no money received by us in connection with
our participation in the TARP Capital Purchase Program was used
to pay cash bonuses or other compensation to our Named Executive
Officers or in determining whether our Named Executive Officers
achieved performance goals.
Other Benefits. In addition to the foregoing,
we provide a 401(k) plan to the Named Executive Officers that is
generally available to all of our employees. Under the 401(k)
plan, eligible employees may contribute up to 60% of their
annual compensation, subject to a maximum amount prescribed by
law. The maximum annual contribution was $15,500 for 2008, or
$20,500 for participants who were 50 years old or older in
2008. We currently provide a matching contribution up to 3% of
an employees annual contribution up to a maximum of
$6,900. We also provide medical, dental and life insurance to
our Named Executive Officers, which are benefits generally
available to all of our employees. We do not provide perquisites
to our Named Executive Officers.
Severance
and Change-in-Control Benefits
Under the terms of the 2006 Equity Incentive Plan and our
amended and restated employment agreements, the Named Executive
Officers are entitled to payments and benefits upon the
occurrence of certain events. The terms of these arrangements,
as well as an estimate of compensation that would have been
payable had they been triggered as of fiscal year-end following
a
change-in-control,
are described in detail in the section entitled EXECUTIVE
COMPENSATION Potential Payment Upon Termination or
Change-In-Control
on page 56 of this Proxy Statement. The amended and
restated employment agreements contain substantially the same
compensation, severance and
change-in-control
agreements as the original employment agreements. The
Compensation Committee also analyzed the employment agreements
of some companies in our peer group in setting the amounts
payable and the triggering events under the arrangements.
Notwithstanding the foregoing, on January 30, 2009, the
Named Executive Officers entered into agreements implementing
Section 111(b) of EESA. Pursuant thereto, the potential
benefits under the employment agreements are subject to
reductions as necessary to be in compliance with the provisions
of the TARP Capital Purchase Program.
The Compensation Committee believes that reasonable severance
and change in control benefits should be provided to the senior
executive officers. As with any public company, it is always
possible that changes to management could occur. The
Compensation Committee believes that the threat of such an
occurrence can result in significant distractions of key
management personnel because of the uncertainties inherent in
such a situation. The retention of key management personnel is
essential to and in our and our stockholders best
interests, and reasonable severance and change in control
benefits help ensure their continued dedication and efforts in
such event without undue concern for their personal, financial
and employment security. However, upon release of further
guidance from the Treasury, the Compensation Committee will have
to review our arrangements with senior executive officers as the
term golden parachute payment has been broadened
under the Recovery Act to include any payment for departure from
a company for any reason, except for payments for services
performed or benefits accrued, regardless of the amount paid.
Tax and
Accounting Implications
The financial reporting and income tax consequences to us of
individual compensation elements are important considerations
for the Compensation Committee when it is analyzing the overall
level of compensation and the mix of compensation among
individual elements. Overall, the Compensation Committee seeks
to balance its objective of ensuring an effective compensation
package for the named executive officers with the need to
maximize the immediate deductibility of compensation
while ensuring an appropriate (and transparent) impact on
reported earnings and other closely followed financial measures.
50
The executive compensation program has historically been
structured to allow us to comply with Code Section 162(m),
if we desire to protect deductibility of compensation, and
Section 409A. Section 162(m) of the Code generally
provides that we may not deduct compensation that is paid to
certain individuals each year of more than $1,000,000 per
individual. As a result of our issuance of the Treasury
Preferred Stock, however, for as long as the Treasury holds such
stock, the Section 162(m) compensation deduction limit is
reduced to $500,000 annually, and the exception for performance
based pay not counting against this limit will not be available
to us. Currently, we do not intend to limit compensation to
certain covered executives to the $500,000 deduction limit,
although we will not be able to claim a deduction for such
excess payments. We believe that amounts paid in excess of
$500,000, including amounts attributable to performance-based
incentive compensation, and the cost of the lost tax deduction,
are justifiable in order for us to effectively motivate, retain,
and remain competitive with peer financial institutions. Under
Code Section 409A, any nonqualified deferred compensation
subject to and not in compliance with such provision will become
immediately taxable to the employee and the employee will be
subject to a federal excise tax. We believe our deferred
compensation arrangements are in compliance with Code
Section 409A.
Beginning on January 1, 2006, we began accounting for
stock-based payments in accordance with the requirements of
SFAS No. 123R. Under SFAS No. 123R, all
share-based payments to employees, including grants of employee
stock options, are recognized as compensation expense in the
consolidated statement of earnings. The amount of compensation
expense is determined based on the fair value of the equity
award when granted and is expensed over the required service
period, which is normally the vesting period of the equity award.
COMPENSATION
COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the
Compensation Discussion and Analysis required by
Item 402(b) of
Regulation S-K
with management and, based on such review and discussions, the
Compensation Committee recommended to the Board that the
Compensation Discussion and Analysis be included in this Proxy
Statement.
The Compensation Committee certifies that it has reviewed with
our designated senior risk officer the senior executive
officers incentive compensation arrangements and has made
reasonable efforts to ensure that such arrangements do not
encourage the senior executive officers to take unnecessary and
excessive risks that threaten the value of the Company.
THE COMPENSATION COMMITTEE
James Coleman, Chairman
David Matlin
Gregory Eng
EXECUTIVE
COMPENSATION
The following table sets forth information with respect to the
compensation paid or earned during the fiscal year ended
December 31, 2008 by the Chief Executive Officer, the Chief
Financial Officer, and each of the other three most highly
compensated executive officers who were serving as of
December 31, 2008 (Named Executive Officers),
in all capacities in which they served.
The Named Executive Officers were not entitled to receive
payments which would be characterized as Bonus
payments for the fiscal year ended December 31, 2008.
Amounts listed under the column entitled Non-Equity
Incentive Plan Compensation were determined by the
Committee based on the 2008 awards made under the 2006 Equity
Incentive Plan.
51
Summary
Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Incentive Plan
|
|
All Other
|
|
|
Name and Principal Position(s)
|
|
Year
|
|
Salary
|
|
Awards(1)
|
|
Awards(2)
|
|
Compensation(3)
|
|
Compensation(4)
|
|
Total
|
|
Thomas J. Hammond
|
|
|
2008
|
|
|
$
|
800,000
|
|
|
$
|
255,510
|
|
|
$
|
(4,660
|
)
|
|
$
|
900,000
|
|
|
$
|
6,900
|
|
|
$
|
1,957,750
|
|
Chairman of the Board
|
|
|
2007
|
|
|
$
|
627,750
|
|
|
$
|
226,000
|
|
|
$
|
(5,120
|
)
|
|
$
|
954,000
|
|
|
$
|
6,750
|
|
|
$
|
1,809,380
|
|
|
|
|
2006
|
|
|
$
|
|
|
|
$
|
198,749
|
|
|
$
|
393,831
|
|
|
$
|
720,000
|
|
|
$
|
13,140
|
|
|
$
|
1,325,720
|
|
Mark T. Hammond
|
|
|
2008
|
|
|
$
|
1,000,000
|
|
|
$
|
426,047
|
|
|
$
|
(7,766
|
)
|
|
$
|
1,500,000
|
|
|
$
|
6,900
|
|
|
$
|
2,925,181
|
|
Vice Chairman, President and
|
|
|
2007
|
|
|
$
|
841,432
|
|
|
$
|
379,200
|
|
|
$
|
17,839
|
|
|
$
|
1,590,000
|
|
|
$
|
24,750
|
|
|
$
|
2,853,221
|
|
Chief Executive Officer
|
|
|
2006
|
|
|
$
|
|
|
|
$
|
164,267
|
|
|
$
|
480,234
|
|
|
$
|
1,200,000
|
|
|
$
|
31,140
|
|
|
$
|
1,875,641
|
|
Paul D. Borja
|
|
|
2008
|
|
|
$
|
464,243
|
|
|
$
|
42,782
|
|
|
$
|
(778
|
)
|
|
$
|
150,000
|
|
|
$
|
6,900
|
|
|
$
|
663,147
|
|
Executive Vice President and
|
|
|
2007
|
|
|
$
|
435,279
|
|
|
$
|
45,200
|
|
|
$
|
(141
|
)
|
|
$
|
159,000
|
|
|
$
|
13,950
|
|
|
$
|
653,288
|
|
Chief Financial Officer
|
|
|
2006
|
|
|
$
|
402,150
|
|
|
$
|
39,774
|
|
|
$
|
1,240
|
|
|
$
|
120,000
|
|
|
$
|
20,340
|
|
|
$
|
583,504
|
|
Kirstin A. Hammond
|
|
|
2008
|
|
|
$
|
428,754
|
|
|
$
|
29,782
|
|
|
$
|
(538
|
)
|
|
$
|
105,000
|
|
|
$
|
6,900
|
|
|
$
|
569,898
|
|
Executive Director and
|
|
|
2007
|
|
|
$
|
392,550
|
|
|
$
|
30,800
|
|
|
$
|
29
|
|
|
$
|
111,300
|
|
|
$
|
11,550
|
|
|
$
|
546,229
|
|
Chief Investment Officer
|
|
|
2006
|
|
|
$
|
373,857
|
|
|
$
|
15,400
|
|
|
$
|
54,809
|
|
|
$
|
84,000
|
|
|
$
|
11,400
|
|
|
$
|
539,466
|
|
Robert O. Rondeau, Jr.
|
|
|
2008
|
|
|
$
|
384,540
|
|
|
$
|
29,782
|
|
|
$
|
(538
|
)
|
|
$
|
105,000
|
|
|
$
|
6,900
|
|
|
$
|
525,684
|
|
Executive Director
|
|
|
2007
|
|
|
$
|
361,690
|
|
|
$
|
30,800
|
|
|
$
|
29
|
|
|
$
|
111,300
|
|
|
$
|
18,750
|
|
|
$
|
522,569
|
|
|
|
|
2006
|
|
|
$
|
339,125
|
|
|
$
|
15,400
|
|
|
$
|
54,809
|
|
|
$
|
84,000
|
|
|
$
|
25,140
|
|
|
$
|
518,474
|
|
|
|
|
(1) |
|
The amounts in this column reflect the dollar amount recognized
for financial statement reporting purposes for the relevant
fiscal year, in accordance with FAS 123(R) of awards
pursuant to the 2006 Equity Incentive Plan (including the 2000
Stock Incentive Plan which was merged into the 2006 Equity
Incentive Plan) and thus includes amounts from awards granted in
and prior to 2008. Assumptions used in the calculation of the
amounts for 2008, 2007 and 2006 are included in footnote 30 to
our audited financial statements included in our Annual Report
on
Form 10-K
for the fiscal year ended December 31, 2008, footnote 28 to
our audited financial statements included in our Annual Report
on
Form 10-K
for the fiscal year ended December 31, 2007 and footnote 30
to our audited financial statements included our Annual Report
on
Form 10-K
for the fiscal year ended December 31, 2006, respectively. |
|
|
|
(2) |
|
The amounts in this column reflect the dollar amount recognized
for financial statement reporting purposes for the relevant
fiscal year, in accordance with FAS 123(R) of awards
pursuant to the 2006 Equity Incentive Plan (including the 1997
Employees and Directors Stock Option Plan which was merged into
the 2006 Equity Incentive Plan) and thus include amounts from
awards granted in and prior to 2007. The values of the option
awards reported will fluctuate (from expense to recovery of
expense) based upon the fair value of the option awards during
the reporting period. These awards include both stock options,
which we issued prior to 2006, and stock appreciation rights,
which we issued in and after 2006. Assumptions used in the
calculation of the amounts for 2008, 2007 and 2006 are included
in footnote 30 to our audited financial statements included in
our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, footnote 28 to
our audited financial statements included in our Annual Report
on
Form 10-K
for the fiscal year ended December 31, 2007 and footnote 30
to our audited financial statements included in our Annual
Report on
Form 10-K
for the fiscal year ended December 31, 2006, respectively. |
|
|
|
(3) |
|
The amounts for 2008 in this column reflect the cash bonuses
paid in December 2008 to the named individuals under the 2006
Equity Incentive Plan on account of 2008 performance as further
discussed under the heading COMPENSATION DISCUSSION AND
ANALYSIS 2008 Executive Compensation
Components Performance-Based Incentive
Compensation. |
|
|
|
(4) |
|
The amounts for 2008 in this column include matching
contributions made to each Named Executive Officer pursuant to
the Flagstar Bank 401(k) Plan in the amount of $6,900. |
52
Grants of
Plan Based Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
All Other
|
|
Exercise
|
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
Or Base
|
|
|
|
Dare
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Awards:
|
|
Price
|
|
|
|
Fair Value
|
|
|
|
|
Estimated Possible Payouts
|
|
Estimated Possible Payouts
|
|
Number of
|
|
Number of
|
|
of Price
|
|
Grant
|
|
of
|
|
|
|
|
Under Non-Equity Incentive
|
|
Under Equity Incentive
|
|
Shares of
|
|
Securities
|
|
Option/
|
|
Date
|
|
Stock and
|
|
|
|
|
Plan Awards(1)
|
|
Plan Awards(1)
|
|
All Other
|
|
Underlying
|
|
SAR
|
|
Closing
|
|
Option/SAR
|
|
|
Grant
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Units
|
|
Option/SARs
|
|
Awards
|
|
Price
|
|
Awards
|
Name
|
|
Date
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
(#)(2)
|
|
(#)(3)
|
|
($/sr)
|
|
(#)(4)
|
|
($)
|
|
Thomas J.
|
|
|
1/24/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.29
|
|
Hammond
|
|
|
1/24/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138,865
|
|
|
$
|
6.86
|
|
|
$
|
7.09
|
|
|
$
|
2.29
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
1,800,000
|
|
|
$
|
3,600,000
|
|
|
$
|
0
|
|
|
$
|
1,200,000
|
|
|
$
|
2,400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark T.
|
|
|
1/24/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.29
|
|
Hammond
|
|
|
1/24/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231,441
|
|
|
$
|
6.86
|
|
|
$
|
7.09
|
|
|
$
|
2.29
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
3,000,000
|
|
|
$
|
6,000,000
|
|
|
$
|
0
|
|
|
$
|
2,000,000
|
|
|
$
|
4,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul D.
|
|
|
1/24/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.29
|
|
Borja
|
|
|
1/24/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,144
|
|
|
$
|
6.86
|
|
|
$
|
7.09
|
|
|
$
|
2.29
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
300,000
|
|
|
$
|
600,000
|
|
|
$
|
0
|
|
|
$
|
200,000
|
|
|
$
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kirstin A.
|
|
|
1/24/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.29
|
|
Hammond
|
|
|
1/24/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,201
|
|
|
$
|
6.86
|
|
|
$
|
7.09
|
|
|
$
|
2.29
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
210,000
|
|
|
$
|
420,000
|
|
|
$
|
0
|
|
|
$
|
140,000
|
|
|
$
|
280,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert O.
|
|
|
1/24/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2.29
|
|
Rondeau
|
|
|
1/24/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,201
|
|
|
$
|
6.86
|
|
|
$
|
7.09
|
|
|
$
|
2.29
|
|
|
|
|
|
|
|
$
|
0
|
|
|
$
|
210,000
|
|
|
$
|
420,000
|
|
|
$
|
0
|
|
|
$
|
140,000
|
|
|
$
|
280,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amounts shown in these columns reflect the potential
performance-based incentive compensation payout for 2008 under
the 2006 Equity Incentive Plan. As described in
COMPENSATION DISCUSSION AND ANALYSIS 2008
Executive Compensation Components Performance-Based
Incentive Compensation, the payout under the 2006 Equity
Incentive Plan for 2008 awards was determined in cash but only
the cash portion was paid, and to a lesser degree then otherwise
allowed, based on the determination of the Compensation
Committee. The allocation between cash, stock appreciation
rights, and restricted stock was originally intended to be 60%,
20%, and 20%, respectively. The potential cash portion of the
2008 award is set forth in the column entitled Estimated
Possible Payouts Under Non-Equity Incentive Plan Awards.
The potential equity portion of the 2008 award is set forth in
the column entitled Estimated Possible Payouts Under
Equity Incentive Plan Awards, and any award thereunder
would have been paid out evenly in stock appreciation rights and
restricted stock as described in COMPENSATION DISCUSSION
AND ANALYSIS 2008 Executive Compensation
Components Performance-Based Incentive
Compensation. The threshold amount reflects
the minimum payment level under the award for a certain level of
performance which is 0% of the target amount shown in the
target amount. The maximum amount is
200% of the target amount. The target
amount is based upon achievement of specific objectives set by
the Board and the Committee at a level that is consistent with
our business plan. |
|
|
|
(2) |
|
The amounts in this column reflect the number of shares of
restricted stock granted in 2008 pursuant to our 2006 Equity
Incentive Plan to the named individuals as part of their
performance-based incentive compensation for 2007. The
restricted stock vests in two equal annual installments on
January 24, 2009 and 2010. |
|
|
|
(3) |
|
The amounts in this column reflect the number of stock
appreciation rights granted in 2008 pursuant to our 2006 Equity
Incentive Plan to the named individuals as part of their
performance-based incentive compensation for 2007. The stock
appreciation rights vest in four equal annual installments, in
January of each year, and may only be settled for cash. |
|
|
|
(4) |
|
The reason for the difference between the closing market price
on the date of grant and the exercise or base price is our
long-standing policy to set the exercise price of equity awards
based upon the average of the high and low market price on the
date of grant rather than the closing price. |
53
Outstanding
Equity Awards at Fiscal Year-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
Number of
|
|
Value of
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Shares or
|
|
Shares or
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
Units of
|
|
Units of
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
Option
|
|
Stock That
|
|
Stock That
|
|
|
Options
|
|
Options
|
|
Exercise
|
|
Expiration
|
|
Have not
|
|
Have Not
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
Price
|
|
Date
|
|
Vested
|
|
Vested
|
|
Thomas J. Hammond
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,356
|
|
|
$
|
32,913
|
(1)
|
|
|
|
|
|
|
|
138,865
|
|
|
|
6.86
|
|
|
|
1/24/2015
|
|
|
|
|
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,287
|
|
|
$
|
5,884
|
(3)
|
|
|
|
|
|
|
|
109,091
|
|
|
|
14.48
|
|
|
|
1/30/2014
|
|
|
|
|
|
|
|
|
(4)
|
|
|
|
21,070
|
|
|
|
63,211
|
|
|
|
16.28
|
|
|
|
2/3/2013
|
|
|
|
|
|
|
|
|
(5)
|
|
|
|
100,452
|
|
|
|
|
|
|
|
20.73
|
|
|
|
1/24/2010
|
|
|
|
|
|
|
|
|
(6)
|
Mark T. Hammond
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,259
|
|
|
$
|
54,854
|
(1)
|
|
|
|
|
|
|
|
231,441
|
|
|
|
6.86
|
|
|
|
1/24/2015
|
|
|
|
|
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,812
|
|
|
$
|
9,807
|
(3)
|
|
|
|
|
|
|
|
181,818
|
|
|
|
14.48
|
|
|
|
1/30/2014
|
|
|
|
|
|
|
|
|
(4)
|
|
|
|
29,966
|
|
|
|
89,900
|
|
|
|
16.28
|
|
|
|
2/3/2013
|
|
|
|
|
|
|
|
|
(5)
|
|
|
|
133,937
|
|
|
|
|
|
|
|
20.73
|
|
|
|
1/24/2015
|
|
|
|
|
|
|
|
|
(6)
|
|
|
|
145,144
|
|
|
|
|
|
|
|
22.68
|
|
|
|
2/10/2014
|
|
|
|
|
|
|
|
|
(7)
|
|
|
|
292,288
|
|
|
|
|
|
|
|
12.27
|
|
|
|
3/18/2013
|
|
|
|
|
|
|
|
|
(8)
|
|
|
|
380,000
|
|
|
|
|
|
|
|
11.80
|
|
|
|
6/18/2012
|
|
|
|
|
|
|
|
|
(9)
|
|
|
|
35,226
|
|
|
|
|
|
|
|
5.01
|
|
|
|
5/22/2011
|
|
|
|
|
|
|
|
|
(10)
|
Paul D. Borja
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,726
|
|
|
$
|
5,485
|
(1)
|
|
|
|
|
|
|
|
23,144
|
|
|
|
6.86
|
|
|
|
1/24/2015
|
|
|
|
|
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,381
|
|
|
$
|
981
|
(3)
|
|
|
|
|
|
|
|
18,182
|
|
|
|
14.48
|
|
|
|
1/30/2014
|
|
|
|
|
|
|
|
|
(4)
|
|
|
|
4,214
|
|
|
|
12,642
|
|
|
|
16.28
|
|
|
|
2/3/2013
|
|
|
|
|
|
|
|
|
(5)
|
|
|
|
11,429
|
|
|
|
|
|
|
|
19.35
|
|
|
|
5/25/2015
|
|
|
|
|
|
|
|
|
(11)
|
Kirstin A. Hammond
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,408
|
|
|
$
|
3,840
|
(1)
|
|
|
|
|
|
|
|
16,201
|
|
|
|
6.86
|
|
|
|
1/24/2015
|
|
|
|
|
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
967
|
|
|
$
|
687
|
(3)
|
|
|
|
|
|
|
|
12,727
|
|
|
|
14.48
|
|
|
|
1/30/2014
|
|
|
|
|
|
|
|
|
(4)
|
|
|
|
2,809
|
|
|
|
8,428
|
|
|
|
16.28
|
|
|
|
2/3/2013
|
|
|
|
|
|
|
|
|
(5)
|
|
|
|
12,557
|
|
|
|
|
|
|
|
20.73
|
|
|
|
1/24/2015
|
|
|
|
|
|
|
|
|
(6)
|
|
|
|
18,210
|
|
|
|
|
|
|
|
22.68
|
|
|
|
2/10/2014
|
|
|
|
|
|
|
|
|
(7)
|
|
|
|
36,420
|
|
|
|
|
|
|
|
12.27
|
|
|
|
3/18/2013
|
|
|
|
|
|
|
|
|
(8)
|
|
|
|
27,282
|
|
|
|
|
|
|
|
11.80
|
|
|
|
6/18/2012
|
|
|
|
|
|
|
|
|
(9)
|
|
|
|
11,250
|
|
|
|
|
|
|
|
5.01
|
|
|
|
5/22/2011
|
|
|
|
|
|
|
|
|
(10)
|
Robert O. Rondeau, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,408
|
|
|
$
|
3,840
|
(1)
|
|
|
|
|
|
|
|
16,201
|
|
|
|
6.86
|
|
|
|
1/24/2015
|
|
|
|
|
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
967
|
|
|
$
|
687
|
(3)
|
|
|
|
|
|
|
|
12,727
|
|
|
|
14.48
|
|
|
|
1/30/2014
|
|
|
|
|
|
|
|
|
(4)
|
|
|
|
2,809
|
|
|
|
8,428
|
|
|
|
16.28
|
|
|
|
2/3/2013
|
|
|
|
|
|
|
|
|
(5)
|
|
|
|
12,557
|
|
|
|
|
|
|
|
20.73
|
|
|
|
1/24/2015
|
|
|
|
|
|
|
|
|
(6)
|
|
|
|
18,210
|
|
|
|
|
|
|
|
22.68
|
|
|
|
2/10/2014
|
|
|
|
|
|
|
|
|
(7)
|
|
|
|
36,420
|
|
|
|
|
|
|
|
12.27
|
|
|
|
3/18/2013
|
|
|
|
|
|
|
|
|
(8)
|
|
|
|
29,192
|
|
|
|
|
|
|
|
11.80
|
|
|
|
6/18/2012
|
|
|
|
|
|
|
|
|
(9)
|
54
|
|
|
(1) |
|
Represents restricted stock granted on January 24, 2008.
The restricted stock grants vest in two equal parts starting on
the first anniversary of the Grant Date and fully vested as of
January 24, 2010. The values contained in this column were
calculated by multiplying the number of shares by $0.71, which
was the closing price of our common stock reported on the NYSE
on the last trading day of 2008. |
|
|
|
(2) |
|
Represents stock appreciation rights issued on January 24,
2008. The stock appreciation rights vest in 4 four equal parts
beginning January 24, 2009 and each one-year anniversary
afterwards through 2012. The stock appreciation rights are
required to be settled in cash. |
|
|
|
(3) |
|
Represents restricted stock granted on January 24, 2007.
The restricted stock grants vest in two equal parts starting on
the first anniversary of the Grant Date and fully vested as of
January 24, 2009. The values contained in this column were
calculated by multiplying the number of shares by $0.71, which
was the closing price of our common stock reported on the NYSE
on the last trading day of 2008. |
|
|
|
(4) |
|
Represents stock appreciation rights issued on January 24,
2007. The stock appreciation rights vest in 4 four equal parts
beginning January 24, 2008 and each one-year anniversary
afterwards through 2011. The stock appreciation rights are
required to be settled in cash. |
|
|
|
(5) |
|
Represents stock appreciation rights issued on May 25,
2006. The stock appreciation rights vest in 4 four equal parts
beginning February 3, 2007 and each one-year anniversary
afterwards through 2010. The stock appreciation rights are
required to be settled in cash. |
|
|
|
(6) |
|
Represents a stock option award issued January 24, 2005.
The options were scheduled to vest in 4 four equal parts
starting on the first anniversary of the Grant Date. However,
the options are fully vested after our accelerated vesting of
all out of the money options at December 31, 2005. |
|
|
|
(7) |
|
Represents a stock option award issued February 10, 2004.
The options were scheduled to vest in 4 four equal parts
starting on the first anniversary of the Grant Date. However,
the options are fully vested after our accelerated vesting of
all out of the money options at December 31, 2005. The
primary purpose of the accelerated vesting was to enable us to
avoid recognizing future compensation expenses associated with
accelerated stock options as a result of our adoption in 2006 of
SFAS No. 123R. |
|
|
|
(8) |
|
Represents a stock option award issued March 18, 2003. The
options vest in 4 four equal parts starting on the first
anniversary of the Grant Date and are fully vested. The primary
purpose of the accelerated vesting was to enable us to avoid
recognizing future compensation expenses associated with
accelerated stock options as a result of our adoption in 2006 of
SFAS No. 123R. |
|
|
|
(9) |
|
Represents a stock option award issued June 18, 2002. The
options vested in 4 four equal parts starting on the first
anniversary of the Grant Date and are fully vested. |
|
|
|
(10) |
|
Represents a stock option award issued May 22, 2001. The
options vested in 4 four equal parts starting on the first
anniversary of the Grant Date and are fully vested. |
|
|
|
(11) |
|
Represents a stock option award issued May 25, 2005. The
options were scheduled to vest in 4 four equal parts starting on
the first anniversary of the Grant Date. However, the options
are fully vested after our accelerated vesting of all out of the
money options at December 31, 2005. The primary purpose of
the accelerated vesting was to enable us to avoid recognizing
future compensation expenses associated with accelerated stock
options as a result of our adoption in 2006 of
SFAS No. 123R. |
55
Option
Exercises and Stock Vested During Fiscal Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Shares
|
|
|
Value
|
|
|
Shares
|
|
|
Value
|
|
|
|
Acquired
|
|
|
Realized
|
|
|
Acquired
|
|
|
Realized
|
|
Name
|
|
On Exercise
|
|
|
On Exercise
|
|
|
On Vesting
|
|
|
On Vesting
|
|
|
Thomas J. Hammond
|
|
|
|
|
|
$
|
|
|
|
|
8,287
|
|
|
$
|
56,848
|
|
Mark T. Hammond
|
|
|
|
|
|
$
|
|
|
|
|
13,812
|
|
|
|
94,750
|
|
Paul D. Borja
|
|
|
|
|
|
$
|
|
|
|
|
1,381
|
|
|
|
9,474
|
|
Kirstin A. Hammond
|
|
|
|
|
|
$
|
|
|
|
|
967
|
|
|
|
6,634
|
|
Robert O. Rondeau, Jr.
|
|
|
|
|
|
$
|
|
|
|
|
967
|
|
|
|
6,634
|
|
Employment
Agreements
Pursuant to amended and restated employment agreements entered
into with each of the Named Executive Officers effective as of
January 1, 2007, the Named Executive Officers are
responsible for overseeing all of our operations and for
implementing the policies adopted by the Board. The amended and
restated employment agreements were amended on December 31,
2008 to comply with the requirements of Code Section 409A
and further amended on January 30, 2009 to comply with the
executive compensation requirements applicable to us under the
TARP Capital Purchase Program, as discussed under the heading
COMPENSATION DISCUSSION AND ANALYSIS Impact of
EESA and the Recovery Act above. The Board believes that
the agreements assure fair treatment of the Named Executive
Officers in relation to their careers, providing them with a
limited form of financial security while committing them to
future employment for the term of their respective agreements.
The initial term of each agreement was three years, and, on
January 1 of each year, the term of each agreement may be
extended for an additional one-year period upon approval of the
Board. At its meeting each January, the Board determines whether
to approve the additional term effective as of January 1.
The agreements were extended by the Board in January 2009. The
base salaries for the Named Executive Officers that are
currently in effect for 2009, all of which were unchanged from
2008, are $800,000 for Thomas J. Hammond, $1,000,000 for Mark T.
Hammond, $464,243 for Paul D. Borja, $428,754 for Kirstin A.
Hammond, and $400,000 for Matthew I. Roslin, who will be a Named
Executive Officer for 2009. However, the Compensation Committee
intends to assess any changes to the foregoing base salaries as
may be necessary in response to the Recovery Act and forthcoming
regulations issued by U.S. Treasury in order to ensure that
the executive compensation program will continue to fulfill its
philosophy and objectives. The base salaries will be reviewed
annually, and the Named Executive Officers may participate in
any plan we maintains for the benefit of our employees,
including discretionary bonus plans, a profit-sharing plan,
retirement and medical plans, customary fringe benefits and paid
time off. Each of the agreements contains provisions for
termination and
change-in-control
benefits, and such provisions are described in EXECUTIVE
COMPENSATION Potential Payment Upon Termination or
Change of Control below.
Potential
Payment Upon Termination or Change of Control
The benefits payable to each Named Executive Officer upon a
termination or
change-in-control
depend upon whether it was a voluntary termination, termination
for just cause, termination for disability, death or retirement,
not-for-cause termination, constructive termination,
change-in-control,
or involuntary or constructive termination in connection with a
change of control. The provisions in the amended and restated
employment agreements related to terminations and
change-in-control
are the same for each Named Executive Officer. The information
below describes the employment agreements as they were in effect
on December 31, 2008. Effective January 30, 2009,
Robert O. Rondeau resigned from his position as Executive
Director, and we entered into a severance agreement with him
which reduced the amount that would have otherwise been due him
under his employment agreement.
56
Effective January 30, 2009, each Named Executive Officer
executed an amendment to his or her amended and restated
employment agreement as required by the TARP Capital Purchase
Program. Under the required TARP amendment, each Named Executive
Officer agreed that while the Treasury held the Treasury
Preferred Stock (1) we would not pay compensation to the
Named Executive Officer in the event of an involuntary
termination in excess of the dollar amounts applicable under
Code Section 280G, (2) any bonus or incentive
compensation was subject to clawback if the compensation was
paid based on certain information determined to be materially
inaccurate, and (3) all of our compensation programs and
plans would be treated as amended to carryout the agreements.
The Recovery Act will now also limit our ability to provide
certain of these termination or change in control payments, as
discussed under the heading COMPENSATION DISCUSSION AND
ANALYSIS Impact of EESA and the Recovery Act
above.
Voluntary Termination or Termination for Just
Cause. The employment agreements may be
terminated by us for just cause or by the Named
Executive Officer voluntarily. Under the employment agreements,
termination for just cause means termination because
of the Named Executive Officers personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation, or
final
cease-and-desist
order, or material breach of any provision of the agreement. In
each case, no severance benefits are available. However, the
Named Executive Officer may exercise vested stock options and
stock appreciation rights within three months following a
voluntary termination but not a just cause
termination by us.
Disability. The employment agreements may be
terminated by us due to the disability of the Named Executive
Officer. While no severance benefits are available in this case,
restricted stock granted under the 2000 Stock Incentive Plan and
the 2006 Equity Incentive Plan is accelerated, unvested stock
options granted under the 1997 Employees and Directors Stock
Option Plan are accelerated, and performance-based incentive
compensation awards under the 2006 Equity Incentive Plan may be
paid out at the target level. Stock options and stock
appreciation rights may be exercised within one year.
Death. In the event of the Named Executive
Officers death, the Named Executive Officers estate
will be entitled to six months base salary payable in a lump
sum, accrued and unpaid discretionary bonus payable in a lump
sum, and continuation of health benefits for six months.
Additionally, restricted stock granted under the 2000 Stock
Incentive Plan and the 2006 Equity Incentive Plan is
accelerated, unvested stock options granted under the 1997
Employees and Directors Stock Option Plan are accelerated, and
performance-based incentive compensation awards under the 2006
Equity Incentive Plan may be paid out at the target level. Stock
options and stock appreciation rights may be exercised within
two years.
Retirement. In the event of the Named
Executive Officers retirement (as such term is defined in
the 2006 Equity Incentive Plan), unvested restricted stock
granted under the 2000 Stock Incentive Plan or the 2006 Equity
Incentive Plan is accelerated, unvested stock options granted
under the 1997 Employees and Directors Stock Option Plan are
accelerated, and performance-based incentive compensation awards
under the 2006 Equity Incentive Plan may be paid out in the
amount that would have been payable under the 2006 Equity
Incentive Plan during the year of termination, determined
assuming the Named Executive Officers employment had not
terminated, prorated based on the number of days of actual
employment. Stock options must be exercised within three months,
and stock appreciation rights may be exercised within one year.
Termination Not For Cause or Constructive
Termination. If we terminate the Named Executive
Officer without just cause or constructively terminate the Named
Executive Officer, such officer will be entitled to a lump sum
payment equal to twelve months salary payable within
45 days of the Named Executive Officers termination.
The Named Executive Officer will also receive the amount of
performance-based incentive compensation under the 2006 Equity
Incentive Plan that would have been payable during the year of
termination, determined assuming the Named Executive
Officers employment had not terminated, prorated based on
the number of days of actual employment. We will pay the
performance-based incentive compensation to the terminated Named
Executive Officer at the same time it pays other participants
entitled to performance-based incentive compensation, provided,
however, the payment is made in a manner to avoid it being
treated as nonqualified deferred compensation under Code
Section 409A. Additionally, the Named Executive Officer is
additionally entitled to continued participation in our health
benefit plans through the
57
expiration date of the employment agreement with us paying our
share of the premiums for medical benefits through the COBRA
period. Vested stock options and stock appreciation rights may
be exercised within three months. Constructive
termination includes the following events that have not
been consented to in advance by the Named Executive Officer in
writing: (i) the requirement that the Named Executive
Officer perform his or her principal executive functions more
than 50 miles from his or her primary office; (ii) a
material reduction in the Named Executive Officers base
compensation as then in effect; (iii) any material breach
by us of the Named Executive Officers employment contract;
or (iv) a material reduction in the Named Executive
Officers duties, authority or responsibilities.
Change-In-Control. In
the event of a
change-in-control,
unvested restricted stock granted under the 2000 Stock Incentive
Plan or the 2006 Equity Incentive Plan could be accelerated,
unvested stock options granted under the 1997 Employees and
Directors Stock Option Plan or the 2006 Equity Incentive Plan
could be accelerated, performance-based incentive compensation
awards under the 2006 Equity Incentive Plan may be paid out at
the target level, and unvested stock appreciation rights granted
under the 2006 Equity Incentive Plan could be accelerated. Stock
options and stock appreciation rights may be exercised until
expiration.
Change-in-control
generally refers to the acquisition, by any person or entity, of
the ownership or power to vote more than 50% of our voting
stock, the control of the election of a majority of our
directors, or the exercise of a controlling influence over our
management or policies. In addition, under the employment
agreements, a
change-in-control
occurs when, during any consecutive two-year period, our
directors at the beginning of such period cease to constitute at
least a majority of the Board. MatlinPatterson obtained the
power to control our affairs and operations in the equity
investment transaction. However, the equity investment
transaction was not the type of
change-in-control
contemplated by the 2006 Equity Incentive Plan that would result
in the acceleration of awards.
Involuntary or Constructive Termination in connection with a
Change-in-Control. The
employment agreements provide that in the event of the Named
Executive Officers involuntary termination or constructive
termination of employment in connection with, or within one year
after, any
change-in-control
of us, other than for just cause, the Employee will
be paid a specified amount within 45 days of the date of
such termination. The Named Executive Officer would be entitled
to a lump sum amount equal to the difference between
(i) 2.99 times his or her base amount, as
defined in Section 280G(b)(3) of the Code, and
(ii) the sum of any other parachute payments, as defined
under Section 280G(b)(2) of the Code, that the employee
receives on account of the
change-in-control.
We will also continue to pay his or her share of health
insurance premiums for six months. Examples of other parachute
payments include unvested stock options granted under the 1997
Employees and Directors Stock Option Plan or the 2006 Equity
Incentive Plan that are accelerated, unvested restricted stock
granted under the 2000 Stock Incentive Plan or the 2006 Equity
Incentive Plan that is accelerated, performance-based incentive
compensation awards under the 2006 Equity Incentive Plan that
may be paid out at the target level, and unvested stock
appreciation rights granted under the 2006 Equity Incentive Plan
that are accelerated. The stock options and stock appreciation
rights may be exercised within three months.
The tables below reflect the amount of compensation payable to
each of the Named Executive Officers pursuant to their amended
and restated employment agreements in the event of termination
of such executives employment or in the event of a change
in control. The amounts shown assume that such termination or
change-in-control
was effective as of December 31, 2008, and thus includes
amounts earned through such time and are estimates of the
amounts which would be paid out to the executives upon their
termination. The actual amounts to be paid out can only be
determined at the time of such executives separation from
us and would currently be restricted by the limitations under
the TARP Capital Purchase Program and the Recovery Act. No
58
compensation is payable to any Named Executive Officer for
voluntary termination or termination for Just Cause.
Thomas J.
Hammond
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
Not for
|
|
|
|
|
|
Involuntary or
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
Just Cause
|
|
|
|
|
|
Constructive
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
Termination in
|
|
|
|
For
|
|
|
|
|
|
|
|
|
|
|
|
Constructive
|
|
|
Change-in-
|
|
|
Connection with a
|
|
|
|
Just Cause
|
|
|
Disability
|
|
|
Death
|
|
|
Retirement
|
|
|
Termination
|
|
|
Control(1)
|
|
|
Change-in-Control(1)
|
|
|
Severance payment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
373,662
|
|
|
$
|
747,324
|
|
|
$
|
747,324
|
|
|
$
|
|
|
|
$
|
12,667,433
|
|
Benefits continuation
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,919
|
|
|
$
|
|
|
|
$
|
5,919
|
|
|
$
|
|
|
|
$
|
2,960
|
|
Value of accelerated stock options
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Value of accelerated restricted stock
|
|
$
|
|
|
|
$
|
38,797
|
|
|
$
|
38,797
|
|
|
$
|
38,797
|
|
|
$
|
|
|
|
$
|
38,797
|
|
|
$
|
38,797
|
|
Value of accelerated stock appreciation rights
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Value of performance-based incentive compensation
|
|
$
|
|
|
|
$
|
3,000,000
|
|
|
$
|
3,000,000
|
|
|
$
|
3,000,000
|
|
|
$
|
3,000,000
|
|
|
$
|
3,000,000
|
|
|
$
|
3,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
3,038,797
|
|
|
$
|
3,418,378
|
|
|
$
|
3,786,121,
|
|
|
$
|
3,753,243
|
|
|
$
|
3,038,797
|
|
|
$
|
15,709,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amount set forth in the Value of accelerated
restricted stock and the Value of performance-based
incentive compensation rows would only be paid once on a
change-in-control
and not once on a
change-in-control
and then again upon a termination following a
change-in-control. |
Mark T.
Hammond
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
Not for
|
|
|
|
|
|
Involuntary or
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
Just Cause
|
|
|
|
|
|
Constructive
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
Termination in
|
|
|
|
For
|
|
|
|
|
|
|
|
|
|
|
|
Constructive
|
|
|
Change-in-
|
|
|
Connection with a
|
|
|
|
Just Cause
|
|
|
Disability
|
|
|
Death
|
|
|
Retirement
|
|
|
Termination
|
|
|
Control(1)
|
|
|
Change-in-Control(1)
|
|
|
Severance payment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
471,957
|
|
|
$
|
943,913
|
|
|
$
|
943,913
|
|
|
$
|
|
|
|
$
|
12,192,673
|
|
Benefits continuation
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,040
|
|
|
$
|
|
|
|
$
|
8,040
|
|
|
$
|
|
|
|
$
|
4,020
|
|
Value of accelerated stock options
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Value of accelerated restricted stock
|
|
$
|
|
|
|
$
|
64,661
|
|
|
$
|
64,661
|
|
|
$
|
64,661
|
|
|
$
|
|
|
|
$
|
64,661
|
|
|
$
|
64,661
|
|
Value of accelerated stock appreciation rights
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Value of performance-based incentive compensation
|
|
$
|
|
|
|
$
|
5,000,000
|
|
|
$
|
5,000,000
|
|
|
$
|
5,000,000
|
|
|
$
|
5,000,000
|
|
|
$
|
5,000,000
|
|
|
$
|
5,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
5,064,661
|
|
|
$
|
5,544,658
|
|
|
$
|
6,008,574,
|
|
|
$
|
5,591,953
|
|
|
$
|
5,064,661
|
|
|
$
|
17,261,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amount set forth in the Value of accelerated
restricted stock and the Value of performance-based
incentive compensation rows would only be paid once on a
change-in-control
and not once on a
change-in-control
and then again upon a termination following a
change-in-control. |
59
Paul D.
Borja
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
Not for
|
|
|
|
|
|
Involuntary or
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
Just Cause
|
|
|
|
|
|
Constructive
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
Termination in
|
|
|
|
For
|
|
|
|
|
|
|
|
|
|
|
|
Constructive
|
|
|
Change-in-
|
|
|
Connection with a
|
|
|
|
Just Cause
|
|
|
Disability
|
|
|
Death
|
|
|
Retirement
|
|
|
Termination
|
|
|
Control(1)
|
|
|
Change-in-Control(1)
|
|
|
Severance payment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
223,254
|
|
|
$
|
446,508
|
|
|
$
|
446,508
|
|
|
$
|
|
|
|
$
|
3,433,238
|
|
Benefits continuation
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,117
|
|
|
$
|
|
|
|
$
|
7,117
|
|
|
$
|
|
|
|
$
|
3,559
|
|
Value of accelerated stock options
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Value of accelerated restricted stock
|
|
$
|
|
|
|
$
|
6,466
|
|
|
$
|
6,466
|
|
|
$
|
6,466
|
|
|
$
|
|
|
|
$
|
6,466
|
|
|
$
|
6,466
|
|
Value of accelerated stock appreciation rights
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Value of performance-based incentive compensation
|
|
$
|
|
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
5,064,661
|
|
|
$
|
5,544,658
|
|
|
$
|
6,008,574,
|
|
|
$
|
5,591,953
|
|
|
$
|
5,064,661
|
|
|
$
|
17,261,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amount set forth in the Value of accelerated
restricted stock and the Value of performance-based
incentive compensation rows would only be paid once on a
change-in-control
and not once on a
change-in-control
and then again upon a termination following a
change-in-control. |
Kirstin
A. Hammond
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
Not for
|
|
|
|
|
|
Involuntary or
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
Just Cause
|
|
|
|
|
|
Constructive
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
Termination in
|
|
|
|
For
|
|
|
|
|
|
|
|
|
|
|
|
Constructive
|
|
|
Change-in-
|
|
|
Connection with a
|
|
|
|
Just Cause
|
|
|
Disability
|
|
|
Death
|
|
|
Retirement
|
|
|
Termination
|
|
|
Control(1)
|
|
|
Change-in-Control(1)
|
|
|
Severance payment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
205,333
|
|
|
$
|
410,666
|
|
|
$
|
410,666
|
|
|
$
|
|
|
|
$
|
1,475,146
|
|
Benefits continuation
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Value of accelerated stock options
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Value of accelerated restricted stock
|
|
$
|
|
|
|
$
|
4,527
|
|
|
$
|
4,527
|
|
|
$
|
4,527
|
|
|
$
|
|
|
|
$
|
4,527
|
|
|
$
|
4,527
|
|
Value of accelerated stock appreciation rights
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Value of performance-based incentive compensation
|
|
$
|
|
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
354,527
|
|
|
$
|
559,860
|
|
|
$
|
765,193,
|
|
|
$
|
760,666
|
|
|
$
|
354,527
|
|
|
$
|
1,829,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amount set forth in the Value of accelerated
restricted stock and the Value of performance-based
incentive compensation rows would only be paid once on a
change-in-control
and not once on a
change-in-control
and then again upon a termination following a
change-in-control. |
60
Robert O.
Rondeau, Jr.(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
Not for
|
|
|
|
|
|
Involuntary or
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
|
|
Just Cause
|
|
|
|
|
|
Constructive
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
Termination in
|
|
|
|
For
|
|
|
|
|
|
|
|
|
|
|
|
Constructive
|
|
|
Change-in-
|
|
|
Connection with a
|
|
|
|
Just Cause
|
|
|
Disability
|
|
|
Death
|
|
|
Retirement
|
|
|
Termination
|
|
|
Control(2)
|
|
|
Change-in-Control(2)
|
|
|
Severance payment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
185,029
|
|
|
$
|
370,057
|
|
|
$
|
370,057
|
|
|
$
|
|
|
|
$
|
1,374,706
|
|
Benefits continuation
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,117
|
|
|
$
|
|
|
|
$
|
7,117
|
|
|
$
|
|
|
|
$
|
3,559
|
|
Value of accelerated stock options
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Value of accelerated restricted stock
|
|
$
|
|
|
|
$
|
4,527
|
|
|
$
|
4,527
|
|
|
$
|
4,527
|
|
|
$
|
|
|
|
$
|
4,527
|
|
|
$
|
4,527
|
|
Value of accelerated stock appreciation rights
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Value of performance-based incentive compensation
|
|
$
|
|
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
|
$
|
350,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
354,527
|
|
|
$
|
546,673
|
|
|
$
|
724,584,
|
|
|
$
|
727,174
|
|
|
$
|
354,527
|
|
|
$
|
1,732,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Effective January 30, 2009, Robert O. Rondeau resigned from
his position as Executive Director, and we entered into a
severance agreement with him which reduced the amount that would
have otherwise been due him under his employment agreement. |
|
(2) |
|
The amount set forth in the Value of accelerated
restricted stock and the Value of performance-based
incentive compensation rows would only be paid once on a
change-in-control
and not once on a
change-in-control
and then again upon a termination following a
change-in-control. |
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee has at any
time been an officer or employee of ours or our subsidiaries.
Members of the Compensation Committee may, from time to time,
have banking relationships in the ordinary course of business
with the Bank, as described in the section entitled
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. No
member of the Compensation Committee had any other relationship
with us during 2008 requiring disclosure as a related party
transaction. During 2008, none of our executive officers served
as a member of another entitys compensation committee, one
of whose executive officers served on our Compensation Committee
or was a director of ours, and none of our executive officers
served as a director of another entity, one of whose executive
officers served on our Compensation Committee.
CERTAIN
TRANSACTIONS AND BUSINESS RELATIONSHIPS
We and our subsidiaries regularly monitor transactions with its
directors and executive officers and members of their immediate
families for regulatory reporting purposes. The policies and
procedures adopted by us and our subsidiaries include:
(i) a written policy requiring compliance with the
requirements of Regulation O, including the prompt
reporting of extension of credit to the Board; (ii) a Code
of Business Conduct and Ethics that governs potential conflicts
of interest; and (iii) an audit committee charter that
requires the Audit Committee to conduct a review of related
party transactions in order to ensure that such transactions are
on substantially the same terms as those prevailing for
comparable transactions with non-affiliated persons or are
otherwise fair to and in our and our subsidiaries best interests.
We and our subsidiaries have had, and expect to have in the
future, transactions in the ordinary course of business with
directors and executive officers and members of their immediate
families, as well as with principal stockholders. Each of the
following business transactions conformed with the policies and
procedures of ours and our subsidiaries, and it is the belief of
management that such loans or transactions neither involved more
than the normal risk of collection nor presented other
unfavorable features.
61
David J. Matlin, Mark R. Patterson and Gregory Eng, each of whom
is a member of our Board, are Chief Executive Officer, Chairman,
and Partner, respectively, of MatlinPatterson Global Advisers
LLC. MatlinPatterson Global Advisers LLC is an affiliate of MP
(Thrift) Global Partners III LLC, which formed MP Thrift
Investments L.P. MP Thrift Investments L.P. was the investor in
the equity investment transaction described in BACKGROUND
TO CERTAIN OF THE PROPOSALS and DESCRIPTION OF THE
INVESTMENT AGREEMENT above.
Michael Lucci, Sr. is a member of our Board. His
daughter-in-law,
Rebecca Lucci, is our Executive Vice President in the Human
Resources department. Ms. Luccis total compensation
was $236,351 in 2008.
Robert O. Rondeau, Jr. was an Executive Director. We
engaged in certain transactions with Select Financial, a Rhode
Island mortgage company owned by the Robert O. Rondeau Sr.
family, the family of Mr. Rondeau. Select Financial is a
correspondent of ours and sold $11.3 million in mortgage
loans to us during 2008. Select Financial is also a customer
that utilizes our warehouse lending program offered through our
commercial loan division. As of December 31, 2008, Select
Financial had an approved line of credit of $3.0 million
with Flagstar Bank at a rate of 5.5%. The average amount
outstanding during 2008 was $130,000, with a high balance of
$0.9 million and a zero balance at December 31, 2008.
As of February 28, 2009, the amount outstanding was
$0.5 million. During 2008, Select Financial paid us $7,900
in interest. The Robert O. Rondeau, Sr. family has
personally guaranteed this line of credit.
Walter N. Carter is a nominee to our Board. He is a managing
principal at Gateway Asset Management Company, which provides
consulting services to us. We paid $250,000 to Gateway Asset
Management Company for these consulting services in 2008.
In addition to the transactions listed above, certain of our
directors and executive officers and our subsidiaries, and
members of their immediate families, were indebted to the Bank
as customers in connection with mortgage loans and other
extensions of credit by the Bank. These transactions were in the
ordinary course of business and were on substantially the same
terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with
unrelated persons. None of these loans have involved more than
the normal risk of collectibility or presented other unfavorable
features.
SECTION 16(A)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our officers and
directors, and persons who own more than 10% of a registered
class of our equity securities, to file reports of ownership and
changes in ownership with the SEC and to furnish us with copies
of all such reports. Based solely on its review of copies of
such reports received by it, or written representations from
certain reporting persons that no annual report of change in
beneficial ownership is required, we believe that, other than as
previously disclosed, all filing requirements applicable to its
directors, executive officers and greater than 10% beneficial
owners during the year ended December 31, 2008 were timely
met.
PROPOSAL 2
-
APPROVAL
OF AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK FROM 150,000,000 SHARES TO 750,000,000 SHARES, AS
THE NUMBER OF COMMON STOCK CURRENTLY AUTHORIZED IS INSUFFICIENT
TO PROVIDE FOR THE CONVERSION OF THE MAY INVESTOR WARRANTS, THE
TREASURY WARRANT, THE INVESTOR SECURITIES AND THE ADDITIONAL
INVESTOR SECURITIES
Our Board has adopted a resolution approving an amendment to our
articles of incorporation to increase the number of our
authorized shares of common stock, $.01 par value per
share, from 150,000,000 to 750,000,000 shares (and
correspondingly, increase the total number of authorized shares
of all classes of capital stock from 175,000,000 to
775,000,000 shares, which includes 25,000,000 authorized
shares of serial preferred stock). The Board determined that
this amendment to the articles of incorporation is in our best
62
interests and our stockholders and further directed that the
proposed action be submitted for consideration by our
stockholders at the Annual Meeting.
Approval of this Proposal 2 is a condition to the mandatory
conversion of our Investor Preferred Stock and Additional
Investor Preferred Stock into common stock. Currently, we do not
have a sufficient number of authorized shares of common stock to
effect the conversion of all Investor Preferred Stock and
Additional Investor Securities as contemplated by the investment
agreement and the closing agreement or to effect the conversion
of the Treasury Warrant into common stock in the event that the
Treasury exercises its rights in this regard. As of the Record
Date, we had 90,380,043 shares of common stock outstanding,
with an additional 456,045,978 shares of common stock
reserved for issuance. Upon approval of Proposal 2 by our
stockholders, the Investor Preferred Stock and Additional
Investor Preferred Stock, when issued, will be automatically
converted into 375,000,000 shares of common stock at a
conversion price of $0.80 per share of common stock, subject to
customary anti-dilution adjustment. The primary purpose of
Proposal 2 is, therefore, to enable us to issue the shares
of common stock issuable upon conversion of the Investor
Preferred Stock, the Additional Investor Securities and, if so
required, the Treasury Warrant and the May Investor Warrant as
well as for any other matters discussed in this Proxy Statement.
If Proposal 2 is not approved, the Investor Preferred Stock
and the Additional Investor Preferred Stock will remain
outstanding and continue to rank senior to our common stock.
If the stockholders approve the amendment, we will amend the
first sentence of Article III of our articles of
incorporation to increase the number of authorized shares of all
classes of stock and of common stock, as follows (deletions are
indicated by strikeout and additions are indicated by underline):
The aggregate number of shares of all classes of capital
stock which the Corporation has authority to issue is
175,000,000
775,000,000
,
of which
150,000,000
750,000,000
are
to be shares of common stock, $.01 par value per share, and
of which 25,000,000 are to be shares of serial preferred stock,
$.01 par value per share.
Such amendment would become effective upon the filing of a
certificate of amendment with the Michigan Department of Labor
and Economic Growth. We intend to file such certificate of
amendment immediately after the Annual Meeting if the
stockholders approve this proposal.
Pursuant to the terms of the investment agreement,
MatlinPatterson has agreed to vote its shares of voting stock,
if any, in favor of this Proposal 2.
If Proposal 2 is approved and the Investor Preferred Stock
and the Additional Investor Preferred Stock are converted into
common stock, there will be immediate and substantial dilution
to the existing holders of common stock as a result of the
automatic conversion. Upon conversion of the Investor Preferred
Stock and the Additional Investor Preferred Stock as described
above, MatlinPatterson will own approximately 80% of our
outstanding common stock on a fully-diluted basis.
The additional authorized shares of common stock not used for
conversion of the Investor Preferred Stock and the Additional
Investor Preferred Stock or reserved for issuance upon exercise
of the May Investor Warrants or the Treasury Warrant or
conversion of the Trust Preferred Securities will be
available for general purposes, including capital raising
transactions, employee benefit plans and other uses. We
currently have no specific plans or understandings with respect
to the issuance of any common stock except as described in this
Proxy Statement and items for which we had previously reserved
shares for issuance.
The increase in the authorized number of shares of common stock
not used for the conversion of the Investor Preferred Stock and
the Additional Investor Preferred Stock or reserved for issuance
upon the exercise of warrants could have possible anti-takeover
effects. These authorized but unissued shares could (within the
limits imposed by applicable law and NYSE rules) be issued in
one or more transactions that could make a change of control of
us more difficult, and therefore more unlikely. The additional
authorized shares could be used to discourage persons from
attempting to gain control of us by diluting the voting power of
shares then outstanding or increasing the voting power of
persons who would support the Board in a potential takeover
situation, including by preventing or delaying a proposed
business combination that is opposed by the Board although
perceived to be desirable by some stockholders.
63
The proposal to amend Article III of the articles of
incorporation to increase the number of authorized shares of
common stock will be approved if greater than a majority of
shares of voting stock and common stock outstanding as of the
Record Date are cast for it. Approval of a majority of our
common stock is required, because Michigan law requires that the
shares of a class vote in favor of an increase in the aggregate
number of authorized shares of such class. The failure to vote,
abstentions and broker non-votes will have the same effect as a
vote against this proposal, although abstentions and broker
non-votes will be counted as present for purposes of
determining a quorum. Pursuant to the investment agreement,
MatlinPatterson has agreed to vote its shares in favor of this
Proposal 2.
If Proposal 2 is not approved by the stockholders at the
Annual Meeting, we have agreed to include such proposal (and our
Board has agreed to recommend approval of such proposal) at a
meeting of our stockholders no less than once in each six-month
period beginning on March 1, 2009 until such approvals are
obtained.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR THIS PROPOSAL 2 TO AMEND ARTICLE III
OF OUR ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK FROM 150,000,000 SHARES TO
750,000,000 SHARES.
PROPOSAL 3
-
APPROVAL
OF AMENDMENT TO ARTICLE IX OF THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION TO DELETE THE REQUIREMENT TO
DIVIDE THE BOARD INTO TWO CLASSES OF DIRECTORS
Article IX of our articles of incorporation currently
provides that the Board shall be divided into two classes,
designated as Class I and Class II. Article IX
requires that the two classes shall be as nearly equal in number
as the then total number of directors constituting the entire
Board shall permit, with the terms of office of all members of
one class expiring each year.
Section 4.1 of the investment agreement with
MatlinPatterson requires that we cause to be elected and
appointed to the Board, subject to certain requirements, such
number of persons designated by MatlinPatterson as will
represent its pro rata share of the total number of members of
the Board. For purposes of this requirement, pro rata
share means a fraction, the numerator of which is all
shares of our common stock beneficially owned by MatlinPatterson
(assuming full conversion of the Investor Preferred Stock) and
the denominator of which is the total number of issued shares of
our common stock (other than treasury shares) plus the number of
shares of common stock into which the Investor Preferred Stock
and the Additional Investor Preferred Stock may be converted.
Upon conversion of the Investor Preferred Stock and the
Additional Investor Preferred Stock as contemplated by the
investment agreement, MatlinPatterson will own approximately 80%
our outstanding common stock on a fully-diluted basis.
Section 4.1 of the investment agreement also requires that
we take all steps necessary (including any required submission
to our stockholders for approval) to amend our articles of
incorporation to effectuate the purpose and intent of the
requirements of Section 4.1, including removal of the
provision in our articles of incorporation regarding the
classification of our Board.
In order to comply with the requirements of Section 4.1 of
the investment agreement, the Board has adopted a resolution
approving an amendment to Article IX or our articles of
incorporation to remove the provision establishing a classified
Board. The full text of Article IX of the articles of
incorporation as it is proposed to be amended is set forth as
Annex A to this Proxy Statement and is marked to show
changes from the current version of Article IX, with
deletions indicated by strikeout and additions indicated by
underline.
The Board determined that this amendment to Article IX of
the articles of incorporation is in our best interests and that
of our stockholders and further directed that the proposed
action be submitted for consideration by our stockholders at the
Annual Meeting. If adopted by the stockholders, the amendments
to Article IX will become effective upon the filing of a
certificate of amendment with the Michigan Department of Labor
and Economic Growth. We intend to file such certificate of
amendment immediately after the Annual Meeting if the
stockholders approve this proposal.
64
The proposal to amend Article IX of the articles of
incorporation to eliminate the classified Board will be approved
if greater than a majority of shares of voting stock outstanding
as of the Record Date are cast for it. The failure to vote,
abstentions and broker non-votes will have the same effect as a
vote against this proposal, although abstentions and broker
non-votes will be counted as present for purposes of
determining a quorum. Pursuant to the terms of the investment
agreement, MatlinPatterson has agreed to vote its shares in
favor of this Proposal 3.
If Proposal 3 is not approved by the stockholders at the
Annual Meeting, we have agreed to include such proposal (and our
Board has agreed to recommend approval of such proposal) at a
meeting of our stockholders no less than once in each six-month
period beginning on March 1, 2009 until such approvals are
obtained.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR THIS PROPOSAL 3 TO AMEND ARTICLE IX OF
OUR ARTICLES OF INCORPORATION TO DELETE THE REQUIREMENT TO
DIVIDE THE BOARD INTO TWO CLASSES OF DIRECTORS.
PROPOSAL 4
-
APPROVAL
OF AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF
INCORPORATION TO DELETE REFERENCES TO CHAPTER 7B OF THE
MBCA
Article XV of our articles of incorporation currently
provides that we shall be governed by the provisions of
Chapter 7B of the MBCA, which governs control share
acquisitions. Moreover, Article XV provides that if
Chapter 7B of the MBCA is amended to repeal
Chapter 7B, we shall be governed following the date of
repeal by the provisions of Chapter 7B in effect on the
date of our filing of the restated articles of incorporation
relating thereto. The Michigan legislature, effective
January 6, 2009 rescinded Chapter 7B in its entirety.
A control share acquisition for purposes of
Chapter 7B is an acquisition, directly or indirectly, by
any person of ownership of, or the power to direct the exercise
of voting power with respect to, issued and outstanding
control shares. Under Chapter 7B, the term
control shares is generally defined as shares which,
if voted, would have voting power, when added together with all
other shares a person either owns or has the power to direct the
exercise of voting power, within the following ranges:
(a) at least 20% but less than
331/3%
of all voting power; (b) at least
331/3%
but less than a majority of all voting power; or (c) a
majority of all voting power. Pursuant to Section 798 under
Chapter 7B, control shares acquired in a
control share acquisition have the same voting
rights as were accorded the shares before the control share
acquisition only to the extent granted by resolution approved by
the stockholders.
The investment agreement requires that we seek the approval of
our stockholders to amend our articles of incorporation to
delete references to the provisions of Chapter 7B of the
MBCA. Accordingly, our Board has adopted a resolution approving
an amendment to our articles of incorporation to delete
Article XV in its entirety but reserve for its use in the
future. The full text of Article XV of the articles of
incorporation as it is proposed to be amended is set forth below
and is marked to show changes from the current version of
Article XV, with deletions indicated by strikeout and
additions indicated as underline.
ARTICLE XV
APPLICABILITY OF CHAPTER 7B OF THE
MICHIGAN BUSINESS CORPORATION ACT
The Corporation shall be governed by the provisions of
Chapter 7B of the Michigan Business Corporation Act, MCL
450.1790 et seq. If the Michigan Business Corporation Act is
amended following the date of filing of the Restated Articles of
Incorporation of the Corporation to repeal Chapter 7B, the
Corporation shall be governed following the date of such repeal
by the provisions of Chapter 7B as in effect on the date of
filing of the Restated Articles of Incorporation. The
Corporation shall have the authority, to the extent and under
the conditions provided in Section 799(1) and (2) of
the Michigan Business Corporation
65
7Act to redeem control shares acquired in a
control share acquisition, as such terms are defined
in Chapter 7B.
The Board determined that this amendment to Article XV of
the articles of incorporation is in our best interests and our
stockholders and further directed that the proposed action be
submitted for consideration by our stockholders at the Annual
Meeting. If adopted by the stockholders, the proposed amendment
to Article XV will become effective upon the filing of a
certificate of amendment with the Michigan Department of Labor
and Economic Growth. We intend to file such certificate of
amendment immediately after the Annual Meeting if the
stockholders approve this proposal.
The proposal to amend Article XV of the articles of
incorporation to delete references to the provisions of
Chapter 7B of the MBCA will be approved if greater than a
majority of shares of voting stock outstanding as of the Record
Date are cast for it. The failure to vote, abstentions and
broker non-votes will have the same effect as a vote against
this proposal, although abstentions and broker non-votes will be
counted as present for purposes of determining a
quorum. Pursuant to the terms of the investment agreement, the
Institutional Investor has agreed to vote its shares in favor of
this Proposal 4.
If Proposal 4 is not approved by the stockholders at the
Annual Meeting, we have agreed to include such proposal (and our
Board has agreed to recommend approval of such proposal) at a
meeting of our stockholders no less than once in each six-month
period beginning on March 1, 2009 until such approvals are
obtained.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR THIS PROPOSAL 4 TO AMEND ARTICLE XV OF
OUR ARTICLES OF INCORPORATION TO DELETE REFERENCES TO
CHAPTER 7B OF THE MBCA.
PROPOSAL 5
-
APPROVAL
OF THE ISSUANCE OF COMMON STOCK ISSUABLE UPON EXERCISE OF THE
TREASURY WARRANT
On January 6, 2009, the Board unanimously adopted a
resolution declaring it advisable and in both our best interests
and those of our stockholders to approve the issuance of our
common stock upon exercise of the Treasury Warrant in the sole
discretion of the holders thereof. The Board further directed
that the proposed action be submitted for consideration to our
stockholders at the Annual Meeting.
Because our common stock is listed on the NYSE, we are subject
to the NYSE rules and regulations. Section 312.03 of the
NYSE Manual requires stockholder approval prior to any issuance
or sale of common stock, or securities convertible into or
exercisable for common stock, in any transaction or series of
transactions if the common stock has, or will have upon
issuance, voting power equal to, or in excess of, 20% of the
voting power outstanding before the issuance of such shares or
of securities convertible into or exercisable for common stock,
or if the number of shares of common stock to be issued is, or
will be upon issuance, equal to or in excess of 20% of the
number of shares of common stock outstanding before the issuance.
Our proposed issuance of common stock to the Treasury upon
exercise of the Treasury Warrant falls under this rule because
the common stock issuable upon conversion of the Treasury
Warrant, will exceed 20% of the voting power and number of
shares of common stock outstanding before TARP transaction and
the equity investment transaction, and none of the exceptions to
this NYSE rule was applicable to this transaction.
The purpose of Proposal 5 is to satisfy, in connection with
our equity investment transaction, our obligations under the
investment agreement, as described above under BACKGROUND
TO CERTAIN OF THE PROPOSALS, and to allow the exercise of
the Treasury Warrant in accordance with the NYSE rules described
above.
The proposal to approve the issuance of common stock issuable
upon exercise of the Treasury Warrant will be approved if a
majority of shares of voting stock represented at the Annual
Meeting, either in person or by proxy, and entitled to vote are
cast for it. The failure to vote and broker non-votes will have
no effect
66
because these shares will not be considered shares entitled to
vote and therefore will not be counted as votes for or against.
However, abstentions will have the same effect as voting against
the approval of this proposal.
If Proposal 5 is not approved by the stockholders at the
Annual Meeting, we have agreed to include such proposal at a
meeting of our stockholders no less than once in each six-month
period beginning on January 1, 2009 until such approvals
are obtained.
OUR BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR THIS PROPOSAL 5 TO APPROVE THE ISSUANCE OF
COMMON STOCK UPON EXERCISE OF THE TREASURY WARRANT.
PROPOSAL 6
-
APPROVAL
OF THE ISSUANCE OF COMMON STOCK UPON EXERCISE OF THE WARRANTS
ISSUED IN CONNECTION WITH AMENDMENTS TO THE PURCHASE AGREEMENT
DATED MAY 14, 2008
On December 16, 2008, the Board unanimously adopted a
resolution declaring it advisable and in our best interests and
our stockholders to approve the issuance of our common stock
upon exercise of the May Investor Warrants in the sole
discretion of the holders thereof. The Board further directed
that the proposed action be submitted for consideration to our
stockholders at the Annual Meeting.
Because our common stock is listed on the NYSE, we are subject
to the NYSE rules and regulations. Section 312.03 of the
NYSE Manual requires stockholder approval prior to any issuance
or sale of common stock, or securities convertible into or
exercisable for common stock, in any transaction or series of
transactions if the common stock has, or will have upon
issuance, voting power equal to, or in excess of, 20% of the
voting power outstanding before the issuance of such shares or
of securities convertible into or exercisable for common stock,
or if the number of shares of common stock to be issued is, or
will be upon issuance, equal to or in excess of 20% of the
number of shares of common stock outstanding before the issuance.
Our proposed issuance of common stock to the May Investors upon
exercise of the May Investor Warrants falls under this rule
because the common stock issuable upon conversion of the May
Investor Warrants, when combined with the common stock issued to
the May Investors in our May 2008 private placement, will exceed
20% of the voting power and number of shares of common stock
outstanding before TARP transaction and the equity investment
transaction, and none of the exceptions to this NYSE rule was
applicable to these transactions.
The purpose of Proposal 6 is to satisfy, in connection with
our equity investment transaction, our obligations under the
investment agreement, as described above under BACKGROUND
TO CERTAIN OF THE PROPOSALS, and to allow the exercise of
the May Investor Warrants in accordance with the NYSE rules
described above.
The proposal to approve the issuance of common stock issuable
upon exercise of the May Investor Warrants will be approved if a
majority of shares of voting stock represented at the Annual
Meeting, either in person or by proxy, and entitled to vote are
cast for it. The failure to vote and broker non-votes will have
no effect because these shares will not be considered shares
entitled to vote and therefore will not be counted as votes for
or against. However, abstentions will have the same effect as
voting against the approval of these proposals.
If Proposal 6 is not approved by the stockholders at the
Annual Meeting, we have agreed to include such proposal at a
meeting of our stockholders no less than once in each six-month
period beginning on the date of the Annual Meeting until such
approvals are obtained.
OUR BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR THIS PROPOSAL 6 TO APPROVE THE ISSUANCE OF
COMMON STOCK UPON EXERCISE OF THE MAY INVESTOR WARRANTS.
67
PROPOSAL 7
-
APPROVAL
OF AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF
INCORPORATION TO REQUIRE MAJORITY VOTING FOR THE ELECTION OF
DIRECTORS IN NON-CONTESTED ELECTIONS
On January 6, 2009, the Board unanimously adopted a
resolution declaring it advisable and in our best interests and
our stockholders to approve an amendment to our articles of
incorporation to require a majority vote for the election of
directors in non-contested elections. The Board further directed
that the proposed action be submitted for consideration to our
stockholders at the Annual Meeting.
The MBCA provides that, unless otherwise specified in a
companys articles of incorporation, a director is elected
by a plurality of the votes cast. Our articles of incorporation
do not specify the voting standard required in director
elections, so our directors are currently elected by a plurality
vote; that is, a director nominee who receives the highest
number of for votes cast is elected, whether or not
such votes constitute a majority of all votes cast, including
withheld votes.
In 2006, we adopted as Flagstars policy a form of majority
voting for non-contested director elections, implementing this
policy through an amendment to our corporate governance
guidelines. Under this policy, directors continue to be elected
by a plurality vote, but our corporate governance guidelines
require that a director nominee who receives a greater number of
withheld votes than for votes must
immediately tender his or her resignation from the Board. The
Board then would decide, based on the relevant facts and
circumstances, whether to accept the resignation. The director
tendering his or her resignation under this provision would not
be permitted to participate in the Boards decision. The
Boards explanation of its decision is required to be
promptly disclosed in a Current Report on
Form 8-K
filed with the SEC.
To further strengthen this majority voting approach and to
provide our stockholders a more meaningful role in the election
of our directors, the Board has authorized, and recommends that
stockholders approve, an amendment to our articles of
incorporation that would require that director nominees in a
non-contested election must be elected by stockholders by a
majority vote, which will further enhance the accountability of
each director to our stockholders. Under this provision, each
vote is specifically counted for or
against the directors election. An affirmative
majority of the total number of votes cast for or
against a director nominee will be required for
election of each director. Stockholders will also be entitled to
abstain with respect to the election of a director. In
accordance with Michigan law, abstentions will have no effect in
determining whether the required affirmative majority vote has
been obtained.
If this proposed amendment is approved, a new paragraph will be
added as Article VI of our articles of incorporation that
is set forth in Annex B hereto.
This proposal to amend our articles of incorporation to provide
for majority voting will be approved if greater than a majority
of shares of voting stock outstanding as of the Record Date are
cast for it. If approved by stockholders, this amendment will
become effective upon the filing with the Michigan Department of
Labor which will occur promptly after the Annual Meeting.
Upon approval of this proposal and the filing of the certificate
of amendment, the Board will amend our by-laws to incorporate
the director resignation policy currently contained in our
corporate governance guidelines and conform this director
resignation policy to the majority vote standard so that an
incumbent director who did not receive the requisite affirmative
majority of the votes cast for his or her reelection would be
required to tender his or her resignation to the Board. Under
Michigan law, an incumbent director who is not re-elected may
remain in office until his or her successor is elected and
qualified, continuing as a holdover director until
his or her position is filled by a subsequent stockholder vote
or his or her earlier resignation or removal by a stockholder
vote. The Board will adopt the holdover director resignation
policy to address the continuation in office of a director that
would result from application of the holdover director
provision. Under the holdover director resignation policy, the
Board will decide whether to accept the resignation in a process
similar to the one the Board currently uses pursuant to the
existing majority vote policy.
68
OUR BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR THIS PROPOSAL 7 TO AMEND ARTICLE VI OF
OUR ARTICLES OF INCORPORATION TO REQUIRE MAJORITY VOTING
FOR THE ELECTION OF DIRECTORS IN NON-CONTESTED ELECTIONS.
PROPOSAL 8
-
APPROVAL
OF AMENDMENT TO ARTICLE XVI OF THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION TO REDUCE, TO A MAJORITY OF OUR
BOARD, THE VOTE REQUIRED BY DIRECTORS TO ADOPT, REPEAL, ALTER,
AMEND AND RESCIND OUR BYLAWS
Article XVI of our articles of incorporation currently
provides, among other things, that our bylaws can be adopted,
repealed, altered, amended and revised by a vote of two-thirds
of the members of the Board. On January 29, 2009, the Board
unanimously adopted a resolution declaring it advisable and in
our best interests and our stockholders to approve an amendment
to our articles of incorporation to require a vote of only a
majority of the members of the Board to adopt, repeal, alter,
amend and revise our bylaws. The Board further directed that
this proposed action be submitted for consideration to our
stockholders at a meeting called for that purpose.
If the stockholders approve and adopt this amendment, we will
amend Article XVI of our articles of incorporation as
follows (deletions are indicated by strikeout and additions are
indicated by underline):
ARTICLE XVI
AMENDMENT OF
BYLAWS
In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the Corporation is expressly
authorized to adopt, repeal, alter, amend and rescind the bylaws
of the Corporation by a vote of
a
majority
two-thirds of the board of
directors. The bylaws also may be adopted, repealed, altered,
amended or rescinded by the shareholders of the Corporation by
the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors (considered for
this purpose as one class) cast at a meeting of the shareholders
called for that purpose (provided that notice of such proposed
adoption, repeal, alteration, amendment or rescission is
included in the notice of such meeting).
If adopted by the stockholders, this amendment will become
effective upon filing of a certificate of amendment with the
Michigan Department of Labor and Economic Growth. We intend to
file such certificate of amendment immediately after the Annual
Meeting if the stockholders approve this proposal.
The purpose of Proposal 8 is to provide greater flexibility
to our Board in adopting, repealing, altering, amending and
rescinding the provisions of our bylaws where they consider it
advantageous or necessary to do so. Approval of this proposal
will not alter the requirement that any change to the bylaws not
be inconsistent with the provision of our articles of
incorporation and applicable law.
The proposal to amend Article XVI of the articles of
incorporation to change the vote required by directors to adopt,
repeal, alter, amend and rescind our bylaws will be approved if
greater than a majority of shares of voting stock outstanding as
of the Record Date are cast for it. The failure to vote,
abstentions and broker non-votes will have the same effect as a
vote against this proposal, although abstentions and broker
non-votes will be counted as present for purposes of
determining a quorum.
If Proposal 8 is not approved by the stockholders at the
Annual Meeting, the Board may continue to adopt, repeal, alter,
amend and rescind our bylaws by a two-thirds vote.
MatlinPatterson has indicated that it intends to vote in favor
of this proposal.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR THIS PROPOSAL 8 TO AMEND ARTICLE XVI
OF OUR ARTICLES OF INCORPORATION TO
69
REDUCE, TO A MAJORITY OF OUR BOARD, THE VOTE REQUIRED BY
DIRECTORS TO ADOPT, REPEAL, ALTER, AMEND AND RESCIND OUR
BYLAWS.
PROPOSAL 9
-
RATIFICATION
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
Virchow, Krause & Company, LLP (Virchow
Krause) served as our independent registered public
accountants for the year ended December 31, 2008. A
representative of Virchow Krause is expected to be present at
the Annual Meeting and available to respond to appropriate
questions, and will have the opportunity to make a statement if
he or she so desires.
The Sarbanes-Oxley Act of 2002 requires the Audit Committee to
be directly responsible for the appointment, compensation and
oversight of our independent registered public accountants. The
Audit Committee appointed Virchow Krause to serve as our
independent registered public accountants for 2009.
Selection of our independent registered public accountants is
not required to be submitted to a vote of our stockholders for
ratification. However, our Board is submitting this matter to
the stockholders as a matter of good corporate practice. If the
stockholders fail to ratify the selection, the Audit Committee
will reconsider whether to retain Virchow Krause. After doing
so, it may retain that firm or another without re-submitting the
matter to our stockholders. Even if the stockholders ratify the
appointment of Virchow Krause, the Audit Committee may, in its
discretion, direct the appointment of a different independent
registered public accountant at any time during the year if it
determines that such a change would be in our best interests and
our stockholders.
Our independent registered public accountants will be ratified
if greater than a majority of shares of voting stock presented
at the Annual Meeting, in person or by proxy, and entitled to
vote are cast for it. The enclosed proxy will be so voted unless
the stockholder specifies a contrary choice. Failure to vote and
broker non-votes will not be considered shares entitled to vote
and will not be counted as votes for or against the independent
registered public accountants. However, abstentions will have
the same effect as voting against the ratification of our
independent registered public accountants.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE
RATIFICATION OF THE APPOINTMENT OF VIRCHOW KRAUSE AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR 2009.
AUDIT
COMMITTEE REPORT
In accordance with its written charter adopted by the Board, the
Audit Committee assists the Board with fulfilling its oversight
responsibility regarding the quality and integrity of the
accounting, auditing and financial reporting practices of the
Company. In discharging its oversight responsibilities regarding
the audit process, the Audit Committee reviewed and discussed
the audited financial statements with management and with our
independent registered public accountants, Virchow,
Krause & Company, LLP. The Audit Committee also
discussed with Virchow, Krause & Company, LLP the
matters required to be discussed by Statement on Auditing
Standards No. 61 (Communications with Audit
Committees) as amended by Statement on Auditing Standards
No. 90 (Audit Committee Communications).
In addition, the Audit Committee has received the written
disclosures and the letter from Virchow, Krause &
Company, LLP required by the applicable requirements of the
Public Company Accounting Oversight Board regarding the
independent accountants communications with the Audit Committee
concerning independence and discussed with Virchow,
Krause & Company, LLP any relationships that may
impact the independent registered public accountants
objectivity and independence.
70
Based upon the review and discussions referred to above, the
Audit Committee recommended to the Board that the audited
financial statements be included in our Annual Report on
Form 10-K
for the year ended December 31, 2008 for filing with the
Securities and Exchange Commission.
THE AUDIT COMMITTEE
Jay Hansen, Chairman
Brian Tauber
William Pickard
Fees of
Independent Registered Public Accountants
The Audit Committee engaged Virchow Krause as our independent
registered public accountants for the year ended
December 31, 2008. The following table presents fees for
professional audit services rendered by Virchow Krause for its
audit for the years ended December 31, 2008 and 2007, and
fees billed for other services rendered by Virchow Krause during
those periods.
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2008
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2007
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Audit fees(1)
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$
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1,246,748
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$
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1,281,763
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Non-audit fees:
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Audit-related fees(2)
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45,878
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19,000
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Tax fees
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All other fees
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