Other Information Regarding the Board
Composition.
Our current Code of Regulations (the “Regulations”) provides: (i) that our Board shall consist of not less than six and not more than nine directors as the Board or shareholders may from time to time determine; and (ii)
for a staggered Board with two separate "classes" of directors which are comprised of at least three directors each. Our directors are divided into the following classes:
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Class I
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Class II
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Kevin Bhatt
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James G. Brown
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J. Scott Mumphrey
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Sam D. Levinson
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Richard A. Kraemer
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Richard A. Mirro
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James V. Smith
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Effective November 4, 2016, James V. Smith,
President and Chief Executive Officer
, was appointed to serve as a member of the Board.
Under our Amended and Restated Shareholders’ Agreement with Stonegate Investors Holdings, LLC (“Stonegate Investors Holdings”) and certain other shareholders, dated March 9, 2012 (as amended on May 15, 2013 and September 29, 2013, “Shareholders’ Agreement”), which is our largest shareholder, Stonegate Investors Holdings is entitled to nominate (i) two directors until the date on which their beneficial ownership of the Company’s common stock, par value $0.01 per share (“Common Stock”), falls below 15% of the outstanding shares of Common Stock and (ii) thereafter one director until the date on which their beneficial ownership of Common Stock falls below 10% of the outstanding shares of Common Stock. In addition, at least one Stonegate Investors Holdings nominated director will be on each committee of our Board until the date on which their beneficial ownership of Common Stock falls below 10% of the outstanding shares of Common Stock for so long as their representation on those committees is permitted by the corporate governance rules of the national securities exchange on which our shares of Common Stock are then listed.
Our Board has determined that Messrs. Mirro, Levinson, Kraemer and Mumphrey are our independent directors with independence being determined in accordance with the NYSE listing standards. Our independent directors meet regularly in executive sessions without members of management present. Our Chairman of the Board, Mr. Kraemer, leads those executive sessions.
Our Board believes its members collectively have or will have the experience, qualifications, attributes and skills to effectively oversee the management of our Company, including a high degree of personal and professional integrity, an ability to exercise sound business judgment on a broad range of issues, sufficient experience and background to have an appreciation of the issues facing our Company, a willingness to devote the necessary time to Board duties, a commitment to representing the best interests of our Company and our shareholders and a dedication to enhancing stockholder value.
Meetings.
The Board met thirteen times during fiscal 2016.
In addition, during fiscal 2016 the Audit Committee met eight times, the Nominating and Corporate Governance Committee met three times and Compensation Committee met five times. Other than Mr. Mirro, who attended 92% of the Board meetings, Mr. Bhatt, who attended 85% of the Board meetings, and Mr. Levinson, who attended 92% of the Board meetings, 64% of the Nominating and Corporate Governance Committee and 80% of the Compensation Committee meetings, all of the directors attended 100% of the Board and committee meetings on which he served during 2016. All of the directors who were serving on the Board at the time attended last year’s annual meeting of shareholders.
Committees.
Our Board has three committees: (i) the Audit Committee; (ii) the Compensation Committee; and (iii) the Nominating and Corporate Governance Committee. Each of these committees consists of three members.
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Director
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Audit Committee
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Compensation
Committee
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Corporate
Governance and
Nominating
Committee
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Sam D. Levinson
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Member
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Chair
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Member
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Richard A. Mirro
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Chair
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Member
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Member
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J. Scott Mumphrey
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Member
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Member
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Chair
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Each of the three committees operates under a written charter adopted by the Board, a copy of which is available to shareholders on our website at www.stonegatemtg.com (select “Investor Relations” and click on “Corporate Governance”).
Audit Committee.
The Audit Committee assists the Board in overseeing our accounting and financial reporting processes and the audits of our financial statements. Further, the Audit Committee supervises the Company’s internal audit function.
All members of our Audit Committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the NYSE. Our Board has affirmatively determined that each member of our Audit Committee is an independent director as defined under the applicable rules and regulations of the SEC and the NYSE. Our Board has determined that all members of our Audit Committee qualify as “audit committee financial experts” under SEC rules and regulations.
Compensation Committee.
The Compensation Committee supports the Board in fulfilling its oversight responsibilities relating to senior management and director compensation, including the administration of our executive compensation arrangements and the 2011 Omnibus Incentive Plan, the 2013 Omnibus Incentive Compensation Plan, the 2016 Omnibus Incentive Plan and the 2013 Non-Employee Director Plan.
The Compensation Committee charter permits the Compensation Committee to delegate its duties and responsibilities to a subcommittee of the Compensation Committee. In particular, the Compensation Committee may delegate approval of certain transactions to a subcommittee consisting solely of members of the Compensation Committee who are (i) "Non-Employee Directors" for the purposes of rule 16b-3 under the Securities Exchange Act of 1934, as in effect from time to time, and (ii) "outside directors" for the purposes of Section 162(m) of the Internal Revenue Code, as in effect from time to time. Mr. Kraemer and our human resources department provide both advice and comparative compensation data to assist the Compensation Committee with determining the compensation of any of our executives or directors. No member of the Board of Directors other than Mr. Kraemer has a role in recommending to the Compensation Committee the compensation of any of our executives or directors.
Our Board has affirmatively determined that each of the committee members are independent directors of our Compensation Committee as defined under the applicable rules and regulations of the SEC and the NYSE.
Nominating and Corporate Governance Committee.
The Nominating and Corporate Governance Committee assists the Board in identifying and recommending candidates to fill vacancies on the Board and for election by the shareholders, recommending committee assignments for members to the Board, overseeing the Board’s annual evaluation of the performance of the Board, its committees and individual directors, reviewing compensation received by directors for service on the Board and its committees and developing and recommending to the Board appropriate corporate governance policies, practices and procedures for our Company.
It is the policy of our Nominating and Corporate Governance Committee to consider candidates for Director recommended by you, our shareholders, and will evaluate such candidates in the same manner and subject to the same criteria as other candidates identified by or submitted for consideration to the Corporate Governance and Nominating Committee. Shareholders may nominate candidates by timely submitting a nomination in proper written form to the Secretary. In evaluating all nominees for Director, our Nominating and Corporate Governance Committee takes into account the applicable requirements for Directors under the Securities Exchange Act of 1934, as amended, and the listing standards of the NYSE. In addition, our Nominating and Corporate Governance Committee takes into account our best interests, as well as such factors as personal qualities and characteristics, accomplishments, reputation in the business community, knowledge, contacts, ability and willingness to commit adequate time to Board and committee matters, the fit of the individual’s skills and personality with those of other directors and diversity of viewpoints, background, experience and other demographics.
Our Board has affirmatively determined that each of the committee members are independent directors of our Corporate Governance and Nominating Committee as defined under the applicable rules and regulations of the SEC and the NYSE.
Compensation Committee Interlocks and Insider Participation
None of the members of our Compensation Committee is, or has at any time during the past year, been an officer or employee of ours. None of our executive officers currently serve, or in the past year has served, as a member of the
board of directors or compensation committee of any other entity that has one or more executive officers serving on our Board or Compensation Committee.
Governing Documents
The following primary documents make up Stonegate’s corporate governance framework:
•
Corporate Governance Guidelines
•
Audit Committee Charter
•
Compensation Committee Charter
•
Nominating and Corporate Governance Committee Charter
•
Code of Ethics
These documents are accessible on Stonegate’s website at www.stonegatemtg.com by clicking on “Investor Relations,” then “Corporate Governance.” You may also obtain a free copy of any of these documents by sending a written request to Stonegate Mortgage Corporation, 9190 Priority Way West Drive, Suite 300, Indianapolis, IN 46240, Attention: Secretary. Any substantive amendment to or grant of a waiver from a provision of the Code of Ethics, which applies to all of our directors, officers and employees, for the chief executive officer and senior financial officers requiring disclosure under applicable SEC or NYSE rules will be posted on Stonegate’s website.
Corporate Governance Guidelines
This document sets forth the Company’s primary principles and policies regarding corporate governance. The Corporate Governance Guidelines are reviewed from time to time as deemed appropriate by the Board. The matters covered by the Corporate Governance Guidelines include the following:
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Board Composition
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Board Leadership
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Selection of Directors
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Director Continuation
•
Board Meetings
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Executive Sessions
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Board Committees
•
Management Succession
•
Executive Compensation
•
Board Compensation
•
Expectations for Directors
•
Evaluation of Board Performance
•
Outside Advice and Reliance on Management.
Board Leadership Structure
Richard A. Kraemer serves as our Chairman of the Board. The Chairman of the Board presides over meetings of the Board and is primarily responsible for the direction and implementation of the Board’s oversight functions over the management and strategic direction of the Company. The Board is free to select its Chairman and the Company’s Chief Executive Officer in the manner it considers in the best interests of the Company at any given point in time.
Board’s Role in Risk Oversight
Our Board and each of its Committees are involved in overseeing risk associated with the Company. The Board and the Audit Committee monitor Stonegate’s credit risk, liquidity risk, regulatory risk, operational risk and enterprise risk by regular reviews with management and internal and external auditors. In its periodic meetings with the internal auditors and the independent accountants, the Audit Committee discusses the scope and plan for internal audit and includes management in its review of accounting and financial controls, assessment of business risks and legal and ethical compliance programs. The Board and the Nominating and Corporate Governance Committee monitor the Company’s governance and succession risk by regular reviews with management. The Board and the Compensation Committee monitor the Company’s compensation policies and related risks by regular reviews with management. The Board's role in risk oversight is consistent with the Company’s leadership structure with the Chief Executive Officer and other members of senior management having responsibility for assessing and managing the Company’s risk exposure, and the Board and its Committees providing oversight in connection with these efforts.
Section 16(a) Beneficial Ownership Reporting Compliance
The rules of the SEC require us to disclose the identity of directors, executive officers and beneficial owners of more than 10% of Common Stock who did not file on a timely basis reports required by Section 16(a) of the Securities Exchange Act of 1934. Such persons are required by SEC regulations to furnish us with all copies of Section 16(a) forms they file.
Based solely on a review of copies of such reports and forms received by us and written representations from reporting persons, we believe that all directors and executive officers complied with all filing requirements applicable to them during fiscal 2016.
Communications with the Board
Any Stonegate stockholder or other interested party who wishes to communicate with the Board or any of its members may do so by writing to: Corporate Secretary, Stonegate Mortgage Corporation, 9190 Priority Way West Drive, Suite 300, Indianapolis, IN 46240, United States. Communications may also be made on the website at www.stonegatemtg.com by clicking on “Investor Relations,” then “Corporate Governance,” then “Contact the Board.”
ITEM 11.
EXECUTIVE COMPENSATION
EXECUTIVE OFFICER COMPENSATION
Summary Compensation Table
The following table presents compensation awarded, paid to or accrued in 2016 to the individuals who served as our principal executive officers during 2016 and our two other most highly compensated persons serving as executive officers as of December 31, 2016, in each case for services rendered during 2016. We refer to these executive officers as our “named executive officers.”
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Name & Principal Position
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Year
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Salary ($)
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Bonus ($)
(1)
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Equity Awards ($)
(2)
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All Other Compensation ($)
(3)
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Total ($)
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James V. Smith
Chief Executive Officer and Director
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2016
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(4)
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418,125
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335,000
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392,000
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34,934
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1,180,059
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Richard A. Kraemer
Chief Executive Officer and Director
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2016
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(5)
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182,000
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—
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1,088,567
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81,370
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1,351,937
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2015
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(5)
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184,100
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—
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230,013
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114,948
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529,061
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John F. Macke
Executive Vice President
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2016
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316,194
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224,041
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116,800
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21,530
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678,565
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Steve Landes
Director of National Sales
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2016
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300,000
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242,631
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—
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32,605
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575,236
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(1)
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See
“
Executive Compensation-Bonuses
”
below and the description of the applicable employment or severance arrangements of Messrs. Kraemer, Smith, Macke and Landes under
“
Executive Compensation-Employment Arrangements
”
below for a description of the bonus eligibility of our named executive officers.The amount reported in this column for Mr. Landes represents his annual bonus for 2016 of $70,509 and his quarterly sales bonuses totaling $172,122.
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(2)
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Based on the grant-date fair value of the restricted stock units awarded to each named executive officer determined in accordance with FASB ASC Topic 718. See “
Notes to the Consolidated Financial Statements-20 Stock-Based Compensation
” in the Company’s Annual Reports on Form 10-K for the fiscal years ended December 31, 2016
,
for additional information. The amounts reported in this column for fiscal year 2016 for Mr. Smith represent a grant of 100,000 restricted stock units on August 15, 2016. The amounts reported in this column for Mr. Kraemer represents a grant of 178,891 restricted stock units on April 27, 2016 and his board retainer grant of 15,748 shares on August 15, 2016. The amounts reported in this column for Mr. Macke represent a grant of 20,000 restricted stock units on April 19, 2016.
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(3)
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All Other Compensation includes: for each named executive officer, company matching 401(k) contributions and disability insurance premiums; for Mr. Smith, HSA contributions, monthly automobile expenses, and rental and utilities costs for an apartment in Indianapolis, Indiana; for Mr. Kraemer, fees for his service as a director ($69,532) and rental and utilities costs for an apartment in Indianapolis, Indiana; for Mr. Macke, HSA contributions, monthly automobile expenses; and for Mr. Landes, HSA contributions, benefit allowance, and monthly automobile expenses.
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(4)
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Mr. Smith became Chief Executive Officer of the Company effective April 18, 2016.
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(5)
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Mr. Kraemer became the interim Chief Executive Officer of the Company effective September 10, 2015 until April 18, 2016.
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Outstanding Equity Awards at Fiscal Year End
The table below reports the number of stock options and restricted stock units held by each of our named executive officers as of December 31, 2016.
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Option Awards
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Stock Awards
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Name
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Grant Date
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Number of Securities Underlying Unexercised Options (#) Exercisable
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Number of Securities Underlying Unexercised Options (#) Unexercisable
(1)
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Option Exercise Price ($/sh)
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Option Expiration Date
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Number of Shares of or Units of Stock Granted That Have Not Vested (#)
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Market Value of Shares or Units of Stock Granted That Have Not Vested ($)
(2)
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James V. Smith
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8/15/2016
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—
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—
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—
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100,000
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(6)
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597,000
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9/3/2015
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20,000
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(7)
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119,400
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Richard A. Kraemer
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5/15/2013
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13,458
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4,486
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18.00
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5/15/2023
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—
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—
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8/15/2016
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—
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—
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—
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7,874
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(3)
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47,008
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4/27/2016
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—
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—
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—
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178,891
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(4)
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1,067,979
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John F. Macke
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5/15/2013
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60,563
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20,187
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18.00
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5/15/2023
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—
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—
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4/19/2016
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13,333
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(5)
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79,598
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Steve Landes
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5/15/2013
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67,292
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22,430
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18.00
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5/15/2023
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—
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—
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(1)
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These stock options will vest on May 15, 2017, the fourth anniversary of grant, subject to the recipient's continued service through such date. This represents the fourth installment of these stock option grants; the other installments vested on the first through the third anniversaries of the grant date.
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(2)
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Based on the closing share price of the Company’s common stock of $5.97 on December 30, 2016, the last trading day of 2016.
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(3)
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Restricted stock units are scheduled to cliff vest on May 27, 2017.
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(4)
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Restricted stock units are scheduled to cliff vest on April 27, 2019.
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(5) Restricted stock units are scheduled to cliff vest in two equal installments on October 29, 2017 and October 29, 2018.
(6) Restricted stock units are scheduled to vest in three equal annual installments beginning on August 15, 2017 and ending on August 15, 2019.
(7) Restricted stock units are scheduled to cliff vest on September 5, 2017.
Bonuses
The Company maintains an annual bonus program (the “Annual Incentive Plan”). Participants in the Annual Incentive Plan are selected by the Board after being recommended for participation by the Chief Executive Officer. The Board sets a maximum bonus payout based on a participant’s salary, establishes performance goals for each participant and determines whether such goals have been met for the annual performance period pursuant to the terms of the plan. Our Board relies primarily on the judgment of its members in making bonus determinations after reviewing our performance and financial condition for the year and carefully evaluating an executive officer’s performance during the year. In addition, our Board considers an executive officer’s leadership qualities, business responsibilities and length of career with us in determining an appropriate bonus amount. To date, bonuses for our executive officers have been approved by our Board on a discretionary basis in those instances where it desires to reward outstanding performance during the fiscal year by our executive officers.
Employment Arrangements
Employment Arrangement with Mr. Kraemer.
On September 1, 2015, Mr. Kraemer and the Company entered into a letter agreement, which provided that Mr. Kraemer be employed, effective as of September 10, 2015, on an at-will basis as Interim Chief Executive Officer and will receive base salary at a weekly rate of $10,500 (effective as of August 31, 2015). On April 27, 2016, Mr. Kraemer was granted a special transition award at the completion of his service as Interim Chief Executive Officer paid in the form of a restricted stock unit award for 178,891 shares of Common Stock, that vests in full on the third anniversary of grant (or earlier upon a change in control, termination for death or disability, or separation from the Board (other than removal for cause) after the first anniversary of the grant date). Mr. Kraemer was also entitled to reimbursement of reasonable expenses incurred for his travel and housing in connection with the performance of his duties. During the period of his employment, he was also entitled to all standard employee benefits afforded to Stonegate’s executive employees. Mr. Kraemer served as Interim Chief Executive Officer until April 18, 2016 and as an employee until April 30, 2016.
Employment Agreements with other Named Executive Officers
. The Company entered into letter agreements with Mr. Smith on April 18, 2016 and with Messrs. Macke and Landes on April 5, 2016, each of which provide for the named executive officers to be employed on an at-will basis. Material terms of the employment agreements include:
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•
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an annual base salary ($440,000 for Mr. Smith, $317,750 for Mr. Macke, and $300,000 for Mr. Landes), re-determined annually by the Board;
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•
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eligibility for annual performance bonuses, as determined by the Board in its sole discretion and payable in cash or grants of stock; and
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•
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participation in our benefit plans on the same basis as peer executives.
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If we terminate the executive’s employment without “cause” (other than by reason of death or disability) or the executive resigns for “good reason,” they will be entitled to payment of, subject to the execution of a release of claims in favor of us, a lump sum cash payment in an amount equal to twelve-months of their then-current base salary.
In addition, if a “change in control” (the definition for which is generally consistent with the definition as described below for the Omnibus Plans) occurs, and either (i) the executive remains employed by the Company for 120 calendar days following such change in control or (ii) the executive’s employment is terminated by the Company without “cause” during such 120-day period, the executive will be entitled to receive (1) a lump sum cash payment in an amount equal to twenty-four months of the executive’s then-current base salary, and (2) accelerated vesting of any then-outstanding unvested Company equity incentive awards, subject to the execution of a release of claims in favor of us.
On January 26, 2017, the Company entered into an Agreement and Plan of Merger with Home Point Financial Corporation (“Home Point Financial”) and Longhorn Merger Sub, Inc., a wholly owned subsidiary of Home Point Financial (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company, with the Company as the surviving entity (the “Merger”). The completion of the Merger will constitute a “change in control” under the employment agreements.
“Cause” generally means failure to exercise duties after written notice, dishonest actions including fraud and embezzlement, conviction of certain crimes, excessive alcohol use in the workplace, use of illegal drugs, misconduct that might subject us to liability, breach of the executive’s duty of loyalty, the executive’s breach of his employment agreement or any other agreement with us, insubordination, or being found guilty by a court of law of discrimination or harassment of any employee (or entering a settlement agreement for such a discrimination or harassment claim).
“Good reason” generally means a material diminution in the executive’s base salary (other than a similar diminution that impacts other similarly situated executives), a material diminution in the executive’s authority or any other action of the Company constituting a material breach of the employment agreement.
The employment agreement also contains a confidentiality provision, which applies indefinitely, non-competition restrictions that apply during the term of the employment agreement, and customer and employee non-solicitation restrictions which apply for one year following the executive’s termination of employment for any reason.
401(k) Plan
The 401(k) Plan, is a tax-qualified defined contribution savings plan for the benefit of all eligible employees of the Company. Employee contributions, including after-tax contributions, are permitted by means of pay reduction. The 401(k) Plan also provides for regular employer matching contributions up to a maximum of 100% of employee contributions up to 4% of a participant’s plan compensation. All employee contributions and earnings on employee contributions are at all times fully vested. Beginning with the second year of service, employer matching contributions are vested at a rate of 25% per year of service and are completely vested after four years of service.
Pension Benefits; Nonqualified Deferred Compensation
We do not currently offer any defined pension plans or any nonqualified deferred compensation plans to our named executive officers.
Equity Compensation and Equity Plans
In August 2013, our Board approved the adoption of the 2013 Omnibus Incentive Compensation Plan (the “2013 Omnibus Plan”), which our shareholders approved at our August 29, 2013 annual meeting. The 2013 Omnibus Plan is applicable to all awards granted on or after August 29, 2013, and replaced the 2011 Plan for awards granted on or after the Effective Date.
In June 2016, the Company adopted the 2016 Omnibus Incentive Plan (the "2016 Omnibus Plan" and, together with the 2013 Omnibus Plan, the “Omnibus Plans”) for employees and consultants, which shareholders approved at our June 29, 2016 annual meeting. The 2016 Omnibus Plan does not contain any material substantive differences from the 2013 Omnibus Plan, other than the shares available for issuance. Upon adoption in June 2016, a total of 200,000 shares of the Company's common stock were reserved and available for issuance under the 2016 Omnibus Plan. As of December 31, 2016, 104,418 shares and 100,000 shares were available for future grants under the 2013 Omnibus Plan and 2016 Omnibus Plan, respectively.
The Omnibus Plans are administered by the Compensation Committee. Subject to the terms of the Omnibus Plans, the Compensation Committee determines which employees and consultants will receive awards, the dates of grant, the number and types of awards to be granted, the exercise or purchase price of each award, and the terms and conditions of the awards, including the period of their exercisability and vesting and the fair market value applicable to a stock award.
Stock options granted under the Omnibus Plans generally have a term of 10 years and generally vest, subject to the grantee’s continued employment, in equal annual installments on the first four anniversaries of the grant date. In the event that a grantee’s relationship with the Company terminates, any stock option or portion of a stock option that is unvested as of the termination date will be terminated and forfeited as of such date. However, any stock option or portion of a stock option that has previously vested as of the termination date (and is otherwise exercisable) will terminate and be forfeited three months after the termination date, unless termination results from the participant’s death or disability, in which case the termination and forfeiture will take place one year after the termination date.
The Company has also granted restricted stock units to certain of its employees, including Messrs. Smith, Kraemer and Macke. Restricted stock units generally vest, subject to the grantee’s continued employment, in equal annual installments, on the first three anniversaries of the grant date and are generally settled within 15 days thereafter. In the event that a grantee’s relationship with the Company terminates, any portion of a restricted stock unit award that is unvested as of the termination date will terminate and be forfeited, except as otherwise may be provided in an award agreement or employment agreement. These grants are reflected in the
“Outstanding Equity Awards at Fiscal Year End”
table.
Change of Control.
Unless the Compensation Committee determines otherwise, or as otherwise provided in the applicable award agreement, in the event of a change in control, the Compensation Committee may (i) provide for the assumption of or the issuance of substitute awards, (ii) provide that for a period of at least 20 days prior to the change in control, stock options or SARs that would not otherwise become exercisable prior to a change in control will be exercisable as to all shares of common stock, as the case may be, subject thereto and that any stock options or SARs not exercised prior to the consummation of the change in control will terminate and be of no further force or effect as of the consummation of the change in control, (iii) modify the terms of such awards to add events or conditions (including the termination of employment within a specified period after a change of control) upon which the vesting of such awards will accelerate or (iv) settle awards for an amount (as determined in the sole discretion of the Compensation Committee) of cash or securities (in the case of stock options and SARs that are settled in cash, the amount paid shall be equal to the in-the-money spread value, if any, of such awards).
The completion of the Merger will constitute a “change in control” under the Omnibus Plans. At the effective time of the Merger, each outstanding restricted stock unit will be cancelled and cashed out for a price of $8 per each restricted stock unit, and each outstanding stock option will be cancelled and cashed out for a price of the excess, if any, of $8 per share over the exercise price per share of such stock option (and any stock options for which the exercise price equal or exceeds $8 per share will be cancelled for no consideration).
In general terms, a “change of control” under the Omnibus Plans occurs:
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•
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if a person, other than Long Ridge Equity Partners, becomes a beneficial owner of our capital stock representing 35% of the voting power of our outstanding capital stock;
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•
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if we merge with another entity, unless (i) the business combination is with Long Ridge Equity Partners or (ii)(a) more than 50% of the combined voting power of the merged entity or its parent is represented by our voting securities that were outstanding immediately prior to the merger, (b) the Board prior to the merger constitutes at least a majority of the board of the merged entity or its parent following the merger and (c) no person is or becomes the beneficial owner of 35% or more of the combined voting power of the outstanding capital stock eligible to elect directors of the merged entity or its parent;
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•
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if we sell or dispose of all or substantially all of our assets; or
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•
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if we are liquidated or dissolved.
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DIRECTOR COMPENSATION
The Board believes that competitive compensation arrangements are necessary to attract and retain qualified directors. The Company now provides each director an annual cash retainer of $60,000 and an annual restricted stock unit award with a grant date value of $60,793 under our 2013 Non-Employee Director Plan. The annual retainers for the Audit, Compensation and Nominating and Corporate Governance committee chairs are $15,000, $10,000 and $10,000 respectively. Additionally, the annual retainer for the Chairman of the Board and/or Lead Director is $50,000.
In connection with the May 2013 private offering, we made grants of stock options to purchase up to 35,888 shares of Common Stock in the aggregate at an exercise price of $18.00 a share to two of our directors, Messrs. Kraemer and Levinson. These options are subject in all respects to the terms and conditions set forth in the 2011 Plan, as described in
“
Executive Compensation-Equity Compensation and Equity Plans
”, and the award agreements pursuant to which these options were granted. These options vest, subject to the grantee’s continued service with the Company, in equal annual installments on each of the first through fourth anniversaries of the May 15, 2013 grant date. The fourth and final installment is scheduled to vest on May 15, 2017.
At the effective time of the Merger, each outstanding director restricted stock unit will be cancelled and cashed out for a price of at $8 per each restricted stock unit, and each outstanding stock option will be cancelled and cashed out for a price of the excess, if any, of $8 per share over the exercise price per share of such stock option (and any stock options for which the exercise price equal or exceeds $8 per share will be cancelled for no consideration).
We will also reimburse our directors for reasonable out-of-pocket expenses incurred in connection with the performance of their duties as directors, including, without limitation, travel expenses in connection with their attendance in-person at Board and committee meetings. Directors who are employees will not receive any compensation for their services as directors.
The table below summarizes the compensation paid by the Company to non-employee directors for the fiscal year ended December 31, 2016.
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Name
(1)
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Fees earned or paid in cash ($)
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Stock Awards ($)
(2)
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Total ($)
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Kevin B. Bhatt
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60,000
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60,793
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(3
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)
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120,793
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James G. Brown
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60,000
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60,793
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(3
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)
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120,793
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Sam D. Levinson
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70,000
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60,793
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130,793
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Richard A. Mirro
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75,000
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60,793
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135,793
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J. Scott Mumphrey
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70,000
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60,793
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130,793
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(1)
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Mr. Kraemer is excluded from this table because he is a named executive officer for purposes of the Summary Compensation Table, above, which reflects all compensation he received in 2016.
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(2)
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Represents the FASB ASC 718 grant date fair value of the restricted stock awards to the directors. See “
Notes to the Consolidated Financial Statements -20. Stock-Based Compensation
” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 for additional information. Restricted stock unit awards granted to directors must be held in the director deferred compensation account since each of the directors has deferred payment of these shares until after they are no longer a member of the Board.
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(3)
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Issued to Long Ridge Equity Partners, LP of which Long Ridge Equity Partners, LLC is the general partner over which Messrs. Kevin Bhatt and James Brown have voting and dispositive authority.
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The following table sets forth the aggregate number of outstanding restricted stock units and options held by each non-employee director as of December 31, 2016.
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Name of Director
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Number of Restricted Stock Units
(1)
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Number of Shares Underlying Outstanding Options
(2)
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Kevin B. Bhatt
(1)
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28,354
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James G. Brown
(1)
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28,354
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Sam D. Levinson
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28,354
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17,944
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Richard A. Mirro
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28,354
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101,494
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J. Scott Mumphrey
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28,354
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(1)
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Issued to Long Ridge Equity Partners, LP of which Long Ridge Equity Partners, LLC is the general partner over which Messrs. Kevin Bhatt and James Brown have voting and dispositive authority.
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(2)
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Mr. Levinson’s outstanding options have an exercise price of $18 per share and he will receive no consideration for such shares in connection with the completion of the Merger. Mr. Mirro’s outstanding options have an exercise price of $3.97 per share and he will receive consideration for such shares in connection with the completion of the Merger.
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COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the Executive Compensation discussion included in this Form 10K/A with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Executive Compensation discussion be incorporated by Amendment No. 1 to Form 10-K for the fiscal year ended December 31, 2016.
Submitted by the Compensation Committee:
Sam D. Levinson (Chair)
J. Scott Mumphrey
Richard A. Mirro