Item 11. Executive Compensation
This section discusses the material components of our executive compensation program for our NEOs. We believe an effective executive compensation program aligns executives’ interests with stockholders by rewarding performance designed to increase stockholder value. We seek to promote individual service longevity and to provide our executives with long-term incentive opportunities that promote consistent, high-level performance. The Compensation Committee evaluates both performance and compensation periodically to ensure that we maintain our ability to attract and retain superior employees in key positions and that compensation provided to key employees remains competitive relative to the compensation paid to similarly situated executives of peer companies, subject to consideration of the Company’s own financial performance. To achieve these objectives, we generally believe executive compensation packages should include both cash and equity-based compensation that rewards performance as measured against established goals.
For 2022, our NEOs and their positions as of December 31, 2022 were as follows:
•Jason Kopcak, Chief Executive Officer
•Thomas K. McCarthy, Interim Chief Executive Officer
•Stephen R. Krallman, Chief Financial Officer
•Kevin F. Sullivan, Former General Counsel and Chief Compliance Officer
The Company experienced changes in executive management during 2022. The Board appointed Mr. McCarthy as interim Chief Executive Officer on April 19, 2021 as it conducted a search for a permanent Chief Executive Officer. On July 1, 2022, the Board appointed Mr. Kopcak as Chief Executive Officer of the Company. Mr. McCarthy resigned from the Company on May 31, 2022, and Mr. Sullivan resigned from the Company on March 6, 2023.
Summary Compensation Table
The following table discloses compensation received by our NEOs for the fiscal years 2022 and 2021.
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Name and Principal Position | Year | | Salary | | Bonus | | Stock Awards (1) | | Option Awards (1) | | Non-Equity Incentive Compensation (2) | All Other Compensation (3) | | Total |
Jason Kopcak, (4), Chief Executive Officer | 2022 | | $ | 358,269 | | (5) | | $ | 50,000 | | (6) | | $ | 222,413 | | (6) | | $ | — | | | | $ | 575,000 | | (7) | $ | 270,634 | | (8) | | $ | 1,476,316 | |
Thomas K. McCarthy (9), Interim Chief Executive Officer | 2022 | | $ | 290,769 | | (10) | | $ | 250,000 | | (11) | | $ | — | | | | $ | — | | | | $ | — | | | $ | 93,566 | | (12) | | $ | 634,335 | |
2021 | | $ | 467,308 | | (13) | | $ | — | | | | $ | — | | | | $ | — | | | | $ | — | | | $ | 10,034 | | (14) | | $ | 477,342 | |
Stephen R. Krallman (15), Chief Financial Officer | 2022 | | $ | 325,000 | | (16) | | $ | — | | | | $ | — | | | | $ | — | | | | $ | 275,000 | | (17) | $ | 104,321 | | (18) | | $ | 704,321 | |
2021 | | $ | 162,500 | | (19) | | $ | 200,000 | | (20) | | $ | 98,177 | | (20) | | $ | — | | | | $ | 100,000 | | (21) | $ | 219,145 | | (22) | | $ | 779,822 | |
Kevin F. Sullivan (23), Former General Counsel and Chief Compliance Officer | 2022 | | $ | 450,000 | | (24) | | $ | — | | | | $ | — | | | | $ | — | | | | | | $ | 112,756 | | (25) | | $ | 562,756 | |
2021 | | $ | 121,154 | | (26) | | $ | 100,000 | | (27) | | $ | 74,475 | | (27) | | $ | — | | | | $ | 250,000 | | (28) | $ | 30,888 | | (29) | | $ | 576,517 | |
Indroneel Chatterjee (30), Former Chief Executive Officer | 2021 | | $ | 207,693 | | (31) | | $ | — | | | | $ | 1,591,208 | | (32) | | $ | — | | | | $ | — | | | $ | 53,445 | | (33) | | $ | 1,852,346 | |
Christopher Moltke-Hansen (34), Former Chief Financial Officer | 2021 | | $ | 82,308 | | (35) | | $ | 250,000 | | (36) | | $ | 320,221 | | (36) | | $ | — | | | | $ | — | | | $ | 16,169 | | (37) | | $ | 668,698 | |
P. Graham Singer, (38), Former General Counsel and Secretary | 2021 | | $ | 81,731 | | (39) | | $ | 350,000 | | (40) | | $ | 345,085 | | (40) | | $ | — | | | | $ | — | | | $ | 13,261 | | (41) | | $ | 790,077 | |
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(1)Amounts represent the aggregate grant date fair value of restricted shares and option awards granted to our NEOs, calculated in accordance with FASB ASC 718. Such grant date fair value does not take into account any estimated forfeitures. The assumptions used in calculating the grant date fair value of restricted shares and option awards are set forth in Note 9 to our Consolidated Financial Statements for the year ended December 31, 2022. The amount reported in this column reflects the accounting cost for these awards and does not correspond to the actual economic value that may be received by the NEO upon the vesting of the restricted shares, the exercise of the stock options, or any sale of the underlying shares of common stock.
(2)Consists of the cash annual incentive compensation related to performance in each year and generally awarded in the first half of the following year.
(3)Consists of contributions from AAMC to each executive officer for relocation expenses, as applicable; supplemental living expenses, as applicable; car allowances, as applicable; education allowances, as applicable; travel allowances, as applicable; vacation benefits upon termination, as applicable; and medical benefits and preferred stock dividends, as detailed more fully in the respective footnotes below.
(4)Mr. Kopcak joined the Company in March 2022 and served as our President and Chief Operating Officer prior to his appointment as Chief Executive Officer in July 2022. Mr. Kopcak’s hire date was May 12, 2022.
(5)The amount reported for 2022 represents Mr. Kopcak’s base salary of $575,000 from his hire date of May 12, 2022 to December 31, 2022.
(6)Pursuant to Mr. Kopcak’s employment agreement, he was entitled to a signing bonus of $250,000. The Compensation Committee of the Company agreed to bifurcate the payment into a cash payment of $50,000 and a preferred dividend of $200,000. The amount reported for 2022 represents Mr. Kopcak’s $50,000 cash signing bonus paid on May 27, 2022. The amounts reported as Stock Awards include equity inducement grants consisting of 22,500 shares of service-based restricted stock with a grant date fair value of $222,413, which was determined based on the average of the high and low sales price of our common stock on the date of the grant. Mr. Kopcak’s signing bonus was paid pursuant to his employment agreement as described under “Employment Agreements.”
(7)The amount reported for 2022 includes Mr. Kopcak’s $575,000 annual cash incentive compensation earned for 2022 performance, which has been accrued and pending payment as of April 30, 2023.
(8)The amount reported for 2022 includes: $200,000 preferred stock dividends on 1,000 shares Preferred Stock Series N paid on December 29, 2022, which the Compensation Committee approved as payment in lieu of a cash payment of Mr. Kopcak’s signing bonus payable pursuant to his employment agreement. In addition, the amount reported for 2022 includes $40,000 for supplemental living expenses related to Mr. Kopcak's employment in the U.S. Virgin Islands, $3,019 in relocation expenses, $9,150 in 401-K contributions and $18,465 in medical and life insurance benefits.
(9)Mr. McCarthy joined the Company on April 19, 2021 as Interim Chief Executive Officer. Mr. McCarthy's last day in his term as Interim Chief Executive Officer was May 31, 2022.
(10)The amount reported for 2022 represents Mr. McCarthy's base salary of $675,000 from January 1, 2022 until his termination on May 31, 2022.
(11)The amount reflects a cash bonus of $250,000 that the Company agreed to pay Mr. McCarthy in connection with his departure from the Company in recognition of his contribution to the Company during his tenure. This cash bonus was paid on June 10, 2022.
(12)The amount reported for 2022 includes: $51,923 in vacation benefits paid upon Mr. McCarthy’s termination, $13,408 in 401-K contributions and $28,235 in medical and life insurance benefits.
(13)The amount reported for 2021 represents Mr. McCarthy's base salary of $675,000 from his hire date of April 19, 2021 to December 31, 2021.
(14)The amount reported for 2021 includes: $8,700 in 401-K contributions and $1,334 in life insurance benefits.
(15) Mr. Krallman joined the Company on June 28, 2021 as Chief Financial Officer.
(16)The amount reported for 2022 represents Mr. Krallman’s base salary of $325,000 from January 1, 2022 to December 31, 2022.
(17)The amount reported for 2022 reflects Mr. Krallman’s $275,000 annual cash incentive compensation earned for 2022 performance, which has been accrued and pending payment as of April 30, 2023.
(18)The amount reported for 2022 includes: $60,000 for supplemental living expenses related to Mr. Krallman’s employment in the U.S. Virgin Islands, $10,000 in 401-K contributions and $34,321 in medical and life insurance benefits.
(19)The amount reported for 2021 represents Mr. Krallman’s base salary of $325,000 from his hire date of June 28, 2021 to December 31, 2021.
(20)The amount reported for 2021 represents Mr. Krallman's $200,000 signing bonus, and equity inducement grants consisting of 5,000 shares of service-based restricted stock with a grant date fair value of $98,177, which was determined based on the average of the high and low sales price of our common stock on the date of the grant. Mr. Krallman's signing bonus was paid pursuant to his employment agreement as described under “Employment Agreements.”
(21)Pursuant to Mr. Krallman’s employment agreement, he is entitled to an annual cash incentive compensation of $275,000. The Compensation Committee of the Company agreed to bifurcate the payment into a cash payment of $100,000 and a preferred dividend of $175,000. The amount reported for 2021 reflects $100,000 in annual cash incentive compensation paid to Mr. Krallman on June 8, 2022.
(22)The amount reported for 2021 includes: $175,000 preferred stock dividends on 1,000 shares Preferred Stock Series O paid on December 29, 2022, which the Compensation Committee approved as payment in lieu of a cash payment of Mr. Krallman’s annual cash incentive compensation pursuant to his employment agreement. In addition, the amount reported for 2022 includes $30,000 for supplemental living expenses relating to Mr. Krallman’s employment in the U.S. Virgin Islands, $4,720 in 401-K contributions, and $9,425 in medical and life insurance benefits.
(23)Mr. Sullivan joined the Company on September 20, 2021 as General Counsel and Chief Compliance Officer and resigned on March 6, 2023.
(24)The amount reported for 2022 represents Mr. Sullivan’s base salary of $450,000 from January 1, 2022 to December 31, 2022.
(25)The amount reported for 2022 represents Mr. Sullivan’s Other Compensation from housing allowance while in the USVI of $40,000, 401-K contributions of $18,150 and medical and life insurance benefits of $54,606.
(26)The amount reported for 2021 represents Mr. Sullivan’s base salary of $450,000 from his hire date of September 20, 2021 to December 31, 2021.
(27)The amount reported for 2021 represents Mr. Sullivan’s signing bonus of $100,000, and equity inducement grants consisting of 3,000 shares of service-based restricted stock with a grant date fair value of $74,475, which was determined based on the average of the high
and low sales price of our common stock on the date of the grant. Mr. Sullivan's signing bonus was paid pursuant to his employment agreement as described under “Employment Agreements.”
(28)The amount reported for 2021 reflects $250,000 in annual cash incentive compensation earned for 2021 performance and paid to Mr. Sullivan on June 8, 2022.
(29)The amount reported for 2021 includes: $15,000 for supplemental living expenses relating to Mr. Sullivan’s employment in the U.S. Virgin Islands, $2,379 in 401-K contributions, and $13,509 in medical and life insurance benefits.
(30)Mr. Chatterjee joined the Company on January 13, 2020 as Co-Chief Executive Officer, and upon resignation of Mr. Ellison on December 29, 2020, became the sole Chief Executive Officer of the Company. Mr. Chatterjee was terminated for cause on April 16, 2021.
(31)The amount reported for 2021 represents Mr. Chatterjee's base salary of $675,000 from January 1, 2021 until his termination on April 16, 2021.
(32)The amount reported for 2021 represents 60,606 shares of restricted stock granted to Mr. Chatterjee. This stock had a weighted average grant date fair value per share of $26.25 and vested immediately.
(33)The amount reported for 2021 includes: $27,193 for supplemental living expenses relating to Mr. Chatterjee’s employment in the U.S. Virgin Islands, $8,700 in 401-K contributions, and $17,552 in medical and life insurance benefits.
(34)Mr. Moltke-Hansen served as Chief Financial Officer from January 1, 2021 until his resignation on April 24, 2021.
(35)The amount reported for 2021 represents Mr. Moltke-Hansen’s base salary of $250,000 from January 1, 2021 until his resignation on April 24, 2021.
(36)The amount reported for 2021 represents Mr. Moltke-Hansen’s $250,000 signing bonus, and (a) 8,523 shares of restricted stock granted to Mr. Moltke-Hansen, which had a weighted average grant date fair value per share of $26.25 and vested immediately and (b) equity inducement grants consisting of 5,000 shares of service based restricted stock with a grant date fair value of $96,450, which was determined based on the average of the high and low sales price of our common stock on the date of the grant. Mr. Moltke-Hansen forfeited all of his service-based restricted stock upon his resignation without good reason.
(37)The amount reported for 2021 includes: $8,700 in 401-K contributions and $7,469 in medical and life insurance benefits.
(38)Mr. Singer served as General Counsel and Secretary from January 1, 2021 until his resignation on April 23, 2021.
(39)The amount reported for 2021 represents Mr. Singer’s base salary of $250,000 from January 1, 2021 until his resignation on April 23, 2021.
(40)The amount reported for 2021 represents Mr. Singer's $350,000 signing bonus, and (a) 9,470 shares of restricted stock granted to Mr. Singer, which had a weighted average grant date fair value per share of $26.25 and vested immediately and (b) equity inducement grants consisting of 5,000 shares of service-based restricted stock with a grant date fair value of $96,450, which was determined based on the average of the high and low sales price of our common stock on the date of the grant. Mr. Singer forfeited all of his service-based restricted stock up on his resignation without good reason.
(41)The amount reported for 2021 includes: $10,335 in 401-K contributions and $2,926 in medical and life insurance benefits.
Elements of Compensation
Compensation Philosophy. We employ a number of practices that reflect our pay-for-performance compensation philosophy and related approach to executive compensation. We believe that our executive compensation program encourages and motivates our executive officers to achieve sustainable, long-term operating financial performance and aligns with the creation of long-term stockholder value.
Our compensation philosophy is best described as pay-for-performance, which rewards both financial and operational successes as well as actions that drive stockholder value creation. The following are the objectives of our compensation program:
•attracting and retaining qualified and dedicated executives who are essential to our long-term success;
•providing compensation packages that are competitive with the compensation arrangements offered by comparable companies, including our competitors;
•tying a significant portion of an executive officer’s compensation to the Company’s and the individual’s performance; and
•aligning the interests of management with the interests of our stockholders through stock-based compensation arrangements.
In 2022, the compensation package for our NEOs consisted of base salary and annual cash incentive compensation, as well as certain restricted stock awards. This compensation structure was developed in order to provide each NEO with a competitive salary while emphasizing a cash incentive compensation element that is tied to the achievement of corporate goals and strategic initiatives as well as individual performance. Our compensation programs are structured to motivate and reward our executives to increase stockholder value and provide balanced incentives for achieving our objectives without incentivizing executives to take excessive risks. The Compensation Committee also may, from time to time, grant equity compensation awards to the NEOs in order to further align their interests with AAMC’s stockholders. We believe that the following elements of compensation are appropriate in light of our strategic initiatives, industry, current challenges and environment.
The following highlights practices that we utilize in support of our pay-for-performance philosophy:
What We Do
•align executive pay with Company performance;
•establish performance metrics that correlate to stockholder value creation;
•mitigate undue risk in compensation programs;
•include meaningful vesting periods on equity awards;
•establish a performance gate that must be achieved as a condition to any payout of short-term incentive compensation;
•set maximum payout limits on all variable, performance-based compensation programs;
•utilize an independent compensation consultant when deemed necessary by the Compensation Committee; and
•provide reasonable post-employment/change in control provisions in employment/separation agreements.
What We Don’t Do
•reprice underwater stock options;
•exchange underwater stock options for cash;
•grant multi-year guaranteed bonuses;
•provide excessive perquisites; or
•permit hedging, pledging or short-sale transactions by our executive officers and directors.
Base Salary. Base salaries for our NEOs are established based on individual qualifications and job responsibilities while taking into account compensation levels at similarly situated companies for similar positions.
Base salaries of the NEOs are expected to be reviewed annually during the performance appraisal process with adjustments made based on market information, internal review of the executive officer’s compensation in relation to other officers, the individual performance of the executive officer and our corporate performance. Salary levels are also considered upon a promotion or other change in job responsibility. Salary adjustment recommendations will be based on our overall performance and an analysis of compensation levels necessary to maintain and attract quality personnel. The Compensation Committee will set the base salary for the Chief Executive Officer and approve the base salaries for all other NEOs.
Annual Cash Incentive Compensation. Pursuant to our annual incentive philosophy, our executives can earn cash awards as determined by the Compensation Committee. Our philosophy provides the Compensation Committee and our management with the authority to establish incentive award guidelines, which are further discussed below.
Equity Awards. The Company adopted the 2020 Equity Incentive Plan, which superseded the 2012 Equity Incentive Plan (together with the 2012 Equity Incentive Plan, the “Equity Incentive Plans”), to afford an incentive to officers, non-employee directors, employees, advisors and consultants of the Company and its affiliates to continue as officers, non-employee directors, employees, advisors or consultants, to increase their efforts on behalf of AAMC and to promote the success of AAMC’s business. From time to time, the Compensation Committee, as administrator, grants awards to our NEOs in addition to their annual cash incentive compensation. Our Compensation Committee reviews and determines the appropriate equity awards to be used that align with our business needs, our pay-for-performance philosophy and the practices of our peer group.
Employee Relocation Program. In order to enable us to recruit top talent and incentivize key personnel to relocate, we offer a relocation package to individuals who relocate to the U.S. Virgin Islands (the “Employee Relocation Program”). The Employee Relocation Program includes relocation benefits such as moving expenses, home sale support, a housing allowance, payment of applicable children’s school tuition fees and payment of “home leave” travel for return trips to the continental United States, in each case subject to certain limits and exceptions. Upon a participant’s departure after at least one year of service or termination without cause, such participant is eligible to receive reimbursement for relocation costs back to the continental United States. We believe that our Employee Relocation Program is necessary to attract and retain talent that is critical to our success.
2022 Compensation Determinations
Under AAMC’s annual cash incentive compensation plan, our NEOs can earn cash incentive compensation awards as determined by the Compensation Committee. The Compensation Committee and management have the authority to establish incentive compensation award guidelines. Each NEO has a targeted annual cash incentive award that is expressed as a percentage of his or her annual cash total target compensation. In 2022, 100% of the total annual cash target compensation was payable to our NEOs upon achievement of certain Company and individual performance levels with the exception of the 2022 annual cash incentive to Mr. Sullivan per the Separation Agreement.
Our annual incentive-based cash compensation is structured to motivate executives to achieve key performance objectives by rewarding the executives for such achievement. We seek to accomplish this by utilizing a balanced methodology that incorporates multiple financial and non-financial performance objectives developed through our annual strategic planning process. The annual incentive-based cash compensation can be distributed as a cash payment or as a preferred stock dividend which is offered to employees based in the USVI.
For 2022, corporate goals were developed by our Compensation Committee and included targets pertaining to (a) building out the initial operations of the Alternative Lending Group, (b) attempting to restructure the $250 million Series A Preferred Stock for the benefit of the common shareholders, (c) building and retaining a strong management team to acquire or build the future business lines of AAMC, and (d) continuing to maintain the EDC status of the company as domiciled in the USVI.
2022 Equity Awards
On May 12, 2022, we granted 22,500 shares of restricted stock to management with a weighted average grant date fair value per share of $9.89. The restricted stock units will vest in three equal annual installments on May 12, 2023, 2024, and 2025 subject to forfeiture or acceleration.
2021 Equity Awards
On September 20, 2021, we granted 3,000 shares of restricted stock to management with a weighted average grant date fair value per share of $24.83. 1,000 shares of this grant vested on September 20, 2022. The vesting of the additional 2,000 restricted stock units were accelerated to March 9, 2023 per the Separation Agreement.
On June 28, 2021, we granted 5,000 shares of restricted stock to management with a weighted average grant date fair value per share of $19.64. 1,667 shares of this grant vested on June 28, 2022. The remaining restricted stock units will vest in two equal annual installments on June 28, 2023 and 2024 subject to forfeiture or acceleration.
In determining the awards for our NEOs, the Compensation Committee considered the valuable and substantial contributions they had made to achieving AAMC’s strategic objectives, the importance to the Company of retaining and incentivizing them and the desire to have their cash compensation reduced and converted into the restricted stock awards so that the benefits of such grants only would be realized if the Company’s stock price were to increase.
Stock Ownership Policies
Although we do not have stock ownership requirements, our philosophy is that equity ownership by our directors and executives is important to attract, motivate, retain and to align their interests with the interests of our stockholders. The Compensation Committee believes that our various equity incentive plans are adequate to achieve this philosophy. We also maintain an insider trading policy detailing our trading window period for directors, executive officers and other employees.
Other Compensation
The Compensation Committee’s policy with respect to other employee benefit plans is to provide benefits to our employees, including executive officers that are comparable to benefits offered by companies of a similar size to ours. A competitive comprehensive benefit program is essential to achieving the goal of attracting and retaining highly qualified employees.
Employment Agreements
Jason Kopcak, Chief Executive Officer
In accordance with his employment agreement, Mr. Kopcak is entitled to an annual base salary of $575,000, an annual bonus of $575,000, and participation in employee benefit programs of the Company on the same terms as other similarly situation employees. In addition, Mr. Kopcak will receive a $250,000 signing bonus (subject to 100%, 66.67% or 33.33% recoupment if Mr. Kopcak terminates his employment without Good Reason (as defined in the Employment Agreement) or the Company terminates Mr. Kopcak for Cause (as defined in the Employment Agreement) during the first, second or third years of employment, respectively). For the avoidance of doubt, the amounts the Employee is required to repay pursuant to the preceding sentence are the entire amount of the Signing Bonus paid by the Company, or (66.67%) or (33.33%) of such amount less any taxes paid by the Employee. Mr. Kopcak will receive a one-time equity award grant of 22,500 restricted shares of Company common stock, which will vest in three equal installments on the first three anniversaries of the Start Date. In the event Mr. Kopcak's employment is terminated by the Company without Cause or he resigns for Good Reason he would be entitled to, among other things, a separation payment in the amount of one-half of his annual base salary, one-half of his target annual bonus and accelerated vesting of his restricted shares.
The Employment Agreement contains customary covenants on non-competition (for 12 months if termination is for Cause or without Good Reason), non-solicitation of employees (for 12 months) and non-solicitation of customers (for 12 months) by Mr. Kopcak and requires that all disputes be determined by binding arbitration.
Stephen R. Krallman, Chief Financial Officer
In accordance with his employment agreement, Mr. Krallman is entitled to receive an annual base salary of $325,000, with reduction in salary only as part of an across the board reduction in base salary of AAMC’s executives which is no more than 20%. Upon his relocation to the U.S. Virgin Islands, Mr. Krallman has received a housing allowance of $5,000 per month for living expenses. His annual target incentive bonus is $275,000, subject to Compensation Committee approval. Mr. Krallman received a cash signing bonus of $200,000 subject to an obligation to repay 100% of the signing bonus if terminated by the Company for Cause (as defined in his employment agreement) or without Good Reason (as defined in his employment agreement) within the first year following June 28, 2021 or 50% of such signing bonus if terminated by the Company for Cause or without Good Reason during the second year following June 28, 2021. Mr. Krallman received an initial equity award of 5,000 service-based restricted shares under the guidelines of the 2020 Equity Incentive Plan. The restricted shares will vest annually over a three-year period following the date of grant. He is eligible to participate in the Company’s health, life insurance, disability, retirement and other welfare plans on the same terms available to other senior executives. Upon termination of employment, Mr. Krallman will be eligible to receive accrued salary and benefits payable through the date of termination. He will be subject to customary confidentiality and non-disparagement obligations, as well as a twelve-month obligation not to solicit clients, customers or employees. In addition, if his employment is terminated by the Company for Cause or by Mr. Krallman without Good Reason, he will be subject to a twelve- month non-competition obligation. If his employment is terminated by the Company without Cause or by Mr. Krallman for Good Reason, Mr. Krallman will be entitled to receive severance equal to the sum of half his annual base salary and half his annual target bonus, payable in a lump sum 60 days after his termination date, and accelerated vesting of his equity awards (except as prohibited by the 2020 Equity Incentive Plan), in each case, subject to his execution of a customary release, providing, among other things, confirmation of his confidentiality, non-disparagement and non-solicitation obligations.
Kevin F. Sullivan, Former General Counsel, Corporate Secretary
In accordance with his employment agreement, Mr. Sullivan was entitled to receive an annual base salary of $450,000 and an annual target incentive bonus of $250,000. Mr. Sullivan received an initial equity award of 3,000 service-based restricted shares under the guidelines of the 2020 Equity Incentive Plan which were to vest over a three-year period following the date of the grant. He was eligible to participate in the Company’s health and other welfare benefit plans on the same terms available to other senior executives.
On March 6, 2023, Mr. Sullivan resigned. Mr. Sullivan executed a Notice of Termination, Separation and General Release Agreement (“Separation Agreement”) on March 9, 2023, whereby certain terms of Mr. Sullivan’s employment contract were modified. Per the Separation Agreement, in 2023, Mr. Sullivan shall receive an aggregate payment of $350,000, which shall
consist of (i) an amount equal to $225,000, plus (ii) an amount equal to one-half (0.5) times Mr. Sullivan’s annual target incentive or $125,000, (iii) reimbursement of 100% of the COBRA premiums incurred for Mr. Sullivan and his dependents under the Company’s health plan for six months following his termination date, (iv) waiver of the obligation for Mr. Sullivan to repay the signing bonus, and (v) acceleration of the vesting of any unvested restricted shares. Mr. Sullivan is subject to customary confidentiality and non-disparagement obligations.
Thomas K. McCarthy, Interim Chief Executive Officer
In accordance with his amended employment agreement, Mr. McCarthy was entitled to receive an annual base salary of $675,000. He was eligible to participate in the Company’s health and other welfare benefit plans on the same terms available to other senior executives. Upon termination of employment, Mr. McCarthy was eligible to receive only amounts accrued and unpaid as of the date of termination. He is subject to customary confidentiality and non-disparagement obligations.
Mr. McCarthy’s last day in his term as Interim Chief Executive Officer was May 31, 2022. On May 17, 2022, the Company entered into an amendment to his employment agreement, wherein the Company agreed to pay Mr. McCarthy a bonus of $250,000 in recognition of his contribution to the Company during his tenure as Interim Chief Executive Officer subject to Mr. McCarthy releasing the Company from all claims arising from his employment and the termination of his employment with the Company, effective May 31, 2022.
Each of our executives during the 2022 calendar year had executed an Employee Intellectual Property and Confidentiality Agreement at the time they joined AAMC that contains covenants to maintain our confidential information and that all developments by such executive shall be our property.
Preferred Stock Plan
Following stockholder approval at the 2016 Annual Meeting of Stockholders, we implemented AAMC's 2016 Employee Preferred Stock Plan (the “Preferred Stock Plan”). The Preferred Stock Plan authorizes the grant of restricted non-voting Preferred Stock to AAMC's U.S. Virgin Islands employees. The Preferred Stock Plan was created to induce certain employees to relocate and work in the U.S. Virgin Islands, remain in the employ of AAMC and provide additional incentive to promote the success of AAMC. On December 30, 2022, our Board of Directors authorized the acquisition of 1,000 shares of Series N Preferred Stock by Mr. Kopcak at $10.00 per share and 1,000 shares of Series O Preferred Stock by Mr. Krallman at $10.00 per share. In December 2022, the Company declared and paid dividends on the Preferred Stock held by Messrs. Kopcak and Krallman. Details regarding the dividends paid to Messrs. Kopcak and Krallman are set forth in the footnotes to the “Other Compensation” column of the “Summary Compensation Table” above. Because Mr. Sullivan was not located in the U.S. Virgin Islands, he was not eligible to participate in the Preferred Stock Plan.
Potential Payments upon Termination or Change in Control
The termination benefits payable to our current NEOs are described above under “Employment Agreements.”
The Compensation Committee may in its discretion revise, amend or add to the benefits of each executive officer. None of our executive officers currently has an arrangement in which they would be entitled to a payment on a change of control of AAMC, other than payments for termination described above to the extent the surviving party in a change of control transaction assumes the employment arrangements described above.
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information regarding outstanding equity awards held by our NEOs as of December 31, 2022:
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| | | | STOCK AWARDS |
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Name | | | | | | | | Number of Shares or Units of Stock That Have Not Vested | | Market Value of Shares or Units of Stock That Have Not Vested (1) |
Stephen R. Krallman | | | | | | | | 3,333 | | (2) | | $ | 67,493 | |
Kevin F. Sullivan | | | | | | | | 2,000 | | (3) | | 40,500 | |
Jason Kopcak | | | | | | | | 22,500 | | (4) | | 455,625 | |
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(1)Represents the fair market value of the restricted shares as of December 31, 2022, based on the closing price of AAMC’s common stock, as quoted on NYSE American, of $20.25 per share on December 31, 2022.
(2)Mr. Krallman's inducement restricted stock awards are subject to service-based vesting requirements and have or will vest ratably on each of June 28, 2023, and 2024.
(3)The vesting of Mr. Sullivan's inducement restricted stock awards was accelerated to March 9, 2023 per the Separation Agreement.
(4)Mr. Kopcak's inducement restricted stock awards are subject to service-based vesting requirements and have or will vest ratably on each of May 12, 2022, 2023, and 2024.
Option Exercises
There were no outstanding options for NEOs for the year ended December 31, 2022.
Pay versus Performance
The following table shows the past two (2) fiscal years’ total compensation for our named executive officers as set forth in the Summary Compensation Table, the “compensation actually paid” to our named executive officers (as determined under SEC rules), our total shareholder return (TSR), and our net income (loss).
SEC rules require certain adjustments be made to the Summary Compensation Table totals to determine Compensation Actually Paid as reported in the Pay Versus Performance Table. Compensation Actually Paid does not necessarily represent cash and/or equity value transferred to the applicable named executive officer without restriction, but rather is a valuation calculated under applicable SEC rules. In general, Compensation Actually Paid is calculated as summary compensation table total compensation adjusted to (a) include the value of any pension benefit (or loss) attributed to the past fiscal year, including on account of any amendments adopted during such year; and (b) include the fair market value of equity awards as of December 31, 2022 or, if earlier, the vesting date (rather than the grant date) and factor in dividends and interest accrued with respect to such awards. For purposes of the disclosure below, no pension valuation adjustments were required.
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Year | Summary Compensation Table Total for PEO ($)(1) | Compensation Actually Paid to PEO ($)(2) | Average Summary Compensation Table for Non-PEO Named Executive Officers ($)(1) | Average Compensation Actually Paid to Non-PEO Named Executive Officers ($)(3) | Value of Initial Fixed $100 Investment Based on Total Shareholder Return ($)(4) | Net Income (Loss) ($) (in thousands) (5) |
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2022 | $ | 2,110,651 | | $ | 2,121,450 | | $ | 633,494 | | $ | 648,193 | | $ | 85.88 | | $ | (15,934) | |
2021 | $ | 2,329,688 | | $ | 1,615,955 | | $ | 703,779 | | $ | 682,222 | | $ | 75.91 | | $ | (6,004) | |
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(1)For 2022, Jason Kopcak and Thomas K. McCarthy were our principal executive officers (“PEO”) and our non-PEO NEOs for 2022 were Stephen R. Krallman and Kevin F. Sullivan. For 2021, our PEOs were Thomas K. McCarthy and Indroneel Chatterjee and our non-PEO NEOs were Stephen R. Krallman, Kevin F. Sullivan, Christopher Moltke-Hansen and P. Graham Singer.
(2)The amounts disclosed reflect the adjustments listed in the tables below to the amounts reported in the Summary Compensation Table for PEO:
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Adjustments to Determine Compensation Actually Paid to PEO | | 2022 | 2021 |
Deduction for amounts reported under the Stock Awards column of the SCT | | $ | (222,413) | | $ | (1,591,208) | |
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Stock awards vested in current year | | — | 1,853,408 |
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Increase in the fair value of awards granted during the year that vest during the year | | 233,212 | 185,200 |
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Deduction of fair value of awards granted prior to year that were forfeited during the year | | — | (1,161,133) |
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Total Adjustments | | 10,799 | (713,733) |
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(3)The amounts disclosed reflect the adjustments listed in the tables below to the amounts reported in the Summary Compensation Table for our non-PEO NEOs:
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Adjustments to Determine Compensation Actually Paid to Non-PEO NEOs | | 2022 | 2021 |
Deduction for amounts reported under the Stock Awards column of the SCT | | $ | — | | $ | (209,490) | |
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Stock awards vested in current year | | $ | 28,779 | | $ | 236,158 | |
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Increase/deduction for change in fair value from prior year-end to current year-end awards granted prior to year that were outstanding and unvested as of year-end | | $ | (3,551) | | $ | — | |
Increase/deduction for change in fair value from prior year-end to vesting date of awards granted prior to the year that vested during year | | $ | (10,573) | | $ | — | |
Deduction of fair value of awards granted prior to year that were forfeited during the year | | $ | — | | $ | (48,225) | |
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Total Adjustments | | $ | 14,655 | | $ | (21,557) | |
(4)Total Shareholder Return illustrates the value, as of the last day of the indicated fiscal year, of an investment of $100 in AAMC common stock on December 31, 2020.
(5)The dollar amounts reported represent the amount of net income (loss) reflected in our consolidated audited financial statements for the applicable year.
Analysis of the Information Presented in the Pay Versus Performance Table
Compensation Actually Paid and Net Income (Loss). Due to the nature of our Company’s consolidated financial statements and historical focus on asset management services, our Company has not historically utilized net income (loss) as a performance measure for our executive compensation program. From 2021 to 2022, our net loss increased and the Compensation Actually Paid our PEO and Non-PEO NEOs also decreased between those years.
PEO and Non-PEO NEO Compensation Actually Paid and Company Total Shareholder Return (“TSR”). The following chart sets forth the relationship between Compensation Actually Paid to our PEO, the average of Compensation Actually Paid to our Non-PEO NEOs, and the Company’s TSR over the period covering fiscal years 2021 and 2022. A large component of our executive compensation is equity-based to align compensation with performance, but also includes other appropriate incentives such as cash bonuses that are designed to incentivize our executives to achieve annual corporate goals. We believe the equity-based compensation strongly aligns our PEO and Non-PEOs’ interests with those of our shareholders to maximize long-term value and encourages long-term employment.
Compensation Risk Assessment
We believe that although a portion of the compensation provided to our executive officers and other employees is performance-based, our executive compensation program does not encourage excessive or unnecessary risk taking. Our compensation programs are designed to encourage our executive officers and other employees to remain focused on both short-term and long-term strategic goals. As a result, we do not believe that our compensation programs are reasonably likely to have a material adverse effect on the Company.
Board of Directors Compensation
The following table discloses compensation received by each non-management member of our Board of Directors who served as a Director during fiscal year 2022. Management members of our Board of Directors do not receive compensation for their service as a Director.
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Name | | Fees Earned or Paid in Cash | | Stock Awards (1) | | | | | | Total |
Ricardo C. Byrd (2) | | $ | 90,000 | | | $ | 60,011 | | | | | | | $ | 150,011 | |
John A. Engerman (2) | | 90,000 | | | 60,011 | | | | | | | 150,011 | |
John P. de Jongh Jr. (2) | | 145,000 | | | 60,011 | | | | | | | 205,011 | |
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(1)Each of Messrs. Byrd, Engerman, and Governor de Jongh, Jr. were granted 2,412 restricted shares of common stock of AAMC on November 14, 2021 for service on the Board. These shares were vested and paid in 2022. The number of shares granted was based on a share price of $24.88, which was the average of the high and low sales prices of our common stock on November 14, 2021, and represents the grant date fair value of such shares under FASB ASC 718. The amount reported in this column reflects the accounting cost for these restricted shares and does not correspond to the actual economic value that may be received by the directors upon the vesting of the restricted shares, or any sale of the underlying shares of common stock.
(2)As of December 31, 2022, each of Messrs. Byrd, Engerman, and Governor de Jongh, Jr. held 2,857 unvested shares of time-based restricted stock.
On December 14, 2022, Messrs. Byrd and Engram and Governor de Jongh, Jr. being the non-management members of the Board serving as of such date, were each awarded 2,857 shares of restricted stock under the Company’s 2020 Equity Incentive Plan for their service to the Board for the period commencing December 14, 2022 to the date of the 2023 Annual Meeting of Stockholders. Upon vesting, each such Director will receive 2,857 shares of our common stock. Such number of shares was determined by dividing $60,000 by the average of the high and low prices, or $21.00 per share, of AAMC common stock on December 14, 2022 and represents the grant date fair value calculated in accordance with FASB ASC 718.
Cash Compensation
As set forth above, we provide the following cash compensation to our non-management Directors in quarterly installments, paid in arrears for their services for the prior quarter:
•an annual retainer of $75,000;
•an additional $20,000 to the Lead Independent Director of the Board of Directors, only if the Chairman of the Board is a management Director (if the Chairman of the Board is a non-management director, the Chairman shall receive $50,000);
•an additional $20,000 to the Audit Committee chairperson;
•an additional $10,000 to all committee chairpersons (other than the Audit Committee chairperson); and
•an additional $5,000 to all Audit Committee members.
Equity Compensation
The 2020 Equity Incentive Plan was approved at the Annual Meeting of Stockholders on October 12, 2020, which supersedes the 2012 Equity Incentive Plan. The 2020 Equity Incentive Plan is described below in “Equity Compensation Plan Information”. As part of Director compensation, our non-management Directors have received annually restricted shares of common stock of AAMC with a Fair Market Value of $60,000 pursuant to the 2012 Equity Incentive Plan and 2020 Equity Incentive Plan. “Fair Market Value” is defined as the average of the high and low prices of our common stock as reported on the applicable securities exchange on which AAMC is listed or quoted on the first day of the service year. Equity compensation is granted for the prior year of service after each annual organizational meeting of the Board, which typically follows the
Annual Meeting of Stockholders. Shares of our common stock will be awarded if the Director attends an aggregate of at least 75% of all meetings of the Board and committees thereof of which the Director is a member during the service year. Grants of restricted shares to our Directors vest on the date of the Annual Meeting of Stockholders of the following year during which they were granted.
For Directors serving less than a full year, such Directors receive a pro rata portion of $60,000 of restricted shares of our common stock based on the high and low sales prices on the first day of his or her service year, multiplied by a fraction, the numerator of which is the number of days served and the denominator of which is 365 days.
Other Compensation
Directors are reimbursed for reasonable travel and other expenses incurred in connection with attending meetings of the Board and its committees.
Any Director compensation may be prorated for a Director serving less than a full one (1) year term as in the case of a Director joining the Board after an Annual Meeting of Stockholders but during the service year.
Recoupment/Clawback Policies
The Sarbanes-Oxley Act of 2002 subjects incentive compensation and stock sale profits of our CEO and CFO to forfeiture in the event of an accounting restatement resulting from any non-compliance, as a result of misconduct, with any financial reporting requirement under GAAP and SEC rules. We acknowledge the SEC’s new Rule 10D-1 regarding clawback policies and the NYSE’s Proposed NYSE Manual Section 303A.14. Once final, we will comply accordingly.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the information contained in this Item 11 with management. Based on such review and discussions, the Compensation Committee recommended to the Board that the information contained in this Item 11 be included in the Annual Report on Form 10-K and the Company’s next Proxy Statement.
John A. Engerman
Governor John P. de Jongh, Jr.
Ricardo C. Byrd