Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No x
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). Yes x No ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant
to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the
registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm
that prepared or issued its audit report. Yes x No ¨
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements. Yes ¨ No x
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). Yes ¨ No x
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of December 30, 2022, the last business
day of the registrant’s most recently completed fiscal year, the aggregate market value of the registrant’s common stock
held by non-affiliates was approximately $1,231.2 million based on the closing sales price of the registrant’s common
stock on December 30, 2022 as reported on the New York Stock Exchange.
Indicate the number of shares outstanding of each
of the registrant's classes of common stock, as of the latest practicable date: The registrant has 110,745,658
shares of common stock, par value $0.0001 per share, outstanding as of April 20, 2023.
Ready Capital Corporation,
referred to in this report as “Ready Capital,” “the Company,” “we,” “us,” and “our,”
is filing this Amendment No. 1 on Form 10-K/A (this “Amendment”) to its Annual Report on Form 10-K for the year ended December
31, 2022, originally filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2023 (the “Original
Report”), for the sole purpose of including the information required by Part III, Items 10 through 14, of Form 10-K. This information
was previously omitted from the Original Report in reliance on General Instruction G(3) to Form 10-K, which permits the information in
Part III to be incorporated in the Form 10-K by reference from our definitive proxy statement if such statement is filed no later than
120 days after our fiscal year end. We are filing this Amendment to provide information required in Part III of Form 10-K for the fiscal
year ended December 31, 2022, because the Company does not intend to file a definitive proxy statement containing such information within
120 days of December 31, 2022.
In accordance with Rule
12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Part III, Items 10 through 14 of the Original
Report are hereby amended and restated in their entirety, and Part IV, Item 15 of the Original Report is hereby amended and restated only
with respect to the addition of the new certifications by our principal executive officer and principal financial officer filed herewith. Except
as described above or as otherwise expressly provided by the terms of this Amendment, no other changes have been made to the Original
Report. This Amendment does not reflect events occurring after the filing of the Original Report, does not modify or update in any
way the disclosures contained in the Original Report, and does not modify or update those disclosures that may be affected by subsequent
events. Accordingly, this Amendment should be read in conjunction with the Original Report and with our filings with the SEC subsequent
to the Original Report.
Part III
Item 10. |
Directors, Executive Officers and Corporate Governance |
Board of Directors
Our current board of directors
is comprised of nine members. Our board of directors has determined that six of its directors are independent pursuant to the listing
standards for independence of the NYSE. Our bylaws (“Bylaws”) provide that a majority of the entire board of directors may
at any time increase or decrease the number of directors. However, the number of directors may never be less than the minimum number required
by the Maryland General Corporation Law (“MGCL”) nor more than 15, unless our Bylaws are amended. In accordance with our charter
and our Bylaws, each director holds office until our next annual meeting of stockholders and until his or her successor has been duly
elected and qualifies, or until the director’s earlier resignation, death or removal.
The Nominating and Corporate
Governance Committee and the board of directors evaluates a number of criteria, qualifications and attributes when selecting a candidate
to serve as a director. These include a candidate’s relevant experience, skill, diversity (including gender and racial/ethnic background),
integrity and independence. We seek to have a board of directors representing diverse backgrounds and varied work and life experiences
that provide a range of insights into the financial, governance or legal matters that are relevant to our business and to our status as
a publicly owned company. We believe that, as a group, the nominees bring a diverse range of perspectives that contribute to the effectiveness
of our board of directors as a whole and the oversight that our board of directors provides to our management team.
There is no familial relationship
among any of the members of our board of directors or executive officers.
Set forth below is information regarding each of
our directors, including the experience, qualifications, attributes and skills that our Board of Directors believes makes each of them
well qualified to serve as directors of the Company.
Thomas E. Capasse
Mr. Capasse, age 65,
serves as the Chairman of our board of directors, Chief Executive Officer and Chief Investment Officer. Mr. Capasse is a Manager and
co-founder of Waterfall Asset Management, LLC (our “Manager”). Prior to founding Waterfall, Mr. Capasse managed the
principal finance groups at Greenwich Capital from 1995 until 1997, Nomura Securities from 1997 until 2001, and Macquarie Securities
from 2001 until 2004. Mr. Capasse has significant and long-standing experience in the securitization market as a founding member of
Merrill Lynch’s ABS Group (1983–1994) with a focus on mortgage-backed securities (“MBS”) transactions
(including the initial Subprime Mortgage and Manufactured Housing ABS) and experience in many other ABS sectors. Mr. Capasse began
his career as a fixed income analyst at Dean Witter and Bank of Boston. Mr. Capasse received a Bachelor of Arts degree in Economics
from Bowdoin College in 1979.
Mr. Capasse is well qualified
to serve as a director due to his institutional knowledge with respect to our Company and his significant experience in the securitization
market and as a co-founder of our Manager.
Jack J. Ross
Mr. Ross, age 65, serves as
our President and as a member of our board of directors. Mr. Ross is a co-founder of our Manager. Mr. Ross also serves as vice chairman
of the board of directors of Feinstein Institutes for Medical Research, a not-for-profit organization. Prior to founding our Manager in
January 2005, Mr. Ross was the founder of Licent Capital, a specialty broker/ dealer for intellectual property securitization. From 1987
until 1999, Mr. Ross was employed by Merrill Lynch where he managed the real estate finance and ABS groups. Mr. Ross began his career
at Drexel Burnham Lambert where he worked on several of the early ABS transactions and at Laventhol & Horwath where he served as a
senior auditor. Mr. Ross received a Master of Business Administration degree in Finance with distinction from the University of Pennsylvania’s
Wharton School of Business in 1984 and a Bachelor of Science degree in Accounting, cum laude, from the State University of New York at
Buffalo in 1978.
Mr. Ross is well qualified
to serve as a director due to his significant experience in the securitization market and as a co-founder of our Manager.
Frank P. Filipps
Mr. Filipps, age 75, is one
of our independent directors and has served as a member of our board of directors since October 2016. From November 2013 to October 2016
Mr. Filipps served as a member of the board of directors of Sutherland Asset Management Corporation which merged with our Company in October
2016 whereupon Mr. Filipps became a member of our board of directors. He has served since 1995 as a director and chairman of the audit
committee of Impac Mortgage Holdings, Inc. (NYSE: IMH) and has served since February 2013 as a director of Orchid Island Capital Corp
(NYSE: ORC). From March 2002 to December 2014, Mr. Filipps was a director of Primus Guaranty Limited (NYSE: PRS) and from 2010 to December
2014 he was a director, member of the audit committee and chairman of the compensation committee of Fortegra Financial (NYSE: FRF). From
April 2005 to July 2008, Mr. Filipps was Chairman and Chief Executive Officer of Clayton Holdings, Inc. From 1995 to 2005, Mr. Filipps
was Chairman, Chief Executive Officer and a Director of Radian Group Inc. Mr. Filipps began his career at Radian in 1992 as Senior Vice
President and Chief Financial Officer. In 1994, he was promoted to Executive Vice President and Chief Operating Officer and in 1995 he
was named President, Chief Executive Officer and Director. From 1975 to 1992, Mr. Filipps was at American International Group where he
served in a number of executive, financial and investment management positions. Mr. Filipps holds a Master of Business Administration
degree in corporate finance and international business from the Stern School of Business at New York University and a Bachelor of Arts
degree in Economics from Rutgers University in 1969.
We believe that Mr. Filipps
is well qualified to serve as a director due to his experience in public and private company governance and his financial experience and
knowledge.
Meredith Marshall
Mr. Marshall, age
57, is one of our independent directors and has served on the Board since December 1, 2022. Mr. Marshall is the co-founder and
Managing Partner of BRP Companies (“BRP”), a vertically integrated owner, operator, developer and manager of
transit-oriented, mixed-use, multifamily properties in the New York Tri-State area. Mr. Marshall is responsible for executing
BRP’s investment strategy, including deal origination, acquisition, finance and development. Prior to co-founding BRP,
Mr. Marshall was a managing director at Musa Capital Advisors (“Musa Capital”), an emerging markets private equity
and financial advisory firm based in New York City that managed a separate account for Kingdom Holding Africa, HRH’s Prince
Alwaleed Bin Talal’s investment vehicle for Sub-Saharan Africa. At Musa Capital, Mr. Marshall was instrumental in
executing cross-border transactions, including the $37 million development of a mixed-use office complex and mall in Harare,
Zimbabwe. Mr. Marshall also led successful investments in the telecommunications and financial services sectors. Prior to Musa
Capital, Mr. Marshall was a senior associate at Wasserstein Perella & Co. (“Wasserstein”), an investment
banking firm based in New York City. While at Wasserstein, Mr. Marshall was an integral member of the firm’s
telecommunications and media, mergers and acquisitions practice, where he assisted in transactions exceeding $15 billion.
Mr. Marshall is a founding member of the Council of Urban Professionals and a member of the Executive Board of the New York
State Affordable Housing Association. Mr. Marshall also proudly serves on the Real Estate Board of New York Board of Governors,
Enterprise NYC Advisory Board and Citizens Housing and Planning Council Board. Mr. Marshall holds a Bachelor of Science degree
in Electrical Engineering from Boston University and a Master of Business Administration in Finance and International Business from
Columbia Business School.
We believe that Mr. Marshall
is well qualified to serve as a director due to his extensive experience in real estate finance and affordable housing.
Dominique Mielle
Ms. Mielle, age 54, is one
of our independent directors and has served on our board of directors since March 2021, following the completion of our merger transaction
with Anworth Mortgage Asset Corporation. (“Anworth”) and served on the board of directors of Anworth prior to the merger transaction.
She was a partner at Canyon Capital Advisors, LLC (“Canyon”) from August 1998 to December 2017, where she focused on the transportation,
technology, retail and consumer products sectors, specialized in corporate and municipal bond securitizations, and was responsible for
all aspects of Canyon’s collateralized loan obligations business. Prior to joining Canyon, in 1996, Ms. Mielle worked at Libra Investments,
Inc. as an associate in the corporate finance department, covering middle market companies. Prior to Libra Investments, from 1993 to 1995,
Ms. Mielle worked at Lehman Brothers as an analyst in the Financial Institutions group, focusing on mergers and acquisitions. Ms. Mielle
holds a Master of Business Administration degree in Finance from Stanford University and a Master in Management degree from Ecole des
Hautes Etudes Commerciales in France (HEC Paris). She was named one of the “Top 50 Women in Hedge Funds” by Ernst & Young
in 2017.
We believe that Ms. Mielle
is well qualified to serve as a director due to her extensive experience investing in fixed income and leading capital structure optimizations
and restructurings.
Gilbert E. Nathan
Mr. Nathan, age 43, is one
of our independent directors and has served on our board of directors since March 2019, following the completion of our merger transaction
with Owens Realty Mortgage, Inc. (“ORM”) and served on the board of directors of ORM prior to the merger transaction. He has
served as the managing member and a director of Jackson Square Advisors LLC, a financial advisory and services firm since September 2015.
Since August 2018 and until
the completion of the sale to the Company, Mr. Nathan has served as a director of Owens Realty Mortgage, Inc., a middle market commercial
real estate lender. He also serves as a director for Alto Ingredients, Inc (Nasdaq: ALTO) and as an observer of the Board for Magnachip
Semiconductor Corporation (NYSE: MX). Mr. Nathan is currently the Plan Administrator for Mission Coal Wind Down Co LLC and the CEO of
Cloud Peak Energy. From June 2018 to December 2021, Mr. Nathan has served as a board member of Hercules Offshore Liquidating Trust for
Hercules Offshore, Inc. He also served as the liquidating trustee of BPZ Liquidating Trust for BPZ Resources, Inc. from November 2015
to May 2017. From November 2015 to July 2017, he served as a director of Emergent Capital, Inc. (NYSE: EMG), a specialty finance company.
From July 2013 to August 2015, Mr. Nathan was a senior analyst with Candlewood Investment Group, an investment firm, and prior to that,
he was a principal with Restoration Capital Management from 2002 to 2012. Mr. Nathan earned a Bachelor degree in Management from Tulane
University in 2001.
We believe that Mr. Nathan
is well qualified to serve as a director due to his industry technical expertise and knowledge of financial markets.
Andrea Petro
Ms. Petro, age 70, has
served as a member of our board of directors since July 2020. From March 2020 through February 2023, Ms. Petro was engaged by our
Manager as a consultant providing advice in the commercial finance and consumer finance sectors, as well as support for Ready
Capital marketing initiatives and SBA business development. She served as Managing Director and Group Head of the Specialty
Commercial Finance Group of our Manager from June 2018 until February 2020. Ms. Petro previously worked at Wells Fargo Capital
Finance from 2000 to 2017 as the Executive Vice President and Group Head of the Lender Finance Division and the Supply Chain Finance
Division. From 1992 to 2000, Ms. Petro was at Transamerica Business Credit where she served as the Senior Vice President and
National Marketing Manager. Ms. Petro currently serves as a member of the MS Finance Advisory Board of the McCombs School of
Business at The University of Texas and as a member of the board of directors of the Secured Finance Network (formerly known as the
Commercial Finance Association (“CFA”)). She also served as President of the CFA from 2016 to 2017. Ms. Petro holds a
Master of Business Administration degree in finance from the McCombs School of Business at the University of Texas and a Bachelor of
Arts degree with a concentration in Russian and Soviet Studies from Kent State University.
We believe that Ms. Petro
is well qualified to serve as a director due to her extensive experience in commercial finance sectors.
J. Mitchell Reese
Mr. Reese, age 63, is one
of our independent directors and has served as a member of our board of directors since October 2016. From November 2013 to October 2016
Mr. Reese served as a member of the board of directors of Sutherland Asset Management Corporation which merged with our Company in October
2016 whereupon Mr. Reese became a member of our board of directors. He has been the Managing Member of Cintra Capital LLC since June 2001.
Prior to founding Cintra, he was a managing director of The Carlyle Group, a private equity firm that manages over $220 billion, where
he headed the firm’s U.S. venture capital fund and currently serves as a Director of The Maids International, a privately held franchisor
of cleaning services. Previously, Mr. Reese was a managing director of Morgan Keegan & Company, where he served on the board of directors
and was head of the Mergers and Acquisitions Group, co-head of Investment Banking, and president of the firm’s Merchant Banking
subsidiary. He served as a Director of Oxford Finance Corporation, a privately-held specialty finance company, from 2002 to 2004 and as
a Director of Local Vine, LLC, a privately-held retailer, from March 2019 to August 2019. He graduated cum laude with a Bachelor of Arts
from Harvard College in 1982 and received an M.B.A. from Harvard Business School in 1986.
We believe that Mr. Reese
is well qualified to serve as a director due to his extensive experience in the financial services industry, business leadership and knowledge
of financial markets.
Todd M. Sinai
Dr. Sinai, age 53, is one
of our independent directors and has served as a member of our board of directors since October 2016. From November 2013 to October 2016
Mr. Sinai served as a member of the board of directors of Sutherland Asset Management Corporation which merged with our Company in October
2016 whereupon Mr. Sinai became a member of our board of directors. He is the David B. Ford Professor, Professor of Real Estate and Business
Economics and Public Policy at The University of Pennsylvania — The Wharton School, where he has been a member of the faculty since
1997 and the Chairperson of the Real Estate Department since 2019. Dr. Sinai has particular expertise in commercial real estate and real
estate investment trusts, real estate and public economics, risk and pricing in real estate markets, taxation of real estate and capital
gains. Dr. Sinai received a Ph.D. in Economics from the Massachusetts Institute of Technology in 1997 and a Bachelor of Arts degree in
Economics and Mathematics from Yale University in 1992.
We believe that Dr. Sinai
is well qualified to serve as a director due to his industry technical expertise and knowledge of financial markets.
Executive Officers
We are externally managed
and advised by our Manager,. We rely on our Manager to provide or obtain, on our behalf, the personnel and services necessary for us to
conduct our business. Pursuant to the terms of our Management Agreement, our Manager and its affiliates provide us with our management
team, including our Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Chief Investment Officer and Chief Credit
Officer, along with appropriate support personnel. All of the officers of the company are employees of Waterfall or its affiliates.
The following sets forth certain
information with respect to our executive officers:
Name |
Age |
Position Held |
Thomas E. Capasse |
65 |
Chairman of the Company Board of Directors, Chief Executive Officer and Chief Investment Officer |
Jack J. Ross |
65 |
President and Director |
Andrew Ahlborn |
39 |
Chief Financial Officer |
Gary T. Taylor |
63 |
Chief Operating Officer |
Adam Zausmer |
45 |
Chief Credit Officer |
For the biography of Mr. Capasse
and Mr. Ross, please see “Board of Directors” above.
Andrew Ahlborn
Mr. Ahlborn has served as
our Chief Financial Officer since March 2019. Mr. Ahlborn joined our Manager in 2010 and served as Controller of Ready Capital from 2015
to 2019. Having focused on Ready Capital since its formation in 2011, Mr. Ahlborn has served a vital role in many significant corporate
transactions since our inception. Prior to joining our Manager he worked in Ernst & Young, LLP's Financial Services Office. Mr. Ahlborn
received a Bachelor of Science degree in Accounting from Fordham University's Gabelli School of Business and a Master of Business Administration
degree from Columbia Business School. He is a licensed Certified Public Accountant in New York.
Gary T. Taylor
Mr. Taylor has served as our
Chief Operating Officer since April 2019. Prior to joining our Manager, Mr. Taylor served as President and Chief Operating Officer of
Newtek Business Credit from May 2015 to March 2019. From 2013 to 2015, Mr. Taylor was Managing Director at Brevet Capital Management,
and before that he was Chief Operating Officer of CIT Small Business Lending from 2007 to 2013. Earlier in his career, Mr. Taylor held
numerous roles within the financial services industry including Lehman Brothers, Moody's Investor Service, AT&T Capital Corporation,
Resolution Trust Corporation, First Chicago Bank & Trust, and Chase Manhattan Bank. Mr. Taylor received a Bachelor of Science degree,
with Honors, in Business from Florida A&M University.
Adam Zausmer
Mr. Zausmer has served as
our Chief Credit Officer since July 2021. Prior to joining our Manager in 2013, Mr. Zausmer was a Senior Underwriter with JPMorgan Chase’s
Commercial Term Lending business. Prior to JPMorgan Chase, he was a Vice President on the Credit Risk Management team at Credit Suisse.
Mr. Zausmer began his career as a Management Associate within Citigroup’s Global Shared Services division and transitioned to the
Residential Real Estate business as a Senior Credit Risk Analyst. Mr. Zausmer received a Bachelor of Science degree in Business Administration
from the University of Buffalo in 1999 and a Master of Science degree in Real Estate from New York University in 2007.
Composition, Meetings and Committees of the Board of Directors
Board of Directors
Our board of directors is
responsible for overseeing our affairs. Our board of directors may conduct its business through meetings and actions taken by written
consent in lieu of meetings. During the year ended December 31, 2022, our board of directors held 16 meetings. All of our current directors
attended at least 75% of the meetings of our board of directors and of the committees of our board of directors on which they served during
2022 (during the periods that they served). All of the directors then serving on our board of directors attended our 2022 annual meeting
of stockholders. Our board of directors has adopted Corporate Governance Guidelines that address significant issues of corporate governance
and set forth procedures by which our board of directors carries out its responsibilities (the “Guidelines”) and the Guidelines
encourage and promote the attendance by each director at all scheduled meetings of our board of directors and all meetings of our stockholders.
Committees of our Board of Directors
Our board of directors has
three standing committees: the Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance Committee. Each
of these committees has a written charter approved by our board of directors. A copy of each charter can be found on our website at www.readycapital.com.
The following sets forth certain
information with respect to our committees:
Director |
Audit Committee |
Compensation
Committee |
Nominating and
Corporate Governance
Committee |
Frank P. Filipps |
ü* |
ü |
|
Dominique Mielle |
|
ü |
ü |
Gilbert E. Nathan |
ü |
|
ü |
J. Mitchell Reese |
ü |
|
ü* |
Todd M. Sinai |
|
ü* |
ü |
*Denotes chair. |
|
|
|
The independent directors
who currently serve on each committee, and a description of the principal responsibilities of each committee, follows:
Audit Committee.
Messrs. Filipps (Chair), Nathan and Reese are the current members of the Audit Committee. Our board of directors has determined that all
of the members of the Audit Committee are independent as required by the NYSE listing standards for Audit Committee members, the Guidelines,
and the independence standards adopted by our board of directors, as permitted by the Guidelines (the “Independence Standards”),
and meet the requirements of the SEC rules governing the qualifications of Audit Committee members and the written charter of the Audit
Committee. Our board of directors has also determined, based on its qualitative assessment of their relevant levels of knowledge and business
experience, (see “Board of Directors” above for a description of Messrs. Filipps’, Nathan’s and Reese’s
respective backgrounds and experience), that Messrs. Filipps, Nathan and Reese each are “financially literate” as required
by the NYSE listing standards. In addition, our board of directors has determined that Messrs. Filipps, Nathan and Reese each qualify
as an “Audit Committee financial expert” for purposes of, and as defined by, the SEC rules and has the requisite accounting
or related financial management expertise required by NYSE listing standards. The Audit Committee, among other things, acts on behalf
of our board of directors to discharge our board of directors’ responsibilities relating to our corporate accounting and reporting
practices, the quality and integrity of our consolidated financial statements, our compliance with applicable legal and regulatory requirements,
the performance, qualifications and independence of our external auditors, the staffing, performance, budget, responsibilities and qualifications
of our internal audit function and reviewing its policies with respect to risk assessment and risk management. The Audit Committee is
also responsible for reviewing with management and external auditors our interim and audited financial statements, as well as approving
the filing of our interim and annual financial statements, meeting with officers responsible for certifying our annual report on Form
10-K or any quarterly report on Form 10-Q prior to any such certification and reviewing with such officers disclosures related to any
significant deficiencies in the design or operation of internal controls. The Audit Committee is charged with periodically discussing
with our external auditors such auditors’ judgments about the quality, not just the acceptability, of our accounting principles
as applied in our consolidated financial statements. The specific responsibilities of the Audit Committee are set forth in its written
charter.
Compensation Committee.
Messrs. Sinai (Chair) and Filipps and Ms. Mielle are the current members of the Compensation Committee. Our board of directors has determined
that all of the members of the Compensation Committee are independent as required by NYSE listing standards for Compensation Committee
members, the Guidelines, the Independence Standards and the written charter of the Compensation Committee. The Compensation Committee
is responsible for, among other things, evaluating the performance of our Manager, reviewing the compensation and fees payable to our
Manager under the Amended and Restated Management Agreement between us, Sutherland Partners, L.P. (the “Operating Partnership”)
and our Manager dated as of May 9, 2016, as amended by the First Amendment to the Amended and Restated Management Agreement dated as of
December 6, 2020 (the “Management Agreement”), preparing Compensation Committee reports, overseeing the activities of the
individuals and committees responsible for administering our 2013 equity incentive plan (the “Plan”) and determining the level
of equity based compensation, in consultation with our executive officers, payable to the personnel of our Manager pursuant to such plan.
Because the Management Agreement provides that our Manager is responsible for managing our affairs, our officers, who are employees of
our Manager, do not receive cash compensation from us for serving as our officers, except that we pay the allocable share of the compensation
of our Chief Financial Officer, Chief Operating Officer and Chief Credit Officer based on the percentage of their time spent managing
our affairs. To the extent that we become responsible for paying the compensation or any other employee benefits of our Chief Executive
Officer, the Compensation Committee will review and approve corporate goals and objectives relevant to the compensation of our Chief Executive
Officer, evaluate the performance of our Chief Executive Officer in light of those goals and objectives, and determine our Chief Executive
Officer’s compensation level based on this evaluation. The Compensation Committee consults with our Manager when recommending to
our board of directors the level of awards under the Plan to be payable to the personnel of our Manager and our Manager’s affiliates.
Under the Management
Agreement, we will reimburse our Manager for operating expenses related to us incurred by our Manager, including legal, accounting
due diligence and other services. In addition, we may be required to pay our pro rata portion of rent, telephone, utilities,
office furniture, machinery, and other office, internal and overhead expenses of our Manager and its affiliates required for our
operations. The Compensation Committee is responsible for reviewing the information provided by our Manager to support the
determination of our share of such costs. The Compensation Committee may, in its discretion, delegate all or a portion of its duties
and responsibilities to a subcommittee. The specific responsibilities of the Compensation Committee are set forth in its written
charter.
During 2022, the Company engaged
Ferguson Partners Consulting, L.P. (“FPL”) to serve as its compensation consultant in reviewing and evaluating our officer
and director compensation levels and program, with the goal of creating a fair, reasonable, and balanced compensation program that closely
aligns the interest of our board of directors and executive officers with those of our stockholders and reflect current practices in the
marketplace. The Company evaluated whether any services proposed to be performed during 2022 by FPL raised any conflict of interest and
determined that it did not. FPL's services to the Company are discussed further below. See “Executive Compensation— Compensation
Discussion and Analysis.” Other than as described herein, FPL did not provide other services to us or any of our affiliates during
2022.
Nominating and Corporate
Governance Committee. Messrs. Reese (Chair), Sinai and Nathan and Ms. Mielle are current members of the Nominating and Corporate
Governance Committee. Our board of directors has determined that all of the members of the Nominating and Corporate Governance Committee
are independent as required by NYSE listing standards, the Guidelines, the Independence Standards and the written charter of the Nominating
and Corporate Governance Committee. The Nominating and Corporate Governance Committee is responsible for, among other things, reviewing
periodically and making recommendations to our board of directors on the range of qualifications that should be represented on our board
of directors and eligibility criteria for individual board membership, as well as seeking, considering and recommending to our board of
directors qualified candidates for election as directors and approving and recommending to the full board of directors the appointment
of each of our directors. The Nominating and Corporate Governance Committee reviews and makes recommendations on matters involving the
general operation of our board of directors and our corporate governance and annually recommends to our board of directors nominees for
each committee of our board of directors. In addition, the committee annually facilitates the assessment of our board of directors’
performance as a whole and that of the individual directors and reports thereon to our board of directors. The specific responsibilities
of the Nominating and Corporate Governance Committee are set forth in its written charter.
CORPORATE GOVERNANCE
Role of our Board and Risk Oversight
Pursuant to our charter and
Bylaws, our business and affairs are managed under the direction of our board of directors. Our board of directors has the responsibility
for establishing broad corporate policies and for our overall performance and direction but is not involved in our day-to-day operations.
Members of our board of directors keep informed of our business by participating in meetings of our board of directors and its committees,
by reviewing analyses, reports and other materials provided to them and through discussions with our Manager and our executive officers.
In connection with their oversight
of risk to our business, our board of directors and the Audit Committee consider feedback from our Manager concerning the risks related
to our business, operations and strategies. The Audit Committee discusses and reviews policies with respect to our risk assessment and
risk management, including guidelines and policies to govern the process by which risk assessment and risk management is undertaken, the
adequacy of our insurance coverage, our interest rate risk management, our counterparty and credit risks, our capital availability and
refinancing risks. Our Manager regularly reports to our board of directors on our leverage policies, our asset origination and acquisition
processes, any asset impairments and our qualification as a REIT and whether we remain excluded from registration as an investment company
under the Investment Company Act of 1940, as amended. Members of our board of directors routinely meet with our Manager and our executive
officers, as appropriate, in connection with their consideration of matters submitted for the approval of our board of directors and the
risks associated with such matters.
Our board of directors believes
that its composition protects stockholder interests and provides sufficient independent oversight of our Manager. A majority of our current
directors are “independent” under NYSE standards, as more fully described elsewhere in this Amendment. The independent directors
meet separately from the personnel of our Manager on at least a quarterly basis and are very active in the oversight of our Company. The
independent directors oversee such critical matters as the integrity of our financial statements, the evaluation and compensation of our
Manager and the selection and evaluation of directors.
Each independent director
has the ability to add items to the agenda of board of directors meetings or raise subjects for discussion that are not on the agenda
for that meeting. In addition, our board of directors and each board of directors committee have complete and open access to our Manager
and its officers, employees and other personnel who support our Manager in providing services to us under the Management Agreement.
Our board of directors believes
that its majority independent composition, and the roles that our independent directors perform, provide effective corporate governance
at the board of directors level and independent oversight of both our board of directors and our Manager. Our board believes that current
governance structure, when combined with the functioning of the independent director component of our board of directors and our overall
corporate governance structure, strikes an appropriate balance between strong and consistent leadership and independent oversight of our
business and affairs.
Code of Ethics
Our board of directors has
adopted a Code of Ethics (the “Code of Ethics”). Our Code of Ethics applies to our officers, directors, employees, and independent
contractors and to our Manager’s officers, directors and employees. Among other matters, our Code of Ethics is designed to deter
wrongdoing and promote:
| · | honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest
between personal and professional relationships. |
| · | full, fair, accurate, timely and understandable disclosure in our public communications; |
| · | compliance with applicable governmental laws, rules and regulations; |
| · | prompt internal reporting of violations of the Code of Ethics to appropriate persons identified in the
code; and |
| · | accountability for adherence to the Code of Ethics. |
Any waiver of the Code of
Ethics for our executive officers or directors may be made only by our board of directors or one of its committees and will be promptly
disclosed on our website at www.readycapital.com if and to the extent required by law or stock exchange regulations.
The Code of Ethics is available
for viewing on our website at www.readycapital.com.
Corporate Governance Guidelines
Our board of directors has
adopted the Guidelines. Among the areas addressed by the Guidelines are the composition of our board of directors, its functions and responsibilities,
its standing committees, director qualification standards, access to management and independent advisors, director compensation, management
succession, director orientation and continuing education and the annual performance evaluation and review of our board of directors and
committees. The Guidelines are available for viewing on our website at www.readycapital.com.
Personal Loans to Executive Officers and Directors
We comply with, and operate
in a manner consistent with, applicable law prohibiting extensions of credit in the form of personal loans to or for the benefit of our
directors and executive officers.
Director Attendance at Annual Meetings of Stockholders
We have scheduled a board
meeting in conjunction with our annual meeting of stockholders and, as set forth in the Guidelines, our policy is to encourage and promote
the attendance by each director at all scheduled meetings of our board of directors and all meetings of our stockholders.
Communications with our Board of Directors
Stockholders or other
interested parties may communicate in writing with our directors, a committee of our board of directors, our independent directors
as a group or our board of directors generally. Any such communications may be sent to our board of directors by U.S. mail or
overnight delivery and should be directed to our Secretary at Ready Capital Corporation, 1251 Avenue of the Americas, 50th Floor,
New York, New York 10020, who will forward them to the intended recipient(s). Any such communications may be made anonymously.
Unsolicited advertisements, invitations to conferences or promotional materials, at the discretion of our Secretary, are not
required, however, to be forwarded to the directors.
Executive Sessions of Independent Directors
The independent directors
serving on our board of directors intend to meet in executive sessions at the conclusion of each regularly scheduled meeting of our board
of directors. These executive sessions of our board of directors will be presided over by the Chairman of the Audit Committee.
Corporate Governance Review
In overseeing our corporate
policies and our overall performance and direction, our board of directors operates in what it believes are the long-term best interests
of our Company and our stockholders. In operating under these principles, our board of directors regularly reviews our corporate governance
structure and considers whether any changes are necessary or desirable. As part of this review, our board of directors has nominated two
female directors and one male director who self-identifies as an underrepresented minority to stand for election at our next annual meeting
of stockholders and adopted a number of corporate governance guidelines to better align the interests of our directors and certain executive
officers with those of our stockholders, including minimum equity ownership guidelines for our directors and certain executive officers.
Delinquent Section 16(a) Reports
The members of the Board,
the executive officers of the Company and persons who hold more than 10% of our common stock, par value $0.0001 per share (“Common
Stock”) are subject to the reporting requirements of Section 16(a) of the Exchange Act, which require them to file reports with
respect to their ownership of the Company’s securities on Form 3 and transactions in the Company’s securities on Forms 4 or
5. Based solely on its review of the copies of such forms received by it and written representations from the Company’s executive
officers and directors, the Company believes that, for the fiscal year ended December 31, 2022, the Section 16(a) filing requirements
were complied with by all such reporting persons during and with respect to such year, with the exception of the following: Mr. Julius
W. Erving II did not timely file his initial report on Form 3 and a Form 4 with respect to one transaction. Mr. Erving subsequently filed
the necessary Form 3 and Form 4.
Corporate Responsibility
Ready Capital takes action
to consider how our activity impacts those in our community—both locally and globally. Ready Capital recognizes the need for our
corporate responsibility with respect to environmental, social and governance (“ESG”) considerations in order to help build
a sustainable future. Even as commercial enterprises strive to excel, businesses have embraced the challenge of contributing to a better
world, adopting a vision that is encapsulated in the mindset of ESG. As a fiduciary to our shareholders, Ready Capital is committed to
taking the necessary steps to create positive impacts, while generating consistent returns and protecting shareholders’ economic
and reputational interests. With these goals in mind, Ready Capital adopted an Environmental, Social, and Governance Policy (the “ESG
Policy”). The ESG Policy addresses the specific businesses, opportunities and operations entered into and undertaken by the operating
companies of Ready Capital and is intended to supplement the ESG policy of our external manager, Waterfall.
Environmental
Ready Capital recognizes the direct impact our
daily operations and employees have on the world around us, and we are committed to doing our part by limiting our environmental footprint.
We have implemented environmental controls in our business operations by adhering to general corporate sustainability practices such as
energy reduction through energy efficient products, waste management through recycling and water usage through filtered water dispensers.
We make certain to comply with all applicable local laws and look for opportunities where we can improve even further.
Social
Human capital is crucial
to any organization. We have approximately 600 employees across offices located in Texas, Florida, Louisiana, New Jersey, New York
and various branch locations primarily located throughout the southeastern United States. We strive to both attract and retain
exceptionally skilled employees through a culture designed to foster and encourage performance, integrity and inclusion. Ready
Capital understands the need to foster a workplace which allows employees to feel safe, protected, encouraged, and empowered. We
believe we have implemented the proper framework to achieve these objectives. Our corporate policies drive a commitment to diversity
and inclusion. We believe having such a commitment is the right thing to do and enhances our ability to help our clients achieve
their financial goals. We welcome qualified candidates and provide all employees the opportunity to learn, develop and grow without
discriminating based on race, ethnicity, color, gender, national origin, age, religion, socioeconomic background, sexual
orientation, or physical ability. Our commitment to diversity and inclusion is rooted in three guiding principles: (1) Our
organization is enhanced when diverse viewpoints are present, analyzed, understood, and respected; (2) Leadership potential is
enhanced when one is able to constructively interact with others from all walks of life; and (3) Our experiences are enhanced by
having positive contact with an ever-changing, but increasingly interconnected, world. We believe our employees succeed and develop
when they are exposed to multiple perspectives. We strongly endorse our culture that respects the uniqueness of its members.
Governance
The business and affairs of Ready Capital are
conducted by its officers and employees, and employees of the Manager, under the direction of the Chief Executive Officer and the oversight
of the Board. As a whole, and through its committees, the Board oversees management and acts in a manner that helps assure that the long-term
interests of the stockholders are served with the utmost commitment to integrity. The composition of our Board reflects Ready Capital’s
commitment to diversity in gender, race, ethnicity, and age, as well as among our directors’ fields of expertise, industry experience,
and geographic location. Management, at the direction of the Board, strives to provide all employees with necessary training tools to
allow for a continued commitment to the highest standards of ethical, moral, and legal business conduct. Consistent with this undertaking,
and the Company’s encouragement of open communication, the ESG Policy (1) provides an avenue for employees, as well as Company contractors,
subcontractors, and agents, to report serious improper conduct; and (2) provides that they will be protected from retaliation for reporting
serious improper conduct in good faith. All officers, directors and employees of the Company and its subsidiaries have a responsibility
to guard against and report any questionable or unethical related actions that can subject the Company or its personnel to civil or criminal
liability.
Our ESG commitment includes:
| · | Over $21 billion of investments into affordable housing through SBC and residential lending segments.
This includes a $70 million acquisition of the Redstone Companies in July 2021 to expand our capabilities in affordable multifamily
housing. |
| · | Facilitated $6.2 billion of Low-Income Housing Tax Credit financing for 73,000 apartment units in affordable
and mixed income rental properties. |
| · | Maintaining an environmental policy that applies to all real estate collateral underlying our loans. Our
Manager conducts thorough due diligence that is reviewed by specialized environmental counsel. The due diligence our Manager performs
on each of our investments includes as applicable, environmental reports to identify and evaluate potential environmental hazards, including
ground water pollution, polychlorinated biphenyls, lead paint, asbestos, and radon gas. We may also include specific requirements in our
loan documents, including the potential use of environmental insurance, to ensure the completion of any required remediation. Compliance
is monitored by the Company’s asset management team. We utilize a Phase I environmental site assessment to identify environmental
conditions that may have a material impact on the property being assessed. |
| · | We provided capital to a manufacturer of solar panels through investment in Commercial Property Assessed
Clean Energy (C-PACE) financing. |
| · | Provided over $5.0 billion of PPP loans, the majority of which were under $25,000, to small businesses
disproportionately comprised of minority/women-owned small businesses. |
| · | Originated more than 1,000 agency small balance multifamily loans totaling $2.8 billion since 2015. |
1
Note: Ready confirming.
| · | Supported military veterans and families as a sponsor of Military Makeover television show airing on Lifetime
and Armed Forces Network. In addition, Ready Capital offers preferred pricing to veteran business owners. |
| · | We are committed to giving back to our communities. We host an annual Volunteer Day in which employees
participate in one common volunteer activity nationwide. Employees also participate in quarterly volunteer committee meetings, during
which employees discuss and put into action their ideas on how we can participate in local events to support the community, such as toy
drives, food drives, providing school supplies and more. |
| · | Efforts to foster a diversified workplace with approximately 44% of all employees identifying as female
(15% of senior leadership) and approximately 32% of employees who identify as racially diverse. We believe having such a commitment is
the right thing to do and enhances our ability to help our clients achieve their financial goals. We welcome qualified candidates and
provide all employees the opportunity to learn, develop and grow without discriminating based on race, ethnicity, color, gender, national
origin, age, religion, socioeconomic background, sexual orientation, or physical ability. |
| · | We offer a comprehensive benefits program including, among other things: |
| · | A 401(k) plan with a company match incentive; |
| · | Medical, prescription, dental and vision insurance coverage for individuals and their families; |
| · | Subsidized life and disability insurance; |
| · | Paid parental and primary caregiver leave; and |
| · | Unlimited paid time off for holidays, personal days and vacation with manager approval. |
Governance
For a detailed description
of our governance policies and procedures, please see the discussion elsewhere in this “Corporate Governance” section.
Stockholder Outreach and Engagement
We believe that fostering
long-term relationships with our stockholders and maintaining their trust is a key Company objective, and we recognize the value of listening
to and understanding their views about our business. We conduct stockholder outreach throughout the year, dialoguing and meeting with
key institutional stockholders, in an effort to proactively address issues that are important to them. Our management provides regular
updates to our board of directors regarding these discussions and stockholder feedback. Our board of directors takes our stockholders’
and other stakeholders’ perspectives into consideration when overseeing our Company’s strategy, formulating governance and
ESG practices and evaluating executive compensation practices. For example, in response to feedback received from our stockholder engagement
activities, in the past two years we have further strengthened our corporate governance by appointing two female directors and one minority
director, each of whom is nominated to stand for election at our next annual meeting of stockholders, and adopting certain best practices,
such as minimum equity ownership guidelines for independent directors as well as certain employees of our Manager who serve as our executive
officers, a policy prohibiting hedging transactions by our named executive officers, directors, employees and other persons, and we have
developed a compensation framework that will introduce objective Company and individual performance metrics for the annual cash incentive
bonus compensation of those executives whose compensation we reimburse under the Management Agreement, including our Chief Financial Officer,
Chief Credit Officer and Chief Operating Officer. See “Executive Compensation—Compensation Discussion and Analysis—Executive
Compensation Strategy for 2022.” At our 2020 annual meeting, we also provided our stockholders with the opportunity to indicate
whether we should hold an advisory vote on our named executive officers’ compensation every one, two or three years. Based on the
preference expressed by our stockholders, as well as other factors, our board of directors decided to conduct an advisory vote on executive
compensation annually.
Item 11. | Executive Compensation |
Board Compensation
We pay compensation for service
as a director only to those directors who are independent under the NYSE listing standards. During the year ended December 31, 2022, each
independent director received an annual cash director's fee of $85,000 and an annual equity award of $110,000 in value of restricted Common
Stock, prorated for time served as a director. In addition, the chair of the Audit Committee received an annual cash retainer of $20,000
and Audit Committee members serving in a non-chairman role received an additional cash retainer of $10,000. The chair of the Compensation
Committee received an additional cash retainer of $15,000 and Compensation Committee members serving in a non-chairman role received an
additional cash retainer of $7,500. The Nominating and Corporate Governance Committee received an additional cash retainer of $10,000
and Nominating and Corporate Governance Committee members serving in a non-chairman role received an additional cash retainer of $5,000.
We reimbursed all members of our board of directors for their travel expenses incurred in connection with their attendance at full meetings
of our board of directors and its committees.
Our independent directors
are also generally eligible to receive restricted stock units (“RSUs”), restricted Common Stock, options and other equity-based
equity awards under the Plan.
2022 Director Compensation
The following table summarizes
the annual compensation received by our independent directors for 2022.
Name | |
Fees Earned or Paid in Cash ($)(1) | | |
Stock Awards ($)(2) | | |
Total ($) | |
Julius W. Erving(3) | |
| 46,042 | | |
| 58,057 | | |
| 104,099 | |
Frank P. Filipps | |
| 112,500 | | |
| 110,000 | | |
| 222,500 | |
Meredith Marshall (4) | |
| 7,083 | | |
| 9,166 | | |
| 16,249 | |
Dominique Mielle | |
| 97,500 | | |
| 110,000 | | |
| 207,500 | |
Gilbert Nathan | |
| 100,000 | | |
| 110,000 | | |
| 210,000 | |
J. Mitchell Reese | |
| 105,000 | | |
| 110,000 | | |
| 215,000 | |
Todd M. Sinai | |
| 105,000 | | |
| 110,000 | | |
| 215,000 | |
(1) Annual board fees and annual chair
fees paid to independent directors in 2022.
(2) The aggregate grant date fair value
of awards granted in 2022 based on the stock price on the grant date and calculated under FASB ASC Topic 718. The shares of restricted
Common Stock vest in equal quarterly installments over a one year period. Dividends are to be paid on unvested shares of restricted Common
Stock at the same rate and at the same time as dividends on the Company’s Common Stock.
(3) Mr. Erving resigned from the Board
effective September 27, 2022.
(4) Mr. Marshall was appointed to the
Board effective December 1, 2022.
To align the interests of
our independent directors and stockholders, we have adopted stock ownership guidelines for our independent directors, as well as certain
executive officers, that require these individuals to achieve significant ownership of equity in the Company. See “Corporate Governance–Minimum
Equity Ownership Guidelines.”
Compensation Discussion and Analysis
This compensation discussion
and analysis describes our compensation objectives and policies, including in relation to compensation received for the year ended December
31, 2022, by our named executive officers. For the year ended December 31, 2022, our named executive officers (our “Named Executive
Officers”) were Thomas E. Capasse, our Chief Executive Officer and Chief Investment Officer, Jack J. Ross, our President, Andrew
Ahlborn, our Chief Financial Officer, Gary Taylor, our Chief Operating Officer and Adam Zausmer, our Chief Credit Officer.
Overview
We are managed by our Manager
pursuant to the Management Agreement. Under the Management Agreement, we pay our Manager a management fee and incentive distribution,
and we reimburse our Manager for (i) the allocable share of the compensation of our Chief Financial Officer, Chief Operating Officer,
and Chief Credit Officer and (ii) the allocable share of the compensation of other personnel hired by our Manager who are dedicated primarily
to us, based on the percentage of time spent managing our affairs. For details regarding payments under the Management Agreement, see
“Certain Relationships and Related Transactions—Management Agreement.”
Our Named Executive Officers
are employees of our Manager or one of its affiliates and do not receive cash compensation from us for serving as our executive officers.
We do not pay or reimburse our Manager for any portion of the compensation that is paid by our Manager and its affiliates to our Chief
Executive Officer, our President or our Chief Investment Officer.
We are responsible for reimbursing
our Manager for the compensation paid to our Chief Financial Officer, Chief Credit Officer and Chief Operating Officer, who are exclusively
dedicated to our affairs. Our Compensation Committee has also, from time to time, granted long-term equity-based awards to certain of
our Named Executive Officers pursuant to the Plan. These awards are designed to support our objectives of aligning the interests of our
Named Executive Officers with those of our stockholders, promoting our long-term performance and value creation, and retaining these individuals
who are critical to our growth and long-term success. A discussion of our and our Manager’s compensation strategy and the compensation
we reimbursed to our Manager for our Name Executive Officers in respect of the performance year ended December 31, 2022 is set forth below.
Executive Compensation Strategy for 2022
Approximately 85% of the votes
cast by our stockholders at our 2022 annual meeting of stockholders supported our say-on-pay advisory vote on executive compensation.
The Compensation Committee continuously examines and assesses our executive compensation practices relative to our compensation philosophy
and objectives, as well as competitive market practices. As part of the Compensation Committee’s evaluation of our compensation
strategy, in 2021, the Compensation Committee determined that it would be appropriate to recommend that our Manager take a more formulaic
approach with respect to the compensation of those executive officers whose compensation we reimburse under the Management Agreement,
including our Chief Financial Officer, Chief Credit Officer and Chief Operating Officer. The Company engaged FPL as an independent compensation
consultant to assist in developing objective performance standards for the annual cash incentive bonus plan for 2022 and long-term equity
grants for the performance year 2022, which were granted to these officers in February 2023. FPL met with the Manager on several occasions
to discuss guiding principles, competitive market trends, peer group pay practices and other compensation considerations.
Annual Cash Incentive Program
Consistent with the Compensation
Committee’s focus on incentive compensation that aligns executive compensation with our overall performance the Compensation Committee
recommended and our board of directors and our Manager approved the framework for the annual cash incentive bonus plan for 2022, which
provides for a formulaic approach to aligning executive compensation with objective performance criteria, both for the individual executive
officers and for the Company as a whole.
Under the annual cash incentive
bonus plan for 2022, our Chief Financial Officer, Chief Operating Officer and Chief Credit Officer have the opportunity to earn threshold,
target or maximum incentive cash bonus amounts based on the levels of achievement of the criteria described above. Whether any of the
threshold, target or maximum bonus levels are attained will be determined by the Compensation Committee based on achievement of the criteria
described above, including the discretionary component, and the weighting of each criterion.
Long-term Equity Awards
The Compensation
Committee believes that equity-based incentives are an effective means of motivating and rewarding long-term Company performance and
value creation. In addition, equity-based incentives appropriately align the interests of management with those of our stockholders.
In February 2021, based on a comprehensive review of our equity compensation program, the Compensation Committee modified our equity
compensation program to incorporate performance-based equity awards that are tied to the Company’s achievement of pre-defined
performance metrics. The Compensation Committee determined that long-term equity awards in respect of the applicable performance
year will include performance-based equity awards, in addition to time-based awards, which require the achievement of market-based
performance measures, including return on equity capital and total stockholder return (TSR) relative to an executive compensation
peer group (as set forth below), measured over a cumulative three-year period. In addition, the long-term equity awards incorporate
levels of opportunity which determine the amount of awards that will actually be earned by the executive officer. As a result of
these modifications, our long-term equity compensation program includes the following features:
| · | Allocation of Awards: Year-end equity-based awards are allocated 50% to time-based equity awards
that vest based on continued employment or service over a three-year vesting period and 50% to performance-based equity awards that remain
at risk and are subject to forfeiture subject to the achievement pre-established metrics over a three-year performance period. |
| · | Performance-Based Vesting Criteria: Metrics for performance-based equity awards are tied solely
to Company performance, including annualized Distributable return on equity capital (“Distributable ROE”) and TSR relative
to an executive compensation peer group, each measured over a cumulative three-year period. |
| · | Payout Opportunities: The performance-based equity awards incorporate three levels of opportunity
– threshold, target and maximum – which determine the amount of the performance-based equity awards that will be earned. |
Executive Compensation Peer Group
The executive compensation
peer group (the “peer group”) used to evaluate and determine total compensation for Messrs. Ahlborn, Taylor and Zausmer are
set forth below. Each component company is an internally managed company with an emphasis on mortgage financing and fits within the size
parameters approved by the Compensation Committee (market capitalization and total enterprise value of 0.3x to 3.0x of the Company’s
market capitalization and total enterprise value).
Arbor Realty Trust, Inc. |
MFA Financial, Inc. |
BrightSpire Capital, Inc. |
Mr. Cooper Group, Inc. |
Chimera Investment Corporation |
New York Mortgage Trust, Inc. |
Dynex Capital, Inc. |
Radian Group Inc. |
Hannon Armstrong Sustainable Infrastructure Capital, Inc. |
Redwood Trust, Inc. |
iStar Inc. |
Two Harbors Investment Corp. |
Ladder Capital Corp. |
Walker & Dunlop, Inc. |
Executive Compensation for the 2022 Performance Year
Setting Executive Compensation
Our Named Executive Officers
are employees of our Manager and are compensated by our Manager and its affiliates under compensation arrangements made with and determined
by our Manager and its affiliates. Our Manager consults with the Compensation Committee and our board of directors regarding the philosophy,
process and structure of compensation of these Named Executive Officers, and the Compensation Committee reviews the allocable share of
the compensation of our Manager’s personnel, including our Chief Financial Officer, Chief Credit Officer and Chief Operating Officer,
that we reimburse to our Manager under the Management Agreement. Consistent with our compensation strategy, our Manager’s compensation
philosophy is to seek to align the interests of its professionals with those of its investors and investors in the vehicles that it manages,
including us.
Cash Compensation
Consistent with the
Compensation Committee’s focus on incentive compensation that aligns executive compensation with our overall performance, the
Compensation Committee recommended and our board of directors and our Manager approved the framework for the annual cash incentive
bonus plan for 2022, which provides for a formulaic approach to aligning executive compensation with objective performance criteria,
both for the individual executive officers and for the Company as a whole. The annual cash incentive bonus plan for 2022 includes
the following performance criteria for evaluation of the Company’s performance and the performance of Messrs. Ahlborn, Taylor
and Zausmer, whose salaries we reimburse to our Manager under the Management Agreement:
2022 Annual Cash Bonus Metrics
and Weightings
| |
Distributable ROE (1) | | |
Relative
TSR(2) | | |
Platform
Growth(3) | | |
Portfolio Performance (Losses)(4) | | |
Enterprise
Growth(5) | | |
Segment Core Net Income Contribution(6) | | |
Individual (7) | |
Andrew Ahlborn | |
| 40 | % | |
| 10 | % | |
| — | | |
| — | | |
| 20 | % | |
| — | | |
| 30 | % |
Gary Taylor | |
| 40 | % | |
| 10 | % | |
| 5 | % | |
| — | | |
| — | | |
| 15 | % | |
| 30 | % |
Adam Zausmer | |
| 40 | % | |
| 10 | % | |
| 10 | % | |
| 10 | % | |
| — | | |
| — | | |
| 30 | % |
| (1) | Distributable ROE is calculated as the amount of 2022 distributable earnings returned as a percentage
of average stockholders’ equity. For purposes of the annual cash bonus plan, the Company defines distributable earnings as net income
adjusted for unrealized gains and losses related to certain mortgage backed securities (“MBS”) not retained by the Company
as part of its loan origination business, realized gains and losses on sales of certain MBS, unrealized gains and losses related to residential
mortgage servicing rights (“MSR”), unrealized current non-cash provision for credit losses on accrual loans and one-time non-recurring
gains or losses, such as gains or losses on discontinued operations, bargain purchase gains, merger related expenses, or other one-time
items. We selected Distributable ROE because we believe it is the most relevant metric for determining ongoing profitability period over
period. |
| (2) | Ready Capital’s TSR relative to the TSR of the following companies: Acres Commercial Realty Corp.,
Apollo Commercial Real Estate Finance, Inc., Arbor Realty Trust, Inc., Ares Commercial Real Estate Corporation, Blackstone Mortgage Trust,
Inc., BrightSpire Capital, Inc., Broadmark Realty Capital Inc., Cherry Hill Mortgage Investment Corporation, Chimera Investment Corporation,
Granite Point Mortgage Trust Inc., Invesco Mortgage Capital Inc., KKR Real Estate Finance Trust Inc., Ladder Capital Corp., MFA Financial,
Inc., New York Mortgage Trust, Inc., PennyMac Mortgage Investment Trust, Redwood Trust, Inc., Starwood Property Trust, Inc., TPG Real
Estate Finance Trust, Inc. and Two Harbors Investment Corp. We selected relative TSR because we believe it is the most comparative measure
of shareholder return across the peer group. |
| (3) | Includes both commercial real estate (CRE) origination and acquisition volumes and small business (SBA)
origination volumes. We selected platform growth as a metric for Messrs. Taylor and Zausmer because we believe it measures the ongoing
growth of the Company’s operations and measures activity levels across operating segments. |
| (4) | Calculated as the percentage of principal losses over the average unpaid principal balance of the loan
portfolio. We selected portfolio performance as a metric for Mr. Zausmer because we believe it is a measurement of the credit underwriting
in the portfolio. |
| (5) | Calculated as the percentage increase in stockholders’ equity and corporate debt. We selected enterprise
growth as a metric for Mr. Ahlborn because we believe it measures the Company’s growth which we deem critical to the ongoing success
of the Company. |
| (6) | Calculated as the distributable earnings attributable to the Small Business Lending segment. We selected
segment core net income contribution as a metric for Mr. Taylor because we believe it is the most relevant metric for determining the
success of this operating segment. |
| (7) | The individual component of the annual cash bonus allows for an evaluation of the individual contributions
of each of Messrs. Ahlborn, Taylor and Zausmer. Mr. Ahlborn’s individual goals were corporate and finance-focused, such as optimization
of corporate debt and warehouse lines and liquidity management. Mr. Taylor’s individual goals were operations-focused, such as
human resources management and operations infrastructure enhancement. Mr. Zausmer’s
individual goals were CRE-focused, such as implementation of a dedicated sales leadership model and identification of new sourcing channels. |
2022 Annual Cash Bonus Performance
Targets
| |
Distributable ROE | | |
Relative TSR Percentile | | |
Platform Growth – CRE* | | |
Platform Growth – SBA* | | |
Portfolio Losses (bps) | | |
Enterprise Growth | | |
Segment Core Net Income Contribution* | |
Threshold | |
| 8.0 | % | |
| 25 | th | |
| 3,000,000 | | |
| 250,000 | | |
| 60 | | |
| 30.0 | % | |
| 11,000 | |
Target | |
| 10.0 | % | |
| 50 | th | |
| 4,250,000 | | |
| 400,000 | | |
| 45 | | |
| 40.0 | % | |
| 18,000 | |
Maximum | |
| 12.0 | % | |
| 75 | th | |
| 5,500,000 | | |
| 500,000 | | |
| 30 | | |
| 50.0 | % | |
| 25,000 | |
Actual | |
| 12.8 | % | |
| 76.2 | nd | |
| 5,152,125 | | |
| 499,598 | | |
| <5 | | |
| 42.3 | % | |
| 10,976 | |
*Dollars in thousands
2022 Annual Cash Bonus Opportunities
and Payout
Under the annual cash incentive
bonus plan for 2022, each of Messrs. Ahlborn, Taylor and Zausmer has the opportunity to earn threshold (75% of base salary), target (150%
of base salary) or maximum (300% of base salary) incentive cash bonus amounts based on the levels of achievement of the criteria described
above. Whether any of the threshold, target or maximum bonus levels are attained will be determined by the Compensation Committee based
on achievement of the criteria described above, including the discretionary component, and the weighting of each criterion. Actual bonuses
paid for 2022 are described below.
| |
Threshold ($) | | |
Target ($) | | |
Maximum ($) | | |
Actual* | |
Andrew Ahlborn | |
$ | 323,438 | | |
$ | 646,875 | | |
$ | 1,293,750 | | |
$ | 1,240,000 | |
Gary Taylor | |
$ | 323,438 | | |
$ | 646,875 | | |
$ | 1,293,750 | | |
$ | 1,060,000 | |
Adam Zausmer | |
$ | 323,438 | | |
$ | 646,875 | | |
$ | 1,293,750 | | |
$ | 1,240,000 | |
*Each of Messrs. Ahlborn, Taylor
and Zausmer earned 100%, 77% and 91%, respectively, of the discretionary component of the annual cash bonus plan. Mr. Ahlborn also received a $45,348 discretionary bonus based on his performance during 2022.
Actual Cash Compensation
for 2022
During the year ended December
31, 2022, pursuant to the terms of the Management Agreement, we reimbursed our Manager for the cash compensation of Messrs. Ahlborn, Taylor
and Zausmer were exclusively dedicated to our affairs.
| · | For the performance year ended December 31, 2022, the total amount of cash compensation (including annual
base salary, bonus and any related withholding taxes and employee benefits) paid by our Manager that was allocable to and reimbursed by
us for Mr. Ahlborn, our Chief Financial Officer, was $1,700,826, including $431,250 in base salary and a cash bonus of $1,240,000, which
reflects a slightly less than maximum bonus payable under the bonus program discussed above based on actual performance results as set
forth in the table above. The Compensation Committee and our Manager determined that Mr. Ahlborn’s annual base salary will be increased
to $450,000 for the year ended December 31, 2023. |
| · | For the performance year ended December 31, 2022, the total amount of cash compensation (including annual
base salary, bonus and any related withholding taxes and employee benefits) paid by our Manager that was allocable to and reimbursed by
us for Mr. Taylor, our Chief Operating Officer, was $1,515,851, including $431,250 in base salary and a cash bonus of $1,060,000, which
reflects a slightly less than maximum bonus payable under the bonus program discussed above based on actual performance results as set
forth in the table above. The Compensation Committee and our Manager determined that Mr. Taylor’s annual base salary will be increased
to $450,000 for the year ended December 31, 2023. |
| · | For the performance year ended December 31, 2022, the total amount of cash compensation (including annual
base salary, bonus and any related withholding taxes and employee benefits) paid by our Manager that was allocable to and reimbursed by
us for Mr. Zausmer, our Chief Credit Officer, was $1,700,826, including $431,250 in base salary and a cash bonus of $1,240,000, which
reflects a slightly less than maximum bonus payable under the bonus
program discussed above based on actual performance results as set forth in the table above. The Compensation Committee and our Manager
determined that Mr. Zausmer’s annual base salary will be increased to $450,000 for the year ended December 31, 2023. |
We do not pay or reimburse
our Manager for any portion of the cash compensation that is paid by our Manager and its affiliates to Mr. Capasse, our Chief Executive
Officer, or Mr. Ross, our President. While these individuals devote such portion of their time to our affairs as is necessary to enable
our Company to effectively operate our business, they also provide management and other services to other entities that are managed or
advised by our Manager and its affiliates. Messrs. Capasse and Ross, as non-reimbursed Named Executive Officers, receive compensation
directly from our Manager and its affiliates in the form of salaries. The compensation paid by our Manager to Messrs. Capasse and Ross
is derived in part from the management fee and incentive distribution we pay to the Manager and in part from various other revenue streams
generated by our Manager and its affiliates in its ordinary course of operations as an asset manager. Messrs. Capasse and Ross are also
equity holders in our Manager and its affiliates and, accordingly, have an interest in the profits and losses of our Manager and its affiliates
from these entities' past, present and future investments and businesses. The profits and losses of our Manager and its affiliates vary
each year and any allocations of such profits to the equity holders of our Manager and its affiliates, including Messrs. Capasse and Ross
are independent of the services they may provide to our Manager in supporting our business.
The Management Agreement does
not require that any specified amount or percentage of the management fee or incentive distribution we pay to our Manager be allocated
to our non-reimbursed Named Executive Officers. However, to put into context the compensation paid by our Manager to these Named Executive
Officers in relation to the management fee and incentive distribution, our Manager estimates that the total compensation of Messrs. Capasse
and Ross that was reasonably associated with their support of our Manager on behalf of our Company represented approximately 7% of the
management fee paid and incentive distribution paid by us to our Manager in 2022. Of this amount, our Manager estimates that, approximately
100% was fixed (i.e., annual base salary).
Equity Compensation
The Compensation Committee
has granted and may, from time to time, grant equity-based awards designed to align the interests of our Manager and the personnel of
our Manager and our Manager’s affiliates who support our Manager in providing services to us under the Management Agreement with
those of our stockholders, by allowing our Manager and personnel of our Manager and our Manager’s affiliates to share in the creation
of value for our stockholders through stock appreciation and dividends. These equity-based awards, when granted, will be generally subject
to vesting requirements designed to promote retention and to achieve strong performance for us. These awards further provide flexibility
to us to enable our Manager to attract, motivate and retain talented individuals. We have adopted the Plan, which provides for the issuance
of equity-based awards, including stock options, restricted shares of Common Stock, phantom shares, dividend equivalent rights, restricted
limited partner profit interests (“LTIP units”) and other restricted limited partnership units issued by Ready Capital Corporation
(or our Operating Partnership) and other equity-based awards.
Our board of directors has
delegated its administrative responsibilities under the Plan to the Compensation Committee. In its capacity as plan administrator, the
Compensation Committee has the authority to make awards to our Manager, our directors and officers and the employees and other personnel
of our Manager and our Manager’s affiliates who support our Manager in providing services to us under the Management Agreement,
and to determine what form the awards will take and the terms and conditions of the awards.
Historically, we have not
granted any awards under the Plan to our Chief Executive Officer and Chief Investment Officer or our President as part of our compensation
program. Rather, under the terms of the Management Agreement, we pay 50% of the incentive distribution to our Manager in shares of our
Common Stock and such officers, as equity holders of our Manager, have an interest in the shares of Common Stock that we pay to our Manager
in respect of the incentive distribution. As part of our equity compensation program, we have made certain grants of awards to other personnel
of our Manager who provide services to us, including Messrs. Ahlborn, Taylor and Zausmer, as described below under “-Equity Grants.”
The Compensation
Committee will, on an ongoing basis, continue to examine and assess our executive compensation practices relative to our
compensation philosophy and objectives, as well as competitive market practices, and will make or recommend to our board of
directors modifications to the compensation programs, as deemed appropriate. The Company engaged FPL as its independent compensation
consultant to assist in evaluating our equity compensation program in respect of the performance year ended December 31, 2022 as
well as our overall compensation program for 2023. FPL’s services to us have been limited to compensation related services.
FPL provided an analysis of guiding principles, competitive market trends, peer group pay practices, compensation strategy and other
compensation considerations.
Equity Grants
Equity Grants For the 2021 Performance Year (Granted in 2022)
In February 2022, the
Compensation Committee approved the grant of 434,391 shares of restricted Common Stock and RSUs (which reflects vesting at a
"target" payout percentage in the case of performance-based equity awards) under the Plan to certain of our employees and
personnel of our Manager and its affiliates who support our Manager in providing services to us under our Management Agreement,
including Messrs. Ahlborn, Taylor and Zausmer. In February 2022, our board of directors approved recommendations by the Compensation
Committee with respect to the long-term equity awards to Messrs. Ahlborn, Taylor and Zausmer, in respect of performance for the year
ended December 31, 2021, including the specific performance metrics, weighting and levels of opportunity for performance-based
equity awards as described below. In determining the long-term equity awards to Messrs. Ahlborn, Taylor, and Zausmer, the
Compensation Committee focused on the measures and factors described above under “–Setting Executive
Compensation.” Based upon these considerations, the Compensation Committee approved long-term equity awards as follows in
respect of performance for the year ended December 31, 2021, subject to the forward-looking vesting criteria described below:
Names | |
Award
Granted(1) | | |
Grant Date Fair Value of Award | |
Andrew Ahlborn | |
| 52,854 | | |
$ | 750,000 | |
Gary Taylor | |
| 45,807 | | |
$ | 650,000 | |
Adam Zausmer | |
| 52,854 | | |
$ | 750,000 | |
(1) Granted on February 12, 2022, 50% of the
award is comprised of time-based shares of restricted Common Stock and 50% of the award is comprised of performance-based RSUs that are
eligible to vest as described below. The number of performance-based awards included in this amount reflects vesting at a
“target” payout percentage as shown in the table below.
Key Terms of the Year-End 2021 Performance-Based Equity Awards
(Granted in 2022)
With respect to the long-term
equity awards granted to Messrs. Ahlborn, Taylor, and Zausmer in respect of performance for the year ended December 31, 2021 (which were
granted in 2022), 50% of such awards are time-based shares of restricted Common Stock that vest ratably in equal annual installments over three-year period based solely
on continued employment or service. Dividends are paid on all time-based awards, vested and non-vested.
The remaining 50% of such
awards are performance-based RSUs. These performance-based equity awards remain at risk and are subject to forfeiture subject to
the achievement of annualized Distributable ROE metrics (50% weighting) and relative TSR (50% weighting) relative to the performance of
the peer group designated by the Compensation Committee (disclosed above under “–Executive Compensation Strategy for 2022”),
in each case for the performance period commencing January 1, 2022 and ending December 31, 2024. Dividends payable in connection with
performance-based equity awards will only be paid to the extent that the performance-based vesting conditions are satisfied and such awards
are earned and vested.
Equity Grants For the 2022 Performance Year (Granted in 2023)
In February 2023, the
Compensation Committee approved the grant of 480,586 shares of restricted Common Stock and RSUs (which reflects vesting at a
"target" payout percentage in the case of performance-based equity awards) under the Plan to certain of our employees and
personnel of our Manager and its affiliates who support our Manager in providing services to us under our Management Agreement,
including Messrs. Ahlborn, Taylor and Zausmer. In February 2023, our board of directors approved recommendations by the Compensation
Committee with respect to the long-term equity awards to Messrs. Ahlborn, Zausmer and Taylor, in respect of performance for the year
ended December 31, 2022, including the specific performance metrics, weighting and levels of opportunity for performance-based
equity awards as described below. In determining the long-term equity awards to Messrs. Ahlborn, Taylor, and Zausmer, the
Compensation Committee focused on the measures and factors described above under “–Setting Executive
Compensation.” Based upon these considerations, the Compensation Committee approved long-term equity awards as follows in
respect of performance for the year ended December 31, 2022, subject to the forward-looking vesting criteria described below:
Names | |
Award
Granted(1) | | |
Grant Date Fair Value of Award | |
Andrew Ahlborn | |
| 61,634 | | |
$ | 800,000 | |
Gary Taylor | |
| 61,634 | | |
$ | 800,000 | |
Adam Zausmer | |
| 61,634 | | |
$ | 800,000 | |
(1) Granted on February 12, 2023, 50% of the
award is comprised of time-based shares of restricted Common Stock and 50% of the award is comprised of performance-based RSUs that
are eligible to vest based on achievement of relative TSR and Distributable ROE metrics (each weighted equally) over a 3-year
performance period. The number of performance-based awards included in this amount reflects vesting at a “target” payout
percentage.
Policy On Hedging and Pledging Transactions
We prohibit our Named Executive
Officers, directors, employees, associates and independent contractors as well as officers, employees and affiliates of our Manager from
engaging in hedging transactions involving our securities (which include any securities issued by, or convertible or exchangeable for
securities issued by, us or our subsidiaries). Prohibited hedging transactions include the use of financial instruments such as puts,
calls, prepaid variable forward contracts, equity swaps, short sales, collars and exchange funds. This prevents such persons from continuing
to own our securities without having the full risks and rewards of ownership, which could cause such persons to have objectives that are
not aligned with the other stockholders. Effective January 2023, we also prohibit our executive officers and independent directors from
pledging any shares of our Common Stock received through the vesting of equity awards granted by the Company or borrowing against an account
in which such Common Stock is held.
Stock Ownership Guidelines
The Nominating and Corporate
Governance Committee believes that stock ownership by our independent directors and certain of our executive officers is important in
order to further align the interests of these individuals with those of our stockholders and expects these individuals to acquire significant
ownership of equity in the Company (“Company Equity”). Our board of directors adopted minimum equity ownership guidelines
for our independent directors requiring each independent director to maintain a minimum number of shares of Common Stock having a market
value equal to or greater than a multiple of such independent director’s annual cash retainer (excluding any portion of the retainer
fee representing additional compensation for being a committee chairman). The Board approved an increase to the multiple of the annual
cash retainer from three to five in January 2023. These mandatory ownership guidelines are intended to create a clear standard that encourages
independent directors to remain invested in the performance of our stock price.
In February 2021, after considering
feedback received from certain stockholders regarding the application of stock ownership guidelines to our executive officers, our Nominating
and Corporate Governance Committee determined that it was appropriate to adopt minimum stock ownership guidelines for certain of our Named
Executive Officers, such as our Chief Financial Officer, Chief Operating Officer, and Chief Credit Officer, who are employees of our Manager
and are exclusively dedicated to our affairs, as well as certain other employees of our Manager who provide services to us. Accordingly,
we have adopted minimum equity ownership guidelines requiring our Chief Financial Officer, Chief Operating Officer, and Chief Credit Officer
to maintain a minimum number of shares of Common Stock having a market value equal to or greater than a multiple of three times such Named
Executive Officer's base salary, and which also require certain other employees of our Manager that provide services to us to maintain
a minimum number of shares of Common Stock having a market value equal to or greater than a multiple of two times such person's base salary.
For purposes of the ownership
guidelines, stock ownership includes any class of our equity securities, whether held directly or indirectly. Unvested shares of restricted
Common Stock and unvested RSUs are not included for purposes of achievement of the stock ownership guidelines. Effective January 2023,
each individual subject to the guidelines has five years from the date he or she becomes subject to the ownership guidelines to satisfy
his or her respective requirements and come into compliance with the guidelines.
The Nominating and Corporate
Governance Committee reviewed the holdings of our independent directors and Named Executive Officers and other persons subject to these
guidelines as of December 31, 2022 and determined that such persons were in compliance with these mandatory ownership guidelines either
due to ownership of the requisite number of shares or because the individual was within the time period permitted to attain the required
level of ownership.
Compensation Committee Report
The Compensation Committee
evaluates and establishes equity award compensation for our Manager and our directors and officers, employees and other personnel of our
Manager and its affiliates who support our Manager in providing services to us under the Management Agreement and administers the Plan.
The Compensation Committee consults with our Manager when determining the level of grants under the Plan to be payable to our Manager,
our executive officers and other personnel of our Manager and its affiliates who support our Manager in providing services to us under
the Management Agreement. While our management has the primary responsibility for our financial reporting process, including the disclosure
of executive compensation, the Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis
set forth in this Amendment. The Compensation Committee believes that the Compensation Discussion and Analysis fairly represents the philosophy,
intent and actions of the Compensation Committee with regard to executive compensation. The Compensation Committee recommended to our
board of directors that the Compensation Discussion and Analysis be included in this Amendment for filing with the SEC.
Todd Sinai, Chairperson
Frank P. Filipps
Dominique Mielle
The foregoing Compensation Committee
Report shall not be deemed under the Securities Act or the Exchange Act to be (i) “soliciting material” or “filed”
or (ii) incorporated by reference by any general statement into any filing made by us with the SEC, except to the extent that we specifically
incorporate such report by reference.
Summary Compensation Table
The following table below
sets forth the compensation of our Named Executive Officers (Messrs. Ahlborn, Zausmer and Taylor) reimbursed to our Manager by us for
the fiscal years ended December 31, 2022, 2021 and 2020. Other than with respect to Messrs. Ahlborn, Taylor, and Zausmer we did not pay
or make any reimbursement for any compensation paid to our named executive officers for the fiscal year ended December 31, 2022.
Name and Principal Position | |
Year | | |
Salary(1) | | |
Bonus(1) | | |
Stock Awards(2)(3) | | |
Non-Equity Incentive Compensation ($) | | |
All Other Compensation(4) | | |
Total(3) | |
Andrew Ahlborn | |
| 2022 | | |
$ | 431,250 | | |
$ | 45,348 | | |
$ | 750,000 | | |
$ | 1,194,652 | | |
$ | 29,576 | | |
$ | 2,450,826 | |
Chief Financial Officer | |
| 2021 | | |
$ | 375,000 | | |
$ | 1,050,000 | | |
$ | 317,398 | | |
| - | | |
$ | 21,516 | | |
$ | 1,763,914 | |
| |
| 2020 | | |
$ | 345,833 | | |
$ | 702,154 | | |
$ | 175,000 | | |
| - | | |
$ | 36,109 | | |
$ | 1,259,096 | |
Gary Taylor | |
| 2022 | | |
$ | 431,250 | | |
| - | | |
$ | 650,000 | | |
$ | 1,060,000 | | |
$ | 24,601 | | |
$ | 2,165,851 | |
Chief Operating Officer | |
| 2021 | | |
$ | 375,000 | | |
$ | 941,250 | | |
$ | 423,188 | | |
| - | | |
$ | 21,438 | | |
$ | 1,760,876 | |
| |
| 2020 | | |
$ | 354,167 | | |
$ | 630,218 | | |
$ | 250,000 | | |
| - | | |
$ | 26,936 | | |
$ | 1,261,321 | |
Adam Zausmer(5) | |
| 2022 | | |
$ | 431,250 | | |
| - | | |
$ | 750,000 | | |
$ | 1,240,000 | | |
$ | 29,576 | | |
$ | 2,450,826 | |
Chief Credit Officer | |
| 2021 | | |
$ | 315,625 | | |
$ | 1,106,875 | | |
| - | | |
| - | | |
$ | 21,584 | | |
$ | 1,444,084 | |
| (1) | The Named Executive Officers are employees of our Manager or its affiliates
and are not paid cash compensation by us. |
| (2) | The amounts reported in the “Stock Awards” column
represent the aggregate grant date fair value of awards of shares of restricted stock Common Stock and RSUs calculated under FASB ASC Topic 718,
based on the value of the underlying shares on the grant date and, with respect to the performance-based awards, the probable
outcome of performance-based vesting conditions on the grant date (at target performance levels). |
| (3) | The amounts reported in the “Stock Awards” column previously
reflected the grant date fair value of stock awards earned with respect to the applicable year, and have been updated to reflect the grant
date fair value of the stock awards granted in the applicable year. |
| (4) | This amount represents (i) employer 401(k) matching contributions
of $6,100 for each of Messrs. Ahlborn, Taylor and Zausmer; (ii) employer cash balance plan contributions of $6,100 for each of
Messrs. Ahlborn, Taylor and Zausmer; and (iii) medical
and dental benefits reimbursed by Ready Capital to our Manager of $17,376 for each of Messrs. Ahlborn and Zausmer, and $12,401 for Mr.
Taylor. |
| (5) | Mr. Zausmer has served as our Chief Credit Officer since July 2021. |
2022 Grants of Plan-Based Awards
The following table summarizes
certain information regarding all plan-based awards granted during the 2022 fiscal year to our Named Executive Officers. All stock awards were
granted under the Plan.
| |
| |
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards(#)(1) | | |
Estimated Future Payouts Under
Equity Incentive Plan Awards(#)(2) | | |
All Other | | |
Grant Date Fair | |
Name | |
Grant Date | |
Threshold | | |
Target | | |
Maximum | | |
Threshold | | |
Target | | |
Maximum | | |
Stock Awards: Number of Shares of Stock or Units(#)(3) | | |
Value of Stock and Option Awards ($)(4) | |
Andrew Ahlborn | |
| |
$ | 323,438 | | |
$ | 646,875 | | |
$ | 1,293,750 | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
02-12-22 | |
| | | |
| | | |
| | | |
| 13,326 | | |
| 26,427 | | |
| 52,854 | | |
| | | |
$ | 375,000 | |
| |
02-12-22 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 26,427 | | |
$ | 375,000 | |
Gary Taylor | |
| |
$ | 323,438 | | |
$ | 646,875 | | |
$ | 1,293,750 | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
02-12-22 | |
| | | |
| | | |
| | | |
| 11,452 | | |
| 22,903 | | |
| 45,806 | | |
| | | |
$ | 325,000 | |
| |
02-12-22 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 22,903 | | |
$ | 325,000 | |
Adam Zausmer | |
| |
$ | 323,438 | | |
$ | 646,875 | | |
$ | 1,293,750 | | |
| | | |
| | | |
| | | |
| | | |
| | |
| |
02-12-22 | |
| | | |
| | | |
| | | |
| 13,326 | | |
| 26,427 | | |
| 52,854 | | |
| | | |
$ | 375,000 | |
| |
02-12-22 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 26,427 | | |
$ | 375,000 | |
| (1) | Amounts in this column represent the annual cash bonus opportunities. |
| (2) | Amounts in this column represent RSUs, which vest based on achievement
of TSR and Distributable ROE metrics. |
| (3) | Amounts in this column represent shares of restricted Common Stock,
which vest in equal installments of one-third on February 12, 2023, February 12, 2024 and February 12, 2025. |
| (4) | The
amounts in this column represent the grant date fair value of the shares of restricted Common Stock and performance awards. |
Outstanding Equity Awards at 2022 Fiscal Year-end
The following table sets forth
certain information with respect to all outstanding equity-based awards held at the end of the 2022 fiscal year by each Named Executive
Officer.
| |
| |
Stock Awards | |
Names | |
Grant Date | |
Number of Shares or Units of Stock That Have Not Vested (#) | | |
Market Value of Shares or Units of Stock That Have Not Vested ($)(1) | | |
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | | |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(1) | |
Andrew Ahlborn | |
02/13/20 | |
| 3,566 | (2) | |
$ | 39,725 | | |
| - | | |
| - | |
| |
02/12/21 | |
| 8,252 | (3) | |
$ | 91,927 | | |
| 12,379 | (5) | |
$ | 137,902 | |
| |
02/12/22 | |
| 26,427 | (4) | |
$ | 294,397 | | |
| 26,427 | (6) | |
$ | 294,397 | |
Gary Taylor | |
02/13/20 | |
| 5,094 | (2) | |
$ | 56,747 | | |
| - | | |
| - | |
| |
02/12/21 | |
| 11,003 | (3) | |
$ | 122,573 | | |
| 16,505 | (5) | |
$ | 183,865 | |
| |
02/12/22 | |
| 22,903 | (4) | |
$ | 255,139 | | |
| 22,903 | (6) | |
$ | 255,139 | |
Adam Zausmer | |
02/13/20 | |
| 3,057 | (2) | |
$ | 34,055 | | |
| - | | |
| - | |
| |
02/12/21 | |
| 5,502 | (3) | |
$ | 61,292 | | |
| 8,253 | (5) | |
$ | 91,932 | |
| |
02/12/22 | |
| 26,427 | (4) | |
$ | 294,397 | | |
| 26,427 | (6) | |
$ | 294,397 | |
| (1) | Based on the closing price of our Common Stock on the last business
day of the fiscal year ended December 30, 2022 ($11.14). |
| (2) | Represents shares of restricted Common Stock granted pursuant to the Plan, which vested on February
13, 2023. |
| (3) | Represents shares of restricted Common Stock granted pursuant to the Plan, one-half of which vested
on February 12, 2023 and the remaining one-half will vest on February 12, 2024. |
| (4) | Represents shares of restricted Common Stock granted pursuant to
the Plan, one-third of which vested on February 12, 2023 and the remaining two-thirds will vest in equal installments on each of
February 12, 2024 and February 12, 2025. |
| (5) | Represents RSUs granted pursuant to the Plan, which vest based on our
absolute TSR for the three-year forward-looking period ending December 31, 2023, and 50% to awards that vest based on our TSR for such
three-year forward-looking performance period relative to the performance of the peer group. |
| (6) | Represents RSUs granted pursuant to the Plan, which vest based on annualized
Distributable ROE for the three-year forward-looking period ending December 31, 2024, and 50% to awards that vest based on our TSR for
such three-year forward-looking performance period relative to the performance of the peer group. |
Stock Vested During 2022 Fiscal Year
| |
Stock Awards | |
Names | |
Number of Shares Acquired on Vesting (#)(1) | | |
Value Realized
On Vesting ($)(2) | |
Andrew Ahlborn | |
| 9,250 | | |
| 133,126 | |
Gary Taylor | |
| 10,596 | | |
| 150,357 | |
Adam Zausmer | |
| 5,808 | | |
| 82,416 | |
| (1) | Represents the vesting of shares of restricted Common Stock. |
| (2) | The value realized on vesting of the shares of restricted Common Stock is based on the closing price of our Common Stock on the
vesting date. |
Potential Payments Upon Termination or Change in Control
Our Named Executive Officers
are employees of our Manager or our Manager’s affiliates and therefore we have no obligation to pay them any form of compensation
upon their termination of employment.
The Plan provides that, in
the event of a “change in control” (as such term is defined in the Plan), the Compensation Committee shall take any such
action as in its discretion it shall consider necessary to maintain each grantee’s rights under the Plan (including under each
such grantee’s applicable award agreement) so that such grantee’s rights are substantially proportionate to the rights existing
prior to such event, including, without limitation, adjustments in the number of shares, options or other awards granted, the number
and kind of shares or other property to be distributed in respect of any options or rights previously granted under the plan, and the
exercise price, purchase price, and performance-based criteria established in connection with any grants.
Pay Ratio
In August 2015, the SEC
implemented the provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires U.S. publicly traded companies
to disclose the ratio of their Chief Executive Officer’s compensation to that of their median employee. As previously noted, we
do not pay or reimburse our Manager for any portion of the compensation that is paid by our Manager and its affiliates to our Chief Executive
Officer, Thomas E. Capasse. Accordingly, the Company is not able to calculate and provide the ratio of Mr. Capasse’s compensation.
Compensation Committee Interlocks and Insider Participation
There are no Compensation
Committee interlocks and no insider participation in compensation decisions that are required to be reported under the rules and regulations
of the Exchange Act.
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters |
Beneficial Ownership of Common
Stock
The following table sets forth
information as of April 21, 2023, unless otherwise noted, regarding the beneficial ownership of our Common Stock by (i) each person known
to us to be the beneficial owner of 5% or more of our Common Stock (ii) our named executive officers, (iii) our directors and (iv) all
of our directors and executive officers as a group. Beneficial ownership includes any shares over which the beneficial owner has sole
or shared voting or investment power and also any shares that the beneficial owner has the right to acquire within 60 days of such date
through the exercise of options or other rights. The percentages below are based on 111,676,111 shares of our Common Stock outstanding
as of April 21, 2023, which includes 930,453 shares of restricted Common Stock, unless otherwise specified.
Unless otherwise indicated,
all shares are owned directly, and the indicated person has sole voting and investment power. Except as indicated in the footnotes to
the table below, the business address of the stockholders listed below is the address of its principal executive office, 1251 Avenue of
the Americas, 50th Floor, New York, New York, 10020.
Names | |
Number of Shares of Common Stock Beneficially Owned** | | |
% of All Shares of Common Stock*** | |
Thomas E. Capasse | |
| 494,374 | (1) | |
| * | |
Jack J. Ross | |
| 402,522 | (2) | |
| * | |
Andrew Ahlborn | |
| 75,967 | | |
| * | |
Gary T. Taylor | |
| 81,239 | | |
| * | |
Adam Zausmer | |
| 64,927 | | |
| * | |
Frank Filipps | |
| 44,687 | (3) | |
| * | |
Meredith Marshall | |
| 9,544 | (4) | |
| * | |
Dominique Mielle | |
| 37,572 | (5) | |
| * | |
Gilbert E. Nathan | |
| 60,406 | (6) | |
| * | |
Andrea Petro | |
| 10,050 | | |
| * | |
J. Mitchell Reese | |
| 81,721 | (7) | |
| * | |
Todd Sinai | |
| 47,073 | (8) | |
| * | |
All directors and executive officers as a group (12 persons) | |
| 1,410,082 | | |
| 1.26 | % |
5% or Greater Beneficial Owner | |
| | | |
| | |
Sutherland REIT Holdings, LP | |
| 11,431,049 | (9) | |
| 10.24 | % |
Blackrock, Inc. | |
| 15,664,431 | (10) | |
| 14.03 | % |
The Vanguard Group, Inc. | |
| 6,624,579 | (11) | |
| 5.93 | % |
* Denotes less
than 1%.
| ** | For purposes of this table, “beneficial ownership” is determined in accordance with Rule 13d-3
under the Exchange Act pursuant to which a person or group of persons is deemed to have “beneficial ownership” of any shares
of Common Stock with respect to which person has sole or shared voting power or investment power. |
| *** | For purposes of computing the percentage ownerships in the table below, as of April 21, 2023, Ready Capital
had 111,676,111 shares of Common Stock outstanding, which includes 930,453 shares of restricted Common Stock. The total number of shares
of Common Stock outstanding used in calculating these percentages assumes that none of the unvested RSUs held by other persons are
converted into shares of Common Stock. |
| (1) | Includes (i) 26,623 shares of Common Stock owned through Edward J. Capasse Revocable Trust, (ii) 91,994
shares of Common Stock out of the 305,124 and 8,869 total shares of Common Stock held by our Manager (including through its ownership
of Sutherland REIT Holdings, LP (the “Partnership”)) and Waterfall Management, LLC (collectively with our Manager, the “Waterfall
Entities”), respectively, based on Mr. Capasse’s percentage ownership in the Waterfall Entities; Mr. Capasse disclaims beneficial
ownership of the shares held by the Waterfall Entities, except to the extent of his economic interest therein and (iii) 65,832 shares
of Common Stock issuable upon conversion of Ready Capital’s Series E Preferred Stock, $0.0001 par value per share (“Series
E Preferred Stock”), based on the conversion rate of 3.2916 shares of the Common Stock per share of Series E Preferred
Stock (or the “Share Cap”). Waterfall Management, LLC, an affiliate of our Manager, serves as the general partner of the Partnership
and may be deemed to be the beneficial owner of the shares of Common Stock that are held by the Partnership. In addition, Mr. Capasse
is a principal of our Manager and may be deemed to share voting and investment power over the shares of Common Stock held by the Partnership.
However, Waterfall Management, LLC does not have an economic interest in these shares and expects to distribute such shares to the beneficial
owners of the Partnership upon their request in accordance with the Partnership’s partnership agreement. Accordingly, Waterfall
Management, LLC disclaims beneficial ownership of the shares of Common Stock held by the Partnership and Mr. Capasse disclaims beneficial
ownership of such shares of Common Stock, except to the extent of his economic interest in the Partnership. |
| (2) | Includes (i) 155,264 shares of Common Stock owned through the Robin J. Ross 2009 Trust; Mr. Ross does
not serve as the trustee for the trust, his wife is the trustee and sole beneficiary of the trust and the trustee of the trust has sole
voting and investment power with respect to the securities held by the trust, (ii) 155,264 shares of Common Stock owned through Mr. Jack
J. Ross and Mrs. Robin J. Ross JTWROS, a joint tenant account of Mr. Ross and his wife, and (iii) 91,994 shares of Common Stock out of
the 305,124 and 8,869 total shares of Common Stock held by our Manager (including through its ownership of the Partnership) and Waterfall
Management, LLC, respectively, based on Mr. Ross’s percentage ownership in the Waterfall Entities; Mr. Ross disclaims beneficial
ownership of the shares held by the Waterfall Entities, except to the extent of his economic interest therein. Waterfall Management, LLC,
an affiliate of our Manager, serves as the general partner of the Partnership and may be deemed to be the beneficial owner of the shares
of Common Stock that are held by the Partnership. In addition, Mr. Ross is a principal of our Manager and may be deemed to share voting
and investment power over the shares of Common Stock held by the Partnership. However, Waterfall Management, LLC does not have an economic
interest in these shares and expects to distribute such shares to the beneficial owners of the Partnership upon their request in accordance
with the Partnership’s partnership agreement. Accordingly, Waterfall Management, LLC disclaims beneficial ownership of the shares
of Common Stock held by the Partnership and Mr. Ross disclaims beneficial ownership of such shares of Common Stock, except to the extent
of his economic interest in the Partnership. |
| (3) | Excludes 6,645 shares of Common Stock issuable upon the vesting of unvested RSUs. |
| (4) | Includes 6,645 shares of restricted Common Stock granted to Mr. Marshall under the Plan which will vest
in three equal installments on June 30, 2023, September 30, 2023 and December 31, 2023. |
| (5) | Includes 8,229 shares of Common Stock issuable upon conversion of the Series E Preferred Stock based on
the Share Cap. Excludes 6,645 shares of Common Stock issuable upon the vesting of unvested RSUs. |
| (6) | Includes (i) 3,299.6 shares of Common Stock issuable upon conversion of Ready Capital’s 7.00% Convertible
Senior Notes due 2023 (the “Convertible Senior Notes”) based on the conversion rate of 1.6498 shares of the Common Stock per
$25.00 principal amount of the Convertible Senior Notes and (ii) 6,645 shares of restricted Common Stock granted to Mr. Nathan under the
Plan which will vest in three equal installments on June 30, 2023, September 30, 2023 and December 31, 2023. |
| (7) | The shares are held through the J. Mitchell Reese Jr. Trust, UA 5/5/1999; Mr. Reese serves as the trustee
and sole beneficiary of the trust and has sole voting and investment power with respect to the securities held by the trust. Excludes
6,645 shares of Common Stock issuable upon the vesting of unvested RSUs. |
| (8) | Excludes 6,645 shares of Common Stock issuable upon the vesting of unvested RSUs. |
| (9) | Waterfall Management, LLC, an affiliate of our Manager, serves as the general partner of the Partnership
and may be deemed to be the beneficial owner of the shares of Common Stock that are held by the Partnership. However, Waterfall Management,
LLC does not have an economic interest in certain of these shares and expects to distribute such shares to the beneficial owners of the
Partnership upon their request in accordance with the Partnership’s partnership agreement. Accordingly, Waterfall Management, LLC
disclaims beneficial ownership of the shares of Common Stock held by the Partnership. In addition, each of Thomas Capasse and Jack Ross
is a principal or manager director of our Manager, and may be deemed to share voting and investment power over the shares of Common Stock
held by the Partnership. Each of such individuals disclaims beneficial ownership of such shares of Common Stock, except to the extent
of his economic interest therein. The inclusion of these shares of Common Stock shall not be deemed an admission of beneficial ownership
of the reported securities for purposes of Section 16 or for any other purposes. |
| (10) | Based on information provided in a Schedule 13G filed on January 23, 2023, Blackrock, Inc. (“Blackrock”)
reported sole voting power with respect to 15,471,149 shares of Common Stock beneficially owned by it and sole dispositive power with
respect to 15,664,431 shares of Common Stock beneficially owned by it. The Schedule 13G reports beneficial ownership information,
which does not include any shares acquired or sold since the date of such Schedule 13G. The percent of Common Stock beneficially
owned does not include the impact of any Common Stock issued or equity-based awards granted since the date of the Schedule 13G. Blackrock’s
address is 55 East 52nd Street, New York, New York 10055. |
| (11) | Based on information provided in a Schedule 13G filed on February 9, 2023, The Vanguard Group,
Inc. (“Vanguard Group”). reported sole dispositive power with respect to 6,482,035 shares of Common Stock beneficially
owned by it, shared voting power with respect to 58,894 shares of Common Stock beneficially owned by it and shared dispositive power
with respect to 142,544 shares of Common Stock beneficially owned by it. The Schedule 13G reports beneficial ownership
information, which does not include any shares acquired or sold since the date of such Schedule 13G. The percent of Common
Stock beneficially owned does not include the
impact of any Common Stock issued or equity-based awards granted since the date of the Schedule 13G. The Vanguard Group, Inc.’s
address is 100 Vanguard Blvd., Malvern, Pennsylvania 19355. |
Securities Authorized for
Issuance under Equity Compensation Plans
The following table presents
certain information about the Plan as of December 31, 2022:
Award | |
Number of Securities to be issued upon exercise of outstanding options, warrants and rights | | |
Weighted-average exercise price of outstanding options, warrants and rights | | |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column of this table (2) | |
Equity compensation plans approved by stockholders | |
| 1,850,065 | (1) | |
| - | | |
| 3,798,918 | (3) |
Equity compensation plans not approved by stockholders | |
| - | | |
| - | | |
| - | |
Total | |
| 1,850,065 | (1) | |
| - | | |
| 3,798,918 | (3) |
| (1) | Reflects 256,082 RSUs and 1,593,983 OP Units outstanding under the Plan.
Excludes 571,081 shares of restricted Common Stock. |
| (2) | The Plan provides for grants of equity awards up to, in the aggregate,
the equivalent of 5% of the number of issued and outstanding shares of our Common Stock from time to time (on a fully diluted basis (assuming,
if applicable, the exercise of all outstanding options and the conversion of all warrants and convertible securities into shares of Common
Stock)) at the time of the award. |
| (3) | All such shares are available for issuance pursuant to grants of full-value
stock awards. |
Item 13. | Certain Relationships and Related Transactions, and Director Independence |
Director Independence
The Guidelines provide that
a majority of the directors serving on our board of directors must be independent as required by NYSE listing standards. The Independence
Standards, which include the NYSE’s independence standards, are available for viewing on our website at www.readycapital.com. Based
upon its review of all relevant facts and circumstances, our board of directors has affirmatively determined that six of our nine directors—Frank
P. Filipps, Meredith Marshall, Dominique Mielle, Gilbert E. Nathan, J. Mitchell Reese and Todd M. Sinai—qualify as independent directors
under the NYSE listing standards and the Independence Standards.
Review, Approval or Ratification of Transactions with Related
Persons
We have a Related Party Transaction
Policy in place that sets forth the procedures for review, approval and monitoring of transactions involving us and “related persons”
(directors and executive officers or their immediate family members, or stockholders owning 5% or greater of our outstanding capital stock).
Furthermore, our Code of Ethics contains a conflicts of interest policy that prohibits our directors, officers and employees from engaging
in any transaction that involves an actual conflict of interest with us as determined by a majority of our directors. Additionally, we
will not purchase any assets from, or issued by, certain other funds and managed accounts for which our Manager serves as the investment
adviser or any entity managed by our Manager or our Manager’s affiliates or sell any asset to any such entity without the consent
of a majority of our board of directors, including a majority of our independent directors. See “Certain Relationships and Related
Transactions—Conflicts of Interest and Related Party Transactions.”
Conflicts of Interest and Related Party Transactions
Management Agreement
We entered into the Management
Agreement with the Manager, which took effect upon the closing of the ZAIS Financial merger on October 31, 2016, which was further amended
on December 6, 2020. The Management Agreement is substantially similar to our pre-merger management agreement.
The Management Agreement
describes the services to be provided to us by the Manager and compensation for such services. The Manager is responsible for
managing the Company’s day-to-day operations, subject to the direction and oversight of the Company’s board of
directors. Pursuant to the terms of the Management Agreement, our Manager is paid a management fee calculated and payable quarterly
in arrears equal to 1.5% per annum of the Company’s stockholders’ equity (as defined in the Management Agreement) up to
$500 million and 1.00% per annum of stockholders’ equity in excess of $500 million. On December 6, 2020, we, the Operating
Partnership and the Manager entered into an amendment to the Management Agreement which provides that the Manager’s base
management fee will be reduced by $1,000,000 per quarter for each of the first full four quarters following the effective time of
the merger with Anworth on March 19, 2021.
As disclosed in the
Joint Proxy Statement Prospectus used in connection with the ZAIS Financial merger transaction, under the partnership agreement of
our operating partnership, our Manager, the holder of the Class A special unit in our operating partnership, is entitled to receive
an incentive distribution, distributed quarterly in arrears in an amount not less than zero equal to the difference between (i) the
product of (A) 15% and (B) the difference between (x) core earnings (as described below) of our operating partnership, on a rolling
four-quarter basis and before the incentive distribution for the current quarter, and (y) the product of (1) the weighted average of
the issue price per share of Common Stock or OP unit (without double counting) in all of our offerings multiplied by the weighted
average number of shares of Common Stock outstanding (including any shares of restricted Common Stock and any other shares of Common
Stock underlying awards granted under the Plan) and OP units (without double counting) in such quarter and (2) 8%, and (ii) the sum
of any incentive distribution paid to our Manager with respect to the first three quarters of such previous four quarters; provided,
however, that no incentive distribution is payable with respect to any calendar quarter unless cumulative core earnings is greater
than zero for the most recently completed 12 calendar quarters, or the number of completed calendar quarters since the closing date
of the ZAIS Financial merger, whichever is less.
The incentive distribution
shall be calculated within 30 days after the end of each quarter and such calculation shall promptly be delivered to our Company. We are
obligated to pay the incentive distribution 50% in cash and 50% in either Common Stock or OP units, as determined in our discretion, within
five business days after delivery to our Company of the written statement from the holder of the Class A special unit setting forth the
computation of the incentive distribution for such quarter. Subject to certain exceptions, our Manager may not sell or otherwise dispose
of any portion of the incentive distribution issued to it in Common Stock or OP units until after the three year anniversary of the date
that such shares of Common Stock or OP units were issued to our Manager. The price of shares of our Common Stock for purposes of determining
the number of shares payable as part of the incentive distribution is the closing price of such shares on the last trading day prior to
the approval by our board of the incentive distribution.
For purposes of determining
the incentive distribution payable to our Manager, core earnings is defined under the partnership agreement of our operating partnership
in a manner that is similar to the definition of distributable earnings (which was formerly referred to as core earnings) described in
our Annual Report on Form 10-K under “Item 7. “Management’s Discussion and Analysis of Financial Condition and Results
of Operations—Non-GAAP Financial Measures” but with the following additional adjustments which (i) further exclude: (a) the
incentive distribution, (b) non-cash equity compensation expense, if any, (c) unrealized gains or losses on SBC loans (not just MBS and
mortgage servicing rights), (d) depreciation and amortization (to the extent we foreclose on any property), and (e) one-time events pursuant
to changes in U.S. GAAP and certain other non-cash charges after discussions between our Manager and our independent directors and after
approval by a majority of the independent directors and (ii) add back any realized gains or losses on the sales of MBS and on discontinued
operations which were excluded from the definition of distributable earnings described in our Annual Report on Form 10-K under “Item
7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures”.
The Management Agreement
may be terminated annually upon the affirmative vote of at least two-thirds of our independent directors, or by a vote of the
holders of at least a majority of the outstanding shares of our Common Stock (other than shares held by members of our senior
management team and affiliates of our Manager), based upon: (i) our Manager’s unsatisfactory performance that is materially
detrimental to our Company, or (ii) a determination that the management fees or incentive distribution payable to our Manager are
not fair, subject to our Manager’s right to prevent termination based on unfair fees by accepting a reduction of management
fees or incentive distribution agreed to by at least two-thirds of our independent directors. We must provide our Manager with 180
days prior notice of any such termination. Additionally, upon such a termination without cause, the Management Agreement provides
that we will pay our Manager a termination fee equal to three times the average annual base management fee earned by our Manager
during the prior 24-month period immediately preceding the date of termination, calculated as of the end of the most recently
completed fiscal quarter prior to the date of termination, except upon an internalization. Additionally, if the Management Agreement
is terminated under circumstances in which we are obligated to make a termination payment to our Manager, our operating partnership
shall repurchase, concurrently with such termination, the Class A special unit for an amount equal to three times the average annual
amount of the incentive distribution paid or payable in respect of the Class A special unit during the 24-month period immediately
preceding such termination, calculated as of the end of the most recently completed fiscal quarter before the date of termination.
These provisions may increase the cost to our Company of terminating the Management Agreement and adversely affect our ability to
terminate our Manager without cause.
Under the Management Agreement,
we will reimburse our Manager for operating expenses related to us incurred by our Manager, including legal, accounting due diligence
and other services. In addition, we may be required to pay our pro rata portion of rent, telephone, utilities, office furniture, machinery,
and other office, internal and overhead expenses of our Manager and its affiliates required for our operations.
We may engage in an internalization
transaction, become self-managed and, if this were to occur, certain key employees may not become our employees but may instead remain
employees of our Manager or its affiliates. An inability to manage an internalization transaction effectively could thus result in us
incurring excess costs and suffering deficiencies in our disclosure controls and procedures or our internal control over financial reporting.
Such deficiencies could cause us to incur additional costs, and our management’s attention could be diverted from most effectively
managing our investments. Additionally, if another program sponsored by our Manager internalizes our Manager, key personnel of our Manager,
who also are key personnel of the other sponsored program, would become employees of the other program and would no longer be available
to us. Any such loss of key personnel could adversely impact our ability to execute certain aspects of our business plan. Furthermore,
in the case of any internalization transaction, we expect that we would be required to pay consideration to compensate our Manager for
the internalization in an amount that we will negotiate with our Manager in good faith and which will require approval of at least a majority
of our independent directors. It is possible that such consideration could exceed the amount of the termination fee that would be due
to our Manager if the conditions for terminating the Management Agreement without cause are satisfied and we elected to terminate the
Management Agreement.
Asset Allocations
We are subject to conflicts
of interest arising out of our relationship with our Manager and its affiliates. Andrew Ahlborn, Gary Taylor and Adam Zausmer, who are
employed by our Manager and serve as our Chief Financial Officer, Chief Operating Officer and Chief Credit Officer, respectively, are
dedicated exclusively to us and seven of our Manager’s accounting professionals also are dedicated exclusively to us. With the exception
of our ReadyCap origination and acquisition subsidiaries, GMFS, LLC subsidiaries, Knight Capital, LLC subsidiary, Red Stone and its affiliates
and Mosaic subsidiaries, which employ their own personnel, we do not have our own employees. In addition, we expect that our Chief Executive
Officer, Chief Financial Officer, Chief Operating Officer, Chief Credit Officer, President, portfolio managers and any other appropriate
personnel of our Manager will devote such portion of their time to our affairs as is necessary to enable us to effectively operate our
business. Our Manager and our officers may have conflicts between their duties to us and their duties to, and interests in, our Manager
and its affiliates. Our Manager is not required to devote a specific amount of time or the services of any particular individual to our
operations. Our Manager manages or provides services to other clients, and we compete with these other clients for our Manager’s
resources and support. The ability of our Manager and its officers and personnel to engage in other business activities may reduce the
time they spend advising us.
There may also be conflicts
in allocating assets that are suitable for us and other clients of our Manager and its affiliates. Our Manager manages a series of funds
and a limited number of separate accounts, which focus on a range of asset backed securities (“ABS”) and other credit strategies.
None of these other funds or separate accounts focus on SBC loans as their primary business strategy.
To address certain potential
conflicts arising from our relationship with our Manager or its affiliates, our Manager has agreed in the side letter agreement that,
for so long as the Management Agreement is in effect, neither it nor any of its affiliates will (i) sponsor or manage any additional investment
vehicle where we do not participate as an investor whose primary investment strategy will involve SBC mortgage loans, unless our Manager
obtains the prior approval of a majority of our board of directors (including a majority of our independent directors), or (ii) acquire
a portfolio of assets, a majority of which (by value or unpaid principal balance (“UPB”)) are SBC mortgage loans on behalf
of another investment vehicle (other than acquisitions of SBC ABS), unless we are first offered the investment opportunity and a majority
of our board of directors (including a majority of our independent directors) decides not that we will not acquire such assets.
The side letter agreement
does not cover SBC ABS acquired in the market and non-real estate secured loans, and we may compete with other existing clients of our
Manager and its affiliates, other funds managed by our Manager that focus on a range of ABS and other credit strategies and separately
managed accounts, and future clients of our Manager and its affiliates in acquiring SBC ABS, non-real estate secured loans and portfolios
of assets less than a majority of which (by value or UPB) are SBC loans, and in acquiring other target assets that do not involve SBC
loans.
We will pay our Manager substantial
management fees regardless of the performance of our portfolio. Our Manager’s entitlement to a base management fee, which is not
based upon performance metrics or goals, might reduce its incentive to devote its time and effort to seeking assets that provide attractive
risk-adjusted returns for our portfolio. This in turn could hurt both our ability to make distributions to our stockholders and the market
price of our Common Stock.
The Management Agreement was
negotiated between related parties and their terms, including fees payable, may not be as favorable to us as if they had been negotiated
with unaffiliated third parties.
Co-Investment with Manager
On July 15, 2022, we
closed on a $125.0 million commitment to invest into Waterfall Atlas Anchor Feeder, LLC, which invests in Waterfall Atlas
Master Fund A, LP and Waterfall Atlas Master Fund B, LP (the “Funds”), which are managed by our Manager. In exchange for our commitment, we are entitled to 15% of any carried interest
distributions received by the general partner of the Funds such that over the life of the Funds, we receive an internal rate of return
of 1.5% over the internal rate of return of the Funds. The Funds focus on commercial real estate equity through the acquisition
of distressed and value-add real estate across property types with local operating partners. As of December 31, 2022, we have
contributed $36.6 million of cash into the Funds for a remaining commitment of $88.4 million. As described above under
“Corporate Governance—Review, Approval or Ratification of Transactions with Related Persons,” we will not purchase
any assets from, or issued by, certain other funds and managed accounts for which our Manager serves as the investment adviser or
any entity managed by our Manager or our Manager’s affiliates or sell any asset to any such entity without the consent of a
majority of our board of directors, including a majority of our independent directors. Accordingly, our investment in the Funds was
reviewed and approved by a majority of our board of directors, including a majority of our independent directors.
Indemnification and Limitation of Directors’ and
Officers’ Liability
Maryland law permits a Maryland
corporation to include in its charter a provision eliminating the liability of its directors and officers to the corporation and its stockholders
for money damages except for liability resulting from (1) actual receipt of an improper benefit or profit in money, property or services
or (2) active and deliberate dishonesty that is established by a final judgment and is material to the cause of action. Our charter contains
such a provision which eliminates the liability of our directors and officers to the maximum extent permitted by Maryland law.
We have entered into indemnification
agreements with each of our directors and executive officers that provide for indemnification to the maximum extent permitted by Maryland
law.
Item 14. | Principal Accountant Fees and Services |
Independent Registered Public Accounting Firm Fees
The following table summarizes
the aggregate fees (including related expenses) billed to us for professional services provided by Deloitte & Touche LLP.
Fee Type | |
For the Fiscal Year Ended December 31, 2022 | | |
For the Fiscal Year Ended December 31, 2021 | |
Audit Fees(1) | |
$ | 2,247,000 | | |
$ | 2,176,000 | |
Tax Fees(2) | |
| - | | |
| - | |
All Other Fees(3) | |
$ | 256,675 | | |
| 738,600 | |
Total Fees | |
$ | 2,503,675 | | |
$ | 2,914,600 | |
| (1) | Audit Fees primarily represent fees for the audits and quarterly reviews
of the consolidated financial statements filed with the SEC in annual reports on Form 10-K and quarterly reports on Form 10-Q, as well
as work generally only the independent registered public accounting firm can be reasonably expected to provide, such as statutory audits
and issuances of consent and comfort letters included in documents filed with the SEC. |
| (2) | Tax Fees primarily represent fees for professional services for tax
compliance, tax advice and tax planning. |
| (3) | All Other Fees primarily represent fees in connection with due diligence,
agreed upon procedures and transactions completed or contemplated during the years. |
The Audit Committee’s
charter provides that the Audit Committee shall review and pre-approve the engagement fees and the terms of all auditing and non-auditing
services to be provided by the Company’s external auditors and evaluate the effect thereof on the independence of the external auditors.
All audit and tax services provided to us were reviewed and pre-approved by the Audit Committee, which concluded that the provision of
such services by Deloitte & Touche LLP was compatible with the maintenance of that firm’s independence in the conduct of its
auditing functions.