UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant x☒ Filed by a Party other than the Registrant ¨☐
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| Preliminary Proxy Statement |
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| Definitive Proxy Statement |
| Definitive Additional Materials |
| Soliciting Material under § 240.14a-12 |
Sotherly Hotels Inc.
(Name of Registrant as Specified Inin Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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SOTHERLY HOTELS INC.
April 7, 2016March 21, 2019
Dear Stockholder:
On behalf of the board of directors and management of Sotherly Hotels Inc. (formerly MHI Hospitality Corporation) (the “Company” or “Sotherly”), I cordially invite you to attend the 20162019 Annual Meeting of Stockholders (the “Annual Meeting”) to be held at the Kimball Theatre, 424 W. Duke of GloucesterWilliamsburg Community Building, 401 North Boundary Street, Williamsburg, Virginia 23185, on Thursday,Tuesday, April 28, 201630, 2019 at 9:00 a.m., local time. The attached Notice of Annual Meeting and Proxy Statement describe the formal business to be transacted at the Annual Meeting. Directors and officers of the Company, as well as a representative of Grant Thornton LLP, certified public accountants, and a representative of Dixon Hughes Goodman LLP, certified public accountants, are expected to be present to respond to any appropriate questions that you may have.
You will be asked to: (i) elect seven (7) Company directors; (ii) ratify the appointment of Dixon Hughes Goodman LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2016; and2019; (iii) hold an advisory and non-binding vote to approve executive compensation (“Say-on-Pay”); and (iv) hold an advisory and non-binding vote on the frequency of holding future advisory votes on executive compensation (“Say-on-Frequency”). The board of directors has approved each of these proposals and its unanimous recommendations related to each are contained in the accompanying materials.
Your vote is important. Regardless of the number of shares you own and regardless of whether you plan to attend the Annual Meeting, I encourage you to read the enclosed proxy statement carefully and sign and return your enclosed proxy card, or follow the instructions to vote by internet or telephone, as promptly as possible because a failure to do so could cause a delay in the Annual Meeting and additional expense to the Company. A postage-paid return envelope is provided for your convenience. This will not prevent you from voting in person, but it will assure that your vote will be counted if you are unable to attend the Annual Meeting. If you do decide to attend the Annual Meeting and feel for whatever reason that you want to change your vote at that time, you will be able to do so. If you are planning to attend the Annual Meeting, please let us know by marking the appropriate box on the proxy card.
Sincerely yours, |
|
Andrew M. Sims |
Chairman and Chief Executive Officer |
410 West Francis Street, Williamsburg, Virginia 23185
SOTHERLY HOTELS INC.
410 WEST FRANCIS STREET
WILLIAMSBURG, VIRGINIA 23185
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 28, 201630, 2019
NOTICE IS HEREBY GIVEN that the 20162019 Annual Meeting of Stockholders (the “Annual Meeting”) of Sotherly Hotels Inc. (formerly MHI Hospitality Corporation) (the “Company” or “Sotherly”), will be held at the Kimball Theatre, 424 W. Duke of GloucesterWilliamsburg Community Building, 401 North Boundary Street, Williamsburg, Virginia 23185, on Thursday,Tuesday, April 28, 201630, 2019 at 9:00 a.m., local time, for the following purposes:
| 1. | To elect seven (7) directors to the board of directors of the Company; |
| 2. | To ratify the appointment of Dixon Hughes Goodman LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, |
| 3. | To hold an advisory and non-binding vote to approve executive compensation (“Say-on-Pay”); |
4. | To hold an advisory and non-binding vote on the frequency of holding future advisory votes on executive compensation (“Say-on-Frequency”); and |
|
| To transact such other business as may properly come before the Annual Meeting and any adjournments thereof. |
The board of directors is not aware of any other business to come before the Annual Meeting. Stockholders of record at the close of business on March 1, 20162019 are the stockholders entitled to notice of and to vote at the Annual Meeting and any adjournments thereof. To obtain directions to attend the Annual Meeting and vote in person, please call Investor Relations at (757) 229-5648.
A copy of the Company’s 20152018 Annual Report to Stockholders is enclosed.
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WE ENCOURAGE YOU TO VOTE BY PROXY SO THAT YOUR SHARES WILL BE REPRESENTED AND VOTED AT THE ANNUAL MEETING EVEN IF YOU CANNOT ATTEND. ALL STOCKHOLDERS OF RECORD CAN VOTE BY WRITTEN PROXY CARD, BY TELEPHONE AT 1-800-690-6903, OR OVER THE INTERNET AT WWW.PROXYVOTE.COM. HOWEVER, IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER TO VOTE IN PERSON AT THE ANNUAL MEETING. PURSUANT TO A NEW YORK STOCK EXCHANGE (“NYSE”) RULE APPLICABLE TO NYSE-MEMBER BROKERS, IF YOUR SHARES ARE HELD BY YOUR BROKER AND YOU DO NOT GIVE YOUR BROKER VOTING INSTRUCTIONS, YOUR SHARES WILL NOT BE VOTED IN CONNECTION WITH MATTERS DEEMED BY THE NYSE TO BE “DISCRETIONARY.” SUCH MATTERS INCLUDE, BUT ARE NOT LIMITED TO, THE ELECTION OF DIRECTORS AND MATTERS RELATING TO EXECUTIVE COMPENSATION.
BY ORDER OF THE BOARD OF DIRECTORS |
|
/s/ Anthony E. Domalski |
ANTHONY E. DOMALSKI |
CORPORATE SECRETARY |
Williamsburg, Virginia
April 7, 2016March 21, 2019
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE STOCKHOLDER MEETING TO BE HELD ON APRIL 28, 201630, 2019
The proxy statement and annual report to security holders are available on our website at www.sotherlyhotels.com.
IMPORTANT: PLEASE READ THE PROXY STATEMENT AND THEN PROMPTLY INDICATE YOUR VOTING INSTRUCTIONS: (1) BY TELEPHONE BY CALLING 1-800-690-6903; (2) OVER THE INTERNET AT WWW.PROXYVOTE.COM; OR (3) BY COMPLETING, SIGNING AND DATING THE ENCLOSED PROXY CARD AND RETURNING IT WITHOUT DELAY IN THE ENCLOSED ENVELOPE.
PROXY STATEMENT
OF
SOTHERLY HOTELS INC.
410 WEST FRANCIS STREET
WILLIAMSBURG, VIRGINIA 23185
ANNUAL MEETING OF STOCKHOLDERS
APRIL 28, 201630, 2019
This Proxy Statement is furnished in connection with the solicitation of proxies by the board of directors (the “board”) of Sotherly Hotels Inc. (formerly MHI Hospitality Corporation) (the “Company”, “Sotherly”, “we”, “us” or “Sotherly”“our”) to be used at the 20162019 Annual Meeting of Stockholders which will be held at the Kimball Theatre, 424 W. Duke of GloucesterWilliamsburg Community Building, 401 North Boundary Street, Williamsburg, Virginia 23185, on Thursday,Tuesday, April 28, 201630, 2019 at 9:00 a.m., local time (the “Annual Meeting”). The accompanying Notice of Annual Meeting of Stockholders and this Proxy Statement are being mailed to stockholders on or about April 7, 2016.March 21, 2019.
All properly executed written proxies that are delivered pursuant to this proxy statement will be voted on all matters that properly come before the Annual Meeting for a vote. If your signed proxy specifies instructions with respect to matters being voted upon, your shares will be voted in accordance with your instructions. If no instructions are specified, your shares will be voted (a) “FOR ALL” Proposal I (election of directors); (b) “FOR” Proposal II (ratification of the Company’s independent registered public accounting firm for fiscal year 2016)2018); (c) “FOR” Proposal III (approval, on an advisory and non-binding basis, of the compensation of the Company’s executive officers whose compensation is disclosed in this proxy statement (“Say-on-Pay”)); (d) “ONE (1) YEAR” for Proposal IV (approval, on an advisory and (d)non-binding basis, as to the frequency of holding future advisory votes on executive compensation (“Say-on-Frequency”)); and (e) in the discretion of the proxy holders, as to any other matters that may properly come before the Annual Meeting. Your proxy may be revoked at any time prior to being voted by: (i) filing with the Company’s Corporate Secretary (Anthony E. Domalski, at 410 West Francis Street, Williamsburg, Virginia 23185) written notice of such revocation; (ii) submitting a duly executed proxy bearing a later date; or (iii) attending the Annual Meeting and giving the Corporate Secretary notice of your intention to vote in person. Voting by telephone, Internet or mail will not prevent you from later revoking that proxy and voting in person at the Annual Meeting.
VOTING SECURITIES AND VOTE REQUIRED
The record date is the close of business on March 1, 20162019 (the “Record Date”) for the determination of stockholders who are entitled to notice of, and to vote at, the Annual Meeting. On the Record Date, there were 14,949,65114,222,378 shares of the Company’s common stock, $0.01 par value, outstanding. Each stockholder of record on the Record Date is entitled to one vote for each share held.
The presence in person or by proxy of at least a majority of the outstanding shares of common stock entitled to vote is necessary to constitute a quorum at the Annual Meeting. Shares represented by proxies received by the Company but marked as abstentions, if any, will be included in the calculation of the number of shares considered to be present at the meeting. Proxies received by the Company that reflect “broker non-votes” (i.e., proxies relating to shares held by brokers or other nominees as to which instructions have not been received from the beneficial owners or persons entitled to vote such shares and with respect to which, on one or more but not all matters, the broker or nominee does not have discretionary voting power to vote such shares) will be counted for purposes of determining whether a quorum is present for the transaction of business at the Annual Meeting. In the event there are not sufficient votes for a quorum or to ratify any proposals at the time of the Annual Meeting, the Annual Meeting may be adjourned to another date, time or place, not later than 120 days after the original record date of March 1, 2016,2019, without notice other than announcement at the meeting, in order to permit the further solicitation of proxies.
We need your vote. Our stockholders are always encouraged to review the proxy materials and vote their shares. Under New York Stock Exchange (“NYSE”) Rule 452, brokers who are voting with respect to shares held in street name have the discretion to vote such shares on routine matters but not on non-routine matters (so called “discretionary” matters), which include the election of directors and matters relating to executive compensation. For purposes of ProposalProposals I, III and III,IV, proxies received by the Company that reflect abstentions and broker non-votes, if any, will not be counted as votes cast and will have no effect on the result of the vote, although they will be considered present for the purpose of determining the presence of a quorum.
As to the election of directors, the enclosed proxy enables a stockholder to vote “FOR ALL” the election of the nominees proposed by the board of directors, or to withhold authority to vote for the nominee being proposed. Directors are elected by a plurality of votes of the shares present in person or represented by proxy at a meeting and entitled to vote in the election of directors.
As to the ratification of the independent registered public accounting firm and the advisory vote to approve executive compensation, which are submitted as Proposals II and III respectively, a stockholder may: (i) vote “FOR” the proposal; (ii) vote “AGAINST” the proposal; or (iii) “ABSTAIN” with respect to the proposal.
As to the frequency of holding future advisory votes on executive compensation, which is submitted as Proposal IV, a stockholder may vote to include an advisory vote on compensation of the Company’s principal executive officers every “ONE (1) YEAR”, “TWO (2) YEARS” or “THREE (3) YEARS” or may “ABSTAIN” from voting on this matter.
Unless otherwise required by law, Proposal II shall be determined by a majority of votes cast affirmatively or negatively without regard to proxies marked “ABSTAIN” as to that matter. Unless otherwise required by law, ProposalProposals III and IV, and all other matters, shall be determined by a majority of votes cast affirmatively or negatively without regard to (a) broker non-votes or (b) proxies marked “ABSTAIN” as to that matter.
While our board of directors intends to carefully consider the stockholder votevotes resulting from ProposalProposals III and IV, the final vote will not be binding on us and is advisory in nature. It will be up to our nominating, corporate governanceNominating, Corporate Governance and compensation committeeCompensation Committee (the “NCGC Committee”) and board of directors to determine whether and how to implement the votes on executive compensation.
Proposals III and IV.
PRINCIPAL HOLDERS
The following table sets forth the beneficial ownership, as of March 14, 2019, of (i) shares of common stock as of March 1, 2016, for each person or group known to us to be holding more than 5.0% of the number of shares of common stock outstanding, (ii) shares of common stock and operating partnership units for each director and principalnamed executive officer, and for the current directors and named executive officers of the Company as a group. None of the named executive officers has pledged any of their common shares as collateral, and none of either the named executive officers nor directors own any shares of preferred stock. As of March 1, 2016,14, 2019, the Company had outstanding 14,949,65114,222,378 shares of its common stock, $0.01 par value per share. The table shows the number of shares of common stock and the number of partnership interests or units in the Company’s operating partnership the person “beneficially owns,” as determined by the rules of the Securities and Exchange Commission. The operating partnership is controlled by the Company as its sole general partner. The operating partnership is obligated to redeem each unit at the request of the holder thereof for the cash value of one share of common stock or, at the Company’s option, one share of common stock.
Name of Beneficial Owner(1) |
| Number of Shares Beneficially Owned |
|
|
| Number of Units Beneficially Owned |
|
|
| Total |
|
| Percent of Class(2) |
|
| Number of Shares of Common Stock |
| Number of Units |
| Total |
| Percent of Class(2) |
| ||||
Andrew M. Sims |
|
| 1,312,742 |
| (4) |
|
| 32,681 |
| (5) |
|
| 1,345,423 |
|
|
| 9.0 |
|
| 1,353,536 | (3) | 32,681 | (4) | 1,386,217 |
| 9.7 |
|
2nd Market Capital Advisory Corp |
|
| 1,261,573 |
| (6) |
|
| — |
|
|
|
| 1,261,573 |
|
|
| 8.4 |
|
| 1,282,199 | (5) | — |
| 1,282,199 |
| 9.0 |
|
Palogic Value Fund, L.P. |
|
| 854,535 |
| (7) |
|
| — |
|
|
|
| 854,535 |
|
|
| 5.7 |
| |||||||||
David R. Folsom |
| 280,685 | (8) | 0 |
| 280,685 |
| 2.0 |
| ||||||||||||||||||
Edward S. Stein |
|
| 231,500 |
| (8) |
|
| 133,099 |
| (9) |
|
| 364,599 |
|
|
| 2.4 |
|
| 40,500 | (6) | 133,099 | (7) | 173,599 |
| 1.2 |
|
Kim E. Sims(3) |
|
| 200,000 |
|
|
|
| 140,368 |
| (5) |
|
| 340,368 |
|
|
| 2.3 |
| |||||||||
David R. Folsom |
|
| 263,291 |
| (10) |
|
| — |
|
|
|
| 263,291 |
|
|
| 1.8 |
| |||||||||
Anthony E. Domalski |
|
| 57,000 |
| (11) |
|
| — |
|
|
|
| 57,000 |
|
|
| * |
|
| 92,494 | (9) | 0 |
| 92,494 |
| * |
|
General Anthony C. Zinni |
|
| 44,994 |
| (12) |
|
| — |
|
|
|
| 44,994 |
|
|
| * |
|
| 63,496 | (10) | 0 |
| 63,496 |
| * |
|
David J. Beatty |
|
| 20,731 |
| (13) |
|
| — |
|
|
|
| 20,731 |
|
|
| * |
|
| 32,894 | (11) | 0 |
| 32,894 |
| * |
|
G. Scott Gibson IV |
| 23,250 | (12) | 0 |
| 23,250 |
| * |
| ||||||||||||||||||
Herschel J. Walker |
|
| 5,250 |
| (14) |
|
| — |
|
|
|
| 5,250 |
|
|
| * |
|
| 14,250 | (13) | 0 |
| 14,250 |
| * |
|
All executive officers and directors as a group (8 persons) |
|
| 2,135,508 |
|
|
|
| 240,786 |
|
|
|
| 2,408,975 |
|
|
| 15.9 |
|
| 1,901,105 |
| 165,780 |
| 2,066,635 |
| 14.4 |
|
* | Represents less than 1% of the number of shares of common stock of the Company. |
(1) | Unless otherwise indicated, the named stockholders have sole voting power with respect to all shares shown as being beneficially owned by them. Includes all restricted stock grants, including those that will vest on December 31, |
(2) | Rounded to the nearest one-tenth percent. Assumes that all units of our operating partnership held by such person or group of persons are redeemed for common stock (regardless of when such units are redeemable). The total number of shares outstanding used in calculating the ownership interest of the named holders of units in the operating partnership is based on the deemed conversion of only the units owned by such holder into shares of common stock. |
(3) |
|
| Includes 68,500 shares of common stock granted under the 2004 Long-Term Incentive Plan (the “2004 Plan”), including 15,000 shares of our common stock granted pursuant to Mr. Sims’ prior employment agreement with us that were fully vested on January 1, 2011. Includes 28,000 shares of common stock granted under the 2013 Long-Term Incentive Plan (the “2013 Plan”). Includes 156,250 shares held by Susan L. Sims, Andrew M. Sims’ spouse. Includes 793,937 shares held by the family limited partnership of Andrew M. Sims. Includes 10,494 shares held in the Company’s Employee Stock Ownership Plan (the “ESOP”) and allocated to Mr. Sims subject to the terms of the ESOP. |
| Based on information set forth in a Schedule 13G filed with the Securities and Exchange Commission on |
|
|
| Represents 133,099 units held by the Celia K. Krichman Charitable Trust, of which Edward S. Stein is a Trustee. Mr. Stein disclaims beneficial ownership of these units. |
| Includes 39,750 shares of common stock granted under the 2004 Plan, including |
| Includes 18,500 shares of restricted stock granted under the 2004 Plan all of which were fully vested on December 31, 2013. Includes |
| Includes 9,500 shares of restricted stock granted under the 2004 Plan all of which were fully vested on December 31, 2013. Includes |
(12) | Includes 8,250 shares of common stock granted under the 2013 Plan, 5,250 of which were fully vested on December 31, 2018, and 3,000 of which will vest on December 31, |
| Includes |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s directors and executive officers and the beneficial owners of more than 10.0% of the common stock to file reports of ownership and changes in ownership of equity securities of the Company with the Securities and Exchange Commission and to furnish the Company with copies of such reports. To the best of our knowledge, all of the filings by the Company’s directors and executive officers were made on a timely basis during the 20152018 fiscal year. We are not aware of any beneficial owners of more than 10.0% of our common stock other than as disclosed in the Principal Holders Table.
PROPOSAL I - ELECTION OF DIRECTORS
The directors of the Company are elected by the stockholders annually. The board of directors currently consists of seven (7) members. Each director’s term of office expires at the Annual Meeting. Each of the individuals named below has been nominated for election by holders of our common stock to the board of directors at the Annual Meeting to hold office until the 20172020 annual meeting of stockholders and until their successors are elected and qualified.
David J. Beatty, David R. Folsom, Andrew M. Sims, Kim E. Sims,Maria L. Caldwell, G. Scott Gibson IV, Edward S. Stein, Herschel J. Walker and General Anthony C. Zinni (the “Nominees”), have been nominated by the board of directors, as recommended by our NCGC Committee, for terms of one (1) year each. David J. Beatty, who is currently a director of the Company, is not standing for re-election to the board of directors and his term as director of the Company will expire at the conclusion of the Annual Meeting.
Name |
| Position with the Company |
| Age as of the Annual Meeting |
| History of Service as a Director |
David |
|
|
| |||
|
| Director, President and Chief Operating Officer |
|
|
| 2011 - present |
Andrew M. Sims |
| Chairman of the Board of Directors and Chief Executive Officer |
|
|
| 2004 - present |
| Director Nominee | 55 | None | |||
G. Scott Gibson IV |
| Director |
|
|
|
|
Edward S. Stein |
| Director |
|
|
| 2004 - present |
Herschel J. Walker |
| Director |
|
|
| 2015 - present |
Anthony C. Zinni |
| Director |
|
|
| 2004 - present |
The persons named as proxies in the enclosed proxy card intend to vote “FOR ALL” the election of the Nominees, unless the proxy card is marked to indicate that such authorization is expressly withheld. Should one or more of the Nominees withdraw or be unable to serve (which the board of directors does not expect) or should any other vacancy occur in the board of directors, it is the intention of the persons named in the enclosed proxy card to vote “FOR ALL” the election of such persons as may be recommended by the NCGC Committee and the board of directors. If there are no substitute nominees, the size of the board of directors may be reduced.
Directors are elected by a plurality of votes of the shares present in person or represented by proxy at a meeting and entitled to vote in the election of directors. For purposes of the election of directors, abstentions and broker non-votes, if any, will not be counted as votes cast and will have no effect on the result of the vote, although they will be considered present for the purpose of determining the presence of a quorum. If your shares are held by your broker and you do not give your broker voting instructions, your shares will not be voted on Proposal I.
Biographical Information
The principal business experience of each Nominee and executive officer of the Company is set forth below. The biographical information below also includes, for each Nominee, the particular experience, qualifications, attributes or skills that led the board of directors to nominate such Nominee to serve as a director of the Company.
Nominees for Directors
David J. Beatty previously served as a director of Sotherly from the completion of Sotherly’s initial public offering in December 2004 until 2007 and resumed service as a director of Sotherly in 2011. He also serves as chairman of Sotherly’s Audit Committee. He began his 40-plus-year career in finance and real estate development as head of marketing operations for George Kaufman real estate development group in 1972. He was a founder of Essex Commercial Mortgage in 1987 and founder and President of CENIT Commercial Mortgage Corp. in 1990. In 2001, Mr. Beatty founded TowneBank Commercial Mortgage, LLC, where he currently serves as President. TowneBank Commercial Mortgage, LLC specializes in placing debt and equity for the lodging industry. He has been President of Guest Quarters, Inc. (1979-1982), Treasurer and Chief Financial Officer of Guest Quarters Development Group (1982-1986) and President of mortgage financing for Lawson-Essex, Inc. (1987-1990). Mr. Beatty received a bachelor of arts degree from Georgetown University and a master of business administration degree from the Darden School of Business at the University of Virginia.
The board of directors of Sotherly concluded that Mr. Beatty has the relevant professional experience and skills to serve as director of Sotherly, as evidenced by Mr. Beatty’s current and former service as director of Sotherly, because of his corporate and financial leadership as president and chief financial officer of a hotel company as well as his current position of president at TowneBank Commercial Mortgage, LLC.
David R. Folsom is Sotherly’s president and chief operating officer. He was appointed to the position of president in January 2011 and to the position of chief operating officer in January 2006. Mr. Folsom was appointed as a director in 2011. Mr. Folsom assists the chief executive officer in the execution of Sotherly’s strategic business plan and coordinates Sotherly’s capital raising and borrowing efforts, as well as sourcing and conducting due diligence on potential acquisitions to facilitate the company’s growth. Prior to joining Sotherly, Mr. Folsom was Vice President of Paragon Real Estate, a Cleveland-based early stage real estate venture focusing on distressed multi-family assets in 2005. From 2001 to 2005, he was an investment banker with BB&T Capital Markets, where he served in the Real Estate Securities Group and Debt Capital Markets Groups. While at BB&T, Mr. Folsom participated in over 70 equity, debt and preferred stock underwritings, as well as financial advisory transactions across many industries. He was a member of the lead underwriting team that took Sotherly public in 2004. Mr. Folsom served as a commissioned officer in the U.S. Marine Corps, is a graduate of the U.S. Naval Academy and received a master of business administration degree from Georgetown University. In 2012, Mr. Folsom also acted as an adjunct professor at the College of William and Mary. He is also a director of The Sotherly Foundation, a charitable foundation established by Sotherly to provide assistance to veterans.
The board of directors of Sotherly concluded that Mr. Folsom has the relevant professional experience and skills to serve as director of the Sotherly because of his current positions as president and chief operating officer of Sotherly as well as his past investment banking and real estate financing experience.
Andrew M. Sims is Sotherly’s chief executive officer and chairman of the board and has served in such capacities since its inception in August 2004. In addition, Mr. Sims served as Sotherly’s president from our inception through December 31, 2010. He served as President of MHI Hotels Services LLC, which does business as Chesapeake Hospitality (“Chesapeake Hospitality”) from 1995 until August 2004 after serving for seven years as Vice President of Finance and Development. As President of Chesapeake Hospitality, Mr. Sims oversaw company operations as well as the areas of accounting and finance, marketing, development and franchise relations. Andrew M. Sims is the brother of Kim E. Sims. Mr. Sims, serves as a former director of Chesapeake Hospitality.the Company. Mr. Sims has a bachelor of science degree in commerce from Washington & Lee University.
The board of directors of Sotherly concluded that Mr. Sims has the relevant professional experience and skills to serve as director of Sotherly because he has spent over thirty-fivethirty-nine years in the hospitality industry and has experience operating, developing and owning hotel properties. Mr. Sims has held several positions in hotel management, including president of the hotel management company, Chesapeake Hospitality. Most recently, as chief executive officer, Mr. Sims has developed and expanded our hotel portfolio and managed franchise, banking and third party service-provider relations. Mr. Sims’ employment agreement with Sotherly provides that Sotherly must nominate him to serve as a director and, subject to his election as a director, he will serve as Chairman of the board of directors.
Kim E.Maria L. Caldwell is the Chief Legal Officer and Director of Compliance Services of the National Association of State Boards of Accountancy (NASBA), a 110-year-old non-profit corporation that serves as a forum for the 55 boards of accountancy charged with regulating the CPA profession, and has served in that capacity and others since 2003. From 1996 to 1999 Ms. Caldwell served as the general counsel for Sirrom Capital Corporation, where she managed Sirrom’s initial public offering, numerous follow-on public equity and debt offerings, and an aggregate of over $300 million in private loan closings. In addition, she developed and managed the corporate governance program, managed SEC reporting and investor relations, and advised the board on a range of matters. Ms. Caldwell has also practiced law with both Bass, Berry & Sims and Gibson, Dunn & Crutcher in the areas of securities law, mergers and acquisitions, real estate, and corporate law. Ms. Caldwell is a current member of the Tennessee Bar and a former member of the State Bar of California. She received a juris doctor degree from Duke University School of Law and a bachelor of arts degree in economics from Fairfield University.
Sotherly concluded that Ms. Caldwell has the relevant professional experience and skills to serve as director of Sotherly because of her 20 years of experience as general counsel of publicly traded and international non-profit companies, including broad transactional, functional and regulatory experience in real estate acquisition and financing, as well as public equity and debt offerings.
G. Scott Gibson IV, Ph.D., became a director of Sotherly upon completionin 2017 and is a member of Sotherly’s initial public offeringAudit Committee. Mr. Gibson joined the faculty of the William and Mary Mason School of Business in December 2004 and2005, where he is currently the President andZollinger Professor of Finance. From 2001 until 2005, he was a directorprofessor at the Cornell University School of Chesapeake Hospitality, a positionHotel Administration, where he continues as an online executive education instructor. Since 2005, he has held since December 2004. Mr. Sims served on the editorial board of Cornell Hotel and Restaurant Administration Quarterly. His research interests include hospitality financing strategies, real estate investment trusts, investor targeting, and conflicts of interest in the delegated investment management industry. His research has appeared in leading hospitality, real estate, and finance journals and in the financial press, includingthe Wall Street Journal, Financial Times, New York Times, Barons, Business Week, and Bloomberg. He was a professor at the University of Minnesota Carlson School of Management from 1996 to 2001. Prior to his academic career, he worked as Executive Vice President of Operations of Chesapeake Hospitalityan analyst with Fidelity Investments from 1995 until 20041987 to 1988 and has provided over thirty years of service at Chesapeake Hospitality.as a credit team leader serving Fortune 500 clientele with HSBC Bank from 1988 to 1991. He has a bachelor of science degree in commercefinance from Washington & Lee University. Kim E. Sims is the brotherBoston College and a doctor of Andrew M. Sims.philosophy in finance from Boston College.
The board of directors of Sotherly concluded that Mr. SimsGibson has the relevant professional experience and skills to serve as director of Sotherly because of his more than thirty year experience in hotel management and operations. As president of Chesapeake Hospitality, Mr. Sims has an expertise inacademic career focusing on the hospitality industry that enhances the dialogue of the board of directors.and REIT sectors for over 15 years, including extensive published research in these fields.
Edward S. Stein became a director of Sotherly upon completion of the Company’s initial public offering in December 2004 and is chairman of Sotherly’s NCGC Committee and is a member of the Sotherly’s Audit Committee. Mr. Stein is of counsel to the Norfolk, Virginia law firm of McIntyre Stein (formerly Wilson & McIntyre.McIntyre). Prior to joining Wilson & McIntyre in 2014,Stein, he was a founding partner of the law firm of Weinberg and Stein, where he practiced from 1978 to 2014. Mr. Stein has practiced law in the areas of real estate, estate planning, probate, corporate law and business law since 1974. He is admitted to the Virginia Bar and is a member of the Norfolk and Portsmouth and Virginia Bar Associations. Mr. Stein received a bachelor of arts degree from Harvard University and a juris doctor degree from the University of Virginia School of Law.
The board of directors of Sotherly concluded that Mr. Stein has the relevant professional experience and skills to serve as director of Sotherly because he has spent more than thirty-five years practicing business, tax and corporate law and had served
effectively as counsel for fourteen years to MHI Hotels Services LLC. Mr. Stein also has developed and rehabilitated real estate and has experience in venture capital transactions.
Herschel J. Walker became a director of Sotherly in 2015 and is a member of Sotherly’s NCGC Committee. Mr. Walker is the founder of H. Walker Enterprises, LLC and its subsidiary, Renaissance Man Food Services, LLC, a certified Minority Business Entity, and has served as chief executive officer of each business since 2002. As chief executive officer of H. Walker Enterprises, Mr. Walker oversees a broad line of products on a national level. Mr. Walker owns Herschel’s Chicken and Ribs Kitchen, a full-service restaurant serving classic southern cuisine in Athens, GA since 2013. He is also a recognized motivational speaker on a variety of business related topics for Fortune 500 companies and regional chapters of the National Minority Supplier Development Council. Mr. Walker played football for the University of Georgia from 1980 to 1982, where he was a three-time All American and a recipient of the Heisman Trophy. In 1999, he was inducted into the College Football Hall of Fame. During Mr. Walker’s professional football career from 1983 to 1997, he played for the New Jersey Generals, Dallas Cowboys, Minnesota Vikings, Philadelphia Eagles, and New York Giants, and was selected to the USFL All-Star team in 1985 and the NFL Pro-Bowl in 1987 and 1988. In addition to his football career, Mr. Walker was a member of the two-man U.S bobsled team for the 1992 Winter Olympics, and is undefeated in professional mixed martial arts. Mr. Walker received a bachelor of science degree in criminal justice from the University of Georgia.
The board of directors of Sotherly concluded that Mr. Walker has the relevant professional experience and skills to serve as director of Sotherly because of his significant work ethic and accomplishments across many disciplines, including the successful leadership of H. Walker Enterprises.
General Anthony C. Zinni became a director of Sotherly in December 2004 upon completion of its initial public offering and is a member of Sotherly’s NCGC Committee. General Zinni served as a director at BAE Systems from 2001 to 2014, and served as Chief Executive Officer on an interim basis during 2009. General Zinni also served as a director of DynCorp International from 2006-2008 and served as the Executive Vice President of DynCorp International, from July 2008-December 2008. He retired from the U.S. Marine Corps after 39 years of service in October 2000. During his military career, General Zinni served as the Commanding General, First Marine Expeditionary Force from 1994 to 1996, and as Commander-in-Chief, U.S. Central Command from 1997 to 2000. General Zinni has participated in numerous humanitarian operations and Presidential diplomatic missions. In November 2001, General Zinni was appointed senior adviser and U.S. envoy to the Middle East by Secretary of State Colin Powell. Since November 2000, General Zinni has consulted in the areas of defense, military, national security, foreign policy and regional issues. Since 2008, he has served as a professor at Cornell University. In 2008, he also served as a professor at Duke University. General Zinni received a bachelor of arts degree in economics from Villanova University. He also earned a master of arts degree in international relations from Salve Regina College, a master of science degree in management and supervision from Central Michigan University, and honorary doctorate degrees from both the College of William and Mary and the Marine Maritime Academy.
The board of directors of Sotherly concluded that General Zinni has the relevant professional experience and skills to serve as director of Sotherly because he is a skilled and experienced leader who has a strong background in corporate governance. General Zinni’s leadership experience includes almost forty years in the U.S. Marine Corps and, mostmore recently, as a director and executive officer of BAE Systems and DynCorp International, two large global security and defense public companies. General Zinni has served on four private company boards in addition to his public company board involvement.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR ALL” THE ELECTION OF THE ABOVE NOMINEES.
Executive Officers of the Company Who Are Not Directors
Anthony E. Domalski, 54,57, is Sotherly’s vice president, secretary, and chief financial officer, the latter being a position to which he was appointed as of January 1, 2013. Prior to this role, Mr. Domalski was Sotherly’s chief accounting officer since May 2005. He joined Sotherly in May 2005 and was appointed an officer by the board of directors in July 2006. A certified public accountant, he is responsible for financial analysis, cash management, investment, risk management and financial and tax reporting. From 2001 to 2005, Mr. Domalski served as Chief Financial Officer for SwissFone, Inc., a Washington, D.C. based telecommunications company, where he assisted in a management-led buyout of the U.S. international wholesale division from Swisscom, AG. Prior to his tenure at SwissFone, Inc., Mr. Domalski held several other senior financial positions in the telecommunications and hospitality industry and spent nine years at a local public accounting firm. Mr. Domalski is a member of the American Institute of Certified Public Accountants. Mr. Domalski received a bachelor of science degree in accounting and finance from the University of Maryland.
Meetings and Certain Committees of the Board of Directors
The board of directors conducts its business through meetings of the board of directors and through its committees. The board has two (2) standing committees: the NCGC Committee and an Audit Committee. During the fiscal year ended December 31, 2015,2018, the board of directors of our Company held four (4) regular meetings and one (1)two (2) special meeting.meetings. No incumbent director of the Company attended fewer than 75% of the total meetings of the board of directors and committee meetings on which such board member served during this period. Six (6)Five (5) of the then seven (7) directors attended the Company’s 20152018 annual meeting of stockholders.
Independent Directors
All of the members of the Audit Committee and the NCGC Committee and a majority of the Company’s board of directors must meet the test of “independence” as defined by the listing standards of the NASDAQ® Stock Market or NASDAQ. The NASDAQ standards provide that to qualify as an “independent” director, in addition to satisfying certain bright-line criteria, the board of directors has a responsibility to make an affirmative determination that a director has no relationship with the Company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company) that would interfere with the exercise of independent judgment. Our board of directors has determined that each of Messrs. Beatty, Gibson, Stein, Walker and Zinni, as well as director nominee Caldwell, satisfies the bright-line criteria and that none has a relationship with the Company that would interfere with such person’s ability to exercise independent judgment as a member of the board of directors. Therefore, we believe that each of such directors is independent under the NASDAQ rules.
The NCGC Committee is currently comprised of directors Stein, Walker and Zinni. All members of the NCGC Committee are independent in accordance with the listing standards of the NASDAQ. This standing committee determines the salary for the chief executive officer, the president and chief operating officer and the vice president and chief financial officer. The purpose of the NCGC Committee is to make recommendations to the board of directors regarding corporate governance policies and practices, recommend criteria for membership on the board of directors, make recommendations to the board of directors of potential director nominees, make recommendations to the board of directors concerning the membership, size and responsibilities of each of the committees, develop general policies relating to compensation and benefits, determine compensation for, and evaluate the performance of, our executive officers and administer our 2013 Plan. The NCGC Committee met two (2)three (3) times during fiscal year 2015.2018. The NCGC Committee has adopted a written charter that last was amended on October 26, 201529, 2018 and sets forth the specific functions and responsibilities of the committee. The NCGC Committee reviews and assesses the adequacy of its written charter on an annual basis. The amended NCGC Committee charter is available on our website at www.sotherlyhotels.com.
The Audit Committee, a standing committee, is currently comprised of directors Beatty, Stein and Zinni.Gibson. The board of directors has determined that David J. Beatty, chairman of the Audit Committee, qualifies as an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K. David J. Beatty is not standing for re-election to the board of directors and his term as director of the Company will expire at the conclusion of the Annual Meeting. The Company anticipates that G. Scott Gibson IV will replace David J. Beatty as chairman of the Audit Committee and as the “audit committee financial expert”. The Company also anticipates that director nominee Maria L. Caldwell will begin serving on the Audit Committee subject to her election to the board of directors. All members of the Audit Committee are independent in accordance with the listing standards of the NASDAQ. Prospective member Maria L. Caldwell is expected to be independent in accordance with the listing standards of the NASDAQ. The Audit Committee meets with the independent registered public accounting firm to discuss the annual audit and any related matters. The Audit Committee is further responsible for internal controls over financial reporting. The Audit Committee met eleven (11)twelve (12) times in fiscal year 2015.2018. The Audit Committee has adopted a written charter that last was amended on October 26, 201529, 2018 and sets forth the specific functions and responsibilities of the committee. The amended Audit Committee charter is available on our website at www.sotherlyhotels.com.
The chief financial officer has responsibility for the day-to-day risk management functions of the Company and reports directly to the Audit Committee regarding issues related to risk management for the Audit Committee’s review and assessment. The Audit Committee meets with the chief financial officer to review and discuss the Company’s risk management and related policies and
procedures. The Audit Committee meets as often as and to the extent that the Audit Committee deems necessary or appropriate, but at least annually in connection with the audit of each fiscal year’s financial statements.
Additionally, the charters of the board’s committees delegate to the committees various elements of the board’s risk oversight responsibility. For example, our Audit Committee is responsible for periodically inquiring of management, the members of theour internal audit departmentconsultants and the independent auditors about the Company’s major financial and operational risks or exposures;exposures (including cyber-related risks); discussing the steps management has taken to monitor and control such exposures; and discussing guidelines and policies with respect to risk assessment and risk management. Our NCGC Committee oversees risks associated with our corporate governance guidelines; our executive compensation plans and arrangements; and our code of business conduct, including compliance with listing standards for independent directors, committee assignments and conflicts of interest. All these risks are discussed with the entire board of directors as often as and to the extent that the committees deem necessary or appropriate.
Report of the Audit Committee
For the fiscal year ended December 31, 2015,2018, the Audit Committee: (i) reviewed and discussed the audited financial statements with management, (ii) discussed with the Company’s independent registered public accounting firm, Grant ThorntonDixon Hughes Goodman LLP, all matters required to be discussed by the Statement on Auditing Standards No. 61, as modified and superseded (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T, and (iii) received the written disclosures and letter from Grant ThorntonDixon Hughes Goodman LLP required by the applicable requirements of the Public Company Accounting Oversight Board regarding Grant ThorntonDixon Hughes Goodman LLP’s communications with the Audit Committee concerning independence and discussed with Grant ThorntonDixon Hughes Goodman LLP its independence. Based on the foregoing review and discussions, the Audit Committee recommended to the board of directors that the audited financial statements be included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 20152018 for filing with the Securities and Exchange Commission.
Audit Committee:
David J. Beatty - Chairman
Edward S. Stein
Anthony C. ZinniG. Scott Gibson IV
Director Nomination Process
The board of directors is responsible for assembling for stockholder consideration a group of nominees that, taken together, have the experience, qualifications, attributes and skills appropriate for functioning effectively as a board. The NCGC Committee works with the board of directors to determine the appropriate characteristics, skills and experiencesexperience for the board as a whole and its individual members with the objective of having a board with a diverse backgroundbackgrounds and experiencesexperience and makes recommendations to the board of potential nominees. When recommending candidates, the NCGC Committee assesses the board’s size and composition; corporate governance policies; applicable listing standards and laws; individual director performance, expertise and willingness to serve actively; the number of other public and private company boards on which a director candidate serves; consideration of director nominees proposed or recommended by stockholders and related policies and procedures; and other appropriate factors. Characteristics expected of all directors include integrity, high personal and professional ethics, strong professional reputation and record of achievement, constructive and collegial personal attributes, sound business judgment and the ability and commitment to devote sufficient time and energy to board service. There are no minimum qualifications that the NCGC Committee has established for a candidate recommended to the board of directors by the NCGC Committee. The NCGC Committee does not have a diversity policy; however, the NCGC Committee seeks to include on the board a complementary mix of individuals with diverse backgrounds and skills reflecting the broad set of challenges that the board confronts. In evaluating the suitability of individual board members, the NCGC Committee takes into account many factors, including general understanding of marketing and finance; understanding of our business; education and professional background; personal accomplishment; diversity of viewpoint; business expertise; and industry knowledge. The board of directors, through the NCGC Committee, evaluates each individual in the context of the board as a whole, with the objective of recommending a group that can best perpetuate the success of our business and represent stockholder interests through the exercise of sound judgment using its diversity of experience. The NCGC Committee evaluates each incumbent director to determine whether such person should be nominated to stand for re-election, based on the types of criteria outlined above as well as the director’s contributions to the board during the current term.
In recommending candidates to the board of directors, the NCGC Committee will consider nominees recommended by stockholders so long as the recommendation is submitted to our corporate secretary within the timeframe required to request a proposal that will be included in the proxy materials for our next annual meeting of stockholders. However, the NCGC Committee may, in its sole discretion, reject any such recommendation for any reason.
Andrew M. Sims’ employment agreement with us provides that we must nominate him to serve as a director. The nomination right provided for under Andrew M. Sims’ employment agreement is subject to the determination of the NCGC Committee, in connection with each annual or special meeting of stockholders at which directors will be elected, that the nominee satisfies the standards established by the committee for service on the board. If Andrew M. Sims fails to be nominated to our board of directors or is involuntarily removed from our board of directors, unless for cause or vote by the stockholders, both he, and David R. Folsom, and Anthony E. Domalski each will receive, among other things, a severance payment equal to three (3) times theirhis respective combined salary base and actual bonus compensation for the preceding fiscal year. Andrew M. Sims is not independent under the corporate governance standards of the NASDAQ.
The board of directors believes that its procedures comply with the requirements of the NASDAQ and provide adequate assurance that nominations are approved by independent directors.
Leadership Structure
Our board of directors remains committed to maintaining strong corporate governance and appropriate independent oversight of management. The board has given careful consideration to our Company’s leadership structure and has determined that our Company and our stockholders currently are best served by having Andrew M. Sims serve as both chairman of the board of directors and chief executive officer. This structure enables Andrew M. Sims to ensure that (i) the board’s agenda reflects our strategic challenges and opportunities; (ii) the board is presented with information required for it to fulfill its responsibilities; and (iii) board meetings are as productive and effective as possible. In the view of the board, the combined role of chairman and chief executive officer promotes unified leadership and direction for the board and executive management and it allows for a single, clear focus for the chain of command to execute the Company’s strategic initiatives and business plan. The board believes that this leadership structure is also appropriate given the size of the Company. As of April 7, 2016,March 14, 2019, the Company has only thirteen (13) employees and a board of seven (7) directors. Due to the size of our Company, it would not be financially and strategically prudent to have separate leadership roles. Andrew M. Sims has spent his career in leadership positions at the Company and the hotel management company, Chesapeake Hospitality. The board believes his superior knowledge of all aspects of the Company, the hotel management company and the hospitality industry makes him the most qualified person to serve both roles for the Company.
The board of directors and its committees oversee the effectiveness of management policies and decisions, including the execution of key strategic initiatives. Each of the board’s committees is composed entirely of independent directors. Consequently, independent directors directly oversee such critical matters as the compensation of executive management, including Andrew M. Sims’ compensation, the selection and evaluation of directors and the development and implementation of corporate governance programs. The independent directors conduct an annual performance review of the chairman and chief executive officer, assessing the Company’s financial and non-financial performance and the quality and effectiveness of Andrew M. Sims’ leadership. In addition, the NCGC Committee oversees the processes by which Andrew M. Sims is evaluated. The board believes that the Company’s corporate governance documents, which are available on the Company’s website, help ensure that strong and independent directors will continue to play the central oversight role necessary to maintain the Company’s commitment to the highest quality corporate governance. Pursuant to these governance principles, independent board members meet as often as and to the extent that the independent directors deem necessary or appropriate at executive sessions without management present.
Our board of directors has designated Edward S. Stein, the chairman of the NCGC Committee, to serve as the lead independent director. The lead independent director serves as chairman of meetings of the independent directors. The lead independent director, a separate and independent position from the chairman, calls meetings, supervises the conduct of meetings of the independent directors, records the minutes and reports meeting results and any decisions of the independent directors to our chairman and facilitates communication between the independent directors, the chairman and management. The position held by Edward S. Stein ensures effective corporate governance for our Company.
NCGC Committee Interlocks and Insider Participation
The NCGC Committee consists of Mr. Stein, Mr. Zinni, and Mr. Walker. None of the members of our NCGC Committee is or has been one of our employees or officers. None of our executive officers currently serves, or during the past fiscal year has served, as a member of the board of directors or compensation committee of another entity that has one or more executive officers serving on our board of directors or our NCGC Committee.
The board of directors does not have a formal process for stockholders to send communications to the board. In view of the infrequency of stockholder communications to the board of directors, the board does not believe that a formal process is necessary. Written communications received by our Company from stockholders are shared with the full board no later than the next regularly scheduled board meeting. The board encourages, but does not require, directors to attend the annual meeting of stockholders.
DIRECTOR AND EXECUTIVE COMPENSATION
The NCGC Committee is responsible for developing our policies relating to compensation and benefits, determining compensation for, and evaluating the performance of, certain of our executive officers, and administering the 2013 Plan. The NCGC Committee determines compensation for our three (3) most highly paid executive officers: the chief executive officer, the chief financial officer and the president and chief operating officer. We refer to these three (3) executive officers as our principal executive officers.
The NCGC Committee reviews and approves, at least annually, corporate goals and objectives relevant to the compensation of the CEO. The NCGC Committee also:
Evaluates at least annually the performance of the Company’s principal executive officers in light of the corporate goals and objectives;
At least annually, either as the NCGC Committee or together with the other independent directors, as directed by the board of directors, in light of the corporate goals and objectives and the performance evaluations: (i) determines and approves the compensation of the CEO, including individual elements of salary, bonus, supplemental retirement, incentive and equity compensation; and (ii) approves the compensation for the CFO and COO based on recommendations from the CEO;
Administers the Company’s incentive compensation plans and equity-based plans;
Reviews, as the NCGC Committee considers appropriate in setting principal executive officer compensation, the Company’s performance’s and relative stockholder return, compensation at comparable companies, past years’ compensation to the Company’s principal executive officers and other relevant factors; and
Reviews and approves all employment agreements, separation and severance agreements and other compensatory contracts, arrangements, perquisites and payments with respect to the CEO, and reviews and makes recommendations to the board of directors regarding all such agreements, contracts, arrangements, perquisites and payments with respect to other executive officers.
In any deliberations or voting to determine the compensation of the CEO, the CEO must not be present; however, in any deliberations regarding the compensation of other executive officers, the NCGC Committee may elect to invite the CEO to be present but not vote.
The NCGC Committee’s principal objective in establishing compensation policies is to develop and administer a comprehensive program designed to attract and retain outstanding managers. The NCGC Committee’s guidelines for compensation of our principal executive officers are designed to provide fair and competitive levels of total compensation while linking elements of compensation with performance. A further objective of our compensation policies is to provide incentives and reward principal executive officers for their contribution to our Company. To that end, the NCGC Committee believes executive compensation packages provided by us to the principal executive officers should include both cash and stock-based compensation that rewardrewards performance as measured against established goals. The NCGC Committee takes into account our principal executive officers’ existing ownership of the Company’s common stock and allocations of common stock made to the executives’ participant accounts pursuant to the Company’s ESOP, which the NCGC Committee believes aligns the interests of our principal executive officers with that of our stockholders and encourages a focus on long-term value creation.
It was favorably noted by the NCGC Committee that our stockholders overwhelmingly approved our executive compensation program at the 20152018 annual meeting. Holders of approximately 4.756.44 million shares of our common stock, or over 99%approximately 92.0% of the total votes cast (without regard to broker non-votes or abstentions), voted for the advisory vote approving executive compensation. The NCGC Committee generally considered the results of the 2018 advisory vote on executive compensation and considered these voting results as supportive of the NCGC Committee’s general executive compensation practices.
The NCGC Committee has not retained or obtained the advice of a compensation consultant.
Elements of our Compensation Plan
Elements of compensation for our principal executive officers consist principally of base salary, cash performance bonuses and awards of shares of common stock undernon-discretionary allocations pursuant to the 2013 Plan.Company’s ESOP. In determining each element of compensation for each principal executive officer, the NCGC Committee primarily considers:considers the following elements:
market data relating to an identified peer group;
third-party compensation surveys for the lodging industry and, when applicable, compensation at comparable companies;
company performance in light of specified goals and guidance;
recommendations of the chief executive officer;
individual performance of the principal executive officers;
the terms of each principal executive officer’s employment agreement;
past years’ compensation paid to the Company’s principal executive officers; and
allocations to the principal executive officer’s participant accounts pursuant to the Company’s ESOP.
For 2018, executive compensation included three main components: (i) annual base salary; (ii) annual cash bonus; and (iii) non-discretionary allocations pursuant to the Company’s ESOP.
Principles and Objective of the Compensation Plan
The following table summarizes the primary components and rationale of the Company’s compensation philosophy and the pay elements that support that philosophy.
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Compensation should be designed to attract and retain outstanding managers | The principal objective of the Company’s executive compensation plan has been and is to achieve the Company’s business objectives by attracting, retaining and motivating talented executive officers by providing incentives and economic security. | All elements (salary, annual cash bonus, ESOP allocations, health and welfare benefits, change in control severance agreements) |
Compensation should provide fair and competitive levels of total compensation | To attract and reduce the risk of losing the services of valuable executive officers but avoid the expense of excessive pay, compensation should be competitive. The NCGC Committee assesses the competitiveness of the Company's compensation to its executive officers by comparison to compensation of executive officers at similar public companies, based on available proxy statement data | All elements |
Elements of compensation should be linked with performance | Performance-based pay aligns the interest of management with the Company’s shareholders. Performance-based compensation motivates and rewards individual efforts and Company success. The executive officers are eligible to receive a cash bonus in target amounts between 25%-35% of their base salary, subject to consideration of the performance metrics described under the heading “Cash Bonus Plan”. | Cash bonus |
Compensation should align the interests of our executive officers with those of our stockholders | The Company’s executive compensation is designed to reward favorable total shareholder returns, both in an | Non-discretionary ESOP allocations |
Compensation should provide incentives and reward principal executive officers for their contribution to our Company | The Company strives to provide a rewarding and professionally challenging work environment for its executive officers. The Company believes that executive officers who are motivated and challenged by their duties are more likely to achieve the individual and corporate performance goals. The Company’s executive compensation plan should reflect this work environment and reward the executive officers for meeting or exceeding performance expectations. | All elements |
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Base Salary
The original base salary amounts of the principal executive officers were provided for in their respective employment agreements and are subject to adjustment pursuant to the terms of those agreements. In setting base salaries, and annually considering adjustments, the NCGC Committee uses an evaluation process considering the principal executive officer’s position, level and scope of responsibility and an evaluation of base salaries and other benefits of other executive officers of comparable companies, including an analysis of our Company’s current operating resultsresults. The 2018 annual base salaries for the principal executive officers are provided in the Summary Compensation Table. For 2019, the NCGC Committee approved a 2.5% increase to the annual base salaries for Mr. Sims and Mr. Folsom to reflect a cost-of-living adjustment as provided for by their respective employment agreements, resulting in annual base salaries for 2019 of $602,371 and $408,517, respectively. The NCGC Committee approved an annual base salary for 2019 for Mr. Domalski of $342,375 as provided for by Mr. Domalski’s employment agreement.
Cash Bonus Plan
Under our employment agreements with the principal executive officers, each principal executive officer is eligible to receive a cash bonus in target amounts between 15%25%-35% of base salary. The NCGC Committee has reviewed these agreements and has determined in the best interests of the Company to structure a cash bonus plan that may award above or below the 15%25%-35% target range indicated in the agreements subject to consideration of the following metrics:following:
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stock performance relative to our Company peer group; and
realizing the 2018 corporate goals and objectives and other personal goals established by our board of directors based on recommendations from our chief executive officer. |
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For 2018, the NCGC Committee approved cash bonuses for Mr. Sims, Mr. Folsom, and Mr. Domalski of $144,800, $94,800, and $64,800, respectively. The NCGC Committee has determined that for 2016,2019, the annual target bonus for which our chief executive officer, our chief operating officer, and our chief operatingfinancial officer is eligible to receive will be an amount between twenty five percent (25%) and thirty five percent (35%) of each such executive’s base salary, pursuant to each executive’s respective employment agreement.
Employee Stock Ownership Plan
The Company sponsors and maintains the Sotherly Hotels Inc. ESOP and related employmenttrust for the benefit of its eligible employees. Employees who are at least 21 years old with at least one year of service during which the employee has completed at least 1,000 hours of service with the Company are eligible to participate. On December 29, 2016, the Company entered into a loan agreement with the ESOP pursuant to which the ESOP may borrow up to $5,000,000 from the Company to purchase shares of the Company’s common stock (“ESOP Loan”). Between January 3, 2017 and February 23, 2017, the ESOP purchased 682,500 shares of the Company’s common stock in the open market. In accordance with the ESOP Loan documents, the common stock purchased by the ESOP serves as collateral for the ESOP Loan. The ESOP Loan will be repaid principally from discretionary contributions by the Company to the ESOP over a period ending no later than December 29, 2036. The interest rate on the ESOP Loan is 2.5% and the annual target bonusESOP Loan documents provide that the ESOP Loan may be repaid over a shorter period, without penalty for which our chief financial officer is eligibleprepayments. Shares purchased by the ESOP are held in a suspense account for allocation among participants as contributions are made to receivethe ESOP by the Company.
Contributions to the ESOP and shares released from the suspense account in an amount proportional to the repayment of the ESOP Loan will be allocated among ESOP participants on the basis of compensation in the year of allocation. Participants will generally be 100% vested in their ESOP account balances upon completion of five years of credited service. A participant’s interest in his or her account under the ESOP will also fully vest in the event of termination of service due to normal retirement, death, or disability. Distributions of vested ESOP account balances will be made in cash, provided that the participant will have the right to request a stock distribution, subject to the Company’s governing documents and applicable law. The Company contributions to the ESOP are discretionary, subject to the ESOP Loan documents and tax law limits. Pursuant to generally accepted accounting principles, we are required to record compensation expense each year in an amount between fifteen percent (15%) and twenty percent (20%)equal to the fair market value of his base salary, pursuantthe shares released or committed to his employment agreement. be released from the suspense account.
Long-Term Stock Bonus Program
In 2013, the NCGC Committee formulated, and the board of directors adopted, a Long TermLong-Term Stock Bonus Program which was implemented in conjunction with the 2013 Plan, discussed below. The program covers our chief executive officer, our chief financial officer and our president and chief operating officer. When the Long-Term Stock Bonus Program was established, the NCGC Committee determined the appropriate target amounts of stock awards for each principal executive officer by reviewing market data relating to compensation programs for senior executives in the Company’s peer group, among other factors.
TheOn February 15, 2017, the NCGC Committee approved the suspension of the Long-Term Stock Bonus Program providesin light of, among other things, planned ESOP allocations described above under the caption “Employee Stock Ownership Plan”. As such, no stock bonus awards were issued for an annual target of 10,000 shares for award2018 pursuant to our chief executive officer, 6,000 shares for award to our chief financial officerthe Long-Term Stock Bonus Program. Given the tax and 8,000 shares for award to our president and chief operating officer. For our chief executive officer, 5,000 of those shares were awardedaccounting impact on executives receiving stock bonus awards, the NCGC Committee determined that it is in recognition of service in 2015. For our chief financial officer and our chief operating officer, fifty percent (50%)the best interest of the targeted amount of shares were awarded in recognition of service in 2015. The remaining shares for our chief executive officer and fifty percent (50%) of the shares for our chief financial officer and chief operating officer were awarded based onCompany to pursue the Company’s and/orobjective of encouraging increased executive ownership interest in the principal executive officer’s performance in four (4) areas:
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The actual number of shares earned by each principal executive officer for performance in calendar year 2015 was determined by the NCGC Committee.
Tax Considerations
Section 162(m) of the Internal Revenue Code generally sets a limit of $1.0 million on the amount of annual compensation paid to an executive officer (other than certain enumerated categories of compensation, including performance-based compensation) that may be deducted by a publicly-held company. It is the policy of the board of directors andof the NCGC CommitteeCompany will continue to seekevaluate its approach to qualify executive compensation, for deductibility toincluding stock-based compensation, and may reinstate the extent that such policy is consistent with our overall objectives and executive compensation policy. None ofLong-Term Stock Bonus Program in the principal executive officers received compensation in 2015 in excess of the limits imposed under Section 162(m).future.
The following table sets forth the cash and non-cash compensation awarded to or earned by Andrew M. Sims, Anthony E. Domalski and David R. Folsom during the past two (2)three (3) fiscal years.
Summary Compensation TableSUMMARY COMPENSATION TABLE
Name and Principal Position |
| Year |
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| Salary ($) |
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| Bonus ($) |
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| Stock Awards ($) |
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| All Other Compensation ($) |
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| Total ($) |
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| Year |
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| Salary ($) |
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| Bonus ($) |
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| Stock Awards ($) |
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| All Other Compensation ($) |
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| Total ($) |
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Andrew M. Sims, CEO |
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| 2015 |
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| 498,940 |
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| 115,000 |
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| 42,320(1) |
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| 69,256(3) |
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| 725,516 |
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| 2018 |
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| 587,679 |
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| 144,800 |
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| — |
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| 102,194 | (2) |
| 834,673 |
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| 2014 |
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| 430,333 |
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| 115,000 |
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| 73,700(2) |
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| 36,796(4) |
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| 655,829 |
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| 2017 |
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| 576,156 |
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| 144,800 |
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| — |
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| 96,672 | (3) |
| 817,628 |
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Andrew M. Sims, CEO |
| 2016 |
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| 567,641 |
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| 156,750 |
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| — |
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| 82,337 | (4) |
| 806,728 |
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| 2018 |
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| 398,553 |
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| 94,800 |
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| — |
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| 89,538 | (2) |
| 582,890 |
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David R. Folsom, President and COO |
| 2017 |
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| 390,738 |
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| 94,800 |
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| — |
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| 83,591 | (3) |
| 569,129 |
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| 2016 |
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| 335,702 |
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| 106,750 |
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| — |
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| 69,021 | (4) |
| 511,473 |
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Anthony E. Domalski, Vice President, CFO and Secretary |
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| 2015 |
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| 236,000 |
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| 60,000 | (5) |
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| 31,740(1) |
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| 70,601(3) |
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| 398,341 |
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| 2018 |
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| 295,000 |
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| 64,800 |
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| 161,250 | (1) |
| 84,812 | (2) |
| 605,862 |
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| 2014 |
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| 229,000 |
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| 60,000 |
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| 44,220(2) |
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| 76,322(4) |
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| 409,542 |
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| 2017 |
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| 255,000 |
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| 64,800 |
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| — |
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| 78,865 | (3) |
| 398,665 |
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David. R. Folsom, President and COO |
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| 2015 |
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| 285,702 |
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| 80,000 |
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| 37,030(1) |
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| 55,626(3) |
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| 458,358 |
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| 2014 |
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| 281,480 |
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| 80,000 |
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| 58,960(2) |
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| 38,831(4) |
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| 459,271 |
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Anthony E. Domalski, Vice President, CFO and Secretary |
| 2016 |
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| 245,000 |
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| 69,750 |
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| — |
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| 64,295 | (4) |
| 379,045 |
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1 | Represents the dollar value of |
2 |
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3 | Includes the Company contributions to the 401(k) plan in the amount of $10,800 for each of Andrew M. Sims, David R. Folsom, and Anthony E. Domalski in 2017. Includes insurance premiums paid by our Company for life insurance policies for the principal executive officers in the amount of approximately $11,510 for Mr. Sims, $4,899 for Mr. Folsom, and $2,685 for Mr. Domalski in 2017. Includes insurance premiums paid by our Company for health insurance policies for the principal executive officers in the amount of approximately $20,418 for Mr. Sims, $30,243 for Mr. Folsom, and $30,243 for Mr. Domalski in 2017. Includes insurance premiums paid by our Company for long-term disability insurance policies for the principal executive officers in the amount of approximately $30,408 for Mr. Sims, $14,113 for Mr. Folsom, and $11,601 for Mr. Domalski in 2017. Includes ESOP allocation in the amount of $23,536 for each of Andrew M. Sims, David R. Folsom, and Anthony E. Domalski in 2017, which represents the dollar value of the ESOP share allocation multiplied by the closing market price of our common stock of $6.45 on December 29, 2017, the effective date of the allocation. |
4 | Includes the Company contributions to the 401(k) plan in the amount of $10,600 for each of Andrew M. Sims, David R. Folsom, and Anthony E. Domalski |
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Outstanding Equity Awards at Fiscal Year End
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| Stock awards |
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Name |
| Number of shares of stock that have not vested (#) |
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| Market value of shares that have not vested ($) |
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| Number of shares of stock that have not vested (#) |
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| Market value of shares that have not vested ($) |
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Anthony E. Domalski, Vice President, CFO and Secretary |
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| 12,000 |
| (1) |
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| 73,920 |
| (2) |
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| 20,000 |
| (1) |
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| 112,200 |
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1 | Pursuant to Mr. Domalski’s employment agreement with the Company dated as of |
2 | Represents the dollar value of shares of common stock calculated by multiplying the closing market price of our common stock of |
No other compensation has been awarded to, earned by or paid to any of our principal executive officers which is required to be reported in the above tables.
On February 2, 2016, we granted 8,000 shares of stock to Andrew M. Sims, 6,000 shares of stock to Anthony E. Domalski and 7,000 shares of stock to David R. Folsom under the 2013 Plan, as described under the caption “Stock Awards Granted”.
20152018 Base Salary
For 2015,2018, Andrew M. Sims received $498,940$587,679 in base salary, pursuant to the terms of his employment agreement. For 2015,2018, David R. Folsom received a 1.5% increase to his$398,553 in base salary, over 2014, for a totalpursuant to the terms of $285,702 in base salary.his employment agreement. For 2015,2018, Anthony E. Domalski received $236,000$295,000 in base salary, pursuant to the terms of his employment agreement.
20152018 Bonuses Awarded
The NCGC Committee awarded cash bonuses to the principal executive officers for fiscal year 20152018 of $115,000, $60,000$144,800, $94,800 and $80,000$64,800 to Andrew M. Sims, David R. Folsom, and Anthony E. Domalski, and David R. Folsom, respectively. In making its decisions, the NCGC Committee considered the factors described above under the caption “Cash Bonus Plan.” Mr. Domalski’s cash bonus includes a contingency by which his cash bonus will be reduced by approximately $10,000 in the event of an unsuccessful resolution of a tax penalty assessed by the Internal Revenue Service relating to the Company’s acquisition of the Crowne Plaza Houston Downtown, as determined by the Company’s chief executive officer.
Stock Awards Granted
Pursuant toIn February 2017, the NCGC Committee suspended the Long-Term Stock Bonus Program, the NCGC Committee awardedand did not award as bonus compensation any shares of ourthe Company’s stock to the principal executive officers for fiscal year 2015 of 8,000, 6,000 and 7,000 vested shares to Andrew M. Sims, Anthony E. Domalski and David R. Folsom, respectively, based on performance in2018. For fiscal year 2015. In making its decision,2018, there were no grants of plan-based awards.
Pursuant to Mr. Domalski’s current employment agreement with the NCGC Committee consideredCompany dated as of January 1, 2018, the factors described above underCompany issued 25,000 restricted shares of common stock to Mr. Domalski on January 1, 2018, which vest in equal amounts of 5,000 shares over a five-year period during Mr. Domalski’s employment on December 31 of each year, commencing December 31, 2018 and ending December 31, 2022.
OPTION EXERCISES AND STOCK VESTED
The Company has not granted any stock option awards to the caption “Long-Term Stock Bonus Program.”principal executive officers. The following table sets forth information with respect to the vesting of the principal executive officers' restricted common stock during 2018.
Stock Awards | ||||
Name | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||
Andrew M. Sims, CEO | — | — | ||
David R. Folsom, COO | — | — | ||
Anthony E. Domalski, CFO | 5,000 | 28,050(1) |
1 | For purposes of this table, the market value per vested share of common stock is assumed to be the closing market price per common share of $5.61 on December 31, 2018, the vesting date. |
Employment Agreements
Our current employment agreements with Andrew M. Sims, our chief executive officer, David R. Folsom, our president and chief operating officer, and Anthony E. Domalski, our chief financial officer, provide for each executive’s annual salary and possible additional compensation in the form of cash bonus and restricted stock awards. Each current executive will receive customary benefits, including a term life insurance policy of $1 million and disability insurance in an amount so that each executive will receive the same monthly payments as under such executive’s respective employment agreement in the event of disability. As described below, the current employment agreements provide our executives with severance benefits if such executive’s employment ends under certain circumstances including a change in control. We believe that the current employment agreements will benefit us by helping to retain Mr. Sims, Mr. Folsom and Mr. Domalski and by allowing such executives to focus on their duties without the distraction of the concern for their personal situation in the event of a possible change in control of our Company.
Our current employment agreements with Mr. Sims, Mr. Folsom and Mr. Domalski contain provisions providing for substantial payments to these executives in the event of a change of control of our Company. Specifically, if we terminate these executive’s employment without cause or the executive resigns with good reason, which in the case of Mr. Sims and Mr. Folsom includes a failure
to nominate Andrew M. Sims to our board of directors or his involuntary removal from our board of directors, unless for cause or by vote of the stockholders, or if there is a change of control, each of these executives is entitled to the following: