SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(Rule14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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| ☒ | Definitive Proxy Statement | |
| ☐ | Definitive Additional Materials | |
| ☐ | Soliciting Material Pursuant to§240.14a-12 |
MTGE Investment Corp.
(Name of Registrant as Specified in its Charter)
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MTGE INVESTMENT CORP.
NOTICE OF 2018 ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON MAY 1, 2018
| DATE AND TIME: | Tuesday, May 1, 2018, at 9:00 a.m., Eastern Time | |||
| PLACE: | Hyatt Regency Bethesda, 7400 Wisconsin Avenue, Bethesda, Maryland 20814 | |||
| ITEMS OF BUSINESS: | 1) | To consider and vote upon the election of four directors to the Board of Directors, with each director serving until the 2019 annual meeting of stockholders and until his or her successor is duly elected; | ||
| 2) | To consider and vote upon, on an advisory basis, the compensation of our executive officers as disclosed in the attached proxy statement; | |||
| 3) | To consider and vote upon the ratification of the appointment of Ernst & Young LLP to serve as our independent public accountant for the year ending December 31, 2018; and | |||
| 4) | To transact such other business as may properly come before the meeting or any postponement or adjournment thereof. | |||
| In addition, there will be a presentation on our business, and stockholders will have an opportunity to ask questions. | ||||
| WHO CAN VOTE: | You are entitled to notice of, and to vote at, the Annual Meeting and any postponement or adjournment of the Annual Meeting if you were a common stockholder of record at the close of business on March 8, 2018. | |||
| VOTING: | Your vote is important and we urge you to vote. You may vote in person at the Annual Meeting or authorize a proxy to vote by telephone, through the internet, or by mailing your completed proxy card (or voting instruction form, if you hold your shares through a broker, bank, or other nominee).See Questions 5 and 6 of “Questions and Answers About the 2018 Annual Meeting and Voting” in the accompanying proxy statement for additional information regarding voting. | |||
| MEETING ADMISSION: | If you wish to attend the Annual Meeting in person, we request that you register in advance with our Investor Relations department by following the instructions set forth in response to Question 14 of “Questions and Answers About the 2018 Annual Meeting and Voting” in the accompanying proxy statement. | |||
| DATE OF DISTRIBUTION: | This notice, the proxy statement, the accompanying proxy card, and our annual report to stockholders, which includes our annual report on Form10-K with audited financial statements for the year ended December 31, 2017, are first being sent or made available to our common stockholders on or about March 22, 2018. | |||
BY ORDER OF THE BOARD OF
DIRECTORS,
Kenneth L. Pollack
Senior Vice President and Secretary
March 22, 2018
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 1, 2018
This proxy statement and our annual report to stockholders, which includes our annual report on Form10-K for the fiscal year ended December 31, 2017, are available free of charge on the internet atwww.MTGE.com/2018proxymaterials.
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PROXY STATEMENT
This proxy statement contains information about the 2018 Annual Meeting of Stockholders (the “Annual Meeting”) of MTGE Investment Corp., a Maryland corporation (“MTGE,” the “Company,” “we,” “our” and “us”).
TABLE OF CONTENTS
MTGE INVESTMENT CORP. – Proxy Statement i
ii MTGE INVESTMENT CORP. – Proxy Statement
MTGE INVESTMENT CORP. AT A GLANCE
MTGE INVESTMENT CORP. AT A GLANCE
MTGE Investment Corp., a Maryland corporation, is an externally-managed hybrid mortgage real estate investment trust (“REIT”) that invests in agency mortgage-backed securities,non-agency mortgage investments, and other real estate-related assets, including skilled nursing and senior living facilities operated by third parties.
| (1) | Information is as of December 31, 2017. |
| (2) | Based on December 29, 2017 closing stock price of $18.50 per common share. |
MTGE INVESTMENT CORP. – Proxy Statement 1
BOARD AND GOVERNANCE MATTERS
Our Board of Directors (the “Board of Directors” or “Board”) is currently comprised of three independent directors and one affiliated director. The following table sets forth the current members of our Board of Directors and their committee memberships, if any:
| Name | Director Since | Executive | Audit(1) | Compensation and Corporate Governance(2) | ||||
Julia L. Coronado* | 2016 |
| ✓ | Chair | ||||
Robert M. Couch* | 2011 | ✓ | Chair | ✓ | ||||
Randy E. Dobbs* | 2011 | Chair | ✓ | ✓ | ||||
Gary D. Kain | 2016 | ✓ |
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| * | Director is “independent” as defined in Rule 5605(a)(2) of The Nasdaq Listing Rules (the “Nasdaq rules”). |
| (1) | Each member of the Audit Committee is “independent” as defined in Rules 5605(a)(2) and 5605(c)(2) of the Nasdaq rules andRule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Board of Directors has determined that Mr. Couch is an “audit committee financial expert,” as defined in Item 407 of RegulationS-K under the Securities Act of 1933, as amended (the “Securities Act”). |
| (2) | Each member of the Compensation and Corporate Governance Committee is “independent” as defined in Rules 5605(a)(2) and 5605(d)(2) of the Nasdaq rules. |
Mr. Dobbs has served as our Chair and Lead Independent Director since May 2016, and Mr. Kain has served as our Chief Executive Officer since March 2016. We recognize the importance of strong independent leadership on the Board of Directors and believe that separating the positions of Chair and Chief Executive Officer is the best corporate governance leadership structure for us at this time. We believe this structure effectively allocates authority, oversight, and responsibility between management and the independent members of our Board. Our Board of Directors has determined that all of the current directors, except Mr. Kain, are “independent” as defined in the Nasdaq rules.
It is our Board’s policy as a matter of good corporate governance to have a majority of our independent directors meet regularly without persons who are members of management or employee directors present to facilitate the Board’s effective independent oversight of management. Presently, our independent directors meet separately during our Board’s quarterlyin-person meetings and may hold additional meetings at the request of the Chair or any other independent director.
Each of our Board’s Audit Committee and Compensation and Corporate Governance Committee (“Compensation Committee”) is composed entirely of independent directors. These independent committees of our Board also have the authority under their respective charters to hire independent advisors and consultants, at our expense, to assist them in performing their duties.
Our Board has developed corporate governance practices to help it fulfill its responsibility to oversee the work of management in the conduct of our business. The governance practices are memorialized in corporate governance guidelines to assure that the Board will have the necessary authority and practices in place to review and evaluate our business operations as needed and to make decisions that are independent of management. These guidelines, in conjunction with our Articles of Amendment and Restatement, as amended (“Charter”),
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BOARD AND GOVERNANCE MATTERS
Amended and Restated Bylaws, as amended (our “Bylaws”), and committee charters of the Audit Committee and the Compensation Committee, form the framework for our governance. All of these documents are available in the Investors section of our web site atwww.MTGE.com.
CORPORATE GOVERNANCE HIGHLIGHTS:
| • | Annual election of directors |
| • | Directors elected by majority, not plurality, voting in uncontested elections |
| • | Resignation policy for directors who do not receive a majority vote |
| • | Three of four directors are independent |
| • | Chair is independent |
| • | All MTGE directors serve on two or fewer public company boards |
| • | Regular meetings of independent directors without members of management or affiliated directors |
| • | Stock ownership guidelines for directors |
| • | Anti-Hedging and Pledging Policy for executive officers and directors |
| • | No stockholder rights plan or “poison pill” |
| • | Comprehensive Code of Ethics and Conduct (“Code of Ethics”) and Corporate Governance Guidelines |
| • | Annual Board and Committee Self-Evaluations |
| • | At least 89% attendance for Board meetings and 100% attendance for committee meetings in 2017 |
| • | Stockholders have the power to directly amend our Bylaws by a majority of the votes entitled to be cast |
| • | Executive officers are subject to a clawback policy adopted by our Manager |
| • | Membership in the National Association of Corporate Directors (the “NACD”), a leading authority on corporate boardroom and governance practices |
Committees of the Board of Directors
Our Board of Director’s principal standing committees and their primary functions are described below.
Executive Committee
This committee has the authority to exercise all powers of the Board of Directors except for actions that must be taken by the full Board of Directors under Maryland law or our Charter or Bylaws.
Audit Committee
This committee assists the Board of Directors in overseeing:
| • | our accounting and financial reporting processes; |
| • | the integrity and audits of our financial statements; |
| • | the adequacy and effectiveness of our internal controls over financial reporting, including information technology security and controls relating to the preparation of our financial statements; |
| • | the internal audit department of our Manager and their annual scope of work; |
| • | our compliance with legal and regulatory requirements; |
| • | compliance with our Code of Ethics; |
| • | the qualifications and independence of our independent registered public accounting firm; and |
| • | the performance of our independent registered public accounting firm and any internal auditors. |
The Audit Committee is also responsible for engaging an independent registered public accounting firm, reviewing with the independent registered public accounting firm the plans and results of the audit engagement, approving professional services provided by the independent registered public accounting firm, and considering
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BOARD AND GOVERNANCE MATTERS
the range of audit andnon-audit fees. The Audit Committee’s meetings include, whenever appropriate, executive sessions with each of our independent external auditors and our Manager’s internal auditors, without the presence of management.
Compensation and Corporate Governance Committee
This committee’s principal functions are to:
| • | evaluate the performance of our Manager; |
| • | review the compensation and fees payable to our Manager under the management agreement with our Manager (which is described under “Board and Governance Matters—Certain Transactions with Related Persons”); |
| • | decide whether to recommend the termination of the management agreement with our Manager; |
| • | evaluate the compensation and fees payable to the members of the Board of Directors; |
| • | administer our equity incentive plan to the extent the committee is delegated authority by the Board of Directors; |
| • | regularly evaluate and report to the Board on executive and Board of Directors succession plans; |
| • | identify and engage in leadership development opportunities for management and the Board of Directors; |
| • | monitor and facilitate our governance, including membership of the Board of Directors and operations and our Corporate Governance Guidelines; |
| • | review and evaluate the sufficiency of our Code of Ethics; |
| • | oversee evaluation of our Board, committees of the Board of Directors, and management; and |
| • | produce a report on executive compensation required to be included in our proxy statement for our annual meetings. |
The Compensation Committee also serves as the Board of Director’s standing nominating committee and as such performs the following functions:
| • | identifying, recruiting, and recommending to the Board of Directors qualified candidates for election as directors and recommending a slate of nominees for election as directors by our common stockholders at each annual meeting of stockholders; |
| • | developing and recommending to the Board of Directors corporate governance guidelines, including selection criteria for director nominees; |
| • | recommending to the Board of Directors members for each committee of the Board of Directors; and |
| • | annually facilitating the assessment of the Board of Directors’ performance as a whole and of the individual directors and reports thereon to the Board of Directors. |
Compensation Consultant
Under its charter, the Compensation Committee has the authority to select, retain, and terminate compensation consultants. The Compensation Committee retained Frederic W. Cook & Co., Inc. (“FW Cook”) in 2017 to assist with a review ofnon-employee director compensation.
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BOARD AND GOVERNANCE MATTERS
Under our Bylaws and Maryland law, the Board of Directors and its committees are permitted to take actions at regular or special meetings and by unanimous written consent. The Board of Directors generally holds regular quarterly meetings and meets on other occasions as necessary. The Board of Directors held nine meetings during 2017. As noted above, the independent directors also met separately in executive sessions to discuss various matters, including our performance and the performance of our Manager.
Each of the Audit Committee and the Compensation Committee schedules regular meetings to coincide with the quarterlyin-person meetings of the Board of Directors and also meets at the request of senior management or at such other times as its Chair determines. The Chair of each committee, in consultation with our Secretary, sets the agendas for the meetings. Each committee reports to the Board of Directors on its activities at the next regularly scheduled Board meeting following their committee meetings and otherwise when appropriate. During 2017, the Audit Committee held five meetings and the Compensation Committee held five meetings.
Each of our directors attended at least 89% of the meetings of the Board of Directors and 100% of the meetings of the committees on which he or she served in 2017. Although we do not have a policy on director attendance at the Annual Meeting, directors are encouraged to attend the Annual Meeting. Each of our directors who was a director at the time attended the 2017 Annual Meeting of Stockholders in person.
Our Board of Directors is responsible for the general oversight of the Company, including the performance of our executive officers and our Manager, our strategic direction, and the Company’s risk management processes, to assure that the long-term interests of our Company are being served. In performing its risk oversight function, the Board, directly or through its standing committees, regularly reviews our material strategic, operational, financial, compensation, and compliance risks with our Manager. The Company believes that the Board’s role in strategy and risk management oversight is effective and appropriate. The Board receives updates at each regular meeting on the Company’s performance, market conditions, and other recent developments, including, among other things, our risks and opportunities facing us, as well as the strategies used to hedge the Company’s exposure to market risks, including interest rate, prepayment and extension risks. The Board periodically reviews and discusses with management and in executive session our near and longer term strategic direction. The Board has also adopted, and regularly reviews our compliance with, various policies and procedures addressing other operational risks.
The Board believes that cybersecurity is an enterprise-wide concern impacting people, processes, and operations, and in light of the pervasive and increasing threat from cyber attached to all companies, the Board believes oversight of this risk is appropriately allocated to the full Board. The Board has evaluated with our Manager the threat to the Company after considering our operations and the types of data retained on our systems. Our Manager also contracts with third party security firms to provide threat detection and conduct annual testing on our and our Manager’s systems. The tenants and operators of our healthcare properties are separately responsible for their own cybersecurity and privacy practices at our properties. The Board reviews cybersecurity and receives reports from the Manager’s Senior Vice President, Information Technology on an annual basis. The Board may also receive additional updates or reports from the Manager as necessary.
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BOARD AND GOVERNANCE MATTERS
The Board of Directors also recognizes the importance of effective executive leadership to our success and is actively engaged in overseeing succession planning. The Board of Directors and the Compensation Committee routinely review our Manager’s staffing for critical roles, considering the operational needs of the Company and the potential leadership, industry knowledge, and investment skills of existing employees of our Manager and its affiliates. Executives and other key employees of the Manager and its affiliates are given exposure to the Board of Directors during meetings and other events. In addition, the Compensation Committee is regularly updated on the Manager’s strategies for recruiting, developing, and retaining outstanding personnel and minimizing its employee turnover, as applicable.
The Board has delegated certain risk management oversight responsibility to its committees as follows:
| • | Regulatory Compliance Risk: The Board, both directly and through the Audit Committee, receives regular reports from our Manager’s legal, accounting, and internal audit representatives on regulatory matters, including the Company’s compliance with its REIT qualification and exemption from the Investment Company Act of 1940, as amended, compliance with our Code of Ethics, and our Manager’s compliance with the Investment Advisers Act of 1940, as amended. |
| • | Financial and Accounting Risk: The Audit Committee oversees the Company’s management of its financial, accounting, internal controls, and regulatory compliance through regular meetings with our Chief Financial Officer, senior representatives of our Manager’s accounting, tax, auditing, and legal departments and representatives of the Company’s independent public accountant. |
| • | Litigation Risk: The Compensation Committee monitors the Company’s litigation, if any. |
| • | Compensation and Benefit Plan Risk: The Compensation Committee considers the extent to which our director compensation and benefit plan programs may create risk for the Company. |
| • | Governance Risk: The Compensation Committee also oversees risks related to Board organization, membership and structure, and corporate governance. |
| • | Succession Planning Risk: The Compensation Committee is responsible for ensuring that a succession plan is in place for our executive officers. |
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BOARD AND GOVERNANCE MATTERS
We compensate our independent directors with cash retainers and equity-based awards. The Compensation Committee periodically reviews the form and amount of compensation paid to our independent directors against our peer companies and general industry data and makes recommendations for adjustments, as appropriate, to the full Board of Directors. In 2017, the Compensation Committee engaged FW Cook to assist in its review ofnon-employee director compensation and to provide the Compensation Committee with general market information, as well as information on recent trends and developments innon-employee director compensation. During 2017, each independent director was paid a retainer for service on the Board of Directors at an annual rate of $80,000 per year, payable quarterly in advance. In addition, the Chair of our Audit Committee was paid a retainer at an annual rate of $15,000, and the Chair of our Compensation Committee was paid an annual retainer of $10,000, each payable quarterly in advance. Our Chair and Lead Independent Director was paid an annual retainer of $10,000 for the first two quarters of 2017, payable quarterly in advance. Effective July 1, 2017, the annual retainer for the Chair and Lead Independent Director was increased to $20,000 per year, payable quarterly in advance. The Board concluded that this increase was reasonable after considering the increase in responsibilities, including setting the agenda, leading meetings of the Board, and coordinating with our Manager, after our Lead Independent Director also became our Chair in May 2016. In addition, in evaluating this increase in compensation, the Board consulted with FW Cook and considered the compensation paid to independent directors serving in similar positions at comparable companies. The 2018 rates remain set at the same levels in place at the end of 2017. For quarterly payments commencing July 1, 2018, directors may also elect to receive all or some portion of his or her quarterly cash retainer in stock-settled deferred stock units (“DSUs”), which can be deferred for a period of up to ten years. Directors electing to receive DSUs in lieu of a cash retainer will receive a number of DSUs equal to the amount of their cash retainer foregone divided by the closing price of our common stock on the trading day prior to the award. Dividend equivalents will accrue on any DSUs in the form of additional DSUs based on the then current fair value of our common stock.
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BOARD AND GOVERNANCE MATTERS
In addition to the retainers, directors were reimbursed for travel expenses incurred in connection with attending Board and committee meetings and Board-related functions in 2017. Directors who are employees of our Manager or its affiliates do not receive any compensation from us for service as a member of the Board of Directors.
The Board believes that a substantial portion of director compensation should consist of equity-based compensation to assist in aligning directors’ interests with the long-term interests of our stockholders. On May 2, 2017, each of the independent directors who was serving on our Board at such time received 4,155 restricted stock units (“RSUs”), which vest on June 2, 2018, subject to their continued service on our Board of Directors, under the American Capital Mortgage Investment Corp. Amended and Restated Equity Incentive Plan (the “Amended Equity Incentive Plan”) described below. Each RSU represents the right to receive an equivalent number of shares of common stock, plus dividend equivalents, subject to the terms of the Amended Equity Incentive Plan.
The following table sets forth the compensation received by each independent director during 2017:
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | Total ($) | ||||||||||||
Steven W. Abrahams(2) | 64,889 | 75,000 | 139,889 | ||||||||||||
Julia L. Coronado | 86,648 | 75,000 | 161,648 | ||||||||||||
Robert M. Couch | 95,000 | 75,000 | 170,000 | ||||||||||||
Randy E. Dobbs | 100,000 | 75,000 | 175,000 | ||||||||||||
| (1) | For amounts under the column “Stock Awards,” we disclose the fair value associated with the RSU award granted to each director in 2017, measured in dollars and calculated in accordance with Financial Accounting Standards Board ASC Topic 718,Compensation-Stock Compensation (“ASC 718”), as required by Securities and Exchange Commission (“SEC”) regulations. Each award represents the right to receive 4,155 shares of common stock (calculated by dividing the value of the award by the closing price of a share of common stock on the grant date, which was $18.05 on May 2, 2017), plus any dividend equivalents on the RSUs, subject to the terms and conditions of the Amended Equity Incentive Plan. As of December 31, 2017, Dr. Coronado and Messrs. Abrahams, Dobbs and Couch had unvested RSU equivalents of 4,356 shares of common stock, including dividend equivalents on the RSUs. Mr. Abrahams resigned from the Board of Directors prior to the vesting date of his award; the award was terminated on February 12, 2018, the effective date of his resignation, pursuant to its terms. |
| (2) | Elected to the Board of Directors, effective March 10, 2017 and resigned, effective February 12, 2018. |
Amended Equity Incentive Plan
The Amended Equity Incentive Plan provides for the issuance of equity-based awards, including stock options, restricted stock, restricted stock units, unrestricted stock awards, and other awards based on our common stock that may be made by us to our directors and employees of the Company.
The Amended Equity Incentive Plan is administered by our Board of Directors (the “plan administrator”), which from time to time may delegate all or a portion of its authority to a committee established by our Board of Directors (typically, the Compensation Committee). The plan administrator has the authority to make awards to eligible participants and to determine the form and the terms and conditions of the awards. Except as provided below with respect to equitable adjustments, the plan administrator may not take any action that would have the effect of reducing the exercise or purchase price of any award granted under the Amended Equity Incentive Plan without first obtaining the consent of our stockholders.
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BOARD AND GOVERNANCE MATTERS
If any shares subject to an award granted under the Amended Equity Incentive Plan are forfeited, cancelled, exchanged, or surrendered or if an award terminates or expires without a distribution of shares to the participant, or if shares of our common stock are surrendered or withheld by us as payment of either the exercise price of an award and/or withholding taxes in respect of an award, the shares of common stock with respect to such award will again be available for awards under the Amended Equity Incentive Plan. Upon the exercise of any award granted in tandem with any other award, the related award will be cancelled to the extent of the number of shares of common stock as to which the award is exercised and, notwithstanding the foregoing, that number of shares will no longer be available for awards under the Amended Equity Incentive Plan.
In the event that the plan administrator determines that any dividend or other distribution (whether in the form of cash, common stock, or other property), recapitalization, stock split, reverse split, reorganization, merger, or other similar corporate transaction or event affects our common stock, such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of participants under the Amended Equity Incentive Plan, then the plan administrator will make equitable changes or adjustments to: (i) the number and kind of shares of common stock or other property (including cash) that may thereafter be issued in connection with awards; (ii) the number and kind of shares of common stock or other property (including cash) issued or issuable in respect of outstanding awards; (iii) the exercise price, grant price, or purchase price relating to any award and (iv) the performance goals, if any, applicable to outstanding awards. In addition, the plan administrator may determine that any equitable adjustment may be accomplished by making a payment to the award holder in the form of cash or other property (including but not limited to shares of our common stock).
Any stock option granted under the Amended Equity Incentive Plan would have a term of no longer than 10 years, and an exercise price that is no less than 100% of the fair market value of our common stock on the date of grant of the award. The plan administrator determines the terms and conditions of each grant of restricted stock or restricted stock units under the Amended Equity Incentive Plan. Restricted stock units confer on the participant the right to receive cash, common stock or other property, as determined by the plan administrator, having a value equal to the number of shares of our common stock that are subject to the award. The holders of awards of restricted stock or restricted stock units may be entitled to receive dividends or, in the case of restricted stock units, dividend equivalents, which in either case may be payable immediately or on a deferred basis at such time as is determined by the plan administrator. Directors may elect to defer distribution of their equity-based awards for a period of up to ten years.
The plan administrator may determine to make grants of our common stock that are not subject to any restrictions or a substantial risk of forfeiture or to grant other stock-based awards to eligible participants, the terms and conditions of which will be determined by the plan administrator at the time of grant.
Outstanding restricted stock awards, but not outstanding restricted stock units, under the Amended Equity Incentive Plan will become fully vested, exercisable and/or payable if we undergo a change of control or upon termination of the director’s service, including termination due to the director’s death or disability, but excluding termination of service pursuant to a removal for cause or a voluntary resignation, or as otherwise approved by the Board.
The Amended Equity Incentive Plan automatically expires on January 28, 2024, the tenth anniversary of the date on which it was adopted by our Board of Directors. Our Board of Directors may terminate, amend, modify, or suspend the Amended Equity Incentive Plan at any time, subject to stockholder approval as required by law or stock exchange rules. The plan administrator may amend the terms of any outstanding award under the
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Amended Equity Incentive Plan at any time. No amendment or termination of the Amended Equity Incentive Plan, or any outstanding award, may adversely affect any of the rights of an award holder without the holder’s consent.
Our Board of Directors believes that directors more effectively represent the best interests of the Company if they are stockholders themselves. Thus, independent directors are encouraged to own shares of our common stock equal in value to three times the annual cash Board retainer (which is $80,000) within the later of five years of joining the Board or April 22, 2019. In calculating the number of shares held by each independent director for purposes of these guidelines, 50% of the shares of common stock underlying any unvested stock-based awards and 100% of the shares of common stock underlying any vested stock-based awards will be included.
In addition, our Board of Directors has adopted a policy prohibiting our executive officers and directors from any hedging, pledging, or entering into margin loans with respect to any shares of our common stock (regardless of whether such stock is owned directly or indirectly, as such terms are used in the SEC rules promulgated under the Exchange Act) or from engaging in short sales of our common stock or otherwise entering into any other transaction or derivative agreement where he or she would earn a profit based on a decline of our stock price. By way of example, transactions prohibited under the policy may include options, short sales, puts, calls, or derivative actions such as forwards, futures, or swaps.
The following table sets forth the total stock ownership of our independent directors, including beneficially owned, unvested, and deferred shares, as calculated pursuant to our stock ownership guidelines as of March 8, 2018.
| Name | Beneficially Owned Shares (#) | Unvested Shares (#) | Deferred Shares (#) | |||
Julia L. Coronado | 0 | 4,475 | 0 | |||
Robert M. Couch | 7,300 | 4,475 | 17,261 | |||
Randy E. Dobbs | 4,500 | 4,475 | 17,261 |
Nominations for election to the Board of Directors may be made by the Compensation Committee of the Board of Directors or by any common stockholder entitled to vote for the election of directors, in the manner provided in our Bylaws. See Question 4 of “Questions and Answers About Stockholder Communications and Proposals” below. Candidates recommended by common stockholders for nomination by the Compensation Committee of the Board will be evaluated by the Compensation Committee under the same criteria that are applied to other candidates.
Although there is not a formal list of qualifications, in discharging its responsibilities to recommend nominees as candidates for election to the Board of Directors, the Compensation Committee endeavors to identify, recruit, and nominate candidates based on the following eligibility and experience criteria: a candidate’s
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integrity and business ethics, strength of character, judgment, experience, and independence, as well as factors relating to the composition of the Board of Directors, including its size and structure, the relative strengths and experience of current directors, and principles of diversity, including diversity of experience, personal and professional backgrounds, race, gender, and age. Although the committee does not have formal objective criteria for diversity on our Board of Directors, it is one of the factors the committee considers in its evaluation. In nominating candidates to fill vacancies created by the expiration of the term of a member of the Board of Directors, the committee determines whether the incumbent director is willing to stand forre-election. If so, the committee evaluates his or her performance in office to determine suitability for continued service, taking into consideration the values of continuity and familiarity with our business. The Company maintains a corporate membership in the NACD, which provides each director with access to continuing education, research materials and publications relating to corporate governance, board leadership, and other topical information.
Our Bylaws require a candidate in an uncontested election for director to receive a majority of all the votes cast in order to be elected as a director. Under this provision, each vote is specifically counted “for” or “against” the director’s election, unless a common stockholder abstains from voting with respect to the matter. Thus, a director nominee is required to receive more votes “for” than “against” to be elected. Pursuant to Maryland law, a director remains in office until his or her successor is duly elected and qualified even if the director has not received sufficient votes forre-election. Thus, a company could have a “holdover” director. However, pursuant to our Board-approved director resignation policy, an incumbent director must promptly tender his or her resignation to the Board of Directors if the director is nominated but notre-elected. Such resignation must be expressly conditioned on its acceptance by the Board. The policy also requires the Compensation Committee to make a recommendation to the full Board of Directors on whether to accept or reject the resignation, and the full Board of Directors to make that determination. The Board of Directors would publicly disclose its decision within 90 days after receipt of the tendered resignation.
Any director who tenders his or her resignation pursuant to this policy may not participate in the Compensation Committee recommendation or Board of Directors’ action regarding whether to accept the resignation offer. If each member of the Compensation Committee does not receive a vote sufficient forre-election, then the independent directors who did receive a sufficient vote (including newly elected independent directors) shall appoint a committee amongst themselves to consider the resignation and recommend to the Board of Directors whether to accept them. If the only directors who did not fail to receive a sufficient vote forre-election constitute three or fewer directors, all directors (other than the director who tendered the resignation under review) may participate in the action regarding whether to accept the resignation.
Certain Transactions with Related Persons
Related Person Transaction Policies
Our Board of Directors has adopted a policy regarding the approval of any “related person transaction,” which is any transaction or series of transactions in which we or any of our subsidiaries is or are to be a participant, the amount involved exceeds $120,000, and a “related person” (as defined under SEC rules) has a direct or indirect material interest. Under the policy, a related person would need to promptly disclose to our chief compliance officer any related person transaction and all material facts about the transaction. Our chief compliance officer would then assess and promptly communicate that information to the Compensation
MTGE INVESTMENT CORP. – Proxy Statement 11
BOARD AND GOVERNANCE MATTERS
Committee. Based on its consideration of all the relevant facts and circumstances, the Compensation Committee will decide whether or not to approve such transaction and will generally approve only those transactions that do not create a conflict of interest. If we become aware of an existing related person transaction that has not beenpre-approved under this policy, the transaction will be referred to the Compensation Committee, which will evaluate all options available, including ratification, revision, or termination of such transaction. Our policy requires any director who may be interested in a related person transaction to recuse himself or herself from any consideration of such related person transaction.
Our Code of Ethics, which is reviewed and approved by our Board of Directors and provided to all of our directors and officers, our Manager and the persons who provide services to us, requires that all such persons avoid any situations or relationships that involve actual or potential conflicts of interest, or perceived conflicts of interest, between an individual’s personal interests and the interests of MTGE. Pursuant to our Code of Ethics, each of these persons must disclose any conflicts of interest, or actions or relationships that might give rise to a conflict, to their supervisor or our chief compliance officer. If a conflict is determined to exist, the person must disengage from the conflict situation or terminate his or her provision of services to us. Our chief executive officer, chief financial officer, principal accounting officer, controller, directors, and certain other persons who may be designated by our Board of Directors or its Audit Committee, whom we collectively refer to as our financial executives, must consult with our chief compliance officer with respect to any proposed actions or arrangements that are not clearly consistent with our Code of Ethics. In the event that a financial executive wishes to engage in a proposed action or arrangement that is not consistent with our Code of Ethics, the financial executive must obtain a waiver of the relevant provisions of our Code of Ethics in advance from our Audit Committee. We intend to post amendments to or waivers from the Code of Ethics (to the extent applicable to our financial executives) on our web site atwww.MTGE.com.
Related Person Transactions
We have entered into a management agreement with our Manager with an initial term that ended August 9, 2014 with automaticone-year extension options thereafter. Our Manager manages ourday-to-day operations pursuant to the management agreement. The management agreement may only be terminated by us without cause, as defined in the management agreement, upon 90 days’ prior written notice, or by our Manager without cause upon 180 days’ prior written notice, in connection with the expiration of the current term. If we were to terminate the management agreement without cause, we must pay a termination fee before or on the last day prior to the effective date of such termination, equal to three times the average annual management fee earned by our Manager during the prior24-month period immediately preceding the most recently completed month prior to the effective date of termination. We may terminate the management agreement with or without cause only with the consent of a majority of our independent directors.
We pay our Manager a management fee payable monthly in arrears in an amount equal toone-twelfth of 1.50% of our Equity. Our Equity is defined as ourmonth-end stockholders’ equity, adjusted to exclude the effect of any unrealized gains or losses included in either retained earnings or other comprehensive income (loss), each as computed in accordance with generally accepted accounting principles (“GAAP”). There is no incentive compensation payable to our Manager pursuant to the management agreement. In addition, we reimburse our Manager for expenses directly related to our operations incurred by our Manager and its parent, but excluding employment-related expenses of our Manager’s and its parent’s officers and employees (employees of the parent of our Manager are generally referred to herein as employees of our Manager).
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BOARD AND GOVERNANCE MATTERS
In addition, we may not, without the consent of our Manager, employ any employee of the Manager or any of its affiliates, or any person who has been employed by our Manager or any of its affiliates at any time within thetwo-year period immediately preceding the date on which the person commences employment with us for two years after termination of the management agreement without cause. As of the date of this proxy statement, no such termination notice has been given.
We rely on our Manager to administer our business activities andday-to-day operations, subject to the supervision and oversight of our Board of Directors. We do not have any employees (other than employees of Residential Credit Solutions, Inc. (“RCS”), a subsidiary of MTGE) and do not have corporate offices separate from those of our Manager. All of our officers and the members of our mortgage investment team and other support personnel, other than the employees of RCS, are employees of the parent company of our Manager. We rely on our Manager and its parent to provide us with their infrastructure, business relationships, and management expertise. Pursuant to the management agreement, we also rely on our Manager for its information technology and capital raising capabilities, legal and compliance functions and accounting, treasury, and investor relations capabilities. The management agreement does not require our Manager, the parent company of our Manager, or AGNC to dedicate specific personnel or a specific amount of time to our operations. All of our officers are also officers of our Manager, the parent company of our Manager, and/or AGNC.
We have not entered into any other transactions in which any other director or officer or significant stockholder of ours or our Manager has any material interest.
Compensation and Corporate Governance Committee Interlocks and Insider Participation
No member of the Compensation Committee during 2017 served as an officer, former officer or employee of ours or had a relationship disclosable under “Board and Governance Matters—Certain Transactions with Related Persons.” Further, during 2017, none of our executive officers served as:
| • | a member of the compensation committee (or equivalent) of any other entity, one of whose executive officers served as one of our directors or was an immediate family member of a director, or served on our Compensation Committee; or |
| • | a director of any other entity, one of whose executive officers or their immediate family member served on our Compensation Committee. |
MTGE INVESTMENT CORP. – Proxy Statement 13
PROPOSAL 1: ELECTION OF DIRECTORS
PROPOSAL 1: ELECTION OF DIRECTORS
Pursuant to our Charter and Bylaws, our common stockholders elect each of the members of the Board of Directors annually. The term of each director will expire at the Annual Meeting. Each director has been nominated by the Compensation Committee, in accordance with our Bylaws, to stand forre-election at the Annual Meeting and to serve as a director until our annual meeting to be held in 2019 and until his or her successor is duly elected and qualified. It is expected that each of the nominees will be able to serve, but if any such nominee is unable to serve for any reason, the authorized proxies will vote or refrain from voting for a substitute nominee or nominees in their discretion. A common stockholder using the enclosed form of proxy may vote for or against any or all of the nominees or may abstain from voting for any or all of the nominees.
We believe that all our directors, each of whom is a nominee forre-election, possess the personal and professional qualifications necessary to serve as a member of our Board of Directors and collectively represent a balance of industry knowledge, skills, and expertise. Our directors have been evaluated by the Compensation Committee pursuant to the guidelines described above under “Board and Governance Matters—Board Membership Criteria,” and the determination was made that each of them fulfills and exceeds the qualities that we look for in members of our Board of Directors. Other than Mr. Kain, who is an affiliate of our Manager, each of the nominees is independent as defined in the Nasdaq rules.
Summary of Our Board’s Industry and Functional Expertise
We believe that our Directors have a diversity of experience and a wide variety of skills and qualifications that strengthen their ability to provide guidance and oversight to the Company and management on behalf of stockholders. The following chart summarizes a number of the competencies currently represented by our Board members that we believe are important to their oversight of our operations.
14 MTGE INVESTMENT CORP. – Proxy Statement
PROPOSAL 1: ELECTION OF DIRECTORS
The information set forth below is as of the close of business on March 8, 2018, with respect to each of our directors, each a nominee for election at the Annual Meeting. The business address of each nominee is c/o MTGE Investment Corp., 2 Bethesda Metro Center, 12th Floor, Bethesda, Maryland 20814. We have highlighted specific attributes for each Board member below.
Director Nominee Biographies and Qualifications
| JULIA L. CORONADO, 49 | |
Professional Experience: Dr. Coronado is President and Founder of MacroPolicy Perspectives LLC, an economic research consulting firm based in New York that analyzes the U.S. economy from a global perspective with a focus on financial market linkages and demographic realities. Dr. Coronado is also an Executive in Residence for Rutgers Business School. She currently serves on the Pension Research Council at the Wharton School and is a member of the Economic Advisory Panel of the Federal Reserve Bank of New York and the Economic Studies Council at The Brookings Institution. From 2014 to 2017, Dr. Coronado served as Chief Economist for Graham Capital Management where she was responsible for formulating the company’s global forecast for inflation and monetary and fiscal policy and served on the Investment and Risk Committees. Prior to joining Graham Capital, she was the Chief Economist, North America and a Managing Director at BNP Paribas from 2009 to 2014, and from 2006 to 2009, Dr. Coronado was a Senior U.S. Economist and Director at Barclays Capital. Earlier in her career, she served as an Economist at the Federal Reserve Board of Governors and served on the Treasury Markets Practices Group at the Federal Reserve Bank of New York. Dr. Coronado holds a Ph.D. in Economics from the University of Texas at Austin and a B.S. in Economics from the University of Illinois at Urbana-Champaign.
Director Qualifications: Dr. Coronado’s extensive private-sector, government and leadership experience as an economist in areas of investment and monetary policy strengthens our Board’s collective qualifications, skills, experience and viewpoints. |
Director Since: 2016 Board Committees: Audit Compensation and Corporate Governance (Chair)
MTGE INVESTMENT CORP. – Proxy Statement 15
PROPOSAL 1: ELECTION OF DIRECTORS
| ROBERT M. COUCH, 60 | |
Professional Experience: Mr. Couch is Counsel to Bradley Arant Boult Cummings LLP, a law firm based in Birmingham, Alabama. He is also a member of the board of managers of LoanCare, LLC, a mortgage subservicer, and MAX Exchange LLC, astart-up company primarily focused on the design and establishment of an electronic mortgage exchange. From 2009 until February 2017, Mr. Couch served as a member of the Board of Directors of Prospect Holding Company, LLC, the parent company of Prospect Mortgage of Sherman Oaks, California. Until December 31, 2015, Mr. Couch was Chairman of ARK Real Estate Strategies, LLC, the manager of the ARK Real Estate Opportunity Fund I, LLC, an investment fund focused on distressed residential real estate. From June 2007 to November 2008, Mr. Couch served as General Counsel of the United States Department of Housing and Urban Development, or HUD. Mr. Couch began his service at HUD as President of Ginnie Mae from June 2006 until June 2007. Prior to his government service, Mr. Couch served as President and Chief Executive Officer of New South Federal Savings Bank. Mr. Couch previously served on the board of directors of AGNC Investment Corp. (Nasdaq: AGNC) from 2011 to May 2016. Mr. Couch is a Master Certified Mortgage Banker and a Certified Public Accountant (inactive).
Director Qualifications: Mr. Couch’s extensive senior executive and board experience, including in real estate and government, strengthen our Board’s collective qualifications, skills, experience and viewpoints. |
Director Since: 2011 Board Committees: Audit (Chair) Compensation and Corporate Governance Executive
16 MTGE INVESTMENT CORP. – Proxy Statement
PROPOSAL 1: ELECTION OF DIRECTORS
Director Since: 2011 Board Committees: Audit Compensation and Corporate Governance Executive (Chair)
 | RANDY E. DOBBS, 67 | |
Professional Experience: Mr. Dobbs has served as our Chair and Lead Independent Director since May 2016. Mr. Dobbs has been a self-employed business consultant and business speaker since the end of 2010 and previously was an Operating Partner at Welsh, Carson, Anderson & Stowe (“Welsh Carson”), a private equity firm. From April 2012 to January 2015, Mr. Dobbs served as Chief Executive Officer for Matrix Medical Network, a portfolio company of Welsh Carson and a provider of home health assessments for Medicare Advantage clients across 32 states. Prior to that, he was a Senior Operating Executive at Welsh Carson, where he was responsible for portfolio company operational oversight, business acquisitions and equity opportunity development. From February 2005 to October 2008, he was the Chief Executive Officer of US Investigations Services, Inc. and its subsidiaries (“USIS”). USIS provided business intelligence and risk management solutions, security and related services and expert staffing solutions for businesses and federal agencies. From April 2003 to February 2005, Mr. Dobbs was President and Chief Executive Officer of Philips Medical Systems, North America, a manufacturer of systems for imaging, radiation oncology and patient monitoring, as well as information management and resuscitation products. Prior to April 2003, Mr. Dobbs spent 27 years with General Electric Company, where he held various senior level positions, including President and Chief Executive Officer of GE Capital, IT Solutions. Mr. Dobbs also serves on the board of directors of various private equity companies and previously served on the board of directors of AGNC Investment Corp. (Nasdaq: AGNC) from 2008 to May 2016 and Savvis, Inc. (Nasdaq: SVVS) from November 2010 to August 2011.
Director Qualifications: Mr. Dobbs’s extensive senior executive experience managing a wide variety of businesses strengthens our Board’s collective qualifications, skills, experience and viewpoints. |
MTGE INVESTMENT CORP. – Proxy Statement 17
PROPOSAL 1: ELECTION OF DIRECTORS
Director Since: 2016 Board Committees: Executive
| GARY D. KAIN, 53 | |
Professional Experience: Mr. Kain has served as a Director and our Chief Executive Officer since March 2016 and as President and Chief Investment Officer since March 2011. Mr. Kain has also served as the President of our Manager, MTGE Management, LLC, since April 2011. In addition, Mr. Kain serves on the board of directors of AGNC Investment Corp. (Nasdaq: AGNC) and as AGNC’s Chief Executive Officer, President and Chief Investment Officer.
Mr. Kain served as a Senior Vice President and Managing Director of American Capital, Ltd. from January 2009 to July 2009, after which time he became an employee of the parent company of our then external manager, AGNC Mortgage Management, LLC. While at American Capital, Mr. Kain headed American Capital’s RMBS investment team. Prior to joining American Capital, Mr. Kain served as Senior Vice President of Investments and Capital Markets of Freddie Mac from May 2008 to January 2009. He also served as Senior Vice President of Mortgage Investments & Structuring of Freddie Mac from February 2005 to April 2008, during which time he was responsible for managing all of Freddie Mac’s mortgage investment activities for the company’s $700 billion retained portfolio. From 2001 to 2005, Mr. Kain served as Vice President of Mortgage Portfolio Strategy at Freddie Mac. From 1995 to 2001, he served as head trader in Freddie Mac’s Securities Sales & Trading Group, where he was responsible for managing all trading decisions including REMIC structuring and underwriting, hedging all mortgage positions, income generation, and risk management. Prior to that, he served as a senior trader, responsible for managing the adjustable-rate mortgage and REMIC sectors.
Director Qualifications: Mr. Kain’s extensive and lengthy expertise in the agency mortgage sector and his deep knowledge of our business as our Chief Executive Officer, President and Chief Investment Officer strengthen our Board’s collective qualifications, skills, experience and viewpoints. |
Conclusion and Recommendation; Vote Required
The election of directors nominated in Proposal 1 requires the affirmative vote of a majority of all the votes cast by holders of our common stock at the Annual Meeting. The affirmative vote of a “majority” of the votes cast means that the number of votes cast “for” a director nominee must exceed the votes cast “against” that nominee. In the context of the election of four directors at the Annual Meeting, it will mean that each of the four candidates will be required to receive more votes “for” than “against” to be elected. Abstentions and brokernon-votes, if any, will have no effect on the outcome of the proposal. THE BOARD OF DIRECTORS RECOMMENDS A VOTEFOR THE ELECTION OF EACH OF THE NOMINEES NAMED ABOVE.
18 MTGE INVESTMENT CORP. – Proxy Statement
PROPOSAL 2: ADVISORY RESOLUTION ON EXECUTIVE COMPENSATION
ADVISORY RESOLUTION ON EXECUTIVE COMPENSATION
Our Board is committed to corporate governance best practices and recognizes the significant interest of stockholders in executive compensation matters. We are providing thisnon-binding advisory vote pursuant to Section 14A of the Exchange Act. As described in detail under the headings “Related Person Transactions” above and “Compensation Discussion and Analysis” below, we are externally managed by our Manager pursuant to a management agreement between our Manager and us. Our executive officers are employees of the parent of our Manager and do not receive any compensation from us. In addition, we do not reimburse our Manager for any of their compensation. Instead, our Manager uses the proceeds from the management fee, in part, to pay compensation to its officers and personnel, including our executive officers. Our Manager pays all of the compensation, including benefits, to our executive officers, all of whom are employees of the parent of our Manager.
While this vote is advisory and not binding on us, our Board of Directors and its Compensation Committee value the views of our stockholders and will consider the voting results in making any future executive compensation decisions.
Accordingly, we are requesting our stockholders to approve, in anon-binding, advisory vote, the following resolution:
“RESOLVED, that the stockholders of the Company hereby approve the compensation of our executive officers, as disclosed in the proxy statement for the 2018 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, compensation tables and related information disclosed in the proxy statement.”
Conclusion and Recommendation; Vote Required
The affirmative vote of a majority of all the votes cast by holders of our common stock at the Annual Meeting is required for approval of this proposal. Abstentions and brokernon-votes, if any, will have no effect on the outcome of the proposal. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FORAPPROVAL OF THE ADVISORY RESOLUTION ON THE COMPENSATION OF OUR EXECUTIVE OFFICERS.
MTGE INVESTMENT CORP. – Proxy Statement 19
PROPOSAL 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANT
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANT
Ernst & Young LLP has served as our independent public accountant since our initial public offering and the Audit Committee has approved the appointment of Ernst & Young LLP to audit our financial statements for the fiscal year ending December 31, 2018. This appointment is subject to ratification or rejection by our common stockholders. A representative of Ernst & Young LLP is expected to be present at the Annual Meeting. The representative will have an opportunity to make a statement if he or she so desires and is expected to be available to respond to appropriate questions.
Independent Public Accountant’s Fees
Ernst & Young LLP performed various audit and other services for us during 2017 and 2016. Fees for professional services provided by Ernst & Young LLP in 2017 and 2016 in each of the following categories were:
| 2017 | 2016 | |||||||
Audit Fees | $ | 973,250 | $ | 1,157,250 | ||||
Audit-Related Fees | – | – | ||||||
Tax Fees | 70,330 | 57,676 | ||||||
All Other Fees | – | – | ||||||
Total Fees | $ | 1,043,580 | $ | 1,214,926 | ||||
Audit Fees
“Audit Fees” relate to fees and expenses billed by Ernst & Young LLP for the annual audit, including the audit of our financial statements, services required by statute and regulation, audit of internal control over financial reporting, audit services for our subsidiaries as required by statute or regulation, review of our quarterly financial statements and for comfort letters, and consents related to stock issuances.
Tax Fees
“Tax Fees” relate to fees billed for professional services for tax compliance and consulting on tax related matters.
All services rendered by Ernst & Young LLP were permissible under applicable laws and regulations and werepre-approved by the Audit Committee for 2017 in accordance with itspre-approval policy. The Audit Committee has established a policy regarding thepre-approval of all audit and permissiblenon-audit services provided by our independent public accountant. The policy requires the Audit Committee to approve each audit ornon-audit engagement or accounting project involving the independent public accountant, and the related fees, prior to commencement of the engagement or project to make certain that the provision of such services does not impair the firm’s independence. The Audit Committee may delegate itspre-approval authority to one or more of its members, and such member(s) are required to report anypre-approval decisions to the Audit Committee at its next meeting. The Audit Committee has delegated authority to its Chair topre-approve the engagement and related fees of the independent public accountant for any additional audit or permissiblenon-audit services. In addition, pursuant to the policy,pre-approval is not required for additionalnon-audit services if such services result in ade minimis amount of less than 5% of the total annual fees paid by us to the independent public
20 MTGE INVESTMENT CORP. – Proxy Statement
PROPOSAL 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANT
accountant during the fiscal year in which thenon-audit services are provided, were not recognized by us at the time of engagement to benon-audit services, and are reported to the Audit Committee promptly thereafter and approved prior to the completion of the annual audit.
Conclusion and Recommendation; Vote Required
The affirmative vote of a majority of all of the votes cast by holders of our common stock at the Annual Meeting is required to ratify the appointment of our independent public accountant. Abstentions will have no effect on the outcome of the proposal. As brokers have discretionary authority to vote on this proposal, we expect that there will be no brokernon-votes. THE BOARD OF DIRECTORS RECOMMENDS A VOTEFOR THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR INDEPENDENT PUBLIC ACCOUNTANT FOR THE FISCAL YEAR ENDING DECEMBER 31, 2018.
MTGE INVESTMENT CORP. – Proxy Statement 21
REPORT OF THE AUDIT COMMITTEE
The Board of Directors has appointed an Audit Committee presently composed of three directors, Dr. Coronado and Messrs. Couch and Dobbs. Each of the directors is independent as defined in the Nasdaq rules. The Board of Directors has determined that Mr. Couch is an “audit committee financial expert” (as defined in Item 407 of RegulationS-K under the Securities Act).
The Audit Committee’s responsibility is one of oversight as set forth in its charter, which is available in the Investors section of our web site atwww.MTGE.com. It is not the duty of the Audit Committee to prepare our financial statements, to plan or conduct audits or to determine that our financial statements are complete and accurate and are in accordance with U.S. generally accepted accounting principles. Our management is responsible for preparing our financial statements and for maintaining internal controls. The independent auditors are responsible for auditing the financial statements and for expressing an opinion as to whether those audited financial statements fairly present our financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles.
The Audit Committee has reviewed and discussed our audited consolidated financial statements with management and with Ernst & Young LLP, our independent auditors for the year ended December 31, 2017.
The Audit Committee has discussed with Ernst & Young LLP the matters required to be discussed by Auditing Standard No. 16, as adopted by the Public Company Accounting Oversight Board.
The Audit Committee has received from Ernst & Young LLP the written statements required by Public Company Accounting Oversight Board Rule No. 3526, “Communications with Audit Committees Concerning Independence,”and has discussed Ernst & Young LLP’s independence with Ernst & Young LLP, and has considered the compatibility ofnon-audit services with the auditor’s independence.
Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements for the year ended December 31, 2017 be included in our annual report on Form10-K for the year ended December 31, 2017, for filing with the Securities and Exchange Commission.
The Audit Committee has approved the appointment of Ernst & Young LLP to serve as our independent public accountants for the year ending December 31, 2018 and has directed that the appointment of Ernst & Young LLP be submitted to our stockholders for ratification.
By the Audit Committee:
Robert M. Couch, Chair
Julia L. Coronado
Randy E. Dobbs
Use of Report of the Audit Committee
In accordance with and to the extent permitted by applicable law or regulation, the information contained in the foregoing Report of the Audit Committee is not “soliciting material” and is not to be incorporated by reference into any future filing under the Securities Act or the Exchange Act.
22 MTGE INVESTMENT CORP. – Proxy Statement
EXECUTIVE OFFICERS
The Board of Directors elects officers annually following our annual meeting of stockholders to serve until the meeting of the Board following the next annual meeting of stockholders. Set forth below is certain information about each executive officer as of the close of business on March 8, 2018. The business address of each executive officer is c/o MTGE Investment Corp., 2 Bethesda Metro Center, 12th Floor, Bethesda, Maryland 20814.
GARY D. KAIN, 53
Director, Chief Executive Officer, President and Chief Investment Officer
Mr. Kain has served as a Director and our Chief Executive Officer since March 2016 and President and Chief Investment Officer since March 2011. Effective March 31, 2018, Mr. Kain will serve as our Chief Executive Officer and Chief Investment Officer. Further information about Mr. Kain may be found under “Proposal 1: Election of Directors-Director Nominee Biographies and Qualifications” of this proxy statement.
PETER J. FEDERICO, 51
Executive Vice President and Chief Financial Officer
Mr. Federico has served as our Executive Vice President and Chief Financial Officer since July 2016 and will become our President and Chief Operating Officer effective March 31, 2018. He was previously our Senior Vice President and Chief Risk Officer from May 2011. Mr. Federico is also Executive Vice President and Chief Financial Officer of AGNC Investment Corp. (Nasdaq: AGNC). Mr. Federico joined the parent company of our Manager in May 2011. Prior to that, Mr. Federico served as Executive Vice President and Treasurer of Freddie Mac from October 2010 through May 2011, where he was primarily responsible for managing the company’s investment activities for its retained portfolio and developing, implementing and managing risk mitigation strategies. He was also responsible for managing Freddie Mac’s $1.2 trillion interest rate derivative portfolio and short and long-term debt issuance programs. Mr. Federico also served in a number of other capacities at Freddie Mac, including as Senior Vice President, Asset & Liability Management.
DONALD W. HOLLEY, 47
Senior Vice President and Chief Accounting Officer
Mr. Holley has served as our Senior Vice President and Chief Accounting Officer and as Senior Vice President and Chief Financial Officer of our Manager since January 2016. He will become our Chief Financial Officer effective March 31, 2018. Mr. Holley previously served as our Vice President and Controller from December 2011 to January 2016 and as Vice President and Chief Financial Officer of our Manager from July 2011 and March 2012, respectively, to January 2016. Mr. Holley joined the parent company of our Manager in June 2011. Prior to that, Mr. Holley was a Director at Freddie Mac, responsible for the valuation and presentation of financial results for the company’s investments, debt and derivative portfolios. He has also worked as an accounting policy and assurance Director at Credit Suisse, prepared corporate governance research at Deutsche Bank, and was an Audit Manager at Arthur Andersen. He is a Certified Public Accountant and a CFA charterholder.
MTGE INVESTMENT CORP. – Proxy Statement 23
EXECUTIVE OFFICERS
CHRISTOPHER J. KUEHL, 44
Executive Vice President
Mr. Kuehl has served as our Executive Vice President since December 2016. He was previously a Senior Vice President, Agency Portfolio Investments from March 2012. Mr. Kuehl is also an Executive Vice President of AGNC Investment Corp. (Nasdaq: AGNC). Mr. Kuehl joined the parent company of our Manager in August 2010. Prior to that, Mr. Kuehl served as Vice President of Mortgage Investments & Structuring of Freddie Mac. In this capacity, Mr. Kuehl was responsible for directing Freddie Mac’s purchases, sales and structuring activities for all MBS products, including fixed-rate mortgages, ARMs and CMOs. Prior to joining Freddie Mac in 2000, Mr. Kuehl was a Portfolio Manager with TeleBanc/Etrade Bank.
AARON J. PAS, 37
Senior Vice President
Mr. Pas has served as our Senior Vice President since January 2014 and has also served as Senior Vice President of our Manager since January 2014. He was previously Vice President,Non-Agency Portfolio Management, of our Manager from March 2011 to January 2014. Mr. Pas is also a Senior Vice President of AGNC Investment Corp. (Nasdaq: AGNC).
Prior to joining the parent company of our Manager, Mr. Pas was the Director ofNon-Agency Portfolio Management at Freddie Mac, where he was primarily responsible for managing the firm’snon-agency residential securities portfolio. Mr. Pas holds a Bachelor of Science degree in Business from Washington University in St. Louis. Mr. Pas is a CFA charterholder.
KENNETH L. POLLACK, 50
Senior Vice President, Chief Compliance Officer and Secretary
Mr. Pollack has served as Senior Vice President, Chief Compliance Officer and Secretary since July 2016. Mr. Pollack is also Senior Vice President, General Counsel, Chief Compliance Officer and Secretary of AGNC Investment Corp. (Nasdaq: AGNC).
Prior to joining the parent company of our Manager, Mr. Pollack was Senior Vice President and Deputy General Counsel of American Capital, Ltd. At American Capital, Mr. Pollack served as lead counsel for American Capital’s portfolio investment activities in the areas of Real Estate, U.S. Sponsor Finance, U.S. Buyouts, International Power, Special Situations, Operations and Financial Restructuring. Mr. Pollack joined American Capital in 2004. Prior to American Capital, Mr. Pollack was a member of the Corporate and Securities and Real Estate Practice Groups of Arnold & Porter.
24 MTGE INVESTMENT CORP. – Proxy Statement
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Introduction
This section presents a discussion and analysis of the design and implementation of compensation programs for our executive officers as implemented by our Manager. This section is divided into two parts. First, we summarize our relationship with our Manager and our management agreement to provide important context regarding our operations, including that all of our executive officers are employees of the parent of our Manager and that we do not pay any compensation to our executive officers. We then describe the compensation program and philosophy of our Manager, as it pertains to us and our operations. For purposes of this Compensation Discussion and Analysis, references to our Manager include the Manager together with its direct and indirect corporate parent when discussing compensation arrangements for our executive officers.
Our Management Agreement
We are externally managed by our Manager pursuant to the terms of our amended and restated management agreement, dated as of July 1, 2016. Because we have no employees other than employees of our subsidiary RCS, our Manager is responsible for administering our business activities andday-to-day operations, subject to the supervision and direction of our Board of Directors. Under our management agreement, our Manager is responsible for managing our affairs and provides us with a management team, including a chief executive officer, chief financial officer and one or more chief investment officers or similar positions. Our executive officers are employees of the parent of our Manager and do not receive any compensation from us. In addition, we do not reimburse our Manager for any of their compensation. Instead, our Manager uses the proceeds from the management fee, in part, to pay compensation to its officers and personnel, including our executive officers. With the exception of our Chief Accounting Officer, our executive officers are also executive officers of our Manager’s ultimate corporate parent, AGNC. All of our executive officers have duties and responsibilities to AGNC and its subsidiaries that do not relate to the Company. No specific portion of the management fee is allocated to the compensation of our executive officers by either us or our Manager because these individuals manage or are associated with both AGNC and MTGE, and the research and investment strategies they employ and other work they perform may impact both AGNC and MTGE. As such, compensation for our executive officers reflects the performance of both AGNC and MTGE, and decisions are based on the principles and factors described below in “Overview of our Manager’s Compensation Program and Philosophy.”
However, for context regarding our executive officers’ compensation in relation to our management fee, we provide an estimate of aggregate compensation of our executive officers that may reasonably be associated with MTGE based on MTGE’s average total stockholders’ equity for the period from January 1, 2017 to December 31, 2017, compared to average total stockholders’ equity of both AGNC and MTGE during the same period.1 We have included all compensation paid to our Chief Accounting Officer, who devotes the majority of his time to MTGE, in compensation that may reasonably be associated with MTGE. Applying such methodology to compensation of our executive officers for the period from January 1, 2017 to December 31, 2017, the total compensation of the executive officers reasonably associated with their management of MTGE is $3.88 million, which represents 28% of the management fee paid by MTGE to the Manager over this time period. As noted above, we provide this information solely for reference purposes. It is not a representation of our executive
| 1 | Average total stockholders’ equity for 2017 calculated as the simple average of total stockholders’ equity on December 31, 2016, March 31, 2017, June 30, 2017, September 30, 2017, and December 31, 2017. |
MTGE INVESTMENT CORP. – Proxy Statement 25
EXECUTIVE COMPENSATION
officers’ actual allocation of time or responsibilities to MTGE, and changes in our Manager’s compensation of our executive officers will neither increase nor decrease the management fee we pay.
For additional information about our management agreement, see “Certain Transactions with Related Persons” above.
| Highlights of our Management Agreement: |
• All of our executive officers are employees of the parent of our Manager. None of our executive officers provides services exclusively to us.
• Our Manager is responsible for the compensation of our executive officers and other employees of our Manager and its affiliates who provide services to us. We do not pay any cash or equity compensation to our executive officers, do not provide pension benefits, perquisites or other personal benefits, and have no employment agreements or arrangements to make any payments upon termination from service as an officer.
• Our Manager receives a management fee equal to 1.50% of our stockholders’ equity, subject to certain adjustments, which is used, in part, to pay the compensation of our Manager’s and its affiliates’ employees who provide services to the Company. However, no specific portion of the management fee is allocated to the compensation of our executive officers.
• For 2017, the management fee was $13.7 million.
• Unlike many other externally managed entities, we do not separately reimburse our Manager for costs ofnon-investment personnel who provide legal, compliance, accounting, or other administrative support to us, but we do reimburse our Manager forout-of-pocket expenses incurred on our behalf.
• Our management agreement allows us access to investment professionals and operational scale that would not be achieved if we were self-managed. A substantial majority of our Manager’s employees dedicate some portion of their time to work performed on behalf of the Company. For 2017, our Manager’s annual compensation expense was $42 million.
• We would be prohibited from hiring employees of our Manager for a period of two years if we were to terminate or not renew the management agreement without cause.
|
Thus, as stated above, we have not paid, and we do not intend to pay, any cash or equity compensation to any of our executive officers. Our Manager pays all of the compensation, including benefits, to our executive officers, all of whom are employees of our Manager. Accordingly, we did not pay any compensation to our executive officers, nor did we make any grants of plan-based awards to them, for 2017. None of our executive officers received any options or stock directly from us, and we did not provide any of our executive officers with pension benefits, nonqualified deferred compensation plans, perquisites, or other personal benefits during 2017. In 2017, we had no employment agreements with any of our executive officers and were not obligated to make any payments to any of our executive officers upon termination of employment or a change in control of us. As a result, we have not included a compensation table in the Summary Compensation Table for our executive officers for 2017.
26 MTGE INVESTMENT CORP. – Proxy Statement
EXECUTIVE COMPENSATION
Overview of our Manager’s Compensation Program and Philosophy
Our Manager makes all decisions relating to the compensation of our executive officers based on a number of factors, including but not limited to our performance, as our Manager may determine to be appropriate. Our Manager’s compensation programs have been designed to achieve the following objectives:
What our Manager Does:
| ✓ | Retain a high performing team: We operate in a highly specialized industry, and the labor market for our Manager’s senior employees with the skills, track record, and market reputation necessary to oversee our investments and conduct our operations is highly competitive. Our Manager has structured its compensation arrangements with our executive officers to promote their retention and longevity. |
| ✓ | Pay for performance: For its most senior employees, including our executive officers, our Manager generally ties a majority of compensation to performance. The Manager annually establishes specific performance and strategic measures that it uses to make compensation decisions, and those measures include, in part, achievement of financial and strategic goals of the Company. However, because our executive officers do not provide services exclusively to us, their compensation is predominantly based on other performance measures and criteria established by our Manager or its affiliates that do not relate to the Company. |
| ✓ | Align executive and stockholder interests: Our Manager maintains a performance incentive plan through which it grants employees of the Manager involved in our investing activity and other business operations restricted-stock based awards that are satisfied on vesting through our common stock acquired in open-market transactions. We do not compensate our Manager separately for these awards, and unlike equity incentive programs maintained by some of our peers, these awards are not dilutive to our stockholders. Our executive officers, as a group, maintain significant ownership of our stock. |
| ✓ | Clawbacks:Our Manager has adopted a clawback policy relating to recovery of certain excess performance-based compensation in the event of an accounting restatement by the Company based on fraud, dishonesty, or recklessness of one of the Company’s executive officers in the performance of his or her duties to the Company. Under this policy, our Manager would be entitled to seek recovery of the portion of any performance-based compensation paid to our executive officers that would not have been earned had the Company’s restated financial statements been used in the determination of the amount of performance-based compensation originally awarded. This policy includes a three year look back period. |
What our Manager Does Not Do:
| × | No taxgross-ups: Our Manager does not“gross-up” payments of benefits awarded to our executive officers to compensate for the effects of taxes, including any golden parachute excise taxes. |
| × | No special perquisites:Our Manager does not provide our executive officers any perquisites or benefits that are not available to all employees. |
| × | No supplemental retirement benefits: Our Manager does not provide special retirement programs or benefits for executive officers. Our Manager maintains a typical 401(k) plan available to all employees on the same basis. |
| × | No short selling, pledging or hedging: Our policies prohibit our executive officers from hedging, short-selling and pledging any of our shares (including entering into margin loan arrangements). |
MTGE INVESTMENT CORP. – Proxy Statement 27
EXECUTIVE COMPENSATION
Elements of Executive Officer Compensation and Their Purpose
In compensating our executive officers, our Manager utilizes a variety of compensation components to achieve its objectives. Our Manager’s executive compensation program consists of base salary and variable incentive compensation. Because our executive officers do not provide their services exclusively to us, they each receive a compensation package from our Manager and its affiliates that reflects their aggregated services to us, AGNC and AGNC’s other affiliates. A majority of the target compensation of our executive officers consists of short-term and long-term incentive compensation, and incentive compensation as a percentage of overall target compensation of our executive officers is expected to increase further in 2018. The following table describes generally each pay component, as well as its purpose and key considerations.
| Pay Element | What It Does and How our Manager Does It | Key Considerations | ||
| Base Salary | • Provides fixed, baseline level of cash compensation • Base salary is not specifically apportioned to the Company • Base salary is evaluated annually, but generally remains static absent promotion or adjustment due to economic trends in industry or other competitive factors | • Base salary is based on experience, duties, and scope of responsibility as well as internal and external market factors, as determined and weighed by our Manager and AGNC | ||
| Annual Cash Bonus | • AGNC provides a variable cash incentive opportunity tied to achievement of annual AGNC and individual goals • Our Board of Directors reviews the performance and strategic measures related to the Company and its management that our Manager and AGNC establish, but the Company plays no role in making cash bonus decisions | • AGNC sets operational, strategic, and financial goals predominantly based on the short- and long-term performance of AGNC • Goals based, in part, on Company-related investment performance, financial results on an absolute and relative basis, and accomplishment of Company-related strategic initiatives • Relative weighting of goals and objectives is determined by our Manager and AGNC at their sole discretion | ||
28 MTGE INVESTMENT CORP. – Proxy Statement
EXECUTIVE COMPENSATION
| Pay Element | What It Does and How our Manager Does It | Key Considerations | ||
| Equity and Incentive Awards | • Variable equity-based long-term incentive opportunity • A portion of these awards is through the AGNC Mortgage Management, LLC Performance Incentive Plan-MTGE (“MTGE Manager PIP Plan”), a performance incentive plan based on our common stock which aligns with our stockholders’ interests • Shares awarded by our Manager under the MTGE Manager PIP Plan have been acquired through open market purchases and thus are not dilutive to our stockholders • Our executive officers also participate in AGNC’s 2016 Equity and Incentive Compensation Plan (the “AGNC Equity Plan”) • The Company plays no role in making any such awards | • Grants under the MTGE Manager PIP Plan vest over a three-year period • An executive officer’s mix of awards under the MTGE Manager PIP Plan and the AGNC Equity Plan will vary, but personnel most involved in our business and operations are expected to be granted a larger weighting of awards under the MTGE Manager PIP Plan than those of our Manager’s personnel who are less involved in our business. However, given our executive officers’ additional duties to AGNC, MTGE Manager PIP Plan awards are expected to be a minority of our executive officers’ overall long-term incentive compensation |
The overall mix of base salary, annual cash bonus, and equity and incentive awards at target to our executive officers for the second half of 2016, 2017 and anticipated for 2018 is depicted in the following pie graphs.
MTGE INVESTMENT CORP. – Proxy Statement 29
EXECUTIVE COMPENSATION
Other Compensation Policies and Practices
Executive Officer Stock Ownership
Stock ownership by our executive officers helps align the interests of our executive officers with our stockholders. Although we do not maintain a specific executive officer stock ownership policy, we encourage our executive officers to hold significant shares of our common stock. As of the close of business on March 8, 2018, our executive officers collectively held 484,494 shares of Company common stock, representing 1.06% of outstanding common stock. See “Security Ownership of Management and Certain Beneficial Owners.” As noted above, a portion of the long-term incentives paid to our executive officers by our Manager includes equity-based grants of Company common stock.
Certain Risks Related to our Management Fee
The Compensation Committee believes that the external management model continues to be appropriate for the Company given its present size and operations. Under the management agreement, we pay an annual fee that is determined as a fixed percentage of our stockholders’ equity, subject to specified adjustments. We believe our management fee being calculated as a percentage of stockholders’ equity reduces the incentive for management to take excessive or unnecessary risks, and thereby aligns incentives between us and our Manager in the operation of our business. Moreover, the overall incentive compensation paid to our executive officers by AGNC is not predominantly tied to Company performance, and to the extent incentives relate to Company performance, the Company believes that the incentives consist of a balanced mix of short-term and long-term incentives that align our executive officers’ interests with those of our stockholders.
Since we are externally managed, our Manager, and not us, is responsible for compensation expenses necessary to support our business and operations. Our relationship with our Manager allows us access to an experienced investment team and far greater resources than would be available if we were self-managed. Although our executive officers do not devote their full time or attention to the Company, our Manager ties a portion of their short-term incentive compensation to the Company’s performance, and a portion of their long-term incentives awarded by our Manager include grants based in Company common stock. The Company believes this structure, combined with our Board of Directors’ oversight of the management agreement and the ongoing benefit our management fees provide our Manager and AGNC, ensures that our executive officers have an ongoing interest in the Company’s long-term financial and operational success without creating material risk to the Company and its operations.
Our management agreement is subject to annual renewals and is terminable by us without cause at any time on90-days’ prior written notice. Although termination without cause would require the payment of a significant termination fee, we believe our right to terminate the agreement provides an additional deterrent against excessive and unnecessary risk taking and ensures an ongoing alignment of our Manager’s and our interests.
Role of our Compensation Committee in Executive Officer Compensation
As discussed above, we do not pay any compensation to our executive officers, and our Manager and its corporate parent, AGNC, have sole discretion to determine the compensation paid to their employees, including our executive officers. Our Compensation Committee thus has no input in how our Manager compensates its employees, some of whom are our executive officers. Although our Manager has kept the Board of Directors apprised of its compensation practices and succession planning as they pertain to the Company, our Manager and
30 MTGE INVESTMENT CORP. – Proxy Statement
EXECUTIVE COMPENSATION
AGNC do not involve the Compensation Committee in any decisions regarding the compensation of our executive officers. Rather, as discussed above, the Compensation Committee is responsible for annual review of the performance of, and fees paid to, our Manager under the management agreement and for making recommendations to the independent members of the Board in respect of the management agreement.
Report of the Compensation and Corporate Governance Committee
Our Compensation and Corporate Governance Committee reviewed and discussed with our management the “Compensation Discussion and Analysis” contained in the Company’s proxy statement. Based on that review and discussions, our Compensation and Corporate Governance Committee recommends to the Board of Directors that the “Compensation Discussion and Analysis” be included in the Company’s proxy statement.
By the Compensation and Corporate
Governance Committee:
Randy E. Dobbs, Chair
Julia L. Coronado
Robert M. Couch
MTGE INVESTMENT CORP. – Proxy Statement 31
INFORMATION REGARDING COMPANY VOTING SECURITIES
INFORMATION REGARDING COMPANY VOTING SECURITIES
Security Ownership of Management and Certain Beneficial Owners
The following table sets forth, as of March 8, 2018 (unless otherwise indicated), the beneficial ownership of each current director, each nominee for director, each of our executive officers, our executive officers and directors as a group and each stockholder known to management to own beneficially more than 5% of the outstanding shares of our common stock. Unless otherwise indicated, we believe that the beneficial owners set forth in the table below have sole voting and investment power. As of the close of business on March 8, 2018, there were 45,797,687 shares of our common stock outstanding.
| Name and Address of Beneficial Owner | Number of Shares of Common Stock Beneficially Owned | Percentage of Common Stock Beneficially Owned | ||||||||
Beneficial owners of more than 5%: | ||||||||||
BlackRock, Inc.(1) | 4,207,034 | 9.19% | ||||||||
55 East 52nd Street New York, NY 10055 | ||||||||||
The Vanguard Group(2) | 3,876,484 | 8.46% | ||||||||
100 Vanguard Blvd. Malvern, PA 19355 | ||||||||||
AGNC Investment Corp.(3) | 2,619,993 | 5.72% | ||||||||
2 Bethesda Metro Ctr, 12th Flr Bethesda, MD 20814 | ||||||||||
Executive officers and directors:(4) | ||||||||||
Peter J. Federico | 58,849 | * | ||||||||
Donald W. Holley | 24,284 | * | ||||||||
Gary D. Kain | 305,625 | * | ||||||||
Christopher J. Kuehl | 51,085 | * | ||||||||
Aaron J. Pas | 44,651 | * | ||||||||
Kenneth L. Pollack | – | – | ||||||||
Julia L. Coronado | – | – | ||||||||
Robert M. Couch | 7,300 | * | ||||||||
Randy E. Dobbs | 4,500 | * | ||||||||
| All executive officers and directors as a group (9 persons) | 496,294 | 1.08% | ||||||||
| * | Less than one percent. |
| (1) | This information is based on a Schedule 13G/A filed with the SEC on January 25, 2018 by BlackRock, Inc., as a parent holding company or control person of certain named funds (“BlackRock”). BlackRock is the beneficial owner of 4,207,034 shares and has the sole power to dispose or direct the disposition of 4,207,034 of such shares and sole power to vote or direct the vote of 4,103,144 of such shares. |
| (2) | This information is based on a Schedule 13G/A filed with the SEC on February 13, 2018 by The Vanguard Group, Inc. (“Vanguard”), as an investment adviser. Vanguard is the beneficial owner of 3,876,484 shares and has the sole power to dispose or direct the disposition of 3,819,843 of such shares, shared power to dispose or direct the disposition of 56,641 of such shares, sole power to vote or direct the vote of 51,641 of such shares and shared power to vote or direct the vote of 9,800 of such shares. |
| (3) | AGNC Investment Corp. is the ultimate parent company of our manager, MTGE Management, LLC. |
| (4) | The address of each of the executive officers and directors listed above is c/o MTGE Investment Corp., 2 Bethesda Metro Center, 12th Floor, Bethesda, MD 20814. |
32 MTGE INVESTMENT CORP. – Proxy Statement
INFORMATION REGARDING COMPANY VOTING SECURITIES
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act and the disclosure requirements of Item 405 of SEC RegulationS-K require that our directors and executive officers, and any persons holding more than 10% of our common stock, report their ownership of such equity securities and any subsequent changes in that ownership to the SEC, The Nasdaq Global Select Market and to us. Based on a review of the written statements and copies of such reports furnished to us by our executive officers, directors and greater than 10% beneficial owners, we believe that during fiscal year 2017 all Section 16(a) filing requirements applicable to our executive officers, directors and beneficial owners of 10% or more of our common stock were timely satisfied.
MTGE INVESTMENT CORP. – Proxy Statement 33
QUESTIONS AND ANSWERS ABOUT STOCKHOLDER COMMUNICATIONS AND PROPOSALS
QUESTIONS AND ANSWERS ABOUT STOCKHOLDER COMMUNICATIONS AND PROPOSALS
| 1. | WHO IS RESPONSIBLE FOR STOCKHOLDER COMMUNICATIONS? |
The Board of Directors is of the view that management is primarily responsible for all communications on behalf of MTGE with stockholders and the public at large. Thus, in addition to our executive officers, our Manager provides us with an investor relations team who communicates with stockholders.
| 2. | HOW DO I COMMUNICATE WITH THE COMPANY’S BOARD OF DIRECTORS? |
Stockholders who wish to communicate with our Board of Directors or with a particular director may send a letter to our Secretary at MTGE Investment Corp., 2 Bethesda Metro Center, 12th Floor, Bethesda, MD 20814. Any communication should clearly specify that it is intended to be made to the entire Board of Directors or to one or more particular director(s).
Under this process, our Secretary reviews all such correspondence and will forward to the Board of Directors (or the appropriate individual director, as applicable) a summary of all such correspondence and copies of all correspondence that, in the opinion of the Secretary, deals with the functions of the Board of Directors or committees thereof or that he otherwise determines requires their attention. Directors may at any time review a log of all correspondence received by MTGE that is addressed to members of the Board of Directors and request copies of any such correspondence. Concerns relating to accounting, internal controls, or auditing matters are immediately brought to the attention of the Chair of the Audit Committee and handled in accordance with procedures approved by the Board of Directors with respect to such matters.
A copy of such procedures for the submission and handling of complaints or concerns regarding accounting, internal accounting controls, or auditing matters is included in our Code of Ethics, which is published in the Investors section of our web site atwww.MTGE.com.
| 3. | HOW MAY A STOCKHOLDER NOMINATE A DIRECTOR OR SUBMIT A PROPOSAL FOR THE 2019 ANNUAL MEETING? |
Stockholder proposals or nominees for election to the Board of Directors must be made in accordance with the procedures set forth in our Bylaws and described in the following question, and not the procedures set forth in the preceding paragraph.
| 4. | HOW CAN A STOCKHOLDER SUBMIT A PROPOSAL FOR THE 2019 ANNUAL MEETING OF STOCKHOLDERS? |
Proposals received from common stockholders in accordance with Rule14a-8 under the Exchange Act are given careful consideration by our Compensation Committee and our Board of Directors. If a common stockholder intends to present a proposal at the 2019 annual meeting of stockholders pursuant to Rule14a-8 under the Exchange Act, in order for such stockholder proposal to be included in our proxy statement and proxy card for that meeting, the stockholder proposal must be received by our Secretary at MTGE Investment Corp., 2 Bethesda Metro Center, 12th Floor, Bethesda, Maryland 20814, on or before November 22, 2018, unless the date of the 2019 annual meeting of stockholders has been changed by more than 30 days from May 1, 2019; then the deadline is a reasonable time before we begin to print and send our proxy materials.
34 MTGE INVESTMENT CORP. – Proxy Statement
QUESTIONS AND ANSWERS ABOUT STOCKHOLDER COMMUNICATIONS AND PROPOSALS
If such proposal is in compliance with all of the requirements of Rule14a-8 under the Exchange Act, the proposal will be included in our proxy statement and proxy card relating to such meeting. Nothing in the response to this question will be deemed to require us to include any stockholder proposal that does not meet all the requirements for such inclusion established by the SEC in effect at that time.
In order for a proposal by a common stockholder submitted outside of Rule14a-8, including any nominations for election to the Board of Directors made by common stockholders, to be considered at the 2019 annual meeting of stockholders, such proposal must be made by written notice (setting forth the information required by our current Bylaws) and received by our Secretary between October 23, 2018 and 5:00 p.m., Eastern Time, on November 22, 2018.
Such proposals should be submitted by certified mail, return receipt requested.
| 5. | HOW MAY I OBTAIN A COPY OF THE COMPANY’S 2017 ANNUAL REPORT ON FORM10-K AND OTHER SEC FILINGS? |
A copy of our 2017 annual report onForm 10-K containing audited financial statements was delivered or made available with this proxy statement. Additional copies of our 2017 annual report on Form10-K (without exhibits, unless otherwise requested) are available in print, free of charge, to stockholders requesting a copy by writing to: MTGE Investment Corp., Investor Relations, 2 Bethesda Metro Center, 12th Floor, Bethesda, Maryland 20814, or by calling(301) 968-9220. You may review our filings with the SEC by visiting the SEC’s home page on the internet athttp://www.sec.gov or by visiting the Investors section of our web site atwww.MTGE.com.
MTGE INVESTMENT CORP. – Proxy Statement 35
QUESTIONS AND ANSWERS ABOUT THE 2018 ANNUAL MEETING AND VOTING
ABOUT THE 2018 ANNUAL MEETING AND VOTING
| 1. | WHY DID I RECEIVE THESE PROXY MATERIALS? |
Our Board of Directors is furnishing this proxy statement to you to solicit proxies on its behalf to be voted at the Annual Meeting onTuesday, May 1, 2018, at 9:00 a.m., Eastern Time, at the Hyatt Regency Bethesda, 7400 Wisconsin Avenue, Bethesda, Maryland 20814. The proxies also may be voted at any postponement or adjournment of the meeting.
All properly executed written proxies and all properly completed proxies submitted by telephone or by the internet that are timely delivered pursuant to this solicitation will be voted at the Annual Meeting in accordance with the directions given in the proxy unless the proxy is revoked before the completion of voting at the meeting.
| 2. | WHAT ITEMS WILL BE CONSIDERED AND VOTED ON AT THE ANNUAL MEETING? |
| Proposal | Board Recommendations | |
1) Election of four directors, each to serve aone-year term and until his or her successor is duly elected and qualifies | FOReach of the nominees of the Board of Directors | |
2) Advisory resolution on the compensation of our executive officers as disclosed in this proxy statement | FOR the advisory resolution | |
3) Ratification of the appointment of Ernst & Young LLP to serve as our independent public accountant for the year ending December 31, 2018 | FORratification ofappointment |
The Board of Directors does not intend to bring other matters before the Annual Meeting except items incidental to the conduct of the meeting. However, on all other matters properly brought before the meeting or any postponement or adjournment thereof by the Board of Directors or others, the persons named as proxies in the accompanying proxy card, or their substitutes, will vote in accordance with their discretion.
| 3. | WHAT IS A PROXY? |
It is your legal designation of another person to vote the stock you own. That other person is called a proxy. If you designate someone as your proxy in a written document, that document also is called a proxy or a proxy card. Peter J. Federico and Kenneth L. Pollack, or either of them, have been designated as proxies by the Board of Directors for the Annual Meeting.
| 4. | WHAT IS THE RECORD DATE AND WHAT DOES IT MEAN? |
The record date for the Annual Meeting is the close of business on March 8, 2018 (the “record date”). The record date is established by the Board of Directors and only common stockholders of record at the close of business on the record date are entitled to:
| a. | receive notice of the Annual Meeting; and |
| b. | vote at the Annual Meeting and any postponement or adjournment of the Annual Meeting. |
Each common stockholder of record on the record date is entitled to one vote for each share of common stock held. On the record date, there were 45,797,687 shares of common stock outstanding.
36 MTGE INVESTMENT CORP. – Proxy Statement
QUESTIONS AND ANSWERS ABOUT THE 2018 ANNUAL MEETING AND VOTING
| 5. | WHAT IS THE DIFFERENCE BETWEEN A STOCKHOLDER OF RECORD AND A STOCKHOLDER WHO HOLDS STOCK IN STREET NAME? |
If your shares of common stock are registered in your name on the books and records of our transfer agent, you are a common stockholder of record.
If your shares of common stock are held for you through an intermediary in the name of your broker, bank, or other nominee, your shares are held in street name. The answer to Question 10 below describes brokers’ discretionary voting authority and when your broker, bank, or other nominee is permitted to vote your shares of common stock without instructions from you. For shares held through a benefit or compensation plan or a broker, bank, or other nominee, you may vote by submitting voting instructions to your plan trustee, broker, bank, or nominee. If you attend the Annual Meeting, you may withdraw your proxy and vote in person.
It is important that you vote your shares of common stock if you are a stockholder of record and, if you hold shares in street name, that you provide appropriate voting instructions to your broker, bank, or other nominee as discussed in the answer to Question 10 below.
| 6. | WHAT ARE THE DIFFERENT METHODS THAT I CAN USE TO VOTE MY SHARES (OR AUTHORIZE A PROXY TO VOTE MY SHARES) OF COMMON STOCK? |
You may authorize your proxy or vote your shares of our common stock by any of the following methods:
By Telephone or the Internet—Common stockholders may authorize a proxy to vote their shares via telephone or the internet as instructed in the proxy card or the voting instruction form. The telephone and internet procedures are designed to authenticate a stockholder’s identity, to allow common stockholders to authorize a proxy to vote their shares, and to confirm that their instructions have been properly recorded.
By Mail—A common stockholder who receives a paper proxy card or voting instruction form or requests a paper proxy card or voting instruction form by telephone or internet may elect to authorize a proxy to vote their shares by mail and should complete, sign, and date the proxy card or voting instruction form and mail it in thepre-addressed envelope that accompanies the delivery of the proxy card or voting instruction form. For common stockholders of record, proxy cards submitted by mail must be received by the date and time of the Annual Meeting. For common stockholders who hold their shares through an intermediary, such as a broker, bank, or other nominee, the voting instruction form submitted by mail must be mailed by the deadline imposed by your broker, bank, or other nominee for your shares to be voted.
In Person—Shares of common stock held in your name as the stockholder of record may be voted by you in person at the Annual Meeting. Shares of common stock held beneficially in street name may be voted by you in person at the Annual Meeting only if you obtain a “legal” proxy from the broker, bank, or other nominee that holds your shares giving you the right to vote the shares, and you bring that “legal” proxy to the Annual Meeting. Obtaining a legal proxy may take several days.
| 7. | WHO COUNTS THE VOTES? |
Our transfer agent will receive and tabulate the proxies and certify the results.
| 8. | WHAT IF A STOCKHOLDER DOES NOT SPECIFY A CHOICE FOR A MATTER WHEN RETURNING A PROXY? |
Stockholders should specify their voting choice for each matter on the accompanying proxy. If no specification is made on the proxy for that proposal, such shares will be voted “FOR” the election of each of the four director nominees, “FOR” the advisory resolution on the compensation of our executive officers, and “FOR” the ratification of the appointment of Ernst & Young LLP as our independent public accountant for the year ending December 31, 2018.
MTGE INVESTMENT CORP. – Proxy Statement 37
QUESTIONS AND ANSWERS ABOUT THE 2018 ANNUAL MEETING AND VOTING
| 9. | WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD? |
It means that you have multiple accounts with brokers and/or our transfer agent.Please vote all of these shares.
We recommend that you contact your broker and/or our transfer agent to consolidate as many accounts as possible under the same name and address. Our transfer agent is Computershare Investor Services. Computershare’s address is 462 South 4th St., Suite 1600, Louisville, KY 40202; you may reach Computershare at1-800-733-5001 (from within the United States or Canada) or781-575-3400 (from outside the United States or Canada).
| 10. | WILL MY SHARES BE VOTED IF I DO NOT PROVIDE MY PROXY? |
Stockholders of Record—If you are a stockholder of record (see Question 5 above), your shares of common stock will not be voted if you do not properly submit your proxy unless you vote in person at the Annual Meeting.It is important that you vote your shares.
Street Name Holders—If your shares of common stock are held in street name (see Question 5 above) and you do not provide your signed and dated voting instruction form to your broker, bank, or other nominee, your shares may be voted by your broker, bank, or other nominee butonly under certain circumstances. Specifically, under applicable Nasdaq rules, if you do not provide voting instructions, shares held in the name of your broker, bank, or other nominee may be voted by your broker, bank or other nominee only on certain “routine” matters.
The only proposal to be voted on at the Annual Meeting that is considered a “routine” matter for which brokers, banks, or other nominees may vote uninstructed shares is the ratification of the appointment of Ernst & Young LLP as the Company’s independent public accountant. The other proposals (specifically, the election of director nominees and the advisory vote on executive compensation) are not considered “routine” under
applicable rules, so the broker, bank, or other nominee is not permitted to vote your shares on those proposals unless you provide to the broker, bank, or other nominee voting instructions for each matter. If you do not provide voting instructions on anon-routine matter, your shares of common stock will not be voted on the matter, which is referred to as a “brokernon-vote.”It is, therefore, important that you vote your shares.
| 11. | ARE ABSTENTIONS AND BROKERNON-VOTES COUNTED? |
Abstentions and brokernon-votes will be counted toward the establishment of a quorum but will not be counted as votes cast and will not affect the outcome of the vote on any of the proposals discussed in this proxy statement. Brokers, banks, and other nominees will have discretionary authority to vote on the ratification of the appointment of Ernst & Young LLP as the Company’s independent public accountant.See Question 10 above for more information about brokernon-votes.
| 12. | HOW CAN I REVOKE A PROXY? |
The enclosed proxy is solicited on behalf of the Board of Directors and is revocable at any time prior to the exercise of the proxy by the filing of an instrument revoking it, or a duly executed proxy bearing a later date, with our Secretary, addressed to our principal executive offices at 2 Bethesda Metro Center, 12th Floor, Bethesda, Maryland 20814. In the event that you attend the Annual Meeting, you may revoke your proxy and cast your vote in person at the Annual Meeting. Attendance without voting will not, in and of itself, revoke a previously authorized proxy.
| 13. | WHO WILL PAY THE COST OF THIS PROXY SOLICITATION? |
We will bear the cost of soliciting proxies on the accompanying form. In addition to the use of mail, our officers and Manager may solicit proxies by telephone or facsimile. Upon request, we will reimburse brokers, dealers, banks, and trustees, or their nominees, for reasonable expenses incurred by
38 MTGE INVESTMENT CORP. – Proxy Statement
QUESTIONS AND ANSWERS ABOUT THE 2018 ANNUAL MEETING AND VOTING
them in forwarding our proxy materials to beneficial owners of our common stock.
| 14. | HOW DO I OBTAIN ADMISSION TO THE ANNUAL MEETING? |
If you wish to attend the Annual Meeting in person, we request that you register in advance with our Investor Relations department either by email atIR@MTGE.com or by telephone at(301) 968-9220.Attendance at the Annual Meeting will be limited to persons presenting proof ofstock ownership on the record date and picture identification. If you hold shares directly in your name as a stockholder of record, proof of ownership could include a copy of your account statement or a copy of your stock certificate(s). If you hold shares through an intermediary, such as a broker, bank, or other nominee, proof of stock ownership could include a
legal proxy from your broker, bank, or other nominee or a copy of your brokerage or bank account statement.
| 15. | HOW MANY VOTES MUST BE PRESENT TO HOLD THE ANNUAL MEETING? |
In order for us to conduct the Annual Meeting, common stockholders entitled to cast a majority of all the votes entitled to be cast as of the close of business on the record date must be present in person or by proxy at the meeting. This is referred to as a quorum. Your shares are counted as present at the Annual Meeting if you attend the meeting and vote in person or if you properly authorize a proxy by internet, telephone, or mail.
Abstentions and brokernon-votes will be considered present for the purpose of determining whether a quorum is present.
The Board of Directors does not intend to bring other matters before the Annual Meeting except items incidental to the conduct of the meeting. However, on all other matters properly brought before the meeting, or any postponement or adjournment thereof, by the Board of Directors or others, the persons named as proxies in the accompanying proxy card, or their substitutes, will vote in accordance with their discretion.
MTGE INVESTMENT CORP. – Proxy Statement 39
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Electronic Voting Instructions
Available 24 hours a day, 7 days a week!
Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your proxy.
VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR.
Proxies submitted by the Internet or telephone must be received by 1:00 a.m., Central Time, on May 1, 2018.
| |||
| Vote by Internet | |||
• Go towww.investorvote.com/mtge | ||||
• Or scan the QR code with your smartphone | ||||
• Follow the steps outlined on the secure website | ||||
Vote by telephone | ||||
• Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone | ||||
• Follow the instructions provided by the recorded message | ||||
Using ablack inkpen, mark your votes with anXas shown in this example. Please do not write outside the designated areas. | ☒ |
q IF YOU HAVE NOT AUTHORIZED YOUR PROXY VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.q
| A | Proposals — | The Board of Directors recommends a voteFOR all the nominees listed in Proposal 1 andFOR Proposals 2 and 3. |
| + |
| 1. Election of Directors: | For
| Against
| Abstain
| For
| Against
| Abstain
| For
| Against
| Abstain
| |||||||||||||||||
| 01 - Gary D. Kain | ☐ | ☐ | ☐ | 02 - Julia L. Coronado | ☐ | ☐ | ☐ | 03 - Robert M. Couch | ☐ | ☐ | ☐ | |||||||||||||||
| 04 - Randy E. Dobbs | ☐ | ☐ | ☐ | |||||||||||||||||||||||
| For | Against | Abstain | For | Against | Abstain | |||||||||||||
| 2. | Advisory vote to approve the compensation of our executive officers. |
☐ |
☐ |
☐ | 3. | Ratification of appointment of Ernst & Young LLP as our independent public accountant for the year ending December 31, 2018. |
☐ |
☐ |
☐ | |||||||||
The proxies are authorized to vote in their discretion on any other matter that may properly come before said meeting or any postponement or adjournment thereof. | ||||||||||||||||||
| B | Non-Voting Items |
| C | Authorized Signatures — | This section must be completed for your vote to be counted — PLEASE SIGN HERE AND RETURN PROMPTLY. |
Please sign exactly as your name appears on your stock certificate. If registered in the names of two or more persons, each person should sign. Executors, administrators, trustees, guardians, attorneys, and corporate officers should show their full titles.
.
Change of Address — Please print your new address below.
Comments — Please print your comments below.
Meeting Attendance
Mark the box to the right if you plan to attend the Annual Meeting.
Date (mm/dd/yyyy) — Please print date below. Signature 1 — Please keep signature within the box. Signature 2 — Please keep signature within the box.
qIF YOU HAVE NOT AUTHORIZED YOUR PROXY VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.q
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Proxy — MTGE Investment Corp.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE
2018 ANNUAL MEETING OF STOCKHOLDERS OF MTGE INVESTMENT CORP. TO BE HELD ON MAY 1, 2018.
The undersigned stockholder of MTGE Investment Corp., a Maryland corporation, hereby appoints Peter J. Federico and Kenneth L. Pollack and each of them, as proxies for the undersigned, with full power of substitution, to vote all of the shares of common stock of the undersigned as shown below on this proxy at the 2018 Annual Meeting of Stockholders to be held at the Hyatt Regency Bethesda, 7400 Wisconsin Avenue, Bethesda, Maryland 20814, on Tuesday, May 1, 2018, at 9:00 a.m. Eastern Time, and any postponement or adjournment thereof.
This proxy is revocable and your shares of common stock will be voted in accordance with your instructions. If no choice is specified, this proxy will be voted FOR the election of all nominees for Director in Proposal 1 and FOR Proposals 2 and 3.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE