UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 001-36063
Altisource Asset Management Corporation
(Exact name of registrant as specified in its charter)
U.S. Virgin Islands
(State or other jurisdiction of incorporation or organization)
66-0783125
(I.R.S. Employer Identification No.)
5100 Tamarind Reef
Christiansted, U.S. Virgin Islands 00820
(Address of principal executive office)
(704) 275-9113
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common stock, par value $0.01 per share
Trading Symbol(s)
AAMC
Name of Exchange on which Registered
NYSE American
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth
company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Non-Accelerated Filer
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☒
Accelerated Filer
Smaller Reporting Company
Emerging Growth Company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of
the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of common stock held by non-affiliates of the registrant was $9.2 million, based on the closing share price as reported on the
New York Stock Exchange on June 30, 2020 and the assumption that all Directors and executive officers of the registrant and their families and beneficial
holders of 10% of the registrant's common stock are affiliates. This determination of affiliate status is not necessarily a conclusive determination for any
other purpose.
As of February 26, 2021, 2,048,319 shares of our common stock were outstanding (excluding 1,359,600 shares held as treasury stock).
Portions of the Registrant's definitive proxy statement relating to its 2021 annual meeting of shareholders (the "2021 Proxy Statement") are incorporated by
reference into Part III of this Annual Report on Form 10-K where indicated. The Registrant intends to file the 2021 Proxy Statement with the U.S.
Securities and Exchange Commission not later than 120 days after the end of the fiscal year to which this report relates.
Altisource Asset Management Corporation
December 31, 2020
Table of Contents
Part I
Item 1. Business.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Mine Safety Disclosures.
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Item 6. Reserved.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Item 8. Consolidated Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
Part III
Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14. Principal Accountant Fees and Services.
Part IV
Item 15. Exhibits.
Signatures
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References in this report to “we,” “our,” “us,” “AAMC,” or the “Company” refer to Altisource Asset Management Corporation and its consolidated
subsidiaries, unless otherwise indicated. References in this report to “Front Yard” refer to Front Yard Residential Corporation and its consolidated
subsidiaries, unless otherwise indicated.
Special note on forward-looking statements
Our disclosure and analysis in this Annual Report on Form 10-K contain “forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases,
you can identify forward-looking statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,”
“anticipates,” “believes,” “estimates,” “predicts,” or “potential” or the negative of these words and phrases or similar words or phrases that are predictions
of or indicate future events or trends and that do not relate solely to historical matters. You can also identify forward-looking statements by discussions of
strategy, plans or intentions.
The forward-looking statements contained in this report reflect our current views about future events and are subject to numerous known and unknown
risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-
looking statement. Factors that may materially affect such forward-looking statements include, but are not limited to:
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our ability to implement our business strategy;
our ability to retain and recruit key employees;
our ability to develop and implement new businesses or, to the extent such businesses are developed, our ability to make them successful
or sustain the performance of any such businesses;
our ability to retain and maintain our strategic relationships;
our ability to obtain additional asset management clients;
the potential for the COVID-19 pandemic to adversely affect our business, financial position, operations, business prospects, customers,
employees and third-party service providers;
our ability to effectively compete with our competitors;
the failure of our service providers to effectively perform their obligations under their agreements with us;
our ability to integrate newly acquired business;
developments in the litigation regarding our redemption obligations under the Certificate of Designations of our Series A Convertible
Preferred Stock (the “Series A Shares”), including our ability to obtain declaratory relief confirming that we were not obligated to redeem
any of the Series A Shares on the March 15, 2020 redemption date if we do not have funds legally available to redeem all, but not less
than all, of the Series A Shares requested to be redeemed on that redemption date;
general economic and market conditions;
our ability to manage our transient investments during the creation and ramp up of our new business;
any breaches or alleged breaches with respect to the Termination Agreement (defined below) with Front Yard;
the failure of our information technology systems, a breach thereto, and our ability to integrate and improve those systems at a pace fast
enough to keep up with competitors and security threats; and
governmental regulations, taxes and policies.
While forward-looking statements reflect our good faith beliefs, assumptions and expectations, they are not guarantees of future performance. Such
forward-looking statements speak only as of their respective dates, and we assume no obligation to update them to reflect changes in underlying
assumptions or factors, new information or otherwise. For a further discussion of these and other factors that could cause our future results to differ
materially from any forward-looking statements contained herein, please refer to the section “Item 1A. Risk Factors.”
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Item 1. Business
Our Business
Part I
Altisource Asset Management Corporation (“we,” “our,” “us,” “AAMC,” or the “Company”) was incorporated in the United States Virgin Islands
(“USVI”) on March 15, 2012 (our “inception”), and we commenced operations in December 2012. Our primary business is to provide asset management
and certain corporate governance services to institutional investors. In October 2013, we applied for and were granted registration by the Securities and
Exchange Commission (the “SEC”) as a registered investment adviser under Section 203(c) of the Investment Advisers Act of 1940. We have historically
operated in a single segment focused on providing asset management and certain corporate governance services to investment vehicles.
Our team employs a range of strategies that leverage our deep industry expertise, local insights, and global resources to deliver attractive returns throughout
the investment cycle. We invest with precision, purpose, and alignment between our interests and the interests of Our Fund (defined below) investors,
stockholders, and other stakeholders. We are in the process of establishing multiple new lines of business, including, without limitation, investment funds,
short-term investor loan aggregation and origination businesses, and the establishment of strategic relationships with real estate loan originators. Building
on these efforts, and leveraging our industry expertise and intellectual capital allows us to capitalize on a broader range of the opportunities. As an
investment advisor, we earn, or have the opportunity to earn, management fees, transaction fees, and carried interest for providing investment management
and other services to our clients, funds, and other vehicles. We plan to earn additional investment income by investing our own capital alongside the capital
we manage for fund investors and we expect that AAMC will be able to generate management fees and attractive returns through each of these
opportunities.
We have formed investment funds which we believe will allow us to attract domestic and international institutional and high net worth investors. The initial
seed capital is expected to be used to invest in real estate debt products, specifically, short-term investor loans. We also intend to subscribe additional
capital for The Fund (defined below) from other institutional investors. As capital commitments increase, we intend to expand the investments into other
real estate related assets following a disciplined investment approach. We also intend to invest a portion of our own capital directly into The Fund in
addition to other investments we may make.
Our primary client has been Front Yard Residential Corporation (“Front Yard”), a public real estate investment trust (“REIT”) focused on acquiring and
managing quality, affordable single-family rental (“SFR”) properties for America's families. Front Yard was historically our primary source of revenue and
was a significant driver of our results.
During the second quarter of 2019, Front Yard commenced a strategic alternatives review process designed to maximize stockholder value. At the
conclusion of this review, Front Yard's board of directors determined that it was in the best interests of its shareholders to liquidate Front Yard. In light of
this determination, we appointed a Co-Chief Executive Officer on January 13, 2020 to be responsible for implementing new business. Our incumbent Co-
Chief Executive Officer continued to focus on the business of Front Yard and the completion of its strategic alternatives review until his resignation in
December 2020.
On August 13, 2020, we entered into a Termination and Transition Agreement (the “Termination Agreement”) with Front Yard and Front Yard Residential
L.P. (“FYR LP”) to terminate the Amended and Restated Asset Management Agreement, dated as of May 7, 2019 (the “Amended AMA”), by and among
the Front Yard, FYR LP and AAMC, and to provide for a transition plan to facilitate the internalization of Front Yard’s asset management function (the
“Transition Plan”). Pursuant to the terms of the Termination Agreement, effective on the date that the parties mutually agreed that the Transition Plan had
been satisfactorily completed (the “Termination Date”), which was December 31, 2020, the Amended AMA was terminated in its entirety. As part of the
Termination Agreement and Transition Plan, the incumbent Co-Chief Executive Officer resigned prior to the Termination Date, at which point our new Co-
Chief Executive Officer became the sole Chief Executive Officer of the Company.
In connection with the Termination Agreement, Front Yard paid AAMC an aggregate termination fee (the “Termination Fee”) of $46,000,000, with
payments consisting of $30,000,000 in cash and $16,000,000 in Front Yard common stock. During the transition period, AAMC continued to be paid the
base management fee provided for in the Amended AMA (equal to $3,584,000 per quarter as contemplated by the Amended AMA) and a pro rata portion
of the base management fee for any partial calendar quarter during such period.
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In addition, on December 31, 2020 and January 1, 2021, AAMC transferred the equity interests of the Company’s Cayman Islands subsidiary and India
subsidiary (the “Transferred Assets”), respectively, to Front Yard. The aggregate purchase price (the “Purchase Price”) for the Transferred Assets was
$8,200,000, with payments consisting of $3,200,000 in cash and $5,000,000 in Front Yard’s common stock. Furthermore, on January 1, 2021, Front Yard
also transferred the equity interests in its India subsidiary to AAMC. In addition to the retention of key employees, AAMC retained certain assets and
operating subsidiaries to continue to build out its asset management businesses focused on the origination and underwriting of short duration construction
loans backed by single-family homes as well as other new business initiatives.
On October 19, 2020, Front Yard entered into an Agreement and Plan of Merger (the “Original Merger Agreement”) with Pretium Midway Holdco, LP, a
Delaware limited partnership (“Parent”), and Midway AcquisitionCo REIT, a Maryland real estate investment trust (“Merger Sub”), pursuant to which
Front Yard would be acquired by a partnership led by Pretium Midway Investments, LP (the “Pretium Investor”), a fund managed by affiliates of Pretium
Partners, LLC, and including funds managed by the real estate equity and alternative credit strategies of Ares Management Corporation (the “Ares
Investors” and together with Pretium Investor, the "Investors"). The Original Merger Agreement provided that, among other things, upon the terms and
subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (“Effective Time”), Front Yard would merge with and into
Merger Sub (the “Merger”), with Merger Sub as the successor in the Merger and continuing as a wholly owned subsidiary of Parent.
On January 11, 2021, Front Yard completed its previously announced Merger with the Parent and Merger Sub pursuant to the terms of the Original
Agreement, as amended by the First Amendment to Agreement and Plan of Merger, dated as of November 20, 2020 (the “Amendment” and, together with
the Original Agreement, the “Merger Agreement”), by and among Front Yard, Parent and Merger Sub. Merger Sub was the surviving company in the
Merger. Effective on the closing date of the Merger, each share of common stock of Front Yard, subject to certain exceptions, was cancelled, extinguished,
and automatically converted into the right to receive cash in an amount equal to $16.25 per share. Upon the closing of the Merger, AAMC received cash in
an amount of approximately $47.5 million for the Front Yard common stock it held at the closing date.
For information on the potential risks to AAMC in relation to the Termination Agreement, Merger, and new business initiatives, see “Item 1A. Risk
Factors.”
Additionally, our wholly owned subsidiary, NewSource Reinsurance Company Ltd. (“NewSource”), is a title insurance and reinsurance company licensed
with the Bermuda Monetary Authority. NewSource commenced reinsurance activities during the second quarter of 2014. In December 2014, NewSource
determined that the economics of the initial business did not warrant the continuation of its initial reinsurance quota share agreement with an unrelated third
party. NewSource therefore transferred all of the risk of claims and future losses underwritten to an unrelated third party, and its reinsurance and insurance
business has been dormant since that time. In December 2020, the Company determined that it had no immediate intent to re-commence reinsurance
activity, and accordingly, we submitted our application letter to the Bermuda Monetary Authority to cancel our license and proceed with a voluntary wind
down of NewSource after six years of dormancy.
Asset Management Agreement with Front Yard
On March 31, 2015, we entered into an asset management agreement (the “Former AMA”), under which we were the exclusive asset manager for Front
Yard for an initial term of 15 years from April 1, 2015, with two potential five-year extensions. The Former AMA provided for a fee structure in which we
were entitled to a base management fee, an incentive management fee and a conversion fee for mortgage loans and real estate owned (“REO”) properties
that became rental properties for the first time during each quarter.
On May 7, 2019, we entered into the Amended AMA with Front Yard, under which we were provided to be the exclusive asset manager for Front Yard for
an initial term of five years. The Amended AMA had the option to renew automatically each year thereafter for an additional one-year term, subject in each
case to certain termination provisions. The Amended AMA provided for a fee structure in which we are entitled to a Base Management Fee and a potential
Incentive Fee.
Pursuant to the Amended AMA, we designed and implemented Front Yard's business strategy, administered certain of its business activities and day-to-day
operations and provided corporate governance services, subject to oversight by Front Yard's Board of Directors. We were responsible for, among other
duties: (1) performing and administering certain of Front Yard's day-to-day operations; (2) implementing the investment criteria in Front Yard's investment
policy approved by its Board of Directors; (3) sourcing, analyzing and executing asset acquisitions, including the related financing activities; (4) overseeing
Front Yard's renovation, leasing and property management of its SFR properties; (5) analyzing and executing sales of certain
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rental properties and REO properties; (6) performing asset management duties and (7) performing corporate governance and other management functions,
including financial, accounting and tax management services.
We provided Front Yard with a management team and support personnel who have substantial experience in the acquisition and management of residential
properties. Our management also has significant corporate governance experience that enabled us to manage Front Yard's business and organizational
structure efficiently. We had, during the term of the Amended AMA, agreed not to provide the same or substantially similar services without the prior
written consent of Front Yard's Board of Directors to any business or entity competing against Front Yard in (a) the acquisition or sale of SFR and/or REO
properties, non-performing and re-performing mortgage loans or other similar assets; (b) the carrying on of an SFR business or (c) any other activity in
which Front Yard engaged. Notwithstanding the foregoing, we could engage in any other business or render similar or different services to any businesses
engaged in lending or insurance activities or any other activity other than those described above. Further, at any time following the termination of the
Amended AMA, or Front Yard's determination and announcement that it will no longer engage in any of the above-described competitive activities, we are
entitled to provide advisory or other services to businesses or entities in such competitive activities without Front Yard's prior consent.
Accordingly, our operating results were historically highly correlated to Front Yard's operating results.
The Amended AMA provided for the agreement to be terminated without cause (i) by Front Yard (including any successor of Front Yard) for any reason, or
no reason, or (ii) by Front Yard or us in connection with the expiration of the initial term or any renewal term, in either case with 180 days' prior written
notice. If the Amended AMA was terminated by Front Yard without cause or in connection with the expiration of the initial term or any renewal term,
Front Yard would be required to pay the Termination Fee to us in an amount generally equal to three times the arithmetical mean of the aggregate fees
actually paid or payable with respect to each of the three immediately preceding completed calendar years (including any such prior years that may have
occurred prior to the effective date of the Amended AMA). Upon any such termination by Front Yard, Front Yard would have the right, at its option, to
license certain intellectual property and technology assets from us. Front Yard also had the option to continue to utilize the services of AAMC for a
transition period of up to one year following the effective date of termination of the Amended AMA at a cost not to exceed $3,584,000 per quarter.
On August 13, 2020, we entered into the Termination Agreement with Front Yard and FYR LP to terminate the Amended AMA by and among the Front
Yard, FYR LP, and AAMC, and to complete the Transition Plan. Pursuant to the terms of the Termination Agreement and Transition Plan, effective after
December 31, 2020, the Amended AMA was terminated in its entirety.
In connection with the Termination Agreement, Front Yard paid AAMC a Termination Fee. During the transition period, AAMC continued to be paid the
base management fee provided for in the Amended AMA.
In addition, on December 31, 2020 and January 1, 2021, the Company transferred the Transferred Assets to Front Yard. The Purchase Price for the
Transferred Assets was $8,200,000, with payments consisting of $3,200,000 in cash and $5,000,000 in Front Yard’s common stock. Furthermore, on
January 1, 2021, Front Yard also transferred the equity interests in its India subsidiary to AAMC.
As a result of the termination process above, we reported the activity related to the Amended AMA and Transferred Assets (collectively, the "Disposal
Group") as "held-for-sale", and a discontinued operation, effective as of the end of the third quarter of 2020. The results of operations, cash flows, and
assets and liabilities of our discontinued operations and our continuing operations, for all periods presented in the accompanying consolidated financial
statements, have been reclassified to conform to the current year presentation. See Note 3 to our consolidated financial statements for additional
information regarding the results, major classes of assets and liabilities, and significant non-cash operating items and capital expenditures of discontinued
operations.
For more information on these asset management agreements, please see Note 7 to our consolidated financial statements contained in this Annual Report
on Form 10-K.
Our Business Strategy
Our business strategy is to (i) provide asset management services in a manner that builds long-term value and a stable income stream for our stockholders
and (ii) to develop additional scalable investment strategies and vehicles by leveraging the expertise of our management team.
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Front Yard's Business Strategy
Prior to the Termination Date, we assisted Front Yard in executing its strategy of being one of the top SFR REITs serving American families and their
communities with a view to providing consistent and robust returns on equity and long-term growth for its investors. In recent years we:
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improved Front Yard’s operations;
shifted Front Yard’s focus from residential debt assets to SFR assets;
strengthen Front Yard’s portfolio with portfolio SFR acquisitions;
internalized property management; and
negotiated the sale of Front Yard.
We believed there was a compelling opportunity in the SFR market and that we implemented the right strategic plan for Front Yard to capitalize on the
sustained growth in SFR demand. Front Yard targeted the moderately priced single-family home market to acquire rental properties, which in our view, not
only provided safe, comfortable homes for residents, but also offered attractive yield opportunities.
Strengths that AAMC Brought to Front Yard
Until the Termination Date, we were committed to a business strategy that would enable Front Yard to efficiently manage and continue to grow its SFR
portfolio and to become one of the largest nationwide SFR REITs. Our goal was to enhance Front Yard's long-term stockholder value through the execution
of its business plan with a focus on its competitive strengths. We believed these strengths would enable Front Yard to grow and provide strong stabilized
results over time, which we expected would, in turn, result in improved results for AAMC. Front Yard's competitive position was based on the following
strengths through our management:
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Acquisition Strategy Enabled Front Yard to Continue Building a Portfolio that Targeted Attractive Yields for its Stockholders. Through our
personnel and technical expertise, we developed a disciplined market and asset selection approach, and a valuation model for Front Yard that used
proprietary and market data to evaluate and project the performance of SFR assets. This valuation model was built with multiple broad economic
and geographic inputs as well as numerous property-level inputs to determine which properties would produce attractive yields and how much to
pay for those properties to best achieve optimal results. These internally developed tools helped Front Yard to evaluate the most attractive SFR
properties for sale. We also leveraged Front Yard's property inspection, management, rental infrastructure, and related data flows to identify and
acquire attractive assets in any locations into which Front Yard desired to grow. Through the Termination Date, we continued to build Front Yard's
internal property management structure, which allowed Front Yard to focus on strategic areas, develop regional experience to continually refine
Front Yard's acquisition strategy, and achieve rental portfolio growth with properties marked by strong stabilized occupancy rates and optimal
economic returns. We also believed that Front Yard's focus on affordable housing provided it with a potential advantage, as we believe this is an
underserved market segment that provided Front Yard with attractive yield and growth opportunities.
Extensive Internal Property Management Infrastructure. With the internal property manager and the support of its nationwide vendor networks,
we believe that Front Yard was well positioned to operate and manage SFR properties across the United States at an attractive cost structure. We
placed an experienced property management team with a successful track-record of internal property management operations with Front Yard,
which enabled Front Yard to capitalize on additional opportunities to enhance its tenants’ experience and improve its operating efficiency. We
believe the internal property management infrastructure provided Front Yard with a cost-efficient, scalable platform that was a key factor in its
success as it continued to grow through acquisition by the Investors.
• Depth of Management Experience. We believe the experience and technical expertise of our management team was one of Front Yard's key
strengths. Our team has a broad and deep knowledge of the real estate market with decades of experience in real estate, mortgage trading, housing,
financial services, and asset management. Our experience in the real estate industry brought a wealth of understanding of the markets in which
Front Yard operated and built Front Yard's portfolio in a manner that positioned it to provide attractive potential returns to its stockholders.
Management and its supporting teams have expertise and extensive contacts that enabled us to source SFR assets through access to auctions and
sellers of SFR assets and obtain financing to optimize available leverage. We believe that our asset evaluation process and the experience and
judgment of our executive management team in identifying, assessing,
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valuing, and acquiring new SFR assets helped Front Yard to appropriately value the portfolios at the time of purchase and to operate them
profitably.
Front Yard's Investment Process
Using extensive market connections and a disciplined market and asset selection approach incorporating advanced quantitative models, our capital markets
group has demonstrated expertise in sourcing, analyzing and negotiating the purchase of both large and small portfolios of rented single-family properties.
Through close collaboration with Front Yard's internal property management team, we were able to source and acquire properties that fit Front Yard's
investment strategy and integrated well with Front Yard's property management infrastructure. This expertise and coordination enabled us to strategically
grow Front Yard's SFR portfolio at September 30, 2020 to approximately 14,500 homes, the majority of which were stabilized rentals at the time of
acquisition.
Front Yard's Financing Strategy
We provided a team of experienced legal and financial professionals that executed Front Yard's financing strategy. Front Yard financed its real estate
investments with debt and equity, the proportions and character of which varied based upon the particular characteristics of its portfolio and on market
conditions. To the extent available at the relevant time, Front Yard's financing sources may have included bank credit facilities, term financing, warehouse
lines of credit, securitization financing, seller financing arrangements, structured financing arrangements, and repurchase agreements, among others.
Front Yard's Investment Committee and Investment Policy
We conducted substantially all of the investment activities on behalf of Front Yard pursuant to the Amended AMA. Front Yard’s Board of Directors had
adopted a broad investment policy designed to facilitate our management of Front Yard’s capital and assets and our maintenance of an investment portfolio
profile that met Front Yard’s objectives. We reported to Front Yard’s Investment Committee, whose role was to act in accordance with the investment
policy and guidelines approved by Front Yard’s Board of Directors for the investment of its capital. As part of an overall investment portfolio strategy, the
investment policy provided that we could facilitate Front Yard’s purchase or sale of non-performing or sub-performing residential mortgage loans,
residential mortgage backed securities, and real estate assets. We were also authorized, on behalf of Front Yard, to offer leases on acquired single-family
residential real estate. The investment policy allowed for modification by Front Yard’s Board of Directors without the approval of our stockholders.
The objective of Front Yard’s investment policy was to oversee our efforts to achieve a return on assets consistent with Front Yard’s business objectives and
to maintain adequate liquidity to meet Front Yard’s financial covenants and regular cash requirements.
The Investment Committee was authorized to approve the financing of Front Yard’s investment positions through bank credit facilities, seller financing
arrangements, warehouse lines of credit, securitization financing, term financing, structured financing arrangements and repurchase agreements, among
others, provided such agreements are negotiated with counterparties approved by the Investment Committee. We were also permitted to hedge Front Yard’s
interest rate exposure on its financing activities through the use of interest rate swaps or caps, forwards, futures and options, subject to prior approval from
Front Yard’s Investment Committee.
Investment Committee Approval of Counterparties
Front Yard’s Investment Committee was authorized to consider and approve, based on our recommendations:
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the financial soundness of institutions with which Front Yard planned to transact business and recommendations with respect thereto;
Front Yard’s risk exposure limits with respect to the dollar amounts of total exposure with a given institution; and
investment accounts and trading accounts to be opened with banks, broker-dealers and financial institutions.
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Investment Committee Guidelines
The activities of Front Yard’s Investment Committee were subject to the following guidelines, which we were required to follow in making
recommendations to the Investment Committee:
• No investment would be made that would cause Front Yard or any of its subsidiaries to fail to qualify as a REIT for U.S. federal income tax
purposes;
• No investment would be made that would cause Front Yard to be required to register as an investment company under the Investment Company
Act of 1940, as amended (the “Investment Company Act”); and
• Until appropriate investments could be identified, Front Yard may invest available cash in interest-bearing and short-term investments that were
consistent with (a) Front Yard’s intention to qualify as a REIT and (b) Front Yard’s exemption from registration as an investment company under
the Investment Company Act.
Investment Selection and Due Diligence
For both Our Funds and principal investments, when our team determines that an investment proposal is worth consideration, the proposal is formally
presented to the investment committee and the due diligence process commences, if appropriate. The objective of the due diligence process is to identify
attractive investment opportunities based on the facts and circumstances surrounding an investment and to prepare a framework that may be used from the
date of an acquisition to drive value creation. When conducting due diligence, we evaluate a number of important business, financial, tax, accounting,
environmental, social, governance, legal, and regulatory issues in order to determine whether an investment is suitable. While the process differs depending
on the type of investment we make, generally, our professionals spend significant amounts of time and effort to understand the opportunities and risks
associated with the proposed investment. In addition, our team may also use the services of outside experts, accountants, lawyers, and investment banks as
appropriate to assist them in this process.
Equity Investment in Public Securities
In an effort to manage and maximize the benefits of existing capital to our stakeholders, we have invested a significant portion of our assets into publicly
traded securities and borrowed against those assets to increase our return to stakeholders. The specialties of the companies we have invested in fall within
our core competencies, which we believe gives us a competitive advantage to analyze and value these investments. We believe these investments provide a
beneficial risk-adjusted return.
Employees
As of December 31, 2020, we had 112 full-time employees in the USVI, the United States, and India. The majority of our employees performed asset
management functions for Front Yard that include acquisitions, capital markets access, risk management, accounting, internal audit, corporate management,
and legal services.
Following the completion of the Termination Agreement with Front Yard, certain of our employees became direct employees of Front Yard or its successor,
or their subsidiaries, and our headcount was reduced to levels necessary to develop and execute our new business lines.
Our Competition
We are in a highly competitive market and are competing with other asset managers. Our competitors may have greater resources, more personnel, more
clients, more sources of revenue, and more capital than we do. Some of our competitors' clients may have the advantage of having significant amounts of
capital, lower cost of capital, or access to funding sources not available to our clients. Additionally, our competitors and competitors' clients may have
higher risk tolerances or may be willing to accept lower returns on investment. Some of our competitors may be regarded by potential clients as having
better expertise related to specific assets. We believe our ability to scale The Fund and future businesses will provide us with a competitive advantage.
Environmental Matters
We do not believe there are any environmental matters that will materially affect the conduct of our business.
As an owner of real estate, Front Yard was subject to various federal, state and local environmental laws, regulations and ordinances and also could have
been liable to third parties resulting from environmental contamination or noncompliance with
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environmental laws at its properties. We were tasked with monitoring these laws, regulations and ordinances and conducting due diligence in acquired
properties for Front Yard. Environmental laws can impose liability on an owner or operator of real property for the investigation and remediation of
contamination at or migrating from such real property without regard to whether the owner or operator knew of or was responsible for the presence of the
contaminants. The liability is generally not limited under such laws and could exceed the property's value and the aggregate assets of the liable party. The
presence of contamination or the failure to remediate contamination could have adversely affected Front Yard's ability to sell, lease, or renovate the real
estate or borrow using the real estate as collateral. Although we did not believe these risks directly expose us to environmental liability as a separate
independent company, these and other risks related to environmental matters could have had an adverse impact on Front Yard, and such risks are described
in more detail in “Item 1A. Risk Factors.”
Governmental Regulations
Our businesses, as well as the financial services industry generally, are subject to extensive regulation in the United States and elsewhere. In general, the
SEC and other regulators around the globe have, in recent years, significantly increased their regulatory activities with respect to investment firms.
We are registered as an investment adviser with the SEC. Registered investment advisers are subject to the requirements and regulations of the Advisers
Act. Such requirements relate to, among other things, fiduciary duties to advisory clients, maintaining an effective compliance program, solicitation
agreements, conflicts of interest, recordkeeping and reporting requirements, disclosure requirements, limitations on agency cross and principal transactions
between an adviser and advisory clients and general anti-fraud prohibitions. In addition, as a registered investment advisor, we are subject to routine
periodic and other examinations by the staff of the SEC. In accordance with our efforts to enhance our compliance program, certain additional policies and
procedures have been put into place, but no material changes to our operations have been made. We have not been subject to any regulatory or disciplinary
actions by the SEC.
Front Yard’s Governmental Regulations. Certain of Front Yard’s properties were subject to the rules of the various Home Owners Associations (“HOAs”)
where such properties are located. HOAs are private entities that regulate the activities of owners and occupants of, and levy assessments on, properties in a
residential subdivision. HOA rules and regulations typically consist of various restrictions or guidelines regarding use and maintenance of the property. In
addition, Front Yard’s properties were subject to various covenants and local laws and regulatory requirements, including permitting, licensing and zoning
requirements. We believe that under our management, Front Yard was in material compliance with such covenants, local laws and regulatory requirements
and HOA rules and regulations. Front Yard also required that its tenants agree to comply with such covenants, laws, ordinances and rules in their leases.
Fair Housing Act Applicable to Front Yard. The Fair Housing Act (“FHA”) and its state law counterparts and the regulations promulgated by the U.S.
Department of Housing and Urban Development (“HUD”) and various state agencies, prohibit discrimination in housing on the basis of race or color,
national origin, religion, sex, familial status (including children under the age of 18 living with parents or legal custodians, pregnant women and people
securing custody of children under the age of 18), handicap or, in some states, financial capability. We believe that, under our management and that of its
internal property manager, Front Yard’s properties were in substantial compliance with the FHA and other regulations.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) imposes a wide variety of regulatory requirements on publicly-held companies and their
insiders. Many of these requirements affect us. For example:
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Pursuant to Rule 13a-14 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer must certify the accuracy of the
financial statements contained in our periodic reports.
Pursuant to Item 307 of Regulation S-K, our periodic reports must disclose our conclusions about the effectiveness of our disclosure controls and
procedures.
Pursuant to Rule 13a-15 of the Exchange Act, our management must prepare a report regarding its assessment of our internal control over
financial reporting.
Pursuant to Item 308 of Regulation S-K and Rule 13a-15 of the Exchange Act, our periodic reports must disclose whether there were significant
changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including
any corrective actions with regard to material weaknesses.
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The Sarbanes-Oxley Act requires us to review our current policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the
regulations promulgated thereunder. We will continue to monitor our compliance with all regulations that are adopted under the Sarbanes-Oxley Act and
will take actions necessary to ensure that we are in compliance therewith.
Website and Availability of SEC Filings
Our principal website address is http://www.altisourceamc.com, and we encourage investors to use it as a way of easily finding information about us. We
promptly make available free of charge on our website, or provide a link on our website to, our Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as
soon as reasonably practicable after those reports are electronically filed with, or furnished to, the SEC, along with corporate governance information
including our Corporate Governance Guidelines, our Code of Business Conduct and Ethics and select press releases. The contents of our website are
available for informational purposes only and shall not be deemed incorporated by reference in this report.
You may also access the reports and other documents we file with the SEC at a website maintained by the SEC at http://www.sec.gov.
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Item 1A. Risk Factors
The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. If any of the following risks
actually occur, our business, operating results and financial condition could be materially adversely affected.
RISKS RELATED TO US OR OUR MARKET GENERALLY
Adverse economic and market conditions could negatively impact our business in many ways, including by reducing the value or performance of the
investments made by Our Funds and reducing the ability of Our Funds to raise capital, any of which could materially reduce our revenue, earnings
and cash flow and adversely affect our financial prospects and condition.
Our business is materially affected by conditions in the global financial markets and economic conditions or events throughout the world that are outside of
our control, including, but not limited to, changes in interest rates, availability of credit, inflation rates, economic uncertainty, slowdown in global growth,
changes in laws (including laws relating to taxation and regulations on the financial industry), disease, pandemics or other severe public health events, trade
barriers, commodity prices, currency exchange rates and controls and national and international political circumstances (including government shutdowns,
wars, terrorist acts or security operations). For example, the coronavirus ("COVID-19") pandemic has resulted in a widespread health crisis that continues
to adversely affect general commercial activity and the economies and financial markets of many countries. Such unforeseen and catastrophic events could
adversely affect the businesses, financial conditions and results of operations of us and Our Funds’ portfolio companies and assets. These factors may affect
the level and volatility of securities prices and the liquidity and the value of investments, and we may not be able to or may choose not to manage our
exposure to these market conditions and/or other events. In the event of a market downturn, each of our businesses could be affected in different ways.
The global outbreak of the novel coronavirus, or COVID-19, caused severe disruptions in the U.S. and global economies and has impacted, and may
continue to adversely impact our performance and results of operations.
In 2020, the global outbreak of COVID-19 spread to every country and every state in the United States. The World Health Organization designated
COVID-19 as a pandemic, and numerous countries, including the United States, declared national emergencies with respect to COVID-19. While vaccines
have been approved and are slowly being deployed, the global impact of the outbreak continues to adversely impact many industries and different
geographies continue to be impacted by the effects of public health restrictions in various ways. The International Monetary Fund estimates that the global
economy may not return to pre-pandemic levels until the end of 2021 or early 2022 depending on the roll-out and effectiveness of the vaccine.
While our fears of a great depression at the onset of the pandemic have not today been realized, the economic recovery is only partially underway, and has
been gradual, uneven and characterized by meaningful dispersion across sectors and regions with uncertainty regarding the ultimate length and trajectory.
Increasing infection rates and hospitalizations in certain geographies and a potential resulting market downturn have resulted in COVID-19 continuing to
impact our business, financial condition, results of operations, liquidity, and prospects.
Our ability to enter into new business, acquire new business, and grow new business has been materially impacted by COVID-19 and related governmental
measures imposed to contain the virus, such as the closure of stores, restrictions on travel, quarantines or stay-at-home orders. If the disruptions caused by
the pandemic continue, our ability to succeed at these new businesses could suffer materially.
Travel restrictions, the closure of non-essential businesses or shelter-in-place/stay-at-home orders may make it more difficult and costly for Our Funds and
our business.
This extended period of remote working by our employees may introduce operational risks, including technology availability and heightened cybersecurity
risk. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts that
seek to exploit the COVID-19 pandemic. In addition, our data security, data privacy, investor reporting and business continuity processes could be
impacted by a third party’s inability to perform due to COVID-19 or by failures of, or attacks on, their information systems and technology. Our accounting
and financial reporting systems, processes, and controls could be impacted as a result of these risks.
COVID-19 continues to present a significant threat to our employees’ well-being and morale. Our key employees or executive officers may become sick or
otherwise unable to perform their duties for an extended period of time and we may experience a potential loss of productivity. In addition, continued office
closures could adversely affect our ability to create a company
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culture. Although our employees continue to collaborate across offices and geographies, the informal office interactions that help develop culture have
generally ceased. It is also harder to integrate new employees into the firm in a remote working environment. As a result of travel restrictions, stay-at-home
orders, etc., many of our staff are unable to travel for physical meetings and/or have been displaced working remotely outside of their normal work
location. This may create taxable presence or residency risks for our corporate entities and professionals. Ultimately, these risks could lead to increased
levels of taxation and additional compliance complexities. Although a vaccine has been approved for use, the rollout and success are unknown. Although
our workforce has demonstrated its ability to achieve pre-pandemic levels of productivity on a remote basis, if we were unable to vaccinate our employee
base, our work force may be unwilling to return to the office. In addition to the foregoing, COVID-19 has exacerbated and may continue to exacerbate,
many of the other risks described in this Annual Report on Form 10-K.
The asset management business is intensely competitive.
The asset management business is intensely competitive, driven by a variety of factors, including asset performance, the quality of service provided to
clients, brand recognition and business reputation. Our asset management business competes with a number of other asset managers. A number of factors
serve to increase our competitive risks:
• A number of our competitors may have greater financial, technical, marketing and other resources and more personnel than we do;
• Our clients may not perform as well as the clients of our competitors;
•
Several of our competitors and their clients have significant amounts of capital, and many of them have similar management objectives to ours,
which may create additional competition for management opportunities;
Some of these competitors' clients may also have a lower cost of capital and access to funding sources that are not available to our clients, which
may create competitive disadvantages for us with respect to funding opportunities;
Some of our competitors' clients may have higher risk tolerances, different risk assessments or lower return thresholds, which could allow them to
facilitate the acquisition and management by their clients of a wider variety of assets and allow them to advise their clients to bid more
aggressively than our clients for assets on which we would advise our clients to bid;
There are relatively few barriers to entry impeding new asset management firms, and the successful efforts of new entrants into the asset
management business is expected to continue to result in increased competition;
Some of our competitors may have better expertise or be regarded by potential clients as having better expertise with regard to specific assets; and
•
• Other industry participants will from time to time seek to recruit members of our management team and other employees away from us.
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We are subject to the risks of securities laws liability and related civil litigation.
We may be subject to risk of securities litigation and derivative actions from time to time as a result of being publicly traded, including the actions set forth
in “Item 3. Legal Proceedings.” There can be no assurance that any settlement or liabilities in any future lawsuits or claims against us would be covered or
partially covered by our insurance policies, which could have a material adverse effect on our earnings in one or more periods. The range of possible
resolutions for any potential legal actions could include determinations and judgments against us or settlements that could require substantial payments by
us, including the costs of defending such suits, which could have a material adverse effect on our financial condition, results of operations and cash flows.
Unpredictability of the credit markets may restrict our clients' or our access to capital and may make it difficult or impossible for us to obtain any
required additional financing.
The domestic and international credit markets may be unpredictable. In the event that we need additional capital for our business, we may have a difficult
time obtaining it and/or the terms upon which we can obtain it may be unfavorable, which would have an adverse impact on our financial performance. In
addition, failures of our clients to raise capital or access capital markets could adversely impact their ability to grow and/or generate adequate returns on
capital, which could adversely impact any management fees we earn.
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RISKS RELATES TO OUR OPERATIONS
We may not be successful in expanding into new investment strategies, markets and businesses, which could adversely affect our business, results of
operations and financial condition.
Our growth strategy focuses on providing resources to foster the development of new product offerings and business strategies by our investment
professionals. Given our focus across the real estate industry, these initiatives could create conflicts of interests between products, increase our costs and
expose us to new market risks and legal and regulatory requirements. These products may have different economic structures than our previous businesses
and may require a different marketing approach. These activities also may impose additional compliance burdens on us, subject us to enhanced regulatory
scrutiny and expose us to greater reputation and litigation risk.
The success of our growth strategy will depend on, among other things:
our ability to correctly identify and create products that appeal to our investors;
the diversion of management’s time and attention into the growth of such new businesses;
•
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• management’s ability to spend time developing and integrating the new business and the success of the integration effort;
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our ability to properly manage conflicts of interests;
our ability to identify and manage risks in new lines of businesses;
our ability to obtain requisite approvals and licenses from the relevant governmental authorities and to comply with applicable laws and
regulations without incurring undue costs and delays; and
our ability to successfully negotiate and enter into beneficial arrangements with our counterparties.
•
In some instances, we may determine that growth in a specific area is best achieved through the acquisition of an existing business or a smaller scale lift out
of an investment team to enhance our platform. Our ability to consummate an acquisition will depend on our ability to identify and value potential
acquisition opportunities accurately and successfully compete for these businesses against companies that may have greater financial resources. Even if we
are able to identify and successfully negotiate and complete an acquisition, these transactions can be complex and we may encounter unexpected
difficulties or incur unexpected costs.
In addition to the concerns noted above, the success of a firm acquisition will be affected by, among other things:
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difficulties and costs associated with the integration of operations and systems;
difficulties integrating the acquired business’s internal controls and procedures into our existing control structure;
difficulties and costs associated with the assimilation of employees; and
the risk that a change in ownership will negatively impact the relationship between an acquire and the investors in its investment vehicles.
In addition, if a new product, business or venture developed internally or by acquisition is unsuccessful, we may decide to wind down, liquidate and/or
discontinue it. Such actions could negatively impact our relationships with investors in those businesses, could subject us to litigation or regulatory
inquiries and can expose us to additional expenses, including impairment charges and potential liability from investor or other complaints.
We may become subject to the requirements of the Investment Company Act, which would limit our business operations and require us to spend
significant resources to comply with such act.
The Investment Company Act defines an “investment company” as an issuer that is engaged in the business of investing, reinvesting, owning, holding or
trading in securities and owns investment securities having a value exceeding 40% of the issuer's unconsolidated assets, excluding cash items and securities
issued by the federal government. While the Investment Company Act also has several exclusions and exceptions that we would seek to rely upon to avoid
being deemed an investment company, our reliance on any such exclusions or exceptions may be misplaced resulting in violation of the Investment
Company Act, the consequences of which can be significant.
A company that falls within the scope of Section 3(a)(1)(C) of the Investment Company Act can avoid being regulated as an investment company if it can
rely on certain of the exclusions or exemptions under the Investment Company Act. One such exclusion is Rule 3a-2 under the Investment Company Act.
Rule 3a-2 of the Investment Company Act provides that inadvertent or transient investment companies will not be treated as investment companies subject
to the provisions of the Investment Company Act, provided the issuer has the requisite intent to be engaged in a non-investment business, evidenced by the
issuer’s business activities and an appropriate resolution of the issuer’s board of directors, within one year from the commencement of
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the earlier of (1) the date on which the issuer owns securities and/or cash having a value exceeding 50% of the value of such issuer's total assets on either a
consolidated or unconsolidated basis, or (2) the date on which an issuer owns or proposes to acquire investment securities (as defined in section 3(a) of the
Exchange Act) having a value exceeding 40% of the value of such issuer's total assets (exclusive of government securities and cash items) on an
unconsolidated basis. We entered into certain investment transactions as previously disclosed in our Current Report on Form 8-K, filed on February 18,
2021, and if we become an inadvertent investment company and fails to meet the requirements of the transient investment company exemption under Rule
3a-2 of the Investment Company Act, then we will be required to register as an investment company under the Investment Company Act.
The ramifications of becoming an investment company, both in terms of the restrictions it would have on us and the cost of compliance, would be
significant. For example, in addition to expenses related to initially registering as an investment company, the Investment Company Act also imposes
various restrictions with regard to our ability to enter into affiliated transactions, the diversification of our assets and our ability to borrow money. If we
became subject to the Investment Company Act at some point in the future, our ability to continue pursuing our business plan would be severely limited.
Our investments in certain public securities exposes us to a variety of market risks.
We invested in publicly traded securities to maximize long-term stakeholder value while taking prudent levels of risk subject to our investment guidelines
and various regulatory restrictions. However, investing entails substantial risks. We may not achieve our investment objectives, and our investment
performance may vary substantially over time. Losses or volatility in the equity or fixed income markets could materially adversely affect our results of
operations and financial condition.
The fair market value of our investment portfolio is affected by general economic and market conditions that are outside of our control, including (i)
fluctuations in equity market levels, interest rates, debt market levels and foreign currency exchange rates, (ii) public health crises, natural disasters,
terrorist attacks and other outside events, and (iii) credit losses sustained by issuers. A significant decline in the equity markets such as that experienced
from September 2008 to March 2009 could materially adversely affect our results of operations and financial condition. In addition to causing declines in
the value of securities that we own in our investment portfolio, public health crises, natural disasters, terrorist attacks and other outside events can adversely
affect general commercial activity and the economies of many countries, which could materially adversely affect the business, financial condition and
results of operations of the entities in which we have invested. We are also exposed to changes in debt markets. Interest rates are highly sensitive to many
factors, including governmental monetary policies, economic and political conditions and other factors beyond our control. Our use of margin on these
investment may increase the severity of any losses.
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Our organizational documents do not limit our ability to enter into new lines of business, and we intend to, from time to time, expand into new
investment strategies, geographic markets and businesses, each of which may result in additional risks and uncertainties in our businesses.
We intend, to the extent that market conditions warrant, to seek to grow our businesses and expand into new investment strategies, geographic markets and
businesses. Our organizational documents do not limit us to the asset management business and to the extent that we make strategic investments or
acquisitions in new geographic markets or businesses, undertake other related strategic initiatives or enter into a new line of business, we may face
numerous risks and uncertainties, including risks associated with the following:
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the required investment of capital and other resources;
the possibility that we have insufficient expertise to engage in such activities profitably or without incurring inappropriate amounts of risk
the diversion of management’s attention from our core businesses;
assumption of liabilities in any acquired business;
the disruption of our ongoing business;
the increasing demands on or issues related to the combination or integration of operational and management systems and controls;
compliance with or applicability to our business or our portfolio companies of regulations and laws, including, in particular, local regulations and
laws (for example, consumer protection related laws) and customs in the jurisdictions in which we operate and the impact that noncompliance or
even perceived noncompliance could have on us and our portfolio companies;
a potential increase in investor concentration; and
the broadening of our geographic footprint, including the risks associated with conducting operations in certain jurisdictions where we currently
have no presence.
Entry into certain lines of business may subject us to new laws and regulations with which we are not familiar or from which we are currently exempt, and
may lead to increased liability, litigation, regulatory risk and expense. If a new business generates insufficient revenue or if we are unable to efficiently
manage our expanded operations, our results of operations may be adversely affected.
Our strategic initiatives may include joint ventures, which may subject us to additional risks and uncertainties in that we may be dependent upon, and
subject to liability, losses or reputational damage relating to, systems, controls and personnel that are not under our control. There can be no assurances that
any joint venture opportunities will be successful.
We may enter new lines of business or acquire new businesses which may impact other business we may conduct or desire to conduct.
As we seek to enter new lines of business we may acquire a business that is complementary to our other lines of business then in existence. This may
include the acquisition or establishment of a loan originator. Investors and counterparties in Our Fund may see a loan originator or other line of business as
competitive to their relationship with Our Fund, which could have a material adverse impact on The Fund and our revenues. Certain lines of business, such
as a loan originator, may require an internal firewall for compliance and data security, which creates the potential of a breach of such firewall and the
subsequent liability which may result. There may be other unknown impacts any new line of business may have on an existing line of business, and we
may not be able to mitigate those risks after entering into the such line of business.
Our use of leverage may expose us to substantial risks.
We intend to use indebtedness as a means to finance our business operations, which will expose us to the risks associated with using leverage. We are
dependent on financial institutions extending credit to us on reasonable terms to finance our business. There is no guarantee that such institutions will
extend credit to us or that we will be able to refinance any new obligations when they mature. As borrowings under any future credit facility or any other
indebtedness mature, we may be required to either refinance them by entering into a new facility or issuing additional debt, which could result in higher
borrowing costs, or issuing additional equity, which would dilute existing stockholders. We could also repay them by using cash on hand, cash provided by
our continuing operations or cash from the sale of our assets, which could reduce dividends to our stockholders. We could have difficulty entering into new
facilities or issuing debt or equity securities in the future on attractive terms, or at all.
Operational risks, including those associated with our business model, may disrupt our businesses, result in losses or limit our growth.
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We rely heavily on our financial, accounting, information and other data processing systems. We face various security threats on a regular basis, including
ongoing cyber security threats to and attacks on our information technology infrastructure that are intended to gain access to our proprietary information,
destroy data or disable, degrade or sabotage our systems. These security threats could originate from a wide variety of sources, including unknown third
parties outside the company.
There has been an increase in the frequency and sophistication of the cyber and security threats we face, with attacks ranging from those common to
businesses generally to those that are more advanced and persistent, which may target us because, as an investment management firm, we hold a significant
amount of confidential and sensitive information about our investors, our portfolio companies and potential investments. As a result, we may face a
heightened risk of a security breach, online extortion attempt, or disruption with respect to this information resulting from an attack by computer hackers,
foreign governments, cyber extortionists or cyber terrorists. If successful, these types of attacks on our network or other systems could have a material
adverse effect on our business and results of operations, due to, among other things, the loss of investor or proprietary data, interruptions or delays in our
business and damage to our reputation. Our suppliers, contractors, investors, and other third parties with whom we do business also experience cyber
threats and attacks that are similar in frequency and sophistication. In many cases, we have to rely on the controls and safeguards put in place by our
suppliers, contractors, investors and other third parties to defend against, respond to, and report these attacks.
We depend on key personnel to manage our business, and the loss of any key person’s services, combined with our inability to identify and retain a
suitable replacement for such person, could materially adversely affect us. Additionally, the cost to retain our key personnel could put pressure on our
operating margins.
Our success is largely dependent on the skills, experience, and performance of our key personnel. The business acumen, investment advisory expertise, and
business relationships of our key personnel are critical elements in operating and expanding our business. Financial services professionals are in high
demand, and we face significant competition for qualified employees. The loss of services of any of our key personnel for any reason, combined with our
inability to identify and retain a suitable replacement for such person, could have a material adverse effect on our business, results of operations, and
financial condition. Moreover, in order to retain key personnel, we may be required to increase compensation to such individuals, resulting in additional
expense.
We face intense competition in attracting investors and making investments.
The investment advisory industry is intensely competitive, and new participants are continually entering the industry. We compete directly with numerous
global and U.S. investment advisors, commercial banks, savings and loan associations, brokerage and investment banking firms, broker-dealers, insurance
companies, and other financial institutions that often provide investment products with similar features and objectives to those we offer or may offer. If we
are unable to attract investors and retain net assets in the investment fund due to increased competition, our revenues could decline and we could
experience a material adverse effect on our business, results of operations, and financial condition.
Changes to U.S. or state tax laws, our failure to adequately comply with U.S. or state tax laws, or the outcome of any audits or regulatory disputes with
respect to our compliance with U.S. or state tax laws could adversely affect us.
Changes to U.S. or state tax law could be enacted in the future that could have a material adverse effect on our business, results of operations, and financial
condition. Further, we are subject to potential tax audits in various jurisdictions and in such event, tax authorities may disagree with certain positions we
have taken and assess penalties or additional taxes. While we assess regularly the likely outcomes of these potential audits, there can be no assurance that
we will accurately predict the outcome of a potential audit, and an audit could have a material adverse impact on our business, results of operations, and
financial condition
Our inability to manage future growth effectively could have an adverse impact on our business, results of operations and financial condition.
Our ability to grow will depend on our management’s ability to originate and/or acquire investor real estate loans. In order to do this, we will need to
identify, hire, train, supervise and manage new employees. Any failure to effectively manage our future growth, including a failure to successfully expand
our loan origination activities could have a material and adverse effect on our business, results of operations and financial condition.
If we fail to develop, enhance and implement strategies to adapt to changing conditions in the real estate and capital markets, our business, results of
operations and financial condition may be materially and adversely affected.
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The manner in which we compete and the loans for which we compete are affected by changing conditions, which can take the form of trends or sudden
changes in our industry, regulatory environment, changes in the role of government-sponsored entities, changes in the role of credit rating agencies or their
rating criteria or process or the United States economy more generally. If we do not effectively respond to these changes, or if our strategies to respond to
these changes are not successful, our business, results of operations and financial condition may be materially and adversely affected.
Any disruption in the availability or functionality of our technology infrastructure and systems could have a material adverse effect on our business.
Our ability to make investments and acquire new businesses is critical to our success and is highly dependent upon the efficient and uninterrupted operation
of our computer and communications hardware and software systems. Some of these systems are located at our facility and some are maintained by third-
party vendors. Any significant interruption in the availability and functionality of these systems could harm our business. In the event of a systems failure
or interruption by our third-party vendors, we will have limited ability to affect the timing and success of systems restoration. If such interruptions continue
for a prolonged period of time, it could, have a material and adverse impact on our business, results of operations and financial condition. Our security
measures may not effectively prohibit others from obtaining improper access to our information. If a person is able to circumvent our security measures, he
or she could destroy or misappropriate valuable information or disrupt our operations. Any security breach could expose us to risks of data loss, litigation
and liability and could seriously disrupt our operations and harm our reputation.
An unidentified material weakness in our internal control over financial reporting could, if not remediated, result in material misstatements in our
financial statements.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Our management
is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Exchange Act.
There can be no assurance that material weaknesses will not arise in the future or that any remediation efforts will be successful. If additional material
weaknesses or significant deficiencies in our internal controls are discovered in the future, we could be required to restate our financial results or
experience a decline in the price of our securities. Our disclosure controls and procedures and internal control over financial reporting are designed to
provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and
procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and
operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation
of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any,
within the Company have been detected.
RISKS RELATED TO INVESTMENT FUND MANAGEMENT
Our asset management business depends in large part on our ability to raise capital from third-party investors. If we are unable to raise capital from
third-party investors, we would be unable to collect management fees or deploy their capital into investments and potentially collect carried interest,
which would materially reduce our revenue and cash flow and adversely affect our financial condition.
Our ability to raise capital from third-party investors depends on a number of factors, including certain factors that are outside our control. Certain of these
factors such as the performance of the stock market, the pace of distributions from our future fund (each fund managed by AAMC is referred to as "The
Fund" or "Our Fund") and from the funds of other asset managers or the asset allocation rules or regulations or investment policies to which such third-
party investors are subject, could inhibit or restrict the ability of third-party investors to make investments in The Fund. Third-party investors in private
equity, real assets, and private credit funds typically use distributions from prior investments to meet future capital calls. In cases where valuations of
existing investments fall, the investment pace is delayed and the pace of distributions slows, investors may be unable or unwilling to make new
commitments or fund existing commitments to third-party management investment funds such as those advised by us. Although many investors have
increased the amount of commitments they are making to alternative investment funds, there can be no assurance that this will lead to increased
commitments to Our Fund. For example, there is a continuing shift away from defined benefit pension plans to defined contributions plans, which could
reduce the amount of assets available for us to manage on behalf of certain of our clients. In addition, investors may downsize their investment allocations
to alternative managers, including private funds and fund of funds vehicles, to rebalance a disproportionate weighting of their overall investment portfolio
among asset classes. Investors may also seek to consolidate their investments with a smaller
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number of investment managers or prefer to pursue investments directly instead of investing through Our Fund, each of which could impact the amount of
allocations they make to Our Fund. Moreover, as some existing investors cease or significantly curtail making commitments to alternative investment
funds, we may need to identify and attract new investors in order to maintain or increase the size of Our Funds. We are working to create avenues through
which we expect to attract a new base of individual investors. There can be no assurances that we can find or secure commitments from those new
investors. Our ability to raise new funds could similarly be hampered if the general appeal of alternative investments were to decline.
An investment in a credit or real estate fund is more illiquid and the returns on such investment may be more volatile than an investment in securities for
which there is a more active and transparent market. Credit and real estate investments could fall into disfavor as a result of concerns about liquidity and
short-term performance.
Poor performance of The Funds would cause a decline in our revenue, income and cash flow, may obligate us to repay carried interest previously paid
to us, and could adversely affect our ability to raise capital for future investment funds.
In the event that our future investment funds were to perform poorly, our revenue, income and cash flow could decline. Investors could also demand lower
fees or fee concessions for existing or future funds which would likewise decrease our revenue or require us to record an impairment of intangible assets
and/or goodwill in the case of an acquired business
We also could experience losses on our investment of our own capital into Our Fund as a result of poor performance by The Fund. If, as a result of poor
performance of later investments in a carry fund’s life, The Fund does not achieve certain investment returns for The Fund over its life, we will be obligated
to repay the amount by which carried interest that was previously distributed to us exceeds the amount to which we are ultimately entitled. These
repayment obligations may be related to amounts previously distributed to our senior management.
Poor performance of The Fund may also make it more difficult for us to raise new capital. Investors in Our Fund might decline to invest in future
investment funds we raise. Investors and potential investors in Our Fund continually assess The Fund’s performance, and our ability to raise capital for
existing and future investment funds will depend on Our Fund’s continued satisfactory performance. Accordingly, poor fund performance may deter future
investment in Our Fund and thereby decrease the capital invested in Our Fund and ultimately, our management fee income.
Our investors may negotiate to pay us lower management fees and the economic terms of our future funds may be less favorable to us than those of our
existing funds, which could adversely affect our revenues.
In connection with raising new funds or securing additional investments in our existing fund, we negotiate terms for such fund and investments with
existing and potential investors. The outcome of such negotiations could result in our agreement to terms that are materially less favorable to us than
currently anticipated or funds advised by our competitors. Such terms could restrict our ability to raise investment funds with investment objectives or
strategies that compete with existing funds, reduce fee revenues we earn, reduce the percentage of profits on third-party capital that we share in or add
expenses and obligations for us in managing The Fund or increase our potential liabilities, all of which could ultimately reduce our profitability.
Additionally, a change in terms which increases the amount of fee revenue The Fund investors are entitled to could result in a significant decline in revenue
generated from transaction fees.
Valuation methodologies for certain assets in Our Funds can involve subjective judgments, and the fair value of assets established pursuant to such
methodologies may be incorrect, which could result in the misstatement of fund performance and accrued performance allocations.
There are often no readily ascertainable market prices for a substantial majority of illiquid investments of The Fund. We determine the fair value of the
investments of The Fund at least quarterly based on the fair value guidelines set forth by generally accepted accounting principles in the United States
(“U.S. GAAP”). The fair value measurement accounting guidance establishes a hierarchical disclosure framework that ranks the observability of market
inputs used in measuring financial instruments at fair value. The observability of inputs is impacted by a number of factors, including the type of financial
instrument, the characteristics specific to the financial instrument and the state of the marketplace, including the existence and transparency of transactions
between market participants. Financial instruments with readily available quoted prices, or for which fair value can be measured from quoted prices in
active markets, will generally have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value.
Investments for which market prices are not observable include, but are not limited to illiquid investments in operating companies, real estate, energy
ventures and structured vehicles, and encompass all components of the capital structure, including equity, mezzanine, debt, preferred equity and derivative
instruments such as options and warrants. Fair values of such
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investments are determined by reference to the market approach (i.e., multiplying a key performance metric of the investee company or asset, such as
EBITDA, by a relevant valuation multiple observed in the range of comparable public entities or transactions, adjusted by management as appropriate for
differences between the investment and the referenced comparables), the income approach (i.e., discounting projected future cash flows of the investee
company or asset and/or capitalizing representative stabilized cash flows of the investee company or asset) and other methodologies such as prices
provided by reputable dealers or pricing services, option pricing models and replacement costs.
The determination of fair value using these methodologies takes into consideration a range of factors including but not limited to the price at which the
investment was acquired, the nature of the investment, local market conditions, the multiples of comparable securities, current and projected operating
performance and financing transactions subsequent to the acquisition of the investment. These valuation methodologies involve a significant degree of
management judgment.
Because there is significant uncertainty in the valuation of, or in the stability of the value of, illiquid investments, the fair values of such investments as
reflected in an investment fund’s net asset value do not necessarily reflect the prices that would be obtained by us on behalf of the investment fund when
such investments are realized. Realizations at values significantly lower than the values at which investments had been reflected in prior fund net asset
values would result in reduced earnings or losses for the applicable fund, and potentially the loss of carried interest and incentive fees. Changes in values
attributed to investments from quarter to quarter may result in volatility in the net asset values and results of operations that we report from period to
period. Also, a situation where asset values turn out to be materially different than values reflected in prior fund net asset values could cause investors to
lose confidence in us, which could in turn result in difficulty in raising additional funds.
Dependence on significant leverage in investments by Our Fund could adversely affect our ability to achieve attractive rates of return on those
investments.
Our Fund and new lines of business may rely heavily on the use of leverage, and our ability to achieve attractive rates of return on investments will depend
on our ability to access sufficient sources of indebtedness at attractive rates. The absence of available sources of sufficient debt financing for extended
periods of time could therefore materially and adversely affect The Fund and new businesses.
An increase in either the general levels of interest rates or in the risk spread demanded by sources of indebtedness would make it more expensive to finance
investments in Our Fund and new business, thereby reducing returns. Increases in interest rates could also make it more difficult to locate and consummate
investments because other potential buyers, including companies already operating as strategic buyers, may be able to bid for an asset at a higher price due
to a lower overall cost of capital or their ability to benefit from a higher amount of cost savings following the acquisition of the asset. In addition, a portion
of the indebtedness used to finance credit fund and real estate investments often includes debt securities issued in the public capital markets and debt
instruments privately placed with institutional investors in the private capital markets. Availability of capital from the public and private debt markets is
subject to significant volatility, and there may be times when we might not be able to access those markets at attractive rates, or at all, when completing an
investment. Certain investments may also be financed through borrowings on fund-level debt facilities, which may or may not be available for a
refinancing at the end of their respective terms. Additionally, to the extent there is a reduction in the availability of financing for extended periods of time,
the purchasing power of a prospective buyer may be more limited, adversely impacting the fair value of Our Fund’s investments and thereby reducing the
disposition price. Finally, the interest payments on the indebtedness used to finance Our Fund’s investments have historically been deductible expenses for
income tax purposes, subject to limitations under applicable tax law and policy. The availability of interest deductions for U.S. federal income tax purposes,
however, is limited under rules imposed by the TCJA which apply complex limitations on the deductibility of net business interest expense over 30% of a
taxpayer’s taxable income of such business (with adjustments for certain interest and taxes, and for taxable years before 2022, depreciation and
amortization). The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on March 27, 2020 and is part of U.S. legislation
intended to address the impact of the COVID-19 pandemic. The CARES Act includes provisions that modify the limitation on business interest rules
imposed by the TCJA for tax years beginning in 2019 and 2020, increasing the limitation from 30% to 50% and providing special rules for partnerships to
temporarily increase business interest deductibility.
The due diligence process that we undertake in connection with investments by The Funds may not reveal all facts that may be relevant in connection
with an investment.
Before making investments in Our Fund or acquiring a new business or operating company, we conduct due diligence that we deem reasonable and
appropriate based on the known facts and circumstances applicable to each investment or acquisition. The objective of the due diligence process is to
identify attractive investment opportunities based on the known facts and circumstances and initial risk assessment surrounding an investment or
acquisition and, depending on our ownership or control,
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prepare a framework that may be used from the date of an acquisition to drive operational achievement and value creation. When conducting due diligence,
we may be required to evaluate important and complex business, financial, regulatory, tax, accounting, environmental (including climate change) and legal
issues. Outside consultants, legal advisors, accountants and investment banks may be involved in the due diligence process in varying degrees depending
on the type of investment or acquisition. Nevertheless, when conducting due diligence and making an assessment regarding an investment, we rely on the
resources available to us, including information provided by the target of the investment and, in some circumstances, third-party investigations and
analysis. The due diligence process may at times be subjective with respect to newly-organized companies for which only limited information is available.
Accordingly, we cannot be certain that the due diligence investigation that we carry out with respect to any investment opportunity will reveal or highlight
all relevant facts that may be necessary or helpful in evaluating such opportunity. The due diligence process in connection with carve-out transactions may
underestimate the complexity and/or level of dependence a business has on its parent company and affiliated entities. Because a carve-out business often
does not have financial statements that accurately reflect its true financial performance as a stand-alone business, due diligence assessments of such
investments can be particularly difficult.
In addition, investment opportunities may arise in companies that have historic and/or unresolved regulatory, tax, fraud or accounting related investigations,
audits or inquiries and/or have been subjected to public accusations of improper behavior. However, even heightened and specific due diligence and
investigations with respect to such matters may not reveal or highlight all relevant facts that may be necessary or helpful in evaluating such investment
opportunity and/or will be able to accurately identify, assess and quantify settlements, enforcement actions and judgments that may arise and which could
have a material adverse effect on the portfolio company’s business, financial condition and operations, as well as potential significant harm to the portfolio
company’s reputation and prospects. We cannot be certain that our due diligence investigations will result in investments being successful or that the actual
financial performance of an investment will not fall short of the financial projections we used when evaluating that investment. Failure to identify risks
associated with our investments could have a material adverse effect on our business.
In addition, the global outbreak of COVID-19 may impact our ability to conduct due diligence on investment opportunities in the normal manner. More
specifically, during fiscal 2020, travel restrictions negatively affected our ability to have in person meetings with potential target company personnel,
customers, vendors and other service providers and such restrictions are likely to continue during fiscal 2021. Similarly, lower business confidence and
generally higher levels of uncertainty as a result of the COVID-19 outbreak has made it more difficult to assess target company valuations and delayed our
ability to complete due diligence on attractive businesses or assets that we identify, and may continue to do so in the future.
Third-party investors in Our Fund with commitment-based structures may not satisfy their contractual obligation to fund capital calls when requested
by us, which could adversely affect a fund’s operations and performance.
Investors in Our Fund make capital commitments that we are entitled to call from those investors at any time during prescribed periods. We will depend on
investors fulfilling their commitments when we call capital from them in order for those funds to consummate investments and otherwise pay their
obligations (for example, management fees) when due. Any investor that did not fund a capital call would generally be subject to several possible penalties,
including having a significant amount of its existing investment forfeited in The Fund. However, the impact of the penalty is directly correlated to the
amount of capital previously invested by the investor in The Fund and if an investor has invested little or no capital, for instance early in the life of The
Fund, then the forfeiture penalty may not be as meaningful. Investors may also negotiate for lesser or reduced penalties at the outset of The Fund, thereby
inhibiting our ability to enforce the funding of a capital call. Our use of subscription lines of credit to purchase an investment prior to calling capital from
fund investors could increase the prevalence of defaulting limited partners. Should the value of an investment funded through a fund line-of-credit decline,
especially early in a fund’s life-cycle where minimal capital has been contributed by The Fund’s investors, a limited partner may decide not to fund its
commitment. In addition, third-party investors in credit funds and real estate assets typically use distributions from prior investments to meet future capital
calls. In cases where valuations of investors’ existing investments fall and the pace of distributions slows, investors may be unable to make new
commitments to third-party managed investment funds such as Our Fund. If investors were to fail to satisfy a significant amount of capital calls for our
fund, the operation and performance of The Fund could be materially and adversely affected.
In addition, our failure to comply with applicable pay-to-play laws, regulations and/or policies adopted by a number of states and municipal pension funds
as well as the New York Attorney General’s Public Pension Fund Reform Code of Conduct, may, in certain instances, excuse a public pension fund investor
from its obligation to make further capital contributions relating to all or any part of an investment or allow it to withdraw from The Fund. If a public
pension fund investor were to seek to be excused from funding a significant amount of capital calls for Our Fund, the operation and performance of The
Fund could be materially and adversely affected.
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Certain of Our Fund investments may be concentrated in particular asset types or geographic regions, which could exacerbate any negative
performance of those funds to the extent those concentrated investments perform poorly.
The governing agreements of Our Fund contain only limited investment restrictions and only limited requirements as to diversification of fund investments,
either by geographic region or asset type. For example, Our Fund invests primarily in real estate related assets, and if we expand Our Fund offerings, they
may have a real estate focus. During periods of difficult market conditions, slowdowns, or increased borrower defaults in any particular sector or
geographic region, decreased revenue, difficulty in obtaining access to financing and increased funding costs experienced by Our Fund or future funds may
be exacerbated by this concentration of investments, which would result in lower investment returns for Our Funds. Such concentration may increase the
risk that events affecting a specific geographic region or asset type will have an adverse or disparate impact on such investment funds, as compared to
funds that invest more broadly. Idiosyncratic factors impacting specific companies or securities can materially affect fund performance depending on the
size of the position.
We and Our Funds are subject to risks in using administrators and other agents and third-party service providers.
Our Fund depends on the services of administrators and other agents and third-party service providers to carry out certain securities transactions and other
business functions. The counterparty to one or more of our or Our Funds’ contractual arrangements could default on its obligations under the contract. If a
counterparty defaults, we and Our Fund may be unable to take action to cover the exposure and we or our fund could incur material losses. Among other
systems, our data security, data privacy, investor reporting and business continuity processes could be impacted by a third party’s inability or unwillingness
to perform pursuant to our arrangements with them. In addition, we could suffer legal and reputational damage from such failure to perform if we are then
unable to satisfy our obligations under our contracts with third parties or otherwise and could suffer losses in the event we are unable to comply with
certain other agreements. The consolidation and elimination of counterparties may increase our concentration of counterparty risk and decrease the number
of potential counterparties. Our Fund is generally not restricted from dealing with any particular counterparty or from concentrating any or all of their
transactions with one counterparty. In the event of the insolvency of a party that is holding our assets or those of Our Fund as collateral, we and Our Fund
may not be able to recover equivalent assets in full as we and Our Fund may rank among the counterparty’s unsecured creditors. In addition, our and Our
Fund’s cash held with a prime broker, custodian or counterparty may not be segregated from the prime broker’s, custodian’s or counterparty’s own cash,
and we and Our Fund therefore may rank as unsecured creditors in relation thereto. The inability to recover our or Our Fund’s assets could have a material
impact on us or on the performance of Our Fund.
We may depend on third-party investment professionals and the distribution channels they utilize to market the investment fund.
A potential source of distribution for Our Fund is through intermediaries that include national, regional, and independent broker-dealers, financial planners,
and registered investment advisors. Our success may be highly dependent on access to these various distribution channels. We cannot guarantee we will be
able to obtain access to these channels at competitive pricing or at all. Increasing competition for these distribution channels could cause our distribution
costs to rise, which could have a material adverse effect on our net income. Our lack of access to these distribution channels which could have a material
adverse effect on our business.
In addition, these intermediaries generally offer their customers a broad array of investment products that are in addition to, and may compete with, Our
Fund. The intermediaries or their customers may favor competing investment products over Our Fund, which could have a material adverse effect on our
business.
SPECIFC RISKS RELATING TO US
Holders of our Series A Convertible Preferred Stock (“Series A Shares”) have given us purported notices under the Certificate of Designations of the
Series A Shares (the “Certificate”) to redeem an aggregate of $250.0 million liquidation preference of our Series A Shares on March 15, 2020. If we
are unable to obtain declaratory relief to confirm that we have no obligation to redeem the Series A Shares because we do not have funds legally
available therefor, we may be required to pay damages or redeem a portion of the Series A Shares, which could materially and adversely affect our
ongoing business and liquidity.
Between January 31, 2020 and February 3, 2020, we received purported notices from holders of our Series A Shares requesting us to redeem an aggregate
of $250.0 million liquidation preference of our Series A Shares on March 15, 2020. We do not have legally available funds to redeem all of the Series A
Shares on March 15, 2020. As a result, under the terms of the Certificate, we do not believe that we are obligated to redeem any of the Series A Shares
under the Certificate, and, consistent with the
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exclusive forum provisions of our Third Amended and Restated Bylaws, we have filed a claim for declaratory relief in the Superior Court of the Virgin
Islands, Division of St. Croix, against Luxor Capital Group, LP and certain of its funds and managed accounts (collectively, “Luxor”) to confirm our
interpretation of the Certificate. AAMC intends to continue to pursue its strategic business initiatives despite this litigation. See “Item 1. Business.” If
Luxor were to prevail in its lawsuit, we may need to cease or curtail our business initiatives, and our liquidity could be materially and adversely affected.
For more information on the legal proceedings with Luxor, see “Item 3. Legal Proceedings” in this Annual Report on Form 10-K.
We have a limited operating history. Due to the Termination Agreement and its potential effects on us, if we are unable to timely develop and implement
new businesses as planned, we will be materially and adversely affected.
We commenced operations in 2012, and our business model has been relatively untested and evolving. Businesses like ours that have a limited operating
history and a limited client base present substantial business and financial risks and may suffer significant losses. As a result, we cannot predict our results
of operations, financial condition and cash flows. Our results for prior periods are not necessarily indicative of our results for any future period, and we
may not have sufficient additional capital or develop additional revenue streams to implement our business model. Because we have utilized the substantial
majority of our resources in the management of Front Yard, as our primary client, we have been unable to develop and implement significant new or
alternative business revenue streams. There can be no assurance that our business will be profitable or that, to the extent that new business are
implemented, they will be sustainable. The earnings potential of our proposed businesses is unproven, and the absence of an operating history, particularly
in any new businesses, makes it difficult to evaluate our prospects.
We may not be able to obtain or develop additional clients or new business on acceptable terms or at all. Our ability to attract, develop and/or maintain
additional clients may depend, in large part, on market conditions, key personnel, and other outside factors.
Failure to retain the tax benefits provided by the USVI would adversely affect our financial performance.
We are incorporated under the laws of the USVI and are headquartered in the USVI. The USVI has an Economic Development Commission (the “EDC”)
that provides benefits (“EDC Benefits”) to certain qualified businesses in the USVI that enable us to avail ourselves of significant tax benefits for a thirty-
year period. We received our certificate to operate as a company that qualifies for EDC Benefits as of February 1, 2013, which provides us with a 90% tax
credit on USVI-source income so long as we comply with the requirements of the EDC and our certificate of benefits. It is possible that we may not be able
to retain our qualifications for the EDC Benefits or that changes in U.S. federal, state, local or USVI taxation statutes or applicable regulations may cause a
reduction in or an elimination of the EDC Benefits, all of which could result in a significant increase to our tax expense, and, therefore, adversely affect our
financial condition and results of operations.
Our USVI operations may become subject to United States federal income taxation.
Our parent company is incorporated under the laws of the USVI and intends to operate in a manner that will cause us to be treated as not engaging in a
trade or business within the United States, which will cause us to be exempt from current United States federal income taxation on our net income.
However, because there are no definitive standards provided by the Code, regulations or court decisions as to the specific activities that constitute being
engaged in the conduct of a trade or business within the United States, and as any such determination is essentially factual in nature, we cannot assure you
that the IRS will not successfully assert that we are engaged in a trade or business within the United States.
If the IRS were to successfully assert that we have been engaged in a trade or business within the United States in any taxable year, various adverse tax
consequences could result, including the following:
• We may become subject to current United States federal income taxation on our net income from sources within the United States;
• We may be subject to United States federal income tax on a portion of our net investment income, regardless of its source;
• We may not be entitled to deduct certain expenses that would otherwise be deductible from the income subject to United States taxation; and
• We may be subject to United States branch profits tax on profits deemed to have been distributed out of the United States.
United States persons who own shares may be subject to United States federal income taxation on our undistributed earnings and may recognize
ordinary income upon disposition of shares.
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Significant potential adverse United States federal income tax consequences generally apply to any United States person who owns shares in a passive
foreign investment company (“PFIC”). We cannot provide assurance that we will not be a PFIC in any future taxable year.
In general, we would be a PFIC for a taxable year if either (i) 75% or more of our income constitutes “passive income” or (ii) 50% or more of our assets
produce “passive income.” Passive income generally includes interest, dividends and other investment income. We believe that we are currently operating,
and intend to continue operating, our business in a way that should not cause us to be a deemed PFIC; however, we cannot assure you the IRS will not
successfully challenge this conclusion.
United States persons who, directly or indirectly or through attribution rules, own 10% or more of our shares (“United States 10% Stockholders”), based on
either voting power or value, may be subject to the controlled foreign corporation (“CFC”) rules. Under the CFC rules, each United States 10% stockholder
must annually include his pro rata share of the CFC's “Subpart F income,” even if no distributions are made. Also, all capital gains from the sale of PFIC
shares will be treated as ordinary income for federal income tax purposes and thus are not eligible for preferential long-term capital gains rates.
We believe that the dispersion of our ordinary shares among holders will generally prevent new stockholders who acquire shares from being United States
10% Stockholders. We cannot assure you, however, that these rules will not apply to you. If you are a United States person, we strongly urge you to consult
your own tax adviser concerning the CFC rules.
United States tax-exempt organizations who own shares may recognize unrelated business taxable income.
If you are a United States tax-exempt organization, you may recognize unrelated business taxable income with respect to our insurance-related income if a
portion of our Subpart F income is allocated to you. In general, Subpart F income will be allocated to you if we are a CFC and you are a United States 10%
Stockholder and certain exceptions do not apply. Although we do not believe that any United States persons will be allocated Subpart F income, we cannot
assure you that this will be the case. If you are a United States tax-exempt organization, we advise you to consult your own tax adviser regarding the risk of
recognizing unrelated business taxable income.
We may in the future become subject to the Global Intangible Low-Taxed Income provisions.
The Tax Cuts and Job Reform Act requires U.S. stockholders of CFCs to include in income, as a deemed dividend, the global intangible low-taxed income
(“GILTI”) of the CFCs. The GILTI regime is designed to decrease the incentive for a U.S. group to shift corporate profits to low-taxed jurisdictions. We are
not currently impacted by the GILTI provisions, as the entirety of the aggregate net income for each of our CFCs is excluded from our “net tested income”
(the basis on which the tax is calculated), as it constitutes Subpart F income and is subject to an effective foreign tax rate greater than 90% of the maximum
U.S. corporate income tax rate. We cannot rule out the possibility that we will in the future find ourselves subject to the GILTI rules, should the income of
our CFCs no longer be entirely Subpart F income and be taxed at a foreign tax rate greater than 90% if the U.S. corporate income tax rate.
Change in United States tax laws may be retroactive and could subject us and/or United States persons who own shares to United States income
taxation on our undistributed earnings.
The tax laws and interpretations regarding whether we are engaged in a United States trade or business, are a CFC or a PFIC are subject to change, possibly
on a retroactive basis. New regulations or pronouncements interpreting or clarifying such rules may be forthcoming from the IRS. We are not able to
predict if, when or in what form such guidance will be provided and whether such guidance will have a retroactive effect.
The impact of the initiative of the Organization for Economic Cooperation and Development to eliminate harmful tax practices is uncertain and could
adversely affect our tax status in the United States Virgin Islands.
The Organization for Economic Cooperation and Development has published reports and launched a global dialogue among member and non-member
countries on measures to limit harmful tax competition. These measures are largely directed at counteracting the effects of tax havens and preferential tax
regimes in countries around the world. While the USVI is currently a jurisdiction that has substantially implemented internationally agreed tax standards,
we are not able to predict if additional requirements will be imposed and, if so, whether changes arising from such additional requirements will subject us
to additional taxes.
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Concentration of Credit Risk
We maintain our cash and cash equivalents at financial or other intermediary institutions. The combined account balances at each institution typically
exceed FDIC insurance coverage of $250,000 per depositor, and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of
FDIC insurance coverage. At December 31, 2020, substantially all of our cash and cash equivalent balances held at financial institutions exceeded FDIC
insured limits. Any event that would cause a material portion of our cash and cash equivalents at financial institutions to be uninsured by the FDIC could
have a material adverse effect on our financial condition and results of operations.
The market price and trading volume of our common stock may be volatile and may be affected by market conditions beyond our control.
The price at which our common stock trades has fluctuated, and may continue to fluctuate, significantly. The market price of our common stock may
fluctuate in response to many things, including but not limited to, the following:
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variations in actual or anticipated results of our operations, liquidity or financial condition;
changes in, or the failure to meet, our financial estimates or those of by securities analysts;
actions or announcements by our competitors;
potential conflicts of interest, or the discontinuance of our strategic relationships;
actual or anticipated accounting problems;
regulatory actions;
lack of liquidity;
an inability to develop or obtain new businesses or client relationships, respectively;
changes in the market outlook for the real estate, mortgage or housing markets;
technology changes in our business;
changes in interest rates that lead purchasers of our common stock to demand a higher yield;
actions by our stockholders;
speculation in the press or investment community;
general market, economic and political conditions, including an economic slowdown or dislocation in the global credit markets;
failure to maintain the listing of our common stock on the New York Stock Exchange ("NYSE") American;
changes in accounting principles;
passage of legislation or other regulatory developments that adversely affect us or our industry; and
departure of our key personnel.
The market prices of securities of asset management service providers have experienced fluctuations that often have been unrelated or disproportionate to
the operating results of these companies. These market fluctuations could result in extreme volatility in the market price of our common stock.
Furthermore, our small size and different investment characteristics may not continue to appeal to our current investor base that may seek to dispose of
large amounts of our common stock. There is no assurance that there will be sufficient buying interest to offset those sales, and, accordingly, the market
price of our common stock could be depressed and/or experience periods of high volatility.
Risks Related to Our Management and Our Relationships
Our Directors have the right to engage or invest in the same or similar businesses as ours.
Our Directors may have other investments and business activities in addition to their interest in, and responsibilities to, us. Under the provisions of our
Charter and our bylaws (the “Bylaws”), our Directors have no duty to abstain from exercising the right to engage or invest in the same or similar businesses
as ours or employ or otherwise engage any of the other Directors. If any of our Directors who are also directors, officers or employees of any company
acquires knowledge of a corporate opportunity or is offered a corporate opportunity outside of his capacity as one of our Directors, then our Bylaws
provide that such Director will be permitted to pursue that corporate opportunity independently of us, so long as the Director has acted in good faith. Our
Bylaws provide that, to the fullest extent permitted by law, such a Director will be deemed to have satisfied his fiduciary duties to us and will not be liable
to us for pursuing such a corporate opportunity independently of us. This may create conflicts of interest between us and certain of our Directors and result
in less than favorable treatment of us and our
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stockholders. As of this date, none of our Directors is directly involved as a director, officer or employee of a business that competes with us, but there can
be no assurance that will remain unchanged in the future.
Risks to Us Related to Front Yard’s Business Risks and Operating Performance
We obtained releases from and granted releases to Front Yard related to our prior operations of their business as more specifically described in the
Termination Agreement. However, our performance under the Termination Agreement was subject to numerous complex terms and conditions. We believe
we materially complied with the terms of the Termination Agreement and satisfied our obligations under the Termination Agreement, but it is possible that
Front Yard may claim a breach of our obligations due to an unknown act or omission by us or our directors, officer, or employees. Additionally, we granted
to Front Yard releases for its acts and omission preceding the Termination Agreement. In the event we discover a loss or liability for which we are unable to
recover against Front yard due to these releases our revenues and assets could be adversely affected. It is also possible that a third party may make a claim
against us for the acts or omissions of Front Yard, but our releases of Front Yard may prevent us from seeking recourse from Front Yard for such liability.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We conduct our principal operations through leased office space. We are headquartered in approximately 5,000 square feet of office space located at 5100
Tamarind Reef, Christiansted, VI 00820, and we also have an office in Bengaluru, India. For more information, please see Note 5 to our consolidated
financial statements contained in this Annual Report on Form 10-K.
Item 3. Legal proceedings
From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. Set forth below is a summary of
material legal proceedings to which we are a party as of December 31, 2020 and through the date of this Annual Report on Form 10-K:
Erbey Holding Corporation et al. v. Blackrock Management Inc., et al.
On April 12, 2018, a partial stockholder derivative action was filed in the Superior Court of the Virgin Islands, Division of St. Croix under the caption
Erbey Holding Corporation, et al. v. Blackrock Financial Management Inc., et al. The action was filed by Erbey Holding Corporation (“Erbey Holding”),
John R. Erbey Family Limited Partnership (“JREFLP”), by its general partner Jupiter Capital, Inc., Salt Pond Holdings, LLC (“Salt Pond”), Munus, L.P.
(“Munus”), Carisma Trust (“Carisma”), by its trustee, Venia, LLC, and Tribue Limited Partnership (collectively, the “Plaintiffs”) each on its own behalf and
Salt Pond and Carisma derivatively on behalf of AAMC. The action was filed against Blackrock Financial Management, Inc., Blackrock Investment
Management, LLC, Blackrock Investments, LLC, Blackrock Capital Management, Inc., Blackrock, Inc. (collectively, “Blackrock”), Pacific Investment
Management Company LLC, PIMCO Investments LLC (collectively, “PIMCO”) and John and Jane Does 1-10 (collectively with Blackrock and PIMCO,
the “Defendants”). The action alleges a conspiracy by Blackrock and PIMCO to harm Ocwen Financial Corporation (“Ocwen”) and AAMC and certain of
their subsidiaries, affiliates and related companies and to extract enormous profits at the expense of Ocwen and AAMC by attempting to damage their
operations, business relationships and reputations. The complaint alleges that Defendants’ conspiratorial activities, which included short-selling activities,
were designed to destroy Ocwen and AAMC, and that the Plaintiffs (including AAMC) suffered significant injury, including but not limited to lost value of
their stock and/or stock holdings. The action seeks, among other things, an award of monetary damages to AAMC, including treble damages under Section
605, Title IV of the Virgin Islands Code related to the Criminally Influenced and Corrupt Organizations Act, punitive damages and an award of attorney’s
and other fees and expenses.
Defendants have moved to dismiss the first amended verified complaint. Plaintiffs and AAMC have moved for leave to file a second amended verified
complaint to include AAMC as a direct plaintiff, rather than as a derivative party. On March 27, 2019, the Court held oral argument on Defendants' motions
to dismiss the first amended verified complaint and Plaintiffs' motion for leave to file the second amended verified complaint. As of the date of the filing of
this Annual Report on Form 10-K, the Court has not yet decided the pending motions.
23
(table of contents)
At this time, we are not able to predict the ultimate outcome of this matter, nor can we estimate the range of possible damages to be awarded to AAMC, if
any. We have determined that there is no contingent liability related to this matter for AAMC.
Altisource Asset Management Corporation v. Luxor Capital Group, LP, et al.
On January 27, 2020, AAMC filed a complaint for declaratory judgment relief in the Superior Court of the Virgin Islands, Division of St. Croix, against
Luxor Capital Group, LP and certain of its funds and managed accounts (collectively, “Luxor”) regarding AAMC’s redemption obligations under the
Certificate of AAMC’s Series A Convertible Preferred Stock (the “Series A Shares”). Under the Certificate, holders of the Series A Shares are permitted on
March 15, 2020 and on each successive five-year anniversary of March 15, 2020 to request AAMC, upon not less than 15 nor more than 30 business days’
prior notice, to redeem all but not less than all of their Series A Shares out of legally available funds. AAMC seeks a declaration that AAMC is not required
to redeem any of Luxor’s Series A Shares on a redemption date if AAMC does not have legally available funds to redeem all of Luxor’s Series A Shares on
such redemption date. Luxor has removed the action to the U.S District Court for the Virgin Islands, and, on March 24, 2020, AAMC moved to remand the
action back to the Superior Court of the Virgin Islands, Division of St. Croix. That motion is fully briefed and pending decision. On May 15, 2020, Luxor
moved to dismiss AAMC's declaratory judgment complaint. That motion has been fully briefed and submitted to the Court as of July 29, 2020.
Luxor Capital Group, LP, et al. v. Altisource Asset Management Corporation
On February 3, 2020, Luxor filed a complaint in the Supreme Court of the State of New York, County of New York, against AAMC for breach of contract,
specific performance, unjust enrichment, and related damages and expenses. The complaint alleges that AAMC’s position that it would not redeem any of
Luxor’s Series A Shares on the March 15, 2020 redemption date is a material breach of AAMC’s redemption obligations under the Certificate. Luxor seeks
an order requiring AAMC to redeem its Series A Shares, recovery of no less than $144,212,000 in damages, which is equal to the amount Luxor would
receive if AAMC redeemed all of Luxor’s Series A Shares at the redemption price of $1,000 per share set forth in the Certificate, as well as payment of its
costs and expenses in the lawsuit. In the alternative, Luxor seeks a return of its initial purchase price of $150,000,000 for the Series A Shares, as well as
payment of its costs and expenses in the lawsuit. On May 25, 2020, Luxor's complaint was amended to add Putnam Equity Spectrum Fund and Putnam
Capital Spectrum Fund (collectively, “Putnam”), which also invested in the Series A Shares, as plaintiffs. Putnam holds 81,800 Series A Shares.
Collectively, Luxor and Putnam seek a recovery of no less than $226,012,000 in damages, which is equal to the amount Luxor and Putnam would receive if
AAMC redeemed all of Luxor’s and Putnam’s Series A Shares at the redemption price of $1,000 per share set forth in the Certificate, as well as payment of
their costs and expenses in the lawsuit. In the alternative, Luxor and Putnam seek a return of the initial purchase price of $231,800,000 for the Series A
Shares, as well as payment of their costs and expenses in the lawsuit. On June 12, 2020, AAMC moved to dismiss the Amended Complaint in favor of
AAMC's first-filed declaratory judgment action in the U.S. Virgin Islands. On August 4, 2020, the court denied AAMC’s motion to dismiss and the case is
proceeding accordingly. AAMC is currently considering whether to appeal the court’s decision.
On February 17, 2021, AAMC entered into a settlement agreement with Putnam (the “Putnam Agreement”). Pursuant to the Putnam Agreement, AAMC
and Putnam agreed to exchange all of Putnam’s 81,800 Series A Shares for 288,283 shares of AAMC’s common stock. AAMC agreed to pay to Putnam
$1,636,000 dollars within three business days of the effective date of the Putnam Agreement and $1,227,000 on the one-year anniversary of the effective
date of the Putnam Agreement, and in return Putnam agreed to release AAMC from all claims related to the Series A Shares and enter into a voting rights
agreement as more fully described in the Putnam Agreement. Finally, AAMC granted to Putnam a most favored nations provision with respect to future
settlements of the Series A Shares, as more fully described in the Putnam Agreement.
As described above, AAMC previously filed an action for declaratory relief to confirm its interpretation of the redemption provisions in the Certificate, and
intends to vigorously defend itself against the claims by Luxor.
Item 4. Mine safety disclosures
Not applicable.
24
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Part II
Our common stock has been listed on the NYSE American under the symbol “AAMC” since December 13, 2013. The following table sets forth the high
and low close of day sales prices for our common stock as reported by the NYSE for the periods indicated:
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Quarter ended
March 31
June 30
September 30
December 31
Holders
2020
2019
High
Low
High
Low
$
28.58 $
20.51
23.70
23.90
10.56 $
12.17
12.51
19.50
39.75 $
30.25
13.80
15.50
25.83
11.50
7.99
9.35
The number of holders of record of our common stock as of February 26, 2021 was 44. The number of beneficial stockholders is substantially greater than
the number of holders as a large portion of our stock is held through brokerage firms. Information regarding securities authorized for issuance under equity
compensation plans is set forth in Note 8 of the consolidated financial statements.
The information under the heading “Equity Compensation Plan Information” in our definitive proxy statement for the 2021 Annual Meeting of
Stockholders to be filed with the SEC not later than 120 days after December 31, 2020 is incorporated herein by reference.
Dividends
We will pay dividends at the sole and absolute discretion of our Board of Directors in the light of conditions then existing, including our earnings, financial
condition, liquidity, capital requirements, the availability of capital, general overall economic conditions and other factors. We paid no dividends from
inception through December 31, 2020.
Issuer Purchases of Equity Securities
In March 2014, the Board of Directors authorized total repurchases of up to $300.0 million of common stock. At December 31, 2020, we have
approximately $31.3 million remaining that is authorized by our Board of Directors for share repurchases. Repurchased shares are held as treasury stock
and available for general corporate purposes. No repurchase plan has expired during the year ended December 31, 2020.
We did not repurchase any shares of common stock pursuant to our share repurchase plan during the year ended December 31, 2020.
Pursuant to our equity incentive plan, we may reacquire shares of common stock tendered to satisfy the tax withholding on equity awards. During the year
ended December 31, 2020, 17,330 shares were reacquired at a weighted average per share price of $17.96 pursuant to our equity incentive plans.
25
(table of contents)
Period
October 1, 2020 through October 31, 2020
November 1, 2020 through November 30, 2020
December 1, 2020 through December 31, 2020
(1)
Total
Total Number of
Shares Purchased
Average Price Paid
Per Share
5,515 $
—
—
5,515
20.89
—
—
20.89
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
—
—
—
—
Maximum Number of
Shares That May Yet
Be Purchased Under
the Plans or Programs
—
—
—
_____________
(1) As permitted under the Company's equity compensation plans, these shares were withheld by the Company to satisfy the tax withholding obligation for those individuals who elected this
option in connection with the vesting of shares of restricted stock.
The information required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference to Item 12 of Part III of this
Annual Report.
Item 6. Reserved
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following should be read in conjunction with the other sections of this Annual Report on Form 10-K, including our audited consolidated financial
statements and the related notes. The following discussion contains certain forward-looking statements that involve risks, uncertainties and assumptions.
Our actual results could differ materially from the results contemplated from these forward-looking statements due to a number of factors including, but not
limited to, those discussed in Part 1, Item 1A "Risk Factors" in this Annual Report on Form 10-K.
Our consolidated financial statements, which we discuss below, reflect our historical financial condition, results of operations, and cash flows. The
financial information discussed below and included in this Annual Report on Form 10-K, however, may not necessarily reflect what our financial
condition, results of operations, or cash flows may be in the future.
Prior to 2020, we reported all activity of the Company in a single segment and activity from continuing operations. In connection with the termination of
the Amended AMA and subsequent sale of the Disposal Group to Front Yard, we have reclassified the Disposal Group activity as a discontinued operation
effective as of the end of the third quarter of 2020. The results of operations, cash flows, and assets and liabilities of our discontinued operations and
continued operations, for all periods presented in the accompanying financial statements, have been reclassified to conform to the current year presentation.
See Note 3 to our accompanying consolidated financial statements for further information regarding discontinued operations.
Unless otherwise indicated, amounts reported in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" pertain to
continuing operations only.
Management Overview
We made substantial progress during the 2020 fiscal year towards our strategic objectives for Front Yard, including the termination of the Amended AMA,
successful resolution to the strategic review of Front Yard, and monetization of Front Yard for the benefit of shareholders. Further, we are in the advanced
stages of launching multiple new lines of business, including an investment fund, a short-term investor loan aggregation business and the establishment of
strategic relationships with real estate loan originators. These business lines leverage our history and experience in asset management, real estate investing,
and real estate operations. We have taken steps to reduce our annual operating expenses, including reductions in our physical office footprint and the
optimization of our workforce and technology platforms. We expect that AAMC will be able to generate management and performance fees, as well as
returns on its own investments through the new business lines.
New Business
26
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We have substantially completed the formation of investment funds with onshore and offshore components, which we believe will allow us to attract both
domestic and international institutional and high net worth investors. Initial investments into The Fund will be used to invest in real estate debt products,
specifically short-term investor loans. As capital commitments increase, we intend to expand the investments into other real estate related assets where we
have identified esoteric opportunities to generate attractive returns for our investors and our stockholders. We also intend to invest a portion of our own
capital directly into the investment funds and may make investments alongside The Fund. In addition to any returns on our own investments, we expect to
receive customary asset management fees and carried interest as the investment manager for, and general partner of The Fund.
Our strategy also includes the aggregation of short-term investor loans from one or more originators using our own capital and/or investments from the
assets under management from the investment funds. We believe these investor loans will provide a competitive risk-adjusted return as a buy-and-hold
asset. Through the aggregation model, we believe we will be able to access the secondary market for repeated offerings, providing additional returns on the
initial invested capital. We expect to integrate our experienced underwriting team in any flow purchase agreements that we may execute with potential
originators to provide us with greater operational control over the quality of the loans that we may purchase. Utilizing our history, expertise, and experience
investing in non-performing loans and real estate operations, we believe we will be able to effectively underwrite loan acquisitions, target new markets, and
mitigate defaults which will result in attractive risk-adjusted returns for our investors and stockholders. Through our expertise in loan valuation,
underwriting, and portfolio management, we expect to create strategic partnerships with loan originators to source leads, increase operational capacity, and
expand product offerings in the future. We believe these relationships will increase our competitive advantage over other loan aggregators.
Termination of the Amended AMA with Front Yard
On August 13, 2020, AAMC and Front Yard entered into the Termination Agreement, pursuant to which the Company and Front Yard agreed to effectively
internalize the asset management function of Front Yard. The Termination Agreement provided that the Amended AMA would terminate following a
transition period to enable the internalization of Front Yard’s asset management function, allow for the assignment of certain vendor contracts, implement
the transfer of certain employees to Front Yard, and the training of required replacement employees at each company. The transition period ended at the
close of business, December 31, 2020, the time that AAMC and Front Yard mutually agreed that all required transition activities had been successfully
completed (the “Termination Date”). On the Termination Date, the Amended AMA terminated, and AAMC will no longer provide services to Front Yard
under the Amended AMA. Below are the material terms of the Termination Agreement:
•
Front Yard paid AAMC an aggregate Termination Fee of $46.0 million, consisting of the following payments:
◦
◦
◦
$15.0 million paid in cash on August 17, 2020;
$15.0 million paid in cash on the Termination Date; and
$16.0 million paid in Front Yard common stock on the Termination Date.
•
Front Yard acquired the equity interests of AAMC's Indian subsidiary, the equity interests of AAMC's Cayman Islands subsidiary, the right to
solicit and hire designated AAMC employees that currently oversee the management of Front Yard's business and other assets of AAMC that are
used in connection with the operation of Front Yard's business for an aggregate purchase price of $8.2 million ($3.2 million of which was paid in
cash to AAMC on August 17, 2020), and the remaining $5.0 million was paid in Front Yard common stock on the Termination Date.
• On the Termination Date, in satisfaction of the amounts payable in Front Yard stock, we received 1,298,701 shares of Front Yard common stock.
We recorded a nominal gain on the shares received.
• On the Termination Date, AAMC assigned its office lease in Charlotte, North Carolina to Front Yard. Certain assets related to the lease, primarily
office and employee-related equipment were written off, none of which were individually material, and were recorded through other income (loss)
in the Consolidated Statements of Operations.
Front Yard was obligated to continue to pay Base Management Fees to AAMC under the Amended AMA in the amount of approximately
$3.6 million per quarter, subject to proration for partial quarters, through the date that Front Yard delivered written notice to AAMC that the
transition had been satisfactorily completed.
•
• AAMC agreed to vote any shares of Front Yard common stock that it receives in connection with the Termination Agreement in accordance with
recommendations of the Front Yard board of directors for a period of one year following the Termination Date, including regarding the approval of
the Front Yard Merger Agreement and related transactions, which were presented to Front Yard’s stockholders.
Effective two business days prior to the Termination Date, Mr. Ellison resigned as Co-Chief Executive Officer of AAMC.
•
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(table of contents)
On December 31, 2020, AAMC and Front Yard completed the transition contemplated by the Termination and Transition Agreement, dated August 13,
2020. In connection with the process described above, we reported the Disposal Group as "held-for-sale", and a discontinued operation, effective as of the
end of our third quarter of 2020. See Note 3 to our accompanying consolidated financial statements for further information regarding discontinued
operations.
COVID-19 Pandemic Update
Due to the current COVID-19 pandemic in the United States and globally, our business, our employees and the economy as a whole could be, and could
continue to be, adversely impacted. The magnitude and duration of the COVID-19 pandemic and its impact on our cash flows and future results of
operations could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted, including new
information which may emerge concerning the severity of the COVID-19 pandemic, the success of actions taken to contain or treat the pandemic, and
reactions by consumers, companies, governmental entities and capital markets. Although COVID-19 to date has not materially adversely impacted us, the
prolonged duration and impact of the COVID-19 pandemic on our ability to complete new businesses in development, could cause or result in office
closures and other related disruptions that could materially adversely impact our business operations and impact our financial performance.
We remain committed to the safety of our employees and to providing quality service to our clients and stakeholders. We had previously implemented a
robust technology platform that enabled us to seamlessly transition to a remote workplace in order to continue our normal operations without disruption to
our or Front Yard's business. We are proud of the quality of service, focus, and dedication our employees have demonstrated during this unprecedented
time.
Observations on Current Market Opportunities
We believe there is a compelling investment opportunity in the investor and business purpose loan market and that we have implemented a strategic plan
for AAMC to capitalize on the significant increase in demand for these products. In our view, the tightening of credit and lending requirements on
traditional residential loan products, as well as macro-economic changes, shifting demographics, geographic mobility, favorable changes in interest rate and
monetary policy, as well as cultural and economic changes resulting from the COVID-19 pandemic have benefited the overall residential real estate market
while reducing yields available to investors elsewhere. We believe that our initial focus on short-term investor loans provides the opportunity to generate
attractive risk-adjusted returns on our investments while minimizing exposure to unforeseen structural shifts in monetary and fiscal policy and other market
changes.
Metrics Affecting Our Consolidated Results
Our operating results are affected by various factors and market conditions, including the following:
Revenues
Our revenues consisted of fees due to us under the asset management agreements with Front Yard. Under the Amended AMA, our revenues included a
quarterly Base Management Fee and a potential annual Incentive Fee, each of which were dependent upon Front Yard's performance and were subject to
potential downward adjustments and an aggregate fee cap. Beginning in the third quarter of 2019 (the first full quarter under the Amended AMA), the Base
Management Fee we recognized under the Amended AMA was subject to a quarterly minimum of $3,584,000.
Under the Former AMA, our revenues included a base management fee and a conversion fee. The base management fee was calculated as a percentage of
Front Yard’s average invested capital, and the conversion fee was based on the number and value of mortgage loans and/or REO properties that Front Yard
converted to rental properties for the first time in each period.
Under both the Amended AMA and the Former AMA, our revenues also included reimbursements of certain expenses in our management of Front Yard's
business, which related primarily to travel and certain operating expenses solely related to our management of Front Yard's business and the base salary,
bonus, benefits and stock compensation, if any, solely of the General Counsel dedicated to Front Yard. All other salary, bonus, benefits and stock
compensation of AAMC’s employees (other than Front Yard share-based compensation issued to them by Front Yard) are the responsibility of AAMC and
are not reimbursed by Front Yard pursuant to the Amended AMA.
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(table of contents)
In addition, we received dividends on the shares of Front Yard common stock that we owned when Front Yard declared and paid dividends to its holders of
common stock. Upon the declaration of such dividends, we recorded them as other income. The amount of dividends we received varied with Front Yard's
financial performance, taxable income, liquidity needs and other factors deemed relevant by Front Yard's Board of Directors. Lastly, we recognized
changes in the fair value of our holdings of Front Yard common stock as other income or loss that was directly dependent upon fluctuations in the market
price of Front Yard's common stock.
Expenses
Our expenses consist primarily of salaries and employee benefits, legal and professional fees and general and administrative expenses. Salaries and
employee benefits include the base salaries, incentive bonuses, medical coverage, retirement benefits, non-cash share-based compensation and other
benefits provided to our employees for their services. Legal and professional fees include services provided by third-party attorneys, accountants and other
service providers of a professional nature. General and administrative expenses include costs related to the general operation and overall administration of
our business as well as non-cash share-based compensation expense related to restricted stock awards to our Directors.
Primary Driver of Our Operating Results
Our performance in each particular period was affected by our ability to manage Front Yard’s business and rental portfolio effectively. If there were
declines in Front Yard’s performance, our fees in each such period could be adversely affected. Conversely, if there were improvements in Front Yard’s
performance, our fees in such period could be positively affected. Front Yard's operating results were effected by various factors, including, but not limited
to, the number and performance of Front Yard's SFR properties, its ability to use financing to grow its SFR portfolio and its ability to control operating
expenses. The extent to which we were successful in managing these factors for Front Yard effected our ability to generate management fees under the
Amended AMA, which, apart from the Termination Fee, were our primary source of income.
Results of Continuing Operations
The following discussion compares our results of continuing operations for the years ended December 31, 2020 and 2019. Our results of operations for the
periods presented are not indicative of our expected results in future periods.
For discussion that compares our results of operations for the years ended December 31, 2019 and 2018, see “Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Results of Operations” included within our Annual Report on Form 10-K for the year ended
December 31, 2019 filed with the SEC on February 28, 2020.
Fiscal Year ended December 31, 2020 Compared to Fiscal Year ended December 31, 2019
Salaries and Employee Benefits
Salaries and employee benefits increased to $12.0 million from $11.4 million for the years ended December 31, 2020 and 2019, respectively. This increase
is primarily due to increased compensation expense attributable to increases in our employee headcount.
Legal and Professional Fees
Legal and professional fees increased to $6.2 million from $3.4 million for the years ended December 31, 2020 and 2019, respectively. This increase is
primarily due to an increase in legal and consulting fees related to the negotiation and termination of the Amended AMA with Front Yard.
General and Administrative Expenses
General and administrative expenses remained stable at $2.3 million from $2.3 million for the years ended December 31, 2020 and 2019, respectively,
attributable to an increase in technology costs and insurance costs associated with the Termination Agreement and Transition Plan, offset by decreased
travel expenses and office utilities that were partially driven by the COVID-19 pandemic.
Change in Fair Value of Front Yard Common Stock
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(table of contents)
The change in fair value of Front Yard common stock was $6.3 million compared to $5.9 million during the years ended December 31, 2020 and 2019,
respectively. These changes in fair value were due solely to changes in the market price of Front Yard's common stock as reported on the NYSE at each
reporting date.
Dividend Income
Dividend income on shares of Front Yard common stock was $0.2 million and $0.7 million for the years ended December 31, 2020 and 2019, respectively.
The amount of dividend income varied with Front Yard's financial performance, taxable income, liquidity needs and other factors deemed relevant by Front
Yard's Board of Directors.
Results of Discontinued Operations
On August 13, 2020, we and Front Yard entered into the Termination Agreement, pursuant to which they have agreed to effectively internalize the asset
management function of Front Yard. The termination of the Amended AMA and the sale of the certain assets and operations to Front Yard represents a
significant strategic shift that will have a major effect on our operations and financial results. Therefore, we have classified the results of our operations
related to Front Yard as discontinued operations in our condensed consolidated statements of operations. Discontinued operations includes (i) the
management fee revenues generated under our asset management agreements with Front Yard, (ii) expense reimbursements from Front Yard and the
underlying expenses, (iii) the results of operations of our India and Cayman Islands subsidiaries, (iv) the employment costs associated with certain
individuals wholly dedicated to Front Yard and (v) the costs associated with our lease in Charlotte, North Carolina, that was assumed by Front Yard. See
Note 3 to our accompanying consolidated financial statements for further information regarding discontinued operations.
The following discussion compares our results of discontinued operations for the years ended December 31, 2020 and 2019. Our results of discontinued
operations for the periods presented are not indicative of our expected results in future periods.
For discussion that compares our results of operations for the years ended December 31, 2019 and 2018, see “Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Results of Operations” included within our Annual Report on Form 10-K for the year ended
December 31, 2019 filed with the SEC on February 28, 2020.
Fiscal Year ended December 31, 2020 Compared to Fiscal Year ended December 31, 2019
Revenues of Discontinued Operations
Revenues from discontinued operation increased to $62.6 million from $15.8 million for the years ended December 31, 2020 and 2019, respectively. The
increase is primarily driven by $46 million in termination fees received as a result of the termination of the Amended AMA.
Expenses from Discontinued Operations
Expenses from discontinued operations decreased to $7.4 million from $7.6 million for the years ended December 31, 2020 and 2019, respectively. The
decrease was primarily attributable to a decrease in salaries and employee benefits expense of certain employees within the Disposal Group.
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Liquidity and Capital Resources
As of December 31, 2020, we had cash and cash equivalents of $41.6 million compared to $18.9 million as of December 31, 2019. The increase in cash and
cash equivalents in 2020 was primarily due to the receipt of the cash consideration component of the Termination Fee related to Discontinued Operations.
At December 31, 2020, we also held $47.4 million in Front Yard common stock. We are developing new sources of income through our strategic business
plan. We believe these sources of liquidity are sufficient to enable us to meet anticipated short-term (one-year) liquidity requirements. Our ongoing cash
expenditures consist of: salaries and employee benefits, legal and professional fees, lease obligations and other general and administrative expenses.
Between January 31, 2020 and February 3, 2020, we received purported notices from holders of our Series A Shares requesting us to redeem an aggregate
of $250,000,000 liquidation preference of our Series A Shares on March 15, 2020. We do not have legally available funds to redeem all of the Series A
Shares on March 15, 2020. As a result, we do not believe, under the terms of the Certificate, that we are obligated to redeem any of the Series A Shares
under the Certificate, and, on January 27, 2020, we filed a claim for declaratory relief in the Superior Court of the Virgin Islands, Division of St. Croix,
against Luxor to confirm our interpretation of the Certificate. Luxor has filed a motion to remove the action to the U.S. District Court for the Virgin Islands.
On February 3, 2020, Luxor filed a complaint in the Supreme Court of the State of New York, County of New York, against AAMC for breach of contract,
specific performance, unjust enrichment, and related damages and expenses. The complaint alleges that AAMC’s position that it will not redeem any of
Luxor’s Series A Shares on the March 15, 2020 redemption date is a material breach of AAMC’s redemption obligations under the Certificate. Luxor seeks
an order requiring AAMC to redeem its Series A Shares, recovery of no less than $144,212,000 in damages, which is equal to the amount Luxor would
receive if AAMC redeemed all of Luxor’s Series A Shares at the redemption price of $1,000 per share set forth in the Certificate, as well as payment of its
costs and expenses in the lawsuit. In the alternative, Luxor seeks a return of its initial purchase price of $150,000,000 for the Series A Shares, as well as
payment of its costs and expenses in the lawsuit.
On February 17, 2021, AAMC entered into a settlement agreement with Putnam (the “Putnam Agreement”). Pursuant to the Putnam Agreement, AAMC
and Putnam agreed to exchange all of Putnam’s 81,800 Series A Shares for 288,283 shares of AAMC’s common stock. AAMC agreed to pay to Putnam
$1,636,000 within three business days of the effective date of the Putnam Agreement and $1,227,000 on the one-year anniversary of the effective date of
the Putnam Agreement, and in return Putnam agreed to release AAMC from all claims related to the Series A Shares and enter into a voting rights
agreement as more fully described in the Putnam Agreement. Finally, AAMC granted to Putnam a most favored nations provision with respect to future
settlements of the Series A Shares, as more fully described in the Putnam Agreement.
As described above, AAMC previously filed an action for declaratory relief to confirm its interpretation of the redemption provisions in the Certificate, and
intends to vigorously defend itself against the claims by Luxor.
AAMC intends to continue to pursue its strategic business initiatives despite this litigation. See “Item 1. Business.” If Luxor were to prevail in its lawsuit,
we may need to cease or curtail our business initiatives and our liquidity could be materially and adversely affected. For more information on the legal
proceedings with Luxor, see “Item 1A. Risk Factors” and “Item 3. Legal Proceedings” in this Annual Report on Form 10-K.
Treasury Shares
To date, a total of $268.7 million in shares of our common stock have been repurchased under the authorization by our Board of Directors to repurchase up
to $300.0 million in shares of our common stock. Repurchased shares are held as treasury stock and are available for general corporate purposes. We have
an aggregate of $31.3 million remaining for repurchases under our Board-approved repurchase plan.
31
(table of contents)
Cash Flows
We report and analyze our cash flows based on operating activities, investing activities and financing activities. The following table summarizes our cash
flows from continuing and discontinued operations for the periods indicated ($ in thousands):
Net cash used in operating activities from continuing operations
Net cash used in investing activities from continuing operations
Net cash from (used in) financing activities from continuing operations
Total cash flows relating to continuing operations
Net cash from operating activities from discontinued operations
Net cash from (used in) investing activities from discontinued operations
Net cash used in financing activities from discontinued operations
Total cash flows relating to discontinued operations
Year ended December 31,
2020
2019
(19,192) $
(86)
713
(18,565) $
37,798 $
3,643
(1,010)
40,431 $
(14,927)
(163)
(160)
(15,250)
8,183
(23)
(84)
8,076
$
$
$
$
Continuing Operations
Operating Activities From Continuing Operations
During 2020, the change in cash flows used in operating activities for continuing operations, compared to 2019, was primarily attributable to ongoing
salaries and benefits, payment of annual incentive compensation, dividends on preferred stock issued under the 2016 Employee Preferred Stock Program
and general corporate expenses in excess of revenues, respectively.
Investing Activities From Continuing Operations
Net cash used in investing activities for continuing operations for the years ended December 31, 2020 and 2019 consisted of investments in property and
equipment.
Financing Activities From Continuing Operations
Net cash from financing activities during the year ended December 31, 2020 primarily relates to intercompany transactions with the disposal group offset
by shares withheld for taxes upon vesting of restricted stock. Net cash used in financing activities for the year ended December 31, 2019 relates to shares
withheld for taxes upon vesting of restricted stock Net cash used in financing activities during the years ended December 31, 2020 and 2019 primarily
related to shares withheld for taxes upon vesting of restricted stock.
Discontinued Operations
During 2020, the increase in cash flows from discontinued operations, compared to 2019, was primarily attributable to an increase in cash flows from
operating activities and investing activities, primarily due to the termination of the Amended AMA with Front Yard and related cash receipts. The decrease
in cash flows from financing activities for discontinued operations in 2020 compared to 2019 was attributable to intercompany activity paid out of the
disposal group.
See Note 3 to our accompanying consolidated financial statements for further information regarding cash flows from discontinued operations.
Off-balance Sheet Arrangements
We had no off-balance sheet arrangements as of December 31, 2020 or 2019.
Recent accounting pronouncements
See Note 1, “Organization and Basis of Presentation - Recently issued accounting standards” to our consolidated financial statements.
32
(table of contents)
Critical Accounting Judgments
Accounting standards require information in financial statements about the risks and uncertainties inherent in significant estimates, and the application of
generally accepted accounting principles involves the exercise of varying degrees of judgment. Certain amounts included in or affecting our financial
statements and related disclosures must be estimated, requiring us to make certain assumptions with respect to values or conditions that cannot be known
with certainty at the time our consolidated financial statements are prepared. These estimates and assumptions affect the amounts we report for our assets
and liabilities and our revenues and expenses during the reporting period and our disclosure of contingent assets and liabilities at the date of our
consolidated financial statements. Actual results may differ significantly from our estimates and any effects on our business, financial position or results of
operations resulting from revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known.
We consider our critical accounting judgments to be those used in the determination of the reported amounts and disclosure related to the following:
Income taxes
Income taxes are provided for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted rates expected to apply to taxable income in the years in which management expects those temporary differences to be
recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period in which the change occurs. Subject to our
judgment, we reduce a deferred tax asset by a valuation allowance if it is “more likely than not” that some or the entire deferred tax asset will not be
realized. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment
is required in evaluating tax positions, and we recognize tax benefits only if it is more likely than not that a tax position will be sustained upon examination
by the appropriate taxing authority.
For all temporary differences, we have considered the potential future sources of taxable income against which they may be realized. In so doing, we have
taken into account temporary differences that we expect to reverse in future years and those where it is unlikely. Where it is more likely than not that there
will not be potential future taxable income to offset a temporary difference, a valuation allowance has been recorded.
Discontinued Operations
In accordance with the Financial Accounting Standards Board, Accounting Standards Codification (“ASC”), ASC 205-20, Presentation of Financial
Statements – Discontinued Operations, the results of operations of a component of an entity or a group or component of an entity that represents a strategic
shift that has, or will have, a major effect on the reporting company’s operations that has either been disposed of or is classified as held for sale are required
to be reported as discontinued operations in a company’s consolidated financial statements. In order to be considered a discontinued operation, both the
operations and cash flows of the discontinued component must have been (or will be) eliminated from the ongoing operations of the company and the
company will not have any significant continuing involvement in the operations of the discontinued component after the disposal transaction. As a result of
the Termination Agreement with Front Yard and FYR LP to terminate the Amended AMA, the accompanying consolidated financial statements reflect the
activity related to the Termination Agreement as discontinued operations. See Note 3 to our consolidated financial statements for additional information
regarding the results, major classes of assets and liabilities, significant non-cash operating items, and capital expenditures of discontinued operations.
Series A Preferred Shares
The Company’s Series A preferred stock is reflected in the balance sheet as temporary equity. In 2020, the Company received redemption notices from
holders of the Series A Preferred Shares requesting that the Company redeem an aggregate of $250.0 million of its Series A Shares on March 15, 2020. The
Company did not have the legally available funds to redeem all, but not less than all, of the outstanding Series A Shares on March 15, 2020. Therefore, the
Company does not believe that there is an obligation pursuant to the Certificate of Designation of the Series A Shares to redeem those shares held by
investors unless there are legally available funds to redeem all, but not less than all, of the Series A Shares. The presentation of the Series A Preferred
Shares will continue to be classified as temporary equity on the consolidated balance sheets.
33
(table of contents)
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market
changes that affect market sensitive instruments. The primary market risk that we are currently exposed to is market risk related to our investments in
common securities of mortgage real estate investment trusts and in Front Yard's common stock.
Investment Risk Relating to Front Yard's Common Stock
We have purchased or received as consideration an aggregate of 2,923,166 shares of Front Yard common stock in open market transactions or share
transfers. To the extent we have purchased or received Front Yard common stock, we will be exposed to risks and uncertainties with respect to our
ownership of such shares, including downward pressure on Front Yard’s stock price, a reduction or increase of dividends declared and paid on the Front
Yard stock and/or an inability to dispose of such shares at a time when we otherwise may desire or need to do so. There can be no assurance that we will be
successful in mitigating such risks.
On or around January 11, 2021, upon the consummation and closing of the Merger, the shares of Front Yard common stock that we held at the closing date
converted into cash in the amount of $16.25 per share.
Item 8. Consolidated Financial Statements and Supplementary Data
See our consolidated financial statements starting on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
34
(table of contents)
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation required by the Exchange Act, under the supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange
Act, as of December 31, 2020. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2020,
our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and
to provide reasonable assurance that such information is accumulated and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the
Exchange Act. Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2020 based on criteria
established in Internal Control-Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission. As a
result of this assessment, management concluded that, as of December 31, 2020, our internal control over financial reporting was effective in providing
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and procedures that 1) pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the assets of the issuer; 2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the issuer are being made only in accordance with authorizations of management and directors of the issuer; and 3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of the issuer's assets that could have a material effect on the financial
statements.
The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by Ernst & Young LLP, an independent
registered certified public accounting firm, as stated in their report that appears herein.
35
(table of contents)
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Altisource Asset Management Corporation
Opinion on Internal Control over Financial Reporting
We have audited Altisource Asset Management Corporation’s internal control over financial reporting as of December 31, 2020, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) (the COSO criteria). In our opinion, Altisource Asset Management Corporation (the Company) maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2020, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
balance sheets of Altisource Asset Management Corporation as of December 31, 2020 and 2019, and the related consolidated statements of operations,
comprehensive loss, stockholders' deficit and cash flows for the years then ended, and the related notes and our report dated March 3, 2021 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Atlanta, Georgia
March 3, 2021
36
(table of contents)
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-
15(d) of the Exchange Act that occurred during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Limitations on Controls
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their
objectives as specified above. Management does not expect, however, that our disclosure controls and procedures or our internal control over financial
reporting will prevent or detect all error or fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and
can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
Item 9B. Other Information
None.
37
(table of contents)
Part III
We will file a definitive Proxy Statement for our 2021 Annual Meeting of Stockholders (the “2021 Proxy Statement”) with the Securities and Exchange
Commission, pursuant to Regulation 14A, not later than 120 days after December 31, 2020. Accordingly, certain information required by Part III has been
omitted under General Instruction G(3) to Form 10-K. Only those sections of the 2021 Proxy Statement that specifically address the items set forth herein
are incorporated by reference.
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Item 10 is hereby incorporated by reference from our 2021 Proxy Statement under the captions “Election of Directors,”
“Section 16(a) Beneficial Ownership Reporting Compliance” and “Code of Ethics.”
Item 11. Executive Compensation
The information required by Item 11 is hereby incorporated by reference from our 2021 Proxy Statement under the captions “Executive Compensation” and
“Director Compensation.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 is hereby incorporated by reference from our 2021 Proxy Statement under the caption “Security Ownership of Certain
Beneficial Owners and Management.”
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by Item 13 is hereby incorporated by reference from our 2021 Proxy Statement under the captions “Transactions with Related
Persons” and “Information Regarding the Board of Directors and Corporate Governance.”
Item 14. Principal Accountant Fees and Services
The information required by Item 14 is hereby incorporated by reference from our 2021 Proxy Statement under the captions “Independent Registered
Public Accounting Firm Fees” and “Pre-Approval Policy and Procedures.”
38
(table of contents)
Part IV
Item 15. Exhibits
Exhibits
Exhibit Number
2.1
3.1
3.2
3.3
4.1*
4.2
4.3
10.1†
10.2
10.3
10.4
10.5†
10.6†
10.7*†
10.8†
10.9*†
10.10*†
10.11
21*
23*
24*
31.1**
Description
Separation Agreement, dated as of December 21, 2012, between Altisource Asset Management Corporation and Altisource Portfolio
Solutions S.A. (incorporated by reference to Exhibit 2.1 of the Registrant's Current Report on Form 8-K filed with the SEC on
December 28, 2012).
Amended and Restated Articles of Incorporation of Altisource Asset Management Corporation (incorporated by reference to Exhibit
3.1 of the Registrant's Current Report on Form 8-K filed with the SEC on January 5, 2017).
Third Amended and Restated Bylaws of Altisource Asset Management Corporation (incorporated by reference to Exhibit 3.2 of the
Registrant's Annual Report on Form 10-K filed with the SEC on February 28, 2020).
Certificate of Designations establishing the Company’s Series A Convertible Preferred Stock (incorporated by reference to Exhibit
3.1 of the Registrant’s Current Report on Form 8-K filed with the SEC on March 19, 2014).
Description of Securities.
Form of Option Award Agreement by and between Altisource Asset Management Corporation and Indroneel Chatterjee
(incorporated by reference to Exhibit 4.3 of the Registrant’s Form S-8 filed with the SEC on January 29, 2020).
Form of Restricted Stock Award Agreement by and between Altisource Asset Management Corporation and Indroneel Chatterjee
(incorporated by reference to Exhibit 4.4 of the Registrant’s Form S-8 filed with the SEC on January 29, 2020).
Altisource Asset Management Corporation 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.11 of the
Registrant's Amendment No. 4 to Form 10 filed with the SEC on December 18, 2012).
Amended and Restated Asset Management Agreement, dated as of May 7, 2019, by and among Front Yard Residential Corporation,
Front Yard Residential, L.P. and Altisource Asset Management Corporation (incorporated by reference to Exhibit 10.1 of the
Registrant's Current Report on Form 8-K filed with the SEC on May 8, 2019).
Asset Management Agreement, dated March 31, 2015, among Front Yard Residential Corporation (f/k/a Altisource Residential
Corporation), Front Yard Residential L.P. (f/k/a Altisource Residential, L.P.) and Altisource Asset Management Corporation
(incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed with the SEC on April 2, 2015).
Amendment to Asset Management Agreement, dated April 7, 2015, among Front Yard Residential Corporation (f/k/a Altisource
Residential Corporation), Front Yard Residential L.P. (f/k/a Altisource Residential, L.P.) and Altisource Asset Management
Corporation (incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed with the SEC on April
13, 2015).
Altisource Asset Management Corporation 2016 Preferred Stock Plan (incorporated by reference to Exhibit 10.22 of the Registrant's
Annual Report on Form 10-K filed with the SEC on March 1, 2017).
Form of Preferred Stock Agreement under 2016 Employee Preferred Stock Plan (incorporated by reference to Exhibit 10.1 of the
Registrant's Current Report on Form 8-K filed with the SEC on January 5, 2017).
Amended and Restated Employment Agreement of Indroneel Chatterjee, dated as of December 4, 2020.
Altisource Asset Management Corporation 2020 Equity Incentive Plan (incorporated by reference to Exhibit 4.3 of the Registrant's
Form S-8 filed with the SEC on December 21, 2020).
Employment Agreement of Christopher D. Moltke-Hansen, dated as of January 1, 2021.
Employment Agreement of Paris Graham Singer, dated as of January 1, 2021.
Settlement Agreement dated as of February 17, 2021, between Altisource Asset Management Corporation and Putnam Focused
Equity Fund, a series of Putnam Funds Trust, dated as of February 17, 2021 (incorporated by reference to Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed with the SEC on February 18, 2021).
Schedule of Subsidiaries.
Consent of Ernst & Young LLP.
Power of Attorney (incorporated by reference to the signature page of this Annual Report on Form 10-K).
Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act.
39
(table of contents)
Exhibit Number
31.2**
32.1**
32.2**
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
Description
Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act.
Certification of CEO Pursuant to Section 906 of the Sarbanes-Oxley Act.
Certification of CFO Pursuant to Section 906 of the Sarbanes-Oxley Act.
XBRL Instance Document.
XBRL Taxonomy Extension Schema Document.
XBRL Taxonomy Extension Calculation Linkbase Document.
XBRL Taxonomy Extension Definition Linkbase Document.
XBRL Extension Label Linkbase Document.
XBRL Taxonomy Extension Presentation Linkbase Document.
__________
* Filed herewith.
** Indicates the exhibit is being furnished, not filed, with this report.
† Denotes management contract or compensatory arrangement.
40
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Signatures
(table of contents)
Date:
March 3, 2021
Date:
March 3, 2021
Altisource Asset Management Corporation
By:
By:
/s/ Indroneel Chatterjee
Indroneel Chatterjee
Chief Executive Officer
/s/ Christopher D. Moltke-Hansen
Christopher D. Moltke-Hansen
Chief Financial Officer
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Indroneel Chatterjee and
Christopher D. Moltke-Hansen and each of them severally, his or her true and lawful attorney-in-fact with power of substitution and resubstitution to sign
in his or her name, place and stead, in any and all capacities, to do any and all things and execute any and all instruments that such attorney may deem
necessary or advisable under the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange
Commission in connection with the Annual Report on Form 10-K and any and all amendments hereto, as fully for all intents and purposes as he or she
might or could do in person, and hereby ratifies and confirms all said attorneys-in-fact and agents, each acting alone, and his or her substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated:
Signature
Title
Date
/s/ Indroneel Chatterjee
Indroneel Chatterjee
/s/ Ricardo C. Byrd
Ricardo C. Byrd
/s/ John P. de Jongh, Jr.
John P. de Jongh, Jr.
/s/ John A. Engerman
John A. Engerman
Chairman of the Board of Directors and
Chief Executive Officer (Principal Executive Officer)
Director
Director
Director
/s/ Christopher D. Moltke-Hansen
Christopher D. Moltke-Hansen
Chief Financial Officer (Principal Financial Officer and
Principal Accounting Officer)
41
March 3, 2021
March 3, 2021
March 3, 2021
March 3, 2021
March 3, 2021
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Deficit
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-1
(table of contents)
2
4
5
6
7
8
10
(table of contents)
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of Altisource Asset Management Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Altisource Asset Management Corporation (the Company) as of December 31, 2020 and
2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’ deficit and cash flows for the years then ended, and the
related notes (collectively referred to as the “consolidated financial statements ”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for the years
then ended, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's
internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 3, 2021 expressed an unqualified
opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion
on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion
on the critical audit matter or on the accounts or disclosures to which it relates.
F-2
(table of contents)
Description of the Matter
Series A Preferred Shares
As discussed in Note 1 to the consolidated financial statements, the Company has $250 million of Series A Preferred
Shares (“Series A Shares”) outstanding at December 31, 2020 that are presented on the consolidated balance sheet as
mezzanine equity. In February 2020, the Company received notices from holders of the Series A Shares requesting the
Company to redeem an aggregate of $250 million liquidation preference of such shares on March 15, 2020. The
Company does not believe it is obligated to redeem any of the Series A Shares because the Company did not have
legally available funds to do so at March 15, 2020.
The Company’s legal determination and evaluation of the redemption rights of the investors based on the liquidity and
financial position of the Company and the terms of the Series A Preferred Share Agreement required significant
management judgment and an increased audit effort. Given the judgment needed to legally evaluate and determine
conclusions related to the investor redemption rights, any default and remedy provisions or lack thereof, and evaluate
the liquidity and financial position of the Company, auditing the Series A Preferred Shares involved especially
challenging and complex judgement.
How We Addressed the Matter in
Our Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of the controls over
management’s accounting treatment and disclosures for the Series A Shares. For example, we tested controls over
management’s review of the terms of the Series A Preferred Share Agreement, including redemption rights related to
the Series A Shares.
Our testing of the Company’s accounting for and disclosures related to the Series A Shares included, among others,
reading the terms of the Series A Preferred Share Agreement, including those covering the right to redemption, any
event of default or remedy provisions or lack thereof, and provisions related to the Company’s liquidity and financial
position. We inspected copies of the redemption notices received by the Company related to the Series A Shares. We
requested and received internal and external legal counsel letters and obtained representations from the Company with
respect to their conclusions for the accounting for and the presentation of the matter. We also evaluated the adequacy of
the disclosures included in the financial statements regarding the Series A Preferred Shares.
/s/ Ernst & Young LLP
We have served as the Company‘s auditor since 2017.
Atlanta, Georgia
March 3, 2021
F-3
(table of contents)
Altisource Asset Management Corporation
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
December 31, 2020
December 31, 2019
$
$
41,623 $
47,355
3,414
3,328
894
96,614
656
503
1,979
3,138
99,752
2,539 $
9,152
75
1,338
13,104
600
1,027
1,599
3,226
16,330
—
18,906
20,046
5,014
1,009
2,176
47,151
732
1,470
3,895
6,097
53,248
3,762
1,165
71
2,002
7,000
675
—
3,543
4,218
11,218
—
Current assets:
Cash and cash equivalents
Front Yard common stock, at fair value
Receivable from Front Yard
Prepaid expenses and other assets
Current assets held for sale
Total current assets
Non-current assets:
Right-of-use lease assets
Other non-current assets
Non-current assets held for sale
Total non-current assets
Total assets
Current liabilities:
Accrued salaries and employee benefits
Accounts payable and accrued liabilities
Short-term lease liabilities
Current liabilities held for sale
Total current liabilities
Non-current liabilities
Long-term lease liabilities
Other non-current liabilities
Non-current liabilities held for sale
Total non-current liabilities
Total liabilities
Commitments and contingencies (Note 6)
Redeemable preferred stock:
Series A preferred stock, $0.01 par value, 250,000 shares issued and outstanding as of December 31, 2020
and 2019; redemption value $250,000
250,000
249,958
Stockholders' deficit:
Common stock, $.01 par value, 5,000,000 authorized shares; 2,966,207 and 1,650,212 shares issued and
outstanding, respectively, as of December 31, 2020 and 2,897,177 and 1,598,512 shares issued and
outstanding, respectively, as of December 31, 2019
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost, 1,315,995 and 1,298,665 shares as of December 31, 2020 and 2019, respectively
Total stockholders' deficit
Total liabilities and equity
30
46,574
63,426
(65)
(276,543)
(166,578)
$
99,752 $
29
44,646
23,662
(33)
(276,232)
(207,928)
53,248
See accompanying notes to consolidated financial statements.
F-4
Altisource Asset Management Corporation
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(table of contents)
Year ended December 31,
2020
2019
Expenses:
Salaries and employee benefits
Legal and professional fees
General and administrative
Total expenses
Other income:
Change in fair value of Front Yard common stock
Dividend income on Front Yard common stock
Other income
Total other income
Net loss from continuing operations before income taxes
Income tax expense
Net loss from continuing operations
Discontinued Operations:
Income from operations related to Front Yard, net of tax
Loss on disposal of operation related to Front Yard
Net gain on discontinued operations
Net income (loss)
Amortization of preferred stock issuance costs
Net income (loss) attributable to common stockholders
Net earnings (loss) per share of common stock – basic:
Continuing operations – basic
Discontinued operations – basic
Earnings (loss) per basic common share
Weighted average common stock outstanding – basic
Net earnings (loss) per share of common stock – diluted:
Continuing operations – diluted
Discontinued operations – diluted
Earnings (loss) per diluted common share
Weighted average common stock outstanding – diluted
$
$
$
$
$
$
11,977 $
6,205
2,328
20,510
6,270
244
45
6,559
(13,951)
769
(14,720)
54,643
(102)
54,541
39,821
(42)
39,779 $
(9.05) $
33.43
24.38 $
11,367
3,444
2,334
17,145
5,864
731
158
6,753
(10,392)
165
(10,557)
7,944
—
7,944
(2,613)
(206)
(2,819)
(6.77)
5.00
(1.77)
1,631,326
1,589,952
(9.05) $
33.43
24.38 $
(6.77)
5.00
(1.77)
1,631,326
1,589,952
See accompanying notes to consolidated financial statements.
F-5
Altisource Asset Management Corporation
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(table of contents)
Net income (loss)
Other comprehensive loss:
Currency translation adjustments, net
Total other comprehensive loss
Comprehensive income (loss)
Year ended December 31,
2020
2019
39,821 $
(2,613)
(32)
(32)
(33)
(33)
39,789 $
(2,646)
$
$
See accompanying notes to consolidated financial statements.
F-6
(table of contents)
Altisource Asset Management Corporation
Consolidated Statements of Stockholders' Deficit
(In thousands, except share amounts)
December 31, 2018
Cumulative effect of adoption of ASC 842
(Note 1)
Common shares issued under share-based
compensation plans, net of employee tax
withholdings
Shares withheld for taxes upon vesting of
restricted stock
Amortization of preferred stock issuance costs
Share-based compensation
Currency translation adjustments, net
Net loss
December 31, 2019
Common shares issued under share-based
compensation plans, net of employee tax
withholdings
Shares withheld for taxes upon vesting of
restricted stock
Amortization of preferred stock issuance costs
Share-based compensation
Currency translation adjustments, net
Other - disposition
Net income
December 31, 2020
Common Stock
Number of
Shares
2,862,760
$
Amount
—
34,417
—
—
—
—
—
2,897,177
69,030
—
—
—
—
$
—
2,966,207
$
Additional
Paid-in Capital
42,245
$
Retained
Earnings
$
26,558
Accumulated Other
Comprehensive Loss
—
$
Treasury Stock
(275,988)
$
$
Total
Stockholders'
Deficit
(207,156)
—
—
—
—
2,401
—
—
44,646
13
—
—
1,915
—
$
—
46,574
$
(77)
—
—
(206)
—
—
(2,613)
23,662
—
—
(42)
—
—
(15)
39,821
63,426
$
$
$
$
—
—
—
—
—
(33)
—
(33)
—
—
—
—
(32)
—
(65)
$
$
—
—
(244)
—
—
—
—
(276,232)
$
—
(311)
—
—
—
—
(276,543)
$
(77)
—
(244)
(206)
2,401
(33)
(2,613)
(207,928)
14
(311)
(42)
1,915
(32)
(15)
39,821
(166,578)
29
—
—
—
—
—
—
—
29
1
—
—
—
—
—
30
See accompanying notes to consolidated financial statements.
F-7
(table of contents)
Altisource Asset Management Corporation
Consolidated Statements of Cash Flows
(In thousands)
Operating activities:
Net income (loss)
Less: Income from discontinued operations, net of tax
Loss from continuing operations
Adjustments to reconcile net income (loss) from continuing operations to net cash from (used in) operating
activities:
$
Depreciation
Change in fair value of Front Yard common stock
Share-based compensation
Amortization of operating lease right-of-use assets
Changes in operating assets and liabilities, net of effects from discontinued operations:
Receivable from Front Yard
Prepaid expenses and other assets
Other non-current assets
Accrued salaries and employee benefits
Accounts payable and accrued liabilities
Other non-current liabilities
Operating lease liabilities
Net cash used in continuing operations
Net cash from discontinued operations
Net cash from (used in) operating activities
Investing activities:
Investment in property and equipment
Net cash used in continuing operations
Net cash from (used in) discontinued operations
Net cash from (used in) investing activities
Financing activities:
Proceeds from stock option exercises
Payment of tax withholdings on exercise of stock options
Shares withheld for taxes upon vesting of restricted stock
Net receipts from subsidiaries included in disposal group
Net cash from (used in) continuing operations
Net cash used in discontinued operations
Net cash used in financing activities
Net change in cash and cash equivalents
Effect of exchange rate changes on cash and cash equivalents
Consolidated cash and cash equivalents, beginning of period
Consolidated cash and cash equivalents, end of the period
$
Year ended December 31,
2019
2020
39,821 $
54,541
(14,720)
354
(6,270)
1,915
76
1,600
(2,477)
699
(1,206)
(119)
1,027
(71)
(19,192)
37,798
18,606
(86)
(86)
3,643
3,557
23
(9)
(311)
1,010
713
(1,010)
(297)
21,866
(24)
19,965
41,807 $
(2,613)
7,944
(10,557)
322
(5,864)
2,401
114
(1,046)
11
(31)
(375)
156
—
(58)
(14,927)
8,183
(6,744)
(163)
(163)
(23)
(186)
—
—
(244)
84
(160)
(84)
(244)
(7,174)
(32)
27,171
19,965
See accompanying notes to consolidated financial statements.
F-8
(table of contents)
Altisource Asset Management Corporation
Consolidated Statements of Cash Flows (Continued)
(In thousands)
Supplemental disclosure of cash flow information (continuing and discontinued operations):
Income taxes paid
Right-of-use lease assets recognized - operating leases
Operating lease liabilities recognized
Reconciliation of cash and cash equivalents to consolidated balance sheets:
Cash and cash equivalents
Cash and cash equivalents included in assets of discontinued operations
Consolidated cash and cash equivalents
Year ended December 31,
2019
2020
428 $
—
—
41,623 $
184
41,807
594
4,684
4,671
18,906
1,059
19,965
$
$
See accompanying notes to consolidated financial statements.
F-9
(table of contents)
Altisource Asset Management Corporation
Notes to Consolidated Financial Statements
December 31, 2020
1. Organization and Basis of Presentation
Altisource Asset Management Corporation (“we,” “our,” “us,” “AAMC,” or the “Company”) was incorporated in the U.S. Virgin Islands (“USVI”) on
March 15, 2012 (our “inception”) and commenced operations on December 21, 2012. Our primary business is to provide asset management and certain
corporate governance services to institutional investors. We have also been a registered investment adviser under Section 203(c) of the Investment Advisers
Act of 1940 since October 2013.
We are in the process of establishing and launching multiple new lines of business, including an investment fund, a short-term investor loan aggregation
and origination businesses, and the establishment of strategic relationships with real estate loan originators. These business lines leverage our history and
experience in asset management, real estate investing and real estate operations. We have taken steps to reduce our annual operating expenses, including
reductions in our physical office footprint and the optimization of our workforce. Though our potential new businesses are in the development stage, we
expect that they will include asset management services, investments in real estate related assets or other businesses that leverage our experience.
Our primary client has been Front Yard Residential Corporation (“Front Yard”), a public real estate investment trust (“REIT”) focused on acquiring and
managing quality, affordable single-family rental (“SFR”) properties throughout the United States. All of our revenue for all periods presented was
generated through our asset management agreements with Front Yard.
On March 31, 2015, we entered into an asset management agreement (the “Former AMA”) with Front Yard, under which we were the exclusive asset
manager for Front Yard for an initial term of 15 years from April 1, 2015, with two potential five-year extensions. The Former AMA provided for a fee
structure in which we were entitled to a base management fee, an incentive management fee and a conversion fee for mortgage loans and real estate owned
(“REO”) properties that became rental properties during each quarter.
On May 7, 2019, we entered into an amended and restated asset management agreement with Front Yard (the “Amended AMA”), under which we are the
exclusive asset manager for Front Yard for an initial term of five years. The Amended AMA will renew automatically each year thereafter for an
additional one-year term, subject in each case to certain termination provisions. The Amended AMA provides for a fee structure in which we are entitled to
a Base Management Fee and a potential Incentive Fee. Accordingly, our operating results continue to be highly dependent on Front Yard's operating results.
See Note 7 for additional details of these asset management agreements.
On August 13, 2020, AAMC and Front Yard entered into a Termination and Transition Agreement (the “Termination Agreement”), pursuant to which the
Company and Front Yard have agreed to effectively internalize the asset management function of Front Yard. The Termination Agreement provided that the
Amended AMA would terminate following a transition period to enable the internalization of Front Yard’s asset management function, allow for the
assignment of certain vendor contracts and implement the transfer of certain employees to Front Yard and the training of required replacement employees
at each company. The transition period ended at the close of business, December 31, 2020, the time that AAMC and Front Yard mutually agreed that all
required transition activities have been successfully completed (the “Termination Date”). On the Termination Date, the Amended AMA terminated, and
AAMC will no longer provide services to Front Yard under the Amended AMA. Below are the material terms of the Termination Agreement:
•
Front Yard paid AAMC an aggregate termination fee of $46.0 million (the “Termination Fee”), consisting of the following payments:
◦
◦
◦
$15.0 million paid in cash to AAMC on August 17, 2020,
$15.0 million paid in cash on the Termination Date, and
$16.0 million paid in Front Yard common stock on the Termination Date.
•
Front Yard has or will acquire the equity interests of AAMC's Indian subsidiary, the equity interests of AAMC's Cayman Islands subsidiary, the
right to solicit and hire designated AAMC employees that currently oversee the management of Front Yard's business and other assets of AAMC
that are used in connection with the operation of Front Yard's business (the “Transferred Assets”) for an aggregate purchase price of $8.2 million
($3.2 million of which
F-10
(table of contents)
was paid in cash to AAMC on August 17, 2020), and the remaining $5.0 million was paid in Front Yard common stock on the termination date.
• On the Termination Date, in satisfaction of the amounts payable in Front Yard stock, we received 1,298,701 shares of Front Yard common stock.
We recorded a nominal gain on the shares received.
• On the Termination Date, AAMC assigned its office lease in Charlotte, North Carolina. Certain assets related to the lease, primarily office and
employee-related equipment were written off, none of which were individually material, and were recorded through other income (loss) in the
Consolidated Statements of Income.
Front Yard was obligated to continue to pay Base Management Fees to AAMC under the Amended AMA in the amount of approximately
$3.6 million per quarter, subject to proration for partial quarters, through the date that Front Yard delivered written notice to AAMC that the
transition has been satisfactorily completed.
•
• AAMC has agreed to vote any shares of Front Yard common stock that it receives in connection with the Termination Agreement in accordance
with recommendations of the Front Yard board of directors for a period of one year following the Termination Date, including regarding the
approval of the Front Yard Merger Agreement and related transactions, which were presented to Front Yard’s stockholders.
Effective two business days prior to the Termination Date, Mr. Ellison resigned as Co-Chief Executive Officer of AAMC.
•
On December 31, 2020, AAMC and Front Yard completed the transition contemplated by the Termination and Transition Agreement, dated August 13,
2020.
We have evaluated the nature of the services provided to Front Yard in exchange for the Termination Fee and have determined that such services constitute
a series of distinct services that should be accounted for as a single performance obligation completed over time, which is simultaneously performed by us
and consumed by Front Yard, and the Termination Fee was recognized through the Termination Date of December 31, 2020.
During the third quarter of 2020, we received an upfront payment of $3.2 million of the $8.2 million aggregate purchase price of the Transferred Assets. In
the fourth quarter of 2020, we received a payment of the remaining $5.0 million, in Front Yard common stock, of the aggregate purchase price of the
Transferred Assets in advance of the sale of shares. We have included these upfront payments within accounts payable and accrued liabilities in our
condensed consolidated balance sheet.
We have concluded that the Transferred Assets meets the held-for-sale criteria and have therefore classified the Transferred Assets as held for sale on our
condensed consolidated balance sheets. The termination of the Amended AMA and the sale of the Transferred Assets also represents a significant strategic
shift that will have a major effect on our operations and financial results. Therefore, we have classified the results of operations related to Front Yard as
discontinued operations in our condensed consolidated statements of operations. For further information, please see Note 3.
Basis of presentation and use of estimates
The accompanying audited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States (“U.S. GAAP”). All wholly owned subsidiaries are included, and all intercompany accounts and transactions have been eliminated.
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
F-11
(table of contents)
Redeemable Preferred Stock
Issuance of Series A Convertible Preferred Stock in 2014 Private Placement
During the first quarter of 2014, AAMC issued 250,000 shares of Series A Convertible Preferred Stock (the “Series A Shares”) for $250.0 million to
institutional investors. Under the Certificate of Designations of the Series A Shares (the “Certificate”), we have the option to redeem all of the Series A
Shares on March 15, 2020 and on each successive five-year anniversary of March 15, 2020 thereafter. In connection with these same redemption dates,
each holder of our Series A Shares has the right to give notice requesting us to redeem all of the shares of Series A Shares held by such holder out of
legally available funds. In accordance with the terms of the Certificate, if we have legally available funds to redeem all, but not less than all, of the Series A
Shares requested to be redeemed on a redemption date, we will deliver to those holders who have requested redemption in accordance with the Certificate a
notice of redemption. If we do not have legally available funds to redeem all, but not less than all, of the Series A Shares requested to be redeemed on a
redemption date, we will not provide a notice of redemption. The redemption right will be exercisable in connection with each redemption date every five
years until the mandatory redemption date in 2044. If we are required to redeem all of a holder’s Series A Shares, we are required to do so for cash at a
price equal to $1,000 per share (the issuance price) out of legally available funds.
Between January 31, 2020 and February 3, 2020, we received purported notices from holders of our Series A Shares requesting us to redeem an aggregate
of $250.0 million liquidation preference of our Series A Shares on March 15, 2020. We do not have legally available funds to redeem all of the Series A
Shares on March 15, 2020. As a result, we do not believe, under the terms of the Certificate, that we are obligated to redeem any of the Series A Shares
under the Certificate, and, consistent with the exclusive forum provisions of our Third Amended and Restated Bylaws, on January 27, 2020, we filed a
claim for declaratory relief in the Superior Court of the Virgin Islands, Division of St. Croix, against Luxor Capital Group, LP and certain of its funds and
managed accounts (collectively, “Luxor”) to confirm our interpretation of the Certificate. Luxor has filed a motion to remove the action to the U.S District
Court for the Virgin Islands.
On February 3, 2020, Luxor filed a complaint in the Supreme Court of the State of New York, County of New York, against AAMC for breach of contract,
specific performance, unjust enrichment, and related damages and expenses. The complaint alleges that AAMC’s position that it will not redeem any of
Luxor’s Series A Shares on the March 15, 2020 redemption date is a material breach of AAMC’s redemption obligations under the Certificate. Luxor seeks
an order requiring AAMC to redeem its Series A Shares, recovery of no less than $144,212,000 in damages, which is equal to the amount Luxor would
receive if AAMC redeemed all of Luxor’s Series A Shares at the redemption price of $1,000 per share set forth in the Certificate, as well as payment of its
costs and expenses in the lawsuit. In the alternative, Luxor seeks a return of its initial purchase price of $150,000,000 for the Series A Shares, as well as
payment of its costs and expenses in the lawsuit. On May 25, 2020, Luxor’s complaint was amended to add Putnam Equity Spectrum Fund and Putnam
Capital Spectrum Fund (collectively, “Putnam”), which also invested in the Series A Shares, as plaintiff. Putnam holds 81,800 Series A Shares.
Collectively, Luxor and Putnam seek a recovery of no less than $226,012,000 in damages, which is equal to the amount Luxor and Putnam would receive if
AAMC redeemed all of Luxor’s and Putnam’s Series A Shares at the redemption price of $1,000 per share set forth in the Certificate, as well as payment of
their costs and expenses in the lawsuit. In the alternative, Luxor and Putnam seek a return of the initial purchase price of $231,800,000 for the Series A
Shares, as well as payment of their costs and expenses in the lawsuit. On June 12, 2020, AAMC moved to dismiss the Amended Complaint in favor of
AAMC’s first-filed declaratory judgment action in the U.S. Virgin Islands. On August 4, 2020, the court denied AAMC’s motion to dismiss. AAMC is
currently considering whether to appeal the court’s decision.
For information regarding updates to the Redeemable Preferred Stock that occurred subsequent to December 31, 2020, refer to Note 13.
AAMC intends to continue to pursue its strategic business initiatives despite this litigation. If Luxor were to prevail in its lawsuit, we may need to cease or
curtail our business initiatives and our liquidity could be materially and adversely affected.
The holders of our Series A Shares are not entitled to receive dividends with respect to their Series A Shares. The Series A Shares are convertible into
shares of our common stock at a conversion price of $1,250 per share (or an exchange rate of 0.8 shares of common stock for Series A Share), subject to
certain anti-dilution adjustments.
Upon certain change of control transactions or upon the liquidation, dissolution or winding up of the Company, holders of the Series A Shares will be
entitled to receive an amount in cash per Series A Share equal to the greater of:
F-12
(table of contents)
(i) $1,000 plus the aggregate amount of cash dividends paid on the number of shares of common stock into which such Series A Shares were
convertible on each ex-dividend date for such dividends; and
(ii) the number of shares of common stock into which the Series A Shares are then convertible multiplied by the then-current market price of the
common stock.
The Certificate confers no voting rights to holders, except with respect to matters that materially and adversely affect the voting powers, rights or
preferences of the Series A Shares or as otherwise required by applicable law.
With respect to the distribution of assets upon the liquidation, dissolution or winding up of the Company, the Series A Shares rank senior to our common
stock and on parity with all other classes of preferred stock that may be issued by us in the future.
The Series A Shares are recorded net of issuance costs, which were amortized on a straight-line basis through the first potential redemption date in March
2020.
2016 Employee Preferred Stock Plan
On May 26, 2016, the 2016 Employee Preferred Stock Plan (the “Employee Preferred Stock Plan”) was approved by our stockholders. Pursuant to the
Employee Preferred Stock Plan, the Company may grant one or more series of non-voting preferred stock, par value $0.01 per share, in the Company to
induce certain employees to become employed and remain employees of the Company in the USVI, and any of its future USVI subsidiaries, to encourage
ownership of shares in the Company by such USVI employees and to provide additional incentives for such employees to promote the success of the
Company’s business.
Pursuant to our stockholder approval of the Employee Preferred Stock Plan, on December 29, 2016, the Company authorized 14 additional series of
preferred stock of the Company, consisting of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock, Series
F Preferred Stock, Series G Preferred Stock, Series H Preferred Stock, Series I Preferred Stock, Series J Preferred Stock, Series K Preferred Stock, Series L
Preferred Stock, Series M Preferred Stock, Series N Preferred Stock and Series O Preferred Stock, and each series shall consist of up to an aggregate of
1,000 shares.
We have issued shares of preferred stock under the Employee Preferred Stock Plan to certain of our USVI employees. These shares of preferred stock are
mandatorily redeemable by us in the event of the holder's termination of service with the Company for any reason. At December 31, 2020 and 2019, we
had 1,100 and 1,000 and shares outstanding, respectively, and we included the redemption value of these shares of and $11,000 and $10,000 respectively,
within accounts payable and accrued liabilities in our consolidated balance sheets.
In December 2019 and February 2019, our Board of Directors declared and paid an aggregate of $1.0 million (in relation to the 2019 fiscal year), and $1.1
million (in relation to the 2018 fiscal year), respectively, of dividends on the preferred stock issued under the Employee Preferred Stock Plan. Such
dividends are included in salaries and employee benefits in our consolidated statement of operations.
Recently issued accounting standards
Adoption of recent accounting standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASC
842”). ASU 2016-02 requires that lessees recognize assets and liabilities for leases with lease terms greater than twelve months in the statement of financial
position and also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows
arising from leases. Accounting by lessors is substantially unchanged from prior practice as lessors will continue to recognize lease revenue on a straight-
line basis. The FASB has also issued multiple ASUs amending certain aspects of Topic 842. ASU 2016-02 is effective for fiscal years beginning after
December 15, 2018, including interim reporting periods within those fiscal years. The amendments in ASU 2016-02 should be applied on a modified
retrospective transition basis, and a number of practical expedients may apply. These practical expedients relate to the identification and classification of
leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date and the ability to use hindsight in
evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. We adopted this standard as of January 1, 2019 when the
standard became effective and was required to be adopted. Consistent with the standard, financial information will not be updated and the disclosures
required under the new standard will not be provided for dates and periods prior to January 1, 2019. As mentioned above, the new standard provides a
number of optional practical expedients in
F-13
(table of contents)
transition. We elected the “package of practical expedients,” which permits us not to reassess our prior conclusions about lease identification, lease
classification and initial direct costs under the new standard. We did not elect the use-of-hindsight or the practical expedient pertaining to land easements;
the latter not being applicable to us. The new standard also provides practical expedients for an entity's ongoing accounting not to separate the lease and
non-lease components, including common area maintenance, property taxes and insurance on our office leases that is paid along with rents. We elected the
short-term lease exemption for all leases that qualify; as a result, we will not recognize right-of-use assets or lease liabilities for leases with a term of less
than 12 months at inception. Upon our adoption of this standard, we recognized operating lease right-of-use assets of $2.8 million, lease liabilities of
$2.8 million and a cumulative-effect adjustment to retained earnings of $(0.1) million. We have also provided the required incremental disclosures about
our leasing activities on a prospective basis in Note 5.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments,
which amends the guidance on measuring credit losses on financial assets held at amortized cost. ASU 2016-13, as amended, is intended to address the
issue that the previous “incurred loss” methodology was restrictive for an entity's ability to record credit losses based on not yet meeting the “probable”
threshold. The new language requires these assets to be valued at amortized cost presented at the net amount expected to be collected with a valuation
provision. This ASU is effective for fiscal years beginning after December 15, 2019. The amendments in ASU 2016-13 should be applied on a modified
retrospective transition basis. We adopted this standard as of January 1, 2020, and our adoption of the standard did not have a material impact on our
consolidated financial statements.
Recently issued accounting standards not yet adopted
In December 2019, the FASB issued ASU 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740), which is intended to
simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also
clarifies and amends existing guidance to improve consistent application. ASU 2019-12 is effective for fiscal years beginning after December 15, 2021. We
are currently evaluating the impact of this standard.
ASU 2020-04. In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate
Reform on Financial Reporting,” which provides practical expedients and exceptions for applying GAAP to contracts, hedging relationships, and other
transactions affected by reference rate reform if certain criteria are met. The expedients and exceptions provided by the amendments in this update apply
only to contracts, hedging relationships, and other transactions that reference the London interbank offered rate (“LIBOR”) or another reference rate
expected to be discontinued as a result of reference rate reform. These amendments are not applicable to contract modifications made and hedging
relationships entered into or evaluated after December 31, 2022. ASU No. 2020-04 is effective as of March 12, 2020 through December 31, 2022 and may
be applied to contract modifications and hedging relationships from the beginning of an interim period that includes or is subsequent to March 12, 2020.
We will adopt this standard when LIBOR is discontinued. We are evaluating the impact the new standard will have on our consolidated financial statements
and related disclosures, but do not anticipate a material impact.
Recent accounting pronouncements pending adoption not discussed above or in the 2019 Form 10-K are either not applicable or will not have, or are not
expected to have a material impact on our consolidated financial position, results of operations, or cash flows.
2. Summary of Significant Accounting Policies
Cash equivalents
We consider highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Certain account balances exceed FDIC insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of
FDIC insurance coverage. To mitigate this risk, we maintain our cash and cash equivalents at large national or international banking institutions.
Consolidations
The consolidated financial statements include the accounts of AAMC and its consolidated subsidiaries, which include the voting interest entities in which
we are determined to have a controlling financial interest. Our voting interest entities consist
F-14
(table of contents)
entirely of our wholly owned subsidiaries. We also consider variable interest entities (“VIEs”) for consolidation where we are the primary beneficiary. We
had no VIEs or potential VIEs as of and for the years ended December 31, 2020 or 2019.
Earnings per share
Basic earnings per share is computed by dividing net income or loss, less amortization of preferred stock issuance costs, by the weighted average common
stock outstanding during the period. Diluted earnings per share is computed by dividing net income or loss by the weighted average common stock
outstanding for the period plus the dilutive effect of (i) stock options and restricted stock outstanding using the treasury stock method and (ii) Series A
Preferred Stock using the if-converted method. Weighted average common stock outstanding - basic excludes the impact of unvested restricted stock since
dividends paid on such restricted stock are non-participating.
Fair value of financial instruments
We designate fair value measurements into three levels based on the lowest level of substantive input used to make the fair value measurement. Those
levels are as follows:
•
•
•
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or
liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Front Yard common stock
The shares of Front Yard common stock that we hold is reported at fair value based on unadjusted quoted market prices in active markets. Changes in the
fair value of Front Yard common stock are recognized through net income.
Our ability to sell these securities, or the price ultimately realized for these securities, depends upon the demand in the market and potential restrictions on
the timing at which we may be able to sell the Front Yard common stock when desired.
Income taxes
Income taxes are provided for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted rates expected to apply to taxable income in the years in which management expects those temporary differences to be
recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period in which the change occurs. Subject to our
judgment, we reduce a deferred tax asset by a valuation allowance if it is “more likely than not” that some or the entire deferred tax asset will not be
realized. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment
is required in evaluating tax positions, and we recognize tax benefits only if it is more likely than not that a tax position will be sustained upon examination
by the appropriate taxing authority.
For all temporary differences, we have considered the potential future sources of taxable income against which they may be realized. In so doing, we have
taken into account temporary differences that we expect to reverse in future years and those where it is unlikely. Where it is more likely than not that there
will not be potential future taxable income to offset a temporary difference, a valuation allowance has been recorded.
Lastly, the Company accounts for the tax on global intangible low-taxed income (“GILTI”) as incurred and therefore has not recorded deferred taxes related
to GILTI on its foreign subsidiaries.
Leases
On January 1, 2019, we adopted ASU 2016-02, including various associated updates and amendments, which together comprise the requirements for lease
accounting under ASC 842. ASU 2016-02 fundamentally changes accounting for operating leases by requiring lessees to recognize a liability to make lease
payments and a right-of-use asset over the term of the lease. We also adopted the “package of practical expedients,” which permits us not to reassess our
prior conclusions about lease identification,
F-15
(table of contents)
lease classification and initial direct costs under the new standard. We also elected the short-term lease exemption for all leases that qualify; as a result, we
will not recognize right-of-use assets or lease liabilities for leases with a term of less than 12 months at inception.
We lease office space under various operating leases. Our office leases are generally for terms of one to five years and typically include renewal options,
which we consider when determining our lease right-of-use assets and lease liabilities to the extent that a renewal option is reasonably certain of being
exercised. Along with rents, we are generally required to pay common area maintenance, property taxes and insurance, each of which vary from period to
period and are therefore expensed as incurred.
Other non-current assets
Other non-current assets includes leasehold improvements; furniture, fixtures and equipment; deferred tax assets and miscellaneous other assets. The cost
basis of fixed assets is depreciated using the straight-line method over an estimated useful life of three to five years based on the nature of the components.
Assets and liabilities held for sale
Assets and liabilities held for sale represent the disposal group held at the lower of cost or fair value less estimated costs to sell. See Note 3 for further
information on Discontinued Operations.
Revenue recognition
Under the Amended AMA, we administered certain of Front Yard's business activities and day-to-day operations and provided corporate governance
services to Front Yard. Base Management Fees are earned by us ratably throughout the applicable quarter and are initially based on Front Yard's Adjusted
AFFO (as defined in the Amended AMA), subject to a minimum amount and certain potential adjustments. In the event that Front Yard's performance
exceeds certain hurdles, we would have been entitled to an annual Incentive Fee based on a percentage of Front Yard's earnings in excess of such hurdle,
subject to certain potential adjustments. Under the Former AMA, the base management fees were earned by us ratably throughout the applicable quarter
and were based on a percentage of Front Yard's average invested capital (as defined in the Former AMA). See Note 7 for further information on the asset
management agreements with Front Yard.
We have evaluated the nature of the services provided to Front Yard and have determined that such services constitute a series of distinct services that
should be accounted for as a single performance obligation completed over time, which is simultaneously performed by us and consumed by Front Yard.
Therefore, we earn management fees are ratably over the applicable fiscal period.
Under both the Amended AMA and the Former AMA, we received expense reimbursements from Front Yard for the compensation and benefits of the
General Counsel dedicated to Front Yard and certain operating expenses incurred on Front Yard's behalf. These expense reimbursements were earned by us
at the time the underlying expense is incurred.
In addition, under the Former AMA, we also received conversion fees based on a percentage of the fair value of properties that became rented for the first
time in each quarter. Such conversion fees were earned by us in the quarter that the conversion to rentals occurred.
We have determined that the expense reimbursements are variable consideration, and we recognize each component of this revenue on a quarterly basis up
to the amount that would likely not be reversed.
Termination Fee
We have evaluated the nature of the services provided to Front Yard in exchange for the Termination Fee and have determined that such services constitute
a series of distinct services that should be accounted for as a single performance obligation completed over time, which is simultaneously performed by us
and consumed by Front Yard. Therefore, we recognized the Termination Fee through the Termination Date.
Share-based compensation
We amortize the grant date fair value of restricted stock as expense on a straight-line basis over the service period with an offsetting increase in
stockholders' equity. The grant date fair value of awards with only service-based vesting conditions is
F-16
(table of contents)
determined based upon the share price on the grant date. The grant date fair value of awards with both service-based and market-based vesting conditions is
calculated using a Monte Carlo simulation.
We recognize share-based compensation expense related to (i) awards to employees in salaries and employee benefits and (ii) awards to Directors or non-
employees in general and administrative expense in our consolidated statements of operations.
Forfeitures of share-based awards are recognized as they occur.
Short-term investments
Short-term investments include certificates of deposit with original maturities greater than three months and remaining maturities less than one year.
Treasury stock
We account for repurchased common stock under the cost method and include such treasury stock as a component of total stockholders’ equity. We have
repurchased shares of our common stock (i) under our Board approval to repurchase up to $300.0 million in shares of our common stock and (ii) upon our
withholding of shares of our common stock to satisfy tax withholding obligations in connection with the vesting of our restricted stock.
F-17
(table of contents)
3. Discontinued Operations
On August 13, 2020, AAMC and Front Yard entered into Termination and Transition Agreement, pursuant to which they agreed to effectively internalize
the asset management function of Front Yard. Pursuant to the agreement, Front Yard has or will acquire the equity interests of AAMC's Indian subsidiary,
the equity interests of AAMC's Cayman Islands subsidiary, the right to solicit and hire designated AAMC employees that currently oversee the
management of Front Yard's business and other assets of AAMC that are used in connection with the operation of Front Yard's business.
On December 31, 2020, in connection with the Termination Agreement, the company completed the assignment of our lease in Charlotte, North Carolina to
Front Yard. Additionally, on December 31, 2020, we completed the sale of our Cayman Islands subsidiary.
The carrying value of major classes of assets and liabilities related to our discontinued operations that constitute the Disposal Group at December 31, 2020
and December 31, 2019 were as follows ($ in thousands):
December 31, 2020
December 31, 2019
Current assets held for sale:
Cash and cash equivalents
Short-term investments
Prepaid expenses and other assets
Total current assets held for sale
Non-current assets held for sale:
Right-of-use lease assets
Other non-current assets
Total non-current assets held for sale
Total assets held for sale
Current liabilities held for sale:
Accrued salaries and employee benefits
Accounts payable and accrued liabilities
Short-term lease liabilities
Total current liabilities held for sale
Non-current liabilities held for sale:
Non-current lease liabilities
Total non-current liabilities held for sale
Total liabilities held for sale
$
$
$
$
184 $
—
710
894
1,612
367
1,979
2,873 $
910 $
300
128
1,338
1,599
1,599
2,937 $
1,059
517
600
2,176
3,607
288
3,895
6,071
1,645
163
194
2,002
3,543
3,543
5,545
F-18
(table of contents)
Discontinued operations includes (i) the management fee revenues generated under our asset management agreements with Front Yard, (ii) expense
reimbursements from Front Yard and the underlying expenses, (iii) the results of operations of our India and Cayman Islands subsidiaries, (iv) the
employment costs associated with certain individuals wholly dedicated to Front Yard and (v) the costs associated with our lease in Charlotte, North
Carolina, that was assumed by Front Yard on December 31, 2020. The operating results of these items are presented in our Consolidated Statements of
Operations as discontinued operations for all periods presented and revenues and expenses directly related to Discontinued Operations were eliminated
from our ongoing operations.
The following table details the components comprising net income from our discontinued operations ($ in thousands):
Year ended December 31,
2020
2019
Revenues from discontinued operations:
Management fees from Front Yard
Termination fee from Front Yard
Conversion fees from Front Yard
Expense reimbursements from Front Yard
Total revenues from discontinued operations
Expenses from discontinued operations:
Salaries and employee benefits
Legal and professional fees
General and administrative
Total expenses from discontinued operations
Other income (loss) from discontinued operations:
Other income (loss)
Total other income (loss) from discontinued operations
Net income from discontinued operations before income taxes
Loss on disposal of discontinued operations before income taxes
Income tax expense
Net income from discontinued operations
$
$
13,713 $
46,000
—
2,867
62,580
5,592
256
1,521
7,369
20
20
55,231
102
588
54,541 $
The following table details cash flow information related to our discontinued operations for the periods indicated ($ in thousands):
Total operating cash flows from discontinued operations
Total investing cash flows from (used in) discontinued operations
Total financing cash flows (used in) from discontinued operations
Year ended December 31,
2020
2019
$
37,798 $
3,643
(1,010)
14,270
—
29
1,463
15,762
5,662
167
1,813
7,642
(3)
(3)
8,117
—
173
7,944
8,183
(23)
(84)
F-19
(table of contents)
4. Fair Value of Financial Instruments
The following table sets forth the carrying amount and fair value of the Company's financial assets by level within the fair value hierarchy as of
December 31, 2020 and 2019 ($ in thousands):
December 31, 2020
Recurring basis (assets)
Front Yard common stock
December 31, 2019
Recurring basis (assets)
Front Yard common stock
Level 1
Carrying Amount
Quoted Prices in
Active Markets
Level 2
Observable
Inputs Other
Than Level 1
Prices
Level 3
Unobservable Inputs
$
$
47,355 $
47,355 $
— $
20,046 $
20,046 $
— $
—
—
We did not transfer any assets from one level to another level during the years ended December 31, 2020 or 2019.
The fair value of our Front Yard common stock is based on unadjusted quoted market prices from active markets.
At December 31, 2020 and 2019, we held 2,923,166 and 1,624,465 shares of Front Yard's common stock, respectively. At December 31, 2020 and 2019,
this represented approximately 4.9% and 3.0% of Front Yard's then-outstanding common stock at each date. All of our shares of Front Yard's common
stock held at December 31, 2019 were acquired in open market transactions. On December 31, 2020, we received 1,298,701 shares of Front Yard's common
stock in connection with the transactions contemplated in the Termination Agreement with Front Yard. For further information, please refer to Note 1.
The following table presents the cost and fair value of our holdings in Front Yard's common stock as of December 31, 2020 and 2019 ($ in thousands):
December 31, 2020
Front Yard common stock
December 31, 2019
Front Yard common stock
5. Leases
Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Fair Value
41,635 $
5,720 $
— $
47,355
20,596 $
— $
(550) $
20,046
$
$
We currently occupy office space under operating leases in Christiansted, U.S. Virgin Islands, and Bengaluru, India.
As of December 31, 2020 and December 31, 2019, our weighted average remaining lease term, including applicable extensions, was 7.5 years and 9.1
years, respectively, and we applied a discount rate of 7.0% and 8.4%, respectively, to our office leases. We determine the discount rate for each lease to be
either the discount rate stated in the lease agreement or our estimated rate that we would be charged to finance real estate assets.
During the years ended December 31, 2020 and December 31, 2019, we recognized rent expense of $0.7 million and $0.5 million, respectively, related to
long-term operating leases and $0.1 million and $0.2 million related to short-term operating leases, respectively. We include rent expense as a component
of general and administrative expenses in the consolidated statements of operations. We had no finance leases during the years ended December 31, 2020
and December 31, 2019.
F-20
The following table presents a maturity analysis of our operating leases as of December 31, 2020 ($ in thousands):
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less: interest
Lease liabilities
6. Commitments and Contingencies
(table of contents)
Operating Lease Liabilities
363
$
380
399
412
426
1,141
3,121
719
2,402
$
Litigation, claims and assessments
From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. Set forth below is a summary of
material legal proceedings to which we are a party as of December 31, 2020:
Erbey Holding Corporation et al. v. Blackrock Management Inc., et al.
On April 12, 2018, a partial stockholder derivative action was filed in the Superior Court of the Virgin Islands, Division of St. Croix under the caption
Erbey Holding Corporation, et al. v. Blackrock Financial Management Inc., et al. The action was filed by Erbey Holding Corporation (“Erbey Holding”),
John R. Erbey Family Limited Partnership (“JREFLP”), by its general partner Jupiter Capital, Inc., Salt Pond Holdings, LLC (“Salt Pond”), Munus, L.P.
(“Munus”), Carisma Trust (“Carisma”), by its trustee, Venia, LLC, and Tribue Limited Partnership (collectively, the “Plaintiffs”) each on its own behalf and
Salt Pond and Carisma derivatively on behalf of AAMC. The action was filed against Blackrock Financial Management, Inc., Blackrock Investment
Management, LLC, Blackrock Investments, LLC, Blackrock Capital Management, Inc., Blackrock, Inc. (collectively, “Blackrock”), Pacific Investment
Management Company LLC, PIMCO Investments LLC (collectively, “PIMCO”) and John and Jane Does 1-10 (collectively with Blackrock and PIMCO,
the “Defendants”). The action alleges a conspiracy by Blackrock and PIMCO to harm Ocwen and AAMC and certain of their subsidiaries, affiliates and
related companies and to extract enormous profits at the expense of Ocwen and AAMC by attempting to damage their operations, business relationships
and reputations. The complaint alleges that Defendants’ conspiratorial activities, which included short-selling activities, were designed to destroy Ocwen
and AAMC, and that the Plaintiffs (including AAMC) suffered significant injury, including but not limited to lost value of their stock and/or stock
holdings. The action seeks, among other things, an award of monetary damages to AAMC, including treble damages under Section 605, Title IV of the
Virgin Islands Code related to the Criminally Influenced and Corrupt Organizations Act, punitive damages and an award of attorney’s and other fees and
expenses.
Defendants have moved to dismiss the first amended verified complaint. Plaintiffs and AAMC have moved for leave to file a second amended verified
complaint to include AAMC as a direct plaintiff, rather than as a derivative party. On March 27, 2019, the Court held oral argument on Defendants' motions
to dismiss the first amended verified complaint and Plaintiffs' motion for leave to file the second amended verified complaint. As of the date of this letter,
the Court has not yet decided the pending motions.
At this time, we are not able to predict the ultimate outcome of this matter, nor can we estimate the range of possible damages to be awarded to AAMC, if
any. We have determined that there is no contingent liability related to this matter for AAMC.
Altisource Asset Management Corporation v. Luxor Capital Group, LP, et al.
On January 27, 2020, AAMC filed a complaint for declaratory judgment relief in the Superior Court of the Virgin Islands, Division of St. Croix, against
Luxor Capital Group, LP and certain of its funds and managed accounts (collectively, “Luxor”) regarding AAMC’s redemption obligations under the
Certificate of Designations (the “Certificate”) of AAMC’s Series A Convertible Preferred Stock (the “Series A Shares”). Under the Certificate, holders of
the Series A Shares are permitted on March 15, 2020 and on each successive five-year anniversary of March 15, 2020 to request AAMC, upon not less than
15 nor
F-21
(table of contents)
more than 30 business days’ prior notice, to redeem all but not less than all of their Series A Shares out of legally available funds. AAMC seeks a
declaration that AAMC is not required to redeem any of Luxor’s Series A Shares on a redemption date if AAMC does not have legally available funds to
redeem all of Luxor’s Series A Shares on such redemption date. Luxor has removed the action to the U.S District Court for the Virgin Islands, and, on
March 24, 2020, AAMC moved to remand the action back to the Superior Court of the Virgin Islands, Division of St. Croix. That motion is fully briefed
and pending decision. On May 15, 2020, Luxor moved to dismiss AAMC's declaratory judgment complaint. That motion has been fully briefed and
submitted to the Court as of July 29, 2020.
Luxor Capital Group, LP, et al. v. Altisource Asset Management Corporation
On February 3, 2020, Luxor filed a complaint in the Supreme Court of the State of New York, County of New York, against AAMC for breach of contract,
specific performance, unjust enrichment, and related damages and expenses. The complaint alleges that AAMC’s position that it would not redeem any of
Luxor’s Series A Shares on the March 15, 2020 redemption date is a material breach of AAMC’s redemption obligations under the Certificate. Luxor seeks
an order requiring AAMC to redeem its Series A Shares, recovery of no less than $144,212,000 in damages, which is equal to the amount Luxor would
receive if AAMC redeemed all of Luxor’s Series A Shares at the redemption price of $1,000 per share set forth in the Certificate, as well as payment of its
costs and expenses in the lawsuit. In the alternative, Luxor seeks a return of its initial purchase price of $150,000,000 for the Series A Shares, as well as
payment of its costs and expenses in the lawsuit. On May 25, 2020, Luxor's complaint was amended to add Putnam Equity Spectrum Fund and Putnam
Capital Spectrum Fund (collectively, “Putnam”), which also invested in the Series A Shares, as plaintiffs. Putnam holds 81,800 Series A Shares.
Collectively, Luxor and Putnam seek a recovery of no less than $226,012,000 in damages, which is equal to the amount Luxor and Putnam would receive if
AAMC redeemed all of Luxor’s and Putnam’s Series A Shares at the redemption price of $1,000 per share set forth in the Certificate, as well as payment of
their costs and expenses in the lawsuit. In the alternative, Luxor and Putnam seek a return of the initial purchase price of $231,800,000 for the Series A
Shares, as well as payment of their costs and expenses in the lawsuit. On June 12, 2020, AAMC moved to dismiss the Amended Complaint in favor of
AAMC's first-filed declaratory judgment action in the U.S. Virgin Islands. On August 4, 2020, the court denied AAMC’s motion to dismiss and the case is
proceeding accordingly. AAMC is currently considering whether to appeal the court’s decision.
For information regarding legal proceedings that arose subsequent to December 31, 2020, refer to Note 13.
COVID-19 Pandemic
Due to the current COVID-19 pandemic in the United States and globally, our business, our employees and the economy as a whole could be adversely
impacted. The magnitude and duration of the COVID-19 pandemic and its impact on our cash flows and future results of operations could potentially be
significant and will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information which may
emerge concerning the severity of the COVID-19 pandemic, the success of actions taken to contain or treat the pandemic, and reactions by consumers,
companies, governmental entities and capital markets. Although COVID-19 to date has not adversely impacted our revenues, the prolonged duration and
impact of the COVID-19 on any our new businesses in development or implementation, could cause or result in office closures and other related
disruptions that could materially adversely impact our business operations and impact our financial performance.
7. Related-party Transactions
Asset management agreement with Front Yard
Pursuant to the Amended AMA, we designed and implemented Front Yard's business strategy, administered its business activities and day-to-day
operations, and provided corporate governance services, subject to oversight by Front Yard's Board of Directors. We were responsible for, among other
duties: (1) performing and administering certain of Front Yard's day-to-day operations; (2) defining investment criteria in Front Yard's investment policy in
cooperation with its Board of Directors; (3) sourcing, analyzing and executing asset acquisitions, including the related financing activities; (4) overseeing
Front Yard's renovation, leasing and property management of its SFR properties; (5) analyzing and executing sales of certain rental properties, REO
properties and residential mortgage loans; (6) performing asset management duties and (7) performing corporate governance and other management
functions, including financial, accounting and tax management services.
Through December 31, 2020, we provided Front Yard with a management team and support personnel with substantial experience in the acquisition and
management of residential properties. Our management also has significant corporate governance experience that enabled us to manage Front Yard's
business and organizational structure efficiently. Under the
F-22
(table of contents)
Amended AMA, we had agreed not to provide the same or substantially similar services without the prior written consent of Front Yard's Board of
Directors to any business or entity competing against Front Yard in (a) the acquisition or sale of SFR and/or REO properties, non-performing and re-
performing mortgage loans or other similar assets; (b) the carrying on of an SFR business or (c) any other activity in which Front Yard engages. However,
following the execution of the Termination Agreement, we are entitled to provide advisory or other services to businesses or entities in such competitive
activities without Front Yard's prior consent.
On August 13, 2020, AAMC and Front Yard entered into the Termination Agreement, pursuant to which they agreed to terminate the Amended AMA,
thereby effectively internalizing the asset management function of Front Yard in exchange for payment of the Termination Fee and other consideration to
AAMC.
On December 31, 2020, AAMC and Front Yard completed the transition contemplated by the Termination and Transition Agreement. For a description of
the Termination Agreement and its key terms, please see Note 1.
Terms of the Amended AMA
We and Front Yard entered into the Amended AMA on May 7, 2019 (the “Effective Date”). The Amended AMA amended and restated, in its entirety, the
Former AMA. The Amended AMA had an initial term of five years and would renew automatically each year thereafter for an additional one-year term,
subject in each case to the termination provisions further described below.
The Amended AMA provided for a management fee structure that provides AAMC with a quarterly Base Management Fee and a potential annual Incentive
Fee, each of which were dependent upon Front Yard's performance and were subject to potential downward adjustments and an aggregate fee cap. The Base
Management Fee under the Amended AMA was subject to a quarterly minimum of $3,584,000. The Amended AMA also required that the Base
Management Fee would increase commencing after Front Yard’s per share Adjusted AFFO (as defined in the Amended AMA) reaching $0.15 (“Additional
Base Fees”). To date, we have earned no Additional Base Fees or Incentive Fees under the Amended AMA. Due to the termination of the Amended AMA
pursuant to the Termination Agreement, and the completion of the transition period, we will no longer receive a Base Management Fee under the Amended
AMA.
We were responsible for all of our own costs and expenses other than the expenses related to compensation of Front Yard’s dedicated general counsel and,
beginning in January 2020, certain specified employees who provided direct property management services to Front Yard. Front Yard and its subsidiaries
paid their own costs and expenses, and, to the extent such Front Yard expenses were initially paid by us, Front Yard was and is required to reimburse us for
such reasonable costs and expenses.
Terms of the Former AMA
On March 31, 2015, we entered into the Former AMA with Front Yard. The Former AMA, which became effective on April 1, 2015, provided for the
following management fee structure:
•
•
Base Management Fee. We were entitled to a quarterly base management fee equal to 1.5% of the product of (i) Front Yard's average invested
capital (as defined in the Former AMA) for the quarter multiplied by (ii) 0.25, while it had fewer than 2,500 SFR properties actually rented
(“Rental Properties”). The base management fee percentage increased to 1.75% of average invested capital while Front Yard had between 2,500
and 4,499 Rental Properties and increased to 2.0% of average invested capital while it had 4,500 or more Rental Properties. Because Front Yard
has more than 4,500 Rental Properties, we were entitled to receive a base management fee of 2.0% of Front Yard’s invested capital under the
Former AMA during the years ended December 31, 2019, 2018 and 2017;
Incentive Management Fee. We were entitled to a quarterly incentive management fee equal to 20% of the amount by which Front Yard's return on
invested capital (based on AFFO, defined as net income attributable to holders of common stock calculated in accordance with GAAP plus real
estate depreciation expense minus recurring capital expenditures on all real estate assets owned by Front Yard) exceeded an annual hurdle return
rate of between 7.0% and 8.25% (or 1.75% and 2.06% per quarter), depending on the 10-year treasury rate. To the extent Front Yard had an
aggregate shortfall in its return rate over the previous seven quarters, that aggregate return rate shortfall was added to the normal quarterly return
hurdle for the next quarter before we were entitled to an incentive management fee. The incentive management fee increased to 22.5% while Front
Yard had between 2,500 and 4,499 Rental Properties and increased to 25% while it had 4,500 or more Rental Properties. No incentive
management fee under the Former AMA
F-23
(table of contents)
was earned by us because Front Yard's return on invested capital (as defined in the Former AMA) was below the cumulative required hurdle rate;
and
•
Conversion Fee. We were entitled to a quarterly conversion fee equal to 1.5% of the market value of assets converted into leased single-family
homes by Front Yard for the first time during the applicable quarter.
Under the Former AMA, Front Yard reimbursed us for the compensation and benefits of the General Counsel dedicated to Front Yard and certain operating
expenses incurred on Front Yard's behalf.
8. Incentive Compensation and Share-based Payments
Long-term incentive compensation
Our officers and employees participate in an annual non-equity incentive program whereby they are eligible for incentive cash payments based on a
percentage of their annual base salary. Our officers generally have a target annual non-equity incentive payment percentage that ranges from 50% to 200%
of base salary. The officer's actual incentive payment for the year is determined by (i) the Company's performance versus the objectives established by our
Board of Directors (80%) and (ii) a performance appraisal (20%).
Share-based Payments
Certain executive officers and employees have and will receive grants of stock options and/or restricted stock under the 2012 and 2020 Equity Incentive
Plans, collectively (the "Equity Incentive Plans"). The Equity Incentive Plans also allow for the grant of performance awards and other awards such as
purchase rights, equity appreciation rights, shares of common stock awarded without restrictions or conditions, convertible securities, exchangeable
securities or other rights convertible or exchangeable into shares of common stock, as the Compensation Committee in its discretion may determine.
2012 Special Equity Incentive Plan
A special grant of stock options and restricted stock was made to certain employees of Altisource Portfolio Solutions N.A. (“ASPS”) related to our
separation from ASPS under the 2012 Special Equity Incentive Plan (the “2012 Special Plan”). We included no share-based compensation in our
consolidated financial statements for the portion of these grants made to ASPS employees. The shares of restricted stock became fully vested and were
issued during 2017.
Dividends received on restricted stock are forfeitable and are accumulated until the time of vesting at the same rate and on the same date as on shares of
common stock. Upon the vesting of stock options and restricted stock, we may withhold up to the statutory minimum to satisfy the resulting employee tax
obligation.
F-24
Stock options
During the year ended December 31, 2020, we recorded $0.2 million of compensation expense related to our grants of stock options. We recorded no
compensation expense in our financial statements related to grants of stock options for the year ended December 31, 2019.
The following table sets forth the activity of our outstanding options:
(table of contents)
December 31, 2018
Exercised (1)
December 31, 2019
Granted (2)
Exercised (1)
December 31, 2020
Number of Options
Weighted Average
Exercise Price per Share
2.75
1.51
2.77
13.11
1.66
12.13
15,506 $
(250)
15,256
60,000
(8,031)
67,225 $
_____________
(1) The intrinsic value of stock options exercised during the years ended December 31, 2020 and 2019 was $0.1 million, and a nominal amount,
respectively.
(2) The stock options had a weighted average grant date fair value of $10.61. The stock options have an exercise price of $13.11 and consist of two tranches
that will vest based on the satisfaction of certain performance criteria and time-based service requirements. The first tranche includes 40,000 stock
options and will vest in three allotments beginning on the date the share price equals or exceeds 400% of the exercise price (the “First Performance
Goal”). Upon satisfaction of the First Performance Goal, 13,333 options will vest and become exercisable immediately, with the remaining 26,667
options vesting in equal installments on the first and second anniversary of the achievement of the First Performance Goal, subject to forfeiture or
expiration. The second tranche of 20,000 stock options will vest in three allotments beginning on the date the share price equals or exceeds 800% of the
exercise price of the options (the “Second Performance Goal”). Upon satisfaction of the Second Performance Goal, 6,666 options will vest and become
exercisable immediately, with the remaining 13,334 options vesting in equal installments on the first and second anniversary of the Second Performance
goal, subject to forfeiture or expiration. All unvested options shall expire on the tenth anniversary of the January 30, 2020 grant date.
As of December 31, 2020, we had 67,225 outstanding options issued under all of our share-based compensation plans or as inducement awards, with a
weighted average exercise price of $12.13, weighted average remaining life of 8.2 years and intrinsic value of $0.8 million.
We have 7,225 options exercisable as of December 31, 2020 with a weighted average exercise price of $4.01, weighted average remaining life of 1.1 years,
and intrinsic value of $0.1 million. Of these exercisable options, none had an exercise price higher than the market price of our common stock as of
December 31, 2020.
We calculated the grant date fair value of stock options granted in 2020 using a Monte Carlo simulation and amortize the resulting compensation expense
over the respective service period. The fair value of stock options granted during the period indicated using the following assumptions:
Risk-free interest rate (1)
Common stock dividend yield (2)
Expected volatility (3)
_____________
(1) Represents the interest rate as of the grant date on US treasury bonds having the same life as the estimated life of the stock
option grants
(2) Based on the Company's history of not declaring a dividend on shares of common stock
(3) Based on our historical stock price volatility
Year ended December
31, 2020
1.56 %
— %
98.30 %
F-25
(table of contents)
Restricted stock
During the year ended December 31, 2020, we granted 70,000 shares of service-based restricted stock to members of management with a weighted average
grant date value per share of $13.99. These grants of service-based restricted stock awards were granted either as inducement awards or under our Equity
Incentive Plans. The restricted stock will vest in three equal annual installments based on the grant date(s), subject to forfeiture or acceleration.
During the year ended December 31, 2019, we granted 60,329 shares of service-based restricted stock to members of management with a weighted average
grant date fair value per share of $26.68 under our Equity Incentive Plans. The restricted stock will vest in three equal annual installments on each of
January 23, 2020, 2021 and 2022, subject to forfeiture or acceleration.
Restricted stock granted in 2015 and 2014 vests based on achievement of the following market-based performance hurdles (all of which have been met)
and vesting schedules, subject to forfeiture or acceleration:
•
•
•
Twenty-five percent (25%) of the grant will vest in accordance with the vesting schedule set forth below if the market value of our stock meets
both of the following conditions: (i) the market value has realized a compounded annual gain of at least twenty percent (20%) over the market
value on the date of the grant and (ii) the market value is at least double the market value on the date of the grant;
Fifty percent (50%) of the grant will vest in accordance with the vesting schedule set forth below if the market value of our stock meets both of the
following conditions: (i) the market value has realized a compounded annual gain of at least twenty-two and a half percent (22.5%) over the
market value on the date of the grant and (ii) the market value is at least triple the market value on the date of the grant and
Twenty-five percent (25%) of the grant will vest in accordance with the vesting schedule set forth below if the market value of Company stock
meets both of the following conditions: (i) the market value has realized a compounded annual gain of at least twenty-five percent (25%) over the
market value on the date of the grant and (ii) the market value is at least quadruple the market value on the date of the grant.
• After the performance hurdles have been achieved, 25% of the restricted stock vested on the first anniversary of the date that the performance
hurdle for that tranche was met. The remaining 75% of that tranche either (i) vested on the second anniversary of the date that the performance
hurdle was met for certain grants or (ii) will continue to vest ratably over the second, third and fourth anniversaries of the date that the
performance hurdle was met for certain grants.
Additionally, our Directors each receive annual grants of restricted stock equal to $60,000 based on the market value of our common stock at the time of
the annual stockholders meeting. This restricted stock vests and is issued after a one-year service period subject to each Director attending at least 75% of
the Board and committee meetings. No dividends are paid on the shares until the award is issued. During the years ended December 31, 2020 and 2019, we
granted 8,622 and 12,693 shares of stock, respectively, pursuant to our Equity Incentive Plans with a weighted average grant date fair value per share of
$20.87 and $14.18, respectively.
We recorded $1.7 million, and $2.4 million of compensation expense related to these grants for the years ended December 31, 2020, and 2019, respectively.
As of December 31, 2020 and 2019, we had $1.0 million and $1.2 million, respectively, of total unrecognized share-based compensation cost to be
recognized over a weighted average remaining estimated term of 0.9 years and 0.8 years, respectively.
The following table sets forth the activity of our restricted stock:
December 31, 2018
Granted
Vested (1)
December 31, 2019
Granted
Vested (1)
December 31, 2020
_____________
Number of Shares
Weighted Average Grant
Date Fair Value
72,923 $
73,022
(34,188)
111,757
78,622
(60,999)
129,380 $
142.03
24.51
178.76
54.18
14.75
66.70
24.32
F-26
(table of contents)
(1) The vesting date fair value of restricted stock that vested during the years ended December 31, 2020, 2019 and 2018 was $1.1 million, $0.9 million,
and $2.1 million, respectively.
The following table sets forth the number of shares of common stock reserved for future issuance. We may issue new shares or issue shares from treasury
shares upon the exercise of stock options or the vesting of restricted stock.
Stock options outstanding
Possible future issuances under share-based compensation plans
December 31, 2020
67,225
168,820
236,045
As of December 31, 2020, we had 2,033,793 remaining shares of common stock authorized to be issued under our charter.
9. Income Taxes
We are domiciled in the USVI and are obligated to pay taxes to the USVI on our income. We applied for tax benefits from the USVI Economic
Development Commission and received our certificate of benefits (“the EDC Certificate”), effective as of February 1, 2013. Pursuant to the EDC
Certificate, so long as we comply its provisions, we will receive a 90% tax reduction on our USVI-sourced income until 2043. For the year ended
December 31, 2020, we generated taxable income in the USVI.
For the years ended December 31, 2020, and 2019, in addition to the management fees from Front Yard (which represent eligible income under the EDC
Certificate), AAMC also had income on the Front Yard common stock that it owns, as well as internally-sourced revenues from its Cayman Islands
subsidiary, both of which are not eligible for the 90% tax reduction.
Beginning on January 1, 2017, AAMC US, Inc., a domestic U.S. corporation and wholly-owned subsidiary, began operations. This entity is based entirely
in the mainland U.S. and is subject to U.S. federal and state corporate income tax.
The following table sets forth the components of income (loss) from continuing operations before income taxes:
U.S. Virgin Islands
Other
Income (loss) before income taxes
The provision (benefit) for income taxes from continuing operations is summarized as:
Current
Federal
State
International
Total current tax (benefit) expense
Deferred
Federal
State
International
Total deferred tax expense (benefit)
Total tax expense
F-27
Year ended December 31,
2020
2019
(15,841) $
1,890
(13,951) $
(7,114)
(3,278)
(10,392)
Year ended December 31,
2020
2019
(1,002) $
—
(183)
(1,185)
1,420
—
534
1,954
769 $
170
16
—
186
776
—
(797)
(21)
165
$
$
$
$
The following table sets forth the components of our total deferred tax assets:
December 31, 2020
December 31, 2019
(table of contents)
Deferred tax assets:
Stock compensation
Accrued expenses
Net operating losses (1)
Lease liabilities
Other
Gross deferred tax assets
Deferred tax liability:
Right-of-use lease assets
Front Yard common stock
Depreciation
Other
Gross deferred tax liabilities
Net deferred tax (liability) asset before valuation allowance
Valuation allowance
Deferred tax (liability) asset, net
$
$
64 $
171
285
491
44
1,055
459
1,547
2
5
2,013
(958)
(69)
(1,027) $
114
669
357
955
48
2,143
922
42
4
—
968
1,175
(491)
684
_____________
(1) Net operating loss (“NOL”) carry-forwards for tax years prior to 2018 expire in 2037. Beginning with 2018, NOLs are carried forward indefinitely.
The change in deferred tax assets is included in changes in other non-current assets in the consolidated statement of cash flows. Significant factors
contributing to the decrease in our valuation allowance in 2020 are decreases in the temporary differences attributable to our investment in Front Yard
common stock, partially offset by tax losses in the USVI.
ASC 740 requires that the tax benefit of net operating losses, temporary differences and credit carryforwards be recorded as an asset to the extent that
management assesses that realization is "more likely than not." Realization of the future tax benefits is dependent on the Company's ability to generate
sufficient taxable income within the carryforward period. AAMC has historically been in a three-year cumulative loss position. As such, a full valuation
allowance against the EDC deferred tax assets and liabilities was recorded as of December 31, 2019. With the recognition of the Termination Fee payments
as income in 2020, AAMC is no longer in a cumulative three-year loss position for GAAP and tax purposes. However, we believe that it is more likely than
not that the company will not realize the benefit of its net deferred tax assets. As such, the EDC deferred tax asset was fully recorded with a full valuation
allowance in 2020. The valuation allowance decreased by $422 thousand during the year ended December 31, 2020.
The following table sets forth the reconciliation of the statutory USVI income tax rate from continuing operations to our effective income tax rate:
U.S. Virgin Islands income tax rate
State and local income tax rates
EDC benefits in the USVI
Foreign tax rate differential
Permanent and other
Share-based compensation
Valuation allowance
Other Adjustments / Rate difference on US NOL carryback
Effective income tax rate
F-28
Year ended December 31,
2020
2019
23.1 %
(0.1)
(33.0)
(0.2)
(1.5)
(0.5)
(1.1)
7.9
(5.4)%
23.1 %
(0.2)
(26.9)
(0.2)
(0.2)
(1.1)
(1.7)
5.6
(1.6)%
(table of contents)
During the tax years ended December 31, 2020 and 2019, we recognized no interest or penalties associated with unrecognized tax benefits. As of
December 31, 2020 and 2019, we had accrued no unrecognized tax benefits or associated interest and penalties.
AAMC believes that the tax positions taken in the AAMC tax returns satisfy the more-likely-than-not threshold for benefit recognition. Furthermore, a
review of the AAMC entity trial balances suggests that AAMC has appropriately addressed the material book-tax differences. AAMC is confident that the
amounts claimed (or expected to be claimed) in the tax returns reflect the largest amount of such benefits that are greater than fifty percent likely of being
realized upon ultimate settlement. Accordingly, no ASC 740-10-25 liabilities have been recorded by the Company as a result of ASC 740-10-25.
We remain subject to tax examination in the USVI for tax years 2017 to 2020 and in the United States for tax years 2017 to 2020.
10. Earnings Per Share
The following table sets forth the components of diluted loss per share (in thousands, except share and per share amounts):
Numerator
Continuing operations:
Net loss
Amortization of preferred stock issuance costs
Numerator for continuing operations for basic and diluted EPS - net loss attributable to common stockholders
Discontinued operations:
Numerator for basic and diluted EPS from discontinued operations - net gain from discontinued operations
Total:
Net income (loss)
Amortization of preferred stock issuance costs
Numerator for basic and diluted EPS - net income (loss) attributable to common stockholders
Denominator
Weighted average common stock outstanding – basic
Weighted average common stock outstanding – diluted
Net earnings (loss) per share of common stock – basic:
Net loss per share from continuing operations - basic
Net earnings per share from discontinued operations - basic
Net earnings (loss) per basic common share
Net earnings (loss) per share of common stock – diluted:
Net loss per share from continuing operations - diluted
Net earnings per share from discontinued operations - diluted
Net earnings (loss) per diluted common share
F-29
Year ended December 31,
2020
2019
(14,720) $
(42)
(14,762) $
(10,557)
(206)
(10,763)
54,541
7,944
39,821 $
(42)
39,779
(2,613)
(206)
(2,819)
1,631,326
1,631,326
1,589,952
1,589,952
(9.05) $
33.43
24.38 $
(9.05) $
33.43
24.38 $
(6.77)
5.00
(1.77)
(6.77)
5.00
(1.77)
$
$
$
$
$
$
$
$
We excluded the items presented below from the calculation of diluted earnings per share as they were antidilutive for the periods indicated, as the
Company had a net loss from continuing operations for each period presented ($ in thousands):
(table of contents)
Numerator
Amortization of preferred stock issuance costs
Denominator
Stock options
Restricted stock
Preferred stock, if converted
11. Segment Information
Year ended December 31,
2020
2019
$
42 $
206
7,609
67,616
200,000
12,860
26,575
200,000
Our primary business is to provide asset management and certain corporate governance services to institutional investors. Because substantially all of our
revenue was derived from the services we provided to Front Yard, we operate as a single segment focused on providing asset management and corporate
governance services.
F-30
12. Quarterly Financial Information (Unaudited)
The following tables set forth our quarterly financial information (unaudited, $ in thousands except per share amounts):
(table of contents)
Total income (loss) from continuing operations
Total income from discontinued operations
Net income (loss)
Earnings (loss) per share - basic
Continuing operations - basic
Discontinued operations - basic
Earnings (loss) per basic common share
Earnings (loss) per share - diluted
Continuing operations - diluted
Discontinued operations - diluted
Earnings (loss) per diluted common share
Total income (loss) from continuing operations
Total income from discontinued operations
Net income (loss)
Earnings (loss) per share - basic
Continuing operations - basic
Discontinued operations - basic
Earnings (loss) per basic common share
Earnings (loss) per share - diluted
Continuing operations - diluted
Discontinued operations - diluted
Earnings (loss) per diluted common share
13. Subsequent Events
$
$
$
$
$
First Quarter
$
(5,654) $
1,897
(3,757) $
2020
Second
Quarter
Third
Quarter
Fourth
Quarter
(10,212) $
2,377
(7,835) $
(3,089) $
14,843
11,754 $
4,235
35,424
39,659
(3.52) $
1.17
(2.35) $
(6.27) $
1.46
(4.81) $
(1.89) $
9.09
7.20 $
(3.52) $
1.17
(2.35) $
(1.89) $
9.09
7.20 $
(6.27) $
1.46
(4.81) $
2019
2.57
21.49
24.06
2.17
18.18
20.35
First Quarter
(2,408)
1,568
(840)
$
$
$
$
(1.55) $
0.99
(0.56) $
(1.55) $
0.99
(0.56) $
Second
Quarter
Third
Quarter
Fourth
Quarter
1,016
2,273
3,289
(5,467)
1,944
(3,523)
0.61 $
1.43
2.04 $
0.56 $
1.25
1.81 $
(3.47) $
1.22
(2.25) $
(3.47) $
1.22
(2.25) $
(3,698)
2,159
(1,539)
(2.35)
1.35
(1.00)
(2.35)
1.35
(1.00)
Management has evaluated the impact of all events subsequent to December 31, 2020 and through the issuance of these consolidated financial statements.
Management has determined that there were no subsequent events requiring adjustment or disclosure in the financial statements, except as follows:
Sale of Indian Subsidiary in Connection with Termination Agreement
On January 1, 2021 we completed the sale of our India subsidiary, River Business Solutions Private Limited, for aggregate consideration of $8,200,000.
The sale was in accordance with the terms set forth in the Termination Agreement. For additional detail of the Termination Agreement, refer to Note 1.
Acquisition of Indian Subsidiary in Connection with Termination Agreement
F-31
(table of contents)
On January 1, 2021 we completed the acquisition of Front Yard’s India subsidiary, Front Yard Business Solutions Private Limited, for a nominal amount.
The acquisition was in accordance with the terms set forth in the Termination Agreement. The acquisition of this subsidiary will be accounted for as an
asset acquisition. For additional detail, refer to Note 1.
Settlement of Preferred Shares
On February 17, 2021, the Company entered into a settlement agreement dated as of February 17, 2021 (the “Settlement Agreement”) with Putnam
Focused Equity Fund, a series of Putnam Funds Trust, as successor in interest to each of Putnam Equity Spectrum Fund and Putnam Capital Spectrum
Fund, each a series of Putnam Funds Trust (collectively, “Putnam”), one of the plaintiffs in the litigation related to the Company’s Series A Convertible
Preferred Stock. The Company agreed to exchange all 81,800 of the Series A Shares held by Putnam for 288,283 shares of the Company's common stock.
This settlement will increase the number of shares of our common stock outstanding by 288,283 shares for basic EPS calculations. Because the Series A
Shares are included in the attached financial statements on an if-converted basis for diluted EPS calculations at an exchange rate of 0.8 shares of common
stock per Series A Share, the settlement will increase the number of shares of our common stock outstanding by 222,843 shares which will result in our
EPS calculations in future filings being diluted relative to the subject calculation. For additional detail, please refer to the company's Form 8-K filed
February 18, 2021.
Acquisition of Assets
In February 2021, we established a standard securities margin account with an independent, third-party banking institution intended to enable us to borrow
funds on margin secured by the purchased securities in the account. We utilized this account to purchase $96.9 million publicly traded securities of
mortgage REITs, funded with an aggregate of $68 million dollars of cash on hand and approximately $28.9 million dollars borrowed under a standard
margin arrangement. The margin account is secured by the aggregate acquired securities, and will bear interest at a rate of one-month LIBOR plus 1.00%.
For additional detail, please refer to the company's Form 8-K filed February 18, 2021.
F-32
Description of the Registrant’s Securities Registered Pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended
Exhibit 4.1
The common stock, par value $0.01 per share (“Common Stock”), of Altisource Asset Management Corporation, a US Virgin Islands corporation (the
“Company”), is registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The following description of the
Common Stock sets forth certain general terms and provisions of the Common Stock. These descriptions are in all respects subject to and qualified in their
entirety by, and should be read in conjunction with, the applicable provisions of the Amended and Restated Articles of Incorporation of the Company (the
“Charter”), the Third Amended and Restated Bylaws of the Company (the “Bylaws”), and the Certificate of Designations of the Series A Convertible
Preferred Stock (the “Series A Designations Certificate”) (each of which is incorporated herein by reference) and the applicable provisions of the US Virgin
Islands Code (“USVIC”).
Dividends Rights. Subject to the preferential rights any shares of preferred stock currently outstanding or subsequently classified, a holder of Common
Stock is entitled to receive dividends, if, as and when authorized and declared by the Company’s Board of Directors (the “Board”), out of any funds
available therefor. The Company currently does not pay a regular distribution on the Common Stock, but the Company has from time-to-time declared
dividends on its preferred stock, excluding the Series A Preferred.
Liquidation Preference. In the event of the liquidation, dissolution or winding up of the Company, or a Change of Control (as defined in the Series A
Designations Certificate), subject to the preferential rights of the Series A Convertible Preferred Stock (the “Series A Preferred”) and pari passu with the
rights of the other classes of preferred shares currently outstanding, a holder of Common Stock is entitled to share ratably in the Company's assets that may
legally be distributed to the Company's stockholders.
Relationship to Preferred Stock and Other Shares of Common Stock. The rights of a holder of Common Stock will be subject to, and may be adversely
affected by, the rights of holders of any preferred stock that may be issued in the future. The Board may cause preferred stock to be issued to the
Company’s officers, directors and employees pursuant to benefit plans.
A holder of Common Stock has no preferences, conversion rights, sinking fund, redemption rights, or preemptive rights to subscribe for any other
securities of the Company. All shares of Common Stock have equal distribution, liquidation, voting and other rights.
Voting Rights. Except as may otherwise be required by law, a holder of Common Stock has one vote per share on all matters submitted to a vote of the
Company’s stockholders, including the election of directors.
Under the USVIC, a US Virgin Islands corporation generally cannot dissolve, amend its charter, sell all or substantially all of its assets, or engage in similar
transactions outside the ordinary course of business, unless approved by the affirmative vote of stockholders holding at least a majority of the outstanding
shares of the affected class of stock. Furthermore, under the USVIC, a US Virgin Islands corporation may not merge or consolidate with another company
without affirmative vote of stockholders holding at least two-thirds of the outstanding shares of stock.
Additionally, the Bylaws are subject to the alteration or repeal, and new bylaws may be made, by the affirmative vote of shareholders holding at least a
majority of the outstanding shares entitled to vote in the election of directors.
The Charter and the Bylaws do not allow for cumulative voting in the election of directors, and a majority of the votes cast in an election for a director is
required to elect a director.
Stockholder Liability. Under the USVIC applicable to US Virgin Islands corporations, holders of Common Stock will not be liable as stockholders for the
Company’s obligations solely as a result of their status as stockholders of the Company.
Transfer Agent. The registrar and transfer agent for shares of the Common Stock is American Stock & Transfer Company.
Exhibit 10.7
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
INDRONEEL CHATTERJEE
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is entered into by
and between Altisource Asset Management Corporation (“AAMC”, the “Company,” or the “Employer”), and Indroneel
Chatterjee (the “Executive”) as of December 4, 2020.
2020 (the “Original Agreement”);
WHEREAS, the Employee and Employer entered into that certain Employment Agreement, dated January 11,
set forth in this Agreement;
WHEREAS, the Employee and the Employer desire to amend and restate the Original Agreement on the terms
Executive Officer of the Company;
WHEREAS, pursuant to the Original Agreement, the Employer desired to employ the Executive as the Co-Chief
WHEREAS, the Employer now desires to employ the Executive as the Company’s sole Chief Executive Officer
upon the termination of the Amended and Restated Asset Management Agreement, by and among the Company, Front Yard
Residential Corporation and Front Yard Residential, L.P., as contemplated by that certain Termination and Transition Agreement
filed by the Company on Form 8-K with the U.S. Securities and Exchange Commission (“SEC”) on August 14, 2020 (the
“Termination Event”) and the Executive desires to serve in such capacity after such event.
set forth, Employer and the Executive hereby agree as follows:
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter
1. Employment.
(a) Term. The term of this Agreement began on the first day of the Executive’s
employment with the Employer, as determined by the Executive and the Company (the “Effective Date”), and shall
continue until the termination of the Executive’s employment. The period commencing on the Effective Date and ending on the
date on which the Executive’s employment terminates is referred to herein as the “Term.”
(b) Duties. During the Term Executive shall serve as the Co-Chief Executive Officer until such time as the
Termination Event occurs at which point the Executive shall serve as the sole Chief Executive Officer of the Employer, with
duties, responsibilities and authority commensurate therewith, and shall report to the Board of Directors of the Employer (the
“Board”). The Executive shall perform all duties and accept all responsibilities incident to such position as may be reasonably
assigned to the Executive by the Board. The Executive was appointed to the Board on the Effective Date and currently holds the
position of Chairman of the Board, for which the Executive shall receive no compensation in addition to that described below in
Section 2. The Executive represents to the Employer that the Executive is not subject to or a party to any employment agreement,
noncompetition covenant, or other agreement that might be alleged to be breached by, or to prohibit the Executive from,
executing this Agreement and performing fully the Executive’s duties and responsibilities hereunder, except for the Executive’s
1
Separation Agreement and Release with Altisource Solutions, Inc. (“Solutions”), entered into as of March 22, 2018, which is
available on the SEC’s “Edgar” website.
(c) Best Efforts. During the Term, the Executive shall devote his best efforts and substantially all his time and
attention to promote the business and affairs of the Employer and its affiliated entities, and shall be engaged in other business
activities only to the extent that such activities do not materially interfere or conflict with the Executive’s obligations to the
Employer and its affiliated entities hereunder, including, without limitation, obligations pursuant to Section 14 below. The
foregoing shall not be construed as preventing the Executive from (1) serving on civic, educational, philanthropic or charitable
boards or committees, or, with the prior written consent of the Board, in its sole discretion, on corporate boards, and (2)
managing personal investments, so long as such activities are permitted under the Employer’s code of conduct and employment
policies and do not violate the provisions of Section 14 below; provided that, the activities set forth in the preceding clauses (1)
and (2) do not materially interfere or conflict with the Executive’s duties or obligations to the Employer and its affiliated entities
and his time commitments with respect thereto, as determined by the Board; and provided, however, that the Executive may hold,
directly or indirectly, solely as a passive investment, less than five percent (5%) of the outstanding securities of any person or
entity which is listed on any national securities exchange.
(d) Principal Place of Employment. The Executive understands and agrees that his principal place of
employment will be at the Employer’s headquarters currently located in Christiansted, United States Virgin Islands 00820, and
that the Executive will be required to travel for business in the course of performing his duties for the Employer.
2. Compensation.
(a) Base Salary. During the Term, the Employer shall pay the Executive a base
salary (“Base Salary”), at the annual rate of $675,000, which shall be paid in installments in accordance with the
Employer’s normal payroll practices. The Executive’s Base Salary shall be reviewed annually by the Board of Directors of the
Employer pursuant to the normal performance review policies for senior-level executives and may be adjusted from time to time
as the Compensation Committee of the Board (the “Compensation Committee”) deems appropriate, and shall not be reduced
except as part of an across-the-board reduction in base salary of the Employer’s “chief” level officers of no more than ten percent
(10%). The Compensation Committee may take any actions of the Board pursuant to this Agreement.
(b) Annual Bonus; Signing Bonus. The Executive shall be eligible to receive an annual bonus for each fiscal
year during the Term, commencing with the fiscal year 2020, based on the attainment, as determined by the Board in its sole
discretion, of individual and corporate reasonable performance goals and targets established by the Board in its sole discretion
(“Annual Bonus”). The target amount of the Executive’s Annual Bonus for any fiscal year during the Term shall be $1,600,000
(the “Target Bonus”), with the amount of such Annual Bonus as may be determined by the Compensation Committee. In
addition, on or about the Effective Date, the Executive received a signing bonus in the amount of $800,000 (the “Signing
Bonus”); provided, that if within the two year period beginning on the Effective Date, the Executive’s employment is terminated
by the Executive without Good Reason (as defined below) or by the Employer for
2
Cause (as defined below), the Executive shall immediately repay to the Employer fifty percent (50%) of the gross amount of the
Signing Bonus paid to the Executive by the Employer. For the avoidance of doubt, the amount required to be repaid by the
Executive pursuant to the proceeding sentence is fifty percent (50%) of the entire amount of the Signing Bonus prior to any
withholding under Section 20 hereof. Any Annual Bonus shall be paid after the end of the fiscal year to which it relates, at the
same time and under the same terms and conditions as the bonuses for other executives employed by the Employer; provided that
the Executive remains employed by the Employer on the last day of the fiscal year to which the Annual Bonus applies, and
provided further that in no event shall the Executive’s Annual Bonus be paid later than the fifteenth day of the third month
following the last day of the fiscal year to which the Annual Bonus relates. The Annual Bonus shall be subject to the terms of any
annual bonus plan that is applicable to other executives of the Employer, except as otherwise provided in this Section 2(b).
(c) Equity Compensation.
(i) The Employer granted the Executive the following equity awards (together,
the “Inducement Award”) during the period between the Effective Date and the date hereof. The
Inducement Award was offered to the Executive as a material inducement to the Executive in connection
with the Employer’s hiring of the Executive as its Co-Chief Executive Officer and upon the Termination
Event, Chief Executive Officer, as an “employment inducement” award under New York Stock Exchange
Listing Rule 303A.08, and as an inducement grant and outside of the Altisource Asset Management
Corporation 2012 Equity Incentive Plan (the “Equity Plan”). Although granted as an inducement award
outside the Equity Plan, the Inducement Award shall be subject to the terms of the Equity Plan as if issued
thereunder.
(1) On or about the Effective Date, the Employer granted the Executive a nonqualified stock option
(the “Option”) to purchase 60,000 shares of the common stock of the Employer (“Employer
Stock”), subject to the terms of the Equity Plan as if issued thereunder and subject to the terms of
the award agreement established by the Compensation Committee in connection with the grant. The
exercise price of the Option shall be the Fair Market Value, as defined in the Equity Plan, of
Employer Stock on the principal market on which Employer Stock is traded on the grant date. The
Option shall vest and become exercisable as follows:
(A) A portion of the Option, covering 40,000 shares of Employer Stock, shall vest as
follows: the first third of such portion of the Option (13,333 shares) shall vest and become
exercisable on the first date on which the closing price of Employer Stock is equal to or
exceeds four (4) times the exercise price of the Option, and the remaining two thirds of that
portion of the Option (26,667 shares) shall vest in two equal installments on the first and
second anniversaries of such date, provided that the Executive remains employed by and in
good standing with the Company or any of its subsidiaries on the applicable vesting date;
and
3
(B) The remaining portion of the Option, covering 20,000 shares of Employer Stock, shall
vest as follows: the first third of such portion of the Option (6,666 shares) shall vest and
become exercisable on the first date on which the closing price of Employer Stock is equal
to or exceeds eight (8) times the exercise price of the Option, and the remaining two thirds
of that portion of the Option (13,334 shares) shall vest in two equal installments on the first
and second anniversaries of such date, provided that the Executive remains employed by
and in good standing with the Company or any of its subsidiaries on the applicable vesting
date.
(2) On or about the Effective Date, the Employer granted the Executive 60,000 restricted shares of
Employer Stock, subject to the terms of the Equity Plan as if issued thereunder and subject to the
terms of the award agreement established by the Compensation Committee in connection therewith
(the “Restricted Shares”). The Restricted Shares shall vest in three (3) equal installments on the
first three anniversaries of the grant date, provided, that the Executive remains employed by and in
good standing with the Employer or any subsidiary of the Employer through the applicable vesting
date.
(ii) If the Company executes rights offering programs for Employer Stock subsequent to the date of grant of the
Restricted Shares, the Executive shall be granted additional options pursuant to and in accordance with the terms
of the Equity Plan (or any successor plan thereto) and the terms of the award agreement established by the
Compensation Committee in connection therewith (the “Anti-Dilution Options”) upon the closing of each rights
offerings program, such that the number of shares of Employer Stock that the Executive owns outright, or has at
any time owned outright, plus the number of shares that are subject to equity awards that the Executive holds
pursuant to the Equity Plan, whether vested or unvested, including the Option and the Anti-Dilution Options,
calculated as a percentage of the fully diluted shares of Employer Stock outstanding after giving effect to each
rights offering program and the grant of Anti- Dilution Options, is not less than five percent (5%). Any Anti-
Dilution Option shall have an exercise price that is equal to the Fair Market Value of the Employer Stock on the
date of grant, and shall vest in four equal installments on the first four anniversaries of the date of grant, provided
that the Executive remains employed by and in good standing with the Employer or any subsidiary of the
Employer through the applicable vesting date. For the avoidance of doubt, the granting, purchase or vesting of any
equity or equity- based awards under the Equity Plan or that are otherwise compensatory in nature to the
Executive or any other person shall not be considered anti-dilutive in nature, and Executive shall not be entitled to
a grant of any Anti-Dilution Options in connection therewith.
3. Retirement and Welfare Benefits. During the Term, the Executive shall be eligible to participate in any health, life
insurance, long-term disability, retirement and welfare benefit plans and programs sponsored by the Employer, in each case as
may be generally available to senior executives of the Employer, pursuant to the plans’ and programs’ respective terms and
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conditions as in effect from time to time. Nothing in this Agreement shall preclude the Employer from terminating or amending
any employee benefit plan or program from time to time after the Effective Date.
4. Vacation. During the Term, the Executive shall be entitled to five (5) weeks of vacation each year and holiday and
sick leave at levels commensurate with those provided to other senior executives of the Company, in accordance with the
Employer’s vacation, holiday and other pay- for-time-not-worked policies.
5. Business and Other Expenses.
(a) Business Expenses. The Employer has or will reimburse the Executive for all necessary and reasonable travel and other
business expenses incurred by the Executive in the performance of his duties hereunder in accordance with such policies and
procedures as the Employer may adopt generally from time to time for executives.
(b) Other Expenses. The Employer has or will reimburse the Executive for the following expenses reasonably incurred in
accordance with the Company’s policies and procedures. Such reimbursements will be taxable to the Executive to the extent
required by law.
(i) A shipment of one 40 ft. cargo container to the USVI and storage costs for up to sixty (60) days;
(ii) travel, meals and lodging for one (1) three (3)-day house hunting trip to the USVI for the Executive and his spouse;
(iii) temporary housing expenses for up to 180 days, which shall not exceed $35,000.00; (iv) either: A. customary selling
costs and closing costs associated with sale of the Executive’s current residence and purchase of a permanent home within the
first year of employment or B. realtor commission of up to one month’s rent;
(v) travel, meals and lodging for one (1) two (2)-day trip for the Executive, his spouse, and up to two (2) pets to relocate
to the USVI;
(vi) a lump sum of $30,000.00 for incidental expenses for settling in to the Executive’s new residence in the USVI, to be
paid upon the earlier of the Effective Date or the next regular pay period of the Company after the Effective Date;
(vii) one (1) round-trip airfare to New York per 12 months for the Executive and his spouse;
(viii) fees associated with obtaining a residence authorization for the Executive’s spouse, which shall not exceed
$7,000.00;
(ix) a housing allowance for twenty-four (24) months, which shall not exceed $70,000.00 per year (pro-rated for the
portion of the year during which the Executive is employed
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and is not being provided housing under the temporary housing allowance set forth in Section 5(b)(iii) above;
(x) legal fees for the negotiation of this Agreement, which shall not exceed $17,000.00; and
(xi) tax preparation work incurred as a result of the Executive’s employment with the Company, which shall not exceed
$5,000.00.
6. Termination Without Cause; Resignation for Good Reason. The Employer may
terminate the Executive’s employment at any time without Cause. The Executive may initiate a termination of
employment by resigning for Good Reason. Upon termination by the Employer without Cause or resignation by the Executive for
Good Reason, the Executive shall be entitled to receive any accrued but unpaid Base Salary and business or other expenses
incurred up to the date of termination and reimbursable pursuant to Section 5(a) and/or Section 5(b), and any benefits accrued
and due under any applicable benefit plans and programs of the Employer, including any vested Options or Restricted Stock
(“Accrued Obligations”), with such Accrued Obligations paid regardless of whether the Executive executes or revokes a written
Agreement and Release (as defined below). In addition, in the event that the Executive is terminated without Cause by the
Employer or resigns for Good Reason, the Employer shall deliver to the Executive within five (5) days of such termination or
resignation an Agreement and Release and in consideration for the Executive’s compliance with the undertakings set forth in
Section 14(a) and in the other provisions of Section 14, if the Executive executes and delivers to the Company the Agreement and
Release within fifty (50) days of the Executive’s termination of employment, and does not revoke such Agreement and Release
such that it becomes effective by its terms prior to the sixtieth (60th) day following the Executive’s termination of employment,
the Executive shall be entitled to receive, in lieu of any payments under any severance plan or program for employees or
executives, the following:
(a) a cash payment equal to one (1) times the Executive’s annual Base Salary as in effect on the date on which the
Executive’s employment is effectively terminated with the Company (the “Termination Date”), plus one (1) times the Executive’s
Target Bonus, with the sum of those two amounts payable immediately on the sixtieth (60th) day after the Executive’s
Termination Date, provided Executive does not revoke such Agreement and Release prior to such date;
(b) reimbursement in cash equal to 100% of the COBRA premiums incurred by the Executive for the Executive and his
eligible dependents under the Employer’s health plans during the twelve (12) month period following the Executive’s termination
of employment. Such reimbursement shall be provided on the payroll date immediately following the date on which the
Executive remits the applicable premium payment and provides proof of payment to the Company, and shall commence within
sixty (60) days after the Executive’s Termination Date; provided that the first payment shall include any reimbursements that
would have otherwise been payable during the period beginning on the Executive’s Termination Date and ending on the date of
the first reimbursement payment. If the Company so determines in its sole discretion, or to the extent required by law,
reimbursement payments shall be treated as taxable compensation to the Executive;
6
(c) accelerated vesting of any Options, Anti-Dilution Options and Restricted Shares granted pursuant to Section 2(c) that
remain unvested as of the date of the Executive’s termination of employment, subject to the terms and conditions of the Equity
Plan, including the minimum vesting provisions set forth therein, and the applicable grant agreement, including all vesting
provisions therein; and
(d) the Employer shall have no additional obligations to the Executive.
7. Cause. The Employer may terminate the Executive’s employment at any time for Cause
upon written notice to the Executive, in which event all payments under this Agreement shall cease, except for any
Accrued Obligations, and Employer shall have no additional obligations to the Executive.
8. Voluntary Resignation Without Good Reason. The Executive may voluntarily terminate employment without Good
Reason. In such event, after the effective date of such termination, no payments shall be due under this Agreement, except that
the Executive shall be entitled to any Accrued Obligations.
9. Disability. If the Executive incurs a Disability during the Term, the Employer may terminate the Executive’s
employment on or after the date of Disability. If the Executive’s employment terminates on account of Disability, the Executive
shall be entitled to receive any Accrued Obligations. For the avoidance of doubt, in the event of such termination, the Executive
shall not be eligible to receive any payments or benefits pursuant to Section 6. For purposes of this Agreement, the term
“Disability” shall mean the Executive is eligible to receive long-term disability benefits under the Employer’s long-term
disability plan or, if the Employer does not have a long-term disability plan, the Executive is unable to perform the essential
functions of his job, with or without any reasonable accommodation required by applicable law, for 120 days in any 180-day
period.
10. Death. If the Executive dies during the Term, the Executive’s employment shall terminate on the date of death and
the Employer shall pay to the Executive’s executor, legal representative, administrator or designated beneficiary, as applicable,
any Accrued Obligations. Otherwise, the Employer shall have no further liability or obligation under this Agreement to the
Executive’s executors, legal representatives, administrators, heirs or assigns or any other person claiming under or through the
Executive. For the avoidance of doubt, in the event of such termination, the Executive shall not be eligible to receive any
payments or benefits pursuant to Section 6.
11. Resignation of Positions. Effective as of the date of any termination of employment, the Executive will resign from
all Company-related positions, including as an officer and director of the Company.
12. Definitions. For purposes of this Agreement, the following terms shall have the following meanings:
(a) “Cause” shall mean determination by the Board in good faith, after providing the Executive with an
opportunity, within seven (7) days after written notice to the Executive, to appear before and address the Board in connection
with the Board’s potential
7
determination of Cause, of the Executive’s (1) material breach of this Agreement or any confidentiality, nonsolicitation,
noncompetition or inventions assignment agreement with the Employer; (2) willful or grossly negligent conduct (including, but
not limited to, fraud or embezzlement) in connection with his employment, which conduct in the reasonable determination of the
Board has had or will have a material detrimental effect on the Employer’s business; (3) commission of an act of dishonesty,
fraud, embezzlement or theft in connection with his employment, which conduct in the reasonable determination of the Board has
had or is reasonably likely to have a material detrimental effect on the Employer’s business; (4) engagement in conduct that
causes, or is likely to cause, material damage to the property or reputation of the Employer; (5) failure to perform satisfactorily
the material duties of the Executive’s position (other than by reason of disability) as reasonably determined by the Board after
receipt of a written warning from the Board; (6) commission of a felony or any crime of moral turpitude; or (7) material failure to
comply with the Employer’s code of conduct or employment policies.
(b) “Agreement and Release” shall mean a separation agreement and general release of any and all claims
against the Employer and all related parties with respect to all matters arising out of the Executive’s employment by the
Employer, and the termination thereof (other than claims for any entitlements under the terms of this Agreement or under any
plans or programs of the Employer under which the Executive has accrued and is due a benefit), in the form provided by the
Company.
case during the Employment Term without the Executive's written consent:
(c) For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following, in each
(i) a material reduction in the Executive's Base Salary, except as part of an across-the-board reduction in
base salary of the Employer’s “chief” level officers of no more than ten percent (10%);
(ii) any material breach by the Company of any material provision of this Agreement or any material
provision of any other agreement between the Executive and the Employer;
(iii) the Employer’s failure to obtain an agreement from any successor to Employer to assume and agree to
perform this Agreement in the same manner and to the same extent that Employer would be required to perform if
no succession had taken place, except where such assumption occurs by operation of law;
(iv) the Company's failure to nominate the Executive for election to the Board;
(v) a material, adverse change in the Executive's authority, duties, or responsibilities (other than
temporarily while the Executive is physically or mentally incapacitated or as required by applicable law, and other
than any such change that results from a transaction following which the Company or
8
the Executive’s business unit comprises a portion of a larger affiliated group); or
(vi) a change in the Executive’s title as sole Chief Executive Officer other than for Cause.
The Executive cannot terminate employment for Good Reason unless the Executive has provided written notice to the Company
of the existence of the circumstances providing grounds for termination for Good Reason within thirty (30) business days of the
initial existence and Executive’s knowledge of such grounds and the Company has had at least thirty (30) business days from the
date on which such notice is provided to cure such circumstances, if curable.
13. Section 409A.
(a) This Agreement is intended to comply with Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”) and regulations and other applicable guidance thereunder (together, “Section
409A”), or to qualify for an exemption thereto. Payment under this Agreement that are subject to Section 409A may only be
made upon an event or events and in a manner permitted by Section 409A. Severance benefits under this Agreement are intended
to be exempt from Section 409A under the “short-term deferral” exception, to the maximum extent applicable, and then under the
“separation pay” exception, to the maximum extent applicable. Notwithstanding anything in this Agreement to the contrary, if
required by Section 409A, if the Executive is considered a “specified employee” for purposes of Section 409A and if payment of
any amounts under this Agreement is required to be delayed for a period of six months after the Executive’s separation from
service, as defined in Section 409A, payment of such amounts shall be delayed as required by Section 409A, and the accumulated
amounts shall be paid to the Executive in a lump-sum payment within 10 days after the end of the six-month period. If the
Executive dies during the postponement period prior to the payment of benefits, the amounts withheld on account of Section
409A shall be paid to the personal representative of the Executive’s estate within sixty (60) days after the date of the Executive’s
death.
(b) All payments to be made upon a termination of employment under this Agreement that are subject to Section 409A
may only be made upon a “separation from service” of the Executive from the Employer under Section 409A of the Code. For
purposes of Section 409A, each payment hereunder shall be treated as a separate payment, and the right to a series of installment
payments under this Agreement shall be treated as a right to a series of separate payments. In no event may the Executive,
directly or indirectly, designate the fiscal year of a payment. Notwithstanding any provision of this Agreement to the contrary, in
no event shall the timing of the Executive’s execution of the Agreement and Release, directly or indirectly, result in the
Executive’s designating the fiscal year of payment of any amounts of deferred compensation subject to Section 409A, and if a
payment that is subject to execution of the Agreement and Release could be made in more than one taxable year, payment shall
be made in the later taxable year.
(c) All taxable reimbursements and in-kind benefits provided under this Agreement shall be made or provided in
accordance with the requirements of Section 409A, including, where applicable, the requirement that (i) any reimbursement be
for expenses incurred during the
9
period specified in this Agreement, (ii) the amount of expenses eligible for reimbursement, or in- kind benefits provided, during a
fiscal year not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other fiscal year, (iii) the
reimbursement of an eligible expense be made no later than the last day of the fiscal year following the year in which the expense
is incurred, and (iv) the right to reimbursement or in-kind benefits not be subject to liquidation or exchange for another benefit.
14. Restrictive Covenants. In consideration of the premises and of the mutual covenants and agreements herein set
forth, including without limitation Executive’s employment and compensation hereunder, including the Inducement Award, and
the Employer’s provision to the Executive of access to the Employer’s business goodwill and Proprietary Information (as defined
below):
(a) Noncompetition. The Executive agrees that during the Executive’s employment with the Company and the
12-month period following the date on which the Executive’s employment terminates for Cause or without Good Reason, the
Executive will not, without the Board’s express written consent, engage (directly or indirectly) in any Competitive Business in
the United States. The term “Competitive Business” means entity or person that is engaged in a business that is the same as or
substantially similar to the business conducted by the Company during the Executive’s employment, or that is under
consideration by the Board during the 12 months prior to the Executive’s termination of employment (including the business of
providing portfolio management and corporate governance services to real estate related investment vehicles and/or the buying
and selling of real estate-based securities; provided that a Competitive Business does not include an investment banking business
in a field that is unrelated to real estate). The Executive understands and agrees that, given the nature of the business of the
Company and the Executive’s position with the Company, the foregoing duration, scope of business activity and geographic
scope are reasonable and appropriate.
(b) Nonsolicitation of Company Personnel. The Executive agrees that during the 12- month period following the
date on which the Executive’s employment terminates for any reason (the “Restriction Period”), the Executive will not, either
directly or through others, hire or attempt to hire any employee, consultant or independent contractor of the Company, or solicit
or attempt to solicit any such person to change or terminate his or her relationship with the Company or otherwise to become an
employee, consultant, volunteer or independent contractor to, for or of any other person or business entity, unless more than
twelve (12) months shall have elapsed between the last day of such person’s employment or service with the Company and the
first day of such solicitation or hiring or attempt to solicit or hire. If any employee, consultant, volunteer or independent
contractor is hired or solicited by any entity that has hired or agreed to hire the Executive, such hiring or solicitation shall be
conclusively presumed to be a violation by the Executive of this subsection (b).
(c) Nonsolicitation of Clients and Customers. The Executive agrees that during the Restriction Period, the
Executive will not, either directly or through others, accept solicit, divert or appropriate, or attempt to accept, solicit, divert or
appropriate, any client or customer or actively sought prospective client or customer of the Company for the purpose of providing
such client or customer or actively sought prospective client or customer with services or products
10
competitive with those offered by the Company during the Executive’s employment with the Company.
(d) Proprietary Information. At all times, the Executive will hold in strictest confidence and will not disclose,
use, lecture upon or publish any of the Proprietary Information
(defined below) of the Company, except as such disclosure, use or publication may be required in connection with the
Executive’s work for the Company or as described in Section 14(e) below, or unless the Company expressly authorizes such
disclosure in writing. “Proprietary Information” shall mean any and all confidential and/or proprietary knowledge, data or
information of the Company and its shareholders, including but not limited to information relating to financial matters,
investments, budgets, business plans, marketing plans, personnel matters, business contacts, products, processes, know-how,
designs, methods, improvements, discoveries, inventions, ideas, data, programs, and other works of authorship.
(e) Reports to Government Entities. Nothing in this Agreement shall prohibit or restrict the Executive from
initiating communications directly with, responding to any inquiry from, providing testimony before, providing confidential
information to, reporting possible violations of law or regulation to, or filing a claim or assisting with an investigation directly
with a self-regulatory authority or a government agency or entity, including the Equal Employment Opportunity Commission, the
Department of Labor, the National Labor Relations Board, the Department of Justice, the SEC, Congress, any agency Inspector
General or any other federal, state, territorial or local regulatory authority (collectively, the “Regulators”), or from making other
disclosures that are protected under the whistleblower provisions of state or federal law or regulation. The Executive does not
need the prior authorization of the Employer to engage in conduct protected by this subsection, and the Executive does not need
to notify the Employer that the Executive has engaged in such conduct. Please take notice that federal law provides criminal and
civil immunity to federal and state claims for trade secret misappropriation to individuals who disclose trade secrets to their
attorneys, courts, or government officials in certain, confidential circumstances that are set forth at 18 U.S.C. §§ 1833(b)(1) and
1833(b)(2), related to the reporting or investigation of a suspected violation of the law, or in connection with a lawsuit for
retaliation for reporting a suspected violation of the law.
(f) Inventions Assignment. The Executive agrees that all inventions, innovations, improvements, developments,
methods, designs, analyses, reports, and all similar or related information which relates to the Company’s actual or anticipated
business, research and development or existing or future products or services and which are conceived, developed or made by the
Executive while employed by the Company (“Work Product”) belong to the Company. The Executive will promptly disclose
such Work Product to the Board and perform all actions reasonably requested by the Board (whether during or after the Term) to
establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other
instruments). If requested by the Company, the Executive agrees to execute any inventions assignment and confidentiality
agreement that is required to be signed by employees of the Employer generally.
(g) Return of Company Property. Upon termination of the Executive’s employment with the Employer for any
reason, and at any earlier time Employer requests, the Executive will deliver to the person designated by the Employer all
originals and copies of all documents and
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property of the Employer that is in the Executive’s possession or under the Executive’s control or to which the Executive may
have access. The Executive will not reproduce or appropriate for the Executive’s own use, or for the use of others, any property,
Proprietary Information or Work Product.
(h) Non-Disparagement. The Executive covenants and agrees that, except as set forth in Section 14(e) above,
during the Term, and following termination of the Term, the Executive shall not make any disparaging remarks or
communications, written or oral, regarding the Employer or its services, products, brands, trademarks, directors, officers,
employees, consultants, advisors, licensors, licensees, customers, vendors or others with which it has a business relationship. The
Employer covenants and agrees that during the Term, and following termination of the Term, the Employer shall not authorize
any person to make to any person who is not an officer, employee, consultant, advisor or affiliate of the Company, any
disparaging remarks or communications, written or oral, regarding the Executive.
15. Legal and Equitable Remedies; Arbitration.
(a) Because the Executive’s services are personal and unique and the Executive has
had and will continue to have access to and has become and will continue to become acquainted with the Proprietary Information
of the Company and its affiliates, and because any breach by the Executive of any of the restrictive covenants contained in
Section 14 would result in irreparable injury and damage for which money damages would not provide an adequate remedy, the
Company shall have the right to enforce Section 14 and any of its provisions by injunction, specific performance or other
equitable relief, without bond and without prejudice to any other rights and remedies that the Company may have for a breach, or
threatened breach, of the restrictive covenants set forth in Section 14. The Executive agrees that in any action in which the
Company seeks injunction, specific performance or other equitable relief, the Executive will not assert or contend that any of the
provisions of Section 14 are unreasonable or otherwise unenforceable.
(b) Except as otherwise set forth in this Agreement in connection with
equitable remedies, any dispute, claim or controversy arising out of or relating to this Agreement or the Executive’s employment
with the Company (collectively, “Disputes”), including, without limitation, any dispute, claim or controversy concerning the
validity, enforceability, breach or termination of this Agreement, if not resolved by the parties, shall be finally settled by
arbitration in accordance with the then-prevailing Employment Arbitration Rules and Procedures of the American Arbitration
Association (“AAA”), as modified herein (“Rules”). Further, the Executive hereby waives any right to bring on behalf of persons
other than the Executive, or to otherwise participate with other persons in, any class, collective, or representative action
(including but not limited to any representative action under any federal, state or local statute or ordinance). The requirement to
arbitrate covers all Disputes (other than disputes which by statute are not arbitrable) including, but not limited to, claims,
demands or actions under the Age Discrimination in Employment Act (including Older Workers Benefit Protection Act);
Americans with Disabilities Act; Civil Rights Act of 1866; Civil Rights Act of 1991; Employee Retirement Income Security Act
of 1974; Equal Pay Act; Family and Medical Leave Act of 1993; Title VII of the Civil Rights Act of 1964; Fair Labor Standards
Act; Fair Employment and Housing Act; any other law, ordinance or regulation regarding discrimination or harassment or
12
any terms or conditions of employment; and any claim under tort, contractual, statutory, or constitutional law. There shall be one
arbitrator who shall be jointly selected by the parties. If the parties have not jointly agreed upon an arbitrator within twenty (20)
calendar days after respondent’s receipt of claimant’s notice of intention to arbitrate, either party may request AAA, or such other
arbitration provider as to which the parties agree, to furnish the parties with a list of names from which the parties shall jointly
select an arbitrator. If the parties have not agreed upon an arbitrator within ten (10) calendar days after the transmittal date of
such list, then each party shall have an additional five (5) calendar days in which to strike any names objected to, number the
remaining names in order of preference, and return the list to AAA, or such other arbitration provider as to which the parties
agree, which shall then select an arbitrator in accordance with the Rules. The place of arbitration shall be New York, New York.
By agreeing to arbitration, the parties hereto do not intend to deprive any court of its jurisdiction to issue a pre-arbitral injunction,
including, without limitation, with respect to the provisions of Section 14. The arbitration shall be governed by the Federal
Arbitration Act, 9 U.S.C. §§ 1-16. The determination as to arbitrability shall be made by the arbitrator. A party who files in court
a claim that is subject to arbitration hereunder shall, upon request by the other party, immediately withdraw or dismiss such
claim. Judgment upon the award of the arbitrator may be entered in any court of competent jurisdiction. The arbitrator shall: (a)
have authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be
available under applicable law in a court proceeding; and (b) issue a written statement signed by the arbitrator regarding the
disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrator’s essential
findings and conclusions on which the award is based. The Company shall pay all administrative fees of AAA, or such other
arbitration provider as to which the parties agree, in excess of $435 (a typical filing fee in court) and the arbitrator’s fees and
expenses. Each party shall bear its, his or her own costs and expenses (including attorney’s fees) in any such arbitration and, at
the conclusion of the arbitration, the arbitrator shall have the power to award to the prevailing party any and all costs and
expenses incurred with respect to such arbitration, including without limitation, reasonable attorneys’ fees, disbursements and
costs. The prevailing party shall be determined based upon an assessment of which party’s arguments or positions could fairly be
said to have prevailed over the other party’s arguments or positions on major disputed issues in the arbitration. Such assessment
should include evaluation of the following: the amount of the net recovery; the primary issues disputed by the parties; whether
the amount of the award comprises a significant percentage of the amount sought by the claimant; and the most recent settlement
positions of the parties. In the event any portion of this arbitration provision is found unenforceable by a court of competent
jurisdiction, such portion shall become null and void leaving the remainder of this arbitration provision in full force and effect.
The parties agree that all information regarding the arbitration, including any settlement thereof, shall not be disclosed by the
parties hereto, except as otherwise required by applicable law.
(c) In the event that a party seeks injunctive relief in aid of an arbitration, or if for any reason arbitration is
unavailable, the Executive irrevocably and unconditionally (1) agrees that
any legal proceeding arising out of this Agreement shall be brought solely in the United States District Court for the United
States Virgin Islands, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction
in the United States Virgin Islands, (2) consents to the exclusive jurisdiction of such court in any such proceeding, and (3) waives
any objection to the laying of venue of any such proceeding in any such court. The
13
Executive also irrevocably and unconditionally consents to the service of any process, pleadings, notices or other papers.
(d) Notwithstanding anything in this Agreement to the contrary, if the Executive’s employment has been
terminated without Cause or the Executive has resigned for Good Reason and the Executive then breaches any of the Executive’s
obligations under Section 14, the Company shall be obligated to provide to the Executive only the Accrued Obligations and any
payments being made to Executive under Section 6 hereof shall cease, and the Company may require that the Executive repay all
amounts theretofore paid to him pursuant to Section 6 hereof (other than the Accrued Obligations), and in such case, the
Executive shall promptly repay such amounts on the terms determined by the Company.
16. Survival. The respective rights and obligations of the parties under this Agreement (including, but not limited to,
under Sections 14 and 15) shall survive any termination of the Executive’s employment or termination or expiration of this
Agreement to the extent necessary to the intended preservation of such rights and obligations.
17. No Mitigation or Set-Off. In no event shall the Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such
amounts shall not be reduced regardless of whether the Executive obtains other employment. The Company’s and the Employer’s
obligations to make the payments provided for in this Agreement and otherwise to perform their respective obligations hereunder
shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company or the Employer may have against the Executive or others.
18. Section 280G. In the event of a change in ownership or control of the Company under Section 280G of the Code, if
it shall be determined that any payment or distribution in the nature of compensation (within the meaning of section 280G(b)(2)
of the Code) to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise (a “Payment”), would constitute an “excess parachute payment” within the meaning of Section
280G of the Code, the aggregate present value of the Payments under this Agreement shall be reduced (but not below zero) to the
Reduced Amount (defined below) if and only if the Accounting Firm (described below) determines that the reduction will
provide the Executive with a greater net after-tax benefit than would no reduction. No reduction shall be made unless the
reduction would provide Executive with a greater net after-tax benefit. The determinations under this Section shall be made as
follows:
(a) The “Reduced Amount” shall be an amount expressed in present value which maximizes the aggregate
present value of Payments under this Agreement without causing any Payment under this Agreement to be subject to the Excise
Tax (defined below), determined in accordance with Section 280G(d)(4) of the Code. The term “Excise Tax” means the excise
tax imposed under Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax.
the reduction in the economic value deliverable to the Executive.
(b) Payments under this Agreement shall be reduced on a nondiscretionary basis in such a way as to minimize
14
Where more than one payment has the same value for this purpose and they are payable at different times, they will be reduced
on a pro rata basis. Only amounts payable under this Agreement shall be reduced pursuant to this Section.
(c) All determinations to be made under this Section shall be made by an independent certified public
accounting firm selected by the Company and agreed to by the Executive immediately prior to the change-in-ownership or -
control transaction (the “Accounting Firm”). The Accounting Firm shall provide its determinations and any supporting
calculations both to the Company and the Executive within ten (10) days of the transaction. Any such determination by the
Accounting Firm shall be binding upon the Company and the Executive. All of the fees and expenses of the Accounting Firm in
performing the determinations referred to in this Section shall be borne solely by the Company or the Employer.
19. Notices. All notices and other communications required or permitted under this Agreement or necessary or
convenient in connection herewith shall be in writing and shall be deemed to have been given when hand delivered or mailed by
registered or certified mail, as follows (provided that notice of change of address shall be deemed given only when received):
If to the Company or the Employer, to:
Altisource Asset Management Corporation 5100 Tamarind Reef
Christiansted, VI 00820
Attn: Chair of the Compensation Committee
With a copy (which shall not constitute notice) to:
Mark S. Opper, Esq.
Goodwin Procter LLP
100 Northern Avenue
Boston, MA 02210
Mopper@goodwinlaw.com
If to the Executive, to the most recent address on file with the Employer or to such other names or addresses as the
Employer, or the Executive, as the case may be, shall designate by notice to each other person entitled to receive notices in the
manner specified in this Section.
20. Withholding. All payments under this Agreement shall be made subject to applicable tax withholding, and the
Employer shall withhold from any payments under this Agreement all federal, state, territorial and local taxes as the Employer is
required to withhold pursuant to any law or governmental rule or regulation. The Executive shall bear all expense of, and be
solely responsible for, all federal, state, territorial and local taxes due with respect to any payment received under this Agreement.
21. Remedies Cumulative; No Waiver. No remedy conferred upon a party by this Agreement is intended to be exclusive
of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given
under this Agreement or now or
15
hereafter existing at law or in equity. No delay or omission by a party in exercising any right, remedy or power under this
Agreement or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be
exercised by such party from time to time and as often as may be deemed expedient or necessary by such party in its sole
discretion.
22. Assignment. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and
be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties
hereto, except that the duties and responsibilities of the Executive under this Agreement are of a personal nature and shall not be
assignable or delegable in whole or in part by the Executive. The Employer may assign its rights, together with its obligations
hereunder, in connection with any sale, transfer or other disposition of all or substantially all of its business and assets, and such
rights and obligations shall inure to, and be binding upon, any successor to the business or any successor to substantially all of the
assets of the Employer, as applicable, whether by merger, purchase of stock or assets or otherwise, which successor shall
expressly assume such obligations, and the Executive acknowledges that in such event the obligations of the Executive
hereunder, including but not limited to those under Section 14, will continue to apply in favor of the successor.
23. Company Policies. This Agreement and the compensation payable hereunder shall be subject to any applicable
clawback or recoupment policies, share trading policies, and other policies that may be implemented by the Board from time to
time with respect to officers of the Company; provided, that the repayment provisions in Sections 2(b) and 15(d) hereof shall not
be modified unless required by applicable statute or regulation or by applicable rule of a regulatory or self-regulatory
organization.
24. Indemnification. In the event the Executive is made, or threatened to be made, a party to any legal action or
proceeding, whether civil or criminal, including any governmental or regulatory proceedings or investigations, by reason of the
fact that the Executive is or was a director or officer of the Company, the Executive shall be indemnified by the Company, except
to the extent such liability is attributable to the Executive’s gross negligence or willful misconduct, and the Company shall pay
the Executive’s related expenses when and as incurred, to the fullest extent permitted by applicable law and the Company’s
articles of incorporation and bylaws. During the Executive’s employment with the Company and after termination of the
Executive’s employment for any reason, the Company shall cover the Executive under the Company’s directors’ and officers’
insurance policy applicable to other officers and directors according to the terms of such policy. In addition: (a) in the event that,
as of September 1, 2020, Solutions refuses to pay the Executive the amounts due him under the terms of his Separation
Agreement with Solutions (the “Separation Agreement”) for reasons allegedly attributable solely to the fact that the Executive
engaged in communications with the Employer or its affiliates prior to entering into this Agreement, entered into this Agreement,
or is performing his duties hereunder within the scope of his authority under this Agreement, the Employer will have the right to
direct (and will pay for) the Executive’s legal action to recover such amounts from Solutions and will pay the Executive (i) the
amount of unpaid deferred income due him from Solutions, not to exceed $175,000.00, and (ii) a cash amount equivalent to the
fair market value of 20,196 shares of Solutions stock due to him, on their original vesting schedule; provided that, should the
Executive recover and actually receive such amount from Solutions and Executive has
16
actually received such amounts from the Employer, he shall pay such recovered amount, including any interest thereon (to the
extent any interest is actually paid to Executive), over to the Employer; and (b) in the event that Solutions declares a breach of the
Separation Agreement, as a result solely of the fact that the Executive engaged in communications with the Employer or its
affiliates prior to entering into this Agreement, entered into this Agreement, or is performing his duties hereunder within the
scope of his authority under this Agreement, and solely on that basis successfully pursues a claim for damages under the
Separation Agreement, the Employer shall indemnify Executive for any such claims and pay for the Executive’s legal defense
and for damages and/or losses of the Executive up to the sum of $3,000,000.00; provided that the Executive gives timely written
notice to the Employer of any matter giving rise to a claim for indemnification; provided, that the Executive’s failure to give
timely notice as provided herein shall not relieve the Employer of its obligations under this Agreement except to the extent that
the Employer is actually materially prejudiced by such failure to give timely notice. In case any action, proceeding or claim is
brought against the Executive in respect of which the Executive seeks indemnification from the Employer, the Employer shall be
entitled to participate in and, unless a conflict of interest exists between the Executive and the Employer with respect to such
action, proceeding or claim, to assume the defense thereof with counsel reasonably satisfactory to the Executive. In the event that
the Employer advises the Executive that it will contest such a claim for indemnification hereunder, or fails, within thirty (30) days
of receipt of any indemnification notice to notify the Executive, in writing, of its election to defend, settle or compromise, at its
sole cost and expense, any action, proceeding or claim (or discontinues its defense at any time after it commences such defense),
then the Executive may, at his option, defend, settle or otherwise compromise or pay such action or claim. In any event, unless
and until the Employer elects in writing to assume and does so assume the defense of any such claim, proceeding or action, the
Executive’s costs and expenses arising out of the defense, settlement or compromise of any such action, claim or proceeding shall
be losses subject to indemnification hereunder, provided that the Company shall pay Executives legal fees and expenses for his
defense of any such action, claim or proceeding as such fees and expenses are incurred by Executive and Executive delivers
invoices for such fees and expenses to the Company for payment. The Executive shall cooperate fully with the Employer in
connection with any negotiation or defense of any such action or claim by the Employer and shall furnish to the Employer all
information reasonably available to the indemnified party, which relates to such action or claim.
25. Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto and supersedes any and all
prior agreements and understandings concerning the Executive’s employment by the Employer. This Agreement may be changed
only by a written document signed by the Executive and the Employer.
26. Severability. If any provision of this Agreement or application thereof to anyone or
under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect any other provision or application of this Agreement, which can be given effect without the
invalid or unenforceable provision or application, and shall not invalidate or render unenforceable such provision or application
in any other jurisdiction. If any provision is held void, invalid or unenforceable with respect to particular circumstances, it shall
nevertheless remain in full force and effect in all other circumstances.
17
27. Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the
substantive and procedural laws of the United States Virgin Islands without regard to rules governing conflicts of law.
28. Counterparts. This Agreement may be executed in any number of counterparts (including facsimile counterparts),
each of which shall be an original, but all of which together shall constitute one instrument.
(Signature Page Follows)
18
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
ALTISOURCE ASSET MANAGEMENT CORPORATION
/s/ John A. Engerman
John A. Engerman
December 4, 2020
/s/ Indroneel Chatterjee
Indroneel Chatterjee
December 4, 2020
Name:
Date:
EXECUTIVE
Name:
Date:
19
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
CHRISTOPHER MOLTKE-HANSEN
Exhibit 10.9
THIS EMPLOYMENT AGREEMENT (this “Agreement”) is entered into by and between AAMC US, Inc. (“Company,”
or “Employer”), and Christopher Moltke-Hansen (“Employee”) as of January 1, 2021 (“Effective Date”).
WHEREAS, the Employer desires to employ the Employee as Chief Financial Officer and the Employee desires to serve
in such capacity.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth,
Employer and the Employee hereby agree as follows:
1.
Employment.
(a)
Term. The term of this Agreement shall begin on January 1, 2021 and shall continue until the termination of the
Employee’s employment (the “Term”)
(b)
Duties. During the Term, the Employee shall serve as Chief Financial Officer of the Employer and its parent
company, Altisource Asset Management Corporation (“Parent”), with duties, responsibilities and authority commensurate
therewith, and shall report to the Chief Executive Officer and Chairman (“CEO”) of Parent. During the Term, the Employee shall
perform all duties and accept all responsibilities incident to such position as may be reasonably assigned to the Employee by the
CEO. The Employee represents to the Employer that the Employee is not subject to or a party to any employment agreement,
noncompetition covenant, or other agreement that might be alleged to be breached by, or to prohibit the Employee from,
executing this Agreement and performing fully the Employee’s duties and responsibilities hereunder. Furthermore, the Company
represents to the Employee that the Company is not subject to or a party to any agreement that prohibits the Company from
entering into this agreement with the Employee.
(c)
Best Efforts. During the Term, the Employee shall devote his best efforts and substantially all his time and
attention to promote the business and affairs of the Employer and its affiliated entities, and shall be engaged in other business
activities only to the extent that such activities do not materially interfere or conflict with the Employee’s obligations to the
Employer and its affiliated entities hereunder, including, without limitation, obligations pursuant to Section 14 below. The
foregoing shall not be construed as preventing the Employee from (1) serving on civic, educational, philanthropic or charitable
boards or committees, or, with the prior written consent of the Board of Directors of the Employer (“Board”), in its sole
discretion, on corporate boards, and (2) managing personal investments, so long as such activities are permitted under the
Employer’s code of conduct and employment policies and do not violate the provisions of Section 14 below; provided that, the
activities set forth in the preceding clauses (1) and (2) do not materially interfere or conflict with the Employee’s duties or
obligations to the Employer and its affiliated entities and his time commitments with respect thereto, as determined by the Board;
and provided, however, that the Employee may hold, directly or indirectly, solely as a passive
investment, less than five percent (5%) of the outstanding securities of any person or entity which is listed on any national
securities exchange.
(d)
Principal Place of Employment. The Employee understands and agrees that his principal place of employment will
be at the Employer’s office in Charlotte, North Carolina, United States 28209, and that the Employee will be required to travel
for business, including at least quarterly for earnings, Board Meetings, and significant business activities related to Company and
Parent in the course of performing his duties for the Employer.
2.
Compensation.
(a)
Base Salary. During the Term, the Employer shall pay the Employee a base salary (“Base Salary”), at the annual
rate of $250,000, which shall be paid in installments in accordance with the Employer’s normal payroll practices. The
Employee’s Base Salary shall be reviewed annually by the Board pursuant to the normal performance review policies for senior-
level executives and may be adjusted from time to time as the Compensation Committee of the Board (the “Compensation
Committee”) deems appropriate, and shall not be reduced except as part of an across the board reduction in Base Salary of the
Employer’s executives which is no more than 10%. The Compensation Committee may take any actions of the Board pursuant to
this Agreement.
(b)
Annual Bonus; Signing Bonus. The Employee shall be eligible to receive an annual bonus for each fiscal year
during the Term, commencing with the fiscal year 2020, based on the attainment, as determined by the Board in its sole
discretion, of individual and corporate reasonable performance goals and targets established by the Board in its sole discretion
(“Annual Bonus”). The target amount of the Employee’s Annual Bonus for any fiscal year during the Term shall be $225,000,
and Employee shall be eligible to earn an Annual Bonus up to 200% of the Base Salary. In addition, the Employee acknowledges
the receipt of a signing bonus in the amount of $250,000 (the “Signing Bonus”). If within the first year after October 15, 2020,
the Employee’s employment is terminated by the Employee without Good Reason (as defined below) or by the Employer for
Cause (as defined below), the Employee shall promptly repay to the Employer the net amount of the Signing Bonus paid to the
Employee by the Company, and if within the second year after October 15, 2020, the Employee’s employment is terminated by
the Employee without Good Reason or by the Employer for Cause, the Employee shall immediately repay to the Employer fifty
percent (50%) of the net amount of the Signing Bonus paid to the Employee by the Company. For the avoidance of doubt, the
amounts the Employee is required to repay pursuant to the preceding sentence are the entire amount of the Signing Bonus paid by
the Company less any taxes paid by the Employee, or fifty percent (50%) of such amount less any taxes paid by the Employee.
Any Annual Bonus shall be paid after the end of the fiscal year to which it relates, at the same time and under the same terms and
conditions as the bonuses for other executives employed by the Employer; provided that the Employee remains employed by the
Employer on the last day of the fiscal year to which the Annual Bonus applies, and provided further that in no event shall the
Employee’s Annual Bonus be paid later than the fifteenth day of the third month following the last day of the fiscal year to which
the Annual Bonus relates. The
Annual Bonus shall be subject to the terms of any annual bonus plan that is applicable to other executives of the Employer,
except as otherwise provided in this Section 2(b).
(c)
Equity Compensation. As soon as reasonably practicable, the Employer shall grant the Employee the following
equity award (the “Inducement Award”) pursuant to the Altisource Asset Management Corporation 2020 Equity Incentive Plan
(the “Equity Plan”). The Employer shall grant the Employee 5,000 restricted shares of Parent’s stock, subject to the terms of the
Equity Plan as if issued thereunder and subject to the terms of the award agreement established by the Compensation Committee
in connection therewith (the “Restricted Shares”). The Restricted Shares shall vest in three equal installments, on the first three
anniversaries of October 15, 2020, provided that the Employee remains employed by and in good standing with the Employer or
any subsidiary of the Employer through the applicable vesting date. Employee shall be eligible for additional grants under the
Equity Plan as determined by the Board.
Retirement and Welfare Benefits. During the Term, the Employee shall be eligible to participate in any health, life
3.
insurance, long-term disability, retirement and welfare benefit plans and programs sponsored by the Employer, in each case as
may be generally available to senior executives of the Employer, pursuant to the plans’ and programs’ respective terms and
conditions as in effect from time to time. Nothing in this Agreement shall preclude the Employer from terminating or amending
any employee benefit plan or program from time to time after the Effective Date.
4.
Vacation. During the Term, the Employee shall be entitled to at least five (5) weeks of vacation each year and holiday and
sick leave at levels commensurate with those provided to other senior executives of the Company, in accordance with the
Employer’s vacation, holiday and other pay-for-time-not-worked policies.
5.
Business and Other Expenses.
(a)
Business Expenses. The Employer shall reimburse the Employee for all necessary and reasonable travel and other
business expenses incurred by the Employee in the performance of his duties hereunder in accordance with such policies and
procedures as the Employer may adopt generally from time to time for executives, including the Employee’s expenses to review
this contract.
6.
Termination Without Cause; Resignation for Good Reason. The Employer may terminate the Employee’s employment at
any time without Cause, as defined herein. The Employee may initiate a termination of employment by resigning for Good
Reason. Upon termination by the Employer without Cause or resignation by the Employee for Good Reason, the Employee shall
be entitled to receive any accrued but unpaid Base Salary, prorated Annual Bonus based on the prior year’s Annual Bonus, and
business or other expenses incurred up to the date of termination and reimbursable pursuant to Section 5(a), and any benefits
accrued and due under any applicable benefit plans and programs of the Employer, including any vested Restricted Shares
(“Accrued Obligations”), with such Accrued Obligations paid regardless of whether the Employee executes or revokes a written
Agreement and Release (as defined below). In addition, in the event that the Employee is terminated without Cause by the
Employer or
resigns for Good Reason, the Employer shall deliver to the Employee within five (5) days of such termination or resignation an
Agreement and Release and in consideration for the Employee’s compliance with the undertakings set forth in Section 14(a) and
in the other provisions of Section 14, if the Employee executes and delivers to the Company the Agreement and Release within
fifty (50) days of the Employee’s termination of employment, and does not revoke such Agreement and Release such that it
becomes effective by its terms prior to the sixtieth (60th) day following the Employee’s termination of employment, the
Employee shall be entitled to receive, in lieu of any payments under any severance plan or program for employees or executives,
the following:
(a)
a cash payment equal to one-half (0.5) times the Employee’s annual Base Salary as in effect on the termination
date, plus one-half (0.5) times the Employee’s target Annual Bonus, with the sum of those two amounts payable in a lump sum
within sixty (60) days following the Employee’s termination date;
(b)
reimbursement in cash equal to 100% of the COBRA premiums incurred by the Employee for the Employee and
his eligible dependents under the Employer’s health plans during the six (6) month period following the Employee’s termination
of employment. Such reimbursement shall be provided on the payroll date immediately following the date on which the
Employee remits the applicable premium payment and provides proof of payment to the Company, and shall commence within
sixty (60) days after the Employee’s termination date; provided that the first payment shall include any reimbursements that
would have otherwise been payable during the period beginning on the Employee’s termination date and ending on the date of the
first reimbursement payment. To the extent required by law, reimbursement payments pursuant to this section 6(b) shall be
treated as taxable compensation to the Employee;
(c)
accelerated vesting of any Restricted Shares granted pursuant to Section 2(c) that remain unvested as of the date of
the Employee’s termination of employment, subject to the terms and conditions of the Equity Plan, including the minimum
vesting provisions set forth therein, and the applicable grant agreement, including all vesting provisions therein; and
(d)
the Employer shall have no additional obligations to the Employee.
7.
Cause. The Employer may terminate the Employee’s employment at any time for Cause upon written notice to the
Employee, in which event all payments under this Agreement shall cease, except for any Accrued Obligations, and Employer
shall have no additional obligations to the Employee.
8.
Voluntary Resignation Without Good Reason. The Employee may voluntarily terminate employment without Good
Reason. In such event, after the effective date of such termination, no payments shall be due under this Agreement, except that
the Employee shall be entitled to any Accrued Obligations.
9.
Disability. If the Employee incurs a Disability during the Term, the Employer may terminate the Employee’s employment
on or after the date of Disability. If the Employee’s employment terminates on account of Disability, the Employee shall be
entitled to receive any
Accrued Obligations and employment termination on account of Disability shall be considered a resignation for Good Reason,
triggering the payments and benefits pursuant to Section 6. For purposes of this Agreement, the term “Disability” shall mean the
Employee is eligible to receive long-term disability benefits under the Employer’s long-term disability plan or, if the Employer
does not have a long-term disability plan, the Employee is unable to perform the essential functions of his job, with or without
any reasonable accommodation required by applicable law, for 120 days in any 180-day period.
10.
Death. If the Employee dies during the Term, the Employee’s employment shall terminate on the date of death and the
Employer shall pay to the Employee’s executor, legal representative, administrator or designated beneficiary, as applicable, any
Accrued Obligations. Otherwise, the Employer shall have no further liability or obligation under this Agreement to the
Employee’s executors, legal representatives, administrators, heirs or assigns or any other person claiming under or through the
Employee. For the avoidance of doubt, in the event of such termination, the Employee shall not be eligible to receive any
payments or benefits pursuant to Section 6.
Resignation of Positions. Effective as of the date of any termination of employment, the Employee will resign from all
11.
Company-related positions, including as an officer and director of the Company.
12.
Definitions. For purposes of this Agreement, the following terms shall have the following meanings:
(a)
“Cause” shall be determined by the Board in good faith, and shall mean the Employee’s (1) material breach of this
Agreement, particularly the confidentiality, nonsolicitation, or noncompetition and inventions assignment provisions of the
Agreement; (2) willful or grossly negligent conduct (including, but not limited to, fraud or embezzlement), which was not done at
the direction of the Board, in connection with his employment, which conduct in the reasonable determination of the Board has
had or will have a material detrimental effect on the Employer’s business; (3) conviction of an act of dishonesty, fraud,
embezzlement or theft; (4) engagement in conduct that causes, or is likely to cause, material damage to the property or reputation
of the Employer; (5) failure to perform or refusal to perform the material duties of the Employee’s position (other than by reason
of Disability) after receipt of a written warning from the Board; (6) conviction of a felony or any crime of moral turpitude; or (7)
willful failure to materially comply with the Employer’s code of conduct or employment policies. The Board shall provide
Employee with an opportunity, within seven (7) days after written notice to the Employee, to appear before and address the Board
in connection with the Board’s potential determination of Cause. Notwithstanding anything in this Section to the contrary, the
Employee may not be terminated for Cause related to any wrongdoing whatsoever which occurred on the part of Company, its
Board, or any employees other than the Employee prior to the Effective Date of this Agreement.
(b)
“Agreement and Release” shall mean a separation agreement and general release of any and all claims against the
Employer and all related parties with respect to all matters arising out of the Employee’s employment by the Employer, and the
termination thereof (other
than claims for any entitlements under the terms of this Agreement or under any plans or programs of the Employer under which
the Employee has accrued and is due a benefit), in the form provided by the Company.
(c)
For purposes of this Agreement, “Good Reason” shall mean the occurrence of any of the following, in each case
during the Term without the Employee’s written consent:
i.
any reduction in the Employee’s Base Salary, except as part of an across-the-board reduction in
Base Salary of the Employer’s “chief” level officers of no more than ten percent (10%);
ii.
any material breach by the Company of any material provision of this Agreement or any material
provision of any other agreement between the Employee and the Employer;
iii.
any requirement that Employee relocate more than 50 miles from Charlotte, North Carolina,
without the Employee’s consent;
iv.
the Employer’s failure to obtain an agreement from any successor to Employer to assume and agree
to perform this Agreement in the same manner and to the same extent that Employer would be required to
perform if no succession had taken place, except where such assumption occurs by operation of law; or
v.
a material, adverse change in the Employee’s authority, duties, or responsibilities (other than
temporarily while the Employee is physically or mentally incapacitated or as required by applicable law, and
other than any such change that results from a transaction following which the Company or the Employee’s
business unit comprises a portion of a larger affiliated group).
The Employee cannot terminate employment for Good Reason unless the Employee has provided written notice to the Company
of the existence of the circumstances providing grounds for termination for Good Reason within thirty (30) business days of the
initial existence and Employee’s knowledge of such grounds and the Company has had at least thirty (30) business days from the
date on which such notice is provided to cure such circumstances, if curable.
13.
Section 409A.
i.This Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”) and regulations and other applicable guidance thereunder (together, “Section 409A”), or to qualify for an exemption
thereto. Payment under this Agreement that are subject to Section 409A may only be made upon an event or events and in a
manner permitted by Section 409A. Severance benefits under this Agreement are intended to be exempt from Section 409A
under the “short-term deferral” exception, to the maximum extent applicable, and then under the “separation pay” exception, to
the maximum extent applicable. Notwithstanding anything in this Agreement to the contrary, if required by Section 409A, if the
Employee is considered a “specified employee” for purposes of Section 409A and if payment of any amounts under this
Agreement is required to be delayed for a period of six months after the Employee’s separation from service, as defined in
Section 409A, payment of such amounts shall be delayed as required by Section 409A, and the accumulated amounts shall be
paid to the Employee in a lump-sum payment within 10 days after the end of the six-month period. If the Employee dies during
the postponement period prior to the payment of benefits, the amounts withheld on account of Section 409A shall be paid to the
personal representative of the Employee’s estate within sixty (60) days after the date of the Employee’s death.
ii.All payments to be made upon a termination of employment under this Agreement that are subject to Section 409A may
only be made upon a “separation from service” of the Employee from the Employer under Section 409A of the Code. For
purposes of Section 409A, each payment hereunder shall be treated as a separate payment, and the right to a series of installment
payments under this Agreement shall be treated as a right to a series of separate payments. In no event may the Employee,
directly or indirectly, designate the fiscal year of a payment. Notwithstanding any provision of this Agreement to the contrary, in
no event shall the timing of the Employee’s execution of the Agreement and Release, directly or indirectly, result in the
Employee’s designating the fiscal year of payment of any amounts of deferred compensation subject to Section 409A, and if a
payment that is subject to execution of the Agreement and Release could be made in more than one taxable year, payment shall
be made in the later taxable year.
iii.All taxable reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance
with the requirements of Section 409A, including, where applicable, the requirement that (i) any reimbursement be for expenses
incurred during the period specified in this Agreement, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits
provided, during a fiscal year not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other
fiscal year, (iii) the reimbursement of an eligible expense be made no later than the last day of the fiscal year following the year
in which the expense is incurred, and (iv) the right to reimbursement or in-kind benefits not be subject to liquidation or exchange
for another benefit.
14.
Restrictive Covenants. In consideration of the premises and of the mutual covenants and agreements herein set forth,
including without limitation Employee’s employment and compensation hereunder, including the Inducement Award, and the
Employer’s provision to the Employee of access to the Employer’s business goodwill and Proprietary Information (as defined
below):
iv.Noncompetition. The Employee agrees that during the Employee’s employment with the Company and the twelve (12)
month period following the date on which the Employee’s employment terminates for Cause or without Good Reason, the
Employee will not, without the Board’s express written consent, engage (directly or indirectly) in any Competitive Business in
the United States. The term “Competitive Business” means entity or person that is engaged in a business that is the same as or
substantially similar to the business conducted by the Company during the Employee’s employment, specifically, the purchase of
short term construction loans,
mortgage servicing rights, and assets which are derivates of these Competitive Business does not include an investment banking
business in a field that is unrelated to real estate. The Employee understands and agrees that, given the nature of the business of
the Company and the Employee’s position with the Company, the foregoing geographic scope is reasonable and appropriate.
v.Nonsolicitation of Company Personnel. The Employee agrees that during the twelve (12) month period following the date
on which the Employee’s employment terminates for any reason (the “Restriction Period”), the Employee will not, either directly
or through others, hire or attempt to hire any employee, consultant or independent contractor of the Company, or solicit or
attempt to solicit any such person to change or terminate his or her relationship with the Company or otherwise to become an
employee, consultant, volunteer or independent contractor to, for or of any other person or business entity, unless more than
twelve (12) months shall have elapsed between the last day of such person’s employment or service with the Company and the
first day of such solicitation or hiring or attempt to solicit or hire.
vi.Nonsolicitation of Clients and Customers. The Employee agrees that during the Restriction Period, the Employee will not,
either directly or through others, accept solicit, divert or appropriate, or attempt to accept, solicit, divert or appropriate, any client
or customer or actively sought prospective client or customer of the Company for the purpose of providing such client or
customer or actively sought prospective client or customer with services or products competitive with those offered by the
Company during the Employee’s employment with the Company.
vii.Proprietary Information. At all times, the Employee will hold in strictest confidence and will not disclose or use any of the
Proprietary Information (defined below) of the Company, except as such disclosure or use may be required in connection with the
Employee’s work for the Company or as described in Section 14(e) below, or unless the Company expressly authorizes such
disclosure in writing. “Proprietary Information” shall mean any and all confidential and/or proprietary knowledge, data or
information of the Company and its shareholders, including but not limited to information relating to financial matters,
investments, budgets, business plans, marketing plans, personnel matters, business contacts, products, processes, know-how,
designs, methods, improvements, discoveries, inventions, ideas, data, programs, and other works of authorship. However,
Proprietary Information shall not include any information which (1) is generally known to the public or to the industry on the
Effective Date; (2) becomes generally known to the public or in the relevant industry through no fault on Employee; or (3) was
already known to Employee, lawfully and not in violation of any third party’s obligation of confidentiality, prior to Employee’s
employment by Company. In the event of subpoena or other litigation which arises after the termination of this Agreement,
Employee may disclose any Proprietary Information as required by law; provided, however, that Employee will provide
Company with reasonable notice and make a reasonable effort to obtain a protective order.
viii.Reports to Government Entities. Nothing in this Agreement shall prohibit or restrict the Employee from initiating
communications directly with, responding to any inquiry from, providing testimony before, providing confidential information to,
reporting possible violations
of law or regulation to, or filing a claim or assisting with an investigation directly with a self-regulatory authority or a
government agency or entity, including the Equal Employment Opportunity Commission, the Department of Labor, the National
Labor Relations Board, the Department of Justice, the Securities and Exchange Commission, Congress, any agency Inspector
General or any other federal, state, territorial or local regulatory authority (collectively, the “Regulators”), or from making other
disclosures that are protected under the whistleblower provisions of state or federal law or regulation. The Employee does not
need the prior authorization of the Employer to engage in conduct protected by this subsection, and the Employee does not need
to notify the Employer that the Employee has engaged in such conduct. Please take notice that federal law provides criminal and
civil immunity to federal and state claims for trade secret misappropriation to individuals who disclose trade secrets to their
attorneys, courts, or government officials in certain, confidential circumstances that are set forth at 18 U.S.C. §§ 1833(b)(1) and
1833(b)(2), related to the reporting or investigation of a suspected violation of the law, or in connection with a lawsuit for
retaliation for reporting a suspected violation of the law.
ix.Inventions Assignment. The Employee agrees that all inventions, innovations, improvements, developments, methods,
designs, analyses, reports, and all similar or related information which relates to the Company’s actual or anticipated business,
research and development or existing or future products or services and which are conceived, developed or made by the
Employee while employed by the Company (“Work Product”) belong to the Company. The Employee will promptly disclose
such Work Product to the Board and perform all actions reasonably requested by the Board (whether during or after the Term) to
establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other
instruments). If requested by the Company, the Employee agrees to execute any inventions assignment and confidentiality
agreement that is required to be signed by employees of the Employer generally.
x.Return of Company Property and Post-Termination Cooperation. Upon termination of the Employee’s employment with
the Employer for any reason, and at any earlier time Employer requests, the Employee will deliver to the person designated by
the Employer all originals and copies of all documents and property of the Employer that is in the Employee’s possession or
under the Employee’s control or to which the Employee may have access. The Employee will not reproduce or appropriate for
the Employee’s own use, or for the use of others, any property, Proprietary Information or Work Product. Following any
termination of Employee’s employment for any reason, Employee will reasonably cooperate with Company to assist with
existing or future investigations, proceedings, litigation, depositions, subpoenas, or examination involving the Company. For each
day, or part thereof, that Employee provides assistance to Company as contemplated hereunder, Company shall pay Employee an
amount equal to (x) divided by (y), where (x) equals the sum of Base Salary earned immediately prior to termination of
Employee’s employment, and (y) equals 200. In addition, Company will reimburse Employee for reasonable out-of-pocket travel,
lodging and other incidental expenses Employee incurs in providing such assistance. If travel is requested by the Company,
Employee shall make reasonable good faith efforts to travel to such locations as the Company may reasonably request.
xi.Non-Disparagement. The Employee covenants and agrees that, except as set forth in Section 14(e) above, during the
Term, and following termination of the Term, the Employee shall not make any disparaging remarks or communications, written
or oral, regarding the Employer or its services, products, brands, trademarks, directors, officers, employees, consultants, advisors,
licensors, licensees, customers, vendors or others with which it has a business relationship. The Employer covenants and agrees
that during the Term, and following termination of the Term, the Employer shall not authorize any person to make to any person
who is not an officer, employee, consultant, advisor or affiliate of the Company, any disparaging remarks or communications,
written or oral, regarding the Employee.
15.
Legal and Equitable Remedies; Arbitration.
xii.Because the Employee’s services are personal and unique and the Employee has had and will continue to have access to
and has become and will continue to become acquainted with the Proprietary Information of the Company and its affiliates, and
because any breach by the Employee of any of the restrictive covenants contained in Section 14 would result in irreparable injury
and damage for which money damages would not provide an adequate remedy, the Company shall have the right to enforce
Section 14 and any of its provisions by injunction, specific performance or other equitable relief, without bond and without
prejudice to any other rights and remedies that the Company may have for a breach, or threatened breach, of the restrictive
covenants set forth in Section 14. The Employee agrees that in any action in which the Company seeks injunction, specific
performance or other equitable relief, the Employee will not assert or contend that any of the provisions of Section 14 are
unreasonable or otherwise unenforceable.
xiii.Except as otherwise set forth in this Agreement in connection with equitable remedies, any dispute, claim or controversy
arising out of or relating to this Agreement or the Employee’s employment with the Company (collectively, “Disputes”),
including, without limitation, any dispute, claim or controversy concerning the validity, enforceability, breach or termination of
this Agreement, if not resolved by the parties, shall be finally settled by arbitration in accordance with the then-prevailing
Employment Arbitration Rules and Procedures of the American Arbitration Association (“AAA”), as modified herein (“Rules”).
Further, the Employee hereby waives any right to bring on behalf of persons other than the Employee, or to otherwise participate
with other persons in, any class, collective, or representative action (including but not limited to any representative action under
any federal, state or local statute or ordinance). The requirement to arbitrate covers all Disputes (other than disputes which by
statute are not arbitrable) including, but not limited to, claims, demands or actions under the Age Discrimination in Employment
Act (including Older Workers Benefit Protection Act); Americans with Disabilities Act; Civil Rights Act of 1866; Civil Rights
Act of 1991; Employee Retirement Income Security Act of 1974; Equal Pay Act; Family and Medical Leave Act of 1993; Title
VII of the Civil Rights Act of 1964; Fair Labor Standards Act; Fair Employment and Housing Act; any other law, ordinance or
regulation regarding discrimination or harassment or any terms or conditions of employment; and any claim under tort,
contractual, statutory, or constitutional law. There shall be one arbitrator who shall be jointly selected by the parties. If the parties
have not jointly agreed upon an arbitrator within twenty (20) calendar days after
respondent’s receipt of claimant’s notice of intention to arbitrate, either party may request AAA, or such other arbitration
provider as to which the parties agree, to furnish the parties with a list of names from which the parties shall jointly select an
arbitrator. If the parties have not agreed upon an arbitrator within ten (10) calendar days after the transmittal date of such list, then
each party shall have an additional five (5) calendar days in which to strike any names objected to, number the remaining names
in order of preference, and return the list to AAA, or such other arbitration provider as to which the parties agree, which shall
then select an arbitrator in accordance with the Rules. The place of arbitration shall be the United States Virgin Islands. By
agreeing to arbitration, the parties hereto do not intend to deprive any court of its jurisdiction to issue a pre-arbitral injunction,
including, without limitation, with respect to the provisions of Section 14. The arbitration shall be governed by the Federal
Arbitration Act, 9 U.S.C. §§ 1-16. The determination as to arbitrability shall be made by the arbitrator. A party who files in court
a claim that is subject to arbitration hereunder shall, upon request by the other party, immediately withdraw or dismiss such
claim. Judgment upon the award of the arbitrator may be entered in any court of competent jurisdiction. The arbitrator shall: (a)
have authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be
available under applicable law in a court proceeding; and (b) issue a written statement signed by the arbitrator regarding the
disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrator’s essential
findings and conclusions on which the award is based. The Company shall pay all administrative fees of AAA, or such other
arbitration provider as to which the parties agree, in excess of $435 (a typical filing fee in court) and the arbitrator’s fees and
expenses. Each party shall bear its, his or her own costs and expenses (including attorney’s fees) in any such arbitration and, at
the conclusion of the arbitration, the arbitrator shall have the power to award to the prevailing party any and all costs and
expenses incurred with respect to such arbitration, including without limitation, reasonable attorneys’ fees, disbursements and
costs. The prevailing party shall be determined based upon an assessment of which party’s arguments or positions could fairly be
said to have prevailed over the other party’s arguments or positions on major disputed issues in the arbitration. Such assessment
should include evaluation of the following: the amount of the net recovery; the primary issues disputed by the parties; whether
the amount of the award comprises a significant percentage of the amount sought by the claimant; and the most recent settlement
positions of the parties. In the event any portion of this arbitration provision is found unenforceable by a court of competent
jurisdiction, such portion shall become null and void leaving the remainder of this arbitration provision in full force and effect.
The parties agree that all information regarding the arbitration, including any settlement thereof, shall not be disclosed by the
parties hereto, except as otherwise required by applicable law.
xiv.In the event that a party seeks injunctive relief in aid of an arbitration, or if for any reason arbitration is unavailable, the
Employee irrevocably and unconditionally (1) agrees that any legal proceeding arising out of this Agreement shall be brought
solely in the United States District Court for the United States Virgin Islands, or if such court does not have jurisdiction or will
not accept jurisdiction, in any court of general jurisdiction in the United States Virgin Islands, (2) consents to the exclusive
jurisdiction of such court in any such proceeding, and (3) waives any objection to the laying of venue of any such proceeding in
any such court. The Employee also
irrevocably and unconditionally consents to the service of any process, pleadings, notices or other papers.
xv.Notwithstanding anything in this Agreement to the contrary, if the Employee’s employment has been terminated without
Cause or the Employee has resigned for Good Reason and the Employee then breaches any of the Employee’s obligations under
Section 14, the Company shall be obligated to provide to the Employee only the Accrued Obligations and any payments being
made to Employee under Section 6 hereof shall cease, and the Company may require that the Employee repay all amounts
theretofore paid to him pursuant to Section 6 hereof (other than the Accrued Obligations), and in such case, the Employee shall
promptly repay such amounts on the terms determined by the Company.
16.
Survival. The respective rights and obligations of the parties under this Agreement (including, but not limited to, under
Sections 14 and 15) shall survive any termination of the Employee’s employment or termination or expiration of this Agreement
to the extent necessary to the intended preservation of such rights and obligations.
17.
No Mitigation or Set-Off. In no event shall the Employee be obligated to seek other employment or take any other action
by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement, and such amounts
shall not be reduced regardless of whether the Employee obtains other employment. The Company’s and the Employer’s
obligations to make the payments provided for in this Agreement and otherwise to perform their respective obligations hereunder
shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company or the Employer may have against the Employee or others.
Section 280G. In the event of a change in ownership or control of the Company under Section 280G of the Code, if it
18.
shall be determined that any payment or distribution in the nature of compensation (within the meaning of section 280G(b)(2) of
the Code) to or for the benefit of the Employee, whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise (a “Payment”), would constitute an “excess parachute payment” within the meaning of Section
280G of the Code, the aggregate present value of the Payments under this Agreement shall be reduced (but not below zero) to the
Reduced Amount (defined below) if and only if the Accounting Firm (described below) determines that the reduction will
provide the Employee with a greater net after-tax benefit than would no reduction. No reduction shall be made unless the
reduction would provide Employee with a greater net after-tax benefit. The determinations under this Section shall be made as
follows:
xvi.The “Reduced Amount” shall be an amount expressed in present value which maximizes the aggregate present value of
Payments under this Agreement without causing any Payment under this Agreement to be subject to the Excise Tax (defined
below), determined in accordance with Section 280G(d)(4) of the Code. The term “Excise Tax” means the excise tax imposed
under Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax.
xvii.Payments under this Agreement shall be reduced on a nondiscretionary basis in such a way as to minimize the reduction
in the economic value deliverable to the Employee. Where more than one payment has the same value for this purpose and they
are payable at different times, they will be reduced on a pro rata basis. Only amounts payable under this Agreement shall be
reduced pursuant to this Section.
xviii.All determinations to be made under this Section shall be made by an independent certified public accounting firm
selected by the Company and agreed to by the Employee immediately prior to the change-in-ownership or -control transaction
(the “Accounting Firm”). The Accounting Firm shall provide its determinations and any supporting calculations both to the
Company and the Employee within ten (10) days of the transaction. Any such determination by the Accounting Firm shall be
binding upon the Company and the Employee. All of the fees and expenses of the Accounting Firm in performing the
determinations referred to in this Section shall be borne solely by the Company or the Employer.
Notices. All notices and other communications required or permitted under this Agreement or necessary or convenient in
19.
connection herewith shall be in writing and shall be deemed to have been given when hand delivered or mailed by registered or
certified mail, as follows (provided that notice of change of address shall be deemed given only when received):
If to the Company or the Employer, to:
c/o Altisource Asset Management Corporation
5100 Tamarind Reef
Christiansted, VI 00820
Attn: Chair of the Compensation Committee
With a copy (which shall not constitute notice) to:
Doug Flaum
Goodwin Procter LLP
620 Eight Avenue, New York, NY 10018
Dflaum@goodwinlaw.com
If to the Employee, to the most recent address on file with the Employer or to such other names or addresses as the Employer,
or the Employee, as the case may be, shall designate by notice to each other person entitled to receive notices in the manner
specified in this Section.
20. Withholding. All payments under this Agreement shall be made subject to applicable tax withholding, and the Employer
shall withhold from any payments under this Agreement all federal, state, territorial and local taxes as the Employer is required to
withhold pursuant to any law or governmental rule or regulation. The Employee shall bear all expense of, and be solely
responsible for, all federal, state, territorial and local taxes due with respect to any payment received under this Agreement.
Remedies Cumulative; No Waiver. No remedy conferred upon a party by this Agreement is intended to be exclusive of
21.
any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given under
this Agreement or now or hereafter existing at law or in equity. No delay or omission by a party in exercising any right, remedy
or power under this Agreement or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy
or power may be exercised by such party from time to time and as often as may be deemed expedient or necessary by such party
in its sole discretion.
22.
Assignment. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto,
except that the duties and responsibilities of the Employee under this Agreement are of a personal nature and shall not be
assignable or delegable in whole or in part by the Employee. The Employer may assign its rights, together with its obligations
hereunder, in connection with any sale, transfer or other disposition of all or substantially all of its business and assets, and such
rights and obligations shall inure to, and be binding upon, any successor to the business or any successor to substantially all of the
assets of the Employer, as applicable, whether by merger, purchase of stock or assets or otherwise, which successor shall
expressly assume such obligations, and the Employee acknowledges that in such event the obligations of the Employee
hereunder, including but not limited to those under Section 14, will continue to apply in favor of the successor.
23.
Company Policies. This Agreement and the compensation payable hereunder shall be subject to any applicable clawback
or recoupment policies, share trading policies, and other policies that may be implemented by the Board from time to time with
respect to officers of the Company; provided, that the repayment provisions in Sections 2(b) and 15(d) hereof shall not be
modified unless required by applicable statute or regulation or by applicable rule of a regulatory or self-regulatory organization.
24.
Indemnification. In the event the Employee is made, or threatened to be made, a party to any legal action or proceeding,
whether civil or criminal, including any governmental or regulatory proceedings or investigations, by reason of the fact that the
Employee is or was a director or officer of the Company, the Employee shall be indemnified by the Company, except to the
extent such liability is attributable to the Employee’s gross negligence or willful misconduct, and the Company shall pay the
Employee’s related expenses when and as incurred, to the fullest extent permitted by applicable law and the Company’s articles
of incorporation and bylaws. During the Employee’s employment with the Company and after termination of the Employee’s
employment for any reason, the Company shall cover the Employee under the Company’s directors’ and officers’ insurance
policy applicable to other officers and directors according to the terms of such policy. In case any action, proceeding or claim is
brought against the Employee in respect of which the Employee seeks indemnification from the Employer, the Employer shall be
entitled to participate in and, unless a conflict of interest exists between the Employee and the Employer with respect to such
action, proceeding or claim, to assume the defense thereof with counsel reasonably satisfactory to the Employee. In the event that
the Employer advises the Employee that it will contest such a claim for indemnification hereunder, or fails, within thirty (30)
days of receipt of any indemnification notice to notify the Employee,
in writing, of its election to defend, settle or compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the Employee may, at his option, defend, settle or
otherwise compromise or pay such action or claim. In any event, unless and until the Employer elects in writing to assume and
does so assume the defense of any such claim, proceeding or action, the Employee’s costs and expenses arising out of the
defense, settlement or compromise of any such action, claim or proceeding shall be losses subject to indemnification hereunder,
provided that the Company shall pay Employee’s legal fees and expenses for his defense of any such action, claim or proceeding
as such fees and expenses are incurred by Employee and Employee delivers invoices for such fees and expenses to the Company
for payment. The Employee shall cooperate fully with the Employer in connection with any negotiation or defense of any such
action or claim by the Employer and shall furnish to the Employer all information reasonably available to the indemnified party,
which relates to such action or claim.
25.
Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto and supersedes any and all prior
agreements and understandings concerning the Employee’s employment by the Employer. This Agreement may be changed only
by a written document signed by the Employee and the Employer.
26.
Severability. If any provision of this Agreement or application thereof to anyone or under any circumstances is
adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other
provision or application of this Agreement, which can be given effect without the invalid or unenforceable provision or
application, and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. If any
provision is held void, invalid or unenforceable with respect to particular circumstances, it shall nevertheless remain in full force
and effect in all other circumstances.
Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the substantive
27.
and procedural laws of the United States Virgin Islands without regard to rules governing conflicts of law.
Counterparts. This Agreement may be executed in any number of counterparts (including facsimile counterparts), each of
28.
which shall be an original, but all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
EMPLOYER:
AAMC US, INC.
/s/ Indroneel Chatterjee
Name: Indroneel Chatterjee
Title: Chief Executive Officer
Date: January 1, 2021
EMPLOYEE
/s/ Christopher Moltke-Hansen
Name: Christopher Moltke-Hansen
Date: January 1, 2021
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
P. GRAHAM SINGER
Exhibit 10.10
THIS EMPLOYMENT AGREEMENT (this “Agreement”) is entered into by and between AAMC US, Inc. (“Company,”
or “Employer”), and P. Graham Singer (“Employee”) as of January 1, 2021 (“Effective Date”).
WHEREAS, the Employer desires to employ the Employee as General Counsel and Secretary and the Employee desires
to serve in such capacity.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter set forth,
Employer and the Employee hereby agree as follows:
1.
Employment.
(a)
Term. The term of this Agreement shall begin on January 1, 2021 and shall continue until the termination of the
Employee’s employment (the “Term”)
(b)
Duties. During the Term, the Employee shall serve as General Counsel and Secretary of the Employer, of the
Employer and its parent company, Altisource Asset Management Corporation (“Parent”), with duties, responsibilities and
authority commensurate therewith, and shall report to the Chief Executive Officer and Chairman (“CEO”) of Parent. During the
Term, the Employee shall perform all duties and accept all responsibilities incident to such position as may be reasonably
assigned to the Employee by the CEO. The Employee represents to the Employer that the Employee is not subject to or a party to
any employment agreement, noncompetition covenant, or other agreement that might be alleged to be breached by, or to prohibit
the Employee from, executing this Agreement and performing fully the Employee’s duties and responsibilities hereunder.
Furthermore, the Company represents to the Employee that the Company is not subject to or a party to any agreement that
prohibits the Company from entering into this agreement with the Employee.
(c)
Best Efforts. During the Term, the Employee shall devote his best efforts and substantially all his time and
attention to promote the business and affairs of the Employer and its affiliated entities, and shall be engaged in other business
activities only to the extent that such activities do not materially interfere or conflict with the Employee’s obligations to the
Employer and its affiliated entities hereunder, including, without limitation, obligations pursuant to Section 14 below. The
foregoing shall not be construed as preventing the Employee from (1) serving on civic, educational, philanthropic or charitable
boards or committees, or, with the prior written consent of the Board of Directors of the Employer (“Board”), in its sole
discretion, on corporate boards, and (2) managing personal investments, so long as such activities are permitted under the
Employer’s code of conduct and employment policies and do not violate the provisions of Section 14 below; provided that, the
activities set forth in the preceding clauses (1) and (2) do not materially interfere or conflict with the Employee’s duties or
obligations to the Employer and its affiliated entities and his time commitments with respect thereto, as determined by the Board;
and provided, however, that the Employee may hold, directly or indirectly, solely as a passive
investment, less than five percent (5%) of the outstanding securities of any person or entity which is listed on any national
securities exchange.
(d)
Principal Place of Employment. The Employee understands and agrees that his principal place of employment will
be at the Employer’s office in Charlotte, North Carolina, United States 28209, and that the Employee will be required to travel
for business, including at least quarterly for earnings, Board Meetings, and significant business activities related to Company and
Parent in the course of performing his duties for the Employer.
2.
Compensation.
(a)
Base Salary. During the Term, the Employer shall pay the Employee a base salary (“Base Salary”), at the annual
rate of $250,000, which shall be paid in installments in accordance with the Employer’s normal payroll practices. The
Employee’s Base Salary shall be reviewed annually by the Board pursuant to the normal performance review policies for senior-
level executives and may be adjusted from time to time as the Compensation Committee of the Board (the “Compensation
Committee”) deems appropriate, and shall not be reduced except as part of an across the board reduction in Base Salary of the
Employer’s executives which is no more than 10%. The Compensation Committee may take any actions of the Board pursuant to
this Agreement.
(b)
Annual Bonus; Signing Bonus. The Employee shall be eligible to receive an annual bonus for each fiscal year
during the Term, commencing with the fiscal year 2020, based on the attainment, as determined by the Board in its sole
discretion, of individual and corporate reasonable performance goals and targets established by the Board in its sole discretion
(“Annual Bonus”). The target amount of the Employee’s Annual Bonus for any fiscal year during the Term shall be $250,000,
and Employee shall be eligible to earn an Annual Bonus up to 200% of the Base Salary. In addition, the Employee acknowledges
the receipt of a signing bonus in the amount of $350,000 (the “Signing Bonus”). If within the first year after October 15, 2020,
the Employee’s employment is terminated by the Employee without Good Reason (as defined below) or by the Employer for
Cause (as defined below), the Employee shall promptly repay to the Employer the net amount of the Signing Bonus paid to the
Employee by the Company, and if within the second year after October 15, 2020, the Employee’s employment is terminated by
the Employee without Good Reason or by the Employer for Cause, the Employee shall immediately repay to the Employer fifty
percent (50%) of the net amount of the Signing Bonus paid to the Employee by the Company. For the avoidance of doubt, the
amounts the Employee is required to repay pursuant to the preceding sentence are the entire amount of the Signing Bonus paid by
the Company less any taxes paid by the Employee, or fifty percent (50%) of such amount less any taxes paid by the Employee.
Any Annual Bonus shall be paid after the end of the fiscal year to which it relates, at the same time and under the same terms and
conditions as the bonuses for other executives employed by the Employer; provided that the Employee remains employed by the
Employer on the last day of the fiscal year to which the Annual Bonus applies, and provided further that in no event shall the
Employee’s Annual Bonus be paid later than the fifteenth day of the third month following the last day of the fiscal year to which
the Annual Bonus relates. The
Annual Bonus shall be subject to the terms of any annual bonus plan that is applicable to other executives of the Employer,
except as otherwise provided in this Section 2(b).
(c)
Equity Compensation. As soon as reasonably practicable, the Employer shall grant the Employee the following
equity award (the “Inducement Award”) pursuant to the Altisource Asset Management Corporation 2020 Equity Incentive Plan
(the “Equity Plan”). The Employer shall grant the Employee 5,000 restricted shares of Parent’s stock, subject to the terms of the
Equity Plan as if issued thereunder and subject to the terms of the award agreement established by the Compensation Committee
in connection therewith (the “Restricted Shares”). The Restricted Shares shall vest in three equal installments, on the first three
anniversaries of October 15, 2020, provided that the Employee remains employed by and in good standing with the Employer or
any subsidiary of the Employer through the applicable vesting date. Employee shall be eligible for additional grants under the
Equity Plan as determined by the Board.
Retirement and Welfare Benefits. During the Term, the Employee shall be eligible to participate in any health, life
3.
insurance, long-term disability, retirement and welfare benefit plans and programs sponsored by the Employer, in each case as
may be generally available to senior executives of the Employer, pursuant to the plans’ and programs’ respective terms and
conditions as in effect from time to time. Nothing in this Agreement shall preclude the Employer from terminating or amending
any employee benefit plan or program from time to time after the Effective Date.
4.
Vacation. During the Term, the Employee shall be entitled to at least five (5) weeks of vacation each year and holiday and
sick leave at levels commensurate with those provided to other senior executives of the Company, in accordance with the
Employer’s vacation, holiday and other pay-for-time-not-worked policies.
5.
Business and Other Expenses.
(a)
Business Expenses. The Employer shall reimburse the Employee for all necessary and reasonable travel and other
business expenses incurred by the Employee in the performance of his duties hereunder in accordance with such policies and
procedures as the Employer may adopt generally from time to time for executives, including the Employee’s expenses to review
this contract.
6.
Termination Without Cause; Resignation for Good Reason. The Employer may terminate the Employee’s employment at
any time without Cause, as defined herein. The Employee may initiate a termination of employment by resigning for Good
Reason. Upon termination by the Employer without Cause or resignation by the Employee for Good Reason, the Employee shall
be entitled to receive any accrued but unpaid Base Salary, prorated Annual Bonus based on the prior year’s Annual Bonus, and
business or other expenses incurred up to the date of termination and reimbursable pursuant to Section 5(a), and any benefits
accrued and due under any applicable benefit plans and programs of the Employer, including any vested Restricted Shares
(“Accrued Obligations”), with such Accrued Obligations paid regardless of whether the Employee executes or revokes a written
Agreement and Release (as defined below). In addition, in the event that the Employee is terminated without Cause by the
Employer or
resigns for Good Reason, the Employer shall deliver to the Employee within five (5) days of such termination or resignation an
Agreement and Release and in consideration for the Employee’s compliance with the undertakings set forth in Section 14(a) and
in the other provisions of Section 14, if the Employee executes and delivers to the Company the Agreement and Release within
fifty (50) days of the Employee’s termination of employment, and does not revoke such Agreement and Release such that it
becomes effective by its terms prior to the sixtieth (60th) day following the Employee’s termination of employment, the
Employee shall be entitled to receive, in lieu of any payments under any severance plan or program for employees or executives,
the following:
(a)
a cash payment equal to one-half (0.5) times the Employee’s annual Base Salary as in effect on the termination
date, plus one-half (0.5) times the Employee’s target Annual Bonus, with the sum of those two amounts payable in a lump sum
within sixty (60) days following the Employee’s termination date;
(b)
reimbursement in cash equal to 100% of the COBRA premiums incurred by the Employee for the Employee and
his eligible dependents under the Employer’s health plans during the six (6) month period following the Employee’s termination
of employment. Such reimbursement shall be provided on the payroll date immediately following the date on which the
Employee remits the applicable premium payment and provides proof of payment to the Company, and shall commence within
sixty (60) days after the Employee’s termination date; provided that the first payment shall include any reimbursements that
would have otherwise been payable during the period beginning on the Employee’s termination date and ending on the date of the
first reimbursement payment. To the extent required by law, reimbursement payments pursuant to this section 6(b) shall be
treated as taxable compensation to the Employee;
(c)
accelerated vesting of any Restricted Shares granted pursuant to Section 2(c) that remain unvested as of the date of
the Employee’s termination of employment, subject to the terms and conditions of the Equity Plan, including the minimum
vesting provisions set forth therein, and the applicable grant agreement, including all vesting provisions therein; and
(d)
the Employer shall have no additional obligations to the Employee.
7.
Cause. The Employer may terminate the Employee’s employment at any time for Cause upon written notice to the
Employee, in which event all payments under this Agreement shall cease, except for any Accrued Obligations, and Employer
shall have no additional obligations to the Employee.
8.
Voluntary Resignation Without Good Reason. The Employee may voluntarily terminate employment without Good
Reason. In such event, after the effective date of such termination, no payments shall be due under this Agreement, except that
the Employee shall be entitled to any Accrued Obligations.
9.
Disability. If the Employee incurs a Disability during the Term, the Employer may terminate the Employee’s employment
on or after the date of Disability. If the Employee’s employment terminates on account of Disability, the Employee shall be
entitled to receive any
Accrued Obligations and employment termination on account of Disability shall be considered a resignation for Good Reason,
triggering the payments and benefits pursuant to Section 6. For purposes of this Agreement, the term “Disability” shall mean the
Employee is eligible to receive long-term disability benefits under the Employer’s long-term disability plan or, if the Employer
does not have a long-term disability plan, the Employee is unable to perform the essential functions of his job, with or without
any reasonable accommodation required by applicable law, for 120 days in any 180-day period.
10.
Death. If the Employee dies during the Term, the Employee’s employment shall terminate on the date of death and the
Employer shall pay to the Employee’s executor, legal representative, administrator or designated beneficiary, as applicable, any
Accrued Obligations. Otherwise, the Employer shall have no further liability or obligation under this Agreement to the
Employee’s executors, legal representatives, administrators, heirs or assigns or any other person claiming under or through the
Employee. For the avoidance of doubt, in the event of such termination, the Employee shall not be eligible to receive any
payments or benefits pursuant to Section 6.
Resignation of Positions. Effective as of the date of any termination of employment, the Employee will resign from all
11.
Company-related positions, including as an officer and director of the Company.
12.
Definitions. For purposes of this Agreement, the following terms shall have the following meanings:
(a)
“Cause” shall be determined by the Board in good faith, and shall mean the Employee’s (1) material breach of this
Agreement, particularly the confidentiality, nonsolicitation, or noncompetition and inventions assignment provisions of the
Agreement; (2) willful or grossly negligent conduct (including, but not limited to, fraud or embezzlement), which was not done at
the direction of the Board, in connection with his employment, which conduct in the reasonable determination of the Board has
had or will have a material detrimental effect on the Employer’s business; (3) conviction of an act of dishonesty, fraud,
embezzlement or theft; (4) engagement in conduct that causes, or is likely to cause, material damage to the property or reputation
of the Employer; (5) failure to perform or refusal to perform the material duties of the Employee’s position (other than by reason
of Disability) after receipt of a written warning from the Board; (6) conviction of a felony or any crime of moral turpitude; or (7)
willful failure to materially comply with the Employer’s code of conduct or employment policies. The Board shall provide
Employee with an opportunity, within seven (7) days after written notice to the Employee, to appear before and address the Board
in connection with the Board’s potential determination of Cause. Notwithstanding anything in this Section to the contrary, the
Employee may not be terminated for Cause related to any wrongdoing whatsoever which occurred on the part of Company, its
Board, or any employees other than the Employee prior to the Effective Date of this Agreement.
(b)
“Agreement and Release” shall mean a separation agreement and general release of any and all claims against the
Employer and all related parties with respect to all matters arising out of the Employee’s employment by the Employer, and the
termination thereof (other
than claims for any entitlements under the terms of this Agreement or under any plans or programs of the Employer under which
the Employee has accrued and is due a benefit), in the form provided by the Company.
(c)
For purposes of this Agreement, “Good Reason” shall mean the occurrence of any of the following, in each case
during the Term without the Employee’s written consent:
i.
any reduction in the Employee’s Base Salary, except as part of an across-the-board reduction in
Base Salary of the Employer’s “chief” level officers of no more than ten percent (10%);
ii.
any material breach by the Company of any material provision of this Agreement or any material
provision of any other agreement between the Employee and the Employer;
iii.
any requirement that Employee relocate more than 50 miles from Charlotte, North Carolina,
without the Employee’s consent;
iv.
the Employer’s failure to obtain an agreement from any successor to Employer to assume and agree
to perform this Agreement in the same manner and to the same extent that Employer would be required to
perform if no succession had taken place, except where such assumption occurs by operation of law; or
v.
a material, adverse change in the Employee’s authority, duties, or responsibilities (other than
temporarily while the Employee is physically or mentally incapacitated or as required by applicable law, and
other than any such change that results from a transaction following which the Company or the Employee’s
business unit comprises a portion of a larger affiliated group).
The Employee cannot terminate employment for Good Reason unless the Employee has provided written notice to the Company
of the existence of the circumstances providing grounds for termination for Good Reason within thirty (30) business days of the
initial existence and Employee’s knowledge of such grounds and the Company has had at least thirty (30) business days from the
date on which such notice is provided to cure such circumstances, if curable.
13.
Section 409A.
i.This Agreement is intended to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the
“Code”) and regulations and other applicable guidance thereunder (together, “Section 409A”), or to qualify for an exemption
thereto. Payment under this Agreement that are subject to Section 409A may only be made upon an event or events and in a
manner permitted by Section 409A. Severance benefits under this Agreement are intended to be exempt from Section 409A
under the “short-term deferral” exception, to the maximum extent applicable, and then under the “separation pay” exception, to
the maximum extent applicable. Notwithstanding anything in this Agreement to the contrary, if required by Section 409A, if the
Employee is considered a “specified employee” for purposes of Section 409A and if payment of any amounts under this
Agreement is required to be delayed for a period of six months after the Employee’s separation from service, as defined in
Section 409A, payment of such amounts shall be delayed as required by Section 409A, and the accumulated amounts shall be
paid to the Employee in a lump-sum payment within 10 days after the end of the six-month period. If the Employee dies during
the postponement period prior to the payment of benefits, the amounts withheld on account of Section 409A shall be paid to the
personal representative of the Employee’s estate within sixty (60) days after the date of the Employee’s death.
ii.All payments to be made upon a termination of employment under this Agreement that are subject to Section 409A may
only be made upon a “separation from service” of the Employee from the Employer under Section 409A of the Code. For
purposes of Section 409A, each payment hereunder shall be treated as a separate payment, and the right to a series of installment
payments under this Agreement shall be treated as a right to a series of separate payments. In no event may the Employee,
directly or indirectly, designate the fiscal year of a payment. Notwithstanding any provision of this Agreement to the contrary, in
no event shall the timing of the Employee’s execution of the Agreement and Release, directly or indirectly, result in the
Employee’s designating the fiscal year of payment of any amounts of deferred compensation subject to Section 409A, and if a
payment that is subject to execution of the Agreement and Release could be made in more than one taxable year, payment shall
be made in the later taxable year.
iii.All taxable reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance
with the requirements of Section 409A, including, where applicable, the requirement that (i) any reimbursement be for expenses
incurred during the period specified in this Agreement, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits
provided, during a fiscal year not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other
fiscal year, (iii) the reimbursement of an eligible expense be made no later than the last day of the fiscal year following the year
in which the expense is incurred, and (iv) the right to reimbursement or in-kind benefits not be subject to liquidation or exchange
for another benefit.
14.
Restrictive Covenants. In consideration of the premises and of the mutual covenants and agreements herein set forth,
including without limitation Employee’s employment and compensation hereunder, including the Inducement Award, and the
Employer’s provision to the Employee of access to the Employer’s business goodwill and Proprietary Information (as defined
below):
iv.Noncompetition. The Employee agrees that during the Employee’s employment with the Company and the twelve (12)
month period following the date on which the Employee’s employment terminates for Cause or without Good Reason, the
Employee will not, without the Board’s express written consent, engage (directly or indirectly) in any Competitive Business in
the United States. The term “Competitive Business” means entity or person that is engaged in a business that is the same as or
substantially similar to the business conducted by the Company during the Employee’s employment, specifically, the purchase of
short term construction loans,
mortgage servicing rights, and assets which are derivates of these Competitive Business does not include an investment banking
business in a field that is unrelated to real estate. The Employee understands and agrees that, given the nature of the business of
the Company and the Employee’s position with the Company, the foregoing geographic scope is reasonable and appropriate.
v.Nonsolicitation of Company Personnel. The Employee agrees that during the twelve (12) month period following the date
on which the Employee’s employment terminates for any reason (the “Restriction Period”), the Employee will not, either directly
or through others, hire or attempt to hire any employee, consultant or independent contractor of the Company, or solicit or
attempt to solicit any such person to change or terminate his or her relationship with the Company or otherwise to become an
employee, consultant, volunteer or independent contractor to, for or of any other person or business entity, unless more than
twelve (12) months shall have elapsed between the last day of such person’s employment or service with the Company and the
first day of such solicitation or hiring or attempt to solicit or hire.
vi.Nonsolicitation of Clients and Customers. The Employee agrees that during the Restriction Period, the Employee will not,
either directly or through others, accept solicit, divert or appropriate, or attempt to accept, solicit, divert or appropriate, any client
or customer or actively sought prospective client or customer of the Company for the purpose of providing such client or
customer or actively sought prospective client or customer with services or products competitive with those offered by the
Company during the Employee’s employment with the Company.
vii.Proprietary Information. At all times, the Employee will hold in strictest confidence and will not disclose or use any of the
Proprietary Information (defined below) of the Company, except as such disclosure or use may be required in connection with the
Employee’s work for the Company or as described in Section 14(e) below, or unless the Company expressly authorizes such
disclosure in writing. “Proprietary Information” shall mean any and all confidential and/or proprietary knowledge, data or
information of the Company and its shareholders, including but not limited to information relating to financial matters,
investments, budgets, business plans, marketing plans, personnel matters, business contacts, products, processes, know-how,
designs, methods, improvements, discoveries, inventions, ideas, data, programs, and other works of authorship. However,
Proprietary Information shall not include any information which (1) is generally known to the public or to the industry on the
Effective Date; (2) becomes generally known to the public or in the relevant industry through no fault on Employee; or (3) was
already known to Employee, lawfully and not in violation of any third party’s obligation of confidentiality, prior to Employee’s
employment by Company. In the event of subpoena or other litigation which arises after the termination of this Agreement,
Employee may disclose any Proprietary Information as required by law; provided, however, that Employee will provide
Company with reasonable notice and make a reasonable effort to obtain a protective order.
viii.Reports to Government Entities. Nothing in this Agreement shall prohibit or restrict the Employee from initiating
communications directly with, responding to any inquiry from, providing testimony before, providing confidential information to,
reporting possible violations
of law or regulation to, or filing a claim or assisting with an investigation directly with a self-regulatory authority or a
government agency or entity, including the Equal Employment Opportunity Commission, the Department of Labor, the National
Labor Relations Board, the Department of Justice, the Securities and Exchange Commission, Congress, any agency Inspector
General or any other federal, state, territorial or local regulatory authority (collectively, the “Regulators”), or from making other
disclosures that are protected under the whistleblower provisions of state or federal law or regulation. The Employee does not
need the prior authorization of the Employer to engage in conduct protected by this subsection, and the Employee does not need
to notify the Employer that the Employee has engaged in such conduct. Please take notice that federal law provides criminal and
civil immunity to federal and state claims for trade secret misappropriation to individuals who disclose trade secrets to their
attorneys, courts, or government officials in certain, confidential circumstances that are set forth at 18 U.S.C. §§ 1833(b)(1) and
1833(b)(2), related to the reporting or investigation of a suspected violation of the law, or in connection with a lawsuit for
retaliation for reporting a suspected violation of the law.
ix.Inventions Assignment. The Employee agrees that all inventions, innovations, improvements, developments, methods,
designs, analyses, reports, and all similar or related information which relates to the Company’s actual or anticipated business,
research and development or existing or future products or services and which are conceived, developed or made by the
Employee while employed by the Company (“Work Product”) belong to the Company. The Employee will promptly disclose
such Work Product to the Board and perform all actions reasonably requested by the Board (whether during or after the Term) to
establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other
instruments). If requested by the Company, the Employee agrees to execute any inventions assignment and confidentiality
agreement that is required to be signed by employees of the Employer generally.
x.Return of Company Property and Post-Termination Cooperation. Upon termination of the Employee’s employment with
the Employer for any reason, and at any earlier time Employer requests, the Employee will deliver to the person designated by
the Employer all originals and copies of all documents and property of the Employer that is in the Employee’s possession or
under the Employee’s control or to which the Employee may have access. The Employee will not reproduce or appropriate for
the Employee’s own use, or for the use of others, any property, Proprietary Information or Work Product. Following any
termination of Employee’s employment for any reason, Employee will reasonably cooperate with Company to assist with
existing or future investigations, proceedings, litigation, depositions, subpoenas, or examination involving the Company. For each
day, or part thereof, that Employee provides assistance to Company as contemplated hereunder, Company shall pay Employee an
amount equal to (x) divided by (y), where (x) equals the sum of Base Salary earned immediately prior to termination of
Employee’s employment, and (y) equals 200. In addition, Company will reimburse Employee for reasonable out-of-pocket travel,
lodging and other incidental expenses Employee incurs in providing such assistance. If travel is requested by the Company,
Employee shall make reasonable good faith efforts to travel to such locations as the Company may reasonably request.
xi.Non-Disparagement. The Employee covenants and agrees that, except as set forth in Section 14(e) above, during the
Term, and following termination of the Term, the Employee shall not make any disparaging remarks or communications, written
or oral, regarding the Employer or its services, products, brands, trademarks, directors, officers, employees, consultants, advisors,
licensors, licensees, customers, vendors or others with which it has a business relationship. The Employer covenants and agrees
that during the Term, and following termination of the Term, the Employer shall not authorize any person to make to any person
who is not an officer, employee, consultant, advisor or affiliate of the Company, any disparaging remarks or communications,
written or oral, regarding the Employee.
15.
Legal and Equitable Remedies; Arbitration.
xii.Because the Employee’s services are personal and unique and the Employee has had and will continue to have access to
and has become and will continue to become acquainted with the Proprietary Information of the Company and its affiliates, and
because any breach by the Employee of any of the restrictive covenants contained in Section 14 would result in irreparable injury
and damage for which money damages would not provide an adequate remedy, the Company shall have the right to enforce
Section 14 and any of its provisions by injunction, specific performance or other equitable relief, without bond and without
prejudice to any other rights and remedies that the Company may have for a breach, or threatened breach, of the restrictive
covenants set forth in Section 14. The Employee agrees that in any action in which the Company seeks injunction, specific
performance or other equitable relief, the Employee will not assert or contend that any of the provisions of Section 14 are
unreasonable or otherwise unenforceable.
xiii.Except as otherwise set forth in this Agreement in connection with equitable remedies, any dispute, claim or controversy
arising out of or relating to this Agreement or the Employee’s employment with the Company (collectively, “Disputes”),
including, without limitation, any dispute, claim or controversy concerning the validity, enforceability, breach or termination of
this Agreement, if not resolved by the parties, shall be finally settled by arbitration in accordance with the then-prevailing
Employment Arbitration Rules and Procedures of the American Arbitration Association (“AAA”), as modified herein (“Rules”).
Further, the Employee hereby waives any right to bring on behalf of persons other than the Employee, or to otherwise participate
with other persons in, any class, collective, or representative action (including but not limited to any representative action under
any federal, state or local statute or ordinance). The requirement to arbitrate covers all Disputes (other than disputes which by
statute are not arbitrable) including, but not limited to, claims, demands or actions under the Age Discrimination in Employment
Act (including Older Workers Benefit Protection Act); Americans with Disabilities Act; Civil Rights Act of 1866; Civil Rights
Act of 1991; Employee Retirement Income Security Act of 1974; Equal Pay Act; Family and Medical Leave Act of 1993; Title
VII of the Civil Rights Act of 1964; Fair Labor Standards Act; Fair Employment and Housing Act; any other law, ordinance or
regulation regarding discrimination or harassment or any terms or conditions of employment; and any claim under tort,
contractual, statutory, or constitutional law. There shall be one arbitrator who shall be jointly selected by the parties. If the parties
have not jointly agreed upon an arbitrator within twenty (20) calendar days after
respondent’s receipt of claimant’s notice of intention to arbitrate, either party may request AAA, or such other arbitration
provider as to which the parties agree, to furnish the parties with a list of names from which the parties shall jointly select an
arbitrator. If the parties have not agreed upon an arbitrator within ten (10) calendar days after the transmittal date of such list, then
each party shall have an additional five (5) calendar days in which to strike any names objected to, number the remaining names
in order of preference, and return the list to AAA, or such other arbitration provider as to which the parties agree, which shall
then select an arbitrator in accordance with the Rules. The place of arbitration shall be the United States Virgin Islands. By
agreeing to arbitration, the parties hereto do not intend to deprive any court of its jurisdiction to issue a pre-arbitral injunction,
including, without limitation, with respect to the provisions of Section 14. The arbitration shall be governed by the Federal
Arbitration Act, 9 U.S.C. §§ 1-16. The determination as to arbitrability shall be made by the arbitrator. A party who files in court
a claim that is subject to arbitration hereunder shall, upon request by the other party, immediately withdraw or dismiss such
claim. Judgment upon the award of the arbitrator may be entered in any court of competent jurisdiction. The arbitrator shall: (a)
have authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be
available under applicable law in a court proceeding; and (b) issue a written statement signed by the arbitrator regarding the
disposition of each claim and the relief, if any, awarded as to each claim, the reasons for the award, and the arbitrator’s essential
findings and conclusions on which the award is based. The Company shall pay all administrative fees of AAA, or such other
arbitration provider as to which the parties agree, in excess of $435 (a typical filing fee in court) and the arbitrator’s fees and
expenses. Each party shall bear its, his or her own costs and expenses (including attorney’s fees) in any such arbitration and, at
the conclusion of the arbitration, the arbitrator shall have the power to award to the prevailing party any and all costs and
expenses incurred with respect to such arbitration, including without limitation, reasonable attorneys’ fees, disbursements and
costs. The prevailing party shall be determined based upon an assessment of which party’s arguments or positions could fairly be
said to have prevailed over the other party’s arguments or positions on major disputed issues in the arbitration. Such assessment
should include evaluation of the following: the amount of the net recovery; the primary issues disputed by the parties; whether
the amount of the award comprises a significant percentage of the amount sought by the claimant; and the most recent settlement
positions of the parties. In the event any portion of this arbitration provision is found unenforceable by a court of competent
jurisdiction, such portion shall become null and void leaving the remainder of this arbitration provision in full force and effect.
The parties agree that all information regarding the arbitration, including any settlement thereof, shall not be disclosed by the
parties hereto, except as otherwise required by applicable law.
xiv.In the event that a party seeks injunctive relief in aid of an arbitration, or if for any reason arbitration is unavailable, the
Employee irrevocably and unconditionally (1) agrees that any legal proceeding arising out of this Agreement shall be brought
solely in the United States District Court for the United States Virgin Islands, or if such court does not have jurisdiction or will
not accept jurisdiction, in any court of general jurisdiction in the United States Virgin Islands, (2) consents to the exclusive
jurisdiction of such court in any such proceeding, and (3) waives any objection to the laying of venue of any such proceeding in
any such court. The Employee also
irrevocably and unconditionally consents to the service of any process, pleadings, notices or other papers.
xv.Notwithstanding anything in this Agreement to the contrary, if the Employee’s employment has been terminated without
Cause or the Employee has resigned for Good Reason and the Employee then breaches any of the Employee’s obligations under
Section 14, the Company shall be obligated to provide to the Employee only the Accrued Obligations and any payments being
made to Employee under Section 6 hereof shall cease, and the Company may require that the Employee repay all amounts
theretofore paid to him pursuant to Section 6 hereof (other than the Accrued Obligations), and in such case, the Employee shall
promptly repay such amounts on the terms determined by the Company.
16.
Survival. The respective rights and obligations of the parties under this Agreement (including, but not limited to, under
Sections 14 and 15) shall survive any termination of the Employee’s employment or termination or expiration of this Agreement
to the extent necessary to the intended preservation of such rights and obligations.
17.
No Mitigation or Set-Off. In no event shall the Employee be obligated to seek other employment or take any other action
by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement, and such amounts
shall not be reduced regardless of whether the Employee obtains other employment. The Company’s and the Employer’s
obligations to make the payments provided for in this Agreement and otherwise to perform their respective obligations hereunder
shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company or the Employer may have against the Employee or others.
Section 280G. In the event of a change in ownership or control of the Company under Section 280G of the Code, if it
18.
shall be determined that any payment or distribution in the nature of compensation (within the meaning of section 280G(b)(2) of
the Code) to or for the benefit of the Employee, whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise (a “Payment”), would constitute an “excess parachute payment” within the meaning of Section
280G of the Code, the aggregate present value of the Payments under this Agreement shall be reduced (but not below zero) to the
Reduced Amount (defined below) if and only if the Accounting Firm (described below) determines that the reduction will
provide the Employee with a greater net after-tax benefit than would no reduction. No reduction shall be made unless the
reduction would provide Employee with a greater net after-tax benefit. The determinations under this Section shall be made as
follows:
xvi.The “Reduced Amount” shall be an amount expressed in present value which maximizes the aggregate present value of
Payments under this Agreement without causing any Payment under this Agreement to be subject to the Excise Tax (defined
below), determined in accordance with Section 280G(d)(4) of the Code. The term “Excise Tax” means the excise tax imposed
under Section 4999 of the Code, together with any interest or penalties imposed with respect to such excise tax.
xvii.Payments under this Agreement shall be reduced on a nondiscretionary basis in such a way as to minimize the reduction
in the economic value deliverable to the Employee. Where more than one payment has the same value for this purpose and they
are payable at different times, they will be reduced on a pro rata basis. Only amounts payable under this Agreement shall be
reduced pursuant to this Section.
xviii.All determinations to be made under this Section shall be made by an independent certified public accounting firm
selected by the Company and agreed to by the Employee immediately prior to the change-in-ownership or -control transaction
(the “Accounting Firm”). The Accounting Firm shall provide its determinations and any supporting calculations both to the
Company and the Employee within ten (10) days of the transaction. Any such determination by the Accounting Firm shall be
binding upon the Company and the Employee. All of the fees and expenses of the Accounting Firm in performing the
determinations referred to in this Section shall be borne solely by the Company or the Employer.
Notices. All notices and other communications required or permitted under this Agreement or necessary or convenient in
19.
connection herewith shall be in writing and shall be deemed to have been given when hand delivered or mailed by registered or
certified mail, as follows (provided that notice of change of address shall be deemed given only when received):
If to the Company or the Employer, to:
c/o Altisource Asset Management Corporation
5100 Tamarind Reef
Christiansted, VI 00820
Attn: Chair of the Compensation Committee
With a copy (which shall not constitute notice) to:
Doug Flaum
Goodwin Procter LLP
620 Eight Avenue, New York, NY 10018
Dflaum@goodwinlaw.com
If to the Employee, to the most recent address on file with the Employer or to such other names or addresses as the Employer,
or the Employee, as the case may be, shall designate by notice to each other person entitled to receive notices in the manner
specified in this Section.
20. Withholding. All payments under this Agreement shall be made subject to applicable tax withholding, and the Employer
shall withhold from any payments under this Agreement all federal, state, territorial and local taxes as the Employer is required to
withhold pursuant to any law or governmental rule or regulation. The Employee shall bear all expense of, and be solely
responsible for, all federal, state, territorial and local taxes due with respect to any payment received under this Agreement.
Remedies Cumulative; No Waiver. No remedy conferred upon a party by this Agreement is intended to be exclusive of
21.
any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given under
this Agreement or now or hereafter existing at law or in equity. No delay or omission by a party in exercising any right, remedy
or power under this Agreement or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy
or power may be exercised by such party from time to time and as often as may be deemed expedient or necessary by such party
in its sole discretion.
22.
Assignment. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto,
except that the duties and responsibilities of the Employee under this Agreement are of a personal nature and shall not be
assignable or delegable in whole or in part by the Employee. The Employer may assign its rights, together with its obligations
hereunder, in connection with any sale, transfer or other disposition of all or substantially all of its business and assets, and such
rights and obligations shall inure to, and be binding upon, any successor to the business or any successor to substantially all of the
assets of the Employer, as applicable, whether by merger, purchase of stock or assets or otherwise, which successor shall
expressly assume such obligations, and the Employee acknowledges that in such event the obligations of the Employee
hereunder, including but not limited to those under Section 14, will continue to apply in favor of the successor.
23.
Company Policies. This Agreement and the compensation payable hereunder shall be subject to any applicable clawback
or recoupment policies, share trading policies, and other policies that may be implemented by the Board from time to time with
respect to officers of the Company; provided, that the repayment provisions in Sections 2(b) and 15(d) hereof shall not be
modified unless required by applicable statute or regulation or by applicable rule of a regulatory or self-regulatory organization.
24.
Indemnification. In the event the Employee is made, or threatened to be made, a party to any legal action or proceeding,
whether civil or criminal, including any governmental or regulatory proceedings or investigations, by reason of the fact that the
Employee is or was a director or officer of the Company, the Employee shall be indemnified by the Company, except to the
extent such liability is attributable to the Employee’s gross negligence or willful misconduct, and the Company shall pay the
Employee’s related expenses when and as incurred, to the fullest extent permitted by applicable law and the Company’s articles
of incorporation and bylaws. During the Employee’s employment with the Company and after termination of the Employee’s
employment for any reason, the Company shall cover the Employee under the Company’s directors’ and officers’ insurance
policy applicable to other officers and directors according to the terms of such policy. In case any action, proceeding or claim is
brought against the Employee in respect of which the Employee seeks indemnification from the Employer, the Employer shall be
entitled to participate in and, unless a conflict of interest exists between the Employee and the Employer with respect to such
action, proceeding or claim, to assume the defense thereof with counsel reasonably satisfactory to the Employee. In the event that
the Employer advises the Employee that it will contest such a claim for indemnification hereunder, or fails, within thirty (30)
days of receipt of any indemnification notice to notify the Employee,
in writing, of its election to defend, settle or compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the Employee may, at his option, defend, settle or
otherwise compromise or pay such action or claim. In any event, unless and until the Employer elects in writing to assume and
does so assume the defense of any such claim, proceeding or action, the Employee’s costs and expenses arising out of the
defense, settlement or compromise of any such action, claim or proceeding shall be losses subject to indemnification hereunder,
provided that the Company shall pay Employee’s legal fees and expenses for his defense of any such action, claim or proceeding
as such fees and expenses are incurred by Employee and Employee delivers invoices for such fees and expenses to the Company
for payment. The Employee shall cooperate fully with the Employer in connection with any negotiation or defense of any such
action or claim by the Employer and shall furnish to the Employer all information reasonably available to the indemnified party,
which relates to such action or claim.
25.
Entire Agreement. This Agreement sets forth the entire agreement of the parties hereto and supersedes any and all prior
agreements and understandings concerning the Employee’s employment by the Employer. This Agreement may be changed only
by a written document signed by the Employee and the Employer.
26.
Severability. If any provision of this Agreement or application thereof to anyone or under any circumstances is
adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other
provision or application of this Agreement, which can be given effect without the invalid or unenforceable provision or
application, and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. If any
provision is held void, invalid or unenforceable with respect to particular circumstances, it shall nevertheless remain in full force
and effect in all other circumstances.
Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the substantive
27.
and procedural laws of the United States Virgin Islands without regard to rules governing conflicts of law.
Counterparts. This Agreement may be executed in any number of counterparts (including facsimile counterparts), each of
28.
which shall be an original, but all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
EMPLOYER:
AAMC US, INC.
/s/ Indroneel Chatterjee
Name: Indroneel Chatterjee
Title: Chief Executive Officer
Date: January 1, 2021
EMPLOYEE
/s/ P. Graham Singer
Name: P. Graham Singer
Date: January 1, 2021
Subsidiaries of Altisource Asset Management Corporation
Exhibit 21
Name of Entity
Jurisdiction of Incorporation
AAMC US, Inc.
Altisource Consulting S.á r.l
River Business Solutions Private Limited
NewSource Reinsurance Company Ltd.
AAMC CM WY, LLC
AAMC EBO Fund Holdings, LLC
AAMC GP, LLC
AAMC Real Estate Strategies Offshore Fund 1 (Cayman), LP (f/k/a AAMC EBO Offshore Fund 1 (Cayman),
LP)
AAMC Real Estate Strategies Blocker, LLC (f/k/a AAMC EBO Blocker 1, LLC)
AAMC Real Estate Strategies Onshore Fund 1 (DE), LP (f/k/a AAMC EBO Onshore Fund 1 (DE), LP)
AAMC Real Estate Strategies Master Fund, LP (f/k/a AAMC EBO Master Fund, LP)
Delaware
Luxembourg
India
Bermuda
Wyoming
Wyoming
Delaware
Cayman Islands
Delaware
Delaware
Delaware
Exhibit 23
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
1) Registration Statement (Form S-8 No. 333-185947) of Altisource Asset Management Corporation
2) Registration Statement (Form S-8 No. 333-194112) of Altisource Asset Management Corporation
3) Registration Statement (Form S-3 No. 333-195997) of Altisource Asset Management Corporation
4) Registration Statement (Form S-8 No. 333-236151) of Altisource Asset Management Corporation
5) Registration Statement (Form S-8 No. 333-251561) of Altisource Asset Management Corporation
of our reports dated March 3, 2021, with respect to the consolidated financial statements of Altisource Asset Management Corporation and the
effectiveness of internal control over financial reporting of Altisource Asset Management Corporation included in this Annual Report (Form 10-K) of
Altisource Asset Management Corporation for the year ended December 31, 2020.
/s/ Ernst & Young LLP
Atlanta, Georgia
March 3, 2021
Exhibit 31.1
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Indroneel Chatterjee, certify that:
1. I have reviewed this Annual Report on Form 10-K of Altisource Asset Management Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for
the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
Registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 3, 2021
By:
/s/
Indroneel Chatterjee
Indroneel Chatterjee
Chief Executive Officer
Exhibit 31.2
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Christopher D. Moltke-Hansen, certify that:
1. I have reviewed this Annual Report on Form 10-K of Altisource Asset Management Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for
the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
Registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 3, 2021
By:
/s/
Christopher D. Moltke-Hansen
Christopher D. Moltke-Hansen
Chief Financial Officer
Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The undersigned, the Chief Executive Officer of Altisource Asset Management Corporation (the “Company”), hereby certifies on the date hereof, pursuant
to 18 U.S.C. §1350(a), as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K for the year ended
December 31, 2020 (“Form 10-K”), filed concurrently herewith by the Company, fully complies with the requirements of Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934, as amended, and that the information contained in the Form 10-K fairly presents, in all material respects, the financial
condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished
to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.1
Date: March 3, 2021
By:
/s/
Indroneel Chatterjee
Indroneel Chatterjee
Chief Executive Officer
Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The undersigned, the Chief Financial Officer of Altisource Asset Management Corporation (the “Company”), hereby certifies on the date hereof, pursuant
to 18 U.S.C. §1350(a), as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, that the Annual Report on Form 10-K for the year ended
December 31, 2020 (“Form 10-K”), filed concurrently herewith by the Company, fully complies with the requirements of Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934, as amended, and that the information contained in the Form 10-K fairly presents, in all material respects, the financial
condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished
to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
Date: March 3, 2021
By:
/s/
Christopher D. Moltke-Hansen
Christopher D. Moltke-Hansen
Chief Financial Officer