STOCKHOLDER OUTREACHAND RESULTSOF 2019 SAY-ON-PAY VOTE
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Proxy Summary
DELIVERING SIGNIFICANT VALUE FOR STOCKHOLDERS
12.4%(1)
Economic return in 2017, which represents the change in book value plus dividends declared over the year | | 32%
Total shareholder return in 2017, the single best year in the last decade | | 883%
Total shareholder return since Annaly’s IPO (including reinvestment of dividends) |
Since 2014 (the first full year the Company was externally-managed, as more fully described in “Management Structure” on page38), Annaly has performed well against relevant benchmarks. As illustrated by the graphs below, shares of the Company’s common stock (including reinvestment of dividends) have returned significant value to stockholders over the long term relative to both the Company’s mREIT peers and other yield-focused investments.
Total Shareholder Return since 2014(2) |
 |
2017 Total Shareholder Return(2) |
 |
(1) | Economic return is shown for full year 2017 and represents change in book value plus dividends declared over prior period book value.
|
(2) | Source: Bloomberg. mREITs represent BBREMTG Index. Utilities represent the Russell 3000 Utilities Index. MLPs represent the Alerian MLP Index. Asset Managers represent the S&P 500 Asset Management and Custody Bank Index. Banks represent the KBW Bank Index. S&P represents the S&P 500 index. Note: Total shareholder return shown for period of December 31, 2013 to December 31, 2017 in top graph. Total shareholder return shown for period of December 31, 2016 to December 31, 2017 in bottom graph.
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10 | Annaly Capital Management Inc. 2018 Proxy Statement | |
100% of top 100 institutional investors
included in 2019-2020
outreach efforts |
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| | | ~90% Proxy Summary
STOCKHOLDER OUTREACH AND RESULTS OF 2017 SAY-ON-PAY VOTE
of all institutional investors
included in 2019-2020
outreach efforts | | | 7100+
one-on-one meetings with
Non-deal roadshowsstockholders across the U.S.,
Canada and Europe since 2019 | | 72
One-on-one meetings and phone calls with stockholders | | 100+
Participants attended Annaly’s inaugural Investor Day |
The Company is committed to ongoing engagement with both retail and institutional stockholders through a wide range of mediums. These engagement efforts have yielded meaningful feedback on a variety of topics, including the Company’s diversified investment strategymediums, including:in-person meetings, conferences, phone calls and its corporate governance, compensation and management structures. electronic communication. Following the results of Annaly’s 20172019 advisory resolution on executive compensation (commonly known as a “Say-on-Pay”“Say-on-Pay” vote), which received support from 69%over 83% of votes cast, the Company has continued its multi-pronged stockholder outreach campaign to solicit feedback from key stakeholders on a number of issues, including (i) the Manager’s executive compensation programCompany’s management structure and proposed compensation disclosure, for 2018, board composition(ii) the leadership structure of the Board, (iii) the Company’s stockholder rights framework, and refreshment(iv) the Company’s corporate responsibility and corporateenvironmental, social responsibilityand governance (“ESG”) initiatives. Stockholder Engagement Efforts in 2017 | | Outreach included
approximately | | | Outreach included
approximately | | | Management hosted meetings
with investors representing | | | | | | | |  | | |  | | |  |
The Company’s stockholder outreach efforts to solicit feedback on the Manager’s executive compensation program and the Company’s proposed disclosure were complemented by related initiatives, including:
| ■ | Analysis of market practices at peer companies
| ■ | Advice from compensation consultants
| ■ | Attendance at investor conferences
| ■ | Discussions with proxy advisory services and corporate governance research firms
|
TheseAnnaly’s stockholder engagement efforts generated significant feedback for both the Board and management and have resulted in a number of enhancements to the Company’s management structure and its corporate governance, corporate responsibility and compensation practices and disclosures.disclosures over the last few years. Annaly’s stockholders have been extremely instrumental to, and supportive of, these governance and disclosure enhancements and the Company looks forward to continuing to find innovative ways to engage over the course of 20182020 and beyond.
| The Company’s stockholder outreach is complemented by related initiatives, including: ∎ Analysis of market governance and compensation practices at peer companies ∎ Advice from external advisors, including governance and compensation consultants, Board search firms and proxy solicitors ∎ Attendance at investor conferences ∎ Discussions with proxy advisory services and corporate governance research firms |
2019-2020 STOCKHOLDER ENGAGEMENT EFFORTS | | | | WHAT THE COMPANY HEARD | | Annaly Capital Management Inc. 2018 Proxy Statement | 11WHAT THE COMPANY DID | |
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Proxy Summary
STOCKHOLDER ENGAGEMENT
WHAT THE
COMPANY HEARDOptimize Management Structure | | WHAT THE COMPANY DID∎
| Improve Disclosure to
Enable Fully Informed
Say-on-Pay Vote | | ■Provided additional clarity and transparency on the Manager’s executive compensation program, including disclosure of:
■the portion of the management fee that is allocated to NEO compensation paid by the Manager
■of this compensation, the portion of fixed vs. variable/incentive pay
■the metrics utilized to measure performance to determine variable/ incentive pay
| Further Increase
Alignment of Senior
Executives with
Stockholders | | ■CEO voluntarily increased his stock ownership commitment to $15 million (from his existing requirement of $10 million) and pledged to meet this amount through open market purchases within three years
■Other members of senior management, including the Chief Investment Officer, Chief Credit Officer, Chief Financial Officer and Chief Legal Officer, also committed to voluntarily increase their stock ownership positions beyond the amounts required under their applicable stock ownership guidelines
| Focus on Board
Refreshment and
Diversity | | ■Adopted an enhanced Board self-evaluation process that includes annual assessments of the full Board, each Board committee and individual Directors, which will be facilitated by an external evaluator on a periodic basis
■Assessed all Directors to ensure continued match of skills against the Company’s needs
■Refreshed Board Committee memberships and chairmanships
■Appointed 2 new highly qualified Directors to the Board as of January 1, 2018
■Doubled the number of women Directors (from 2 to 4) as a result of these appointments
■36% of Directors are women
■4 of 11 Directors have tenure of less than 5 years
| Elevate Board Education | | ■Board became a Full Board Member of the National Association of Corporate Directors (NACD), which gives Directors access to an extensive menu of board education programs, along with research on governance trends and board practices
| Expand Corporate
Social Responsibility | | ■Created Public Responsibility A Special Committee of the Board comprised exclusively of Independent Directors was formed to providereview, evaluate and consider alternatives regarding the Company’s external management structure∎ Following this review, in February 2020, the Special Committee unanimously recommended, and the Board unanimously approved, the acquisition of the Manager and the internalization of the Company’s management function ∎ The Internalization, which is expected to close in the second quarter of 2020, should enable stronger alignment of incentives between management and stockholders and enhance the Company’s transparency and disclosure around executive compensation | | Enhance Board Leadership Structure | | ∎ In November 2019, the Board separated the roles of chief executive officer (“CEO”) and Chair of the Board and appointed an Independent Chair of the Board ∎ Separation of these roles reflects the Board’s commitment to independent leadership and is associated with long-term stockholder value and oversight of corporate philanthropy, culture and reputation, social impact investments and initiatives relatedexecutive compensation | Continue to sustainability and public policyFocus on Board Diversity | | ∎ ■The Company partnered with Capital Impact Partners Formalized existing Board practice by amending the Corporate Governance Guidelines to launch a new joint venture dedicated to supporting community development in underserved cities acrossreflect the country
■Recognized in the 2018 Bloomberg Gender-Equality Index, reflecting the Company’sBoard’s commitment to creating a gender equal workplace
seeking out highly qualified women and minority candidates, as well as taking into account other factors that promote principles of diversity | Increase Opportunities for
Stockholder Engagement | | ■Refine DirectorOver-boardingHosted first investor day with over 100 attendees
■Moving to an online format for the Annual Meeting to enable increased stockholder attendance and participation
■Established interactive pre-meeting forum, where stockholders can submit questions in advance of the Annual Meeting
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12 | Annaly Capital Management Inc. 2018 Proxy Statement | | |
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Proxy Summary
ENHANCED DISCLOSURE ON THE MANAGER’S EXECUTIVE COMPENSATION PROGRAM
89.7%
of NEO compensation was variable and paid in the form of performance-based cash incentive bonuses Policy | | 10.3%∎
of NEO compensation was paid in the form of fixed base salaries
| | 16.2%
of the aggregate management fees paid In response to the Manager were allocated by the Manager as NEO compensation |
Over the last two years, the Company has engaged in extensive outreach to understand the information stockholders need in order to fully evaluate the Manager’s executive compensation program for purposes of making an informed Say-on-Pay vote. In response to this feedback, the Manager has provided the information below about the compensation it paid to the NEOs for 2017.
■ | With the exception of Mr. Keyes (who does not receive any direct or indirect compensationrevised policies and commentary from the Manager or the Company for his services as the Company’s CEO, but does have an interest in the fees paid to the Manager as an indirect equityholder of the Manager), each of the NEOs received a base salary and a performance-based cash incentive bonus for 2017.
| ■ | During 2017, the NEOs as a group received aggregate salaries of $2.8 million and aggregate performance-based cash incentive bonuses of $23.9 million from the Manager. These amounts collectively represent 16.2% of the aggregate management fees the Company paid to the Manager during 2017. On an aggregated basis, the NEOs received 10.3% of their total compensation in the form of base salariesleading institutional investors and the remaining 89.7%considerable time commitment and responsibilities associated with board and committee service, the Board has revised its Director “over-boarding” policy
∎ Revised policy further limits the number of outside boards on which Directors can serve: – Directors should not serve on more than three other public company boards in the form of performance-based cash incentive bonuses. | ■ | In determining the cash bonuses it paid to the NEOs for 2017, the Manager considered achievement of both rigorous Company performance metrics,(1)including core return on equity, core return on assets, and operating expenses as a percentage of average equity, along with individual performance objectives.
| ■ | The Manager considered a list of specified peer companies (set forth on page44 under “Company Market Data”), together with advice from the Manager’s compensation consultants, to develop appropriate compensation packages for the NEOs.
|
For additional information about the Manager, the management agreement and executive compensation, see “Certain Relationships and Related Party Transactions,” “Management Structure”, “Compensation Paid by the Manager to the Named Executive Officers” and “Compensation Discussion and Analysis.”
(1) | Each of the core performance metrics referred to in this Proxy Statement, including core return on equity and core return on assets, excludes the premium amortization adjustment, which represents the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds relatedaddition to the Company’s Agency mortgage-backed securities.Board
– Directors who also serve as CEOs or hold equivalent positions at other companies should not serve on more than one other public company board in addition to the Company’s Board |
| Annaly Capital Management Inc. 2018 Proxy Statement | 13 | |
Table of ContentsBOARD COMPOSITION, STRUCTUREAND REFRESHMENT
Proxy Summary
THE MANAGER AND THE MANAGEMENT AGREEMENT
1.05%
The Manager receives a fee equal to 1.05% of the Company’s stockholders’ equity | | 29%
Annaly’s management fee is 29% lower than the industry average of 1.48%(1) | | $276 million
Approximate compensation savings since the Externalization in July 2013(2) |
■ | All of the NEOs are indirect owners and/or employees of the Manager
| ■ | With the exception of Mr. Keyes, each of the other NEOs receives compensation paid by the Manager. Mr. Keyes receives no compensation for his services as CEO, although, as an indirect equityholder of the parent of the Manager, Mr. Keyes has an interest in the fees paid to the Manager
| ■ | The Manager is responsible for the compensation of its employees (including the NEOs other than Mr. Keyes) who provide services to the Company. Annaly does not pay any cash or equity compensation to its executive officers, does not provide pension benefits, perquisites or other personal benefits, and has no employment agreements or arrangements to pay any cash severance upon their termination or a change in control of the Company
| ■ | The Manager receives a flat management fee equal to 1.05% of the Company’s stockholders’ equity (as defined in the Management Agreement), which is used by the Manager to, among other things, pay the compensation and benefits of the Manager’s employees (including the NEOs). However, the Company does not determine the compensation payable by the Manager to the NEOs, the Company does not allocate any specific portion of the management fee it pays to the compensation of the NEOs, nor does the Company reimburse the Manager for the cost of such compensation
| ■ | For 2017, the management fee was approximately $164.3 million
|
Over the past several years, the Manager has made significant investments in personnel corresponding to the diversification of its investment strategy into more people-intensive asset classes (including Residential Credit, Commercial Real Estate and Middle Market Lending assets), as well as to corporate infrastructure enhancements. These investments include the build out of teams for the Agency, Residential Credit, Commercial Real Estate and Middle Market Lending groups, and significant hires in business support functions, such as Risk Management, Legal and Compliance, Finance and Information Technology, among others.
| Investment in Annaly’s People | | | | 91 | | 96% | | Dedicated staff supporting best-in-class Risk Management, Technology, Legal, Finance and Business Development functions | | of employees feel Annaly is committed to exceeding stockholder expectations, compared to the Financial Services average of 88%(3) | | | | | | 10 | | 7 | | Internal development programs in place with 100% employee participation | | Management committees with broad representation designed to provide guidance and oversight |
The costs of these personnel expansions and improvements have been paid by the Manager rather than by the Company. Unlike a number of other externally-managed REITs, Annaly does not reimburse the Manager for any portion or subset of employment costs, all of which are borne by the Manager. An increase to these costs does not result in any increase to the management fee, which is a fixed percentage of stockholders’ equity as described above.
Despite the costs associated with the diversification of its investment strategy, the Manager has continued to operate the business in an efficient manner with appropriately scaled operating costs (including the management fee). As illustrated by the table below, Annaly’s average operating expense levels have remained significantly lower than both its internally- and externally-managed mREIT peers over the last six years.
(1) | The “industry average” reflects the average management fee of all externally-managed companies (excluding Annaly) included in the BBREMTG Index as of December 31, 2017. For additional information, including assumptions, about this calculation, please see “Management Agreement Terms” on pages38 - 39.
| (2) | For additional information, including assumptions, about this calculation, please see “Continued Cost Savings Related to the Externalization” onpage 40.
| (3) | “Financial Services” average is provided by Perceptyx based on a cross section of global and domestic banks, credit card companies, insurance companies, accountancy companies, consumer finance companies, stock brokerages, and investment funds.
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14 | Annaly Capital Management Inc. 2018 Proxy Statement | | |
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Proxy Summary
Operating Expense as a Percentage of Average Equity(1) |
| 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | Average |  | 1.45% | | 1.66% | | 1.61% | | 1.58% | | 1.65% | | 1.68% | | 1.61% | Internally-Managed
Peers | 2.71% | | 3.95% | | 3.92% | | 3.68% | | 2.14% | | 2.10% | | 3.08% | Externally-Managed
Peers | 2.38% | | 3.06% | | 3.55% | | 3.82% | | 4.36% | | 4.00% | | 3.53% | | mREIT Index | 2.33% | | 3.30% | | 3.62% | | 3.80% | | 3.53% | | 3.25% | | 3.30% |
For additional information about the Manager, the management agreement and executive compensation, see “Certain Relationships and Related Party Transactions,” “Management Structure”, “Compensation Paid by the Manager to the Named Executive Officers” and “Compensation Discussion and Analysis.”
GOVERNANCE TIMELINE
Annaly Strives for Best-in-Class Governance Practices |
2013 | | ■Annaly’s proposal to be externally managed received 83% support from stockholders
| | ■Added new Independent Director
| | | | | | 2014 | | | ■Enhanced financial disclosure, includingThe Nominating/Corporate Governance (“NCG”) Committee seeks to achieve a balance of knowledge, experience and capability on the Board. Newer Directors offer fresh ideas and perspectives, while deeply experienced Directors bring extensive knowledge of the Company’s complex operations. The NCG Committee annually evaluates its overall composition and rigorously evaluates individual Directors to ensure a continued match of their skill sets and projected tenure against the needs of the Company. For additional financial metricsinformation about individual Director’s qualifications and experience, please see the Director biographies beginning on page12. | | | ■Added new
| 12 or 73 Independent DirectorDirectors may not stand for re-election upon the earlier of 12 years of service or their 73rd birthday | | | | | | | | | 2021 all Directors will stand for annual election commencing with the 2021 Annual Meeting |
| Continuing Director(1)Diversity |
| | | | | 2015 | | ■Robust Lead Independent Director role created
■Established Risk Committee
■Detailed succession planning process with Board
 | | ■Kevin Keyes appointed as CEO
■Initiated extensive investor outreach
 | |
Skill / Experience Summary of Continuing Directors(1) 
Over the last few years, the Board had adopted a number of enhancements that are intended to result in regular Board refreshment. In December 2018, the Company announced that the Board had amended the Company’s bylaws to declassify the Board beginning with the 2019 annual meeting of stockholders (“2019 Annual Meeting”) with all Directors standing for annual election commencing with the 2021 annual meeting of stockholders (“2021 Note: For footnoted information, please refer to “Board Composition, Structure and Refreshment” in Endnotes section Annual Meeting”). At the same time, the Company disclosed that the Board had adopted an enhanced refreshment policy requiring that Independent Directors may not stand forre-election following the earlier of their 12thanniversary of Board service or their 73rdbirthday. In extraordinary circumstances, the Board may determine that an Independent Director may stand forre-election after having reached such age or term limit for up to three additionalone-year terms. ENVIRNOMENTAL, SOCIALAND GOVERNANCE (“ESG”) As a responsible steward of capital, Annaly takes into account ESG factors that contribute to the Company’s ability to drive positive impacts and deliver attractive risk-adjusted returns over the long term. The Company integrates ESG considerations into its overall strategy and provides information in six key areas: corporate governance, human capital, responsible investments, risk management, ethics and integrity and the environment. | | | | | 2016 | | ■Adopted broad-based stock ownership guidelines for employees
■Increased Board ownership guidelines
| | ■Adopted clawback policy for external manager
■Adopted anti-pledging policy
■Adopted four-year stock holding period
| | | | | | | | | | | | 
| | 2017Corporate
Governance | | | ■Established a new Public Relations Committee; rotated Board Committee chairs and members
■Launched social impact investing joint venture
■Inclusion of Board skills matrix in proxy statement
■Joined Council of Institutional Investors (CII) as corporate member
| | | 
| | ■Human
Designated second Audit Committee financial expertCapital
| | | | | | 
| | ■Responsible
Joined National Association of Corporate Directors (NACD) as Full Board MemberInvestments
■NEOs voluntarily
| Annaly is committed to increase stock ownership positions■Hosted inaugural Investor Day
■Launched Women's Interactive Network
maintaining robust governance practices that benefit the long-term interests of its investors. | | | | | | Annaly’s people are its greatest asset and the Company is committed to promoting its employees’ engagement, development and full potential. | | | | | | Annaly finances housing across the country and supports the vitality of local communities and the economy through its investments. | | | | | | | | | | | | | | | | | | 
| | Risk Management | | | | | | 
| | Ethics and Integrity | | | | | | 
| | Environment | Annaly’s risk management framework is intended to facilitate a holistic, enterprise wide view of risk that supports a strong and collaborative risk management culture across the firm. | | | | | | Annaly strives to conduct its business in accordance with the highest ethical standards. | | | | | | Annaly promotes sustainable and environmentally friendly practices that reduce energy use, decrease waste, increase recycling and lower water consumption in the Company’s daily operations. |
Table of Contents | | | | | 2018 | | ■Added 2 Independent Directors
■Adopted enhanced Board evaluation process, including individual directors assessments and periodic use of external facilitator
| | ■Enhanced compensation and other disclosure in proxy statement
■Included in the 2018 Bloomberg Gender-Equality Index
|
(1) | Source: Company Filings, SNL and Bloomberg. Averages are market weighted based on market capitalization as of December 31st of each respective year. Note: Internally-Managed Peers and Externally-Managed Peers represent the respective internally- and externally-managed members of the BBREMTG Index as of December 31st of each respective year. The average for each excludes Annaly and companies during years in which they became public or first listed. Operating Expense is defined as: (i) for Internally-Managed Peers, the sum of compensation & benefits, general & administrative expenses and other operating expenses, and (ii) for Externally-Managed Peers and Annaly, the sum of net management fees, compensation & benefits (if any), general & administrative expenses and other operating expenses. Annaly’s 2016 operating expenses exclude costs of $49 million related to the Company’s acquisition of Hatteras Financial Corp.
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| Annaly Capital Management Inc. 2018 Proxy Statement | 15Stockholders | |
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Proxy Summary
BOARD COMPOSITION AND REFRESHMENT
4
of 11 Directors have tenure of
less than 5 years | | | | | 82%
of Annaly’s Board of
Directors is comprised of
Independent Directors with
deep and diverse expertiseProxy Summary | | 36%
of Annaly’s Board of
Directors are women |
The Nominating/Corporate Governance Committee (the “NCG Committee”) of the Board seeks to achieve a balance of knowledge, experience and capability on the Board. Newer Directors offer fresh ideas and perspectives, while deeply experienced Directors bring extensive knowledge of the Company’s complex operations. On an annual basis, the NCG Committee evaluates the Board’s overall composition, including Director tenure and rigorously evaluates all Directors to ensure a continued match of their skill sets against the needs of the Company. This assessment also informs Board succession planning, and contributed to the appointment, effective January 1, 2018, of two new Independent Directors (Katie Beirne Fallon and Vicki Williams) with skills that complement the Company’s highly qualified Board. The table below summarizes key qualifications, skills, and attributes most relevant to the Directors’ service on the Board. For additional information about individual Director’s qualifications and experience, please see the Director biographies beginning on page20.
Board Skill / Experience Summary |
16 | Annaly Capital Management Inc. 2018 Proxy Statement1 | | |
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Corporate Governance at Annaly 
(1) | | | | | | DIRECTOR INDEPENDENCE AND OVERSIGHT | | Represents∎ Separate CEO and Independent Chair of the percentage differenceBoard
∎ Majority of operating expense asDirectors are Independent ∎ Regular executive sessions of Independent Directors ∎ Independent key Board Committees (Audit, Compensation and NCG) ∎ Board oversees a percentage of average equitysuccession plan for Annaly vs. the BBREMTG average for 2017.CEO and other senior executives | (2) | Represents the percentage difference of operating expense as a percentage of average assets for Annaly vs. the BBREMTG average for 2017. Notes: Operating Expense is defined as: (i) for internally-managed BBREMTG members, the sum of compensation & benefits, general & administrative expenses and other operating expenses, and (ii) for externally-managed BBREMTG members (including Annaly), the sum of net management fees, compensation & benefits (if any), general & administrative expenses and other operating expenses.
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18 | Annaly Capital Management Inc. 2018 Proxy Statement | | | | | | BOARD REFRESHMENT AND DIVERSITY | | ∎ Board refreshment policy triggered upon earlier of 12 years of service or 73rd birthday – 55% of Continuing Directors(1) have tenure of less than 5 years ∎ Board is committed to seeking out highly qualified women and minority candidates, as well as taking into account other factors that promote principles of diversity – 45% of Continuing Directors(1) are women – 66% of Key Committee(2) leadership positions are held by women | | | | | | | | | | DIRECTOR QUALIFICATIONS AND EVALUATION | | ∎ Annual Board, Committee and individual Director self-evaluations with periodic use of an external facilitator ∎ Comprehensive Board succession planning process ∎ Revised over-boarding policy limits the number of outside public company boards, other than Annaly, on which Directors can serve to three other boards fornon-CEOs and one other board for sitting CEOs ∎ Multiple Audit Committee financial experts | | | | | | | | | | STOCKHOLDER RIGHTS AND ENGAGEMENT | | ∎ All Directors will be elected annually by 2021 Annual Meeting ∎ Majority vote standard for uncontested elections ∎ Annual stockholder advisory vote on executive compensation ∎ Majority voting to approve amendments to the Company’s charter and bylaws ∎ Virtual meeting format enables participation from global stockholder base ∎ Stockholders can submit questions for the Annual Meeting through an interactivepre-meeting forum | | | | | | | | | CORPORATE RESPONSIBILITY & ESG | | ∎ Board created Corporate Responsibility Committee in 2017 ∎ Included in the 2020 Bloomberg Gender-Equality Index for the third consecutive year ∎ Created executive role to lead the Company’s Corporate Responsibility initiatives ∎ Added extensive disclosure on Corporate Responsibility and ESG efforts to corporate website ∎ Established cross-functional Sustainability Leadership Team in 2020 |
Table of Contents
CorporateNote: For footnoted information, please refer to “Corporate Governance at AnnalyAnnaly” in Endnotes section.
| | | | | | | PROPOSAL | | The Company has three classes
Consistent with its commitment to strong corporate governance practices, the Board is in the process of Directors.implementing a declassified Board structure. At the Annual Meeting, stockholders will vote to elect three Class Ieight nominees to serve as Directors (Wellington(Francine J. Denahan, Michael HaylonBovich, Katie Beirne Fallon, David L. Finkelstein, Thomas Hamilton, Kathy Hopinkah Hannan, John H. Schaefer, Glenn A. Votek and Donnell A. Segalas)Vicki Williams), whoseone-year terms will expire at the 2021 Annual Meeting and when their respective successors are duly elected and qualify. Directors elected at the annual meeting of stockholders in 2021 (“2021 Annual Meeting”), one Class III Director (Katie Beirne Fallon, who was appointed to the Board, effective January 1, 2018), whose term will expire at the annual meeting of stockholders in 2020 (“2020 Annual Meeting”), and one Class II Director (Vicki Williams, who was appointed to the Board, effective January 1, 2018), whose term will expire at the annual meeting of stockholders in 2019 (“2019 Annual Meeting”), each subject to the election and qualification of his or her successor or to his or her earlier death, resignation or removal. Other than Ms. Williams and Ms. Fallon, the terms of the other Class II and Class III Directors expire at the 2019 Annual Meeting and the 2020 Annual Meeting, respectively, and2018 will not be voted upon at the Annual Meeting and will serve out the remainder of their three-year terms, which also expire at the 2021 Annual Meeting. All Directors will stand for annual election beginning with the 2021 Annual Meeting. The table below provides summary information about each of the Directors.Directors other than Jonathan D. Green, who has not been renominated as a Director in line with the Board’s refreshment policy. The Company and the Board wish to express their gratitude to Mr. J. Green for his many years of dedicated service on the Board. |  | | | | | | | 
| | The Board has nominated and recommends a voteFOReach of WellingtonFrancine J. Denahan, Michael HaylonBovich, Katie Beirne Fallon, David L. Finkelstein, Thomas Hamilton, Kathy Hopinkah Hannan, John H. Schaefer, Glenn A. Votek and Donnell A. SegalasVicki Williams as Directors, with each to hold office until the 2021 Annual Meeting,FORKatie Beirne Fallon as a Director to hold office and until the 2020 Annual Meeting,their respective successors are duly elected andFORVicki Williams as a Director to hold office until the 2019 Annual Meeting. qualify. Unless you specify a contrary choice, the persons named in the enclosed proxy will vote in favor of these nominees. In the event that these nominees should become unavailable for election due to any presently unforeseen reason, the persons named in the proxy will have the right to use their discretion to vote for a substitute. |
| | Name | | Age | | Principal Occupation | | Independent | | Committees |  | | Wellington J. Denahan | | 54 | | Former Executive Chairman | | No | | ■PR
| | | | | | Annaly Capital Management, Inc. | | | | ■Risk
| | Michael Haylon | | 60 | | Managing Director | | Yes | | ■Audit
| | | | | | Conning, Inc. | | | | ■Risk
| | Donnell A. Segalas | | 60 | | Chief Executive Officer and | | Yes | | ■Compensation
| | | | | | Managing Partner | | | | (Chair)
| | | | | | Pinnacle Asset Management, L.P. | | | | ■NCG
| | | | | | | | | | ■PR
| | | | | | | | | | | |  | | Kevin G. Keyes | | 50 | | Chairman, Chief Executive Officer | | No | | | | | | | | and President | | | | | | | | | | Annaly Capital Management, Inc. | | | | | | Kevin P. Brady | | 62 | | Chief Executive Officer | | Yes | | ■Audit (Chair)
| | | | | | ARMtech, LLC | | | | ■NCG
| | | | | | | | | | ■Risk
| | E. Wayne Nordberg | | 79 | | Chairman | | Yes | | ■Audit
| | | | | | Hollow Brook Wealth Management, LLC | | | | ■Compensation
| | | | | | | | | | ■NCG
| | Vicki Williams | | 45 | | Senior Vice President Compensation, | | Yes | | ■Audit
| | | | | | Benefits and HRIS | | | | ■Compensation
| | | | | | NBCUniversal | | | | | | | | | Name | | Age | | Principal Occupation | | Independent | | Committees | | | | | Director Nominees Standing forOne-Year Terms | | | | | | | | | | |  | | Francine J. Bovich | | 6668 | | Former Managing Director | | Yes | | ■NCG (Chair)
| | | | | |
Morgan Stanley Investment Management | | Yes | | NCG (Chair)
CR | | | | | ■PR
| | | | | Katie Beirne Fallon | | 4244 | | Global Head of Corporate Affairs | | Yes | | ■NCG
| | | | | |
Hilton Worldwide Holdings Inc. | | | | ■PR
| | Jonathan D. Green* | | 71 | | Former Vice Chairman | | Yes | | ■PR (Chair)
CR
NCG | | | | | | Rockefeller Group | | | | ■Compensation
| | | | | | | | | | ■Risk
David L. Finkelstein | | 47 | | Chief Executive Officer & Chief Investment Officer Annaly Capital Management, Inc. | | No | | | | John H. Schaefer | | 66 | | | | | | Thomas Hamilton | | 52 | | Former President and Chief Executive Officer
Construction Forms, Inc. | | Yes | | ■Audit
Risk (Chair)
| | | | | | Chief Operating Officer | | | | ■Audit
| | | | | Kathy Hopinkah Hannan | | 58 | | Former National Managing Partner,
Global Lead Partner
KPMG LLP | | Yes | | Audit (Chair)
NCG | | | | | | | | | | John H. Schaefer | | 68 | | Former President and Chief Operating Officer
Morgan Stanley Global Wealth Management | | Yes | | Risk (Chair)
Audit
Compensation | | | | | | | | | | Glenn A. Votek | | 61 | | Senior Advisor Annaly Capital Management, Inc. | | No | | | | | | | | | | | | Vicki Williams | | 47 | | Chief Human Resources Officer
NBCUniversal | | Yes | | Audit
Compensation | | | | | | | | | | | | | | | | | | | | | | | Directors Whose Current Terms Expire in 2021 | | | | | Wellington J. Denahan■† | | 56 | | Former Executive Chairman and Co-Founder
Annaly Capital Management, Inc. | | No | | CR
Risk | | | | | | | | | | Michael Haylon* | | 62 | | Managing Director and Head of Conning North America
Conning, Inc. | | Yes | | Audit
Risk | | | | | | | | | | Donnell A. Segalas | | 62 | | Chief Executive Officer and Managing Partner
Pinnacle Asset Management, L.P. | | Yes | | Compensation (Chair)
CR, NCG | | | | | |
“NCG” refers to the Nominating/Corporate Governance Committee and “CR” refers to the Corporate Responsibility Committee. | † | Vice Chair of the Board. |
| * | Lead Independent Director. For more details, see page30.Chair of the Board.
|
DIRECTOR NOMINEES STANDINGFOR ONE-YEAR TERMS | Annaly Capital Management Inc. 2018 Proxy Statement | 19 | |
Table of Contents
Corporate Governance at Annaly
CLASS I DIRECTORS
Wellington J. Denahan | Director since
1997
Committees
PR, Risk
| Ms. Denahan co-founded Annaly in 1996 and has served as a Director since that time. Until December 2017, Ms. Denahan served as Chairman of the Board of Annaly (from November 2012) and Executive Chairman of Annaly (from September 2015). Previously, Ms. Denahan served as Chief Executive Officer of Annaly from November 2012 to September 2015 and as Co-Chief Executive Officer of Annaly from October 2012 to November 2012. Ms. Denahan was Annaly’s Chief Operating Officer from January 2006 to October 2012 and Chief Investment Officer from 2000 to November 2012. Ms. Denahan received a B.S. in Finance from Florida State University. |
Director Qualification Highlights | The Board believes that Ms. Denahan’s qualifications include her significant oversight experience related to fixed income trading operations through years of serving as Annaly’s Chief Operating Officer and Chief Investment Officer, her industry experience and expertise in the mortgage-backed securities markets, and her operational expertise, including her service as Annaly’s former Chief Executive Officer. |
Michael Haylon | Director since
2008
Committees
Audit, Risk
| Mr. Haylon has served as Managing Director and Head of Asset Management Sales, Products and Marketing at Conning, Inc., a global provider of investment management solutions, services and research to the insurance industry, since December 2014. Mr. Haylon previously served as Managing Director and Head of Investment Products at Conning, Inc. from January 2012 until December 2014. From September 2010 to December 2011, Mr. Haylon served as Head of Investment Product Management at General Re – New England Asset Management. He was Chief Financial Officer of the Phoenix Companies, Inc. from 2004 until 2007, and Executive Vice President and Chief Investment Officer of the Phoenix Companies in 2002 and 2003. From 1995 until 2002, he held the position of Executive Vice President of Phoenix Investment Partners, Ltd., a NYSE-listed company, and President of Phoenix Investment Counsel, where he was responsible for the management and oversight of $25 billion in closed-end and open-end mutual funds, corporate pension funds and insurance company portfolios. From 1990 until 1994, he was Senior Vice President of Fixed-Income at Phoenix Home Life Insurance Company. From 1986 until 1990, he was Managing Director at Aetna Bond Investors where he was responsible for management of insurance company and pension fund portfolios. From 1980 until 1984, he was a Senior Financial Analyst at Travelers Insurance Companies. He began his career in 1979 in the commercial lending program at Philadelphia National Bank. Mr. Haylon has previously served on the boards of Aberdeen Asset Management and Phoenix Investment Partners. Mr. Haylon received a B.A. from Bowdoin College and a M.B.A. from the University of Connecticut. |
Director Qualification Highlights | The Board believes that Mr. Haylon’s qualifications include his significant leadership and management experience from his years of management and oversight of large financial asset portfolios, his prior board experience with other companies and his expertise in financial matters. |
20 | Annaly Capital Management Inc. 2018 Proxy Statement | | |
Table of Contents
Corporate Governance at Annaly
Donnell A. Segalas | Director since
1997
Committees
Compensation (Chair),
NCG, PR
| Mr. Segalas has served as the Chief Executive Officer and a Managing Partner of Pinnacle Asset Management L.P., a New York-based alternative asset management firm, since 2003. Additionally, Mr. Segalas is a member of Pinnacle’s Investment Committee and sits on the boards of its offshore funds. Prior to joining Pinnacle, Mr. Segalas was Executive Vice President and Chief Marketing Officer for Alternative Investment Products at Phoenix Investment Partners. Mr. Segalas is a member of the Nantucket Historical Society. He received a B.A. from Denison University. |
Director Qualification Highlights | The Board believes that Mr. Segalas’s qualifications include his significant experience from his years of investing and managing private and public investment vehicles and his experience serving on investment and executive committees of other companies. |
CLASS II DIRECTORS
Kevin G. Keyes | Director since
2012
Chairman of the Board
| Mr. Keyes serves as Annaly’s Chairman, Chief Executive Officer and President. Mr. Keyes has served as Chairman since January 2018, Chief Executive Officer since September 2015 and President since October 2012. Previously, Mr. Keyes served as Chief Strategy Officer and Head of Capital Markets of Annaly from September 2010 until October 2012. Prior to joining Annaly as a Managing Director in 2009, Mr. Keyes worked for 20 years in senior investment banking and capital markets roles. From 2005 until 2009, Mr. Keyes served in senior management and business origination roles in the Global Capital Markets and Banking Group at Bank of America Merrill Lynch. Prior to that, he worked at Credit Suisse First Boston from 1997 until 2005 in various capital markets origination roles and Morgan Stanley Dean Witter from 1990 until 1997 in the Mergers and Acquisitions Group and Real Estate Investment Banking Group. Mr. Keyes received a B.A. in Economics and a B.S. in Business Administration (ALPA Program) from the University of Notre Dame. |
Director Qualification Highlights | The Board believes that Mr. Keyes brings to the Board a deep understanding of issues that are important to the Company’s growth through his roles as Annaly’s Chairman, CEO and President, and has demonstrated leadership qualities, management capability, business and industry knowledge and a long-term strategic perspective. In addition, Mr. Keyes’ qualifications include over 20 years of experience as an investment banking and equity capital markets professional. |
Kevin P. Brady | Director since
1997
Committees
Audit (Chair), NCG,
Risk
| Mr. Brady has served as the Chief Executive Officer of ARMtech, LLC, a venture capital firm he founded that invests and incubates technology start-ups, since 2007. ARMtech’s current portfolio includes companies in the financial reporting and data spaces. Prior to ARMtech, Mr. Brady founded TaxStream, a software company that specialized in financial reporting, tax and internal controls for multinational corporations. Mr. Brady served as Chief Executive Officer of TaxStream from 2002 to 2008, when the company was sold to Thomson-Reuters. Mr. Brady previously worked for eight years at PricewaterhouseCoopers in New York City, where he consulted on M&A transactions and international tax issues. He was awarded a patent from the U.S. Patent and Trademark Office for the invention of the TaxStream product. Mr. Brady received a B.A. from McGill University, a M.B.A. from New York University and is a Certified Public Accountant (inactive). |
Director Qualification Highlights | The Board believes that Mr. Brady’s qualifications include his expertise in financial and accounting matters as well as his significant experience managing systems and companies focusing on the financial accounting market. |
| Annaly Capital Management Inc. 2018 Proxy Statement | 21 | |
Table of Contents
Corporate Governance at Annaly
E. Wayne Nordberg | Director since
2004
Committees
Audit, Compensation,
NCG
| Mr. Nordberg has served as Chairman of Hollow Brook Wealth Management, LLC, a SEC-registered investment advisor that manages or advises $900 million of investment assets, since 2008. From 2003 to 2008, Mr. Nordberg served as a senior director of Ingalls & Snyder LLC, an NYSE member and registered investment advisor. From 1998 to 2002, Mr. Nordberg served as Vice Chairman of the board of KBW Asset Management, Inc., an affiliate of Keefe, Bruyette, & Woods, Inc., a registered investment advisor. From 1988 to 1998, he served in various capacities for Lord Abbett & Co., a mutual fund company, including as partner and director of its family of funds. He is a member of the Financial Analysts Federation and the New York Society of Security Analysts and is a Trustee of the Atlantic Salmon Federation, the American Museum of Fly Fishing and the National Wildlife Federation Endowment Fund. Mr. Nordberg is also a director of PetroQuest Energy, Inc. and Reaves Utility Income Fund, both NYSE-listed companies. Mr. Nordberg received a B.A. from Lafayette College, where he is a trustee emeritus. |
Director Qualification Highlights | The Board believes that Mr. Nordberg’s qualifications include his significant experience in serving at a senior executive level with a SEC-registered investment advisor, his experience as a director of an asset management company and his service as a board member of other public companies. |
Vicki Williams | Director since
2018
Committees
Audit, Compensation
| Ms. Williams has served as Senior Vice President, Compensation, Benefits and HRIS at NBCUniversal, a multinational media conglomerate, and has over 17 years of compensation and governance experience. In addition to overseeing Compensation, Benefits and HRIS, she also oversees human resources support for corporate legal, human resources, communications, diversity, social responsibility and corporate events for NBCUniversal. Prior to joining NBCUniversal, Ms. Williams was a Partner with Pay Governance LLC and a Principal with Towers Perrin (now Willis Towers Watson). Ms. Williams received a B.S. in Mathematics and Education and a M.B.A. with a concentration in finance and quantitative statistics, each with honors from the University of Georgia. |
Director Qualification Highlights | The Board believes that Ms. Williams’s qualifications include her broad human resources, executive compensation and governance experience, including serving as a senior-level human resources executive at a multinational company and as an external compensation consultant. |
22 | Annaly Capital Management Inc. 2018 Proxy Statement | | |
Table of Contents
Corporate Governance at Annaly
CLASS III DIRECTORS
| Francine J. Bovich | Director since
2014 2014Committees
Committees
NCG (Chair), PRCR
| | Ms. Bovich has over 30 years of investment management experience lastly serving as a Managing Director of Morgan Stanley Investment Management from 1993-2010.1993 to 2010. Since 2011, Ms. Bovich has been a trustee of The Bradley Trusts. Ms. Bovich has also served as a board member of The BNY Mellon Family of Funds (formerly known as The Dreyfus Family of FundsFunds) since 2012, and serves as a board member of a number of registered investment companies within the fund complex. These funds represent a broad scope of investment strategies including equities (U.S.,non-U.S., global and emerging markets), taxable fixed income (US, non-US,(U.S.,non-U.S., global and emerging markets), municipal bonds, and cash management. From 1991 through 2005, Ms. Bovich served as the U.S. Representative to the United Nations Investment Committee, which advised a global portfolio of approximately $30 billion. Ms. Bovich is a member of the Economic Club of New York and an emeritus trustee of Connecticut College and chair of the InvestmentSub-Committee for its endowment. Ms. Bovich received a B.A. in Economics from Connecticut College and a M.B.A. in Finance from New York University. |
| Director Qualification Highlights | The Board believes that Ms. Bovich’s qualifications include her significant investment management experience and her experience serving as a trustee and board member. |
| | | | Katie Beirne Fallon | Director since
2018 2018Committees
Committees
NCG, PRCR
| | Ms. Fallon has served as Global Head of Corporate Affairs for Hilton Worldwide Holdings Inc. (“Hilton”), a multinational hospitality company, since November 2016, where she is responsible for managing the company’s communications, government relations and corporate responsibility efforts. Prior to Hilton, from 2014 to 2016, Ms. Fallon was Senior Advisor and Director of Legislative Affairs for President Obama. Before becoming the President’s chief liaison to theCapitol Hill, Ms. Fallon served from May 2013 to December 2013 as President Obama’s Deputy Communications Director at the White House where she devised and executed communications strategies for the President to promote his economic agenda across the country. From 2011 until May 2013, Ms. Fallon was the Staff Director of the Senate Democratic Policy and Communications Center in the U.S. Congress. Ms. Fallon’s prior roles in government and politics include Legislative Director to Senator Chuck Schumer(D-NY), Deputy Staff Director of the Joint Economic Committee and Policy Director at the Democratic Senatorial Campaign Committee. Ms. Fallon received a B.A. in Government and International Studies from the University of Notre Dame and as a Marshall Scholar received a M.A. in Conflict Regulation from Queen’s University Belfast, Northern Ireland and a M.Sc. in Comparative Politics from the London School of Economics. |
| Director Qualification Highlights | The Board believes that Ms. Fallon’s qualifications include her significant experience in serving at a senior executive level with a multinational public company and her experience serving as a top leadership aide in the highest levels of the U.S. government. |
| Annaly Capital Management Inc. 2018 Proxy Statement | 23 | |
Table of ContentsDavid L. Finkelstein
Corporate Governance at Annaly
Jonathan D. Green | Director since
1997 Committees
PR (Chair),
Compensation, Risk2020
Lead Independent
Director
| | Mr. GreenFinkelstein has served as a special advisor to Rockefeller Group International, Inc., a wholly owned subsidiary of Mitsubishi Estate Company, Ltd., operating under the brand of the Rockefeller Group, from January 2011 until December 2014. He joined the Rockefeller Group in 1980 as Assistant Vice President and Real Estate Counsel. In 1983, he was appointed Vice President, Secretary and General Counsel, and in 1990 was elected Chief Corporate Officer. In 1995, he was named President and Chief Executive Officer of Rockefellerthe Company since March 2020 and as Chief Investment Officer since November 2016. Previously, Mr. Finkelstein served as the Company’s Chief Investment Officer, Agency and RMBS beginning in February 2015 and as the Company’s Head of Agency Trading beginning in August 2013. Prior to joining the Company in 2013, Mr. Finkelstein served for four years as an Officer in the Markets Group Development Corporation and Rockefeller Center Management Corporation, both subsidiaries of the Rockefeller Group. In 2002,Federal Reserve Bank of New York where he was the primary strategist and policy advisor for the MBS purchase program. Mr. Green was named PresidentFinkelstein has over 20 years of experience in fixed income investment. Prior to the Federal Reserve Bank of New York, Mr. Finkelstein held Agency MBS trading positions at Salomon Smith Barney, Citigroup Inc. and Barclays PLC. Mr. Finkelstein received his B.A. in Business Administration from the University of Washington and his M.B.A. from the University of Chicago, Booth School of Business. Mr. Finkelstein also holds the Chartered Financial Analyst® designation. |
| Director Qualification Highlights | The Board believes that Mr. Finkelstein’s qualifications include his deep expertise in fixed income investments, his experience serving as the Company’s Chief Executive Officer and Chief Investment Officer and his extensive markets and policy experience. |
| | | | Thomas Hamilton | Director since 2019 Committees Audit, Risk | | Mr. Hamilton has served as the President, Chief Executive Officer and Owner of Rockefeller Group International,Construction Forms, Inc., becomingan industrial manufacturing company, since 2013. Prior to his current position, Mr. Hamilton spent 24 years in a number of leadership positions in the financial industry. Most recently, Mr. Hamilton served as a Strategic Advisor to the Global Head of Fixed Income, Currencies and Commodities at Barclays Capital in New York. Mr. Hamilton’s prior roles at Barclays include serving as the Global Head of Securitized Product Trading and Banking, in which capacity he was responsible for the build out of Barclays’ Global Securitized Product businesses, and as the Head of Municipal Trading and Investment Banking. Prior to Barclays, Mr. Hamilton held various Managing Director roles at Citigroup, Inc. and Salomon Brothers, Inc., where he began his career. Mr. Hamilton also serves as Chairman of the Board of Chondrial Therapeutics, Inc., a biotech company he started to cure a rare neurodegenerative disease called Friedreich’s Ataxia. He is also a Director of the Friedreich’s Ataxia Research Alliance, along withCo-Founder of his own charitable scientific effort, the CureFA Foundation. Mr. Hamilton received a B.S. in Finance from the University of Dayton. |
| Director Qualification Highlights | The Board believes that Mr. Hamilton’s qualifications include his expertise in fixed income, mortgage-related assets, strategies and markets and significant leadership experience. |
| | | | Kathy Hopinkah Hannan, PhD, CPA | Director since 2019 Committees Audit (Chair), NCG | | Dr. Hannan is a former Global Lead Partner, National Managing Partner and Vice Chairman in January 2009. Heof KPMG, LLP, the U.S. member firm of the global audit, tax and advisory services firm KPMG International. Dr. Hannan has over 30 years of industry experience and held numerous leadership roles during her distinguished career with KPMG. From 2015 until her 2018 retirement, Dr. Hannan served as Vice Chairman until December 2010.Global Lead Partner, Senior Advisor for KPMG’s Board Leadership Center and National Leader Total Impact Strategy. Dr. Hannan also served as the Midwest Area Managing Partner for KPMG’s Tax Services from 2004 to 2009. Subsequent to that role, from 2009 to 2015, Dr. Hannan served as the National Managing Partner of Diversity and Corporate Responsibility. While at KPMG, Dr. Hannan also founded the KPMG Women’s Advisory Board. In his roleaddition to her roles at KPMG, as Vice Chairman, Mr. Green was active in formulatinga Native American Indian and member of the strategic planning for the company and its subsidiaries, which include Rockefeller Group Development Corporation, Rockefeller Group Investment Management, Rockefeller Group Technology Solutions, Inc. and Rockefeller Group Business Centers. Before joining the Rockefeller Group, Mr. Green was associated with the New York City law firm of Thacher, Proffitt & Wood. He alsoHo-Chunk Nation Tribe, Dr. Hannan served on President George W. Bush’s National Advisory Council on Indian Education. Currently, Dr. Hannan serves on the board of trusteesdirectors of Otis Elevator Co., as Chairman of the Wildlife Conservation Society. Mr. Green graduatedBoard & National President for Girl Scouts of the USA, is a member of the Board of Trustees and Executive Committee of the Smithsonian National Museum of the American Indian, is a Trustee of the Committee for Economic Development in Washington D.C. and is an active member of Women Corporate Directors. Dr. Hannan received a Ph.D. in Leadership Studies from Lafayette CollegeBenedictine University and a B.A. from Loras College. She is also a graduate of the Chicago Management Institute at the University of Chicago, Booth School of Business and the New York University SchoolInstitute of Law.Comparative Political & Economic Systems at Georgetown University. |
| Director Qualification Highlights | The Board believes that Mr. Green’sDr. Hannan’s qualifications include hisher expertise in financial, tax and accounting matters as well as her significant experience as a chief executive, his diversein enterprise sustainability, corporate governance and significant background in the real estate industry and his legal expertise.organizational effectiveness. |
| | | | John H. Schaefer | Director since
2013 2013Committees
Committees
Risk (Chair), Audit,
Compensation
| | Mr. Schaefer has over 40 years of financial services experience including serving as a member of the management committee of Morgan Stanley from 1998 through 2005. He was President and Chief Operating Officer of the Global Wealth Management division of Morgan Stanley from 2000 to 2005. Mr. Schaefer was Executive Vice President and Chief Strategic and Administrative Officer of Morgan Stanley from 1998 to 2000. From 1997 to 1998, he was Managing Director and Head of Strategic Planning and Capital Management. Prior to the 1997 merger of Dean Witter, Discover and Morgan Stanley, Mr. Schaefer was Executive Vice President, Investment Banking and Head of Corporate Finance at Dean Witter, a position he had held since 1991. He began his investment banking career at E.F. Hutton & Company in 1976. Mr. Schaefer served as a board member and chair of the audit committee of USI Holdings Corporation from 2008 through 2012. He received a B.B.A. in Accounting from the University of Notre Dame and a M.B.A. from the Harvard Graduate School of Business. |
| Director Qualification Highlights | The Board believes that Mr. Schaefer’s qualifications include his broad financial services management experience, including management of strategic planning, capital management, human resources, internal audit and corporate communications, as well as his board and audit committee experience. |
| | | | Glenn A. Votek | Director since 2019 | | Glenn A. Votek has served as Senior Advisor to the Company since March 2020. Previously, Mr. Votek served as the Company’s Interim CEO and President from November 2019 until March 2020 and as its Chief Financial Officer from August 2013 through December 2019. Mr. Votek has over 30 years of experience in financial services. Prior to joining the Company in 2013, Mr. Votek was an Executive Vice President and Treasurer at CIT Group since 1999 and also President of Consumer Finance since 2012. Prior to that, he worked at AT&T and its finance subsidiary from 1986 to 1999 in various financial management roles. Mr. Votek holds a B.S. in Finance and Economics from Kean University/University of Arizona, a M.B.A in Finance from Rutgers University and attended the Executive Education Program of the Colgate W. Darden Graduate School of Business Administration at the University of Virginia. |
| Director Qualification Highlights | The Board believes that Mr. Votek’s qualifications include his extensive knowledge of the Company’s operations and assets through his tenures as the Company’s former Interim CEO and President and former Chief Financial Officer, his significant leadership experience and his financial and accounting expertise. |
| | | | Vicki Williams | Director since 2018 Committees Audit, Compensation | | Ms. Williams has 20 years of compensation and governance experience. Ms. Williams has served as Chief Human Resources Officer for NBCUniversal, a multinational media conglomerate, since July 2018, where she is responsible for the company’s global human resources function, including compensation, benefits, development and learning, talent acquisition, executive search, HR systems, and the HR service center. Ms. Williams previously served as Senior Vice President, Compensation, Benefits and HRIS at NBCUniversal beginning in 2011. Prior to joining NBCUniversal, Ms. Williams was a Partner with Pay Governance LLC and a Principal with Towers Perrin (now Willis Towers Watson). Ms. Williams received a B.S. in Education with a concentration in mathematics education and a M.B.A. with a concentration in finance and quantitative statistics, each with honors from the University of Georgia. |
| Director Qualification Highlights | The Board believes that Ms. Williams’ qualifications include her broad human resources, executive compensation and governance experience, including serving as chief human resources officer at a multinational company and as an external compensation consultant. |
DIRECTORS WHOSE CURRENT TERMS EXPIREIN 2021 | | | | Wellington J. Denahan | Director since 1997 Committees CR, Risk Vice Chair of the Board | | Ms. Denahanco-founded the Company in 1996 and has served as a Director since the Company’s initial public offering. Until December 2017, Ms. Denahan served as Chairman of the Board of the Company (from November 2012) and Executive Chairman of the Company (from September 2015). Previously, Ms. Denahan served as CEO of the Company from November 2012 to September 2015 and asCo-Chief Executive Officer of the Company from October 2012 to November 2012. Ms. Denahan was the Company’s Chief Operating Officer from January 2006 to October 2012 and Chief Investment Officer from 2000 to November 2012. Ms. Denahan received a B.S. in Finance from Florida State University. |
| Director Qualification Highlights | The Board believes that Ms. Denahan’s qualifications include her significant oversight experience related to fixed income trading operations through years of serving as the Company’s Chief Operating Officer and Chief Investment Officer, her industry experience and expertise in the mortgage-backed securities markets, and her operational expertise, including her service as the Company’s former CEO. |
| | | | Michael Haylon | Director since 2008 Committees Audit, Risk Independent Chair of the Board | | Mr. Haylon has served as Managing Director and Head of Conning North America at Conning, Inc., a global provider of investment management solutions, services and research to the insurance industry, since June 2018. Mr. Haylon has served as a Managing Director at Conning, Inc. since January 2012 and previously served as Head of Asset Management Sales, Products and Marketing from December 2014 until June 2018 and as Head of Investment Products from January 2012 until December 2014. From September 2010 to December 2011, Mr. Haylon served as Head of Investment Product Management at General Re – New England Asset Management. He was Chief Financial Officer of the Phoenix Companies, Inc. from 2004 until 2007, and Executive Vice President and Chief Investment Officer of the Phoenix Companies in 2002 and 2003. From 1995 until 2002, he held the position of Executive Vice President of Phoenix Investment Partners, Ltd., and President of Phoenix Investment Counsel, where he was responsible for the management and oversight of $25 billion inclosed-end andopen-end mutual funds, corporate pension funds and insurance company portfolios. Mr. Haylon has previously served on the boards of Aberdeen Asset Management and Phoenix Investment Partners. Mr. Haylon received a B.A. from Bowdoin College and a M.B.A. from the University of Connecticut. |
| Director Qualification Highlights | The Board believes that Mr. Haylon’s qualifications include his significant leadership and management experience from his years of management and oversight of large financial asset portfolios, his prior board experience with other companies and his expertise in financial matters. |
| | | | Donnell A. Segalas | Director since 1997 Committees Compensation (Chair),
NCG, CR | | Mr. Segalas has served as the CEO and a Managing Partner of Pinnacle Asset Management L.P. (“Pinnacle”), a New York-based alternative asset management firm, since 2003. Additionally, Mr. Segalas is a member of Pinnacle’s Investment Committee and sits on the boards of its offshore funds. Prior to joining Pinnacle, Mr. Segalas was Executive Vice President and Chief Marketing Officer for Alternative Investment Products at Phoenix Investment Partners. Mr. Segalas is a member of the Nantucket Historical Society. He received a B.A. from Denison University. |
| Director Qualification Highlights | The Board believes that Mr. Segalas’ qualifications include his significant experience from his years of investing and managing private and public investment vehicles and his experience serving on investment and executive committees of other companies. |
RECENT CORPORATE GOVERNANCEAND CORPORATE RESPONSIBILITY HIGHLIGHTS | The Company is committed to continually enhancing its corporate governance
and corporate responsibility practices |
| | | | | | 2017 | | ∎ Established Corporate Responsibility Committee ∎ Rotated Board Committee chairs and members ∎ Launched social impact investing joint venture ∎ Included Board skills matrix in proxy statement | | ∎ Launched Women’s Interactive Network (“WIN”) ∎ Designated second Audit Committee financial expert ∎ Joined National Association of Corporate Directors (“NACD”) ∎ Hosted inaugural Investor Day | | | | | | | 2018 | | ∎ Added two new Independent Directors ∎ Adopted enhanced Board evaluation process, including individual Directors assessments and periodic use of external facilitator ∎ Amended bylaws to declassify Board over three year period with all Directors standing for annual election commencing with the 2021 Annual Meeting ∎ Recognized in the 2018 Bloomberg Gender-Equality Index | | ∎ Created new executive role to lead the Company’s Corporate Responsibility and ESG initiatives ∎ Instructed Board search firm to present equal representation in the slate of potential Director candidates, including women and minority candidates ∎ Adopted policy requiring that Independent Directors may not stand forre-election following the earlier of their 12th anniversary of Board service or 73rd birthday ∎ Completed first energy audit of the Company’s corporate office | | | | | | | 2019 | | ∎ Increased commitment to social impact investing joint venture ∎ Added extensive disclosure on the Company’s Corporate Responsibility and ESG efforts to Annaly’s corporate website ∎ Launched WIN Mentoring Circles to foster community and connect smaller cohorts of women with senior leaders | | ∎ Added two new Independent Directors ∎ Recognized in the 2019 Bloomberg Gender-Equality Index for the second consecutive year ∎ Separated the roles of CEO and Chair of the Board and appointed an Independent Chair of the Board | | | | | | | 2020 | | ∎ Agreed to internalize management, which should enable stronger alignment of incentives between stockholders and executives and increased transparency and disclosure ∎ Refined Director “over-boarding” policy to reduce the number of outside boards on which Directors can serve | | ∎ Recognized in the 2020 Bloomberg Gender-Equality Index for the third consecutive year ∎ Amended Corporate Governance Guidelines to formalize Board’s commitment to seeking out highly qualified women and minority candidates |
GOVERNING DOCUMENTS Code of Business Conduct and Ethics The Board has adopted a Code of Business Conduct and Ethics (the “Code of Conduct”), which sets forth the basic principles and guidelines for resolving various legal and ethical questions that may arise in the workplace and in the conduct of business. This Code of Conduct is applicable to Annaly’s Directors, executive officers and employees, and is also a “code of ethics” as defined in Item 406(b) of RegulationS-K. The Company will make any legally required disclosures regarding amendments to, or waivers of, provisions of the Code of Conduct on the Company’s website. Corporate Governance Guidelines The Board has adopted Corporate Governance Guidelines that, in conjunction with the charters of the Board Committees, provide the framework for governance of the Company. Other Governance Policies Annaly’s Directors, executive officers and employees are also subject to the Company’s other governance policies, including a Foreign Corrupt Practices Act and Anti-Bribery Compliance Policy, an Insider Trading Policy, and a Regulation FD Policy. Where You Can Find the Code of Conduct, Corporate Governance Guidelines and Committee Charters The Code of Conduct, Corporate Governance Guidelines, Compensation Committee Charter, Audit Committee Charter, NCG Committee Charter, Corporate Responsibility Committee Charter and Risk Committee Charter are available on Annaly’s website (www.annaly.com). The Company will provide copies of these documents free of charge to any stockholder who sends a written request to Investor Relations, Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY 10036. Board Committees The Board has five standing Committees: the Audit Committee, the Compensation Committee, the NCG Committee, the Risk Committee and the Corporate Responsibility (“CR”) Committee. The table below shows the membership as of the date of this Proxy Statement of each Board Committee and number of Committee meetings held in 2019. | | | | | | | | | | | Director | | Audit
Committee | | Compensation
Committee | | NCG
Committee | | CR
Committee | | Risk
Committee | | Francine J. Bovich | | | | | |  | | • | | | | | Wellington J. Denahan† | | | | | | | | • | | • | | | Katie Beirne Fallon | | | | | | • | | • | | | | | David L. Finkelstein | | | | | | | | | | | | | Jonathan D. Green†(1) | | | | • | | | | | | • | | | Thomas Hamilton | | • | | | | | | | | • | | | Kathy Hopinkah Hannan | | E | | | | • | | | | | | | Michael Haylon* | | •E | | | | | | | | • | | | John H. Schaefer | | • | | • | | | | | | | | | Donnell A. Segalas | | | | | | • | | • | | | | | Glenn A. Votek | | | | | | | | | | | | | Vicki Williams | | • | | • | | | | | | | | | % of Independent Members: | | 100% | | 100% | | 100% | | 80% | | 80% | | | 2019 Meetings: | | 14 | | 9 | | 4 | | 2 | | 3 | |
| | | | | | | | | | | | | | | | | | | 24•
| | Member | | | | Chair | | | Annaly Capital Management Inc. 2018 Proxy Statement E | | | Financial Expert | | † | | | | Vice Chair of the Board * Independent Chair of the Board |
Committee Membership Determinations The Board annually reviews the membership and chairship of each Board Committee as part of its broader Board and Committee refreshment and succession planning. This review, which is led by the NCG Committee, takes into account, among other factors, the needs of the Committees, the experience, availability and projected tenure of Directors and the desire to balance Committee continuity with fresh insights. For additional detail, see the “Board Effectiveness, Self-Evaluations and Refreshment” section of this Proxy Statement. Note: For footnoted information, please refer to “Board Committees” in Endnotes section. | | | AUDIT COMMITTEE | | | Committee Members: Kathy Hopinkah Hannan (Chair)
Thomas Hamilton
Michael Haylon
John H. Schaefer
Vicki Williams Number of Meetings
in 2019:14 | | Key Responsibilities: ∎ Appoints the independent registered public accounting firm and reviews its qualifications, performance and independence ∎ Reviews the plan and results of the auditing engagement with the Chief Financial Officer and the independent registered public accounting firm ∎ Oversees internal audit activities ∎ Oversees the quality and integrity of financial statements and financial reporting process ∎ Oversees the adequacy and effectiveness of internal control over financial reporting ∎ Reviews andpre-approves the audit and permittednon-audit services and proposed fees of the independent registered public accounting firm ∎ Prepares the report of the Audit Committee required by the rules of the SEC to be included in the Proxy Statement ∎ Together with the Risk Committee, jointly oversees practices and policies related to cybersecurity | | Each member of the Audit Committee is financially literate and independent of the Company and management under the applicable rules of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the listing standards of the NYSE. The Board has designated Dr. Hannan and Mr. Haylon as audit committee financial experts under applicable SEC rules. For more information on the Audit Committee’s responsibilities and activities, see the “Board Oversight of Risk” and “Report of the Audit Committee” sections of this Proxy Statement. | | COMPENSATION COMMITTEE | | | Committee Members: Donnell A. Segalas (Chair)
Jonathan D. Green(1)
John H. Schaefer
Vicki Williams Number of Meetings
in 2019:9 | | Key Responsibilities: ∎ Until the Internalization closes, evaluates the performance of the Manager and the terms of the Management Agreement ∎ Until the Internalization closes, reviews the fees payable to the Manager ∎ Administers the Company’s equity incentive plans and other equity compensation programs ∎ Reviews the form and amount of Director compensation ∎ Evaluates the performance of the Company’s officers ∎ Reviews and discusses with management the Compensation Discussion and Analysis and related disclosures as required by the SEC ∎ Prepares the report of the Compensation Committee required by the rules of the SEC to be included in the Proxy Statement | | Each member of the Compensation Committee is independent of the Company and management under the listing standards of the NYSE and qualifies as a “non-employee director” within the meaning of Rule16b-3 under the Exchange Act. Upon closing of the Internalization, the Compensation Committee’s duties and responsibilities will evolve to support the Company’s transition from an externally-managed REIT to an internally-managed REIT and include reviewing and approving the Company’s executive compensation program. For more information on the Compensation Committee’s responsibilities and activities, see the “Compensation of Directors,” “Compensation Discussion and Analysis,” and “Report of the Compensation Committee” sections of this Proxy Statement. | |
Note: For footnoted information, please refer to “Audit Committee & Compensation Committee” in Endnotes section. | | | CORPORATE RESPONSIBILITY COMMITTEE | | | Committee Members: Jonathan D. Green (Chair)(1)
Francine J. Bovich
Wellington J. Denahan
Katie Beirne Fallon
Donnell A. Segalas Number of Meetings
in 2019:2 | | Key Responsibilities: Assists the Board in its oversight of the Company’s items of corporate responsibility, including: ∎ corporate philanthropy ∎ social impact investments ∎ sustainability initiatives ∎ corporate culture and reputation ∎ public policy initiatives | | For more information on the Corporate Responsibility Committee’s responsibilities, see the “Board Oversight of Risk” section of this Proxy Statement. | | NCG COMMITTEE | | | Committee Members: Francine J. Bovich (Chair)
Katie Beirne Fallon
Kathy Hopinkah Hannan
Donnell A. Segalas Number of Meetings in
2019:4 | | Key Responsibilities: ∎ Develops and recommends criteria for considering potential Board candidates ∎ Identifies and screens individuals qualified to become Board members, and recommends to the Board candidates for nomination for election orre-election to the Board and to fill Board vacancies ∎ Develops and recommends to the Board a set of corporate governance guidelines and recommends modifications as appropriate ∎ Provides oversight of the evaluation of the Board and management ∎ Considers other corporate governance matters such as Director retirement policies, management succession plans and potential conflicts of interest of Board members and senior management, and recommends changes as appropriate | | Each member of the NCG Committee is independent of the Company and management under the applicable listing standards of the NYSE. For more information on the NCG Committee’s responsibilities and activities, see the “Director Criteria and Qualifications,” “Consideration of Board Diversity,” “Board Effectiveness, Self-Evaluations and Refreshment,” “Director Nomination Process” and “Stockholder Recommendation of Director Candidates” sections of this Proxy Statement. | | RISK COMMITTEE | | | Committee Members: John H. Schaefer (Chair)
Wellington J. Denahan
Jonathan D. Green(1)
Thomas Hamilton
Michael Haylon Number of Meetings
in 2019:3 | | Key Responsibilities: Assists the Board in its oversight of the Company’s: ∎ risk governance structure ∎ risk management and risk assessment guidelines and policies regarding capital, liquidity and funding risk, investment/market risk, credit risk, counterparty risk, operational risk, compliance, regulatory and legal risk and such other risks as necessary to fulfill the Committee’s duties and responsibilities ∎ risk appetite, including risk appetite levels and capital adequacy and limits ∎ practices and policies related to cybersecurity (together with the Audit Committee) | | For more information on the Risk Committee’s responsibilities and activities, see the “Board Oversight of Risk” section of this Proxy Statement. |
Note: For footnoted information, please refer to “Corporate Responsibility Committee, NCG Committee & Risk Committee” in Endnotes section. TableBoard Structure and Processes
Over the last few years, the Board has focused on enhancing its structure, composition and effectiveness. Recent enhancements, including declassifying the Board and separating the roles of Contentsthe Chair of the Board and CEO, have been informed by the Board’s annual self-evaluation and succession planning processes, its review of evolving best practices and feedback from the Company’s long-term stockholders. BOARD LEADERSHIP STRUCTURE Corporate GovernanceIn November 2019, the Board separated the roles of Chair of the Board and CEO. While the Board believes that whether to have the same person occupy the offices of Chair of the Board and CEO should be decided by the Board from time to time in its business judgment, the Board has determined that having strong independent Board leadership in the form of an Independent Chair is in the best interests of the Company at Annalythis time. In addition to the Chair, the Board may elect one or more Vice Chairs to assist the Chair from among its members. Currently, Mr. Haylon serves as Independent Chair of the Board and Ms. Denahan and Mr. J. Green serve as Vice Chairs. After the Annual Meeting, Mr. J. Green will step down from the Board and Ms. Denahan will continue as Vice Chair.
The separation of the CEO and Chair roles allows Mr. Finkelstein to focus on the Company’s overall business and strategy, while allowing Mr. Haylon to focus his attention on governance of the Board and oversight of management. Ms. Denahan will support Mr. Haylon in carrying out certain of his responsibilities. The Board believes that its independent oversight function is further enhanced by its policy to hold regular executive sessions of the Independent Directors without management present and the fact that a majority of the Company’s Directors (and every member of the Audit Committee, Compensation Committee and NCG Committee) is independent. | | The Independent Chair of the Board | | ∎ Presides at meetings and executive sessions of the Board ∎ Serves as a liaison between the CEO and the Independent Directors ∎ Together with the CEO, presides over Annual Meetings of Stockholders ∎ Together with the Board and Vice Chair, serves as an advisor to the CEO ∎ Participates, together with the Compensation Committee, in the performance evaluation of the CEO ∎ Provides input into the selection of Committee chairs ∎ Approves Board meeting agendas and schedules ∎ Advises the CEO on the Board’s informational needs ∎ Has authority to call and chair meetings and executive sessions of the Board ∎ Authorizes the retention of advisors and consultants who report to the Board ∎ Together with the NCG Chair, leads the Board’s annual performance evaluation ∎ If requested by stockholders, ensures that he or she is available, when appropriate for consultation and direct communication with major stockholders |
INDEPENDENCE INDEPENDENCEOF DIRECTORS DIRECTORS
Annaly’s Corporate Governance Guidelines and NYSE rules require that at least a majority of Board members are Independent Directors. The Board has adopted the definition of “independent director” set forth in Section 303A of the NYSE rules and has affirmatively determined that each Director (other than Ms. Denahan and Mr. Keyes)Messrs. Finkelstein and Votek) has no material relationships with the Company other than as a Director (either directly or as partner, stockholder or officer of an organization that has a relationship with us)the Company) and is therefore independent under all applicable criteria for independence in accordance with the standards set forth in the NYSE rules and Annaly’s Corporate Governance Guidelines. EXECUTIVE SESSIONSOF INDEPENDENT DIRECTORS The Corporate Governance Guidelines require that the Board have at least two regularly scheduled executive sessions of Independent Directors each year. These executive sessions, which are designed to promote unfettered discussions among the Independent Directors, are presided over by the Independent Chair of the Board. During 2019, the Independent Directors, without the participation of Board members who are members of management, held five executive sessions. BOARD OVERSIGHTOF RISK | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Two new, highly qualified
female Independent Directors
joinedFULL BOARD
| Risk management begins with the AnnalyBoard, through review and oversight of the Company’s risk management framework, and continues with executive management, through ongoing formulation of risk management practices and related execution. The Board exercises its oversight of risk primarily through its Risk Committee and Audit Committee with support from the other Board Committees. At least annually, the full Board reviews with management the Company’s risk management program, which identifies and quantifies a broad spectrum of enterprise-wide risks, including cyber and technology-related risks, and related action plans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Audit Committee | | | | | | Risk Committee | | | | | Assists the Board in 2018its oversight of the quality and integrity of the Company’s accounting, internal controls and financial reporting practices, including appointing the independent auditor and reviewing its qualifications, performance and independence, and compliance with legal and regulatory requirements | | | | | | Assists the Board in its oversight of the Company’s risk governance structure, risk management and risk assessment guidelines and policies, and risk appetite, including risk appetite levels and capital adequacy and limits | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Compensation Committee | | | | | | Corporate Responsibility Committee | | | | | | NCG Committee | Assists the Board in its oversight of risk related to the Company’s policies and practices in respect of its equity incentive plans and compensation paid by the Company to the Manager or Non-Employee Directors | | | | | | Assists the Board in its oversight of any matters that may present reputational or ESG risk to the Company | | | | | | Assists the Board in its oversight of the Company’s corporate governance framework and the annual self-evaluation of the Board | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | MANAGEMENT | Responsible forday-to-day risk assessment and risk management. A series of management committees have decision-making responsibilities for risk assessment and risk management activities. These management committees include the Operating Committee, Enterprise Risk Committee, the Asset and Liability Committee, the Investment Committee and the Financial Reporting and Disclosure Committee |
DIRECTOR NOMINATION PROCESS
The NCGAs part of their risk oversight responsibilities, the Audit Committee is responsible for identifying and screening nominees for Director and for recommendingRisk Committee held two joint meetings in 2019. In addition to the risk oversight processes outlined above, the Board candidates for nomination for election or re-electionannually reviews its risk assessment of the Company’s compensation policies and practices applicable to the Company’s equity incentive plans. For additional information on this review, please see the “Risks Related to Compensation Policies and Practices” section of this Proxy Statement.
CEO PERFORMANCE REVIEWSAND MANAGEMENT SUCCESSION PLANNING The Independent Chair of the Board and the Chair of the Compensation Committee jointly coordinate and lead the Board’s annual performance evaluation of the CEO, which reflects input from allNon-Employee Directors. The Board oversees and maintains a succession plan for the CEO and other senior executives. Executive succession and talent development are a regular agenda item for the Board and, at least once per year, the Board has a fulsome discussion of talent at each business and functional leadership level across the Company. In carrying out this function, the Board endeavors to fillensure that the Company’s management has the capabilities to cause the Company to operate in an efficient and business-like fashion in the event of a vacancy in senior management, whether anticipated or sudden. As a result of the Board’s CEO succession planning process, the Board vacancies. appointed Mr. Votek as the Company’s Interim CEO and President upon the departure of the Company’s former Chairman, CEO and President in November 2019. At the same time, the Board formed a CEO Search Committee to identify a permanent CEO. Following evaluation of both internal and external CEO candidates, the Board, upon the unanimous recommendation of the CEO Search Committee, elected Mr. Finkelstein to serve as the Company’s permanent CEO in March 2020. BOARD EFFECTIVENESS, SELF-EVALUATIONSAND REFRESHMENT The NCGCompany’s comprehensive Board and Committee also seeksrefreshment and succession planning process is designed to maintain an ongoing listensure that the Board and each Committee is comprised of potentialhighly qualified Directors, with the independence, diversity, skills and perspectives to provide strong and effective oversight. The Board, candidates. Nominees may be suggestedled by Directors, members of management,stockholders or professional search firms. In evaluating a Director nomination, the NCG Committee, may review materials provided byannually evaluates the nominator,composition of the Board and each Committee, and rigorously evaluates individual Directors to ensure a professional search firm or any other party.continued match of their skill sets and tenure against the needs of the Company. 
| Focus areas of the 2019 self-evaluation included Board and Committee leadership structure, dynamics, priorities, skills, processes and fulfillment of responsibilities. Based on the results of the 2019 self-evaluation process, the Board’s practices evolved in a number of ways, including: ∎ Additionalin-person Board meeting added to 2020 Board calendar ∎ Additionalin-person Board meeting time devoted to the Company’s key strategic plans and initiatives, with certain Committee items moved to supplementary meeting dates ∎ 2020 Board agenda revised to include additional sessions on priority topics The NCG Committee seeks2019 self-evaluation process also informed the Board’s decision to
maintain an ongoing list separate the roles of
potential Chair of the Board candidatesand CEO in November 2019. |
DIRECTOR CRITERIA DIRECTOR CRITERIAAND QUALIFICATIONS QUALIFICATIONS
The NCG Committee seeks to achieve a balance of knowledge, experience and capability on the Board and considers a wide range of factors when assessing potential Director nominees, including a candidate’s background, skills, expertise, diversity, accessibility and availability to serve effectively on the Board. All candidates should (i) possess the highest personal and professional ethics, integrity and values, exercise good business judgment and be committed to representing the long-term interests of the Company and its stockholders, and (ii) have an inquisitive and objective perspective, practical wisdom and mature judgment. It is expected that all Directors will have an understanding of the Company’s business and be willing to devote sufficient time and effort to carrying out their duties and responsibilities effectively. BOARD REFRESHMENT AND DIVERSITYCONSIDERATIONOF BOARD DIVERSITY
On an annual basis, the NCG Committee evaluates the Board’s overall composition, including Director tenure, and rigorously evaluates all DirectorsThe Company endeavors to ensure a continued match of their skill sets against the needs of the Company. The NCG Committee seeks to achieve a balance between the deep knowledge and understanding of Annaly’s business that comes from longer-term service on the Board with the fresh ideas and perspectives that comes from having newer Directors on the Board. And although the NCG Committee does not have a formal diversity policy, it recognizes the importance of having a Board representing diverse backgrounds and a broad setwide range of experiences at policy-making levelsprofessional experiences. In 2020, the Board formalized its existing practice by amending the Company’s Corporate Governance Guidelines to reflect the Board’s commitment to seeking out highly qualified women and minority candidates, as well as taking into account other factors that promote principles of diversity, including diversity of a candidate’s perspective, background, nationality, age and other demographics. The NCG Committee instructs any search firm it engages to include women and minority candidates in business, finance, government, education, law and technology, and in other areas that are relevantevery director candidate pool presented to the Company’s business and its status as a public company.Committee.
| Annaly Capital Management Inc. 2018 Proxy Statement | 25 | | The Corporate Governance Guidelines formalize the Board’s commitment to seeking out highly qualified women and minority candidates |
Table of ContentsDIRECTOR NOMINATION PROCESS
Corporate Governance at Annaly
The NCG Committee’s annual evaluation of the Board’s composition also informs Board succession planning,Committee is responsible for identifying and contributedscreening nominees for Director and for recommending to the appointment, effective January 1, 2018, of two new Independent Directors (Ms. FallonBoard candidates for nomination for election orre-election to the Board and Ms. Williams) with skills and backgrounds that complement the Company’s highly qualified Board. Ms. Fallon and Ms. Williams were respectively identified as potential Director nominees by the CEO and another member of senior management. Ms. Fallon and Ms. Williams were nominated by theto fill Board vacancies. The NCG Committee afteralso seeks to maintain an extensive and careful search was conducted, and numerous other candidates proposedongoing list of potential Board candidates. Nominees may be suggested by Directors, members of management, andstockholders or professional search firms were considered.firms. In evaluating a Director nomination, the NCG Committee may review materials provided by the nominator, a professional search firm or any other party. STOCKHOLDER RECOMMENDATION STOCKHOLDER RECOMMENDATIONOF DIRECTOR CANDIDATES DIRECTOR CANDIDATES
Stockholders who wish the NCG Committee to consider their recommendations for Director candidates should submit their recommendations in writing to Anthony C. Green, the Chief Corporate Officer, Chief Legal Officer and Secretary at the Company’s principal executive offices. Following verification of the stockholder status of persons proposing candidates, recommendations are aggregated and considered by the NCG Committee at a regularly scheduled or special meeting. If any materials are provided by a stockholder in connection with the nominationrecommendation of a Director candidate, such materials are forwarded to the NCG Committee. Properly submitted recommendations by stockholders will receive the same consideration by the NCG Committee as other suggested nominees. COMMUNICATIONSWITHTHE BOARD’S ROLE AND RESPONSIBILITIES BOARD The Company is committed to maintaining a strong ethical culture and robust governance practices that benefit the long-term interests of stockholders, which include:
DIRECTOR
INDEPENDENCE
AND OVERSIGHT | | | DIRECTOR
QUALIFICATIONS | | | STOCKHOLDER
RIGHTS AND
ENGAGEMENT | | | GOOD
GOVERNANCE/
CORPORATE
CITIZENSHIP | ■9 of 11 Directors are Independent
■Robust Lead Independent Director role
■Regular executive sessions of Independent Directors
■Independent key Board committees
■Board oversees a succession plan for the CEO and other senior executives
■The Board is a Full Board Member of the NACD
| | | ■36% of Directors are women
■4 of 11 Directors have tenure of less than 5 years
■Annual Board, committee and individual Director self-evaluations
■Over-boarding policy limits the number of outside boards on which Directors can serve
■ 2 “audit committee financial experts”
| | | ■Majority vote standard for uncontested elections
■Annual stockholder advisory vote on executive compensation
■Stockholders may amend the bylaws by a majority of votes entitled to be cast
■Stockholders can submit questions for the Annual Meeting through an interactive pre-meeting forum
| | | ■Clawback policy with Manager
■Director and employee stock ownership guidelines
■Board created new Public Responsibility Committee
■Launched joint venture dedicated to supporting community development in underserved cities
■Member of the 2018 Bloomberg Gender-Equality Index
|
26 | Annaly Capital Management Inc. 2018 Proxy Statement | | |
Table of Contents
Corporate Governance at Annaly
BOARD OVERSIGHT OF RISK
FULL BOARD | Risk management begins with the Board, through review and oversight of the Company’s risk management framework, and continues with executive management, through ongoing formulation of risk management practices and related execution in managing risk. The Board exercises its oversight of risk management primarily through its Risk Committee and Audit Committee. At least annually, the full Board reviews the Company’s risk management program, which identifies and quantifies a broad spectrum of enterprise-wide risks and related action plans, with management
| | | | | | | | | | | | | RISK COMMITTEE
| | | AUDIT COMMITTEE
| Assists the Board in its oversight of the Company’s risk governance structure, risk management and risk assessment guidelines and policies, and risk appetite, including risk appetite levels and capital targets and limits
| | | Assists the Board in its oversight of the quality and integrity of the Company’s accounting, internal controls and financial reporting practices, including appointing the independent auditor and reviewing its qualifications, performance and independence, and compliance with legal and regulatory requirements
|
MANAGEMENT | Responsible for day-to-day risk assessment and risk management. A series of management committees have decision-making responsibilities for risk assessment and risk management activities. These management committees include the Operating Committee, Enterprise Risk Committee, the Asset and Liability Committee, the Investment Committee and the Financial Reporting and Disclosure Committee
|
In addition to the risk oversight processes outlined above, the Board reviews its risk assessment of the Company’s compensation policies and practices applicable to the Company’s equity incentive plans with the Compensation Committee. For additional information on this review, please see the “Risks Related to Compensation Policies and Practices” section of this Proxy Statement. For additional information on the responsibilities of the Risk Committee and the Audit Committee, please see the “Board Committees” section of this Proxy Statement.
The Audit and Risk Committees
have primary Board oversight
of the Company’s risk
management framework |
MANAGEMENT SUCCESSION PLANNING
The Board oversees and maintains a succession plan for the CEO and other senior executives. In carrying out this function, the Board endeavors to ensure that the Company’s management has the capabilities to cause the Company to operate in an efficient and business-like fashion in the event of a vacancy in senior management, whether anticipated or sudden.
| Annaly Capital Management Inc. 2018 Proxy Statement | 27 | |
Table of Contents
Corporate Governance at Annaly
BOARD COMMITMENT AND OVER-BOARDING POLICY
In order to provide sufficient time for informed participation in their Board responsibilities:
■ | Directors who also serve as chief executive officers or hold equivalent positions at other companies should not serve on more than two other boards of public companies in addition to the Company’s Board; | ■ | Other Directors should not serve on more than four other boards of public companies in addition to the Company’s Board; and | ■ | A member of the Audit Committee should not serve on the audit committee of more than two other public companies. |
All Directors are currently in compliance with this policy. Directors are required to notify the Chairman of the Board and the chair of the NCG Committee in advance of accepting an invitation to serve on another public company board.
COMMUNICATIONS WITH THE BOARD
Stockholders and other persons interested in communicating with an individual Director (including the Lead Independent Director)Chair of the Board), the Independent Directors as a group, any committee of the Board or the Board as a whole, may do so by submitting such communication to: Annaly Capital Management, Inc.
[Addressee]
1211 Avenue of the Americas
New York, NY 10036
Phone:1-888-8 ANNALY
Facsimile: (212)696-9809
Email: investor@annaly.com The Legal Department reviews all communications to the Directors and forwards those communications related to the duties and responsibilities of the Board to the appropriate parties. Certain items such as business solicitation or advertisements, product-related inquiries, junk mail or mass mailings, resumes or otherjob-related inquiries, spam and unduly hostile, threatening, potentially illegal or similarly unsuitable communications will not be forwarded. Stockholders may Communicate with any Director, Including the
Lead Independent Director
|
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONSDIRECTOR ATTENDANCE
ApprovalDuring 2019, the Board held 12 meetings. All Directors attended at least 75% of Related Party Transactions
Eachthe aggregate number of Annaly’s Directors, Director nomineesmeetings of the full Board and executive officers is required to report all transactions with the CompanyCommittees on which they served, during the period in which they or an immediate family member had or will have a direct or indirect material interestserved, in an annual disclosure questionnaire and on an on-going basis. Management reviews these annual questionnaires and requires interim reports and, if determined to be necessary, discusses any reported transactions with the entire Board. Other than as discussed in this section, there were no reported transactions for 2017 and there is no transaction currently pending for 2018. The Board does not, however, have a formal written policy for approval or ratification of such transactions, and all such transactions are evaluated on a case-by-case basis. If management believes a transaction could be a related party transaction or could raise particular conflict of interest issues, it will discuss it with legal counsel, and if necessary, the Board will form an Independent committee that has the right to engage its own legal and financial counsel to evaluate, approve or ratify the transaction.
28 | Annaly Capital Management Inc. 2018 Proxy Statement | | |
Table of Contents
Corporate Governance at Annaly
Management Agreement2019.
The Company has entered into a management agreement (the “Management Agreement”) with the Manager. Managementexpects each member of the Company is conducted byBoard to attend the Manager throughAnnual Meeting. All Directors attended the authority delegated2019 Annual Meeting. BOARD COMMITMENTAND OVER-BOARDING POLICY In response to it in the Management Agreementrevised policies and pursuant to the policies established by Annaly’s Board. The Independent Directors periodically review the Management Agreement with the assistance of separate legal and financial advisors, who are selected and retained by the Independent Directors. The Management Agreement was effective as of July 1, 2013 and was amended in November 2014 and then amended and restated in April 2016, and may be further amended by agreement between the Managercommentary from leading institutional investors and the Company.considerable time commitment and responsibilities associated with Board and Committee service, in 2020 the Board refined its Director “over-boarding” policy to provide that: The Management Agreement’s current term ends on December 31, 2018 and will automatically renew for successive two-year terms unless at least two-thirds of the Independent Directors or the holders of a majority of the outstanding shares of the Company’s common stock elect to terminate the agreement in their sole discretion and for any or no reason. At any time during the term or any renewal term, either party may deliver to the other party prior written notice of its intention to terminate the Management Agreement no less than one year prior to its proposed termination date or, but only in the event the Manager is the terminating party, such earlier date as determined by the Company in its sole discretion. There is no termination fee for a termination of the Management Agreement by either the Manager or the Company.
See also “Disclosure Enhancements” on page42 for a discussion of compensation paid by the Manager to the NEOs.
The Management Agreement provides that during its term and, in the event of termination of the Management Agreement by the Manager without cause, for a period of one year following such termination, the Manager will not, without the Company’s prior written consent, manage any REIT, which engages in the management of mortgage-backed securities in any geographical region in which the Company operates.
Pursuant to the terms of the Management Agreement, the Company pays the Manager a monthly management fee equal to 1/12th of 1.05% of the Company’s stockholders’ equity, as defined in the Management Agreement, for its management services. The Company incurred approximately $164.3 million in management fees under the Management Agreement during the year ended December 31, 2017.
The Manager
The management fee of 1.05% of
stockholders’ equity (as defined
in the Management Agreement)
compares favorably to the
industry average |
| | Annaly Capital Management Inc. 2018 Proxy Statement∎ | 29 | Directors should not serve on more than three other public company boards in addition to the Company’s Board; | |
| ∎ | | Directors who also serve as CEOs or hold equivalent positions at other companies should not serve on more than one other public company board in addition to the Company’s Board; and | |
| ∎ | | A member of the Audit Committee should not serve on the audit committee of more than two other public companies. | |
Table of Contents
Board Structure and Processes
BOARD LEADERSHIP STRUCTURE
The Board believes that whetherAll Directors are currently in compliance with this policy. Directors are required to havenotify the same person occupy the offices of ChairmanIndependent Chair of the Board and CEO should be decided by the Board, from time to time, in its business judgment after considering relevant factors, including the specific needsChair of the business and what is in the best interests of the Company at that point in time. Under the Corporate Governance Guidelines, the Independent Directors will annually select an Independent Director to serve as Lead Independent Director when the CEO and Chairman of the Board roles are combined or if the Chairman is not otherwise independent. Currently, Mr. Keyes serves as Chairman, CEO and President, while Mr. Green serves as Lead Independent Director.
The Board believes that the current leadership structure provides effective independent oversight of management, while allowing both the Board and management to benefit from Mr. Keyes’s day-to-day familiarity with the Company’s business.
The Lead Independent Director
has significant authority
and responsibilities |
THE CHAIRMAN OF THE BOARD | ◆ | THE LEAD INDEPENDENT DIRECTOR | | | ■Presides at full meetings of the Board and the Annual Meeting of Stockholders
■Meets with the Lead Independent Director to receive feedback from executive sessions of Independent Directors
■Communicates with all Directors on key issues and concerns outside of Board meetings
■Advises on the selection of committee chairs
■Draws on his knowledge of the Company’s business, operations, industry and competitive developments in setting Board agendas
■Consults with the Lead Independent Director to ensure that Board agendas and information empower the Board to fulfill its responsibilities
■Has authority to call special meetings of the Board if necessary and otherwise updates Directors between meetings through one-on-one or group phone calls
■Authorizes the retention of advisors and consultants who report to management
■Presents the Company’s message and strategy to stockholders, employees and regulators
| | ■Presides at all meetings of the Board in the absence of or at the request of the Chairman, including executive sessions of Independent Directors
■Facilitates communication between the Independent Directors and the Chairman of the Board and CEO
■Advises on the selection of committee chairs
■Approves the quality, quantity and timeliness of information sent to the Board
■Approves Board meeting agendas
■Approves Board meeting schedules to assure there is sufficient time for discussion of all agenda items
■Has authority to call meetings of the Independent Directors
■Authorizes the retention of outside advisors and consultants who report directly to the Board
■If requested by stockholders, ensures that he is available, when appropriate, for consultation and direct communication with major stockholders
|
The Board believes that its independent oversight function is further enhanced by its policy to hold regular executive sessions of the Independent Directors without management present and the fact that a majority of the Company’s Directors (and every member of the Board’s three key committees) is independent.
EXECUTIVE SESSIONS OF INDEPENDENT DIRECTORS
The Corporate Governance Guidelines require that the Board have at least two regularly scheduled executive sessions of Independent Directors each year. These executive sessions, which are designed to promote unfettered discussions among the Independent Directors, are presided over by the Lead Independent Director, or in his or her absence, the chair of the Compensation Committee. During 2017, the Independent Directors, without the participation of Board members who are members of management, held five executive sessions.
30 | Annaly Capital Management Inc. 2018 Proxy Statement | | |
Table of Contents
Board Structure and Processes
BOARD AND COMMITTEE EVALUATIONS
The Lead Independent Director and the NCG Committee are responsible for overseeingin advance of accepting an annual self-evaluation process for the Board. The self-evaluation process seeksinvitation to identify specific areas, if any, that need improvement or strengthening in order to increase the effectiveness of the Board as a whole and its members and committees. In 2018, the Board adopted an enhanced Board self-evaluation process that includes annual assessments of the full Board, each Board committee and individual Directors. Such assessments will be facilitated by an external evaluatorserve on a periodic basis. In addition to these formal self-evaluations, the Board considers its performance as well as that of its members and committees on an ongoing basis and shares relevant feedback with management.another public company board.
| | The Board refined its “over-boarding” policy to reduce the number of outside boards on which Directors can serve |
DIRECTOR ORIENTATION DIRECTOR ORIENTATIONAND CONTINUING EDUCATION CONTINUING EDUCATION
The Board believes that Director orientation and continuing education is critical to the Board’s ability to fulfill its responsibilities in a dynamic and constantly evolving business environment. New Directors participate in a robust onboarding process, which includes extensive training materials and personal briefings by senior management on the Company’s strategic plans, financial statements, and key policies and practices. In addition, the Company encourages Directors to participate in external continuing directorDirector education programs, and the Company provides reimbursement for related expenses. Continuing directorDirector education is also provided during Board meetings and as stand-alone information sessions outside of meetings. In line with the Company’s commitment to continuing boardBoard education, in 2017, the Board becameis a Full Board Member of the NACD, which gives Directors access to an extensive menu of boardBoard education programs, along with research on governance trends and boardBoard practices. GOVERNING DOCUMENTSCERTAIN RELATIONSHIPSAND RELATED PARTY TRANSACTIONS
Approval of Related Party Transactions The Board recognizes the fact that transactions with related persons present a heightened risk of conflicts of interests and/or improper valuation (or the perception thereof). The Board has adopted a written policy on transactions with related persons in conformity with NYSE listing standards. Under this policy any related person transaction, and any material amendment or modification to a related person transaction, must be reviewed and approved or ratified by any standing or ad hoc Committee of the Board composed solely of Independent Directors who are disinterested or by the disinterested members of the full Board. In connection with the review and approval or ratification of a related person transaction, management must: | ∎ | | disclose the name of the related person and the basis on which the person is a related person, the material terms of the related person transaction, including the approximate dollar value of the amount involved in the transaction, and all the material facts as to the related person’s direct or indirect interest in, or relationship to, the related person transaction; | |
| ∎ | | advise as to whether the related person transaction complies with the terms of agreements governing the Company’s material outstanding indebtedness that limit or restrict the Company’s ability to enter into a related person transaction; | |
| ∎ | | advise as to whether the related person transaction will be required to be disclosed in the Company’s filings under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act (the Exchange Act collectively with the Securities Act, the “Acts”), and related rules, and, to the extent such transaction is required to be disclosed, ensure that the related person transaction is disclosed in accordance with such Acts and related rules; and | |
| ∎ | | advise as to whether the related person transaction constitutes a “personal loan” for purposes of Section 402 of the Sarbanes-Oxley Act of 2002. | |
In addition, the related person transaction policy provides that the Committee or disinterested Directors, as applicable, in connection with any approval or ratification of a related person transaction involving anon-employee Director or Director nominee, should consider whether such transaction would compromise the Director or Director nominee’s status as an “independent,” or“non-employee” Director, as applicable, under the rules and regulations of the SEC, the NYSE and the Code of Business Conduct and EthicsEthics. Internalization Agreement | | The Internalization is expected to close in the second quarter of 2020 |
On February 12, 2020, the Company entered into the Internalization Agreement with the Manager and certain affiliates of the Manager. Pursuant to the Internalization Agreement, the Company agreed to acquire all of the outstanding equity interests of the Manager and the Manager’s direct and indirect parent companies from their respective owners (the “Internalization”). As a result of the Internalization, the Manager will cease to perform any outside management services for the Company and the Company will transition from an externally-managed REIT to an internally-managed REIT. The Internalization is expected to close in the second quarter of 2020. In addition, the Amended and Restated Management Agreement, dated as of August 1, 2018, between the Company and the Manager (as amended by Amendment No. 1 thereto, dated as of March 27, 2019, the “Management Agreement”) will be terminated at the closing of the Internalization, and the Manager has agreed to waive any Acceleration Fee (as defined below) solely as related to the closing of the Internalization. Upon closing of the Internalization, all employees of the Manager will become employees of the Company, the Company will no longer pay a management fee to the Manager, and the Company going forward will pay the compensation of all employees. Management Agreement | | The Management Agreement will be terminated at the closing of the Internalization |
Until the closing of the Internalization, management of the Company will continue to be conducted by the Manager through the authority delegated to it in the Management Agreement and pursuant to the policies established by the Board. If the closing does not occur, the Management Agreement will remain in place on the terms and conditions described below. The Board has adoptedManagement Agreement’s current term ends on December 31, 2021 and, if the closing of the Internalization does not occur, will automatically renew for successivetwo-year terms unless at leasttwo-thirds of the Independent Directors or the holders of a Codemajority of Business Conductthe outstanding shares of the Company’s common stock in their sole discretion elect to terminate the agreement for any or no reason upon 365 days prior written notice (such notice, a “Termination Notice”). If the Company elects to terminate the Management Agreement as described above, it may elect to accelerate the Termination Date to a date that is between seven and Ethics90 days after the date it delivers a Termination Notice (the “Code“Notice Delivery Date”). If the Company does not elect to accelerate the Termination Date, then the Manager may elect to accelerate the Termination Date to the date that is 90 days after the Notice Delivery Date. If the Termination Date is accelerated (such date, the “Accelerated Termination Date”) by either the Company or the Manager, in addition to any amounts accrued for the period prior to the Accelerated Termination Date, the Company shall pay the Manager an acceleration fee (the “Acceleration Fee”) in an amount equal to the average annual management fee earned by the Manager during the24-month period immediately preceding such Accelerated Termination Date multiplied by a fraction with a numerator of Conduct”), which sets forth365 minus the basic principlesnumber of days from the Notice Delivery Date to the Accelerated Termination Date, and guidelines for resolving various legal and ethical questions that may arisea denominator of 365. Prior to the March 27, 2019 amendment to the Management Agreement, the Company paid the Manager a flat monthly management fee equal to 1/12th of 1.05% of Stockholders’ Equity (as defined in the workplaceManagement Agreement) for management services. Pursuant to the March 27, 2019 amendment, the Company pays the Manager a monthly management fee for management services in an amount equal to 1/12th of the sum of (i) 1.05% of Stockholders’ Equity (as defined in the Management Agreement) up to $17.28 billion, and (ii) 0.75% of Stockholders’ Equity (as defined in the Management Agreement) in excess of $17.28 billion. In addition to the management fee, the Company reimburses the Manager for the cost of certain legal, tax, accounting and other support and advisory services provided by employees of the Manager to the Company. During the year ended December 31, 2019, the Company incurred $170.6 million in management fees and $21.4 million in permitted reimbursement payments under the Management Agreement. None of the reimbursement payments were attributable to compensation of the Company’s NEOs. Pursuant to the Management Agreement, the Company is entitled to receive reimbursement from the Manager if the Board determines that a computation error (regardless of the reason for or amount of such error) resulted in the overpayment of a management fee to the Manager. The Management Agreement provides that during its term and, in the conductevent of business. This Codetermination of Conductthe Management Agreement by the Manager without cause, for a period of one year following such termination, the Manager will not manage, operate, join, control, participate in, or advise any person other than the Company without the prior written consent of the Risk Committee of the Board. The Manager The Manager is applicable to Annaly’s Directors, executive officersa Delaware limited liability company and, employees, anduntil the closing of the Internalization, is also a “codeindirectly owned by certain members of ethics” as defined in Item 406(b) of Regulation S-K.the Company’s current management. The Company will make any legally required disclosures regarding amendments to, or waivers of, provisions ofacquire the Code of Conduct on the Company’s website. Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines that,Manager in conjunctionconnection with the chartersInternalization, which is expected to close in the second quarter of 2020. For additional information about the Board committees, provideManager, please see the framework for governance of“Proxy Summary,” “Compensation Paid by the Company.
Other Governance Policies
Annaly’s Directors, executive officers and employees are also subjectManager to the Company’s other governance policies, including a Foreign Corrupt Practices ActNamed Executive Officers” and Anti-Bribery Compliance Policy, an Insider Trading Policy,“Compensation Discussion and a Regulation FD Policy.Analysis.”
Where You Can Find the Code of Conduct, Corporate Governance Guidelines and Committee Charters
The Code of Conduct, Corporate Governance Guidelines, Compensation Committee Charter, Audit Committee Charter, NCG Committee Charter, Public Responsibility Committee Charter and Risk Committee Charter are available on Annaly’s website (www.annaly.com). The Company will provide copies of these documents free of charge to any stockholder who sends a written request to Investor Relations, Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY 10036.
| Annaly Capital Management Inc. 2018 Proxy Statement | 31 | |
Table of Contents
Board Structure and Processes
BOARD COMMITTEESCOMPENSATIONOF DIRECTORS
The Board has five standing committees: the Audit Committee, the Compensation Committee, the NCG Committee, the Risk Committee and the recently-formed Public Responsibility Committee.
As part of the Board’s continuing review of its Board committee structure and responsibilities, and in response to dialogue with stockholders, the Board created the new Public Responsibility Committee in late 2017. At the same time, the Board reorganized the membership of most of its other committees.
The Board created the
new Public Responsibility
Committee in late 2017 |
The table below shows the current membership of each Board committee and number of meetings of each committee held in 2017.
| Director | | Audit
Committee | | Compensation
Committee | | NCG
Committee | | PR
Committee | | Risk
Committee | | Francine J. Bovich | | | | | |  | | • | | | | Kevin P. Brady | | | | | | • | | | | • | | Wellington J. Denahan | | | | | | | | • | | • | | Katie Beirne Fallon | | | | | | • | | • | | | | Jonathan D. Green(1) | | | | • | | | | | | • | | Michael Haylon | | • | | | | | | | | • | | E. Wayne Nordberg | | • | | • | | • | | | | | | John H. Schaefer | | • | | • | | | | | | | | Donnell A. Segalas | | | | | | • | | • | | | | Vicki Williams | | • | | • | | | | | | | | 2017 Meetings: | | 6 | | 2 | | 4 | | 0(2) | | 5 |
• Member Chairperson |
(1) | Mr. Green serves as the Lead Independent Director. For more details, see page30. | (2) | The Public Responsibility (“PR”) Committee did not hold any meetings in 2017, as it was established in November 2017. |
32 | Annaly Capital Management Inc. 2018 Proxy Statement | | |
Table of Contents
Board Structure and Processes
AUDIT COMMITTEE | Committee Members:
Kevin P. Brady (Chair)
Michael Haylon
E. Wayne Nordberg
John H. Schaefer
Vicki Williams
Number of Meetings:
6
| Key Responsibilities:
■Appoints the independent registered public accounting firm and reviews its qualifications, performance and independence
■Reviews the plan and results of the auditing engagement with the Chief Financial Officer and the independent registered public accounting firm
■Oversees internal audit activities
■Oversees the quality and integrity of financial statements and financial reporting process
■Oversees the adequacy and effectiveness of internal control over financial reporting
■Reviews and pre-approves the audit and permitted non-audit services and proposed fees of the independent registered public accounting firm
■Prepares the report of the Audit Committee required by the rules of the SEC to be included in the Proxy Statement
|
Each member of the Audit Committee is financially literate and independent of the Company and management under the applicable rules of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the listing standards of the NYSE. The Board has designated Messrs. Brady and Haylon as “audit committee financial experts” under applicable SEC rules.
For more information on the Audit Committee’s responsibilities and activities, see the “Board Oversight of Risk” and “Report of the Audit Committee” sections of this Proxy Statement.
| |
COMPENSATION COMMITTEE | Committee Members:
Donnell A. Segalas
(Chair)
Jonathan D. Green
E. Wayne Nordberg
John H. Schaefer
Vickie Williams
Number of Meetings:
2
| Key Responsibilities:
■Evaluates the performance of the Manager and the terms of the Management Agreement
■Reviews the fees payable to the Manager
■Administers the Company’s equity incentive plans and other equity compensation programs
■Reviews the form and amount of Director compensation
■Evaluates the performance of the Company’s officers
■Reviews and discusses with management the Compensation Discussion and Analysis and related disclosures as required by the SEC
■Prepares the report of the Compensation Committee required by the rules of the SEC to be included in the Proxy Statement
|
Each member of the Compensation Committee is independent of the Company and management under the listing standards of the NYSE.
For more information on the Compensation Committee’s responsibilities and activities, see the “Compensation of Directors” and “Compensation Discussion and Analysis” sections of this Proxy Statement.
| |
| Annaly Capital Management Inc. 2018 Proxy Statement | 33 | |
Table of Contents
Board Structure and Processes
NCG COMMITTEE | Committee Members:
Francine J. Bovich
(Chair)
Kevin P. Brady
Katie Beirne Fallon
E. Wayne Nordberg
Donnell A. Segalas
Number of Meetings:
4
| Key Responsibilities:
■Develops and recommends criteria for considering potential Board candidates
■Identifies and screens individuals qualified to become Board members, and recommends to the Board candidates for nomination for election or re-election to the Board and to fill Board vacancies
■Develops and recommends to the Board a set of corporate governance guidelines and recommends modifications as appropriate
■Provides oversight of the evaluation of the Board and management
■Considers other corporate governance matters, such as Director retirement policies, management succession plans and potential conflicts of interest of Board members and senior management, and recommends changes as appropriate
|
PUBLIC RESPONSIBILITY COMMITTEE | Committee Members:
Jonathan D. Green
(Chair)
Francine J. Bovich
Wellington J. Denahan
Katie Beirne Fallon
Donnell A. Segalas
Number of Meetings:
N/A(1)
| Key Responsibilities:
Assists the Board in its oversight of the Company’s items of public responsibility, including:
■corporate philanthropy
■social impact investments
■sustainability initiatives
■corporate culture and reputation
■public policy initiatives
|
RISK COMMITTEE | Committee Members:
John H. Schaefer(Chair)
Kevin P. Brady
Wellington J. Denahan
Jonathan D. Green
Michael Haylon
Number of Meetings:
5
| Key Responsibilities:
Assists the Board in its oversight of the Company’s:
■risk governance structure
■risk management and risk assessment guidelines and policies regarding capital, liquidity and funding risk, investment/market risk, credit risk, counterparty risk, operational risk, compliance, regulatory and legal risk and such other risks as necessary to fulfill the committee’s duties and responsibilities
■risk appetite, including risk appetite levels and capital targets and limits
|
For more information on the Risk Committee’s responsibilities and activities, see the “Board Oversight of Risk” section of this Proxy Statement. | |
(1) | The Public Responsibility Committee did not hold any meetings in 2017, as it was established in November 2017. |
34 | Annaly Capital Management Inc. 2018 Proxy Statement | | |
Table of Contents
Board Structure and Processes
DIRECTOR ATTENDANCE
During 2017, the Board held 13 meetings. Each Director attended at least 75% of the aggregate number of meetings held by the Board and each committee on which the Director served during the period he or she was on such committee.
The Company expects each member of the Board to attend the Annual Meeting. All of the Company’s then-Directors attended Annaly’s 2017 annual meeting of stockholders (the “2017 Annual Meeting”). Ms. Fallon and Ms. Williams were appointed as Directors effective January 1, 2018 and, therefore, did not attend the 2017 Annual Meeting.
COMPENSATION OF DIRECTORS
The Company compensates the IndependentNon-Employee Directors. Any Director who is also an employeeexecutive officer or owner of the Manageremployee does not receive compensation for serving on the Board. The Compensation Committee is responsible for reviewing, and recommending to the Board, the form and amount of compensation paid to the IndependentNon-Employee Directors. The annual compensation elements paid to the IndependentNon-Employee Directors for service on the Board and its committeesstanding Committees for 2017 is2019 are set forth below: | | | Annual Compensation Element | | Amount | | | Annual Cash Retainer | | $100,000 | | | | | | Deferred Stock Unit (“DSU”) Grant | | $135,000145,000 in DSUs | | | | | | Lead Independent Director Retainer(1) | | $30,000 | Committee Member Retainer | | $8,000 – Audit Committee | | | Committee Member Retainer | | $7,00010,000 – Compensation Committeeall Board Committees | | | | | | $7,000 – Risk Committee | | | $5,000 – NCG Committee | Committee Chair Retainer(1)(2) | | $20,000 – Audit Committee | | | $10,000 – Compensation Committeeall other Board Committees | | | $10,000 – Risk Committee |
| 1. | | $10,000 – NCG CommitteeIn November 2019, the Board separated the role of CEO and Chair of the Board, appointed an Independent Chair, which replaced the role of Lead Independent Director, and appointed two Vice Chairs. The Chair and Vice Chairs of the Board did not receive any additional compensation for serving in such roles for the remainder of 2019. |
(1)2. | Committee Chairs receivedreceive Committee Chair Retainers in addition to, and not in lieu of, Committee Member Retainers. No retainers for service as a Member or Chair of the Public Responsibility Committee were paid in 2017, as the committee did not meet during such year, having been established in November 2017. |
Each DSU is equivalent in value to one share of the Company’s common stock. DSUs are granted on the date of the annual stockholder meeting and vest immediately. DSUs convert to shares of the Company’s common stock one year after the date of grant unless the Director elects to defer the settlement of the DSUs to a later date. DSUs do not have voting rights. DSUs pay dividend equivalents in either cash or additional DSUs at the election of the Director. The Independent Directors are also eligible to receive other stock-based awards under the Company’s equity incentive plan. The 2020 Plan as proposed includes certain limits on awards to Non-Employee Directors. The Company reimburses the Directors for their reasonableout-of-pocket travel expenses incurred in connection with their attendance at full Board and committeeCommittee meetings.
Director Stock Ownership Guideline In 2016, the Board increased theThe stock ownership guidelineguidelines for the Independent Directors to provideprovides that each Independent Director should strive to own an amount of the Company’s common stock equal to five times the annual cash retainer. Shares counting toward the guideline include shares that are owned outright, DSUs and any other shares held in deferral accounts. To facilitate achievement of the guideline, the Board has adopted and implemented a “retention ratio” that requires Independent Directors to retain and hold 50% of the net profit shares from DSUs until the specified ownership level is achieved. As of MarchDecember 31, 2017,2019, all of the Independent Directors havehad met or arewere on their way to meeting their stock ownership guideline. | In 2016, the Board increased the
The stock ownership guideline for
Independent Directors tois 5x the
annual cash retainer which is
currently $100,000 |
| Annaly Capital Management Inc. 2018 Proxy Statement | 35 | |
Table of Contents
Board Structure and Processes
Role of the Independent Compensation Consultant During 2017,2019, the Compensation Committee retained an independent compensation consultant, Frederic W. Cook & Co. (“F. W. Cook”), to assist the Compensation Committee in its review of the compensation arrangements provided to the IndependentNon-Employee Directors. F.W. Cook provides market research and analyses on Director compensation programs and proposals, including reviews of competitive market trends and design practices and relevant peer and market benchmarking. The Compensation Committee considered F. W. Cook’s independence in light of SEC regulations and NYSE listing standards. The Compensation Committee discussed all relevant factors and concluded that no conflict of interest exists that would prevent F. W. Cook from independently representing the Compensation Committee. Director Compensation The table below summarizes the compensation paid by the Company to the IndependentNon-Employee Directors for the fiscal year ended December 31, 2017.2019. | Name(1) | | Fees Earned or
Paidin Cash | | Stock
Awards(2) | | Total | | Francine J. Bovich | | $113,000 | | $135,000 | | $248,000 | | Kevin P. Brady | | $140,000 | | $135,000 | | $275,000 | | Jonathan D. Green | | $154,000 | | $135,000 | | $289,000 | | Michael Haylon | | $115,000 | | $135,000 | | $250,000 | | E. Wayne Nordberg | | $122,000 | | $135,000 | | $257,000 | | John H. Schaefer | | $122,000 | | $135,000 | | $257,000 | | Donnell A. Segalas | | $122,000 | | $135,000 | | $257,000 |
| | | | | | | | | | | | | Name | | Fees Earned or
Paid in Cash
($) | | | Stock
Awards(1)
($) | | | Total
($) | | | | | | Francine J. Bovich | | | 130,000 | | | | 145,000 | | | | 275,000 | | | | | | | | | Kevin P. Brady(2) | | | 75,000 | | | | — | | | | 75,000 | | | | | | | | | Wellington J. Denahan | | | 120,000 | | | | 145,000 | | | | 265,000 | | | | | | | | | Katie Beirne Fallon | | | 120,000 | | | | 145,000 | | | | 265,000 | | | | | | | | | Jonathan D. Green | | | 170,000 | | | | 145,000 | | | | 315,000 | | | | | | | | | Thomas Hamilton | | | 120,000 | | | | 145,000 | | | | 265,000 | | | | | | | | | Kathy Hopinkah Hannan | | | 135,000 | | | | 145,000 | | | | 280,000 | | | | | | | | | Michael Haylon | | | 120,000 | | | | 145,000 | | | | 265,000 | | | | | | | | | E. Wayne Nordberg(2) | | | 65,000 | | | | — | | | | 65,000 | | | | | | | | | John H. Schaefer | | | 140,000 | | | | 145,000 | | | | 285,000 | | | | | | | | | Donnell A. Segalas | | | 140,000 | | | | 145,000 | | | | 285,000 | | | | | | | | | Vicki Williams | | | 120,000 | | | | 145,000 | | | | 265,000 | | | | |
(1) | Ms. Fallon and Ms. Williams were appointed to the Board effective January 1, 2018 and did not receive any compensation for the fiscal year ended December 31, 2017.
| (2)1. | The amounts in this column represent the aggregate grant date fair value of the DSU awards, computed in accordance with FASB ASC Topic 718 and based on the closing price of the Company’s common stock on the date of grant. DSUs are vested at grant and accrue dividend equivalents as additional DSUs or cash at the election of the Director. |
The following table sets forth information with respect to the aggregate unexercised option awards at December 31, 2017 of each of the Independent Directors. All such option awards have vested. Options are no longer granted as part of the Company’s Director compensation program.
Name2. | | Unexercised
Option
Awards at 12/31/17 | Francine J. Bovich | | — | Kevin P.Messrs. Brady | | 42,500 | Jonathan D. Green | | 90,000 | Michael Haylon | | 75,000 | E. Wayne and Nordberg | | 90,000 | John H. Schaefer | | — | Donnell A. Segalas | | 77,500 served on the Board through May 22, 2019, the date of the Company’s 2019 Annual Meeting. |
36 | Annaly Capital Management Inc. 2018 Proxy Statement | | |
Table of Contents
ManagementExecutive Officers
The following table sets forth certain information with respect to the Company’s executive officers, all of whom are indirect owners and/or employees of the Manager:officers: | | | | | | | Name | | Age | | | Title | Kevin G. Keyes | | 50 | David L. Finkelstein | | Chairman, | 47 | | | Chief Executive Officer and PresidentChief Investment Officer | Glenn A. Votek | | | | | | | | | 59 | Serena Wolfe | | | 40 | | | Chief Financial Officer | David L. Finkelstein | | | | | | | | | | Timothy P. Coffey | | | 46 | | | Chief Credit Officer | | | | | | | | | | | Anthony C. Green | | | 45 | | | Chief InvestmentCorporate Officer, | Timothy P. Coffey | | 44 | | Chief Credit Officer | Anthony C. Green | | 43 | | Chief Legal Officer and Secretary | | | | | | | | | | | Glenn A. Votek | | | 61 | | | Senior Advisor | | | | | | | |
Biographical information on Mr. KeyesMessrs. Finkelstein and Votek is provided above under the heading “Election of DirectorsDirectors..” Certain biographical information for Ms. Wolfe and Messrs. Votek, Finkelstein, Coffey and Green is set forth below. Glenn A. VotekSerena Wolfehas served as Chief Financial Officer of Annalythe Company since August 2013. Mr. Votek alsoDecember 2019. Prior to joining the Company in 2019, Ms. Wolfe served as Chief Financial Officer of Fixed Income Discount Advisory Company, a former wholly-owned subsidiary of the Company, from August 2013 until October 2015Partner at Ernst & Young LLP (“EY”) since 2011 and as Annaly’s Chief Administrative Officerits Central Region Real Estate Hospitality & Construction (“RHC”) leader from May 2013 until August 2013. Mr. Votek joined Annaly in May 2013 from CIT Group where he2017 to November 2019, managing thego-to-market efforts and client relationships across the sector. Ms. Wolfe was an Executive Vice Presidentpreviously also EY’s Global RHC Assurance Leader. Ms. Wolfe practiced with EY for over 20 years, including six years with EY Australia and Treasurer since 1999 and President of Consumer Finance since 2012. Prior to that, Mr. Votek worked at AT&T and its finance subsidiary from 1986 until 1999 in various financial management roles. Mr. Votek has a B.S. in Finance and Economics16 years with the U.S. practice. Ms. Wolfe graduated from the University of Arizona/Kean College andQueensland with a M.B.A.Bachelor of Commerce in Finance from Rutgers University.
David L. Finkelsteinhas served as Chief Investment Officer of Annaly since November 2016. Mr. Finkelstein previously served as Annaly’s Chief Investment Officer, Agency and RMBS beginning in February 2015 and as Annaly’s Head of Agency Trading beginning in August 2013. Prior to joining Annaly, Mr. Finkelstein served for four years as an OfficerAccounting. She is a Certified Public Accountant in the Markets Group of the Federal Reserve Bankstates of New York, where he was the primary strategistCalifornia, Illinois and policy advisor for the MBS purchase program. Mr. Finkelstein has over 20 years of experience in fixed income investment. Prior to the Federal Reserve Bank of New York, Mr. Finkelstein held Agency MBS trading positions at Salomon Smith Barney, Citigroup Inc. and Barclays PLC. Mr. Finkelstein received his B.A. in Business Administration from the University of Washington and his M.B.A. from the University of Chicago, Booth School of Business. Mr. Finkelstein also holds the Chartered Financial Analyst®designation.Pennsylvania.
Timothy P. Coffeyhas served as Chief Credit Officer of Annalythe Company since January 2016. Mr. Coffey served as Annaly’sthe Company’s Head of Middle Market Lending from 2010 until January 2016. Mr. Coffey has over 20 years of experience in leveraged finance and has held a variety of origination, execution, structuring and distribution positions. Prior to joining Annalythe Company in 2010, Mr. Coffey served as Managing Director and Head of Debt Capital Markets in the Leverage Finance Group at Bank of Ireland. Prior to that,Previously, Mr. Coffey held positions at Scotia Capital, the holding company of Saul Steinberg’s Reliance Group Holdings and SC Johnson International. Mr. Coffey received his B.A. in Finance from Marquette University.University Anthony C. Greenhas served as Chief Corporate Officer of the Company since January 2019 and as Chief Legal Officer and Secretary of Annalythe Company since March 2017. Mr. Green previously served as Annaly’sthe Company’s Deputy General Counsel from 2009 until February 2017. Prior to joining Annaly,the Company, Mr. Green was a partner in the Corporate, Securities, Mergers & Acquisitions Group at the law firm K&L Gates LLP. Mr. Green has over 1820 years of experience in corporate and securities law. Mr. Green holds a B.A. in Economics and Political Science from the University of Pennsylvania and a J.D. and LL.M. in International and Comparative Law from Cornell Law School. STOCK PURCHASES BY EXECUTIVE OFFICERS SINCE 2011
Since 2011, the executive officers have purchased over 1.4 million shares of the Company’s common stock (including open market purchases, dividend reinvestments, and option exercises) with an aggregate purchase price of $16.3 million as set forth in the table below.
| Executive Officer | | Shares
Purchased | | Purchase
Price(1) |
| No NEO has ever
sold shares of
the Company’s
common stock
| | Kevin G. Keyes | | 934,779 | | $ | 10,560,000 | | Glenn A. Votek | | 93,597 | | $ | 1,017,000 | | David L. Finkelstein | | 300,000 | | $ | 3,370,000 | | Timothy P. Coffey | | 30,000 | | $ | 304,000 | | Anthony C. Green | | 101,000 | | $ | 1,085,000 | | TOTAL | | 1,459,376 | | $ | 16,336,000 |
(1) | Rounded to the nearest thousand.
|
| Annaly Capital Management Inc. 2018 Proxy Statement | 37 | |
Table of Contents
Management Structure
OVERVIEW
Following the management externalization transaction (the “Externalization”), which was approved by holders of approximately 83% of the Company’s stock on May 23, 2013, the Company became externally-managed by the Manager. Pursuant to the terms of the Management Agreement, the Company pays the Manager a management fee and the Manager pays all of the compensation to Annaly’s management personnel (including the NEOs). The Compensation Committee annually reviews the management fee and the performance of the Manager, including the achievements discussed beginning on page7. The Independent Directors then consider the Compensation Committee’s recommendations when determining whether to renew or amend the terms of the Management Agreement. Based on the review and factors described in more detail below, the Independent Directors have determined that the Management Agreement continues to be in the best interests of the Company and its stockholders. For additional information, see “Certain Relationships and Related Party Transactions”, “Compensation Paid by the Manager to the Named Executive Officers” and “Compensation Discussion and Analysis.”The Management Agreement
compares favorably to the
management agreements of
Ms. Wolfe was appointed as the Company’s externally-
managed peersChief Financial Officer in December 2019 |
MANAGEMENT AGREEMENT TERMS
The Compensation Committee believes that the terms and conditions of the Management Agreement compare favorably to the terms and conditions that exist between Annaly’s externally-managed mREIT peers and their respective managers. In particular, as illustrated by the table below, when compared to the median for the peer comparison, (i) the management fee paid to the Manager is lower as a percentage of stockholders’ equity, (ii) the term of the Management Agreement was of a shorter duration, and (iii) the Management Agreement has no termination fee, which is expressed in the table below as a multiple of trailing average annual management fees.
| | Mean | | Median | | Min | | Max | | Annaly | | Agency Residential REITs | | | | | | | | | | | | Base management fee(1) | | 1.29% | | 1.29% | | 1.20% | | 1.37% | | 1.05% | | Initial term in years | | 6.0 | | 6.0 | | 2.0 | | 10.0 | | 2.0 | | Termination fee multiple(2) | | 4.2x | | 4.2x | | 3.0x | | 5.3x | | None | | Incentive fee | | None | | None | | None | | None | | None | | Commercial REITs | | | | | | | | | | | | Base management fee | | 1.50% | | 1.50% | | 1.50% | | 1.50% | | 1.05% | | Initial term in years | | 2.8 | | 3.0 | | 2.0 | | 3.0 | | 2.0 | | Termination fee multiple | | 3.2x | | 3.0x | | 3.0x | | 4.0x | | None | | Incentive fee(3) | | 20% above
8% hurdle | | 20% above
8% hurdle | | None | | 25% above
8% hurdle | | None | | Non-Agency Residential/Hybrid REITs | | | | | | | | | | | | Base management fee(4) | | 1.49% | | 1.50% | | 1.41% | | 1.50% | | 1.05% | | Initial term in years | | 4.0 | | 3.0 | | 1.0 | | 15.0 | | 2.0 | | Termination fee multiple(5) | | 2.9x | | 3.0x | | 1.0x | | 5.0x | | None | | Incentive fee(6) | | N/A | | N/A | | ~15%
above
~12%
hurdle | | 35% above
12.5%
hurdle | | None |
Source: Public filings as of year ended December 31, 2017. All base management fees are calculated as a percentage of stockholders’ equity and all termination fees are calculated as a multiple of the average annual base management fee during the prior 24-month period, except as otherwise specified below. Agency Residential REITs represent the externally-managed agency mortgage REITs included in the BBREMTG Index as of December 31, 2017 and includes Anworth Mortgage Asset Corporation (“ANH”) and ARMOUR Residential REIT, Inc. (“ARR”). Commercial REITs represent the externally-managed commercial mortgage REITs included in the BBREMTG Index as of December 31, 2017 and includes Blackstone Mortgage Trust, Inc. (“BXMT”), Ares Commercial Real Estate Corp. (“ACRE”), Resource Capital Corp. (“RSO”), Apollo Commercial Real Estate Finance, Inc. (“ARI”), Starwood Property Trust (“STWD”) and Sutherland Asset Management (“SLD”). Non-Agency Residential / Hybrid REITs represents the externally-managed non-agency
38 | Annaly Capital Management Inc. 2018 Proxy Statement | | |
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Management Structure
residential and hybrid mortgage REITs included in the BBREMTG Index as of December 31, 2017 and includes New Residential Investment Corp. (“NRZ”), Two Harbors Investment Corp. (“TWO”), Invesco Mortgage Capital, Inc. (“IVR”), PennyMac Mortgage Investment Trust (“PMT”), MTGE Investment Corp. (“MTGE”), New York Mortgage Trust Inc. (“NYMT”), AG Mortgage Investment Trust, Inc. (“MITT”), Orchid Island Capital, Inc. (“ORC”), Western Asset Mortgage (“WMC”), Great Ajax Corp (“AJX”), Cherry Hill Mortgage Investment Corp. (“CHMI”), Ellington Residential Mortgage REIT (“EARN”), and Five Oaks Investment Corp. (“OAKS”).
(1) | For ARR, base management fee is calculated as 1.50% of gross equity raised up to $1.0 billion plus 0.75% of gross equity raised in excess of $1.0 billion.
| (2) | ARR’s termination fee is calculated as the greater of (a) the base management fee calculated prior to the effective date of agreement termination for the remainder of the term or (b) 3x the base management fee during the preceding full 12 months.
| (3) | Of the six Commercial REITs, five have incentive fees in addition to their base management fees. STWD and RSO have incentive fees of 20% above an 8% hurdle. BXMT has an incentive fee of 20% above a 7% hurdle. RSO has an incentive fee of 25% above an 8% hurdle. SLD has an incentive fee of 15% above an 8% hurdle. For purposes of this table, the calculation of the mean includes only the five Commercial REITs that have incentive fees.
| (4) | NYMT only pays base management and incentive fees with respect to its distressed residential loan strategy. NYMT’s base management fee is calculated as 1.50% of invested capital in distressed residential mortgage loans.
| (5) | NRZ’s termination fee is calculated using the prior 12-month period. Pursuant to the terms of its management agreement, PMT’s termination fee is calculated as a multiple of the base management fee and a performance incentive fee. For purposes of this table, any impact from this performance incentive fee on PMT’s termination fee multiple has been disregarded.
| (6) | Of the 13 Non-Agency Residential/Hybrid REITs, four have incentive fees in addition to their base management fees. NRZ has an incentive fee of 25% above a 10% hurdle. PMT has an incentive fee with a sliding scale beginning above 8%. NYMT has an incentive fee of 35% above a 12.5% hurdle. AJX has an incentive fee of 20% above an 8% hurdle. For purposes of this table, the calculation of the mean includes only the four Non-Agency Residential/Hybrid REITs that have incentive fees.
|
STRUCTURE AND AMOUNT OF THE MANAGEMENT FEE
The Compensation Committee annually reviews both the structure of the management fee as well as the amount of such fee to determine whether they incentivize the Manager to work towards the Company’s desired goals to the benefit of long-term stockholder interests. The Compensation Committee has determined that the use of a management fee formulated as a percentage of stockholders’ equity (as defined in the Management Agreement) represents a responsible and prudent method of compensating the Manager. In particular, in the context of an mREIT that uses leverage as a key component of its business strategy, the Compensation Committee believes that providing for a contractually required payment structured as an “incentive fee” may misalign the goals of the Manager from those of the stockholders.
Moreover, the Compensation Committee believes that a management fee that is based upon stockholders’ equity (along with the stock ownership guidelines discussed on page47) aligns the management team to the goals of the Company, and that focusing the management fee on the preservation and growth of the Company’s book value incentivizes the Manager to achieve long-term performance that protects stockholders’ equity as realized losses decrease such equity and, ultimately, the management fee.
Additionally, for the Manager to earn a larger management fee, the stockholders’ equity of the Company would need to increase. As a result, the growth of the stockholders’ equity is an alignment between the interests of stockholders and the Manager. Further, this alignment is stronger in the REIT industry than in other businesses. REIT regulations require the Company to pay at least 90% of its earnings to stockholders as dividends. As a result, unlike most companies, Annaly cannot grow its business and book value by reinvesting its earnings. This places a unique market discipline on the Company.
The Compensation Committee
annually reviews the structure
and amount of the management
fee to determine whether it
appropriately incentivizes the
management team |
The Compensation Committee also believes that the structure of the management fee is more favorable to the Company’s stockholders than if the fee was based on total assets under management, which could potentially incentivize an external manager to excessively leverage assets under management in an attempt to increase short-term incentive payouts.
Clawback for the Management Fee
Pursuant to the 2016 amendment and restatement of the Management Agreement, the Company is entitled to receive reimbursement from the Manager if the Board determines that a computation error (regardless of the reason for or amount of such error) resulted in the overpayment of a management fee to the Manager.
| Annaly Capital Management Inc. 2018 Proxy Statement | 39 | |
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Management Structure
CONTINUED COST SAVINGS RELATED TO THE EXTERNALIZATION
The Compensation Committee believes that the Externalization has materially reduced the Company’s compensation-related costs. When comparing the management fees the Company paid for the fiscal years ended December 31, 2013, 2014, 2015, 2016 and 2017 against the estimated compensation costs (including tax costs) the Company would have paid for the same period if those costs remained what they were in 2012, management estimates that the Externalization has resulted in total compensation savings, including tax savings, (calculated in accordance with GAAP) of approximately $276 million.
As illustrated by the table below, the management fee for each of 2013(1), 2014, 2015, 2016 and 2017 is significantly lower than the Company’s 2012 compensation expenses (which is represented by the dark gray line):
Management Fee/Compensation Expense(2),(3) |
($ in thousands)
(1) | Although the Manager commenced management of Annaly on July 1, 2013, the Company’s stockholders received the benefit of the compensation savings created by the Externalization for the entire 2013 calendar year pursuant to a pro forma adjustment to the 2013 management fee. The Manager calculated a pro forma management fee, which was the management fee as if the Company was managed by the Manager from January 1, 2013 until July 1, 2013, and the actual amount of cash compensation paid to all of Annaly’s employees from January 1, 2013 until July 1, 2013 reduced the amount of the management fee owed to the Manager.
| (2) | Assumes compensation costs for each of 2013, 2014, 2015, 2016 and 2017 would have remained what they were in 2012 (the last full year prior to the Externalization).
| (3) | Gray shaded area represents compensations savings (exclusive of tax savings).
|
ANNUAL REVIEW OF MANAGER PERFORMANCE AND MANAGEMENT FEE CONSIDERATIONS
The Compensation Committee annually reviews the Manager’s performance and management fee against both historical results and the Company’s mREIT peers, based on a number of metrics, including those discussed above in the “Proxy Summary” and the expense ratios discussed below.
The Compensation Committee
annually reviews both the
Manager’s performance and
the terms and conditions of the
Management Agreement |
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Management Structure
Peer Comparison of Operating Expenses as a Percentage of Average Assets and Average Stockholders’ Equity
The Compensation Committee reviews the Company’s total operating expenses (including the management fee), as a percentage of both average assets and average stockholders’ equity, among other metrics. The Compensation Committee believes these ratios, which allow comparison of the Manager’s performance against the Company’s internally- and externally-managed mREIT peers, measure the extent to which the Manager operates in an economically efficient manner.
Operating Expense as a Percentage of Average Assets |
| 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | Average | | 0.19% | | 0.22% | | 0.24% | | 0.25% | | 0.25% | | 0.25% | | 0.23% | Internally-Managed
Peers | 0.54% | | 1.05% | | 0.87% | | 0.72% | | 0.37% | | 0.44% | | 0.67% | Externally-Managed
Peers | 0.67% | | 0.63% | | 0.75% | | 0.81% | | 0.74% | | 0.74% | | 0.72% | | mREIT Index | 0.62% | | 0.74% | | 0.77% | | 0.80% | | 0.60% | | 0.62% | | 0.69% |
Operating Expense as a Percentage of Average Equity |
| 2012 | | 2013 | | 2014 | | 2015 | | 2016 | | 2017 | | Average | | 1.45% | | 1.66% | | 1.61% | | 1.58% | | 1.65% | | 1.68% | | 1.61% | Internally-Managed
Peers | 2.71% | | 3.95% | | 3.92% | | 3.68% | | 2.14% | | 2.10% | | 3.08% | Externally-Managed
Peers | 2.38% | | 3.06% | | 3.55% | | 3.82% | | 4.36% | | 4.00% | | 3.53% | | mREIT Index | 2.33% | | 3.30% | | 3.62% | | 3.80% | | 3.53% | | 3.25% | | 3.30% |
Source: Company Filings, SNL and Bloomberg. Averages are market weighted based on market capitalization as of Dec. 31st of each respective year. Note: Internally-Managed Peers and Externally-Managed Peers represent the respective internally- and externally-managed members of the BBREMTG Index as of December 31st of each respective year. The average for each excludes Annaly and companies during years in which they became public or first listed. Operating Expense is defined as: (i) for Internally-Managed Peers, the sum of compensation & benefits, general & administrative expenses and other operating expenses, and (ii) for Externally-Managed Peers and Annaly, the sum of net management fees, compensation & benefits (if any), general & administrative expenses and other operating expenses. Annaly’s 2016 operating expenses exclude costs of $49 million related to the Company’s acquisition of Hatteras Financial Corp.
In its review of these operating expense ratios, the Compensation Committee noted that the Company has outperformed both its internally- and externally-managed mREIT peers over the last six fiscal years. In this regard, the Compensation Committee has viewed the Company’s performance as an indicator that, among other things, the Manager has managed the Company in an efficient manner with appropriately scaled operating costs (including the management fee).
| Annaly Capital Management Inc. 2018 Proxy Statement | 41 | |
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Compensation Paid by the Manager to the Named Executive Officers NAMED EXECUTIVE OFFICERSNAMED EXECUTIVE OFFICERS
The NEOs for 20172019 are: Name | | Title | Kevin G. KeyesName | | Chairman, Chief Executive Officer (CEO) and PresidentTitle | Glenn A. Votek | | David L. Finkelstein | | CEO (effective March 2020) and Chief Investment Officer | | | | | | Serena Wolfe | | Chief Financial Officer (CFO)(effective December 2019) | David L. Finkelstein | | Chief Investment Officer (CIO) | | | Timothy P. Coffey | | Chief Credit Officer (CCO) | | | | | | Anthony C. Green | | Chief Corporate Officer, Chief Legal Officer (CLO) and Secretary | | | | | | Glenn A. Votek | | Senior Advisor (effective March 2020) Former Interim CEO and President (November 2019 – March 2020) Former Chief Financial Officer (prior to December 2019) | | | | | | Kevin G. Keyes | | Former Chairman, CEO and President (prior to November 2019) | | | |
INTRODUCTIONINTRODUCTION
As discussed throughout this above in the “Proxy Statement,Summary” and “Certain Relationships and Related Party Transactions,” the Company payswill continue to be externally-managed by the Manager until the closing of the Internalization, which is expected to occur in the second quarter of 2020. Until the closing, the Company will pay the Manager a monthly management fee, the purpose of which is not to provide compensation to the NEOs,Manager’s employees (including the NEOs), but rather to compensate the Manager for the services it provides for theday-to-day management of Annaly. Thethe Company. In 2019, the Manager used a portion of the proceeds of theits management fee are used by the Manager in partfees to pay compensation to the Manager’s personnel, including the NEOs other than Mr. Keyesthe Company’s former Chairman, CEO and President (who doesdid not receive any compensation for serving as the Company’s CEO,in these roles, but hashad an ownership interest in the management fee as an indirect equityholderfees until his departure from the Company and the Manager in November 2019). While the Compensation Committee will review and approve the Company’s executive compensation program following the closing of the Manager); however, the Company does not determine the compensation payable byInternalization, the Manager to the NEOs, the Company does not allocate any specific portion of the management fee it pays to themade all 2019 compensation of the NEOs, nor does the Company reimburse the Managerdeterminations for the cost of such compensation. The Manager makes all decisions relating to compensation it pays to the NEOs based on the factors, including individual and Company performance, it determinesdetermined to be appropriate and subject to any employment agreements entered into between the Manager and individual NEOs. DISCLOSURE ENHANCEMENTS
Given that Annaly does For 2019, the Company did not provide anydetermine the compensation paid by the Manager to the NEOs, historically, the Company disclosed information aboutdid not allocate any specific portion of the management feesfee it paid to the Manager, butcompensation of the NEOs, and did not disclosereimburse the Manager for the cost of such compensation.
| | Following the closing of the Internalization, the Compensation Committee will review and approve executive compensation |
THE MANAGER’S 2019 EXECUTIVE COMPENSATION PROGRAM In order to enable the Company’s stockholders to make an informedSay-on-Pay vote, the Manager has provided the following information about the Manager’s executive compensation program. However, atit paid to the request of the Independent Directors, the Company has engaged in extensive outreach over the last two years in order to understand the information stockholders need to fully evaluate the Manager’s executive compensation programNEOs for purposes of the Say-on-Pay vote.2019: 2017 Changes
In response to conversations with stockholders following the 2016 Say-on-Pay vote and conversations with the Manager, the Manager consented to disclosure of certain qualitative information about the Manager’s executive compensation program in the Company’s 2017 Proxy Statement. The Independent Directors also requested that the Manager provide the following information for disclosure in the Company’s 2018 Proxy Statement:
■∎ | | The portion of the management fee that is allocated to NEO compensation paid by the Manager; |
■∎ | | Of this compensation, the breakdown of fixed vs. variable/incentive pay; and |
■∎ | | The metrics the Manager uses to measure performance to determine the NEOs’ variable/incentive pay. |
2018 ChangesSummary of 2019 NEO Compensation
Following the 2017 Say-on-Pay vote, the Company again engaged in a multi-pronged effort to gather stockholder feedback regarding its 2017 compensation disclosure. While stockholders generally appreciated the qualitative information the Company provided about the Manager’s executive compensation program in the 2017 Proxy Statement, others indicated that they needed specific information about the magnitude of NEO compensation and the proportion of variable NEO pay in order to evaluate the alignment between NEO pay and Company performance. In response to this feedback, the Manager has provided the information below about the compensation it paid to the NEOs for 2017.
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Compensation Paid by the Manager to the Named Executive Officers
Summary of 2017 NEO Compensation
■ | With the exception of Mr. Keyes (who does not receive any direct or indirect compensation from the Manager or the Company for his services asCompany’s former Chairman, CEO but does have an interest in the fees paid to the Manager as an equityholder of the parent of the Manager)and President(1), each of the other NEOs received a base salary and a performance-based cash incentive bonus for 2017.2019 (which werepro-rated in the instance of Ms. Wolfe who joined the Company on December 9, 2019). |
■∎ | During 2017, | With respect to 2019(2), the NEOs as a group received aggregate salaries of $2.8$3.0 million and aggregate performance-based cash incentive bonuses of $23.9$28.5 million from the Manager. These amounts collectively represent 16.2%16.4% of the aggregate management fees and reimbursements the Company paid to the Manager during 2017.for 2019. On an aggregated basis, the NEOs received 10.3%9.5% of their total compensation in the form of base salaries and the remaining 89.7%90.5% in the form of performance-based cash incentive bonuses. |
■∎ | | In determining the cash bonuses it paid to the NEOs for 2017,2019, the Manager considered achievement of both rigorous Company performance metrics(3), including core return on equity, core return on assets and operating expenses as a percentage of average equity and as a percentage of average assets, along with group and individual performance objectives. |
■∎ | | The Manager considered a list of specified peer companies (set forth below under “Company Market Data”), together with advice from the Manager’s compensation consultants,consultant and counsel, to develop appropriate compensation packages for the NEOs. |
Components of the NEOs’ Compensation for 2019 The Manager’s executive compensation program includesfor 2019 included both a base salary and a performance-based cash incentive bonus. Although the Compensation Committee has discretion to grant equity awards of Company common stock to the NEOs (which it has not exercised since the Externalization),As the management fee the Company pays to the Manager is paid entirely in cash, and therefore the Manager hashad no independent ability to provide awards of Company stock as part of the NEOs’ compensation.compensation for 2019. To address this limitation, in the Manager’s executive compensation program, the Manager has structured the NEOs’ performance-based cash incentive bonuses for 2019 with a mix of both rigorous Company performance metrics and group and individual performance objectives. objectives to align the interests of the NEOs with the interests of the Company’s stockholders. The table below describes the objectives supported by each of the Manager’s primary compensation elements for 2019, along with an overview of the key design features of each element. Compensation Element | | What It Does | | Key Measures | Base Salary2019 Compensation
Element
| | | | Key Measures | | Base Salary | | ■∎Provides Provided a level of fixed pay appropriate to an executive’s role and responsibilities
■Evaluated on an annual basis, may be adjusted up or down
| | ■∎Experience, duties and scope of responsibility
∎ ■Internal and external market factors
| Performance - Based | Performance-Based
Cash Incentive Bonus | | ■∎Provides Provided a competitive annual cash incentive opportunity
∎ ■Links Linked executives’ interests with stockholders’ interests∎ ■Incentivizes Incentivized and rewardsrewarded superior group individual and Company performance
| | ■∎Based on achievement of both rigorous Company performance metrics (including core return on equity, core return on assets and operating expenses as percentage of average equity)equity and as a percentage of average assets), together with group and individual performance objectives
| |
Following the closing of the Internalization, which is expected to occur in the second quarter of 2020, the Board intends that equity will be a critical part of the internally-managed Company’s executive compensation program as it believes that equity awards align employee and stockholder interests, link employee compensation to Company performance and support the Company’s ownership culture. | | Following the closing of the Internalization, equity awards are expected to comprise a meaningful portion of overall executive compensation |
NEO Pay Mix for 2019 The Manager’s executive compensation program isfor 2019 was designed so that the majority of compensation iswas performance-based and “at-risk”“at-risk” to promote alignment of the NEOs’ interests with those of stockholders. In determining payout of the NEOs’ performance-based cash incentive bonuses for 2019 (which representsrepresented the variable portion of their compensation packages), the Manager considered achievement of both rigorous performance metrics, including core return on equity, core return on assets and operating expenses as a percentage of average equity and as a percentage of average assets, along with group and individual performance objectives. During 2017,2019, the Manager paid Ms. Wolfe and Messrs. Votek, Finkelstein, Coffey, Green and Green receivedVotek aggregate performance-based cash incentive bonuses of $23.9$28.5 million from the Manager. | Annaly Capital Management Inc. 2018 Proxy Statement | 43 | |
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Compensation Paid by the Manager to the Named Executive Officers
Theand aggregate base salaries for the NEOs (which represent the fixed portion of their compensation packages) are reviewed annually and may be increased or decreased as the Manager deems appropriate. During 2017, Messrs. Finkelstein, Votek, Coffey and Green received aggregate salaries of $2.8 million from the Manager.$3.0 million. On an aggregated basis, Ms. Wolfe and Messrs. Votek, Finkelstein, Coffey, Green and GreenVotek received 10.3%9.5% of their total compensation in the form of base salaries and the remaining 89.7%90.5% in the form of performance-based cash incentive bonuses.
Note: For footnoted information, please refer to “Summary of 2019 NEO Compensation” in Endnotes section. | 20172019 NEO Fixed vs. Variable Pay MixMix |
How the Manager Makes Executive Compensation Decisions
In establishing and reviewing executive compensation packages, the Manager considers the nature and scope of each executive’s role and responsibilities, individual and Company performance, retention considerations and feedback from stakeholders, along with the market data, analyses and recommendations provided by external compensation consultants (as further described below under “Role of the Manager’s Compensation Consultants” and “Market Compensation Data”).
Role of the Manager’s Compensation ConsultantsConsultant During 2017,2019, the Manager retained Meridian Compensation Partners, LLC, FPL Associates, L.P. and Richter Associates, Inc.a third-party compensation consultant for advice and perspectives regarding market trends that may impact decisions about the Manager’s executive compensation program and practices. Company Market Data The Manager considersconsidered compensation data and practices of a group of peer companies (the “Peer Group”), as well as current market trends and practices generally, in developing appropriate compensation packages for the NEOs.NEOs in 2019. In determining the Peer Group, the Manager considers both industry and company-specific dynamics to identify the peers with which the Company competes for assets, stockholders and talent. As a result, the Manager focuses on peers within the mREIT industry, as well as asset management companies that manage mREITs, along with other asset managers and financial companies within relevant market capitalization and/or revenue bands. The Manager annually reviews the Peer Group and may update its composition to better reflect the Company’s competitive landscape or, if necessary, to account for corporate changes, including acquisitions and dispositions.
The Manager considers
both industry and company-
specific dynamics to identify
the peers with which the
Company competes for assets,
stockholders and talent |
COMPENSATION PEER GROUP
| | | | | | | 2019 Compensation Peer Group | | | Affiliated Managers Group, Inc. AGNC Investment Corp. Apollo Global Management, LLC Ameriprise Financial, Inc. Ares Capital Corporation Ares Management Corp. ARMOUR Residential REIT, Inc. E*TRADE Financial Corporation | Fortress | Eaton Vance Corp. Franklin Resources, Inc. Invesco Ltd. Jefferies Financial Group Inc. KKR & Co. L.P. Lazard Ltd Legg Mason, Inc. | | New Residential Investment Group LLC | Corp. Northern Trust Corporation | AGNC Investment Corp. | Franklin Resources, Inc. | Raymond James Financial, Inc. | Ameriprise Financial, Inc. | Invesco Ltd. | Starwood Property Trust, Inc. | Ares Capital Corporation | KKR & Co. L.P. | T. Rowe Price Group, Inc. | Ares Management, L.P. | Lazard Ltd | TD Ameritrade Holding Corporation | ARMOUR Residential REIT, Inc. | Legg Mason, Inc. | The Blackstone Group L.P. | E*TRADE Financial Corporation | Leucadia National Corporation | The Carlyle Group L.P. | Eaton Vance Corp. | New Residential Investment Corp. | Waddell & Reed Financial, Inc. |
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Executive Compensation | | | | | | | PROPOSAL | | Advisory Approval of Executive Compensation The Board is committed to corporate governance best practices and recognizes the significant interest of stockholders in executive compensation matters. The Company is providing this non-binding advisory vote pursuant to Section 14A of the Exchange Act. As described in detail under the headings “Management StructureProxy Summary,” “Certain Relationships and Related Party Transactions,” “Compensation Paid by the Manager to the Named Executive Officers” above and “Compensation Discussion and Analysis” below, the Company iswill continue to be externally-managed by the Manager pursuantuntil the closing of the Internalization, which is expected to occur in the Management Agreement betweensecond quarter of 2020. Until the Manager and the Company. The Manager is responsible for paying all compensation expense associated with managingclosing, the Company and its subsidiaries. The Company payswill pay the Manager a management fee, andthe purpose of which is not to provide compensation to the Manager’s employees (including the NEOs), but rather to compensate the Manager usesfor the services it provides for the day-to-day management of the Company. In 2019, the Manager used a portion of the proceeds from theof its management feefees to pay compensation to the Manager’s personnel, including the NEOs other than the Company’s former Chairman, CEO and President Mr. Keyes (who doesdid not receive any compensation for serving as the Company’s CEO,in these roles, but hashad an ownership interest in the management fee as an indirect equityholderfees until his departure from the Company and the Manager in November 2019). While the Compensation Committee will review and approve the Company’s executive compensation program following the closing of the Manager); however,Internalization, the Manager made all 2019 compensation determinations for the NEOs based on the factors, including individual and Company performance, it determined to be appropriate and subject to any employment agreements entered into between the Manager and individual NEOs. In 2019, the Company doesdid not determine the compensation payablepaid by the Manager to the NEOs, the Company doesdid not allocate any specific portion of the management fee it payspaid to the compensation of the NEOs, nor does itand did not reimburse the Manager for the cost of such compensation. The Manager makes all decisions relatingCompany is not party to the compensation of the NEOs based on the factors the Manager determines to be appropriate, including both individual and Company performance, and subject to the terms of any employment agreementagreements entered into between the Manager and an individual NEO.NEOs, and was not party to any employment or severance agreement with any NEO as of December 31, 2019. The Company did not pay any severance benefits to Mr. Keyes in connection with his departure from the Company in November 2019. The NEOs are eligible to receive equity awards pursuant to the Company’s equity incentive plan,plans, which isare administered by the Compensation Committee. No equity awards were made to any of the NEOs in 2017.2019. In 2017,2019, the Company did not pay any compensation to the NEOs. The Board unanimously recommends that the stockholders vote in favor of the following resolution: “RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and related narrative discussion, is hereby APPROVED.” While this vote is advisory and non-binding, the Board and Compensation Committee value the views of the Company’s stockholders and will consider the voting results when making compensation decisions regardingin the Company’s equity incentive plans.future. | | | | |
| | The Board unanimously recommends a voteFORthe Approval of this Resolution. |
COMPENSATION DISCUSSION COMPENSATION DISCUSSIONAND ANALYSIS ANALYSIS
As discussed above, the Manager payspaid all of the compensation, including benefits, to the NEOs in 2019. While the Compensation Committee will review and approve the Company’s executive compensation program following the closing of the Internalization, the Manager made all compensation determinations for the NEOs for 2019 without any direction by the Compensation Committee or the Board and without reference to any specific policies or programs under their oversight. In 2019, the Manager compensated the NEOs for a variety of services performed for the benefit of the Manager. Thus, the 2019 compensation paid by the Manager to its employees (includingwho served as the Company’s NEOs other than Mr. Keyes). Although certain personnel (but noneis not considered to be part of the NEOs) are employed byCompany’s executive compensation program. Prior to the Company’s subsidiariesMarch 27, 2019 amendment to the Management Agreement, the Company paid the Manager a flat monthly management fee equal to 1/12th of 1.05% of Stockholders’ Equity (as defined in the Management Agreement) for regulatory or corporate efficiency reasons, all compensationmanagement services. Pursuant to the March 27, 2019 amendment, the Company pays the Manager a monthly management fee for management services in an amount equal to 1/12th of the sum of (i) 1.05% of Stockholders’ Equity (as defined in the Management Agreement) up to $17.28 billion, and benefits paid(ii) 0.75% of Stockholders’ Equity (as defined in the Management Agreement) in excess of $17.28 billion. In addition to such personnel by the Company’s subsidiaries reduce, on a dollar-for-dollar basis, the management fee, the Company paysreimburses the Manager for the cost of certain legal, tax, accounting and other support and advisory services provided by employees of the Manager to the Manager. TheCompany. During the year ended December 31, 2019, the Company incurred $170.6 million in management fees and $21.4 million in permitted reimbursement payments under the Management Agreement. None of the reimbursement payments were attributable to compensation of the Company’s NEOs. In 2019, the Manager used a portion of the proceeds of theits management fee are used in partfees to pay compensation to the Manager’s personnel, including the NEOs other than the Company’s former Chairman, CEO and President Mr. Keyes (who doesdid not receive any compensation for serving as the Company’s CEO,in these roles, but hashad an ownership interest in the management fee as an indirect equityholder of the Manager); however,fees until his departure from the Company doesand the Manager in November 2019). In 2019, the Company did not determine the compensation payable bythat the Manager paid to the NEOs, the Company doesdid not allocate any specific portion of the management fee it paysthat the Company paid to the compensation of the NEOs, nor does itand the Company did not reimburse the Manager for the cost of such compensation. | Annaly Capital Management Inc. 2018 Proxy Statement | 45 | |
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Executive Compensation
Accordingly, the Company did not pay any cash compensation to the NEOs, nor did the Company grant them any plan-based awards, for 2017.2019. The Company doesdid not provide the NEOs with pension benefits, perquisites or other personal benefits. benefits in 2019. As a result, no compensation is includable in the Summary Compensation Table. The Company is not party to any employment agreements entered into between the Manager and individual NEOs, and it doeswas not haveparty to any arrangementsemployment or severance agreement with any NEO as of December 31, 2019. The Company did not pay any severance benefits to pay such individuals any cash severance upon their termination or a changeMr. Keyes in control of the Company. As a result, no compensation is includable in the Summary Compensation Table for the NEOs. Pursuant to the terms of the Management Agreement,connection with his departure from the Company pays the Manager a monthly management fee equal to 1/12th of 1.05% of the Company’s stockholders’ equity, as defined in the Management Agreement, for its management services, which was approximately $164.3 million during the year ended December 31, 2017.November 2019.
The Manager, which is a private company that is not subject to the disclosure requirements of the SEC, has sole discretion to determine the compensation it pays to its employees, including the NEOs. The Manager makes all compensation determinations for its employees without any direction by the Board and without reference to any specific policies or programs under the oversight of the Board. The Manager compensates its employees (including the NEOs) for a variety of services performed for the benefit of the Manager. Thus, the compensation paid by the Manager to its employees who are serving as the Company’s NEOs is not considered to be part of the Company’s executive compensation program.
Consideration of “Say-on-Pay” Voting Results At the Company’s 20172019 Annual Meeting, 69%over 83% of the votes cast supported the Company’s Say-on-Pay vote. While the Say-on-Pay vote received majority support, the Compensation Committee was disappointed withUpon consideration of the percentage of votes cast againstin support of the proposal andSay-on-Pay vote, along with additional feedback from engagement with stockholders, the Compensation Committee determined it was appropriate to provide detailed quantitative information about the Manager’s 2019 executive compensation program in this Proxy Statement. Following the closing of the Internalization, the Company redoubled its engagement efforts in orderwill be able to understand the information stockholders need to evaluate the alignment between NEO pay and Company performance. These efforts included: ■ | Outreach to investors representing approximately 72% of shares held by institutional stockholders, including 92% of the Company’s 50 largest stockholders and 96% of the Company’s 25 largest stockholders
| ■ | Analysis of market practices at peer companies
| ■ | Advice from compensation consultants
| ■ | Attendance at investor conferences
| ■ | Discussions with proxy advisory services and corporate governance research firms
|
During the course of this review, the Company identified that certain stockholders and other key stakeholders would like the Company to disclose the magnitude of NEO compensation and the proportion of variable NEO pay to facilitate an informed evaluation of the Manager’s executive compensation program. In orderto address these concerns, the Manager has provided the Company withprovide detailed quantitative informationdisclosure about its executive compensation program, for inclusionincluding compensation tables and related narrative disclosure, in this Proxy Statement.future proxy statements. For additional details, please see “Compensationthe “Proxy Summary” and “Compensation Paid by the Manager to the Named Executive Officers – 2018 Changes”” above.
The Company reached out to
92% of its 50 largest stockholders |
The Company and the Board will continue to consider the outcome of future Say-on-Pay votes, as well as stockholder feedback received throughout the year, and invite stockholders to express their views to the Independent DirectorsBoard as described under “Communications with the BoardBoard..” | 46As an internally-managed company, the Company will provide detailed disclosure about its executive compensation program in future proxy statements |
EXECUTIVE COMPENSATION POLICIES Stock Ownership Guidelines | Annaly Capital Management Inc. 2018 Proxy Statement | | Position | | Annaly Stock
Ownership
Guideline | Chief Executive Officer | | 6x base salary | | Other Executive Officers | | 3x base salary | | |
Table of Contents
Executive Compensation
EXECUTIVE COMPENSATION POLICIES
Stock Ownership Guidelines/Commitments
| Position | | Number of
Individuals | | Annaly Stock Ownership
Guideline/Commitment | | Timeframe to Meet
Guideline/Commitment | | Chief Executive Officer(1) | | 1 | | $15,000,000 | | July 2020 | | Other Operating Committee Members(2) | | 9 | | 30% of Annual Total Compensation | | 5 years | | Managing Directors | | 23 | | 20% of Annual Total Compensation | | 5 years | | Director-Level Employees | | 28 | | 10% of Annual Total Compensation | | 5 years | | Total | | 61 | | | | |
(1) | In July 2017, Mr. Keyes voluntarily committed to increase his stock ownership position beyond his Board-approved ownership guideline of $10 million. Mr. Keyes has pledged to meet his enhanced $15 million commitment solely through additional open market purchases of the Company’s common stock.
| (2) | In July 2017, other members of senior management (including the CIO, CCO, CFO and CLO) voluntarily committed to increase their stock ownership positions beyond the guideline of 30% of annual total compensation adopted by the Board. Like Mr. Keyes, these officers have agreed to achieve their increased stock ownership commitments by July 2020 solely through open market purchases of the Company’s common stock.
|
TheseThe Company believes that stock ownership guidelines apply to more than 40%align the interests of the Manager’s employees. AsCompany’s executive officers with those of March 31, 2017, all such individuals either met or, withinits stockholders by promoting a long-term focus and long-term share ownerships. All of the applicable period,executive officers are expectedsubject to meet the stock ownership guidelines.guidelines expressed as a multiple of base salary.
Stock Holding PeriodRetention Under a policy adopted by the Compensation Committee in 2016, theManager’s employees (including the executive officers)Executive officers are required to hold for a periodshares received under awards (after taxes) until the later of four years(i) one year after the net after-tax shares of Company stock they receive through stock option exerciseswere acquired upon exercise or vesting, or (ii) the date their applicable stock ownership guidelines are met.
Clawback Policy The Board has adopted a policy requiring the recoupment of certain annual cash incentive compensation and equity incentive awards.compensation paid to executive officers within three years preceding certain accounting restatements, if the executive officer engaged in fraud or misconduct, or recklessly or negligently failed to prevent the fraud or misconduct, that caused or significantly contributed to the need for the accounting restatement. The NEOs voluntarily
committed to increase their
NLY positions beyond the
amounts stated under their
ownership guidelines |
Prohibition on Hedging Company Securities The Company has a policy prohibiting the Manager’s employees (including the executive officers)Employees, officers and Directors are prohibited from engaging in any hedging transactions with respect to Company securities held by them, which includesincluding shares acquired in open market transactions or through the Company’s equity compensation program. Such prohibited transactions include the purchase of any financial instrument (including forward contracts and zero cost collars) designed to hedge or offset any decrease in the market value of Company securities.
Prohibition on Pledging Company Securities The Company has a policy prohibiting the Manager’s employees, (including the executive officers)officers and Directors from holding Company securities in a margin account or pledging Company securities as collateral for a loan. Risks Related to Compensation Policies and Practices As discussed above in “Management StructureCompensation Paid by the Manager to the Named Executive Officers,,” the Compensation Committee isdid not entitled to approve compensation decisions made by the Manager in 2019 and the Manager doesdid not consult with the Compensation Committee prior to making any such decisions. Therefore, the Compensation Committee hashad no compensation policies or practices applicable to, or decision-making role regarding, the manner in which the Manager usesused the management fee to cover its operating expenses, including employee compensation.compensate the NEOs in 2019. However, in connection with the Compensation Committee’s administration of the Company’s equity incentive plan, the Compensation Committee conductsconducted an annual risk assessment of the Company’s applicable compensation policies and practices applicable to such plan.practices. In 2017,2019, the Compensation Committee determined that these compensation policies and practices dodid not create risks that are reasonably likely to have a material adverse effect on the Company. | Annaly Capital Management Inc. 2018 Proxy Statement | 47 | |
Table of Contents
Executive Compensation
COMPENSATION COMMITTEE REPORTREPORTOFTHE COMPENSATION COMMITTEE
The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of RegulationS-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement. | | | | | | | | Donnell A. Segalas (Chair) | | Jonathan D. Green | E. Wayne Nordberg | John H. Schaefer | | Vicki Williams |
EXECUTIVE COMPENSATION TABLESEXECUTIVE COMPENSATION TABLESAND RELATED NARRATIVE
Summary Compensation Table The Company did not pay any compensation to the NEOs, and did not reimburse the Manager for any compensation paid to the NEOs, with respect to the years ended December 31, 2017,2019, December 31, 20162018 or December 31, 2015.2017. Grants of Plan-Based Awards The Company did not grant the NEOs any plan based awards in 2017.2019. Outstanding Equity Awards at FiscalYear-End None of the NEOs had outstanding equity awards at December 31, 2017.2019. Options Exercised and Stock Vested No options were exercised by and no stock vested for the NEOs during 2017.2019. | The Company did not pay any
cash or equity compensation to
the NEOs for 2017.2019. The Company
does did not provide them with
pension benefits, perquisites or
other personal benefits.benefits in 2019 |
Pension Benefits and Nonqualified Deferred Compensation The Company doesdid not provide the NEOs with any benefits pursuant to defined benefit plans and nonqualified deferred compensation plans.plans during 2019. Potential Payments upon Termination or Change in Control TheAs of December 31, 2019, the Company iswas not responsible for any amounts payable or any additional vesting of outstanding equity awards for any termination of service by any of the NEOs. NoNEOs, and no amounts would have been payable by the Company to any of the NEOs upon a change in control as of December 31, 2017.such date.
COMPENSATION COMMITTEE INTERLOCKS COMPENSATION COMMITTEE INTERLOCKSAND INSIDER PARTICIPATION INSIDER PARTICIPATION
The Compensation Committee is comprised solely of the following Independent Directors: Messrs. Segalas (Chair), J. Green Nordberg and Schaefer and Ms. Williams. None of them is serving or has served as an officer or employee of the Company or any affiliate or has any other business relationship or affiliation with the Company, except his service as a Director, and there are no other Compensation Committee interlocks that are required to be reported under the rules and regulations of the Exchange Act. CEO PAY RATIO
Effective July 1, 2013, allDirector. During 2019, none of the Company’s executive officers served on the compensation committee (or other committee serving an equivalent function) of another entity whose executive officers served on the Compensation Committee or Board.
CEO PAY RATIO Until the closing of the Internalization, the Manager will continue to directly employ 95% of the individuals who provide services to the Company. The remaining employees were terminatedare employed by subsidiaries of the Company and were hired by the Manager. However, a limited number of employees remain as employees of the Company’s subsidiaries for regulatory or corporate efficiency reasons. All compensation and benefits paid to such personnel by the Company’s subsidiaries reduce, on a dollar-for-dollar basis, the management fee the Company pays to the Manager. At December 31, 2017,2019, the Company’s measurement date for identifying the median employee, the Company’s subsidiaries had sixnine full-time employees (and no part-time employees).employees. The Company chose total compensation in accordance with the requirements of the Summary Compensation Table as its consistently applied compensation measure to identify the median employee. The Company’s median employee compensation as calculated using the Summary Compensation Table requirements was $229,408$472,500 in 2017.2019. The Company doesdid not provide any compensation to any of the CEO.Company’s NEOs, including the individuals who served as CEO, during 2019. As a result, the CEO to median employee pay ratio required to be disclosed under Item 402(u) of RegulationS-K is not applicable. This information is being provided for compliance purposes. Neither the Compensation Committee nor management of the CompanyManager used the pay ratio measure in making any compensation decisions. 48 | Annaly Capital Management Inc. 2018 Proxy Statement | | | | | | PROPOSAL 03 | | Approval of the Company’s 2020 Equity Incentive Plan Stockholders are being asked to vote on a proposal to approve the adoption of the Company’s 2020 Equity Incentive Plan (the “2020 Plan”). As no new awards were permitted to be made under the Company’s 2010 Equity Incentive Plan (the “2010 Plan”) after March 22, 2020, the tenth anniversary of the 2010 Plan’s adoption by the Board, the Company desires a new vehicle for making equity compensation awards. Following the closing of the Internalization, the Board expects that the 2020 Plan will be a critical part of the internally-managed Company’s compensation program for executive officers and employees as it believes that equity awards align employee and stockholder interests, link employee compensation to Company performance and support the Company’s ownership culture. The 2020 Plan was approved by the Board on March 18, 2020 and will become effective upon its adoption by the stockholders. Highlights of the 2020 Plan include: ∎No Liberal Share Counting.No “liberal share counting” provisions – i.e., the ability tore-use shares tendered or surrendered to pay the exercise price or tax obligation of grants or the “net counting” of shares for exercises of stock options or stock appreciation rights (“SARs”). The only sharere-use provisions are for awards that are canceled or forfeited or for awards settled in cash. ∎No Single-Trigger Acceleration, “Liberal” Change in Control Definition, or Excise TaxGross-ups. No automatic acceleration and vesting of awards in connection with a change in control of the Company. Vesting of awards that are assumed or replaced in a change in control will accelerate only if an employee’s employment is also terminated without cause or by the employee with good reason within two years after the change in control. The 2020 Plan also does not include a “liberal” change in control definition, or provide change in control excise taxgross-ups. ∎No Discounted Awards. Awards that have an exercise price or base value cannot be granted with an exercise price or base value less than the fair market value on the grant date. ∎No Evergreen Provision. No evergreen feature under which the shares authorized for issuance under the 2020 Plan can be automatically replenished. ∎No Repricing of Stock Options or SARS. No repricing of options or SARs or the exchange of underwater options or SARs for cash or other awards without stockholder approval. ∎No Dividend Payouts on Unvested Awards. No dividends or dividend equivalents on unvested awards will be paid until those awards are earned and vested. No dividend equivalents will be paid with respect to stock options or SARs. ∎Awards are Subject to Clawback.Awards are subject to any written recoupment or clawback policy adopted by the Board, including the Company’s Compensation Recovery (Clawback) Policy. ∎Limitation on Terms of Stock Options and SARs. The maximum term of each stock option and SAR is ten years. ∎Transferability.The 2020 Plan prohibits the transfer of awards, except in the context of death or otherwise required by law. ∎Director Award Limits. The 2020 Plan contains annual limits on the amount of awards that may be granted toNon-Employee Directors. | | | | | |
| | The Board unanimously recommends a voteFORthe approval of the 2020 Equity Incentive Plan. |
GENERAL On March 18, 2020, the Board approved the 2020 Plan subject to stockholder approval at the 2020 Annual Meeting. The 2020 Plan permits the Company to provide equity-based compensation in the form of stock options, SARs, dividend equivalent rights, restricted shares, restricted share units (“RSUs”), and other share-based awards. The 2020 Plan is intended to replace the 2010 Plan, under which no further awards can be made. Currently outstanding awards granted under the 2010 Plan will remain effective in accordance with their terms. If the 2020 Plan is not approved by stockholders, the 2020 Plan will not become effective. PURPOSEAND IMPORTANCEOFTHE 2020 PLAN In 2013, the Company entered into a Management Agreement with the Manager, pursuant to which it externalized its management function. Following the externalization transaction, the Company primarily utilized the 2010 Plan to provide equity compensation to the Company’sNon-Employee Directors. In February 2020, the Company announced that it had entered into an Internalization Agreement, pursuant to which it will acquire the Manager and transition from an externally-managed REIT back to an internally-managed REIT. The Internalization is expected to close in the second quarter of 2020. Following the closing of the Internalization, the Board intends that the 2020 Plan will be a critical part of the internally-managed Company’s executive compensation program as it believes that equity awards align employee and stockholder interests, link employee compensation to Company performance and support the Company’s ownership culture. The Board believes that the 2020 Plan will provide the Company with the ability to offer a variety of incentive and compensatory awards designed to advance the Company’s interests and long-term success by encouraging stock ownership among officers, Directors and other key employees and consultants. The 2020 Plan is intended to provide these individuals with additional incentives to exert their best efforts on behalf of the Company and its stockholders, to increase their proprietary interest in the Company’s success, to award outstanding performance, and to attract and retain executive personnel of outstanding ability. DESCRIPTIONOFTHE 2020 PLAN The following is a summary of the principal features of the 2020 Plan. The summary, however, does not purport to be a complete description of all provisions of the 2020 Plan. A copy of the 2020 Plan is attached asAnnex A to this Proxy Statement and stockholders should refer toAnnex A for a more complete description of the 2020 Plan. The 2020 Plan authorizes the Company to provide equity-based compensation in the form of stock options, SARs, dividend equivalent rights, restricted shares, RSUs, and other share-based awards. These awards are intended to serve as an incentive for officers and employees to provide the Company with effective service and high levels of performance. Authorized Shares and Share Counting The total number of shares that may be issued or transferred in connection with awards under the 2020 Plan is 125,000,000 common shares. This represents 8.7% of the fully diluted common shares outstanding as of March 23, 2020. In addition, any shares subject to outstanding awards under the 2010 Plan that expire, terminate, or are surrendered or forfeited for any reason without issuance of shares after the effective date of the 2020 Plan will automatically become available for issuance under the 2020 Plan. Up to 125,000,000 common shares may be granted as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended and regulations promulgated thereunder (the “Code”). The common shares issuable under the 2020 Plan will consist of authorized and unissued shares or previously issued shares that have been reacquired by the Company. If any award is canceled, terminates, expires, or lapses for any reason, the shares subject to the award will again be available for grant under the 2020 Plan. In addition, the following items will not count against the aggregate number of common shares available for grant under the 2020 Plan: | ∎ | | any award that is settled in cash rather than by issuance of common shares; and |
| ∎ | | awards granted in assumption of or in substitution for awards previously granted by an acquired company (commonly referred to as “substitute awards”). |
There is no “liberal share counting” under the 2020 Plan. Shares tendered or withheld to pay the option exercise price or tax withholding obligation for any award will continue to count against the aggregate number of common shares available for grant under the 2020 Plan. In addition, the total number of shares covering share-settled SARs ornet-settled stock options will be counted against the pool of available shares, not just the net shares issued upon exercise. Any common shares repurchased by the Company with proceeds from the exercise of stock options will not be added back to the pool of shares available to grant under the 2020 Plan. Limits on Awards toNon-Employee Directors The 2020 Plan includes annual limits on the awards that may be granted to anyNon-Employee Director. The maximum value of awards granted during any calendar year to anyNon-Employee Director, taken together with any cash fees paid to thatNon-Employee Director during the calendar year and the value of awards granted to theNon-Employee Director under any other equity compensation plan of the Company during the calendar year, shall not exceed the following in total value (based on the fair market value of the shares underlying the award as of the grant date for awards other than options and SARs, and based on the grant date fair value for options and SARs): (1) $900,000 for thenon-employee Chair of the Board, if applicable, and (2) $600,000 for eachNon-Employee Director other than the Chair of the Board; provided, however, that awards granted toNon-Employee Directors upon their initial election to the Board shall not count towards these limits. The Board may make exceptions to this limit in extraordinary circumstances to individual Directors, provided the Director receiving any additional compensation does not participate in that decision. Adjustments upon Changes in Common Shares If there is any change in the Company’s outstanding common stock because of a share dividend or split, reorganization, recapitalization, merger, consolidation,spin-off or combination transaction or exchange of shares or other corporate exchange, or any distribution to stockholders other than regular cash dividends or any transaction similar to the foregoing, the Compensation Committee shall make such substitution or adjustment, if any, as it deems to be equitable, as to the number or kind of shares or other securities available for issuance, issued or reserved for issuance pursuant to the 2020 Plan and pursuant to outstanding awards. Additionally, the Compensation Committee shall make equitable adjustments to the exercise price for stock options, the base price for SARs, and any other affected terms of any award. Administration The Compensation Committee is generally responsible for the administration of the 2020 Plan. However, the Compensation Committee may delegate its duties and powers under the 2020 Plan, in whole or in part, to a subcommittee consisting of two or more members of the Board who are intended to qualify as“non-employee directors” under Rule16b-3 under the Exchange Act. With respect to awards granted to participants who are not subject to Section 16 of the Exchange Act, the Compensation Committee also may delegate its duties and powers under the 2020 Plan, in whole or in part, to one or more of the Company’s officers. Notwithstanding the preceding sentences, with respect to awards granted toNon-Employee Directors, the 2020 Plan will be administered by the Board. This summary of the 2020 Plan uses the term “Administrator” to refer to the Compensation Committee, any delegate of the Compensation Committee and the Board, as applicable. The Administrator will determine the individuals who are eligible to participate in the 2020 Plan; the type, size, and terms of awards; the time or times at which awards will be exercisable or at which restrictions, conditions, and contingencies will lapse; and the terms and provisions of the instruments by which awards will be evidenced. Additionally, the Administrator will establish other restrictions, conditions, and contingencies on awards in addition to those prescribed by the 2020 Plan, will interpret the 2020 Plan and will make all determinations, in its sole discretion, necessary for the administration of the 2020 Plan. All determinations made by the Administrator will be binding on all parties, including participants. Eligibility The Administrator may grant awards under the 2020 Plan only to the Board, the Company’s employees, employees of the Company’s subsidiaries and any person who performs services for the Company, its subsidiaries, or its affiliates (whether as a consultant, advisor or otherwise). Prior to the Internalization, employees of the Manager are also eligible to receive awards. As of March 23, 2020, approximately 190 individuals were eligible to receive awards under the 2020 Plan, including 5 executive officers and 9Non-Employee Directors. Stock Options Participants may be granted stock options under the 2020 Plan. Stock options granted under the 2020 Plan may be incentive stock options (“ISOs”) ornon-qualified stock options. These stock options entitle the participant to purchase common shares at the exercise price. The exercise price per share will be specified by the Administrator but cannot be less than the fair market value of a common share on the date of grant (generally the closing price of a common share on the New York Stock Exchange on the date of grant); provided, however, that the exercise price cannot be less than 110% of the fair market value on the date of grant in the case of an ISO granted to an individual who owns, or is deemed to own, more than ten percent of the voting power of all classes of the Company’s stock. (The fair market value of a common share as of March 23, 2020 was $4.75.) The exercise price of an option that is a substitute award, however, will be the exercise price of the original option as adjusted in accordance with regulations under the Code. The exercise price of a stock option may be paid in cash or such other form of consideration as the Administrator determines in its sole discretion. Such consideration may include the surrender of common shares. Payment of the exercise price also may be satisfied by a “net settlement” (by reducing the shares delivered upon exercise of the option) or by a broker-assisted “cashless exercise.” Subject to the provisions of the 2020 Plan, stock options will become exercisable as prescribed by the Administrator and in the award agreement evidencing the stock option. A stock option will expire at the time set forth in the stock option agreement, but the expiration date will not be later than ten years after the grant date (or five years in the case of ISO granted to a ten percent stockholder). No dividends or dividend equivalents will be paid on stock options under the 2020 Plan. A participant will not have any rights as a stockholder with respect to the common shares covered by an option until the date that the option is exercised and then only to the extent that shares are issued to the participant. Stock Appreciation Rights The Administrator may grant SARs to participants under the 2020 Plan, either as a separate award or in tandem or combination with a stock option. A SAR represents the right to receive an amount equal to the excess of the fair market value of a common share on the date of exercise over the base price of the SAR. The base price will be specified by the Administrator but cannot be less than the fair market value per share on the date of grant (or 110% of the grant date fair market value in the case of a SAR granted in tandem with an ISO granted to a ten percent stockholder). The base price of a SAR that is a substitute award, however, will be the base price of the original SAR as adjusted in accordance with regulations under the Code. The amount payable upon the exercise of a SAR will be settled with a single cash payment, by the issuance of common shares or a combination of cash and common shares, as determined by the Administrator in its discretion. Subject to the provisions of the 2020 Plan, SARs will become exercisable as prescribed by the Administrator and the award agreement evidencing the SAR. A SAR will expire at the time set forth in the award agreement, but the expiration date will not be later than ten years after the grant date (or five years in the case of a SAR granted in tandem with an ISO granted to a ten percent stockholder). No participant will have any rights as a stockholder with respect to the common shares subject to a SAR until the date the SAR is exercised and then only to the extent that it is settled by the issuance of shares. Restricted Shares The Administrator may grant participants restricted shares, which is an award of common shares that is subject to a transfer restriction and risk of forfeiture. Subject to the provisions of the 2020 Plan, the restricted shares will be subject to such restrictions and vesting schedule as the Administrator may provide in the award agreement. Any restricted shares granted under the 2020 Plan may be subject to the restriction that the participant not sell, transfer, otherwise dispose of, or pledge or otherwise hypothecate the restricted shares during a specified period and such other restrictions and conditions as the Administrator may impose. A participant who receives a restricted shares award will have all of the rights of a stockholder with respect to the common shares covered by the award. However, dividends paid on the common shares covered by the restricted shares award will be accumulated and paid when, and to the extent that, the restricted shares award becomes vested. RSUs The Administrator may grant RSUs to participants. RSUs represent the right to receive common shares, cash, or a combination of common shares and cash. Subject to the provisions of the 2020 Plan, RSUs will be subject to such restrictions and vesting schedule as the Administrator may provide in the award agreement. A participant holding RSUs will have no right to transfer any rights under his or her award and will not have any rights as a stockholder until, and then only to the extent that, the RSUs become vested and are settled by the issuance of common shares. However, the Administrator may grant dividend equivalents on the common shares underlying the RSUs, subject to the limitations on dividend equivalent rights described below. Dividend Equivalent Rights The Administrator may grant dividend equivalent rights to participants. A dividend equivalent right represents the right to receive a payment equal to the dividend distributions that are paid on a specified number of common shares. Dividend equivalent rights may be granted as separate awards or in conjunction with RSUs and other share-based awards, but may not be granted in connection with stock options or SARs. Dividend equivalent rights may be paid in common shares, cash or a combination of common shares and cash. No amount will be payable under dividend equivalent rights until, and then only to the extent that, the dividend equivalent right becomes vested. Dividend equivalent rights that are granted in conjunction with another award will vest subject to the same terms and conditions as the related award. Dividend equivalent rights that are granted as separate awards will vest in accordance with the terms and conditions prescribed by the Administrator, subject to the provisions of the 2020 Plan. A participant will not have any rights as a stockholder on account of the grant of dividend equivalent rights until, and then only to the extent that, the rights become vested and are settled by the issuance of common shares. Other Share-Based Awards The Administrator may grant other share-based awards to participants. These awards are grants of common shares or other securities or rights that are valued with reference to common shares. Subject to the provisions of the 2020 Plan, the other share-based award will be subject to such restrictions and vesting schedule as the Administrator may provide in the award agreement. Other share-based awards granted under the 2020 Plan may be subject to the restriction that during a specified period the participant not sell, transfer or otherwise dispose of, or pledge or otherwise hypothecate, the common share or other security subject to the award. If the other share-based award results in the issuance of common shares on the date of grant, the participant will have all of the rights of a stockholder with respect to the common shares covered by the award. However, dividends paid on the common shares will be accumulated and paid when, and to the extent that, the other share-based award becomes vested. If the other share-based award does not result in the issuance of common shares on the date of grant, the participant will not have any rights as a stockholder on account of the award until, and then only to the extent that, the other share-based award vests and is settled by the issuance of common shares. If the other share-based award does not result in the issuance of common shares on the date of grant, the Administrator may grant dividend equivalent rights in conjunction with the grant of the other share-based award, subject to the limitations on dividend equivalent rights described above. Change in Control The 2020 Plan includes special provisions that apply in the event the Company consummates a change in control (as defined in the 2020 Plan). Awards granted toNon-Employee Directors will fully vest on an accelerated basis, and any performance goals will be deemed to be satisfied at target. For awards granted to all other participants, vesting of awards will depend on whether the awards are assumed, converted or replaced by the resulting entity: | ∎ | | For awards that are not assumed, converted or replaced, the awards will vest upon the change in control. For performance awards, the amount vesting will be based on the greater of (1) achievement of all performance goals at the “target” level or (2) the actual level of achievement of performance goals as of the Company’s fiscal quarter end preceding the change in control. |
| ∎ | | For awards that are assumed, converted or replaced by the resulting entity, no automatic vesting will occur upon the change in control. Instead, the awards, as adjusted in connection with the transaction, will continue to vest in accordance with their terms. In addition, the awards will vest if the participant has a separation from service within two years after the change in control by the Company other than for “cause” or by the participant for “good reason” (as defined in the applicable award agreement). For performance awards, the amount vesting will be based on the greater of (1) achievement of all performance goals at the “target” level or (2) the actual level of achievement of performance goals as of the Company’s fiscal quarter end preceding the change in control. |
Sections 280G and 4999 of the Code may trigger excise taxes for certain employees related to compensation that is payable on account of a change in control (often referred to as “parachute payments”). In some cases, accelerated vesting of 2020 Plan awards may be considered parachute payments that trigger these excise taxes. The Company does not provide taxgross-ups to employees for any such excise taxes. Instead, the 2020 Plan includes provisions that require acut-back in parachute payments in order to avoid triggering these excise taxes if the impacted employee would be made better off on anafter-tax basis by acut-back. Recoupment or Clawback Each award granted under the 2020 Plan is subject to any written recoupment or “clawback” policy adopted by the Board, including the Company’s Compensation Recovery (Clawback) Policy described in theCompensation Discussion and Analysis section of this Proxy Statement. Any such policy may subject awards and amounts paid or realized under awards to reduction, cancellation, forfeiture or recoupment if certain specified events or wrongful conduct occur, including but not limited to, an accounting restatement due to the Company’s material noncompliance with financial reporting regulations or other events of wrongful conduct specified in any such policy adopted to conform to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and rules promulgated thereunder. Stock Ownership and Retention Policy Awards to executive officers are also subject to the Company’s Stock Ownership and Retention Policy described in theCompensation Discussion and Analysis section of this Proxy Statement. Under that policy, shares received under awards (after taxes) must be held by the executive officer until the later of (i) one year after the shares were acquired upon exercise or vesting, or (ii) the date the stock ownership requirement under the policy has been met. Amendment and Termination The Board may terminate the 2020 Plan, in whole or in part, at any time. The Board also may amend the 2020 Plan, but the amendment must be approved by stockholders, if the amendment (i) increases the number of shares that may be issued under the 2020 Plan (other than increases in connection with a stock split, stock dividend or other change in capitalization), (ii) changes the requirements for eligibility to receive awards under the 2020 Plan or (iii) must be approved by stockholders under applicable law or regulations, including the rules of the NYSE. No Repricing Without stockholder approval, the Board is not authorized to (i) lower the exercise or base price of a stock option or SAR after it is granted, except in connection with certain adjustments to our corporate or capital structure permitted by the 2020 Plan, such as stock splits, (ii) take any other action that is treated as a repricing under generally accepted accounting principles, or (iii) cancel a stock option or SAR at a time when its exercise or grant price exceeds the fair market value of the underlying stock, in exchange for cash, another stock option or SAR, restricted shares, RSUs, or other share-based award unless the cancellation and exchange occur in connection with a change in capitalization or other similar change. New Plan Benefits A new plan benefits table for the 2020 Plan and the benefits or amounts that would have been received by or allocated to participants for the last completed fiscal year under the 2020 Plan if the 2020 Plan was then in effect, as described in the federal proxy rules, are not provided because all awards made under the 2020 Plan will be made at the Administrator’s discretion, subject to the terms of the 2020 Plan. Therefore, the benefits and amounts that will be received or allocated under the 2020 Plan are not determinable at this time. FEDERAL INCOME TAX CONSEQUENCES The following is a brief summary of certain United States federal income tax consequences generally arising with respect to awards under the 2020 Plan. This discussion does not address all aspects of the United States federal income tax consequences of participating in the 2020 Plan that may be relevant to participants in light of their personal investment or tax circumstances and does not discuss any state, local ornon-United States tax consequences of participating in the 2020 Plan. Section 162(m) of the Internal Revenue Code Section 162(m) of the Code generally limits to $1 million the amount that a publicly held corporation is allowed to deduct each year for the compensation paid to certain employees (“Covered Employees”). Covered Employees include any individual who served as the chief executive officer or chief financial officer at any time during the taxable year and the three other most highly compensated officers for the taxable year. Any individual who is a Covered Employee in any tax year beginning after December 31, 2016 will remain a Covered Employee for all future years. Section 162(m) may affect the deduction otherwise available to the Company for awards under the 2020 Plan. The Compensation Committee considers the deductibility of compensation as one factor when designing the Company’s executive compensation practices, including awards under the 2020 Plan, and retains the flexibility to award compensation that is consistent with the Company’s executive compensation program even if the awards are not deductible for tax purposes. Stock Options A participant will not recognize taxable income at the time an option is granted and the Company will not be entitled to a tax deduction at that time. A participant will recognize compensation taxable as ordinary income (and subject to income tax withholding) upon exercise of anon-qualified stock option equal to the excess of the fair market value of the shares purchased over their exercise price, and the Company will be entitled to a corresponding deduction. A participant will not recognize income upon exercise of an ISO. If the shares acquired by exercise of an ISO are held for the longer of two years from the date the option was granted and one year from the date it was exercised, any gain or loss arising from a subsequent disposition of those shares will be taxed as long-term capital gain or loss, and the Company will not be entitled to any deduction. If, however, those shares are disposed of within the above-described period, then in the year of that disposition the participant will recognize compensation taxable as ordinary income equal to the excess of the lesser of (1) the amount realized upon that disposition and (2) the excess of the fair market value of those shares on the date of exercise over the exercise price, and the Company will be entitled to a corresponding deduction. Stock Appreciation Rights A participant will not recognize taxable income at the time a SAR is granted and the Company will not be entitled to a tax deduction at that time. Upon exercise, the participant will recognize compensation taxable as ordinary income (and subject to income tax withholding) in an amount equal to the fair market value of any shares delivered and the amount of any cash paid by us. This amount is deductible by the Company as compensation expense. Restricted Shares and RSUs A participant generally will not have taxable income upon the grant of restricted shares or RSUs. Instead, the participant will recognize ordinary income at the time of vesting or payout equal to the fair market value (on the vesting or payout date) of the shares or cash received minus any amount paid. For restricted shares only, a participant may instead elect to be taxed at the time of grant. The amount of ordinary income recognized by the participant is deductible by the Company as compensation expense. Other Share-Based Awards The U.S. federal income tax consequences of other share-based awards will depend upon the specific terms of each award. The amount of ordinary income recognized is deductible by the Company as compensation expense. Dividend Equivalent Rights A participant will not recognize taxable income at the time dividend equivalent rights are granted and the Company will not be entitled to a tax deduction at that time. The participant will recognize compensation taxable as ordinary income (and subject to income tax withholding) in an amount equal to the fair market value of any shares delivered and the amount of any cash paid by the Company under the dividend equivalent rights. This amount is deductible by the Company as compensation expense. REGISTRATIONWITHTHE SEC The Company intends to file a Registration Statement on FormS-8 relating to the issuance of common shares under the 2020 Plan with the Securities and Exchange Commission pursuant to the Securities Act as soon as is practicable after approval of the 2020 Plan by the stockholders. TableEquity Compensation Plan Information
On May 27, 2010, at the Company’s 2010 Annual Meeting of ContentsStockholders, stockholders approved the 2010 Plan. The 2010 Plan authorized the Compensation Committee to grant options, stock appreciation rights, dividend equivalent rights, or other share-based awards, including restricted shares up to an aggregate of 25,000,000 shares, subject to adjustments as provided in the 2010 Plan. The Company had previously adopted a long-term stock incentive plan for executive officers, key employees and Non-Employee Directors (the “Prior Incentive Plan”). Since the adoption of the 2010 Plan, no further awards were made under the Prior Incentive Plan, although existing awards remain effective. All stock options issued under the 2010 Plan and the Prior Incentive Plan (collectively the “Incentive Plans”) were issued at the current market price on the date of grant, subject to an immediate or four year vesting in four equal installments with a contractual term of five or ten years. The grant date fair value is calculated using the Black-Scholes option valuation model. The following table provides information as of December 31, 2019 concerning shares of the Company’s common stock authorized for issuance under the Incentive Plans. | | | | | | | | | | | | | | | | | | | | | (a) | | | | | (b) | | | | | (c) | | | | | | | | Plan Category | | Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights, RSUs
and PSUs (a) | | | | Weighted-average
exercise price of
outstanding
options, warrants
and rights(b) | | | | | Number of securities
remaining available
for future issuance
under the Incentive
Plans (excluding
securities in column ‘a’)
(c) | Equity compensation plans approved by security holders | | — | | | | $ | — | | | | | 28,735,784 | Equity compensation plans not approved by security holders | | — | | | | | — | | | | | — | | | | | | | | | | | | | | Total | | — | | | | $ | — | | | | | 28,735,784 | | | | | | | | | | | | | | | | | | | | | | | | | | |
UPDATED EQUITY COMPENSATION PLAN INFORMATIONASOF MARCH 23, 2020 As of March 23, 2020, there were zero shares available for issuance under the Incentive Plans, zero outstanding option awards and 493,880 shares subject to outstanding unvested full value awards. Audit Committee Matters | | | | | | | PROPOSAL 04 03
| | Ratification of Appointment of Independent Registered Public Accounting Firm The Audit Committee is responsible for the appointment, compensation, retention, and oversight of the Company’s independent registered public accounting firm. The Audit Committee has appointed Ernst & Young LLP (“Ernst & Young” or “E&Y”EY”) to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018,2020, and stockholders are being asked to ratify the selectionthis appointment at the Annual Meeting as a matter of good corporate governance. Ernst & YoungEY has served as Annaly’s independent registered public accounting firm since 2012. In appointing Ernst & Young,EY, the Audit Committee considered a number of factors, including Ernst & Young’sEY’s independence, objectivity, level of service, industry knowledge, technical expertise, and tenure as the independent auditor. The Company expects that representatives of Ernst & YoungEY will be present at the Annual Meeting, will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions. If the appointment of Ernst & YoungEY is not ratified, the Audit Committee will reconsider the appointment. Even if the appointment is ratified, the Audit Committee may, in its discretion, appoint a different independent auditor at any time during the year if the Audit Committee determines that such a change would be in the stockholders best interest. | | | | |
| | The Board unanimously recommends a voteFORthe ratification of the appointment of Ernst & Young LLP as the Company’s Independent Registered Public Accounting Firm for the year 2018.ending December 31, 2020. |
REPORT REPORTOFTHE AUDIT COMMITTEE AUDIT COMMITTEE
The Audit Committee operates pursuant to a charter which it reviews annually, and a brief description of the Audit Committee’s primary responsibilities is included under the heading “Board Committees – Audit Committee” in this Proxy Statement. Under the Audit Committee’s charter, management is responsible for the preparation of the Company’s financial statements and the independent registered public accounting firm is responsible for auditing those financial statements and expressing an opinion as to their conformity with U.S.generally accepted accounting principles. In addition, the independent registered public accounting firm is responsible for auditing and expressing an opinion on the Company’s internal controls over financial reporting. The Audit Committee
is responsible for the
appointment, compensation,
retention and oversight of the
independent auditors |
The Audit Committee has reviewed and discussed Annaly’s audited financial statements with management and with Ernst & Young,EY, the Company’s independent auditor for 2017.2019. The Audit Committee has discussed with Ernst & YoungEY the matters required to be discussed by applicable standards adopted by the Public Company Accounting Oversight Board (“PCAOB”), including the critical audit matters set forth in EY’s audit report and matters concerning Ernst & Young’sEY’s independence. EY has also provided to the Audit Committee the written disclosures and letter required by the applicable requirements of the PCAOB regarding EY’s communications with the Audit Committee concerning independence. The Audit Committee also discussed with EY their independence from the Company and management, and considered whethernon-audit services provided by EY to the Company are compatible with maintaining EY’s independence. In determining whether to appoint EY as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020, the Audit Committee took into consideration a number of factors, including historical and recent performance on the Company’s audit, including service level and quality of staff and overall work; EY’s tenure, independence and objectivity; EY’s capability and expertise, including its understanding of the Company’s business and operations and overall industry knowledge; legal and regulatory considerations; data related to audit quality and performance, including recent PCAOB inspection reports on the firm; the appropriateness of EY’s fees; and the results of a management survey of EY’s overall performance. In reliance on these reviews and discussions, and the report of the independent registered public accounting firm, the Audit Committee has recommended to the Board, and the Board has approved, that the audited financial statements be included in the Company’s Annual Report on Form10-K for the year ended December 31, 20172019 filed with the SEC. The foregoing report has been furnished by the Audit Committee:
| | | | | | | | | Kevin P. BradyKathy Hopinkah Hannan (Chair) | | Thomas Hamilton | | Michael Haylon | E. Wayne Nordberg | John H. Schaefer | | Vicki Williams |
| Annaly Capital Management Inc. 2018 Proxy Statement | 49 | |
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Audit Committee Matters
RELATIONSHIP RELATIONSHIPWITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The aggregate fees billed for 20172019 and 20162018 by E&YEY for each of the following categories of services are set forth below: | Service Category | | 2017 | | 2016 | | Audit(1) | | $ | 2,498,876 | | $ | 2,416,392 | | Audit-Related(2) | | | 61,000 | | | 30,000 | | Tax(3) | | | 232,000 | | | 239,900 | | All Other(4) | | | – | | | – | | Total | | $ | 2,791,876 | | $ | 2,686,292 |
| | | | | | | | | Service Category | | 2019 | | | 2018 | | Audit(1) | | $ | 3,471,225 | | | $ | 2,735,550 | | | | | Audit-Related(2) | | | 62,000 | | | | 62,000 | | | | | Tax(3) | | | 413,620 | | | | 449,857 | | | | | All Other(4) | | | 220,000 | | | | 134,000 | | | | | Total | | $ | 4,166,845 | | | $ | 3,381,407 | | | | |
(1)1. | Audit fees primarily relate to integrated audits of the Company’s annual consolidated financial statements and internal control over financial reporting under Sarbanes-Oxley Section 404, reviews of the Company’s quarterly consolidated financial statements, audits of the Company’s subsidiaries’ financial statements, accounting consultations and comfort letters and consents related to SEC registration statements. |
(2)2. | Audit-Related fees are primarily for assurance and related services that are traditionally performed by the independent registered public accounting firm and include due diligence and accounting consultations.firm. |
(3)3. | Tax fees are primarily for preparation of tax returns and compliance services and tax consultations. |
(4)4. | All Other fees are for those services not described in one of the other categories. |
The Audit Committee has also adopted policies and procedures forpre-approving allnon-audit work performed by the independent registered public accounting firm. The Audit Committee retained E&YEY to provide certainnon-audit services in 2017,2019, consisting of tax compliance and consultations, all of which werepre-approved by the Audit Committee. Specifically, the Audit Committee pre-approved the use of E&Y for the following categories of non-audit services: ■ | accounting consultations on matters addressed during the audit or interim reviews | ■ | agreed upon procedures in connection with financing arrangements of certain Company subsidiaries | ■ | tax compliance and consultations |
The Audit Committee determined that the provision by E&YEY of thesenon-audit services is compatible with E&YEY maintaining its independence. In addition to thenon-audit services described above, the Audit Committee alsopre-approved certain audit services, including comfort letters and consents related to SEC registration statements and review of SEC comment letters.
| The Audit Committee requires
the lead audit partner to be
rotated every five years and is
involved in selecting each new
lead audit partner |
The Company understands the need for E&YEY to maintain objectivity and independence as the auditor of its financial statements and internal control over financial reporting. In accordance with SEC rules, the Audit Committee requires the lead E&YEY partner assigned to Annaly’s audit to be rotated at least every five years, and the Audit Committee and its chairChair is involved in selecting each new lead audit partner. The Audit Committee approved the hiring of E&YEY to provide all of the services detailed above prior to such independent registered public accounting firm’s engagement. None of the services related to theAudit-Related Feesdescribed above was approved by the Audit Committee pursuant to a waiver ofpre-approval provisions set forth in applicable rules of the SEC. 50 | Annaly Capital Management Inc. 2018 Proxy Statement | | | | | | PROPOSAL 05 | | Advisory Stockholder Proposal Regarding Stockholder Action by Written Consent John Chevedden, whose address is 2215 Nelson Avenue, Redondo Beach, California, has notified the Company of his intention to present the proposal printed below for stockholder consideration at the Annual Meeting. Mr. Chevedden has furnished evidence of his ownership of 500 shares of the Company’s common stock, which he has owned for at least one year prior to the date he submitted his proposal. We have printed verbatim the text of Mr. Chevedden’s proposal and his supporting statement. His proposal will be voted on at the Annual Meeting only if it is properly presented by or on behalf of Mr. Chevedden. | | | | | | 
| | The Board makesno recommendation on this stockholder proposal. |
STOCKHOLDER PROPOSAL Proposal 5—Adopt a Mainstream Shareholder Right—Written Consent Shareholders request that our board of directors take the steps necessary to permit written consent by shareholders entitled to cast the minimum number of votes that would be necessary to authorize the action at a meeting at which all shareholders entitled to vote thereon were present and voting. This written consent is to give shareholders the fullest power to act by written consent consistent with applicable law. This includes shareholder ability to initiate any appropriate topic for written consent. Hundreds of major companies enable shareholder action by written consent. This proposal topic won majority shareholder support at 13 large companies in a single year. This included 67% -support at both Allstate and Sprint. This proposal topic also won 63%-support at Cigna Corp. (CI) in 2019. This proposal topic would have received higher votes than 63% to 67% at these companies if more shareholders had access to independent proxy voting advice. The right for shareholders to act by written consent is gaining acceptance as a more important right than the right to call a special meeting. This also seems to be the conclusion of the Intel Corporation (INTC) shareholder vote at the 2019 Intel annual meeting. The directors at Intel apparently thought they could divert shareholder attention away from written consent by making it less difficult for shareholders to call a special meeting. However Intel shareholders responded with greater support for written consent in 2019 compared to 2018. After a 45%-vote (less than a majority vote) for a written consent shareholder proposal The Bank of New York Mellon Corporation (BK) said it adopted written consent in 2019. Perhaps BK is starting a new trend in recognizing that a 45%-vote represents a majority vote from the shares that have access to independent proxy voting advice. And a proxy advisor set certain minimum requirements for a company adopting written consent in case the directors of a company are tempted to adopt a “fig leaf’ version of written consent. This proposal is another step to improve our corporate governance. In 2019 our directors stood for election forone-year terms for the first time instead of3-year terms.One-year terms for directors and a shareholder right to act by written consent can both have a favorable impact on our struggling stock price which is down from the$12-range of 2017. Annual election or each director may be an incentive for our Chairman and CEO, Kevin Keyes, to improve upon his 2019 performance. Mr. Keyes received the most negative votes of any director. Under our old system Mr. Keyes would not have had to answer to a shareholder vote until 2022. Please vote yes: Adopt a Mainstream Shareholder Right—Written Consent—Proposal 5 BOARDOF DIRECTORS’ STATEMENT The Company is very committed to strong corporate governance practices that empower stockholders and promote Board accountability. These practices include: | ∎ | | The Board separated the roles of CEO and Chair of the Board and appointed an Independent Chair; |
| ∎ | | The Board is in the process of declassifying its structure and all Directors will stand for annual election beginning with the 2021 Annual Meeting; |
| ∎ | | Directors are elected using a majority vote standard for uncontested elections; |
| ∎ | | Majority voting to approve amendments to the Company’s bylaws and charter; |
| ∎ | | No stockholder rights plan (also known as a “poison pill”); and |
| ∎ | | The Company recently announced the signing of a definitive agreement to internalize its management function, and transition from an externally-managed REIT to an internally-managed REIT. |
The evolution of the Company’s corporate governance and stockholder rights frameworks has been informed by ongoing dialogue with its stockholders. As detailed in this Proxy Statement, stockholders have multiple avenues for raising matters with the Board and members of management. The Company conducts year-round engagement with both retail and institutional stockholders, encourages stockholders to communicate in writing with Directors, seriously considers potential Board candidates submitted by stockholders and provides the ability for stockholders to call special meetings outside of the annual meeting process. The Board has determined not to recommend a vote either for or against the stockholder proposal. Although the proposal is non-binding and advisory in nature, the Board values stockholders’ opinions and will take the results of the vote into consideration, together with any other input from stockholders and other relevant factors, in making a decision regarding whether any changes should be made to the Company’s corporate governance and stockholder rights frameworks. Table of Contents
Stock Ownership Information SECURITY OWNERSHIP SECURITY OWNERSHIPOF CERTAIN BENEFICIAL OWNERS CERTAIN BENEFICIAL OWNERSAND MANAGEMENT MANAGEMENT
The following table sets forth certain information as of March 26, 201823, 2020 relating to the beneficial ownership, as defined in SEC rules, of the Company’s common stock by (i) each NEO, (ii) each Director and nominee for Director, (iii) all executive officers and Directors as a group, and (iv) all persons that the Company knows beneficially own more than 5% of its outstanding common stock. Under SEC rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares voting power or investment power, which includes the power to dispose of or to direct the disposition of such security. Knowledge of the beneficial ownership of the Company’s common stock as shown below is drawn from statements filed with the SEC pursuant to Section 13(d) or 13(g) of the Exchange Act. | Beneficial Owner(1) | | Amount and
Nature of
Beneficial
Ownership(2) | | Percent of
Class(3) | | Kevin G. Keyes | | 984,779 | | * | | Glenn A. Votek | | 93,597 | | * | | David L. Finkelstein | | 300,000 | | * | | Timothy P. Coffey | | 38,000 | | * | | Anthony C. Green | | 101,000 | | * | | Kevin P. Brady(4) | | 260,836 | | * | | Francine J. Bovich | | 76,574 | | * | | Wellington J. Denahan | | 2,198,414 | | * | | Katie Beirne Fallon(5) | | – | | * | | Jonathan D. Green | | 214,778 | | * | | Michael Haylon | | 154,028 | | * | | E. Wayne Nordberg(6) | | 231,278 | | * | | John H. Schaefer | | 108,679 | | * | | Donnell A. Segalas(7) | | 259,386 | | * | | Vicki Williams(5) | | – | | * | | All executive officers and Directors as a group (15 people) | | 5,021,349 | | * | | BlackRock, Inc.(8) | | 98,137,061 | | 8.5% | | The Vanguard Group, Inc.(9) | | 97,590,302 | | 8.4% |
| | | | | | | | | Beneficial Owner(1) | | Amount and
Nature of
Beneficial
Ownership(2) | | | Percent
of
Class(3) | | David L. Finkelstein | | | 400,000 | | | | * | | | | Glenn A. Votek | | | 216,811 | | | | * | | | | Serena Wolfe(4) | | | - | | | | * | | | | Timothy P. Coffey | | | 38,000 | | | | * | | | | Anthony C. Green | | | 151,000 | | | | * | | | | Francine J. Bovich | | | 124,773 | | | | * | | | | Wellington J. Denahan | | | 1,826,864 | | | | * | | | | Katie Beirne Fallon | | | 31,230 | | | | * | | | | Jonathan D. Green | | | 176,952 | | | | * | | | | Thomas Hamilton(5) | | | 355,592 | | | | * | | | | Kathy Hopinkah Hannan | | | 15,592 | | | | * | | | | Michael Haylon | | | 131,202 | | | | * | | | | John H. Schaefer | | | 157,652 | | | | * | | | | Donnell A. Segalas(6) | | | 230,085 | | | | * | | | | Vicki Williams | | | 28,450 | | | | * | | | | Kevin G. Keyes(7) | | | 1,284,779 | | | | * | | | | All executive officers and Directors as a group (16 people) | | | 5,168,982 | | | | * | | | | BlackRock, Inc.(8) | | | 158,641,946 | | | | 11.1 | % | | | The Vanguard Group, Inc.(9) | | | 137,595,086 | | | | 9.6 | | | |
| * | Represents beneficial ownership of less than one percent of the common stock. |
(1)1. | The business address of each Director and NEO is c/o Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY 10036. To the best of the Company’s knowledge, each stockholder listedDirector and NEO has sole voting and investment power with respect to the shares he or she beneficially owned by the stockholder.owns. |
(2)2. | For purposes of this table, “beneficial ownership” is determined in accordance with Rule13d-3 under the Exchange Act, pursuant to which a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person, or such group of persons, has the right to acquire within 60 days of the date of determination. The Company has also included shares of common stock underlying vested options. The shares of common stock underlying vested options included in the above table are as follows: Kevin P. Brady 42,500 shares; Wellington J. Denahan 400,000 shares; Jonathan D. Green 90,000 shares; Michael Haylon 75,000 shares; E. Wayne Nordberg 90,000 shares; and Donnell A. Segalas 77,500 shares. The DSUs included in the above table are as follows: Kevin P. Brady 72,436 DSUs; Francine J. Bovich 63,074111,273 DSUs; Wellington J. Denahan 15,592 DSUs; Katie Beirne Fallon 15,592 DSUs; Jonathan D. Green 79,028131,202 DSUs; Thomas Hamilton 15,592 DSUs; Kathy Hopinkah Hannan 15,592 DSUs; Michael Haylon 79,028 DSUs; E. Wayne Nordberg 79,028131,202 DSUs; John H. Schaefer 42,63670,158 DSUs; and Donnell A. Segalas 72,436120,635 DSUs; and Vicki Williams 28,450 DSUs. |
(3)3. | For purposes of computing the percentage of outstanding shares of common stock held by each person or group of persons named above, any shares which such person or group of persons has the right to acquire within 60 days, including vested options and DSUs, are deemed to be outstanding for the purpose of computing the percentage of outstanding shares of the class owned by such person or group of persons, but are not deemed to be outstanding for the purpose of computing the percentage of outstanding shares owned by any other person or group of persons. |
(4)4. | Ms. Wolfe was appointed as the Company’s Chief Financial Officer effective December 9, 2019. |
| 5. | Includes: (i) 48,750130,000 shares owned by Cure FA Foundation, Inc., and (ii) 80,000 shares owned by the Kevin P. Brady2012 Hamilton Family Trust, (ii) 42,500 shares owned by Mr. Brady’s wife, (iii) 1,500 shares owned by Mr. Brady’s daughters, and (iv) 9,000 shares owned by Mr. Brady’s mother. Mr. Brady disclaims beneficial ownership of these 101,750 shares.Trust. |
(5) | Appointed to the Board effective January 1, 2018.
| (6) | Includes: (i) 10,000 shares owned by the Olivia Nordberg Trust and (ii) 9,000 shares owned by Mr. Nordberg’s spouse.
| (7)6. | Includes: (i) 3,000 shares owned by the Hercules Segalas Irrevocable Trust, (ii) 900 shares owned by Mr. Segalas’sSegalas’ daughters, and (iii) 2,100 shares owned by the Katherine Lacy Segalas Devlin Irrevocable Trust. Mr. Segalas disclaims beneficial ownership of these 6,000 shares. |
| 7. | Annaly Capital Management Inc. 2018 Proxy Statement | 51 | Mr. Keyes stepped down as an executive officer and Director of the Company effective as of November 21, 2019. The beneficial ownership amount shown in the table above for Mr. Keyes is based on his holdings as reported in his most recent Form 4, which was filed with the SEC on May 7, 2019. |
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Stock Ownership Information
(8)8. | BlackRock, Inc., 55 East 52nd Street, New York, NY 10055, as a parent holding company or control person of certain named funds (“BlackRock”), filed a Schedule 13G/A on January 29, 2018February 4, 2020 reporting, as of December 31, 2017,2019, beneficially owning 98,137,061158,641,946 shares of common stock with the sole power to vote or to direct the vote of 88,472,142146,499,161 shares of common stock and the sole power to dispose or to direct the disposition of 98,137,061158,641,946 shares of common stock. This information is based solely on information contained in the Schedule 13G/A filed by Blackrock. |
(9)9. | The Vanguard Group, Inc., 100 Vanguard Blvd., Malvern, PA 19355, as a parent holding company or control person of certain named funds (“Vanguard”), filed a Schedule 13G/A on February 12, 20182020 reporting, as of December 31, 2017,2019, beneficially owning 97,590,302137,595,086 shares of common stock with the sole power to vote or to direct the vote of 934,8881,041,479 shares of common stock, the shared power to vote or to direct the vote of 470,621919,627 shares of common stock, the sole power to dispose or to direct the disposition of 96,290,492135,762,216 shares of common stock and the shared power to dispose or to direct the disposition of 1,299,8101,832,870 shares of common stock. This information is based solely on information contained in the Schedule 13G/A filed by Vanguard. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that based solely on its review of the reports filed during the fiscal year ended December 31, 2017 and on the written representations of those filing reports, all Section 16(a) forms required to be filed by Annaly’s executive officers, Directors and beneficial owners of more than ten percent of its common stock were filed on a timely basis and in compliance with Section 16(a) of the Exchange Act.
52 | Annaly Capital Management Inc. 2018 Proxy Statement | | |
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Other Information ACCESS TO FORM WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. SEC filings are available to the public from commercial document retrieval services and at the Internet worldwide web site maintained by the SEC at www.sec.gov. Annaly’s website is www.annaly.com. The Company makes available on this website under “Investors—SEC Filings,” free of charge, its annual reports on Form10-K, quarterly reports on Form10-Q, current reports on Form8-K and amendments to those reports, as well as proxy statement and other information filed with or furnished to the SEC as soon as reasonably practicable after such materials are electronically submitted to the SEC. OnAdditionally, on written request, the Company will provide without charge to each record or beneficial holder of the Company’s common stock as of the close of business on March 26, 201823, 2020 (the “Record Date”) a copy of the Company’s Annual Report on Form10-K for the year ended December 31, 2017,2019, as filed with the SEC. You should address your request to Investor Relations, Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY 10036 or email your request to investor@annaly.com.
You may also access such report on Annaly’s website,www.annaly.com, under “Investors - SEC Filings.”
STOCKHOLDER PROPOSALSSTOCKHOLDER PROPOSALS
Any stockholder intending to propose a matter for consideration at the Company’s 20192021 Annual Meeting and have the proposal included in the proxy statement and form of proxy for such meeting must, in addition to complying with the applicable laws and regulations governing submissions of such proposals (Rule14a-8 of the Exchange Act), submit the proposal in writing no later than December 11, 2018.9, 2020, in order to be timely. Pursuant to the Company’s current Amended and Restated Bylaws (“Bylaws”), any stockholder intending to nominate a Director or present a proposal at an annual meeting of stockholders that is not intended to be included in the Proxy Statementproxy statement for such annual meeting must provide written notification not later than 5:00 p.m. Eastern Time on the date that is 120 days prior to the first anniversary of the date of the proxy statement for the preceding year’s annual meeting nor earlier than 150 days prior to the first anniversary of the date of the Proxy Statementproxy statement for the preceding year’s annual meeting. Accordingly, any stockholder who intends to submit such a nomination or such a proposal at the 20192021 Annual Meeting must provide written notification of such proposal by December 11, 2018,9, 2020, but in no event earlier than November 11, 2018.9, 2020. Any such nomination or proposal should be sent to Anthony C. Green, the Chief Corporate Officer, Chief Legal Officer and Secretary, Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY 10036 and, to the extent applicable, must include the information required by the Company’s Bylaws. OTHER MATTERSOTHER MATTERS
As of the date of this Proxy Statement, the Board does not know of any matter that will be presented for consideration at the Annual Meeting other than as described in this Proxy Statement. QUESTIONS QUESTIONSAND ANSWERS ABOUT ANSWERS ABOUTTHE ANNUAL MEETING ANNUAL MEETING
| Q | When and where is the Annual Meeting? | | |
| A | The Annual Meeting will be held on May 23, 2018,20, 2020, at 9:00 a.m. (Eastern Time) online at www.virtualshareholdermeeting.com/NLY2018.NLY2020. If you plan to attend the Annual Meeting online, you will need the16-digit control number included in your Notice, on your proxy card or on the instructions that accompany your proxy materials. | | |
| Q | Why did I receive a Notice in the mail regarding the Internet availability of proxy materials instead of a paper copy of proxy materials? | | |
| A | The SEC has approved “Notice and Access” rules relating to the delivery of proxy materials over the Internet. These rules permit the Company to furnish proxy materials, including this Proxy Statement and the Annual Report, to stockholders by providing access to such documents on the Internet instead of mailing printed copies. Most stockholders will not receive paper copies of the proxy materials unless they request them. Instead, the Notice, which will be mailed to stockholders, provides instructions regarding how you may access and review all of the proxy materials on the Internet. The Notice also instructs you as to how you may |
| authorize your proxy via the Internet or by telephone. If you would like to receive a paper or email copy of the Company’s proxy materials, you should follow the instructions for requesting such materials printed on the Notice. | | |
| Annaly Capital Management Inc. 2018 Proxy Statement | 53 | |
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Other Information
| Q | Can I vote my shares by filling out and returning the Notice? | | |
| A | No. The Notice identifies the items to be considered and voted on at the Annual Meeting, but you cannot vote by marking the Notice and returning it. The Notice provides instructions on how to authorize your proxy via the Internet or by telephone or how to vote at the Annual Meeting or to request a paper proxy card, which will contain instructions for authorizing a proxy by the Internet, by telephone or by returning a signed paper proxy card. | | |
| Q | Who is entitled to vote at the Annual Meeting? | | |
| A | Only common stockholders of record as of the close of business on the Record Date (March 26, 2018)23, 2020) are entitled to vote at the Annual Meeting. | | |
| Q | How can I vote my shares? | | |
| A | You may vote online during the Annual Meeting prior to the closing of the polls at www.virtualshareholdermeeting.com/NLY2018,NLY2020, or by proxy via Internet (www.proxyvote.com), telephone(1-800-690-6903), or by completing and returning your proxy card. The Company recommends that you authorize a proxy to vote by proxy even if you plan to virtually attend the Annual Meeting as you can always change your vote online at the meeting. You can authorize a proxy to vote via the Internet or by telephone at any time prior to 11:59 p.m., Eastern Time, May 22, 2018,19, 2020, the day before the meeting date. | | |
Whichever method you use, each valid proxy received in time will be voted at the Annual Meeting in accordance with your instructions. To ensure that your proxy is voted, it should be received prior to 11:59 p.m., Eastern Time, May 19, 2020, the day before the meeting date. If you submit a proxy without giving instructions, your shares will be voted as recommended by the Board. | Q | What quorum is required for the Annual Meeting? |
| A | | A | A quorum will be present at the Annual Meeting if a majority of the votes entitled to be cast on any matter are present, in person or by proxy. OnAt the close of business, on the Record Date there were 1,159,657,3501,430,424,398 outstanding shares of the Company’s common stock, each entitled to one vote per share. Abstentions and broker “non-votes”“brokernon-votes” will be treated as shares that are present and entitled to vote for purposes of determining the presence of a quorum. If a quorum is not present at the Annual Meeting, the Company expects that the Annual Meeting will be adjourned to solicit additional proxies. | | |
| Q | What are the voting requirements that apply to the proposals discussed in this Proxy Statement? |
| | | | “Majority” means (a) with regard to an uncontested election of Directors, the affirmative vote of a majority of total votes cast for and against the election of each Director; and (b) with regard to the advisory approval of executive compensation and the ratification of the appointment of Ernst & Young, a majority of the votes cast at the Annual Meeting.Majority | | | | | “Discretionary voting” occurs when a bank, broker, or other holder of record does not receive voting instructions from the beneficial owner and votes those shares in its discretion on any proposal as to which the rules of the NYSE permit such bank, broker, or other holder of record to vote (“routine matters”). When banks, brokers, and other holders of record are not permitted under the NYSE rules to vote the beneficial owner’s shares on a proposal (“non-routine matters”), if you do not provide voting instructions, your shares will not be voted on such proposal. This is referred to as a broker “non-vote.”Yes | | | | | For each of the proposals above, you can vote or authorize a proxy to vote “FOR,” “AGAINST” or “ABSTAIN.”FOR | | | | | | (5) Consideration of advisory stockholder proposal regarding written consent | | Majority | | No | | N/A | | | |
“Majority” means (a) with regard to an uncontested election of Directors, the affirmative vote of a majority of total votes cast for and against the election of each Director; and (b) with regard to the advisory approval of executive compensation, the approval of the Company’s 2020 Equity Incentive Plan, the ratification of the appointment of EY and consideration of a stockholder proposal, a majority of the votes cast on the matter at the Annual Meeting. “Discretionary voting” occurs when a bank, broker, or other holder of record does not receive voting instructions from the beneficial owner and votes those shares in its discretion on any proposal as to which the rules of the NYSE permit such bank, broker, or other holder of record to vote (“routine matters”). When banks, brokers, and other holders of record are not permitted under the NYSE rules to vote the beneficial owner’s shares on a proposal(“non-routine matters”), if you do not provide voting instructions, your shares will not be voted on such proposal. This is referred to as a “brokernon-vote.” For each of the proposals above, you can vote or authorize a proxy to vote “FOR,” “AGAINST” or “ABSTAIN.” | Q | What is the effect of abstentions and broker “non-votes”“brokernon-votes” on the proposals submitted at the Annual Meeting? |
| A | | A | Abstentions will have no effect on any of the proposals submitted at the Annual Meeting. | | | | Broker “non-votes”Proposal 1, if any,Proposal 2,Proposal 4 orProposal 5. Abstentions will have nothe same effect on Proposal 1 or Proposal 2, and are not applicable to as a vote againstProposal 3. | | |
54 | Annaly Capital Management Inc. 2018 Proxy Statement | | |
“Brokernon-votes,” if any, will have no effect onTable of ContentsProposal 1,Proposal 2,Proposal 3 orProposal 5. As they are routine matters and discretionary voting is allowed, “brokernon-votes” are not applicable toProposal 4. Other Information
| Q | How will my shares be voted if I do not specify how they should be voted? |
| A | | A | Properly executed proxies that do not contain voting instructions will be voted as follows: |
| (2) | | | (2) | Proposal No. 2: FOR the approval, on anon-binding and advisory basis, of the Company’s executive compensation; and compensation as described in this Proxy Statement; |
| (4) | Proposal No. 4: FOR the ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2018.the year ending December 31, 2020; and |
| | | | (5) | The Company officers you authorize as proxies may exercise their proxy and vote your shares for one or more postponements or adjournments ofProposal No. 5: ABSTAIN from voting on the Annual Meeting, including postponements or adjournments to permit further solicitations of proxies.advisory stockholder proposal regarding written consent.
| | |
The Company officers you authorize as proxies may exercise their proxy and vote your shares for one or more postponements or adjournments of the Annual Meeting, including postponements or adjournments to permit further solicitations of proxies. | Q | What do I do if I want to change my vote? |
| A | | A | You may revoke a proxy at any time before it is exercised by filing a duly executed revocation of proxy, by submitting a duly executed proxy with a later date, using the phone or online voting procedures, or by participating in the Annual Meeting via live webcast and voting online during the Annual Meeting prior to the closing of the polls. You may revoke a proxy by any of these methods, regardless of the method used to deliver your previous proxy. Virtual attendance at the Annual Meeting without voting online will not itself revoke a proxy. | | |
| Q | How will voting on any other business be conducted? |
| A | | A | Other than the threefive proposals described in this Proxy Statement, the Company knows of no other business to be considered at the Annual Meeting. If any other matters are properly presented at the meeting, your signed proxy card authorizes Kevin G. Keyes, Chairman,David L. Finkelstein, Chief Executive Officer and President,Chief Investment Officer, and Anthony C. Green, Chief Corporate Officer, Chief Legal Officer and Secretary, or either of them acting alone, with full power of substitution in each, to vote on those matters in their discretion. | | |
| Q | Who will count the vote? |
| A | | A | Representatives of American Election Services, LLC, the independent inspector of elections, will count the votes. | | |
| Q | How can I participate in the Annual Meeting? |
| A | | A | All stockholders of record as of the Record Date can attend the Annual Meeting online at www.virtualshareholdermeeting.com/NLY2018.NLY2020. You will be able to ask questions during the meeting. An audio broadcast of the Annual Meeting will also be available to stockholders by telephone toll-free at |
| 1-877-328-2502. Please note that listening to the audio broadcast will not be deemed to be attending the Annual Meeting, and you cannot vote from such audio broadcast. If you plan to attend the Annual Meeting online or listen to the telephonic audio broadcast, you will need the16-digit control number included in your Notice, on your proxy card or on the instructions that accompany your proxy materials. Onlinecheck-in will begin at 8:30 a.m. (Eastern Time), and you should allow ample time for onlinecheck-in procedures. If you wish to watch the webcast at a location provided by the Company, the Company’s Maryland counsel, Venable LLP, will air the webcast at its offices located at 750 E. Pratt Street, Suite 900, Baltimore, MD 21202. Please note that no members of management or the Board will be in attendance at this location. If you wish to view the Annual Meeting via webcast at Venable LLP’s office, please complete theReservation Request Form found at the end of this Proxy Statement. In addition, you must bring a valid, government-issued photo identification, such as a driver’s license or a passport to Venable LLP’s offices. | | |
| Q | What is thepre-meeting forum and how can I access it? |
| A | | A | One of the benefits of the online Annual Meeting format is that it allows the Company to communicate more effectively with its stockholders via apre-meeting forum that you can access by visiting www.proxyvote.com. Through use of thepre-meeting forum, stockholders can submit questions in advance of the Annual Meeting and view copies of the Company’s proxy materials. The Company will respond to as many inquiries at the Annual Meeting as time allows. | | |
| Annaly Capital Management Inc. 2018 Proxy Statement | 55 | |
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Other Information
| Q | Why is the Company holding the Annual Meeting online? |
| A | | A | After yearsThe Company believes that the virtual meeting format allows enhanced participation of, declining attendance byand interaction with, its global stockholder base, while also being sensitive to the public health and travel concerns that stockholders at Annaly’s in-person annualmay have in light of the COVID-19 pandemic. Virtual meetings the Company is moving to an online format for this year’s Annual Meeting to enable increased attendance and participation from locations around the world andalso reduce costs for both the Company and stockholders. This approach also aligns withits stockholders and reflect the Company’s broader sustainability goals. | | commitment to environmentally-friendly practices. |
| Q | What if I have difficulties accessing thepre-meeting forum or locating my16-digit control number prior to the day of the Annual Meeting on May 23, 2018?20, 2020? |
| A | | A | Prior to the day of the Annual Meeting on May 23, 2018,20, 2020, if you need assistance with your16-digit control number and you hold your shares in your own name, please call toll-free1-866-232-3037 in the United States or1-720-358-3640 if calling from outside the United States If you hold your shares in the name of a bank or brokerage firm, you will need to contact your bank or brokerage firm for assistance with your16-digit control number. | | |
| Q | What if during thecheck-in time or during the Annual Meeting I have technical difficulties or trouble accessing the live webcast of the Annual Meeting? |
| A | | A | If you encounter any difficulties accessing the live webcast of the Annual Meeting during thecheck-in or during the Annual Meeting itself, including any difficulties with your16-digit control number, please call toll-free1-855-449-0991 in the United States or1-720-378-5962 if calling from outside the United States, for assistance. Technicians will be ready to assist you beginning at 8:30 a.m. Eastern Time with any difficulties. | | |
| Q | How will the Company solicit proxies for the Annual Meeting? |
| A | | A | The expense of soliciting proxies will be borne by the Company. Proxies will be solicited principally through the use of mail, but Directors, executive officers and employees, who will not be specially compensated, may solicit proxies from stockholders by telephone, facsimile or other electronic means or in person. Also, the Company will reimburse banks, brokerage houses and other custodians, nominees and fiduciaries for any reasonable expenses in forwarding proxy materials to beneficial owners. | | | | The Company has retained Georgeson Inc., a proxy solicitation firm, to assist it in the solicitation of proxies in connection with the Annual Meeting. The Company will pay Georgeson a fee of $15,000 for its services. In addition, the Company may pay Georgeson additional fees depending on the extent of additional services requested by the Company and will reimburse Georgeson for expenses Georgeson incurs in connection with its engagement by the Company. In addition to the fees paid to Georgeson, the Company will pay all other costs of soliciting proxies.
| | | | Stockholders have the option to vote over the Internet or by telephone. Please be aware that if you vote over the Internet, you may incur costs such as telephone and access charges for which you will be responsible.
| | |
The Company has retained Georgeson Inc., a proxy solicitation firm, to assist it in the solicitation of proxies in connection with the Annual Meeting. The Company will pay Georgeson a fee of $15,000 for its services. In addition, the Company may pay Georgeson additional fees depending on the extent of additional services requested by the Company and will reimburse Georgeson for expenses Georgeson incurs in connection with its engagement by the Company. In addition to the fees paid to Georgeson, the Company will pay all other costs of soliciting proxies. Stockholders have the option to vote over the Internet or by telephone. Please be aware that if you vote over the Internet, you may incur costs such as telephone and access charges for which you will be responsible. | Q | What is “Householding” and does Annaly do this? |
| A | | A | “Householding” is a procedure approved by the SEC under which stockholders who have the same address and last name and do not participate in electronic delivery of proxy materials receive only one copy of a company’s Proxy Statement and Annual Report unless one or more of these stockholders notifies the company or their respective bank, broker or other intermediary that they wish to continue to receive individual copies. The Company engages in this practice as it reduces printing and postage costs. However, if a stockholder of record residing at such an address wishes to receive a separate Annual Report or Proxy Statement, he, she or it may request it by writing to Annaly Capital Management, Inc., 1211 Avenue of the Americas, New York, NY 10036, Attention: Investor Relations, by emailing investor@annaly.com, or by calling212-696-0100, and the Company will promptly deliver the requested Annual Report or Proxy Statement. If a stockholder of record residing at such an address wishes to receive a separate Annual Report or Proxy Statement in the future, he, she or it may contact the Company in the same manner. If you are an eligible stockholder of record receiving multiple copies of the Company’s Annual Report and Proxy Statement, you can request householding by contacting the Company in the same manner. If you own your shares through a bank, broker or other nominee, you can request householding by contacting the bank, broker or other nominee. | | |
56 | Annaly Capital Management Inc. 2018 Proxy Statement | | |
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Other Information
| Q | Could the Annual Meeting be postponed or adjourned? |
| A | | A | If a quorum is not present or represented, the Company’s Bylaws permit the chairmanChair of the meeting to postpone or adjourn the Annual Meeting, without notice other than an announcement at the Annual Meeting. | | Additionally, the Board is permitted to postpone the meeting to a date not more than 120 days after the record date for the Annual Meeting without setting a new record date, provided, that the Company must announce the date, time and place to which the meeting is postponed not less than ten days prior to the date of such postponed meeting. |
| Q | Who can help answer my questions? |
| A | | A | If you have any questions or need assistance voting your shares or if you need copies of this Proxy Statement or the proxy card, you should contact: |
Annaly Capital Management, Inc.
1211 Avenue of the Americas
New York, NY 10036
Phone:1-888-8 ANNALY
Phone: 1-888-8 ANNALY
Facsimile: (212)696-9809
Email: investor@annaly.com
Attention: Investor Relations |
The Company’s principal executive offices are located at the address above. WHERE YOU CAN FIND MORE INFORMATIONCAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Proxy Statement contains certain forward-looking statements which are based on various assumptions (some of which are beyond the Company’s control) and may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “anticipate,” “continue,” or similar terms or variations on those terms or the negative of those terms. Such statements include those relating to the Company’s future performance, macro outlook, the interest rate and credit environments, tax reform, future opportunities, the anticipated internalization, and governance and compensation outlooks. Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, the macro- and micro-economic impact of the COVID-19 pandemic; changes in interest rates; changes in the yield curve; changes in prepayment rates; the availability of mortgage-backed securities (“MBS”) and other securities for purchase; the availability of financing and, if available, the terms of any financing; changes in the market value of the Company’s assets; changes in business conditions and the general economy; the Company’s ability to grow our commercial real estate business; the Company’s ability to grow its residential credit business; the Company’s ability to grow its middle market lending business; credit risks related to the Company’s investments in credit risk transfer securities, residential mortgage-backed securities and related residential mortgage credit assets, commercial real estate assets and corporate debt; risks related to investments in mortgage servicing rights; the Company’s ability to consummate any contemplated investment opportunities; changes in government regulations or policy affecting the Company’s business; the Company’s ability to maintain its qualification as a REIT for U.S. federal income tax purposes; the Company’s ability to maintain its exemption from registration under the Investment Company Act of 1940, as amended; and risks and uncertainties associated with the Internalization, including but not limited to the occurrence of any event, change or other circumstances that could give rise to the termination of the Internalization Agreement; the outcome of any legal proceedings that may be instituted against the parties to the Internalization Agreement; the inability to complete the Internalization due to the failure to satisfy closing conditions or otherwise; risks that the Internalization disrupts the Company’s current plans and operations; the impact, if any, of the announcement or pendency of the Internalization on the Company’s relationships with third parties; and the amount of the costs, fees, expenses charges related to the Internalization; and the risk that the expected benefits, including long-term cost savings, of the Internalization are not achieved. For a discussion of the risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in our most recent Annual Report on Form10-K and any subsequent Quarterly Reports on Form10-Q.The Company files annual, quarterlydoes not undertake, and current reports, proxyspecifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements and other information withto reflect the SEC. You may read and copy any reports,occurrence of anticipated or unanticipated events or circumstances after the date of such statements, or other information that the Company files with the SECexcept as required by law. Endnotes Annaly at the SEC’s public reference room at Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549.a Glance, Internalization & Recent Operating Achievements (page 2) Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. These SEC filings are also available to the public from commercial document retrieval services and at the Internet worldwide web site maintained by the SEC at www.sec.gov. Reports, proxy statements and other information concerning the Company may also be inspected at the offices of the NYSE, which is located at 20 Broad Street, New York, NY 10005.
Annaly’s website is www.annaly.com. The Company makes available on this website under “Investors - SEC Filings,” free of charge, its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after such materials are electronically filed or furnished to the SEC.
| | Annaly Capital Management Inc. 2018 Proxy Statement1. | 57Based on market capitalization as of March 23, 2020. |
| | 2. | For addition informational on the Internalization, please refer to the Company’s Current Report on Form8-K filed with the SEC on February 12, 2020. |
| 3. | Economic return represents change in book value plus dividends declared over prior period’s book value. |
| 4. | Credit assets represent whole loan, CMBS and equity assets originated or purchased across Annaly Residential Credit Group (“ARC”), Annaly Commercial Real Estate Group (“ACREG”) and Annaly Middle Market Lending Group (“AMML”) and includes unfunded commitments of $117.6mm comprised of ACREG and AMML loans. There can be no assurance whether these deals will close or when they will close. |
| 5. | Residential whole loan securitizations since 2019 include: (1) a $394mm residential whole loan securitization in January 2019; (2) a $388mm residential whole loan securitization in April 2019; (3) a $384mm residential whole loan securitization in June 2019; (4) a $463mm residential whole loan securitization in July 2019; (5) a $465mm residential whole loan securitization in October 2019; (6) a $375mm residential whole loan securitization in January 2020; and (7) a $468mm residential whole loan securitization in February 2020. |
| 6. | “GSE Reform: Unfinished Business,” V.S. Srinivasan, A. Strzodka and A. Rajadhyaksha,Barclays (June 2019). For more information please refer to: https://www.annaly.com/investors/news/thought-leadership. |
| 7. | Represents $840mm of gross proceeds raised from the January 2019 common equity offering before deducting the underwriting discount and other estimated offering expenses and $570mm raised through the Company’sat-the-market sales program for its common stock, which was entered into in January 2018, net of sales agent commissions and other offering expenses. The January 2019 common equity offering includes the underwriters’ full exercise of their overallotment option to purchase additional shares of stock. Share repurchases are under the Company’s current authorized share repurchase program that expires in December 2020. |
Annaly’s Diversified Shared Capital Model (page 3) Note: Market data as of January 31, 2020. Financial data as of December 31, 2019. | 1. | Assets represent Annaly’s portfolio of investments on its balance sheet. Agency assets include TBA purchase contracts (market value) of $6.9bn and MSRs of $378.1mm and exclude securitized debt of consolidated VIEs of $1.0bn. Residential Credit assets exclude securitized debt of consolidated VIEs of $2.0bn. Commercial Real Estate assets exclude securitized debt of consolidated VIEs of $2.6bn. |
| 2. | Capital represents the capital allocation for each of the four investment strategies and is calculated as the difference between each investment strategies’ assets and related financing. This calculation includes TBA purchase contracts and excludesnon-portfolio related activity and will vary from total stockholders’ equity. |
| 3. | Sector rank compares Annaly dedicated capital in each of its four investment strategies as of December 31, 2019 (adjusted for P/B as of January 31, 2020) to the market capitalization of the companies in each respective comparative sector as of January 31, 2020. The companies in each comparative sectors are selected as follows: for Agency, Commercial Real Estate and Residential Credit sector ranking represent “Agency Peers” (AGNC, ANH, ARR, CMO, EARN and ORC), “Commercial Peers” (ABR, ACRE, ARI, BXMT, GPMT, HCFT, KREF, LADR, LOAN, RC, SACH, STWD, TRTX and XAN) and “Hybrid Peers” (AJX, CHMI, CIM, DX, IVR, MFA, MITT, NRZ, NYMT, PMT, RWT, TWO and WMC), respectively, within the Bloomberg Mortgage REIT Index as of January 31, 2020 and for Middle Market Lending sector ranking is the S&P BDC Index as of January 31, 2020. |
Delivering Significant Value for Stockholders (page 4) | 1. | Data shown since Annaly’s initial public offering in October 1997 through January 31, 2020 and includes common and preferred dividends declared. |
The Manager’s 2019 Executive Compensation Program (page 5) | 1. | Aggregated bonus amounts for 2019 reflect payments made to NEOs (other than the Company’s former Chairman, CEO and President who did not receive any compensation for serving in these roles, but had an ownership interest in the management fees until his departure from the Company and the Manager in November 2019) in January 2020 based on 2019 performance. |
| 2. | The core performance metrics referred to herein exclude the premium amortization adjustment, which represents the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities. |
Board Composition, Structure and Refreshment (page 7) | 1. | “Continuing Directors” represent the eleven members of the Board following the 2020 Annual Meeting (assuming all nominees are elected). |
| 2. | Directors have self-identified as bringing diversity to the Board by way of gender, race, ethnicity, national origin or other characteristics. |
Corporate Governance at Annaly (page 10) | 1. | “Key Committees” represent the Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee. |
Board Committees (page 19) | 1. | Mr. J. Green has not been renominated as a Director and will step down from the Board following the Annual Meeting in line with the Board’s refreshment policy. |
Audit Committee & Compensation Committee (page 20) | 1. | Mr. J. Green has not been renominated as a Director and will step down from the Board following the Annual Meeting in line with the Board’s refreshment policy. |
Corporate Responsibility Committee, NCG Committee & Risk Committee (page 21) | 1. | Mr. J. Green has not been renominated as a Director and will step down from the Board following the Annual Meeting in line with the Board’s refreshment policy. |
Board Effectiveness, Self-Evaluations and Refreshment (page 24) | 1. | “Continuing Directors” represent the eleven members of the Board following the 2020 Annual Meeting (assuming all nominees are elected). |
Summary of 2019 NEO Compensation (page 32) | 1. | The Company’s former Chairman, CEO and President Kevin Keyes did not receive any compensation for serving in these roles, but had an ownership interest in the management fees until his departure from the Company and the Manager in November 2019. |
| 2. | Aggregated bonus amounts for 2019 reflect payments made to NEOs in January 2020 based on 2019 performance. |
| 3. | The core performance metrics referred to herein exclude the premium amortization adjustment, which represents the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities. |
Table of ContentsANNEX A
ANNALY CAPITAL MANAGEMENT, INC. 2018 ANNUAL MEETING OF STOCKHOLDERS
RESERVATION REQUEST FORM2020 EQUITY INCENTIVE PLAN
If you wishSection 1. Purpose of the Plan
The purpose of the Plan is to view Annaly Capital Management, Inc.’s 2018 Annual Meetingaid the Company and its Affiliates in attracting, rewarding, and retaining employees,Non-Employee Directors or other individuals who provide services to the Company or an Affiliate and to motivate such individuals to stimulate their efforts toward the Company’s continued success, long-term growth and profitability by providing incentives through the granting of Stockholders webcastAwards. The Company expects that it will benefit from the added interest which such individuals will have in the welfare of the Company as a result of their proprietary interest in the Company’s success. Section 2. Definitions The following capitalized terms used in the Plan have the respective meanings set forth in this Section: (a) Act: The Securities Exchange Act of 1934, as amended, or any successor thereto. (b) Affiliate: Any entity directly or indirectly controlling, controlled by, or under common control with, the Company or any other entity designated by the Board in which the Company or a stockholder of the Company has an interest. (c) Award: An Option, Stock Appreciation Right, Dividend Equivalent Right, Other Share-Based Award, Restricted Shares or RSUs, granted pursuant to the Plan. (d) Board: The Board of Directors of the Company. (e) Change in Control: The occurrence of any of the following events: i. any “person,” including a “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), but excluding the Company, any entity controlling, controlled by or under common control with the Company, any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any such entity, and, with respect to any particular Participant, the Participant and any “group” (as such term is used in Section 13(d)(3) of the Exchange Act) of which the Participant is a member), is or becomes the “beneficial owner” (as defined in Rule 13(d)(3) under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of either (A) the combined voting power of the Company’s then outstanding securities or (B) the then outstanding Shares (in either such case other than as a result of an acquisition of securities directly from the Company); ii. consummation of any consolidation or merger of the Company where the shareholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule13d-3 under the Exchange Act), directly or indirectly, shares representing in the aggregate 50% or more of the combined voting power of the securities of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any) in substantially the same proportions as their ownership of the combined voting power of the securities of the Company immediately preceding such transaction; iii. there shall occur (A) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially all of the assets of the Company, other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by “persons” (as defined above) in substantially the same proportion as their ownership of the Company immediately prior to such sale or (B) the liquidation or dissolution of the Company; or iv. the members of the Board at the officesbeginning of Venable LLP (locatedany consecutive24-calendar-month period (the “Incumbent Directors”) cease for any reason other than due to death to constitute at 750 E. Pratt Street, Suite 900, Baltimore, MD 21202)least a majority of the members of the Board; provided that any Director whose election, or nomination for election by the Company’s shareholders, was approved or ratified by a vote of at least a majority of the members of the Board then still in office who were members of the Board at the beginning of such24-calendar-month period (provided such Director is not an individual whose election or nomination was in connection with an actual or threatened proxy contest relating to the election of Directors of the Company or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Board), please completeshall be deemed to be an Incumbent Director. Notwithstanding the following informationforegoing, if it is determined that an Award is subject to the requirements of Section 409A of the Code and returnpayable upon a Change in Control, the Company will not be deemed to Anthony C. Green, Chief Legal Officerhave undergone a Change in Control unless the Company is deemed to have undergone a “change in control event” pursuant to the definition of such term in Section 409A of the Code. (f) Code: The Internal Revenue Code of 1986, as amended, or any successor thereto. References to the Code shall include the valid and Secretary,binding governmental regulations, court decisions and other regulatory and judicial authority issued or rendered thereunder. (g) Committee: The Compensation Committee of the Board or such other committee as may be appointed by the Board in accordance with Section 4 of the Plan or the Committee’s delegate as authorized in accordance with Section 4 of the Plan. The Board may exercise any power or right of the Committee. With respect to any Award granted to aNon-Employee Director, references in the Plan to the Committee shall mean the Board. (h) Company: Annaly Capital Management, Inc., 1211 Avenuea Maryland corporation. (i) Dividend Equivalent Right: A right awarded under Section 8 of the Americas, New York, NY 10036. Please notePlan to receive (or have credited) the equivalent value of dividends paid on common stock of the Company. (j) Effective Date: The date the shareholders of the Company approve the Plan. (k) Fair Market Value: On a given date, (i) if there should be a public market for the Shares on such date, the closing price of the Shares as reported on such date on the Composite Tape of the principal national securities exchange on which such Shares are listed or admitted to trading, or, if the Shares are not listed or admitted on any national securities exchange, the closing price on such date as quoted on the National Association of Securities Dealers Automated Quotation System (or such market in which such prices are regularly quoted) (the “NASDAQ”), or, if no sale of Shares shall have been reported on the Composite Tape of any national securities exchange or quoted on the NASDAQ on such date, then the immediately preceding date on which sales of the Shares have been so reported or quoted shall be used; and (ii) if there should not be a public market for the Shares on such date, the Fair Market Value shall be the value established by the Committee in its sole discretion, in accordance with any applicable requirements of Section 409A of the Code. (l) ISO: An Option that no membersis also an incentive stock option, as described in Section 422 of management orthe Code, granted pursuant to Section 6(c) of the Plan. (m) Manager: Annaly Management Company LLC. (n) Non-Employee Director: A member of the Board who on the date an Award is granted is not an employee or officer of the Company or an employee or officer of the Manager. (o) Option: An option to purchase Shares granted pursuant to Section 6 of the Plan. (p) Option Price: The purchase price per Share under the terms of an Option, as determined pursuant to Section 6(a) of the Plan. (q) Other Share-Based Awards: Awards granted pursuant to Section 9 of the Plan. (r) Participant: Members of the Board, employees of the Company or an Affiliate, employees of the Manager or any individual who performs services for the Company or an Affiliate (whether as a consultant, advisor or otherwise) who is selected by the Committee to participate in the Plan. (s) Plan: The 2020 Equity Incentive Plan. (t) Prior Plan: The Company’s 2010 Equity Incentive Plan effective May 27, 2010. (u) Restricted Shares: An Award of Shares to a Participant under Section 9 that may be subject to certain restrictions and a risk of forfeiture. (v) RSU: A restricted share unit, granted pursuant to Section 9 of the Plan, which represents the right to receive a Share or cash of equivalent value. (w) Shares: Shares of common stock of the Company, subject to adjustment pursuant to Section 10 of the Plan. (x) Stock Appreciation Right: A stock appreciation right, granted in connection with or independent of the grant of an Option, pursuant to Section 7 of the Plan. Section 3. Shares Subject to the Plan (a) Authorized Number of Shares. Subject to this Section 3, and subject to adjustments as provided in Section 10, the total number of Shares that may be issued with respect to Awards granted under the Plan, in the aggregate, may not exceed 125,000,000 Shares. In addition, Shares underlying any outstanding award granted under the Prior Plan that, following the Effective Date, expires, or is terminated, surrendered, or forfeited for any reason without issuance of such shares or settled in cash shall be available for the grant of new Awards under this Plan. No new awards shall be granted under the Prior Plan following the Effective Date. The Shares that may be used hereunder may consist, in whole or in part, of unissued Shares or previously issued Shares that have been reacquired by the Company, as determined by the Chief Financial Officer of the Company (or the Chief Financial Officer’s designee) from time to time, unless otherwise determined by the Committee. (b) Share Counting. i. General. Each Share granted in connection with an Award shall be counted as one Share against the limit in Section 3(a), subject to the provisions of this Section 3(b). ii. Cash-Settled Awards. Any Award settled in cash shall not be counted as Shares for any purpose under this Plan. iii. Expired or Terminated Awards. If any Award under the Plan expires, or is terminated, surrendered, or forfeited, in whole or in part, the unissued Shares covered by such Award shall again be available for the grant of Awards under the Plan. iv. Payment of Option Price or Tax Withholding in Shares. The full number of Shares with respect to which an Option or Stock Appreciate Right is granted shall count against the aggregate number of Shares available for grant under the Plan. Accordingly, if in accordance with the terms of the Plan, a Participant pays the Option Price for an Option by either tendering previously owned Shares or having the Company withhold shares, then such Shares surrendered to pay the Option Price shall continue to count against the aggregate number of shares available for grant under the Plan set forth in Section 3(a) above. Similarly, if Shares are issued in connection with the exercise of a Stock Appreciation Right, the total number of Shares available for issuance under the Plan shall be reduced by the number of Shares for which the Stock Appreciation Right was exercised. In addition, if in accordance with the terms of the Plan, a Participant satisfies any tax withholding requirement with respect to any taxable event arising as a result of this Plan by either tendering previously owned Shares or having the Company withhold Shares, then such shares surrendered to satisfy such tax withholding requirements shall continue to count against the aggregate number of shares available for grant under the Plan set forth in Section 3(a) above. v. Substitute Awards. The provisions of this Section 3 shall not be applicable to Awards granted under the Plan pursuant to the settlement, assumption or substitution of outstanding Awards or obligations to grant future awards as a condition of the Company acquiring another entity so long as the ratio of exercise price to Fair Market Value in effect with respect to such Award or obligation before its settlement, assumption or substitution is maintained after giving effect to such settlement, assumption or substitution (“Substitute Awards”). (c) Award Limits. i. ISOs. Subject to adjustment under Section 10, 125,000,000 Shares available for issuance under the Plan shall be available for issuance under ISOs. ii. Non-Employee Director Award Limits. The maximum value of Awards granted during any calendar year to anyNon-Employee Director, taken together with any cash fees paid to thatNon-Employee Director during the calendar year and the value of awards granted to theNon-Employee Director under any other equity compensation plan of the Company during the calendar year, shall not exceed the following in total value (based on the Fair Market Value of the Shares underlying the Award as of the Grant Date for Awards other than Options and Stock Appreciation Rights, and based on the Grant Date fair value for accounting purposes for Options and Stock Appreciation Rights): (1) $900,000for thenon-employee Chair of the Board, if applicable, and (2) $600,000 for eachNon-Employee Director other than the Chair of the Board; provided, however, that Awards granted toNon-EmployeeDirectors upon their initial election to the Board shall not count towards the limits in this paragraph. The Board may make exceptions to the limits in this paragraph in extraordinary circumstances for individualNon-Employee Directors; provided that theNon-Employee Director receiving such additional compensation may not participate in the decision to award such compensation. Section 4. Administration The Plan shall be administered by the Committee. The Committee may delegate its duties and powers in whole or in part as it determines with respect to Awards, including delegation to a subcommittee consisting of at least two individuals who are intended to qualify as“non-employee directors” within the meaning of Rule16b-3 under the Act (or any successor rule thereto) or, with respect to Awards granted to Participants who are not subject to Section 16 of the Act, delegation to one or more officers of the Company. The Committee may grant Awards under this Plan only to Participants; provided that in the discretion of the Committee Substitute Awards may be made under the Plan. The Committee is authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make any other determinations that it deems necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent the Committee deems necessary or desirable. Any decision of the Committee in the interpretation and administration of the Plan, as described herein, shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned (including, but not limited to, Participants and their beneficiaries or successors). The Committee shall have the full power and authority to establish the terms and conditions of any Award consistent with the provisions of the Plan and to waive any such terms and conditions at any time, in its sole discretion (including, without limitation, accelerating or waiving any vesting conditions and/or accelerating any payment). No member of the Committee shall be personally liable for any action, determination or interpretations taken or made in good faith with respect to this Plan or Awards made hereunder, and all members of the Committee shall be fully indemnified and protected by the Company in respect of any such action, determination or interpretation. Section 5. Limitations on Granting Awards No Award may be granted under the Plan after the tenth anniversary of the earlier of (i) the date the stockholders approve the Plan or (ii) the date the Board adopts the Plan, but Awards theretofore granted may extend beyond that date and will continue to be governed by the terms of the Plan. Section 6. Terms and Conditions of Options Options granted under the Plan shall be, as determined by the Committee,non-qualified stock options or ISOs for United States federal income tax purposes (or other types of Options in jurisdictions outside the United States), as evidenced by the related Award, and shall be subject to the following terms and conditions, and to such other terms and conditions, not inconsistent therewith, as the Committee shall determine: (a) Option Price; Exercisability. Other than any Substitute Awards, any Option granted under the Plan shall have an Option Price of not less than the Fair Market Value of one Share on the date the Option is granted. Any Option granted under the Plan shall be vested and exercisable upon such terms and conditions as may be determined by the Committee. The Option Price of an Option that is a Substitute Award shall be determined by the Committee in a manner consistent with Section 409A of the Code. The option period or term of any Option granted under the Plan shall be specified by the Committee but the Committee cannot specify an option period or term longer than ten years after the date the Option is granted. (b) Exercise of Options. Except as otherwise provided in the Plan or in an Award, an Option may be exercised for all, or from time to time any part, of the Shares for which it is then exercisable. For purposes of this Section 6 of the Plan, the exercise date of an Option shall be the later of the date a notice of exercise is received by the Company and, if applicable, the date payment is received by the Company pursuant to clauses (i) through (vi) in the following sentence. Except as otherwise provided in an Award, the Option Price for the Shares as to which an Option is exercised shall be paid in full at the time of exercise at the election of the Participant: (i) in cash or its equivalent (e.g., by check); (ii) to the extent permitted by the Company at the time of exercise, in Shares having a Fair Market Value equal to the aggregate Option Price for the Shares being purchased and satisfying such other requirements as may be imposed by the Committee; (iii) partly in cash and, to the extent permitted by the Company at the time of exercise, partly in such Shares; (iv) to the extent permitted by applicable law through the delivery of irrevocable instructions to a broker to sell Shares obtained upon the exercise of the Option and deliver promptly to the Company an amount out of the proceeds of such sale equal to the aggregate Option Price for the Shares being purchased, (v) to the extent permitted by the Company at the time of exercise, through net settlement in Shares (a “cashless exercise”) or (vi) by any other means which the Committee determines to be consistent with the Plan’s purpose and applicable law. The Committee may also authorize the Company to make or facilitate loans to Participants to enable them to exercise Options to the extent not prohibited by applicable law. The Committee may permit Participants to exercise Options in joint-tenancy with the Participant’s spouse. (c) ISOs. The Committee may grant Options under the Plan that are intended to be ISOs. No ISO shall have an Option Price of less than the Fair Market Value of one Share on the date granted or have a term in excess of ten years. Additionally, no ISO may be granted to any Participant who, at the time of such grant, owns (or is deemed to own under the applicable attribution rules of the Code) more than ten percent of the total combined voting power of all classes of shares of the Company or of any Subsidiary, unless (i) the Option Price for such ISO is at least 110% of the Fair Market Value of one Share on the date the ISO is granted and (ii) the date on which such ISO expires is a date not later than the day preceding the fifth anniversary of the date on which the ISO is granted. An Option shall constitute an ISO only to the extent that the aggregate Fair Market Value (determined at the time the Option is granted) of the Shares with respect to which all ISOs held by such Participant become exercisable for the first time during any calendar year (under the Plan and all other plans of the Participant’s employer and its Affiliates) does not exceed $100,000. Any Participant who disposes of Shares acquired upon the exercise of an ISO either (A) within two years after the date of grant of such ISO or (B) within one year after the transfer of such Shares to the Participant, shall notify the Company of such disposition and of the amount realized upon such disposition. All Options granted under the Plan are intended to be nonqualified stock options, unless the applicable Award agreement expressly states that the Option is intended to be an ISO. If an Option is intended to be an ISO, and if for any reason such Option (or portion thereof) shall not qualify as an ISO, then, to the extent of suchnon-qualification, such Option (or portion thereof) shall be regarded as a nonqualified stock option granted under the Plan; provided that such Option (or portion thereof) otherwise complies with the Plan’s requirements relating to nonqualified stock options. In no event shall any member of the Committee, the Company or any of its Affiliates (or their respective employees, officers or Directors) have any liability to any Participant (or any other Person) due to the failure of an Option to qualify for any reason as an ISO. (d) Attestation. Wherever in this Plan or any agreement evidencing an Award a Participant is permitted to pay the Option Price (or taxes relating to the exercise of an Option) by delivering Shares, the Participant may, subject to procedures satisfactory to the Committee (and to the extent permitted by applicable law), satisfy such delivery requirement by presenting proof of record ownership of such Shares, or, to the extent permitted by the Committee, beneficial ownership of such Shares, in which case the Company shall treat the Option as exercised without further payment and shall withhold such number of Shares from the Shares acquired by the exercise of the Option. (e) Shareholder Rights. No Participant shall have any rights as a shareholder of the Company with respect to Shares subject to an Option until the date of exercise of the Option and the issuance of Shares to the Participant. Section 7. Terms and Conditions of Stock Appreciation Rights (a) Grants. The Committee also may grant (i) a Stock Appreciation Right independent of an Option or (ii) a Stock Appreciation Right in connection with an Option, or a portion thereof. A Stock Appreciation Right granted pursuant to clause (ii) of the preceding sentence (A) may be granted at the time the related Option is granted or at any time prior to the exercise or cancellation of the related Option, (B) shall cover the same number of Shares covered by an Option (or such lesser number of Shares as the Committee may determine) and (C) shall be subject to the same terms and conditions as such Option except for such additional limitations as are contemplated by this Section 7 (or such additional limitations as may be included in a Stock Appreciation Right Award). (b) Terms. The exercise price per Share of a Stock Appreciation Right shall be an amount determined by the Committee but in no event shall such amount, other than with respect to any Substitute Award, be less than the greater of (i) the Fair Market Value of a Share on the date the Stock Appreciation Right is granted or, in the case of a Stock Appreciation Right granted in conjunction with an Option, or a portion thereof, the Option Price of the related Option and (ii) the minimum amount permitted by applicable laws, rules,by-laws or policies of regulatory authorities or stock exchanges. The exercise price per Share of a Stock Appreciation Right that is a Substitute Award shall be determined by the Committee in a manner consistent with Section 409A of the Code. Each Stock Appreciation Right granted independent of an Option shall entitle a Participant upon exercise to a payment from the Company of an amount equal to (i) the excess of (A) the Fair Market Value on the exercise date of one Share over (B) the exercise price per Share, times (ii) the number of Shares for which the Stock Appreciation Right is exercised. Each Stock Appreciation Right granted in conjunction with an Option, or a portion thereof, shall entitle a Participant to surrender to the Company the unexercised Option, or any portion thereof, and to receive from the Company in exchange therefor an amount equal to (i) the excess of (A) the Fair Market Value on the exercise date of one Share over (B) the Option Price, times (ii) the number of Shares covered by the Option, or portion thereof, which is surrendered. The date a notice of exercise is received by the Company shall be the exercise date. Payment shall be made in Shares or in cash, or partly in Shares and partly in cash (any such Shares valued at such Fair Market Value), all as shall be determined by the Committee. Stock Appreciation Rights may be exercised from time to time upon actual receipt by the Company of written notice of exercise stating the number of Shares with respect to which the Stock Appreciation Right is being exercised. The preceding sentence shall not apply to a Stock Appreciation Right granted to aNon-Employee Director. No fractional Shares will be present at Venable LLP’s offices. In addition, you must bringissued in payment for Stock Appreciation Rights, but instead cash will be paid for a valid, government-issued photo identification,fractional Share or, if the Committee should so determine, the number of Shares will be rounded downward to the next whole Share. (c) Limitations. The Committee may impose, in its discretion, such conditions upon the exercisability of Stock Appreciation Rights as it may deem fit; provided that no Stock Appreciation Right may remain exercisable more than 10 years after the date of grant. (d) Shareholder Rights. No Participant shall have any rights as a driver’s licenseshareholder of the company with respect to the Shares subject to a Stock Appreciation Right until the date the Stock Appreciation Right is exercised and then only to the extent that the Stock Appreciation Right is settled by the issuance of Shares Section 8. Terms and Conditions of Dividend Equivalent Rights (a) Grants. Subject to the other terms of the Plan, the Committee shall, in its discretion as reflected by the terms of the Award Agreements, authorize the granting of Dividend Equivalent Rights to Participants based on the regular cash dividends declared on Shares, to be credited as of the dividend payment dates, during the period between the date an Award is granted, and the date such Award is exercised, vests or expires, as determined by the Committee; provided, however, that Dividend Equivalent Rights shall not be granted in relation to an Option or Stock Appreciation Right. Such Dividend Equivalent Rights shall be converted to cash or additional Shares by such formula and at such time and subject to such limitation as may be determined by the Committee. If a Dividend Equivalent Right is granted in respect of another Award hereunder, then, unless otherwise stated in the Award Agreement, in no event shall the Dividend Equivalent Right be in effect for a period beyond the time during which the applicable portion of the underlying Award is in effect. (b) Certain Terms. The terms of a Dividend Equivalent Right shall be set by the Committee in its discretion. Dividend Equivalent Rights shall not be vested before the Award related to the Dividend Equivalent Rights becomes vested. Payment of the amount determined in accordance with Section 8(a) shall be in cash, in common stock or a passportcombination of the both, as determined by the Committee. Dividend Equivalent Rights will be paid only after, and only to Venable LLP’s offices.the extent, that the related Award (or the Dividend Equivalent Right if such right is not granted in relation to another Award) becomes vested. Your name and address: | | | | Number of Shares of NLY
Common Stock You Hold: | | | | If the shares listed above are not registered in your name, please identify the name of the registered stockholder belowand include evidence that you beneficially own the shares. | | Registered Stockholder: | | | | | (Name of Your Bank, Broker or Other Nominee) |
(c) Other Types of Dividend Equivalent Rights. The Committee may establish a program under which Dividend Equivalent Rights of a type whether or not described in the foregoing provisions of this Section 8 may be granted to Participants. Section 9. Restricted Shares, RSUs and Other Share-Based Awards (a) Generally. The Committee, in its sole discretion, may grant Awards of Restricted Shares, Awards of RSUs and other Awards that are valued in whole or in part by reference to, or are otherwise based on, the Fair Market Value of Shares (“Other Share-Based Awards”). Awards of Restricted Shares, Awards of RSUs and other Share-Based Awards shall be in such form, and dependent on such conditions, as the Committee shall determine, including, without limitation, the applicable vesting provisions, the right to receive one or more Shares (or the equivalent cash value of such Shares) only upon the completion of a specified period of service, the occurrence of an event and/or the attainment of performance objectives. Awards of Restricted Shares, Awards of RSUs and other Share-Based Awards may be granted alone or in addition to any other Awards granted under the Plan. Subject to the provisions of the Plan, the Committee shall determine: (i) to whom and when Awards of Restricted Shares, Awards of RSUs and Other Share-Based Awards will be made; (ii) the number of Shares to be awarded under (or otherwise related to) such Awards; (iii) whether such Awards shall be settled in cash, Shares or a combination of cash and Shares; and (iv) all other terms and conditions of Awards (including, without limitation, provisions ensuring that all Shares so awarded and issued shall be fully paid andnon-assessable). (b) Shareholder Rights. (i) The Shares subject to an Award of Restricted Shares and any Shares issued in connection with the grant of an Other Share-Based Award shall be evidenced by book-entry issuance of Shares to the Participant in an account maintained by the Company at its transfer agent. While the Shares subject to an Award of Restricted Shares or issued in connection with the grant of an Other Share-Based Award may be forfeited or are nontransferable, a Participant will have all the rights of a shareholder of the Company with respect to the Shares, including the right to vote the Shares and receive dividends;provided, however, that dividend payments will be accumulated (with or without interest as determined by the Committee) and paid to the Participant only after, and to the extent that, the Award of Restricted Shares or Other Share-Based Award becomes vested. During the period that the Shares subject to an Award of Restricted Shares or issued in connection with the grant of an Other Share-Based Award may be forfeited or are nontransferable (x) the Participant may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of the Shares and (y) the Participant will deliver to the Company a stock power, endorsed in blank, with respect to the Shares. The limitations set forth in the preceding sentence shall not apply after the Shares subject to an Award of Restricted Shares or an Other Share-Based Award are transferable and are no longer forfeitable. (ii) No Participant shall, as a result of receiving an Award of RSUs or an Other Share-Based Award in which Shares are not issued upon its grant, have any rights as a shareholder of the Company until the date such Award is settled and then only to the extent that such Award is settled by the issuance of Shares. The Committee may grant Dividend Equivalent Rights with respect to an Award of RSUs or an Other Share-Based Award in which Shares are not issued upon its grant, subject to the provisions of Section 8. Section 10. Adjustments Upon Certain Events Subject to Section 18 below, the following provisions shall apply to all Awards granted under the Plan: (a) Generally. In the event of any change in the outstanding Shares after the Effective Date by reason of any Share dividend or split, reorganization, recapitalization, merger, consolidation,spin-off or combination transaction or exchange of Shares or other corporate exchange, or any distribution to stockholders other than regular cash dividends or any transaction similar to the foregoing, the Committee shall make such substitution or adjustment, if any, as it deems to be equitable, as to (i) the number or kind of Shares or other securities available for issuance, issued or reserved for issuance pursuant to the Plan and pursuant to outstanding Awards; (ii) the award limits in Section 3(c); (iii) the Option Price or exercise price of any Stock Appreciation Right; and/or (iv) any other affected terms of any Award. (b) Change in Control. i. For Awards granted toNon-Employee Directors, upon a Change in Control all outstanding Awards that may be exercised shall become fully exercisable, all restrictions with respect to outstanding Awards shall lapse and become vested andnon-forfeitable, and any specified performance goals with respect to outstanding Awards shall be deemed to be satisfied at target. ii. For Awards granted to any other Participants, either of the following provisions shall apply, depending on whether, and the extent to which, Awards are assumed, converted or replaced by the resulting entity in a Change in Control, as provided in the applicable transaction agreement: A. To the extent such Awards are not assumed, converted or replaced by the resulting entity in the Change in Control, then upon the Change in Control such outstanding Awards that may be exercised shall become fully exercisable, all restrictions with respect to such outstanding Awards, other than for Awards with performance-vesting conditions, shall lapse and become vested andnon-forfeitable, and for any outstanding Awards with performance-vesting conditions the target payout opportunities attainable under such Awards shall be deemed to have been fully earned as of the Change in Control based upon the greater of: (A) an assumed achievement of all relevant
performance goals at the “target” level, or (B) the actual level of achievement of all relevant performance goals against target as of the Company’s fiscal quarter end preceding the Change in Control. B. To the extent such Awards are assumed, converted or replaced by the resulting entity in the Change in Control, if, within two years after the date of the Change in Control, the Participant has a termination from service either (1) by the Company other than for “cause” or (2) by the Participant for “good reason” (each as defined in the applicable Award Agreement), then such outstanding Awards that may be exercised shall become fully exercisable, all restrictions with respect to such outstanding Awards, other than for Awards with performance-vesting conditions, shall lapse and become vested andnon-forfeitable, and for any outstanding Awards with performance-vesting conditions the target payout opportunities attainable under such Awards shall be deemed to have been fully earned as of the termination of service based upon the greater of: (A) an assumed achievement of all relevant performance goals at the “target” level, or (B) the actual level of achievement of all relevant performance goals against target as of the Company’s fiscal quarter end preceding the Change in Control. (c) Committee Decisions Controlling; No Limitations on Company. Adjustments under this Section 10 shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. No fractional shares or other securities shall be issued pursuant to any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole share. The making of Awards pursuant to the Plan shall not affect or limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure or to merge, consolidate, dissolve, or liquidate, or to sell or transfer all or any part of its business or assets. Section 11. No Right to Employment or Awards The granting of an Award under the Plan shall impose no obligation on the Company or any Affiliate to continue the employment or service or consulting relationship of a Participant and shall not lessen or affect the Company’s or Affiliate’s right to terminate the employment or service or consulting relationship of such Participant. No Participant or other person shall have any claim to be granted any Award, and there is no obligation for uniformity of treatment of Participants, or holders or beneficiaries of Awards. The terms and conditions of Awards and the Committee’s determinations and interpretations with respect thereto need not be the same with respect to each Participant (whether or not such Participants are similarly situated). Section 12. Successors and Assigns The Plan shall be binding on all successors and assigns of the Company and a Participant, including without limitation, the estate of such Participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Participant’s creditors. Section 13. Transferability of Awards Other than by will or by the laws of descent and distribution or pursuant to a “qualified domestic relations order,” as such term is defined in the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), an Award shall not be transferable or assignable by the Participant; provided, however, that the Committee may permit the transfer or assignment by the Participant (other than with respect to ISOs) to (i) the spouse, qualified domestic partner, children, or grandchildren of the Participant and any other persons related to the Participant as may be approved by the Committee (“Immediate Family Members”), (ii) a trust or trusts for the exclusive benefit of such Immediate Family Members, (iii) a partnership or partnerships in which such Immediate Family Members are the only partners, upon such terms and conditions as set forth by the Committee. An Award exercisable after the death of a Participant may be exercised by the legatees, personal representatives or distributees of the Participant. Section 14. Amendments or Termination; No Repricing (a) Amendment and Termination. Subject to Section 10 of the Plan, the Board may amend, alter or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which would: (a) increase the maximum number of Shares available for Awards under the Plan (including the limits applicable to the different types of Awards) or change the class of individuals eligible to be Participants under the Plan (other than
amendments having such purpose that are approved by a majority of the stockholders of the Company that are present and entitled to vote on such matter at a meeting duly convened for such purposes (or such other standard of stockholder vote as may be required by applicable state or federal law)); (b) without the consent of a Participant, diminish any of the rights of the Participant under any Award theretofore granted to such Participant under the Plan; or (c) be prohibited by applicable law or otherwise require stockholder approval; provided, however, that the Committee may amend the Plan in such manner as it deems necessary to permit Awards to meet the requirements of the Code or other applicable laws.
(b) No Repricing of Options or Stock Appreciation Rights. In no event may the Board amend the Plan or any Award to provide for the repricing of any Option Price or exercise price of any Stock Appreciation Rights without the approval by the stockholders of the Company. For this purpose, a “repricing” means any of the following (or any other action that has the same effect as any of the following): (A) changing the terms of an Option or Stock Appreciation Right to lower its Option Price or exercise price; (B) any other action that is treated as a “repricing” under generally accepted accounting principles; and (C) repurchasing for cash or canceling an Option or Stock Appreciation Right at a time when its Option Price or grant price is greater than the Fair Market Value of the underlying Shares in exchange for another Award, unless the cancellation and exchange occurs in connection with a change in capitalization or similar change under Section 10 above. Such cancellation and exchange would be considered a “repricing” regardless of whether it is treated as a “repricing” under generally accepted accounting principles and regardless of whether it is voluntary on the part of the Participant.” Section 15. International Participants With respect to Participants, if any, who reside or work outside the United States of America, the Committee may, in its sole discretion, amend the terms of the Plan or Awards with respect to such Participants in order to conform such terms with the provisions of local law, and the Committee may, where appropriate, establish one or moresub-plans to reflect such amended or varied provisions. Section 16. Choice of Law The Plan shall be governed by and construed in accordance with the laws of the State of Maryland without regard to conflicts of laws. Section 17. Effectiveness of the Plan The Plan shall be effective as of the Effective Date. Section 18. Section 409A Without limiting the generality of the foregoing, to the extent applicable, notwithstanding anything herein to the contrary, this Plan and Awards issued hereunder shall be interpreted in accordance with Section 409A of the Code. Notwithstanding any provision of the Plan to the contrary, in the event that the Committee reasonably determines that any amounts payable hereunder may be taxable to a Participant under Section 409A of the Code prior to payment to such Participant of such amount, the Company may (a) adopt such amendments to the Plan and Awards and appropriate policies and procedures, including amendments and policies with retroactive effect, that the Committee determines necessary or appropriate to preserve the intended tax treatment of the benefits provided by the Plan and Awards hereunder and/or (b) take such other actions as the Committee determines necessary or appropriate to comply with the requirements of Section 409A of the Code, provided that under no circumstances shall the Company or any affiliate be liable for or indemnify any Participant for any additional taxes or other amounts that may be imposed upon such Participant pursuant to or as a result of Section 409A of the Code. Notwithstanding anything to the contrary in the Plan, to the extent required to avoid accelerated taxation and additional taxes under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to the Plan during the six (6) month period immediately following the Participant’s separation from service with the Company shall instead be paid on the first payroll date after the six (6)-month anniversary of the Participant’s separation from service (or the Participant’s death, if earlier). Notwithstanding the foregoing, neither the Company nor the Committee shall have any obligation to take any action to prevent the assessment of any additional tax or penalty on any Participant under Section 409A and neither the Company nor the Committee will have any liability to any Participant for such tax or penalty. Section 19. Tax Withholding The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local taxes (including the Participant’s FICA obligation) required by law to be withheld with respect to any taxable event arising as a result of this Plan. In that regard, the Company may cause any such tax withholding obligation to be satisfied by the Company withholding Shares having a Fair Market Value on the date the tax is to be determined equal to the total tax which could be imposed on the transaction. In the alternative, the Company may permit Participants to elect to satisfy the tax withholding obligation, in whole or in part, by either (i) having the Company withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the total tax which could be imposed on the transaction or (ii) tendering previously acquired Shares having an aggregate Fair Market Value equal to the total tax which could be imposed on the transaction. All such elections shall be irrevocable, made in writing, signed by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate. Section 20. Recoupment Each Award granted under the Plan is subject to any written recoupment or “clawback” policy adopted by the Board. Any such policy may subject Awards and amounts paid or realized with respect to Awards to reduction, cancellation, forfeiture or recoupment if certain specified events or wrongful conduct occur, including but not limited to an account restatement due to the Company’s material noncompliance with financial reporting regulations or other events of wrongful conduct specified in any such policy adopted to conform to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and rules promulgated thereunder by the Securities and Exchange Commission and that the Board determines should apply to the Plan. Section 21. Section 280G Notwithstanding any other provision of this Plan, the benefits that a Participant may be entitled to receive under this Plan and other benefits that a Participant may be entitled to receive under other plans, agreements and arrangements (which, together with the benefits provided under this Plan are referred to as “Payments”) are subject to reduction in accordance with, and to the extent provided by, this Section 21. If the Participant’s receipt of all Payments would constitute an “excess parachute payment” within the meaning of Section 280G of the Code, then the aggregate present value of the Payments shall be reduced (but not below zero) to the Reduced Amount if and only if the Accounting Firm determines that the reduction will provide the Participant with a greater Net After Tax Amount than the Participant would realize without any reduction. No reduction shall be made, and the Participant will be entitled to receive all of the Payments, unless the reduction would provide the Participant with a greater Net After Tax Amount. The “Reduced Amount” shall be an amount expressed in present value which maximizes the aggregate present value of all Payments without causing any Payment to be subject to the Excise Tax, 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 “Net After Tax Amount” means the amount of the Payments or the Reduced Amount, as applicable, net of taxes imposed under Code Sections 1, 3101(b) and 4999 and any State or local income taxes applicable to the Participant on the date of payment. The determination of the Net After Tax Amount shall be made using the highest combined effective rate imposed by the foregoing taxes on income of the same character as the Payments or the Reduced Amount. If any Payments are reduced under this Section 21, then the Payments shall be reduced on a nondiscretionary basis in such a way to minimize the reduction in economic value deliverable to the Participant. 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. As a result of the uncertainty in the application of Sections 280G and 4999 of the Code at the time that the Accounting Firm makes its determinations under this Section 20, it is possible that amounts will have been paid or distributed to the Participant that should not have been paid or distributed under this Section 21 (“Overpayments”), or that additional amounts should be paid or distributed to the Participant under this Section 21 (“Underpayments”). If the Accounting Firm determines, based on either the assertion of a deficiency by the Internal Revenue Service against the Company or the Participant, which assertion the Accounting Firm believes has a high probability of success or controlling precedent or substantial authority, that an Overpayment has been made, the Participant must repay the Overpayment to the Company, without interest; provided, however, that repayment will not be required unless, and then only to the extent that, the repayment would either reduce the amount on which the Participant is subject to tax under Section 4999 of the Code or generate a refund of tax imposed under Section 4999 of the Code. If the Accounting Firm determines, based upon controlling precedent or substantial authority, that an Underpayment has occurred, the Accounting Firm will notify the Participant and the Company of that determination and the amount of that Underpayment will be paid to the Participant by the Company. All determinations under this Section 21 shall be made by an independent certified public accounting firm selected by the Company and agreed to by the Participant immediately prior to any Change in Control (the “Accounting Firm”). The Accounting Firm shall provide its determinations and any supporting calculations both to the Company and the Participant within ten days of the Change in Control. Any such determination by the Accounting Firm shall be binding upon the Company and the Participant. All of the fees and expenses of the Accounting Firm in performing the determinations referred to in this Section 21 shall be borne solely by the Company. 
Table of Contents
 ANNALY CAPITAL MANAGEMENT, INC.
1211 AVENUE OF THE AMERICAS
NEW YORK, NY 10036
ATTN: GLENN A. VOTEK
VOTE BY INTERNET
Before The Meeting - Meeting—Go towww.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting ANNALY CAPITAL MANAGEMENT, INC. 1211 AVENUE OF THE AMERICAS date. Have your proxy card in hand when you access the web site and follow NEW YORK, NY 10036 the instructions to obtain your records and to create an electronic voting ATTN: ANTHONY C. GREEN instruction form. During The Meeting - Meeting—Go towww.virtualshareholdermeeting.com/NLY2018 NLY2020 You may attend the meeting via the Internet and vote during the meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions. VOTE BY PHONE - PHONE—1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | | E38745-P03314 | KEEP THIS PORTION FOR YOUR RECORDS | | TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: D06958-P32445 KEEP THIS PORTION FOR YOUR RECORDS THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. DETACH AND RETURN THIS PORTION ONLY WHEN SIGNED AND DATED. | DETACH AND RETURN THIS PORTION ONLY |
ANNALY CAPITAL MANAGEMENT, INC. The Board of Directors recommends you vote FOR the following: 1. Election of Directors Nominees: For Against Abstain 1a. Francine J. Bovich ! ! ! The Board of Directors recommends you vote FOR For Against Abstain proposal 2: 1b. Katie Beirne Fallon ! ! ! 2. Advisory approval of the Company’s executive ! ! ! compensation. 1c. David L. Finkelstein ! ! ! The Board of Directors recommends you vote FOR proposal 3: 1d. Thomas Hamilton ! ! ! 3. Approval of the Company’s 2020 Equity Incentive Plan. ! ! ! 1e. Kathy Hopinkah Hannan ! ! ! The Board of Directors recommends you vote FOR proposal 4: 1f. John H. Schaefer ! ! ! 4. Ratification of the appointment of Ernst & Young LLP ! ! ! as our independent registered public accounting firm for the fiscal year ending December 31, 2020. 1g. Glenn A. Votek ! ! ! The Board of Directors makes no recommendation on proposal 5: 1h. Vicki Williams ! ! ! 5. Advisory stockholder proposal regarding stockholder ! ! ! action by written consent. For address changes and/or comments, please check this box and write ! them on the back where indicated. NOTE: Voting items may include such other business as may properly come before the meeting or any adjournment thereof. Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date |
| The Board of Directors recommends you vote FOR the following:
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1. | Election of Directors
| | | | | | | | Nominees:
| | For | | Against | | Abstain | | 1a. | Wellington J. Denahan
| | ☐ | | ☐ | | ☐ | | 1b. | Michael Haylon
| | ☐ | | ☐ | | ☐ | | 1c. | Donnell A. Segalas
| | ☐ | | ☐ | | ☐ | | 1d. | Katie Beirne Fallon
| | ☐ | | ☐ | | ☐ | | 1e. | Vicki Williams
| | ☐ | | ☐ | | ☐ | | |
| | | | | | | For address changes and/or comments, please check this box and write them on the back where indicated. | | ☐ |
| | | | | | | The Board of Directors recommends you vote FOR proposal 2:
| | For | | Against | | Abstain | 2. | Advisory approval of the company's executive compensation.
| | ☐ | | ☐ | | ☐ | The Board of Directors recommends you vote FOR proposal 3:
| | | | | | | 3. | Ratification of the appointment of Ernst & Young LLP as the company's independent registered public accounting firm for the fiscal year ending December 31, 2018. | | ☐ | | ☐ | | ☐ | |
| | | | | | | NOTE:Voting items may include such other business as may properly come before the meeting or any adjournment thereof. | | | | | | |
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
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| | | | | | Signature [PLEASE SIGN WITHIN BOX] | Date | | Signature (Joint Owners) | Date | |
Annaly Capital Management, Inc.
1211 Avenue of the Americas
New York, NY 10036
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The 20172019 ANNUAL REPORT TO STOCKHOLDERS and 20182020 NOTICE & PROXY STATEMENT are available at www.proxyvote.com. D06959-P32445 Annaly Capital Management, Inc. Annual Meeting of Stockholders May 20, 2020 This proxy is solicited by the Board of Directors Revoking all prior proxies, the undersigned hereby appoints David L. Finkelstein and Anthony C. Green, and each of them, as proxies for the undersigned, with full power of substitution, to appear on behalf of the undersigned and to vote all shares of Common Stock, par value $.01 per share, of Annaly Capital Management, Inc. (the “Company”) that the undersigned is entitled to vote at the Annual Meeting of Stockholders of the Company, which will be a virtual meeting conducted via live webcast to be held at 9:00 a.m., Eastern Time, on Wednesday, May 20, 2020 at www.virtualshareholdermeeting.com/NLY2020, and at any postponement or adjournment thereof as fully and effectively as the undersigned could do if personally present and voting, hereby approving, ratifying and confirming all that said attorneys and agents or their substitutes may lawfully do in place of the undersigned as indicated below. The shares represented by this proxy when properly executed, will be voted as directed. If no directions are given, this proxy will be voted in accordance with the Board of Directors’ recommendations as listed on the reverse side of this card and at their discretion on any other matter that may properly come before the meeting. Address Changes/Comments: (If you noted any address change and/or comments above, please mark corresponding box on the reverse side.) Continued and to be signed on reverse side
E38746-P03314 | Annaly Capital Management, Inc.
Annual Meeting of Stockholders
May 23, 2018
This proxy is solicited by the Board of Directors
Revoking all prior proxies, the undersigned hereby appoints Kevin G. Keyes and Anthony C. Green, and each of them, proxies, with full power of substitution, to appear on behalf of the undersigned and to vote all shares of Common Stock, par value $.01 per share, of Annaly Capital Management, Inc. (the "Company") that the undersigned is entitled to vote at the Annual Meeting of Stockholders of the Company, which will be a completely virtual meeting conducted via live webcast to be held at 9:00 a.m., Eastern Time, on Wednesday, May 23, 2018 at www.virtualshareholdermeeting.com/NLY2018, and at any adjournment thereof as fully and effectively as the undersigned could do if personally present and voting, hereby approving, ratifying and confirming all that said attorneys and agents or their substitutes may lawfully do in place of the undersigned as indicated below.
The shares represented by this proxy when properly executed, will be voted as directed.If no directions are given, this proxy will be voted in accordance with the Board of Directors' recommendations as listed on the reverse side of this card and at their discretion on any other matter that may properly come before the meeting.
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| Address Changes/Comments:
| | | | | | | (If you noted any address change and/or comments above, please mark corresponding box on the reverse side.)
Continued and to be signed on reverse side
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