LOUISVILLE, Ky. (WDRB) — Kentucky agriculture startup AppHarvest may run out of money, and three of its four high-tech indoor farms are subject to potential foreclosure or eviction actions.
Yet, the company’s board earlier this month decided to make nearly $2.5 million in immediate cash payments to its top four executives — awards that were not previously scheduled.
AppHarvest board members also hiked their own cash fees substantially and decided they will be paid in advance, reducing their risk of becoming unpaid creditors of the company.
The changes, disclosed in a regulatory filing this week, come as AppHarvest seeks financing for a restructuring “to make it profitable and to preserve value and jobs.”
AppHarvest is a “sustainable food company” that grows tomatoes and other crops in high-tech indoor farms using less land, water and pesticides than traditional agriculture. It employs about 1,000 people across its four indoor Kentucky farms.
Sales have fallen far short of what the company projected prior to its 2021 debut on the stock market and the company has racked up more than $300 million in losses. Contractors have alleged not being paid, and a lender has filed a foreclosure action against one of its greenhouses.
AppHarvest said the pay changes are aimed at helping the company continue its progress under new CEO Tony Martin, who earlier this month replaced founder Jonathan Webb.
“The compensation package to retain key executives is a standard process for companies in our financial situation and is for work that has yet to be completed,” AppHarvest spokeswoman Darla Turner said in an email. “Outside advisers recommend the amount of these packages to send a signal to the market that leadership will remain to keep working to turn the company around.”
Turner added that the nearly $2.5 million in payments to the four executives are subject to so-called “clawback” provisions under which the executives could owe the money back if they are fired for cause or leave voluntarily during the term of the agreements.
AppHarvest’s board chairman Kevin Willis, the chief financial officer of Ashland Global Holdings Inc., did not return a call for comment.
AppHarvest had about $50 million in cash as of March 31, according to its most recent quarterly report.
Charlie Moyer, a finance professor at the University of Louisville, said he can see the logic of retaining key executives while a company is teetering on failure, but he added that AppHarvest shareholders still may question the company’s use of scarce cash.
“If these people have the expertise to turn this thing in a way that there is light at the end of the tunnel, keeping them around is important,” Moyer said. “On the other hand, if you are a shareholder, a shareholder might view it differently: that this is a way for them to line their pockets from a deal that is going sour.”
Payments in lieu of bonuses
AppHarvest said it’s paying $540,000 to each of Martin, the CEO; Webb, the former CEO and now chief strategy officer; and to Chief Financial Officer Loren Eggleton. It is also paying $850,000 to Gary Broadbent, the company’s newly appointed Chief Legal Officer and Chief Restructuring Officer.
The payments are in lieu of any bonuses that the executives might have received in 2023, according to the filing. However, it is unclear whether the company’s performance would have merited bonuses.
AppHarvest did not pay executive bonuses in 2022, when the company lost $176 million. It has projected losses to continue for the foreseeable future.
Meanwhile, the company’s board is increasing cash fees paid to non-employee board members to $135,000 annually, from $75,000, and paying the director fees upfront instead of in arrears, according to regulatory filings.
Because board members are also paid in AppHarvest stock, their total compensation will still be less than before the change, according to AppHarvest’s Turner.
“This is a net decrease based on the value of the board’s equity lowering,” she said. “The reasoning is for retention, similar to that for the key executives.”
Asked whether the board will still get stock awards in addition to cash, Turner said: “Not yet determined.”
AppHarvest shares traded at about 36 cents on Wednesday, having lost about 91% of their value over the last year.
