The Structural Exception does not apply with respect to any of the five current members of the Board. The Company’s Board of Directors, upon the recommendation of the Nominating/Corporate Governance Committee, has nominated (1) Douglas Marohn to stand forre-election as a director at the Meeting, to hold office for a term of onetwo year expiring at the 20192022 Annual General Meeting of Shareholders, and until his successor has been duly elected and qualified and (2) each of Robin J. Hastings and Jeffrey RoyalJeremy Q. Zhu to stand forre-election as a director at the Meeting, to hold office for a term of three years expiring at the 20212023 Annual General Meeting of Shareholders, and until his successor has been duly elected and qualified. No other person has been nominated by the Board to stand for election as a director at the Meeting.
Vote Required
Assuming a quorum is present, the election of each of Messrs. Marohn Hastings and RoyalZhu as a director requires that a plurality of the total votes cast with respect to Voting Common Shares present, or represented by proxy, vote in favor of his election. (Please note that brokers or other nominees who hold shares for you do not have the discretionary authority to vote your uninstructed shares in the election of directors.) In the event Mr. Marohn Mr. Hastings or Mr. RoyalZhu is unable to serve, the persons designated as proxies will cast votes for such other person as they may select in their discretion as a substitute nominee. The Board of Directors has no reason to believe that either of the foregoing nominees will be unavailable, or if elected, will decline to serve.
Messrs. Marohn Hastings and RoyalZhu are residents of the United States. Certain information is set forth below for each of the nominees for director, as well as for each director whose term of office will continue after the Meeting.
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NOMINEES FOR DIRECTORDIRECTORS CONTINUING IN OFFICE — TERM TO EXPIREEXPIRES 2021
Name | Age | Principal Occupation And Other Information | ||||
Robin J. Hastings | 66 | Mr. Hastings has served as a director of the Company since August 2015 and | ||||
Mr. Hastings brings considerable financial, accounting and operating skills and experience to the Board. | ||||||
Jeffrey Royal (Chair) | 44 | Mr. Royal has served as a director of the Company since October | ||||
The Board believes that Mr. Royal’s provides the Board considerable experience and knowledge of accounting and lending. | ||||||
NOMINEES FOR DIRECTOR6
DIRECTORS CONTINUING IN OFFICE — TERM TO EXPIRE 2019EXPIRES 2022
Name | Age | Principal Occupation And Other Information | |||||||||||||
Adam K. Peterson | 38 | Adam K. Peterson has served as a director of the Company since July 2017. Mr. Peterson serves as Co-President, Co-Chairperson, and Co-CEO of Boston Omaha Corporation, a NASDAQ-listed company. Since June 2014, Mr. Peterson has served as the Manager of The Magnolia Group, LLC “Magnolia Group”), an SEC-registered investment adviser and the general partner of Magnolia Capital Fund, LP. | |||||||||||||
(“Magnolia Capital”). Magnolia Group also manages a private real estate fund. As of the record date, Magnolia Capital was the holder of approximately 19.3% of the Company’s Voting Common Shares. Between November 2005 and June 2014, Mr. Peterson served as the Chief Investment Officer of Magnolia Capital Partners, LLC and related entities at a private family investment office, and from May 2004 through June 2006, he was a financial analyst for Peter Kiewit Sons, Inc. Mr. Peterson graduated with a BSBA with a concentration in Finance from Creighton University. | |||||||||||||||
The Board believes that Mr. Peterson provides the Board with financial and business analytical experience as an investor who regularly scrutinizes public companies. | |||||||||||||||
Douglas Marohn | 48 | Mr. Marohn has served as President and Chief Executive Officer of the Company since December 12, 2017, as the Corporate Secretary since March 1, | |||||||||||||
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| Company) since January 2014. Between August 2011 and November 2013, Mr. Marohn was Senior Vice President at TMX Finance, overseeing its consumer loan operations. Until July 2011, he spent 14 years with the Company in various positions, the majority of the time as Senior Vice President. | |||||||||||||||
With over 25 years of experience in the subprime auto finance industry, including | |||||||||||||||
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DIRECTORS CONTINUING IN OFFICE — TERM TO EXPIRE 2020EXPIRES 2023
Name | Age | Principal Occupation And Other Information | ||||
Jeremy Q. Zhu | 47 | Jeremy Q. Zhu has served as a director of the Company since September 2017. Mr. Zhu is the founder, and since December 2016 has been serving as Managing Director, of Sepulveda Management, LLC (“TCW Sepulveda”), previously known as Wedbush Opportunity Capital, LLC (“Wedbush”). TCW Sepulveda is an investment management company andSEC-registered investment adviser affiliated with the TCW Group, Inc. Between June 2007 and December 2016, Mr. Zhu served as the Managing Director and Senior Vice President of Wedbush, focusing on strategic growth initiatives, investments and acquisitions. Prior to joining Wedbush in 2003, Mr. Zhu worked at Lehman Brothers Venture Capital Group and CSC Kalchas Group, a strategy consultancy with numerous multinational corporations as clients. Mr. Zhu is currently also a board member of CalWest Bancorp (OTC company) and served as a board member of Community 1st Bancorp until it was sold in November 2017 (OTC company). Mr. Zhu received his Master’s in Engineering at Princeton University and a Bachelor of Science in Engineering at Cornell University. | ||||
The Board believes that Mr. Zhu brings a unique combination of leadership, financial and business analytical experience to the Board due to his extensive involvement within the financial industry and his service as a board member with several banking institutions. | ||||||
DIRECTORS CONTINUING IN OFFICE — TERM TO EXPIRE 2019
| ||||||
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PROPOSAL 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors and Audit Committee recommend the ratification of the appointment of
RSM US LLP as Independent Auditors of the Company for the fiscal year ending March 31, 20192021 and urge each shareholder to vote “FOR” such proposal. Abstentions will not affect the outcome of the vote on this proposal. However, since brokers may exercise discretionary voting power with respect to this proposal, a shareholder’s failure to provide voting instructions will not prevent a broker vote and can therefore affect the outcome of this proposal. Executed and unmarked proxiesProxies in the accompanying form will be voted at the Meeting in favor of suchthis proposal.
Effective July 2, 2018, the Audit Committee engaged RSM US LLP (“RSM”) as independent registered public accounting firm (“Independent Auditors”) to provide certain audit services to the Company, including the audit of the Company’s annual consolidated financial statements and (if required) internal control over financial reporting, quarterly reviews of the condensed consolidated financial statements included in the Company’s Forms10-Q, services performed in connection with filing this Proxy Statement and Information Circular and other reports with the U. S. Securities and Exchange Commission (“SEC”), attendance at meetings with the Audit Committee and consultation on matters relating to accounting, tax and financial reporting for the fiscal year ending March 31, 2019.
Prior to July 2, 2018, Dixon Hughes Goodman LLP provided certain audit services, including the audit of the Company’s annual consolidated financial statements and (if required) internal control over financial reporting, quarterly reviews of the condensed consolidated financial statements included in the Company’s Forms10-Q, services performed in connection with filing proxy statements and information circulars and other reports with the SEC, attendance at meetings with the Audit Committee and consultation on matters relating to accounting, tax and financial reporting for periods prior to the fiscal year ending March 31, 2019. Dixon Hughes Goodman LLP acted as the independent registered public accounting firm for the Company since December 31, 2003.
The Audit Committee has appointed RSM as Independent Auditors of the Company for the fiscal year ending March 31, 2019,2021, and the Board of Directors and Audit Committee propose the ratification of such appointment. If our shareholders do not ratify the appointment of RSM at the Meeting, then the Audit Committee will reconsider its selection of RSM; however, it is not required to change its selection.
No representative of RSM or Dixon Hughes Goodman LLP will be present at the Meeting or available at the Meeting to answer any questions or make any statements with respect to the Company.
Vote Required
Assuming a quorum is present, approval of the ratification of the appointment of RSM as Independent Auditors of the Company for the fiscal year ending March 31, 20192021 requires that a simple majority of the total votes cast with respect to Voting Common Shares present, or represented by proxy, vote in favor of such proposal.
Fees for Audit andNon-Audit Related Matters
No fees were charged by RSM in either fiscal 2018 or fiscal 2017, as no professional services were rendered to the Company by RSM in connection with audit ornon-audit related matters.
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The fees charged by Dixon Hughes GoodmanRSM US LLP for professional services rendered to the Company in connection with all audit andnon-audit related matters were as follows:
| Fiscal Year Ended March 31, | ||||||||
| 2018 | 2017 | |||||||
Audit Fees(1) | $ | 404,000 | $ | 389,000 | ||||
Audit Related Fees(2) | $ | 10,600 | $ | 35,590 | ||||
Tax Fees(3) | $ | 41,850 | $ | 62,997 | ||||
All Other Fees | None | None | ||||||
|
| Fiscal Year Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Audit Fees (1) |
| $ | 515,000 |
|
| $ | 515,000 |
|
Audit Related Fees (2) |
| $ | 57,352 |
|
| $ | 23,427 |
|
All Other Fees |
| None |
|
| None |
| ||
(1) | Audit fees consist of fees for the |
(2) | Audit related fees for the fiscal year ended March 31, |
TheFor the 2020 fiscal year and the 2019 fiscal year, the Audit Committee concluded that Dixon Hughes GoodmanRSM US LLP’s provision of the services described above was compatible with maintaining Dixon Hughes GoodmanRSM US LLP’s independence. The Audit Committeepre-approved all of such services. The Audit Committee has establishedpre-approval policies and procedures with respect to audit and permissiblenon-audit services to be provided by the Independent Auditors.
Policy on Audit CommitteePre-Approval of Audit and PermissibleNon-Audit Services of Independent Auditors
The Audit Committee’s policy is topre-approve all audit and permissiblenon-audit services provided by the Independent Auditors in order to assure that the provision of such services does not impair the auditor’s independence. These services may include audit services, audit-related services, tax services and other services.Pre-approval is generally provided for up to one year and anypre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. Management is required to periodically report to the Audit Committee regarding the extent of services provided by the Independent Auditors in accordance with thispre-approval, and the fees for the services performed to date. During each of the fiscal years ended March 31, 20182020 and 2017,2019, respectively, all services werepre-approved by the Audit Committee in accordance with this policy.
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PROPOSAL 3: ADVISORY VOTE ON COMPENSATION
OF NAMED EXECUTIVE OFFICERS
The Board of Directors recommends a vote “FOR” the approval of the compensation of our named executive officers as disclosed in the Executive Compensation Discussion and Analysis section and the accompanying compensation tables and narrative discussion contained in this Proxy Statement and Information Circular. Abstentions and broker nonvotesnon-votes will not be counted for purposes of determining whether a majority of votes has been cast in favor of this proposal. Proxies solicited by the Board will be voted “FOR” approval of the compensation, unless a shareholder specifies otherwise.
Under legislation that Congress enacted in 2010, our shareholders may approve, on anon-binding, advisory basis, the compensation of our named executive officers as disclosed in accordance with the executive compensation disclosure rules contained in Item 402 of the U.S. Securities and Exchange Commission’s RegulationS-K. Accordingly, we are seeking input from shareholders with this advisory vote on the compensation of our named executive officers. The vote on this proposal is not intended to address any specific element of compensation; rather, the vote relates to the compensation of our named executive officers as disclosed in the Executive Compensation Discussion and Analysis section and the accompanying executive compensation tables and narrative discussion contained in this Proxy Statement and Information Circular. The Company asks that you support the compensation of our named executive officers as so disclosed. Because your vote is advisory, it will not be binding on the Compensation Committee, the Nominating/Corporate Governance Committee, the Board or the Company. However, the Board will review the voting results and take them into consideration when making future decisions regarding executive compensation.
The Company’s compensation philosophy emphasizes pay for performance. The goal is to provide an opportunity for total compensation that is competitive and sufficient to attract and retain executives and is reflective of our overall executive compensation philosophy which is designed to:
We describe the individual elements that make up our total compensation more fully in the Executive Compensation Discussion and Analysis section of this Proxy Statement and Information Circular. We believe our executive compensation programs are structured to support the Company and its business objectives.
Accordingly, for the reasons discussed above, the Board recommends that shareholders vote in favor of the approval of the compensation of our named executive officers as disclosed pursuant to Item 402 of RegulationS-K, including the Executive Compensation Discussion and Analysis section, compensation tables and narrative discussion.
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Vote Required
Assuming a quorum is present, approval of the compensation of our named executive officers requires that a simple majority of the total votes cast with respect to Voting Common Shares present, or represented by proxy, vote in favor of such proposal.
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Committees of the Board of Directors and Meeting Attendance
The Company has not adopted a formal policy that each director must attend each annual general meeting of shareholders, although directors are encouraged to do so. The Company expects all members of the Board to attend the Meeting barring other significant commitments or special circumstances. All of the Company’s Board members attended the Company’s 20172019 Annual General Meeting of Shareholders, except Mr. Royal and Mr. Marohn, who were appointed as directors effective October 17, 2017 and February 8, 2018, respectively.Shareholders. During the Company’s fiscal year ended March 31, 2018,2020, there were 74 meetings of the Board, 4 meetings of the Audit Committee, 1 meeting of the Compensation Committee and 1 meeting of the Nominating/Corporate Governance Committee, and each incumbent director attended at least 75% of the aggregate of (i) the total number of Board meetings held during the period for which he has been a director and (ii) the total number of meetings of all committees of the Board on which he served held during the periods that he served.
The Board of Directors of the Company has the standing committees listed below.
Audit Committee
On April 1, 2004, the Board of Directors established an Audit Committee, which was comprised of three members during the fiscal year ended March 31, 2018. Prior to October 16, 2017, the2020. The committee consistedconsists of Messrs. Hastings (Chair), ZhuRoyal, and Fink and, effective as of such date, Mr. Royal succeeded Mr. Fink and assumed the role of chairperson. The Audit Committee held 4 meetings during the fiscal year ended March 31, 2018.Zhu. The Board has determined that Messrs. Hastings, Royal Hastings and Zhu satisfy the independence requirements of current Securities and Exchange Commission rules and NASDAQ listing standards. The Board also has determined that Mr.each of Messrs. Hastings, qualifiesRoyal and Zhu qualify as an audit committee financial expert as defined under these rules and listing standards.
The Audit Committee assists the Board of Directors with its responsibilities by (A) overseeing the Company’s accounting and financial reporting processes and the audits of the Company’s consolidated financial statements and (B) monitoring (i) the Company’s compliance with legal, risk management and regulatory requirements, (ii) the Company’s independent auditors’ qualifications and independence, (iii) the performance of the Company’s audit function and independent auditors, and (iv) the Company’s systems of internal control with respect to the integrity of financial records, adherence to its policies and compliance with legal requirements. The Audit Committee: has sole responsibility to retain and terminate the Company’s independent auditors, subject to shareholder ratification; has sole authority topre-approve all audit andnon-audit services performed by the Company’s independent auditors and the fees and terms of each engagement; reviews the scope and results of each annual internal audit; and reviews the Company’s audited consolidated financial statements and related public disclosures, earnings press releases and other financial information and earnings guidance provided to analysts or rating agencies. The Audit Committee is governed by a written charter, which sets forth the specific functions and responsibilities of the Audit Committee. A copy of the current Audit Committee charter is available on the Company’s web site.
Compensation Committee
On June 30, 2005, the Board of Directors established a Compensation Committee, which was comprised of three members during the fiscal year ended March 31, 2018. Prior to October 16, 2017, the2020. The committee consistedconsist of Messrs. Zhu (Chair), Hastings and Fink and, effective as of such date, Mr. Royal succeeded Mr. Fink.Royal. The Board has determined that Messrs. Zhu, Hastings and Royal satisfy the independence requirements of current Securities and Exchange Commission rules and NASDAQ listing standards, and that they are“non-employee “non-employee directors” pursuant to Rule16b-3 under the Securities Exchange Act of 1934, as amended, and that they are “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended.
The Compensation Committee held 4 meetings during the fiscal year ended March 31, 2018. The principal responsibilities of the Compensation Committee are to evaluate the performance and approve the compensation of the
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Company’s Chief Executive Officer and other executive officers; prepare an annual report on executive compensation for inclusion in proxy statements of the Company; and oversee the Company’s compensation and benefit plans for key employees andnon-employee directors.
The Compensation Committee reviews and approves corporate goals and objectives relevant to the Company’s Chief Executive Officer’s compensation, evaluates the Chief Executive Officer’s performance in light of these goals and objectives and establishes his compensation levels based on its evaluation. This committee is also responsible for administration of the Nicholas Financial, Inc. Equity Incentive Plan and the Nicholas Financial, Inc. 2015 Omnibus Incentive Plan. The specific functions and responsibilities of the Compensation Committee are set forth in its written charter. A copy of the current Compensation Committee charter is available on the Company’s web site.
The Compensation Committee may designate one or more subcommittees, each of which must consist of two or more members of the Compensation Committee. Each subcommittee will have and may exercise all the powers and authority of the Compensation Committee, to the extent provided in the committee’s resolutions and to the extent not limited by applicable law or listing standard. The Compensation Committee has designated a subcommittee consisting of Messrs. Fink and Hastings and delegated to it the responsibilities of the Board and the Compensation Committee with respect to any compensation that is intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, and to perform other duties delegated from time to time by the Board or the Compensation Committee. Each current member of the Compensation Committee meets the requirements to be considered an “outside director” within the meaning of Section 162(m).
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Nominating/Corporate Governance Committee
On June 30, 2005, the Board of Directors established a Nominating/Corporate Governance Committee, which was comprised of three members during the fiscal year ended March 31, 2018. Prior to October 16, 2017, the2020. The committee consisted of Messrs. HastingsZhu (Chair), ZhuHastings and Fink and, effective as of such date, Mr. Royal succeeded Mr. Fink.Royal.
The Nominating/Corporate Governance Committee held 2 meetings during the fiscal year ended March 31, 2018. The Board has determined that Messrs. Zhu, Hastings, Zhu and Royal satisfy the independence requirements of current NASDAQ listing standards.
The principal functions of the Nominating/Corporate Governance Committee are to: identify, consider and recommend to the Board qualified director nominees for election at the Company’s annual meeting; review and make recommendations on matters involving the general operation of the Board and its committees and recommend to the Board nominees for each committee of the Board; and develop and recommend to the Board the adoption and appropriate revision of the Company’s corporate governance practices. The Nominating/Corporate Governance Committee is governed by a written charter, which is reviewed on an annual basis. A copy of the current Nominating/Corporate Governance Committee charter is available on the Company’s web site.
Nominations of Directors
The entire Board by majority vote selects the director nominees to stand for election at the Company’s annual general meetings of shareholders and to fill vacancies occurring on the Board, based on the recommendations of the Nominating/Corporate Governance Committee. In selecting nominees to recommend to the Board to stand for election as directors, the Nominating/Corporate Governance Committee will examine each director nominee on acase-by-case basis regardless of who recommended the nominee and take into account all factors it considers appropriate. While the Nominating/Corporate Governance Committee does not have a formal policy relating specifically to the consideration of diversity in its process to select and evaluate director nominees, the Committee does consider diversity as part of its overall evaluation of candidates for director nominees. Specifically, the Company’s Corporate Governance Policies provide that the
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selection of potential directors should be based on all factors the Nominating/Corporate Governance Committee and the Board consider appropriate, which include issues of diversity, age, background and training, business or administrative experience or skills, dedication and commitment, business judgment, analytical skills, problem-solving abilities and familiarity with regulatory environment. To this end, the Nominating/Corporate Governance Committee believes that the following minimum qualifications must be met by a director nominee to be recommended to stand for election as director:
The Nominating/Corporate Governance Committee may use various sources for identifying and evaluating nominees for directors, including referrals from the Company’s current directors, management and shareholders. The Nominating/Corporate Governance Committee will review the resume and qualifications of each candidate identified through any of the sources referenced above, and determine whether the candidate would add value to the Board. With respect to candidates thatwho are determined by the Nominating/Corporate Governance Committee to be potential nominees, one or more members of the committee will contact such candidates to determine the candidate’s general availability and interest in serving. Once it is determined that a candidate is a good prospect, the candidate will be invited to meet with the full Nominating/Corporate Governance Committee, which will conduct a personal interview with the candidate. During the interview, the committee will evaluate whether the candidate meets the guidelines and criteria adopted by the Board as well as exploringexplore any special or unique qualifications, expertise and experience offered by the candidate and how such qualifications, expertise and/or experience may complement that of existing Board members. If the candidate is approved by the Nominating/Corporate Governance Committee as a result of the committee’s determination that the candidate will be able to add value to the Board and the candidate expresses his or her interest in serving on the Board, the committee will then review its conclusions with the Board and recommend that the candidate be selected by the Board to stand for election by the shareholders or fill a vacancy or newly created position on the Board.
Pursuant to the Nominating/Corporate Governance Committee charter as currently in effect, the committee will investigate and consider shareholder recommendations for director nominations submitted in writing by a shareholder (or group of shareholders) owning 5% or more of the Company’s outstanding Common Shares for at least one year. Recommendations for director nominees to be considered by the Nominating/Corporate Governance Committee, including recommendations from shareholders of the Company, should be sent in writing, together with a description of each proposed nominee’s qualifications and other relevant biographical information concerning such proposed nominee, to the Nominating/Corporate Governance Committee of the Board of Directors, care of the Secretary of the Company, at the Company’s headquarters, and must be received at least 120 days prior to the anniversary date of the release of the proxy statement relating to the prior year’s Annual General Meeting of Shareholders.
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Please refer to the section “Shareholder Proposals” for the deadlines by which shareholders must submit shareholder proposals under Rule14a-8 under the Securities Exchange Act of 1934, as amended, and outside of Rule14a-8.
Leadership Structure and Role in Risk Oversight
From July 1, 2014 until July 26, 2017, Mr. Finkenbrink had served as both our Chief Executive Officer, or CEO, and Chairman of the Board. Effective July 26, 2017, Mr. Finkenbrink resigned from the Board. The Board accepted such resignation and appointed Mr. Hastings to serve as Chairman of the Board. Mr. Finkenbrink resigned as CEO effective as of September 30, 2017, and Mr. Marohn became CEO of the Company effective as of December 12, 2017 and has served as a director since January 8, 2018. On July 26, 2017, the Board appointed Mr. Hastings to serve as Chairman of the Board. Effective January 17, 2019, the Board appointed Mr. Royal to serve as the Chairman of the Board.
Our Board does not have a policy on whether or not the roles of CEO and Chairman should be separate; indeed, the Board has the authority to choose its Chairman in any way it deems best for our Company at any given point in time. Accordingly, our Board reserves the right to vest the responsibilities of the CEO and Chairman in the same person or in two different individuals, depending upon what it believes is in the best interests of the Company at that time. DuringAt the current time, of CEO transition, the Board believes that it is most effective for the roles of CEO and Chairman to be separated in order to ensure continuity in leadership and sound oversight of the transition process.oversight.
Our Board, and, in particular, the Audit Committee are involved on an ongoing basis in the general oversight of our material identified enterprise-related risks. Our Chief Executive Officer and Chief Financial Officer, with input as appropriate from other appropriate management members, reports and provides relevant information directly to either our Board and/or the Audit Committee on various types of identified material financial, reputational, legal and business risks to which we are or may be subject, as well as mitigation strategies for certain key identified material risks. Our Board’s and Audit Committee’s roles in our risk oversight process have not affected our Board leadership structure.
Anti-Hedging Policy
The Company’s Insider Trading Policy prohibits any hedging transactions with respect to the Company’s securities.
Director Independence
In accordance, with NASDAQ rules, the Board has determined that Messrs. Royal, Hastings, and Zhu, collectively representing a majority of members of our Board, are independent directors in that they do not have any relationships with the Company and its businesses that would impair their independence.
Communications with Board of Directors
Shareholders may communicate with the full Board or individual directors by submitting such communications in writing to Nicholas Financial, Inc., Attention: Board of Directors (or the individual director(s)), 2454 McMullen Booth Road, Building C, Clearwater, Florida 33759. Such communications will be delivered directly to the appropriate director(s).
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Report of the Audit Committee(1)
The Audit Committee (the “Committee”) oversees the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the consolidated financial statements and the reporting process including the systems of internal controls. In fulfilling its oversight responsibilities, the Committee reviewed the audited consolidated financial statements in the Annual Report with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the consolidated financial statements.
The Committee reviewed with the Company’s Independent Auditors, who are responsible for expressing an opinion on the conformity of those audited consolidated financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the Committee under standards of the Public Company Accounting Oversight Board. The Audit Committee also discussed with the Company’s Independent Auditors matters related to the financial reporting process required to be discussed by Auditing Standard No. 16 as adopted by the Public Company Accounting Oversight Board. In addition, the Audit Committee has received the written disclosures and the letter from the Independent Auditors required by Rule 3526 of the Public Company Accounting Standards Board, as currently in effect, and the Audit Committee discussed with the Independent Auditors that firm’s independence and considered the compatibility ofnon-audit services with the Independent Auditors’ independence.
The Committee discussed with the Company’s Independent Auditors the overall scope and plans for their audit. The Committee meets with the Independent Auditors, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting.
In reliance on the reviews and discussions referred to above, the Committee recommended to the Board of Directors (and the Board has approved) that the audited consolidated financial statements be included in the Annual Report for filing with the Commission. The Committee also appointed RSM US LLP as the Company’s Independent Auditors for the fiscal year ending March 31, 2019.2021.
Robin J. Hastings, Audit Committee Chair
Jeffrey C. Royal, Audit Committee Chair
Robin J. Hastings, Audit Committee Member
Jeremy Q. Zhu, Audit Committee Member
July 6, 201824, 2020
(1) | The foregoing report of the Audit Committee does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent the Company specifically incorporates such report by reference therein. |
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EXECUTIVE OFFICERS AND COMPENSATION
The Company currently has two (2) executive officers: Douglas Marohn, President, Chief Executive Officer and Corporate Secretary and Kelly M. Malson,Irina Nashtatik, Chief Financial Officer. For additional information regarding Mr. Marohn, see “Proposal 1: Election of Directors” above. Additionally, the Company has one (1) former executive officer Kelly M. Malson, Chief Financial Officer. By letter dated October 28, 2019, Ms. Malson and the Company agreed on, and on October 29, 2019, the Board of Directors of the Company (the “Board” formally ratified, November 15, 2019 as Ms. Malson’s last day of employment with the Company (the “Separation Date”).
Ms. Nashtatik, age 39, joined the Company as Controller in March 2018. Ms. Nashtatik was promoted to Vice President of Finance in August 2019 and continued in the position until November 2019. She continued Controller’s duties and the new position covered the daily management of the credit facility and custodial administration of it. She was further promoted to the interim Chief Financial Officer in November 2019. On July 7, 2020, Ms. Nashtatik was appointed as of Chief Financial Officer for the Company. Prior to joining the Company, she held several leadership positions in accounting, finance, and treasury at Bankers Financial Corporate, USAmeriBank, and Jabil Circuit, Inc. Ms. Nashtatik earned M.B.A. from the University of Florida, B.S. in Accounting from the University of South Florida, and B.S. in Economics from the State University Higher School of Economics. She is a Certified Public Accountant (CPA) and a Certified Treasury Professional (CTP).
Ms. Malson, age 48,49, joined the Company as Chief Financial Officer in June 2018. Ms. Malson has been serving on Conn’s, Inc. as a Board member (since August 2012), member of the Audit Committee (since November 2012, including as chair between November 2012 and May 2018)2019) and member of the Nominating and Corporate Governance Committee (since December 2015) of Conn’s, Inc.. Ms. Malson previously served as Senior Vice President, Chief Financial Officer and Treasurer of World Acceptance Corporation from May 2009 until stepping down from those positions in December 2013. She remained employed by World Acceptance Corporation from December 2013 until her retirement in February 2014. Prior to that, she held the titles of Vice President and Chief Financial Officer from March 2006 until May 2009 and Vice President of Internal Audit from September 2005 to March 2006 at World Acceptance Corporation. Ms. Malson served as Finance Compliance Manager for ITRON, Inc.’s IEM Unit from 2004 to 2005. Prior to 2004, she served in various positions with KPMG, LLP and Arthur Andersen LLP. Ms. Malson obtained her Bachelor’s Degreebachelor’s degree in Accountancy from Southern Illinois University in 1993.
Executive Compensation Discussion and Analysis
Overview of Executive Compensation Philosophy
The primary objectives of the Compensation Committee of the Company’s Board of Directors with respect to executive compensation are to attract, motivate and retain the best executive talent available and to align the Company’s executive compensation structure with shareholder value creation. More specifically, the Compensation Committee believes that executive compensation should:
Role of the Compensation Committee
The Compensation Committee is responsible for:
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Through this process, the Committee reviews and determines all aspects of compensation for the Named Executive Officers (as defined below) of the Company.
The Named Executive Officers of the Company during the fiscal year ended March 31, 2018 were:
are:
Douglas Marohn, President, CEO and Corporate Secretary; and
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• | Kelly M. Malson, former Chief Financial Officer (through November 15, 2019). |
As noted above, Mr. Finkenbrink’s employment with the Company terminated on September 30, 2017, Mr. Bates’ employment with the Company terminated on July 2, 2018, and Ms. MacGillivary’s employment with the Company terminated on February 12, 2018. Mr. Steinorth ceased to be Interim Chief Financial Officer effective June 20, 2018.
Process for Determining Executive Compensation
The Compensation Committee is responsible for establishing and monitoring adherence to the Company’s compensation programs. When setting executive compensation, the Compensation Committee applies a consistent approach for all Named Executive Officers. It intends that the combination of elements of executive compensation closely align the executives’ interest with those of the Company’s shareholders. Target total compensation is generally comprised of base salary, annual cash bonus and incentive compensation in the form of equity grants. The Compensation Committee reviews and adjusts executive target total compensation levels annually, and approves the base salary, annual cash bonus and incentive equity awards for each Named Executive Officer.
The Compensation Committee currently initiates the compensation process, seeking input and information from the CEO and the full Board of Directors before finalizing any salary increases, employment contracts, bonus plans or long-term incentive equity awards for Named Executive Officers. In considering the appropriate compensation for each of the Named Executive Officers, the Compensation Committee takes into consideration, among other things, the CEO’s recommendations, the executive pay for executive officers in comparable positions for companies in the Company’s peer group, the level of inherent risk associated with the position, the specific circumstances of the executive, and the advisory votes of the Company’s shareholders with respect to the compensation of the Named Executive Officer for prior fiscal years. In addition, in May 2016, theThe Compensation Committee directly retained Frederic W. Cook & Co., Inc. as an independenthas developed a compensation consultant to, among other things, review the design of the Company’s executive and director compensation programs and make recommendations on the basis ofplan that review in order toit believes will achieve the following objectives:
The Compensation Committee has reviewed the aggregate amounts and mix of all components of the Named Executive Officers’ compensation, including base salary, annual cash bonus, equity incentive compensation, accumulated
20
(realized (realized and unrealized) stock option and restricted stock gains, the value to the executive and cost to the Company of all perquisites and other personal benefits and the actual projected payout obligations for severance andchange-in-control scenarios. A tally sheet setting forth all the above components was prepared affixing dollar amounts under the various payout scenarios for the Named Executive Officer and was reviewed by the Compensation Committee.
Compensation Components
The Company’s executive compensation program currently consists of three key elements: base salary, annual incentive bonus and equity incentive compensation.
Base Salary
The Compensation Committee establishes base salaries for the Company’s Named Executive Officers based on the scope of their responsibilities, taking into account competitive market compensation paid by other companies in the Company’s peer group for similar positions. Generally, the Compensation Committee believes that executive base salaries should be targeted near the median of the range of salaries for executives in similar positions and with similar responsibilities at comparable companies in line with our compensation philosophy.
Base salaries are reviewed annually and may be adjusted to realign salaries with market levels after taking into account individual responsibilities, performance and experience.
The annual base salaries for Mr. Marohn, the Company’s current President, CEO and Corporate Secretary, Mr. Finkenbrink,Ms. Nashtatik, the Company’s former CEO, Mr. Bates, the Company’s former Senior Vice President – Branch Operations, Ms. MacGillivary, the Company’s former Vice President, Chief Financial Officer and Corporate Secretary, and Mr. Steinorth,Ms. Malson, the Company’s former Interim Chief Financial Officer, for the fiscal year ended March 31, 20182020 (“Fiscal 2018”2020”) were $350,000, $385,000, $260,000, $195,000$140,000 and $150,000,$250,000, respectively. The annual base salary for Ms. Malson, the Company’s current Chief Financial Officer, is $250,000.
The Compensation Committee has determined to maintain annual base salary for Mr. Marohn at the same level for the fiscal year ending March 31, 2019.2021. The annual base salary for Ms. Nashtatik has been increased to $180,000, for the fiscal year ending March 31, 2021. The Compensation Committee believes that the base salaries of the Company’s Named Executive Officers still serving the Company are generally competitive at the median salary ranges observed at comparable companies.
16
Fiscal 2018
Pursuant to the terms of his employment agreement, Mr. Marohn received a guaranteed cash bonus of $30,000 for Fiscal 2018. None of the other Named Executive Officers received any incentive bonuses for Fiscal 2018.
Fiscal 20192020 – 2022: Milestone Bonuses
Pursuant to their employment agreements, Mr. Marohn and Ms. Nashtatik are, and Ms. Malson will bewas (prior to the Separation Date), entitled to receive an annualnon-discretionary, or performance-based, cash bonus (a “Milestone Bonus”) based on the operating margin achieved by the Company in thatthe relevant fiscal year compared to the relevant target operating margin set forth below. For these purposes, operating margin is defined as operating income before income taxes divided by interest and fee income on finance receivables, adjusted in the sole discretion of the Compensation Committee, including without limitation for the following items: 1) changes resulting from a FASB Accounting Pronouncement, 2) dividends, 3) gain on sale and 4) provision for credit losses if less than charge-offs.
|
| Fiscal year ending March 31, |
| ||||||
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
Target Operating Margin |
| 12.5% |
|
| 12.5% |
|
| 20.0% |
|
21
The target operating margins are as follows:
Fiscal yearIn connection with his entering into a new employment agreement effective July 8, 2020, Mr. Marohn’s Target Operating Margin for fiscal years ending March 31, 2019: 7.5%2021 and 2022 was reduced from 20% and 30%, respectively, primarily as the result of the anticipated effects of the COVID-19 pandemic on the Company’s business. The same Target Operating Margin was adopted for Ms. Nashtatik’s employment agreement effective July 7, 2020.
FiscalNo Milestone Bonuses were paid for the fiscal year ended March 31, 2020.
For the fiscal years ending March 31, 2020: 12.5%
Fiscal year ending March 31, 2021: 20%
Fiscal year ending March 31, 2022: 30%
If2021 and 2022, if less than 80% of the target operating margin is achieved, no milestone bonusMilestone Bonus will be earned. If 80% or more of the target operating margin is achieved, the milestone bonusMilestone Bonus will equal the percentage of the target margin achieved multiplied by $150,000 for Mr. Marohn and by $75,000 for Ms. Malson.
For the fiscal year ending March 31, 2019, the minimum bonuses payable to Mr. Marohn and Ms. Malson are $50,000 and $35,000, respectively, pursuant to their employment agreements.Nashtatik.
For the fiscal years ending March 31, 2021 and March 31, 2022, Mr. Marohn and Ms. Malson will receive a bonus equal to the greater of theirhis Milestone Bonus and the sum of the cash component and the restricted stock component of theirhis Long-Term Bonus with respect to such fiscal years as described below.
For the fiscal years ending March 31, 2021 and 2022, Ms. Nashtatik will receive a bonus equal to the Milestone Bonus with respect to such fiscal years as described above.
Fiscal 2021 – 2022: Long-Term Bonuses
For each of the fiscal years ending March 31, 2021 and 2022, Mr. Marohn and Ms. Malson will be entitled to receive a bonus (a “Long-Term Bonus”) based on the three-year rolling average annual growth in tangible book value per share over the three immediately preceding fiscal years, adjusted in the sole discretion of the Compensation Committee, including without limitation for the following items: 1) changes resulting from a FASB Accounting Pronouncement, 2) sharebuy-backs, 3) dividends, 4) stock splits, 5) gain on sale and 6) provision for credit losses if less than charge-offs.
The Long-Term Bonus consists of two components: a cash component and a restricted stock component (valued at the average closing price of the common stock over the 90 calendar days immediately preceding the final day of the fiscal year with respect to which the bonus is calculated), and will be calculated based on the table below:following table:
|
| |
3-Year Rolling Average Annual Growth in Tangible Book Value per Share |
| Cash Component (As % of Base Salary for Determination Year) |
|
| Restricted Stock Component (As % of Base Salary for Determination Year) |
|
Below 6% |
| 0% |
|
| 0% |
|
6 - 8% |
| 40% |
|
| 40% |
|
8 - 10% |
| 60% |
|
| 60% |
|
10 - 12% |
| 100% |
|
| 100% |
|
12 - 14% |
| 150% |
|
| 150% |
|
15 - 18% |
| 200% |
|
| 200% |
|
Above 18% |
| Discretionary |
|
| Discretionary |
|
17
For each fiscal year, the Compensation Committee retains sole discretion to pay each of Mr. Marohn and Ms. Malson an additional bonus of up to 50% of actual salary earned for such fiscal year.
On May 14, 2019, the Compensation Committee approved a special cash incentive for Mr. Marohn ($60,000) and Ms. Malson ($10,833) for retention and motivation purposes during our business turnaround. It was based, in part, on the criticality of their respective roles in executing our business turnaround strategies, and the leadership characteristics these individuals have displayed and continue to display in recruiting other highly talented managers in their respective disciplines. The Compensation Committee also considered that management successfully completed a new senior secured credit facility collateralized by customer financed receivables, a system conversion, and an asset acquisition. The Committee considered that with the exclusion of the expense related to branch closures and changing the charge-off policy to 120 days, the Company would have had a profitable year. Future special cash awards will be based on the performance of the Company, but the Compensation Committee wanted to recognize management’s effort and performance in putting the Company on a path to profitability.
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Equity Incentive Compensation
The Compensation Committee believes that stock-based awards promote the long-term growth and profitability of the Company by providing executive officers of the Company with incentives to improve shareholder value and contribute to the success of the Company and by enabling the Company to attract, retain and reward the best available persons for executive officer positions.
Prior to August 13, 2015, the Company maintained the Nicholas Financial, Inc. Equity Incentive Plan (the “Equity Plan”). The Equity Plan was terminated on August 13, 2015. While no new awards have been granted under the Equity Plan since that date, awards previously granted under such plan, including awards granted to the Named Executive Officers, remain outstanding. Effective August 13, 2015, the Company adopted the Nicholas Financial, Inc. 2015 Omnibus Incentive Plan (the “Omnibus Incentive Plan” or “Plan”). The Omnibus Incentive Plan allows for the grant of equity awards and cash incentive awards to eligible individuals, with up to 750,000 Common Shares reserved for the grant of equity awards under the Plan. The administrator of the Omnibus Incentive Plan (currently the Compensation Committee of our Board of Directors) (the “Administrator”) may designate any of the following as a participant from time to time, to the extent of the Administrator’s authority: any officer or other employee of the Company or its affiliates (including the Named Executive Officers); any individual whowhom the Company or one of its affiliates has engaged to become an officer or employee; any consultant or advisor who provides services to the Company or its affiliates; or any director, including anon-employee director. Currently, the persons eligible to participate in the Plan consist of approximately 307 employees and threenon-employee directors. A more detailed description of the Equity Plan can be found below under the heading “Summary of Equity Plan” beginning on page 38.. A more detailed description of the Omnibus Incentive Plan can be found below under the heading “Summary“Summary of Omnibus Incentive Plan” beginning on page 38..
The employment agreements with Mr. Marohn and Ms. Nashtatik provide, and the employment agreement with Ms. Malson provideprovided, for a stock purchase matching program (the “Matching Program”), pursuant to which during the first twelve months of such executive officer’s employment, the Company will matchmatches 100% of the Company’s common stock purchased by such executive officer with restricted shares of common stock vesting three years after issuance. The amount of stock issuable under the Matching Program is capped at $500,000 in the aggregate under Mr. Marohn’s employment agreement and at $250,000$100,000 in the aggregate under Ms. Nashtatik’s employment agreement, and $62,500was capped at $375,000 in any three-month periodaggregate under Ms. Malson’s employment agreement.
Fiscal 20182020 Equity Awards
The equity awards granted in Fiscal 2020 to the Named Executive Officers under the Omnibus Incentive Plan for Fiscal 2018 consist solely of awards of time-vested stock.
On June 22, 2017, the Compensation Committee awarded the following number of shares of restricted stock together with dividend equivalents, if applicable, under the Omnibus Incentive Plan: Mr. Bates: 8,344, which were forfeited upon his termination date of July 2, 2018 and Ms. MacGillivary: 6,135, which were forfeited upon her termination date of February 12, 2018. Pursuant to the Matching Program, during fiscal 2020 Mr. Marohn was issued 2,65015,725 shares of restricted stock. Ms. Malson was issued 6,077 shares of restricted stock, on February 14, 2018 and 5,629(which were forfeiture back to the Company). No shares of restricted stock on March 7, 2018, matching purchases ofwere issued under the Company’s common stock made by Mr. Marohn on such dates.Matching Program to Ms. Nashtatik.
Messrs. Finkenbrink and Steinorth did not receive any equity awards for Fiscal 2018.
Stock Ownership Requirements
Beginning on March 31, 2023, under the terms of their respective employment agreements and for so long as they remain employed by the Company, the Chief Executive Officer and the Chief Financial Officer are required to maintain
23
ownership of common stock with a fair market value equal to at least 500% and 300%200%, respectively, of his or her then-effective annual salary. If at any time after March 31, 2023 ownership of the Company’s common stock’s fair market value falls below the stock ownership thresholds, due solely to a decline in the fair market value of the Company’s common stock, they will not be required to acquire additional shares to meet the stock ownership threshold, but will be required to retain all shares then held (except for shares withheld to pay withholding taxes) until such time as they again attain the stock ownership thresholds.
Change of Control
The Company has change of control provisions in its employment agreements with its two current executive officersNamed Executive Officers (Mr. Marohn, Ms. Nashtatik and Ms. Malson), the Equity Plan and the Omnibus Incentive Plan (including under the Performance Unit Program). The Company has no additional change of control contracts or arrangements with any of its current executive officers. The Company had change of control provisions in itsNamed Executive Officers. On December
18
5, 2018, Ms. Malson entered into her employment agreements with Messrs. Finkenbrink and Bates andagreement. On July 7, 2020, Ms. MacGillivary. TheNashtatik entered into her employment agreement withagreement. On July 8, 2020, Mr. Marohn was entered into in December 2017, and thea new employment agreement with Ms. Malson was entered into in May 2018.agreement. For further information regarding these employment agreements, see “Potential Payments Upon Termination or a Change of Control – Employment Agreements” beginning on page 30 and “Summary“Summary of Employment Agreements With Named Executive Officers” beginning on page 36..
The change of control provisions in the plans and the employment agreements are designed to make a change of control transaction neutral to the economic interests of employees that might be involved in considering such a transaction. The employees subject to these provisions would likely not be in a position to influence the Company’s performance after a change of control or may not be in a position to earn their incentive awards or vest in their equity awards after a change of control. Thus, the provisions are meant to encourage employees that may be involved in considering a change of control transaction to act in the interests of the Company’s shareholders rather than their own interests.
The change of control provisions in the employment agreements with Named Executive Officers and under the Performance Unit Program are described starting on page 30 under “Potential Payments Upon Termination or a Change of Control – Employment Agreements” and “ –“– Equity Incentive Plans”.” Generally, the Company’s equity compensation plans provide that restricted stock, restricted stock units and performance units will vest in full, and options to purchase Common Shares will become immediately exercisable, either upon a change of control if the successor company does not assume or replace the award, or upon termination of employment without cause within one year after a change of control.
The Compensation Committee believes that the provisions provided for under both ourthe Named Executive Officers’ employment agreements and equity compensation plans are appropriate since an employee’s position could be adversely affected by a change of control even if he or she is not terminated. Our equity compensation plans provide, however, that the Compensation Committee may determine in advance of the change of control event that the provisions would not apply and therefore no accelerated vesting would occur.
Other Compensation
Consistent with the Compensation Committee’spay-for-performance compensation philosophy, the Company intends to continue to maintain modest executive benefits and perquisites for executive officers; however, the Compensation Committee, in its discretion, may revise, amend or add to the officer’s executive benefits and perquisites if it deems it advisable. The Compensation Committee believes these benefits and perquisites are currently at or below median competitive levels for companies in the Company’s peer group. The Company does not provide pension arrangements, post-retirement health coverage, or similar benefits for its executives or employees.
The following table generally illustrates the benefit plans and perquisites that the Company does and does not provide and identifies those employees who may be eligible to receive them. Perquisites for the Named Executive Officers are detailed in the footnotes to the Summary Compensation Table.
24
Perquisites and Employee Benefits | Executive Officers | Full-Time Employees | ||||
401(k) Plan(1) | ✓ | ✓ | ||||
Medical/Dental Plans(2) | ✓ | ✓ | ||||
Life Insurance(3) | ✓ | ✓ | ||||
Long Term Disability Plan(4) | ✓ | ✓ | ||||
Short Term Disability Plan(5) | ✓ | ✓ | ||||
Company Paid Trips(6) | ✓ | ✓ | ||||
Company Owned Vehicle(7) | Not Offered | ✓ | ||||
Club Memberships | Not Offered | Not Offered | ||||
Change in Control and Severance Plan( | ✓ | Not Offered | ||||
Deferred Compensation Plan | Not Offered | Not Offered | ||||
Supplemental Early Retirement Plan | Not Offered | Not Offered | ||||
Employee Stock Ownership Plan | Not Offered | Not Offered | ||||
Defined Benefit Pension Plan | Not Offered | Not Offered |
1 | Eligible employees, including the Company’s executive officers, are able to participate in the Company’s 401(k) Plan. The 401(k) Plan permits participants to make 401(k) contributions on a pretax andpost-tax (Roth) basis. All employees of the Company and its subsidiaries who are at least age 21 are eligible to participate in the 401(k) Plan on the first day of the month following the completion of 60 days of service. Participants can contribute up to 60% of theirpre-tax orpost-tax compensation to the 401(k) Plan annually, subject to certain legal limitations. Neither the Company nor any of its subsidiaries made any matching contributions in Fiscal |
19
Vision insurance is also offered to all of its full-time employees, including the Named Executive Officers. The employee is responsible for 100% of the applicable premium. |
3 | The Company provides all full-time employees, including the Named Executive Officers, with a $10,000 term life insurance policy. The premium for this coverage is paid entirely by the Company. |
4 | The Company provides all full-time employees, including the Named Executive Officers, long-term disability insurance with a monthly benefit in the amount of 60% of monthly salary up to a maximum of $10,000 per month. The premium for this coverage is paid entirely by the Company after one year of employment with the Company. |
5 | The Company offers short-term disability insurance coverage to all of its full-time employees, including the Named Executive Officers. The employee is responsible for 100% of the applicable premium. |
6 | The Company maintains an annual sales contest that rewards certain employees with a trip at Company expense. All of the Named Executive Officers participate in this program. |
7 | The Company provides Company vehicles to its branch managers, regional managers and other key personnel. Effective December 2017, the Company ceased providing Company vehicles to its Named Executive Officers. |
8 |
The Company’s employment agreements with the Named Executive Officers provide for certain change of control and severance benefits as described elsewhere in this Proxy Statement and Information Circular. |
25
Policy Regarding Retroactive Adjustments
Section 304 of the Sarbanes-Oxley Act of 2002 authorizes a company to claw back certain incentive-based compensation and stock profits of the Chief Executive Officer and Chief Financial Officer if the company is required to prepare an accounting restatement due to the material noncompliance of the company, as a result of misconduct, with any financial reporting requirement under the securities laws. The Compensation Committee does not otherwise have a formal policy regarding whether the Committee will make retroactive adjustments to, or attempt to recover, cash or share-based incentive compensation granted or paid to executive officers in which the payment was predicated upon the achievement of certain financial results that are subsequently the subject of a restatement. The Committee may seek to recover any amount determined to have been inappropriately received by the individual executive to the extent permitted by applicable law.
Tax, Accounting and Other Considerations
Section 162(m) of the Internal Revenue Code (Code) places a limit of 1986, as amended (the “Code”), limits$1,000,000 on the Company’s deductionamount of annual compensation paidthat we may deduct in any given year with respect to the Named Executive OfficersCEO and certain of our other most highly paid executive officers. There was an exception to $1 million per employee, unless the $1,000,000 limitation prior to calendar year 2018 for performance-based compensation meetsmeeting certain specificrequirements. Our stock option awards and performance-based restricted stock unit awards generally are performance-based compensation meeting those requirements and, as such, were typically fully deductible. Performance-based cash bonus compensation awards under our Management Incentive Compensation Program were also possibly tax deductible. Our annual base salary and time-based restricted stock units are generally subject to qualify asthe Section 162(m) deduction limitations. As a result of the Tax Cut and Jobs Act, the performance-based compensation. Theexception to Section 162(m) has been eliminated, resulting in the foregoing performance compensation in excess of $1,000,000 in calendar year 2018 or later generally not being deductible for the Company, subject to the transition rule for plans and agreements in place on November 2, 2017. To maintain flexibility in compensating executive officers in view of the overall objectives of our compensation program, the Compensation Committee has considered the Company’s ability to deduct from taxable income certain performance -basednot adopted a policy requiring that all compensation under Section 162(m) of the Code. At the current compensation levels in effect for the Named Executive Officers,be tax deductibility under Section 162(m) was not a determinative factor in the design of the Company’s compensation program.
Section 280G of the Code limits the Company’s ability to take a tax deduction for certain “excess parachute payments” (as defined in Code Section 280G) paid in connection with a change in control transaction, and Section 4999 of the Code imposes excise taxes on certain executives who receive “excess parachute payments.” The Compensation Committee considers the adverse tax liabilities imposed by Code Sections 280G and 4999, as well as other competitive factors, when it designs and implements arrangements that may be triggered upon a change in control for all potentially affected employees, including the Company’s Named Executive Officers.
Various rules under generally accepted accounting principles determine the extent to which and the manner in which the Company accounts for grants under its long-term equity incentive plans in its financial statements. The Compensation Committee takes into consideration the accounting treatment under Financial Accounting Standards Board (“FASB”) Accounting Standards Classification (“ASC”) Topic 718, “Stock Compensation” (formerly, FAS 123(R)) (“ASC Topic 718”), when determining the types of and value of grants under its long-term equity incentive plans for all employees, including the Company’s Named Executive Officers. The accounting treatment of such grants, however, is not determinative of the type, timing, or amount of any particular grant of equity-based compensation to the Company’s employees.deductible.
Compensation Committee Report
The Compensation Committee of the Board of Directors has reviewed and discussed the foregoing “Executive Compensation Discussion and Analysis” with management of the Company and, based upon such review and discussion, has recommended to the Board that the “Executive Compensation Discussion and Analysis” be included in this Proxy Statement and Information Circular for incorporation by reference into the Company’s Annual Report on Form10-K for the fiscal year ended March 31, 2018.2019.
Jeremy Zhu, Compensation Committee Chair
Robin J. Hastings, Compensation Committee Member
Jeffrey Royal, Compensation Committee Member
July 6, 201824, 2020
26
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended March 31, 2018,No member of the Compensation Committee was comprised, until October 16, 2017, of Messrs. Zhu, Hastings and Fink, and effective October 16, 2017, of Messrs. Zhu, Hastings and Royal, none of whom is, or ever has been, an employee orexecutive officer of the Company or any of its subsidiaries, and none of whom during such fiscal year had anyhas a relationship requiring disclosure under Item 404 of RegulationS-K. During the fiscal year ended March 31, 2018, none of the Company’sthat would constitute an interlocking relationship with executive officers served on the boardor directors of directors or compensation committee (or other board committee performing equivalent functions) of any other entity, one of whose executive officers served on the Board of Directors and/or Compensation Committee of the Company.another entity.
20
The following table sets forth for each of the Named Executive Officers: (i) the U.S. dollar value of base salary and bonus earned during each of the fiscal years ended March 31, 2018, 20172020, 2019 and 2016,2018, respectively; (ii) the aggregate grant date fair value (in U.S. dollars) of stock and option awards granted during each of such fiscal years, computed in accordance with ASC Topic 718; (iii) the U.S. dollar value of all other compensation for each of such fiscal years; and (vi) the U.S. dollar value of total compensation for each of such fiscal years.
Name and Principal Position | Fiscal Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | All Other Compen- sation ($) | Total ($) | ||||||||||||||||||||||||
Douglas W. Marohn | 2018 | $ | 106,346 | — | $ | 74,213 | (1) | — | $ | 30,000 | 25,000 | (2) | 235,559 | |||||||||||||||||||
President, Chief Executive Officer and Corporate Secretary | ||||||||||||||||||||||||||||||||
Chad Steinorth | 2018 | $ | 9,808 | — | — | — | — | — | $ | 9,808 | ||||||||||||||||||||||
Former Interim Chief Financial Officer | ||||||||||||||||||||||||||||||||
Ralph T. Finkenbrink | 2018 | $ | 214,945 | — | — | — | — | 1,142 | (4) | $ | 216,087 | |||||||||||||||||||||
Former President and | 2017 | $ | 385,000 | — | $ | 180,471 | (3) | — | $ | 28,971 | $ | 9,200 | (5) | $ | 603,642 | |||||||||||||||||
Chief Executive Officer | 2016 | $ | 375,000 | $ | 32,500 | — | — | — | $ | 9,200 | (5) | $ | 416,700 | |||||||||||||||||||
Kevin D. Bates | 2018 | $ | 260,000 | — | $ | 68,004 | (6) | — | — | 2,400 | (7) | $ | 332,904 | |||||||||||||||||||
Former Senior Vice | 2017 | $ | 260,000 | — | $ | 98,171 | (8) | — | $ | 13,975 | $ | 4,050 | (9) | $ | 376,194 | |||||||||||||||||
President -Branch | 2016 | $ | 250,000 | $ | 25,000 | — | — | — | $ | 4,050 | (9) | $ | 279,050 | |||||||||||||||||||
Operations | ||||||||||||||||||||||||||||||||
Katie L. MacGillivary | 2018 | $ | 174,000 | $ | 50,000 | (10) | — | — | 1,890 | (11) | $ | 225,890 | ||||||||||||||||||||
Former Vice President- | 2017 | $ | 195,000 | — | $ | 72,186 | (12) | — | $ | 10,481 | $ | 4,050 | (13) | $ | 281,717 | |||||||||||||||||
Finance, Chief Financial | 2016 | $ | 175,000 | $ | 17,500 | — | — | — | $ | 1,650 | (14) | $ | 194,150 | |||||||||||||||||||
Officer and Corporate | ||||||||||||||||||||||||||||||||
Secretary | ||||||||||||||||||||||||||||||||
Name and Principal Position |
| Fiscal Year |
| Salary ($) |
|
| Bonus ($) (1) |
|
| Stock Awards ($) (2) |
|
| Option Awards ($) |
|
| Non-Equity Incentive Plan Compensation ($) (3) |
|
| All Other Compensation ($) |
|
| Total ($) |
| |||||||
Douglas W. Marohn |
| 2020 |
| $ | 350,000 |
|
| $ | - |
|
| $ | 160,616 |
|
| $ | - |
|
| $ | 110,000 |
|
| $ | 16,000 |
| (4) | $ | 636,616 |
|
President, Chief Executive Officer, |
| 2019 |
|
| 350,000 |
|
|
| 110,000 |
|
|
| 99,213 |
|
|
| - |
|
|
| 50,000 |
|
|
| 17,606 |
| (4) |
| 626,819 |
|
and Corporate Secretary |
| 2018 |
|
| 106,346 |
|
|
| - |
|
|
| 74,213 |
|
|
| - |
|
|
| 30,000 |
|
|
| 25,000 |
| (6) |
| 235,559 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Irina Nashtatik |
| 2020 |
|
| 138,769 |
|
|
| 12,500 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 151,269 |
|
Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
Kelly M. Malson |
| 2020 |
|
| 132,692 |
| (5) |
| - |
|
|
| - |
|
|
| - |
|
|
| 40,000 |
|
|
| - |
|
|
| 172,692 |
|
Former Chief Financial Officer |
| 2019 |
|
| 197,115 |
|
|
| 10,833 |
|
|
| - |
|
|
| - |
|
|
| 29,167 |
|
|
| 37,830 |
| (6) |
| 274,945 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(1) | For fiscal year 2019, represents two discretionary bonuses awarded to Mr. Marohn and one discretionary bonus awarded to Ms. Malson in recognition of their contributions to the Company’s turnaround objective. For the fiscal year 2020, one discretionary bonus was awarded to Ms. Nashtatik for her contributions to the Company. |
(3) | Represents the minimum bonuses payable to Mr. Marohn and Ms. Malson, pursuant to their employment agreements. |
(4) | Includes health and life insurance premiums. |
(5) | Ms. Malson’s separation date was November 15, 2019. |
(6) | Includes health and life insurance premiums and relocation expense reimbursement. |
CEO Pay Ratio Disclosure
We are providing the following disclosure about the relationship of the annual total compensation of our employees to the annual total compensation of Douglas W. Marohn, our CEO, for fiscal year 2020.
Our CEO to median employee pay-ratio was calculated in accordance with Item 402(u) of Regulation S-K. We identified the median employee by examining 2019 W-2 earnings for all individuals, excluding our CEO, who were employed by us during the entire calendar year ended December 31, 2019. We had approximately 260 employees who were employed during the entire calendar year. We included all employees in the foregoing count, whether employed on a full-time or part-time basis. For those full and part-time associates with less than one year of service and not in temporary or seasonal roles, we annualized W-2 earnings for comparison purposes.
27After identifying the median employee based on W-2 earnings, we calculated annual total compensation of the median employee, in accordance with Item 402(c)(2)(x) of Regulation S-K, as required pursuant to the SEC executive compensation disclosure rules. Additionally, we elected to include the Company-paid portion of health insurance premiums, since it is available to all eligible employees on a nondiscriminatory basis. Our CEO’s compensation for purposes of the pay ratio calculation also includes the Company-paid portion of health insurance premiums. As a result, our CEO’s compensation for purposes of this disclosure differs from his compensation shown in the Summary Compensation Table.
Grants of Plan-Based Awards
The following table sets forth information regarding all plan-based awards that were made to the Named Executive Officers during the fiscal yearyears ended March 31, 20182020, including incentive plan awards (equity-based andnon-equity based) and other plan-based awards. Disclosure on a separate line item is provided for each grant of an award made to a Named Executive Officer during such fiscal year. The information supplements the dollar value disclosure of stock, option andnon-stock awards in the Summary
21
Compensation Table by providing additional details about such awards. Equity incentive-based awards are subject to a performance condition as such term is defined by ASC Topic 718.Non-equity incentive plan awards are not subject to ASC Topic 718 and are intended to serve as an incentive for performance to occur over a specified period.
Name (a) |
| Grant Date (b) |
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| All Other Stock Awards: Number of Shares of Stock or Units (#) (i) |
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| All Other Option Awards: Number of Securities Underlying Options (#) (j)(1) |
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| Exercise or Base Price of Option Awards ($/Sh) (k) |
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| Grant Date Fair Value of Stock and Option Awards ($)(1) |
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Douglas W. Marohn |
| 5/31/2019 |
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| — |
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| 3,500 |
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| — |
|
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| 33,600 |
|
'President, Chief Executive |
| 5/31/2019 |
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| — |
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| 7,500 |
|
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| — |
|
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| 74,700 |
|
Officer and Corporate |
| 6/3/2019 |
|
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| — |
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| 500 |
|
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| — |
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| 4,625 |
|
Secretary |
| 6/11/2019 |
|
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| — |
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| 750 |
|
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| — |
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| 6,960 |
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| 8/13/2019 |
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| — |
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| 3,000 |
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| — |
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| 25,080 |
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| 9/6/2019 |
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| — |
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| 475 |
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| — |
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| 4,351 |
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Kelly M. Malson |
| 4/12/2019 |
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| — |
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| 1,943 |
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| — |
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| 19,372 |
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'Former Chief Financial |
| 5/15/2019 |
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| — |
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| 2,094 |
|
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| — |
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| 18,783 |
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Officer |
| 6/14/2019 |
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| — |
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| 2,040 |
|
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| — |
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| 18,748 |
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| Represents time-vested restricted stock granted under the Matching Program. Under such program, the Company |
No plan-based awards were granted to Ms. Nashtatik in the fiscal year ended March 31, 2020.
28
Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table
For the fiscal year ended March 31, 2018,2020, the executive compensation programs for our Named Executive Officers included some or all of the following:
We include further details regarding these programs, including information on performance criteria and vesting provisions, in the “Executive“Executive Compensation Discussion and Analysis” section beginning on page 19.section. We include further details regarding each Named Executive Officer’s employment agreement (if any) in the “Summary“Summary of Employment Agreements with Executive Officers” section beginning on page 36.section.
Outstanding Equity Awards at FiscalYear-End
The following table sets forth information regarding outstanding option and stock awards held at March 31, 20182020, by the Named Executive Officers, (except Mr. Finkenbrink and Ms. MacGillivary, who did not hold any such awards on such date), including the number of shares underlying both exercisable and unexercisableun-exercisable portions of each stock option, if any, as well as the exercise price and expiration date of each outstanding option.option, if any.
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | |||||||||||||||||||||||||||
Douglas W. Marohn | 8,279 | (1) | $ | 74,213 | (2) | |||||||||||||||||||||||||||||||
| President, Chief Executive Officer and Corporate Secretary | ||||||||||||||||||||||||||||||||||||
Chad Steinorth | ||||||||||||||||||||||||||||||||||||
Former Interim Chief | ||||||||||||||||||||||||||||||||||||
Financial Officer | ||||||||||||||||||||||||||||||||||||
Kevin Bates | 1,500 | $ | 10.96 | 5/9/21 | 6,759 | (4) | $ | 71,848 | (2) | |||||||||||||||||||||||||||
Senior Vice President | 10,000 | $ | 10.87 | 5/3/22 | ||||||||||||||||||||||||||||||||
Branch Operations | 20,000 | 5,000 | (3) | $ | 14.36 | 6/13/24 | ||||||||||||||||||||||||||||||
22
| Option Awards |
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| Stock Awards |
| |||||||||||||||||||||||||||||||
Name |
| Number of Securities Underlying Unexercised Options (#) Exercisable |
|
| Number of Securities Underlying Unexercised Options (#) Unexercisable |
|
| Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
|
| Option Exercise Price ($) |
|
| Option Expiration Date |
|
| Number of Shares or Units of Stock That Have Not Vested (#) |
|
| Market Value of Shares or Units of Stock That Have Not Vested ($) (1) |
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| Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) |
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| Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) |
| |||||||||
Douglas W. Marohn |
|
| — |
|
|
| — |
|
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| — |
|
|
| — |
|
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| — |
|
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| 10,550 |
| (2) | $ | 61,612 |
|
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| — |
|
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| — |
|
'President, Chief |
|
| — |
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| — |
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| — |
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| — |
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| — |
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| 8,279 |
| (3) |
| 48,349 |
|
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| — |
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| — |
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Executive Officer and |
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| 15,725 |
| (4) |
| 91,834 |
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Corporate Secretary |
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29
(1) | The value was determined by multiplying the closing price ($5.84) per Common Share on March 31, 2020 by the number of unvested shares of restricted stock. |
(2) | Represents restricted shares issuable pursuant to the Matching Program, 10,550 shares of which will vest on various dates during fiscal year 2022. |
(3) | Represents restricted shares issuable pursuant to the Matching Program, 2,650 of which will vest on February 14, 2021 and 5,629 of which vest on March 7, 2021. |
(4) | Represents restricted shares issuable pursuant to the |
For the fiscal year ended March 31, 2020, all restricted shares issued under the Matching Program to Ms. Malson were forfeited back to the Company. As of March 31, 2020, Ns. Nashtatik did not have any outstanding equity awards.
Option Exercises and Stock Vested
The following table includes certain information regarding amounts realized by the Named Executive Officers during the fiscal year ended March 31, 20182020 with respect to options exercised. No restricted stock vested for any of the Named Executive Officers.
| Option Awards | Stock Awards | |||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||||||||
Douglas W. Marohn | — | — | — | — | ||||||||||||
President, Chief Executive Officer and Corporate Secretary | ||||||||||||||||
Chad Steinorth | — | — | — | — | ||||||||||||
Former Interim Chief Financial Officer | ||||||||||||||||
Ralph T. Finkenbrink | 57,700 | $ | 262,929 | — | — | |||||||||||
Former President and Chief Executive Officer | ||||||||||||||||
Katie L. MacGillivary | 10,000 | $ | 6,100 | — | — | |||||||||||
Former Vice President – Finance, Chief Financial Officer and Corporate Secretary | ||||||||||||||||
Kevin D. Bates Former Senior Vice President- Branch Operations | 11,000 | $ | 18,150 | — | — | |||||||||||
Option Awards | Stock Awards | |||||||||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||||||||
Douglas W. Marohn | — | — | — | — | ||||||||||||
President, Chief Executive Officer and Corporate Secretary | ||||||||||||||||
Irina Nashtatik | — | — | — | — | ||||||||||||
Current Chief Financial Officer | ||||||||||||||||
Kelly M. Malson | — | — | — | — | ||||||||||||
Former Chief Financial Officer | ||||||||||||||||
Pension Benefits
The Company does not provide pension arrangements or post-retirement health coverage for its executives or employees.
Nonqualified Deferred Compensation
The Company does not provide any nonqualified defined contribution or other nonqualified deferred compensation plans.
Potential Payments Upon Termination or a Change of Control
Employment Agreements
The Company has separate employment agreements with each of its current executive officers Douglas Marohn and Kelly M. Malson. Mr. Marohn’s employment agreement was entered into as of December 12, 2017, and Ms. Malson’s employment agreement was entered into as of May 29, 2018. Mr. Bates had an employment agreement that was entered
30
into as of July 2, 2017. On April 19, 2018, the Company notified Mr. Bates that the term of his employment under such employment agreement would not be renewed at the expiration of its term on July 2, 2018.with Ms. Malson. The payments to be made to these executive officers pursuant to such employment agreements in the event of disability or death, involuntary termination without cause and termination following a change of control are described below.
23
These employment agreements are described in greater detail under “Summary“Summary of Employment Agreements with Executive Officers” beginning on page 36. While the Company also had separate employment agreements in place with Mr. Finkenbrink and Ms. MacGillivary, neither of them was employed by the Company as of March 31, 2018 nor did any of the triggering events discussed in this section occur with respect to them during the year ended March 31, 2018. Their employment agreements are described under “Summary of Employment Agreements with Executive Officers” beginning on page 36.section.
Payments Made Under the Employment Agreements Upon Death or Disability
In the event of the termination of employment due to his or her death or disability, an executive officer will receive only such compensation and other benefits to which he or she was entitled under his or her employment agreement, under the terms of his or her outstanding equity plan awards (as described further below), or otherwise as an employee of the Company through the termination date, including payments of base salary through the calendar month in which such termination occurs.
Payments Made Under the Employment Agreements Upon Termination Without Cause, Constructive Termination or Change of Control
Douglas Marohn
In the event of the termination of Mr. Marohn’s employment (i) by the Company other than for cause (as defined in his employment agreement) or (ii) by Mr. Marohn upon (a) a good faith determination by Mr. Marohn that there has been a material breach of his employment agreement by the Company, (b) a material adverse change in his working conditions or status, (c) a significant relocation of his principal office, or (d) upon or within theone-year period following a change of control, a good faith determination by him that there has been any of the following: a breach of his employment agreement by the Company, any adverse change in his working conditions, status, authority, duties, responsibilities (including reporting other than directly to the Board of Directors) or any requirement that he relocate his principal office to a location that is more than ten miles from the location of his principal office immediately prior to the change of control, then Mr. Marohn will receive the following benefits:
(i) subject to the Section 280G cap described below, aone-time,lump-sum severance payment equal to Mr. Marohn’s annual base salary in effect at the time of such termination,pro-rated for the number of days remaining in the then-current term (or, following a change of control, aone-time,lump-sum severance payment equal to two times Mr. Marohn’s annual base salary in effect at the time of such termination);
(ii) all restricted stock (other than shares under the Matching Program), restricted stock unit awards, stock options and stock appreciation rights will become fully and immediately vested, and shares issued under the Matching Program will become immediately vested as follows:one-third of the shares shall immediately vest if the termination occurs less than one year after the issuance,two-thirds of the shares shall immediately vest if the termination occurs less than two years (but one year or more) after the issuance, and one hundred percent of the shares shall immediately vest if the termination occurs two years or more after the issuance;
(iii) any performance shares, performance units or similar performance-based equity awards will be deemed earned on apro-rated basis according as if all performance requirements had been satisfied at the target level (or such higher level as would have been achieved if performance through the date of the termination of employment had continued through the end of the performance period);
31
(iv) up to eighteen months of benefits continuation; and
(v) up to $15,000 of fees and expenses of consultants and/or legal or accounting advisors.
A “change of control” is defined in the Mr. Marohn’s employment agreement generally as the sale of one hundred percent of the Company or a determination by the Board of Directors of the Company, in view of the then current circumstances or impending events, that a change of control of the Company has occurred or is imminent, which determination shall be made for the specific purpose of triggering the operative provisions of the employment agreement.
If any severance payment, either alone or when added to any other payment or benefit to which Mr. Marohn is entitled from the Company exceeds the amount that may be paid by the Company without a loss of deduction under Section 280G of the Code, then, under the terms of his employment agreement, the severance payment and any other such payment or benefit will be either cut back, to a level below the level that would trigger the loss of deduction, or paid in full and subjected to the loss of deduction and excise taxes, whichever results in the betterafter-tax result to the executive officer.
Kelly M. MalsonIrina Nashtatik
In the event of the termination of Ms. Malson’sNashtatik’s employment (i) by the Company other than for cause (as defined in herhis employment agreement) or (ii) by Ms. MalsonNashtatik upon (a) a good faith determination by Ms. MalsonNashtatik that there has been a material breach of herhis employment agreement by the Company, (b) a material adverse change in herhis working conditions or status, (c) a significant relocation of herhis principal office, or (d) upon or within theone-year period following a change of control, a good faith determination by herhim that there has been any of the following: a breach of herhis employment agreement by the Company, any adverse change in herhis working conditions, status, authority, duties, responsibilities (including reporting other than directly to the Board of Directors) or any requirement that shehe relocate herhis principal office to a location that is more than ten miles from the location of herhis principal office immediately prior to the change of control, then Ms. MalsonNashtatik will receive the following benefits:
24
(i) subject to the Section 280G cap described below, aone-time,lump-sum severance payment equal to Ms. Malson’sMr. Marohn’s annual base salary in effect at the time of such termination,pro-rated for the number of days remaining in the then-current term (or, following a change of control, aone-time,lump-sum severance payment equal Ms. Malson’sto one times Mr. Marohn’s annual base salary in effect at the time of such termination);
(ii) all restricted stock (other than shares under the Matching Program), restricted stock unit awards, stock options and stock appreciation rights will become fully and immediately vested, and shares issued under the Matching Program will become immediately vested as follows:one-third of the shares shall immediately vest if the termination occurs less than one year after the issuance,two-thirds of the shares shall immediately vest if the termination occurs less than two years (but one year or more) after the issuance, and one hundred percent of the shares shall immediately vest if the termination occurs two years or more after the issuance;
(iii) any performance shares, performance units or similar performance-based equity awards will be deemed earned on apro-rated basis according as if all performance requirements had been satisfied at the target level (or such higher level as would have been achieved if performance through the date of the termination of employment had continued through the end of the performance period);
(iv) up to twelve months of benefits continuation; and
(v) up to $7,500 of fees and expenses of consultants and/or legal or accounting advisors.
A “change of control” is defined in the Ms. Malson’sNashtatik’s employment agreement generally as the sale of one hundred percent of the Company or a determination by the Board of Directors of the Company, in view of the then current
32
circumstances or impending events, that a change of control of the Company has occurred or is imminent, which determination shall be made for the specific purpose of triggering the operative provisions of the employment agreement.
If any severance payment, either alone or when added to any other payment or benefit to which Ms. MalsonNashtatik is entitled from the Company exceeds the amount that may be paid by the Company without a loss of deduction under Section 280G of the Code, then, under the terms of herhis employment agreement, the severance payment and any other such payment or benefit will be either cut back, to a level below the level that would trigger the loss of deduction, or paid in full and subjected to the loss of deduction and excise taxes, whichever results in the betterafter-tax result to the executive officer.
Kevin D. BatesKelly M. Malson
Mr. Bates’By letter dated October 28, 2019, Ms. Malson and the Company agreed on, and on October 29, 2019, the Board of Directors of the Company (the “Board” formally ratified, November 15, 2019 as Ms. Malson’s last day of employment with the Company (the “Separation Date”).
Ms. Malson had been subject to an employment agreement. Under that agreement, provided that, in the event of the termination of hisMs. Malson’s employment (i) by the Company other than for cause (as defined in hisher employment agreement) or (ii) by Mr. BatesMs. Malson upon (a) a good faith determination by Mr. BatesMs. Malson that there had been a material breach of hisher employment agreement by the Company, (b) a material adverse change in hisher working conditions or status, (c) a significant relocation of hisher principal office, or (d) upon or within theone-year period following a change of control, a good faith determination by himher that there had been any of the following: a breach of hisher employment agreement by the Company, any adverse change in hisher working conditions, status, authority, duties, responsibilities or any requirement that heshe relocate hisher principal office to a location that iswas more than ten miles from the location of hisher principal office immediately prior to the change of control, then Mr. BatesMs. Malson would have received (subjectthe following benefits:
(i) subject to the Section 280G cap described below)below, aone-time,lump-sum severance payment equal to his or herMs. Malson’s annual base salary in effect at the time of such termination, (or,pro-rated for the number of days remaining in the then-current term(or, following a change of control, thea one-time, lump-sum severance payment equal Ms. Malson’s annual base salary if higher, in effect duringat the 180 days prior to the changetime of control). If such termination of employment occured during theone-yeartermination); period following a change of control, then such Named Executive Officer would also have received the following benefits:
(i)(ii) all restricted stock (other than shares under the Matching Program), restricted stock unit awards, stock options and stock appreciation rights would have become fully and immediately vested;vested, and shares issued under the Matching Program would have become immediately vested as follows: one-third of the shares would have immediately vested if the termination occurred less than one year after the issuance, two-thirds of the shares would have immediately vested if the termination occurred less than two years (but one year or more) after the issuance, and one hundred percent of the shares would have immediately vested if the termination occurred two years or more after the issuance;
(ii)(iii) any performance shares, performance units or similar performance-based equity awards would have been deemed earned on apro-rated basis as if all performance requirements had been satisfied at the target level (or such higher level as would have been achieved if performance through the date of the termination of employment had continued through the end of the performance period);
(iii)(iv) up to 18twelve months of benefits continuation; and
(iv)25
(v) up to $15,000$7,500 of fees and expenses of consultants and/or legal or accounting advisors.
A “change of control” was defined in Mr. Bates’the Ms. Malson’s employment agreement generally as the occurrencesale of anyone hundred percent of the events that would constitute a change of control under the PlanCompany or a determination by the Board of Directors of the Company, in view of the then current circumstances or impending events, that a change of control of the Company had occurred or was imminent, which determination would needed to have beenbe made for the specific purpose of triggering the operative provisions of the employment agreements.agreement.
If any severance payment, either alone or when added to any other payment or benefit to which Mr. Bates would have beenMs. Malson was entitled from the Company exceeded the amount that couldmay have been paid by the Company without a loss of deduction under Section 280G of the Code, then, under the terms of hisher employment agreement, the severance payment and any other such payment or benefit would have been either cut back, to a level below the level that would trigger the loss of deduction, or paid in full and subjected to the loss of deduction and excise taxes, whichever would have resulted in the betterafter-tax result to the executive officer.
33
Mr. Bates’ employment agreement was not renewed at the expiration of its term on July 2, 2018.
Equity Incentive Plans
Payments Made Under the Equity Plan and Omnibus Incentive Plan Upon Death, Disability, Termination Without Cause or Constructive Termination
In the event of termination of a participant’s employment due to death or disability or termination without cause by the Company, all shares of restricted stock granted to such participant under the Equity Plan and the Omnibus Incentive Plan will generally become fully vested and the restrictions on transferability under the terms of the award will lapse. In the event of termination of a participant’s employment without cause by the Company, all shares of restricted stock underlying performance units awarded under the Performance Unit Program will become fully vested based on actual performance achieved and will be settled after the conclusion of the performance period. If such termination occurs following the end of the performance period, all earned shares of restricted stock vest immediately.
In the event of termination of a participant’s employment due to death, disability or retirement, all options granted to such participant under the Equity Plan and Omnibus Incentive Plan will become fully vested on the date of such termination and will be exercisable thereafter for a period of thirty days.
In the event of termination of a participant’s employment due to death or disability prior to the end of a performance period, performance share awards will generally be deemed earned immediately upon such termination in an amount equal to the amount that would have been earned had the target performance level for the performance period been met, and then prorated based on the number of days in the performance period that have elapsed to the date of termination of employment. In the event of termination of a participant’s employment due to death or disability prior to the end of a performance period, shares of restricted stock underlying performance units awarded under the Performance Unit Program will be deemed earned and vested immediately upon such termination in an amount equal to the amount that would have been earned had the target performance level for the performance period been met. In the event of termination of a participant’s employment due to death or disability following the end of a performance period, shares of restricted stock underlying performance units awarded under the Performance Unit Program will be deemed earned and vested immediately upon such termination in an amount equal to the amount that was earned based on actual performance achieved.
In all other cases of termination,non-vested equity awards under the Equity Plan and the Omnibus Incentive Plan will generally be forfeited.
A more detailed description of the Equity Plan can be found below under the heading “Summary of Equity Plan” beginning on page 39.. A more detailed description of the Omnibus Incentive Plan can be found below under the heading “Summary of Omnibus Incentive Plan” beginning on page 39..
Payments Made Under the Equity Plan and Omnibus Incentive Plan Upon a Change of Control
Unless the Compensation Committee provides otherwise in any particular award agreement, and other than as stated below under “Performance Unit Program,” in the event of a change of control of the Company, awards may be assumed or substitute awards may be made by the Company or its successor that contain similar terms and conditions as the awards issued under an equity compensation plan, without participant consent. If awards are assumed or if substitute awards are made, and if the Company or its successor in the change of control transaction terminates a participant within one year following the change of control, then the award will immediately vest on the date of such termination of employment or service, as applicable.
If the Company or its successor does not assume the awards or grant substitute awards, then:
26
34
date of the change of control, and all holders of options will receive a cash payment, in exchange for cancellation of the options, equal to the value of the option as determined by the Compensation Committee. |
For purposes of the equity compensation plans, a “change of control” generally includes any of the following events:
Performance Unit Program
Under the Performance Unit Program, if the change of control occurs during a performance period, the awards are converted into time-vested restricted stock of the acquiring company based on the target performance level and, if the change of control occurs following a performance period, the awards are converted into time-vested restricted stock of the acquiring company based on the actual performance level achieved. In either case, the awards would accelerate in the event the executive officer is terminated without cause or voluntarily terminates with good reason within twenty-four months of the change of control. If awards under the Performance Unit Program are not assumed or converted by the acquiring company, then, if the change of control occurs during a performance period, the awards are subject to accelerated vesting based on the target performance level, and if the change of control occurs following a performance period, the awards are subject to accelerated vesting based on actual performance level achieved.
35
Quantification of Termination/Change of Control Payments
The table below reflects the amount of compensation that would have been paid to each of the Named Executive Officers of the Company (except Ms. Malson) holding office on March 31, 20182020, under their respective employment arrangement in effect at such time in the event of his or her disability or death, involuntary termination without cause or constructive termination, or termination upon a change of control. The amounts assume that such event occurred or termination was effective as of March 31, 20182020, and thus include amounts earned through such time and are estimates of the amounts that would have been paid out upon occurrence of such event or termination, as applicable. Messrs. Marohn and Bates were the only Named Executive Officers that were partySince Ms. Malson’s employment was severed prior to an employment agreement with the Company as of March 31, 2018.2020, she is not included in the table; no severance payments were paid to her.
Fiscal 20182020 and 2019 Termination/Change of Control Payments
| Death or Disability | Constructive Termination or Termination Without Cause | Termination Upon Change of Control | ||||||||||||||||||||||||||||||||||
Name | Salary & Bonus $ | Benefits $ | Total $ | Salary & Bonus $ | Benefits $(1) | Total $ | Salary & Bonus $ | Benefits $(1) | Total $ | |||||||||||||||||||||||||||
Douglas W. Marohn President, Chief Executive Officer and Corporate Secretary | — | — | — | $ | 433,425 | $ | 24,780 | $ | 458,205 | $ | 700,000 | $ | 48,780 | $ | 748,780 | |||||||||||||||||||||
Kevin Bates Former Senior Vice President – Branch Operations | — | — | — | 260,000 | — | 260,000 | 260,000 | 85,304 | 345,304 | |||||||||||||||||||||||||||
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Douglas W. Marohn President, Chief Executive Officer |
| 2020 |
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| $ | 438,219 |
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| $ | 140,573 |
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| $ | 578,792 |
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| $ | 700,000 |
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| $ | 140,573 |
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| $ | 840,573 |
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and Corporate Secretary |
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Irina Nashtatik Chief Financial Officer |
| 2020 |
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| — |
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| 185,671 |
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| 185,671 |
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| 185,671 |
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| 185,671 |
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(1) | Consists of the value of the accelerated vesting of outstanding unvested restricted stock. The value of the accelerated vesting of unvested restricted stock was determined by multiplying the closing price per Common Share on March 31, |
27
Summary of Employment Agreements with Executive Officers
The Company entered a prior employment agreement with Ms. Kelly Malson, former Chief Financial Officer, effective as of December 5, 2018 (the “Effective Date”). The Company entered into new employment agreement with Ms. Irina Nashtatik, Chief Financial Officer effective as of July 7, 2020 (the “Effective Date”). The Company entered into a new employment agreement with Mr. Douglas Marohn, President and Chief Executive Officer, effective as of July 8, 2020 (the “Effective Date). The following section provides information on our employment agreements with the Named Executive Officers and Ms. Malson.Officers.
On December 12, 2017, the Company entered into an employmentDouglas Marohn
The agreement with DouglasMr. Marohn President and Chief Executive Officer, effective as of December 12, 2017 (the “Marohn Effective Date”). The agreement provides for a base salary of $350,000 and annual milestone or long-term bonuses as described above under “Executive Compensation Discussion and Analysis – Compensation Components – Incentive Bonuses.” The agreement has an initial term of eighteen months from the Marohn Effective Date.expiring June 30, 2022. Thereafter, the agreement automatically renews each year for successive twelve-month periods, unless the Company provides to Mr. Marohn, at least sixty days prior to the expiration of the term, written notification that it intends not to renew the agreement. Upon a change of control, the term of the agreement would be extended until the first anniversary of the change of control. Mr. Marohn’s employment agreement provides that, if he is terminated by the Company without cause, or if he terminates his employment upon (a) a good faith determination by him that the Company has materially breached his employment agreement, (b) a material adverse change in his working conditions or status, (c) a significant relocation of his principal office or (d) upon or within theone-year period following a change of control of the Company, a good faith determination by him that there has been any of the following: a breach of his employment agreement by the Company, any adverse change in his working conditions, status, authority, duties, responsibilities (including reporting other than directly to the Board of Directors) or any requirement that he relocate his principal office to a location that is more than ten miles from the location of his principal office immediately prior to the change of control, then he shall be entitled to a
36
severance payment as described above under “Potential Payments Upon Termination or a Change of Control – Employment Agreements — Payments Made Upon Termination Without Cause or Constructive Termination.” Mr. Marohn’s agreement further provides that, during the term of the agreement and for a period of two years thereafter, Mr. Marohn will not, directly or indirectly, compete with the Company by engaging in certain proscribed activities.
On May 26, 2018, the Company entered into an employmentIrina Nashtatik
The agreement with Kelly M. Malson, Chief Financial Officer. The agreementMs. Nashtatik provides for a base salary of $250,000$180,000 and annual milestone or long-term bonuses as described above under “Executive Compensation Discussion and Analysis – Compensation Components – Incentive Bonuses.” Ms. Malson commenced her role as Chief Financial Officer effective as of June 20, 2018 (the “Malson Effective Date”). The agreement has an initial term of twelve months from the Malson Effective Date.expiring on June 30, 2022. Thereafter, the agreement automatically renews each year for successive twelve-month periods, unless the Company provides to Ms. Malson,Nashtatik, at least sixty days prior to the expiration of the term, written notification that it intends not to renew the agreement. Upon a change of control, the term of the agreement would be extended until the first anniversary of the change of control. Ms. Malson’sNashtatik’s employment agreement provides that, if she is terminated by the Company without cause, or if she terminates hisher employment upon (a) a good faith determination by her that the Company has materially breached her employment agreement, (b) a material adverse change in her working conditions or status, (c) a significant relocation of her principal office or (d) upon or within theone-year period following a change of control of the Company, a good faith determination by her that there has been any of the following: a breach of her employment agreement by the Company, any adverse change in her working conditions, status, authority, duties, responsibilities or any requirement that she relocate her principal office to a location that is more than ten miles from the location of her principal office immediately prior to the change of control, then she shall be entitled to a severance payment as described above under “Potential Payments Upon Termination or a Change of Control – Employment Agreements — Payments Made Upon Termination Without Cause or Constructive Termination.” Ms. Malson’sNashtatik’s agreement further provides that, during the term of the agreement and for a period of one year thereafter, Ms. MalsonNashtatik will not, directly or indirectly, compete with the Company by engaging in certain proscribed activities.
Messrs. Finkenbrink and Bates and Ms. MacGillivary were also parties to employment agreements with the Company prior to their respective departures.Kelly Malson
On July 2, 2015, the Company entered into an amended and restated employmentThe agreement with Ralph T. Finkenbrink, the Company’s former President and Chief Executive Officer. The agreementMs. Malson provided for a minimum base salary of $375,000$250,000 and annual performancemilestone or long-term bonuses as determined by thedescribed above under “Executive Compensation Committee.Discussion and Analysis – Compensation Components – Incentive Bonuses.” The agreement had an initial term of two years. Theexpiring on June 30, 2020. Thereafter, the agreement provided that, if Mr. Finkenbrink were terminated bywould have automatically renewed each year for successive twelve-month periods, unless the Company without cause, or if he terminated his employment upon (a) a good faith determination by him that the Company materially breached his employment agreement, (b) a material adverse change in his working conditions or status, (c) a significant relocation of his principal office or (d) upon or within thetwo-year period following a change of control of the Company, a good faith determination by him that there has been any of the following: a breach of his employment agreement by the Company, any adverse change in his working conditions, status, authority, duties, responsibilities (including reporting other than directlyprovided to the Board of Directors) or any requirement that he relocate his principal office to a location that is more than ten miles from the location of his principal office immediatelyMs. Malson, at least sixty days prior to the changeexpiration of control, then he would have been entitledthe term, written notification that it intends not to a severance payment equal to two timesrenew the sum of his annual base salary in effect at the time of such termination and his average annual bonus for the two full calendar years immediately preceding such termination. On and afteragreement. Upon a change of control, the term of the agreement gave Mr. Finkenbrinkwould have been extended until the right to receive a bonus opportunity at a level comparable to his bonus prior tofirst anniversary of the change of control. Additional protections were provided following a change of control. Mr. Finkenbrink’s agreement further provided that, during the term of the agreement and for a period of two years thereafter, Mr. Finkenbrink would not, directly or indirectly, compete with the Company by engaging in certain proscribed activities.
37
On June 12, 2017, Mr. Finkenbrink informed the Board that he would retire as President and Chief Executive Officer of the Company. On July 26, 2017, Mr. Finkenbrink’s amended and restated employment agreement was replaced by a Separation and Release Agreement that extended his employment until the appointment of his successor, or until the Company terminated his extended employment prior to such event in its discretion (which it subsequently did effective September 30, 2017). The Separation and Release Agreement provided for continued (i) payment of base salary in accordance with Mr. Finkenbrink’s amended and restated employment agreement, dated July 2, 2015, through the date his employment terminates, provided that he will receive payment through September 30, 2017 even if terminated prior to such date, and (ii) coverage under any healthcare plan and enrollment in any benefit programs as set forth in such employment agreement or in accordance with policies for employees of the Company or its subsidiaries. In exchange, Mr. Finkenbrink agreed tonon-compete restrictions ending either six months or two years after the separation date, depending on the particular restriction.
On July 26, 2017, the Company entered into a new employment agreement with Kevin D. Bates, Senior Vice President – Branch Operations, effective on July 2, 2017. The agreement provided for a minimum base salary of $260,000. The agreement had an initial term of one year, which was not renewed by the Company. Mr. Bates’ employment agreement provided that, if he were terminated by the Company without cause, or if he terminated his employment upon (a) a good faith determination by him that the Company materially breached his employment agreement, (b) a material adverse change in his working conditions or status, (c) a significant relocation of his principal office or (d) upon or within theone-year period following a change of control of the Company, a good faith determination by him that there has been any of the following: a breach of his employment agreement by the Company, any adverse change in his working conditions, status, authority, duties, responsibilities (including reporting other than directly to the Board of Directors) or any requirement that he relocate his principal office to a location that is more than ten miles from the location of his principal office immediately prior to the change of control, then he would have been entitled to a severance payment equal to his annual base salary in effect at the time of such termination. Certain protections were provided following a change of control. Mr. Bates’ agreement further provided that, during the term of the agreement and for a period of one year thereafter, Mr. Bates would not, directly or indirectly, compete with the Company by engaging in certain proscribed activities, except that, in the event his employment is terminated as a result of the Company not renewing his employment agreement at the end of its term, suchnon-compete would only apply for a period of six months after the term of his agreement.
On July 26, 2017, the Company entered into a new employment agreement with Katie L. MacGillivary, Vice President – Finance, Chief Financial Officer and Corporate Secretary, effective on July 2, 2017. The agreement provided for an initial base salary of $195,000. The agreement has an initial term of one year. Ms. MacGillivary’sMalson’s employment agreement provided that, if she were terminated by the Company without cause, or if she terminated her employment upon (a) a good faith determination by her that the Company has materially breached her employment agreement, (b) a material adverse change in her working conditions or status, (c) a significant relocation of her principal office or (d) upon or within theone-year period following a change of control of the Company, a good faith determination by her that there has been any of the following: a breach of her employment agreement by the Company, any adverse change in her working conditions, status, authority, duties, responsibilities (including reporting other than directly to the Board of Directors) or any requirement that she relocate her principal office to a location that is more than ten miles from the location of her principal office immediately prior to the change of control, then she would have beenbe entitled to a severance payment equal to her annual base salary in effect at the timeas described above under “Potential Payments Upon Termination or a Change of such termination. Certain protections were provided following a change of control.Control – Employment Agreements — Payments Made Upon Termination Without Cause or Constructive Termination.” Ms. MacGillivary’sMalson’s agreement further providedprovides that, during the term of the agreement and for a period of one year thereafter, Ms. MacGillivary wouldMalson will not, directly or indirectly, compete with the Company by engaging in certain proscribed activities, except that, in the event her employment were terminated as a result of the Company not renewing her employment agreement at the end of its term, suchnon-compete would only apply for a period of six months after the term of her agreement.activities.
Mr. Steinorth was not party to an employment agreement as interim Chief Financial Officer of the Company.28
38
The Equity Plan was adopted by the Board of Directors of the Company on June 15, 2006 and approved by the shareholders of the Company on August 9, 2006. The Equity Plan was terminated on August 13, 2015; no new awards have been granted under such plan since that date, but awards granted under such plan remain outstanding. The purposes of the Equity Plan were:
A more detailed summary of the Equity Plan was included in Proposal 2 of the Company’s Proxy Statement for the 2006 Annual General Meeting and a copy of the Equity Plan was attached to such Proxy Statement as Appendix A, both of which are incorporated herein by reference.
Summary of Omnibus Incentive Plan
The Omnibus Incentive Plan was adopted by the Board of Directors and subsequently approved by the shareholders of the Company on August 13, 2015. The purpose of this Omnibus Incentive Plan is to promote the best interests of the Company and its shareholders by providing key employees andnon-employee directors of the Company and its affiliates with an opportunity to acquire a proprietary interest in the Company or receive other incentive compensation on the potentially favorable terms that the Plan provides. It is intended that the Plan will promote continuity of management and increased incentive and personal interest in the welfare of the Company and its affiliates by those key employees and directors who are primarily responsible for shaping and carrying out the long-range plans of the Company and securing its continued growth and financial success, all of which benefits the shareholders.
The Omnibus Incentive Plan:
A more detailed summary of the Omnibus Incentive Plan was included in Proposal 3 of the Company’s Proxy Statement for the 2015 Annual General Meeting and a copy of the Equity Plan was attached to such Proxy Statement as Appendix A, both of which are incorporated herein by reference.
39
Director Compensation
The following table sets forth information regarding the compensation received by each of the Company’snon-employee directors during the fiscal year ended March 31, 2018:2020:
Name | Fees Earned or Paid in Cash | Stock Awards ($)(1) | Option Awards ($)(1) | Total ($) | ||||||||||||
Robin Hastings | $ | 76,000 | $ | 4,198 | — | $ | 81,198 | |||||||||
Jeremy Q. Zhu | 29,750 | 20,000 | — | 49,750 | ||||||||||||
Adam K. Peterson | 22,048 | 22,411 | — | 44,459 | ||||||||||||
Jeffrey Royal | 21,473 | 17,863 | — | 39,336 | ||||||||||||
Scott Fink(2) | 44,000 | — | — | 44,000 | ||||||||||||
Todd Pfister(3) | 35,462 | — | — | 35,462 | ||||||||||||
Name |
| Fees Earned or Paid in Cash |
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| Total ($) |
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Robin Hastings |
| $ | 55,750 |
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| 20,000 |
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| — |
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| $ | 75,750 |
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Jeremy Q. Zhu |
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| 65,750 |
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| 20,000 |
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| — |
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| 85,750 |
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Adam K. Peterson |
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| 45,750 |
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| 20,000 |
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| — |
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| 65,750 |
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Jeffrey Royal |
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| 55,750 |
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| 20,000 |
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| — |
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| 75,750 |
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(1) | Grant date fair value. |
Directors who are not employed by us (“Non-Employee Directors) do not receive any additional compensation for their services as directors. The Compensation Committee reviews the director compensation on annual basis.
Each director who is not an executive officer of the Company(“ (“Non-Employee Director”) receives an annual retainer of $45,000, with the chair of each standing committee receiving an additional $10,000.Non-Employee Directors do not receive a per meeting fee for ordinary-course Board meetings; however, they receive a meeting fee of $1,000 pernon-ordinary course Board meeting (reduced to $750 for telephonic meetings), calculated separately for the Board of Directors and each committee. In addition,Generally, eachNon-Employee Director receives an annual award of restricted stock with a value of $20,000, which award vests on the earlier of the first anniversary of the date of grant and the date of the following year’s annual general meeting of shareholders.$20,000. Directors joining the Board of Directorsmid-year will receive apro-rated equity award vesting on the date of the following annual general meeting of shareholders.
29
Upon a change of control of the Company, the awards granted under the Omnibus Incentive Plan toNon-Employee Directors are treated in the same manner as awards made to employees as described above under “Payments Made Under the Equity Plan and Omnibus Incentive Plan Upon a Change of Control.”
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE30
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers, directors and more than 10% shareholders (collectively for purposes of this paragraph only, “Reporting Persons”) to file reports of their beneficial ownership and changes in beneficial ownership of the Company’s Common Shares with the SEC and furnish copies of such reports to the Company. Based upon a review of copies of the reports filed with the SEC, we believe that the following Reporting Person failed to file with the SEC on a timely basis during the fiscal year ended March 31, 2018 any required report relating to transactions involving equity securities of the Company beneficially owned by them: Mr. Finkenbrink filed three Forms 4 late (reporting one transaction each, with one Form 4 subsequently amended), each of Mr. Bates and Ms. MacGillivary filed two Forms 4 late (reporting one transaction each), Mr. Steinorth filed one Form 3 late, and each of Messrs. Fink, Zhu, Peterson and Hastings filed one Form 4 late (reporting one transaction each).
40
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
No director or executive officer of the Company, no nominee for election as a director of the Company, and no associate or affiliate of any of them, is or has been indebted to the Company or its subsidiaries at any time since the beginning of the Company’s last completed fiscal year.
RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Related Persons
Since the beginning of the Company’s fiscal year ended March 31, 2018,2020, there have been no transactions with related persons, and there are no currently proposed transactions with related persons, required by applicable SEC rules and regulations to be disclosed hereunder.
Review, Approval, and/or Ratification of Transactions with Related Persons
Since the beginning of the Company’s fiscal year ended March 31, 2019, there have been no transactions with related persons, and there are no currently proposed transactions with related persons.
The Company recognizes that transactions involving related persons can present potential or actual conflicts of interest and create the appearance that the Company’s business decisions are based on considerations other than the best interests of its shareholders. Therefore, in accordance with the terms of its charter, the Audit Committee of the Board will review and approve all transactions involving related persons. The policy covers, any transaction involving the Company and a related person, and is not limited solely to, those transactionsthe SEC’s threshold requirements involving related persons that meet the minimum threshold for disclosure in the proxy statement under the relevant SEC rules (i.e., transactions involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest).transactions.
General Policy
Transactions involving related persons must be approved, or ratified ifpre-approval is not feasible, by the Audit Committee of the Board consisting solely of independent directors, who will approve or ratify the transaction only if they determine that it is in the best interests of the Company’s shareholders. In considering the transaction, the Audit Committee will consider all relevant factors, including, as applicable: (i) the business rationale for entering into the transaction; (ii) available alternatives to the transaction; (iii) whether the transaction is on terms no less favorable than terms generally available to an unrelated third-party under the same or similar circumstances; (iv) the potential for the transaction to lead to an actual or apparent conflict of interest and any safeguards imposed to prevent such actual or apparent conflicts; and (v) the overall fairness of the transaction. The Audit Committee will also periodically monitor ongoing transactions involving related persons to ensure that there are no changed circumstances that would render it advisable for the Company to amend or terminate the transaction.
Procedures
It is the responsibility of management or the affected director or executive officer to bring the matter to the attention of the Audit Committee.
41
Ongoing transactions involving related persons shall be reviewed by the Audit Committee on an annual basis at the first regularly scheduled meeting of the fiscal year.
Since the beginning of the Company’s last fiscal year, there have been no transactions required to be reported under the applicable SEC rules where such policies and procedures did not require review, approval or ratification or where such policies and procedures were not followed.
31
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
No director or executive officer of the Company, no nominee for election as a director of the Company, no person who has been a director or executive officer of the Company since the commencement of the Company’s last completed fiscal year and no associate or affiliate of any of the foregoing has any material interest, direct or indirect, by way of beneficial ownership or securities or otherwise, in any matter to be acted upon at the Meeting.
SHAREHOLDER PROPOSALS
The deadline for submission of shareholder proposals pursuant to Rule14a-8 under the Exchange Act for inclusion in the Company’s proxy statement for its 20192021 Annual General Meeting of Shareholders is March 15, 2019April 1, 2021 (unless the date of the 20192021 Annual General Meeting is not within 30 days of August 23, 2019,27, 2021, in which case the deadline will be a reasonable time before we begin to print and send the proxy materials for the 20192021 Annual General Meeting).
After May 29, 2019,June 15, 2021, notice to the Company of a shareholder proposal submitted other than pursuant to Rule14a-8 is considered untimely, and the persons named in proxies solicited by the Board of Directors of the Company for the 20192021 Annual General Meeting may exercise discretionary voting power with respect to any such proposal (unless the date of the 20192021 Annual General Meeting is not within 30 days of August 23, 2019,27, 2021, in which case the deadline will be a reasonable time before we send the proxy materials for the 20192021 Annual General Meeting).
Under the British Columbia Business Company Act (“BCBCA”), shareholder proposals may be made by registered or beneficial owners of shares entitled to vote at general meetings of shareholders who have been the registered or beneficial owner of such shares for an uninterrupted period of at least two years before the date of signing of the proposal, and who together in the aggregate constitute at least 1% of the issued shares that carry on the right to vote at general meetings or have a fair market value of shares in excess of CAD $2,000. Those registered or beneficial holders must, alongside the proposal, submit and sign a declaration providing the requisite information under the BCBCA. To be a valid proposal, the proposal must be submitted as lease three months (the “Submission Deadline”) before the anniversary of the previous year’s annual reference date, which Submission Deadline of the 2021 Annual General Meeting will be May 27, 2021.
OTHER MATTERS
MANAGEMENT KNOWS OF NO OTHER MATTERS TO COME BEFORE THE MEETING OTHER THAN THOSE REFERRED TO IN THE NOTICE OF MEETING. HOWEVER, SHOULD ANY OTHER MATTERS PROPERLY COME BEFORE THE MEETING, THE SHARES REPRESENTED BY THE PROXY SOLICITED HEREBY WILL, ON A POLL, BE VOTED ON SUCH MATTERS IN ACCORDANCE WITH THE BEST JUDGMENT OF THE PERSONS VOTING THE SHARES REPRESENTED BY THE PROXY.
Dated this 13th30th day of July, 20182020
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Robin J. HastingsJeffrey C. Royal
Chairman of the Board
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8th Floor, 100 University Avenue Toronto, Ontario M5J 2Y1 www.computershare.com Form of Proxy - Annual General Meeting to be held on Thursday, August 27, 2020 01MXJA This Form of Proxy is solicited by and on behalf of Management.
Notes to proxy
Proxies submitted must be received by 10:00 AM, Eastern Time on August 21, 2018.
Fold Fold CONTROL NUMBER VOTE USING THE TELEPHONE OR INTERNET 24 HOURS A DAY 7 DAYS A WEEK!
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To vote by telephone or the Internet, you will need to provide your CONTROL NUMBER listed below. If you vote by telephone or the Internet, DO NOT mail back this proxy.
Voting by mail may be the only method for securities held in the name of a corporation or securities being voted on behalf of another individual.
Voting by mail or by Internet are the only methods by which a holder may appoint a person as proxyholder other than the Management nominees named on the reverse of this proxy. Instead of mailing this proxy, you may choose one of the two voting methods outlined above to vote this proxy.
To vote by telephone orVote Using the Telephone To Vote Using the Internet • Call the number listed BELOW from a touch tone telephone. • Go to the following web site: www.investorvote.com • Smartphone? Scan the QR code to vote now. Notes to proxy 1. Every holder has the right to appoint some other person or company of their choice, who need not be a holder, to attend and act on their behalf at the meeting or any adjournment or postponement thereof. If you will needwish to appoint a person or company other than the persons whose names are printed herein, please insert the name of your chosen proxyholder in the space provided (see reverse). 2. If the securities are registered in the name of more than one owner (for example, joint ownership, trustees, executors, etc.), then all those registered should sign this proxy. If you are voting on behalf of a corporation or another individual you must sign this proxy with signing capacity stated, and you may be required to provide documentation evidencing your CONTROL NUMBER listed below.
CONTROL NUMBER power to sign this proxy. 3. This proxy should be signed in the exact manner as the name(s) appear(s) on the proxy. 4. If this proxy is not dated, it will be deemed to bear the date on which it is mailed by Management to the holder. 5. The securities represented by this proxy will be voted as directed by the holder, however, if such a direction is not made in respect of any matter, this proxy will be voted as recommended by Management. 6. The securities represented by this proxy will be voted in favour or withheld from voting or voted against each of the matters described herein, as applicable, in accordance with the instructions of the holder, on any ballot that may be called for and, if the holder has specified a choice with respect to any matter to be acted on, the securities will be voted accordingly. 7. This proxy confers discretionary authority in respect of amendments or variations to matters identified in the Notice of Meeting or other matters that may properly come before the meeting or any adjournment or postponement thereof. 8. This proxy should be read in conjunction with the accompanying documentation provided by Management. Proxies submitted must be received by 10:30 AM, Eastern Time on Tuesday, August 25, 2020. Mr A Sample Designation (if any) Add1 Add2 add3 add4 add5 add6 C1234567890 XXX 000001 COMMON CPUQC01.E.INT/000001/i1234 123456789012345 Holder Account Number Security Class 1-866-732-VOTE (8683) Toll Free
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301649 01MXKA Fold Fold AR0 Authorized Signature(s) – This section must be completed for your instructions to be executed. I/We authorize you to act in accordance with my/our instructions set out above. I/We hereby revoke any proxy previously given with respect to the Meeting. If no voting instructions are indicated above, this Proxy will be voted as recommended by Management. MM / DD / YY Date Signature(s) 1. Election of Directors 01. Douglas Marohn For Withhold 02. Jeremy Q. Zhu For Withhold 2. Appointment of Auditors To ratify the appointment of RSM US LLP as the Company’s Independent Auditors for the fiscal year ending March 31, 2021. For Withhold 3. Advisory Vote on Compensation of Named Executive Officers To approve the compensation of the Company’s Named Executive Officers as disclosed in the Executive Compensation Discussion and Analysis Section and the accompanying compensation tables and narrative discussion contained in the Proxy Statement and Information Circular. Against Abstain I/We being holder(s) of Nicholas Financial, Inc. hereby appoint(s): Jeffrey Royal, Chairman of the Board, or failing him, Douglas Marohn, Chief Executive Officer. Appointment of Proxyholder Print the name of the person you are appointing if this person is someone other than the Chairman of the Meeting. OR as my/our proxyholder with full power of substitution and to attend, act and to vote for and on behalf of the shareholder in accordance with the following direction (or if no directions have been given, as the proxyholder sees fit) and all other matters that may properly come before the Annual General Meeting of shareholders of Nicholas Financial, Inc. to be held at 2454 McMullen Booth Road, Building C, Clearwater, Florida, on Thursday, August 23, 201827, 2020 at 10:0030 AM, Eastern Time and at any adjournment or postponement thereof.
VOTING RECOMMENDATIONS ARE INDICATED BYHIGHLIGHTED TEXT OVER THE BOXES. For NICQ 999999999999 XXXX C1234567890 XXX 123 MR SAM SAMPLE
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8th Floor, 100 University Avenue Toronto, Ontario M5J 2Y1 www.computershare.com Voting Instruction Form (“VIF”) - Annual General Meeting to be held on Thursday, August 27, 2020 01MXLA NON-REGISTERED (BENEFICIAL) SECURITYHOLDERS
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VIFs submitted must be received by 10:00 AM, Eastern Time on August 21, 2018.
Fold Fold CONTROL NUMBER VOTE USING THE TELEPHONE OR INTERNET 24 HOURS A DAY 7 DAYS A WEEK!
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To vote by telephone or the Internet, you will need to provide your CONTROL NUMBER listed below. If you vote by telephone or the Internet, DO NOT mail back this VIF.
Voting by mail may be the only method for securities held in the name of a corporation or securities being voted on behalf of another individual.
Voting by mail or by Internet are the only methods by which a holder may choose an appointee other than the Management appointees named on the reverse of this VIF. Instead of mailing this VIF, you may choose one of the two voting methods outlined above to vote this VIF.
To vote by telephone orVote Using the Telephone To Vote Using the Internet • Call the number listed BELOW from a touch tone telephone. • Go to the following web site: www.investorvote.com • Smartphone? Scan the QR code to vote now. 1. We are sending to you the enclosed proxy-related materials that relate to a meeting of the holders of the series or class of securities that are held on your behalf by the intermediary identified above. Unless you attend the meeting and vote in person, your securities can be voted only by management, as proxy holder of the registered holder, in accordance with your instructions. 2. We are prohibited from voting these securities on any of the matters to be acted upon at the meeting without your specific voting instructions. In order for these securities to be voted at the meeting, it will needbe necessary for us to have your specific voting instructions. Please complete and return the information requested in this VIF to provide your CONTROL NUMBER listed below.
CONTROL NUMBER voting instructions to us promptly. 3. If you want to attend the meeting and vote in person, please write your name in the place provided for that purpose in this form. You can also write the name of someone else whom you wish to attend the meeting and vote on your behalf. Unless prohibited by law, the person whose name is written in the space provided will have full authority to present matters to the meeting and vote on all matters that are presented at the meeting, even if those matters are not set out in this form or the information circular. Consult a legal advisor if you wish to modify the authority of that person in any way. If you require help, please contact the Registered Representative who services your account. 4. This VIF should be signed by you in the exact manner as your name appears on the VIF. If these voting instructions are given on behalf of a body corporate set out the full legal name of the body corporate, the name and position of the person giving voting instructions on behalf of the body corporate and the address for service of the body corporate. 5. If this VIF is not dated, it will be deemed to bear the date on which it is mailed by management to you. 6. When properly signed and delivered, securities represented by this VIF will be voted as directed by you, however, if such a direction is not made in respect of any matter, the VIF will direct the voting of the securities to be made as recommended in the documentation provided by Management for the meeting. 7. This VIF confers discretionary authority on the appointee to vote as the appointee sees fit in respect of amendments or variations to matters identified in the notice of meeting or other matters as may properly come before the meeting or any adjournment thereof. 8. Your voting instructions will be recorded on receipt of the VIF. 9. By providing voting instructions as requested, you are acknowledging that you are the beneficial owner of, and are entitled to instruct us with respect to the voting of, these securities. 10. If you have any questions regarding the enclosed documents, please contact the Registered Representative who services your account. 11. This VIF should be read in conjunction with the information circular and other proxy materials provided by Management. VIFs submitted must be received by 10:30 AM, Eastern Time on Tuesday, August 25, 2020. Mr A Sample Designation (if any) Add1 Add2 add3 add4 add5 add6 C1234567890 XXX 000001 Intermediary XXX 1-866-734-VOTE (8683) Toll Free CPUQC01.E.INT/000001/i1234 123456789012345 COMMON Holder Account Number Security Class
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301649 01MXMA Fold Fold AR0 Authorized Signature(s) - This section must be completed for your instructions to be executed. If you are voting on behalf of a corporation or another individual you may be required to provide documentation evidencing your power to sign this VIF with signing capacity stated. MM / DD / YY Date Signature(s) Management Appointees are: Jeffrey Royal, Chairman of the Board, or failing him, Douglas Marohn, Chief Executive Officer. Appointee(s) If you wish to attend in person or appoint someone else to attend on your behalf, print your name or the name of your appointee in this space (see Note #3 on reverse). OR as my/our appointee to attend, act and to vote in accordance with the following direction (or if no directions have been given, as the appointee sees fit) and all other matters that may properly come before the Annual General Meeting of shareholderssecurityholders of Nicholas Financial, Inc. to be held at 2454 McMullen Booth Road, Building C, Clearwater, Florida, on Thursday, August 23, 201827, 2020 at 10:0030 AM, Eastern Time and at any adjournment or postponement thereof.
VOTING RECOMMENDATIONS ARE INDICATED BYHIGHLIGHTED TEXT OVER THE BOXES. 1. Election of Directors 01. Douglas Marohn For Withhold 02. Jeremy Q. Zhu For Withhold 2. Appointment of Auditors To ratify the appointment of RSM US LLP as the Company’s Independent Auditors for the fiscal year ending March 31, 2021. For Withhold 3. Advisory Vote on Compensation of Named Executive Officers To approve the compensation of the Company’s Named Executive Officers as disclosed in the Executive Compensation Discussion and Analysis Section and the accompanying compensation tables and narrative discussion contained in the Proxy Statement and Information Circular. Against Abstain For NICQ 999999999999 XXXX C1234567890 XXX 123 MR SAM SAMPLE
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