DEF 14A 1 d860953ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

SCHEDULE 14A

(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

 

 

Filed by the Registrant  ☒                         Filed by a party other than the Registrant  ☐

Check the appropriate box:

  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
  Definitive Additional Materials
  Soliciting Material Pursuant under §240.14a-12

MEDALLION FINANCIAL CORP.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if Other Than The Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
  (1)  

Title of each class of securities to which transaction applies:

 

     

  (2)  

Aggregate number of securities to which transaction applies:

 

     

  (3)  

Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

     

  (4)  

Proposed maximum aggregate value of transaction:

 

     

  (5)  

Total fee paid:

 

     

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

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Form, Schedule or Registration Statement No.:

 

     

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  (4)  

Date Filed:

 

     

 

 

 


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MEDALLION FINANCIAL CORP.

437 Madison Avenue, 38th Floor

New York, New York 10022

April 29, 2020

Dear Medallion Financial Shareholder:

You are cordially invited to attend the Annual Meeting of Shareholders of Medallion Financial Corp. to be held on June 19, 2020, at 10:00 a.m., Eastern Time. Due to the ongoing public health impact of the novel coronavirus outbreak (“COVID-19”), this year’s Annual Meeting of Shareholders will be a virtual meeting conducted solely via live webcast. You will be able to attend the Annual Meeting of Shareholders, vote your shares electronically and submit questions during the meeting by visiting http://www.viewproxy.com/Medallionfinancial/2020/vm. In order to attend the Annual Meeting, you must register before 11:59 p.m. Eastern Time on June 16, 2020 at http://www.viewproxy.com/Medallionfinancial/2020. To participate, you will need to login using the credentials provided to you following registration. You will not be able to attend the Annual Meeting of Shareholders in person. The meeting webcast will begin promptly at 10:00 a.m. Eastern Time. Online check-in for pre-registered shareholders will begin promptly at 9:30 a.m. Eastern Time, and you should allow ample time for the online check-in procedures.

Additional information regarding attending the Annual Meeting, voting your shares, business to be conducted at the meeting and submitting questions can be found in the attached Notice of Annual Meeting of Shareholders and the attached Proxy Statement.

Whether or not you plan to attend the Annual Meeting, it is important that your shares be represented. You may vote over the Internet, by telephone or by mailing a completed proxy card as an alternative to voting at the meeting. Voting by one of these methods will ensure that your shares will be represented at the Annual Meeting.

Thank you for your cooperation.

Sincerely,

 

 

LOGO

ALVIN MURSTEIN

Chairman of the Board of Directors and Chief Executive Officer


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MEDALLION FINANCIAL CORP.

437 Madison Avenue, 38th Floor

New York, New York 10022

(212) 328-2100

 

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD JUNE 19, 2020

 

 

The Annual Meeting of Shareholders, or the Annual Meeting, of Medallion Financial Corp. (except where the context suggests otherwise, the terms the “Company,” “we,” “us” and “our” refer to Medallion Financial Corp.) will be held on June 19, 2020 at 10:00 a.m., Eastern Time, via live webcast at http://www.viewproxy.com/Medallionfinancial/2020/vm, to consider and act upon the following matters:

 

  1.

To elect three directors to serve until the 2023 Annual Meeting of Shareholders;

 

  2.

To ratify the selection of Mazars USA LLP as our independent registered public accounting firm for the year ending December 31, 2020;

 

  3.

To vote on a non-binding advisory resolution to approve the 2019 compensation of the Company’s named executive officers, as described in the accompanying proxy statement;

 

  4.

To approve the amendment to the 2018 Equity Incentive Plan, to increase the number of shares of our common stock authorized for issuance thereunder by 710,715 shares; and

 

  5.

To transact such other business as may properly come before the meeting or any adjournment thereof.

Only shareholders of record at the close of business on April 20, 2020 will be entitled to notice of and to vote at the Annual Meeting or any adjournment or postponement thereof. A list of shareholders entitled to vote at the Annual Meeting will be available for inspection at the Annual Meeting on a reasonably accessible electronic network and the information required to access such list will be provided with the notice of the meeting. All shareholders are cordially invited to attend the Annual Meeting virtually.

Important Notice Regarding the Availability of

Proxy Materials for the Shareholder

Meeting to be Held on June 19, 2020

The proxy statement and 2019 Annual Report to shareholders are available at: https://www.proxydocs.com/MFIN

By Order of the Board of Directors,

 

 

LOGO

MARISA T. SILVERMAN

Secretary

New York, New York

April 29, 2020

 

 
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, YOUR VOTE IS IMPORTANT. YOU MAY VOTE BY FOLLOWING THE INSTRUCTIONS IN THE NOTICE OF AVAILABILITY OF PROXY MATERIALS OR THE PROXY CARD YOU RECEIVED IN THE MAIL. FOR DETAILED INFORMATION REGARDING VOTING INSTRUCTIONS, PLEASE REFER TO THE SECTION ENTITLED “QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING / HOW CAN I VOTE MY SHARES WITHOUT VIRTUALLY ATTENDING THE MEETING?” ON PAGE 4 OF THE PROXY STATEMENT. IF YOU DECIDE TO ATTEND THE MEETING VIRTUALLY AND WISH TO CHANGE YOUR PROXY VOTE, YOU MAY DO SO AUTOMATICALLY BY VOTING AT THE MEETING.


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2020 ANNUAL MEETING OF SHAREHOLDERS

NOTICE OF ANNUAL MEETING AND PROXY STATEMENT

TABLE OF CONTENTS

 

     Page  

PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS

     1  

VOTING SECURITIES AND VOTES REQUIRED

     1  

QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND THE ANNUAL MEETING

     2  

STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     7  

PROPOSAL NO. 1 ELECTION OF CLASS III DIRECTORS

     10  

PROPOSAL NO. 2 RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     12  

Principal Accountant Fees and Services

     12  

Audit Committee Report

     14  

PROPOSAL NO. 3 NON-BINDING ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

     15  

PROPOSAL NO. 4 APPROVAL OF THE AMENDMENT TO THE 2018 EQUITY INCENTIVE PLAN

     16  

CORPORATE GOVERNANCE

     24  

Organization of the Board of Directors

     24  

Code of Ethics

     28  

Shareholder Communications with the Board of Directors

     28  

OUR DIRECTORS AND EXECUTIVE OFFICERS

     29  

EXECUTIVE COMPENSATION

     32  

Compensation Discussion and Analysis

     32  

Compensation Committee Report

     44  

Summary Compensation Table

     45  

2019 Grants of Plan-Based Awards

     46  

Narrative Discussion for Summary Compensation Table and 2019 Grants of Plan-Based Awards Table

     46  

Outstanding Equity Awards at 2019 Fiscal Year-End

     47  

2019 Option Exercises and Stock Vested

     48  

Potential Payments Upon Termination or Change-in-Control

     48  

Pay Ratio Disclosure

     50  

DIRECTOR COMPENSATION

     51  

EQUITY COMPENSATION PLAN INFORMATION

     53  

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     53  


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MEDALLION FINANCIAL CORP.

437 Madison Avenue, 38th Floor

New York, New York 10022

(212) 328-2100

 

 

PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS

June 19, 2020

 

 

This proxy statement is furnished in connection with the solicitation of proxies by our Board of Directors for use at the Annual Meeting to be held on June 19, 2020 and at any adjournments or postponements of the Annual Meeting. The purposes of the Annual Meeting are set forth herein and in the accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting will be held at 10:00 a.m. Eastern Time via live webcast at http://www.viewproxy.com/Medallionfinancial/2020/vm. In order to attend the Annual Meeting, you must register before 11:59 p.m. Eastern Time on June 16, 2020 at http://www.viewproxy.com/Medallionfinancial/2020. The date of the mailing of this proxy statement and accompanying proxy is on or about April 29, 2020. All shares of common stock will be voted in accordance with the shareholders’ instructions.

Shareholders are entitled to one vote per share on all matters voted upon at the Annual Meeting. Shareholders do not have the right to cumulate their votes for directors. The presence at the Annual Meeting, by participating virtually at the meeting or by proxy, of a majority of the shares of common stock outstanding on April 20, 2020 will constitute a quorum. If the accompanying proxy is properly signed and timely returned to American Stock Transfer & Trust Company, LLC and not revoked, it will be voted in accordance with the instructions contained therein.

Unless contrary instructions are given, the persons designated as proxy holders on the accompanying proxy card will vote:

 

  (i)

FOR each of the Board of Directors’ nominees;

 

  (ii)

FOR the ratification of Mazars USA LLP as our independent registered public accounting firm for the year ending December 31, 2020;

 

  (iii)

FOR the approval of a non-binding advisory resolution to approve the 2019 compensation of the Company’s named executive officers, as described in this proxy statement;

 

  (iv)

FOR the approval of the amendment to our 2018 Equity Incentive Plan, to increase the number of shares of common stock authorized for issuance thereunder by 710,715 shares; and

 

  (v)

if any other matters properly come before the Annual Meeting, in accordance with their best judgment on such matters.

Any proxy may be revoked by a shareholder at any time before its exercise by delivery of a written revocation to American Stock Transfer & Trust Company, LLC, 6201 15th Avenue, Brooklyn, New York 11219. The powers of the proxy holder with respect to a particular proxy will be suspended if the person executing that proxy attends the Annual Meeting virtually and so requests. Attendance at the Annual Meeting will not in itself constitute revocation of the proxy.

VOTING SECURITIES AND VOTES REQUIRED

On April 20, 2020, the record date for the determination of shareholders entitled to notice of and to vote at the Annual Meeting, an aggregate of 24,806,656 shares of our common stock, $0.01 par value per share, or Common Stock, were outstanding and entitled to vote. Shareholders are entitled to one vote per share.

The presence at the meeting, by participating in the virtual meeting or by proxy, of the holders of a majority of the outstanding shares of Common Stock entitled to vote at the meeting shall be necessary to constitute a quorum for the transaction of business. If less than a majority of the outstanding shares entitled to vote are represented at the Annual Meeting, a majority of the shares so represented may adjourn the Annual Meeting to another date, time or place, and notice need not be given of the new date, time or place if the new date, time or place is announced at the meeting before an adjournment is taken. A plurality of the votes cast is required for the election of directors. A majority of the votes cast is required for all other matters. Abstentions and broker non-votes will be considered as present for quorum purposes but will not be counted as votes cast. Abstentions and broker non-votes will have no effect on the matters to be voted on at the Annual Meeting.


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QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS AND

THE ANNUAL MEETING

 

Q:

WHY IS THIS YEAR’S ANNUAL MEETING BEING HELD AS A VIRTUAL ONLY MEETING?

 

A:

This year’s Annual Meeting is being held as a virtual only meeting due to the ongoing public health impact of the novel coronavirus outbreak (“COVID19”) and to support the health and well-being of our shareholders, employees and community members. Holding the Annual Meeting of Shareholders as a virtual only meeting allows us to reach the broadest number of shareholders while maintaining our commitment to health and safety.

 

Q.

HOW CAN I ATTEND THE ANNUAL MEETING VIRTUALLY?

 

A.

In order to attend the Annual Meeting, you must register before 11:59 p.m. Eastern Time on June 16, 2020 at http://www.viewproxy.com/Medallionfinancial/2020. You will be able to attend the meeting online, vote your shares electronically and submit questions during the meeting by visiting http://www.viewproxy.com/Medallionfinancial/2020/vm. To participate in the virtual meeting, you will need to login using the credentials provided to you following registration. The meeting webcast will begin promptly at 10:00 a.m. Eastern Time. Online check-in for pre-registered shareholders will begin promptly at 9:30 a.m. Eastern Time, and you should allow ample time for the online check-in procedures.

We will have technicians ready to assist you with any technical difficulties you may have accessing the virtual meeting. If you encounter any difficulties accessing the virtual meeting during check-in or during the meeting, please email technical support at VirtualMeeting@viewproxy.com.

 

Q:

WHY AM I RECEIVING THESE MATERIALS?

 

A:

Our Board of Directors is providing these proxy materials for you in connection with the Annual Meeting, which will take place virtually on June 19, 2020. As a shareholder, you are invited to attend the Annual Meeting virtually and are entitled to and requested to vote on the proposals described in this proxy statement.

 

Q:

WHAT INFORMATION IS CONTAINED IN THESE MATERIALS?

 

A:

The information included in this proxy statement relates to the proposals to be voted on at the Annual Meeting, the voting process, the compensation of directors and our most highly paid officers, and certain other required information. Our 2019 Annual Report, including our 2019 consolidated financial statements, is also enclosed.

 

Q:

WHY DID I RECEIVE A NOTICE IN THE MAIL REGARDING THE AVAILABILITY OF PROXY MATERIALS INSTEAD OF A FULL SET OF PROXY MATERIALS?

 

A:

In accordance with the Securities and Exchange Commission rules, we may furnish proxy materials, including this proxy statement and our Annual Report, to our shareholders by providing access to such documents on the Internet instead of mailing printed copies. Accordingly, we are sending the Notice of Availability of Proxy Materials to our shareholders of record and beneficial shareholders as of April 20, 2020, which is the record date for the Annual Meeting.

 

Q:

WHAT WILL BE VOTED ON AT THE MEETING?

 

A:

There are four matters scheduled to be voted on at the Annual Meeting:

 

  (i)

The election of three directors to serve until the 2023 Annual Meeting of Shareholders;

 

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  (ii)

The ratification of Mazars USA LLP as our independent registered public accounting firm for the year ending December 31, 2020;

 

  (iii)

The approval of a non-binding advisory resolution to approve the 2019 compensation of the Company’s named executive officers, as described in this proxy statement; and

 

  (iv)

The approval of the amendment to our 2018 Equity Incentive Plan, to increase the number of shares of Common Stock authorized for issuance thereunder by 710,715 shares.

 

Q:

WHAT IS OUR VOTING RECOMMENDATION?

 

A:

Our Board of Directors recommends that you vote your shares:

 

  (i)

FOR each of the Board of Directors’ nominees;

 

  (ii)

FOR the ratification of Mazars USA LLP as our independent registered public accounting firm for the year ending December 31, 2020;

 

  (iii)

FOR the approval of a non-binding advisory resolution to approve the 2019 compensation of the Company’s named executive officers, as described in this proxy statement; and

 

  (iv)

FOR the approval of the amendment to our 2018 Equity Incentive Plan, to increase the number of shares of Common Stock authorized for issuance thereunder by 710,715 shares.

 

Q:

WHAT SHARES CAN I VOTE?

 

A:

All shares owned by you as of the close of business on April 20, 2020, the record date, may be voted by you. These shares include (1) shares held directly in your name as the shareholder of record, including shares purchased through our Dividend Reinvestment Plan and (2) shares held for you as the beneficial owner through a stockbroker or bank.

 

Q:

WHAT IS THE DIFFERENCE BETWEEN HOLDING SHARES AS A SHAREHOLDER OF RECORD AND AS A BENEFICIAL OWNER?

 

A:

Most of our shareholders hold their shares through a stockbroker, bank or other nominee rather than directly in their own name. As summarized below, there are some distinctions between shares held of record and those owned beneficially.

SHAREHOLDER OF RECORD

If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, LLC, you are considered, with respect to those shares, the shareholder of record, and these proxy materials are being sent directly to you by us. As the shareholder of record, you have the right to grant your voting proxy directly to us or to vote online at the meeting. We have enclosed a proxy for you to use.

BENEFICIAL OWNER

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in street name, and these proxy materials are being forwarded to you by your broker or nominee which is considered, with respect to those shares, the shareholder of record. As the beneficial owner, you have the right to direct your broker on how to vote and are also invited to attend the meeting. However, since you are not the shareholder of record, you may not vote these shares at the meeting unless you obtain a signed proxy from the record holder giving you the right to vote the shares. Your broker or nominee has enclosed or provided a voting instruction card for you to use in directing the broker or nominee on how to vote your shares.

 

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Q:

HOW CAN I VOTE MY SHARES ONLINE AT THE MEETING?

 

A:

Shares held directly in your name as the shareholder of record may be voted at the Annual Meeting. During the meeting, you may vote online by following the instructions therein. Have your proxy card in hand when you access the virtual polls web page.

EVEN IF YOU CURRENTLY PLAN TO ATTEND THE ANNUAL MEETING, WE RECOMMEND THAT YOU ALSO SUBMIT YOUR PROXY AS DESCRIBED BELOW SO THAT YOUR VOTE WILL BE COUNTED IF YOU LATER DECIDE NOT TO ATTEND THE ANNUAL MEETING VIRTUALLY. SHARES HELD IN STREET NAME MAY BE VOTED ONLINE BY YOU ONLY IF YOU OBTAIN A SIGNED PROXY FROM THE RECORD HOLDER GIVING YOU THE RIGHT TO VOTE THE SHARES.

 

Q:

HOW CAN I VOTE MY SHARES WITHOUT VIRTUALLY ATTENDING THE MEETING?

 

A:

Whether you hold shares directly as the shareholder of record or beneficially in street name, you may direct your vote without virtually attending the meeting. You may vote by granting a proxy or, for shares held in street name, by submitting voting instructions to your broker or nominee. Please refer to the summary instructions below and those included on your proxy card or, for shares held in street name, the voting instruction card included by your broker or nominee.

You may do this by signing your proxy card or, for shares held in street name, the voting instruction card included by your broker or nominee and mailing it in the accompanying enclosed, pre-addressed envelope. If you provide specific voting instructions, your shares will be voted as you instruct. If you sign but do not provide instructions, your shares will be voted as described in “HOW ARE VOTES COUNTED?” below.

For beneficial shareholders with shares registered in the name of a brokerage firm or bank, a number of brokerage firms and banks are participating in a program that offers telephone and Internet voting options. Shareholders should refer to the voting instruction form provided by their brokerage firm or bank for instructions on the voting methods they offer.

Registered shareholders with shares registered directly in their names with our transfer agent, American Stock Transfer & Trust Company, LLC, will also be able to vote by telephone and Internet. If your shares are held in an account at a brokerage firm or bank participating in this program or registered directly in your name with American Stock Transfer & Trust Company, LLC, you may vote those shares by calling the telephone number specified on your proxy or accessing the Internet website address specified on your proxy instead of completing and signing the proxy itself. The giving of such a telephonic or Internet proxy will not affect your right to vote in person should you decide to attend the Annual Meeting virtually.

The accompanying proxy card provides instructions on how to vote via the Internet or by telephone.

 

Q:

CAN I CHANGE MY VOTE?

 

A:

You may change your proxy instructions at any time prior to the vote at the Annual Meeting. For shares held directly in your name, you may accomplish this by granting a new proxy bearing a later date (which automatically revokes the earlier proxy), by delivery of a written revocation to American Stock Transfer & Trust Company, LLC, 6201 15th Avenue, Brooklyn, New York 11219 or by attending the Annual Meeting virtually and voting online. Attendance at the meeting will not cause your previously granted proxy to be revoked unless you vote online at the meeting. For shares held beneficially by you, you may accomplish this by submitting new voting instructions to your broker or nominee.

 

Q:

HOW ARE VOTES COUNTED?

 

A:

In the election of directors, you may vote “FOR” all of the nominees or your vote may be “WITHHELD” with respect to one or more of the nominees. If you sign your proxy card or broker voting instruction card

 

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with no further instructions, your shares will be voted in accordance with the recommendations of the Board of Directors. The election of our directors requires a plurality of the votes cast, so abstentions and broker non-votes will not be counted in determining which nominees received the largest number of votes cast. This means the nominees for election to the Board of Directors at the Annual Meeting who receive the largest number of properly cast “FOR” votes will be elected as directors.

The approval of all other proposals requires the affirmative vote of a majority of the votes cast. Abstentions and broker non-votes will have no effect on the results of the votes on such proposals.

 

Q:

WHAT IS THE QUORUM REQUIREMENT FOR THE ANNUAL MEETING?

 

A:

The quorum requirement for holding the meeting and transacting business is the presence by participating in the virtual Annual Meeting or by proxy of the holders of a majority of the shares issued and outstanding and entitled to vote. Both abstentions and broker non-votes are counted as present for the purpose of determining the presence of a quorum.

Generally, broker non-votes occur when shares held by a broker for a beneficial owner are not voted with respect to a particular proposal because (1) the broker has not received instructions from the beneficial owner to vote on a particular matter, and (2) the broker lacks discretionary power to vote such shares with respect to such matter.

 

Q:

WHAT IS THE VOTING REQUIREMENT TO APPROVE THE PROPOSALS?

 

A:

Approval of the director nominees requires a plurality of the votes cast at the Annual Meeting, in person or by proxy. Approval of all other matters requires the affirmative vote of the holders of a majority of the votes cast at the Annual Meeting, in person or by proxy.

If you are a beneficial owner and do not provide the shareholder of record with voting instructions, your shares may constitute broker non-votes, as described in “WHAT IS THE QUORUM REQUIREMENT FOR THE ANNUAL MEETING?” above.

 

Q:

WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY OR VOTING INSTRUCTION CARD?

 

A:

It means your shares are registered differently or are in more than one account. Please provide voting instructions for all proxy and voting instruction cards you receive.

 

Q:

WHERE CAN I FIND THE VOTING RESULTS OF THE MEETING?

 

A:

We will announce preliminary voting results at the Annual Meeting and disclose final results in a Current Report on Form 8-K to be filed with the Securities and Exchange Commission, or the Commission, on or before June 25, 2020. The Form 8-K will be available on the “Investor Relations” section of our website at www.medallion.com and on the Commission’s website at www.sec.gov.

 

Q:

WHAT HAPPENS IF ADDITIONAL PROPOSALS ARE PRESENTED AT THE ANNUAL MEETING?

 

A:

Other than the proposals described in this proxy statement, we do not expect any matters to be presented for a vote at the Annual Meeting. If you grant a proxy, the persons named as proxy holders will have the discretion to vote your shares on any additional matters properly presented for a vote at the meeting. If for any unforeseen reason any of our nominees is not available as a candidate for director, the persons named as proxy holders will vote your proxy for such other candidate or candidates as may be nominated by the Board of Directors.

 

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Q:

WHAT CLASSES OF SHARES ARE ENTITLED TO BE VOTED?

 

A:

Each share of our Common Stock outstanding as of the close of business on April 20, 2020, the record date, is entitled to vote on all items being voted upon at the Annual Meeting. On the record date, we had approximately 24,806,656 shares of Common Stock issued and outstanding.

 

Q:

WHO WILL COUNT THE VOTES?

 

A:

A representative of American Stock Transfer & Trust Company, LLC, our transfer agent, will tabulate the votes and act as the inspector of election.

 

Q:

IS MY VOTE CONFIDENTIAL?

 

A:

Proxy instructions, ballots and voting tabulations that identify individual shareholders are handled in a manner that protects your voting privacy. Your vote will not be disclosed either within us or to third parties except (1) as necessary to meet applicable legal requirements, (2) to allow for the tabulation of votes and certification of the vote, or (3) to facilitate a successful proxy solicitation by our Board of Directors. Occasionally, shareholders provide written comments on their proxy card, which are then forwarded to our management.

 

Q:

WHO WILL BEAR THE COST OF SOLICITING VOTES FOR THE MEETING?

 

A:

We will pay the entire cost of the proxy preparation and solicitation, including reimbursing brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding proxy and solicitation materials to shareholders. We have retained Alliance Advisors, LLC to act as a proxy solicitor for a fee of approximately $6,500, plus reimbursement of out-of-pocket expenses. We are soliciting proxies primarily by mail. In addition, our directors, officers and regular employees as well as our proxy solicitor may solicit proxies in person, by telephone or by electronic communication. Our directors, officers and regular employees will not receive any additional compensation for such solicitation activities.

 

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STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information, as of April 20, 2020, regarding the ownership of our Common Stock by (i) the persons known by us to own more than five percent of the outstanding shares, (ii) all of our directors and nominees, (iii) each of our executive officers named in the Summary Compensation Table, and (iv) all of our directors and executive officers as a group. The number of shares beneficially owned by each director or executive officer is determined under rules of the Commission and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has the sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days of April 20, 2020 through the exercise of any stock option or other right. Unless otherwise indicated, each person has sole investment and voting power (or shares such power with his or her spouse) with respect to the shares set forth in the following table. The inclusion herein of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of such shares.

 

Name and Address

   Shares of Common
Stock Beneficially
Owned
   Percentage of
Common
Stock Beneficially
Owned(1)

Alvin Murstein(2)

Chairman, Chief Executive Officer, and Director

c/o Medallion Financial Corp.

437 Madison Avenue, 38th Floor

New York, NY 10022

       1,654,449        6.67 %

Andrew M. Murstein(3)

President, Chief Operating Officer, and Director

c/o Medallion Financial Corp.

437 Madison Avenue, 38th Floor

New York, NY 10022

       1,953,073        7.87 %

Larry D. Hall(4)

Senior Vice President and Chief Financial Officer

c/o Medallion Financial Corp.

437 Madison Avenue, 38th Floor

New York, NY 10022

       107,045        *

Alexander S. Travis(5)

President of Medallion Capital, Inc.

c/o Medallion Financial Corp.

437 Madison Avenue, 38th Floor

New York, NY 10022

       10,572        *

Donald S. Poulton(6)

Chief Executive Officer and President of Medallion Bank

c/o Medallion Financial Corp.

437 Madison Avenue, 38th Floor

New York, NY 10022

       98,773        *

Henry L. Aaron(7)

Director

c/o Medallion Financial Corp.

437 Madison Avenue, 38th Floor

New York, NY 10022

       21,000        *

John Everets(8)

Director

c/o Medallion Financial Corp.

437 Madison Avenue, 38th Floor

New York, NY 10022

       84,333        *

 

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Name and Address

   Shares of Common
Stock Beneficially
Owned
   Percentage of
Common
Stock Beneficially
Owned(1)

Frederick A. Menowitz(9)

Director

c/o Medallion Financial Corp.

437 Madison Avenue, 38th Floor

New York, NY 10022

       28,500        *

David L. Rudnick(10)

Director

c/o Medallion Financial Corp.

437 Madison Avenue, 38th Floor

New York, NY 10022

       230,277        *

Allan J. Tanenbaum(11)

Director

c/o Medallion Financial Corp.

437 Madison Avenue, 38th Floor

New York, NY 10022

       50,899        *

Cynthia A. Hallenbeck(12)

Director Nominee

c/o Medallion Financial Corp.

437 Madison Avenue, 38th Floor

New York, NY 10022

       *        *

All executive officers and directors as a group (14 persons)(13)

       4,384,865        17.59 %

Key Colony Fund, L.P.(14)

155 N. Wacker Drive, Suite 4600

Chicago, IL 60606

       1,326,627        5.35 %

 

*

Less than 1.0%

(1)

Applicable percentage of ownership is based on 24,806,656 shares of Common Stock outstanding as of April 20, 2020 together with the exercisable options for such shareholder or group of shareholders, as applicable. In computing the number of shares of Common Stock beneficially owned by a person and the percentage ownership of that person, shares subject to options are not deemed outstanding for purposes of computing the percentage ownership of any other person.

(2)

Includes 1,348,300 shares of Common Stock owned by the Alvin Murstein Second Family Trust of which Alvin Murstein is a trustee and beneficiary, 184,764 shares of Common Stock owned by Mr. Murstein directly, 117,660 shares of Common Stock owned by the Aileen J. Murstein Family 2012 Trust of which Mr. Murstein is the grantor and Mr. Murstein’s spouse is a co-trustee and the beneficiary, 5,000 shares of Common Stock owned by Mr. Murstein’s spouse, 37,952 shares of restricted Common Stock owned by Mr. Murstein directly and 8,725 shares of Common Stock issuable upon the exercise of options. Does not include 63,335 shares of Common Stock issuable upon exercise of options not exercisable within 60 days of April 20, 2020.

(3)

Includes 1,481,863 shares owned by the Andrew Murstein Family Trust, of which Andrew M. Murstein is a trustee and beneficiary, 446,532 shares held by Mr. Murstein directly, 100,774 shares of restricted Common Stock owned by Mr. Murstein directly and 24,678 shares of Common Stock issuable upon the exercise of options. Does not include 209,351 shares of Common Stock issuable upon exercise of options not exercisable within 60 days of April 20, 2020.

(4)

Includes 71,013 shares of Common Stock owned by Larry D. Hall directly, 29,385 shares of restricted Common Stock owned by Mr. Hall directly and 6,647 shares of Common Stock issuable upon the exercise of options. Does not include 49,393 shares of Common Stock issuable upon exercise of options not exercisable within 60 days of April 20, 2020.

 

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(5)

Includes 954 shares of Common Stock owned by Alexander S. Travis directly and 7,541 shares of restricted Common Stock owned by Mr. Travis directly. Does not include 15,713 shares of Common Stock issuable upon exercise of options not exercisable within 60 days of April 20, 2020.

(6)

Includes 65,292 shares of Common Stock owned by Donald S. Poulton directly, 28,080 shares of restricted Common Stock owned by Mr. Poulton directly and 5,401 shares of Common Stock issuable upon the exercise of options. Does not include 50,335 shares of Common Stock issuable upon exercise of options not exercisable within 60 days of April 20, 2020.

(7)

Consists of 21,000 shares of Common Stock issuable upon the exercise of options. Does not include 5,208 shares of Common Stock issuable upon the settlement of restricted stock units, which will not vest within 60 days of April 20, 2020.

(8)

Includes 73,000 shares of Common Stock owned by John Everets directly, 3,000 shares of Common Stock held by Arcturus Capital, of which Mr. Everets is a 50% owner and 11,333 shares of Common Stock issuable upon the exercise of options. Does not include 5,208 shares of Common Stock issuable upon the settlement of restricted stock units, which will not vest within 60 days of April 20, 2020.

(9)

Includes 15,500 shares of Common Stock owned by Frederick A. Menowitz directly and 13,000 shares of Common Stock issuable upon the exercise of options. Does not include 8,000 shares of Common Stock issuable upon exercise of options not exercisable within 60 days of April 20, 2020 and 5,208 shares of Common Stock issuable upon the settlement of restricted stock units, which will not vest within 60 days of April 20, 2020.

(10)

Includes 8,424 shares of Common Stock owned by David L. Rudnick directly, 213,853 shares of Common Stock held by Alliance Bernstein in a Roth Individual Retirement Account for the benefit of Mr. Rudnick and 13,000 shares of Common Stock issuable upon the exercise of options. Does not include 8,000 shares of Common Stock issuable upon exercise of options not exercisable within 60 days of April 20, 2020 and 5,208 shares of Common Stock issuable upon the settlement of restricted stock units, which will not vest within 60 days of April 20, 2020.

(11)

Includes 44,566 shares of Common Stock owned by Allan J. Tanenbaum directly and 6,333 shares of Common Stock issuable upon the exercise of options. Does not include 5,208 shares of Common Stock issuable upon the settlement of restricted stock units, which will not vest within 60 days of April 20, 2020.

(12)

Cynthia A. Hallenbeck does not own any shares of Common Stock.

(13)

Consists of 128,489 shares of Common Stock issuable upon the exercise of options. Does not include 463,476 shares of Common Stock issuable upon the exercise of options not exercisable within 60 days of April 20, 2020.

(14)

Based upon a Schedule 13D/A filed with the Commission on April 9, 2020 by Key Colony Fund, L.P., or Key Colony. In the Schedule 13D/A, Key Colony reported that it has sole voting and dispositive power with respect to 1,326,627 shares.

 

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PROPOSAL NO. 1

ELECTION OF CLASS III DIRECTORS

Our Restated Certificate of Incorporation provides that the Board of Directors is divided into three classes (Class I, Class II and Class III) serving staggered terms of three years. Elections for Class III directors will be held at the Annual Meeting on June 19, 2020. Class I directors were last elected at the annual meeting of shareholders held on June 15, 2018 and will stand for election in 2021. Class II directors were last elected at the annual meeting of shareholders held on June 14, 2019 and will stand for election in 2022.

The Board of Directors has nominated Alvin Murstein, John Everets and Cynthia A. Hallenbeck for election as Class III directors for a three-year term until the annual meeting of shareholders in 2023. Henry L. Aaron’s term will expire at this Annual Meeting on June 19, 2020. Messrs. Murstein and Everets each presently serves as a director and each has consented to being named in this proxy statement and to serve if elected. Ms. Hallenbeck does not currently serve as a director and has consented to being named in this proxy statement and to serve if elected. THE PERSONS NAMED IN THE ENCLOSED PROXY CARD, ANDREW M. MURSTEIN AND MARISA T. SILVERMAN, WILL VOTE TO ELECT MESSRS. MURSTEIN AND EVERETS AND MS. HALLENBECK AS OUR DIRECTORS UNLESS AUTHORITY TO VOTE FOR THE ELECTION OF ANY OR ALL OF THE NOMINEES IS WITHHELD BY MARKING THE PROXY CARD TO THAT EFFECT. If for any reason any nominee should become unavailable for election prior to the Annual Meeting, the person acting under the proxy may vote the proxy for the election of a substitute designated by the Board of Directors. It is not presently expected that any of the nominees will be unavailable.

Approval of the nominees requires a plurality of the votes cast at the Annual Meeting, in person or by proxy.

NOMINEES TO SERVE AS CLASS III DIRECTORS UNTIL

THE 2023 ANNUAL MEETING OF SHAREHOLDERS

 

Name

   Age      Position    Term of Office

Alvin Murstein

     85      Chairman of the Board    Director since 1997

John Everets

     73      Director    Director since 2017

Cynthia A. Hallenbeck

     63      Director Nominee   

Non-Independent Director

Alvin Murstein has served as Chairman of our Board of Directors since our founding in 1995 and has been our Chief Executive Officer since February 1996. Mr. Murstein has also been Chairman of the board of directors and Chief Executive Officer of Medallion Funding LLC, formerly known as Medallion Funding Corp., since its founding in 1979. Mr. Murstein received a B.A. and an M.B.A. from New York University and has been an executive in the taxicab industry for over 60 years. Mr. Murstein served on the board of directors of the Strober Organization, Inc., a building supply company, from 1988 to 1997. He serves as a trustee of the not-for-profit Parker Jewish Institute for Health Care and Rehabilitation. Alvin Murstein is the father of Andrew M. Murstein. Mr. Murstein brings to our Board of Directors over 60 years of experience in the ownership, management, and financing of commercial businesses and taxicab medallions. He has deep knowledge of our company and its business, having served as Chairman of our Board of Directors since our founding in 1995 and our Chief Executive Officer since 1996.

Independent Director

John Everets has served as our director since July 2017. Mr. Everets is currently a partner at Arcturus Capital in Boston, Massachusetts. Prior to joining Arcturus, he was lead investor, Chairman of the Board and

 

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Chief Executive Officer of the Bank of Maine from 2010 to 2015, where he led the recapitalization of the Bank, helped improve its financial position and eventually joined with Camden National Bank to form the largest bank in northern New England. Before leading the Bank of Maine, Mr. Everets was Chairman of Yorkshire Capital. Prior to that, he was Chairman and CEO of GE HPSC, Inc., from 1993 to 2006, where he grew the company from $100 million in assets to $1 billion before it was acquired by General Electric in 2004. Mr. Everets has served on the Board of Directors of Medallion Bank since September 2019. Mr. Everets also previously held several executive positions at Advest, Inc. Mr. Everets is currently a Director of the Eastern Company, a Trustee of the Boston Athenaeum and is on the Board of Directors of Newman’s Own Foundation where he chairs the Finance Committee. He brings extensive financial and leadership experience at both public and private companies to our Board of Directors.

Independent Director Nominee

Cynthia A. Hallenbeck currently serves on the Clinton Health Access Initiative board of director’s audit committee and the boards of directors for both the Wellspring Foundation and the Diabetes Training Camp Foundation. Ms. Hallenbeck served on both the audit and compensation committees of the Walker & Dunlop, Inc. board of directors, having joined the board in December 2010 and serving as a director through 2019. During her tenure, she chaired the audit committee from the company’s initial public offering through 2015. Ms. Hallenbeck is the chief executive officer of Alercyn, Inc., a private consulting firm that she founded in 2010, where her most significant engagement was as the acting Chief Financial Officer of the Conservation Law Foundation from June 2018 thru December 2019. Prior to this, Ms. Hallenbeck served as to the interim Chief Financial Officer for Facing History and Ourselves from November 2017 until June 2018. Ms. Hallenbeck also served as the Chief Financial Officer of the Environmental Defense Fund, Inc. from 2014 to 2016. Throughout her career, Ms. Hallenbeck has served in varying leadership roles including serving as the Chief Financial Officer of Citigroup, Inc.’s corporate treasury department from 2002 to 2005 and held other significant positions including Chief Operating Officer of global legal support from 2007 to 2008. Prior to her service with Citigroup, Ms. Hallenbeck spent over 14 years at Merrill Lynch & Co., Inc. in a variety of finance, treasury and accounting roles including Treasurer of its global futures business and Chief Financial Officer of its securities financing group. Ms. Hallenbeck has an M.B.A. with distinction from the Harvard Business School and received her B.A. from Smith College. If elected, Ms. Hallenbeck would bring over 30 years of substantial financial management experience. Ms. Hallenbeck is an acknowledged veteran of both public and nonprofit executive management teams and a recognized financial expert on the audit committees of several organizations.

 

 

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE “FOR” MESSRS. MURSTEIN AND EVERETS AND MS. HALLENBECK AS OUR DIRECTORS.

 

 

 

 

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PROPOSAL NO. 2

RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

General

We are asking the shareholders to ratify the Audit Committee’s appointment of Mazars USA LLP, or Mazars, as our independent registered public accounting firm for the fiscal year ending December 31, 2020. In the event the shareholders fail to ratify the appointment, the Audit Committee will reconsider this appointment. Even if the appointment is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in our and our shareholders’ best interests.

Mazars has audited our consolidated financial statements annually since our 2005 fiscal year. Representatives of Mazars are expected to be present at the meeting and will have the opportunity to make a statement if they desire to do so. It is also expected that those representatives will be available to respond to appropriate questions.

Principal Accountant Fees and Services

The following is a summary of the fees billed to us by Mazars for professional services rendered for the fiscal years ended December 31, 2019 and December 31, 2018:

 

Fee Category

   Fiscal 2019 Fees      Fiscal 2018 Fees  

Audit Fees

   $ 1,416,605      $ 1,189,886  

Audit-Related Fees

     —          —    

Tax Fees

     175,000        184,400  

All Other Fees

     21,077        —    
  

 

 

    

 

 

 

Total Fees

   $ 1,612,682      $ 1,374,286  
  

 

 

    

 

 

 

Audit Fees.    Consists of fees billed for professional services rendered for the integrated audit of our consolidated financial statements and of our internal control over financial reporting and review of the interim consolidated financial statements included in quarterly reports. Also consists of fees billed for services that are normally provided by the independent registered public accountants in connection with statutory and regulatory filings or engagements.

Audit-Related Fees.    There were no fees billed to us by Mazars for the fiscal years ended December 31, 2019 and December 31, 2018 for assurance and related services reasonably related to the performance of the audit or review of our consolidated financial statements.

Tax Fees.    Consists of fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal, state and local tax compliance, assistance with tax reporting requirements and audit compliance, value-added tax compliance, mergers and acquisitions tax compliance, and tax advice on federal and state tax matters.

All Other Fees.    Consists of fees for products and services other than the services reported above. These services include work related to regulatory matters. There were no fees billed to us by Mazars for the fiscal year ended December 31, 2018 for products and services other than the services reported above

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm

The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services to be provided by the independent registered public accounting firm. 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 any

 

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pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent registered public accounting firm and management are required to report periodically to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis. The Audit Committee has granted the Chairman of the Audit Committee, John Everets, the authority to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm so long as such approval is ratified by the Audit Committee in a timely manner. All fees for services provided by the independent registered public accounting firm were pre-approved by the Audit Committee.

 

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AUDIT COMMITTEE REPORT

The information contained in this report shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C, nor shall such information be incorporated by reference into any future filings by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference in such filing.

Audit Committees play a critical role in the financial reporting system by overseeing and monitoring management’s and the independent auditors’ participation in the financial reporting process. As such, we are providing this fiscal report to shareholders to help inform them of this process and the activities of the Audit Committee of Medallion Financial Corp., or the Company, in the past year. The Audit Committee of the Board of Directors is composed of three independent directors selected by the Board of Directors who meet the experience and independence requirements of NASDAQ and the Commission. In addition, the Board of Directors has determined that John Everets is an “audit committee financial expert” as defined by both NASDAQ listing standards and Commission guidelines.

The Audit Committee of the Board of Directors of the Company serves as the representative of the Board of Directors for general oversight of the Company’s financial accounting and reporting process, system of internal control, audit process, and process for monitoring compliance with laws and regulations and the Company’s standards of business conduct. The Company’s management has primary responsibility for preparing the Company’s financial statements and the Company’s financial reporting process. The Company’s independent accountants, Mazars USA LLP, are responsible for expressing an opinion on the conformity of the Company’s audited financial statements to generally accepted accounting principles.

In this context, the Audit Committee hereby reports as follows:

1. The Audit Committee has reviewed and discussed the audited financial statements with the Company’s management, including a discussion of the quality and acceptability of the accounting principles, the reasonableness of significant judgments, and the clarity of the disclosures in the financial statements. In addressing the quality of management’s accounting judgments, members of the Audit Committee asked for management’s representations that the audited consolidated financial statements of the Company have been prepared in conformity with generally accepted accounting principles.

2. The Audit Committee has discussed with the independent accountants the matters required to be discussed by Public Company Accounting Oversight Board Auditing Standard No. 1301.

3. The Audit Committee has received the written disclosures and the letter from the independent accountants required by applicable requirements of the Public Company Accounting Oversight Board (United States) Rule 3526, Communication with Audit Committees Concerning Independence, and has discussed with the independent accountant the independent accountant’s independence.

4. Based on the review and discussion referred to in paragraphs (1) through (3) above, the Audit Committee recommended to the Board of Directors of the Company, and the Board of Directors has approved, that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, for filing with the Securities and Exchange Commission.

5. The Audit Committee has considered whether the provision of non-audit related services by the independent accountants is compatible with maintaining the accountant’s independence.

The undersigned members of the Audit Committee have submitted this report to the Board of Directors.

John Everets, Chairman

Frederick A. Menowitz, Director

Allan J. Tanenbaum, Director

 

 

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT OF MAZARS USA LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.

 

 

 

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PROPOSAL NO. 3

NON-BINDING ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

As required pursuant to Section 14A of the Exchange Act, we are asking our shareholders to cast a non-binding advisory vote on the 2019 compensation of our named executive officers, as described in the Compensation Discussion and Analysis and the tabular disclosure regarding named executive officer compensation (together with the accompanying narrative disclosure) in this proxy statement. This vote gives shareholders the opportunity to convey their views regarding our overall executive compensation programs and policies more broadly. We believe that our compensation policies and procedures are centered on a pay-for-performance culture and are strongly aligned with the long-term interests of our shareholders. The principles of our executive compensation program are intended to encourage good governance, protect and promote shareholder interests and further align the interests of our executives with those of the Company, as discussed further in the Compensation Discussion and Analysis on page 32.

We also believe that both we and our shareholders benefit from responsive corporate governance policies and constructive and consistent dialogue. This proposal, commonly known as a “say-on-pay” proposal, gives you as a shareholder the opportunity to endorse or not endorse our executive pay program and policies through the following resolution:

“RESOLVED, that the 2019 compensation paid to the Company’s named executive officers, as disclosed in the Proxy Statement for the Company’s 2020 Annual Meeting of Shareholders, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.”

Because your vote is advisory, it will not be binding upon the Board. However, the Compensation Committee will take into account the outcome of the vote when considering future executive compensation arrangements. We currently hold our “say-on-pay” vote every year. Shareholders will have an opportunity to cast an advisory vote on the frequency of “say-on-pay” votes at least every six years. The next advisory vote on the frequency of the “say-on-pay” vote will occur no later than 2024.

 

 

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE “FOR” THE APPROVAL OF THE COMPENSATION PAID TO OUR NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT, INCLUDING THE COMPENSATION DISCUSSION AND ANALYSIS, COMPENSATION TABLES AND NARRATIVE DISCUSSION.

 

 

 

 

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PROPOSAL NO. 4

APPROVAL OF THE AMENDMENT TO THE 2018 EQUITY INCENTIVE PLAN

On April 22, 2020, the Board of Directors, upon the recommendation of the Compensation Committee (the “Compensation Committee”), unanimously approved an amendment to the 2018 Equity Incentive Plan (the “Plan Amendment”), subject to shareholder approval, to increase the number of shares of Common Stock authorized for issuance under the 2018 Equity Incentive Plan (the “2018 Plan”) by 710,715 shares, from 1,500,253 to 2,210,968 (subject to adjustment for stock splits, stock dividends and similar events) Based on the number of shares remaining available for issuance on April 22, 2020, there will be 1,000,000 of shares of Common Stock available for issuance following the Plan Amendment.

The full text of the proposed Plan Amendment is set out in Annex A to this proxy statement.

Reasons for the Plan Amendment

The purpose of the Plan Amendment is to ensure an adequate reserve of shares available for issuance under the 2018 Plan in order to enable the Company to continue to attract, retain, motivate and reward certain employees, officers, directors, and consultants whose services are considered valuable, and to promote the creation of long-term value for shareholders of the Company by closely aligning the interests of such key personnel with those of such shareholders. The Board of Directors believes that the number of shares of Common Stock subject to the 2018 Plan remaining available is insufficient to achieve the purpose of the 2018 Plan and, therefore, believes that the proposed Plan Amendment is necessary to increase the number of shares of Common Stock available under the 2018 Plan.

Effects of the Plan Amendment

As a result of the Plan Amendment, there will be an increase in the total number of shares of Common Stock reserved for issuance under the 2018 Plan. This will provide us with the ability to grant more awards than are currently available under the 2018 Plan to eligible recipients including employees, directors, consultants and advisors.

Summary of the 2018 Equity Incentive Plan, as amended by Plan Amendment

The following is a summary of certain material features of the 2018 Plan. The following summary of the 2018 Plan does not purport to be a complete description of all of the provisions of the 2018 Plan. It is qualified in its entirety by reference to the complete text of the 2018 Plan (which can be found on Annex A to the Company’s proxy statement filed with the Commission on April 30, 2018).

Introduction.    The Board of Directors adopted the 2018 Plan on April 25, 2018, which was approved by our shareholders on June 15, 2018. The 2018 Plan authorizes the grant of stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance awards, and other awards that may be settled in or based upon our Common Stock.

Purpose.    The purpose of the 2018 Plan is to give us the ability to attract, retain, motivate and reward certain officers, employees, directors and consultants and to provide a means whereby officers, employees, directors and/or consultants can acquire and maintain ownership of our Common Stock or be paid incentive compensation measured by reference to the value of our Common Stock, thereby strengthening their commitment to our welfare and that of our affiliates and promoting an identity of interest between our shareholders and these persons and encouraging such eligible persons to expend maximum effort in the creation of shareholder value.

 

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Plan Administration.    The 2018 Plan is administered by the Compensation Committee. The Compensation Committee has the authority, among other things, to select participants, grant awards, determine types of awards and terms and conditions of awards for participants, prescribe rules and regulations for the administration of the plan and makes all decisions and determinations as deemed necessary or advisable for the administration of the 2018 Plan. The Compensation Committee may delegate certain of its authority as it deems appropriate, pursuant to the terms of the 2018 Plan and to the extent permitted by applicable law, to our officers or employees, although any award granted to any person who is not our employee, who is subject to Section 16 of the Exchange Act must be expressly approved by the Compensation Committee. The Compensation Committee’s actions will be final, conclusive and binding.

Authorized Stock.    Under the 2018 Plan, shareholders authorized awards of up to 1,000,000 shares of Common Stock, plus the aggregate number of shares of Common Stock available for issuance (other than any shares subject to outstanding awards) under the previous 2015 Employee Restricted Stock Plan and 2015 Non-Employee Director Stock Option Plan (each as amended and restated) immediately prior to the 2018 Annual Meeting, both of which have been replaced by the 2018 Plan. If the Plan Amendment is approved by our shareholders, an additional 710,715 shares will be added to this share pool. The number of shares of Common Stock reserved and available for issuance under the 2018 Plan is subject to adjustment, as described below. Common Stock issued under the 2018 Plan may consist of authorized but unissued stock or previously issued Common Stock. Common Stock underlying awards that are settled in cash, expire or are canceled, forfeited, or otherwise terminated without delivery to a participant will again be available for issuance under the 2018 Plan. However, Common Stock not issued or delivered as a result of the net settlement of an outstanding award, Common Stock used to pay the exercise price or satisfy withholding taxes related to an outstanding award or Common Stock repurchased on the open market with the proceeds of the option exercise price will not be again available for issuance or delivery under the 2018 Plan.

Types of Awards.    The types of awards that may be available under the 2018 Plan are described below. All of the awards described below will be subject to the terms and conditions determined by the Compensation Committee in its sole discretion, subject to certain limitations provided in the 2018 Plan. Each award granted under the 2018 Plan will be evidenced by an award agreement, which will govern that award’s terms and conditions.

Non-qualified Stock Options.    A non-qualified stock option is an option that is not intended to meet the qualifications of an incentive stock option, as described below. An award of a non-qualified stock option grants a participant the right to purchase a certain number of shares of our Common Stock during a specified term in the future, or upon the achievement of performance or other conditions, at an exercise price set by the Compensation Committee on the grant date. The term of a non-qualified stock option will be set by the Compensation Committee but may not exceed ten years from the grant date. The exercise price may be paid using any of the following payment methods: (i) immediately available funds in U.S. dollars or by certified or bank cashier’s check, (ii) by delivery of stock having a value equal to the exercise price, (iii) a broker assisted cashless exercise, or (iv) by any other means approved by the Compensation Committee. The 2018 Plan provides that participants terminated for “cause” (as such term is defined in the 2018 Plan) will forfeit all of their non-qualified stock options, whether or not vested. Participants terminated for any other reason will forfeit their unvested non-qualified stock options, retain their vested non-qualified stock options, and will have one year (in the case of a termination by reason of death or disability) or 90 days (in all other cases) following their termination date to exercise their vested non-qualified stock options, unless such non-qualified stock option expires sooner. The 2018 Plan authorizes the Compensation Committee to provide for different treatment of non-qualified stock options upon termination than that described above, as determined in its discretion.

Incentive Stock Options.    An incentive stock option is a stock option that meets the requirements of Section 422 of the Code. Incentive stock options may be granted only to our employees or employees of certain of our subsidiaries and must have an exercise price of no less than 100% of the fair market value (or 110% with respect to a 10% shareholder) of a share of common stock on the grant date and a term of no more than ten years

 

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(or five years with respect to a 10% shareholder). The aggregate fair market value, determined at the time of grant, of our Common Stock subject to incentive stock options that are exercisable for the first time by a participant during any calendar year may not exceed $100,000. The 2018 Plan provides that participants terminated for “cause” will forfeit all of their incentive stock options, whether or not vested. Participants terminated for any other reason will forfeit their unvested incentive stock options, retain their vested incentive stock options, and will have one year (in the case of a termination by reason of death or disability) or 90 days (in all other cases) following their termination date to exercise their vested incentive stock options, unless such incentive stock option expires sooner. The 2018 Plan authorizes the Compensation Committee to provide for different treatment of incentive stock options upon termination than that described above, as determined in its discretion.

Stock Appreciation Rights.    A stock appreciation right entitles the participant to receive an amount equal to the difference between the fair market value of our Common Stock on the exercise date and the base price of the stock appreciation right that is set by the Compensation Committee on the grant date, multiplied by the number of shares of Common Stock subject to the stock appreciation right. The term of a stock appreciation right will be set by the Compensation Committee but may not exceed ten years from the grant date. Payment to a participant upon the exercise of a stock appreciation right may be either in cash, stock or property as specified in the award agreement or as determined by the Compensation Committee. The 2018 Plan provides that participants terminated for “cause” will forfeit all of their stock appreciation rights, whether or not vested. Participants terminated for any other reason will forfeit their unvested stock appreciation rights, retain their vested stock appreciation rights, and will have one year (in the case of a termination by reason of death or disability) or 90 days (in all other cases) following their termination date to exercise their vested stock appreciation rights, unless such appreciation right expires sooner. The 2018 Plan authorizes the Compensation Committee to provide for different treatment of stock appreciation rights upon termination than that described above, as determined in its discretion.

Restricted Stock.    A restricted stock award is an award of restricted Common Stock that does not vest until a specified period of time has elapsed, and/or upon the achievement of performance or other conditions determined by the Compensation Committee, and which will be forfeited if the conditions to vesting are not met. During the period that any restrictions apply, transfer of the restricted Common Stock is generally prohibited. Unless otherwise specified in their award agreement, participants generally have all of the rights of a shareholder as to the restricted Common Stock, including the right to vote such Common Stock, provided, that any cash or stock dividends with respect to the restricted Common Stock will be withheld by us and will be subject to forfeiture to the same degree as the restricted Common Stock to which such dividends relate. Except as otherwise provided by the Compensation Committee, in the event a participant is terminated for any reason, the vesting with respect to the participant’s restricted stock will cease, and as soon as practicable following the termination, we will repurchase all of such participant’s unvested restricted stock at a purchase price equal to the original purchase price paid for the restricted stock, or if the original purchase price is equal to $0, the unvested restricted stock will be forfeited by the participant to us for no consideration.

Restricted Stock Units.    A restricted stock unit is an unfunded and unsecured obligation to issue Common Stock (or an equivalent cash amount) to the participant in the future. Restricted stock units become payable on terms and conditions determined by the Compensation Committee and will vest and be settled at such times in cash, Common Stock, or other specified property, as determined by the Compensation Committee. Participants have no rights of a shareholder as to the restricted stock units, including no voting rights or rights to dividends, until the underlying Common Stock is issued or becomes payable to the participant. Except as otherwise provided by the Compensation Committee, in the event a participant is terminated for any reason, the vesting with respect to the participant’s restricted stock units will cease, each of the participant’s outstanding unvested restricted stock units will be forfeited for no consideration as of the date of such termination, and any stock remaining undelivered with respect to the participant’s vested restricted stock units will be delivered on the delivery date specified in the applicable award agreement.

 

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Performance Awards.    Performance awards (which may be classified as performance stock, performance units or cash awards) represent the right to receive certain amounts based on the achievement of pre-determined performance goals during a designated performance period. The terms of each performance award will be set forth in the applicable award agreement. The Compensation Committee is responsible for setting the applicable performance goals. Performance awards which have been earned as a result of the relevant performance goals being achieved may be paid in the form of cash, Common Stock or other awards under the 2018 Plan (or some combination thereof). The 2018 Plan provides that unless otherwise specifically determined by the Compensation Committee, a participant will only be eligible to earn a performance award while the participant is employed or rendering services, and that vesting of performance awards will be suspended during the period of any approved leave of absence by a participant following which the participant has a right to reinstatement and will resume upon such participant’s return to employment. Except as otherwise provided by the Compensation Committee, if a participant is terminated for any reason, the participant will forfeit all performance awards held by such participant.

Other Stock-Based Compensation.    Under the 2018 Plan, the Compensation Committee may grant other types of equity-based awards subject to such terms and conditions that the Compensation Committee may determine. Such awards may include the grant of dividend equivalents, which generally entitle the participant to receive amounts equal to the dividends that are paid on the stock underlying the award.

Adjustments.    The aggregate number of shares of Common Stock reserved and available for issuance under the 2018 Plan, the individual limitations, the number of shares of Common Stock covered by each outstanding award, and the price per share of Common Stock underlying each outstanding award will be equitably and proportionally adjusted or substituted, as determined by the Compensation Committee in its sole discretion, as to the number, price or kind of stock or other consideration subject to such awards in connection with stock dividends, extraordinary cash dividends, stock splits, reverse stock splits, recapitalizations, reorganizations, mergers, amalgamations, consolidations, combinations, exchanges, or other relevant changes in our capitalization affecting our Common Stock or our capital structure which occurs after the date of grant of any award, in connection with any extraordinary dividend declared and paid in respect of stock or in the event of any change in applicable law or circumstances that results in or could result in, as determined by the Compensation Committee in its sole discretion, any substantial dilution or enlargement of the rights intended to be granted to, or available for, participants in the 2018 Plan.

Corporate Events.    In the event of a merger, amalgamation, or consolidation involving us in which we are not the surviving corporation or in which we are the surviving corporation but the holders of our Common Stock receive securities of another corporation or other property or cash, a “change in control” (as defined in the 2018 Plan), or a reorganization, dissolution, or liquidation of us, the Compensation Committee may, in its discretion, provide for the assumption or substitution of outstanding awards, accelerate the vesting of outstanding awards, cash-out outstanding awards or replace outstanding awards with a cash incentive program that preserves the value of the awards so replaced. With respect to any award that is assumed or substituted in connection with a “change in control,” except as provided in any agreement between the participant and Company, the vesting, payment, purchase or distribution of such award will not be accelerated by reason of the “change in control” for any participant unless the participant’s employment is involuntarily terminated as a result of the “change in control” during the two-year period commencing on the “change in control.”

Transferability.    Awards under the 2018 Plan may not be sold, transferred, pledged, or assigned other than by will or by the applicable laws of descent and distribution, unless (for awards other than incentive stock options) otherwise provided in an award agreement or determined by the Compensation Committee.

Amendment.    The Board of Directors or the Compensation Committee may amend the 2018 Plan or outstanding awards at any time. Our shareholders must approve any amendment if their approval is required pursuant to applicable law or the applicable rules of each national securities exchange on which our Common Stock is traded. No amendment to the 2018 Plan or outstanding awards which materially impairs the right of a participant is permitted unless the participant consents in writing.

 

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Termination.    The 2018 Plan will terminate on the day before the tenth anniversary of the date our shareholders approve the 2018 Plan. In addition, our Board of Directors or the Compensation Committee may suspend or terminate the 2018 Plan at any time. Following any such suspension or termination, the 2018 Plan will remain in effect to govern any then outstanding awards until such awards are forfeited, terminated or otherwise canceled or earned, exercised, settled or otherwise paid out, in accordance with their terms.

Clawback; Sub-Plans.    All awards under the 2018 Plan will be subject to any incentive compensation clawback or recoupment policy currently in effect, or as may be adopted by the Board of Directors (or any committee or subcommittee thereof) and, in each case, as may be amended from time to time. In addition, the Compensation Committee may adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the 2018 Plan by individuals who are non-U.S. nationals or are primarily employed or providing services outside the U.S., and may modify the terms of any awards granted to such participants in a manner deemed by the Compensation Committee to be necessary or appropriate in order that such awards conform with the laws of the country or countries where such participants are located.

No Repricing of Awards.    No awards under the 2018 Plan may be repriced without shareholder approval. For purposes of the 2018 Plan, “repricing” means any of the following (or any other action that has the same effect as any of the following): (i) changing the terms of the award to lower its exercise price or base price (other than on account of capital adjustments resulting from stock splits), (ii) any other action that is treated as a repricing under generally accepted accounting principles, and (iii) repurchasing for cash or canceling an award in exchange for another award at a time when its exercise price or base price is greater than the fair market value of the underlying stock.

Certain U.S. Federal Income Tax Consequences

The following is a brief discussion of certain U.S. federal income tax consequences for awards granted under the 2018 Plan. The 2018 Plan is not subject to the requirements of the Employee Retirement Income Security Act of 1974, as amended, and it is not, nor is it intended to be, qualified under Section 401(a) of the Code. This discussion is based on current law, is not intended to constitute tax advice, and does not address all aspects of U.S. federal income taxation that may be relevant to a particular participant in light of his or her personal circumstances and does not describe foreign, state, or local tax consequences, which may be substantially different. Holders of awards under the 2018 Plan are encouraged to consult with their own tax advisors.

Non-Qualified Stock Options and Stock Appreciation Rights.    With respect to non-qualified stock options and stock appreciation rights, (i) no income is realized by a participant at the time the award is granted; (ii) generally, at exercise, ordinary income is realized by the participant in an amount equal to the difference between the exercise or base price paid for the shares and the fair market value of the shares on the date of exercise (or, in the case of a cash-settled stock appreciation right, the cash received), and the participant’s employer is generally entitled to a tax deduction in the same amount subject to applicable tax withholding requirements; and (iii) upon a subsequent sale of the stock received on exercise, appreciation (or depreciation) after the date of exercise is treated as either short-term or long-term capital gain (or loss) depending on how long the shares have been held, and no deduction will be allowed to such participant’s employer.

Incentive Stock Options.    No income is realized by a participant upon the grant or exercise of an incentive stock option, however, such participant will generally be required to include the excess of the fair market value of the shares at exercise over the exercise price in his or her alternative minimum taxable income. If shares are issued to a participant pursuant to the exercise of an incentive stock option, and if no disqualifying disposition of such shares is made by such participant within two years after the date of grant or within one year after the transfer of such shares to such participant, then (i) upon sale of such shares, any amount realized in excess of the exercise price will be taxed to such participant as a long-term capital gain, and any loss sustained will be a long-term capital loss, and (ii) no deduction will be allowed to the participant’s employer for federal income tax purposes.

 

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If shares acquired upon the exercise of an incentive stock option are disposed of prior to the expiration of either holding period described above, generally (i) the participant will realize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of such shares at exercise (or, if less, the amount realized on the disposition of such shares) over the exercise price paid for such shares and (ii) the participant’s employer will generally be entitled to deduct such amount for federal income tax purposes. Any further gain (or loss) realized by the participant will be taxed as short-term or long-term capital gain (or loss), as the case may be, and will not result in any deduction by the employer.

Subject to certain exceptions for disability or death, if an incentive stock option is exercised more than three months following termination of employment, the exercise of the stock option will generally be taxed as the exercise of a non-qualified stock option.

Other Stock-Based Awards.    The tax effects related to other stock-based awards under the 2018 Plan are dependent upon the structure of the particular award.

Withholding.    At the time a participant is required to recognize ordinary compensation income resulting from an award, such income will be subject to federal (including, except as described below, Social Security and Medicare tax) and applicable state and local income tax and applicable tax withholding requirements. If such participant’s year-to-date compensation on the date of exercise exceeds the Social Security wage base limit for such year ($137,700 in 2020), such participant will not have to pay Social Security taxes on such amounts. The Company is required to report to the appropriate taxing authorities the ordinary income received by the participant, together with the amount of taxes withheld to the Internal Revenue Service and the appropriate state and local taxing authorities.

Section 409A.    Certain awards under the 2018 Plan may be subject to Section 409A of the Code, which regulates “nonqualified deferred compensation” (as defined in Section 409A of the Code). If an award under the 2018 Plan (or any other Company plan) that is subject to Section 409A of the Code is not administered in compliance with Section 409A of the Code, then all compensation under the 2018 Plan that is considered “nonqualified deferred compensation” (and awards under any other Company plan that are required pursuant to Section 409A of the Code to be aggregated with the award under the 2018 Plan) will be taxable to the participant as ordinary income in the year of the violation, or if later, the year in which the compensation subject to the award is no longer subject to a substantial risk of forfeiture. In addition, the participant will be subject to an additional tax equal to 20% of the compensation that is required to be included in income as a result of the violation, plus interest from the date that the compensation subject to the award was required to be included in taxable income.

Certain Rules Applicable to “Insiders.”    As a result of the rules under Section 16(b) of the Exchange Act, depending upon the particular exemption from the provisions of Section 16(b) utilized, “insiders” (as defined in Section 16(b)) may not receive the same tax treatment as set forth above with respect to the grant and/or exercise or settlement of awards. Generally, insiders will not be subject to taxation until the expiration of any period during which they are subject to the liability provisions of Section 16(b) with respect to any particular award. Insiders should check with their own tax advisors to ascertain the appropriate tax treatment for any particular award.

2018 Plan Benefits

With respect to the increased number of shares reserved for issuance under the 2018 Plan pursuant to the Plan Amendment, we cannot currently determine the benefits or number of shares subject to awards that may be granted in the future to eligible participants under the 2018 Plan because the grant of awards and the terms of such awards are at the discretion of the Compensation Committee (or, in the case of award to non-employee directors, the Board of Directors). Accordingly, except to the extent set out in the table below, it is generally not possible to determine the exact types and amounts of any future awards that will be received by eligible

 

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participants under the 2018 Plan. Since 2019, our non-employee directors have received annual equity grants under the 2018 Plan in accordance with our director compensation program. The table below sets forth the aggregate amount of annual equity-based awards in restricted stock units that all non-employee directors as a group are expected to receive in the fiscal year ending December 31, 2020 pursuant to our director compensation program as currently in effect, subject to shareholder approval of the Plan Amendment and subject to the re-election of Mr. Everets and the election of Ms. Hallenbeck pursuant to Proposal No. 1 above.

 

Name and Position

   Dollar Value
($)
   Number of
Unit (#)(1)

All current non-employee directors who are not executive officers, as a group(2)

       125,000        N/A

 

(1)

The number of the restricted stock units that will be awarded to non-employee directors and director nominees in 2020 cannot be determined at this time since the grant value will be converted to a number of restricted stock units using the closing price of our Common Stock on the grant date.

(2)

Includes Ms. Hallenbeck who has been nominated for election as a Class III director pursuant to Proposal No. 1 above.

In accordance with the Commission’s rules, the following table sets forth information with respect to stock options and other awards issued under the 2018 Plan since its inception through March 31, 2020 to our named executive officers, all current executive officers as a group, all current non-employee directors as a group, and all employees, including all current officers who are not executive officers, as a group. As of March 31, 2020, the closing price of our Common Stock was $1.86 per share.

 

Name and Position

   Number of
Shares
subject
to Options
(#)(1)(2)
   Number of
Shares
subject to
Stock
Awards(2)(3)

Alvin Murstein, Chairman and Chief Executive Officer

       72,060        34,367

Andrew M. Murstein, President and Chief Operating Officer

       234,029        112,110

Larry D. Hall, Senior Vice President and Chief Financial Officer

       56,040        26,745

Donald S. Poulton, Chief Executive Officer and President of Medallion Bank

       55,736        26,765

Alexander S. Travis, President of Medallion Capital, Inc.

       17,790        8,495

All current executive officers as a group

       518,916        247,754

All current directors who are not executive officers, as a group

       24,000        26,040

All current directors of subsidiaries who are not executive officers, as a group

       0        4,270

Each nominee for election as a director(4)

         

John Everets

       0        5,208

Cynthia A. Hallenbeck

       0        0

Each associate of any of such directors, executive officers or nominees

       0        0

Each other person who received or is to receive 5% or more of shares under the 2018 Plan

       0        0

All employees, including all current officers who are not executive officers, as a group

       275,629        129,750

 

(1)

Each option was granted at an exercise price equal to the fair market value of our Common Stock on the grant date which was equal to the closing price of the Company’s Common Stock, as reported by NASDAQ, on the date of grant.

(2)

The amounts in the table include stock options and stock awards that may have been exercised, cancelled or forfeited.

(3)

Includes restricted stock awards and restricted stock units.

(4)

Excludes Mr. Alvin Murstein who is disclosed as a named executive officer above. The amounts indicated for Mr. Everets are also included in the amounts indicated for all current directors who are not executive officers, as a group. In addition, as described above, subject to the re-election of Mr. Everets and the

 

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election of Ms. Hallenbeck pursuant to Proposal No. 1 above, each of Mr. Everets and Ms. Hallenbeck is expected to receive an annual equity-based award in restricted stock units in the amount of $25,000 in the fiscal year ending December 31, 2020, pursuant to our director compensation program as currently in effect. The number of the restricted stock units that will be awarded to the director nominees cannot be determined at this time since the grant value will be converted to a number of restricted stock units using the closing price of our Common Stock on the grant date.

 

 

THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE “FOR” THE APPROVAL OF THE AMENDMENT TO OUR 2018 EQUITY INCENTIVE PLAN.

 

 

 

 

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CORPORATE GOVERNANCE

Organization of the Board of Directors

The Board of Directors is responsible for our management and direction and for establishing broad corporate policies. As further described below, the Board of Directors held regularly scheduled meetings during the year ended December 31, 2019. The Board of Directors is comprised of seven total members, a majority of whom (four) are independent under NASDAQ listing standards. Following the Annual Meeting, assuming the election of Ms. Hallenbeck at the meeting, it is expected that the Board will continue to be comprised of four independent directors (out of a total of seven directors). The Board of Directors held ten formal meetings during the year ended December 31, 2019. Each director attended at least 75% of the meetings of the Board of Directors and all committees of the Board of Directors on which he served, except for Henry L. Aaron. Our directors are encouraged to attend the annual meeting of shareholders. Five of our directors attended last year’s annual meeting.

Board Leadership Structure

Alvin Murstein serves as both the Chief Executive Officer and Chairman of the Board of Directors. The Board of Directors believes that this leadership structure of Mr. Murstein’s service as both the Chief Executive Officer and Chairman of the Board of Directors is in the best interest of our company and our shareholders. Mr. Murstein possesses detailed and in-depth specialized knowledge of the commercial loan and taxicab medallion loan businesses, opportunities and challenges facing our company and is thus best positioned to develop strategies and agendas that ensure that the Board of Director’s time and attention are focused on the most critical matters. His combined role enables greater efficiency regarding management of the Company, provides for decisive leadership, ensures clear accountability, and enhances our ability to communicate our message and strategy clearly and consistently to our shareholders, employees and customers. Because of the ease of communication arising from the relatively small size of the Board of Directors and the small number of independent directors, the Board of Directors has determined not to designate a lead independent director.

The Board of Directors believes that our independent directors provide effective oversight of management. Moreover, in addition to feedback provided during the course of Board of Director meetings, the independent directors hold regular executive sessions. We believe that this approach effectively encourages full engagement of all directors in executive sessions, while avoiding unnecessary hierarchy. Following an executive session of independent directors, the presiding director, John Everets, acts as a liaison between the independent directors and the Chairman regarding any specific feedback or issues, provides the Chairman with input regarding agenda items for Board and Committee meetings, and coordinates with the Chairman regarding information to be provided to the independent directors in performing their duties. The Board believes that this approach appropriately and effectively complements the combined Chairman/Chief Executive Officer structure.

Board’s Role in Risk Oversight

While risk management is primarily the responsibility of our management team, the Board of Directors is responsible for the overall supervision of our risk management activities. The Board’s oversight of the material risks faced by our company occurs at both the full board level and at the committee level.

Management provides regular updates throughout the year to the respective committees regarding the management of the risks they oversee, and each of these committees report on risk to the full board at regular meetings of the Board. For example, the Audit Committee reviews the adequacy of management information systems, internal accounting and financial controls. The Compensation Committee advises management and the Board of Directors on broad compensation policies to incentivize performance results without increasing risk. The Nominating and Governance Committee establishes, oversees and reviews governance principles and processes. The Investment Oversight Committee reviews the Company’s managed loan portfolio and makes

 

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determinations and recommendations concerning such portfolio as necessary or appropriate. In addition to the reports from the committees, the Board receives presentations throughout the year from various department and business unit leaders that include discussion of significant risks as necessary. At each Board meeting, the Board addresses matters of particular importance or concern, including any significant areas of risk that require Board attention.

We believe that our approach to risk oversight, as described above, optimizes our ability to assess inter-relationships among the various risks, make informed cost-benefit decisions, and approach emerging risks in a proactive manner for our company. We also believe that our risk structure complements our current board leadership structure, as it allows our independent directors, through our fully independent board committees and otherwise, to exercise effective oversight of the actions of management in identifying risks and implementing effective risk management policies and controls.

Director Independence

As required under the NASDAQ listing standards, the Board of Directors annually determines each director’s independence. Under NASDAQ rules, independent directors must comprise a majority of a company’s board of directors. In addition, NASDAQ rules require that, subject to specified exceptions, each member of a company’s audit, compensation, and nominating and governance committees be independent. Under NASDAQ rules, a director will only qualify as an “independent director” if, in the opinion of the company’s board of directors, the director does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

Consistent with these considerations, after review of all relevant transactions or relationships between each director, or any of his family members, and us, our senior management and our independent registered public accounting firm, the Board has affirmatively determined that the following four directors are independent directors within the meaning of the applicable NASDAQ listing standards: Henry L. Aaron, John Everets, Frederick A. Menowitz, and Allan J. Tanenbaum. In making this determination, the Board found that none of these directors or nominees for director has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Following the Annual Meeting, assuming the election of Ms. Hallenbeck at the meeting, it is expected that the Board will continue to be comprised of four independent directors.

Board Committees

We have four standing committees: the Audit Committee, the Compensation Committee, the Nominating and Governance Committee, and the Investment Oversight Committee. Each of these committees has a written charter approved by the Board of Directors. A copy of each charter can be found in the “Investor Relations – Corporate Governance” section of our website at www.medallion.com.

Audit Committee

The Audit Committee reviews the results and scope of the audit and other services provided by our independent public accountants. The Audit Committee met seven times during the year ended December 31, 2019 to review (i) the effectiveness of the public accountants during the audit for the year ended December 31, 2019, (ii) the adequacy of the 2019 financial statement disclosures for the year ended December 31, 2019, (iii) our internal control policies and procedures, and (iv) the selection of our independent public accountants. The members of the Audit Committee are Messrs. Everets, Menowitz, and Tanenbaum. Mr. Everets is the Chairman and audit committee financial expert. Each Audit Committee member meets the independence requirements of NASDAQ and the Commission.

 

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Compensation Committee

The Compensation Committee evaluates and approves the compensation of our directors and executive officers (which is presented to the Board of Directors for ratification) including (i) all incentive compensation or equity-based incentive plans or arrangements established by us for officers and employees, including the grant of stock options and restricted stock to employees, (ii) adoption and amendment of all employee restricted stock, stock option and other employee benefit, plans and arrangements and (iii) the terms of any employment agreements and arrangements with, and any termination of, our officers. The Compensation Committee reviews management’s recommendations and advises management and the Board of Directors on broad compensation policies such as salary ranges, annual incentive bonuses, long-term incentive plans, including equity-based compensation programs, and other benefit and perquisite programs. The Compensation Committee may, in its discretion, delegate all or a portion of its duties and responsibilities to a subcommittee of the Compensation Committee.

The Compensation Committee has the resources and authority to discharge its duties and responsibilities, including the authority to retain counsel and other experts or consultants. The Compensation Committee has sole authority to select and retain a compensation consultant, to terminate any consultant retained by the Compensation Committee, and to approve the fees and other retention terms of any consultant. These consultants report directly to the Compensation Committee. The Compensation Committee engaged Meridian Compensation Partners, LLC, or Meridian, as its independent compensation consultant in late 2018 with a goal to enhance our compensation program and practices. Meridian developed a new peer group aligned with our industry classification, conducted a comprehensive competitive benchmark review of executive and board compensation, shared best practices and discussed potential adjustments to the annual and long-term incentive plans. Meridian also assisted with the implementation of risk mitigating compensation practices, such as stock ownership guidelines and a compensation recoupment policy, as well as assisted with increased disclosure in the Compensation Discussion and Analysis.

The Compensation Committee meets with the frequency necessary to perform its duties and responsibilities. The Compensation Committee usually makes many of its performance-based decisions at a meeting held in February of each fiscal year, including evaluating the performance of our named executive officers during the immediately preceding year, determining the amount of their annual cash bonuses for the preceding year and determining base salaries for the upcoming fiscal year. Grants of equity compensation are generally made in the first quarter of each year.

The members of the Compensation Committee are Messrs. Aaron, Everets, Menowitz and Tanenbaum. Mr. Tanenbaum is the Chairman. Each member of the Compensation Committee is an “independent director,” as defined under the NASDAQ Marketplace Rules. Each member is also a “non-employee director,” as defined in Rule 16b-3 promulgated under the Exchange Act. The Compensation Committee met five times during the year ended December 31, 2019 and made recommendations and certain decisions concerning executive and board compensation, including annual incentives, long-term/stock based compensation and other executive employment matters. The Board of Directors approved all recommendations and ratified all decisions of the Compensation Committee during the year ended December 31, 2019. See “Compensation Discussion and Analysis.”

Nominating and Governance Committee

The Nominating and Governance Committee identifies individuals qualified to become members of the Board of Directors and recommends individuals to the Board of Directors for nomination as members of the Board of Directors and its committees. The Nominating and Governance Committee is also charged with overseeing the evaluation of the Board of Directors and reviewing our board governance principles and advising the Board of Directors on such board governance. The members of the Nominating and Governance Committee are Messrs. Aaron, Everets, Menowitz and Tanenbaum. Mr. Tanenbaum is the Chairman. Each Nominating and

 

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Governance Committee member meets the independence requirements of NASDAQ and the Commission. The Nominating and Governance Committee met two times during the year ended December 31, 2019.

Nominees for the Board of Directors should be committed to enhancing long-term shareholder value and must possess a high level of personal and professional ethics, sound business judgment and integrity. The Board of Directors’ policy is to encourage the selection of directors who will contribute to our overall corporate goals: responsibility to shareholders, finance leadership, effective execution, high customer satisfaction and superior employee working environment. In nominating a candidate for election to the Board of Directors, the Nominating and Governance Committee may take into consideration such factors as it deems appropriate. These factors may include judgment, skill, diversity, experience with businesses and other organizations comparable to us, the interplay of the candidate’s experience with the experiences of other board members, and the extent to which the candidate would be a desirable addition to the Board of Directors and any committees. While the Nominating and Governance Committee carefully considers diversity when considering directors, it has not established a formal policy regarding diversity. In evaluating potential candidates for the Board of Directors, the Nominating and Governance Committee considers the above factors in the light of the specific needs of the Board of Directors at that time.

In recommending candidates for election to the Board of Directors, the Nominating and Governance Committee considers nominees recommended by directors, officers, employees, shareholders and others, using the same criteria to evaluate all candidates. The Nominating and Governance Committee reviews each candidate’s qualifications, including whether a candidate possesses any of the specific qualities and skills desirable in certain members of the Board of Directors. Evaluation of candidates generally involves a review of background materials, internal discussions and interviews with selected candidates as appropriate. Upon selection of a qualified candidate, the Nominating and Governance Committee would recommend the candidate for consideration by the full Board of Directors. The Nominating and Governance Committee may engage third-party consultants or search firms to assist in identifying and evaluating potential nominees. To recommend a prospective nominee for the Nominating and Governance Committee’s consideration, submit the candidate’s name and qualifications to our Secretary in writing to the following address: Medallion Financial Corp., Attn: Secretary, 437 Madison Avenue, 38th Floor, New York, New York 10022, with a copy to Medallion Financial Corp., Attn: General Counsel at the same address. When submitting candidates for nomination to be elected at the annual meeting of shareholders, shareholders must also follow the notice procedures and provide the information required by our bylaws.

In particular, for the Nominating and Governance Committee to consider a candidate or candidates recommended by a shareholder for nomination at the 2021 Annual Meeting of Shareholders, written notice of such shareholder’s intent to make such nomination or nominations must be given, either by personal delivery or by United States mail, postage prepaid, to our Secretary not later than 120 days in advance of the date of our notice of annual meeting released to shareholders in connection with the previous year’s annual meeting of shareholders, except that if no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 days from the date contemplated at the time of the previous year’s notice of annual meeting of shareholders, then, in that event only, a shareholder’s notice must be delivered to and received at our principal executive offices at least 30 days before the notice of the date of the annual meeting is mailed to shareholders in the current year. The notice must include the information specified in our bylaws, including the following:

 

   

The name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated;

 

   

A representation that the shareholder is a holder of record of our stock entitled to vote at such meeting and intends to appear in person or by proxy at the meeting the person or persons specified above;

 

   

A description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder;

 

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Such other information regarding each nominee proposed by such shareholders as would be required to be included in our proxy statement filed pursuant to the proxy rules of the Commission had the nominee been nominated, or intended to be nominated, by the Board of Directors; and

 

   

The consent of each nominee to serve as our director if so elected.

Investment Oversight Committee

The Investment Oversight Committee meets on an ad hoc basis to (i) review information about our managed loan portfolio, including, but not limited to, loan delinquencies; (ii) make such determinations or recommendations with respect to our managed loan portfolio as well as our role as a servicing agent as it may deem necessary or appropriate; (iii) consider such other matters related to our managed loan portfolio as it deems necessary or appropriate; (iv) approve all taxi medallion loan modifications, subject to guidelines that may be established from time to time by the Investment Oversight Committee and any other required approvals; and (v) conduct such other related matters as may be directed by the Board of Directors. The members of the Investment Oversight Committee are Messrs. Alvin Murstein, Andrew M. Murstein, John Everets, David L. Rudnick and Allan J. Tanenbaum. Mr. David L. Rudnick is the Chairman. The Investment Oversight Committee met eighteen times during the year ended December 31, 2019.

Code of Ethics

We have adopted a code of ethics policy for our directors, officers and employees. These persons must act ethically at all times and in accordance with the guidelines comprising our Code of Ethical Conduct and Insider Trading Policy to establish standards and procedures for the prevention and detection of activities which signal a conflict of interest or an abuse of fiduciary duty. To further promote ethical and responsible decision-making, the Board of Directors also adopted a Code of Ethical Conduct for Senior Financial Officers. Our Code of Ethical Conduct and Insider Trading Policy and Code of Ethical Conduct for Senior Financial Officers can be found in the “Investor Relations – Corporate Governance” section of our website at www.medallion.com. If we make any substantive amendments to the Code of Ethics or grant any waiver from a provision of the Code to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website. The Board of Directors expects our directors, as well as our officers and employees, to act ethically at all times and to acknowledge their adherence to the policies comprising our Code of Ethics, which include, among other things, rules prohibiting loans or other extensions of credit, securities transactions during “blackout” periods, acceptance of gifts, and certain interested transactions.

In addition, the Board of Directors has established a policy for reporting employee concerns to the Audit Committee of the Board of Directors. Anyone with a concern about our accounting, internal accounting controls, or auditing matters may confidentially report such concern by telephone to a special dedicated toll-free phone number. This policy was previously announced to all of our employees and the telephone number is published in our common-area workplaces. All such communications are confidential and shall be promptly reviewed by the Audit Committee.

Shareholder Communications with the Board of Directors

Shareholders may communicate with our Board of Directors through our Secretary by writing to the following address: Board of Directors, c/o Secretary, Medallion Financial Corp., 437 Madison Avenue, 38th Floor, New York, New York 10022. Our Secretary will forward all correspondence to the Board of Directors, except for junk mail, mass mailings, loan complaints or inquiries, job inquiries, surveys, business solicitations or advertisements, or patently offensive or otherwise inappropriate material. Our Secretary may forward certain correspondence, such as loan-related inquiries, elsewhere within us for review and possible response.

 

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OUR DIRECTORS AND EXECUTIVE OFFICERS

The table below sets forth the name, ages and titles of the persons who were our directors and executive officers as of April 20, 2020:

 

Name

   Age     

Position(s) Held

 

Independent Directors

     

Henry L. Aaron(1)

     86        Director  

John Everets(2)

     73        Director  

Frederick A. Menowitz(3)

     83        Director  

Allan J. Tanenbaum(4)

     73        Director  

Non-Independent Directors

     

Alvin Murstein(2)(5)

     85        Chairman, Chief Executive Officer, and Director  

Andrew M. Murstein(4)(5)

     55        President, Chief Operating Officer, and Director  

David L. Rudnick(3)(5)

     79        Director  

Executive Officers Who Are Not Directors

     

Larry D. Hall

     66        Senior Vice President and Chief Financial Officer  

Thomas J. Munson

     37        Executive Vice President and Chief Credit Officer  

Donald S. Poulton

     66        Chief Executive Officer and President of Medallion Bank  

Marisa T. Silverman

     41        Chief Compliance Officer, General Counsel and Secretary  

Alexander S. Travis

     43        President of Medallion Capital, Inc.  

 

(1)

Indicates a Class III director whose term expires at this Annual Meeting of Shareholders.

(2)

Indicates a Class III director standing for election at this Annual Meeting of Shareholders.

(3)

Indicates a Class I director whose term expires at the 2021 Annual Meeting of Shareholders.

(4)

Indicates a Class II director whose term expires at the 2022 Annual Meeting of Shareholders.

(5)

Indicates a non-independent director as determined under applicable NASDAQ listing standards.

The address for each director is c/o Medallion Financial Corp., 437 Madison Avenue, 38th Floor, New York, New York 10022.

The address for the executive officers is our principal offices, located at 437 Madison Avenue, 38th Floor, New York, New York 10022.

Independent Director Whose Term Expires at the Annual Meeting

Henry L. Aaron has served as our director since November 2004. Mr. Aaron served as a director of Turner Broadcasting System, Inc. from 1980 until its acquisition by Time Warner, Inc. in 1996. Mr. Aaron is currently Senior Vice President of Atlanta National League Baseball Club, Inc. Mr. Aaron sits on the board of directors of the Atlanta Braves. Mr. Aaron previously served as a director of DSW Inc., Retail Ventures, Inc. and Sports Properties Acquisition Corp. He is a member of the Board of Governors for Boys and Girls Clubs of America. Mr. Aaron is a recipient of the Presidential Medal of Freedom, the nation’s highest civilian award, awarded by President George W. Bush. Mr. Aaron brings strong executive management skills to our Board of Directors. He also provides the Board of Directors with experience on other public company boards of directors which provides our Board of Directors with insight on developing best practices for public companies in areas such as risk oversight and corporate governance matters.

Independent Directors Not Standing for Election

Frederick A. Menowitz has served as our director since May 2003. Mr. Menowitz is currently an independent active real estate investor with over 50 years of experience and a philanthropist. Mr. Menowitz

 

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received a B.A. from the University of Virginia and a J.D. from the University of Virginia School of Law. He is a Founder of Mount Sinai Medical Center, Miami Beach, Florida and a member of the Board of Directors of the Cystic Fibrosis Foundation. Mr. Menowitz brings legal and business expertise and finance and investment skills to our Board of Directors.

Allan J. Tanenbaum has served as our director since October 2017. Mr. Tanenbaum has been Of Counsel to Taylor English Duma, LLC, an Atlanta-based law firm, since September 2014 and General Counsel and Managing Director of Equicorp Partners, LLC, an Atlanta-based private investment and advisory firm, since January 2006. From February 2001 to December 31, 2005, Mr. Tanenbaum served as Senior Vice President, General Counsel and Corporate Secretary for AFC Enterprises, Inc., a franchisor and operator of quick-service restaurants. From June 1996 to February 2001, Mr. Tanenbaum was a shareholder in Cohen Pollock Merlin Axelrod & Tanenbaum, P.C., an Atlanta, Georgia law firm, where he represented corporate clients in connection with mergers and acquisitions and other commercial transactions. He currently serves as a director of Designer Brands Inc. Mr. Tanenbaum’s legal background and services as general counsel of a public company provide our Board of Directors with valuable board governance experience.

Non-Independent Directors Not Standing for Election

Andrew M. Murstein has served as our President since our inception in 1995. Mr. Murstein has served as our director since October 1997. He also currently serves and has previously served as officer and director of some of our wholly owned subsidiaries. Mr. Murstein previously served as the Vice Chairman and Secretary of Sports Properties Acquisition Corp. Mr. Murstein received a B.A. in economics, cum laude, from Tufts University and an M.B.A. in finance from New York University. Mr. Murstein currently serves on the board of the public benefit corporation Javits Center in New York City. Andrew Murstein is the son of our Chairman and Chief Executive Officer, Alvin Murstein, and the son-in law of David Rudnick, one of our directors. Mr. Murstein brings to our Board of Directors over 30 years of experience in the ownership, management, and financing of commercial businesses and taxicab medallions. He has deep knowledge of our company and its business, having served as our President since our inception in 1995 and on our Board of Directors since 1997.

David L. Rudnick has served as our director since February 1996. Mr. Rudnick serves as President of Rudco Properties, Inc., a real estate and private equity investment and management firm. Mr. Rudnick served as President of Rudco Industries, Inc., an international manufacturer of machine readable documents, from 1963 to 1986. Mr. Rudnick previously served as President of the Financial Stationers Association and a director of West Side Federal Savings & Loan Association. Mr. Rudnick received an A.B. with honors in economics from Harvard University and an M.B.A. from Columbia University Graduate School of Business. Mr. Rudnick is Andrew M. Murstein’s father-in-law. Mr. Rudnick brings investment and executive management skills to our Board of Directors. He also has deep knowledge of our company and its business, having served on our Board of Directors since 1996.

Executive Officers Who Are Not Directors

Larry D. Hall has served as our Chief Financial Officer since March 2004. Prior to that he served as our Acting Chief Financial Officer since July 2003, as our Chief Accounting Officer since May 2001 and as our Assistant Treasurer since October 2000. Mr. Hall previously served as Chief Financial Officer of Sports Properties Acquisition Corp. Mr. Hall was employed by Citibank as Vice President – Corporate Financial Control/Corporate Reporting & Analysis from October 1995 to October 2000. Mr. Hall was Vice President – Finance/Controller, Treasurer and Secretary of Consolidated Waste Services of America from April 1993 to March 1995. Prior to that, he was Vice President – Manager of Line Accounting for Wells Fargo and Co. from November 1987 to March 1993 and Senior Audit Manager in the Financial Services Industry Group for Arthur Andersen & Company from September 1976 to October 1987. Mr. Hall received his B.S. in business administration from the University of Southern California.

 

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Thomas J. Munson has served as our Executive Vice President and Chief Credit Officer since April 2017. Mr. Munson joined us in October 2012 as Vice President of Medallion Financial Corp. and Senior Vice President of Medallion Funding LLC and had served as Senior Vice President of Medallion Financial Corp. from March 2015 to April 2017. Prior to joining Medallion, Mr. Munson was a Vice President of Valley National Bank (formerly State Bank of Long Island) in their Middle Market/Commercial Lending Group. Mr. Munson received a B.S. in finance with a minor in economics from The University of Scranton and an MBA from Long Island University.

Donald S. Poulton has served as the Chief Executive Officer and President of Medallion Bank since May 2015. Mr. Poulton joined us in August 2002 as the Chief Lending Officer of Medallion Bank. Prior to joining Medallion Bank, Mr. Poulton served as the Chief Lending Officer and Executive Vice President of American Investment Financial. Mr. Poulton has served on the board of the Utah Microenterprise Loan Fund since 2010. Mr. Poulton received a B.S. in finance from the University of Utah.

Marisa T. Silverman has served as our General Counsel and Chief Compliance Officer since March 2015 and as our Secretary since August 2019. Ms. Silverman joined us in November 2004 serving first as Legal Intern and as Assistant General Counsel beginning in September 2005. Ms. Silverman received a B.A. in Political Science from Bard College and a J.D. from St. John’s University School of Law.

Alexander S. Travis joined Medallion Capital, Inc. in 2014 and has served as President since December 2018. Prior to joining Medallion Capital, Inc., Mr. Travis held various positions within private equity, investment banking and institutional asset management. Mr. Travis holds a B.S. in Finance from Iowa State University.

 

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EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

EXECUTIVE SUMMARY

This Compensation Discussion and Analysis, or CD&A, describes the Company’s executive compensation program for the year ended December 31, 2019. Medallion Financial Corp. is a smaller reporting company and therefore not required to provide a CD&A. However, the Company has provided the information herein with a goal of transparency to investors. Our compensation program is designed to attract, motivate and retain the colleagues who lead our business. In particular, this CD&A explains how the Compensation Committee made 2019 compensation decisions for the following named executive officers, or NEOs:

 

Name

  

Position

Alvin Murstein    Chairman and Chief Executive Officer
Andrew M. Murstein    President and Chief Operating Officer
Larry D. Hall    Senior Vice President and Chief Financial Officer
Donald S. Poulton    Chief Executive Officer and President of Medallion Bank
Alexander S. Travis    President of Medallion Capital, Inc.

Our Business Roots

We are a finance company whose strategic focus and growth has been through Medallion Bank, which originates consumer loans for the purchase of recreational vehicles, boats and trailers and to finance small-scale home improvements. We historically have had a leading position in originating, acquiring, and servicing loans that finance taxicab medallions and various types of commercial businesses. Since Medallion Bank acquired a consumer loan portfolio and began originating consumer loans in 2004, it has increased its consumer loan portfolio at a compound annual growth rate of 16% (19% if there had been no loan sales during 2017, 2018 and 2019).

A Shifting Business Strategy and Organization Model

In January 2017, we announced our plans to transform our strategy to transition away from taxi medallion lending, a business significantly challenged by competition of ride share companies, to focus on our consumer finance portfolio. In early 2018, management laid out a three-prong strategy to reduce the Company’s medallion exposure, grow consumer segments and deconsolidate the Taxi Medallion Loan Trust III, or Trust III, facility. We believe our business transformation will result in our long-term profitability and success.

Also in 2018, a majority of our shareholders authorized our Board of Directors to withdraw our election to be regulated as a business development company, or BDC, under the 1940 Act. Effective April 2, 2018, following the approval of our shareholders, we withdrew our election to be regulated as a BDC and since that time we have operated and will continue to operate as a non-investment company. This withdrawal allowed us to consolidate the financial results of our primary operating subsidiary, Medallion Bank, and controlled or majority-owned portfolio investments together with the Company. This transition has simplified our reporting and more accurately reflects our operating results.

2019 – A Year of Continued Progress

Management’s strategic priorities for 2019 were to continue reducing the Company’s medallion losses and portfolio, raise capital and begin the process to provide loan origination services to the fintech industry. Our execution of these initiatives proved successful and management delivered on continuing to progress towards our

 

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goal to return to profitability. Overall, 2019 was a strong year for the Company. Our significant improvements and progress, as of December 31, 2019, included:

 

   

2019 losses were $1.8 million compared to a loss of $25.0 million in 2018;

 

   

Net income from the Company’s consumer and commercial segments was $31.9 million for the twelve months ended December 31, 2019, compared to $30.5 million for the nine months ended December 31, 2018;

 

   

Net consumer loans grew 23% year over year;

 

   

Consumer originations were $443.5 million in 2019, up 9% from $408.4 million in 2018;

 

   

Net interest margin was 8.64% for the twelve months ended December 31, 2019, compared to 8.19% for the nine months ended December 31, 2018;

 

   

Net cash flow from operations was $64.9 million in 2019, compared to $66.6 million in 2018;

 

   

Reduced medallion lending portfolio by 33% from $155.9 million in 2018 to $105.0 million in 2019;

 

   

Total medallion loans 90 days or more past due were $2.6 million, or 2.0% of total medallion loans at the end of 2019, compared to $16.7 million, or 9.4% of total medallion loans at the end of 2018; and

 

   

Medallion losses dropped from $27.6 million in 2018 to $23.5 million in 2019, and were $52.9 million in 2018 adjusting for the Trust III gain.

Medallion Bank’s ability to originate consumer loans has been highly successful and will continue to drive meaningful value for the Company and its shareholders. While the Company has faced challenges in recent years, our progress has been significant and we are confident our results will result in long-term positive shareholder value.

Impact of Say on Pay Vote and Shareholder Engagement

As required by Section 14A of the Exchange Act, our shareholders voted on a non-binding advisory resolution regarding the compensation of the NEOs at the 2019 Annual Meeting of Shareholders. We, the Board of Directors and the Compensation Committee pay careful attention to communication received from shareholders regarding executive compensation, including the non-binding advisory vote.

The Company received shareholder support for our non-binding advisory resolution of 87.3% in 2019, compared to 66.3% shareholder approval at our 2018 Annual Meeting of Shareholders. We believe the 2019 shareholder vote supports the work of the Compensation Committee and that our executive compensation programs are aligned with shareholders’ interests.

Compensation Best Practices

The principles of our executive compensation programs are to encourage good governance, protect and promote the interests of our shareholders, align the interests of our executives with those of the Company, promote a culture of integrity and accountability, and enhance shareholder value. Below we summarize our compensation best practices:

 

   

Stock Ownership Guidelines – We require our executives and directors to own and hold shares in the Company. (See page 42 for a description of our new policy.)

 

   

Compensation Recoupment Policy – We have adopted a compensation recoupment policy requiring the return of incentive compensation in the event of a financial restatement or in the event an executive engages in conduct that is detrimental to the Company. (See page 42 for a description of our new policy.)

 

   

Independent Compensation Advisor – The Compensation Committee engaged Meridian Compensation Partners, LLC (“Meridian”) as its independent compensation consultant.

 

   

Performance-Based Compensation – A significant portion of our executive compensation is paid based on performance.

 

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Corporate Governance Documents – We have adopted the following policies:

 

   

Code of Ethical Conduct and Insider Trading Policy, which, among other guidelines, prohibits short sales, investments in derivatives of the Company’s securities and margin purchases; and

 

   

Code of Ethical Conduct for Senior Financial Officers.

 

   

No repricing of awards without shareholder approval.

Other Changes Implemented in 2019

In addition to the new stock ownership guidelines and recoupment policy described above, the Compensation Committee also worked with Meridian to make the following improvements to our compensation programs:

 

   

Developed and implemented a performance-based “scorecard” to provide structure for determining the annual incentive payouts and annual equity awards. (See the “Annual Incentive” section on page 36 for a breakdown of performance metrics and targets.)

 

   

Added stock options to the Long-Term Incentive Program to provide a mix of 50% stock options and 50% time-based restricted stock to increase executives’ alignment with shareholders. Such grants were allocated based on the Compensation Committee’s assessment of the Company’s prior year performance and consideration of the new performance-based scorecard, as well as individual performance and contribution.

 

   

Made changes to the Board of Directors compensation program relative to the market and have nominated a female member to the Board of Directors in order to increase diversity.

In 2020, we will continue to consider potential changes in line with other governance initiatives.

EXECUTIVE COMPENSATION PROGRAM AND PAY DECISIONS

The primary objective of our compensation program is to establish compensation levels that enable us to attract, retain and reward executive officers who contribute to our long-term success, to tie annual and long-term cash and equity incentives to the achievement of measurable corporate, business unit and individual performance objectives, and to align executives’ incentives with shareholder value creation.

Principal Elements of Pay

Our executive compensation program emphasizes performance-based (i.e. variable) pay that is essential to motivating and rewarding company, business unit and individual performance that supports our business strategy and drives shareholder value. Our policy is to provide total compensation packages that are competitive within our industry and designed to enable us to attract and retain highly qualified and industrious executives. The three primary components of our compensation program are base salary, annual discretionary cash incentives and longer-term equity incentive awards. Each of these elements serves a specific purpose in our compensation strategy.

 

Element

  

Form

  

Purpose/Description

Base Salary    Cash    We pay a competitive base salary rate to attract and retain highly skilled executive talent.
Annual Incentive    Cash    Incentives are variable and designed to motivate and reward specific goals relative to our annual business plans and objectives.
Equity Incentive   

Equity (restricted

stock and

stock options)

   In 2019, we shifted from a long-term incentive program based 100% on restricted stock to a mix of stock options and restricted stock to better reinforce our performance-based approach, align our executives with shareholders and reward for stock price appreciation.

 

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In implementing our compensation policy, we seek to tie compensation to our financial performance and business objectives, reward high levels of individual performance and base a significant portion of total executive compensation on our annual and long-term performance. While peer group and compensation survey data are useful guides for comparative purposes, we believe that a successful compensation program also requires the Compensation Committee’s application of judgment and subjective determinations of corporate and individual performance.

BENCHMARKING

The Compensation Committee engaged Meridian as its independent compensation consultant to review our executive compensation. During 2018, Meridian developed a new peer group, which was used as a reference for 2019 pay decisions and a framework for developing the 2019 program.

Due to our unique business model, there are a limited number of direct peers in related industries. Meridian designated four criteria in identifying peer companies:

 

  1.

Universe: Publicly-traded U.S. companies.

 

  2.

Industry/Sub-Industry: Companies that operate in similar lines of business as us, as reflected in Global Industry Classification Standard, or GICS, classifications. The compensation consultant screened companies in our GICS industry, Consumer Finance, which includes both Consumer Finance and Specialized Finance GICS sub-industries.

 

  3.

Size: Due to our focus on consumer and commercial lending, the primary focus was on the assets screen, with Medallion positioned within a reasonable range of the median.

 

  4.

Other Characteristics: Companies considered business competitors as designated by the Compensation Committee and analyzed by prevalence in “peers of peers” of competitors.

The Company’s peer group was approved by the Compensation Committee and includes the following 18 companies:

 

ConnectOne Bancorp, Inc.

  

McGrath RentCorp

Encore Capital Group, Inc.

  

On Deck Capital, Inc.

PRA Group, Inc.

  

Marlin Business Services Corp.

CAI International, Inc.

  

CURO Group Holdings

Consumer Portfolio Services, Inc.

  

Regional Management Corp.

Mobile Mini, Inc.

  

World Acceptance Corporation

Willis Lease Finance Corporation

  

Elevate Credit, Inc.

Enova International, Inc.

  

General Finance Corporation

EZCORP, Inc.

  

Atlanticus Holdings Corporation

2019 Total Compensation Components and Pay Decisions

Base Salary

We provide our NEOs with base salary as a base level of compensation to compensate them for serving in their respective roles during the fiscal year. Base salary ranges for NEOs are determined based on each NEO’s position and duties and in consideration of competitive market data.

Salaries are reviewed by the Compensation Committee each year, or in the event of a promotion or other significant change in responsibilities. Any increases consider a review and evaluation of an NEO’s performance, the Company’s performance and market data for similar roles at companies similar in industry and size.

 

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In early 2019, our NEOs received modest increases in base salary. These decisions were made by the Compensation Committee and ratified by the Board of Directors at their respective February 2019 meetings and communicated to each NEO shortly thereafter.

The table below illustrates the percentage increases in NEO base salary from 2018 to 2019.

 

Name and Principal Position

   2018
Salary
($)
   2019
Salary
($)
   Increase
(%)

Alvin Murstein

       868,972        890,696        2.5 %

Chairman, Chief Executive Officer and Director

              

Andrew M. Murstein

       1,017,040        1,042,466        2.5 %

President, Chief Operating Officer and Director

              

Larry D. Hall

       328,305        336,512        2.5 %

Senior Vice President and Chief Financial Officer

              

Donald S. Poulton

       344,793        355,137        3 %

Chief Executive Officer and President of Medallion Bank

              

Alexander S. Travis

       289,117        325,000        12.4 %

President of Medallion Capital, Inc.

              

Annual Incentive

NEOs are eligible for annual cash incentives, as determined by the Compensation Committee and ratified by the Board of Directors. The purpose of the annual incentives are to compensate NEOs based on their achievements of Company financial and operational goals, as well as division and individual performance objectives. For the 2019 incentive decisions, the Compensation Committee used a newly developed Annual Incentive Plan, which was designed to:

 

   

Recognize and reward achievement of the Company’s annual business goals that are critical to the long-term success of the Company;

 

   

Focus participants’ attention on key business metrics;

 

   

Motivate and reward superior performance;

 

   

Attract and retain talent needed for the Company’s success;

 

   

Be competitive with the market;

 

   

Encourage teamwork and collaboration through shared goals; and

 

   

Ensure incentives to support sound risk management practices.

 

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Under the Annual Incentive Plan, the Compensation Committee selected relevant performance metrics and target goals for the fiscal year ended December 31, 2019. For each NEO, performance metrics and targets were selected and assessed by the Compensation Committee and discussed individually and in aggregate as follows. There was no specific weighting assigned for each performance metric as the Compensation Committee retained discretion to evaluate performance in a comprehensive manner:

Alvin Murstein, Chairman and Chief Executive Officer:

 

Performance Metrics

  

Performance Target

  

Actual Performance as of
December 31, 2019

Share price performance/Total shareholder return

   10% increase    55% increase

Medallion lending segment portfolio reduction

   15% decrease    30% decrease

Cash payments and recoveries for medallion segment assets

   20%    14.05%

Success and implementation of strategic initiatives

   Qualitative: Strategic plans, capital raising, review of investment opportunities and new lines of business    At or above expectation

Individual performance

   Qualitative: Execution and historical analysis of decision making    At or above expectation

Andrew M. Murstein, President and Chief Operating Officer:

 

Performance Metrics

  

Performance Target

  

Actual Performance as of
December 31, 2019

Share price performance/Total shareholder return

   10% increase    55% increase

Success and implementation of strategic initiatives

   Qualitative: Strategic plans, capital raising, review of investment opportunities and new lines of business    At or above expectation

Individual performance

   Qualitative: Execution and historical analysis of decision making    At or above expectation

Larry D. Hall, Senior Vice President and Chief Financial Officer:

 

Performance Metrics

  

Performance Target

  

Actual Performance as of
December 31, 2019

Share price performance/Total shareholder return

   10% increase    55% increase

Success and implementation of strategic initiatives

   Qualitative: Strategic plans, capital raising, review of investment opportunities and new lines of business    At or above expectation

Individual performance

   Qualitative: Execution and historical analysis of decision making    At or above expectation

 

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Donald S. Poulton, President and Chief Executive Officer of Medallion Bank:

 

Performance Metrics

  

Performance Target

  

Actual Performance as of
December 31, 2019

Share price performance/Total shareholder return

   10% increase    55% increase

Consumer lending segments return on assets

  

3.5% (recreation)

2% (home improvement)

  

3.84% (recreation)

2.20% (home improvement)

Consumer lending segments return on equity

  

16% (recreation)

11% (home improvement)

  

17.19% (recreation)

10.22% (home improvement)

Consumer lending segments net charge-off ratio

  

3.5% (recreation)

1.5% (home improvement)

  

2.69% (recreation)

0.37% (home improvement)

Consumer lending segments portfolio growth

  

15% (recreation)

25% (home improvement)

  

20% (recreation)

35% (home improvement)

Success and implementation of strategic initiatives

  

Qualitative: Strategic plans, capital raising, review of investment opportunities and new lines of business

  

At or above expectation

Individual performance

   Qualitative: Execution and historical analysis of decision making    At or above expectation

Alexander S. Travis, President of Medallion Capital, Inc.:

 

Performance Metrics

  

Performance Target

  

Actual Performance as of
December 31, 2019

Share price performance/Total shareholder return

   10% increase    55% increase

Commercial lending segments return on assets

   3%    2.44%

Commercial lending segments return on equity

   12%    12.21%

Commercial lending segments net charge-off ratio

   4%    1.30%

Commercial lending segments portfolio growth

   12%    11%

Success and implementation of strategic initiatives

   Qualitative: Strategic plans, capital raising, review of investment opportunities and new lines of business    At or Above Expectation

Individual performance

   Qualitative: Execution and historical analysis of decision making    At or Above Expectation

In determining the 2019 incentive awards, the Compensation Committee used qualitative assessment of overall performance against the performance metrics and targets applicable to each NEO (as described above) and approved the following amounts, which were ratified by the Board of Directors:

 

Name

   2019 Cash Bonus  

Alvin Murstein

   $ 244,965  

Andrew M. Murstein

   $ 1,338,000  

Larry D. Hall

   $ 194,140  

Donald S. Poulton

   $ 225,000  

Alexander S. Travis

   $ 62,500  

 

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Long-Term Incentive Compensation

Prior to April 1, 2018, we operated as a BDC under the 1940 Act, and the number of restricted stock, warrants, options or rights to subscribe or convert to our voting securities that we were able to issue was limited.

At our shareholder meeting on June 15, 2018, following our change from a BDC to a non-investment company, shareholders approved the 2018 Equity Incentive Plan, or the 2018 Plan. The 2018 Plan provides for grants of stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance awards, and other awards that may be settled in or based upon our Common Stock to our directors, employees, and any person who has been offered employment by us; provided that such prospective employee could not receive any payment relating to an equity incentive award until such person has commenced employment with us. The Compensation Committee is authorized to grant equity incentive awards. A grant of an equity incentive award is subject to certain forfeiture provisions and thus are restricted as to transferability until such forfeiture restrictions have lapsed. The restrictions on equity incentive awards issued pursuant to the 2018 Plan may be related to continued service to us, the achievement of specified performance objectives, or other restrictions deemed by the Compensation Committee from time to time to be appropriate and in our best interests and in the interests of our shareholders.

Prior to the 2018 Plan, the Company had a 2015 Employee Restricted Stock Plan, a 2009 Employee Restricted Stock Plan and a 2006 Employee Stock Option Plan, all of which are no longer active (i.e. no shares can be allocated from these plans), although unvested shares remain outstanding under these plans.

In 2019, we added stock options to the long-term incentive program to provide a mix of 50% stock options and 50% time based restricted stock and increase executives’ alignment with shareholders. The grants of stock options and restricted stock to NEOs in early 2019 were allocated based on the Compensation Committee’s assessment of the Company’s prior year (i.e. 2018) performance (and consideration of annual incentive scorecard metrics), as well as each individual’s role, performance and contribution. The Compensation Committee considered the Company’s performance of the following Company metrics when making grants to NEOs in early 2019:

 

   

Share price performance in relation to peers, the industry and overall markets

 

   

Consolidated return on assets

 

   

Consolidate return on equity

 

   

Consolidated efficiency ratio

 

   

Consolidated adjusted tangible book value growth

 

   

Total Shareholder return

 

   

Consolidated net charge-off ratio

 

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In addition to the above referenced overall Company metrics, the Compensation Committee considered additional business segment/individual performance metrics which varied by each NEO’s role, as summarized below.

 

Name

  

Business Segment/Individual Metrics Considered in Addition to the

Overall Company Metrics

Alvin Murstein

   Medallion lending segment portfolio reduction; and Collections/recoveries for medallion lending segment.

Andrew M. Murstein

   Success and implementation of strategic initiatives.

Larry D. Hall

   Medallion lending segment portfolio reduction; and Collections/recoveries for medallion lending segment.

Donald S. Poulton

   Consumer lending segments return on assets; Consumer lending segments return on equity; Consumer lending segments efficiency ratio; Consumer lending segments adjusted tangible book value growth; Consumer lending segments net charge-off ratio; and Consumer lending segments portfolio growth.

Alexander S. Travis

   Commercial lending segment return on assets; Commercial lending segment return on equity; Commercial lending segment efficiency ratio; Commercial lending segment adjusted tangible book value growth; Commercial lending segment net charge-off ratio; and Commercial lending segment portfolio growth.

The 2019 equity grants, approved by the Compensation Committee and ratified by the Board of Directors, considered the combination of overall Company metrics and business segment/individual metrics applicable to each NEO. Grants were made in March 2019 and vest in four equal annual installments over four years. Details are provided in the 2019 Grants of Plan-Based Awards and Outstanding Equity Awards at 2019 Fiscal Year-End on pages 46 and 47.

Benefits

The Company provides limited benefits and perquisites to NEOs. NEOs participate in the same benefits as employees, including the 401(k) Investment Plan.

Employee Benefits: NEOs are eligible to participate in all of our employee benefit plans, such as medical, dental, vision, group life, disability, and accidental death and dismemberment insurance, in each case on the same basis as other employees.

401(k) Plan: Since 1996, we have maintained our 401(k) Investment Plan which covers all our full- and part-time employees who have attained the age of 21 and have a minimum of one year of service. Under the 401(k) Investment Plan, an employee may elect to defer not less than 1.0% of his or her total annual compensation, up to the applicable limits set forth in the Internal Revenue Code (the “Code”). Employee contributions are invested in various mutual funds, according to the direction of the employee. We match employee annual contributions to the 401(k) Investment Plan in an amount equal to one-third of the first 6% of an employee’s annual contributions, subject to legal limits.

Perquisites: We provide NEOs with perquisites that we and the Compensation Committee believe are reasonable and consistent with market practice to better enable us to attract and retain superior employees for key positions. The Compensation Committee periodically reviews the levels of perquisites and other personal benefits provided to NEOs.

All of our NEOs are provided with a monthly car allowance, which allows such NEOs to visit clients. In addition, we provide Messrs. Alvin Murstein and Andrew M. Murstein each with a country club membership,

 

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social club memberships, term life insurance, incidental costs related to their automobiles such as parking and car insurance and pay for their pro-rated use of our company driver. We believe that the perquisites provided for Messrs. Murstein reflect their roles and contributions to our overall organization. Attributed costs of the personal benefits for the NEOs for the fiscal year ended December 31, 2019 are included in the column titled “All Other Compensation” of the Summary Compensation Table on page 45.

Employment Agreements: We enter into new employment agreements with NEOs only when necessary or appropriate to attract or retain exceptional personnel. Any employment agreement with an executive officer (a) must be approved by the Compensation Committee; and (b) if required by law to be available for public review, must be filed promptly with the appropriate regulatory authority.

Our Compensation Committee authorized the various change in control and severance provisions under our NEO employment agreements in recognition of the importance to us and our shareholders of assuring that we have the continued dedication and full attention of our NEOs prior to and after the consummation of a change in control event. In addition to the foregoing, the provisions are intended to ensure that, if a possible change in control should arise and an NEO should be involved in deliberations or negotiations in connection with the possible change in control, such NEO would be in a position to consider as objectively as possible whether the possible change in control transaction is in our best interests and those of our shareholders, without concern for his position or financial well-being. Absent termination without cause or for good reason, or a change of control event, no NEO is entitled to either equity vesting acceleration or cash severance payments upon termination of employment. For quantification of these severance and change of control benefits, please see the discussion under “Executive Compensation – Potential Payments Upon Termination or Change-in-Control” on page 48.

ROLES OF THE COMPENSATION COMMITTEE, MANAGEMENT AND CONSULTANTS

Role of Compensation Committee

The Compensation Committee of the Board of Directors is responsible for evaluating and determining the compensation of our NEOs and our directors. This includes oversight of the executive compensation program for the CEO and other executive officers, including base salary, annual bonus, equity compensation and other benefits and perquisites. The Compensation Committee is comprised solely of independent directors and regularly meets in executive session without management. The full Board of Directors typically ratifies the Compensation Committee’s annual determination of NEO compensation.

The Compensation Committee has the sole authority and resources to obtain advice and assistance from internal and external legal and compensation consultants.

Role of Management

Our President and Chief Financial Officer, with the assistance of our human resources department, compile and provide information, make recommendations for the Compensation Committee’s consideration and assist in the management and administration of our executive and other benefit plans. Their responsibilities may include the following:

 

   

Recommending pay levels and equity grants and incentive awards for our other officers;

 

   

Recommending changes to ensure that our compensation programs remain competitive and aligned with our objectives; and

 

   

Providing information to the Compensation Committee, including but not limited to, information concerning (1) Company and individual performance, (2) the attainment of our strategic objectives, (3) the Common Stock ownership of each executive and his or her stock option and restricted stock holdings, (4) equity compensation plan dilution, and (5) peer group compensation and performance data.

 

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Our NEOs may attend the meetings of the Compensation Committee, at its request, but do not participate in meetings where their compensation is deliberated or approved.

Role of Compensation Consultant

During 2019, the Compensation Committee retained the services of Meridian as its independent compensation consultant. Meridian assisted us in developing a new peer group and incentive plan design changes, as well as implementing risk mitigating compensation practices such as stock ownership guidelines and compensation recoupment policy. Meridian reports directly to the Compensation Committee and does not provide any other services to the Company. The Compensation Committee evaluated the consultant relative to the Commission’s independence factors and determined Meridian is independent.

POLICIES AND PRACTICES

Stock Ownership Guidelines

The Company’s Stock Ownership Guidelines were adopted in 2019 and seek to align the long-term financial interests of our executive officers and Board of Directors with the interests of our shareholders, promote our commitment to sound corporate governance and demonstrate our executive officers and directors commitment to the Company. Our Stock Ownership Guidelines apply to all executive officers and non-employee directors. An executive officer’s or director’s stock ownership guidelines is determined as a multiple of such individual’s annual base salary or cash retainer as follows:

 

Position

  

Value of Shares

Tier 1 Executives(1)    5x Annual Base Salary
Tier 2 Executives(2)    2x Annual Base Salary
Tier 3 Executives(3)    1x Annual Base Salary
Non-Employee Directors    5x Annual Cash Retainer

 

(1)

Tier 1 Executives includes the Chief Executive Officer and President of the Company.

(2)

Tier 2 Executives includes the Chief Financial Officer of the Company and the division head executive officers.

(3)

Tier 3 Executives includes the executive officers designated by the Board of Directors of the Company.

Shares that count towards the satisfaction of the Company’s Stock Ownership Guidelines include shares owned outright by an executive officer or director, or jointly with, or separately by, the individual’s immediate family members residing in the same household, time-based vesting restricted shares or restricted stock units whether or not vested, and vested but unexercised in-the-money stock options. Executive officers and directors are required to achieve their stock ownership guidelines within five years of first becoming subject to the Company’s Stock Ownership Guidelines. Fifty percent of the net shares (shares received after tax withholding and any shares retained to satisfy transaction costs) of Company stock received as an equity award from the Company must be held until an executive officer or director has complied with the Company’s Stock Ownership Guidelines. Compliance with the Company’s Stock Ownership Guidelines will be reviewed annually by the Compensation Committee.

Compensation Recoupment (Clawback) Policy

The Company’s Compensation Recoupment Policy seeks to promote a culture of risk mitigation, integrity and accountability. The Compensation Recoupment Policy provides recoupment or clawback of incentive compensation in the event of a financial restatement or the employee’s detrimental conduct.

The Compensation Committee administers the Compensation Recoupment Policy and has the authority to interpret and implement the terms of such policy, exercise (or determine not to exercise) the powers granted to it thereunder, and make determinations under the policy.

 

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No Repricing of Awards

Awards under the 2018 Plan may not be repriced without shareholder approval. For purposes of the 2018 Plan, “repricing” means any of the following (or any other action that has the same effect as any of the following): (i) changing the terms of the award to lower its exercise price or base price (other than on account of capital adjustments resulting from stock splits), (ii) any other action that is treated as a repricing under generally accepted accounting principles, and (iii) repurchasing for cash or canceling an award in exchange for another award at a time when its exercise price or base price is greater than the fair market value of the underlying stock.

Impact of Tax Treatment

While our general policy is to maximize the deductibility of compensation, it does not preclude awards or payments that are not fully deductible if, in our judgment, such awards and payments are necessary to achieve our compensation objectives and to protect shareholder interests.

Hedging Policy

The Company’s Code of Ethical Conduct and Insider Trading Policy prohibits any officers or directors of the Company or its subsidiaries, its other employees, consultants, contractors and investment advisors, as well as members of such persons’ immediate families and personal households (“Covered Persons”) from engaging in short sales of the Company’s securities and margin purchases. Covered Persons are also prohibited from investing in Company-based derivative securities, which includes (without limitation) trading in Company-based put or call option contracts, trading in straddles and the like, but does not include holding and exercising stock options or other derivative securities granted under the Company’s stock incentive plans.

 

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COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

THE COMPENSATION COMMITTEE

Allan J. Tanenbaum, Chairman

Henry L. Aaron

John Everets

Frederick A. Menowitz

 

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Summary Compensation Table

The following table sets forth certain compensation paid, awarded or earned by (i) our Chief Executive Officer, (ii) our Chief Financial Officer, and (iii) each of our next three most highly compensated executive officers, collectively the NEOs, for the fiscal years ended December 31, 2019, December 31, 2018, and December 31, 2017.

 

Name and Principal Position

   Year    Salary
($)
   Bonus
($)
   Restricted
Stock
Awards
($)(1)
   Stock
Option
Awards
($)(2)
   All Other
Compensation
($)
  Total
($)

Alvin Murstein

       2019        890,696        244,965        105,000        105,000        154,450 (3)        1,500,111

Chairman, Chief Executive Officer and Director

       2018        868,972        210,000        100,000        —          150,648       1,329,620
       2017        868,972        272,000        100,001        —          118,779       1,359,752

Andrew M. Murstein

       2019        1,042,466        1,338,000        297,000        297,000        138,550 (4)        3,113,016

President, Chief Operating Officer and Director

       2018        1,017,040        1,386,000        —          —          140,269       2,543,309
       2017        1,017,040        975,000        199,999        —          153,623       2,345,662

Larry D. Hall

       2019        336,512        194,140        80,000        80,000        27,799 (5)        718,451

Senior Vice President and Chief Financial Officer

       2018        328,305        175,000        75,000        —          27,124       605,429
       2017        325,054        150,000        75,001        —          27,599       577,654

Donald S. Poulton

       2019        355,137        225,000        65,000        65,000        17,599 (6)        727,736

Chief Executive Officer and President of Medallion Bank

       2018        344,793        255,000        50,000        —          17,171       666,964
       2017        334,750        250,000        49,999        —          17,399       652,148

Alexander S. Travis(7)

       2019        325,000        62,500        25,000        25,000        17,296 (8)        454,796

President of Medallion Capital, Inc.

                                 

 

(1)

This amount is the aggregate grant date fair value of restricted stock awards with respect to the fiscal years ended December 31, 2019, December 31, 2018, and December 31, 2017 computed in accordance with FASB ASC Topic 718. See Note 10 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for all assumptions made in the valuation.

(2)

This amount is the aggregate grant date fair value of stock option awards with respect to the fiscal years ended December 31, 2019, December 31, 2018, and December 31, 2017 computed in accordance with FASB ASC Topic 718. See Note 10 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for all assumptions made in the valuation.

(3)

All other compensation for Alvin Murstein for the fiscal year ended December 31, 2019 includes $48,592 for a country club membership, $29,564 for his pro-rated use of our driver, and our aggregate incremental costs attributable to a garage, car insurance, three social club memberships and term life insurance premiums paid by us for the benefit of Mr. Murstein and his spouse and amounts received pursuant to the matching program under our 401(k) Investment Plan.

(4)

All other annual compensation for Andrew M. Murstein for the fiscal year ended December 31, 2019 includes $49,718 for his pro-rated use of our driver, and our aggregate incremental costs attributable to a car lease, garage, car maintenance, car insurance, a country club membership, a social club membership and amounts received pursuant to the matching program under our 401(k) Investment Plan.

(5)

All other annual compensation for Larry D. Hall for the fiscal year ended December 31, 2019 includes amounts received as a monthly car allowance, a reimbursement of commuting expenses and amounts received pursuant to the matching program under our 401(k) Investment Plan.

(6)

All other annual compensation for Donald S. Poulton for the fiscal year ended December 31, 2019 includes amounts received as a monthly car allowance and amounts received pursuant to the matching program under our 401(k) Investment Plan.

 

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(7)

Alexander S. Travis was not a named executive officer of the Company for the fiscal years ended December 31, 2018 and December 31, 2017, and therefore disclosure of the compensation information for those years is not required under the rules of the Commission.

(8)

All other annual compensation for Alexander S. Travis for the fiscal year ended December 31, 2019 includes amounts received as a monthly car allowance and amounts received pursuant to the matching program under our 401(k) Investment Plan.

2019 Grants of Plan-Based Awards

 

Name

   Grant
Date
   Stock Awards:
Number of
Shares (#)
   Stock Option
Awards:
Number of
Securities
Underlying
Options (#)
   Exercise or
Base Price
of Option
Awards($)
   Grant Date Fair
Value of
Stock and
Option Awards

($)(1)

Alvin Murstein

       03/21/2019        16,031                  105,000
       03/21/2019             34,899        6.55        105,000

Andrew M. Murstein

       03/21/2019        45,344                  297,000
       03/21/2019             98,713        6.55        297,000

Larry D. Hall

       03/21/2019        12,214                  80,000
       03/21/2019             26,589        6.55        80,000

Donald S. Poulton

       03/21/2019        9,924                  64,924
       03/21/2019             21,604        6.55        64,924

Alexander S. Travis

       03/21/2019        3,817                  25,000
       03/21/2019             8,309        6.55        25,000

 

(1)

This amount is the grant date fair value of the restricted stock awards or stock option awards computed in accordance with FASB ASC Topic 718. See Note 10 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for all assumptions made in the valuation.

Narrative Discussion for Summary Compensation Table and 2019 Grants of Plan-Based Awards Table

Employment Agreements

In May 1996, Alvin Murstein, our Chairman and Chief Executive Officer, and Andrew M. Murstein, our President, entered into employment agreements with the Company, which were subsequently amended and restated in May 1998 and were further amended in April 2017 and December 2017. The agreements provide for a five-year term and automatically renew each year for a new five-year term unless either party terminates the agreement. The agreements provide that Alvin Murstein and Andrew M. Murstein shall receive a minimum annual base salary of $300,000 and $225,000 respectively, which may be increased by the Compensation Committee. The agreements also subject Messrs. Murstein to non-competition and non-solicitation obligations during their employment and for one year thereafter. The agreements provide for a severance payment in the event that we terminate their employment without cause (as defined in the agreements) or if they terminate their employment for good reason (as defined in the agreements). The severance payment is equal to the average of their salary, bonus and value of fringe benefits for the prior three fiscal years multiplied by the number of full and partial years remaining in the term of employment at the time of termination, plus any other damages including legal fees and/or acceleration of vesting of any unvested options. The agreements provide that if payments made to Messrs. Murstein are subject to an excise tax as excess parachute payments by the Code, we will gross up the compensation to fully offset the excise taxes. However, if the payment does not exceed the excise tax threshold by more than 10%, we will reduce the payment so that no portion of the payment is subject to excise tax and no gross-up would be made.

 

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In March 2017, Larry D. Hall, our Chief Financial Officer, entered into a letter agreement with us, which has no termination date. Mr. Hall is entitled to a severance payment equivalent to his total compensation, which includes base salary, cash bonus and the cost of benefits and perquisites, for the prior fiscal year if we terminate his employment without cause (as defined in the agreement) or upon a change in control (as defined in the agreement) if he is not offered an equivalent position (in respect of pay or responsibilities) in connection therewith.

Donald S. Poulton, the President and Chief Executive Officer of Medallion Bank, entered into an agreement with the Company and Medallion Bank, which became effective on January 1, 2016. The agreement provides for a two-year term and automatically renews each year for a new two-year term unless either party terminates the agreement. Under the agreement, Mr. Poulton is entitled to an annual base salary of $325,000 with annual increases at a rate of no less than 3% of his then existing base salary. Mr. Poulton is also eligible to receive a discretionary bonus, provided, however, that if the return on equity, or ROE, and return on assets, or ROA, for Medallion Bank’s consumer lending products are similar to the ROE and ROA for such lines as the average for the 2014 and 2015 fiscal years, Mr. Poulton will receive a minimum bonus of $225,000. The agreement provides for a severance payment if Mr. Poulton’s employment is terminated by the Company without cause (as defined in the agreement) or on account of disability or by Mr. Poulton for good reason (as defined in the agreement) or, upon a change in control (as defined in the agreement), if the agreement is not assumed by the successor corporation or Mr. Poulton is not offered employment on similar terms; upon such termination other than a termination on account of disability, all unvested stock options or restricted shares of Mr. Poulton will become immediately vested and any forfeiture restrictions will lapse. Upon a change in control where the agreement is assumed by the successor corporation or Mr. Poulton is offered employment on similar terms, Mr. Poulton is entitled to receive a lump sum payment representing his base salary for the prior nine months. The agreement also includes non-competition and non-solicitation obligations during his employment and for 24 months thereafter, except such obligations do not apply following a termination of Mr. Poulton’s employment by the Company without cause or by Mr. Poulton for good reason, non-extension of the term by the Company or, for certain non-competition obligations, a termination on account of disability.

Outstanding Equity Awards at 2019 Fiscal Year-End

 

    Option Awards   Restricted Stock Awards

Name

  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
  Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
  Option
Exercise
Price ($)
  Option
Expiration
Date
  Number of Shares
of
Stock That Have
Not Vested (#)
  Market Value of
Shares of
Stock
That Have Not
Vested ($)(1)

Alvin Murstein

  —     34,899(2)   6.55   3/21/2029   16,031(3)   116,545
          15,186(4)   110,402

Andrew M. Murstein

  —     98,713(2)   6.55   3/21/2029   45,344(3)   329,651

Larry D. Hall

  —     26,589(2)   6.55   3/21/2029   12,214(3)   88,796
          11,389(4)   82,798

Donald S. Poulton

  —     21,604(2)   6.55   3/21/2029     9,924(3)   72,147
            7,593(4)   55,201

Alexander S. Travis

  —     8,309(2)   6.55   3/21/2029     3,817(3)   27,750

 

(1)

The market value of shares of stock that have not vested was calculated by using the closing price of the Company’s Common Stock on December 31, 2019, which was $7.27.

(2)

One fourth of these stock option awards vested on February 14, 2020, one fourth will vest on February 14, 2021, one fourth will vest on February 14, 2022 and the remaining one fourth will vest on February 14, 2023.

 

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(3)

One fourth of these shares of restricted stock vested on February 14, 2020, one fourth will vest on February 14, 2021, one fourth will vest on February 14, 2022 and the remaining one fourth will vest on February 14, 2023.

(4)

One half of these shares of restricted stock vested on February 20, 2020 and the remaining one half will vest on February 20, 2021.

2019 Option Exercises and Stock Vested

The following table sets forth certain information concerning stock options exercised and stock vested during the last fiscal year for our NEOs:

 

     Option Awards    Stock Awards

Name

   Number of
Shares
Acquired on
Exercise (#)
   Value
Realized on
Exercise
($)
   Number of
Shares
Acquired on
Vesting (#)
   Value
Realized on
Vesting
($)

Alvin Murstein

       —          —          7,593        44,039

Andrew M. Murstein

       —          —          —          —  

Larry D. Hall

       —          —          5,695        33,031

Donald S. Poulton

       —          —          3,797        22,023

Alexander S. Travis

       —          —          —          —  

Potential Payments Upon Termination or Change-in-Control

The following table sets forth information regarding potential payments to be made to the NEOs following an employment termination or change of control. Amounts in the table assume an employment termination or change in control on December 31, 2019.

 

Name

   Termination
Without
Cause
($)
  Termination
by Officer
for Good
Reason (Not
Involving
Change of
Control)
($)
  Disability
($)
  Change of
Control -
Termination
without
Cause or for
Good Reason
or due to
Change
in
Employment
($)
  Change of
Control -
Employment
Agreement
Assumed By
New Owner
($)

Alvin Murstein

                    

Severance

       5,640,206 (1)        —         —         5,640,206 (1)        —  

Other Benefits

       25,127 (1)        —         —         25,127 (1)        —  

Andrew M. Murstein

                    

Severance

       10,723,260 (2)        —         —         10,723,260 (2)        —  

Other Benefits

       71,073 (2)        —         —         71,073 (2)        —  

Larry D. Hall

                    

Severance

       575,382 (3)        —         —         575,382 (3)        —  

Other Benefits

       —         —             —         —  

Donald S. Poulton

                    

Severance

       443,921 (4)        443,921 (4)        177,568 (5)        443,921 (4)        266,352 (6) 

Other Benefits

       167,838 (7)        167,838 (7)        12,467 (8)        167,838 (7)        —  

Alexander S. Travis

                    

Severance

       —         —         —         —         —  

Other Benefits

       —         —         —         —         —  

 

(1)

Alvin Murstein would be entitled to an amount in a lump sum equal to the remainder of the salary, bonus and value of the fringe benefits which he would otherwise have been entitled to receive for the balance of

 

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his current employment term, which expires on May 29, 2024 (calculated by multiplying the average of his salary, bonus and value of the fringe benefits for the prior three fiscal years by the fractional number of years remaining on his employment term) and all stock options previously granted and unvested would immediately vest. The severance amount in the table was calculated based on the average of his salary, bonus and value of his fringe benefits for the fiscal years ended December 31, 2019, 2018 and 2017. The value of Mr. Murstein’s fringe benefits includes $106,474 for a car lease, $194,516 for a country club membership, $85,782 for his pro-rated use of our driver, $76,038 for health insurance, our aggregate incremental costs attributable to a garage, car insurance, three social club memberships, life insurance premiums paid by us for the benefit of Mr. Murstein and his spouse and amounts received pursuant to the matching program under our 401(k) Investment Plan. As of December 31, 2019, Mr. Murstein has 34,899 unvested stock options with an exercise price of $6.55 per share. The value associated with vesting of stock options that have not vested as of December 31, 2019 is $25,127, calculated by using the closing price of the Company’s Common Stock on December 31, 2019, which was $7.27.

(2)

Andrew M. Murstein would be entitled to an amount in a lump sum equal to the remainder of the salary, bonus and value of the fringe benefits which he would otherwise have been entitled to receive for the balance of his current employment term, which expires on May 29, 2024 (calculated by multiplying the average of his salary, bonus and value of the fringe benefits for the prior three fiscal years by the fractional number of years remaining on his employment term) and all stock options previously granted and unvested would immediately vest. The severance amount in the table was calculated based on the average of his salary, bonus and value of his fringe benefits for the fiscal years ended December 31, 2019, 2018 and 2017. The value of Mr. Murstein’s fringe benefits includes $271,628 for his pro-rated use of our driver, $92,684 for a car lease, $69,807 for a garage, $96,768 for a country club membership, $111,567 for health insurance, our aggregate incremental costs attributable to car maintenance, car insurance, a social club membership and amounts received pursuant to the matching program under our 401(k) Investment Plan. As of December 31, 2019, Mr. Murstein has 98,713 unvested stock options with an exercise price of $6.55 per share. The value associated with vesting of stock options that have not vested as of December 31, 2019 is $71,073, calculated by using the closing price of the Company’s Common Stock on December 31, 2019, which was $7.27.

(3)

Larry D. Hall would be entitled to an amount in a lump sum equal to his total compensation for the prior fiscal year. The severance amount in the table was calculated based on his salary and bonus for the fiscal year ended December 31, 2019, and value of his fringe benefits as of December 31, 2019. The value of Mr. Hall’s fringe benefits includes amounts received as a monthly car allowance, a reimbursement of commuting expenses, our aggregate incremental costs attributable to health insurance and amounts received pursuant to the matching program under our 401(k) Investment Plan.

(4)

Donald S. Poulton would be entitled to an amount in a lump sum equal to his salary for the balance of his current employment period, which expires on December 31, 2020, and two weeks’ base salary for each year employed, up to three months, subject to his execution of a release of claims in favor of the Company and its affiliates. The severance amount in the table was calculated based on his salary for the fiscal year ended December 31, 2019.

(5)

Donald S. Poulton would be entitled to continuation of his base salary for six months following a termination on account of disability, subject to his execution of a release of claims in favor of the Company and its affiliates. The severance amount in the table was calculated based on his salary for the fiscal year ended December 31, 2019.

(6)

Donald S. Poulton would be entitled to an amount in a lump sum equal to nine months’ salary upon the occurrence of a change in control (as defined in Mr. Poulton’s employment agreement) if Mr. Poulton’s employment agreement is assumed by the successor corporation or Mr. Poulton is offered employment on similar terms to the terms of Mr. Poulton’s employment agreement. The severance amount in the table was calculated based on his salary for the fiscal year ended December 31, 2019.

(7)

Donald S. Poulton would be entitled to receive his health benefits for the balance of his current employment term, all stock options previously granted would become immediately vested and exercisable, and not subject to any clawback, and all restricted stock previously granted would become immediately vested and not subject to forfeiture or clawback. As of December 31, 2019, Mr. Poulton has 21,604 unvested stock options with an exercise price of $6.55 per share and 17,517 unvested shares of restricted stock. The value

 

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associated with vesting of stock options and shares of restricted stock previously granted that have not vested as of December 31, 2019 is $142,903, calculated by using the closing price of the Company’s Common Stock on December 31, 2019, which was $7.27.

(8)

Donald S. Poulton would be entitled to receive his health benefits for the six months following a termination on account of disability.

Pay Ratio Disclosure

As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, we are providing the following information regarding the relationship of the annual total compensation of Alvin Murstein, our Chief Executive Officer, or the CEO, and the annual total compensation of our employees. We believe the pay ratio is a reasonable estimate calculated in a manner that is intended to be consistent with Item 402(u) of Regulation S-K.

For 2019, our last completed fiscal year, the median of the annual total compensation of all of our employees, excluding the CEO, was $74,692. The annual total compensation of the CEO, as reported in the Summary Compensation Table included in this proxy statement, was $1,500,111. Based on this information, for 2019, the ratio of the annual total compensation of the CEO to the median of the annual total compensation of all of our employees was 20 to 1.

We determined that, as of December 31, 2019, our employee population, excluding the CEO, consisted of approximately 190 individuals. The employee workforce consists of full-time, part-time, seasonal and temporary employees. For purposes of measuring the compensation of the employees, we selected total taxable earnings reported on each employee’s W-2 for the year ended December 31, 2019 as the most appropriate measure of compensation, which was consistently applied to all the employees included in the calculation. With respect to the total annual compensation of the “median employee,” we identified and calculated the elements of such employee’s compensation for 2019 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in the annual total compensation reflected above.

Compensation Risk Assessment

We conducted a risk review of our compensation programs and concluded they do not promote excessive risk taking. Our total compensation program is designed to support a strong risk management culture and incorporates risk mitigating strategies that include balance of performance metrics that focus on both short and long-term performance and discretion that allows the Compensation Committee to consider broader performance. We also implemented a new recoupment policy to provide the ability to recover compensation in the event of a financial restatement or the employee’s detrimental conduct.

 

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DIRECTOR COMPENSATION

Effective July 24, 2019, the Company approved a director compensation program for non-employee members of our Board of Directors, including new directors’ fees structured as retainers based on committee type and membership role, as well as an annual director equity grant. Effective as of July 24, 2019, non-employee directors are paid the amounts set forth in the below table for each year of service, paid in quarterly installments. Additionally, non-employee directors are reimbursed for expenses relating to their services and granted $25,000 worth of restricted stock units for each year of service under the 2018 Plan.

 

Role

   Director
Compensation

Board Member (Base)

     $ 75,000

Committee Chairs (Additional)

    

Audit Committee

     $ 15,000

Compensation Committee

     $ 12,000

Nominating and Governance Committee

     $ 9,000

Investment Oversight Committee

     $ 38,000

Committee Member (Additional)

    

Audit Committee

     $ 7,500

Compensation Committee

     $ 6,000

Nominating and Governance Committee

     $ 5,000

Investment Oversight Committee

     $ 18,000

Prior to July 24, 2019, non-employee directors were paid $39,655 for each year they serve, payable in quarterly installments, and received $3,965 for each Board of Directors meeting per quarter attended, $3,965 for attendance at any additional Board of Directors meetings that quarter, $1,130 for each telephonic Board of Directors meeting, $1,700 for each Compensation Committee and Nominating and Governance Committee meeting attended, an additional $1,700 for the Chairperson of the Compensation Committee and Nominating and Governance Committee for each Compensation Committee and Nominating and Governance Committee meeting attended by such Chairperson, $3,400 for each Audit Committee meeting attended, an additional $2,265 for the Chairperson of the Audit Committee for each Audit Committee meeting attended by such Chairperson, $3,965 for each Executive Committee meeting attended, $1,130 for each Investment Oversight Committee meeting attended, and were reimbursed for expenses relating thereto.

Employee directors do not receive any additional compensation for their service on the Board of Directors. Our employee directors are eligible to participate in our 401(k) Investment Plan and the 2018 Plan. We do not provide any pension or retirement plan with respect to our non-employee directors.

Non-employee directors are eligible to participate in our 2018 Plan. The Company has the ability to grant various types of awards to non-employee directors, including without limitation, stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance awards or awards that may be settled in or based upon our Common Stock. Under the 2018 Plan, although we do not currently have mandatory annual grants to non-employee directors, each non-employee director will be granted $25,000 worth of restricted stock units for each year of service, as described above.

Prior to the 2018 Plan, the Company maintained the 2015 Non-Employee Director Stock Option Plan and the First Amended and Restated 2006 Non-Employee Director Stock Option Plan, both of which are no longer used for new awards (i.e. no options are available for issuance under these plans), although vested and unvested options remain outstanding under these plans.

 

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The following table sets forth certain compensation information for our non-employee directors for the fiscal year ended December 31, 2019.

 

Name

   Fees
Earned or
Paid
in Cash ($)
   Restricted
Stock Unit
Awards ($)(1)(3)
   Option
Awards ($)(2)(3)
   All Other
Compensation ($)
  Total ($)

Independent Directors

                       

Henry L. Aaron

       71,883        25,000        —          1,530 (4)        98,413

John Everets

       116,673        25,000        —          —         141,673

Frederick A. Menowitz

       86,958        25,000        —          3,060 (4)        115,018

Allan J. Tanenbaum

       119,533        25,000        —          —         144,533

Lowell P. Weicker, Jr.(5)

       62,478        —          —          6,120 (6)        68,598

Non-Independent Director

                       

David L. Rudnick

       98,948        25,000        —          9,180 (7)        133,128

 

(1)

This amount is the aggregate grant date fair value of restricted stock units with respect to the fiscal year ended December 31, 2019 computed in accordance with FASB ASC Topic 718. See Note 10 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for all assumptions made in the valuation.

(2)

This amount is the aggregate grant date fair value of stock option awards with respect to the fiscal year ended December 31, 2019 computed in accordance with FASB ASC Topic 718. See Note 10 to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 for all assumptions made in the valuation.

(3)

The following table sets forth each non-employee director’s outstanding restricted stock units and option awards at fiscal year-end.

 

Name

   Outstanding
Restricted
Stock
Units (#)
   Outstanding
Option
Awards (#)

Independent Directors

         

Henry L. Aaron

       5,208        21,000

John Everets

       5,208        11,333

Frederick A. Menowitz

       5,208        21,000

Allan J. Tanenbaum

       5,208        6,333

Lowell P. Weicker, Jr.

       0        0

Non-Independent Director

         

David L. Rudnick

       5,208        21,000

 

(4)

This amount is the aggregate amount of fees received as compensation for services as a director of one of our subsidiaries.

(5)

Mr. Weicker no longer serves on the Board of Directors effective June 14, 2019.

(6)

This amount is the aggregate amount of fees received as compensation for services as a director of two of our subsidiaries. Mr. Weicker received an aggregate amount of $3,060 as compensation for services as a director of each of these two subsidiaries.

(7)

This amount is the aggregate amount of fees received as compensation for services as a director of three of our subsidiaries. Mr. Rudnick received an aggregate amount of $3,060 as compensation for services as a director of each of these three subsidiaries.

 

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EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth certain information, as of December 31, 2019, concerning shares of Common Stock authorized for issuance under our equity compensation plans.

 

     Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
(a)
  Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b)
   Number of Securities
Remaining Available for
Future Issuance Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column (a))
(c)

Equity compensation plans approved by shareholders

       550,040 (1)      $ 6.58        771,405

Equity compensation plans not approved by shareholders

       N/A       N/A        N/A

Total

       550,040 (1)      $ 6.58        771,405

 

(1)

This number includes 485,374 shares of Common Stock to be issued upon the exercise of outstanding options under the 2018 Equity Incentive Plan, 8,000 shares of Common Stock to be issued upon the exercise of outstanding options under the 2006 Employee Stock Option Plan, 27,000 shares of Common Stock to be issued upon the exercise of outstanding options under the First Amended and Restated 2006 Non-Employee Director Stock Option Plan and 29,666 shares of Common Stock to be issued upon the exercise of outstanding options under the 2015 Non-Employee Director Stock Option Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Compensation Committee are Messrs. Aaron, Everets, Menowitz and Tanenbaum.

No interlocking relationships exist between the Board of Directors or Compensation Committee and the board of directors or compensation committee of any other company, nor has any such interlocking relationship existed in the past. No member of the current Compensation Committee was our officer or employee at any time during the year ended December 31, 2019. None of our executive officers or directors serves on the board of directors or compensation committee of any entity which has one or more executive officers serving as a member of our Board of Directors or Compensation Committee.

STOCK REPURCHASE PROGRAM

Under our stock repurchase program previously authorized by our Board of Directors, up to $22,874,509 of shares of Common Stock remain authorized for repurchase under the program.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Jeffrey Rudnick, the son of our director, David Rudnick, is an officer of LAX Group, LLC, or LAX, one of our portfolio companies. In 2019, Mr. Rudnick received a salary from LAX of $175,796 per year, and certain equity from LAX consisting of 10% ownership in LAX Class B stock, vesting at 3.34% per year; 5% of any new equity raised from outside investors at a valuation of $1.5 million or higher; and 10% of LAX’s profits as a year-end bonus. Effective February 2020, Mr. Rudnick’s salary from LAX increased to $177,554. As a result of the ongoing COVID-19 pandemic, effective April 22, 2020, Mr. Rudnick’s salary from LAX was reduced by 25% on an indefinite basis. In addition, Mr. Rudnick provides consulting services to us directly for a monthly retainer of $4,200.

Our subsidiary RPAC Racing, LLC has an agreement with minority shareholder Richard Petty, in which it makes an annual payment of $700,000 for services provided to the entity. In addition, RPAC Racing, LLC has a note payable to a trust controlled by Mr. Petty in the principal amount of $7,294,000 that earns interest at an annual rate of 2% as of December 31, 2019, none of which has been paid to date.

In the 2019 second quarter, RPAC entered into a sponsorship agreement with Victory Junction, a 501(c)(3) public charity of which Richard Petty is a board member, for $7,000,000 of sponsorship payments to RPAC during the 2019 race car season, of which $5,600,000 was subsequently earned and received in 2019, and the balance which has been written off as it was not expected to be received.

Applicable banking regulations place certain restrictions on the transactions that Medallion Bank may conduct with its affiliates. Applicable Small Business Administration, or SBA, regulations require that our Small Business Investment Company, or SBIC, subsidiaries cannot enter into certain transactions without the SBA’s prior written approval and that Freshstart and Medallion Capital cannot dispose of assets to an affiliate without the SBA’s prior written approval. The SBA has also required that Medallion Capital obtain the SBA’s prior written approval for purchases of portfolio securities from an affiliated entity. In addition, as a condition to exemptive relief that we received from the Commission in May 1996, we and our SBIC subsidiaries are required to obtain the SBA’s prior written approval for purchases and sales of portfolio securities between each other and for us to acquire the securities of our SBIC subsidiaries.

Our Board of Directors also recognizes that transactions with affiliates and other related party transactions present a heightened risk of conflicts of interest and/or improper valuation (or the perception thereof). Therefore, we maintain a Related and Affiliated Party Transactions Policy that requires management to ensure no transactions with affiliates or related party transactions occur unless the Board of Directors has been briefed on the transaction and has approved the proposed transaction by the required majority. The Board of Directors may, in its sole discretion, approve or deny any transactions with affiliates or related party transactions and approval may be conditioned upon any other actions the Board of Directors deems appropriate. Failure to follow the approval process can lead to disciplinary action including termination.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act and the disclosure requirements of Item 405 of Regulation S-K require our directors and executive officers, and any persons holding more than 10% of any class of our equity securities, to report their ownership of such equity securities and any subsequent changes in that ownership to the Commission, the NASDAQ Global Select Market and us. These persons are required to provide us with copies of all Section 16(a) forms they file. Based solely on our review of these forms and written representations from the executive officers and directors, we believe that all Section 16(a) filing requirements were met during fiscal year 2019.

 

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OTHER MATTERS OF BUSINESS

We are not aware of any business to be acted upon at the Annual Meeting other than that which is set forth in this proxy statement. In the event that any other business requiring the vote of shareholders is properly presented at the Annual Meeting, the holders of the proxies will vote your shares in accordance with their best judgment.

FORM 10-K

We filed an Annual Report on Form 10-K for the year ended December 31, 2019 with the Commission on March 30, 2020. Shareholders may obtain a copy of this report, without charge, by calling us at 1-877-MEDALLION or writing to Marisa T. Silverman, Chief Compliance Officer, General Counsel and Secretary, at our principal offices located at 437 Madison Avenue, 38th Floor, New York, New York 10022.

DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS

In order for a shareholder proposal to be considered for inclusion in our proxy statement for next year’s annual meeting, including shareholder nominations for candidates for election as directors, the written proposal must be received by us no later than December 31, 2020. Such proposal will also need to comply with the Commission regulations regarding the inclusion of shareholder proposals in our sponsored proxy materials. Similarly, in order for a shareholder proposal to be raised from the floor during next year’s annual meeting, written notice must be received by us no later than March 16, 2021.

By Order of the Board of Directors,

 

 

LOGO

MARISA T. SILVERMAN,

Secretary

April 29, 2020

 

 

THE BOARD OF DIRECTORS ENCOURAGES SHAREHOLDERS TO ATTEND THE MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY OR VOTING INSTRUCTION CARD IN THE ACCOMPANYING ENVELOPE. PROMPT RESPONSE WILL GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR COOPERATION IS APPRECIATED.

 

 

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Annex A

AMENDMENT

TO

MEDALLION FINANCIAL CORP.

2018 EQUITY INCENTIVE PLAN

This Amendment (“Amendment”) to the Medallion Financial Corp. 2018 Equity Incentive Plan (the “Plan”) of Medallion Financial Corp., a Delaware corporation (the “Company”), is adopted by the Company’s Board of Directors (the “Board”) as of April 22, 2020, subject to approval by the Company’s stockholders.

WHEREAS, the Company maintains the Plan;

WHEREAS, Section 18(a) of the Plan provides that the Board may amend the Plan at any time and from time to time;

WHEREAS, the Board and the Compensation Committee of the Board have determined that it is in the best interests of the Company to amend the Plan to increase the maximum number of shares of the Company’s common stock authorized to be issued under the Plan by 710,715 shares;

WHEREAS, Section 18(c) of the Plan provides that no amendment to the Plan may be effective without stockholder approval to the extent that such approval is required pursuant to applicable law or the applicable rules of the national securities exchange on which the Company’s stock is listed; and

WHEREAS, Nasdaq Marketplace Rule 5635(c) requires stockholder approval of a material amendment to the Plan, including any material increase in the number of shares to be issued thereunder.

NOW, THEREFORE, effective as of the date of approval by a majority of votes cast by the stockholders of the Company in accordance with applicable stock exchange rules, the Plan is hereby amended as follows:

1. Capitalized Terms. All capitalized terms used and not defined in this Amendment shall have the meanings given thereto in the Plan.

2. Amendment to the Plan. The first sentence of Section 4(a) of the Plan is amended in its entirety to read as follows:

“Subject to adjustment as provided in Section 11 hereof, the total number of shares of Stock reserved and available for delivery in connection with Awards under the Plan shall equal 2,210,968.”

3. Ratification and Confirmation. Except as specifically amended by this Amendment, the Plan is hereby ratified and confirmed in all respects and remains valid and in full force and effect.

4. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Delaware without reference to the principles of conflicts of laws thereof.

*         *         *

 

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MEDALLION ANNUAL MEETING FINANCIAL OF SHAREHOLDERS CORP OF . June 19, 2020 PROXY VOTING INSTRUCTIONS INTERNET—Access “www.voteproxy.com” and follow the on-screen instructions or scan the QR code with your smartphone. Have your proxy card available when you access the web page. TELEPHONE—Call toll-free 1-800-PROXIES (1-800-776-9437) in the United States or 1-718-921-8500 from foreign countries from any touch-tone telephone and follow the instructions. Have your proxy card available when Vote you call online/phone . before the meeting. COMPANY NUMBER MAIL—Sign, date and mail your proxy card in the envelope provided as soon as possible. shares by attending ACCOUNT NUMBER VOTING AT THE MEETING—You may vote your the Annual Meeting at www.viewproxy.com/Medallionfinancial/2020/vm. GO GREEN—e-Consent makes it easy to go paperless. With e-Consent, you can quickly access your proxy material, statements and other eligible documents online, while reducing costs, clutter and paper waste. Enroll today via www.astfinancial.com to enjoy online access. NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIAL: The proxy statement and 2019 Annual Report to shareholders are available at: https://www.proxydocs.com/MFIN Please detach along perforated line and mail in the envelope provided IF you are not voting via telephone or the Internet. 20330303000000001000 6 061920 THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3 AND 4. x PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE 1. Election of Directors: 2. Proposal to ratify the appointment of Mazars USA LLP as FOR AGAINST ABSTAIN NOMINEES: Medallion Financial Corp.’s independent registered public FOR ALL NOMINEES O Alvin Murstein accounting firm for the year ending December 31, 2020 O John Everets 3. Proposal to approve a non-binding advisory resolution to FOR AGAINST ABSTAIN WITHHOLD AUTHORITY O Cynthia A. Hallenbeck approve the 2019 compensation of Medallion Financial Corp.’s FOR ALL NOMINEES named executive officers, as described in the proxy statement FOR (See ALL instructions EXCEPT below) FOR AGAINST ABSTAIN 4. Proposal to approve the amendment to Medallion Financial Corp.’s 2018 Equity Incentive Plan, to increase the number of shares of Common Stock authorized for issuance thereunder as described in the proxy statement In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting. INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here: JOHN SMITH 1234 MAIN STREET APT. 203 NEW YORK, NY 10038 MARK HERE IF YOU PLAN TO ATTEND THE MEETING. To indicate change your the new address address on your in the account, address please space check above the . Please box at note right and that changes this method to the . registered name(s) on the account may not be submitted via Signature of Shareholder Date: Signature of Shareholder Date: Note: title Please as such sign .exactly If the signer as your is a name corporation, or names please appear sign on full this corporate Proxy. When name shares by duly are authorized held jointly, officer, each giving holder full should title as sign such . .When If signer signing is a as partnership, executor, please administrator, sign in attorney, partnership trustee name or by guardian, authorized please person give full .


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————————— . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ———————— 0 MEDALLION FINANCIAL CORP. ANNUAL MEETING OF SHAREHOLDERS—JUNE 19, 2020 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned, having received notice of the meeting and the proxy statement, hereby appoints Andrew Murstein and Marisa Silverman, and each of them, as proxies for the undersigned, with full power of substitution to act and to vote all the shares of Common Stock of Medallion Financial Corp. held of record by the undersigned on April 20, 2020, the record date, at the annual meeting of shareholders to be held via live webcast on the 19th day of June 2020, at 10:00 a.m., Eastern Time, or any adjournment thereof by visiting www.viewproxy.com/Medallionfinancial/2020/vm. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ITEMS 1, 2, 3 AND 4. IMPORTANT—PLEASE DATE, SIGN AND MAIL YOUR PROXY CARD AS SOON AS POSSIBLE. 1.1 14475