UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,Washington, D.C. 20549

SCHEDULE 14A

(RULE14a-101)Proxy Statement Pursuant to Section 14(a) of the

INFORMATION REQUIRED IN PROXY STATEMENTSecurities Exchange Act of 1934

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE

SECURITIES EXCHANGE ACT OF 1934(Amendment No.)

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☒ 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 under §240.14a-12

Velocity Financial, Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if Other Thanother than the Registrant)

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VELOCITY FINANCIAL, INC.

30699 Russell Ranch Road, Suite 295

Westlake Village, California 913622022

Dear Fellow Stockholders:Annual Meeting of Shareholders

On behalf of the Board of Directors of Velocity Financial, Inc., a Delaware corporation (“Velocity,” the “Company,” “we,” “us” or “our”), we invite you to join us at a special meeting of stockholders of the Company, which will be held on [•], 2020, at [•]:00 a.m., Pacific Time (the “Special Meeting”). In light of public health concerns regarding the coronavirus(“COVID-19”) outbreak, the Special Meeting will be held in a virtual meeting format only. You will be able to attend the Special Meeting, vote your shares electronically and submit your questions during the meeting via live webcast by visiting [address]. Stockholders will be able to listen, vote, and submit questions from their home or any location with internet connectivity. To participate in the meeting, you must have the16-digit number that is shown on your Notice of Internet Availability of Proxy Materials or on your proxy card if you elected to receive proxy materials by mail. The notice of meeting and proxy statement that follow describe the business that we will consider at the meeting.

On April 7, 2020, the Company completed the issuance and sale in a private placement (the “Private Placement”) of (i) an aggregate of 45,000 newly issued shares of Series A Convertible Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”), and (ii) warrants (the “Warrants”) to purchase an aggregate of 3,013,125 shares of the Company’s common stock, par value $0.01 per share (“Common Stock”) to investment funds managed by Snow Phipps Group, LLC (“Snow Phipps”) and to TOBI III SPE I LLC (“TOBI” and, together with Snow Phipps, the “Purchasers”) in exchange for cash consideration in an aggregate amount of $45.0 million. The Company used $20.0 million of the net proceeds from the Private Placement to reduce obligations under its warehouse repurchase facilities and intends to use the remainder for general corporate purposes.

Because the Company’s Common Stock is listed on New York Stock Exchange (the “NYSE”), the Company is subject to the NYSE’s rules and regulations. At the Special Meeting, you will be asked to consider and vote on a proposal (the “Issuance Proposal”) to approve, in accordance with Section 312.03 of the NYSE Listed Company Manual, the issuance of shares of the Common Stock to the Purchasers upon conversion of the Series A Preferred Stock and upon exercise of the Warrants. If the Company obtains stockholder approval of the Issuance Proposal, the Series A Preferred Stock will be convertible, subject to certain limitations, at any time at the holder’s option into shares of Common Stock and the Warrants will be exercisable, subject to certain limitations, at any time at the holder’s option.

Each Purchaser agreed with the Company, among other things, to vote all shares of Common Stock (but excluding any shares of Series A Preferred Stock) of the Company beneficially owned by such Purchaser to approve the Issuance Proposal. As of [•], 2020, the Purchasers and their respective affiliates collectively beneficially owned greater than 50% of the Company’s outstanding Common Stock (without giving effect to the issuance of the Series A Preferred Stock and the Warrants). As a result of these agreements, the Issuance Proposal is expected to be approved by the holders of the Common Stock at the Special Meeting, regardless of the votes of holders of shares of the Common Shares who have not entered into such agreements.

Our Board of Directors, upon the recommendation of a transaction committee of directors made up solely of disinterested and independent directors, believes that the Issuance Proposal is in the best interests of the Company and its stockholders and, therefore, recommends that you vote “FOR” the Issuance Proposal.Statement

We have elected to deliver our proxy materials to the majority of our stockholders over the Internet. This delivery process allows us to provide stockholders with the information they need while conserving natural resources and lowering the cost of delivery. On or about [•], 2020, we mailed to our stockholders a Notice of Internet Availability of Proxy Materials (the “notice”) containing instructions on how to access our proxy statement for the Special Meeting. The notice also provides instructions on how to vote online or by telephone and includes instructions on how to receive a paper copy of the proxy materials by mail. The proxy statement attached to this letter provides you with information about the Issuance Proposal and the Special Meeting of the Company’s stockholders. We encourage you to read the entire proxy statement carefully. You may also obtain more information about the Company from documents we have filed with the U.S. Securities and Exchange Commission. See “Where You Can Find Additional Information” in the accompanying proxy statement.

Regardless of the number of shares of Common Stock you own, your vote is important. Whether or not you plan to attend the Special Meeting, please take the time to submit a proxy by following the instructions on your proxy card as soon as possible. You may do so by completing, signing, dating, and returning the enclosed proxy card by mail, or you may submit your proxy by telephone or electronically through the Internet, as further described on the proxy card. We encourage you to vote by Internet or telephone. It is convenient and saves the Company postage and other costs. If your shares of Common Stock are held in an account at a broker, dealer, commercial bank, trust company, or other nominee, you should instruct such broker or other nominee how to vote in accordance with the voting instruction form furnished by such broker or other nominee.April 8, 2022

Thank you for your cooperation and continued support.

[•], 2020

THE ACCOMPANYING PROXY STATEMENT IS DATED [•], 2020 AND IS FIRST BEING MADE AVAILABLE TO STOCKHOLDERS ON OR ABOUT [•], 2020.

Velocity Financial, Inc.

Notice of Annual Meeting of Shareholders

		Date and Time May 19, 2022 at 1:00 p.m.		Phone before theVirtual Only SpecialConnect by Internet or phone: www.virtualshareholdermeeting.com/VEL2022

This Proxy Statement is being furnished to our shareholders in connection with the solicitation of proxies by our Board of Directors for use at our 2022 Annual Meeting of Shareholders.

Purpose of Meeting

We will also consider other matters that properly come before the meeting.

Shareholders should read Other Important Information for Our Shareholders beginning on page 43 for additional information.

Whether you hold shares directly as a shareholder of record or beneficially in street name, you may vote your shares without attending our Annual Meeting. Voting instructions are outlined in the Notice of Internet Availability of Proxy Materials and on your proxy card.

Vote

If you are a shareholder of record

If you hold your shares in yourstreet name

By Internet (24 hours a day):

proxyvote.com

proxyvote.com

By Telephone (24 hours a day):

1-800-690-6903

1-800-454-8683

By Mail:

Return a properly executed and dated proxy card voterin the provided pre-paid envelope

Return a properly executed and dated voting instruction form by mail, depending upon the method(s) your bank, brokerage firm, broker-dealer or notice.

Call [number] or the number on your voter instruction form. You will need the16-digit number included in your proxy card, voter instruction form or notice.

Send your completed and signed proxy card or voter instruction form to the address on your proxy card or voter instruction form.

Visit [address]. You will need the16-digit number included in your proxy card, voter instruction form or notice.other similar organization makes available

Table of Contents

Only stockholders who held shares of our Common Stock as of the close of business on [•], 2020, the “Record Date,” are entitled to receive notice of, and to vote at, the Special Meeting and at any adjournment or postponement of the Special Meeting.

If your shares are registered directly in your name with the Company’s transfer agent, American Stock Transfer & Trust Company, LLC (“AST”), you are considered a stockholder of record with respect to those shares. You will receive one notice or proxy card for all the shares you hold through book-entry form with AST and in any Company benefit plan.

If your shares are held in a bank or brokerage account or through another nominee (that is, in “street name”), you are considered the “beneficial owner” of those shares. As the beneficial owner of those shares, you have the right to direct your broker, bank or other nominee how to vote your shares. You will receive instructions from your broker, bank or other nominee that you must follow in order to have your shares of Common Stock voted.

If you sign, date, and return your proxy card without indicating how you wish to vote, your vote will be counted as a vote “FOR” the Issuance Proposal and, if necessary and appropriate, the Adjournment Proposal.

For additional questions regarding the Issuance Proposal, assistance in submitting proxies or voting shares of our Common Stock, or to request additional copies of the proxy statement or the proxy card, please contact Investor Relations, Velocity Financial, Inc., 30699 Russell Ranch Road, Suite 295, Westlake Village, California 91362, telephone: (818)532-3700 or [Solicitation Agent Name], telephone: [•] [(toll free)].

ii

PROXY STATEMENT

This proxy statement sets forth information relating to the solicitation of proxies by Board of Velocity Financial, Inc. in connection with a special meeting of stockholders (the “Special Meeting”) or any adjournment or postponement of the Special Meeting. This proxy statement is being furnished by our Board for use at the Special Meeting of stockholders to be held at on [•], 2020 at [•]:00 a.m., Pacific Time. This proxy statement and form of proxy are first being made available to stockholders on or about [•], 2020, to our stockholders of record as of the close of business on [•], 2020 (the “Record Date”).

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE PROPOSALS

The following questions and answers address briefly some questions you may have regarding the Special Meeting and the Proposals (as defined below). These questions and answers may not address all questions that may be important to you as a stockholder of the Company. Please refer to the more detailed information contained elsewhere in this proxy statement and the documents referred to or incorporated by reference in this proxy statement.  Director Matters

A:    We are providing these proxy materials in connectionOur Director Nominees    

Biographies of Our Directors

As described below, each of our directors was chosen because his or her background provides each director with the solicitation byexperience and skillset geared toward helping us succeed. Our directors bring to us strong executive operating experience, expertise in the real estate and financial services sectors, accounting and audit expertise and broad experience in other complementary sectors such as investment management and private equity, among others, and meaningful commitment to community and public service - knowledge and experiences that are ideally suited to oversee our management and act as fiduciaries for our shareholders.

Dorika M. Beckett has served as a member of our Board of proxiesDirectors since July 2020. Ms. Beckett brings to be votedour board executive, entrepreneurial, investment, private equity, operational and philanthropic experience. For over a decade, Ms. Beckett has been Chief Executive Officer of both LW Staffing, a franchise of healthcare professional staffing company ATC Healthcare Services, and Livewell Home Care Inc., an elder care focused service provider with operations in California and North Carolina. Previously, Ms. Beckett served as partner of a private equity firm, director of operations and management consultant in various industries. She is also Chair of the Imani Baraka Foundation, a family non-profit foundation. Ms. Beckett received a Bachelor of Arts (A.B.) in Economics from Harvard College and a Master of Business Administration from the Harvard Business School.

Michael W. Chiao has served as a member of our Board of Directors since April 2021. Mr. Chiao brings to our board extensive investment experience, including direct experience in structured products. Mr. Chiao is a senior vice president and portfolio manager in the Newport Beach office of Pacific Investment Management Company LLC (PIMCO), focusing primarily on residential loan investments. Prior to joining PIMCO in 2017, he worked at Fortress Investment Group, focused on non-agency residential mortgage-backed securities and various structured products. Previously, Mr. Chiao spent three years at PIMCO as a portfolio management associate, and he began his career as an analyst in the whole loan trading and securitization group at Countrywide Capital Markets. He has 15 years of investment experience and holds an undergraduate degree from California State Polytechnic University, Pomona.

Christopher D. Farrar has served as our Chief Executive Officer and as a member of our Board of Directors since 2004. Mr. Farrar brings extensive operating experience and management skills to our Board of Directors. Mr. Farrar has an extensive background in finance, lending, raising capital and business operations – having co-founded us in June 2004. Prior to co-founding Velocity, Mr. Farrar formed and served as Chief Credit Officer for Worth Funding, a mortgage banking firm. Prior to that time, Mr. Farrar served as Senior Vice President of United States Production at Weyerhaeuser Mortgage Company and as a Vice President for Namco Capital Group, Inc., originating commercial real estate loans. Mr. Farrar is currently a director of Generosity.org, a non-profit working to bring global communities access to clean water, and a director of Agoura Aquatic Foundation, a non-profit providing opportunities for youth to participate in aquatic sports and adults and disabled to engage in aquatic training. Mr. Farrar received a Bachelor of Science in Business Administration from Pepperdine University and is a licensed (inactive) California Real Estate Broker.

Alan H. Mantel has served as a member of our Board of Directors since 2007 and as Chair of our Board of Directors since 2020. With over 30 years on Wall Street, Mr. Mantel has experience across a wide array of investment banking disciplines, including corporate finance, financial advisory and structured finance. Mr. Mantel brings to our Board of Directors extensive experience in the financial services sector, including leveraged and structured finance, and background with and knowledge of accounting principles. Mr. Mantel is a Co-Managing Partner of TruArc Partners, L.P. a successor business to Snow Phipps (one of our largest shareholders). Mr. Mantel was a Partner of Snow Phipps from 2005 to April 2021. Before joining Snow Phipps, Mr. Mantel was a Partner at Guggenheim Merchant Banking. Mr. Mantel served as Managing Director in the Leveraged Finance department at Credit Suisse from 2000 to 2004 and served as Managing Director at Donaldson, Lufkin & Jenrette Inc. prior to its merger with Credit Suisse. Mr. Mantel was a Senior Accountant and Certified Public Accountant (inactive) at Ernst & Young LLP from 1985 to 1988. Mr. Mantel currently serves on the boards of ECRM, LLC, EnviroFinance Group, LLC, HCTec, Inc. and Lamark Media, LLC. He is also Board Chair of Congregation B’nai Jeshurun, a nearly 200-year-oldnon-affiliated synagogue. Mr. Mantel received a Bachelor of Science in accounting from the State University of New York at Albany and a Master of Business Administration in Finance from the University of Chicago.

John P. Pitstick has served as a member of our Board of Directors since January 2020. Mr. Pitstick has experience in accounting, taxes, capital markets, financial operations, internal controls and SEC reporting/compliance matters. Mr. Pitstick brings over 20 years of combined experience as an executive of publicly traded and privately held companies along with experience at a major accounting firm to our Board of Directors. Since September 2015, Mr. Pitstick has served as the Chief Financial Officer of privately held software company Seven Lakes Enterprises, Inc. Mr. Pitstick served as Executive Vice President from 2005 to 2007 and then as Chief Financial Officer from 2007 to 2015 of publicly traded Conversant, Inc. From 1995 to 2004, Mr. Pitstick worked for Ernst & Young LLP serving a broad range of clients in the technology, biotech and financial services industries, ultimately as a Senior Manager. Mr. Pitstick is a Certified Public Accountant (inactive) and received a Bachelor of Science in Accounting from the University of San Francisco.

John A. Pless has served as a member of our Board of Directors since 2007. Mr. Pless brings broad finance and corporate governance experience to our Board of Directors. Mr. Pless is a Managing Partner of TruArc Partners, LP, a successor business to Snow Phipps. Mr. Pless joined Snow Phipps at the Special Meeting in connection with the issuance of Common Stock upon the conversion of our Series A Preferred Stock and upon exerciseinception of the Warrants (each, as defined below).

On April 7, 2020, the Company completed the issuancefirm in 2005 and salebecame a Partner in a private placement (the “Private Placement”) of (i) an aggregate of 45,000 newly issued shares of Series A Convertible Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”), and (ii) warrants (the “Warrants”)2012. Prior to purchase an aggregate of 3,013,125 shares of the Company’s common stock, par value $0.01 per share (“Common Stock”), to investment funds managed by Snow Phipps Group, LLC (“Snow Phipps”) and to TOBI III SPE I LLC (“TOBI” and, togetherhis tenure with Snow Phipps, Mr. Pless worked as a Vice President at Guggenheim Merchant Banking and served as Associate Director in the “Purchasers”)Financial Institutions Group at UBS Investment Bank, the investment banking arm of UBS AG, where he worked on a wide range of mergers and acquisitions and capital raising transactions for banks and specialty finance companies. Mr. Pless currently serves on the boards of BlackHawk Industrial Distribution, Inc., Cascade Corp, EnviroFinance Group, LLC, HCTec, Inc., Ideal-Tridon Holdings, Inc. and Prototek Holdings LLC. He is also a board member of Little Wings Foundation, a family foundation financially assisting other non-profits working on issues like education, children’s health, international outreach and terminal diseases. Mr. Pless received a Bachelor of Arts in exchangeEconomics from Middlebury College.

Joy L. Schaefer has served as a member of our Board of Directors since January 2020 and was elected as Lead Independent Director of our Board in February 2022. Ms. Schaefer brings to our Board of Directors a broad range of experience in a variety of asset classes including auto finance, residential mortgages, multi-family mortgages and home equity lending. Since August 2005, Ms. Schaefer has served as President of Golden Eagle Advisors, LLC, a consulting firm focused on organizational development and growth through strategic, operational and financial improvements. From 2005 until August 2018, Ms. Schaefer served as an operating partner of Snow Phipps. From 2002 until 2005, Ms. Schaefer served as President of JL Schaefer Consulting, a strategic, financial and operational consulting practice, advising privately held and family-owned businesses. In 2002, Ms. Schaefer served as President and Chief Operating Officer of Ameriquest Mortgage, a privately held mortgage banking company. From 1990 until 2002, Ms. Schaefer served in various senior management positions within the Westcorp family of companies, including as President and Chief Operating Officer of Westcorp, Inc., a publicly traded financial services holding company, Vice Chairman, Chief Executive Officer, President and Chief Operating Officer of WFS Financial, Inc., a publicly traded national automobile finance company and Chief Operating Officer, Senior Executive Vice President, Chief Financial Officer and Treasurer of Western Financial Bank, Inc. Earlier in her career, Ms. Schaefer was an audit manager for cash considerationErnst & Young. Ms. Schaefer currently serves on the board of directors of American Assets Trust, Inc. (NYSE: AAT). She is currently a director and the Treasurer of Young Presidents’ Organization - California Coast, a non-profit global leadership community of chief executives. Ms. Schaefer received a Bachelor of Science degree in Accounting from Illinois Wesleyan University.

Katherine L. Verner has served as a member of our Board of Directors since June 2021. With over 30 years of relevant business and investment experience, Ms. Verner brings to our Board vast knowledge of our industry. Verner is an aggregate amountexecutive vice president and portfolio manager in the Newport Beach office of $45.0 million. ThePacific Investment Management Company used $20.0 millionLLC (PIMCO), focused on asset management globally for PIMCO’s alternative business. She was previously a member of PIMCO’s executive office with responsibility for strategic initiatives, as well as a portfolio manager on the net proceedsspecial situations team. Prior to joining PIMCO in 2014, she was a managing director of a startup NPL platform in Europe for Oaktree Capital; chief operating officer of two corporate finance companies, Goldman Sachs Specialty Lending Group and ORIX Finance and director of executive operations for Goldman’s international asset management platform. Ms. Verner has significant experience working on large complex transactions and platform startups in Europe and Asia, as well as in the U.S. Ms. Verner is currently a director of Comcar Industries (a transportation and logistics company, since 2016), First Guaranty Mortgage Corporation (since 2021) and was a director of Flexshopper, Inc. (a lease-to own financial technology company, from 2016 to 2018). She holds a master’s degree in real estate from the Private PlacementUniversity of Denver. She received an undergraduate degree from Texas A&M in agricultural economics.

The Board’s Role and Responsibilities

Risk Oversight

Our Board of Directors has extensive involvement in the oversight of risk management related to reduce obligations under its warehouse repurchase facilitiesus and intends to use the remainder for general corporate purposes.

Because the Company’s Common Stock is listed on New York Stock Exchange (the “NYSE”), the Company is subjectour business and accomplishes financial risk oversight by delegation to the NYSE’s rulesAudit Committee. The Audit Committee represents the Board of Directors by periodically reviewing our accounting, reporting and regulations. Atfinancial practices, including the Special Meeting, youintegrity of our financial statements, the surveillance of administrative and financial controls and legal matters that could have a significant impact on our financial statements. Through its meetings with and receipt of reports from management, including the finance, legal and internal audit functions, the Audit Committee reviews and discusses significant areas of our business and summarizes for the Board of Directors financial risks and appropriate mitigating factors.

In addition, our Board of Directors communicates regularly with management on operating performance, strategic reviews, potential transactions, legal and compliance matters, corporate policies and procedures as well as other business matters.

Information Security Risk

Among other things, Management has been tasked by the Board of Directors with identifying and mitigating information security risks.

Management has implemented a security awareness training platform to continually train users on computer safety. Monthly simulated phishing campaigns are used to test and assign training to users. Bi-annual company-wide training is also assigned to ensure all employees are staying current on the latest security threats and how to stay protected.

We have implemented a defense-in-depth strategy to protect all users, network assets and digital information. Perimeter network traffic is controlled by next-generation firewalls that conduct ant-malware, anti-spyware, DNS security, content filtering and threat analysis services on ingress and egress traffic. Endpoints, including servers, workstations, and laptops, run anti-malware agents that monitor for threats in real-time, in addition to scheduled scans of local storage for dormant malicious files. Workstations and laptops run DLP agents that monitor for unsanctioned data exfiltration of personal information data. All perimeter and endpoint data are collected in a detection and response platform that correlates the data and alerts the security operations team of potential security breaches. SaaS applications are monitored for malware and personal information data exfiltration using CASB services. E-mails are scanned with protection tools, in additional to other third-party e-mail security tools. The 3rd party email security service also monitors for personal information data loss. Vulnerability scanning services are utilized to continually scan all network assets for vulnerabilities and sends reports to our security operations teams for remediation.

We recognize that the risks and impacts of cyber based attacks are significant and increasing. Addressing any such incidents quickly and effectively is paramount to the continued operations of our business. We seek to track and investigate all cyber based incidents or incidents that impact our information systems. We adopted an incident response plan that requires us to assess and address such incidents in a timely manner. In the event of an incident, our Incident response team and management will be asked to considerfocus on minimizing impact while securely and vote on a proposal (the “Issuance Proposal”) to approve, insafely restoring disrupted services and systems.

Director Independence

In accordance with Section 312.03our Corporate Governance Guidelines, available on our website, www.velfinance.com, our Board of Directors undertook its annual review of director independence. During this review, our Board considered all transactions and relationships between us and each nominee for director or any member of such person’s immediate family. The purpose of this review is to determine whether any relationship or transaction is considered a “material relationship” that would be inconsistent with a determination that a director is independent. Our Board has not adopted any “categorical standards” for assessing independence.

Our Board affirmatively determined that each of our non-employee director nominees is independent. In making this determination, our Board reviewed the NYSE Listed Company Manual, the issuance of shares of the Common Stock to the Purchasers upon conversion of the Series A Preferred Stock and upon exercise of the Warrants. If the Company obtains stockholder approval of the Issuance Proposal, the Series A Preferred Stock will be convertible, subject to certain limitations, at any time at the holder’s option into shares of Common Stock and the Warrants will be exercisable, subject to certain limitations, at any time at the holder’s option.

The Purchasers may each be deemed to be related parties to us under thecorporate governance rules of the New York Stock Exchange.Exchange, the exchange where we have listed our common stock. The sharesBoard considered commercial, charitable, family and other relationships that directors or members of Common Stock issuable upon conversiontheir immediate family have or have had with us. In addition, for our Audit Committee members, our Board also considered the requirements of allRule 10A-3 under the Exchange Act.

In particular, our Board considered that Messrs. Mantel and Pless were both equity partners of the outstanding Series A Preferred Stock into Common Stock at the initial conversion price and the exercise of all of the outstanding Warrants would represent an aggregate of approximately 42.3%Snow Phipps Group, one of our Common Stock outstanding on anas-convertedlargest shareholders, andas-exercised basis. As are managing partners of [•], 2020, assuming full conversion ofTruArc Partners, a sub adviser to the Series A Preferred Stock at the initial conversion price and the exercise of all Warrants, funds managed by Snow Phipps would beneficially own approximately 39.1%Group fund that owns our shares, and that until August 2018, Ms. Schaefer was an operating partner of Snow Phipps Group. Our Board also considered that Mr. Chiao and Ms. Verner are officers of Pacific Investment Management Company LLC, another one of our Common Stocklargest shareholders.

Our Board determined that these relationships are not material relationships and TOBI would beneficially own an aggregatetherefore do not affect our Board’s determination that these directors are independent.

Board Nominee Rights

In connection with our January 2020 initial public offering, we entered into a stockholders agreement granting rights to nominate up to four individuals to our Board of approximately 36.3% ofDirectors and in connection with our Common Stock outstanding, in each case, on a fullyas-converted andas-exercised basis. The holders of sharessale of Series A Preferred Stock, willwe granted an additional right to nominate an individual to our Board. The following summarizes those rights:

Executive Sessions

Our independent directors have the ability to meet at any time in executive session outside the presence of management. No formal Board action may be unabletaken at any such executive sessions. Our Board Chair or a Committee Chair presides over each executive session and each non-management member of our Board has the authority to convert sharescall such executive sessions. In the absence of Series A Preferred Stock into shares of Common Stock and the holdersour Board Chair, our Lead Independent Director presides over such sessions of the Warrants will be unable to exercise Warrants unless and until the Issuance Proposal is approved by our stockholders.Board.

At the Special Meeting, in accordance with Section 312.03 of the NYSE Listed Company Manual, you will be asked to considerDirectors and vote on a proposal to approve the Issuance Proposal.Board Committees

Our Board upon the recommendationhas standing Audit, Compensation and Governance Committees, each of which has adopted a transaction committee of directors made up solely of disinterested and independent directors, believeswritten charter that the Issuance Proposal is in the best interests of the Company and its stockholders and, therefore, recommends that you vote “FOR” the Issuance Proposal.available on our website, www.velfinance.com.

A:    The business expected to be voted on at the Special Meeting is considering approval of the following proposals:Key Responsibilities

To be properly brought before the Special Meeting, any additional items

A:    The Special Meeting willKey Responsibilities

Key Responsibilities

A:    You are entitledKey Responsibilities

As of

registration must be receivedBoard Practices, Processes and Policies

Corporate Governance Initiatives

As stated in last year’s proxy, we made a commitment to review and improve upon our corporate governance policies. To that end, in early 2022, our Governance Committee and Board implemented multiple corporate governance enhancements to strengthen our Board’s independence, ensure robust risk oversight and bolster alignment, communication and transparency with our shareholders. Below are some of our current initiatives:

Incentive Compensation Clawback Policy

The Compensation Committee adopted a policy that allows the Compensation Committee to claw back cash bonuses and equity awards from an executive if the Committee determines that such compensation was overpaid as a result of a restatement of the reported financial results of the Company or any of its segments due to material non-compliance with financial reporting requirements caused or contributed by [•], 2020the executive’s fraud, willful misconduct or gross negligence.

Individual Board Member Performance Evaluations

Our Board adopted a requirement for each Board member to conduct an annual individual self-assessment.

Director and CEO Stock Ownership Guidelines

Our Corporate Governance Guidelines now require our directors and CEO to acquire ownership positions in our common equity securities equal to (i) for the CEO, five times the CEO’s annual salary and (ii) for each independent Director, four times the annual cash retainer paid to directors. Messrs. Mantel and Pless as partners and director designees of Snow Phipps, our largest shareholder, and Ms. Verner and Mr. Chiao, as officers and director designees of PIMCO, our second largest shareholder, are prohibited by internal policies and procedures from personally holding our shares and are therefore not subject to our director stock ownership requirement. Furthermore, these four directors are not entitled to and do not receive compensation from us for serving on our Board.

Director Retirement Age

Our Corporate Governance Guidelines now requires a director, upon reaching 75 years of age, to tender his or her resignation to the Board with an effective date no later than 12:00 a.m., Eastern Daylight Time,the next annual shareholder meeting.

Stock Pledging and Anti-Hedging Policy

Our Securities Trading Policy now expressly prohibits stock pledging as well as hedging transactions involving our securities. Directors and executive officers are prohibited from purchasing our securities on [•], 2020. You will then receive confirmationmargin, borrowing against any account in which our securities are held or pledging our securities as collateral for a loan. We prohibit hedging by our directors, executives and employees because we believe that hedging against losses in our securities breaks the alignment between our shareholders and our personnel that equity grants are intended to build. Our anti-hedging policy also prohibits direct and indirect short selling and derivative transactions involving our securities, other than the exercise of your registration, withany options issued by us to our employees or directors.

Board Leadership and Diversity

We adopted a control number bye-mail from Issuer Direct. Atrequirement that the timeGovernance Committee and the Board shall ensure that a female director shall hold at least one Chair of a Committee or be appointed as Board Chair or Lead Independent Director. The Governance Committee recommended, and the Special Meeting, go to [address] and enter the 16 digits of your control number. We encourage you to log on 15 minutes priorBoard appointed, Joy Schaefer to the startposition of the Special Meeting.Lead Independent Director.

A:    A quorum is necessary to hold a valid meetingOur Corporate Governance Guidelines now also requires that women and underrepresented candidates shall be among every pool of stockholders. For each of the Proposals to be presented at the Special Meeting, the holders ofindividuals from which new Board nominees are chosen.

Majority / Plurality Vote Standards and Director Resignation Policy

Our Bylaws now require a majority vote standard for uncontested elections of sharesdirectors and a plurality vote standard for contested director elections. Our Board also adopted a policy that Directors are expected to tender an advance resignation. The advance resignation becomes effective for a particular director following an uncontested election of our Common Stock outstanding on the Record Date, must be present at the Special Meeting, in person or by proxy. If you vote—including by Internet, telephone or proxy card—your shares voted will be counted towards the quorum for the Special Meeting. Abstentions are counted as present for the purpose of determining a quorum; brokernon-votes aredirectors where that director nominee did not counted for the purpose of determining the presence of a quorum at the Special Meeting as the Proposals to be considered would not be evaluated as routine by the NYSE.

A:    You may vote “FOR” or “AGAINST” or you may “ABSTAIN” from voting on any Proposal to be voted on at the Special Meeting. Your shares will be voted as you specifically instruct. If you sign your proxy or voting instruction card without giving specific instructions, your shares will be voted in accordance with the recommendations of our Board and in the discretion of the proxy holders on any other matters that properly come before the meeting. If you return your proxy card and “ABSTAIN” from voting, it will have the same effect as a vote against the Issuance Proposal and the Adjournment Proposal.

A:    The Issuance Proposal requiresreceive the affirmative vote of a majority of the sharesvotes cast and our Board accepts the resignation.

Shareholder Rights

Our Board of Directors approved, subject to shareholder approval, amendments to our certificate of incorporation allowing shareholders to vote by written consent and to call special meetings. Additional information on these amendments are contained in this proxy statement.

Related Person Policy and Transactions

Our Board has adopted a written policy for the review, approval and ratification of transactions that involve related persons and potential conflicts of interest. Our Related Person Transaction Policy applies to the following Related Persons: each of our Common Stock voting thereon atdirectors and executive officers, any security holder who is known to own more than five percent of our shares, any immediate family member of any of the foregoing persons, any entity of which one of our directors is a meeting atdirector or officer and any entity of which one of our directors has a quorum is present. substantial financial interest.

Under applicable NYSE rules, abstentions are countedour Related Person Transaction Policy, a covered transaction includes a transaction or arrangement involving us and a Related Person that would require disclosure in our filings with the SEC as present for purposes of determining a quorumtransaction with a Related Person.

Related Persons must disclose to the Audit Committee any potential covered transaction and are also counted as shares votedmust disclose all material facts with respect to such proposal,interest. All covered transactions will be reviewed by the Audit Committee for approval or ratification. In determining whether to approve or ratify such a transaction, the Audit Committee will consider the relevant facts and therefore, if you return your proxy card and “ABSTAIN” from voting, it will havecircumstances which may include factors such as the same effect as a vote against the Issuance Proposal. The Adjournment Proposal requires the affirmative vote of a majorityrelationship of the shares of our Common Stock present and entitled to vote atRelated Person with us, the Special Meeting, whethermateriality or not a quorum is present. As of the Record Date, the Purchasers and their respective affiliates beneficially owned a majority of the outstanding shares of our Common Stock and have separately agreed with the Company to vote such shares in favor of the Issuance Proposal.

A:    Upon conversion of all of the shares of Series A Preferred Stock, the Company would issue approximately 11,688,299 shares of Common Stock, representing approximately 36.8% of the total outstanding shares of Common Stock as of the Record Date, assuming (i) such conversions occur at the initial conversion rate of 259.74 shares of Common Stock per share of Series A Preferred Stock (ii) and no exercise of the Warrants. Upon exercise of the Warrants, the Company would issue approximately 3,013,125 shares of Common Stock, representing approximately 13.0% of the total outstanding shares of Common Stock as of the Record Date, assuming (i) the exercise price is paid in cash and (ii) no conversion of Series A Preferred Stock.

A:    If the Issuance Proposal is not approved the holders of shares of Series A Preferred Stock will not be able to convert shares of Series A Preferred Stock into shares of Common Stock and the holders of the Warrants will not be able to exercise Warrants.

Director Compensation

2021 Director Compensation Table

Our 2021 director compensation consisted of the following:

Executive Compensation Matters

We provide our shareholders with the annual opportunity to vote to approve, on a non-binding, advisory basis, the compensation of our Named Executive Officers as disclosed in this Proxy Statement in accordance with SEC rules. The vote on this resolution is not intended to address any specific element of compensation; rather, the advisory vote relates to the overall compensation of our Named Executive Officers. We value this vote as important feedback from our shareholders.

We believe that there should be a strong link between executive compensation and our performance and the performance of our Named Executive Officers. This Proxy Statement contains a detailed description of the 2021 compensation of our Named Executive Officers. The Compensation Committee and our Board of Directors believe that our policies and procedures are effective in achieving our goals and that the compensation of our Named Executive Officers will contribute to our long-term success.

Accordingly, we ask our shareholders to vote on the following resolution:

Resolved, that the compensation paid to the Named Executive Officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables and the related narrative disclosure is approved.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTCompensation Committee Report

The function of the Compensation Committee is to advise senior management on the administration of our compensation programs and plans, review and approve corporate goals and objectives relevant to CEO compensation, review and approve corporate goals and objectives relevant to the compensation of our other executive officers, evaluate the performance of the executive officers in light of those goals and objectives, set the executive officers’ compensation levels based on this evaluation and assist our CEO in formulating compensation programs applicable to our senior management.

Our Compensation Committee has reviewed and discussed with our management the Compensation Discussion and Analysis section of this Proxy Statement. Based upon the reviews and discussions, we have recommended to our Board of Directors that the Compensation Discussion and Analysis section be included in this Proxy Statement.

Submitted by the Compensation Committee of the Board of Directors

Alan H. Mantel – Chair

Michael W. Chiao

John P. Pitstick

Compensation Discussion and Analysis

Overview

The Committee’s Role

As a guiding mandate, our goal is to implement an executive compensation plan that reflects our shareholders’ desires and adheres to industry best practices.

Our compensation process is determined by our Compensation Committee, in consultation with our CEO. The Committee considered the views of Mr. Farrar, their assessments of our executives’ individual performance and ranges of peer compensation in approving 2021 executive compensation.

Role of the Compensation Consultant

The Compensation Committee retained Mercer (US) Inc. as an independent compensation consultant to assist the Compensation Committee with conducting a review of our executive compensation practices, an examination of relevant peer and industry practices and recommendations for 2021 compensation.

Our Compensation Committee considered whether any conflicts of interest would arise due to its 2021 engagement of Mercer. Mercer previously provided compensation consulting services to us and was paid $25,000 during 2019 and $21,138 during 2020. The Compensation Committee reviewed and analyzed Mercer’s prior services to and compensation from us and all other factors deemed relevant and required by SEC rules and concluded that the proposed engagement of Mercer by our Compensation Committee for executive compensation work did not raise a conflict of interest and that Mercer remained independent.

Peer Selection

We and our compensation consultant analyzed comparable peer compensation as a general frame of reference for considering the appropriateness of our executive compensation programs and to ensure our executive officers are appropriately aligned with peers.

Our selected peer group also represents companies that have a fair amount in common with our business and, hence, are reasonably comparable for purposes of relative performance:

Our Compensation Committee conducted an analysis of comparable peer compensation as a general frame of reference for considering the appropriateness of our executive compensation programs and to ensure our CEO and other executive officers’ compensation is aligned with peers.

Our list of peers stayed the same from our 2020 peer group. The following 15 companies were used as compensation peers for our 2021 and 2022 compensation programs:

The Compensation Committee believes the peer group provided an appropriate benchmark given the size and scope of our firm. Target compensation should be sufficiently competitive with industry peers to attract and retain executives with similar levels of experience, skills and responsibilities. Peer group data serves as an important and informative reference point in evaluating our executive compensation. Our Compensation Committee compared the components of our 2021 compensation program as well as total compensation to the peer group data and determined that our 2021 compensation program was appropriate and competitive.

The below analysis provides an overview of our executive compensation philosophy, the overall objectives of our executive compensation program and each material element of compensation for the fiscal year ended December 31, 2021 that we provided to each person who served as our principal executive officer and our other two most highly compensation executive officers during 2021, all of whom we refer to collectively as our Named Executive Officers.

Our 2021 Named Executive Officers

Our Named Executive Officers for the fiscal year ended December 31, 2021 were as follows:

Executive Compensation Objectives and Philosophy

The goal of our executive compensation program is to create long-term value for our investors while at the same time reward our executives for superior financial and operating performance and encourage them to remain with us for long, productive careers. We believe the most effective way to achieve this objective is to design an executive compensation program rewarding the achievement of each executive and aligning executives’ interests with those of our investors by using equity as a component of compensation. The following are the core elements of our executive compensation program:

By incorporating these elements, we believe our executive compensation program is responsive to our investors’ objectives and effective in attracting, motivating and retaining the level of talent necessary to grow and manage our business successfully.

Process for Determining Compensation

Following the end of the year, our Compensation Committee reviews our CEO’s performance and our performance and meets (with and without the CEO) to conduct these evaluations. While our Compensation Committee tries to ensure that a substantial portion of the CEO’s compensation is directly linked to his performance and the performance of our business, our Compensation Committee also seeks to set his compensation in a manner that is competitive with compensation for similarly performing executive officers with similar responsibilities in companies we consider our peers.

In determining the compensation of each of our other executive officers, our Compensation Committee seeks the input of the CEO. At the end of each year, the CEO assesses our executive officers’ performance against the business unit (or area of responsibility), individual goals and objectives and total compensation available to similarly situated executives at our peers. Our Compensation Committee and the CEO then review the CEO’s assessments and discuss and approve the compensation for each executive officer.

Considerations in Setting 2021 Compensation

Our Compensation Committee believes that the total 2021 compensation for our executive officers was competitive while at the same time being responsible to our investors.

The following is a summary of key considerations that affected the development of 2021 compensation decisions for our executive officers:

We expect that going forward, the Compensation Committee will adhere to the compensation philosophy described above. In addition, we anticipate that the Compensation Committee will continue to retain an independent compensation consultant from time to time.

Elements of 2021 Compensation Program

There are three key components of our executive compensation program for our Named Executive Officers:

We believe that offering each of the components of our executive compensation program is necessary to remain competitive in attracting and retaining talented executives. Base salaries and discretionary cash bonuses are designed to reward executives for their performance and our performance. Furthermore, the cash incentive bonus and long-term equity incentive compensation align the executive’s goals with our goals and those of our shareholders. The components of incentive compensation (the cash bonus and equity awards) are significantly “at risk,” as the cash bonuses and the value of the equity awards depend on our business successes. Collectively, these components are designed to reward and influence an executive’s individual performance and our short-term and long-term performance.

Base Salary

We pay our Named Executive Officers base salaries to compensate them for services rendered each year at a pre-established amount. The following table summarizes the annual base salaries for the year ended December 31, 2021 of our Named Executive Officers:

Effective for 2022, the base salaries of each of Messrs. Farrar, Szczepaniak and Taylor were increased to $630,000, $393,750 and $315,000, respectively.

Performance-Based Cash Incentive Bonus

In addition to receiving base salaries, our Named Executive Officers are eligible to receive cash incentive bonuses. Cash bonuses are designed to incentivize our Named Executive Officers at a variable level of compensation that is “at risk,” based on our performance and the performance of each executive. Bonuses are awarded at the discretion of the Compensation Committee, with input from our CEO.

Our Compensation Committee approved fiscal year 2021 target bonuses for our Named Executive Officers in January 2021. In lieu of awarding discretionary cash bonuses following year end, in August 2021 our Compensation Committee adopted the FY 2021 incentive program that provided that actual cash bonus amounts for the Named Executive officers would be formulaically based 50% on our 2021 adjusted pre-tax operating income and 50% on individual and corporate performance objectives. Under the incentive program, each Named Executive Officer could have been awarded between 0% – 200% of that officer’s target bonus. Although adopted in August 2021, adjusted pre-tax operating income for FY 2021 was substantially uncertain at that time and Compensation Committee believed that the Threshold, Target and Maximum performance amounts were fair.

Performance Metric - Adjusted Pre-tax Operating Income:

* Adjustments are allowed to take into account, among other things, the effects of (i) acquisitions and strategic transactions, (ii) changes to capitalization, (iii) unusual or non-recurring accounting impacts or changes in accounting standards or treatment and (iv) unusual or extraordinary items.

Performance Metric - Individual and Corporate Performance:

Individual and corporate performance consisted of the following:

Formulaic Outcome:

Our Adjusted Pre-Tax Operating Income for FY 2021 was $39.8 million, although no adjustment to our pre-tax operating income was deemed necessary by our Compensation Committee. As our Adjusted Pre-Tax Operating Income of $39.8 exceeded the $37.5 million “Maximum” performance under our 2021 incentive program, each of our Named Executive Officers was entitled to an amount equal to 100% of his target bonus for 2021.

The Compensation Committee then discussed the individual and corporate performance metric with our CEO and concluded that each Named Executive Officer had at least equaled or exceeded the “Met Expectations” target. In particular, the Compensation Committee noted that the firm’s asset quality improved with trends increasing and that the Named Executive Officers did an exemplary job of managing growth. Using the result of “Met Expectations,” each of our Named Executive Officers was entitled to an additional amount equal to 50% of his target bonus for 2021.

Based on our Adjusted Pre-Tax Operating Income for FY 2021 and the Compensation Committee’s conclusions regarding individual and corporate performance, each of our Named Executive Officers could have received up to 150% of his target cash bonus for 2021. Our Compensation Committee, with the input from our CEO, determined to reduce the 2021 incentive cash bonuses from the formulaic outcomes to the amounts set forth in the table below.

The following table provides the cash incentive bonus targets, the formulaic outcome of our FY 2021 incentive program and actual cash bonuses awarded to each Named Executive Officer in 2021. Each bonus was paid in January 2022 but is reflected as 2021 compensation.

As equity incentive compensation for FY 2022, in February 2022, our Compensation Committee approved the FY 2022 Annual Cash Incentive Program for our Named Executive Officers. The Compensation Committee approved fiscal year 2022 target bonuses for our Named Executive Officers and approved Core Net Income Annual Growth for the year ending December 31, 2022 as the performance metric and individual performance objectives for determining cash bonus opportunities for the 2022 fiscal year.

Long-Term Equity Incentive Compensation

In addition to base salary and cash bonus compensation, each of our Named Executive Officers was provided long-term equity incentive compensation. The use of long-term equity incentives creates a link between executive compensation and our long-term performance, thereby creating alignment between executive and investor interests.

Equity awards under our 2021 Omnibus Incentive Plan are designed to reward our Named Executive Officers for long-term shareholder value creation and provide a means through which to attract and retain key personnel. Granting equity provides a means whereby our directors, officers and employees become shareholders, thereby strengthening their commitment to our welfare and aligning their interests with those of our other shareholders.

For fiscal year 2021, we granted restricted stock with a pro rata three-year vesting schedule to our Named Executive Officers. The following table provides the grant date fair value of these long-term equity incentives granted to each Named Executive Officer:

As equity incentive compensation for FY 2022, in February 2022, our Compensation Committee granted to each of Messrs. Farrar, Szczepaniak and Taylor 45,000, 15,000 and 15,000 shares, respectively, of restricted stock and 45,000, 15,000 and 15,000, respectively, target number of performance-based stock units. The performance-based stock units will only vest at the end of three years if our average Core Net Income annual growth over a 3-year period meets or exceeds the threshold growth rate approved by our Compensation Committee.

Other Considerations

Compensation Risk Management

Our Compensation Committee has considered whether our compensation policies and practices reward employees for imprudent risk taking and has determined that our compensation policies and practices are not reasonably likely to have a material adverse effect on us. The Compensation Committee’s assessment will be conducted annually. Management reviews with our Compensation Committee our compensation programs, focusing on incentive programs, risks and mitigation factors. Based on the totality of this information, the Compensation Committee determines whether any portion of such compensation encourages excessive risk taking and concludes whether or not our compensation programs are reasonably likely to have a material adverse effect on us.

In assessing risks, our Compensation Committee considers mitigating factors such as the multiple elements of our compensation packages, including base salary, cash bonuses, equity awards that are subject to vesting conditions, our ability to implement and enforce our clawback policy and other factors deemed relevant by the Committee.

Tax Considerations

Our Compensation Committee is aware that tax deductions for executive pay in excess of $1 million per year is not deductible for tax purposes. Our Compensation Committee awards executive compensation based on the factors described above, notwithstanding the non-deductibility of certain amounts.

Executive Compensation Tables

Summary Compensation Table

Some of the items under this caption constitute taxable income to the Named Executive Officers. These amounts are reported as taxable income for the executives pursuant to IRS rules which differ from the SEC reporting rules used to report the amounts reflected in this table and these notes.

None of our Named Executive Officers had pensions or qualified deferred compensation earnings required to be reported above.

2021 Compensation Plan Outcomes

Grants of Plan-Based Awards in 2021

Outstanding Equity Awards at Fiscal Year-End 2021

Option Awards

This table provides information on the holdings of option awards by our Named Executive Officers at December 31, 2021.

These options were granted on January 16, 2020 and vest in three equal installments on the first three anniversaries of the grant date, subject to continued service on the vesting date.

Stock Awards

This table provides information on the holdings of stock awards by our Named Executive Officers at December 31, 2021. No equity incentive plan awards with remaining performance conditions were outstanding during 2021.

Option Exercises and Stock Vested in Fiscal 2021

No stock vested during 2021 nor did any of our Named Executive Officers exercise options during 2021.

Pension Benefits in 2021

None

Non-Qualified Deferred Compensation

None

Potential Payments upon Termination of Employment or Change-in-Control

The following information describes and quantifies certain compensation that would become payable under then-existing agreements and plans if the Named Executive Officer’s employment had terminated on December 31, 2021.

Named Executive Officer Termination Payments

No Severance Payments

None of our executive officers are entitled to any severance payments.

Summary of Payments upon Termination or Change-in-Control

The table below shows the estimated value of payments to which a named executive officer would have been entitled if the executive’s employment had been terminated on December 31, 2021. For purposes of valuing these amounts, we made the following assumptions:

Audit Matters

The Audit Committee selected RSM US LLP as our independent registered public accounting firm (our independent auditors) for 2022, and we are requesting our shareholders to ratify this selection. This proposal is being submitted to shareholders because we believe that this action follows sound corporate practice and is in the best interests of the shareholders. If the shareholders do not ratify the selection, such a vote will not be binding, but the Audit Committee will reconsider the selection of independent auditors. If the shareholders ratify the selection, the Audit Committee, in its discretion, may still direct the appointment of new independent auditors at any time during the year if the Committee believes that this change would be in our and our shareholders’ best interests.

Prior Change in Our Independent Registered Public Accounting Firm

On May 26, 2021, the Audit Committee of our Board of Directors approved the engagement of RSM US LLP as our independent registered public accounting firm for our fiscal year ending December 31, 2021. This approval followed the determination by the Audit Committee on May 26, 2021 that the engagement of our auditor for the last ten years, KPMG LLP, would cease effective May 26, 2021.

The report of KPMG LLP dated March 16, 2021 on our consolidated financial statements for the fiscal years ended December 31, 2019 and 2020 did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles, except for a modification to identify a change in accounting principles as of January 1, 2020 as a result of our adoption of Accounting Standards Update 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

During the fiscal years ended December 31, 2019 and 2020 and the subsequent interim period through May 26, 2021, there were: (i) no disagreements with KPMG LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to KPMG LLP’s satisfaction, would have caused KPMG LLP to make reference thereto in their reports on the consolidated financial statements for such fiscal years and (ii) no “reportable events,” as defined in Item 304(a)(1)(v) of Regulation S-K, other than the material weakness in internal control over financial reporting identified and disclosed by us in our Form 10-K for the year ended December 31, 2019 and the remediation of such material weakness as disclosed in our Form 10-K for the year ended December 31, 2020 relating to controls to properly document and review relevant facts and apply the appropriate tax accounting which impacted deferred tax asset and income tax benefit accounts.

We did not consult with RSM during our two most recent fiscal years prior to May 26, 2021 regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our consolidated financial statements, and neither a written report was provided to us or oral advice was provided that RSM concluded was an important factor considered by us in reaching a decision as to any accounting, auditing or financial reporting issue or (ii) any matter that was either the subject of a disagreement or reportable event as defined in Item 304(a)(1)(iv) and (v) of Regulation S-K.

Fees Paid to Our Independent Auditors

The following table sets forth the aggregate fees incurred by us for 2021 relating to services performed by RSM US LLP and 2020 relating to services performed by KPMG:

A description of the types of services provided in each category is as follows:

The Board considered whether providing the non-audit services included in this table was compatible with maintaining RSM US LLP’s independence and concluded that it was.

Audit Committee Pre-Approval Process

Consistent with SEC policies regarding auditor independence and our Audit Committee’s charter, the Audit Committee has responsibility for engaging, setting compensation for and reviewing the performance of our independent auditor. In exercising this responsibility, the Audit Committee has established procedures relating to the approval of all audit and non-audit services that are to be performed by our independent auditor and pre-approves all audit and permitted non-audit services provided by any independent registered public accounting firm prior to each engagement.

We have been advised that representatives of RSM US LLP will attend the Annual Meeting and will have an opportunity to make a statement.

Audit Committee Report

Management is responsible for the preparation, presentation and integrity of our financial statements, accounting and financial reporting principles and the establishment and effectiveness of internal controls and procedures designed to assure compliance with generally accepted accounting principles and applicable laws and regulations. Our independent auditors during 2021, RSM US LLP, were responsible for performing an independent audit of our financial statements in accordance with the standards of the United States Public Company Accounting Oversight Board (PCAOB) and expressing an opinion as to the conformity of our financial statements with generally accepted accounting principles. Our independent auditors had free access to the Audit Committee to discuss any matters they deemed appropriate.

In performing our oversight role, the Audit Committee reviewed and discussed our audited financial statements with each of management and our independent auditors and discussed with our independent auditors the matters required to be discussed by Auditing Standards No. 16, Communications with Audit Committees, as required by the PCAOB. The Audit Committee has received the written disclosures and letters from our independent auditors in accordance with the applicable requirements of the PCAOB regarding auditor independence and has discussed with the auditors the auditors’ independence. Based on the reports and discussions described in this Report, the Audit Committee recommended to our Board that our audited financial statements for 2021 be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for filing with the SEC.

Submitted by the Audit Committee of the Board of Directors

John P. Pitstick - Chair

Joy L. Schaefer

Dorika M. Beckett

Summary

We are asking our shareholders to approve an amendment and restatement of our 2020 Omnibus Incentive Plan (the “2020 Plan”), in order to increase the number of shares of our common stock reserved for issuance under the 2020 Plan by an additional 1,250,000 shares and to implement other changes discussed below (the “Amendment”). The Amendment was approved by the Board, subject to shareholder approval, and the Board recommends that shareholders vote in favor of this proposal.

Our executive officers and directors have an interest in this proposal by virtue of being eligible to receive equity awards under the 2020 Plan. As discussed more fully below, our Compensation Committee granted an aggregate 102,750 performance-based stock units to our executive and other officers and there are insufficient shares remaining under the 2020 Plan to issue common stock otherwise issuable in respect of such awards if the Amendment is not approved and the target level of performance under such awards is exceeded (as shares in excess of the target level of performance may not vest if the Amendment is not approved by our shareholders). Additionally, there are insufficient shares remaining under the 2020 Plan to issue restricted stock awards as director compensation to our directors who are re-elected to our Board at the Annual Meeting. The remainder of this discussion, when referring to the 2020 Plan, refers to the amended and restated 2020 Plan as if this proposal is approved by our shareholders, unless otherwise specified or the context otherwise references the 2020 Plan prior to the amendment and restatement.

Our continuing ability to offer equity incentive awards under the 2020 Plan is critical to our ability to attract, motivate and retain qualified personnel. The Amendment is essential to meet our forecasted needs in respect of equity incentives.

Corporate Governance Best Practices:

The 2020 Plan provides for the following good corporate governance practices:

The Amendment is necessary to promote our long-term success and the creation of shareholder value by:

We currently grant stock-based incentive awards to our employees and non-employee directors under our 2020 Plan. As of April 8, 2022, less than 500 shares remain available for issuance under our current 2020 Plan; and, if we assume the maximum number of shares that may be issued under our outstanding performance stock unit awards will later be issued, no shares remain available under our current 2020 Plan.

The 2020 Plan, as amended and restated, would authorize a total of 2,770,000 shares of our common stock (the “Absolute Share Limit”) for grants to participants, representing an increase of 1,250,000 shares of our common stock that would be available under the 2020 Plan (the “Share Increase”). The impact of this requested Share Increase and our recent grant practices are shown below:

Potential Dilution Calculation:

Equity awards outstanding, plus the Share Increase plus 489 shares as our existing share reserve; divided by shares of common stock outstanding, plus equity awards outstanding, plus the Share Increase plus existing share reserve. Equity awards outstanding includes outstanding options, unvested restricted stock and target number of performance-based stock units granted.

Burn Rate Calculation:

The number of shares subject to time vesting equity awards granted in a fiscal year plus the number of shares subject to performance vesting that vested in that fiscal year; divided by the number of common shares outstanding at the end of that fiscal year.

The Share Increase is intended to manage our equity compensation needs for the next three to four years, based on our past grant practices and the recent trading prices of our shares.

Total Outstanding Awards

The table below shows the total number of outstanding options and other unvested awards granted under our 2020 Plan as of April 8, 2022 (with the target number of performance stock units granted reflected in the table):

As of March 22, 2022, the fair market value of a share of our common stock (as determined by the closing price on the NYSE on that date) was $11.19 per share.

The 2020 Plan will continue to permit the discretionary award of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and/or other equity awards to participants. Such awards may continue to be granted under the Share Increase beginning on the date of shareholder approval of the Amendment and continuing through January 16, 2030, or the earlier termination of the 2020 Plan, subject to the number of available shares remaining in the 2020 Plan.

Text of 2020 Plan

The complete text of the 2020 Plan is attached as Annex I to this Proxy Statement – marked to show proposed changes. Shareholders are urged to review the 2020 Plan together with the following information, which is qualified in its entirety by reference to Annex I. If there is any inconsistency between this Proposal 4 and the 2020 Plan terms, or if there is any inaccuracy in this Proposal 4, the terms of the 2020 Plan shall govern.

Key Features of the 2020 Plan

Certain key features of the 2020 Plan are summarized as follows:

Description of the 2020 Plan

Purpose. The purpose of the 2020 Plan is to provide a means through which to attract and retain key personnel and to provide a means whereby our directors, officers, employees, consultants and advisors can acquire and maintain an equity interest in us, or be paid incentive compensation, including incentive compensation measured by reference to the value of our common stock, thereby strengthening their commitment to our welfare and aligning their interests with those of our shareholders.

Administration. The 2020 Plan will be administered by the Compensation Committee or such other committee of our Board to which it has properly delegated power, or if no such committee or subcommittee exists, our Board. The Compensation Committee is authorized to interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the 2020 Plan and any instrument or agreement relating to, or any award granted under, the 2020 Plan; establish, amend, suspend, or waive any rules and regulations and appoint such agents as the Compensation Committee deems appropriate for the proper administration of the 2020 Plan; adopt sub-plans; and to make any other determination and take any other action that the Compensation Committee deems necessary or desirable for the administration of the 2020 Plan. Except to the extent prohibited by applicable law or the applicable rules and regulations of any securities exchange or inter-dealer quotation system on which our securities are listed or traded, the Compensation Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any person or persons selected by it in accordance with the terms of the 2020 Plan. Unless otherwise expressly provided in the 2020 Plan, all designations, determinations, interpretations, and other decisions under or with respect to the 2020 Plan or any award or any documents evidencing awards granted pursuant to the 2020 Plan are within the sole discretion of the Compensation Committee, may be made at any time and are final, conclusive and binding upon all persons or entities, including, without limitation, us, any participant, any holder or beneficiary of any award, and any of our shareholders. The Compensation Committee may make grants of awards to eligible persons pursuant to terms and conditions set forth in the applicable award agreement, including subjecting such awards to performance criteria listed in the 2020 Plan.

Awards Subject to 2020 Plan. The 2020 Plan provides that the total number of shares of common stock that may be issued under the 2020 Plan is 2,770,000, which is referred to as the Absolute Share Limit. No more than the number of shares of common stock equal to the Absolute Share Limit may be issued in the aggregate pursuant to the exercise of incentive stock options. The maximum number of shares of common stock granted during a single fiscal year to any non-employee director, taken together with any cash fees paid to such non-employee director during the fiscal year, may not exceed $1,000,000 in total value. Except for substitute awards (as described below), in the event any award expires or is cancelled, forfeited or terminated without issuance to the participant of the full number of shares to which the award related, the unissued shares of common stock may be granted again under the 2020 Plan. Awards may, in the sole discretion of the Compensation Committee, be granted in assumption of, or in substitution for, outstanding awards previously granted by an entity directly or indirectly acquired by us or with which we combine, referred to as substitute awards, and such substitute awards will not be counted against the Absolute Share Limit, except that substitute awards intended to qualify as incentive stock options will count against the limit on incentive stock options described above. No award may be granted under the 2020 Plan after the tenth anniversary of the effective date (as defined therein), but awards granted before then may extend beyond that date.

  Types of Awards

Award Terms and Conditions

Effect of Certain Events on 2020 Plan and Award. In the event of (i) any dividend (other than regular cash dividends) or other distribution (whether in the form of cash, shares of common stock, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, split-off, spin-off, combination, repurchase or exchange of shares of common stock or other securities, issuance of warrants or other rights to acquire shares of common stock or other securities, or other similar corporate transaction or event that affects the shares of common stock (including a change in control, as defined in the 2020 Plan) or (ii) unusual or nonrecurring events affecting the Company, including changes in applicable rules, rulings, regulations or other requirements, that the Compensation Committee determines, in its sole discretion, could result in substantial dilution or enlargement of the rights intended to be granted to, or available for, participants (any event in (i) or (ii), being referred to as an Adjustment Event), the Compensation Committee will, in respect of any such Adjustment Event, make such proportionate substitution or adjustment, if any, as it deems equitable, to any or all of: (A) the Absolute Share Limit, or any other limit applicable under the 2020 Plan with respect to the number of awards which may be granted thereunder, (B) the number of shares of common stock or other securities of the Company (or number and kind of other securities or other property) which may be issued in respect of awards or with respect to which awards may be granted under the 2020 Plan or any sub-plan and (C) the terms of any outstanding award, including, without limitation, (1) the number of shares of common stock or other securities of the Company (or number and kind of other securities or other property) subject to outstanding awards or to which outstanding awards relate, (2) the exercise price or strike price with respect to any award or (3) any applicable performance measures; it being understood that, in the case of any “equity restructuring,” the Compensation Committee will make an equitable or proportionate adjustment to outstanding awards to reflect such equity restructuring.

In connection with any change in control, the Compensation Committee shall provide for the substitution or assumption of awards, or to the extent the surviving entity does not substitute or assume the awards, the acceleration of vesting of, the exercisability of, or lapse of restrictions on awards; however, with respect to any performance vesting awards, any such acceleration of vesting, exercisability, or lapse of restrictions shall be based on actual performance through the date of such change in control.

Minimum Vesting Requirement. Awards granted under the 2020 Plan that are payable in shares of common stock shall vest no earlier than the first anniversary of the date on which the award was granted; however the foregoing minimum vesting requirement does not apply to: (i) substitute awards, (ii) shares of common stock delivered in lieu of fully vested cash-based obligations, (iii) awards granted to non-employee directors that are not covered by clause (ii) above and that vest on the earlier of the one-year anniversary of the date on which the award was granted and the next annual meeting of shareholders and (iv) awards that in the aggregate do not exceed 5% of the Absolute Share Limit established under the 2020 Plan. Notwithstanding the foregoing minimum vesting requirement, the Compensation Committee may, in its discretion, provide for accelerated vesting or exercisability of an award, including in connection with a participant’s retirement, death or permanent disability or in connection with or following a change in control, in the terms of an award agreement or otherwise.

Nontransferability of Awards. Each award will not be transferable or assignable by a participant other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance will be void and unenforceable against us or any of our subsidiaries. However, the Compensation Committee may, in its sole discretion, permit awards (other than incentive stock options) to be transferred, including transfers to a participant’s family members, any trust established solely for the benefit of a participant or such participant’s family members, any partnership or limited liability company of which a participant, or such participant and such participant’s family members, are the sole member(s), and a beneficiary to whom donations are eligible to be treated as “charitable contributions” for tax purposes.

Amendment and Termination. Our Board may amend, alter, suspend, discontinue, or terminate the 2020 Plan or any portion thereof at any time; but no such amendment, alteration, suspension, discontinuance or termination may be made without shareholder approval if (i) such approval is necessary to comply with any regulatory requirement applicable to the 2020 Plan or for changes in U.S. GAAP to new accounting standards; (ii) it would materially increase the number of securities which may be issued under the 2020 Plan (except for adjustments in connection with certain corporate events) or (iii) it would materially modify the requirements for participation in the 2020 Plan; and any such amendment, alteration, suspension, discontinuance or termination that would materially and adversely affect the rights of any participant or any holder or beneficiary of any award will not to that extent be effective without such individual’s consent.

The Compensation Committee may, to the extent consistent with the terms of any applicable award agreement, waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any award granted or the associated award agreement, prospectively or retroactively (including after a participant’s termination). However, except as otherwise permitted in the 2020 Plan, any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially and adversely affect the rights of any participant with respect to such award will not to that extent be effective without such individual’s consent. In addition, without shareholder approval, except as otherwise permitted in the 2020 Plan, (i) no amendment or modification may reduce the exercise price of any option or the strike price of any stock appreciation right; (ii) the Compensation Committee may not cancel any outstanding option or stock appreciation right and replace it with a new option or stock appreciation right (with a lower exercise price or strike price, as the case may be) or other award or cash payment that is greater than the value of the cancelled option or stock appreciation right; and (3) the Compensation Committee may not take any other action which is considered a “repricing” for purposes of the shareholder approval rules of any securities exchange or inter-dealer quotation system on which our securities are listed or quoted.

Dividends and Dividend Equivalents. The Compensation Committee in its sole discretion may provide a participant as part of a full value award with dividends or dividend equivalents, on such terms and conditions as may be determined by the Compensation Committee in its sole discretion. With respect to any equity-based award that provides for or includes a right to dividends or dividend equivalents, if dividends are declared during the period that such award is outstanding, such dividends or dividend equivalents shall be accumulated but remain subject to vesting requirements to the same extent as the applicable award and shall be paid only at the time or times that such vesting requirements are satisfied. Except as otherwise determined by the Compensation Committee, no interest will accrue or be paid on the amount of any cash dividends withheld. No dividends or dividend equivalents shall be paid on stock options or stock appreciation rights.

Clawback/Repayment. All awards are subject to reduction, cancellation, forfeiture or recoupment to the extent necessary to comply with (i) our clawback policy and any future clawback, forfeiture or other similar policy adopted by our Board or the Compensation Committee and as in effect from time to time and (ii) applicable law. To the extent that a participant receives any amount in excess of the amount that the participant should otherwise have received under the terms of the award for any reason (including, without limitation, by reason of a financial restatement, mistake in calculations or other administrative error), the participant will be required to repay any such excess amount to the Company.

Certain Federal Income Tax Information

The following is a general summary, as of April 8, 2022, of the federal income tax consequences to us and to U.S. participants for awards granted under the 2020 Plan. The federal tax laws may change and the federal, state and local tax consequences for any participant will depend upon his or her individual circumstances. Tax consequences for any particular individual may be different. This summary is not intended to be exhaustive and does not discuss the tax consequences of a participant’s death or provisions of income tax laws of any municipality, state or other country. We advise participants to consult with a tax advisor regarding the tax implications of their awards under the 2020 Plan.

Incentive Stock Options (ISOs). For federal income tax purposes, the holder of an ISO has no taxable income at the time of the grant or exercise of the ISO. If such person retains the common stock acquired under the ISO for a period of at least two years after the stock option is granted and one year after the stock option is exercised, then any gain upon the subsequent sale of the common stock will be taxed as a long-term capital gain. A participant who disposes of shares acquired by exercise of an ISO prior to the expiration of two years after the stock option is granted or before one year after the stock option is exercised will realize ordinary income as of the date of exercise equal to the difference between the exercise price and fair market value of the stock. Any additional gain or loss recognized upon any later disposition of the shares would be a short- or long-term capital gain or loss, depending on whether the shares have been held by the participant for more than one year. The difference between the option exercise price and the fair market value of the shares on the exercise date of an ISO is an adjustment in computing the holder’s alternative minimum taxable income and may be subject to an alternative minimum tax which is paid if such tax exceeds the participant’s regular income tax for the year.

Non-qualified Stock Options. A participant who receives a non-qualified stock option generally will not realize taxable income on the grant of such option, but will realize ordinary income at the time of exercise of the stock option equal to the difference between the option exercise price and the fair market value of the stock on the date of exercise. Any additional gain or loss recognized upon any later disposition of the shares would be a short- or long-term capital gain or loss, depending on whether the shares had been held by the participant for more than one year.

Stock Appreciation Rights. No taxable income is generally reportable when a stock appreciation right is granted to a participant. Upon exercise, the participant will recognize ordinary income in an amount equal to the amount of cash received plus the fair market value of any shares received. Any additional gain or loss recognized upon any later disposition of any shares received would be a short- or long-term capital gain or loss, depending on whether the shares had been held by the participant for one year or more.

Restricted Stock. A participant will generally not have taxable income upon grant of unvested restricted shares unless he or she elects to be taxed at that time pursuant to an election under Code Section 83(b). Instead, he or she will recognize ordinary income at the time(s) of vesting equal to the fair market value (on each vesting date) of the shares or cash received minus any amount paid for the shares.

Restricted Stock Units. No taxable income is generally reportable when unvested restricted stock units are granted to a participant. Upon settlement of the vested restricted stock units, the participant will recognize ordinary income in an amount equal to the value of the payment received pursuant to the vested restricted stock units.

Income Tax Effects for the Company. We generally will be entitled to a tax deduction in connection with an award under the 2020 Plan in an amount equal to the ordinary income realized by a participant at the time the participant recognizes such income (for example, upon the exercise of a non-qualified stock option), subject to the limitation on deductibility under Code Section 162(m).

Internal Revenue Code Section 409A. Code Section 409A governs the federal income taxation of certain types of nonqualified deferred compensation arrangements. A violation of Code Section 409A generally results in an acceleration of the recognition of income of amounts intended to be deferred and the imposition of a federal excise tax of 20% on the employee over and above the income tax owed, plus possible penalties and interest. The types of arrangements covered by Code Section 409A are broad and may apply to certain awards available under the 2020 Plan (such as restricted stock units). The intent is for the 2020 Plan, including any awards available thereunder, to comply with the requirements of Code Section 409A to the extent applicable. As required by Code Section 409A, certain non-qualified deferred compensation payments to specified employees may be delayed to the seventh month after such employee’s separation from service.

New Plan Benefits

All 2020 Plan awards will be granted at the Compensation Committee’s discretion, subject to the limitations described in the 2020 Plan. Therefore, the benefits and amounts that will be received or allocated under the 2020 Plan are not presently determinable. However, as noted above, there are insufficient shares remaining under the 2020 Plan to pay out the performance stock unit awards recently awarded to our executive officers if the Amendment is not approved and the target level of performance under such awards is exceeded (as shares in excess of the target level of performance may not vest if the Amendment is not approved by our shareholders). The table below sets forth the target number of shares subject to each performance stock unit award held by our executive officers and other employees, the number of shares in excess of the target number of shares subject to the award (which represents the difference between 100% of the target number of shares and 200%, being the maximum number of shares that can be earned under the award) and grants of restricted stock expected to be made to certain non-executive directors on the date of our Annual Meeting:

Board Approval

As noted above, the Amendment was approved by the Board, conditioned on and subject to obtaining shareholder approval of the Amendment on or before March 23, 2023. We believe that the Amendment is necessary to promote our long-term success and the creation of shareholder value. The 2020 Plan, as amended and restated, continues what we believe are good corporate governance practices, such as requiring shareholder approval for any repricing of options or stock appreciation rights, administration by a committee generally composed of independent directors, no automatic single-trigger vesting upon a change in control, clawback provisions, minimum vesting period for all awards (subject to certain exceptions), limitations on share recycling and specific limits on total director compensation.

Required Vote

Approval of this Proposal 4 requires the affirmative vote of a majority of the shares present or represented and entitled to vote thereon at our 2022 Annual Meeting. A vote to Abstain will have the same effect as a vote Against this proposal. A broker non-vote will not count as present and so will have no effect on determining the outcome of the proposal.

Our Compensation Committee and Board have unanimously approved the Employee Stock Purchase Plan (ESPP) described below, subject to shareholder approval. The following sections summarize the material terms of our ESPP. These sections are qualified in their entirety by the full text of the ESPP, which is included as Annex II to this Proxy Statement.

Purpose. The purpose of the ESPP is to encourage and enable our eligible employees to purchase shares of our common stock directly from us. We believe that employees who participate in the ESPP will have a closer alignment with us and our other stakeholders by virtue of their ability to participate as shareholders in our success.

General. The ESPP permits eligible employees to use payroll deductions and “Cashless Participation” loans from Carver Edison Capital, LLC or its designated broker-dealer or financial institution, to purchase shares of our common stock at a discount to the market price. On the first day of each Offering Period, each participant in the ESPP will automatically be granted an opportunity to purchase as many whole shares of common stock as the participant will be able to purchase with the payroll deduction credited to his or her account during the Offering Period and with the Cashless Participation proceeds, if the participant has enrolled in the Cashless Participation program. At the end of the Offering Period, the total payroll deductions of all participants and amounts borrowed under the Cashless Participation program are used to purchase common stock directly from us at a discount to the market price.

The ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as amended (“IRC”) and permits participants to be eligible to receive favorable tax treatment of shares acquired under the ESPP, as described below. However, the Compensation Committee, as administrator, may also authorize offerings under the ESPP that are not intended to comply with the requirements of Section 423 of the IRC.

Effective Date. If approved by shareholders, the ESPP will become effective on May 19, 2022, the date of our Annual Meeting. The term of the ESPP will continue until terminated or the date that all shares available for issuance under the ESPP have been issued.

Administration. The ESPP will initially be administered by our Compensation Committee unless the Board elects to administer the ESPP. For the purposes of this summary, references to the “Compensation Committee” include the Compensation Committee and the Board as well as any administrator, including management, to which the Committee has delegated any of its responsibilities and powers. As provided in the ESPP, our Compensation Committee may appoint one or more agents to assist in the administration of the ESPP and may delegate certain responsibilities or powers. Subject to the ESPP terms and applicable law, the Compensation Committee has the full and final authority to construe and interpret the ESPP and adopt rules and regulations for the administration of the ESPP as the Compensation Committee deems appropriate. The Compensation Committee may also adopt sub-plans relating to the operation and administration of the ESPP to accommodate specific requirements of local laws and procedures for non-U.S. jurisdictions that will not be required to comply with Section 423 of the IRC to the extent they are inconsistent with the requirements of those regulations, the terms of which may take precedence over the terms of the ESPP.

Shares Reserved for the ESPP. The aggregate number of shares of common stock that may be issued under the ESPP may not exceed 568,182; provided that this number shall automatically increase on the first day of each fiscal year, beginning with January 1, 2023, and continuing until (and including) January 1, 2032, with such annual increase equal to the lesser of (i) 568,182 shares, (ii) 1% of the number of shares of common stock issued and outstanding on December 31 of the immediately preceding fiscal year and (iii) an amount determined by the Board The number of shares issuable under the ESPP and the terms of purchase rights to acquire such shares are subject to adjustment in connection with certain corporate and recapitalization events as described in the ESPP.

Enrollment, Contributions and Cashless Participation. Eligible employees may become participants in the ESPP by enrolling during an open enrollment period. Eligible employees enroll by completing the appropriate forms and agreements, as directed by the Compensation Committee. Following the end of each Offering Period, each participant will be automatically re-enrolled in the next Offering Period using the same rate of payroll contributions and Cashless Participation election in effect during the prior Offering Period, unless the participant requests otherwise or chooses to withdraw from the ESPP, or if the participant is ineligible to continue to participate, in each case, in accordance with the terms of the ESPP.

The amount of payroll deductions that a participant may select must be a whole percentage of at least 1%, but not more than 15%, of the participant’s eligible pay, which includes base salary or wages, commissions and bonuses (all as determined before any applicable deductions from pay are made), but excludes deferred compensation, the value of any equity awards and fringe or welfare benefits. The aggregate amount of the specified percentage will be deducted from the participant’s paychecks on an after-tax basis in installments each pay period during the term of the Offering Period. Payroll deductions will begin with the first Offering Period following a participant’s enrollment and will remain in effect for successive Offering Periods unless a change is made. A participant may not make separate cash payments into his or her account except as permitted by the Compensation Committee.

In addition, eligible employees (other than our Section 16 officers, as defined pursuant to Rule 16a-1(f) under the Exchange Act) who have elected to participate in the Cashless Participation program may borrow an amount equal to the difference between their payroll contribution rate and the maximum allowable contribution rate under the ESPP. The Cashless Participation loan generally is repaid through the sale of a portion of the shares purchased by the participant under the ESPP, except that the participant must agree to cap the potential gain for a portion of such shares at a pre-determined stock price increase.

All contributions made by a participant will be credited (without interest) to his or her account. A participant may withdraw from an Offering Period and the ESPP by the deadline prescribed by the Compensation Committee during such Offering Period and his or her contributions will be refunded, without interest. No other change may be made to a participant’s rate of contributions during an Offering Period.

Offering Periods.The ESPP provides for two Offering Periods in each calendar year unless otherwise determined by the Compensation Committee. Each Offering Period will consist of a six-month purchase period that will run simultaneously with the Offering Period, commencing on the first trading day on or after January 1 and July 1, respectively. The first Offering Period after the effective date of the ESPP will begin on July 1, 2022 and end on December 31, 2022. The Compensation Committee has the authority to change the duration of an Offering Period (including the start and end date) or to designate one or more purchase periods for each Offering Period; provided that the change is announced prior to the start of the first Offering Period to be affected by such change and that the Offering Period is not greater than 27 months.

Purchase of Shares. On the first day of an Offering Period, a participant will be granted a purchase right to purchase shares of common stock at the applicable purchase price. Subject to the limit below, the number of shares of common stock is determined by dividing the amount of the participant’s contributions accumulated as of the last day of the Offering Period by the applicable purchase price; provided that (a) no participant may purchase shares of common stock with a fair market value (as of the date of purchase right grant) in excess of $25,000 per calendar year and (b) in no event will the aggregate number of shares subject to purchase rights during an Offering Period exceed the number of shares then available under the ESPP. The maximum number of shares of our common stock that may be purchased by any participant during any Offering Period is limited to 5,000 shares (subject to adjustment as provided in the ESPP) or such other maximum number of shares as the Compensation Committee may determine from time to time. The Compensation Committee may modify this limit from time to time. The number of shares subject to purchase rights will be adjusted as necessary to conform to the above limitations.

The purchase price will be 85% (or such other percentage as determined by the Compensation Committee prior to the commencement of any Offering Period) of the lesser of (i) the fair market value per share of our common stock as determined on the purchase date and (ii) the fair market value per share of our common stock as determined on the first day of the applicable Offering Period (provided that, in no event may the purchase price be less than the par value per share of our common stock).

A participant’s right to purchase shares of common stock during any Offering Period will be exercised automatically on the purchase date unless the participant withdraws from the ESPP prior to the end of the Offering Period or his or her participation is terminated. Subject to the terms of the ESPP, a purchase right will generally terminate on the earlier of the date of the participant’s termination of employment or the last day of the applicable Offering Period. Purchase rights are not transferable other than by will or the laws of descent and distribution.

Amendment; Termination. The Board or the Compensation Committee may amend the ESPP at any time, except that approval of an amendment to the ESPP by our shareholders will be required to the extent that shareholder approval of such amendment is required by applicable law or applicable stock exchange rules. The Board may suspend or discontinue the ESPP at any time.

Eligible Participants. Purchase rights may only be granted to eligible employees of a designated company (as defined below). Generally, any eligible employee who is actively employed on the first day of an open enrollment period and who customarily works more than 20 hours per week will be granted a purchase right in an Offering Period. However, no employee will be eligible to participate if, immediately after the purchase right grant, the employee would own stock (including any stock the employee may purchase under outstanding purchase rights) representing 5% or more of the total combined voting power or value of our common stock. A “designated company” is Velocity Financial, Inc. and any of its consolidated subsidiaries and affiliates, whether now existing or existing in the future, that has been designated by the Compensation Committee from time to time in its sole discretion as eligible to participate in the ESPP; provided that only Velocity Financial, Inc. and its consolidated subsidiaries may be designated companies for Section 423 Offerings. The Compensation Committee has determined that Velocity Financial, Inc., Velocity Commercial Capital, LLC and Century Health & Housing Capital, LLC will be “designated companies” for purposes of the ESPP, with a total of approximately 250 eligible employees. We estimate that approximately 30% of such employees, or approximately 75 employees, will participate in the ESPP during the first year.

Adjustments; Effect of a Change of Control. If there is any change in the number, class, value or terms of the shares of our common stock because of a recapitalization, stock split, reverse stock split, stock dividend, spinoff, split up, combination, reclassification or exchange of shares, merger, consolidation, rights offering, separation, reorganization or liquidation or any other change in the corporate structure or our shares, including any extraordinary dividend or distribution (but excluding any regular cash dividend), then the Compensation Committee will adjust the number and class of shares of common stock reserved for issuance under the ESPP (including the numerical limits set forth in the ESPP), the purchase price per share and the number of shares subject to purchase rights in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the ESPP.

In addition, in the event of a change of control, each outstanding purchase right under the ESPP will be equitably adjusted and assumed or an equivalent right to purchase shares of stock substituted by the successor corporation (or a parent or subsidiary thereof). In the event that (i) the successor corporation in a change of control refuses to assume or substitute for the purchase right, (ii) the successor corporation is not a publicly traded corporation or (iii) any participant is participating in the Cashless Participation program, then the Offering Period then in progress will be shortened and the Compensation Committee will select a date (the “new purchase date”) on which all outstanding purchase rights will be exercised on or prior to the consummation date of the change of control. The Compensation Committee may declare the new purchase date applicable only for participants participating in the Cashless Participation program to enable such participants to satisfy their obligations under the Cashless Participation program, to the extent that such declaration would not cause the disqualification of any Section 423 Offering.

Plan Benefits. Benefits under the ESPP will depend on participants’ elections to participate and the fair market value of our common stock at various future dates. As a result, it is not possible as of the date of this proxy statement to determine future benefits that will be received by executive officers and other employees. Each participant is limited to the $25,000 annual purchase restriction as well as the participant purchase restrictions for any Offering Period described above.

We anticipate filing a registration statement on Form S-8 with the SEC to register shares of common stock under the ESPP, subject to and effective upon shareholder approval, as soon as practicable following shareholder approval of the ESPP.

Federal Tax Consequences

The following summary generally describes the principal U.S. federal (and not state, foreign or local) income tax consequences under the ESPP to us and participating employees as of the date of this proxy statement. The summary is general in nature and is not intended to cover all the tax consequences that may apply to a particular employee or to us. The provisions of the IRC and related regulations concerning these matters are complicated, and their impact in any one case may depend upon the particular circumstances.

As noted above, the ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the IRC. Participating employees will, however, recognize income when they sell or dispose of the shares purchased under the ESPP. If an employee disposes of such shares after two years from the date of grant of the purchase right and after one year from the date of the purchase of such shares (or if the employee dies), the employee will recognize ordinary income for the year in which such disposition occurs (or the employee’s taxable year ending with his or her death) in an amount equal to the lesser of: