SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
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14a-6(e)(2))
Microfinancial Incorporated
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
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microfinancial LOGO
950 Winter Street
Waltham, Massachusetts 02451
April 18, 2002
Dear Stockholder:
I am pleased to invite you to the 2002 Special Meeting of Stockholders in
Lieu of Annual Meeting of MicroFinancial Incorporated ("MicroFinancial"), which
will be held on Thursday, May 16, 2002, at 4:30 p.m., at Edwards & Angell, LLP,
101 Federal Street, Boston, Massachusetts.
The accompanying Notice of Special Meeting of Stockholders and proxy
statement contain the matters to be considered and acted upon. Please read these
materials carefully.
Matters scheduled for consideration at the Special Meeting are the election
of two directors for three-year terms, the ratification of the election of one
director for a two-year term and the ratification of the selection of
independent auditors for 2002.
I hope you will be able to attend the meeting, but if you cannot do so, it
is important that your shares be represented and voted. ACCORDINGLY, I URGE YOU
TO MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE RETURN
ENVELOPE PROVIDED.
Very truly yours,
/s/ PETER R. BLEYLEBEN
PETER R. BLEYLEBEN
Chairman and Chief Executive Officer
MICROFINANCIAL INCORPORATED
950 WINTER STREET
WALTHAM, MASSACHUSETTS 02451
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
IN LIEU OF ANNUAL MEETING
APRIL 18, 2002
The Special Meeting of Stockholders in Lieu of Annual Meeting of
MicroFinancial Incorporated, a Massachusetts corporation ("MicroFinancial"),
will be held Thursday, May 16, 2002, at 4:30 p.m., at Edwards & Angell, LLP, 101
Federal Street, Boston, Massachusetts for the purpose of considering and voting
upon:
1. The election of two directors for three-year terms.
2. The ratification of the election of one director for a two-year
term.
3. The ratification of the selection of Deloitte & Touche LLP as
independent auditors for MicroFinancial for 2002.
4. The transaction of such other business as may properly come before
the Special Meeting.
The record date for determining stockholders entitled to notice of, and to
vote at, the Special Meeting is the close of business on April 11, 2002.
MicroFinancial's transfer books will not be closed.
By Order of the Board of Directors,
/s/ RICHARD F. LATOUR
RICHARD F. LATOUR
Clerk
Waltham, Massachusetts
April 18, 2002
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, DATE, SIGN AND MAIL THE ENCLOSED PROXY
AT YOUR EARLIEST CONVENIENCE, USING THE RETURN ENVELOPE ENCLOSED WITH THE PROXY.
IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF
YOU HAVE PREVIOUSLY RETURNED YOUR PROXY.
MICROFINANCIAL INCORPORATED
950 WINTER STREET
WALTHAM, MASSACHUSETTS 02451
TELEPHONE 781-890-0177
------------------------
2002 SPECIAL MEETING OF STOCKHOLDERS
IN LIEU OF ANNUAL MEETING
------------------------
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors ("MicroFinancial
Board") of MicroFinancial Incorporated ("MicroFinancial" or the "Corporation")
in connection with the Special Meeting of Stockholders in Lieu of Annual Meeting
(the "Special Meeting") to be held on May 16, 2002. This proxy statement and the
enclosed proxy are first being sent to stockholders on or about April 18, 2002.
The proxy will be voted at the Special Meeting in accordance with the
instructions indicated on the proxy by the stockholder. If no instructions are
indicated, all shares represented by valid proxies received pursuant to this
solicitation (and not revoked before they are voted) will be voted FOR Proposal
No. 1 and FOR Proposal No. 2.
The record date for determining stockholders entitled to vote at the
Special Meeting is the close of business on April 11, 2002. On this date, there
were outstanding and entitled to vote 12,911,532 shares of Common Stock, par
value $0.01 per share, of the Corporation (the "Common Stock"), each of which is
entitled to one vote on each matter to be voted on at the Special Meeting. The
presence (in person or by proxy) of a majority of the aggregate number of shares
of Common Stock outstanding and entitled to vote on the record date is necessary
to constitute a quorum at the Special Meeting. Abstentions and "broker non-
votes" will be counted as present at the Special Meeting for purposes of
determining whether there is a quorum. A "broker non-vote" occurs when a broker
or other nominee, holding shares for a beneficial owner, has not received voting
instructions on a matter from such owner and is barred by stock exchange rules
from exercising discretionary authority to vote on the matter.
Management is not aware of any matter to be considered at the Special
Meeting other than those referred to in this proxy statement. If any other
business should properly come before the Special Meeting, the persons named in
the proxy will vote according to their best judgment.
VOTING PROCEDURES
The affirmative vote of a majority of the shares of Common Stock
represented at the Special Meeting and entitled to vote is required to ratify
the election of Mr. Latour for a two-year term and to ratify the selection of
auditors. A plurality of votes of the shares of Common Stock represented at the
Special Meeting is required to elect directors. In voting for the election of
directors, stockholders may cast their votes in favor of or against, but
abstentions may not be specified. If a broker's authority to vote on a
particular matter is limited, thus resulting in a broker non-vote, such broker
non-vote will not be counted in determining the number of votes cast or entitled
to vote at the Special Meeting. Abstentions are counted for this purpose. Since
a broker's authority is not limited with respect to Proposal Nos. 1, 2 and 3,
MicroFinancial does not expect to receive any broker non-votes with respect to
the Special Meeting.
A stockholder of record may revoke a proxy by delivering written notice of
revocation to Richard F. Latour, Clerk of MicroFinancial, at the address set
forth above, by filing a duly executed proxy bearing a later date, or by
attending the Special Meeting in person, notifying the Clerk, and voting by
ballot at the Special Meeting. Any stockholder of record attending the Special
Meeting may vote in person whether or not a proxy has been previously given, but
the mere presence (without notifying the Clerk) of a stockholder at the Special
Meeting will not constitute revocation of a previously given proxy. In addition,
stockholders whose shares of Common Stock are not registered in their own name
will need additional documentation from the record holder of the shares to vote
in person at the Special Meeting.
2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of February 28, 2002 with
respect to the beneficial ownership of Common Stock of each person known by the
Corporation to be the beneficial owner of more than 5% of the 12,821,946 shares
of Common Stock outstanding as of such date (not including treasury stock), each
director and executive officer of the Corporation and all directors and
executive officers of the Corporation as a group. Each person named has sole
voting and investment power with respect to the shares indicated, except as
otherwise stated in the notes to the table.
NUMBER OF SHARES PERCENTAGE OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF COMMON STOCK
------------------------------------ --------------------- ----------------------
Peter R. Bleyleben(2).................................. 1,501,610 11.62%
66 Norfolk Road
Chestnut Hill, Massachusetts 02464
Brian E. Boyle(3)...................................... 1,491,700 11.59%
11 Whispering Lane
Weston, Massachusetts 02493
Torrence C. Harder(4).................................. 1,641,729 12.75%
Walden Woods, 657 Sudbury Road
Concord, Massachusetts 01742-4321
Wasatch Advisors, Inc.................................. 1,454,899 11.35%
150 Social Hall Avenue
Salt Lake City, Utah 84111
Key Colony Fund, L.P.(5)............................... 653,500 5.10%
10825 Financial Centre Parkway
Suite 100
Little Rock, Arkansas 72211
Jeffrey P. Parker(6)................................... 390,840 3.04%
253 Meadowbrook Road
Weston, Massachusetts 02493
Alan J. Zakon(7)....................................... 90,000 *
32 Cardinal Lane
Ocean Reef Club
Key Largo, Florida 33037
Richard F. Latour(8)................................... 413,550 3.19%
Horse Leg Hill Road
Eaton, New Hampshire 03832
John Plumlee(9)........................................ 58,000 *
97 By-Pass 28
Derry, New Hampshire 03038
Carol Salvo(10)........................................ 85,000 *
3 Woodridge Road
Medfield, Massachusetts 02052
Kerry Lincoln(11)...................................... 53,100 *
11 Stillbrook Lane
Mansfield, Massachusetts 02048
All directors and executive officers as a group (10
persons)............................................. 5,731,529 42.61%
---------------
* Less than 1%
(1) Unless otherwise indicated in the footnotes, each of the stockholders named
in this table has sole voting and investment power with respect to the
shares of Common Stock shown as beneficially owned by such stockholder,
except to the extent that authority is shared by spouses under applicable
law.
3
(2) Includes 100,000 shares of Common Stock issuable upon the exercise of
options issued to Dr. Bleyleben which vest on or before May 1, 2002.
(3) Includes 50,000 shares of Common Stock issuable upon the exercise of
options issued to Dr. Boyle which vest on or before May 1, 2002 and 40,000
shares of Common Stock held in the Brian E. Boyle Charitable Foundation,
over which Dr. Boyle retains sole voting and investment power as the sole
trustee and for which Dr. Boyle disclaims beneficial ownership.
(4) Includes 50,000 shares of Common Stock issuable upon the exercise of
options issued to Mr. Harder which vest on or before May 1, 2002; 92,200
shares of Common Stock held in trust for Mr. Harder's daughter, Lauren E.
Harder, over which Mr. Harder retains sole voting and investment power as
the sole trustee and for which Mr. Harder disclaims beneficial ownership;
92,200 shares of Common Stock held in trust for Mr. Harder's daughter,
Ashley J. Harder, over which Mr. Harder maintains voting and investment
power as the sole trustee and for which Mr. Harder disclaims beneficial
ownership; and 276,045 shares of Common Stock owned by Entrepreneurial
Ventures, Inc. over which Mr. Harder retains shared voting and investment
power through his ownership in, and positions as President and Director of,
Entrepreneurial Ventures, Inc.
(5) Key Colony Fund, L.P., Lieblong Transport, Inc., Alex R. Lieblong IRA, Key
Colony Management LLC, Alex R. Lieblong, Jason R. Lieblong and Paul Spann
filed a Schedule 13D with the Securities and Exchange Commission reporting
that they held as a group 653,500 shares of Common Stock. In the Schedule
13D, Key Colony Fund, L.P. reported that it had sole voting and investment
power over 495,000 shares held directly by it; Lieblong Transport, Inc.
reported that it had sole voting and investment power over 5,000 shares
held directly by it; Alex R. Lieblong IRA reported that it had sole voting
and investment power over 4,100 shares held directly by it; Key Colony
Management LLC reported that it had sole voting and investment power over
the shares held by the Fund; Alex R. Lieblong reported that he had sole and
shared voting and investment power over an aggregate of 629,300 shares held
directly by him as well as the shares held by the Fund, Transport and the
IRA; Jason R. Lieblong reported that he had sole voting and investment
power over 15,300 shares held directly by him; and Paul Spann reported that
he had sole voting and investment power over 8,900 shares held directly by
him. All members of the group reported a business address as set forth in
the table above.
(6) Includes 50,000 shares of Common Stock issuable upon the exercise of
options granted to Mr. Parker which vest on or before May 1, 2002; and
340,840 shares of Common Stock owned by The Parker Family Limited
Partnership over which Mr. Parker retains shared voting and investment
power through his ownership in, and position as Director of, the general
partner of the Parker Family Limited Partnership.
(7) Includes 50,000 shares of Common Stock issuable upon the exercise of
options granted to Mr. Zakon which vest on or before May 1, 2002.
(8) Includes 148,000 shares of Common Stock issuable upon the exercise of
options granted to Mr. Latour which vest on or before May 1, 2002.
(9) Consists of 58,000 shares of Common Stock issuable upon the exercise of
options granted to Mr. Plumlee which vest on or before May 1, 2002.
(10) Includes 70,000 shares of Common Stock issuable upon the exercise of
options granted to Ms. Salvo which vest on or before May 1, 2002; and
15,000 shares of Common Stock held jointly by Ms. Salvo and her husband
over which Ms. Salvo shares voting and investment power with her husband.
(11) Includes 48,000 shares of Common Stock issuable upon the exercise of
options granted to Ms. Lincoln which vest on or before May 1, 2002.
4
PROPOSAL 1
ELECTION OF DIRECTORS
As of the date of this proxy statement, the MicroFinancial Board consists
of 6 persons. The MicroFinancial Board is divided into three classes, with each
class serving staggered terms of three years, so that only one class is elected
in any one year. Two directors are to be elected at the Special Meeting to serve
until the 2005 Special Meeting and until their successors are elected and have
qualified. The nominees for this class of directors are Torrence C. Harder and
Jeffrey P. Parker. A Director is elected by a plurality of votes of the shares
of Common Stock, present in person or represented by proxy, and entitled to vote
at the Special Meeting when there is a quorum. The nominees for director are
presently directors of MicroFinancial. They have consented to being named a
nominee in this proxy statement and have agreed to serve as a director if
elected at the Special Meeting. In the event that the nominees are unable to
serve, the persons named in the proxy have discretion to vote for other persons
if those other persons are designated by the MicroFinancial Board. The
MicroFinancial Board has no reason to believe that the nominees will be
unavailable for election.
THE MICROFINANCIAL BOARD RECOMMENDS
A VOTE "FOR" THE NOMINEES FOR ELECTION AS DIRECTORS.
NOMINEES FOR DIRECTOR
NOMINEE, AGE AND PRINCIPAL OCCUPATION AND
COMMITTEE MEMBERSHIP OTHER INFORMATION
-------------------- ------------------------
Torrence C. Harder, 58 Torrence C. Harder has served as a Director of the
Chairman, Compensation Corporation since 1986, served as Chairman of the
Committee; Audit Committee Compensation Committee since 1997 and has been a member of
the Audit Committee since 1997. He has been the President
and Director of Harder Management Corporation, Inc., a
registered investment advisory firm, since its establishment
in 1971. He has also been the President and Director of
Entrepreneurial Ventures, Inc., a private equity investment
firm, since its founding in 1986. Mr. Harder is a Director
of, and member of the Compensation Committee of the Board of
Directors of, Lightbridge, Inc., a wireless industry
software services provider. He is also a director of
RentGrow, Inc., Trade Credit Corporation and UpToDate in
Medicine, Inc. Mr. Harder earned an M.B.A. from the Wharton
School of the University of Pennsylvania, and a B.A. with
honors from Cornell University.
Jeffrey P. Parker, 58 Jeffrey P. Parker has served as a Director of the
Corporation since 1992. He is the founder and has served
since 1997 as the Chief Executive Officer of CCBN.COM, a
world wide web information services company based in Boston.
He is also the founder and has served since 1991 as the
managing director of Private Equity Investments, a venture
capital firm focusing on start-up and early stage companies.
Mr. Parker is a Director of CCBN.COM, Pacific Sun Industries
and Vintage Partners. Mr. Parker earned a B.A., an M.A. in
Engineering and an M.B.A. from Cornell University.
5
PROPOSAL 2
RATIFICATION OF THE ELECTION OF A DIRECTOR FOR A TWO-YEAR TERM
Pursuant to Massachusetts law, and the Amended and Restated By-laws of
MicroFinancial, on February 21, 2002 the MicroFinancial Board voted to expand
the Board from five to six members and elected Richard F. Latour to fill the
ensuing vacancy. In accordance with Massachusetts law, the MicroFinancial Board
placed Mr. Latour in the class of directors serving until 2004. The election of
Mr. Latour to serve until the 2004 Special Meeting and until his successor is
elected and has qualified is to be ratified by the shareholders at the Special
Meeting. The ratification of the election of Mr. Latour will be by a majority of
votes of the shares of Common Stock, present in person or represented by proxy,
and entitled to vote at the Special Meeting when there is a quorum.
THE MICROFINANCIAL BOARD RECOMMENDS
A VOTE "FOR" THE RATIFICATION OF THE ELECTION OF MR. LATOUR AS A DIRECTOR.
NOMINEE FOR DIRECTOR
NOMINEE, AGE AND PRINCIPAL OCCUPATION AND
COMMITTEE MEMBERSHIP OTHER INFORMATION
-------------------- ------------------------
Richard F. Latour, 48 Richard F. Latour is President, Chief Operating Officer,
Chief Financial Officer, Treasurer, Clerk and Secretary of
the Company. From 1995 to January 2002, he served as
Executive Vice President, Chief Operating Officer, Chief
Financial Officer, Treasurer, Clerk and Secretary. From 1986
to 1995 Mr. Latour served as Vice President of Finance and
Chief Financial Officer. Prior to joining the Company, Mr.
Latour was Vice President of Finance for eleven years with
Trak Incorporated, an international manufacturer and
distributor of consumer goods, where he was responsible for
all financial and operational functions. Mr. Latour earned a
B.S. in accounting from Bentley College in Waltham,
Massachusetts.
CONTINUING DIRECTORS
DIRECTOR, AGE AND PRINCIPAL OCCUPATION AND
COMMITTEE MEMBERSHIP OTHER INFORMATION
-------------------- ------------------------
Terms Expiring in 2003
Brian E. Boyle, 54 Brian E. Boyle, the Chief Executive Officer of the
Audit Committee; Corporation from 1985 to 1987 and Chairman of the
Compensation Committee MicroFinancial Board from 1985 to 1995, has served as a
Director of the Corporation or its predecessor since 1985
and has been a member of the Audit Committee and the
Compensation Committee since 1997. He is currently the Vice
Chairman and a Director of Boston Communications Group, Inc.
("Communications"), a Boston-based provider of call
processing to the global wireless industry. He has also
served as Chairman and Chief Executive Officer of GoldK,
Inc. since 1999. Prior to joining Communications, Dr. Boyle
was the Chairman and Chief Executive Officer of Credit
Technologies, Inc., a Massachusetts-based provider of credit
decision and customer acquisition software, from 1989 to
1993. From 1995 to 1999 he was a Director of Saville
Systems, a global telecommunications billing software
company, with its United States headquarters in Burlington,
Massachusetts, and served as a member of its Compensation
Committee from 1995 to October 1999.
6
DIRECTOR, AGE AND PRINCIPAL OCCUPATION AND
COMMITTEE MEMBERSHIP OTHER INFORMATION
-------------------- ------------------------
Dr. Boyle is also a director of several private companies.
Dr. Boyle earned his A.B. in Mathematics and Economics from
Amherst College and a B.S. in Electrical Engineering and
Computer Science, an M.S. in Operations Research, an E.E. in
Electrical Engineering and Computer Science and a Ph.D. in
Operations Research, all from the Massachusetts Institute of
Technology.
Alan J. Zakon, 66 Alan J. Zakon has served as a Director of the Corporation
Chairman, Audit Committee; since 1988 and has served as Chairman of the Audit Committee
Compensation Committee since 1997. Since 1995, he has been the Vice Chairman and a
Director, and since November 1997, Chairman of the Executive
Committee, of Scientific Games Corporation, a New York-based
global gaming and simulcasting company. Dr. Zakon served as
Managing Director of Bankers Trust Corporation from 1989 to
1995 where he was Chairman of the Strategic Policy
Committee. Dr. Zakon is a Director of Arkansas-Best Freight
Corporation, a nationwide commercial transportation and
trucking company. Dr. Zakon holds a B.A. from Harvard
University, an M.S. in Industrial Management from the Sloane
School at the Massachusetts Institute of Technology and a
Ph.D. in Economics and Finance from the University of
California at Los Angeles.
Term Expiring in 2004
Peter R. Bleyleben, 49 Peter R. Bleyleben serves as Chairman of the Board of
Directors and Chief Executive Officer of the Corporation. He
served as President, Chief Executive Officer and Director of
the Corporation or its predecessor since June 1987 until
January 2002. Before joining the Corporation, Dr. Bleyleben
was Vice President and Director of the Boston Consulting
Group, Inc. ("BCG") in Boston. During his more than eight
years with BCG, Dr. Bleyleben focused his professional
strategic consulting practice on the financial services and
telecommunications industries. Prior to joining BCG, Dr.
Bleyleben earned an M.B.A. with distinction and honors from
the Harvard Business School, an M.B.A. and a Ph.D. in
Business Administration and Economics, respectively, from
the Vienna Business School in Vienna, Austria and a B.S. in
Computer Science from the Vienna Institute of Technology.
7
CERTAIN INFORMATION REGARDING THE MICROFINANCIAL BOARD
MEETINGS AND COMMITTEES
During 2001, the MicroFinancial Board met four times and acted by unanimous
written consent three times. The committees of the Board met as follows: the
Compensation Committee met one time and the Audit Committee met three times. In
2001, all MicroFinancial Board members attended 75% of the aggregate of the
meetings of the MicroFinancial Board and its committees on which they served.
The Audit Committee oversees the scope of MicroFinancial's internal
auditing, the independence of the outside auditors, the adequacy of
MicroFinancial's system of internal accounting controls and procedures, and the
adequacy of management's action with respect to recommendations thereon by
MicroFinancial's auditors. MicroFinancial is required by the rules of the NYSE
to satisfy certain requirements with respect to its Audit Committee. In
conformity with those requirements, the MicroFinancial Board has approved the
Audit Committee's written charter which was included as an appendix to last
year's proxy statement. In addition, the MicroFinancial Board has determined
that all of the members of the Audit Committee satisfy the independence and
other applicable requirements of the NYSE's listing standards.
The Compensation Committee is responsible for compensation and benefit
plans (including management bonuses).
The MicroFinancial Board has no nominating committee, as the MicroFinancial
Board as a whole studies the qualifications and recommends to the stockholders
the election of MicroFinancial directors. A stockholder may nominate a person
for election as a director by complying with Section 3.1 of the MicroFinancial
By-laws, which provides that advance notice of a nomination must be delivered to
MicroFinancial and must contain the name and certain information concerning the
nominee and the stockholders who support the nominee's election. A copy of this
By-law provision may be obtained by writing to Richard F. Latour, Clerk of
MicroFinancial, at 950 Winter Street, Waltham, Massachusetts 02451.
COMPENSATION OF DIRECTORS
The MicroFinancial Board is comprised of six Directors, two of whom, Peter
Bleyleben and Richard F. Latour, are salaried employees of the Corporation who
receive no additional compensation for services rendered as Directors. The
members of the MicroFinancial Board who were not employees of the Corporation
("Non-Employee Directors") received stock options to purchase 50,000 shares of
Common Stock in 1999 and stock options to purchase 50,000 shares of Common Stock
in 2000 for their service on the MicroFinancial Board. In 2001, the Non-Employee
Directors each received stock options to purchase 25,000 shares of Common Stock.
In February 2002, the options granted in 2001 were voluntarily cancelled, and
the Directors received new options to purchase 45,000 shares of Common Stock.
Directors also are reimbursed for out-of-state travel expenses incurred in
connection with attendance at meetings of the MicroFinancial Board and
committees thereof. In addition, the Corporation pays for health care insurance
for each Non-Employee Director other than Mr. Harder.
8
COMPENSATION OF EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION
The following table sets forth the compensation of (i) the Chief Executive
Officer of the Corporation, (ii) the four most highly compensated executive
officers who were serving as executive officers of the Corporation as of
December 31, 2001 (collectively, the "Named Executive Officers"), in each case
for the years ended December 31, 2001, 2000 and 1999. Determination of the most
highly compensated executive officers is based upon compensation for the
Corporation's fiscal year ended December 31, 2001 and does not necessarily
reflect the most highly compensated executive officers for the Corporation's
fiscal years ended December 31, 2000 and 1999.
SUMMARY COMPENSATION TABLE(1)
ANNUAL COMPENSATION
--------------------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
--------------------------- ---- -------- -------- ------------
PETER R. BLEYLEBEN............................... 2001 $277,116 $469,997 $97,636(3)
Chairman, Chief Executive Officer and Director 2000 $270,000 $436,873 $72,004
1999 $260,000 $439,313 $67,505
RICHARD F. LATOUR................................ 2001 $230,000 $306,643 $54,856(4)
President, Chief Operating Officer, Chief
Financial 2000 $220,000 $278,042 $53,515
Officer, Treasurer, Clerk, Secretary and
Director 1999 $210,000 $309,226 $41,826
JOHN PLUMLEE..................................... 2001 $165,000 $ 73,753 $19,456(5)
Vice President, MIS 2000 $155,769 $ 63,819 $20,888
1999 $148,558 $ 57,034 $21,357
CAROL SALVO...................................... 2001 $135,000 $ 73,753 $ 4,098(6)
Vice President, Legal 2000 $115,269 $ 63,819 $ 4,701
1999 $103,462 $ 51,052 $ 4,494
KERRY LINCOLN.................................... 2001 $115,000 $ 56,913 $ 3,137
Controller and Vice President, 2000 $ 94,808 $ 38,557 $ 3,405
Accounting and Finance 1999 $ 79,904 $ 39,518 $ 2,859
---------------
(1) Columns required by the rules and regulations of the Securities and Exchange
Commission that contain no entries have been omitted.
(2) Bonuses are paid over a three-year period, with one-third payable each year.
The remaining two-thirds is subject to discretionary review by the
Corporation and, therefore, does not vest to the employee. The bonus amount
set forth for each fiscal year thus represents the amount actually paid for
such fiscal year, plus amounts relating to the prior two fiscal years.
(3) Amounts for Dr. Bleyleben include: (a) contributions by the Corporation
under the Corporation's 401(k) retirement/profit sharing plan in 2001
($3,200), 2000 ($3,199) and 1999 ($3,323); (b) split dollar life insurance
premiums paid by the Corporation in 2001 ($90,382), 2000 ($65,259) and 1999
($56,634) (in the event of the death of Dr. Bleyleben, the Corporation is
entitled to the cash value under such plan with the beneficiary receiving
the life insurance portion thereof); and (c) executive disability insurance
policy premiums paid by the Corporation in 2001 ($4,054), 2000 ($3,546) and
1999 ($7,548).
(4) Amounts for Mr. Latour include: (a) contributions by the Corporation under
the Corporation's 401(k) retirement/profit sharing plan in 2001 ($3,200),
2000 ($3,323) and 1999 ($3,323); (b) split dollar life insurance premiums
paid by the Corporation in 2001 ($50,782), 2000 ($49,318) and 1999 ($34,917)
(in
9
the event of the death of Mr. Latour, the Corporation is entitled to the cash
value under such plan with the beneficiary receiving the life insurance portion
thereof); (c) executive disability insurance policy premiums paid by the
Corporation in 2001 ($874), 2000 ($874) and 1999 ($3,033); and (d) the
benefit to the executive of interest-free loans from the Corporation based
on the applicable federal rate in effect on the date of issuance of each
such loan in 1999 ($553).
(5) Amounts for Mr. Plumlee include: (a) contributions by the Corporation under
the Corporation's 401(k) retirement/profit sharing plan in 2001 ($3,440),
2000 ($4,111) and 1999 ($3,733); (b) split dollar life insurance premiums
paid by the Corporation in 2001 ($15,000), 2000 ($15,084) and 1999 ($15,000)
(in the event of the death of Mr. Plumlee, the Corporation is entitled to
the cash value under such plan with the beneficiary receiving the life
insurance portion thereof); (c) executive disability insurance policy
premiums paid by the Corporation in 2001 ($1,016), 2000 ($1,016) and 1999
($1,016); and (d) the benefit to the executive of interest-free loans from
the Corporation based on the applicable federal rate in effect on the date
of issuance of each such loan, in 2000 ($677) and 1999 ($1,608).
(6) Amounts for Ms. Salvo include: (a) contributions by the Corporation under
the Corporation's 401(k) retirement/profit sharing plan in 2001 ($3,440),
2000 ($3,090) and 1999 ($2,476); (b) executive disability insurance policy
premiums paid by the Corporation in 2001 ($658), 2000 ($630) and 1999
($604); and (d) the benefit to the executive of interest-free loans from the
Corporation based on the applicable federal rate in effect on the date of
issuance of each such loan, in 2000 ($981) and 1999 ($1,414).
(7) Amounts for Ms. Lincoln include: (a) contributions by the Corporation under
the Corporation's 401(k) retirement/profit sharing plan in 2001 ($2,667),
2000 ($2,388) and 1999 ($1,864); (b) executive disability insurance policy
premiums paid by the Corporation in 2001 ($470), 2000 ($470) and 1999
($470); and (c) the benefit to the executive of interest-free loans from the
Corporation based on the applicable federal rate in effect on the date of
issuance of each such loan, in 2000 ($546) and 1999 ($525).
1998 EQUITY INCENTIVE PLAN
The following table indicates the aggregate options granted in 2001 to the
Named Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
---------------------------------------------------------
PERCENT OF POTENTIAL VALUE AT
NUMBER OF TOTAL ASSUMED RATES OF STOCK
SECURITIES OPTIONS/SARS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM(3)
OPTION/SARS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SH) DATE 5%($) 10%($)
---- ------------- -------------- ----------- ---------- --------- -----------
Peter R. Bleyleben... 0 N/A N/A N/A N/A N/A
Richard F. Latour.... 90,000 16.4% $13.10 2/20/11 $741,467 $1,879,022
John Plumlee......... 40,000 7.3% $13.10 2/20/11 $329,541 $ 835,121
30,000 5.5% $ 9.48 11/13/11 $178,858 $ 453,260
Carol Salvo.......... 40,000 7.3% $13.10 2/20/11 $329,541 $ 835,121
30,000 5.5% $ 9.48 11/13/11 $178,858 $ 453,260
Kerry Lincoln........ 40,000 7.3% $13.10 2/20/11 $329,541 $ 835,121
30,000 5.5% $ 9.48 11/13/11 $178,858 $ 453,260
(footnotes on following page)
---------------
10
(1) Stock options were granted under the Plan. No stock appreciation rights were
awarded with these grants. The options first become exercisable, in five
equal annual installments, beginning one year from the grant date, and have
a ten-year term. If a change of control of MicroFinancial were to occur, the
options would become immediately exercisable in full.
(2) The percentages in the table for the stock options granted in 2001 are based
on a total of 550,000 stock options granted in 2001 to MicroFinancial
employees, all of which were granted on the same material terms described in
footnote (1) above.
(3) The dollar amounts under these columns represent the potential realizable
value of each grant assuming that the market value of the Common Stock
appreciates from the date of grant to the expiration of the option at
annualized rates of 5% and 10%. These assumed rates of appreciation have
been specified by the SEC for illustrative purposes only and are not
intended to forecast future financial performance or possible future
appreciation in the price of the Common Stock. The actual amount the
executive officer may realize will depend on the extent to which the stock
price exceeds the exercise price of the options on the date the option is
exercised.
The following table indicates the aggregate option exercises in 2001 by the
Named Executive Officers and fiscal year-end option values:
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2001
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SAR'S
SHARES OPTIONS/SAR'S AT FISCAL YEAR-
ACQUIRED AT FISCAL YEAR-END(#) END($)(1)(2)(3)
ON VALUE --------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
Peter R. Bleyleben....... N/A N/A 60,000 140,000 $9,375 $37,500
Richard F. Latour........ 9,000 $100,530 80,000 260,000 $9,375 $37,500
John Plumlee............. N/A N/A 30,000 140,000 $4,688 $41,850
Carol Salvo.............. N/A N/A 30,000 140,000 $4,688 $41,850
Kerry Lincoln............ N/A N/A 24,000 126,000 $3,750 $38,100
---------------
(1) Value based on $10.25, the closing price of the Common Stock on December 31,
2001, minus the exercise price.
(2) The value of unexercised in-the-money stock options at December 31, 2001 is
presented to comply with regulations of the Securities and Exchange
Commission. The actual amount realized upon exercise of stock options (if
any) will depend upon the excess of the fair market value of the Common
Stock over the exercise price at the time the stock option is exercised.
There is no assurance that the values of unexercised stock options reflected
in this table will be realized.
(3) The exercise price of the following options exceeded the fair market value
of the Common Stock on December 31, 2001: Mr. Bleyleben, 40,000 vested and
60,000 unvested options; Mr. Latour, 60,000 vested and 180,000 unvested
options; Mr. Plumlee, 20,000 vested and 70,000 unvested options; Ms. Salvo,
20,000 vested and 70,000 unvested options; and Ms. Lincoln, 16,000 vested
and 64,000 unvested options.
11
PROFIT SHARING PLAN AND DISCRETIONARY BOARD OF DIRECTOR BONUS PROGRAMS
The Corporation pays annual bonuses and makes profit sharing payments as
determined by the Compensation Committee of the MicroFinancial Board. Each year
the Compensation Committee indicates to the executive officers the percentage of
the following year's pre-tax profits on which profit sharing plan payments will
be based. Upon the conclusion of the audit of the prior year's financial
results, the Compensation Committee determines the total percentage of pre-tax
profits eligible for profit-sharing plan payments, and awards payments to Dr.
Bleyleben and one other executive of the Corporation. To enhance long-term
retention of these executives, only one-third of the amount awarded is paid at
that point in time. The remaining two-thirds may be paid out over the next two
years in the discretion of the Compensation Committee and are subject to
separate annual approvals of the Compensation Committee.
EMPLOYMENT AGREEMENTS
The Corporation has entered into Employment Agreements with Dr. Bleyleben
and Mr. Latour for a three-year period commencing June 12, 1998, subject to
automatic successive one-year renewals unless terminated pursuant to the terms
thereof. In the event of a termination of the Employment Agreements by the
Corporation without cause, or by Dr. Bleyleben or Mr. Latour for specified good
reason, the Employment Agreements provide for three years of severance payments
to Dr. Bleyleben and Mr. Latour, respectively, on the basis of their highest
base salary during the employment period. In addition, Dr. Bleyleben and Mr.
Latour would also be entitled to a prorated payment of base salary and bonus to
the date of termination, and the acceleration of deferred compensation and
accrued but unpaid amounts under the Corporation's bonus and/or profit sharing
plans. Dr. Bleyleben's and Mr. Latour's current base salaries, respectively, are
$265,000 and $230,000. The bonus for the current fiscal year will be determined
by the MicroFinancial Board. If, in connection with a payment under their
Employment Agreement, either Dr. Bleyleben or Mr. Latour shall incur any excise
tax liability on the receipt of "excess parachute payments" as defined in
Section 280G of the Internal Revenue Code of 1986, as amended, the Employment
Agreements provide for gross-up payments to return them to the after-tax
position they would have been in if no excise tax had been imposed. As used in
each Employment Agreement, "for good reason" means the assignment to the
executive of duties inconsistent with the executive's position, authority,
duties or responsibilities; the failure by the Corporation to pay the agreed
base salary and provide the executive with benefits; moving the executive to a
location outside of the metropolitan Boston, Massachusetts area; and the failure
by the Corporation to require a successor to assume all obligations under the
Employment Agreement.
The Corporation has also entered into separate employment agreements with
each of the remaining Named Executive Officers which are designed to provide an
incentive to each executive to remain with the Corporation pending and following
a Change in Control (as defined below). Each employment agreement has an initial
term of one year following a Change in Control, with automatic extensions upon
the expiration of the initial one-year term for successive one-month periods
(such date and each annual anniversary thereof, the "Renewal Date"). Pursuant to
each employment agreement, the executive will be entitled to receive an annual
base salary of not less than twelve times the highest monthly base salary paid
or payable to the executive within the twelve months preceding the Change in
Control. If the employment agreement is terminated by the MicroFinancial Board
other than for cause, death or disability, or is terminated by the executive for
specified good reason, the Corporation shall pay to the executive in a cash lump
sum within 30 days after the date of termination, the aggregate of the following
amounts: (i) the greater of executive's annual base salary through (x) the next
applicable Renewal Date following the date of termination or (y) the six month
period following the date of termination, in each case to the extent not
theretofore paid; (ii) a special bonus of $75,000 for each of Mr. Plumlee, Ms.
Salvo and Ms. Lincoln; (iii) any other compensation
12
previously deferred by the executive, together with any accrued interest or
earnings thereon; and (iv) any accrued vacation pay.
"Change in Control" means (i) the acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or
more of either the then outstanding shares of Common Stock or the combined
voting power of the then outstanding voting securities of the Corporation
entitled to vote generally in the election of directors; (ii) individuals who,
as of the date of the original employment agreements constitute the
MicroFinancial Board, cease for any reason to constitute at least a majority of
the MicroFinancial Board except with respect to any director who was approved by
a vote of at least a majority of the directors then comprising the
MicroFinancial Board; (iii) approval by the shareholders of the Corporation of a
reorganization, merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, more than 60% of the then outstanding
shares of Common Stock continues to be owned by the shareholders who were the
beneficial holders of such stock prior to such transaction; or (iv) approval by
the shareholders of the Corporation of a complete liquidation or dissolution of
the Corporation or the sale or other disposition of all or substantially all of
the assets of the Corporation.
OTHER INFORMATION RELATING TO
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
CERTAIN TRANSACTIONS
Richard F. Latour, President, Chief Operating Officer, Chief Financial
Officer, Treasurer, Clerk, Secretary and Director of the Corporation has an
outstanding demand note issued by the Corporation. As at December 31, 2001, the
balance payable to Mr. Latour under this demand note was $29,812 at an interest
rate per annum equal to a bank prime rate minus 1%.
Dr. Bleyleben, the Chairman and Chief Executive Officer and a Director of
the Corporation, loaned the Corporation $200,000 in the form of a subordinated
note on May 1, 2001. The note matures on May 1, 2006 (with a one-year optional
extension by the Corporation) and bears interest at a rate of 12% per annum.
Mr. Boyle, a Director of the Corporation, loaned the Corporation $200,000
in the form of a subordinated note on May 1, 2001. The note matures on May 1,
2006 (with a one-year optional extension by the Corporation) and bears interest
at a rate of 12% per annum.
Mr. Harder, a Director of the Corporation, loaned the Corporation $100,000
in the form of a subordinated note on May 1, 2001. The note matures on May 1,
2006 (with a one-year optional extension by the Corporation) and bears interest
at a rate of 12% per annum.
Mr. Latour also loaned the Corporation $75,000 in the form of a
subordinated note on May 1, 2001. The note matures on May 1, 2002 (with a
one-year optional extension by the Corporation) and bears interest at a rate of
9% per annum.
On March 29, 1999, Ms. Ingrid Bleyleben, Mr. Bleyleben's mother, loaned the
Corporation $200,000 in the form of a demand note at an interest rate per annum
equal to a bank prime rate minus 1%.
All of the foregoing transactions are on terms similar to those that would
have been obtained through arms-length negotiations.
13
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (as amended, the
"Exchange Act") requires the Corporation's directors, officers and persons who
beneficially own more than ten percent (10%) of the Common Shares (each, a
"Reporting Person") to file reports of ownership and changes of ownership with
the Securities and Exchange Commission. Copies of all filed reports are required
to be furnished to the Corporation pursuant to Section 16(a) of the Exchange
Act. Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Corporation pursuant to Rule 16a-3(e) of the Exchange Act
during fiscal year ending December 31, 2000 and on written representations from
Reporting Persons, the Corporation believes that each Reporting Person complied
with all applicable filing requirements during its fiscal year ended December
31, 2001, with the exception of Mr. Boyle who inadvertently failed to file a
timely Form 4 to report three transactions occurring in June 2001 which involved
a total of 3,000 shares; Mr. Harder who inadvertently failed to file timely
Forms 4 to report 10 transactions occurring in May 2001 which involved a total
of 120,000 shares, one transaction occurring in June 2001 which involved a total
of 5,000 shares, one transaction occurring in July 2001 which involved a total
of 5,000 shares, and 20 transactions occurring in August 2001 which involved a
total of 78,000 shares; and Steven J. LaCreta who inadvertently failed to file a
timely Form 4 to report one transaction occurring in July 2001 which involved a
total of 6,000 shares. These transactions were subsequently reported by the
Reporting Person.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE CORPORATION'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE EXCHANGE
ACT THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN
WHOLE OR IN PART, THE FOLLOWING REPORTS AND PERFORMANCE GRAPH SET FORTH HEREIN
SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS AND SHALL NOT
OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.
COMPENSATION COMMITTEE REPORT
OVERVIEW AND PHILOSOPHY
The Compensation Committee of the Board of Directors (the "Compensation
Committee") is composed of three members, all of whom are outside directors of
the Corporation. The Compensation Committee provides overall guidance on the
Corporation's compensation and benefits philosophy. In addition, the
Compensation Committee approves and monitors the Corporation's:
- executive compensation and benefits programs
- executive employment agreements, if any
- 1998 Equity Incentive Plan
The primary objectives of the Compensation Committee are to assure that the
Corporation's executive compensation and benefits programs:
- reflect the Corporation's entrepreneurial orientation
- are competitive with other growing companies of similar size and business
- safeguard the interests of the Corporation and its stockholders
- are effective in driving performance to achieve financial goals and
create stockholder value
- foster teamwork on the part of management
14
- are cost-efficient and fair to employees, management and stockholders
- are well communicated to and understood by program participants
The Corporation's executive compensation policies are designed to attract,
motivate and retain highly qualified executive officers who can enhance
stockholder value, and to support a performance-oriented environment that
rewards achievement of the Corporation's financial goals. The Compensation
Committee meets at least once during each fiscal year to review the
Corporation's existing compensation and benefits programs and to consider
modifications that seek to provide a direct relationship between executive
compensation and sustained corporate performance.
The Corporation compensates its executive officers through four principal
types of compensation: annual base salary, profit-sharing payments, board bonus
payments, and long-term incentive awards through stock options. The Corporation,
as a matter of policy, places substantial emphasis on both the profit sharing
plan and long-term stock options since the Corporation believes that correlating
both annual financial performance of the Corporation and long term share
valuation with executive officer compensation is in the best interest of the
shareholders.
BASE SALARY
The annual base salary of each executive officer is based on the scope of
his or her responsibility and accountability within the Corporation, as well as
on performance and experience criteria. In addition, the Compensation Committee
considers salary and other compensation arrangements of other companies of
similar size, business and similar growth to determine appropriate levels
required to attract, motivate and retain the most qualified management
personnel.
The Compensation Committee determines and makes final decisions regarding
base salary of executives on an annual basis. The Compensation Committee
recognizes that, to some degree, the determination of an executive officer's
base salary involves subjective considerations.
PROFIT SHARING PLAN
A significant component of an executive officer's total cash compensation
may consist of a profit sharing plan payment, which is intended to make the
executive officer's compensation dependent on the Corporation's performance and
to provide executive officers with incentives to achieve the Corporation's
goals, increase stockholder value, and work as a team.
For purposes of determining profit sharing payments, the Corporation, since
the early days of its existence, has placed a heavy emphasis on financial
profits achieved by the Corporation. Each year the Compensation Committee
indicates to the executive officers the percentage of the following year's
pre-tax profits on which profit sharing plan payments will be based. Upon the
conclusion of the audit of the prior year's financial results, the Compensation
Committee determines the total percentage of pre-tax profits eligible for
profit-sharing plan payments, and awards payments to Dr. Bleyleben and one other
executive of the Corporation. To enhance long term retention of these
executives, only one-third of the amount awarded is paid at that point in time.
The remaining two-thirds may be paid out over the next two years in the
discretion of the Compensation Committee and are subject to separate annual
approvals of the Compensation Committee.
To enhance the retention of other senior personnel and to foster a spirit
of teamwork, the Compensation Committee also establishes a pool along the same
philosophy as for the two executives, and delegates to the Chairman and Chief
Executive Officer the decision as to how and to whom to allocate the approved
funds. Any such bonuses are also determined and paid upon completion of the
Corporation's annual audit.
15
BOARD BONUS PAYMENTS
In addition, the Compensation Committee may approve an additional bonus
based on the Committee's subjective evaluation of the quality and success of the
executive.
LONG TERM STOCK OPTION COMPENSATION
The Compensation Committee believes that providing key employees, including
executive officers, with the opportunity to acquire stock ownership over time is
the most desirable way to align their interests with those of the Corporation's
stockholders. Stock options, awarded under the Plan, provide an incentive that
focuses the attention of executive officers on managing the Corporation from the
perspective of an owner with an equity interest in the business. In addition,
stock options are a key part of the Corporation's program for motivating and
rewarding managers and other employees over the long term. Through the grant of
stock options, the Corporation has encouraged its managers and other employees
to obtain and hold the Corporation's stock. Stock options granted to employees
are tied to future performance of the Corporation's stock and will provide value
only when the price of the Corporation's stock exceeds the option grant price.
The Compensation Committee determines and makes final decisions regarding
stock option awards made under the Plan. Such factors as performance and
responsibilities of individual managers and the management team as a whole, as
well as general industry practices play an integral role in the determination of
the number of options awarded to a particular executive officer or employee. In
determining the size of the individual award of options, the Compensation
Committee also considers the number of options outstanding and previously
granted, the amount of options remaining available for grant under the Plan, the
aggregate amount of current awards, and the amount necessary to retain qualified
personnel.
In accordance with its business strategy and compensation philosophy, the
Corporation has granted stock options to key executives and managers to afford
them an opportunity to participate in the Corporation's future growth and to
focus them on the contributions which are necessary for the financial success
and business growth of the Corporation and, thereby, the creation of value for
its stockholders.
Stock options are typically awarded based on an assessment of each
recipient's ongoing contribution to overall corporate performance. The
Corporation's Chief Executive Officer's input for the size and timing of option
grants to other executives and managers is an important determinant of the
actual grants given. As a means to encourage a stock option recipient to remain
in service with the Corporation, stock option awards vest over a period of five
years from the date of grant. All incentive stock options have exercise prices
at least equal to the fair market value of the Corporation's stock on the date
of grant.
2001 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
The general policies described above for the compensation of the executive
officers also apply to the compensation approved by the Compensation Committee
with respect to the 2001 compensation for Dr. Peter R. von Bleyleben, the
Corporation's Co-Founder, Chairman and Chief Executive Officer.
Dr. Bleyleben's base salary was $265,000 in 2001, $270,000 in 2000,
$260,000 in 1999, $250,000, in 1998, $220,000 in 1997 and $190,000 in 1996. Dr.
Bleyleben was paid a profit sharing plan payment in 2001 of approximately
$400,000, in 2000 of approximately $366,873, in 1999 of approximately $369,000,
approximately $304,000 in 1998, approximately $222,000 in 1997 and approximately
$164,000 in 1996 and an additional board bonus of $70,000, $70,000, $70,000,
$60,000, $55,000, and $50,000, respectively, for the same years. During the same
time period, the Corporation's pre-tax profits increased from $4.2 million in
1995 to $26.4 million in 2001.
16
Although the Compensation Committee and the Board of Directors approved a
$375,854 profit sharing plan payment to be paid in 2002, Dr. Bleyleben declined
to accept this payment because the Corporation has recently implemented salary
freezes for higher paid executives and other cost-cutting measures at the
Corporation.
At December 31, 2001, Dr. Bleyleben had options to purchase 200,000 shares
of Common Stock. Options to acquire 100,000 shares of common stock were granted
to him on February 25, 1999: 59,391 options at an exercise price equal to the
then fair market value of $12.313 per underlying share; and 40,609 options at an
exercise price of $13.544 per share which was 10% higher than the then fair
market value of $12.313 per underlying share in order to follow regulations of
the Internal Revenue Service with regard to issuing qualified incentive stock
options. Options to acquire 100,000 shares of common stock were granted to him
on February 24, 2000 at an exercise price equal to the then fair market value of
$9.781 per underlying share. Due to the relatively large number of shares held
and options granted to and exercised by Dr. Bleyleben in the past, the
Compensation Committee is of the opinion that the financial incentive of Dr.
Bleyleben is fully aligned with those of all other shareholders.
Dr. Bleyleben continues to fulfill a central and critical role in the
development of the Corporation as a whole, including but not limited to the
achievement of the Corporation's 2002 goals, and it is the Compensation
Committee's expectation that he will continue to have an important influence on
the Corporation's goals outlined for 2002. The Compensation Committee believes
that Dr. Bleyleben's compensation arrangement reflects the above-described
compensation philosophy of the Corporation designed to align management
compensation closely with financial performance and increased stockholder value.
IRS MATTERS
Under Section 162(m) of the Internal Revenue Code and the regulations
promulgated thereunder, deductions for employee remuneration in excess of $1
million which is not performance-based are disallowed for publicly traded
companies. Since levels of compensation paid by the Corporation are expected to
be significantly below $1 million, the Compensation Committee has determined
that it is unnecessary at this time to seek to qualify the components of its
compensation program as performance-based compensation within the meaning of
Section 162(m).
COMPENSATION COMMITTEE:
Torrence C. Harder, Chairman
Alan J. Zakon,
Brian E. Boyle
17
AUDIT COMMITTEE REPORT
In connection with the preparation and filing of the Corporation's Annual
Report on Form 10-K for the year ended December 31, 2001, the Audit Committee
(i) reviewed and discussed the audited financial statements with management,
(ii) discussed with Deloitte & Touche LLP, the Corporation's independent
auditors, the matters required to be discussed by Statement of Auditing
Standards 61 (as modified or supplemented) and (iii) received the written
disclosures and the letter from Deloitte & Touche LLP required by Independence
Standards Board Standard No. 1 (as modified or supplemented) and discussed the
independence of Deloitte & Touche LLP with Deloitte & Touche LLP. Based on the
review and discussions referred to above, among other things, the Audit
Committee recommended to the Board of Directors that the audited financial
statements be included in the Corporation's Annual Report on Form 10-K for the
year ended December 31, 2001.
AUDIT COMMITTEE:
Alan J. Zakon, Chairman
Brian E. Boyle,
Torrence C. Harder
18
PERFORMANCE GRAPH
The following graph illustrates a thirty-five (35) month comparison of
cumulative total returns for the Corporation's Common Stock, the NYSE Stock
Index and the S&P Mid-Cap Financials Index from February 5, 1999 through
December 31, 2001. Cumulative total return for the periods shown in the
Performance Graph is measured assuming an initial investment of $100 on February
5, 1999, the date of the Corporation's initial public offering, and the
reinvestment of dividends, if any.
NOTE: MANAGEMENT CAUTIONS THAT THE HISTORIC STOCK PRICE PERFORMANCE INFORMATION
SHOWN IN THIS GRAPH MAY NOT BE INDICATIVE OF CURRENT STOCK PRICE LEVELS OR
FUTURE STOCK PRICE PERFORMANCE.
[Performance Graph]
S&P MID-CAP NYSE INDEX (2/5/99 =
MFI (2/5/99 = 100) FINANCIALS(2/5/99 = 100) 100)
------------------ ------------------------ --------------------
2/5/99 100.00 100.00 100.00
3/5/99 87.50 104.08 102.70
4/1/99 93.33 102.63 104.66
4/30/99 119.01 115.74 109.69
5/28/99 81.01 110.65 105.95
7/2/99 96.04 111.05 111.55
8/6/99 76.65 98.24 104.04
9/3/99 67.01 95.39 106.57
10/8/99 87.12 93.38 104.46
11/5/99 72.28 104.66 106.82
12/3/99 78.16 98.95 110.12
1/7/00 75.64 86.22 109.39
2/4/00 78.84 82.02 106.74
3/10/00 64.09 69.33 102.05
4/7/00 69.99 79.49 112.28
5/5/00 67.73 77.79 108.69
6/2/00 63.92 88.53 112.33
7/7/00 66.04 81.55 111.42
8/4/00 66.36 88.40 112.00
9/8/00 68.91 93.63 115.06
10/6/00 61.25 92.69 111.72
11/3/00 74.37 94.23 112.61
12/1/00 72.66 93.63 107.53
12/29/00 80.36 107.17 111.85
2/2/01 93.34 102.723 112.42
3/9/01 85.10 99.2711 107.10
4/6/01 76.87 92.5865 99.27
5/4/01 86.46 102.997 108.98
6/1/01 108.85 104.605 109.45
7/6/01 111.26 106.571 103.75
8/3/01 100.54 110.162 104.94
8/31/01 92.73 103.575 100.09
9/28/01 95.01 98.8135 92.60
10/26/01 69.16 96.5862 96.47
11/30/01 68.64 100.348 98.63
12/28/01 71.83 104.431 101.27
19
RATIFICATION OF THE SELECTION OF
MICROFINANCIAL'S INDEPENDENT AUDITORS
The selection of Deloitte & Touche LLP ("Deloitte") to serve as independent
auditors of MicroFinancial for the current fiscal year ending December 31, 2002,
will be submitted to the stockholders of the Corporation for ratification at the
Special Meeting. Representatives of Deloitte will be present at the Special
Meeting, will have the opportunity to make a statement if they so desire and
will be available to answer appropriate questions.
Deloitte served as the Corporation's independent accountants for the
Corporation's fiscal years ended December 31, 2001 and December 31, 2000.
The firm of Deloitte has advised MicroFinancial that neither it nor any of
its members has any direct financial interest in MicroFinancial as a promoter,
underwriter, voting trustee, director, officer or employee. All professional
services rendered by Deloitte during the year ended December 31, 2001 were
furnished at customary rates.
The ratification of the selection of independent auditors requires the
affirmative vote of a majority of the outstanding Common Stock, present in
person or represented by proxy, and entitled to vote thereon at the Special
Meeting when there is a quorum.
AUDIT FEES
The aggregate fees billed by Deloitte & Touche LLP, the member firms of
Deloitte Touche Tohmatsu, and their respective affiliates (collectively,
"Deloitte & Touche"), which includes Deloitte Consulting, for professional
services rendered for the audit of the Corporation's annual financial statements
for the fiscal year ended December 31, 2001 and for the reviews of the financial
statements included in the Corporation's Quarterly Reports on Form 10-Q for that
fiscal year were $261,800.
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
No services were performed by, or fees incurred to, Deloitte & Touche or
Deloitte Consulting in connection with financial systems design and
implementation projects for the fiscal year ended December 31, 2001. Deloitte &
Touche has recently announced its intent to separate Deloitte Consulting from
the firm.
ALL OTHER FEES
The aggregate fees billed by Deloitte & Touche for services rendered to the
Corporation, other than the services described above under "Audit Fees" and
"Financial Information Systems Design and Implementation Fees", for the fiscal
year ended December 31, 2001 were $45,150 including audit related services of
approximately $9,200 and non-audit services of $35,950. Audit related services
generally include fees for consents, audits of the Corporation's employee
benefit plans and assistance with the implementation of the new accounting
pronouncements.
THE MICROFINANCIAL BOARD RECOMMENDS A VOTE "FOR" THIS PROPOSAL
WHICH IS IDENTIFIED AS PROPOSAL 3 ON THE ENCLOSED PROXY.
REPLACEMENT OF INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP ("PWC"), the Corporation's independent
accountants engaged by the Corporation to audit the Corporation's financial
statements for the Corporation's fiscal years ended Decem-
20
ber 31, 1998 and December 31, 1999, resigned as the Corporation's independent
accountants effective as of April 5, 2000. The Board of Directors of the
Corporation engaged Deloitte as its principal accountant to replace PWC.
During the Corporation's audited periods ending December 31, 1998 and
December 31, 1999 and the subsequent interim period ending April 5, 2000, there
were no disagreements with PWC on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PWC, would have caused PWC
to make reference to the subject matter of the disagreements in connection with
its reports. The Corporation has provided PWC with a copy of this disclosure and
PWC has furnished the Corporation with a letter addressed to the Securities and
Exchange Commission stating that PWC agrees with the above statements. A copy of
PWC's letter to the Securities and Exchange Commission dated April 6, 2000 is
filed as Exhibit No. 18.1 to the Corporation's report on Form 8-K filed with the
Securities and Exchange Commission on April 7, 2000.
OTHER MATTERS
Management does not know of any matters which will be brought before the
Special Meeting other than those specified in the Notice of Special Meeting of
Stockholders. However, if any other matters properly come before the Special
Meeting, the persons named in the form of proxy, or their substitutes, will vote
on such matters in accordance with their best judgment.
2003 STOCKHOLDER PROPOSALS
Proposals of stockholders to be included in the proxy statement and form of
proxy for the Corporation's 2003 Special Meeting of Stockholders must be
received by December 19, 2002. Stockholders who wish to make a proposal at the
aforementioned Special Meeting of Stockholders, other than one that will be
included in the Corporation's proxy materials, must notify the Corporation no
later than January 18, 2003 of such a proposal. If a stockholder makes such a
timely notification, the proxies solicited by the MicroFinancial Board will
confer discretionary voting authority on the persons named as attorneys in the
proxy and such persons may exercise discretionary voting authority under
circumstances consistent with the rules of the Securities and Exchange
Commission. If a stockholder who wishes to present a proposal fails to notify
the Corporation by January 18, 2003, the stockholder shall not be entitled to
present the proposal at the meeting. Notwithstanding the failure to timely
notify the Corporation, if the proposal is brought before the meeting, then the
proxies solicited by the MicroFinancial Board will confer discretionary voting
authority on the persons named as attorneys in the proxy.
Proposals should be mailed to Richard F. Latour, Clerk of MicroFinancial,
at 950 Winter Street, Waltham, Massachusetts 02451.
FINANCIAL STATEMENTS
The financial statements of the Corporation are contained in the
Corporation's Annual Report on Form 10-K for its fiscal year ended December 31,
2001 that was filed with the Securities and Exchange Commission on April 1,
2002, a copy of which has been provided to the stockholders concurrently
herewith. Such report and the financial statements contained therein are not to
be considered as a part of this soliciting material.
21
MISCELLANEOUS
All the expenses of preparing, assembling, printing and mailing the
material used in the solicitation of proxies by the Board will be paid by the
Corporation. In addition to the solicitation of proxies by use of the mails,
officers and regular employees of the Corporation may solicit proxies on behalf
of the Board by telephone, telegram or personal interview, the expenses of which
will be borne by the Corporation. Arrangements may also be made with brokerage
houses and other custodians, nominees and fiduciaries to forward soliciting
materials to the beneficial owners of stock held of record by such persons at
the expense of the Corporation.
Submitted by Order of the Board of
Directors,
/S/ Richard F. Latour
RICHARD F. LATOUR
Clerk
Waltham, Massachusetts
April 18, 2002
22
PROXY
MICROFINANCIAL INCORPORATED
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATION
FOR THE SPECIAL MEETING OF STOCKHOLDERS IN LIEU OF ANNUAL MEETING TO BE HELD
ON MAY 16, 2002, OR ANY ADJOURNMENTS THEREOF
THE SHARES REPRESENTED HEREBY WILL BE VOTED AS DIRECTED BY THEIR
STOCKHOLDERS(S).
The undersigned stockholder of MicroFinancial Incorporated (the
"Corporation") hereby appoints Peter R. Bleyleben and Richard F. Latour (each a
"Proxy Agent"), jointly and severally with full power of substitution to each
as proxies for and on behalf of the undersigned, to attend the Special Meeting
of Stockholders in Lieu of Annual Meeting of MicroFinancial Incorporated, to be
held at Edwards & Angell, LLP, 101 Federal Street, Boston, Massachusetts on
Thursday, May 16, 2002, at 4:30 P.M., or any adjournments thereof, and to vote
as directed below all stock of the Corporation which the undersigned would be
entitled to vote if personally present.
By acceptance, each Proxy Agent agrees that this Proxy will be voted in
the manner directed by the stockholder giving this Proxy will be voted in the
manner directed by the stockholder giving this Proxy. If no direction is
specified, the Proxy will be voted FOR the election of the nominees for
Director for three-year terms, FOR the ratification of the election of a
Director for a two-year term and FOR the ratification of the appointment of
Deloitte & Touche LLP as the Corporation's independent auditors for the year
ending December 31, 2002, each as set forth on the reverse. Discretionary
authority is hereby conferred as to all other matters which may properly come
before the meeting or any adjournments thereof. This Proxy, if properly
executed and delivered, will revoke all other Proxies.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE NOMINEES FOR DIRECTOR FOR THREE-YEAR TERMS, FOR THE RATIFICATION
OF THE ELECTION OF A DIRECTOR FOR A TWO-YEAR TERM AND FOR THE RATIFICATION OF
THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE CORPORATION'S INDEPENDENT
AUDITORS FOR THE YEAR ENDING DECEMBER 31, 2002.
CONTINUED, AND TO BE SIGNED, ON REVERSE SIDE
PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
SPECIAL MEETING OF STOCKHOLDERS
IN LIEU OF ANNUAL MEETING
MICROFINANCIAL INCORPORATED
MAY 16, 2002
Please Detach and Mail in the Envelope Provided
A [X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE
1. Election of the following directors for three-year terms.
FOR all nominees WITHHOLD NOMINEES: Torrence C. Harder
listed at right AUTHORITY Jeffrey P. Parker
(except as marked to vote for all nominees
to the contrary) listed at right
[ ] [ ]
INSTRUCTION: To withhold authority to vote FOR any individual nominee, write
the nominee's name in the space provided below:
_______________________________________________
2. Ratification of the election of Richard F. Latour for a two-year term.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Ratification of the appointment by the Board of Directors of the firm of
Deloitte & Touche LLP as independent auditors of the Corporation for the year
ending December 31, 2002.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
MARK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
PLEASE MARK, DATE, SIGN AND MAIL THIS PROXY CARD IN THE ACCOMPANYING ENVELOPE.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS A VOTE FOR THE ELECTION OF
THE NOMINEES FOR DIRECTOR FOR THREE-YEAR TERMS, A VOTE FOR THE RATIFICATION OF
THE ELECTION OF A DIRECTOR FOR A TWO-YEAR TERM AND A VOTE FOR THE RATIFICATION
OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE CORPORATION'S INDEPENDENT
AUDITORS FOR THE YEAR ENDING DECEMBER 31, 2002.
Signature ____________ Date: ________ Signature ___________ Date: ________, 2002
NOTE: Please sign EXACTLY as name(s) appear hereon. When signing as
administrator, attorney, executor, guardian or trustee, please give your full
title. If the signer is a corporation or partnership, please sign full
corporate or partnership name by any authorized officer or person. If shares
are held jointly, each joint owner should sign.