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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(microfinancial LOGO)
10-M Commerce Way
Woburn, Massachusetts 01801
May 23, 2003
Dear Stockholder:
I am pleased to invite you to the 2003 Special Meeting of Stockholders in
Lieu of Annual Meeting of MicroFinancial Incorporated ("MicroFinancial"), which
will be held on Tuesday, June 24, 2003, at 3:00 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 and the ratification of the selection of
independent auditors for 2003.
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
MICROFINANCIAL INCORPORATED
10-M COMMERCE WAY
WOBURN, MASSACHUSETTS 01801
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
IN LIEU OF ANNUAL MEETING
MAY 23, 2003
The Special Meeting of Stockholders in Lieu of Annual Meeting of
MicroFinancial Incorporated, a Massachusetts corporation ("MicroFinancial"),
will be held Tuesday, June 24, 2003, at 3:00 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 selection of Deloitte & Touche LLP as
independent auditors for MicroFinancial for 2003.
3. 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 May 19, 2003.
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
May 23, 2003
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
10-M COMMERCE WAY
WOBURN, MASSACHUSETTS 01801
TELEPHONE 781-994-4800
------------------------
2003 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 June 24, 2003. This proxy statement and
the enclosed proxy are first being sent to stockholders on or about May 23,
2003. 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 May 19, 2003. On this date, there
were outstanding and entitled to vote 12,984,280 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
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. 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 selection of auditors. 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 Proposals No.
1 and 2, 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, 2003 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 13,141,800 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).................................. 1,532,910 11.5%
66 Norfolk Road
Chestnut Hill, Massachusetts 02464
Torrence C. Harder(4).................................. 1,683,229 12.7%
675 Sudbury Road
Concord, Massachusetts 01742
Brian E. Boyle(3)...................................... 1,446,900 10.9%
11 Whispering Lane
Weston, Massachusetts 02493
Wasatch Advisors, Inc.................................. 1,543,355 11.7%
150 Social Hall Avenue
Salt Lake City, Utah 84111
Key Colony Fund, L.P.(5)............................... 689,300 5.2%
10825 Financial Centre Parkway
Suite 100
Little Rock, Arkansas 72211
Royce & Associates, LLC................................ 701,700 5.3%
1414 Avenue of the Americas
New York, New York 10019
Alan J. Zakon(6)....................................... 131,500 *
32 Cardinal Lane
Ocean Reef Club
Key Largo, Florida 33037
Richard F. Latour(7)................................... 601,550 4.7%
11 Stillbrook Lane
Mansfield, Massachusetts 02048
James R. Jackson, Jr.(8)............................... 85,558 *
6 Hickory Ridge Road
Plaistow, New Hampshire 03865
John Plumlee(9)........................................ 49,916 *
243 Pearl Street
Manchester, New Hampshire 03104
Carol Salvo(10)........................................ 64,916 *
3 Woodridge Road
Medfield, Massachusetts 02052
Mark Belinsky(11)...................................... 12,721 *
237 Strasser Avenue
Westwood, Massachusetts 02090
All directors and executive officers as a group (11
persons)............................................... 5,659,200 43.1%
---------------
* Less than 1%
3
(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.
(2) Includes 152,500 shares of Common Stock issuable upon the exercise of
options issued to Dr. Bleyleben which vest on or before May 1, 2003.
(3) Includes 91,500 shares of Common Stock issuable upon the exercise of
options issued to Dr. Boyle which vest on or before May 1, 2003 and 10,700
shares of Common Stock held in the Brian E. Boyle Charitable Foundation,
for which Dr. Boyle disclaims beneficial ownership.
(4) Includes 91,500 shares of Common Stock issuable upon the exercise of
options issued to Mr. Harder which vest on or before May 1, 2003; 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) Alex R. Lieblong, Key Colony Fund, L.P. (the "Fund"), Key Colony Management
LLC, Alex R. Lieblong IRA (the "IRA") and Paul Spann filed a Schedule 13G
with the Securities and Exchange Commission reporting that they held as a
group 689,300 shares of Common Stock. In the Schedule 13G, Alex R. Lieblong
reported that he had sole and shared voting and investment power over an
aggregate of 689,300 shares held directly by him as well as the shares held
by the Fund and the IRA; Key Colony Fund, L.P. reported that it had sole
and shared voting and investment power over 668,900 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 IRA
reported that it had sole voting and investment power over 4,100 shares
held directly by it; and Paul Spann reported that he had sole voting and
investment power over 16,900 shares held directly by him. All members of
the group reported a business address as set forth in the table above.
(6) Includes 91,500 shares of Common Stock issuable upon the exercise of
options granted to Mr. Zakon which vest on or before May 1, 2003.
(7) Includes 336,000 shares of Common Stock issuable upon the exercise of
options granted to Mr. Latour which vest on or before May 1, 2003.
(8) Consists of 85,558 shares of restricted stock over which Mr. Jackson has
sole voting power. The stock may not be transferred by the executive until
the shares are vested, and are forfeited if the executive leaves the employ
of the Corporation other than for reason of death or disability. The
restricted stock vested 20% upon grant, and vests 5% on the first day of
each quarter after the grant date, with accelerated vesting if the price of
the Corporation's Common Stock exceeds certain thresholds during the
vesting period.
(9) Consists of 49,916 shares of restricted stock over which Mr. Plumlee has
sole voting power. The stock may not be transferred by the executive until
the shares are vested, and are forfeited if the executive leaves the employ
of the Corporation other than for reason of death or disability. The
restricted stock vested 20% upon grant, and vests 5% on the first day of
each quarter after the grant date, with accelerated vesting if the price of
the Corporation's Common Stock exceeds certain thresholds during the
vesting period.
(10) Includes 49,916 shares of restricted stock over which Ms. Salvo has sole
voting power. The stock may not be transferred by the executive until the
shares are vested, and are forfeited if the executive leaves the employ of
the Corporation other than for reason of death or disability. The
restricted stock vested 20% upon grant, and vests 5% on the first day of
each quarter after the grant date, with accelerated vesting if the price of
the Corporation's Common Stock exceeds certain thresholds during the
vesting period. Also includes 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) Consists of 12,721 shares of restricted stock over which Mr. Belinsky has
sole voting power. The stock may not be transferred by the executive until
the shares are vested, and are forfeited if the executive leaves the employ
of the Corporation other than for reason of death or disability. The
restricted stock
4
vested 20% upon grant, and vests 5% on the first day of each quarter after
the grant date, with accelerated vesting if the price of the Corporation's
Common Stock exceeds certain thresholds during the vesting period.
PROPOSAL 1
ELECTION OF DIRECTORS
As of the date of this proxy statement, the MicroFinancial Board consists
of 5 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 2006 Special Meeting and until their successors are elected and have
qualified. The nominees for this class of directors are Brian E. Boyle and Alan
J. Zakon. 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
-------------------- ------------------------
Brian E. Boyle, 55 Brian E. Boyle, the Chief Executive Officer of the
Audit Committee; Compensation Corporation from 1985 to 1987 and Chairman of the
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 of GoldK, Inc. since 1999 and was the
Chief Executive Officer of GoldK, Inc. from 1999 until
November 2002. 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. 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.
5
NOMINEE, AGE AND PRINCIPAL OCCUPATION AND
COMMITTEE MEMBERSHIP OTHER INFORMATION
-------------------- ------------------------
Alan J. Zakon, 67 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 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
and a Director of InfraRedx, a privately held medical
research and development company. Dr. Zakon holds a B.A.
from Harvard University, an M.S. in Industrial Management
from the Sloan School at the Massachusetts Institute of
Technology and a Ph.D. in Economics and Finance from the
University of California at Los Angeles.
CONTINUING DIRECTORS
DIRECTOR, AGE AND PRINCIPAL OCCUPATION AND
COMMITTEE MEMBERSHIP OTHER INFORMATION
-------------------- ------------------------
Terms Expiring in 2004
Peter R. Bleyleben, 49 Peter R. Bleyleben serves as Chairman of the Board of
Directors of the Corporation. He served as President, Chief
Executive Officer and Director of the Corporation or its
predecessor since June 1987 until January 2002, and Chief
Executive Officer until October 2002. He is also a director
of UpToDate in Medicine, Inc. 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.
Richard F. Latour, 49 Richard F. Latour has served as President, Chief Executive
Officer, Chief Financial Officer, Treasurer, Clerk and
Secretary of the Company since October 2002 and as
President, Chief Operating Officer, Chief Financial Officer,
Treasurer, Clerk and Secretary, as well as a director of the
Corporation, since February 2002. 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.
6
DIRECTOR, AGE AND PRINCIPAL OCCUPATION AND
COMMITTEE MEMBERSHIP OTHER INFORMATION
-------------------- ------------------------
Term Expiring in 2005
Torrence C. Harder, 59 Torrence C. Harder has served as a Director of the
Chairman, Compensation Committee; Corporation since 1986, served as Chairman of the
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 RentGrow, Inc., Trade Credit Corporation and UpToDate in
Medicine, Inc., a privately held company. 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.
7
EXECUTIVE OFFICERS OF MICROFINANCIAL
NAME AND AGE OF
EXECUTIVE OFFICERS TITLE
------------------ -----
Richard F. Latour, 49 Director, President, Chief Executive Officer,
Treasurer, Secretary and Clerk
James R. Jackson, Jr., 41 Vice President and Chief Financial Officer
John Plumlee, 51 Vice President, MIS
Carol Salvo, 36 Vice President, Legal
Mark Belinsky, 41 Vice President, Marketing and Sales
Steven J. LaCreta, 43 Vice President, Lessee Relations
Stephen Constantino, 37 Vice President, Human Resources
BACKGROUNDS OF EXECUTIVE OFFICERS
Mr. Latour's biography can be found under "Proposal 1: Election of
Directors."
James R. Jackson Jr. has served as Vice President and Chief Financial
Officer of the Company since April 2002. Prior to joining the Company, from 1999
to 2001, Mr. Jackson was Vice President of Finance for Deutsche Financial
Services Technology Leasing Group. From 1992 to 1999, Mr. Jackson held positions
as Manager of Pricing and Structured Finance and Manager of Business Planning
with AT&T Capital Corporation.
John Plumlee has served as Vice President, MIS of the Company since 1990.
Prior to joining the Company, Mr. Plumlee was Vice President of M.M.C., Inc., a
firm focusing on the delivery of software services to local governments.
Carol A. Salvo has served as Vice President, Legal of the Company since
1996. From 1995 to 1996, Ms. Salvo served as Director of Legal Collection
Services of the Company. From 1992 to 1995, Ms. Salvo served as Litigation
Supervisor of the Company. Prior to joining the Company, Ms. Salvo was a junior
accountant with InfoPlus Inc.
Mark S. Belinsky has served as Vice President, Sales and Marketing of the
Company since June 2001. Prior to joining the Company, from June 1999 to April
2001 Mr. Belinsky was the Vice President of Marketing and Business Development
for Iwant.com, an Internet-based Application Service Provider, which owns a
patent for Online advertising technology, used by the Internet's top websites.
Prior to that, he served as President, Club Development for TransNational Group,
an affinity marketing company.
Steven J. LaCreta has served as Vice President Lessee Relations since May
2000. From November 1996 to May 2000, Mr. LaCreta served as Director of Lessee
Relations of the Company. Prior to joining the Company, Mr. LaCreta was a
Leasing Collection Manager with Bayer Corporation.
Stephen J. Constantino has served as Vice President Human Resources since
May 2000. From 1989 to 1991, Mr. Constantino served as Senior Accountant of the
Company. From 1991 to 1992, Mr. Constantino served as Accounting Manager of the
Company. From 1992 to 1994, Mr. Constantino served as Controller of the Company.
From 1994 to 2000, Mr. Constantino served as Director of Human Resources of the
Company. Prior to Joining the Company, Mr. Constantino was a Senior Accountant
with Child World, Inc.
8
CERTAIN INFORMATION REGARDING THE MICROFINANCIAL BOARD
MEETINGS AND COMMITTEES
During 2002, the MicroFinancial Board met 9 times and acted by unanimous
written consent 2 times. The committees of the Board met as follows: the
Compensation Committee met 2 times and the Audit Committee met 2 times. In 2002,
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 SEC
and 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 2001'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 10-M Commerce Way, Woburn, Massachusetts 01801.
COMPENSATION OF DIRECTORS
The MicroFinancial Board is comprised of five 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. In
November 2002, the Non-Employee Directors each received stock options to
purchase 50,000 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.
9
COMPENSATION OF EXECUTIVE OFFICERS
EXECUTIVE COMPENSATION
The following table sets forth the compensation of (i) Messrs. Bleyleben
and Latour, both of whom served as the Chief Executive Officer of the
Corporation during 2002 and (ii) the four most highly compensated executive
officers, other than Messrs. Bleyleben and Latour, who were serving as executive
officers of the Corporation as of December 31, 2002 (collectively, the "Named
Executive Officers"), in each case for the years ended December 31, 2002, 2001
and 2000. Determination of the most highly compensated executive officers is
based upon compensation for the Corporation's fiscal year ended December 31,
2002 and does not necessarily reflect the most highly compensated executive
officers for the Corporation's fiscal years ended December 31, 2001 and 2000.
SUMMARY COMPENSATION TABLE(1)
ANNUAL COMPENSATION
-----------------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) COMPENSATION
--------------------------- ---- -------- -------- ------------
PETER R. BLEYLEBEN.................................. 2002 $239,038 $ 0 $12,227(3)
Chairman and Director 2001 $277,116 $469,997 $97,636
2000 $270,000 $436,873 $72,004
RICHARD F. LATOUR................................... 2002 $232,077 $236,560 $ 6,291(4)
President, Chief Executive Officer, Treasurer,
Clerk, 2001 $230,000 $306,643 $54,856
Secretary and Director 2000 $220,000 $278,042 $53,515
JAMES R. JACKSON, JR. .............................. 2002 $104,769 $ 0 $ 3,143(5)
Vice President and Chief Financial Officer
JOHN PLUMLEE........................................ 2002 $169,029 $ 70,351 $ 5,229(6)
Vice President, MIS 2001 $165,000 $ 73,753 $19,456
2000 $155,769 $ 63,819 $20,888
CAROL SALVO......................................... 2002 $138,183 $ 73,698 $ 4,359(7)
Vice President, Legal 2001 $135,000 $ 73,753 $ 4,098
2000 $115,269 $ 63,819 $ 4,701
MARK BELINSKY....................................... 2002 $175,000 $ 10,040 $ 6,317(8)
Vice President, Marketing and Sales 2001 $ 88,173 $ 30,000 $ 0
---------------
(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 2002
($4,411), 2001 ($3,200) and 2000 ($3,199); (b) split dollar life insurance
premiums paid by the Corporation in 2001 ($90,382) and 2000 ($65,259) (this
policy was terminated in 2002 and the Corporation was repaid the cash value
under the policy) and (c) executive disability insurance policy premiums
paid by the Corporation in 2002 ($7,816), 2001 ($4,054) and 2000 ($3,546).
10
(4) Amounts for Mr. Latour include: (a) contributions by the Corporation under
the Corporation's 401(k) retirement/profit sharing plan in 2002 ($3,200),
2001 ($3,200) and 2000 ($3,323); (b) split dollar life insurance premiums
paid by the Corporation in 2001 ($50,782) and 2000 ($49,318) (this policy
was terminated in 2002 and the Corporation was repaid the cash value under
the policy) and (c) executive disability insurance policy premiums paid by
the Corporation in 2002 ($3,091), 2001 ($874) and 2000 ($874).
(5) Mr. Jackson joined the Company in 2002. Amounts for Mr. Jackson include
contributions by the Corporation under the Corporation's 401(k)
retirement/profit sharing plan in 2002 ($3,143).
(6) Amounts for Mr. Plumlee include: (a) contributions by the Corporation under
the Corporation's 401(k) retirement/profit sharing plan in 2002 ($4,213),
2001 ($3,440), and 2000 ($4,111); (b) split dollar life insurance premiums
paid by the Corporation in 2001 ($15,000), and 2000 ($15,084) (this policy
was terminated in 2002 and the Corporation was repaid the cash value under
the policy) and (c) executive disability insurance policy premiums paid by
the Corporation in 2002 ($1,016), 2001 ($1,016) and 2000 ($1,016).
(7) Amounts for Ms. Salvo include: (a) contributions by the Corporation under
the Corporation's 401(k) retirement/profit sharing plan in 2002 ($3,673),
2001 ($3,440) and 2000 ($3,090); (b) executive disability insurance policy
premiums paid by the Corporation in 2002 ($686), 2001 ($658) and 2000
($630); 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 ($981). This loan was repaid to the
Corporation as of December 31, 2002.
(8) Mr. Belinsky joined the Corporation in 2001. Amounts for Mr. Belinsky
include: (a) contributions by the Corporation under the Corporation's 401(k)
retirement/profit sharing plan in 2002 ($5,072); and (b) executive
disability insurance policy premiums paid by the Corporation in 2002
($1,255).
1998 EQUITY INCENTIVE PLAN
The following table indicates the aggregate options granted in 2002 to the
Named Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
---------------------------------------------------------
PERCENT OF POTENTIAL VALUE AT
NUMBER OF TOTAL ASSUMED RATES OF STOCK
SECURITIES OPTIONS/SARS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM(3)
OPTION/SARS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SH) DATE 5%($) 10%($)
---- ------------- -------------- ----------- ---------- ---------- ----------
Peter R. Bleyleben... 50,000 5.15% $1.585 11/25/12 $ 129,089 $ 205,554
Richard F. Latour.... 100,000 10.31% $ 6.70 02/28/12 $1,091,360 $1,737,810
200,000 20.62% $1.585 11/25/12 $ 516,360 $ 822,216
James R. Jackson,
Jr. ............... 150,000 15.46% $1.585 11/25/12 $ 387,270 $ 616,665
John Plumlee......... 40,000 4.12% $ 6.70 02/28/12 $ 436,544 $ 695,123
50,000 5.15% $1.585 11/25/12 $ 129,089 $ 205,554
Carol Salvo.......... 40,000 4.12% $ 6.70 02/28/12 $ 436,544 $ 695,124
50,000 5.15% $1.585 11/25/12 $ 129,089 $ 205,554
Mark Belinsky........ 40,000 4.12% $ 6.70 02/28/12 $ 436,544 $ 695,124
---------------
(1) Stock options were granted under the Plan. No stock appreciation rights were
awarded with these grants. All options granted other than those that expire
on November 25, 2012 first become exercisable, in five equal annual
installments, beginning one year from the grant date, and have a ten-year
term. The options
11
that expire on November 25, 2012 vested 20% on the date of grant and 5%
every three months in arrears, and have a ten-year term. If a change of
control of MicroFinancial were to occur, the options would become
immediately exercisable in full.
All options outstanding to Messrs. Jackson, Plumlee and Belinsky and
Ms. Salvo were cancelled in February 2003, and replaced by a smaller number
of shares of restricted stock which vested 20% upon grant, and vests 5% on
the first day of each quarter after the grant date, with accelerated
vesting if the price of the Corporation's common stock exceeds certain
thresholds during the vesting period. The number of shares of restricted
stock for each Named Executive Officer is included in "Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters."
(2) The percentages in the table for the stock options granted in 2002 are based
on a total of 970,000 stock options granted in 2002 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 fiscal year-end option values for options
held by the Named Executive Officers at December 31, 2002. No options were
exercised in 2002.
FISCAL YEAR-END OPTION VALUES
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS/SAR'S
OPTIONS/SAR'S AT FISCAL YEAR-
AT FISCAL YEAR-END(#) END($)(1)(2)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Peter R. Bleyleben............................ 110,000 140,000 $0 $0
Richard F. Latour............................. 188,000 452,000 $0 $0
James R. Jackson, Jr. ........................ 30,000 120,000 $0 $0
John Plumlee.................................. 74,000 186,000 $0 $0
Carol Salvo................................... 74,000 186,000 $0 $0
Mark Belinsky................................. 6,000 64,000 $0 $0
---------------
(1) The exercise price of all unexercised options exceeded the fair market value
of the Common Stock on December 31, 2002.
(2) The value of unexercised in-the-money stock options at December 31, 2002 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.
12
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 all
Named Executive Officers, as well as ten other employees. 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. In March 2003, the
Board of Directors voted to issue promissory notes to these executives to cover
the deferred portion of the profit-sharing plan payments.
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
$130,000 and $250,000. 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
Messrs. Jackson and Plumlee and Ms. Salvo, as well as six other employees, 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, the aggregate of the following amounts:
(i) one times annual base salary in the case of Mr. Jackson and one and one-half
times the annual base salary in the case of Mr. Plumlee and Ms. Salvo; (ii) any
other compensation or bonus previously deferred by the executive, together with
any accrued interest or earnings thereon; and
13
(iii) any accrued vacation pay. Pursuant to each employment agreement, if the
Executive's employment is terminated during the Change of Control employment
period, the Company shall pay the amounts referenced above to the Executive in a
lump sum in cash within 30 days after the date of termination. If the
Executive's employment is terminated prior to the first day of the Change of
Control employment period, the Company is obligated to pay the amounts
referenced above, however, payments of the Executive's annual base salary would
be payable over twelve months, in the case of Mr. Jackson and eighteen months in
the case of Mr. Plumlee and Ms. Salvo with payment to be made at the same time
that the Company pays other peer executives of the Company.
"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 or are divested of possession by appointment of a
trustee pursuant to Chapter 7 or 11 of the United States Bankruptcy Code, 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 or, in the instance of proceedings for the
Corporation pursuant to Chapter 7 or Chapter 11 of the United States Bankruptcy
Code, approval by the bankruptcy judge, of a reorganization, merger or
consolidation, in each case, unless, following such reorganization, merger or
consolidation, more than 60% of, respectively, the then outstanding shares of
Common Stock of the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors 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 or, in the instance of proceedings for the Company pursuant to
Chapter 7 or Chapter 11 of the United States Bankruptcy Code, approval by the
bankruptcy judge, 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
Dr. Bleyleben, the Chairman and a Director of the Corporation, loaned the
Corporation $100,000 in the form of a term note on November 6, 2002, which
matures on November 6, 2004 and bears interest at a rate of 7.5% per annum.
Additionally, per the terms of the note, in the event of a payment default on
the note, the interest rate will increase by 2 percentage points, for as long as
the default goes uncured. On May 1, 2001 he also loaned $200,000 in the form of
a subordinated note. This 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 $100,000
in the form of a term note on November 26, 2002, which matures on November 26,
2004 and bears interest at a rate of 7.5% per annum. Additionally, per the terms
of the note, in the event of a payment default on the note, the interest rate
will increase by 2 percentage points, for as long as the default goes uncured.
On May 1, 2001 he also loaned $200,000 in the form of a subordinated note. This
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.
14
Mr. Harder, a Director of the Corporation, loaned the Corporation $50,000
in the form of a term note on November 13, 2002 which matures on November 13,
2004 and bears interest at a rate of 7.5% per annum. Additionally, per the terms
of the note, in the event of a payment default on the note, the interest rate
will increase by 2 percentage points, for as long as the default goes uncured.
On May 1, 2001 he also loaned $100,000 in the form of a subordinated note. This
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 President, Chief Executive Officer, Treasurer, Clerk, Secretary
and Director of the Corporation loaned the Corporation $75,000 in the form of a
subordinated note on May 1, 2001. The note matures on May 1, 2003 and bears
interest at prime plus 3% per annum.
On March 29, 1999, Ms. Ingrid Bleyleben, Dr. 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%. This note was repaid in full on May 16,
2002.
On March 30, 1999, Fritz Froelich, Dr. Bleyleben's father-in-law, loaned
the Corporation $85,000 in the form of a demand note at an interest rate per
annum equal to a bank prime rate minus 1%. This note was repaid in full on
February 20, 2002. On December 1, 1998, Mr. Froelich also loaned the Corporation
$35,000 in the form of a subordinated note. This note matures on December 1,
2003 and bears interest at 8% per annum.
All of the foregoing transactions are on terms at least as favorable as
those that would have been obtained through arms-length negotiations.
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, 2002 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, 2002, with the exception of Dr. Boyle, who inadvertently failed to report
the sales of 39,000 shares from June to September 2002. 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.
15
COMPENSATION COMMITTEE REPORT
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
- 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.
16
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 key senior executives,
including the Chairman and the Chief Executive Officer 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, 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.
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
17
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.
2002 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 Richard F. Latour, the Corporation's
Chief Executive Officer.
Mr. Latour's base salary was $250,000 in 2002, $230,000 in 2001, $220,000
in 2000 and $210,000 in 1999. Mr. Latour was paid a profit sharing plan payment
in 2002 of approximately $237,000, in 2001 of approximately $247,000, in 2000 of
approximately $218,000, and in 1999 of approximately $214,000 and an additional
board bonus of $0, $60,000, $60,000 and $60,000, respectively, for the same
years. During the same time period, the Corporation's pre-tax profits (losses)
were $18.2 million in 1999, $36.1 million in 2000, $26.4 million in 2001 and
$(36.8) million in 2002.
At December 31, 2002, Mr. Latour had options to purchase 640,000 shares of
Common Stock. Options to acquire 150,000 shares of common stock were granted to
him on February 25, 1999 at an exercise price equal to the then fair market
value of $12.313 per underlying share. 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
Mr. Latour in the past, the Compensation Committee is of the opinion that the
financial incentive of Mr. Latour is fully aligned with those of all other
shareholders.
Mr. Latour 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 2003 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 2003. The Compensation Committee believes
that Mr. Latour'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.
18
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
19
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, 2002, 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, 2002.
AUDIT COMMITTEE:
Alan J. Zakon, Chairman,
Brian E. Boyle,
Torrence C. Harder
20
PERFORMANCE GRAPH
The following graph illustrates a forty-seven (47) 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, 2002. 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 93.34 102.72 112.42
3/9/01 85.10 99.27 107.10
4/6/01 76.87 92.59 99.27
5/4/01 86.46 103.00 108.98
6/1/01 108.85 104.61 109.45
7/6/01 111.26 106.57 103.75
8/3/01 100.54 110.16 104.94
8/31/01 92.73 103.57 100.09
9/28/01 95.01 98.81 92.60
10/26/01 69.16 96.59 96.47
11/30/01 68.64 100.35 98.63
12/28/01 71.83 104.43 101.21
2/1/02 57.75 103.07 98.04
3/1/02 47.63 106.94 100.23
3/29/02 58.58 110.62 102.24
5/3/02 75.76 113.16 98.38
5/31/02 54.50 112.39 97.19
6/28/02 54.08 105.94 90.77
8/2/02 48.55 94.66 79.79
8/30/02 34.84 101.77 84.38
9/27/02 33.57 90.25 76.66
11/1/02 14.60 93.41 81.80
11/29/02 11.64 96.85 84.33
12/27/02 8.31 92.84 79.84
21
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, 2003,
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, 2002 and December 31, 2001.
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, 2002 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, 2002, for the reviews of the financial
statements included in the Corporation's Quarterly Reports on Form 10-Q and for
services provided in connection with statutory or regulatory filings or
engagements for that fiscal year were $249,900, and the audit fees for the
fiscal year ended December 31, 2001 were $258,800.
AUDIT-RELATED FEES
The aggregate fees billed by Deloitte & Touche for assurance and related
services reasonably related to employee benefit plan audits and due diligence
and consultation on a business transaction and not reported under the foregoing
"Audit Fees" section rendered to the Corporation for the fiscal year ended
December 31, 2002 were $11,830, and the audit-related fees for the fiscal year
ended December 31, 2001 were $17,700.
TAX FEES
The aggregate fees billed by Deloitte & Touche for professional services
related to the review of the Corporation's tax return rendered to the
Corporation for the fiscal year ended December 31, 2002 were $0, and the tax
fees for the fiscal year ended December 31, 2001 were $30,450.
ALL OTHER FEES
There were no other fees billed by Deloitte & Touche for services rendered
to the Company, other than the services described above under "Audit Fees,"
"Audit-Related Fees," and "Tax Fees," for the fiscal years ended December 31,
2002 and 2001.
22
THE MICROFINANCIAL BOARD RECOMMENDS A VOTE "FOR" THIS PROPOSAL
WHICH IS IDENTIFIED AS PROPOSAL 2 ON THE ENCLOSED PROXY.
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.
2004 STOCKHOLDER PROPOSALS
Proposals of stockholders to be included in the proxy statement and form of
proxy for the Corporation's 2004 Special Meeting of Stockholders must be
received by January 22, 2004. 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 February 21, 2004 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 February 21, 2004, 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 10M Commerce Way, Woburn, Massachusetts 01801.
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,
2002 that was filed with the Securities and Exchange Commission on April 15,
2003, a copy of which has been provided previously to the stockholders. Such
report and the financial statements contained therein are not to be considered
as a part of this soliciting material.
23
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
Woburn, Massachusetts
May 23, 2003
24
SPECIAL MEETING OF STOCKHOLDERS IN LIEU OF ANNUAL MEETING OF
MICROFINANCIAL INCORPORATED
TUESDAY, JUNE 24, 2003
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
Please detach and mail in the envelope provided.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND
"FOR" PROPOSAL 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X]
1. Election of the following directors for three-year terms. 2. Ratification of the appointment by the FOR AGAINST ABSTAIN
Board of Directors of the firm of [ ] [ ] [ ]
NOMINEES Deloitte & Touche LLP as independent
auditors of the Corporation for the year
ending December 31, 2003.
[ ] FOR ALL NOMINEES [ ] Brian E. Boyle
[ ] Alan J. Zakon PLEASE MARK, DATE, SIGN AND MAIL THIS PROXY CARD IN THE
[ ] WITHHOLD AUTHORITY ACCOMPANYING ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE
FOR ALL NOMINEES UNITED STATES.
[ ] FOR ALL EXCEPT THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS A VOTE FOR
(See instructions below) THE ELECTION OF THE NOMINEES FOR DIRECTOR FOR THREE-YEAR TERMS
AND VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF DELOITTE
& TOUCHE LLP AS THE CORPORATION'S INDEPENDENT AUDITORS FOR THE
YEAR ENDING DECEMBER 31, 2003.
INSTRUCTION: To withhold authority to vote for any
individual nominee(s), mark "FOR ALL EXCEPT"
and fill in the circle next to each nominee
you wish to withhold, as shown here:
------------------------------------------------------------
------------------------------------------------------------
To change the address on your account, please check the
box at right and indicate your new address in the address
space above. Please note that changes to the registered
name(s) on the account may not be submitted via this
method. [ ] MARK HERE IF YOU PLAN TO ATTEND THE MEETING. [ ]
Signature of Stockholder Date: Signature of Stockholder Date:
------------------- ------------- ------------------- -------------
NOTE: This proxy must be signed exactly as the name appears hereon. When shares
are held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as
such. If the signer is a corporation, please sign full corporate name by
duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized person.
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 JUNE 24, 2003, OR ANY ADJOURNMENTS THEREOF.
THE SHARES REPRESENTED HEREBY WILL BE VOTED AS DIRECTED BY THEIR STOCKHOLDER(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
Tuesday, June 24, 2003, at 3:00 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. If no direction is
specified, the Proxy will be voted FOR the election of the nominees for Director
for three-year terms and FOR the ratification of the appointment of Deloitte &
Touche LLP as the Corporation's independent auditors for the year ending
December 31, 2003, 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 AND FOR THE
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE CORPORATION'S
INDEPENDENT AUDITORS FOR THE YEAR ENDING DECEMBER 31, 2003.
CONTINUED, AND TO BE SIGNED, ON REVERSE SIDE