<PAGE> 1
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 [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary proxy statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2)).
[X] Definitive proxy statement.
[ ] Definitive additional materials.
[ ] Soliciting material pursuant to Rule 14a-12.
MICROFINANCIAL INCORPORATED
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
microfinancial LOGO
950 Winter Street
Waltham, Massachusetts 02451
April 12, 2000
Dear Stockholder:
I am pleased to invite you to the 2000 Special Meeting of Stockholders in
Lieu of Annual Meeting of MicroFinancial Incorporated ("MicroFinancial"), which
will be held on Friday, May 12, 2000, at 4:00 p.m., at Edwards & Angell, LLP,
101 Federal Street, Boston, Massachusetts.
The accompanying Notice of Special Meeting of Stockholders in Lieu of
Annual Meeting 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 a three-year term.
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
President and Chief Executive Officer
<PAGE> 3
MICROFINANCIAL INCORPORATED
950 WINTER STREET
WALTHAM, MASSACHUSETTS 02451
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS IN LIEU OF ANNUAL MEETING
APRIL 12, 2000
The Special Meeting of Stockholders in Lieu of Annual Meeting of
MicroFinancial Incorporated, a Massachusetts corporation ("MicroFinancial"),
will be held Friday, May 12, 2000, at 4:00 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 a three-year term.
2. 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 March 24, 2000.
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 12, 2000
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.
<PAGE> 4
MICROFINANCIAL INCORPORATED
950 WINTER STREET
WALTHAM, MASSACHUSETTS 02451
TELEPHONE 781-890-0177
------------------------
2000 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 Stock-
holders in Lieu of Annual Meeting to be held on May 12, 2000. This proxy
statement and the enclosed proxy are first being sent to stockholders on or
about April 12, 2000. 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.
The record date for determining stockholders entitled to vote at the
Special Meeting is the close of business on March 24, 2000. On this date, there
were outstanding and entitled to vote 12,683,126 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 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 No. 1,
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.
<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 24, 2000 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 12,683,126 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.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OUTSTANDING OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) COMMON STOCK
------------------------------------ --------------------- -------------------------
<S> <C> <C>
Peter R. Bleyleben(2)............................... 1,555,810 12.2%
66 Norfolk Road
Chestnut Hill, Massachusetts 02464
Brian E. Boyle(3)................................... 2,006,650 15.8%
11 Whispering Lane
Weston, Massachusetts 02493
Torrence C. Harder(4)............................... 1,829,629 14.4%
Walden Woods, 657 Sudbury Road
Concord, Massachusetts 01742-4321
Jeffrey P. Parker(5)................................ 350,840 2.8%
253 Meadowbrook Road
Weston, Massachusetts 02493
Alan J. Zakon(6).................................... 50,000 *
32 Cardinal Lane
Ocean Reef Club
Key Largo, Florida 33037
Richard F. Latour(7)................................ 358,550 2.8%
Horse Leg Hill Road
Eaton, New Hampshire 03832
J. Gregory Hines(8)................................. 44,000 *
424 Harlingham Avenue
San Mateo, California 94402
John Plumlee(9)..................................... 46,275 *
97 By-Pass 28
Derry, New Hampshire 03038
Carol Salvo(10)..................................... 35,000 *
3 Woodridge Road
Medfield, Massachusetts 02052
John J. Miller(11).................................. 16,000 *
4 Morningside Drive
Topsfield, Massachusetts 01983
All directors and executive officers as a group
(10 persons)...................................... 6,292,754 48.9%
</TABLE>
- ---------------
* 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.
2
<PAGE> 6
(2) Includes 20,000 shares of Common Stock issuable upon the exercise of
options issued to Dr. Bleyleben which vested on February 25, 2000.
(3) Includes 591,950 shares of Common Stock owned by Dr. Boyle's former spouse
over which Dr. Boyle retains voting control, for which Dr. Boyle disclaims
beneficial ownership; and 10,000 shares of Common Stock issuable upon the
exercise of options issued to Dr. Boyle which vested on February 25, 2000.
(4) Includes 10,000 shares of Common Stock issuable upon the exercise of
options issued to Mr. Harder which vested on February 25, 2000; 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) Includes 10,000 shares of Common Stock issuable upon the exercise of
options granted to Mr. Parker which vested on February 25, 2000; 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.
(6) Includes 10,000 shares of Common Stock issuable upon the exercise of
options granted to Mr. Zakon which vested on February 25, 2000.
(7) Includes 17,000 shares of Common Stock issuable upon the exercise of
options granted to Mr. Latour which vested on December 27, 1999; and 30,000
shares of Common Stock issuable upon the exercise of options granted to Mr.
Latour which vested on February 25, 2000.
(8) Includes 920 shares of Common Stock issuable upon the exercise of options
granted to Mr. Hines which vested on March 17, 1999; 6,000 shares of Common
Stock issuable upon the exercise of options granted to Mr. Hines which
vested on December 27, 1999; 2,000 shares of Common Stock issuable upon the
exercise of options granted to Mr. Hines which vested on March 17, 2000;
and 10,000 shares of Common Stock issuable upon the exercise of options
granted to Mr. Hines which vested on February 25, 2000.
(9) Includes 6,000 shares of Common Stock issuable upon the exercise of options
granted to Mr. Plumlee which vested on December 27, 1999; and 10,000 shares
of Common Stock issuable upon the exercise of options granted to Mr.
Plumlee which vested on February 25, 2000.
(10) Includes 6,000 shares of Common Stock issuable upon the exercise of options
granted to Ms. Salvo which vested on December 27, 1999; 10,000 shares of
Common Stock issuable upon the exercise of options granted to Ms. Salvo
which vested on February 25, 2000; and 1,000 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 16,000 shares of Common Stock issuable upon the exercise of
options granted to Mr. Miller which will vest on April 12, 2000.
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 2003 Annual Meeting and until their successors are elected and have
qualified. Such nominees are Brian E. Boyle and Alan J. Zakon. Directors are
elected by a plurality of votes of the shares of Common
3
<PAGE> 7
Stock, present in person or represented by proxy, and entitled to vote at the
Annual Meeting (or Special Meeting in lieu thereof) when there is a quorum.
Each of the nominees for director is presently a director of
MicroFinancial. Each has consented to being named a nominee in this proxy
statement and has agreed to serve as a director if elected at the Special
Meeting. In the event that any nominee is unable to serve, the persons named in
the proxy have discretion to vote for other persons if the other persons are
designated by the MicroFinancial Board. The MicroFinancial Board has no reason
to believe that any of the nominees will be unavailable for election.
THE MICROFINANCIAL BOARD RECOMMENDS
A VOTE "FOR" ALL NOMINEES FOR ELECTION AS DIRECTORS
NOMINEES FOR DIRECTOR
<TABLE>
<CAPTION>
NOMINEE, AGE AND PRINCIPAL OCCUPATION AND
COMMITTEE MEMBERSHIP OTHER INFORMATION
- -------------------- ------------------------
<S> <C>
Terms Expiring in 2003
Brian E. Boyle, 52 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. 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.
Alan J. Zakon, 64 Alan J. Zakon has served as a Director of the Corporation
Chairman, Audit since 1988 and has served as Chairman of the Audit Committee
Committee; Compensation since 1997. Since 1995, he has been the Vice Chairman and a
Committee Director, and since November 1997, Chairman of the Executive
Committee, of Autotote 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.
</TABLE>
4
<PAGE> 8
DIRECTOR, AGE AND COMMITTEE MEMBERSHIP
<TABLE>
<CAPTION>
DIRECTOR, AGE AND PRINCIPAL OCCUPATION AND
COMMITTEE MEMBERSHIP OTHER INFORMATION
- -------------------- ------------------------
<S> <C>
Terms Expiring in 2002
Torrence C. Harder, 56 Torrence C. Harder has served as a Director of the
Chairman, Compensation Corporation since 1986, served as Chairman of the
Committee; Audit Compensation Committee since 1997 and has been a member of
Committee 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 venture capital investment
firm, since its founding in 1986. Mr. Harder is a Director
of Lightbridge, Inc., a wireless industry software services
provider, Dent-A-Med, Inc., RentGrow, Inc., GWA Information
Systems, 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 in the Philosophy of Economic Thought from Cornell
University.
Jeffrey P. Parker, 56 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.
Term Expiring in 2001
Peter R. Bleyleben, 47 Peter R. Bleyleben has served as President, Chief Executive
Officer and Director of the Corporation or its predecessor
since June 1987. 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.
</TABLE>
5
<PAGE> 9
CERTAIN INFORMATION REGARDING THE MICROFINANCIAL BOARD
MEETINGS AND COMMITTEES
During 1999, the MicroFinancial Board met five times and committees of the
Board met as follows: the Compensation Committee met three times and the Audit
Committee met twice. In 1999, all MicroFinancial Board members attended all 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. 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 five Directors, one of whom, Peter
Bleyleben, is a salaried employee of the Corporation who receives no additional
compensation for services rendered as a Director. 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
each of 1999 and 2000 under the Corporation's 1998 Equity Incentive Plan for
their service on the MicroFinancial Board. 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.
Prior to February 1999, Board members who were not employees of the
Corporation were compensated under the Board of Directors Stock Unit
Compensation Plan (the "Stock Unit Plan"). The Stock Unit Plan was terminated
effective as of February 5, 1999. Under the Stock Unit Plan, Non-Employee
Directors who did not serve as committee chairpersons received up to $30,000 per
year, payable $3,750 per meeting in cash and $3,750 per meeting in stock units
(the "Stock Units"). Committee chairpersons received up to $35,000 per year,
payable $4,375 per meeting in cash and $4,375 per meeting in Stock Units. Under
the Stock Unit Plan, the Corporation paid the participant the cash amount
currently and credited Stock Units in the appropriate amounts to a deferred fee
account on the date of the MicroFinancial Board or Committee meeting. Each Stock
Unit in the deferred fee account was valued at the time each such credit was
made at the then-current value of the Common Stock, as that value was determined
from time to time by the MicroFinancial Board. The number of Stock Units
credited to each Non-Employee Director's deferred fee account and the value
placed on each Stock Unit was appropriately adjusted in the event of a stock
dividend, stock split or other similar change affecting the Common Stock.
As of December 31, 1999, Dr. Boyle, Mr. Harder, Mr. Parker and Dr. Zakon
had no Stock Units in their respective accounts.
Since the termination date of the Stock Unit Plan, each Non-Employee
Director has received a cash payment in an amount equal to the number of Stock
Units held in their respective accounts multiplied by $13.95.
6
<PAGE> 10
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, 1999 and (iii) one executive officer who would have been included
in the preceding clause (ii) but for the fact that he was no longer an executive
officer of the Corporation as of December 31, 1999 (collectively, the "Named
Executive Officers"), in each case for the years ended December 31, 1999, 1998
and 1997. Determination of the most highly compensated executive officers is
based upon compensation for the Corporation's fiscal year ended December 31,
1999 and does not necessarily reflect the most highly compensated executive
officers for the Corporation's fiscal years ended December 31, 1998 and 1997.
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) COMPENSATION
- --------------------------- ---- -------- -------- ------------
<S> <C> <C> <C> <C>
PETER R. BLEYLEBEN............................... 1999 $260,000 $439,313 $67,505(3)
President, Chief Executive Officer and 1998 250,888 364,000 65,245
Director 1997 218,798 276,730 71,072
RICHARD F. LATOUR................................ 1999 210,000 309,226 41,826(4)
Executive Vice President, Chief Operating 1998 198,446 244,568 45,690
Officer, Chief Financial Officer, Treasurer, 1997 169,495 153,755(5) 49,680
Clerk and Secretary
JOHN J. MILLER................................... 1999 146,154 80,000 26,428(6)
Senior Vice President, Sales and Marketing 1998 0 0 0
1997 0 0 0
J. GREGORY HINES................................. 1999 123,846 60,716 43,782(7)
Vice President, Funding and 1998 106,951 42,095 4,281
Vice President, Merchant Services 1997 87,348 26,950 3,206
JOHN PLUMLEE..................................... 1999 148,558 57,034 21,357(8)
Vice President, MIS 1998 141,351 44,533 21,191
1997 124,624 29,769 20,687
CAROL SALVO...................................... 1999 103,462 51,052 4,578(9)
Vice President, Legal 1998 84,677 34,734 4,022
1997 66,368 15,781 2,170
</TABLE>
- ---------------
(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 1999
($3,323), 1998 ($4,000) and 1997 ($4,470); (b) split dollar life insurance
premiums paid by the Corporation in 1999 ($56,634), 1998 ($54,156) and 1997
($62,461) (in the event of the death of Dr. Bleyleben, the Corporation is
entitled to the cash value under such plan with
7
<PAGE> 11
the beneficiary receiving the life insurance portion thereof); (c) executive
disability insurance policy premiums paid by the Corporation in 1999
($7,548), 1998 ($7,089) and 1997 ($3,546); 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 1997 ($595).
(4) Amounts for Mr. Latour include: (a) contributions by the Corporation under
the Corporation's 401(k) retirement/profit sharing plan in 1999 ($3,323),
1998 ($4,000) and 1997 ($4,500); (b) split dollar life insurance premiums
paid by the Corporation in 1999 ($34,917), 1998 ($34,917) and 1997 ($40,501)
(in 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 1999 (3,033), 1998 ($3,028) and 1997 ($1,586); 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), 1998 ($3,745) and 1997 ($3,093).
(5) Does not include $179,745 which related to bonuses awarded in prior years
and deferred until 1997 at Mr. Latour's option.
(6) Amounts for Mr. Miller include: (a) term life insurance premiums paid by the
Corporation in 1999 ($24,000); and (b) executive disability insurance policy
premiums paid by the Corporation in 1999 ($2,428).
(7) Amounts for Mr. Hines include: (a) contributions by the Corporation under
the Corporation's 401(k) retirement/profit sharing plan in 1999 ($2,996),
1998 ($2,738) and 1997 ($2,273); (b) term life insurance premiums paid by
the Corporation in 1999 ($84), 1998 ($84) and 1997 ($84); (c) executive
disability insurance policy premiums paid by the Corporation in 1999 ($602),
1998 ($602) and 1997 ($434); (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 ($1,370),
1998 ($857) and 1997 ($415); and (e) $38,730 paid to Mr. Hines as
commissions in 1999.
(8) Amounts for Mr. Plumlee include: (a) contributions by the Corporation under
the Corporation's 401(k) retirement/profit sharing plan in 1999 ($3,733),
1998 ($3,870) and 1997 ($3,722); (b) split dollar life insurance premiums
paid by the Corporation in 1999 ($15,000), 1998 ($15,000) and 1997 ($15,113)
(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 1999 ($1,016), 1998 ($1,016) and 1997
($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 1999 ($1,608), 1998 ($1,305) and 1997
($836).
(9) Amounts for Ms. Salvo include: (a) contributions by the Corporation under
the Corporation's 401(k) retirement/profit sharing plan in 1999 ($2,476),
1998 ($2,597) and 1997 ($1,686); (b) term life insurance premiums paid by
the Corporation in 1999 ($84), 1998 ($84) and 1997 ($69); (c) executive
disability insurance policy premiums paid by the Corporation in 1999 ($604)
and 1998 ($485); 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 ($1,414), 1998 ($857) and 1997
($415).
8
<PAGE> 12
STOCK OPTION PLANS
840,000 stock options were awarded in 1999 under the Corporation's 1998
Equity Incentive Plan (the "1998 Plan").
The following table indicates the aggregate options granted in 1999 to the
Named Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS GRANT
UNDERLYING GRANTED TO EXERCISE OR DATE
OPTIONS/SARS EMPLOYEES IN BASE GRANT EXPIRATION PRESENT
NAME GRANTED (#)(1) FISCAL YEAR(2) ($/SH) DATE VALUE $
- ---- -------------- -------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Peter R. Bleyleben........... 59,391 9.28% $12.313 2/25/09 $382,419
Peter R. Bleyleben........... 40,609 6.35% 13.544 2/25/09 250,476
Richard F. Latour............ 150,000 23.44% 12.313 2/25/09 965,850
J. Gregory Hines............. 50,000 7.82% 12.313 2/25/09 321,950
John Plumlee................. 50,000 7.82% 12.313 2/25/09 321,950
Carol Salvo.................. 50,000 7.82% 12.313 2/25/09 321,950
John Miller.................. 80,000 12.50% 13.125 4/12/09 553,440
</TABLE>
- ---------------
(1) Stock options were granted under the 1998 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 1999 are based
on a total of 640,000 stock options granted in 1999 to MicroFinancial
employees, all of which were granted on the same material terms described in
footnote (1) above.
The following table indicates the aggregate option exercises in 1999 by the
Named Executive Officers and fiscal year-end option values:
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1999
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(1)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter R. Bleyleben............ 0 $ 0 0 100,000 $ 0 $ 0(3)
Richard F. Latour............. 4,778 51,600 17,000 167,000 161,288 161,288(4)
J. Gregory Hines.............. 0 0 6,920 58,000 66,861 78,525(5)
John Plumee................... 0 0 6,000 56,000 56,925 56,925(5)
Carol Salvo................... 0 0 6,000 56,000 56,925 56,925(5)
John Miller................... 0 0 0 80,000 0 0(3)
</TABLE>
- ---------------
(1) Value based on the fair market value of the Common Stock on December 31,
1999, $11.4375, minus the grant price.
(2) The value of unexercised in-the-money stock options at December 31, 1999 is
presented to comply with regulations of the Securities and Exchange
Commission. The actual amount realized upon exercise of
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<PAGE> 13
stock options (if any) will depend upon the excess of the fair market value
of the Common Stock over the grant 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 unexercisable options exceeds the fair market
value of the Common Stock on December 31, 1999.
(4) The exercise price of unexercisable options to purchase 150,000 shares of
Common Stock exceeds the fair market value of the Common Stock on December
31, 1999.
(5) The exercise price of unexercisable options to purchase 50,000 shares of
Common Stock exceeds the fair market value of the Common Stock on December
31, 1999.
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
$270,000 and $220,000. 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 (other than Mr. Miller) 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. 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
10
<PAGE> 14
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 executive's annual base salary through the date of termination;
(ii) a special bonus (reduced over time as described below) in the initial
amount of $575,000, $600,000 and $585,000 for Messrs. Hines and Plumlee and Ms.
Salvo (the "Special Bonus"), respectively; (iii) any other compensation
previously deferred by the executive, together with any accrued interest or
earnings thereon; and (iv) any accrued vacation pay. Beginning on February 25,
1999 and on each anniversary of that date, the Special Bonus for each of Messrs.
Hines and Plumlee and Ms. Salvo is reduced by $150,000 until such time as the
Special Bonus equals zero ($0).
"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 Corporation's 1998 Equity Incentive Plan 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.
The Corporation and Mr. Miller entered into an employment agreement on
March 10, 1999. Pursuant to this employment agreement, the Corporation may
terminate Mr. Miller's employment for "Cause" (as defined below) at any time.
"Cause" means (i) a material breach by Mr. Miller of his obligations to the
Corporation, or (ii) conviction of Mr. Miller of a felony. Mr. Miller may
terminate his employment with the Corporation at any time for "Good Reason" (as
defined below). "Good Reason" means (i) the assignment to Mr. Miller of any
duties materially inconsistent with his position; (ii) any material breach of
this employment agreement by the Corporation; and (iii) the Corporation's
requiring Mr. Miller to be based at any office or location other than that
described in this employment agreement or within the metropolitan Boston,
Massachusetts area. In the event Mr. Miller's employment is terminated without
Cause by the Corporation or Mr. Miller terminates his employment for Good
Reason, during the 18-month period commencing April 12, 1999 (the "Protection
Period"), Mr. Miller is entitled to severance payments for the number of months
after the termination date remaining in the Protection Period and, in addition,
Mr. Miller will not be eligible to participate in any other benefits or plans of
the Corporation. In the event Mr. Miller's employment with the Corporation is
terminated for Cause or he voluntarily terminates his employment, Mr. Miller
will not be entitled to any severance payments. This employment agreement also
provides that the Corporation will enter into its standard change of control
employment agreement with Mr. Miller which provides, among other things, for the
acceleration and immediate vesting of stock options and the protection of his
base compensation and profit sharing payment, if earned, for a period of 12
months from the change of control date. In addition, if the change of control
occurs during the initial 12 months of Mr. Miller's employment, his base
compensation and profit sharing payment, if earned, will be protected for a
period of 18 months from the change of control date. Pursuant to this employment
agreement, the Corporation has agreed to negotiate a new employment agreement
with Mr. Miller approximately 12 months after the date on which he begins his
employment with the Corporation.
11
<PAGE> 15
OTHER INFORMATION RELATING TO
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
CERTAIN TRANSACTIONS
During 1995, 1997 and 1998, Richard F. Latour, Executive Vice President,
Chief Operating Officer and Chief Financial Officer of the Corporation, borrowed
an aggregate of $152,776 from the Corporation to exercise vested options to
purchase Common Stock (the "Exercised Options"). Mr. Latour repaid all
outstanding indebtedness to the Corporation upon the closing of the
Corporation's initial public offering in February, 1999 with the proceeds of
shares of Common Stock sold by him. The loans were non-interest bearing unless
the principal amount thereof was not paid in full when due, at which time
interest accrued and was payable at a rate per annum equal to the prime rate
published by The Wall Street Journal plus 4.0%. The outstanding principal
balance of these loans was reduced by any dividends payable upon the stock
underlying the Exercised Options. All principal amounts outstanding under such
loans were due on the earlier of the end of employment or December 27, 2005.
During the fiscal year ended December 31, 1999, the largest aggregate amount
outstanding under these loans was $76,632.34. Mr. Latour also has an outstanding
demand note issued to the Corporation. As at December 31, 1999, the balance
payable to Mr. Latour under this demand note was $436,080.30 at an interest rate
per annum equal to a bank prime rate minus 1%.
The Parker Family Limited Partnership, controlled by Jeffrey Parker, a
director of the Corporation, loaned the Corporation an aggregate of $2.4 million
in the form of junior subordinated notes, as follows (collectively, the "Parker
Notes"): $200,000 on September 1, 1994 at an interest rate per annum equal to
the higher of 12% or a bank prime rate plus 3% maturing September 1, 1999;
$200,000 on May 1, 1995 at an interest rate per annum equal to 12% or a bank
prime rate plus 4% maturing May 1, 2000; $500,000 on June 1, 1996 at an interest
rate per annum equal to the higher of 12% or a bank prime rate plus 3% maturing
June 1, 2000; $250,000 on December 1, 1996 at an interest rate per annum equal
to the higher of 12% or a bank prime rate plus 3% maturing December 1, 1999;
$500,000 on December 1, 1996 at an interest rate per annum equal to the higher
of 12% or a bank prime rate plus 3% maturing December 1, 2002; $250,000 on
December 1, 1996 at an interest rate per annum equal to the higher of 12% or a
bank prime rate plus 3% maturing December 1, 2001; $125,000 on September 1, 1997
at an interest rate per annum equal to 11% maturing September 1, 2001; and
$125,000 on September 1, 1997 at an interest rate per annum equal to 11%
maturing September 1, 2003. The Corporation repaid the Parker Notes in full on
March 22, 1999.
Peter R. Bleyleben, the President and Chief Executive Officer and a
Director of the Corporation, loaned the Corporation an aggregate of $125,000 in
the form of junior subordinated notes as follows (collectively, the "Bleyleben
Notes"): $100,000 on December 1, 1996 at 12% interest per annum maturing
December 1, 2001; and $25,000 on June 1, 1998 at 10.5% interest per annum
maturing June 1, 2003. The Corporation repaid the Bleyleben Notes in full on
March 22, 1999. Mr. Bleyleben also loaned the Corporation an aggregate of
$325,000 in the form of demand notes as follows (collectively, the "Bleyleben
Demand Notes"): $100,000 on October 17, 1997 at an interest rate per annum equal
to a bank prime rate minus 1%; $100,000 on December 1, 1998 at an interest rate
per annum equal to a bank prime rate minus 1%; and $125,000 on March 22, 1999 at
an interest rate per annum equal to a bank prime rate minus 1%. The Corporation
repaid the Bleyleben Demand Notes in full on January 12, 2000.
Alan J. Zakon, a director of the Corporation, loaned the Corporation an
aggregate of $200,000 in the form of junior subordinated notes as follows:
$100,000 on February 1, 1995 at 12% interest per annum maturing February 1,
2000; and $100,000 on March 18, 1998 at 10.5% interest per annum through his IRA
maturing April 1, 1999. The Corporation repaid such notes in full on March 22,
1999.
Ingrid R. Bleyleben, the mother of Peter R. Bleyleben, the President and
Chief Executive Officer and a Director of the Corporation, loaned the
Corporation the following amounts in the form of junior subordinated
12
<PAGE> 16
notes: $120,000 on February 16, 1996 at an interest rate per annum equal to
11.5% maturing March 1, 2001; $25,000 on December 17, 1996 at an interest rate
per annum equal to 11.5% maturing January 1, 2002; $20,000 on June 4, 1997 at an
interest rate per annum equal to 11.5% maturing May 1, 2002; and $25,000 on June
1, 1998 at an interest rate per annum equal to 10% maturing June 1, 2003. The
Corporation repaid these notes in full on March 22, 1999. On March 29, 1999, Ms.
Bleyleben 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%. As at December 31,
1999, the balance payable to Ms. Bleyleben under this demand note was $200,000.
Torrence C. Harder, a director of the Corporation, loaned the Corporation
$100,000 in the form of a Junior Subordinated Note on November 1, 1994 at an
interest rate per annum equal to 12.0% or a bank prime rate plus 3% maturing
November 1, 1999. Additionally, Torrence C. Harder Cultural Foundation, an
entity related to Torrence C. Harder, loaned the Corporation $50,000 in the form
of a junior subordinated note on January 1, 1996 at an interest rate per annum
equal to 11.5% maturing January 1, 2001. The Corporation repaid such notes in
full on March 22, 1999.
All of the foregoing transactions, with the exception of the loans to Mr.
Latour, are on terms similar to 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, 1999 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, 1999, with the exception that: (i) Torrence C. Harder, who is a director of
the Corporation and a ten percent holder of the Corporation's Common Stock,
inadvertently failed to timely file a Form 4 relating to the distribution by
Entrepreneurial Ventures, Inc. ("EVI"), of which Mr. Harder is the sole
stockholder, president and a director, of 70,327 shares of Common Stock on June
22, 1999 to certain stockholders of EVI, and (ii) Carol Salvo, who is an officer
of the Corporation, inadvertently failed to timely file a Form 4 relating to the
purchase by Ms. Salvo and her husband of 1,000 shares of Common Stock on
February 26, 1999. Such transactions were reported on a Form 5 filed with the
Securities and Exchange Commission on February 11, 2000 by the applicable
Reporting Person.
MICROFINANCIAL'S 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 December 31, 1998 and
December 31, 1999, verbally notified the Corporation on April 5, 2000 that PWC
is resigning as the Corporation's independent accountants effective as of April
5, 2000. The Board of Directors of the Corporation is seeking to engage a
principal accountant to replace PWC but has not had sufficient time since the
date of PWC's resignation to select or recommend new independent accountants for
the Corporation.
PWC served as the Corporation's independent accountants for the
Corporation's fiscal year ended December 31, 1999. Representatives of PWC 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.
13
<PAGE> 17
PWC 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 PWC during the Corporation's fiscal year ended December 31, 1999
were furnished at customary rates.
Neither of the reports of PWC on the Corporation's financial statements for
the fiscal years ended December 31, 1998 and December 31, 1999 contained an
adverse opinion or disclaimer of opinion, nor was either qualified or modified
as to uncertainty, audit scope, or accounting principles. The decision to change
the Corporation's independent accountants was neither recommended nor approved
by the Corporation's Board of Directors or its Audit Committee. 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.
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
REPORT 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
<PAGE> 18
- 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 President 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
<PAGE> 19
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 Corporation's 1998 Equity
Incentive 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 Corporation's 1998 Equity Incentive 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 Corporation's 1998 Equity Incentive
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.
1999 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 1999 compensation for Dr. Peter R. von Bleyleben, the
Corporation's Co-Founder, President and Chief Executive Officer.
Dr. Bleyleben's base salary was $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 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, $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 $20.1 million in 1998.
16
<PAGE> 20
At December 31, 1999, Dr. Bleyleben had options to purchase 100,000 shares
of Common Stock. The options 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. 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 2000 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 2000. 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
<PAGE> 21
PERFORMANCE GRAPH
The following graph illustrates an eleven (11) 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, 1999. 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.
<TABLE>
<CAPTION>
S&P MID-CAP FINANCIALS NYSE INDEX (2/5/1999 =
MFI (2/5/1999 = 100) (2/5/1999 = 100) 100)
-------------------- ---------------------- ----------------------
<S> <C> <C> <C>
2/5/99 100.00 100.00 100.00
2/12/99 96.67 99.12 99.01
2/19/99 78.75 100.51 99.88
2/26/99 81.67 100.18 99.86
3/5/99 87.50 104.08 102.70
3/12/99 93.33 106.11 104.13
3/19/99 98.75 106.25 103.98
3/26/99 84.17 104.05 102.56
4/1/99 93.33 102.63 104.66
4/9/99 84.17 105.30 107.81
4/16/99 107.74 109.03 104.87
4/23/99 126.11 113.25 108.78
4/30/99 119.01 115.74 109.69
5/7/99 102.73 114.16 108.86
5/14/99 99.38 112.97 108.45
5/21/99 98.55 112.43 106.60
5/28/99 81.01 110.65 105.95
6/4/99 81.85 107.65 108.04
6/11/99 70.15 105.84 105.48
6/18/99 84.35 107.67 108.39
6/25/99 91.03 106.89 106.14
7/2/99 96.04 111.05 111.55
7/9/99 91.45 110.11 111.99
7/16/99 89.63 109.47 112.91
7/23/99 85.86 106.41 108.78
7/30/99 80.00 103.35 106.60
8/6/99 76.65 98.24 104.04
8/13/99 67.85 99.09 105.80
8/20/99 67.85 98.75 106.61
8/27/99 73.30 96.84 106.54
9/3/99 67.01 95.39 106.57
9/10/99 73.71 93.17 106.06
9/17/99 71.62 91.34 104.43
9/24/99 72.04 89.48 99.83
10/1/99 72.46 88.65 100.14
10/8/99 87.12 93.38 104.46
10/15/99 81.52 89.00 98.11
10/22/99 82.78 94.24 102.36
10/29/99 73.54 100.11 106.50
11/5/99 72.28 104.66 106.82
11/12/99 75.22 103.41 106.89
11/19/99 79.84 102.50 110.02
11/26/99 73.96 98.00 108.97
12/3/99 78.16 98.95 110.12
12/10/99 77.32 94.40 108.89
12/17/99 73.96 89.42 107.55
12/23/99 76.48 90.93 109.67
12/31/99 78.58 90.31 110.73
</TABLE>
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 in Lieu of Annual Meeting. 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.
2001 STOCKHOLDER PROPOSALS
Proposals of stockholders to be included in the proxy statement and form of
proxy for the Corporation's 2001 Annual Meeting of Stockholders must be received
by December 13, 2000. Stockholders who wish to make a proposal at the
aforementioned Annual Meeting of Stockholders, other than one that will be
included in the Corporation's proxy materials, must notify the Corporation no
later than January 12, 2001 of such a
18
<PAGE> 22
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 12, 2001, 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,
1999, that was filed with the Securities and Exchange Commission on March 30,
2000, 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.
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 12, 2000
19
<PAGE> 23
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 12, 2000, 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 Friday, May 12,
2000, at 4:00 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 2 nominees for
Director 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.
SEE REVERSE SEE REVERSE
SIDE CONTINUED, AND TO BE SIGNED, ON REVERSE SIDE SIDE
<PAGE> 24
[X] PLEASE MARK
VOTES AS IN THIS
EXAMPLE.
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 ALL NOMINEES.
THE BOARD OF DIRECTORS OF THE CORPORATION RECOMMENDS A VOTE FOR ALL
NOMINEES.
1. Election of each of the following two directors for a three-year term.
NOMINEES: (01) Brian E. Boyle and (02) Alan J. Zakon
FOR WITHHELD
[ ] [ ]
[ ] For all nominees except as noted above
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.
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.
SIGNATURE:_______________________ DATE: ______________
SIGNATURE:_______________________ DATE:_______________
