March 24, 1998
To Our Fellow Stockholders:
On behalf of the Board of Directors and our employees, I cordially invite
you to attend the Annual Meeting of Stockholders to be held on Friday, April 24,
1998 at 11:00 A.M. at the Company's main office located at 430 Main Street,
Williamstown, Massachusetts.
The notice of the meeting and proxy statement accompanying this letter
describe the specific business to be acted upon.
In addition to the specific matters to be acted upon, there will be a
report by management on the progress of the Company, an opportunity to meet the
directors and management and time to ask questions.
It is important that your shares be represented at the meeting. Whether or
not you plan to attend in person, you are requested to vote, sign, date and
promptly return the enclosed proxy in the envelope provided.
Sincerely yours,
Richard A. Stratton
Chief Executive Officer
<PAGE>
LITCHFIELD FINANCIAL CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON FRIDAY,
APRIL 24, 1998
The Stockholders of Litchfield Financial Corporation:
Notice is hereby given that the Annual Meeting of the Stockholders of
Litchfield Financial Corporation has been called and will be held on Friday,
April 24, 1998, at 11:00 A.M. at the Company's main office located at 430 Main
Street, Williamstown, Massachusetts, for the following purposes:
1. To elect one Director to serve a term of up to three years and
until his successor shall be elected and qualified.
2. To consider and act upon a proposal to increase the number of
authorized shares of common stock of the Company to 12,000,000.
3. To consider and act upon a proposal to notify, confirm and approve
the Sixth Amendment to the 1990 Stock Option Plan.
4. To consider and act upon a proposal to notify, confirm and approve
the First Amendment to the 1995 Stock Option Plan for Non-Employee
Directors of the Company.
5. To consider and act upon any other business which may properly
come before the meeting.
The Board of Directors has fixed the close of business on March 12, 1998
as the record date for the Meeting. All stockholders of record on that date are
entitled to notice of and to vote at the Meeting and at any adjournment or
adjournments thereof.
In order that your stock may be represented at the Meeting in case you are
not personally present, please sign and date the enclosed proxy and return it
promptly in the accompanying addressed envelope.
By Order of the Board of Directors,
Heather A. Sica, Clerk
Williamstown, Massachusetts
March 24 , 1998
<PAGE>
LITCHFIELD FINANCIAL CORPORATION
PROXY STATEMENT
This proxy statement is being furnished to stockholders of Litchfield
Financial Corporation, a Massachusetts corporation (the "Company"), in
connection with the solicitation of proxies by the Board of Directors of the
Company for use at the Annual Meeting of Stockholders of the Company to be held
on Friday, April 24, 1998, at the time and place set forth in the Notice of the
Meeting, and at any adjournment or postponement thereof. The principal executive
offices of the Company are located at 430 Main Street, Williamstown,
Massachusetts and the telephone number is (413) 458-1000. The approximate date
on which this Proxy Statement and form of proxy are first being sent to
stockholders is March 24, 1998.
If the enclosed proxy is properly executed and returned, it will be voted
in the manner directed by the stockholder. If no instructions are specified with
respect to any particular matter to be acted upon, proxies will be voted in
favor thereof. Any person giving the enclosed form of proxy has the power to
revoke it by voting in person at the Meeting, or by giving written notice of
revocation to the Clerk of the Company at any time before the proxy is
exercised.
The holders of a majority interest in all common stock issued, outstanding
and entitled to vote are required to be present in person or be represented by
proxy at the Meeting in order to constitute a quorum for the transaction of
business. The election of the nominee for Director will be decided by plurality
vote. The affirmative votes of the holders of at least a majority of the shares
of common stock voting in person or by proxy at the Meeting are required to
approve all other matters listed in the Notice of the Meeting.
The Company will bear the costs of this solicitation. It is expected that
the solicitation will be made primarily by mail, but regular employees or
representatives of the Company (none of whom will receive any extra compensation
for their activities) may also solicit proxies by telephone, telegraph and in
person and arrange for brokerage houses and their custodians, nominees and
fiduciaries to send proxies and proxy material to their principals at the
expense of the Company.
RECORD DATE AND VOTING SECURITIES
Only stockholders of record at the close of business on March 12, 1998 are
entitled to vote at the Meeting. On that date the Company had outstanding and
entitled to vote 5,660,790 shares of common stock with a par value of $.01 per
share. Each outstanding share entitles the record holder to one vote.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of shares of Common Stock of the Company, as of January 31, 1998, by
all stockholders of the Company known to be beneficial owners of more than 5% of
the outstanding Common Stock of the Company, by each director, each of the Named
Executive Officers (as defined herein) and all directors and officers of the
Company as a group:
<TABLE>
<S> <C> <C>
Amount and nature
of Beneficial Percentage
Name Ownership (a) of Class
Arthur D. Charpentier............. 588,229 10.4%
660 White Plains Road, Suite 400
Tarrytown, NY 10591
Nicholas Company, Inc. ........... 588,188 10.4%
700 North Water Street
Milwaukee, WI 53202
JP Morgan......................... 581,510 10.3%
522 Fifth Avenue - 14th Floor
New York, NY 10036
Wellington Management Co.......... 457,902 8.1%
75 State Street
Boston, MA 02109
Richard A. Stratton (b)........... 449,450(c) 7.6%
Chief Executive Officer, President and Director
Morgan Stanley.................... 352,195 6.2%
1221 Ave of the Americas
New York, NY 10020
Heather A. Sica (b)............... 125,847(d) 2.2%
Executive Vice President, Treasurer and Director
Michael A. Spadacino (b).......... 45,532(e) *
Senior Vice President
Gerald Segel ..................... 20,310(f) *
Director
Tucker Anthony
One Beacon Street
Boston, MA 02108
Ronald E. Rabidou (b)............. 17,281(g) *
Chief Financial Officer
Amount and Nature
of Beneficial Percentage
Name Ownership (a) of Class
- ----------------------------------------------------------------------------------------------
David J. Ferrari.................. 5,123 (h) *
Director
Argus Management
207 Union Street
South Natick, MA 01760
John Costa ....................... 4,668 (i) *
Director
Cardholder Management Services
55 E. Ames Ct.
Plainview, NY 11803
James Westra...................... 3,675 (i) *
Director
Hutchins, Wheeler & Dittmar, A Professional Corporation
101 Federal Street
Boston, MA 02110
Donald R. Dion, Jr................ 2,181 (j) *
Director
Dion Money Management, Inc.
279 Main Street
Williamstown, MA 01267
All directors and executive officers as a group (12 persons) 725,549 (k) 11.8%
</TABLE>
* Less than one percent.
(a)Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission and includes general voting power and/or
investment power with respect to securities. Shares of common stock subject
to options currently exercisable or exercisable within 60 days of January 31,
1998 are deemed outstanding for computing the percentage of a person holding
such options but are not deemed outstanding for computing the percentage of
any other person. The persons named in the table above have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them.
(b) Address: 430 Main Street, Williamstown, Massachusetts, 01267.
(c) Includes 226,392 shares of Common Stock issuable upon exercise of
options. Such options are exercisable within 60 days.
(d)Includes 123,532 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.
(e)Includes 45,532 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.
(f)Includes 18,812 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.
(g)Includes 17,281 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.
(h)Includes 5,123 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.
(i)Includes 3,675 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.
(j)Includes 2,181 shares of Common Stock issuable upon exercise of options.
Such options are exercisable within 60 days.
(k)In addition to the shares of Common Stock and options to purchase Common
Stock deemed to be beneficially owned by the directors and officers, as set
forth above, includes options to purchase Common Stock held by the following
executive officers in the following amounts: James Shippee -- 31,862 shares;
James Yearwood --10,607 shares; and Wayne M. Greenholtz --9,013 shares. Such
options are exercisable currently or within 60 days.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors and persons owning more than 10% of the
outstanding common stock of the Company to file reports of ownership and changes
in ownership with the Securities and Exchange Commission. Officers, Directors
and greater than 10% holders of common stock are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on copies of such forms furnished as provided above, or
written representations that no such forms were required, the Company believes
that during the fiscal year ended December 31, 1997, all Section 16(a) filing
requirements applicable to its officers, Directors and owners of greater than
10% of its common stock were met.
ELECTION OF DIRECTORS
Pursuant to the Restated Articles of Organization and By-Laws of the
Company, the Board of Directors is divided into three classes, with each class
as nearly equal in number as possible. At each annual meeting, one of the
classes is elected for a term of three years. The Company presently has a Board
of Directors of seven members, two of whom will not continue to serve as members
after the April 24, 1998 Annual Meeting. It is proposed that the individual
listed below be elected to serve for a term of three years commencing on the
date of the Meeting and continuing until a successor is duly elected and
qualified or until he sooner dies, resigns or is removed. Such election would
create a five-member Board of Directors.
The persons named in the accompanying proxy will vote, unless authority is
withheld, for the election of the nominee named below. If such nominee should
become unavailable for election, which is not anticipated, the person named in
the accompanying proxy will vote for such substitute or substitutes as the Board
of Directors may recommend unless the Board of Directors determines to reduce
the number of directors to be elected.
Nominee
The nominee for election as a director, his age, position with the
Company, the period during which he has served as director and the principal
occupation and other directorships held by him are set forth below.
Nominated for a term expiring at the 2001 Annual Meeting:
John A. Costa, 41 years old, has been a director of the Company since
1995. Mr. Costa has been at Cardholder Management Services, a credit card
servicing business since 1995, serving first as Managing Director of Planning
and Business Development and presently as Senior Vice President. Mr. Costa
served as a consultant to corporate clients from 1992 to 1995 in areas that
include mergers and acquisitions, financial modeling, asset securitization
and lending facility development. Previously, he served as Director of
Consumer Finance with U.S. West Financial Services, Inc. in 1992 and as
Director of Structured Finance for Arsht & Company, Inc. from 1990 to 1992.
Mr. Costa received his BA from New York University.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION
OF THE ABOVE NOMINEE.
Other Directors of the Company
The Company's other directors, their ages, their positions with the
Company, the period during which they have served as directors and their
principal occupations and other directorships held by them are set forth below.
Donald R. Dion, Jr., 43 years old, has been a director of the Company
since 1988. Mr. Dion is Chairman and Chief Executive Officer of Dion Money
Management Advisors, Inc. Mr. Dion served as Chief Executive Officer of the
Company until 1995 and Treasurer of the Company until 1991. Prior to joining the
Company, Mr. Dion served as an Executive Vice President of Finance, Treasurer
and Director of Patten Corporation, an attorney with Warner & Stackpole in
Boston, Massachusetts and a certified public accountant with Ernst & Young. He
is a graduate of Saint Michaels College, holds a JD from the University of Maine
Law School, and an LLM from Boston University School of Law. Mr. Dion's term
expires at the Meeting and he is not standing for reelection.
David J. Ferrari, 61 years old, has been a director of the Company since
1988. Mr. Ferrari is President and a founder of Argus Management Corporation
of Natick, Massachusetts. Argus Management Corporation provides consulting
and management services to underperforming and troubled companies. Mr.
Ferrari is a Director of several companies, including Malden Mills
Industries, Inc., and Printed Circuit Corp. Prior to founding Argus, Mr.
Ferrari was a certified public accountant with Arthur Andersen & Co. He
received a BA from Johns Hopkins University and an MBA from Babson College.
Mr. Ferrari's term expires at the Meeting and he is not standing for
reelection.
Gerald Segel, 77 years old, has been a director of the Company since
1989. Mr. Segel, prior to his retirement in May 1990, was Chairman of Tucker
Anthony Incorporated, an investment banking company, from 1987 through 1990.
Mr. Segal is also a Director of Hologic, Inc, Vivid Technologies, Inc. and
Boston Communications Group, Inc. Mr. Segel received his AB from Harvard
College. Mr. Segel's term expires at the 1999 Annual Meeting.
Heather A. Sica, 35 years old, has been a director of the Company since
1995. Ms. Sica has been the Executive Vice President and Treasurer of the
Company since 1991. She served as Chief Financial Officer of the Company from
1991 to 1995. She served as a Vice President of the Company from 1989 to 1991.
Prior to joining the Company, Ms. Sica was an associate with the Real Estate
Group of General Electric Investment Corporation and a certified public
accountant with KPMG Peat Marwick. Ms. Sica received her BS in Business
Administration from the University of Vermont and her MBA from the Wharton
School of the University of Pennsylvania. Ms. Sica's term expires at the 1999
Annual Meeting.
Richard A. Stratton, 47 years old, has been a director of the Company
since 1988. Mr. Stratton was a co-founder of the Company and has been the
Chief Executive Officer of the Company since 1996 and President of the
Company since 1988. Prior to joining the Company, Mr. Stratton served as
Vice President of Finance for Patten Corporation and Vice President of
Marketing for Summit Software Technology, Inc. and held senior marketing and
management positions with the Gillette Company and the American Appraisal
Company in Boston, Massachusetts. Mr. Stratton is a graduate of The College
of The Holy Cross. Mr. Stratton's term expires at the 2000 Annual Meeting.
James Westra, 46 years old, has been a director of the Company since
1995. Mr. Westra is a stockholder of the law firm of Hutchins, Wheeler &
Dittmar, A Professional Corporation, where he has practiced law since 1977.
Mr. Westra serves as a Director of several companies, including Bertucci's,
Inc. Mr. Westra graduated from Harvard College in 1973 and from Boston
University Law School in 1977. Mr. Westra's term expires at the 2000 Annual
Meeting.
Other Executive Officers
Wayne M. Greenholtz, 57 years old, has been a Senior Vice President of the
Company since April 1995. Prior to joining the Company, Mr. Greenholtz was the
Senior Vice President of Operations for Government Employees Financial
Corporation, a subsidiary of GEICO Corporation, from 1989 to 1995. Mr.
Greenholtz is a graduate of the University of Maryland.
John Malloy, 40 years old, has been a Senior Vice President and General
Counsel of the Company since January 1998. Prior to joining the Company, Mr.
Malloy was an attorney in private practice from 1986 to 1997 at Battle Fowler
LLP, New York, New York, where he was a partner in the corporate department. Mr.
Malloy received his BA from Carleton College and his JD from Rutgers University
School of Law.
Ronald E. Rabidou, 46 years old, has been Chief Financial Officer of the
Company since May 1995. Prior to joining the Company, Mr. Rabidou was a
certified public accountant with Ernst & Young LLP from 1987 to May 1995. Mr.
Rabidou received his MBA and BA from the University of Massachusetts.
James Shippee, 37 years old, has been Senior Vice President of Mortgage
Operations since 1989. Prior to joining the Company, Mr. Shippee was Vice
President of Patten Financial Services from 1987 to 1989.
Michael A. Spadacino, 36 years old, has been a Senior Vice President of
the Company since January 1994 after joining the Company in 1992 as a Vice
President in charge of land portfolio acquisitions. Prior to joining the
Company, Mr. Spadacino attended law school from 1989 to 1992 at the Albany Law
School of Union University where he received a JD. Mr. Spadacino received a BBA
in Accounting from St. Bonaventure University and MS in Taxation from Georgetown
University and is also a CPA.
James Yearwood, 50 years old, has been a First Vice President of the
Company since 1996 after joining the Company in 1992 as a Vice President in
charge of vacation ownership receivable funding. Prior to joining the Company,
Mr. Yearwood was a Vice President with Del-Val Capital Corporation from 1989 to
1991 where he specialized in vacation ownership receivable lending. Mr. Yearwood
graduated from Southern Connecticut State University.
Joseph S. Weingarten, 32 years old, has been a Senior Vice President of
the Company since 1997. Prior to joining the Company, Mr. Weingarten served from
1993 to 1997 in the Structured Finance Group of ING Capital, most recently a
Vice President, originating and managing structured lending and asset-backed
securitization transactions, with an emphasis on specialty finance companies.
Previously, he served as the Manager of Portfolio Administration for US West
Financial Services, Inc., and as a CPA for Arthur Andersen & Company. Mr.
Weingarten received his BA from New York University.
Board Meetings
During 1997 there were four meetings of the Board of Directors of the
Company and the Board of Directors voted eighteen times by unanimous written
consent. All of the Directors attended at least 75% of the aggregate of (i) the
total number of meetings of the Board and (ii) the total number of the meetings
held by committees of the Board on which they served.
Committees
The Company's Board of Directors has established an Audit Committee, a
Stock Option Committee and a Compensation Committee. The Board of Directors
does not have a nominating committee.
During 1997 there were two meetings of the of the Audit Committee of the
Board of Directors. The Audit Committee reviews with the Company's independent
auditors, the scope of the audit for the year, the results of the audit when
completed and the independent auditors' fees for services performed. The Audit
Committee also recommends independent auditors to the Board of Directors and
reviews with management various matters related to its internal accounting
controls. The present members of the Audit Committee are David J. Ferrari and
Gerald Segel.
The Company's Stock Option Committee administers the Company's 1990 Stock
Option Plan. The present members of the Stock Option Committee are John Costa,
David J. Ferrari, Gerald Segel and James Westra. The Stock Option Committee met
two times during fiscal 1997 and granted options to purchase an aggregate of
46,250 shares to employees and directors of the Company.
The functions of the Compensation Committee include reviewing and
approving the compensation of directors, officers and key employees. The present
members of the Compensation Committee are David J. Ferrari and Gerald Segel. The
Compensation Committee met two times during fiscal 1997.
CERTAIN TRANSACTIONS
James Westra, who became a director of the Company in April 1995, is a
stockholder in the law firm of Hutchins, Wheeler & Dittmar, A Professional
Corporation, which provides counsel to the Company on various matters including
public debt and equity offerings.
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Summary Compensation of Executive Officers
The following table sets forth certain information concerning compensation
paid to the Company's Chief Executive Officer and each of the other Named
Executive Officers.
<TABLE>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Securities All Other
Compensation Underlying Compen-
Salary Bonus Options sation (a)
<S> <C> <C> <C> <C> <C>
Name and Position Year ($) ($) (#) ($)
- ------------------------- ---- ------------- -------- ---- ------
Richard A. Stratton 1997 $175,000 $225,000 --- $8,000
Chief Executive Officer 1996 215,000 248,646 94,501 7,500
1995 166,667 159,935 --- ---
Heather A. Sica 1997 $150,000 $50,000 --- $8,000
Executive Vice President 1996 150,000 81,823 47,251 7,500
1995 83,334 79,967 --- ---
Ronald E. Rabidou (b) 1997 $125,000 $32,500 --- $7,729
Chief Financial Officer 1996 115,000 30,000 5,250 6,490
1995 68,750 15,000 27,563 ---
Michael A. Spadacino 1997 $125,000 $50,000 --- $8,000
Senior Vice President 1996 100,000 45,000 21,000 6,354
1995 30,000 70,000 --- ---
Joseph S. Weingarten (c) 1997 $86,000 $90,000 30,000 $66,000
Senior Vice President
</TABLE>
(a) Represents contributions to Litchfield Financial Corporation Employee
401(k) Plan in 1997. In the case of Mr. Weingarten, also includes $66,000
of reimbursement to Mr. Weingarten for relocation expenses.
(b) Mr. Rabidou joined the Company in May of 1995.
(c) Mr. Weingarten joined the Company in April of 1997.
Grants of Stock Option
The following table sets forth certain information with respect to
individual grants of stock options to the Named Executive Officers during the
year ended December 31, 1997.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1997 Option Grants
Individual Grants
Number of % of Potential Realizable
Securities Total Value at Assumed
Underlying Options Annual rates of Stock
Options Granted to Exercise Price Appreciation for
Granted Employees Price Expiration Option Term
(#)(a) in 1997 ($/Sh) Date 5%($) 10%($)
- ------------------------------------------------------------------------------------------------
Joseph S. Weingarten 30,000 64.9% $14.38 4/7/07 $271,211 $687,301
Senior Vice President
(a)Mr. Weingarten's options will vest 25% each year on April 7, 1998, 1999,
2000 and 2001. The assumed annual rates of appreciation of five and ten
percent would result in the price of the Company's stock, increasing to
$23.42 and $38.26, respectively, for the $14.38 grants.
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Value
Set forth in the table below is information concerning the value of stock
options held at the end of the year ended December 31, 1997 by Named Executive
Officers of the Company.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at December 31, In-the-Money Options at
Acquired on Value 1997 December 31, 1997
Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
(#) ($) (#) (#) ($) ($)
----------- -----------------------------------------------------------------------
Richard A. Stratton --- --- 226,392 42,001 $1,955,379 $244,276
Chief Executive Officer and President
Heather A. Sica. --- --- 123,532 15,751 $1,472,462 $104,432
Executive Vice President
Ronald E. Rabidou --- --- 17,281 15,532 $135,030 $121,340
Chief Financial Officer
Michael A. Spadacino --- --- 42,907 11,375 $439,552 $89,037
Senior Vice President
Joseph Weingarten --- --- --- 30,000 --- $150,000
Senior Vice President
</TABLE>
Employment Agreements
......On July 19, 1996 the Company entered into an amended and restated
employment agreement with Richard A. Stratton. The agreement provides for an
annual base salary of $215,000 from January 1, 1996 to December 31, 1996,
$225,000 from January 1, 1997 to December 31, 1997 and $245,000 from January 1,
1998 to December 31, 1998. By subsequent agreement with the Company, the base
salary for the period January 1, 1997 to December 31, 1997 was reduced to
$175,000. The agreement also provides that the Company shall pay to Mr. Stratton
a bonus with respect to the year ended December 31, 1996 equal to 2.9% of the
Company's pretax income (as defined therein) for that year, if the earnings per
share (as defined therein) of the Company for that year was equal to at least
115% of the earnings per share of the Company for the immediately preceding
year. Additionally, the employment agreement provides the Company shall pay to
Mr. Stratton a bonus with respect to each of the years ended December 31, 1997
and 1998 equal to his base salary (prior to the reduction in 1997 described
above), if the earnings per share of such year equal at least 118% of earnings
per share of the Company for the immediately preceding year. For the year ended
December 31, 1998, Mr. Stratton will receive a bonus equal to $245,000, if the
earnings per share of the Company for such year equals at least 118% of the
earnings per share of the Company for the immediately preceding year. A bonus of
$225,000 was accrued in 1997 pursuant to this agreement.
......The amended and restated agreement also provides that upon election by the
Company, by written notice to the employee within 30 days following termination
of employment for any reason, Mr. Stratton will not engage in any business or
render any services to any business in the United States with which the Company
has a current relationship or pending relationship at the date of termination in
any capacity for a period of the first to occur of 12 months (18 months in
certain circumstances) following (i) termination or (ii) December 31, 1998 if
such business is competitive with any product or service being developed,
produced or marketed by the Company at the time of such termination. If the
Company elects to enforce the non-competition provision, it has agreed to pay
Mr. Stratton his base salary in effect on the date of termination and one-half
of the bonus paid to Mr. Stratton for the year immediately preceding the year in
which termination occurs during the non-competition period.
......On July 19, 1996, the Company entered into an employment agreement with
Heather A. Sica which calls for Ms. Sica to receive a base salary of $150,000
per year through December 31, 1998. In addition, Ms. Sica will receive a bonus
for each of the years ended December 31, 1996, 1997 and 1998 equal to one half
of the aggregate base salary and bonus paid or payable to Richard A. Stratton
for that year reduced by the base salary paid to her for that year. Ms. Sica's
agreement contains a non-competition provision substantially the same as Mr.
Stratton's agreement.
......On July 19, 1996, the Company entered into an agreement with Ronald E.
Rabidou which calls for the Company to pay Mr. Rabidou severance compensation
equal to his annual base salary in the event his position is eliminated, his
responsibilities are materially altered or his compensation is diminished
following a sale or change in control of the Company.
......On March 17, 1997, the Company entered into an employment agreement with
Joseph S. Weingarten pursuant to which Mr. Weingarten serves as a Senior Vice
President of the Company. The term of Mr. Weingarten's employment under this
agreement is from April 7, 1997 to March 30, 2000. The agreement provides for an
annual salary at a rate of $125,000 from April 7, 1997 to March 30, 1998,
$135,000 from April 1, 1998 to March 30, 1999, and $145,000 from April 1, 1999
to March 30, 2000. In addition, Mr Weingarten was eligible for a total bonus of
$120,000 in 1997 and is eligible for total bonuses of $135,000 and $145,000 in
1998 and 1999, respectively. The bonuses are comprised of a discretionary
portion based on performance versus agreed upon goals and a mandatory portion
based on earnings per share growth (as defined therein) to the extent the
earnings per share growth exceeds 10%. The discretionary portions are 40,000,
45,000 and 45,000 for 1997, 1998 and 1999, respectively. For each percentage
increase in earnings per share over 10% but less than 15%, Mr. Weingarten will
receive bonuses of $7,500, $8,500 and $9,500 in 1997, 1998 and 1999
respectively. For each percentage increase in earnings per share from 15% to
20%, Mr. Weingarten will receive bonuses of $8,500, $9,500 and $10,500, in 1997,
1998 and 1999, respectively. A bonus of $90,000 was accrued in 1997 pursuant to
this agreement. Mr. Weingarten's agreement contains a non-competition provision
substantially the same as Mr. Stratton's and Ms. Sica's.
1990 Stock Option Plan
......The Company's 1990 Stock Option Plan, as amended (the "1990 Plan"),
enables a committee of the Board of Directors (the "Option Committee") to grant
options to employees, directors or consultants of the Company for the purchase
of up to an aggregate of 1,122,319 shares of Common Stock. There will be
presented at the Annual Meeting a proposal to approve the Sixth Amendment to the
1990 Plan, which would increase the total number of shares of Common Stock for
which options may be granted under the 1990 Plan. The 1990 Plan is administered
by the Option Committee which has complete discretion to select the eligible
individuals who receive option grants. In determining the eligibility of an
individual to be granted an option, as well as in determining the number of
options to be granted to an individual, the Option Committee considers the
position and responsibilities of the individual being considered, the nature and
value to the Company of his or her service and accomplishments, his or her
present and potential contribution to the success of the Company and such other
factors as the Option Committee may deem relevant. The 1990 Plan provides for
the issuance of either non-qualified options or incentive stock options,
provided that incentive stock options must be granted with an exercise price of
not less than fair market value at the time of grant. All options are
non-transferable other than by will or the laws of descent and distribution.
Options are exercisable for a period of up to ten years from the date of grant,
provided the optionee remains an employee of the Company, or prior to the last
day of the third month following the date of termination of employment. If an
optionee dies or becomes disabled while in the employ of the Company, the option
is exercisable prior to the last day of the twelfth month following the date of
termination of employment. Any options which are exercisable following
termination of employment are only exercisable to the extent the optionee was
entitled to exercise the option on the date of termination. Options currently
outstanding vest over a three or four-year period.
......Since the inception of the 1990 Plan, options to purchase a total of
1,032,082 shares of Common Stock have been granted to certain employees and
options to purchase a total of 54,306 shares have been granted to certain
directors. All options to date have been granted at the fair market value of the
underlying shares at the date of grant, ranging from $1.15 to $21.00 per share.
As of December 31, 1997, options for an aggregate of 49,455 shares with a
weighted average exercise price of $5.91 per share have been canceled due to the
termination of employment of the option holder. As of December 31, 1997 options
for an aggregate of 293,826 shares with a weighted average exercise price of
$7.99 per share have been exercised. As of December 31, 1997, options for a
total of 743,108 shares of Common Stock were outstanding. During 1997, options
for an aggregate of 46,250 shares were granted with an average exercise price of
$16.27 per share. Of such amount, options for an aggregate 30,000 shares were
granted to an executive officer and options for an aggregate of 8,000 shares
were granted to the non-employee directors at an exercise price of $20.38 per
share, under the 1990 stock option plan.
Stock Option Plan for Non-Employee Directors
......On April 28, 1995, the Company's stockholders approved a Stock Option Plan
for Non-Employee Directors (the "Non-Employee Directors' Plan") which provides
for the grant of non-qualified options for the purchase of 5,513 shares of the
Company's Common Stock to each non-employee director of the Company serving on
the Board at the time the Non-Employee Directors' Plan was approved, and to each
new non-employee director elected in the five-year period commencing on the date
of the adoption of the Non-Employee Directors' Plan. The maximum number of
shares for which options may be granted under the Non-Employee Directors' Plan
is 66,150 shares, subject to adjustment for stock splits, dividends payable in
capital stock and other changes in capitalization. As of December 31, 1997,
18,377 of such options were outstanding. The exercise price of the options
granted under the Non-Employee Directors' Plan is the fair market value of the
shares of Common Stock covered by the option on the date of grant. Options
granted under the Non-Employee Directors' Plan are not exercisable prior to the
first year anniversary of the date of grant, and are exercisable thereafter on a
cumulative basis as to one-third of the shares covered thereby on each of the
first, second and third anniversaries of the date of grant. No option is
exercisable after ten years from the date of grant. Options granted under the
Non-Employee Directors' Plan are not assignable or transferable by the optionee
otherwise than by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order. The exercise price of the options granted
under the Non-Employee Directors' Plan must be paid in full, in cash or shares
of Common Stock of the Company already owned for a period of at least six months
by the person exercising the option, valued at fair market value on the date of
exercise. In the event of death or disability of an optionee, the option may be
exercised within one year after the date of death or termination of the
optionee's directorship with the Company on account of disability or, if
earlier, prior to the date on which the option expires by its terms. In the
event the optionee ceases to be a director of the Company other than by reason
of death or disability, the option may be exercised within one month after the
optionee ceases to be a director of the Company, unless such termination was for
cause, in which case the option shall terminate at the time the optionee ceases
to be a director of the Company. In no event may an option be exercised except
to the extent that the right to exercise has accrued and is in effect at the
time of death or termination of service as a director.
Tax Consequences
......Options granted under the 1990 Plan are intended to be either incentive
stock options, as defined in Section 422 of the Code, or non-qualified stock
options. All options granted under the Non-Employee Directors Plan are non
qualified stock options. ......Except as provided below with respect to the
alternative minimum tax, the optionee will not recognize taxable income upon the
grant or exercise of an incentive stock option. In addition, if the optionee
holds the shares received pursuant to the exercise of the option for at least
two years after the date the option is granted and one year after the date of
exercise, the optionee will recognize long-term capital gain or loss upon the
disposition of the stock measured by the difference between the option exercise
price and the amount received for such shares upon disposition.
......In the event that the optionee disposes of the stock prior to the
expiration of the required holding periods (a "disqualifying disposition"), the
optionee will realize ordinary income to the extent of the lesser of (i) the
fair market value of the stock at the time of exercise over the exercise price,
or (ii) the amount received for the stock upon disposition over the exercise
price. The basis in the stock acquired upon exercise of the option will equal
the amount of income recognized by the optionee plus the option exercise price.
Upon eventual disposition of the stock, the optionee will recognize long-term or
short-term capital gain or loss, depending on the holding period of the stock
and the difference between the amount realized by the optionee upon disposition
of the stock and his basis in the stock.
......For alternative minimum tax purposes, the excess of the fair market value
of stock on the date of the exercise of the incentive stock option over the
exercise price of the option is included in alternative minimum taxable income,
giving rise to potential alternative minimum tax liability, in the event that
the alternative minimum tax applies to the optionee. If the alternative minimum
tax does apply to the optionee, an alternative minimum tax credit may reduce the
regular tax upon eventual disposition of the stock.
......Under proposed regulations issued by the Internal Revenue Service, the
exercise of an option with previously acquired stock of the Company will be
treated as, in effect, two separate transactions. Pursuant to Section 1036 of
the Code, the first transaction will be a tax-free exchange of the previously
acquired shares for the same number of new shares. The new shares will retain
the basis and, except as provided below, the holding periods of the previously
acquired shares. The second transaction will be the issuance of additional new
shares having a value equal to the difference between the aggregate fair market
value of all of the new shares being acquired and the aggregate option exercise
price for those shares. Because the exercise of the incentive stock option does
not result in the recognition by the optionee of income, this issuance will also
be tax-free (unless the alternative minimum tax applies, as described above).
The optionee's basis in these additional shares will be zero and the optionee's
holding period for these shares will commence on the date on which the shares
are transferred. For purposes of the 1-year and 2-year holding period
requirements which must be met for favorable incentive stock option tax
treatment to apply, the holding periods of previously acquired shares are
disregarded.
......The Company is not allowed a deduction for income tax purposes upon the
grant or exercise of an incentive stock option. Upon a disqualifying disposition
of shares by the optionee acquired upon exercise of the incentive stock option,
the Company will be allowed a deduction in the amount equal to the amount of
ordinary income recognized by the optionee.
......No income is recognized by the optionee on the grant of a non-qualified
stock option. On the exercise by an optionee of a non-qualified option, the
excess of the fair market value of the stock when the option is exercised over
its cost to the optionee will be (a) taxable to the optionee as ordinary income
and (b) generally deductible for income tax purposes by the Company.
......The Internal Revenue Service will treat the exercise of a non-qualified
stock option with already-owned stock of the Company as two transactions. First,
there will be a tax-free exchange of the old shares for a like amount of new
shares under Section 1036 of the Code, with the new shares retaining the bases
and holding periods of the held shares. Second, the issuance of additional new
shares (representing the spread between the fair market value of all the new
shares the option price) is taxable to the employee as ordinary income under
Section 83 of the Code, as is the case with any non-qualified stock option. The
new shares will have a basis equal to the spread between the fair market value
of all of the new shares and their option price.
......The optionee's tax basis in his stock will equal his cost for the stock
plus the amount of ordinary income he had recognized with respect to the
non-qualified stock option. Accordingly, upon a subsequent disposition of stock
acquired upon the exercise of a non-qualified stock option, the optionee will
recognize short-term or long-term capital gain or loss, depending upon the
holding period of the stock, equal to the difference between the amount realized
upon disposition of the stock by the optionee and his basis in the stock.
Compensation of Directors
......Each outside director receives an annual retainer of $6,000, a $600 ($750
beginning October 1997) fee for each meeting attended and reimbursement of
expenses. In addition, each of Messrs. Ferrari and Segel have been granted
options to purchase 8,682, 8,682, 5,789, 5,513 and 2,000 shares of Common Stock
at exercise prices or $4.61, $6.19, $11.23, $12.02 and $20.38 per share,
respectively. Each of Messrs. Costa and Westra have been granted options to
purchase 5,513 shares of Common Stock at an exercise price of $12.02 per share
and 2,000 shares at $20.38 per share.
Compensation Committee Report
......The Compensation Committee has provided the following Board Compensation
Committee Report:
......The Company's executive compensation is supervised by the Compensation
Committee of the Board of Directors. The Company seeks to provide executive
compensation that will support the achievement of the Company's financial goals
while attracting and retaining talented executives and rewarding superior
performance.
......In general, the Company compensates its executive officers through a
combination of base salary, annual incentive compensation in the form of cash
bonuses and long-term incentive compensation in the form of stock options. In
addition, executive officers participate in benefit plans, including medical and
retirement plans, that are available generally to the Company's employees.
Chief Executive Officer and President Compensation
......The terms of the employment agreement between the Company and Mr. Stratton
is intended to provide levels of base compensation comparable with standard
market compensation practices for executive officers in other companies within
the financial services industry or other companies of comparable size, taking
into consideration the position's complexity, responsibility and need for
special expertise.
......At the same time, the Compensation Committee has sought to link a larger
percentage of the salary of Mr. Stratton to annual earnings per share growth.
For the years ended December 31, 1997 and 1998, the Company's bonus plan for Mr.
Stratton provides for the payment of a bonus equal to his base salary for such
year if the Company's earnings per share for such year equal 118% of the
earnings per share of the Company for the previous year. A bonus totaling
$225,000 was accrued in 1997 pursuant to this agreement.
Annual Compensation
......The Company sets base salary levels for other executive officers
comparable to the salary levels of executive officers in other companies within
the financial services industry or other companies of comparable size, taking
into consideration the position's complexity, responsibility and need for
special expertise. Management sets targets based on growth in earnings per
share, for earning incentive compensation.
Long-Term Incentive Compensation
......The Company provides long-term incentive compensation through its stock
option plan. The number of shares covered by a grant were determined by the
Stock Option Committee considering observed market practices for similar
positions in similar industries and individual performance and responsibilities.
...... COMPENSATION COMMITTEE:
......
...... David J. Ferrari
...... Gerald Segel
<PAGE>
Stock Price Performance Graph
......The Stock Price Performance Graph set forth below compares the cumulative
total stockholder return to the Company's stockholders for the period commencing
February 24, 1992, the date shares of common stock were first registered under
Section 12 of the Securities and Exchange Act of 1934, as amended, to December
31, 1997, with the cumulative return on the NASDAQ Composite Index and a peer
group index (NASDAQ Financial Stock Index):
[Graph comparing the cumulative total stockholder return to the Company's
stockholders]
The stock performance graph assumes $100 was invested on February 25, 1992.
APPROVAL OF AMENDMENT TO ARTICLES OF ORGANIZATION TO INCREASE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
......The Board has approved an amendment to Article Four of the Company's
Articles of Organization (the "Articles of Organization"), subject to the
approval of the Company's stockholders, to increase the number of authorized
shares of Common Stock of the Company to 12,000,000 from 8,000,000. The Board
believes that it is in the best interest of the Company and its stockholders
that there be a greater number of authorized and unissued shares available to
give the Company the flexibility it needs to conduct its business and
accommodate future growth. The proposed increase in authorized shares of Common
Stock is desirable to enhance the Company's flexibility in structuring its
future capitalization, to meet financing needs for expansion and growth and for
other corporate purposes which the Board may deem desirable. ......The
affirmative vote of a majority of the outstanding shares entitled to vote
thereon at the Annual Meeting will be required to approve this proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THE PROPOSAL TO APPROVE THIS AMENDMENT TO THE ARTICLES OF
ORGANIZATION
APPROVAL OF SIXTH AMENDMENT TO 1990 STOCK OPTION PLAN
There will be presented at the Meeting a proposal to approve the Sixth
Amendment to the Litchfield Financial Corporation 1990 Stock Option Plan which
was adopted by the Board of Directors on February 5, 1998 (the "Sixth Amendment
to the 1990 Stock Option Plan"). The Sixth Amendment to the 1990 Stock Option
Plan reflects changes to Rule 16b-3 and calls for an increase in the total
number of shares of the Company's Common Stock for which options may be granted
under the 1990 Plan to 1,422,319 shares from the 1,122,319 shares currently
authorized for grant under this plan. After considering options for 293,826
shares which have been exercised, 49,455 shares which have been cancelled and
743,108 shares which are outstanding, there are options for 85,385 shares
available for issuance under the 1990 Stock Option Plan as of December 31, 1997.
If the Sixth Amendment to the 1990 Plan is approved, the total number of options
outstanding plus the number of options available for issuance upon exercise of
options granted under the 1990 Plan will be approximately 16.6% of the sum of
the Company's outstanding shares of Common Stock and outstanding and available
options.
It is not possible to state the persons who will receive options under the
1990 Stock Plan in the future, nor the amount of options which will be granted
thereunder.
The affirmative vote of the holders of at least a majority of the
Company's common stock voting in person or by proxy at the meeting will be
required for approval of the Sixth Amendment to the 1990 Stock Option Plan. Set
forth in this Proxy Statement under the heading "Compensation of Executive
Officers and Directors" is a summary of the principal provisions of the 1990
Stock Option Plan. A copy of the entire 1990 Stock Option Plan is available from
the Company upon request addressed to Judy Koloc, Litchfield Financial
Corporation, 430 Main Street, Williamstown, Massachusetts 01267.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR THE SIXTH AMENDMENT TO THE 1990 STOCK OPTION PLAN
APPROVAL OF FIRST AMENDMENT TO 1995 STOCK OPTION PLAN FOR NON-
EMPLOYEE DIRECTORS
There will be presented at the Meeting a proposal to approve the First
Amendment to the Litchfield Financial Corporation 1995 Stock Option Plan for
Non-Employee Directors which was adopted by the Board of Directors on February
5, 1998 (the "First Amendment"). The First Amendment reflects changes to Rule
16b-3 promulgated under Section 16 (b) of the Securities Exchange Act of 1934
("Rule 16b-3"), grants discretion to the Board (or a committee consisting of two
or more members of the Board) to administer the Non-Employee Directors' Plan,
and authorizes the Board to grant options for additional shares of the Company's
common stock, $.01 par value ("Common Stock") to any non-employee director.
It is not possible to state the persons who will receive options under the
Non-Employee Directors' Plan in the future, nor the amount of options which will
be granted thereunder.
The affirmative vote of the holders of at least a majority of the
Company's Common Stock voting in person or by proxy at the Meeting will be
required for approval of the First Amendment. A copy of the entire 1995 Stock
Option Plan for Non-Employee Directors is available from the Company upon
request addressed to Judy Koloc, Litchfield Financial Corporation, 430 Main
Street, Williamstown, Massachusetts 01267.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE FOR THE FIRST AMENDMENT TO THE 1995 STOCK OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS
OTHER MATTERS
As of the date of this proxy statement, the Board of Directors is not
informed of any matters, other than those stated above, that may be brought
before the meeting. The persons named in the enclosed form of proxy or their
substitutes will vote with respect to any such matters brought before the
meeting in accordance with their best judgment.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has reappointed Ernst & Young LLP as independent
auditors to audit the consolidated financial statements of the Company and its
subsidiaries for the year ending December 31, 1998.
Representatives of the firm of Ernst & Young LLP are expected to be
present at the Annual Meeting and will have an opportunity to make a statement
if they so desire and will be available to respond to appropriate questions.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholders proposals intended to be presented at the 1999 Annual Meeting
of Stockholders must be received by the Company no later than November 24, 1998,
for inclusion in the Company's proxy statement and form of proxy for that
meeting.
10-K REPORT
A copy of the Company's Annual Report to Stockholders for the fiscal year
ended December 31, 1997, is enclosed herewith. The Company will provide each
beneficial owner of its securities with a copy of its annual report on Form
10-K, including the financial statements and schedules thereto, required to be
filed with the Securities and Exchange Commission for the Company's most recent
fiscal year, without charge, upon receipt of a written request from such person.
Such requests should be directed to Judy Koloc, Litchfield Financial
Corporation, 430 Main Street, Williamstown, MA 01267.
By Order of the Board of Directors
Heather A. Sica, Clerk
Williamstown, Massachusetts
March 24, 1998
