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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No.
MICROFINANCIAL INCORPORATED
(Exact name of Registrant as Specified in its Charter)
Massachusetts 04-2962824
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
950 Winter Street, Waltham, MA 02451
(Address of Principal Executive Offices) (zip code)
Registrant's Telephone Number, Including Area Code: (781) 890-0177
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on
which registered
Common Shares, $0.01 par value per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant, computed by reference to the closing price of such stock as
of March 23, 2001, was approximately $70,837,670.
As of March 23, 2001, 12,740,946 shares of the registrant's common
stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the 2001 Special Meeting in lieu of the Annual
Meeting of Stockholders (to be filed with the Securities and Exchange Commission
on or before April 30, 2001) is incorporated by reference in Part III hereof.
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TABLE OF CONTENTS
Description Page Number
- ----------- -----------
PART I ......................................................................................... 1
Item 1. Business................................................................................. 1
Item 2. Properties............................................................................... 7
Item 3. Legal Proceedings........................................................................ 7
Item 4. Submission of Matters to a Vote of Security Holders...................................... 14
PART II ......................................................................................... 15
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................... 15
Item 6. Selected Financial Data.................................................................. 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................. 19
Item 7a. Quantitative and Qualitative Disclosures about Market Risk............................... 25
Item 8. Financial Statements and Supplementary Data, Including Selected
Selected Quarterly Financial Data (Unaudited)........................................ 26
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure................................................... 26
PART III ......................................................................................... 27
Item 10. Directors and Executive Officers of the Registrant....................................... 27
Item 11. Executive Compensation................................................................... 27
Item 12. Security Ownership of Certain Beneficial Owners and Management........................... 27
Item 13. Certain Relationships and Related Transactions........................................... 27
PART IV ......................................................................................... 28
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................... 28
SIGNATURES .......................................................................................... 32
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PART I
ITEM 1. BUSINESS
GENERAL
MicroFinancial Incorporated ("MicroFinancial" or the "Company") was formed
as a Massachusetts corporation on January 27, 1987. The Company, which operates
primarily through its wholly-owned subsidiary Leasecomm Corporation, is a
specialized commercial finance company that leases and rents "microticket"
equipment and provides other financing services in amounts generally ranging
from $400 to $3,000, with an average amount financed of approximately $1,500 and
an average lease term of 44 months. Leasecomm Corporation started originating
leases in January 1986. The Company has used proprietary software in developing
a sophisticated, risk-adjusted pricing model and in automating its credit
approval and collection systems, including a fully automated Internet-based
application, credit scoring and approval process.
The Company provides financing to lessees which may have few other sources
of credit. The Company primarily leases and rents low-priced commercial
equipment which is used by these lessees in their daily operations. The Company
does not market its services directly to lessees, but sources leasing
transactions through a nationwide network of over 980 independent sales
organizations and other dealer-based origination networks ("Dealers").
The majority of the Company's leases are currently for authorization
systems for point-of-sale, card-based payments by, for example, debit, credit
and charge cards ("POS authorization systems"). POS authorization systems
require the use of a POS terminal capable of reading a cardholder's account
information from the card's magnetic strip and combining this information with
the amount of the sale entered via a POS terminal keypad, or POS software used
on a personal computer to process a sale. The terminal electronically transmits
this information over a communications network to a computer data center and
then displays the returned authorization or verification response on the POS
terminal.
The Company continues to develop other product lines, including leasing
other commercial products and acquiring payment streams from service contracts.
LEASING, SERVICING AND FINANCING PROGRAMS
The Company originates leases for products that typically have limited
distribution channels and high selling costs. The Company facilitates sales of
such products by making them available to Dealers' customers for a small monthly
lease payment rather than a high initial purchase price. The Company primarily
leases and rents low-priced commercial equipment with limited residual value to
small merchants. The Company purchases or originates monthly payment streams
without regard to the residual value of the leased product. The majority of the
Company's leases are currently for POS authorization systems; however, the
Company also leases a wide variety of other equipment including advertising and
display equipment, coffee machines, paging systems, water coolers and restaurant
equipment. In addition, the Company also acquires service contracts and
contracts in certain other financing markets. The Company opportunistically
seeks to enter various other financing markets.
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The Company's residential financings include acquiring service contracts
from Dealers that provide security monitoring services and various other types
of residential finance products.
The Company originates and services leases, contracts and loans in all 50
states of the United States and its territories. As of December 31, 1999 and
2000, leases in California, Florida, Texas, Massachusetts and New York accounted
for approximately 45% and 44% of the Company's portfolio, respectively. Only
California accounted for more than 10% of the total portfolio as of December 31,
1999 and 2000 at approximately 15% for each year. None of the remaining states
accounted for more than 4% of such total.
TERMS OF EQUIPMENT LEASES
Substantially all equipment leases originated or acquired by the Company
are non-cancelable. In a typical lease transaction, the Company originates
leases referred to it by the Dealer and buys the underlying equipment from the
referring Dealer upon funding of an approved application. Leases are structured
with limited recourse to the Dealer, with risk of loss in the event of default
by the lessee residing with the Company in most cases. The Company performs all
processing, billing and collection functions under its leases.
During the term of a typical lease, the Company is scheduled to receive
payments sufficient, in the aggregate, to cover the Company's borrowing costs
and the costs of the underlying equipment, and to provide the Company with an
appropriate profit. Throughout the term of the lease, the Company charges late
fees, prepayment penalties, loss and damage waiver fees and other service fees,
when applicable, which enhance the profitability of the lease. The initial
non-cancelable term of the lease is equal to or less than the equipment's
estimated economic life. Initial terms of the leases in the Company's portfolio
generally range from 12 to 48 months, with an average initial term of 44 months
as of December 31, 2000.
The terms and conditions of all of the Company's leases are substantially
similar. In most cases, the contracts require lessees to: (i) maintain, service
and operate the equipment in accordance with the manufacturer's and
government-mandated procedures; (ii) insure the equipment against property and
casualty loss; (iii) pay all taxes associated with the equipment; and (iv) make
all scheduled contract payments regardless of the performance of the equipment.
The Company's standard lease forms provide that in the event of a default by the
lessee, the Company can require payment of liquidated damages and can seize and
remove the equipment for subsequent sale, refinancing or other disposal at its
discretion. Any additions, modifications or upgrades to the equipment,
regardless of the source of payment, are automatically incorporated into, and
deemed a part of, the equipment financed.
The Company seeks to protect itself from credit exposure relating to poor
quality Dealers by entering into limited recourse agreements with its Dealers,
under which the Dealer agrees to reimburse the Company for payment of defaulted
amounts under certain circumstances, primarily defaults within the first month
following origination, and upon evidence of Dealer errors or misrepresentations
in originating a lease or contract. In case of Dealer error or
misrepresentation, the Company will charge back the Dealer for both the lessee's
delinquent amounts and attorney and court fees.
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RESIDUAL INTERESTS IN UNDERLYING EQUIPMENT
The Company typically owns a residual interest in the equipment covered by
a lease. At the end of the lease term, the lease typically converts into a
month-to-month rental contract. If the lease does not convert, the lessee either
buys the equipment at a price quoted by the Company or returns the equipment. If
the equipment is returned, the Company may place the equipment into its used
equipment rental and leasing program. The Company may also sell the used
equipment through equipment brokers and remarketers in order to maximize the net
proceeds from such sale.
SERVICE CONTRACTS
In a typical transaction for the acquisition of service contracts, a
homeowner will purchase a security system and simultaneously sign a contract
with the Dealer for the monitoring of that system for a monthly fee. The Dealer
will then sell the right to payment under that contract to the Company for a
multiple of the monthly payments. The Company performs all processing, billing
and collection functions under these contracts.
DEALERS
The Company provides financing to obligors under microticket leases,
contracts and loans through its Dealers. Since the Company relies primarily on
its network of Dealers for its origination volume, the Company considers them
its customers. The Company had over 980 different Dealers originating 78,620
Company leases, contracts and loans in 2000. One Dealer accounted for
approximately 11.6%, 14.7 and 10.6% of all Dealer funding during the years ended
December 31, 1998, 1999, and 2000, respectively. Another Dealer accounted for
approximately 3.5%, 10.1% and 3.8% of all Dealer funding during the years ended
December 31, 1998, 1999, and 2000, respectively. No other Dealer accounted for
more than 10% of the Company's funding volume during the years ended December
31, 1998, 1999, or 2000.
The Company does not sign exclusive agreements with its Dealers. Dealers
interact with merchants directly and typically market not only POS authorization
systems, but also financing through the Company and ancillary POS processing
services.
USE OF TECHNOLOGY
The Company's business is operationally intensive, due in part to the
small average amount financed. Accordingly, technology and automated processes
are critical in keeping servicing costs to a minimum while providing quality
customer service.
The Company has developed LeasecommDirect(TM), an Internet-based
application processing, credit approval and Dealer information tool. Using
LeasecommDirect(TM), a Dealer can input an application directly to the Company
via the Internet and obtain almost instantaneous approval automatically over the
Internet through the Company's computer system, all without any contact with any
employee of the Company. The Company also offers Instalease(R), a program that
allows a Dealer to submit applications by telephone, telecopy or e-mail to a
Company representative, receive approval, and complete a sale from a lessee's
location. By assisting the Dealers in providing timely, convenient and
competitive financing for their equipment or service contracts and offering
Dealers a variety of value-added services, the Company
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simultaneously promotes equipment and service contract sales and the utilization
of the Company as the finance provider, thus differentiating the Company from
its competitors.
The Company has used its proprietary software to develop a
multidimensional credit-scoring model which generates pricing of its leases,
contracts and loans commensurate with the risk assumed. This software does not
produce a binary "yes or no" decision, but rather, determines the price at which
the lease, contract or loan can be profitably underwritten. The Company uses
credit scoring in most, but not all, of its extension of credit.
UNDERWRITING
The nature of the Company's business requires two levels of review: the
first focused on the ultimate end-user of the equipment or service and the
second focused on the Dealer. The approval process begins with the submission by
telephone, facsimile or electronic transmission of a credit application by the
Dealer. Upon submission, the Company, either manually or through
LeasecommDirect(TM) over the Internet, conducts its own independent credit
investigation of the lessee through its own proprietary data base and recognized
commercial credit reporting agencies such as Dun & Bradstreet, TRW, Equifax and
TransUnion. The Company's software evaluates this information on a
two-dimensional scale, examining both credit depth (how much information exists
on an applicant) and credit quality (past payment history). The Company is thus
able to analyze both the quality and amount of credit history available with
respect to both obligors and Dealers and to assess the credit risk. The Company
uses this information to underwrite a broad range of credit risks and provide
financing in situations when its competitors may be unwilling to provide such
financing. The credit-scoring model is complex and automatically adjusts for
different transactions. In situations where the amount financed is over $6,000,
the Company may go beyond its own data base and recognized commercial credit
reporting agencies to obtain information from less readily available sources
such as banks. In certain instances, the Company will require the lessee to
provide verification of employment and salary.
The second aspect of the credit decision involves an assessment of the
originating Dealer. Dealers undergo both an initial screening process and
ongoing evaluation, including an examination of Dealer portfolio performance,
lessee complaints, cases of fraud or misrepresentation, aging studies, number of
applications and conversion rates for applications. This ongoing assessment
enables the Company to manage its Dealer relationships, including ending
relationships with poorly performing Dealers.
Upon credit approval, the Company requires receipt of signed lease
documentation on the Company's, standard or other pre-approved, lease form
before funding. Once the equipment is shipped and installed, the Dealer invoices
the Company, and thereafter the Company verifies that the lessee has received
and accepted the equipment. Upon the lessee authorizing payment to the Dealer,
the lease is forwarded to the Company's funding and documentation department for
funding, transaction accounting, and billing procedures.
BULK AND PORTFOLIO ACQUISITIONS
In addition to originating leases through its Dealer relationships, the
Company, from time to time, has purchased lease portfolios from Dealers. The
Company purchases leases from Dealers on an ongoing basis in packages ranging
from $20,000 to $200,000. While certain of these leases initially do not meet
the Company's underwriting standards, the Company often will purchase the leases
once the lessee
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demonstrates a payment history. The Company will only acquire these smaller
lease portfolios in situations where the company selling the portfolio will
continue to act as a Dealer following the acquisition. The Company also
completed the acquisition of five large POS authorization system lease and
rental portfolios: two in 1996, one in 1998, one in 1999 and one in 2000. The
first acquisition, completed in May 1996, consisted of over 8,000 rental
contracts with total fundings of $1.9 million. The second acquisition was for
approximately 8,200 leases in December 1996 with fundings of $7.9 million. In
the third acquisition, the Company acquired 4,841 rental contracts in July 1998
with fundings of $2.8 million. The fourth acquisition, completed in September of
1999, consisted of 2,148 leases with fundings of $3.2 million. The fifth
acquisition, completed in April of 2000, consisted of 7,085 rental contracts and
1,996 lease contracts, together totaling fundings of $5.5 million.
On January 3, 2001, the Company acquired the rental and lease portfolio of
Resource Leasing Corporation ("Resource") along with certain other assets. The
acquisition consisted of 7,862 rental contracts and 326 lease contracts.
SERVICING AND COLLECTIONS
The Company performs all servicing functions on its leases, contracts and
loans, including its securitized leases, through its automated servicing and
collection system. Servicing responsibilities generally include billing,
processing payments, remitting payments to Dealers and investors in the
Company's securitization programs (the "Securitizations"), preparing investor
reports, paying taxes and insurance and performing collection and liquidation
functions.
The Company differentiates itself from its competitors in the way in which
it pursues delinquent accounts that it believes its competitors would not pursue
due to the costs of collection. The Company's automated lease administration
system handles application tracking, invoicing, payment processing, automated
collection queuing, portfolio evaluation and report writing. The system is
linked with bank accounts for payment processing and provides for direct
withdrawal of lease, contract and loan payments. The Company monitors delinquent
accounts using its automated collection process. The Company uses several
computerized processes in its collection efforts, including the generation of
daily priority call lists and scrolling for daily delinquent account servicing,
generation and mailing of delinquency letters, routing of incoming calls to
appropriate employees with instant computerized access to account details,
generation of delinquent account lists eligible for litigation, generation of
pleadings, and litigation monitoring. Collection efforts commence immediately
with repeated reminder letters and telephone calls upon payments becoming 10
days past due, and generally with a lawsuit filed if an account is more than 85
days past due. The Company's collection efforts include one or more of the
following: sending collection letters, making collection calls, reporting
delinquent accounts to credit reporting agencies, and litigating delinquent
accounts when necessary and obtaining and enforcing judgments.
COMPETITION
The microticket leasing and financing industry is highly competitive. The
Company competes for customers with a number of national, regional and local
banks and finance companies. The Company's competitors also include equipment
manufacturers that lease or finance the sale of their own products. While the
market for microticket financing has traditionally been fragmented, the Company
could also be faced with competition from small or large-ticket leasing
companies that could use their expertise in those markets to enter and compete
in the microticket financing market. The Company's competitors include
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larger, more established companies, some of which may possess substantially
greater financial, marketing and operational resources than the Company,
including a lower cost of funds and access to capital markets and to other
funding sources which may be unavailable to the Company.
EMPLOYEES
As of December 31, 2000, the Company had 317 full-time employees, of which
57 were engaged in the credit activities and Dealer service, 162 were engaged in
servicing and collection activities, 15 were engaged in marketing activities,
and 83 were engaged in general administrative activities. Management believes
that its relationship with its employees is good. No employees of the Company
are members of a collective bargaining unit in connection with their employment
by the Company.
EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION
- ---- --- --------
Peter R. Bleyleben.......... 47 President, Chief Executive Officer and Director
Richard F. Latour........... 47 Executive Vice President, Chief Operating Officer, Chief
Financial Officer, Treasurer, Clerk and Secretary
John Miller................. 43 Senior Vice President, Sales and Marketing
John Plumlee................ 49 Vice President, MIS
Carol A. Salvo.............. 34 Vice President, Legal
Set forth below is a brief description of the business experience of the
executive officers of the Company.
Peter R. Bleyleben has served as President, Chief Executive Officer and
Director of the Company or its predecessor since June 1987. Before joining the
Company, 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. Dr. Bleyleben is also a
Director of UpToDate in Medicine, Inc. He earned an M.B.A. with distinction and
honors from the Harvard Business School, an M.B.A. and a Ph.D. in Business
Administration and Economics, respectively, from the Vienna Business School in
Vienna, Austria, and a B.S. in Computer Science from the Vienna Institute of
Technology.
Richard F. Latour has served as Executive Vice President, Chief Operating
Officer, Chief Financial Officer, Treasurer, Clerk and Secretary of the Company
since 1995. From 1986 to 1995, Mr. Latour was Vice President of Finance and
Chief Financial Officer of the Company. Prior to joining the Company, Mr. Latour
was Vice President, Finance for TRAK, Incorporated, an international
manufacturer and distributor of consumer products, where he was responsible for
all financial and related administrative functions.
John Miller has served as Senior Vice President, Sales and Marketing since
April of 1999. Prior to joining the Company Mr. Miller served as Vice President,
National and New York Yellow Pages Sales from April 1998 to March 1999 and as
Vice President Strategy, Planning and Business Development,
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Information Services Group from August 1997 to March 1998, each for Bell
Atlantic. Prior to that time, Mr. Miller served in various marketing and
strategic planning positions for Nynex.
John Plumlee has served as Vice President, MIS of the Company since 1990.
Prior to joining the Company, Mr. Plumlee was Vice President of M.M.C., Inc., a
firm focusing on the delivery of software services to local governments.
Carol A. Salvo has served as Vice President, Legal of the Company since
1996. From 1992 to 1995, Ms. Salvo served as Litigation Supervisor of the
Company. From 1995 to 1996, Ms. Salvo served as Director of Legal Collection
Services of the Company. Prior to joining the Company, Ms. Salvo was a junior
accountant with InfoPlus Inc.
AVAILABILITY OF INFORMATION
The Company will provide without charge to each of its stockholders upon
the written request of such person, a copy of the Company's Annual Report on
Form 10K for its fiscal year ended December 31, 2000, including the financial
statements and the financial statement schedules, required to be filed with the
Securities and Exchange Commission. Requests for such document should be
directed to Richard F. Latour, Clerk of MicroFinancial Incorporated, at 950
Winter Street, Waltham, Massachusetts 02451.
ITEM 2.PROPERTIES
The Company's corporate headquarters are located in leased space of 21,656
square feet at 950 Winter Street, Waltham, Massachusetts 02451. The lease for
this space expires on July 31, 2004. The Company also leases 5,133 square feet
of office space for its West Coast office in Newark, California, under a lease
which expires on May 1, 2005. The Company also leases 44,659 square feet of
office space in Woburn, Massachusetts, under a lease which expires on December
14, 2003. The Company's collection, credit, marketing, computer operations, and
other administrative functions are located at the Woburn location.
On January 3, 2001, the Company acquired certain assets and assumed
certain liabilities of Resource including the assumption of Resource's lease on
15,399 square feet of office space in Herndon, Virginia which expires on May 31,
2005.
ITEM 3.LEGAL PROCEEDINGS
Management believes, after consultation with counsel, that the allegations
against the Company included in the lawsuits described below are without merit,
and the Company is vigorously defending each of the allegations. Four (4) of the
first five (5) actions described below have been filed by the same attorney, on
behalf of various plaintiffs. The Company also is subject to claims and suits
arising in the ordinary course of business. At this time, it is not possible to
estimate the ultimate loss or gain, if any, related to these lawsuits, or if any
such loss will have a material adverse effect on the Company's results of
operations or financial position.
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I. On August 24, 1999, a purported class action lawsuit was filed in
Middlesex Superior Court for The Commonwealth of Massachusetts against the
Company and its wholly-owned subsidiary Leasecomm Corporation ("Leasecomm").
The complaint has been amended four times, most recently by the Fourth
Amended Complaint and Jury Claim filed on or about November 4,1999 (as amended,
the "Clark Complaint").
The purported class consists of individuals and businesses that have been
sued by Leasecomm in a Massachusetts court for allegedly breaching Leasecomm's
Non Cancellable Equipment Lease Agreement or Non Cancellable Lease Agreement
(the "Lease Agreements") containing a forum selection clause. The forum
selection clause is an agreement between the parties to the Lease Agreements to
submit to the jurisdiction of the courts of the Commonwealth of Massachusetts
for the bringing of any suit or other proceeding. The purported class would be
limited to individuals and businesses that: have no place of business or
residence in New England; have been sued in a Massachusetts court for breach of
the Lease Agreements; had no more than three employees as of the date of the
Lease Agreement; had been in existence for no more than three years as of the
date of the Lease Agreement; and had entered into Lease Agreements with
scheduled monthly lease payments which aggregated to less than $5,000.
The Clark Complaint alleges that enforcement of the forum selection clause
is not fair or reasonable because, among other things, litigation in
Massachusetts is prohibitively costly and time consuming for purported class
members, purported class members have no choice but to enter into the Lease
Agreement because of Leasecomm's greater bargaining power, and purported class
members allegedly have valid defenses to the claims asserted against them by
Leasecomm. The Plaintiffs seek: a declaration that the forum selection clause is
not fair or reasonable as to purported class members and that the Massachusetts
courts lack personal jurisdiction over purported class members; dismissal
without prejudice of all cases pending in Massachusetts against purported class
members; a permanent injunction preventing Leasecomm and its affiliates from
bringing suit in Massachusetts against purported class members; a permanent
injunction preventing Leasecomm or its affiliates from entering into Lease
Agreements containing the forum selection clause; unspecified monetary damages
against Leasecomm and the Company in favor of purported class members equal to
double or treble the moneys collected in connection with lawsuits filed against
purported class members in Massachusetts courts, together with attorneys' fees
and costs.
The parties have filed various motions with the Court. Two of these
motions, namely Leasecomm and the Company's motions to Dismiss the Fourth
Amended Complaint, have been heard by the Court. On August 16, 2000, the Court
granted the Company's motion to dismiss, resulting in the dismissal of all
claims against the Company. The Court also granted Leasecomm's motion to dismiss
as to all of the Plaintiffs' individual claims, and as to all but one of the
Plaintiffs' purported class claims. As a result of the Court's rulings on the
motions to dismiss, the only claim that remains is the Plaintiffs' purported
class claim against Leasecomm by plaintiffs against whom Leasecomm has a pending
Massachusetts action, for alleged violations of Chapter 93A of the Massachusetts
General Laws arising out of the inclusion of a forum selection clause in
Leasecomm leases. As to this claim, the Plaintiffs' are seeking no monetary
relief beyond attorneys' fees.
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The Plaintiffs filed a revised motion for class certification in light of
the Court's prior rulings. The Company has filed an opposition to the revised
motion for class certification, and argument is currently scheduled for April 4,
2001.
Since this matter is in an early stage, there can be no assurance as to
its eventual outcome. However, the forum selection clause at issue in this
litigation has been enforced in other cases.
II. On June 3, 1999 a purported class action lawsuit was filed in
Middlesex Superior Court in the Commonwealth of Massachusetts against Leasecomm.
The complaint was amended on or about July 26, 1999 (as amended, the
"McKenzie-Pollock Complaint"). On September 3, 1999 Leasecomm removed the action
to the United States District Court for the District of Massachusetts.
The purported class consists of individuals who entered into a Lease
Agreement with Leasecomm between June 4, 1993 and the date of the
McKenzie-Pollock Complaint.
Plaintiffs allege: that Leasecomm causes individuals to enter into
non-cancellable, long-term leases when there is no reasonable expectation that
most of the individuals would need or use the equipment for the duration of the
lease term; that Leasecomm conceals or misrepresents the nature of the terms of
its Lease Agreements; that the Lease Agreements are non-negotiable adhesion
contracts which are oppressive and unfair; that the cost of acquiring the
equipment through Leasecomm is often double or triple the retail cost of the
equipment; that Leasecomm violates state usury laws; that Leasecomm engages in
unfair debt collection practices; that Leasecomm brings lawsuits against
purported class members in Massachusetts even though it has no jurisdiction over
them in Massachusetts courts; that Leasecomm fails to make proper service and
then files pleadings which state that proper service was made, thereby obtaining
default judgments against certain members of the purported class; that Leasecomm
conspired with its salespersons to cause members of the purported class to enter
into unconscionable leases by concealing and misrepresenting their terms; that
Leasecomm failed to comply with the Truth in Lending Act and the Massachusetts
Consumer Credit Cost Disclosure Act; and that Leasecomm has engaged in unfair
trade practices in violation of the Massachusetts consumer protection statute.
Plaintiffs and the members of the purported class seek: unspecified
damages for monetary losses allegedly sustained by them as a result of this
conduct by Leasecomm and reimbursement of costs and attorneys' fees; treble
damages and other punitive damages; rescission of the Lease Agreements, or a
declaration that they are void, and return of all moneys paid to Leasecomm; and
damages for unjust enrichment.
The parties have filed various motions with the Court. In December 1999,
the Court granted Leasecomm's motion to dismiss in part, and ordered that the
federal Truth in Lending and Fair Debt Collection Practices claims be dismissed.
The Court then ordered the remaining claims to be remanded to the Middlesex
Superior Court for further proceedings, including decisions on the balance of
Leasecomm's motion to dismiss, since all federal claims in the case had been
dismissed. Leasecomm subsequently filed a renewed motion to dismiss in the
Superior Court, again asserting that the remaining non-federal claims are
legally insufficient and should have been presented in earlier court
proceedings. The Court has heard argument on Leasecomm's motion to dismiss, but
has not yet issued a ruling.
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The parties have reached a settlement by which the McKenzie-Pollock
Complaint and the Company's complaints against the individual defendants in the
District Court are to be dismissed with prejudice. The settlement does not
involve the payment of any money by the Company. By Order dated February 7,
2001, the Court approved the Stipulation and Order of Dismissal, and dismissed
the action.
Because the Court has not yet acted to approve the settlement, there can
be no assurance as to the eventual outcome of this case.
III. On October 25, 1999, a purported class action lawsuit was filed in
Middlesex Superior Court in The Commonwealth of Massachusetts against Leasecomm
(the "Lamar Complaint"). The purported class consists of all individuals and
businesses who, on or after September 28, 1996, signed a Leasecomm agreement
which states that it is "non-cancelable" and/or contains certain standard
provisions relating to delivery and acceptance of the leased equipment and
warranties and servicing for the equipment. The Plaintiffs contend that these
particular lease terms are contrary to Article 2A of the Uniform Commercial Code
as adopted in Massachusetts and that Leasecomm's use of these terms constitutes
an unfair and deceptive trade practice under Chapter 93A of the Massachusetts
General Laws. The Plaintiffs seek a declaration that the lease terms in question
are unfair and deceptive and that Leasecomm's use of those terms is unfair and
deceptive. The Plaintiffs also seek a Court order requiring Leasecomm to notify
all purported class members of the Court's ruling in the case; to stop using the
lease terms or similar lease terms which allegedly misstate lessees' rights
under Massachusetts law; to refrain from enforcing those lease terms against any
of the purported class members; to refrain from providing or communicating
incorrect information regarding lessees' rights under Massachusetts law; and to
include in every lease agreement language which conspicuously describes the
rights of lessees under Massachusetts law. Finally, the Plaintiffs seek
reimbursement of their costs and attorneys' fees.
The parties have filed various motions with the Court. After the Court
denied Leasecomm's Motion to Dismiss without prejudice to its being re-filed at
a later time, plaintiffs filed a Second Amended Complaint voluntarily
withdrawing one plaintiff and substituting a new plaintiff. Leasecomm has filed
an answer to the Second Amended Complaint, and the Plaintiffs have filed a
motion for class certification, which Leasecomm has opposed. The Court has heard
argument on the motion for class certification, but no decision has been issued.
Since this matter is in an early stage, there can be no assurance as to
its eventual outcome.
IV. On or about June 16, 2000, a purported class action lawsuit was filed
in Middlesex Superior Court in the Commonwealth of Massachusetts against
Leasecomm, the Company, John Gregory Hines, Richard F. Latour, Peter R. von
Bleyleben, Cardservice International, Inc., Autorize.net Corporation, and
Humboldt Bank (the "Bradford Complaint").
The purported class consists of individuals and businesses who have
executed or will in the future execute, as lessee or guarantor, a four-year
Leasecomm "non-cancellable" lease of an Authorize.net Corporation "virtual
terminal" marketed by Cardservice International, Inc. (the "Lease Agreements"),
and the lease provides for a "base payment" of at least $39.99 per month.
Plaintiffs allege: that the Lease Agreements are, in fact, loans that are
subject to state usury laws; that the Lease Agreements are usurious; that
Leasecomm's use of the Lease Agreements constitutes an unfair and deceptive
trade practice in violation of Massachusetts General Laws Chapter 93A; that
various of the
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defendants have conspired with one another to defraud the members of the
purported class and have violated Massachusetts General Laws Chapter 93A; and
that the Company is liable for any damages that might be entered in favor of the
Plaintiffs and the purported class members and against Leasecomm.
Plaintiffs and the members of the purported class seek: unspecified
damages for monetary losses allegedly sustained by them and reimbursement of
costs and attorneys' fees; treble damages; a declaration that the Lease
Agreements are loans rather than leases and that the Lease Agreements are
usurious; rescission of the Lease Agreements, or reformation of the Lease
Agreements to conform with the limitations on interest rates set forth in the
Massachusetts usury statute, and return of all moneys paid to Leasecomm, or all
monies paid in excess of amounts that would be allowable under the Massachusetts
usury statute; declarations that the alleged conduct of the defendants
constitutes unfair and deceptive trade practices in violation of Massachusetts
General Laws Chapter 93A; injunctive relief requiring Leasecomm to notify any
credit bureaus to which it may have reported Plaintiffs or purported class
members as delinquent that their accounts are in good standing, prohibiting
Leasecomm from charging usurious interest rates, prohibiting Leasecomm from
referring to the Lease Agreements as "leases," requiring Leasecomm to display
the annual percentage rate and total finance charges on all of the Lease
Agreements, and prohibiting the Company from participating in or benefiting from
any transactions by Leasecomm involving the financing of "virtual terminals".
The Company, Leasecomm, and the individual defendants all served motions
to dismiss on September 15, 2000. The Plaintiffs filed oppositions to those
motions, and the Court has taken the motions under advisement. However, all
individual defendants have been dismissed from the case, either voluntarily or
because of Plaintiffs' failure to effect service of process on them. The
Plaintiffs have not yet filed a motion for class certification.
By Notice of Voluntary Dismissal filed with the Courts on March 13, 2001,
the plaintiffs have voluntarily dismissed their action against all defendants,
including the Company.
V. On or about June 16, 2000, a purported class action lawsuit was filed
in Middlesex Superior Court in the Commonwealth of Massachusetts against
Leasecomm, the Company, John Gregory Hines, Richard F. Latour, Peter R. von
Bleyleben, E-Commerce Exchange, LLC, Creditcards.com, and Humboldt Bank (the
"Okougbo Complaint").
The purported class consists of individuals and businesses who have
executed or will in the future execute, as lessee or guarantor, a four-year
Leasecomm "non-cancellable" lease of certain models of "Verifone" equipment
provided by or through E-Commerce Exchange, LLC (the "Lease Agreements"), and
the lease provides for "base payments" of at least $49.95 per month.
Plaintiffs allege: that the Lease Agreements are, in fact, loans that are
subject to state usury laws; that the Lease Agreements are usurious; that
Leasecomm's use of the Lease Agreements constitutes an unfair and deceptive
trade practice in violation of Massachusetts General Laws Chapter 93A; that
various of the defendants have conspired with one another to defraud the members
of the purported class and have violated Massachusetts General Laws Chapter 93A;
and that the Company is liable for any damages that might be entered in favor of
the Plaintiffs and the purported class members and against Leasecomm.
Plaintiffs and the members of the purported class seek: unspecified
damages for monetary losses allegedly sustained by them and reimbursement of
costs and attorneys' fees; treble damages; a declaration
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that the Lease Agreements are loans rather than leases and that the Lease
Agreements are usurious; rescission of the Lease Agreements, or reformation of
the Lease Agreements to conform with the limitations on interest rates set forth
in the Massachusetts usury statute, and return of all moneys paid to Leasecomm,
or all monies paid in excess of amounts that would be allowable under the
Massachusetts usury statute; declarations that the alleged conduct of the
defendants constitutes unfair and deceptive trade practices in violation of
Massachusetts General Laws Chapter 93A; injunctive relief requiring Leasecomm to
notify any credit bureaus to which it may have reported Plaintiffs or purported
class members as delinquent that their accounts are in good standing,
prohibiting Leasecomm from charging usurious interest rates, prohibiting
Leasecomm from referring to the Lease Agreements as "leases," requiring
Leasecomm to display the annual percentage rate and total finance charges on all
of the Lease Agreements, and prohibiting the Company from participating in or
benefiting from the alleged activities set forth in the Complaint.
The Company, Leasecomm, and the individual defendants all served motions
to dismiss on September 15, 2000. The Plaintiffs filed oppositions to those
motions, and the Court has taken the motions under advisement. However, all
individual defendants have been dismissed from the case, either voluntarily or
because of Plaintiffs' failure to effect service of process on them. The
Plaintiffs have not yet filed a motion for class certification.
By Notice of Voluntary Dismissal filed with the Courts on March 13, 2001,
the plaintiffs have voluntarily dismissed their action against all defendants,
including the Company.
VI. On January 20, 2000, the Company filed suit against Sentinel Insurance
Company Limited ("Sentinel"), in the United States District Court for the
District of Massachusetts (the "Sentinel Complaint"). On August 18, 1999,
Sentinel had issued a Business Performance Insurance Policy (the "Policy") to
the Company as collateral for a Twelve Million Dollar ($12,000,000) loan (the
"Loan") that the Company had made to Premier Holidays International, Inc.
("Premier"). The Loan was personally guaranteed by Premier's President, Daniel
DelPiano ("DelPiano"). Pursuant to the terms of the Policy, Sentinel was
obligated to make payment to the Company for any and all amounts payable under
the terms of the Loan, in the event a default by Premier occurred. After Premier
and DelPiano defaulted on their repayment obligations, the Company made demand
on Sentinel for payment under the Policy. The Company filed the Sentinel
Complaint after Sentinel refused to make payment to the Company under the
Policy. On February 3, 2000, the Company amended its Complaint to assert claims
against Premier and DelPiano arising out of their failure to make payments
required under the Loan and the personal guaranty.
On March 1, 2000, the Company filed a motion for summary judgment on its
claims against Sentinel, seeking judgment in the amount of $13,065,266, plus
post-judgment interest and attorneys' fees. The Court has not heard this motion.
On March 6, 2000, Premier and DelPiano filed a motion in the Massachusetts
action to dismiss that action or, in the alternative, to transfer to the
Northern District of Georgia, based upon their contention that they are not
subject to personal jurisdiction in Massachusetts, that the contracts containing
the forum-selection clause were procured by fraud, and that Leasecomm should
have been named as a plaintiff. On April 13, 2000, the United States District
Court for the District of Massachusetts issued a Memorandum and Order denying
Premier and DelPiano's motion.
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On March 9, 2000 the Company filed a motion for preliminary injunction
seeking an order requiring Sentinel, Premier and Del Piano to turn over to the
Company any collateral in their possession or to which the Company and Leasecomm
may be entitled as a result of both Premier's and Sentinel's defaults under the
Loan and the Policy, respectively. On June 13, 2000, the Court denied the
Company's motion for preliminary injunction, on the express condition that
Sentinel provide adequate assurance of its financial condition within 30 days.
Sentinel failed to do so, and the Company filed a renewed motion for preliminary
injunction on July 17, 2000, and supplemented that motion with an additional
filing on September 5, 2000. The Court has not yet ruled on the motion.
On January 26, 2000, Premier and DelPiano filed suit against the Company,
its wholly-owned subsidiary, Leasecomm Corporation, and Sentinel in the Superior
Court of Fulton County, Georgia (the "Premier Complaint"). Premier and DelPiano
allege that, notwithstanding the plain wording of both the Loan and the Policy,
Premier agreed to borrow the full amount of the Loan only upon alleged
representations by the Company that it would loan Premier an additional
Forty-Five Million Dollars ($45,000,000). The documents evidencing the Loan, and
the documents evidencing the Policy, refer only to the amount of the Loan
($12,000,000), and not to any greater amount. Premier alleges that, as a result,
it has suffered actual and consequential damages in the amount of Seven Hundred
Sixty-Nine Million Three Hundred Fifty Thousand Dollars ($769,350,000) plus
interest, costs, and attorneys' fees. Premier seeks punitive damages in the
amount of Five Hundred Million Dollars ($500,000,000). Premier also seeks
injunctive relief barring the Company and Leasecomm from making demand on or
commencing court action to collect on the Policy.
On February 22, 2000, Leasecomm removed this case to federal court for the
Northern District of Georgia. Leasecomm filed a motion to dismiss the Premier
Complaint, or, alternatively, to transfer this case to federal court in
Massachusetts. Leasecomm's motion was granted on July 27, 2000, and the case was
transferred to the District of Massachusetts, where it has been consolidated
with the Massachusetts action.
The parties have reached a settlement whereby one of the defendants is to
pay the Company a sum of money on or before May 25, 2001, or, alternatively,
judgment for the full amount sued upon is to be entered against that defendant
and the Company may also pursue its claims against the other defendants.
Discovery in the Massachusetts action is ongoing. Since this matter is in
an early stage, there can be no assurance as to its eventual outcome.
The Company learned on or about March 20, 2001 that a Provisional
Liquidator of Sentinel Insurance Company, Ltd. has been appointed pursuant to
an order of the supreme Court of Bermuda.
VII. On September 19, 2000, Leasecomm was served with a Subpoena Duces
Tecum from the Office of the Attorney General of the State of Florida. The
nature of the proceeding, if any, against Leasecomm is unclear at this time, but
appears to relate to alleged complaints against Leasecomm by lessees in Florida
and involves the question of whether any of the leases entered into by Leasecomm
with Florida residents is a consumer lease. Leasecomm believes that the
commercial leases it has entered into are in fact commercial leases, and is
attempting to cooperate with the Attorney General's Office on this matter.
Leasecomm has responded to the subpoena and provided documents.
Since this matter is at an early stage, and the nature of the proceedings
against Leasecomm, if any, are not known, there can be no assurance as to its
eventual outcome.
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VIII. On April 3, 2000 a purported class action suit was filed in Superior
Court of the State of California, County of San Mateo against Leasecomm and
MicroFinancial as well as a number of other defendants with whom Leasecomm and
MicroFinancial are alleged to have done business, directly or indirectly.
The action is alleged as a "consumer fraud class action on behalf of
defrauded California small businesses and their owners, who were induced to
purchase services and/or goods from Defendants through false and misleading
representations and material omissions." More specifically, the complaint seeks
certification of a class of California persons and entities who purchased
services or goods from Internet Success Systems, Inc., Fortune Financial
Systems, Inc. (previously known as Fortune 21, Inc.), Fortune Financial Systems
of Nevada, Inc., MarketComm Production; Bizz-e Inc. (also known as Bizz-e.com,
Inc.), Cardservice International Inc. (also known as Cardservice Global
Solutions) or Power Communications, Inc., directly or indirectly, at any time
between February 7, 1997 and the present date. The complaint seeks certification
of a subclass of those class members who entered into any lease agreement
contracts with Leasecomm Corporation for the purposes of financing the goods or
services allegedly purchased from these other entities. The class action
complaint alleges ten causes of action for: (1) fraud and deceit; (2) negligent
misrepresentation; (3) violations of California's Business & Professions Code
Sections 17200 et seq. (unfair competition); (4) violations of California's
Business & Professions Code Sections 17500 et seq. (false advertising); (5)
violations of California's Civil Code Sections 1750 et seq. (Consumer Legal
Remedies Act); (6) unjust enrichment; (7) fraud in the inducement of contract;
(8) fraud in the inception of contract; (9) lack of consideration for contact;
and (10) breach of the contractual covenant of good faith and fair dealing.
The complaint prays for compensatory general and special damages according
to proof; restitution and disgorgement according to proof; rescission of class
member contracts with Leasecomm Corporation; injunctive relief against
enforcement of class member contracts with Leasecomm Corporation; prejudgment
interest; punitive and exemplary damages, costs, attorneys fees and such other
relief as the court deems just.
On May 31, 2000, Leasecomm filed a motion for an order staying all
litigation in California against Leasecomm Corporation and MicroFinancial
Incorporated on the grounds that the lease contracts at issue contained a forum
selection clause providing that any litigation concerning the leases would be
brought in Massachusetts where Leasecomm Corporation is headquartered. By order
dated August 22, 2000, the Court granted that motion and stayed further
litigation in the California proceedings against Leasecomm Corporation and
MicroFinancial Incorporated. On September 27, 2000, plaintiffs filed an appeal
seeking to overturn that ruling. Plaintiffs filed their appeal brief on December
29, 2000, and Leasecomm filed a response on January 29, 2001. Plaintiffs filed
their reply brief on February 20, 2001. No hearing date for the appeal has been
set. In the meantime, the litigation is continuing against the defendants other
than Leasecomm Corporation and MicroFinancial Incorporated. Management intends
to vigorously defend the appeal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of its fiscal year ended December 31, 2000.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's common stock, par value $0.01 per share (the "Common
Stock"), is listed on the New York Stock Exchange under the symbol "MFI."
The Common Stock was listed on the New York Stock Exchange beginning
February 5, 1999. Accordingly, the high and low sales price for the Common Stock
on such exchange for each full quarter in the Company's fiscal year is not
available for the first quarter of the fiscal year ending December 31, 1999.
By quarter
1999 2000
-------------------------------- ---------------------------------------------
Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Stock Price
High 19.8125 14.7500 13.6250 12.3800 10.7500 10.1300 11.7500
Low 9.0000 9.7500 10.0000 8.5000 9.3800 8.2500 8.7500
(b) Holders
At March 23, 2001, there were approximately 53 stockholders of record of
the Common Stock.
(c) Dividends
The Company paid the following quarterly cash dividends on the Common
Stock. The amounts indicated give effect to the 2-for-1 stock split of the
Common Stock effected on February 10, 1999.
Year ended Year ended
December 31, 1999 December 31, 2000
----------------- -----------------
First Quarter.......................... $0.035 $0.040
Second Quarter......................... $0.040 $0.045
Third Quarter.......................... $0.040 $0.045
Fourth Quarter......................... $0.040 $0.045
The Company currently intends to pay dividends in the future. Provisions
in certain of the Company's credit facilities and agreements governing its
subordinated debt contain, and the terms of any indebtedness issued by the
Company in the future are likely to contain, certain restrictions on the payment
of dividends on the Common Stock. The decision as to the amount and timing of
future dividends paid by the Company, if any, will be made at the discretion of
the Company's Board of Directors in light of the financial condition, capital
requirements, earnings and prospects of the Company and any restrictions under
the Company's credit facilities or subordinated debt agreements, as well as
other factors the Board
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of Directors may deem relevant, and there can be no assurance as to the amount
and timing of payment of future dividends.
(d) Recent Sales of Unregistered Securities
Not applicable
(e) Use of Proceeds from Registered Securities
Not applicable
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ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial and
operating data for the Company and its subsidiaries for the periods and at the
dates indicated. The selected financial data were derived from the financial
statements and accounting records of the Company. The data presented below
should be read in conjunction with the consolidated financial statements,
related notes and other financial information included herein.
Years Ended December 31,
------------------------------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- --------
Income Statement Data: (Dollars in thousands, except per share data)
Revenues
Income on financing leases and loans.... $38,654 $45,634 $47,341 $55,545 $ 69,847
Income on service contracts (1)......... 6 501 2,565 6,349 8,687
Rental income........................... 8,250 10,809 16,118 21,582 27,638
Fee income (2).......................... 8,675 11,236 10,476 14,985 21,134
------- ------- ------- ------- --------
Total revenues.......................... 55,585 68,180 76,500 98,461 127,306
------- ------- ------- ------- --------
Expenses:
Selling, general and administrative..... 14,073 17,252 20,061 24,416 26,987
Provision for credit losses............. 19,822 (3) 21,713 (3) 19,075 37,836 (3) 38,912
Depreciation and amortization........... 2,981 3,787 5,076 7,597 10,227
Interest................................ 10,163 11,890 12,154 10,375 15,070
------- ------- ------- ------- --------
Total expenses.......................... 47,039 54,642 56,366 80,224 91,196
------- ------- ------- ------- --------
Income before provision for
income taxes............................ 8,546 13,538 20,134 18,237 36,110
Net income................................... 5,080 7,652 11,924 10,728 20,861
======= ======= ======= ======= ========
Net income per common share
Basic (4)............................... $ 0.52 $ 0.78 $ 1.21 $ 0.84 $ 1.64
Diluted (5)............................. 0.52 0.76 1.19 0.83 1.63
Dividends per common share................... 0.10 0.12 0.14 0.16 0.18
December 31,
-------------------------------------------------------------
1996 1997 1998 1999 2000
-------- ------- ------- ------- --------
Balance Sheet Data: (Dollars in thousands)
Gross investment in leases and loans (6)..... $247,633 $258,230 $280,875 $362,721 $452,885
Unearned income.............................. (76,951) (73,060) (74,520) (100,815) (132,687)
Allowance for credit losses.................. (23,826) (26,319) (24,850) (41,719) (40,924)
Investment in service contracts (1).......... -- 2,145 8,920 14,250 12,553
Total assets............................ 170,192 179,701 210,254 265,856 342,602
Notes payable................................ 116,202 116,830 130,421 144,871 201,991
Subordinated notes payable................... 27,006 26,382 24,421 9,238 4,785
Total liabilities....................... 158,013 160,935 180,771 187,018 246,580
Total stockholders' equity.............. 12,179 18,766 29,483 78,838 96,023
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December 31,
--------------------------------------------------------------------------
1996 1997 1998 1999 2000
-------- --------- --------- --------- --------
Other Data: (Dollars in thousands, except statistical data)
Operating Data:
Total leases and loans originated (7) .. $ 143,200 $ 129,064 $ 153,819 $ 223,446 $ 236,763
Total service contracts acquired (8) ... 2,431 2,972 8,080 9,105 4,138
Dealer fundings (9) .................... 73,659 77,590 105,200 137,300 145,400
Average yield on leases and loans (10) . 32.4% 33.9% 35.2% 36.8% 38.0%
Cash Flows From (used in):
Operating activities ................... 60,104 77,393 95,973 114,723 116,360
Investing activities ................... (86,682) (80,127) (108,111) (147,587) (157,948)
Financing activities ................... 33,711 (1,789) 9,703 37,109 48,484
--------- --------- --------- --------- ---------
Total .................................. 7,133 (4,523) (2,435) 4,245 6,896
Selected Ratios:
Return on average assets ............... 3.42% 4.37% 6.12% 4.51% 6.86%
Return on average stockholders'
equity .............................. 50.57 49.46 49.43 19.81 23.86
Operating margin (11) .................. 51.04 51.70 51.25 56.95 58.93
Credit Quality Statistics:
Net charge-offs ........................ $ 11,948(12) $ 19,220(12) $ 20,544 $ 20,967 $ 36,824
Net charge-offs as a percentage of
average gross investment (13) ....... 5.46%(12) 7.57%(12) 7.47% 6.29% 8.74%
Provision for credit losses as a
percentage of average gross
investment (14) ..................... 9.07 8.55 6.93 11.35 9.24
Allowance for credit losses as a
percentage of gross investment (15) . 9.62 10.14 8.58 11.07 8.79
(1) The Company began acquiring fixed-term service contracts in 1995. Until
December 1996, the Company treated these fixed-term contracts as leases
for accounting purposes. Accordingly, income from these service contracts
is included in income on financing leases and loans for all periods prior
to December 1996 and investments in service contracts were recorded as
receivables due in installments on the balance sheet at December 31, 1996.
Beginning in December 1996, the Company began acquiring month-to-month
service contracts, the income from which is included as a separate
category in the Consolidated Statements of Operations and the investment
in which is recorded separately on the balance sheet.
(2) Includes loss and damage waiver fees and service fees.
(3) The provision for 1996 includes $5.0 million resulting from a reduction in
the time period for charging off the Company's receivables from 360 to 240
days. The write-off period was changed back to 360 days in January 1998.
The provision for 1997 includes a one-time write-off of securitized
receivables of $9.5 million and $5.1 million in write-offs of satellite
television equipment receivables. The provision for 1999 includes a
special provision of $12.7 million for a loan made to one company,
collateralized by approximately 3,500 microticket consumer contracts, and
guaranteed by, among other security, an insurance performance bond.
MicroFinancial is currently involved in litigation with the company and
the insurance company. Charge-offs against the special reserve were $6.4
million for the year ended December 31, 2000.
(4) Net income per common share (basic) is calculated based on
weighted-average common shares outstanding of 9,682,851, 9,793,140,
9,859,127, 12,795,809 and 12,728,441 for the years ended December 31,
1996, 1997, 1998, 1999, and 2000, respectively.
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(5) Net income per common share (diluted) is calculated based on
weighted-average common shares outstanding on a diluted basis of
9,770,613, 9,925,329, 10,031,975, 12,904,231 and 12,807,814 for the years
ended December 31, 1996, 1997, 1998, 1999, and 2000, respectively.
(6) Consists of receivables due in installments, estimated residual value, and
loans receivable.
(7) Represents the amount paid to Dealers upon funding of leases and loans
plus the associated unearned income.
(8) Represents the amount paid to Dealers upon the acquisition of service
contracts, including both non-cancelable service contracts and
month-to-month service contracts.
(9) Represents the amount paid to Dealers upon funding of leases, contracts
and loans.
(10) Represents the aggregate of the implied interest rate on each lease and
loan originated during the period weighted by the amount funded at
origination for each such lease and loan.
(11) Represents income before provision for income taxes and provision for
credit losses as a percentage of total revenues.
(12) Charge-offs in 1996 and 1997 were higher due to write-offs related to
satellite television equipment lease receivables and due to a change in
the write-off period from 360 to 240 days in the third quarter of 1996.
The write-off period was changed back to 360 days in January 1998.
(13) Represents net charge-offs as a percentage of average gross investment in
leases and loans and investment in service contracts.
(14) Represents provision for credit losses as a percentage of average gross
investment in leases and loans and investment in service contracts.
(15) Represents allowance for credit losses as a percentage of gross investment
in leases and loans and investment in service contracts.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion includes forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995). When used
in this discussion, the words "believes," "anticipates," "expects" and similar
expressions are intended to identify forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of the Company, or industry results, to differ materially from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such risks, uncertainties and other important
factors include, among others: the Company's dependence on POS authorization
systems and expansion into new markets; the Company's significant capital
requirements; the risks of defaults on the Company's leases; adverse
consequences associated with the Company's collection policy; risks associated
with economic downturns; the effect on the Company's portfolio of higher
interest rates; intense competition; increased governmental regulation of the
rates and methods used by the Company in financing and collecting its leases and
loans; risks associated with acquiring other portfolios and companies;
dependence on key personnel; and other factors many of which are beyond the
Company's control. The Company expressly disclaims any obligation or undertaking
to disseminate any updates or revisions to any forward-looking statement
contained herein to reflect any change in the Company's expectations with regard
thereto or any change in events, conditions or circumstances on which any such
statement is based. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained herein will in fact
transpire.
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OVERVIEW
The Company is a specialized commercial finance company that provides
"microticket" equipment leasing and other financing services in amounts
generally ranging from $400 to $3,000, with an average amount financed of
approximately $1,500. The Company primarily leases POS authorization systems and
other small business equipment to small commercial enterprises. For the years
ended December 31, 1999 and 2000, the Company had fundings to Dealers upon
origination of leases, contracts and loans ("Dealer Fundings") of $137.3 million
and $145.4 million, respectively, and revenues of $98.5 million and $127.3
million, respectively.
The Company derives the majority of its revenues from leases originated
and held by the Company, payments on service contracts, rental payments from
lessees who continue to rent the equipment beyond the original lease term, and
fee income. The Company funds the majority of leases, contracts and loans
through its revolving-credit and term loan facilities (the "Credit Facilities")
and on-balance sheet securitizations, and to a lesser extent, its subordinated
debt program ("Subordinated Debt") and internally generated funds.
In a typical lease transaction, the Company originates leases through its
network of independent Dealers. Upon approval of a lease application by the
Company and verification that the lessee has both received the equipment and
signed the lease, the Company pays the Dealer the cost of the equipment plus the
Dealer's profit margin. In a typical transaction for the acquisition of service
contracts, a homeowner purchases a security system and simultaneously signs a
contract with the Dealer for the monitoring of that system for a monthly fee.
Upon credit approval of the monitoring application and verification with the
homeowner that the system is installed, the Company purchases from the Dealer
the right to the payment stream under that monitoring contract at a negotiated
multiple of the monthly payments.
Substantially all leases originated or acquired by the Company are
non-cancelable. During the term of the lease, the Company is scheduled to
receive payments sufficient, in the aggregate, to cover the Company's borrowing
costs and the costs of the underlying equipment, and to provide the Company with
an appropriate profit. The Company enhances the profitability of its leases,
contracts and loans by charging late fees, prepayment penalties, loss and damage
waiver fees and other service fees, when applicable. The initial non-cancelable
term of the lease is equal to or less than the equipment's estimated economic
life and often provides the Company with additional revenues based on the
residual value of the equipment financed at the end of the initial term of the
lease. Initial terms of the leases in the Company's portfolio generally range
from 12 to 48 months, with an average initial term of 44 months as of December
31, 2000. Substantially all service and rental contracts are month-to-month
contracts with expected terms of seven years for service contracts, fifteen
months for lessees that continue to rent their equipment beyond the original
term, and twenty two months for other types of rental contracts.
CERTAIN ACCOUNTING CONSIDERATIONS
The Company's lease contracts are accounted for as financing leases. At
origination, the Company records the gross lease receivable, the estimated
residual value of the leased equipment, initial direct costs incurred and the
unearned lease income. Unearned lease income is the amount by which the gross
lease receivable plus the estimated residual value exceeds the cost of the
equipment. Unearned lease income and initial direct costs incurred are amortized
over the related lease term using the interest method. Amortization of unearned
lease income and initial direct costs is suspended if, in the opinion of
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management, full payment of the contractual amount due under the lease agreement
is doubtful. In conjunction with the origination of leases, the Company may
retain a residual interest in the underlying equipment upon termination of the
lease. The value of such interests is estimated at inception of the lease and
evaluated periodically for impairment. Other revenues such as loss and damage
waiver fees, service fees relating to the leases, contracts and loans, and
rental revenues are recognized as they are earned.
The Company's investments in cancelable service contracts are recorded at
cost and amortized over the expected life of the service period. Income on
service contracts from monthly billings is recognized as the related services
are provided. The Company periodically evaluates whether events or circumstances
have occurred that may affect the estimated useful life or recoverability of the
investment in service contracts. Rental equipment is recorded at estimated
residual value and depreciated using the straight-line method over a period of
twelve months. Loans are reported at their outstanding principal balance.
Interest income on loans is recognized as it is earned.
The Company maintains an allowance for credit losses on its investment in
leases, service contracts and loans at an amount that it believes is sufficient
to provide adequate protection against losses in its portfolio. The allowance is
determined principally on the basis of the historical loss experience of the
Company and the level of recourse provided by such lease, service contract or
loan, if any, and reflects management's judgment of additional loss potential
considering current economic conditions and the nature and characteristics of
the underlying lease portfolio. The Company determines the necessary periodic
provision for credit losses taking into account actual and expected losses in
the portfolio as a whole and the relationship of the allowance to the net
investment in leases, service contracts and loans. Such provisions generally
represent a percentage of funded amounts of leases, contracts and loans. The
resulting charge is included in the provision for credit losses.
Leases, service contracts, and loans are charged against the allowance for
credit losses and are put on non-accrual when they are deemed to be
uncollectable. Generally, the Company deems leases, service contracts and loans
to be uncollectable when one of the following occurs: (i) the obligor files for
bankruptcy; (ii) the obligor dies, and the equipment is returned; or (iii) when
an account has become 360 days delinquent. The typical monthly payment under the
Company's leases is between $30 and $50 per month. As a result of these small
monthly payments, the Company's experience is that lessees will pay past due
amounts later in the process because of the small amount necessary to bring an
account current (at 360 days past due, a lessee will only owe lease payments of
between $360 and $600).
The Company has developed and regularly updates proprietary credit scoring
systems designed to improve its risk-based pricing. The Company uses credit
scoring in most, but not all, of its extensions of credit. In addition, the
Company aggressively employs collection procedures and a legal process to
resolve any credit problems.
RESULTS OF OPERATIONS
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Total revenues for the year ended December 31, 2000 were $127.3 million,
an increase of $28.8 million, or 29.2%, from the year ended December 31, 1999,
due primarily to increases of $14.3 million, or 25.8%, in income on financing
leases and loans; $8.4 million, or 30.1%, in rental and service contract income,
and $6.1 million, or 40.7%, in service fee income over such amounts in the
previous year's
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period. The increase in income on financing leases and loans was due to the
increased number of leases originated. The increase in rental and service
contract income is a result of the increased number of lessees that have
continued to rent their equipment beyond their original lease term, a rental
portfolio of 7,085 accounts purchased during the second quarter of 2000, and the
increased number of service contracts originated. The increase in fee income is
the result of increased fees from the lessees related to the collection and
legal process employed by the Company.
Selling, general and administrative expenses increased $2.6 million, or
10.7%, for the year ended December 31, 2000 as compared to the year ended
December 31, 1999. The increase was primarily attributable to an increase in
personnel, resulting in a 21.1% increase in employee-related expenses, as the
number of employees needed to maintain and manage the Company's growing
portfolio and the general expansion of the Company's operations grew.
Additionally, the Company accrued approximately $1.1 million for Company
contributions to the employee 401(k) plan and discretionary management bonuses
which are contingent upon Board of Director approval after the close of the
fiscal year. Management expects that salaries and employee-related expenses,
marketing expenses and other selling, general and administrative expenses will
continue to increase as the portfolio grows because of the requirements of
maintaining the Company's microticket portfolio and the Company's focus on
collections.
The Company's provision for credit losses increased $1.1 million from the
year ended December 31, 1999 to $38.9 million for the year ended December 31,
2000. The provision for 1999 included a special provision of $12.7 million for a
loan made to one company, collateralized by approximately 3,500 microticket
consumer contracts and guaranteed by an insurance performance bond. The Company
is currently involved in litigation with the company and the insurance company,
see "Legal Proceedings". Charge-offs against the special reserve were $6.4
million for the year ended December 31, 2000. Excluding the special provision,
the Company's provision for credit losses increased $13.8 million from the year
ended December 31, 1999 to $38.9 million for the year ended December 31, 2000.
This increase is a result of the Company's historical policy of providing a
provision for credit losses based upon the dealer fundings and revenue
recognized in any period and reflects management's judgement of loss potential
considering economic conditions and the nature of the underlying receivables.
Dealer fundings increased $8.1 million, or 5.9%, and total revenues increased by
$28.8 million, or 29.2%, for the year ended December 31, 2000 as compared to the
year ended December 31, 1999.
Depreciation and amortization expense increased by $2.6 million, or 34.2%,
due to the increased number of rental contracts and amortization of the
Company's investment in service contracts.
Net interest expense increased by $4.7 million, or 45.2%, from $10.4
million for the year ended December 31, 1999 to $15.1 million for the year ended
December 31, 2000. This increase resulted from an increase in the average
outstanding balance of the Company's Credit Facilities as well as rising
interest rates.
As a result of the foregoing, the Company's net income increased by $10.2
million, or 95.3%, from $10.7 million for the year ended December 31, 1999 to
$20.9 million for the year ended December 31, 2000.
Dealer Fundings were $145.4 million during the year ended December 31,
2000, an increase of $8.1 million, or 5.9%, compared to the year ended December
31, 1999. This increase primarily resulted from continued growth in leases of
POS authorization systems. Receivables due in installments, estimated
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residual values, loans receivable and investment in service contracts also
increased from $377.0 million for the year ended December 31, 1999 to $465.5
million for the year ended December 31, 2000, representing an increase of $88.4
million, or 23.5%. Net cash provided by operating activities increased by $1.6
million to $116.4 million during the year ended December 31, 2000, or 1.4%, from
the year ended December 31, 1999 because of the increase in the size of the
Company's overall portfolio as well as the Company's continued emphasis on
collections. Unearned income increased $31.9 million, or 31.6%, from $100.8
million at December 31, 1999 to $132.7 million at December 31, 2000. This
increase was due to the increased number of leases originated during 2000.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Total revenues for the year ended December 31, 1999 were $98.5 million, an
increase of $22 million, or 28.8%, from the year ended December 31, 1998, due
primarily to increases of $9.2 million, or 49.5%, in rental and service contract
income; $8.2 million, or 17.3%, in income on financing leases and loans and $4.3
million, or 85%, in service fee income over such amounts in the previous year's
period. The increase in rental and service contract income came from an increase
in the number of lessees that have continued renting the equipment beyond the
original lease term and the increase in the number of service contracts in the
Company's portfolio. The increase in income on financing leases and loans arose
from the continued growth in the Company's lease portfolio.
Selling, general and administrative expenses increased $4.4 million, or
21.7%, for the year ended December 31, 1999 as compared to the year ended
December 31, 1998. The increase was primarily attributable to an increase in
personnel, resulting in a 22.4% increase in employee-related expenses, as the
number of employees needed to maintain and manage the Company's growing
portfolio and the general expansion of the Company's operations grew. Management
expects that salaries and employee-related expenses, marketing expenses and
other selling, general and administrative expenses will continue to increase as
the portfolio grows because of the requirements of maintaining the Company's
microticket portfolio and the Company's focus on collections.
The Company's provision for credit losses, including a special provision
of $12.7 million, increased $18.8 million from the year ended December 31, 1998
to $37.8 million for the year ended December 31, 1999. Excluding the special
provision, the Company's provision for credit losses increased $6.1 million from
the year ended December 31, 1998 to $25.1 million for the year ended December
31, 1999. This increase is primarily the result of the Company's policy of
providing a provision for credit losses based in part upon the level of dealer
fundings and revenue recognized in any period. Dealer fundings increased $32.1
million, or 30.5%, and total revenues increased by $22 million, or 28.8%, for
the year ended December 31, 1999 as compared to the year ended December 31,
1998. The provision for 1999 includes a special provision of $12.7 million for a
loan made to one company, collateralized by approximately 3,500 microticket
consumer contracts and guaranteed by, among other security, an insurance
performance bond. The Company is currently involved in litigation with the
company and the insurance company. (see "Legal Proceedings").
Depreciation and amortization expense increased by $2.5 million, or 50%,
due to an increase in the number of lessees that have continued renting the
equipment beyond the original lease terms and the amortization of the investment
associated with service contracts.
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Interest expense decreased by $1.8 million, or 15%, from $12.2 million for
the year ended December 31, 1998 to $10.4 million for the year ended December
31, 1999. This decrease resulted from a decrease in the average outstanding
balance of the Company's credit facilities.
As a result of the foregoing, prior to the special provision, the
Company's net income increased by $6.3 million, or 52.9%, from $11.9 million for
the year ended December 31, 1998 to $18.2 million for the year ended December
31, 1999. After the special provision, the Company's net income for the year
ended December 31, 1999 was $10.7 million, a decrease of 10%.
Dealer fundings were $137.3 million during the year ended December 31,
1999, an increase of $32.1 million, or 30.5%, compared to the year ended
December 31, 1998. This increase primarily resulted from continued growth in
leases of equipment other than POS authorization systems and acquisitions of
service contracts. Receivables due in installments, estimated residual values,
loans receivable, and investment in service contracts also increased from $289.7
million for the year ended December 31, 1998 to $377 million for the year ended
December 31, 1999, representing an increase of $87.3 million, or 30.1%. Net cash
provided by operating activities increased by $18.8 million to $114.7 million
during the year ended December 31, 1999, or 19.6%, from the year ended December
31, 1998 because of the increase in the size of the Company's overall portfolio
as well as the Company's continued emphasis on collections. Unearned income
increased $26.3 million, or 35.3%, from $74.5 million at December 31, 1998 to
$100.8 million at December 31, 1999. This increase was due to the increased
number of leases originated during 1999.
LIQUIDITY AND CAPITAL RESOURCES
General
The Company's lease and finance business is capital-intensive and requires
access to substantial short-term and long-term credit to fund new leases,
contracts and loans. Since inception, the Company has funded its operations
primarily through borrowings under its credit facilities, its on-balance sheet
securitizations, and an initial public offering completed in February of 1999.
The Company has also funded its operations through the issuance of Subordinated
Debt; however no new Subordinated Debt was issued in 2000. The Company will
continue to require significant additional capital to maintain and expand its
volume of leases, contracts and loans funded, as well as to fund any future
acquisitions of leasing companies or portfolios.
The Company's uses of cash include the origination and acquisition of
leases, contracts and loans, payment of interest expenses, repayment of
borrowings under its credit facilities, subordinated debt and securitizations,
payment of selling, general and administrative expenses, income taxes and
capital expenditures.
The Company utilizes its credit facilities to fund the origination and
acquisition of leases that satisfy the eligibility requirements established
pursuant to each facility. On August 22, 2000, the Company entered into a new
$192 million credit facility with seven banks, expiring on September 30, 2002.
At December 31, 2000, the Company had approximately $101.8 million outstanding
under the facility. The Company also may use its subordinated debt program as a
source of funding for potential acquisitions of portfolios and leases which
otherwise are not eligible for funding under the credit facilities and for
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potential portfolio purchases. To date, cash flows from its portfolio and other
fees have been sufficient to repay amounts borrowed under the credit facilities
and subordinated debt.
At December 31, 2000, the Company was in default on one of its debt
covenants in its senior subordinated notes. The covenant that was in default
requires that the Company maintain an allowance for credit losses in an amount
not less than 100% of the Delinquent Billed Lease Receivables. The covenant
default was waived as of December 31, 2000. In consideration of the waiver, the
Company repaid one of the notes in full on March 2, 2001.
The Company believes that cash flows from its operations and amounts
available under its credit facilities will be sufficient to fund the Company's
operations for the foreseeable future.
Recently Issued Accounting Pronouncements
See Note B of the notes to the consolidated financial statements included
herein for a discussion of the impact of recently issued accounting
pronouncements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market-Rate-Sensitive Instruments and Risk Management
The following discussion about the Company's risk management activities
includes forward-looking statements that involve risk and uncertainties. Actual
results could differ materially from those projected in the forward-looking
statements.
This analysis presents the hypothetical loss in earnings, cash flows, and
fair value of the financial instruments held by the Company at December 31,
2000, that are sensitive to changes in interest rates. The Company has used
interest-rate swaps to manage the primary market exposures associated with
underlying liabilities and anticipated transactions. The Company used these
instruments to reduce risk by creating offsetting market exposures. The
instruments held by the Company are not held for trading purposes.
In the normal course of operations, the Company also faces risks that are
either nonfinancial or nonquantifiable. Such risks principally include country
risk, credit risk, and legal risk, and are not represented in the analysis that
follows.
Interest Rate Risk Management
The implicit yield to the Company on all of its leases, contracts and
loans is on a fixed interest rate basis due to the leases, contracts and loans
having scheduled payments that are fixed at the time of origination of the
lease. When the Company originates or acquires leases, contracts, and loans it
bases its pricing in part on the spread it expects to achieve between the
implicit yield rate to the Company on each lease and the effective interest cost
it will pay when it finances such leases, contracts and loans through its credit
facility. Increases in interest rates during the term of each lease, contract or
loan could narrow or
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eliminate the spread, or result in a negative spread. The Company has adopted a
policy designed to protect itself against interest rate volatility during the
term of each lease, contract or loan.
Given the relatively short average life of the Company's leases, contracts
and loans, the Company's goal is to maintain a blend of fixed and variable
interest rate obligations. As of December 31, 2000, the Company's outstanding
fixed-rate indebtedness outstanding under the Company's securitizations and
subordinated debt represented 50.6% of the Company's total outstanding
indebtedness. In July 1997, the Company entered into an interest rate swap
arrangement with one of its banks. This arrangement expired in July 2000.
The Company's credit facility bears interest at rates, which fluctuate
with changes in the prime rate or the 90-day LIBOR. The majority of the
Company's long term debt is at fixed interest rates. The Company's interest
expense on its credit facility and the fair value of its fixed rate debt is
sensitive to changes in market interest rates. The effect of a 10% adverse
change in market interest rates, sustained for one year, on the Company's
interest expense and the fair value of its fixed rate debt would be $871,000 and
$905,000, respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA, INCLUDING SELECTED
QUARTERLY FINANCIAL DATA (UNAUDITED)
Included in Exhibit 99 incorporated by reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The sections "Election of Directors," "Certain Information Regarding the
MicroFinancial Board," and "Section 16(a) Beneficial Ownership Reporting
Compliance" included in the Company's proxy statement for its 2001 Special
Meeting in lieu of the Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before April 30, 2001, are hereby
incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The sections "Compensation of Executive Officers," and "Certain
Information Regarding the MicroFinancial Board," included in the Company's proxy
statement for its 2001 Special Meeting in lieu of the Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission on or
before April 30, 2001, are hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section "Security Ownership of Certain Beneficial Owners and
Management," included in the Company's proxy statement for its 2001 Special
Meeting in lieu of the Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or before April 30, 2001, is hereby
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The section "Other Information Relating to Directors, Nominees and
Executive Officers," included in the Company's proxy statement for its 2001
Special Meeting in lieu of the Annual Meeting of Stockholders to be filed with
the Securities and Exchange Commission on or before April 30, 2001, is hereby
incorporated by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements Included in Exhibit 99 incorporated by
reference herein
(2) None
(3) Exhibits Index
Exhibit
Number Description
- ------ -----------
3.1 Restated Articles of Organization, as amended (1)
3.2 Bylaws (1)
10.1 Standard Terms and Condition of Indenture dated as of March 21,
2000 governing the MFI Finance Corp. I, 7.375% Lease-Backed Notes,
Series 2000-1 (the "2000-1 Notes") and the MFI Finance Corp. I,
6.939% Lease-Backed Notes, Series 2000-2 (the "2000-2 Notes") (6)
10.2 Supplement to Indenture dated March 21, 2000 governing the 2000-1
Notes (6)
10.3 Specimen 2000-1 Note (6)
10.4 Standard Terms and Conditions of Servicing governing the 2000-1
Notes (6)
10.5 Office Lease Agreement by and between WXI/AJP Real Estate Limited
Partnership and Leasecomm Corporation dated May 3, 2000 for
facilities in Newark, California (7)
10.6 Fourth Amended and Restated Revolving Credit Agreement, dated
August 22, 2000, among Leasecomm Corporation, the lenders parties
thereto and Fleet National Bank, as agent. (8).
10.8 Office Lease Agreement by and between MicroFinancial Incorporated
and Desmond Taljaard and Howard Friedman, Trustees of London and
Leeds Bay Colony I Realty Trust, dated April 14, 1994 for
facilities in Waltham, Massachusetts (1)
10.9** 1987 Stock Option Plan (1)
10.10** Forms of Grant under 1987 Stock Option Plan (1)
10.12** 1998 Equity Incentive Plan (3)
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10.13** Employment Agreement between the Company and Peter R. Bleyleben
(3)
10.14** Employment Agreement between the Company and Richard F. Latour (3)
10.15 Standard Terms and Condition of Indenture dated as of November 1,
1994 governing the BLT Finance Corp. III 6.03% Lease-Backed Notes,
Series 1998-A (the "1998-A Notes"), the BLT Finance Corp. III
6.42% Lease-Backed Notes, Series 1997-A (the "1997-A Notes") and
the BLT Finance Corp. III 6.69% Lease-Backed Notes, Series 1996-A
(the "1996-A Notes") (2)
10.16 Second Amended and Restated Specific Terms and Conditions of
Indenture dated as of October 1, 1998, governing the 1996-A Notes,
the 1997-A Notes and the 1998-A Notes (3)
10.17 Supplement to Indenture dated May 1, 1996 governing the 1996-A
Notes (2)
10.18 Supplement to Indenture dated August 1, 1997 governing the 1997-A
Notes (2)
10.19 Supplement to Indenture dated as of October 1, 1998 governing the
1998-A Notes (3)
10.20 Specimen 1997-A Note (2)
10.21 Specimen 1996-A Note (2)
10.22 Specimen 1998-A Note (3)
10.23 Standard Terms and Conditions of Servicing governing the 1996-A
Notes, the 1997-A Notes and the 1998-A Notes (2)
10.24 Specific Terms and Conditions of Servicing governing the 1996-A
Notes, the 1997-A Notes and the 1998-A Notes (2)
10.25 Commercial Lease, dated November 3, 1998, between Cummings
Properties Management, Inc. and MicroFinancial Incorporated (3)
10.26 Amendment to Lease #1, dated November 3, 1998, between Cummings
Properties Management, Inc. and MicroFinancial Incorporated (3)
10.28 Employment Agreement between the Company and John Plumlee (3)
10.29 Employment Agreement between the Company and Carol Salvo (3)
10.30* Supplement to Indenture dated December 1, 2000 governing the
2000-2 Notes
10.31* Specimen 2000-2 Note
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10.33 Third Amended and Restated Revolving Credit Agreement, dated
December 21, 1999, among Leasecomm Corporation, the lenders
parties thereto and BankBoston, N.A., as agent (5)
10.34 Fifth Amendment to Office Lease Agreement by and between
MicroFinancial Incorporated and Leasecomm Corporation and Bay
Colony Corporate Center LLC, dated June 29, 1999 for facilities in
Waltham, Massachusetts (5)
21.1* Subsidiaries of Registrant
23.1* Consent of Deloitte & Touche LLP
23.2* Consent of PricewaterhouseCoopers LLP
99* Consolidated Financial Statements and Notes to Consolidated
Financial Statements
- -----------------------
* Filed herewith.
** Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of this Report.
(1) Incorporated by reference to the Exhibit with the same exhibit number
in the Registrant's Registration Statement on Form S-1 (Registration
Statement No. 333-56639) filed with the Securities and Exchange
Commission on June 9, 1998.
(2) Incorporated by reference to the Exhibit with the same exhibit number
in the Registrant's Amendment No. 1 to Registration Statement on Form
S-1 (Registration Statement No. 333-56639) filed with the Securities
and Exchange Commission on August 3, 1998.
(3) Incorporated by reference to the Exhibit with the same exhibit number
in the Registrant's Amendment No. 2 to Registration Statement on Form
S-1 (Registration Statement No. 333-56639) filed with the Securities
and Exchange Commission on January 11, 1999.
(4) Incorporated by reference to the Exhibit with the same exhibit number
in the Registrant's Amendment No. 3 to Registration Statement on Form
S-1 (Registration Statement No. 333-56639) filed with the Securities
and Exchange Commission on February 4, 1999.
(5) Incorporated by reference to the Exhibit with the same exhibit number
in the Registrant's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 30, 2000.
(6) Incorporated by reference to the Exhibit with the same exhibit number
in the Registrant's Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on May 22, 2000.
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33
(7) Incorporated by reference to the Exhibit with the same exhibit number
in the Registrant's Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on August 14, 2000.
(8) Incorporated by reference to the Exhibit with the same exhibit number
in the Registrant's Quarterly Report on Form 10-Q filed with the
Securities and Exchange Commission on November 14, 2000.
(b) No reports have been filed on Form 8-K.
(c) See (a)(3) above.
(d) None.
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SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MICROFINANCIAL INCORPORATED.
By: /s/ PETER R. BLEYLEBEN
------------------------------
Peter R. Bleyleben
President, Chief Executive
Officer and Director
Date: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ PETER R. BLEYLEBEN President, Chief Executive Officer March 30, 2001
- ---------------------------- and Director
Peter R. Bleyleben
/s/ RICHARD F. LATOUR Executive Vice President, Chief March 30, 2001
- ---------------------------- Operating Officer, Chief Financial
Richard F. Latour Officer, Treasurer, Clerk and
Secretary
/s/ BRIAN E. BOYLE Director March 30, 2001
- ----------------------------
Brian E. Boyle
/s/ TORRENCE C. HARDER Director March 30, 2001
- ----------------------------
Torrence C. Harder
/s/ JEFFREY P. PARKER Director March 30, 2001
- ----------------------------
Jeffrey P. Parker
/s/ ALAN J. ZAKON Director March 30, 2001
- ----------------------------
Alan J. Zakon
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