<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20594
--------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
--------------------
For the Fiscal Year Ended December 31, 1995 Commission File Number 1-11011
THE FINOVA GROUP INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 86-0695381
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1850 North Central Ave., P. O. Box 2209
Phoenix, AZ 85002-2209
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code - 602-207-4900
--------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, $0.01 par value New York Stock Exchange
Junior Participating Preferred Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
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.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Registration 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 of
this Form 10-K. / /
As of March 6, 1996, approximately 27,329,000 shares of Common Stock ($0.01 par
value) were outstanding, and the aggregate market value of the Common Stock
(based on its closing price per share on such date) held by nonaffiliates was
approximately $1,479,182,000.
DOCUMENTS INCORPORATED BY REFERENCE
Part Where
Document Incorporated
- -------- ------------
1. Proxy Statement relating to 1996 Annual Meeting of Stockholders
of The FINOVA Group Inc. (but excluding information contained
therein furnished pursuant to items 402(k) and (l) of SEC
Regulation S-K.) III
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Name of Item
<TABLE>
<CAPTION>
Item # Page
------ ----
<S> <C>
Part I
Item 1 Business:
Introduction 1
General 1
Lines of Business 2
Portfolio Composition 4
Investment in Financing Transactions 4
Cost and Utilization of Borrowed Funds 10
Credit Ratings 12
Residual Realization Experience 12
Business Development and Competition 13
Credit Quality 13
Risk Management 13
Portfolio Management 14
Delinquencies and Workouts 15
Governmental Regulation 15
Former Mortgage Insurance Operations 15
Employees 16
Item 2 Properties 16
Item 3 Legal Proceedings 16
Item 4 Submission of Matters to a Vote of Security Holders 16
Optional Executive Officers of Registrant 16
Part II
Item 5 Market Price of and Dividends on the Registrant's Common
Equity & Related Stockholder Matters 18
Item 6 Selected Financial Data 19
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
Item 8 Financial Statements & Supplementary Data 20
Item 9 Changes in and Disagreements with Accountants
on Accounting & Financial Disclosure 20
Part III
Item 10 Directors & Executive Officers of the Registrant 20
Item 11 Executive Compensation 20
Item 12 Security Ownership of Certain Beneficial Owners & Management 20
Item 13 Certain Relationships & Related Transactions 20
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 20
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS.
INTRODUCTION
The following discussion relates to The FINOVA Group Inc. (formerly
known as GFC Financial Corporation) and its subsidiaries (collectively "FINOVA"
or the "Company"), including FINOVA Capital Corporation (formerly known as
Greyhound Financial Corporation) and its subsidiaries (collectively "FINOVA
Capital"), including Ambassador Factors ("Ambassador") acquired on February 14,
1994 and TriCon Capital ("TriCon") acquired on April 30, 1994. Both Ambassador
and TriCon were merged into FINOVA Capital in 1994.
The Company is the successor to the former financial services businesses
of The Dial Corp ("Dial"). On March 18, 1992, Dial consummated the spin-off (the
"Spin-Off") of the Company by distributing one share of the Company's common
stock (the "shares") for every two shares of Dial common stock held by each
stockholder. Prior to the Spin-Off, Dial contributed to the Company (i) all of
the common stock of FINOVA Capital representing the Company's core operations,
(ii) FINOVA Capital Limited ("FCL") (formerly known as Greyhound European
Financial Group), Dial's European commercial and consumer finance businesses not
previously managed by the Company, (iii) Greyhound BID Holding Corp. ("Greyhound
BID") and (iv) Verex Corporation and subsidiaries ("Verex"), Dial's discontinued
mortgage insurance operations which had been operated in a run-off mode by Dial
since 1988. The Company sold Verex in July 1993.
The historical consolidated financial statements of FINOVA have been
retroactively restated to include the accounts and results of operations of
FINOVA Capital, FCL and Greyhound BID Holding and the investment in Verex for
all periods presented as if a pooling of interests of companies under common
control occurred. All intercompany accounts and transactions have been
eliminated from the consolidated financial statements.
GENERAL
FINOVA is a financial services company primarily engaged in providing
collateralized financing and leasing products to commercial enterprises in
focused market niches, principally in the United States. The FINOVA Group Inc.
is a holding company which operates through its direct and indirect subsidiaries
and was incorporated in Delaware in December 1991.
FINOVA's lending activities to businesses are conducted through FINOVA
Capital and its subsidiaries. FINOVA Capital was incorporated in 1965 in
Delaware and is the successor to a California corporation that commenced
operations in 1954. FINOVA Capital has conducted business continuously since
that time. Foreign financial services are provided primarily in the United
Kingdom, where FCL has provided such services since 1964. Domestic and foreign
financial operations prior to the Spin-Off had been conducted independently of
each other for many years. Following the Spin-Off, they have been conducted as a
consolidated enterprise; however, subsequent to the Spin-Off, FINOVA announced
its intention to phase out the London based financing operations of FCL. In
early 1996, this phase out was substantially completed.
FINOVA Capital extends revolving credit facilities, term loans and
equipment and real estate financing to "middle-market" businesses with financing
needs falling generally between $500,000 to $35 million. FINOVA Capital also
offers sales financing programs to manufacturers, distributors, vendors and
franchisors which facilitate sales of their products to customers. FINOVA
Capital currently operates primarily in 14 specific industry or market niches in
which its expertise in evaluating the creditworthiness
1
<PAGE> 4
of prospective customers and its ability to provide value-added services enables
it to differentiate itself from its competitors and to command product pricing
which provides a satisfactory spread over the Company's borrowing costs.
The Company seeks to maintain a high quality portfolio and to minimize
nonearning assets and write-offs by using clearly defined underwriting criteria,
stringent portfolio management techniques and by diversifying its lending
activities geographically and among a range of industries, customers and loan
products. Because of the diversity of the Company's portfolio, the Company
believes it is better able to manage competitive changes in its markets and to
withstand the impact of deteriorating economic conditions on a regional or
national basis, although there can be no assurance that competitive changes,
borrowers' performance or economic conditions will not result in an adverse
impact on the Company's results of operations or financial condition.
FINOVA Capital generates interest and other income through charges
assessed on outstanding loans, loan servicing, leasing and other fees. FINOVA
Capital's primary expenses are the costs of funding its loan and lease business
(including interest paid on debt), provisions for possible credit losses,
marketing expenses, salaries and employee benefits, servicing and other
operating expenses and income taxes.
LINES OF BUSINESS
FINOVA Capital's activities currently include the following principal
lines of business:
- Commercial Equipment Finance offers equipment leases, loans and
"turnkey" financing to the supermarket, manufacturing, packaging
and general aviation industries. Typical transaction sizes are
$500,000 to $15 million.
- Commercial Finance offers collateral-oriented revolving credit
facilities and term loans for manufacturers, distributors,
wholesalers and service companies. Typical transaction sizes range
from $500,000 to $3 million.
- Commercial Real Estate Finance provides cash-flow-based financing
primarily for acquisitions and refinancings to experienced real
estate developers and owner/occupants of income-producing
properties in the United States. FINOVA Capital concentrates on
secured financing opportunities, generally between $5 million and
$25 million, involving senior mortgage term loans on
owner-occupied commercial real estate. FINOVA Capital's portfolio
of real estate leveraged leases is also managed as part of the
commercial real estate portfolio.
- Communications Finance specializes in radio and television
financing. Other markets include cable television, print and
outdoor media services in the United States. FINOVA Capital
extends secured loans to communications businesses requiring funds
for recapitalizations, refinancings or acquisitions. Loan sizes
generally are from $1 million to $40 million.
- Corporate Finance provides financing, generally in the range of $2
million to $40 million, focusing on middle market businesses
nationally, including distribution, wholesale, specialty retail,
manufacturing and services industries. The group's lending is
primarily in the form of revolving credit facilities and term
loans secured by the assets of the borrower, with significant
emphasis on the borrower's cash flow as the source of repayment of
the secured loan.
- Factoring Services provides full service factoring and accounts
receivable management services for entrepreneurial and larger
firms, operating primarily in the textile and apparel industries.
The annual factored volume of these companies is generally between
$5 million and $25 million.
2
<PAGE> 5
- Franchise Finance offers equipment, real estate and acquisition
financing programs for operators of established franchise
concepts. The equipment leased to the ultimate end-user is
typically purchased by FINOVA Capital from the equipment
manufacturer, vendor or dealer selected by the end-user. Typical
transaction sizes range from $500,000 to $15 million.
- Government Finance provides primarily tax-exempt financing to
state and local governments and non-profit corporations. Typical
transaction sizes range from $100,000 to $5 million.
- Inventory Finance provides inventory financing, combined
inventory/accounts receivable lines of credit and purchase order
financing for equipment distributors, value-added resellers and
dealers. Transaction sizes generally range from $500 thousand to
$30 million.
- Manufacturer and Dealer Services provides point-of-sale financing
programs and support services for regional and national
manufacturers, distributors and vendors of equipment classified as
"small ticket" in transaction size (generally transactions with an
equipment cost of less than $100,000). The equipment which FINOVA
Capital leases to the ultimate end-user is typically sold to
FINOVA Capital by the vendor participating in the financing
program.
- Medical Finance offers a full range of equipment and real estate
financing and asset management services for the U.S. health care
industry, targeting middle market health care providers in the
United States. Transaction sizes typically range from $500,000 to
$25 million.
- Rediscount Finance offers $1 million to $35 million revolving
credit lines to regional consumer finance companies, which in turn
extend credit to consumers. FINOVA Capital's customers provide
credit to consumers to finance home improvements, automobile
purchases, insurance premiums and a variety of other financial
needs.
- Resort Finance focuses on successful, experienced resort
developers, primarily of timeshare resorts, second home resort
communities, golf resorts and resort hotels. Extending funds
through a variety of lending options, Resort Finance provides
loans and lines of credit ranging from $5 million to $30 million
for construction, acquisitions, receivables financing and
purchases and other uses. Through FINOVA Portfolio Services, Inc.,
Resort Finance offers expanded convenience and service to its
customers. Professional receivables collections and cash
management give developers the ability of having loan-related
administrative functions performed for them by FINOVA Capital.
- Transportation Finance/Capital Services structures secured
financings for specialized areas of the transportation industry,
principally involving domestic and foreign used aircraft, some new
aircraft, as well as domestic short-line railroads including new
and used rail equipment. Typical transactions range from $5
million to $30 million and involve financing up to 80% of the fair
market value of used equipment and as equity participants in
leveraged lease transactions. Traditionally focused on the
domestic marketplace, FINOVA Transportation Finance has been
active in international aircraft lending and leasing since 1992
through an office in London, England. Through its Capital Services
activity, FINOVA Capital also provides leveraged lease financing
on transportation equipment.
3
<PAGE> 6
PORTFOLIO COMPOSITION
The total assets under the management of the Company consist of the
Company's net investment in financing contracts plus certain assets that are
owned by others but managed by the Company and are not reflected on the
Company's balance sheet ("securitized assets").
The Company's investment in financing transactions is primarily settled
in U.S. dollars, except for approximately $36 million, $87 million and $100
million at December 31, 1995, 1994 and 1993, respectively, which is primarily
due in British pounds. The exchange rate of British pounds to dollars at
December 31, 1995, 1994 and 1993 was 1.55:1, 1.57:1 and 1.48:1, respectively.
INVESTMENT IN FINANCING TRANSACTIONS
The following tables detail FINOVA's investment in financing
transactions (before reserve for possible credit losses) at December 31, 1995,
1994, 1993, 1992 and 1991. Under Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114"),
in-substance foreclosed assets are accounted for as loans, rather than
repossessed assets. The Company adopted SFAS 114, effective January 1, 1995,
resulting in the reclassification of nonaccruing in-substance foreclosed assets
to nonaccruing loans. The tables for years prior to 1995 have been restated to
reflect this change in classification; accordingly, in-substance foreclosed
assets of $25.3 million, $31.7 million, $13.2 million and $0 have been
reclassified from repossessed assets to loans at December 31, 1994, 1993, 1992
and 1991, respectively.
INVESTMENT IN FINANCING TRANSACTIONS
BY TYPES OF FINANCING
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------------------
1995 % 1994 % 1993 % 1992 % 1991 %
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, conditional sales and
other financing contracts:
Commercial $3,439,687 50.4 $2,797,160 49.4 $1,397,863 49.1 $1,028,181 42.3 $967,693 42.4
Real estate 1,534,177 22.5 1,237,488 21.8 945,892 33.2 891,190 36.7 772,285 33.9
Direct financing leases 828,713 12.1 774,834 13.6 71,812 2.5 138,871 5.7 201,327 8.8
Operating leases 460,798 6.8 412,782 7.3 147,222 5.2 100,911 4.2 75,204 3.3
Leveraged leases 366,196 5.4 287,518 5.1 283,782 10.0 269,370 11.1 265,363 11.6
Factored receivables 189,486 2.8 157,862 2.8
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total investment in financing 6,819,057 100.0 5,667,644 100.0 $2,846,571 100.0 $2,428,523 100.0 $2,281,872 100.0
transactions ===== ===== ========== ===== ========== ===== ========== =====
Securitized assets 303,304 253,386
---------- ----------
Total managed assets $7,122,361 $5,921,030
========== ==========
</TABLE>
4
<PAGE> 7
INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
DECEMBER 31, 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Revenue Accruing Nonaccruing
---------------------------- --------------------------
Repos- Repos- Lease Total
Original Impaired sessed sessed & Carrying
Rate (1) Assets Impaired Assets Other Amount %
(2)
---------------------------- -------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Resort Finance $ 943,661 $ 2,849 $12,064 $ 2,583 $26,559 $ $ 987,716 14.5
Transportation Finance (3) 929,043 929,043 13.6
Commercial Real Estate Finance 703,018 3,898 42,304 15,264 18,231 988 783,703 11.5
Communications Finance 662,191 2,502 2,217 16,817 4,863 688,590 10.1
Corporate Finance (4) 631,295 5,274 19,592 335 656,496 9.6
Manufacturing & Dealer Services (4) 443,474 108 24,637 468,219 6.9
Medical Finance 454,262 81 1,231 455,574 6.7
Commercial Equipment Finance 345,039 69 6,079 351,187 5.2
Rediscount Finance 345,264 345,264 5.1
Franchise Finance 327,356 1,462 6,408 1,850 337,076 4.9
Commercial Finance 200,365 12,685 213,050 3.1
Inventory Finance 202,879 430 203,309 3.0
Factoring Services 188,892 594 189,486 2.8
Government Finance 121,956 47 122,003 1.8
Other 78,645 1,275 2,360 6,061 88,341 1.2
---------- ------- ------- ------- ------- ------- ---------- -----
TOTAL (4) $6,577,340 $17,260 $56,585 $76,991 $49,988 $40,893 $6,819,057 100.0
========== ======= ======= ======= ======= ======= ========== =====
</TABLE>
- --------------------
NOTES:
(1) Consists of troubled debt restructurings.
(2) The Company earned income totaling $4.2 million on repossessed assets
during 1995, including $3.2 million in Commercial Real Estate Finance, $0.6
million in Resort Finance and $0.4 million in Communications Finance.
(3) Transportation Finance includes $144 million of aircraft financing business
booked through the London office.
(4) Excludes $303 million of assets securitized which the Company manages,
including $200 million in Corporate Finance and $103 million in
Manufacturing and Dealer Services.
5
<PAGE> 8
INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
DECEMBER 31, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
Revenue Accruing Nonaccruing
------------------------------ -------------------------
Repos-
sessed Delin- Repos- Leases Total
Original Rewritten Assets quent sessed & Carrying
Rate Contracts (1) Loans Assets Other Amount %
------------------------------ ------------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Resort Finance $ 634,735 $ 4,506 $ 7,314 $ 2,582 $30,393 $ $ 679,530 12.0
Transportation Finance (2) 706,242 14,620 720,862 12.7
Commercial Real Estate Finance 672,522 7,237 40,510 7,622 21,519 749,410 13.2
Communications Finance 551,218 6,288 7,282 17,377 5,863 671 588,699 10.4
Corporate Finance 746,671 21,275 6,952 2,674 777,572 13.8
Manufacturer and Dealer
Services (3) (4) 301,251 113 19,715 321,079 5.7
Medical Finance 470,717 1,719 472,436 8.3
Commercial Equipment Finance 293,609 769 7,589 301,967 5.3
Rediscount Finance 99,353 99,353 1.8
Franchise Finance 281,890 7,632 12,242 301,764 5.3
Commercial Finance 181,741 12,003 193,744 3.4
Inventory Finance 58,595 642 59,237 1.0
Factoring Services 157,090 772 157,862 2.8
Government Finance 93,491 144 93,635 1.7
FINOVA Capital Limited (5) 93,700 1,561 4,265 2 4,800 104,328 1.8
Other 36,951 8,918 297 46,166 0.8
---------- ------- ------- ------- ------- ------- ---------- -----
TOTAL (4) $5,379,776 $64,001 $55,106 $73,519 $60,451 $34,791 $5,667,644 100.0
========== ======= ======= ======= ======= ======= ========== =====
</TABLE>
- --------------------
NOTES:
(1) The Company earned income totaling $3.3 million on repossessed assets
during 1994, including $2.0 million in Commercial Real Estate Finance, $0.8
million in Communications Finance and $0.5 million in Resort Finance.
(2) Transportation Finance included $66.9 million of aircraft finance business
booked through the London office.
(3) Manufacturer and Dealer Services accounts were generally considered
nonaccruing after being 120 days delinquent.
(4) Excluded $253.4 million of assets securitized which the Company managed.
(5) The FINOVA Capital Limited balance included transactions in Europe and
other continents (including the U.S.) originated from the Company's London
office, including Transportation Finance transactions prior to July 1,
1993. Also, FINOVA Capital Limited included $39.2 million of Consumer
Finance assets, of which $4.8 million were nonaccruing. Consumer Finance
accounts were generally considered nonaccruing after being 180 days
delinquent.
6
<PAGE> 9
INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
DECEMBER 31, 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
Revenue Accruing Nonaccruing
----------------------------- -------------------------
Delin- Repos- Leases Total
Original Repos- quent sessed & Carrying
Rate Rewritten sessed Loans Assets Other Amount %
Contracts Assets
(4)
----------------------------- ------------------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Resort Finance $ 530,617 $ 4,869 $12,163 $11,597 $ 7,404 $ 440 $ 567,090 19.9
Transportation Finance (1) (2) 604,416 841 605,257 21.2
Commercial Real Estate Finance 500,598 1,574 27,844 5,759 20,838 556,613 19.6
(1)
Communications Finance 487,890 7,989 8,949 21,730 11,564 538,122 18.9
Corporate Finance (1) 397,779 27,921 4,243 5,462 386 435,791 15.3
Rediscount Finance 19,439 19,439 0.7
FINOVA Capital Limited (3) 107,486 4,430 2,720 23 9,600 124,259 4.4
---------- ------- ------- ------- ------- ------- ---------- -----
$2,648,225 $46,783 $48,956 $46,890 $45,291 $10,426 $2,846,571 100.0
========== ======= ======= ======= ======= ======= ========== =====
</TABLE>
- --------------------
NOTES:
(1) Reclassifications (effective January 1, 1993): Approximately $169 million
of accruing assets were reclassified from Corporate Finance with $163
million going to Transportation Finance because they primarily represented
aircraft financing and $6 million to Commercial Real Estate Finance.
Additionally, $6.5 million of nonaccruing assets ($5.1 million classified
as repossessed assets and $1.4 million classified as 90 days delinquent)
were reclassified from Corporate Finance to Commercial Real Estate Finance.
(2) Transportation Finance included $31.9 million of aircraft finance business
booked through the London office.
(3) The FINOVA Capital Limited balance included transactions in Europe and
other continents (including the U.S.) originated from the Company's London
office, including Transportation Finance transactions prior to July 1,
1993. Also, FINOVA Capital Limited included $45.3 million of Consumer
Finance assets, of which $9.6 million were nonaccruing. Consumer Finance
accounts were generally considered nonaccruing after being 180 days
delinquent.
(4) The Company earned income totaling $2.7 million on repossessed accruing
assets during 1993, including $1.5 million in Commercial Real Estate
Finance, $0.6 million in Communications Finance and $0.6 million in Resort
Finance.
7
<PAGE> 10
INVESTMENT IN FINANCING TRANSACTIONS
BY LINES OF BUSINESS
DECEMBER 31, 1992
(Dollars in Thousands)
<TABLE>
<CAPTION>
Revenue Accruing Nonaccruing
------------------------------ ---------------------------
Repos- Delin- Repos-
Original Rewritten sessed quent sessed Leases Carrying
Rate Contracts Assets Loans Assets & Amount %
(3) Other
------------------------------ --------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Resort Finance $ 488,224 $ 1,356 $ $ 6,524 $ 7,365 $ 635 $ 504,104 20.8
Transportation Finance 328,962 328,962 13.5
Commercial Real Estate Finance 463,571 12,482 21,509 6,302 15,052 518,916 21.4
Communications Finance 382,914 32,548 8,744 13,182 437,388 18.0
Corporate Finance (1) 420,006 16,081 14,436 5,111 611 456,245 18.8
FINOVA Capital Limited (2) 154,609 5,839 6,000 60 16,400 182,908 7.5
---------- ------- ------- ------- ------- ------- ----------- -----
$2,238,286 $68,306 $21,509 $42,006 $40,770 $17,646 $ 2,428,523 100.0
========== ======= ======= ======= ======= ======= =========== =====
</TABLE>
- --------------------
NOTES:
(1) Included $5.1 million of public sector Latin American loans that were
written-down to estimated market value. During 1992, FINOVA successfully
liquidated 72% of the face value of public sector Latin American loans at
favorable market prices, which were approximately $3.1 million in excess of
the carrying amount.
(2) The FINOVA Capital Limited balance included transactions in Europe and
other countries (including the U.S.) originated from the Company's London
office, including Transportation Finance transactions prior to July 1,
1993. FINOVA Capital Limited included $57.8 million of Consumer Finance
assets, of which $16.4 million were nonaccruing. Consumer Finance accounts
were generally considered nonaccruing after being 180 days delinquent.
(3) The Company earned income of $1.9 million on repossessed accruing assets in
Commercial Real Estate Finance during 1992.
INVESTMENT IN FINANCING TRANSACTIONS
BY LINES OF BUSINESS
DECEMBER 31, 1991
(Dollars in Thousands)
<TABLE>
<CAPTION>
Revenue Accruing Nonaccruing
--------------------- ---------------------------------- Total
Original Rewritten Delinquent Repossessed Leases & Carrying
Terms Contracts Loans Assets Other Amount %
--------------------- ---------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Resort Finance $ 430,113 $ 1,511 $ $ 7,317 $ 1,056 $ 439,997 19.3
Transportation Finance 223,803 223,803 9.8
Commercial Real Estate 431,097 15,734 10,504 20,002 477,337 20.9
Finance
Communications Finance 321,918 12,340 16,636 350,894 15.4
Corporate Finance 429,053 14,594 7,386 3,694 454,727 19.9
FINOVA Capital Limited (1) 263,995 5,095 11,975 826 31,900 313,791 13.8
Latin America (2) 21,323 21,323 0.9
---------- ------- ------- ------- ------- ---------- -----
$2,121,302 $49,274 $46,501 $28,145 $36,650 $2,281,872 100.0
========== ======= ======= ======= ======= ========== =====
</TABLE>
- --------------------
NOTES:
(1) The FINOVA Capital Limited balance included transactions in Europe and
other continents (including the U.S.) originated from the Company's London
office, including Transportation Finance transactions prior to July 1,
1993. Also, FINOVA Capital Limited included $94.3 million of Consumer
Finance assets of which $31.9 million were nonaccruing. Consumer Finance
accounts were generally considered nonaccruing after being 180 days
delinquent.
(2) Included $15.5 million of Latin American loans written-down to market
value.
8
<PAGE> 11
The Company's geographic portfolio diversification at December 31, 1995
was as follows:
<TABLE>
<CAPTION>
State Total Percent
----------------- ---------- -------
<S> <C> <C>
California $ 961,301 14.1%
Texas 597,285 8.8%
Florida 501,169 7.4%
New York 398,784 5.8%
Pennsylvania 297,039 4.4%
New Jersey 241,404 3.5%
Michigan 236,177 3.5%
Arizona 233,193 3.4%
Illinois 229,773 3.4%
Nevada 206,671 3.0%
Virginia 183,102 2.7%
Other (1) 2,733,159 40.0%
---------- -----
$6,819,057 100.0%
========== =====
</TABLE>
- --------------------
NOTE:
(1) Other includes all other states which, on an individual basis, represent
less than 2% of the total and international, which represents approximately
4% of the total.
The following is an analysis of the reserve for possible credit losses
for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $122,233 $ 64,280 $ 69,291 $ 87,600 $ 77,098
Provision for possible credit
losses (1) 47,300 16,670 5,706 6,740 77,687
Write-offs (1) (35,533) (35,127) (12,575) (23,661) (68,346)
Recoveries 2,216 1,898 717 749 663
Other (including addition of TriCon
and Ambassador reserves in 1994) 4,117 74,512 1,141 (2,137) 498
-------- -------- -------- -------- --------
Balance, end of year $140,333 $122,233 $ 64,280 $ 69,291 $ 87,600
======== ======== ======== ======== ========
</TABLE>
- --------------------
NOTE:
(1) In 1991, the Company recorded a special provision for possible credit
losses of $65 million and recorded a $47.8 million write-down of Latin
American assets and recorded write-offs of $15 million in the foreign
operations (FCL) portfolio.
The reserve for possible credit losses includes $16 million and $13 million
at December 31, 1995 and 1994, respectively, of reserves applicable to
securitizations previously classified as accrued liabilities.
9
<PAGE> 12
Included in the above is a specific impairment reserve of $15.7 million at
December 31, 1995, which applies to $35.2 million of the $94.3 million of
impaired loans. The remaining $124.6 million of the reserve for possible credit
losses is designated for general purposes and represents management's estimate
of the amount to cover potential losses in the portfolio considering
delinquencies, loss experience and collateral. Additions to general and specific
reserves are reflected in current operations. Management may transfer reserves
between the general and specific reserves as considered necessary.
Write-offs by line of business, experienced by the Company during the years
ended December 31, were as follows:
<TABLE>
<CAPTION>
WRITE-OFFS BY LINE OF BUSINESS
(Dollars in Thousands)
1995 1994 1993 1992 1991
-----------------------------------------------
<S> <C> <C> <C> <C> <C>
Manufacturer and Dealer Services $ 9,902 $ 7,018 $ $ $
(1)
Corporate Finance 4,660 4,233 3,741 1,000 668
Communications Finance 4,037 8,300 1,488 1,500 1,200
Factoring Services (2) 3,728 1,148
Franchise Finance (1) 3,448 2,247
Commercial Real Estate Finance 2,275 1,461 2,320 4,417 2,204
Commercial Equipment Finance (1) 2,271 1,257
Resort Finance 2,000 2,730 330
FINOVA Capital Limited (3) 1,523 5,140 5,026 15,838 15,593
Commercial Finance (1) 452 774
Medical Finance (1) 314 377
Inventory Finance (1) 201 442
Latin America (3) 47,759
Other 722 906 592
------- ------- ------- ------- -------
$35,533 $35,127 $12,575 $23,661 $68,346
======= ======= ======= ======= =======
Write-offs as a percentage
of managed assets 0.50% 0.59% 0.44% 0.97% 3.00%
======= ======= ======= ======= =======
</TABLE>
- --------------------
NOTES:
(1) These Lines of Business were not part of the Company's portfolio prior to
May, 1994.
(2) This Line of Business was not part of the Company's portfolio prior to
February, 1994.
(3) In the fourth quarter of 1991, the Company recorded a special provision for
possible credit losses of $65.0 million and recorded write-offs of
$15.0 million related to nonearning assets in the FCL (foreign) portfolio
and a $47.8 million write-down to reduce Latin American assets to current
market value.
A further breakdown of the portfolio by line of business can be found in
Note C of Notes to Consolidated Financial Statements in Annex A.
COST AND UTILIZATION OF BORROWED FUNDS
FINOVA Capital relies on borrowed funds as well as internal cash flow to
finance its operations. FINOVA Capital follows a policy of relating provisions
under its loans and leases to the terms on which it obtains funds so that, to
the extent feasible, floating-rate assets are funded with floating-rate
borrowings and fixed-rate assets are funded with fixed-rate borrowings. For
further discussion on FINOVA Capital's debt and matched funding policy, see
Notes E and F of Notes to Consolidated Financial Statements included in Annex A.
10
<PAGE> 13
The following table reflects the approximate average pre-tax effective
cost of borrowed funds and pre-tax equivalent rate earned on accruing assets for
FINOVA Capital for each of the periods listed:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1995 1994 1993 1992 1991
-----------------------------------------
<S> <C> <C> <C> <C> <C>
Short-term and variable rate long-term debt (1) 7.2% 5.5% 4.7% 5.3% 8.1%
Fixed-rate long-term debt (1) 7.3% 8.1% 11.4% 10.6% 10.9%
Aggregate borrowed funds (1) 7.2% 6.3% 6.3% 7.2% 9.3%
Rate earned on average earning assets (2) (3) 12.5% 11.6% 10.9% 11.9% 13.6%
Spread percentage (4) 5.8% 6.0% 5.4% 5.1% 4.9%
</TABLE>
- ---------------------
NOTES:
(1) Includes the effect of interest rate swap agreements.
(2) Earning assets are net of average nonaccruing assets and average deferred
taxes applicable to leveraged leases.
(3) Earned amounts are net of depreciation and include gains on sale of assets.
(4) Spread percentages represent interest margins earned as a percentage of
average earning assets.
The effective costs presented above include costs of commitment fees
and related borrowing costs and do not purport to predict the costs of funds in
the future.
For further information on FINOVA Capital's cost of funds, refer to
Notes E and F of the Notes to Consolidated Financial Statements included in
Annex A.
Following are the ratios of income to combined fixed charges and
preferred stock dividends ("ratio") for each of the past five years:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
1.43 1.55 1.50 1.34 --
==== ==== ==== ==== ====
</TABLE>
Variations in interest rates generally do not have a substantial impact
on the ratio because fixed-rate and floating-rate assets are generally matched
with liabilities of similar rate and term.
Income available for fixed charges, for purposes of the computation of
the ratio of income to combined fixed charges and preferred stock dividends,
consists of the sum of income before income taxes and fixed charges. Combined
fixed charges include interest and related debt expense and a portion of rental
expense determined to be representative of interest and preferred stock
dividends grossed up to a pre-tax basis.
For the year ended December 31, 1991, earnings were inadequate to cover
combined fixed charges by $37.0 million. The decline in the ratio in 1991 was
due to restructuring and other charges and transaction costs recorded in the
fourth quarter of 1991. Those charges and costs were recorded in connection with
the Spin-Off.
11
<PAGE> 14
CREDIT RATINGS
FINOVA Capital currently has investment-grade credit ratings from the
following rating agencies:
<TABLE>
<CAPTION>
Commercial Senior
Paper Debt
---------- ------
<S> <C> <C>
Duff & Phelps Credit Rating Co. D1- A-
Fitch Investors Services, Inc. F1 A
Moody's Investors Service, Inc. P2 Baa1
Standard & Poor's Ratings Group A2 BBB+
</TABLE>
There can be no assurance that FINOVA Capital's ratings will be
maintained. Such ratings can be modified at any time. A credit rating is not a
recommendation to buy, sell or hold securities. Each rating should be evaluated
independently of any other rating. Neither The FINOVA Group Inc. nor any of
FINOVA Capital's subsidiaries have applied for credit ratings.
RESIDUAL REALIZATION EXPERIENCE
In the last 41 years, FINOVA Capital has realized, in the aggregate,
proceeds from the sale of assets upon lease terminations (other than
foreclosures) in excess of carrying amounts; however, there can be no assurance
that such results will be realized in future years. Proceeds actually realized
will depend on current market values for those assets at the time of sale which
are generally beyond the control of the Company, although the Company has some
discretion in the timing of subsequent dispositions of such assets. Sales
proceeds upon lease terminations in excess of carrying amounts are reported as
gains when the assets are sold.
Income from leasing activities is affected by gains from asset sales
upon lease termination and, hence, can be somewhat less predictable than income
from non-leasing activities. During the five years ended December 31, 1995, the
proceeds to FINOVA Capital from sales of assets upon early termination of leases
and at the expiration of leases have exceeded the respective carrying amounts
and estimated residual values as follows:
<TABLE>
<CAPTION>
Early Terminations (Notes 1, 2 and 4) Terminations at End of Lease Term
(Note 3)
- -------------------------------------------- ---------------------------------
Proceeds
Proceeds Estimated as a % of
Carrying as a % of Residual Estimated
Sales Amount Carrying Sales Value of Residual
Year Proceeds of Assets Amount Proceeds Assets Value
- -------------------------------------------- ---------------------------------
(Dollars in Thousands) (Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
1995 $ 2,664 $ 2,018 132% $84,447 $67,186 126%
1994 6,477 5,865 110% 30,161 25,682 117%
1993 -- -- -- 486 248 196%
1992 20,493 17,527 117% 2,164 1,768 122%
1991 25,027 21,904 114% 10,114 6,553 154%
</TABLE>
- ----------
Notes:
(1) Excludes foreclosures for credit reasons which are immaterial to the above
amounts.
(2) Excludes proceeds of $3.2 million in 1993 on assets held for sale.
(3) Excludes proceeds of $2.0 million in 1993 received on guarantees.
12
<PAGE> 15
(4) Excludes gain on securitizations of $4.0 million in 1994.
The estimated residual value of direct finance and leveraged lease
assets in the accounts of FINOVA Capital at December 31, 1995 aggregated 19.0%
of the original cost of such assets (10.2% excluding the original costs of the
assets and residuals applicable to real estate leveraged leases, which typically
have higher residuals than other leases). The financing contracts and leases
outstanding at that date had initial terms ranging generally from one to 25
years. The average initial term weighted by carrying amount at inception and the
average remaining term weighted by remaining carrying amount of financing
contracts at December 31, 1995 for financing contracts excluding leveraged
leases were 6.4 and 4.6 years, respectively, and for leveraged leases were
approximately 20 and 13 years, respectively. The comparable average initial term
and remaining term at December 31, 1994 for financing contracts excluding
leveraged leases were 6.5 and 3.7 years, respectively, and for leveraged leases
were approximately 20 and 11 years, respectively. FINOVA Capital utilizes either
employed or outside appraisers to determine the collateral value of assets to be
leased or financed and the estimated residual or collateral value thereof at the
expiration of each lease. Actual proceeds could differ from such appraised
values.
For a discussion of accounting for lease transactions, refer to Notes A
and C of Notes to Consolidated Financial Statements included in Annex A.
BUSINESS DEVELOPMENT AND COMPETITION
FINOVA Capital develops business primarily through direct solicitation
by its own sales force. Customers are also introduced by independent brokers and
referred by other financial institutions.
At December 31, 1995, FINOVA Capital had 81,821 financing contracts with
65,554 customers (including 881 contracts with consumer finance customers and
75,116 small ticket contracts with 61,347 customers in Manufacturer and Dealer
Services), compared with 88,034 financing contracts with 70,892 customers
(including 2,313 contracts with consumer finance customers and 79,027 small
ticket contracts with 64,886 customers in Manufacturer and Dealer Services) at
December 31, 1994.
FINOVA Capital is engaged in an extremely competitive activity. It
competes with banks, insurance companies, leasing companies, the credit units of
equipment manufacturers and other finance companies. Some of these competitors
have substantially greater financial resources and are able to borrow at costs
below those of FINOVA Capital. FINOVA Capital's principal means of competition
is through a combination of service, the interest rate charged for money and
concentration in focused market niches. The interest rate it charges for money
is a function of its borrowing costs, its operating costs and other factors.
While many of FINOVA Capital's larger competitors are able to offer lower
interest rates based upon their lower borrowing costs, FINOVA Capital seeks to
maintain the competitiveness of the interest rates it offers by emphasizing
strict control of its operating costs. The Company's ability to manage costs is,
in part, dependent on factors beyond the Company's control, such as the cost of
funds, outside litigation expenses and competitive salaries.
CREDIT QUALITY
As a result of the use of clearly defined underwriting standards,
portfolio management techniques, monitoring of covenant compliance and active
collections and workout efforts, FINOVA Capital seeks to maintain a high-quality
asset base.
RISK MANAGEMENT
FINOVA Capital generally conducts investigations of its prospective
customers through a review of historical financial statements, published credit
reports, credit references, discussions with management, analysis of location
feasibility, personal visits and collateral appraisals and inspections. In many
cases, depending upon the results of its credit investigations and the nature of
the financing being provided, FINOVA Capital obtains additional collateral or
guarantees from others.
13
<PAGE> 16
As part of its underwriting process, FINOVA Capital considers the
management, industry, financial position and level of collateral of a proposed
obligor. The purpose, term, amortization and amount of any proposed transaction
generally must be clearly defined and within established corporate policy. In
addition, underwriters attempt to avoid undue concentrations in any one
customer, industry or regional location.
- Management. FINOVA Capital considers the reputation, experience
and depth of management; quality of product or service;
adaptability to changing markets and demand; and prior banking,
finance and trade relationships.
- Industry. FINOVA Capital evaluates critical aspects of each
industry to which it lends, including general trend,
seasonality and cyclicality; governmental regulation; the
effects of taxes; the economic value of goods or services
provided; and potential environmental or other liability.
- Financial. FINOVA Capital's review of a prospective borrower
normally includes a thorough analysis of the borrower's
financial trends. Items considered include net worth;
composition of assets and liabilities; debt service coverage;
liquidity; sales growth and earning power; and cash flow
generation and reliability.
- Collateral. FINOVA Capital regards collateral as an important
factor in a credit evaluation and has established maximum loan
to value ratios, normally ranging from 60% - 95%, for each of
its lines of business.
The underwriting process includes, in addition to the analysis of the
factors set forth above, the design and implementation of transaction structures
and strategies to mitigate identified risks; a review of transaction pricing
relative to product-specific return requirements and acknowledged risk elements;
a multi-step, interdepartmental review and approval process, with varying levels
of authority based on the size of the transaction; and periodic
interdepartmental reviews and revision of underwriting guidelines.
FINOVA Capital also monitors portfolio concentrations in the areas of
aggregate exposure to a single borrower and related entities, within a given
geographical area and with respect to an industry and/or product type within an
industry. FINOVA Capital has established concentration guidelines for each line
of business. Geographic concentrations are reviewed periodically and evaluated
based on historical loan experience and prevailing market and economic
conditions.
FINOVA Capital's financing contracts and leases generally require the
customer to pay taxes, license fees and insurance premiums and to perform
maintenance and repairs at the customer's expense. Contract payment rates are
based on several factors, including the cost of borrowed funds, term of
contract, creditworthiness of the prospective customer, type and nature of
collateral and other security and, in leasing transactions, the timing of tax
effects and estimated residual values. In direct finance lease transactions,
lessees generally are granted an option to purchase the equipment at the end of
the lease term at its then fair market value or, in some cases, are granted an
option to renew the lease at its then fair rental value. The extent to which
lessees exercise their options to purchase leased equipment varies from year to
year, depending on, among other factors, the state of the economy, the financial
condition of the lessee, interest rates and technological developments.
PORTFOLIO MANAGEMENT
In addition to the review at the time of original underwriting, FINOVA
Capital attempts to preserve and enhance the earnings quality of its portfolio
through proactive management of its financing relationships with its clients.
This process includes the periodic appraisal or verification of the collateral
14
<PAGE> 17
to determine loan exposure and residual values; sales of residuals and warrants
to generate supplemental income; and review and management of covenant
compliance. The Portfolio Management department and dedicated personnel within
the business units regularly review financial statements to assess customer cash
flow performance and trends; periodically confirm operations of the customer;
conduct periodic reappraisals of the underlying collateral; seek to identify
issues concerning the vulnerabilities of the customer; seek to resolve
outstanding issues with the borrower; and prepare quarterly summaries of the
aggregate portfolio quality and concentrations for management review.
Evaluation for loan impairment is performed as a part of the portfolio
management review process. When a loan is determined to be impaired, a
write-down is taken or an impairment reserve is established based on the
difference between the recorded balance of the loan ("carrying amount") and the
relevant measured value.
DELINQUENCIES AND WORKOUTS
FINOVA Capital monitors timely payment of all accounts. Generally, when
an invoice is 10 days past due, the customer is contacted, and a determination
is made as to the extent of the problem, if any. A commitment for immediate
payment is pursued and the account is observed closely. If payment is not
received after this contact, guarantors of the account are to be contacted
within the next 20 days. If an invoice becomes 31 days past due, it is reported
as delinquent. A notice of default is generally sent prior to an invoice
becoming 45 days past due and, between 60 and 90 days past the due date, if
satisfactory negotiations are not underway, outside counsel is generally
retained to help protect FINOVA Capital's rights and to pursue its remedies.
When accounts become more than 90 days past due income recognition is
usually suspended, and FINOVA Capital vigorously pursues its legal remedies.
Foreclosed or repossessed assets are considered to be nonperforming, and are
reported as such unless such assets generate sufficient cash to result in a
reasonable rate of return. Such accounts are continually reviewed, and
write-downs are taken as deemed necessary. While pursuing collateral and
obligors, FINOVA Capital generally continues to negotiate the restructuring or
other settlement of the debt, as appropriate.
Management believes that collateral values significantly reduce loss
exposure and that the reserve for possible credit losses is adequate. For
additional information regarding the reserve for possible credit losses, see
Note D of Notes to Consolidated Financial Statements included in Annex A.
GOVERNMENTAL REGULATION
FINOVA Capital's domestic activities, including the financing of its
operations, are subject to a variety of federal and state regulations such as
those imposed by the Federal Trade Commission, the Securities and Exchange
Commission, the Consumer Credit Protection Act, the Equal Credit Opportunity Act
and the Interstate Land Sales Full Disclosure Act. Additionally, a majority of
states have ceilings on interest rates chargeable to customers in financing
transactions. Some of FINOVA Capital's financing transactions are subject to
additional government regulation, such as aircraft leasing, which is regulated
by the Federal Aviation Authority, and communications, which is regulated by the
Federal Communication Commission. FINOVA Capital's international activities are
also subject to a variety of laws and regulations promulgated by the governments
and various agencies of the countries in which the business is conducted.
FORMER MORTGAGE INSURANCE OPERATIONS
Verex, which conducted FINOVA's mortgage insurance operations, ceased
writing new business as of January 1, 1988 but continued to write renewals and
settle valid claims in accordance with insurance contracts in force.
Accordingly, Verex was treated as a discontinued operation. On July 16, 1993,
FINOVA consummated the sale of Verex. Proceeds from the sale of Verex were
approximately $215 million. The sale price was generally determined by the book
value of the Verex assets plus a premium of $6 million and an adjustment for the
difference between the market value and book value of Verex's investment
portfolio.
15
<PAGE> 18
EMPLOYEES
At December 31, 1995, the Company had 978 employees. None of such
employees were covered by collective bargaining agreements. The Company believes
its employee relations are satisfactory.
ITEM 2. PROPERTIES.
The Company's principal executive offices are located in premises leased
from Dial in Phoenix, Arizona. FINOVA Capital operates 46 additional offices in
the United States and one office in Europe. All such properties are leased.
Alternative office space could be obtained without difficulty in the event
leases are not renewed.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party either as plaintiff or defendant to various
actions, proceedings and pending claims, including legal actions, certain of
which involve claims for compensatory, punitive or other damages in significant
amounts. Such litigation often results from the Company's attempts to enforce
its lending agreements against borrowers and other parties to such transactions.
Litigation is subject to many uncertainties and it is possible that some of the
legal actions, proceedings or claims referred to above could be decided against
the Company. Although the ultimate amount for which the Company may be held
liable, if any, is not ascertainable, the Company believes that any resulting
liability should not materially affect the Company's financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of 1995.
OPTIONAL ITEM. EXECUTIVE OFFICERS OF REGISTRANT.
Set forth below is information with respect to those individuals who
serve as executive officers of FINOVA.
<TABLE>
<CAPTION>
Name Age Position and Background
- --------------------- --- ----------------------------------------------------
<S> <C> <C>
Samuel L. Eichenfield 59 Chairman, President and Chief Executive Officer
since 1993 and Chairman and Chief Executive Officer
of The FINOVA Group Inc. since 1992; also Chairman,
President and Chief Executive Officer of FINOVA
Capital for more than five years.
Robert J. Fitzsimmons 55 Senior Vice President - Treasurer of The FINOVA
Group Inc. or similar positions since 1992; also
Senior Vice President - Treasurer or similar
positions of FINOVA Capital for more than five years
and a Director of FINOVA Capital since 1992.
William J. Hallinan 53 Senior Vice President - General Counsel and
Secretary or similar positions of The FINOVA Group
Inc. and FINOVA Capital since 1992; prior thereto
for more than five years served as Vice President -
Taxes and Associate General Counsel or a similar
position of Dial.
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
Name Age Position and Background
- --------------------- --- ----------------------------------------------------
<S> <C> <C>
Robert M. Korte 40 Senior Vice President - Strategy and Technology
since 1994 and prior thereto was Vice
President-Human and Corporate Development of The
FINOVA Group Inc. since 1992; also Vice President -
Human and Corporate Development or in similar
positions of FINOVA Capital since 1991, and prior
thereto was Assistant Vice President -
Administration.
Bruno A. Marszowski 54 Senior Vice President - Controller and Chief
Financial Officer of The FINOVA Group Inc. and
FINOVA Capital since 1994 and prior thereto was Vice
President - Controller of The FINOVA Group Inc.
since 1992; also, Vice President - Controller of
FINOVA Capital for more than five years and a
Director thereof during 1992.
Robert E. Radway 35 Senior Vice President - Corporate Development and
Communications or similar positions of The FINOVA
Group Inc. since 1993; prior thereto was Manager,
Corporate Finance Division of CMS Companies, an
investment management/merchant banking firm since
1990 and prior thereto was Vice President,
Investment Banking Division of First Fidelity
Bancorporation (a bank holding company) since 1988.
Derek C. Bruns 36 Vice President - Internal Audit or similar positions
of The FINOVA Group Inc. since 1992; prior thereto
was Senior Manager - Audit Services or in a similar
position at Deloitte & Touche LLP for more than five
years.
John J. Bonano 53 Group Vice President or similar positions of FINOVA
Capital since 1993; prior thereto was Senior Vice
President, Asset Based Finance Division of U.S.
Bancorp Financial, Inc. since 1988.
J. Parker Lapp 42 Group Vice President of FINOVA Capital since 1995;
prior thereto was President, Current Asset
Management Group of Heller Financial, Inc. for five
years.
Matthew M. Breyne 38 Group Vice President or similar positions of FINOVA
Capital for more than five years.
Jack Fields, III 41 Group Vice President or similar positions of FINOVA
Capital for more than five years.
Thomas C. Parrinello 54 Group Vice President of FINOVA Capital since 1994;
prior thereto was Executive Vice President of Heller
Financial for more than five years.
John Jackson 56 Senior Vice President or similar positions of FINOVA
Capital since 1994; prior thereto was in similar
positions with Bell Atlantic TriCon Leasing, Inc.
for more than five years.
Martin G. Roth 58 Group Vice President or similar positions of FINOVA
Capital for more than five years.
Gregory C. Smalis 43 Group Vice President - Portfolio Management or
similar positions and a Director of FINOVA Capital
since 1993; prior thereto served as Managing
Director of FCL from 1992 and as Vice President -
Credit of FINOVA Capital from 1987.
</TABLE>
17
<PAGE> 20
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY &
RELATED STOCKHOLDER MATTERS.
The principal market on which the common stock of The FINOVA Group Inc.
is traded is the New York Stock Exchange. The following tables summarize the
high and low market prices as reported on the New York Stock Exchange Composite
Tape and the cash dividends declared from January 1, 1994 through December 31,
1995:
<TABLE>
<CAPTION>
Sales Price Range of Common Stock
-----------------------------------------------------
1995 1994
-----------------------------------------------------
Quarters: High Low High Low
------- ------- ------- -------
<S> <C> <C> <C> <C>
First $ 34 $30-5/8 $33-3/4 $28-1/4
Second 38-1/2 31-3/4 34-3/8 29-1/8
Third 45-3/4 34-7/8 39 33-1/8
Fourth 49-1/2 44-5/8 35-7/8 29-1/8
</TABLE>
<TABLE>
<CAPTION>
Dividends Declared on
Common Stock
1995 1994
----- -----
<S> <C> <C>
February $0.20 $0.18
May 0.20 0.18
August 0.22 0.18
November 0.22 0.20
----- -----
$0.84 $0.74
===== =====
</TABLE>
Following the Spin-Off, quarterly dividends have been paid on the first
business day of each calendar quarter. It is anticipated that FINOVA will
continue to pay regular quarterly dividends on the first business day of
January, April, July and October. In February 1996, the Board of Directors
declared a dividend of $0.22 per share, payable April 1, 1996, for shareholders
of record on March 1, 1996. The declaration of dividends and their amounts will
be at the discretion of the Board of Directors of FINOVA, and there can be no
assurance that additional dividends will be declared.
FINOVA Capital is restricted in its ability to pay dividends to its
shareholder. The agreements pertaining to long-term debt of FINOVA Capital
include various restrictive covenants and require the maintenance of certain
defined financial ratios with which FINOVA Capital has complied. Under one of
18
<PAGE> 21
these covenants, dividend payments are limited to 50 percent of accumulated
earnings after December 31, 1991.
As of March 6, 1996, there were approximately 26,544 holders of record
of The FINOVA Group Inc.'s common stock. The closing price of the common stock
on that date was $54-1/8.
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes selected financial data of FINOVA which
have been derived from the audited Consolidated Financial Statements of FINOVA
for the five years ended December 31, 1995. The information set forth below
should be read in conjunction with the "Management's Discussion and Analysis of
Financial Condition and Results of Operations", the Consolidated Financial
Statements of FINOVA and the Notes thereto included in Annex A, as well as the
remainder of this Report. Per share data for income and dividends have not been
presented for 1991 and prior years as The FINOVA Group Inc. was not a publicly
held company prior to the Spin-Off.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------
1995 1994 1993 1992 1991
----------------------------------------------------------------------------
OPERATIONS: (Dollars in Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest earned from financing
transactions $ 761,855 $ 503,351 $ 255,216 $ 243,337 $ 251,472
Interest margins earned 339,815 244,414 124,847 104,699 93,912
Provision for possible credit losses (1) 47,300 16,670 5,706 6,740 77,687
Gains on sale of assets 19,726 9,045 5,439 3,362 6,684
Core income (2) 97,994 80,834 40,463 34,289 31,629
Income (loss) from continuing
operations 97,629 74,313 37,846 36,750 (38,742)
Net income (loss) 97,629 74,313 37,347 48,957 (52,471)
Earnings per common and equivalent
share $ 3.51 $ 2.94 $ 1.77 $ 2.31
Dividends declared per common share $ 0.84 $ 0.74 $ 0.68 $ 0.42
Dividend payout ratio 23.9% 25.2% 38.4% 18.2%
Average outstanding common and
equivalent shares 27,832,000 25,307,000 20,332,000 20,464,000
FINANCIAL POSITION:
Investment in financing transactions $ 6,819,057 $ 5,667,644 $ 2,846,571 $ 2,428,523 $ 2,281,872
Nonaccruing assets 167,872 168,761 102,607 100,422 111,296
Reserve for possible credit losses (1) 140,333 122,233 64,280 69,291 87,600
Total assets 7,036,514 5,821,343 2,834,322 2,641,668 2,414,484
Deferred income taxes 209,512 188,887 178,972 172,727 198,366
Total debt 5,649,368 4,573,354 2,079,286 1,898,773 1,769,545
Redeemable preferred stock 25,000
Stockholders' equity 825,184 770,252 503,300 488,396 371,576
RATIOS:
Reserve for possible credit losses/managed
assets 2.0% 2.1% 2.3% 2.9% 3.8%
Nonaccruing assets/managed assets 2.4% 2.9% 3.6% 4.1% 4.9%
Total debt to stockholders' equity 6.8x 5.9x 4.1x 3.9x 4.8x
Return on average equity 12.2% 11.1% 7.5% 11.4% (12.9%)
Return on average total assets 1.5% 1.6% 1.4% 1.9% (2.2%)
Equity to assets 11.7% 13.2% 17.8% 18.5% 15.4%
</TABLE>
- --------------------
NOTES:
(1) In the fourth quarter of 1991, the Company recorded a special provision for
possible credit losses of $65 million and recorded write-offs of $15
million related to nonearning assets in the FCL portfolio and a $47.8
million write-down to reduce Latin American assets to current market value.
(2) Core income is defined as domestic income from continuing operations plus
the charges made to deferred taxes applicable to leveraged leases in 1993
and the restructuring and other charges recorded in 1991 in connection with
the Spin-Off.
19
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
See pages 2 - 7 of Annex A.
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA.
1. Financial Statements - See Item 14 hereof and Annex A.
2. Supplementary Data - See Condensed Quarterly Results included in
Supplemental Selected Financial Data of Notes to Consolidated
Financial Statements included in Annex A.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING &
FINANCIAL DISCLOSURE.
NONE.
PART III
ITEM 10. DIRECTORS & EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning the Company's directors required by this Item
is incorporated by reference from the Company's Proxy Statement issued in
connection with its 1996 Annual Meeting of Stockholders (the "Proxy Statement").
The information regarding the Company's executive officers required by
this item is found as an Optional Item in Part I, following Item 4 hereof.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from
the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT.
The information required by this item is incorporated by reference from
the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS & RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from
the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed.
1. Financial Statements.
(i) The following financial statements of FINOVA are included in
Annex A:
<TABLE>
<CAPTION>
Annex
Page
-------
<S> <C>
Financial Highlights 1
Management's Discussion and Analysis of Financial
Condition and Results of Operations 2 - 7
Report of Management and Independent Auditors' Report 8 - 9
Consolidated Balance Sheet 10
Statement of Consolidated Income 11
Statement of Consolidated Stockholders' Equity 12
Statement of Consolidated Cash Flows 13
Notes to Consolidated Financial Statements 14 - 32
Supplemental Selected Financial Data 33 - 34
</TABLE>
2. All Schedules have been omitted because they are not applicable or
the required information is shown in the financial statements or
notes thereto.
20
<PAGE> 23
3. Exhibits.
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
(3.A) Certificate of Incorporation, as amended through the
date of this filing (incorporated by reference from
the Company's Report on Form 10-K for the year ended
December 31, 1994 (the "1994 10-K")).
(3.B) By-Laws, as amended through the date of this filing.*
(4.A) Instruments with respect to issues of long-term debt
have not been filed as exhibits to this Annual Report
on Form 10-K if the authorized principal amount of any
one of such issues does not exceed 10% of total assets
of the Company and its subsidiaries on a consolidated
basis. The Company agrees to furnish a copy of each
such instrument to the Securities and Exchange
Commission upon request.
(4.B) Form of Common Stock Certificate of the Company
(incorporated by reference from the 1994 10-K, Exhibit
4.B).
(4.C) Relevant portions of the Company's Certificate of
Incorporation and Bylaws included in Exhibits 3.A and
3.B above, respectively, are hereby incorporated by
reference.
(4.D.1) Rights Agreement dated as of February 15, 1992 between
the Company and the Rights Agent named therein, as
amended (incorporated by reference from the Company's
Current Report on Form 8-K dated September 21, 1995,
Exhibit 4.1).
(4.D.2) Acceptance of Successor Trustee to Appointment under
Rights Agreement noted in 4.D.1 above (incorporated by
reference from the Company's Current Report on Form
8-K, dated November 30, 1995, Exhibit 4).
(4.E) Indenture dated as of November 1, 1990 between FINOVA
Capital and the Trustee named therein (incorporated by
reference from Greyhound Financial Corporation's
Registration Statement on Form S-3, Registration No.
33-37743, Exhibit 4).
(4.F) Fourth Supplemental Indenture dated as of April 17,
1992 between FINOVA Capital and the Trustee named
therein, supplementing the Indenture referenced in
Exhibit 4.E above (incorporated by reference from GFC
Financial Corporation's Annual Report on Form 10-K for
the year 1992 (the "1992 10-K"), Exhibit 4.F).
(4.G) Form of Indenture dated as of September 1, 1992
between FINOVA Capital and the Trustee named therein
(incorporated by reference from the Greyhound
Financial Corporation Registration Statement on Form
S-3, Registration No. 33-51216, Exhibit 4).
(4.H) Form of Indenture dated as of October 1, 1995 between
FINOVA Capital and the Trustee named therein
(incorporated by reference from FINOVA Capital's
Report on Form 8-K dated October 25, 1995, Exhibit
4.1).
(4.I) 1992 Stock Incentive Plan of the Company as amended
through the date hereof, with a proposed amendment
thereto as discussed more fully in the Proxy
Statement.*+
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
(10.A) Sixth Amendment and Restatement dated as of May 16,
1994 of the Credit Agreement dated as of May 31, 1976
among FINOVA Capital and the lender parties thereto,
and Bank of America National Trust and Savings
Association, Bank of Montreal, Chemical Bank,
Citibank, N.A. and National Westminster Bank USA, as
agents (the "Agents") and Citibank, N.A., as
Administrative Agent (incorporated by reference from
the Corporation's Current Report on Form 8-K dated May
23, 1994, Exhibit 10.I).
(10.A.1) First Amendment dated as of September 30, 1994, to the
Sixth Amendment and Restatement, noted in 10.A above
(incorporated by reference from the 1994 10-K, Exhibit
10.A.1).
(10.A.2) Second Amendment dated as of May 11, 1995 to the Sixth
Amendment and Restatement noted in 10.A above
(incorporated by reference from the Company's
Quarterly Report on Form 10-Q for the period ending
September 30, 1995 (the "Third Quarter 10-Q"), Exhibit
10.A).
(10.A.3) Third Amendment dated as of November 1, 1995 to Sixth
Amendment noted in 10.A above (incorporated by
reference from the Third Quarter 10-Q, Exhibit 10.B).
(10.B) Credit Agreement (Short-Term Facility) dated as of May
16, 1994 among FINOVA Capital, the Lender parties
thereto, the Agents and Citibank, N.A., as
Administrative Agent (incorporated by reference from
the Company's Report on Form 8-K dated May 23, 1994,
Exhibit 10.2).
(10.B.1) First Amendment dated as of September 30, 1994 to the
Credit Agreement noted in 10.B above (incorporated by
reference from the 1994 10-K, Exhibit 10.B.1).
(10.B.2) Second Amendment to Short-Term Facility noted in 10.B
above (incorporated by reference from the Third
Quarter 10-Q, Exhibit 10.C).
(10.B.3) Third Amendment to Short-Term Facility noted in 10.B
above (incorporated by reference from the Third
Quarter 10-Q, Exhibit 10.D).
(10.C.1) The Company's Executive Severance Plan for Tier 1
Employees.*+
(10.C.2) The Company's Executive Severance Plan for Tier 2
Employees.*+
(10.D) The Company's 1995 Management Incentive Plan
(incorporated by reference from the Third Quarter
10-Q, Exhibit 10-G).+
(10.E.1) The Company's 1995 - 1997 Performance Share Incentive
Plan (incorporated by reference from the Third Quarter
10-Q, Exhibit 10.H).+
(10.E.2) The Company's 1994 - 1996 Performance Share Incentive
Plan (incorporated by reference from the Third Quarter
10-Q, Exhibit 10-I).+
(10.E.3) The Company's 1993 - 1995 Performance Share Incentive
Plan (incorporated by reference from the Third Quarter
10-Q, Exhibit 10.H).+
(10.F.1) Employment Agreement with Samuel L. Eichenfield, dated
March 16, 1992 (incorporated by reference from the
1992 10-K, Exhibit 10.F).+
</TABLE>
22
<PAGE> 25
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
(10.F.2) Amendment to Employment Agreement referenced in 10.F.1
above (incorporated by reference from the Third
Quarter 10.Q, Exhibit 10.M).+
(10.F.3) Employment Agreement with Samuel L. Eichenfield dated
March 15, 1996.*+
(10.G) Employment Agreement with William J. Hallinan, dated
February 25, 1992 (incorporated by reference from the
1992 10-K, Exhibit 10.I).+
(10.H) Employment Agreement with Thomas C. Parrinello, dated
February 14, 1994 (incorporated by reference from the
1994 10-K, Exhibit 10.H).+
(10.I) The Company's Supplemental Pension Plan (incorporated
by reference from the 1994 10-K, Exhibit 10.K).
(10.I.1) Resolutions of the Board of Directors dated December
5, 1994, amending Exhibit 10.I above.*+
(10.I.2) Resolutions of the Board of Directors dated August 22,
1995, amending Exhibit 10.I and 10.I.1 above.*+
(10.J) The Company's Value Sharing Plan for Executive
Officers and Key Employees (incorporated by reference
from the Third Quarter 10-Q, Exhibit 10.K).+
(10.K) The Company's Value Sharing Plan for the Chief
Executive Officer (incorporated by reference from the
Third Quarter 10-Q, Exhibit 10.L).+
(10.L) The Company's Directors Deferred Compensation Plan
(incorporated by reference from the 1992 10-K, Exhibit
10.O).+
(10.M) The Company's Deferred Compensation Plan.*+
(10.N) Directors' Retirement Benefit Plan (incorporated by
reference from the Company's Annual Report on Form
10-K for the year ended December 31, 1993 (the "1993
10-K"), Exhibit 10.OO).+
(10.O) Form of the Company's 1992 Stock Incentive Plan
Nonqualified Stock Option Agreement (for exempt
employees) (for August 25, 1992 and subsequent grants
through August 10, 1994) (various prices)
(incorporated by reference from the 1992 10-K, Exhibit
10.FF).+
(10.P) A description of the Company's policies regarding
compensation of directors is incorporated by reference
from the Proxy Statement.+
(10.Q) Directors' Charitable Awards Program (incorporated by
reference from the 1994 10-K, Exhibit 10.CC).+
(10.R) Interim Services Agreement dated January 28, 1992
among the Company, The Dial Corp and others
(incorporated by reference from the 1992 10-K, Exhibit
10.JJ).
(10.S) Tax Sharing Agreement dated February 19, 1992 among
the Company, The Dial Corp and others (incorporated by
reference from the 1992 10-K, Exhibit 10.KK).
(10.T) Sublease dated as of April 1, 1991, among the Company,
The Dial Corp and others, relating to the Company's
principal office space (incorporated by reference from
the 1992 10-K, Exhibit 10.NN).
</TABLE>
23
<PAGE> 26
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
(10.U) Stock Purchase Agreement between Bell Atlantic TriCon
Leasing Corporation and Greyhound Financial
Corporation dated as of March 4, 1994 (incorporated by
reference from the 1993 10-K, Exhibit 10.QQ).
(10.V) Form of Assets Purchase Agreement between Bell
Atlantic TriCon Leasing Corporation and TriCon Capital
Corporation (incorporated by reference from the 1993
10-K, Exhibit 10.RR).
(10.W) Form of Distribution Agreement among the Company,
Greyhound Financial Corporation, The Dial Corp and
certain other parties named therein, dated as of
January 28, 1992 (incorporated by reference from the
Company's Registration Statement on Form S-1, SEC File
No. 33-45452, Annex II to the Prospectus and Exhibit
2.1).
(10.X) Stock Purchase Agreement among The FINOVA Group Inc.,
FINOVA Capital and GE Capital Mortgage Corporation
dated May 26, 1993 (incorporated by reference from the
Company's Report on Form 8-K dated July 15, 1993,
Exhibit 2).
(10.Y) Form of the Company's 1992 Stock Incentive Plan Stock
Option Agreements for grants subsequent to August 10,
1994 (for exempt employees) (various prices)
(incorporated by reference from the 1994 10-K, Exhibit
10.DD).+
(10.Z) Form of the Company's 1992 Stock Incentive Plan Stock
Option Agreements for grants subsequent to August 10,
1994 (for non-employee directors) (various prices)
(incorporated by reference from the 1994 10-K, Exhibit
10.FF).+
(10.AA) Form of the Company's 1992 Stock Incentive Plan
Restricted Stock Agreements (incorporated by reference
from the 1994 10-K, Exhibit 10.GG).+
(11) Computation of Per Share Earnings.*
(12) Computation of Ratio of Income to Combined Fixed
Charges and Preferred Stock Dividends.*
(21) Subsidiaries of the Registrant.*
(25) Powers of Attorney.*
(27) Financial Data Schedule.*
* Filed herewith.
+ Relating to Management Compensation.
</TABLE>
(b) Reports on Form 8-K:
A Report on Form 8-K dated November 30, 1995, was filed by
Registrant, which reported under Items 5 and 7 the resignation of Bank
One, Arizona, NA (formerly The Valley National Bank of Arizona, NA) and
the appointment of Harris Trust and Savings Bank, N.A. as its Rights
Agent pursuant to the Rights Agreement between the Company and Bank One
Arizona, NA, dated as of February 15, 1992. The transition to the new
Rights Agent was effective November 30, 1995.
A Report on Form 8-K dated January 23, 1996 was filed by
Registrant, which reported under Items 5 and 7 the revenues, net income
and selected financial data and ratios for the twelve months ended
December 31, 1995.
24
<PAGE> 27
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 in the capacities
indicated, in Phoenix, Arizona on the 8th day of March, 1996.
THE FINOVA GROUP INC.
By: /s/ Samuel L. Eichenfield
-------------------------------------
Samuel L. Eichenfield
Chairman, President and Chief Executive Officer
(Chief Executive Officer)
By: /s/ Bruno A. Marszowski
-------------------------------------
Bruno A. Marszowski
Senior Vice President - Controller and Chief Financial Officer
(Chief Accounting and Financial Officer)
---------------
Pursuant to the requirements of the Securities 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:
* /s/ Samuel L. Eichenfield
- ------------------------------ ----------------------------------
G. Robert Durham (Director) Samuel L. Eichenfield (Chairman)
March 8, 1996 March 8, 1996
* *
- ------------------------------ ----------------------------------
James L. Johnson (Director) L. Gene Lemon (Director)
March 8, 1996 March 8, 1996
* *
- ------------------------------ ----------------------------------
Kenneth R. Smith (Director) Robert P. Straetz (Director)
March 8, 1996 March 8, 1996
* *
- ------------------------------ ----------------------------------
Shoshana B. Tancer (Director) John W. Teets (Director)
March 8, 1996 March 8, 1996
* Signed pursuant to Powers of Attorney dated February 8, 1996.
/s/ Bruno A. Marszowski
---------------------------
Bruno A. Marszowski
Attorney-in-Fact
March 8, 1996
25
<PAGE> 28
ANNEX A
<PAGE> 29
THE FINOVA GROUP INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Highlights 1
Management's Discussion and Analysis of Financial Condition and
Results of Operations 2 - 7
Management's Report on Responsibility for
Financial Reporting 8
Independent Auditors' Report 9
Consolidated Balance Sheet at December 31, 1995 and 1994 10
Statement of Consolidated Income for the Years Ended
December 31, 1995, 1994 and 1993 11
Statement of Consolidated Stockholders' Equity for the Years
Ended December 31, 1995, 1994 and 1993 12
Statement of Consolidated Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 13
Notes to Consolidated Financial Statements for the Years
Ended December 31, 1995, 1994 and 1993 14 - 32
Supplemental Selected Financial Data 33 - 34
</TABLE>
<PAGE> 30
THE FINOVA GROUP INC.
FINANCIAL HIGHLIGHTS
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1995 1994 (1) 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS:
Interest margins earned $ 339,815 $ 244,414 $ 124,847
Selling, administrative and other operating expenses 155,001 113,018 58,158
Net income 97,629 74,313 37,347
FINANCIAL POSITION:
Average funds employed (AFE) 6,213,571 4,446,745 2,637,547
Ending funds employed (EFE) 6,819,057 5,667,644 2,846,571
Ending managed assets (2) 7,122,361 5,921,030 2,846,571
Average earning assets (3) 5,815,455 4,064,971 2,321,359
Reserve for possible credit losses 140,333 122,233 64,280
Nonaccruing assets 167,872 168,761 102,607
New business 2,570,993 1,799,331 1,007,794
Factoring/floor planning volume 1,951,310 1,129,936
Write-offs 35,533 35,127 12,575
CAPITALIZATION:
Total debt 5,649,368 4,573,354 2,079,286
Stockholders' equity 825,184 770,252 503,300
PORTFOLIO QUALITY:
Write-offs as a % of AFE and average securitizations (4) 0.6% 0.8% 0.5%
Nonaccruing assets as a % of ending managed assets (2) 2.4% 2.9% 3.6%
Reserve for possible credit losses as a % of:
Ending managed assets (2) 2.0% 2.1% 2.3%
Nonaccruing assets 83.6% 72.4% 62.6%
As a multiple of write-offs 3.9x 3.5x 5.1x
PERFORMANCE HIGHLIGHTS:
Return from continuing operations as a % of AFE (5) 1.6% 1.8% 1.6%
Interest margins earned as a % of average earning assets (3) 5.8% 6.0% 5.4%
Selling, administrative and other operating expenses as a % of
interest margins earned 45.6% 46.2% 46.6%
Aggregate cost of funds 7.2% 6.3% 6.3%
Ratio of income to combined fixed charges and preferred stock
dividends 1.4 1.6 1.5
Return on average equity 12.2% 11.1% 7.5%
Income per share (continuing operations) $ 3.51 $ 2.94 $ 1.80
Book value per share outstanding $ 30.25 $ 27.83 $ 25.06
Average outstanding common and equivalent shares 27,832,000 25,307,000 20,332,000
Shares outstanding 27,279,000 27,677,000 20,080,000
===========================================================================================================================
</TABLE>
(1) Includes financial results from the date of acquisition for Ambassador
(February 14, 1994) and TriCon (April 30, 1994).
(2) Ending managed assets include assets sold under securitization agreements
and managed by the Company of $303,304 and $253,386 at December 31, 1995
and 1994, respectively.
(3) Average earning assets represents AFE excluding average deferred taxes on
leveraged leases and average nonaccruing assets.
(4) Average securitizations were $188 million and $183 million for 1995 and
1994, respectively.
(5) AFE in this item excludes average deferred taxes on leveraged leases of
$227 million, $225 million and $215 million for 1995, 1994 and 1993,
respectively.
1
<PAGE> 31
THE FINOVA GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion relates to The FINOVA Group Inc. (formerly known
as GFC Financial Corporation) and its subsidiaries (collectively, "FINOVA" or
the "Company"), including FINOVA Capital Corporation (formerly known as
Greyhound Financial Corporation) and its subsidiaries (collectively, "FINOVA
Capital"), including Ambassador Factors ("Ambassador") acquired on February 14,
1994 and TriCon Capital ("TriCon") acquired on April 30, 1994. Both Ambassador
and TriCon were merged into FINOVA Capital in 1994.
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
Net income increased 31% during 1995 to $97.6 million from $74.3 million
in 1994. The 1994 results include income from Ambassador and TriCon from the
acquisition dates.
INTEREST MARGINS EARNED. Interest margins earned, which represent the
difference between (a) interest and income earned from financing transactions
and (b) interest expense and depreciation, increased by 39% in 1995 to $339.8
million from $244.4 million in 1994. This increase was driven by a 20% growth in
managed assets (investment in financing transactions plus securitizations) which
included Ambassador and TriCon for the entire year. The primary source of the
growth in managed assets was new business, which totaled $2.6 billion for 1995
compared to $1.8 billion for 1994, an increase of 43%. Also contributing to the
improved margins were the fees associated with the factoring business, which
recorded factoring volume of $1.1 billion in 1995 compared to $847 million in
1994 and the inventory finance business, which recorded floor planning volume of
$898 million in 1995 compared to $283 million in 1994.
Interest margins earned as a percentage of average earning assets were
5.8% in 1995, compared to 6.0% in 1994. This reduction in the interest margin
percentage was expected in 1995 primarily due to the cost of hedges that the
Company entered into to lock in the spread between its lending and borrowing
rates on $1.5 billion of its floating-rate debt and to the diminishing ratio of
the higher yielding business relative to the total portfolio. Growth in interest
margins earned more than offset the higher provisions for possible credit losses
and the higher selling, administrative and other operating expenses in the 1995
period.
NON-INTEREST EXPENSE. Loss provisions, which increase the reserve for
possible credit losses ("reserves"), were greater by $30.6 million during 1995
compared to 1994 primarily due to the growth in managed assets. Management
believes that reserve coverage remains adequate at 83.6% of nonaccruing assets
and 2.0% of managed assets. Details of write-offs and other changes in the
reserve for possible credit losses can be found in Note D of Notes to
Consolidated Financial Statements.
Selling, administrative and other operating expenses increased by $42
million in 1995 due to the growth of the Company, the large volume of new
business added and the inclusion of TriCon and Ambassador for the full year. As
a percentage of interest margins earned, these costs decreased to 45.6% in 1995
from 46.2% in the previous year. See Note M of Notes to Consolidated Financial
Statements.
GAINS ON SALE OF ASSETS. Gains on sale of assets were $10.7 million higher
in 1995 compared to 1994 primarily due to the inclusion of TriCon for the full
year and the amount and type of assets coming
2
<PAGE> 32
THE FINOVA GROUP INC.
off lease. The 1994 gains of $9.0 million included $4.0 million (pre-tax) from
the securitization of assets in June 1994.
INCOME TAXES. Income taxes for 1995 increased to $59.6 million from $49.5
million in 1994. This increase was caused by the increase in pre-tax income,
partially offset by certain tax credits recognized during 1995. The 1995 overall
effective income tax rate for the Company approximated 37.9% compared to 40.0%
in 1994. The decrease in the effective rate is primarily related to lower
foreign tax effects and an increase in tax exempt municipal income. Details can
be found in Note I of Notes to Consolidated Financial Statements.
1994 COMPARED TO 1993
Income from continuing operations increased 96% during 1994 to $74.3
million from $37.8 million in 1993. The 1994 results included income for
Ambassador and TriCon from the acquisition dates. Net income for the 1994 period
rose to $74.3 million from $37.3 million in 1993, an increase of 99%. Income
from continuing operations and net income in 1993 included a $4.9 million
adjustment for tax rate increases applicable to deferred income taxes generated
by the Company's leveraged lease portfolio. Net income in 1993 included a $0.5
million loss from the Company's discontinued mortgage insurance subsidiary sold
in July 1993.
INTEREST MARGINS EARNED. Interest margins earned increased to $244.4
million in 1994 from $124.8 million in 1993, an increase of 96%. This increase
was driven by portfolio growth, together with the addition of TriCon and
Ambassador in 1994. The primary source of the portfolio growth was new business,
which totaled $1.8 billion for 1994 compared to $1.0 billion for 1993 (an
increase of 80%).
Interest margins earned, measured as a percent of average earning assets,
were 6.0%. This measurement compares to 5.4% for the 1993 period and reflects
the contributions of the acquisitions made in 1994, the continuing healthy
returns of the charter financial operations and the Company's access to lower
cost capital. Growth in interest margins more than offset the higher provisions
for possible credit losses and the higher selling, administrative and other
operating expenses.
NON-INTEREST EXPENSE. Loss provisions, which increase the reserve for
possible credit losses ("reserve"), were greater by $11.0 million during 1994
compared to 1993. The greater loss provisions were consistent with the
requirements of a larger portfolio and the loss experience of the businesses
acquired. Higher interest margins generated by Ambassador and certain TriCon
businesses are used to cover the risk profiles associated with those businesses.
Management believes that reserve coverage was adequate at 72.4% of nonaccruing
assets and at 2.1% of funds employed and securitizations. Details of the
write-offs by line of business, as well as changes in the reserve for possible
credit losses, can be found in Note D of Notes to Consolidated Financial
Statements.
Selling, administrative and other operating expenses increased by
approximately $54.9 million in 1994, which was consistent with the growth in
assets. As a percent of interest margins earned, these expenses were 46.2% (for
the combined entities) in 1994, an improvement over 46.6% in 1993 (which
excluded TriCon and Ambassador). See Note M of Notes to Consolidated Financial
Statements.
GAINS ON SALE OF ASSETS. Gains on sale of assets were $3.6 million higher
in 1994 compared to 1993. The increase principally was the result of a $4.0
million ($2.4 million after-tax) gain from the securitization of assets recorded
in 1994, which was consistent with TriCon's historical experience related to
asset securitizations.
INCOME TAXES. Income taxes for 1994 increased to $49.5 million from $28.6
million in 1993. This increase is attributable to: (a) higher income before
income taxes, (b) higher state income tax rates in 1994 because of the
apportionment of the Company's assets to states with higher income tax rates and
(c) increased foreign income taxes due to an increase in foreign income. The
overall effective income tax rate for the Company, including both federal and
state income taxes, approximates 40.0% for 1994 and 35.7% for 1993, excluding
the $4.9 million tax adjustment for the Company's leveraged lease portfolio. See
Note I of Notes to Consolidated Financial Statements.
3
<PAGE> 33
THE FINOVA GROUP INC.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Managed assets increased by $1.2 billion to $7.1 billion at December 31,
1995 from $5.9 billion at December 31, 1994. This increase primarily is
attributable to the $2.6 billion of new business generated in 1995 and portfolio
acquisitions of $262 million, less portfolio amortization.
The reserve for possible credit losses increased by $18.1 million in 1995
to $140.3 million. The increase in the reserve consisted primarily of increases
due to loss provisions of $47.3 million which were applicable to portfolio
growth, partially offset by decreases due to write-offs of $35.5 million. See
Note D of Notes to Consolidated Financial Statements.
Nonaccruing contracts and repossessed assets decreased to $167.9 million
at December 31, 1995 from $168.8 million at December 31, 1994. When measured as
a percent of managed assets, nonaccruing assets declined to 2.4% at December 31,
1995 from 2.9% at December 31, 1994. For more information on write-offs and
nonaccruing assets see Note D of Notes to Consolidated Financial Statements.
The Company had total debt of approximately $5.6 billion or 6.8 times its
equity base of $825.2 million at December 31, 1995. The Company also had
deferred income taxes of $209.5 million, generally used to reduce debt and,
therefore, help finance lending activities.
Growth in funds employed is generally financed by internally generated
cash flow and additional borrowings. During 1995, FINOVA Capital issued $1.3
billion in new senior debt, which, together with general corporate funds and net
commercial paper borrowings, was used to finance new business, acquire
portfolios and redeem or retire $570 million of debt. An equity offering was
completed in May 1994 for 8,050,000 shares of the Company's common stock.
FINOVA satisfies a significant portion of its cash requirements from a
diversified group of worldwide funding sources and is not dependent upon any one
lender. Additionally, FINOVA relies on the issuance of commercial paper as a
major funding source. During 1995, FINOVA Capital issued $16.1 billion of
commercial paper (with an average of $2.2 billion outstanding during the year)
and raised $1.3 billion, as noted above, through new long-term financings of one
to 10 year duration. At December 31, 1995 and 1994, commercial paper and
short-term bank borrowings totaling $2.4 billion and $2.0 billion, respectively,
were supported by available unused revolving credit lines which, if not renewed,
are convertible to long-term debt at FINOVA's option.
In 1994, FINOVA Capital filed a shelf-registration statement with the
Securities and Exchange Commission ("SEC") that allowed for the issuance of $1.0
billion of senior debt securities, all of which was used as of December 31,
1995. In 1995, FINOVA Capital filed an additional shelf registration statement
with the SEC allowing for the issuance of $1.5 billion of senior debt
securities, $1.2 billion of which remained available as of December 31, 1995.
Also in 1995, the Company, under a securitization agreement, sold a $200 million
undivided proportionate interest in a loan portfolio totaling approximately
$610.5 million. See Note C of Notes to Consolidated Financial Statements for
further discussion.
FINOVA Capital currently maintains a five-year revolving credit facility
with numerous lenders, in the aggregate principal amount of $1.0 billion.
Separately, FINOVA Capital also has a 364 day revolving credit facility with the
same lenders in the aggregate principal amount of $1.0 billion. In addition,
FINOVA Capital has another four-year facility with numerous lenders for $700
million. All of these facilities support FINOVA's outstanding commercial paper
and short-term borrowings. The Company intends to borrow under the domestic
revolving credit agreements to refinance commercial paper and short-term bank
loans
4
<PAGE> 34
THE FINOVA GROUP INC.
to the extent that it experiences significant difficulties in rolling over
its outstanding commercial paper and short-term bank loans. The Company rarely
borrowed under these facilities. The 364 day $1.0 billion revolving credit
agreements will be subject to renewal in 1996, while the four and five year $700
million and $1.0 billion credit facilities are subject to renewal in 1999 and
2000, respectively.
The agreements pertaining to long-term debt of FINOVA Capital include
various restrictive covenants and require the maintenance of certain defined
financial ratios with which FINOVA Capital has complied. Under one such
covenant, dividend payments are limited to 50 percent of accumulated earnings
after December 31, 1991.
FINOVA Capital's aggregate cost of funds increased to 7.2% for 1995 from
6.3% for 1994 as a result of rising interest rates and the Company's hedging
activities, as further discussed below. The Company's cost of and access to
capital is dependent, in a large part, on its credit ratings. FINOVA Capital has
maintained investment grade ratings since 1976, and received an upgrade in those
ratings from Standard & Poor's Ratings Group and Moody's Investor Service, Inc.
in 1995. Neither The FINOVA Group Inc. nor any of FINOVA Capital's subsidiaries
have applied for credit ratings. FINOVA Capital currently has investment-grade
ratings from the following agencies:
<TABLE>
<CAPTION>
Commercial Senior
Paper Debt
--------------- -------------
<S> <C> <C>
Duff & Phelps Credit Rating Co. D1- A-
Fitch Investors Services, Inc. F1 A
Moody's Investors Service, Inc. P2 Baa1
Standard & Poor's Ratings Group A2 BBB+
</TABLE>
At December 31, 1995, FINOVA Capital had outstanding 59 interest rate
conversion agreements with notional principal amounts totaling $3.1 billion.
Twenty-four agreements with notional principal amounts of $895 million were
arranged to effectively convert certain floating interest rate obligations into
fixed interest rate obligations and require interest payments on the stated
principal amount at rates ranging from 4.1% to 9.1% (remaining terms of one to
five years) in return for receipts calculated on the same notional amounts at
floating interest rates. In addition, 28 agreements with notional principal
amounts of $1.3 billion were arranged to effectively convert certain fixed
interest rate obligations into floating interest rate obligations and require
interest payments on the stated principal amount at the three month or six month
London interbank offered rates ("LIBOR") (remaining terms of one to seven years)
in return for receipts calculated on the same notional amounts at fixed interest
rates of 4.9% to 7.7%. FINOVA Capital has also entered into seven basis swap
agreements with notional principal amounts of $878 million and remaining terms
of two to three years.
In 1993, FINOVA Capital entered into four three-year interest rate hedge
agreements on $750 million of floating-rate borrowings. In 1995, FINOVA Capital
hedged an additional $750 million of floating-rate debt through five basis swap
agreements expiring through 1998, to lock in a spread between its lending and
borrowing rates. FINOVA's assets are primarily prime based while a significant
portion of its liabilities are either LIBOR based or tied to the 30-day
commercial paper composite rate. The agreements enable FINOVA to hedge against a
narrowing of the spread between the prime rate (lending rate) and its borrowing
rates (LIBOR and commercial paper). For more information on derivative financial
instruments, see Note F of Notes to Consolidated Financial Statements.
5
<PAGE> 35
THE FINOVA GROUP INC.
The Company announced in 1992 that it intended to repurchase its
securities on the open market, from time to time, to fund its obligations
pursuant to employee stock options, benefit plans and similar obligations. Under
this program, 611,600; 602,800 and 349,909 shares were acquired during the years
ending December 31, 1995, 1994 and 1993, respectively. The program may be
discontinued at any time.
RECENT DEVELOPMENTS AND BUSINESS OUTLOOK
Following its spin-off from The Dial Corporation in 1992 (the "Spin-Off"),
the Company decided to focus its resources and capital on its domestic
commercial finance activities. The Company embarked on a program of selling or
winding down those businesses included in the Spin-Off that were not associated
with the Company's charter domestic commercial finance activities. The Company
concentrated on redeploying the capital previously invested in such businesses
and raised additional capital to support internal portfolio growth and to make
selected acquisitions to complement the Company's charter operations. This
strategy has resulted in (i) the managed liquidation and sale of FINOVA Capital
Limited ("FCL"), Dial's former European financial business and the Latin
American loan portfolios, (ii) an increase (excluding acquisitions) in FINOVA's
domestic loan portfolio each year, (iii) the acquisition of the asset based
lending activity of U.S. Bancorp, (iv) the sale of the discontinued mortgage
insurance subsidiary, (v) the acquisition of Ambassador, (vi) the acquisition of
TriCon and (vii) portfolio acquisitions of $262 million in 1995.
In 1994, the Company raised an additional $226 million of equity through
the sale of 8,050,000 shares in a stock offering and expanded its debt sources
through a $1.0 billion shelf registration with the SEC. In 1995, the Company
further added to its debt sources through a $1.5 billion shelf registration with
the SEC and increased its revolving credit lines to $2.7 billion. Also in 1995,
the Company transferred an undivided proportionate interest in approximately
$611 million of its loan and other financing contract portfolio for $200 million
under a securitization agreement. See Note C of Notes to Consolidated Financial
Statements for further discussion.
As a result of the execution of its business strategy, management believes
that the Company now ranks among the largest independent commercial finance
companies, based on assets, in the United States, and can direct its energies
primarily to its principal business operations, including those businesses
acquired since the Spin-Off.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
effective for fiscal years beginning after December 15, 1995. This statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used and long-lived assets and certain identifiable intangibles to be
disposed of. The statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In addition, the statement
requires that certain long-lived assets and intangibles to be disposed of be
reported at the lower of carrying amount or fair value less cost to sell. The
Company does not expect the adoption of this accounting standard to materially
impact its results of operations or financial position. The Company will adopt
this accounting standard effective January 1, 1996, as required.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", effective for transactions entered into in fiscal years that
begin after December 15, 1995. This statement establishes financial accounting
and reporting for stock-based employee compensation plans, including
6
<PAGE> 36
THE FINOVA GROUP INC
stock purchase plans, stock option plans, restricted stock and stock
appreciation rights. The Statement allows for a fair value based method of
accounting for employee stock options or similar instruments and encourages a
similar method for all employee stock compensation plans. This method measures
compensation cost at the grant date based on the value of an award and
recognizes it over the service period, usually the vesting period. However, the
Statement also allows an entity to continue measuring compensation cost for such
plans using the intrinsic value method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25"), providing pro forma disclosures are made. The Company expects to
continue to account for its stock-based employee compensation plans using the
method of accounting prescribed by APB No. 25 and does not expect that this
accounting standard will materially impact its results of operations or
financial position.
The Company adopted the provisions of SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS 114"), as amended by SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures" ("SFAS 118"), as of January 1, 1995. These statements require that
impaired loans be measured based on the present value of the expected cash flows
discounted at the loan's effective interest rate or the fair value of the
collateral, if the loan is collateral dependent. Under SFAS 114, a loan is
considered impaired when, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due according to
the contractual terms of the loan agreement. For the impact and disclosures of
these new standards, see Note D of Notes to Consolidated Financial Statements.
During 1994, FINOVA adopted SFAS No. 119, "Disclosures about Derivative
Financial Instruments and Fair Value of Financial Instruments." The disclosures
required by SFAS No. 119 are included in Notes F and L of Notes to Consolidated
Financial Statements.
7
<PAGE> 37
THE FINOVA GROUP INC.
MANAGEMENT'S REPORT ON
RESPONSIBILITY FOR FINANCIAL REPORTING
The management of The FINOVA Group Inc. is responsible for the
preparation, integrity and objectivity of the financial statements and other
financial information included in this Annual Report. The financial statements
are presented in accordance with generally accepted accounting principles
reflecting, where applicable, management's best estimates and judgments.
Management of the Company has established and maintains a system of
internal controls to reasonably assure the fair presentation of the financial
statements, the safeguarding of the Company's assets and the prevention or
detection of fraudulent financial reporting. The internal control structure is
supported by careful selection and training of personnel, policies and
procedures and regular review by both internal auditors and the independent
auditors.
The Board of Directors, through its Audit Committee, also oversees the
financial reporting of the Company and its adherence to established procedures
and controls. Periodically, the Audit Committee meets, jointly and separately,
with management, the internal auditors and the independent auditors to review
auditing, accounting and financial reporting matters.
The Company's financial statements have been audited by Deloitte & Touche
LLP, independent auditors. Management has made available to Deloitte & Touche
LLP all of the Company's financial records and related data and has made valid
and complete written and oral representations and disclosures in connection with
the audit.
Management believes it is essential to conduct its business in accordance
with the highest ethical standards, which are characterized and set forth in the
Company's written Code of Conduct. These standards are communicated to and
acknowledged by all of the Company's employees.
Samuel L. Eichenfield
Chairman, President and Chief Executive Officer
Bruno A. Marszowski
Senior Vice President - Controller and Chief Financial Officer
Derek C. Bruns
Vice President - Internal Audit
8
<PAGE> 38
THE FINOVA GROUP INC.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of The FINOVA Group Inc.
We have audited the accompanying consolidated balance sheet of The FINOVA
Group Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of The FINOVA Group Inc. and
subsidiaries at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Phoenix, Arizona
February 16, 1996
9
<PAGE> 39
THE FINOVA GROUP INC.
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
ASSETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
December 31, 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 90,280 $ 49,875
Investment in financing transactions:
Loans and other financing contracts, less unearned
income of $354,961 and $249,550, respectively 4,973,864 4,034,648
Direct financing leases 828,713 774,834
Operating leases 460,798 412,782
Leveraged leases 366,196 287,518
Factored receivables 189,486 157,862
- ---------------------------------------------------------------------------------------
6,819,057 5,667,644
Less reserve for possible credit losses (140,333) (122,233)
- ---------------------------------------------------------------------------------------
Investment in financing transactions - net 6,678,724 5,545,411
Other assets and deferred charges 267,510 226,057
- ---------------------------------------------------------------------------------------
$7,036,514 $5,821,343
=======================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------
December 31, 1995 1994
- ---------------------------------------------------------------------------------------
Liabilities:
Accounts payable and accrued expenses $ 125,349 $ 134,501
Due to clients 181,548 116,639
Interest payable 45,553 37,710
Senior debt 5,649,368 4,573,354
Deferred income taxes 209,512 188,887
- ---------------------------------------------------------------------------------------
6,211,330 5,051,091
- ---------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $0.01 par value, 100,000,000 shares
authorized, 28,422,000 shares issued 284 284
Additional capital 686,382 688,042
Retained income 184,381 109,830
Cumulative translation adjustments (5,686) (4,726)
Common stock in treasury, 1,143,000 and 745,000 shares,
respectively (40,177) (23,178)
- ---------------------------------------------------------------------------------------
825,184 770,252
- ---------------------------------------------------------------------------------------
$7,036,514 $5,821,343
=======================================================================================
</TABLE>
See notes to consolidated financial statements.
10
<PAGE> 40
THE FINOVA GROUP INC.
STATEMENT OF CONSOLIDATED INCOME
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Years Ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and other income $ 580,309 $ 386,566 $ 218,171
Financing lease income 96,855 62,990 20,838
Operating lease income 84,691 53,795 16,207
- -----------------------------------------------------------------------------------------
Interest earned from financing transactions 761,855 503,351 255,216
Interest expense 366,822 222,200 123,853
Depreciation 55,218 36,737 6,516
- -----------------------------------------------------------------------------------------
Interest margins earned 339,815 244,414 124,847
Provision for possible credit losses 47,300 16,670 5,706
- -----------------------------------------------------------------------------------------
Net interest margins earned 292,515 227,744 119,141
Gains on sale of assets 19,726 9,045 5,439
- -----------------------------------------------------------------------------------------
312,241 236,789 124,580
Selling, administrative and other operating
expenses 155,001 113,018 58,158
- -----------------------------------------------------------------------------------------
Income before income taxes 157,240 123,771 66,422
Income taxes 59,611 49,458 28,576
- -----------------------------------------------------------------------------------------
Income from continuing operations 97,629 74,313 37,846
Loss from discontinued operations (499)
- -----------------------------------------------------------------------------------------
NET INCOME $ 97,629 $ 74,313 $ 37,347
=========================================================================================
Earnings per common and equivalent share:
Income from continuing operations $ 3.51 $ 2.94 $ 1.86
Preferred dividends 0.06
- -----------------------------------------------------------------------------------------
Income from continuing operations after
preferred dividends 3.51 2.94 1.80
Loss from discontinued operations (0.03)
- -----------------------------------------------------------------------------------------
EARNINGS PER COMMON AND EQUIVALENT SHARE $ 3.51 $ 2.94 $ 1.77
=========================================================================================
DIVIDENDS DECLARED PER COMMON SHARE $ 0.84 $ 0.74 $ 0.68
=========================================================================================
Average outstanding common and equivalent
shares 27,832,000 25,307,000 20,332,000
=========================================================================================
</TABLE>
See notes to consolidated financial statements.
11
<PAGE> 41
THE FINOVA GROUP INC.
STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Years Ended December 31, 1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK:
Balance, beginning of year $ 284 $ 204 $ 204
Issuance of common stock 80
- ----------------------------------------------------------------------------------------
Balance, end of year 284 284 204
- ----------------------------------------------------------------------------------------
ADDITIONAL CAPITAL:
Balance, beginning of year 688,042 464,487 465,955
Issuance of common stock 225,911
Net change in unamortized amount of restricted
stock (613) (2,113) (223)
Common stock in treasury issued in connection
with employee benefit plans (1,047) (243) (1,245)
- ----------------------------------------------------------------------------------------
Balance, end of year 686,382 688,042 464,487
- ----------------------------------------------------------------------------------------
NET UNREALIZED INVESTMENT LOSSES:
Balance, beginning of year (387)
Change in net unrealized investment losses 387
- ----------------------------------------------------------------------------------------
Balance, end of year --- --- ---
- ----------------------------------------------------------------------------------------
RETAINED INCOME:
Balance, beginning of year 109,830 54,901 32,524
Net income 97,629 74,313 37,347
Dividends (23,078) (19,384) (14,970)
- ----------------------------------------------------------------------------------------
Balance, end of year 184,381 109,830 54,901
- ----------------------------------------------------------------------------------------
CUMULATIVE TRANSLATION ADJUSTMENTS:
Balance, beginning of year (4,726) (7,773) (6,685)
Unrealized translation (loss) gain (960) 3,047 (1,088)
- ----------------------------------------------------------------------------------------
Balance, end of year (5,686) (4,726) (7,773)
- ----------------------------------------------------------------------------------------
COMMON STOCK IN TREASURY:
Balance, beginning of year (23,178) (8,519) (3,215)
Purchase of shares (23,588) (18,954) (10,162)
Shares used in connection with employee
benefit plans 6,589 4,295 4,858
- ----------------------------------------------------------------------------------------
Balance, end of year (40,177) (23,178) (8,519)
- ----------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY $ 825,184 $ 770,252 $ 503,300
========================================================================================
</TABLE>
See notes to consolidated financial statements.
12
<PAGE> 42
THE FINOVA GROUP INC.
STATEMENT OF CONSOLIDATED CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 97,629 $ 74,313 $ 37,347
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for possible credit losses 47,300 16,670 5,706
Depreciation and amortization 71,583 46,470 9,318
Gains on sale of assets (19,726) (9,045) (5,439)
Loss from discontinued operations 499
Deferred income taxes 20,625 9,915 17,947
Change in assets and liabilities, net of effects from
subsidiaries purchased:
Increase in other assets (37,338) (20,087) (6,290)
Decrease in accounts payable and accrued expenses (9,152) (82,694) (14,246)
Increase (decrease) in interest payable 7,843 14,077 (5,429)
Other (1,573) (4,548) (1,311)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 177,191 45,071 38,102
- ---------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from sales of assets 86,280 35,106 5,681
Proceeds from sales of securitized assets 200,000 115,507
Principal collections on financing transactions 1,308,747 908,862 638,423
Expenditures for financing transactions (2,128,588) (1,505,208) (1,007,794)
Net change in short-term financing transactions (442,405) (294,123)
Acquisitions (261,868) (590,497) (69,808)
Sale of discontinued operation 171,500
Net repayment of advances to discontinued operation 57,321
Other 1,249 1,898 221
- ---------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (1,236,585) (1,328,455) (204,456)
- ---------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Long-term borrowings 1,272,450 827,550 200,000
Net borrowings under commercial paper 373,566 1,508,564 185,735
Repayment of long-term borrowings (570,002) (1,186,191) (190,136)
Issuance of common stock 225,991
Redemption of preferred stock (25,000)
Proceeds from exercise of stock options 5,542 4,052 3,613
Common stock purchased for treasury (23,588) (18,954) (10,162)
Dividends (23,078) (19,384) (14,970)
Net change in due to clients 64,909 (9,298)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,099,799 1,332,330 149,080
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 40,405 48,946 (17,274)
Cash and cash equivalents, beginning of year 49,875 929 18,203
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 90,280 $ 49,875 $ 929
===============================================================================================================
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 43
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Dollars in Thousands in Tables)
NOTE A SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION -- The
consolidated financial statements present the financial position, results of
operations and cash flows of The FINOVA Group Inc. (formerly known as GFC
Financial Corporation) and its subsidiaries (collectively, "FINOVA" or the
"Company"), including FINOVA Capital Corporation, (formerly known as Greyhound
Financial Corporation), and its subsidiaries (collectively, "FINOVA Capital"),
including Ambassador Factors ("Ambassador") acquired on February 14, 1994 and
TriCon Capital ("TriCon") acquired on April 30, 1994. Both Ambassador and TriCon
were merged into FINOVA Capital in 1994.
The FINOVA Group Inc. is a financial services company engaged in
providing collateralized financing products to commercial enterprises in various
market niches, principally in the United States.
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles. Described below are those accounting
policies particularly significant to FINOVA, including those selected from
acceptable alternatives.
USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principals requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
FINANCING TRANSACTIONS -- For loans and other financing contracts,
earned income is recognized over the life of the contract, using the interest
method.
For leases classified as direct financing leases, the difference
between (a) aggregate lease rentals and (b) the cost of the related assets less
estimated residual value at the end of the lease term is recorded as unearned
income. Earned income is recognized over the life of the contracts using the
interest method.
For operating leases, earned income is recognized on a straight-line
basis over the lease term and depreciation is taken on a straight-line basis
over the estimated useful lives of the leased assets.
Leases that are financed by nonrecourse borrowings and meet certain
other criteria are classified as leveraged leases. For leveraged leases,
aggregate rentals receivable are reduced by the related nonrecourse debt service
obligation including interest ("net rentals receivable"). The difference between
(a) the net rentals receivable and (b) the cost of the asset less estimated
residual value at the end of the lease term is recorded as unearned income.
Earned income is recognized over the life of the lease at a constant rate of
return on the positive net investment, which includes the effects of deferred
income taxes.
Fees received in connection with loan commitments are deferred in
accounts payable and accrued expenses until the loan is advanced and are then
recognized over the term of the loan as an adjustment of the yield. Fees on
commitments that expire unused are recognized at expiration.
14
<PAGE> 44
THE FINOVA GROUP INC.
Income recognition is generally suspended for leases, loans and other
financing contracts at the earlier of the date at which payments become 90 days
past due or when, in the opinion of management, a full recovery of income and
principal becomes doubtful. Income recognition is resumed when the loan becomes
contractually current and performance is demonstrated to be resumed or when
foreclosed or repossessed assets generate a reasonable rate of return.
The reserve for possible credit losses is available to absorb credit
losses. The provision for possible credit losses is the charge to income to
increase the reserve for possible credit losses to the level that management
estimates to be adequate considering delinquencies, loss experience and
collateral. Other factors considered include changes in geographic and product
diversification, size of the portfolio and current economic conditions. Accounts
are either written-off or written-down when the loss is considered probable and
determinable, after giving consideration to the customer's financial condition
and the value of the underlying collateral, including any guarantees. Any
deficiency between the carrying amount of an asset and the net sales price of
repossessed collateral is charged to the reserve for possible credit losses.
Recoveries of amounts previously written-off as uncollectible are credited to
the reserve for possible credit losses.
Under certain limited recourse provisions of receivable transfer
agreements (securitizations), the Company repurchases defaulted direct financing
leases and subsequently classifies these leases as nonaccruing. If the accounts
require a write-down, they are charged to the reserve for possible credit
losses.
Repossessed assets are carried at the lower of cost or fair value.
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan"
("SFAS 114"), as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" ("SFAS 118"), as of
January 1, 1995. These statements require that impaired loans be measured based
on the present value of the expected cash flows discounted at the loan's
effective interest rate or the fair value of the collateral, if the loan is
collateral dependent. Under SFAS 114, a loan is considered impaired when, based
on current information and events, it is probable that a creditor will be unable
to collect all amounts due according to the contractual terms of the loan
agreement. These standards do not apply to leasing transactions or to large
groups of smaller balance homogeneous loans. Evaluation for loan impairment is
performed as a part of the portfolio management review process. When a loan is
determined to be impaired, a write-down is taken or an impairment reserve is
established based on the difference between the recorded balance of the loan
("carrying amount") and the relevant measured value. For the impact and
disclosures of these new standards, see Note D of Notes to Consolidated
Financial Statements.
PENSION AND OTHER BENEFITS -- Trusteed, noncontributory pension plans
cover substantially all employees. Benefits are based primarily on final average
salary and years of service. Funding policies provide that payments to pension
trusts shall be at least equal to the minimum funding required by applicable
regulations.
Other postretirement benefit costs are recorded during the period the
employees provide service to the Company. The Company funds its postretirement
benefit obligation as benefits are paid.
The Company records postemployment benefit costs at the time
employees leave active service. Postemployment benefits are any benefits other
than retirement benefits.
15
<PAGE> 45
THE FINOVA GROUP INC.
SAVINGS PLAN -- The Company maintains The FINOVA Group Inc. Savings
Plan (the "Savings Plan"), a qualified 401(k) program. The Savings Plan is
available to substantially all employees. Voluntary wage reductions may be
elected by the employee ranging from 1% to 22% of taxable compensation. The
Company matching contributions are based on employee pre-tax salary reductions,
up to a maximum of 100% of the first 6% of salary contributions, the first 3% of
which are matched in Company stock through the Employee Stock Ownership Plan,
discussed below.
EMPLOYEE STOCK OWNERSHIP PLAN -- Employees of the Company are eligible
to participate in the Employee Stock Ownership Plan in the month following the
last twelve consecutive month period during which they have at least 1,000 hours
of service with the Company. Company contributions are made in the form of
matching stock contributions of 100% of the first 3% of salary reduction
contributions made by participants of the Savings Plan.
Expenses under the Savings Plan and Employee Stock Ownership Plan were
$1.1 million, $0.9 million and $0.4 million in 1995, 1994 and 1993,
respectively.
INCOME TAXES -- Deferred tax assets and liabilities are recognized for
the estimated future tax effects attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax law.
CASH EQUIVALENTS -- The Company classifies highly liquid investments
with original maturities of three months or less from date of purchase as cash
equivalents.
EARNINGS PER COMMON AND EQUIVALENT SHARE -- Earnings per common and
equivalent share is based on net income after preferred stock dividend
requirements (in 1993) and the weighted average number of common shares
outstanding during the year giving effect to stock options considered to be
dilutive common stock equivalents. Fully diluted earnings per share is not
materially different from primary earnings per share.
DERIVATIVE FINANCIAL INSTRUMENTS -- The Company enters into derivative
financial instruments as part of its interest rate risk management. The Company
uses interest rate swaps and interest rate hedge agreements. These interest rate
derivatives are accounted for using settlement or matched swap accounting.
Periodic net cash settlements are recognized when they occur.
GOODWILL -- The Company amortizes the excess of cost over the fair
value of net assets acquired ("goodwill") on a straight line basis primarily
over 20 years. Goodwill is included in other assets and is reported net of
accumulated amortization. Amortization totaled $8.2 million and $5.8 million
for the years ended December 31, 1995 and 1994, respectively. The Company
periodically evaluates the carrying value of its intangible assets for
impairment. This evaluation is based principally on projected, undiscounted
cash flows generated by the underlying assets.
Substantially all of the amortization of goodwill resulting from
acquisitions is tax deductible under Section 197 of the Internal Revenue Code.
RESIDUAL VALUES -- The Company has a significant investment in residual
values in its leasing portfolios. These residual values represent estimates of
the value of leased assets at the end of the contract terms and are initially
recorded based upon appraisals and estimates. Residual values are continually
reviewed to determine that recorded amounts are appropriate.
RECLASSIFICATIONS -- Certain reclassifications have been made to the
1994 and 1993 financial statements to conform to the 1995 presentation.
16
<PAGE> 46
THE FINOVA GROUP INC.
NOTE B ACQUISITIONS
During 1995, 1994 and 1993, FINOVA Capital, in transactions accounted
for as purchases, acquired various businesses and portfolios. During 1995, the
Company acquired portfolios having a total purchase price of $262 million. In
1994, the Company acquired TriCon for $344 million in cash, comprised of $1,886
million of assets and $1,542 million of liabilities and acquisition costs. The
cash purchase price for Ambassador was $246 million, consisting of $364 million
of assets and $118 million of liabilities and acquisition costs.
The following unaudited summarized proforma financial information is
presented for the years ended December 31, 1994 and 1993 as if the purchases of
TriCon and Ambassador had occurred on January 1, 1993.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C>
Interest earned on financing transactions $577,528 $529,584
Income before income taxes 129,802 109,465
Net income 78,636 71,761
Earnings per common share (in dollars) $ 2.76 $ 2.48
- ----------------------------------------------------------------------------
</TABLE>
NOTE C INVESTMENT IN FINANCING TRANSACTIONS
The Company provides secured financing to commercial and real estate
enterprises principally under financing contracts (such as loans and other
financing contracts, direct financing leases, operating leases, leveraged leases
and factored receivables). At December 31, 1995 and 1994, the carrying amount of
the investment in financing transactions, including the estimated residual value
of leased assets upon lease termination, was $6.8 billion and $5.7 billion
(before reserve for possible credit losses), respectively, and consisted of the
following percentage of carrying amount by line of business:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Percent of Total
Carrying Amount
- --------------------------------------------------------------------------
1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Resort Finance 14.5% 12.0%
Transportation Finance 13.6% 12.7%
Commercial Real Estate Finance 11.5% 13.2%
Communications Finance 10.1% 10.4%
Corporate Finance (1) 9.6% 13.8%
Manufacturer and Dealer Services (1) 6.9% 5.7%
Medical Finance 6.7% 8.3%
Commercial Equipment Finance 5.2% 5.3%
Rediscount Finance 5.1% 1.8%
Franchise Finance 4.9% 5.3%
Commercial Finance 3.1% 3.4%
Inventory Finance 3.0% 1.0%
Factoring Services 2.8% 2.8%
Government Finance 1.8% 1.7%
FINOVA Capital Limited 0.9% 1.8%
Other 0.3% 0.8%
- --------------------------------------------------------------------------
100.0% 100.0%
==========================================================================
</TABLE>
(1) Excludes assets sold under securitization agreements that are managed by the
Company.
17
<PAGE> 47
THE FINOVA GROUP INC.
Aggregate installments on loans and other financing contracts, direct
financing leases, operating leases, leveraged leases and factored receivables at
December 31, 1995 (excluding repossessed assets of $50.0 million and estimated
residual values) are due during each of the years ending December 31, 1996 to
2000 and thereafter as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
There-
1996 1997 1998 1999 2000 after
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans and other financing contracts:
Commercial:
Fixed interest rate $ 275,003 $ 257,712 $ 211,309 $ 194,823 $175,583 $ 362,185
Floating interest rate 466,343 475,718 357,347 378,198 401,310 158,855
Real Estate:
Fixed interest rate 79,162 55,820 53,899 113,212 44,999 182,306
Floating interest rate 236,768 238,512 242,917 193,532 84,725 38,599
Leases, primarily at fixed interest rates:
Direct financing leases 341,518 252,739 166,126 94,638 43,385 46,016
Operating leases 89,624 72,852 58,012 48,414 43,697 29,191
Leveraged leases 14,905 25,408 22,696 17,611 15,145 201,200
Factored receivables 189,486
- -----------------------------------------------------------------------------------------------------------------
$1,692,809 $1,378,761 $1,112,306 $1,040,428 $808,844 $1,018,352
=================================================================================================================
</TABLE>
The net investment in leveraged leases at December 31 consisted of the
following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Rentals receivable $ 1,454,754 $ 1,268,843
Less principal and interest payable on nonrecourse debt (1,157,789) (1,062,218)
- -------------------------------------------------------------------------------------------------------------
Net rentals receivable 296,965 206,625
Estimated residual values 344,766 306,204
Less unearned income (275,535) (225,311)
- -------------------------------------------------------------------------------------------------------------
Investment in leveraged leases 366,196 287,518
Less deferred taxes arising from leveraged leases (230,120) (226,115)
- -------------------------------------------------------------------------------------------------------------
Net investment in leveraged leases $ 136,076 $ 61,403
=============================================================================================================
</TABLE>
The components of income from leveraged leases, after the effects of
interest on nonrecourse debt and other related expenses, for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lease and other income $12,080 $9,240 $11,376
Income tax expense 4,201 3,143 8,363
- ---------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 48
THE FINOVA GROUP INC.
The investment in direct financing leases at December 31 consisted of
the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Rentals receivable $ 944,422 $ 885,148
Estimated residual values 109,431 86,191
Unearned income (225,140) (196,505)
- ---------------------------------------------------------------------------------------------------------------
Investment in direct financing leases $ 828,713 $ 774,834
===============================================================================================================
</TABLE>
The investment in operating leases at December 31 consisted of the
following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cost of assets $ 586,860 $ 526,191
Accumulated depreciation (126,062) (113,409)
- ---------------------------------------------------------------------------------------------------------------
Investment in operating leases $ 460,798 $ 412,782
===============================================================================================================
</TABLE>
The Company has a substantial number of loans and leases with payments
that fluctuate with changes in index rates, primarily prime interest rates and
the London interbank offered rates ("LIBOR"). The investment in loans and leases
with floating interest rates (excluding nonaccruing contracts and repossessed
assets) at December 31 was as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Receivables due on financing transactions $3,403,084 $2,928,287
Less unearned income (78,333) (65,327)
- ---------------------------------------------------------------------------------------------------------------
Investment in floating-rate loans and leases $3,324,751 $2,862,960
===============================================================================================================
</TABLE>
Interest earned from financing transactions with floating interest
rates was approximately $402.0 million in 1995, $269.0 million in 1994 and
$154.0 million in 1993. The adjustments, which arise from changes in index
rates, can have a significant effect on interest earned from financing
transactions; however, the effects on interest margins earned and net income are
substantially offset by related interest expense changes on debt obligations
with floating interest rates. The Company's matched funded policy is more fully
described in Note F.
At December 31, 1995, the Company had a committed backlog of new
business of approximately $1.1 billion compared to $764.0 million at December
31, 1994. The committed backlog includes lines of credit totaling $629.0 million
and $540.0 million for December 31, 1995 and 1994, respectively. Historically,
the Company has booked a substantial portion of its backlog, although there can
be no assurance that such trend will continue. Loan commitments and lines of
credit have generally the same credit risk as extending loans to borrowers.
These commitments are generally subject to the same credit quality and
collateral requirements involved in lending transactions. Commitments generally
have a fixed expiration and usually require payment of a fee.
RECEIVABLE TRANSFER AGREEMENTS ("SECURITIZATIONS") -- The Company sells
receivables in transactions subject to limited recourse provisions and remains a
servicer for which it is paid a fee. Normal servicing fees are earned on a level
yield basis over the remaining terms of the related receivables sold.
19
<PAGE> 49
THE FINOVA GROUP INC.
During 1995, the Company, under a securitization agreement, sold a $200
million undivided proportionate interest in a loan portfolio totaling $610.5
million. Under this securitization agreement, there is recourse to the Company
based on the outstanding balance of the proportionate interest sold. Under
certain other securitizations, $38.7 million and $58.5 million, as of December
31, 1995 and 1994, respectively, of finance lease receivables are the sole
collateral for limited recourse provisions. In addition to such finance lease
receivables, the Company has recourse exposure, at December 31, 1995 and 1994,
limited to $44.7 million and $78.8 million, respectively.
At December 31, 1995 and 1994, the reserve for possible credit losses
includes approximately $16.0 million and $13.0 million, respectively, of
reserves applicable to securitizations. Previously, these reserves had been
classified as accrued liabilities.
NOTE D RESERVE FOR POSSIBLE CREDIT LOSSES
The following is an analysis of the reserve for possible credit losses
for the years ended December 31:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 122,233 $ 64,280 $ 69,291
Provision for possible credit losses 47,300 16,670 5,706
Write-offs (35,533) (35,127) (12,575)
Recoveries 2,216 1,898 717
Other (including addition of TriCon and Ambassador
reserves in 1994) 4,117 74,512 1,141
- ---------------------------------------------------------------------------------------------
Balance, end of year $ 140,333 $ 122,233 $ 64,280
=============================================================================================
</TABLE>
20
<PAGE> 50
THE FINOVA GROUP INC.
Write-offs by lines of business experienced by the Company during the
years ended December 31 are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Manufacturer and Dealer Services $ 9,902 $ 7,018 $
Corporate Finance 4,660 4,233 3,741
Communications Finance 4,037 8,300 1,488
Factoring Services 3,728 1,148
Franchise Finance 3,448 2,247
Commercial Real Estate Finance 2,275 1,461 2,320
Commercial Equipment Finance 2,271 1,257
Resort Finance 2,000 2,730
FINOVA Capital Limited 1,523 5,140 5,026
Commercial Finance 452 774
Medical Finance 314 377
Inventory Finance 201 442
Other 722
- ---------------------------------------------------------------------------------
$35,533 $35,127 $12,575
=================================================================================
Write-offs as a percentage of investment in
managed assets 0.50% 0.59% 0.44%
=================================================================================
</TABLE>
<TABLE>
<CAPTION>
An analysis of nonaccruing contracts and repossessed assets included in
the investment in financing transactions at December 31 is as follows:
- -----------------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
Nonaccruing contracts $117,884 $ 83,003
Repossessed assets 49,988 85,758
- -----------------------------------------------------------------------------------
Total nonaccruing assets $167,872 $168,761
===================================================================================
Nonaccruing assets as a percentage of managed assets 2.4% 2.9%
===================================================================================
</TABLE>
In addition to the repossessed assets included in the above table, the
Company had repossessed assets with a total carrying amount of $56.6 million and
$55.1 million at December 31, 1995 and 1994, respectively, which earned income
of $4.2 million and $3.3 million during 1995 and 1994, respectively.
21
<PAGE> 51
THE FINOVA GROUP INC.
The total carrying amount of impaired loans was $94.3 million at
December 31, 1995, $17.3 million of which were performing and $77.0 million of
which were nonaccruing. A reserve for possible credit losses of $16 million has
been established for $35 million of nonaccruing impaired loans. The average
carrying amount of impaired loans was $93.2 million for the year ended December
31, 1995. Income earned on accruing impaired loans was $4.0 million in 1995 and
is recognized in the same manner as it is on normal accruing loans. Cash
collected on all nonaccruing assets is applied to the carrying amount.
Under SFAS 114, in-substance foreclosed assets are accounted for as
loans. Accordingly, effective January 1, 1995, $25.3 million of nonaccruing
in-substance foreclosed assets were reclassified from repossessed assets to
nonaccruing contracts. At December 31, 1995, troubled debt restructurings are
included in impaired loans. At December 31, 1994, there were $64.0 million of
troubled debt restructurings classified as rewritten contracts.
Had all nonaccruing assets outstanding at December 31, 1995, 1994 and
1993 remained accruing, income earned would have been increased by approximately
$19 million, $14 million and $11 million, respectively.
NOTE E DEBT
The Company satisfies its short-term financing requirements from the
issuance of commercial paper supported by bank lines of credit, other bank loans
and public notes. The Company's commercial paper borrowings are supported by
unused long-term revolving bank credit agreements totaling $2.7 billion. FINOVA
Capital currently maintains a five-year revolving credit facility with numerous
lenders, in the aggregate principal amount of $1.0 billion. Under the terms of
these agreements, the Company has the option to periodically select either
domestic dollars or Eurodollars as the basis of borrowings. Interest is based on
the lenders' prime rate for domestic dollar advances or London interbank offered
rates ("LIBOR") for Eurodollar advances. The agreements also provide for a
commitment fee on the unused credit. Separately, FINOVA Capital also has a 364
day revolving credit facility with the same lenders in the aggregate principal
amount of $1.0 billion. In addition, FINOVA Capital has another four-year
facility with numerous lenders for $700.0 million. The 364 day $1.0 billion
revolving credit agreement will be subject to renewal in 1996 while the four and
five year $700.0 million and $1.0 billion credit facilities are subject to
renewal in 1999 and 2000, respectively.
The following information pertains to all short-term financing
primarily commercial paper issued by FINOVA Capital for the years ended
December 31:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum amount of short-term debt outstanding
during year $2,518,733 $2,024,441 $516,386
Average short-term debt outstanding during year 2,210,329 1,050,358 336,672
Weighted average short-term interest rates
at end of year:
Short-term borrowings 5.9% 6.2% 3.5%
Commercial paper* 6.0% 6.0% 3.6%
Weighted average interest rate on short-term debt
outstanding during year* 6.1% 4.8% 3.5%
- -------------------------------------------------------------------------------------------
</TABLE>
* Exclusive of the cost of maintaining bank lines in support of outstanding
commercial paper and the effects of interest rate conversion agreements.
22
<PAGE> 52
THE FINOVA GROUP INC.
Senior debt at December 31 was as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial paper and short-term bank loans supported by unused long-term
bank revolving credit agreements, less unamortized discount $2,398,007 $2,024,441
Medium-term notes due to 2005, 4.5% to 10.3% 1,224,546 1,167,811
Term loans payable to banks due in 1996, 5.9% to 6.8% 180,000 130,000
Senior notes due to 2002, 6.1% to 16.0%, less unamortized discount 1,830,009 1,233,013
Nonrecourse installment notes due to 2002, 10.6% (assets of
$25,349 and $25,648, respectively, pledged as collateral) 16,806 18,089
- ----------------------------------------------------------------------------------------------------------
Total senior debt $5,649,368 $4,573,354
==========================================================================================================
</TABLE>
Annual maturities of senior debt outstanding at December 31, 1995 due
through November 2005 (excluding the amount supported by the revolving credit
agreements expected to be renewed) approximate $568.8 million (1996), $522.9
million (1997), $522.4 million (1998), $374.1 million (1999), $553.1 million
(2000) and $710.1 million (thereafter).
The agreements pertaining to senior debt and revolving credit
agreements of FINOVA Capital include various restrictive covenants and require
the maintenance of certain defined financial ratios with which FINOVA Capital
has complied. Under one such covenant, dividend payments are limited to 50
percent of accumulated earnings after December 31, 1991. As of December 31,
1995, FINOVA Capital had $50.1 million of excess accumulated earnings available
for distribution.
Total interest paid is not significantly different from interest
expense.
NOTE F DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into interest rate swaps and interest rate hedge
agreements as part of its interest rate risk management policy of match funding
its assets and liabilities. The derivative instruments utilized are
straightforward and involve little complexity. The Company continually monitors
its position relative to derivatives and utilizes derivative instruments for
non-trading purposes only.
The Company utilizes derivative instruments to minimize its exposure to
fluctuations in interest rates. The Company strives to minimize its overall debt
costs while limiting the short-term variability of interest expense and funds
required for debt service. To achieve this objective, the Company diversifies
its borrowing sources (short- and long-term debt with a fixed or a variable
rate) and seeks to maintain a portfolio that is matched funded. The Company's
matched funding policy generally requires that floating-rate assets be financed
with floating-rate liabilities and fixed-rate assets be financed with fixed-rate
liabilities. The Company's matched funding policy requires that the difference
between floating-rate liabilities and floating-rate assets, as measured as a
percent of total assets, should not vary by more than 3% for any extended
period. The amount of derivatives used is a function of this 3% gap policy with
the maturities of the derivatives being correlated to the maturities of the
assets being financed.
23
<PAGE> 53
THE FINOVA GROUP INC.
The notional amounts of derivatives do not represent amounts exchanged
by the parties and, thus, are not a measure of FINOVA's exposure through its
use of derivatives. The amounts exchanged are determined by reference to the
notional amounts and the other terms of the derivatives.
Under interest rate swaps, the Company agrees to exchange with the
counterparty, at specified intervals, the payment streams calculated on a
specified notional amount, with at least one stream based on a floating interest
rate. Generic swap notional amounts do not change for the life of the contract.
Amortizing swap notional amounts amortize over the life of the transaction.
Basis swaps involve the exchange of floating-rate indices, such as the prime
rate, the commercial paper composite rate and LIBOR.
The Company purchased interest rate hedge agreements to reduce the
impact of increases in interest rates on its floating-rate debt. These
agreements effectively lock in a spread of approximately 2.3% between the
Company's borrowing rate, LIBOR, and its lending rate (Prime based). In 1995,
the Company further protected its margins on floating-rate transactions by
entering into basis swaps with a notional amount of $750 million to lock in the
spread between the Company's lending and borrowing rates. With these agreements,
the Company protected its margins on $1.5 billion of floating-rate transactions.
The Company's off-balance sheet derivative instruments involve credit
and interest rate risks. The credit risk would be the nonperformance by the
counterparties to the financial instruments. All financial instruments have been
entered into with major financial institutions, which are expected to fully
perform under the terms of the agreements, thereby mitigating the credit risk
from the transactions, although there can be no assurance that any such
institution will perform under its agreement. The Company's derivative policy
stipulates that the maximum exposure to any one counterparty, relative to the
derivative products, is limited on a net basis to 10% of the Company's
outstanding debt at the time of that transaction. Interest rate risks relate to
changes in interest rates and the impact on earnings. The Company mitigates
interest rate risks through its matched funding policy.
The use of derivatives increased interest expense by $9.8 million, an
increase in the aggregate cost of funds of 0.2% in 1995; whereas, the use of
derivatives decreased interest expense by $13.7 million, a decrease in the
aggregate cost of funds of 0.4%, in 1994 and $25.9 million, a decrease in the
aggregate cost of funds of 1.3%, in 1993. These changes in interest expense from
off-balance sheet derivatives effectively alter on-balance sheet costs and must
be viewed as total interest rate management. At December 31, 1995 and 1994,
unamortized premiums amounted to $613 thousand and $1.9 million, respectively.
There were no deferred gains or losses associated with derivatives.
24
<PAGE> 54
THE FINOVA GROUP INC.
The following table provides annual maturities and weighted-average
interest rates for each significant derivative product type. The rates presented
are as of December 31, 1995. To the extent that rates change, variable interest
information will change.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
December Maturities of Derivative Products
31, -----------------------------------------------------------------
(Dollars in Millions) 1995 1996 1997 1998 1999 2000 Thereafter
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
RECEIVE FIXED-RATE SWAPS:
Notional value $1,300 $ 100 $ 275 $ 325 $ 250 $ 150 $ 200
Weighted average receive rate 6.70% 5.34% 6.70% 6.83% 6.82% 7.24% 6.65%
Weighted average pay rate 5.89% 5.72% 5.76% 5.73% 5.64% 5.88% 5.78%
PAY FIXED-RATE GENERIC SWAPS:
Notional value $ 800 $ 325 $ 275 $ 100 $ 50 $ 50
Weighted average receive rate 5.86% 5.79% 5.75% 5.70% 5.81% 5.68%
Weighted average pay rate 7.18% 6.88% 7.18% 8.37% 7.98% 8.09%
PAY FIXED-RATE AMORTIZING SWAPS:
Notional value $ 95 $ 76 $ 19
Weighted average receive rate 5.76% 5.78% 5.58%
Weighted average pay rate 5.33% 5.13% 6.06%
BASIS SWAPS:
Notional value $ 878 $ 250 $ 628
Weighted average receive rate 5.85% 5.84% 6.02%
Weighted average pay rate 6.12% 6.08% 6.24%
INTEREST RATE HEDGE AGREEMENTS:
Notional value $ 750 $ 750
Weighted average receive rate 2.08% 2.08%
Weighted average pay rate 2.50% 2.50%
TOTAL NOTIONAL VALUE $3,823 $1,251 $ 819 $1,053 $ 300 $ 200 $ 200
================================================================================================================
Total weighted average rates:
Receive rate 5.40% 3.53% 6.09% 6.24% 6.65% 6.85% 6.65%
================================================================================================================
Pay rate 5.53% 4.05% 6.34% 6.29% 6.03% 6.43% 5.78%
================================================================================================================
</TABLE>
25
<PAGE> 55
THE FINOVA GROUP INC.
Derivative product activity for the three years ended December 31, 1995
is as follows:
<TABLE>
<CAPTION>
Pay
Receive Fixed- Pay Fixed- Interest
Fixed- Rate Rate Rate
Rate Generic Amortizing Basis Hedge
(Dollars in Millions) Swaps Swaps Swaps Swaps Agreements TOTAL
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1992 $ 890 $205 $ $ $ $1,095
Expired (50) (25) (75)
Additions 300 750 1,050
- -------------------------------------------------------------------------------------------------
Balance,
December 31, 1993 1,140 180 750 2,070
Expired (50) (50) (148) (248)
Additions 100 650 390 254 1,394
- -------------------------------------------------------------------------------------------------
Balance,
December 31, 1994 1,190 780 242 254 750 3,216
Expired (40) (30) (152) (126) (348)
Additions 150 50 5 750 955
- -------------------------------------------------------------------------------------------------
Balance,
December 31, 1995 $1,300 $800 $ 95 $ 878 $750 $3,823
=================================================================================================
</TABLE>
NOTE G STOCKHOLDERS' EQUITY
At December 31, 1995 and 1994, The FINOVA Group Inc. had 28,421,703
shares of common stock issued, with 27,278,932 and 27,676,526 shares of common
stock outstanding, respectively. Approximately 4,746,000 and 5,011,000 common
shares were reserved for issuance under the 1992 Stock Incentive Plan at
December 31, 1995 and 1994, respectively.
FINOVA has 5,000,000 shares of preferred stock authorized, none of
which was issued at December 31, 1995. The Board of Directors is authorized to
provide for the issuance of shares of preferred stock in series, to establish
the number of shares to be included in each series and to fix the designation,
powers, preferences and rights of the shares of each series. In connection with
the Company's stock incentive plan, 250,000 shares of preferred stock are
reserved for issuance of stock options.
The Company announced in 1992 that it intended to repurchase its
securities on the open market, from time to time, to fund its obligations
pursuant to employee stock options, benefit plans and similar obligations. Under
this program, 611,600; 602,800 and 349,909 shares were acquired during the years
ending December 31, 1995, 1994 and 1993, respectively. The program may be
discontinued at any time.
26
<PAGE> 56
THE FINOVA GROUP INC.
NOTE H STOCK OPTIONS
During 1992, the Board of Directors of the Company adopted The FINOVA
Group Inc. 1992 Stock Incentive Plan (the "Plan") for the grant of options,
restricted stock and stock appreciation rights to officers, directors and
certain key employees. In connection with the 1992 spin-off of the Company (the
"Spin-Off") from The Dial Corp ("Dial"), shares of common stock were made
available to provide new options, restricted shares of common stock and stock
appreciation rights to employees of the Company or its subsidiaries in exchange
for awards outstanding under certain stock option and incentive plans of Dial.
Each option was adjusted so that the aggregate exercise price and the aggregate
spread before the Spin-Off was preserved at the time of the Spin-Off. For each
share of Dial restricted stock held by an employee, such employee received
replacement shares of FINOVA restricted stock with a market value intended to
compensate for the Spin-Off.
The Plan provides for the following types of awards: (a) stock options
(both incentive stock options and non-qualified stock options), (b) stock
appreciation rights, and (c) restricted stock. The Plan generally authorizes the
issuance of awards for up to 2-1/2 percent of the total number of shares of
common stock outstanding as of the first day of each year, with some
modifications. In addition, 250,000 shares of preferred stock are reserved for
awards under the Plan.
The stock options outstanding at December 31, 1995 were granted for
terms of ten years and generally become exercisable over two to three years from
the date of grant. Stock options are exercisable based on the market value at
the date of grant, unless a higher exercise price was established, which has
been the case for multi-year grants.
Information with respect to options granted and exercised for the three
years ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Average Option
Shares Price Per Share
- --------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at January 1, 1993 828,083 $17.12
Granted 454,450 31.17
Exercised (166,839) 16.10
Canceled (103,580) 22.61
- --------------------------------------------------------------------------------
Options outstanding at January 1, 1994 1,012,114 23.04
Granted 635,766 36.18
Exercised (66,418) 17.29
Canceled (119,857) 33.54
- --------------------------------------------------------------------------------
Options outstanding at January 1, 1995 1,461,605 28.12
Granted 313,300 38.80
Exercised (168,388) 22.39
Canceled (83,008) 34.17
- --------------------------------------------------------------------------------
Options outstanding at December 31, 1995 1,523,509 $30.62
================================================================================
</TABLE>
At December 31, 1995, stock options with respect to 1,523,509 common
shares were outstanding at exercise prices ranging from $12.70 to $49.10 per
share.
27
<PAGE> 57
THE FINOVA GROUP INC.
Since 1992, the Board of Directors has granted only performance based
restricted stock. Performance based restricted stock awards (54,550 shares in
1995, 104,820 shares in 1994 and 38,629 in 1993), vest generally over periods
not exceeding five years from the date of grant. The holder of the performance
based restricted stock, like restricted stock, has the right to receive
dividends and vote the target number of shares but may not sell, assign,
transfer, pledge or otherwise encumber the performance based restricted stock.
All performance based restricted stock grants since the Spin-Off were based on
Company share performance and may result in greater or lesser numbers of shares
ultimately being delivered to the holder, depending on that performance. The
target number of shares are deemed received on the grant date. Additional
vestings over the target are reported as new grants as of the vesting dates.
Vestings below target would be reported as a forfeiture of amounts below the
target number of shares.
NOTE I INCOME TAXES
The consolidated provision (benefit) for income taxes consist of the
following for the years ended December 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------
<S> <C> <C> <C>
Current:
United States:
Federal $31,792 $33,107 $ 9,783
State 7,194 6,436 1,002
Foreign (156)
- ------------------------------------------------------------
38,986 39,543 10,629
- ------------------------------------------------------------
Deferred:
United States:
Federal 14,774 5,514 15,680
State 5,047 4,489 2,267
Foreign 804 (88)
- ------------------------------------------------------------
20,625 9,915 17,947
- ------------------------------------------------------------
Provision for income taxes $59,611 $49,458 $28,576
============================================================
</TABLE>
Income taxes paid in 1995, 1994 and 1993 amounted to approximately
$47.9 million, $41.2 million and $10.5 million , respectively.
28
<PAGE> 58
THE FINOVA GROUP INC.
The significant components of deferred tax liabilities and deferred tax
assets at December 31, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Deferred income from leveraged leases $230,120 $226,115
Deferred income from lease financing 62,681 32,833
Other 6,408 8,353
- ----------------------------------------------------------------------------------------
Gross deferred tax liability 299,209 267,301
- ----------------------------------------------------------------------------------------
Deferred tax assets:
Reserve for possible credit losses 39,094 29,363
Investment in foreign subsidiary carrying value difference 23,193 23,193
Accrued expenses 5,005 11,400
Alternative minimum tax credit carryforward 15,405 6,183
Other 7,000 8,275
- ----------------------------------------------------------------------------------------
Gross deferred tax asset 89,697 78,414
- ----------------------------------------------------------------------------------------
Net deferred tax liability $209,512 $188,887
========================================================================================
</TABLE>
<TABLE>
<CAPTION>
The federal statutory income tax rate is reconciled to the effective
income tax rate as follows:
- -------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income taxes 5.1% 5.1% 3.4%
Foreign tax effects (0.5%) 1.2% (2.0%)
Municipal income (1.7%) (1.2%)
Other (0.1%) (0.7%)
- -----------------------------------------------------------------------------
Current provision for income taxes 37.9% 40.0% 35.7%
Adjustments to deferred taxes 7.3%
- -----------------------------------------------------------------------------
Provision for income taxes 37.9% 40.0% 43.0%
=============================================================================
</TABLE>
NOTE J PENSION AND OTHER BENEFITS
Net periodic pension costs were $1.3 million, $1.5 million and $0 for
each of the years ended December 31, 1995, 1994 and 1993, respectively. The
Company's pension costs were prepaid $2.3 million at December 31, 1995 and $3.6
million at December 1994.
Net periodic postretirement benefit costs were $0.6 million, $0.5
million and $0.3 million for each of the years ended December 31, 1995, 1994 and
1993, respectively. The Company's accrued postretirement benefit costs were $1.5
million at December 31, 1995 and $0.8 million at December 31, 1994.
29
<PAGE> 59
THE FINOVA GROUP INC.
NOTE K LITIGATION AND CLAIMS
The Company is party either as plaintiff or defendant to various
actions, proceedings and pending claims, including legal actions, certain of
which involve claims for compensatory, punitive or other damages in significant
amounts. Such litigation often results from the Company's attempts to enforce
its lending agreements against borrowers and other parties to such transactions.
Litigation is subject to many uncertainties and it is possible that some of the
legal actions, proceedings or claims referred to above could be decided against
the Company. Although the ultimate amount for which the Company may be held
liable, if any, is not ascertainable, the Company believes that any resulting
liability should not materially affect the Company's financial position or
results of operations.
NOTE L FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company using available market
information and valuation methodologies described below. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein may not be indicative of
the amounts that the Company could realize in a current market exchange. The use
of different market assumptions or valuation methodologies may have a material
effect on the estimated fair value amounts.
The carrying amounts and estimated fair values of the Company's
financial instruments are as follows for the years ended December 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance Sheet -
Financial Instruments:
Assets:
Loans and other financing contracts $4,749,407 $4,755,908 $3,810,781 $3,829,881
Liabilities:
Senior debt 5,649,368 5,729,950 4,573,354 4,510,043
Off-Balance Sheet -
Financial Instruments:
Interest rate swaps -- 9,970 -- (47,937)
Interest rate hedge agreements -- (2,878) -- (4,049)
- ----------------------------------------------------------------------------------------------------
</TABLE>
The carrying values of cash and cash equivalents, factored receivables,
accounts payable and accrued expenses, due to clients and interest payable
approximate fair values due to the short-term maturities of these instruments.
30
<PAGE> 60
THE FINOVA GROUP INC.
The methods and assumptions used to estimate the fair values of other
financial instruments are summarized as follows:
LOANS AND OTHER FINANCING CONTRACTS:
The fair value of loans and other financing contracts was
estimated by discounting expected cash flows using the current rates at
which loans of similar credit quality, size and remaining maturity
would be made as of December 31, 1995 and 1994. Management believes
that the risk factor embedded in the entry-value interest rates
applicable to performing loans for which there are no known credit
concerns results in a fair valuation of such loans on an entry value
basis. As of December 31, 1995 and 1994, the fair value of nonaccruing
contracts with a carrying amount of $117.9 million and $83.0 million,
respectively, was not estimated because it is not practicable to
reasonably assess the credit adjustment that would be applied in the
marketplace for such loans. As of December 31, 1995 and 1994, the
carrying amount of loans and other financing contracts excludes
repossessed assets with a total carrying amount of $106.6 million and
$140.9 million, respectively.
SENIOR DEBT:
The fair value of senior debt was estimated by discounting
future cash flows using rates currently available for debt of similar
terms and remaining maturities. The carrying values of commercial paper
and borrowings under revolving credit facilities, if any, were assumed
to approximate fair values due to their short maturities.
INTEREST RATE SWAPS:
The fair values of interest rate swaps is based on quoted
market prices obtained from participating banks and dealers for
transactions of similar remaining duration.
INTEREST RATE HEDGE AGREEMENTS:
The fair values of interest rate hedge agreements is based on
quoted market prices obtained from participating banks and dealers for
transactions of similar remaining duration.
The fair value estimates presented herein were based on information
available as of December 31, 1995 and 1994. Although management is not aware of
any factors that would significantly affect the estimated fair values, such
values have not been updated since December 31, 1995 and 1994; therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.
NOTE M SELLING, ADMINISTRATIVE AND OTHER OPERATING EXPENSES:
The following represents a summary of the major components of selling,
administrative and other operating expenses for the three years ended December
31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $88,102 $63,891 $29,502
Depreciation and amortization 16,365 9,733 2,802
Problem account costs 9,316 13,505 11,822
Travel and entertainment 8,818 6,099 2,182
Professional services 8,741 7,357 2,201
Occupancy expense 7,433 6,124 4,160
- -----------------------------------------------------------------------
</TABLE>
31
<PAGE> 61
THE FINOVA GROUP INC.
NOTE N NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
effective for fiscal years beginning after December 15, 1995. This statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used and long-lived assets and certain identifiable intangibles to be
disposed of. The statement requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In addition, the statement
requires that certain long-lived assets and intangibles to be disposed of be
reported at the lower of carrying amount or fair value less cost to sell. The
Company does not expect the adoption of this accounting standard to materially
impact its results of operations or financial position. The Company will adopt
this accounting standard effective January 1, 1996, as required.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation", effective for transactions entered into in fiscal
years that begin after December 15, 1995. This statement establishes financial
accounting and reporting for stock-based employee compensation plans, including
stock purchase plans, stock option plans, restricted stock and stock
appreciation rights. The Statement requires a fair value based method of
accounting for employee stock options or similar instruments and encourages a
similar method for all employee stock compensation plans. This method measures
compensation cost at the grant date based on the value of an award and
recognizes it over the service period, usually the vesting period. However, the
Statement also allows an entity to continue measuring compensation cost for such
plans using the intrinsic value method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees",
provided pro forma disclosures are made. The Company expects to continue to
account for its stock-based employee compensation plans using the method of
accounting prescribed by APB No. 25 and does not expect this accounting standard
will materially impact its results of operations or financial position.
32
<PAGE> 62
THE FINOVA GROUP INC.
SUPPLEMENTAL SELECTED FINANCIAL DATA
CONDENSED QUARTERLY RESULTS (UNAUDITED)
(Dollars in Thousands)
The following represents the condensed quarterly results for the two
years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest earned from financing transactions:
1995 $174,757 $184,693 $192,287 $210,118
1994 73,961 121,891 147,649 159,850
- -------------------------------------------------------------------------------------
Interest expense:
1995 84,524 90,197 93,136 98,965
1994 33,133 53,648 65,881 69,538
- -------------------------------------------------------------------------------------
Gains on sale of assets:
1995 2,980 4,073 4,646 8,027
1994 3 4,500 1,169 3,373
- -------------------------------------------------------------------------------------
Non-interest expenses:
1995 55,718 61,188 63,363 77,250
1994 22,510 42,526 45,813 55,576
- -------------------------------------------------------------------------------------
Income from continuing operations:
1995 22,368 23,629 25,150 26,482
1994 11,389 17,305 22,257 23,362
- -------------------------------------------------------------------------------------
Net income:
1995 22,368 23,629 25,150 26,482
1994 11,389 17,305 22,257 23,362
=====================================================================================
</TABLE>
33
<PAGE> 63
THE FINOVA GROUP INC.
AVERAGE BALANCES/INTEREST MARGINS/AVERAGE ANNUAL RATES (UNAUDITED)
(Dollars in Thousands)
The following represents the breakdown of the Company's average balance
sheet, interest margins and average annual rates for the years ended December
31, 1995 and 1994:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
December 31, 1995 1994 (1)
- --------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 44,412 $ $ 28,886 $
Investment in financing transactions 6,213,571 706,637 (4) 12.1% (2) 4,446,745 466,614 (4) 11.5% (2)
Less reserve for possible credit losses (128,590) (106,277)
- --------------------------------------------------------------------------------------------------------------------------
Investment in financing transactions - net 6,084,981 4,340,468
Other assets and deferred charges 252,194 183,069
- --------------------------------------------------------------------------------------------------------------------------
$6,381,587 $4,552,423
==========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Other liabilities $ 301,242 $ 226,648
Senior debt 5,084,145 366,822 7.2% 3,468,498 222,200 6.4%
Deferred income taxes 199,141 190,710
- --------------------------------------------------------------------------------------------------------------------------
5,584,528 3,885,856
Stockholders' equity 797,059 666,567
- --------------------------------------------------------------------------------------------------------------------------
$6,381,587 $4,552,423
==========================================================================================================================
Interest income/average earning assets (2) $706,637 12.1% 466,614 11.5%
Interest expense/average earning assets (2) (3) 366,822 6.3% 222,200 5.5%
- --------------------------------------------------------------------------------------------------------------------------
Interest margins earned (3) $339,815 5.8% $244,414 6.0%
==========================================================================================================================
</TABLE>
(1) Includes financial results from the acquisitions of Ambassador (February
14, 1994) and TriCon (April 30, 1994).
(2) The average rate is calculated based on average earning assets ($5,815,455
and $4,064,971 for 1995 and 1994, respectively) which are net of average
deferred taxes on leveraged leases and average nonaccruing assets.
(3) For the year ended December 31, 1995, excluding the impact of derivatives,
interest expense would have been $357,017 or 6.1% of average earning assets
and interest margins earned would have been $349,620 or 6.0% of average
earning assets. For the year ended December 31, 1994, excluding the impact
of derivatives, interest expense would have been $235,855 or 5.8% of
average earning assets and interest margins earned would have been $230,759
or 5.7% of average earning assets.
(4) Interest income is shown net of depreciation.
34
<PAGE> 64
THE FINOVA GROUP INC.
COMMISSION FILE NUMBER 1-11011
EXHIBIT INDEX
DECEMBER 31, 1995 FORM 10-K
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ---------------------------------------------------------------
<S> <C>
(3.A) Certificate of Incorporation, as amended through the date of
this filing (incorporated by reference from the Company's
Report on Form 10-K for the year ended December 31, 1994 (the
"1994 10-K")).
(3.B) By-Laws, as amended through the date of this filing.*
(4.A) Instruments with respect to issues of long-term debt have not
been filed as exhibits to this Annual Report on Form 10-K if
the authorized principal amount of any one of such issues does
not exceed 10% of total assets of the Company and its
subsidiaries on a consolidated basis. The Company agrees to
furnish a copy of each such instrument to the Securities and
Exchange Commission upon request.
(4.B) Form of Common Stock Certificate of the Company (incorporated
by reference from the 1994 10-K, Exhibit 4.B).
(4.C) Relevant portions of the Company's Certificate of Incorporation
and Bylaws included in Exhibits 3.A and 3.B above,
respectively, are hereby incorporated by reference.
(4.D.1) Rights Agreement dated as of February 15, 1992 between the
Company and the Rights Agent named therein, as amended
(incorporated by reference from the Company's Current Report on
Form 8-K dated September 21, 1995, Exhibit 4.1).
(4.D.2) Acceptance of Successor Trustee to Appointment under Rights
Agreement noted in 4.D.1 above (incorporated by reference from
the Company's Current Report on Form 8-K, dated November 30,
1995, Exhibit 4).
(4.E) Indenture dated as of November 1, 1990 between FINOVA Capital
and the Trustee named therein (incorporated by reference from
Greyhound Financial Corporation's Registration Statement on
Form S-3, Registration No. 33-37743, Exhibit 4).
(4.F) Fourth Supplemental Indenture dated as of April 17, 1992
between FINOVA Capital and the Trustee named therein,
supplementing the Indenture referenced in Exhibit 4.E above
(incorporated by reference from GFC Financial Corporation's
Annual Report on Form 10-K for the year 1992 (the "1992 10-K"),
Exhibit 4.F).
(4.G) Form of Indenture dated as of September 1, 1992 between FINOVA
Capital and the Trustee named therein (incorporated by
reference from the Greyhound Financial Corporation Registration
Statement on Form S-3, Registration No. 33-51216, Exhibit 4).
(4.H) Form of Indenture dated as of October 1, 1995 between FINOVA
Capital and the Trustee named therein (incorporated by
reference from FINOVA Capital's Report on Form 8-K dated
October 25, 1995, Exhibit 4.1).
(4.I) 1992 Stock Incentive Plan of the Company as amended through the
date hereof, with a proposed amendment thereto as discussed
more fully in the Proxy Statement.*+
</TABLE>
<PAGE> 65
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ---------------------------------------------------------------
<S> <C>
(10.A) Sixth Amendment and Restatement dated as of May 16, 1994 of the
Credit Agreement dated as of May 31, 1976 among FINOVA Capital
and the lender parties thereto, and Bank of America National
Trust and Savings Association, Bank of Montreal, Chemical Bank,
Citibank, N.A. and National Westminster Bank USA, as agents
(the "Agents") and Citibank, N.A., as Administrative Agent
(incorporated by reference from the Corporation's Current
Report on Form 8-K dated May 23, 1994, Exhibit 10.I).
(10.A.1) First Amendment dated as of September 30, 1994, to the Sixth
Amendment and Restatement, noted in 10.A above (incorporated by
reference from the 1994 10-K, Exhibit 10.A.1).
(10.A.2) Second Amendment dated as of May 11, 1995 to the Sixth
Amendment and Restatement noted in 10.A above (incorporated by
reference from the Company's Quarterly Report on Form 10-Q for
the period ending September 30, 1995 (the "Third Quarter
10-Q"), Exhibit 10.A).
(10.A.3) Third Amendment dated as of November 1, 1995 to Sixth Amendment
noted in 10.A above (incorporated by reference from the Third
Quarter 10-Q, Exhibit 10.B).
(10.B) Credit Agreement (Short-Term Facility) dated as of May 16, 1994
among FINOVA Capital, the Lender parties thereto, the Agents
and Citibank, N.A., as Administrative Agent (incorporated by
reference from the Company's Report on Form 8-K dated May 23,
1994, Exhibit 10.2).
(10.B.1) First Amendment dated as of September 30, 1994 to the Credit
Agreement noted in 10.B above (incorporated by reference from
the 1994 10-K, Exhibit 10.B.1).
(10.B.2) Second Amendment to Short-Term Facility noted in 10.B above
(incorporated by reference from the Third Quarter 10-Q, Exhibit
10.C).
(10.B.3) Third Amendment to Short-Term Facility noted in 10.B above
(incorporated by reference from the Third Quarter 10-Q, Exhibit
10.D).
(10.C.1) The Company's Executive Severance Plan for Tier 1 Employees.*+
(10.C.2) The Company's Executive Severance Plan for Tier 2 Employees.*+
(10.D) The Company's 1995 Management Incentive Plan (incorporated by
reference from the Third Quarter 10-Q, Exhibit 10-G).+
(10.E.1) The Company's 1995 - 1997 Performance Share Incentive Plan
(incorporated by reference from the Third Quarter 10-Q, Exhibit
10.H).+
(10.E.2) The Company's 1994 - 1996 Performance Share Incentive Plan
(incorporated by reference from the Third Quarter 10-Q, Exhibit
10-I).+
</TABLE>
<PAGE> 66
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ---------------------------------------------------------------
<S> <C>
(10.E.3) The Company's 1993 - 1995 Performance Share Incentive Plan
(incorporated by reference from the Third Quarter 10-Q, Exhibit
10.H).+
(10.F.1) Employment Agreement with Samuel L. Eichenfield, dated March
16, 1992 (incorporated by reference from the 1992 10-K,
Exhibit 10.F).+
(10.F.2) Amendment to Employment Agreement referenced in 10.F.1 above
(incorporated by reference from the Third Quarter 10-Q,
Exhibit 10.M).+
(10.F.3) Employment Agreement with Samuel L. Eichenfield dated March 15,
1996.*+
(10.G) Employment Agreement with William J. Hallinan, dated February
25, 1992 (incorporated by reference from the 1992 10-K,
Exhibit 10.I).+
(10.H) Employment Agreement with Thomas C. Parrinello, dated February
14, 1994 (incorporated by reference from the 1994 10-K, Exhibit
10.H).+
(10.I) The Company's Supplemental Pension Plan (incorporated by
reference from the 1994 10-K, Exhibit 10.K)
(10.I.1) Resolutions of the Board of Directors dated December 5, 1994,
amending Exhibit 10.I above.*+
(10.I.2) Resolutions of the Board of Directors dated August 22, 1995,
amending Exhibit 10.I and 10.I.1 above.*+
(10.J) The Company's Value Sharing Plan for Executive Officers and Key
Employees (incorporated by reference from the Third Quarter
10-Q, Exhibit 10.K).+
(10.K) The Company's Value Sharing Plan for the Chief Executive
Officer (incorporated by reference from the Third Quarter 10-Q,
Exhibit 10.L).+
(10.L) The Company's Directors Deferred Compensation Plan
(incorporated by reference from the 1992 10-K, Exhibit 10.O).+
(10.M) The Company's Deferred Compensation Plan.*+
(10.N) Directors' Retirement Benefit Plan (incorporated by reference
from the Company's Annual Report on Form 10-K for the year
ended December 31, 1993 (the "1993 10-K"), Exhibit 10.OO).+
(10.O) Form of the Company's 1992 Stock Incentive Plan Nonqualified
Stock Option Agreement (for exempt employees) (for August 25,
1992 and subsequent grants through August 10, 1994) (various
prices) (incorporated by reference from the 1992 10-K, Exhibit
10.FF).+
</TABLE>
<PAGE> 67
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- ---------------------------------------------------------------
<S> <C>
(10.P) A description of the Company's policies regarding compensation
of directors is incorporated by reference from the Proxy
Statement.+
(10.Q) Directors' Charitable Awards Program (incorporated by reference
from the 1994 10-K, Exhibit 10.CC).+
(10.R) Interim Services Agreement dated January 28, 1992 among the
Company, The Dial Corp and others (incorporated by reference
from the 1992 10-K, Exhibit 10.JJ).
(10.S) Tax Sharing Agreement dated February 19, 1992 among the
Company, The Dial Corp and others (incorporated by reference
from the 1992 10-K, Exhibit 10.KK).
(10.T) Sublease dated as of April 1, 1991, among the Company, The Dial
Corp and others, relating to the Company's principal office
space (incorporated by reference from the 1992 10-K, Exhibit
10.NN).
(10.U) Stock Purchase Agreement between Bell Atlantic TriCon Leasing
Corporation and Greyhound Financial Corporation dated as of
March 4, 1994 (incorporated by reference from the 1993 10-K,
Exhibit 10.QQ).
(10.V) Form of Assets Purchase Agreement between Bell Atlantic TriCon
Leasing Corporation and TriCon Capital Corporation
(incorporated by reference from the 1993 10-K, Exhibit 10.RR).
(10.W) Form of Distribution Agreement among the Company, Greyhound
Financial Corporation, The Dial Corp and certain other parties
named therein, dated as of January 28, 1992 (incorporated by
reference from the Company's Registration Statement on Form
S-1, SEC File No. 33-45452, Annex II to the Prospectus and
Exhibit 2.1).
(10.X) Stock Purchase Agreement among The FINOVA Group Inc., FINOVA
Capital and GE Capital Mortgage Corporation dated May 26, 1993
(incorporated by reference from the Company's Report on Form
8-K dated July 15, 1993, Exhibit 2).
(10.Y) Form of the Company's 1992 Stock Incentive Plan Stock Option
Agreements for grants subsequent to August 10, 1994 (for exempt
employees) (various prices) (incorporated by reference from the
1994 10-K, Exhibit 10.DD).+
(10.Z) Form of the Company's 1992 Stock Incentive Plan Stock Option
Agreements for grants subsequent to August 10, 1994 (for
non-employee directors) (various prices) (incorporated by
reference from the 1994 10-K, Exhibit 10.FF).+
(10.AA) Form of the Company's 1992 Stock Incentive Plan Restricted
Stock Agreements (incorporated by reference from the 1994 10-K,
Exhibit 10.GG).+
(11) Computation of Per Share Earnings.*
(12) Computation of Ratio of Income to Combined Fixed Charges and
Preferred Stock Dividends.*
(21) Subsidiaries of the Registrant.*
(25) Powers of Attorney.*
(27) Financial Data Schedule.*
_______________
* Filed herewith.
+ Relating to Management Compensation.
</TABLE>
<PAGE> 1
EXHIBIT 3.B
AMENDED AND RESTATED
BYLAWS
OF
THE FINOVA GROUP INC.
A DELAWARE CORPORATION
<PAGE> 2
ARTICLE I
OFFICES AND RECORDS
Section 1.1. Delaware Office . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Other Offices . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3. Books and Records . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
STOCKHOLDERS
Section 2.1. Annual Meeting (AMENDED 11/94) . . . . . . . . . . . . . . 1
Section 2.2. Special Meeting . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.3. Place of Meeting . . . . . . . . . . . . . . . . . . . . . 1
Section 2.4. Notice of Meeting . . . . . . . . . . . . . . . . . . . . . 2
Section 2.5. Quorum and Adjournment . . . . . . . . . . . . . . . . . . 2
Section 2.6. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.7. Notice of Stockholder Business and Nominations . . . . . . 2
Section 2.8. Procedure for Election of Directors . . . . . . . . . . . . 5
Section 2.9. Inspectors of Elections; Opening and Closing the Polls . . 5
Section 2.10. No Stockholder Action by Written Consent . . . . . . . . . 5
ARTICLE III
BOARD OF DIRECTORS
Section 3.1. General Powers . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.2. Number, Tenure and Qualifications . . . . . . . . . . . . . 6
Section 3.3. Regular Meetings . . . . . . . . . . . . . . . . . . . . . 6
Section 3.5. Notice (AMENDED 4/93) . . . . . . . . . . . . . . . . . . . 6
Section 3.6. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.7. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.8. Executive Committee . . . . . . . . . . . . . . . . . . . . 7
Section 3.9. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IV
OFFICERS
Section 4.1. Elected Officers . . . . . . . . . . . . . . . . . . . . . 7
Section 4.2. Election and Term of Office . . . . . . . . . . . . . . . . 8
Section 4.3. Chairman of the Board . . . . . . . . . . . . . . . . . . . 8
Section 4.4. President . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.5. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.6. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . 9
-0-
<PAGE> 3
Section 4.7. Removal . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.8. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
Section 5.1. Stock Certificates and Transfers . . . . . . . . . . . . . 9
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 6.2. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 6.3. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 6.4. Waiver of Notice . . . . . . . . . . . . . . . . . . . . . 11
Section 6.5. Audits . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 6.6. Resignations . . . . . . . . . . . . . . . . . . . . . . . 11
Section 6.7. Indemnification and Insurance . . . . . . . . . . . . . . . 11
ARTICLE VII
AMENDMENTS
Section 7.1. Amendments . . . . . . . . . . . . . . . . . . . . . . . . 13
-1-
<PAGE> 4
AMENDED AND RESTATED
BYLAWS
OF
THE FINOVA GROUP INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
ARTICLE I
OFFICES AND RECORDS
SECTION 1.1. DELAWARE OFFICE. The principal office of the
Corporation in the State of Delaware shall be located in the City of
Wilmington, County of New Castle, and the name and address of its registered
agent is The Corporation Trust Company, 1209 Orange Street, Wilmington,
Delaware.
SECTION 1.2. OTHER OFFICES. The Corporation may have such other
offices, either within or without the State of Delaware, as the Board of
Directors may designate or as the business of the Corporation may from time to
time require.
SECTION 1.3. BOOKS AND RECORDS. The books and records of the
Corporation may be kept at the Corporation's headquarters in Phoenix, Arizona
or at such other locations outside the State of Delaware as may from time to
time be designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
SECTION 2.1. ANNUAL MEETING (AMENDED 11/94). Commencing in 1994, the
annual meeting of the stockholders of the Corporation shall be held on the
second Thursday in May of each year, if not a legal holiday, and if a legal
holiday then on the next succeeding business day, at 9:00 a.m., local time, at
the principal executive offices of the Corporation, or at such other date,
place and/or time as may be fixed by resolution of the Board of Directors.
SECTION 2.2. SPECIAL MEETING. Subject to the rights of the holders
of any series of preferred stock, par value $.01 per share, of the Corporation
(the "Preferred Stock") or any other series or class of stock as set forth in
the Certificate of Incorporation to elect additional directors under specified
circumstances, special meetings of the stockholders may be called only by the
Chairman of the Board or by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of directors which the Corporation
would have if there were no vacancies (the "Whole Board").
SECTION 2.3. PLACE OF MEETING. The Board of Directors may designate
the place of meeting for any meeting of the stockholders. If no designation is
made by
-1-
<PAGE> 5
the Board of Directors, the place of meeting shall be the principal office of
the Corporation.
SECTION 2.4. NOTICE OF MEETING. Written or printed notice, stating
the place, day and hour of the meeting and the purpose or purposes for which
the meeting is called, shall be prepared and delivered by the Corporation not
less than ten days nor more than sixty days before the date of the meeting,
either personally, or by mail, to each stockholder of record entitled to vote
at such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail with postage thereon prepaid, addressed to
the stockholder at his address as it appears on the stock transfer books of the
Corporation. Such further notice shall be given as may be required by law.
Meetings may be held without notice if all stockholders entitled to vote are
present, or if notice is waived by those not present. Any previously scheduled
meeting of the stockholders may be postponed by resolution of the Board of
Directors upon public notice given prior to the time previously scheduled for
such meeting of stockholders.
SECTION 2.5. QUORUM AND ADJOURNMENT. Except as otherwise provided by
law or by the Certificate of Incorporation, the holders of a majority of the
voting power of the outstanding shares of the Corporation entitled to vote
generally in the election of directors (the "Voting Stock"), represented in
person or by proxy, shall constitute a quorum at a meeting of stockholders,
except that when specified business is to be voted on by a class or series
voting as a class, the holders of a majority of the voting power of the shares
of such class or series shall constitute a quorum for the transaction of such
business. The chairman of the meeting or a majority of the shares of Voting
Stock so represented may adjourn the meeting from time to time, whether or not
there is such a quorum (or, in the case of specified business to be voted on by
a class or series, the chairman or a majority of the shares of such class or
series so represented may adjourn the meeting with respect to such specified
business). No notice of the time and place of adjourned meetings need be given
except as required by law. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum.
SECTION 2.6. PROXIES. At all meetings of stockholders, a stockholder
may vote by proxy executed in writing by the stockholder or as may be permitted
by law, or by his duly authorized attorney-in-fact. Such proxy must be filed
with the Secretary of the Corporation or his representative at or before the
time of the meeting.
SECTION 2.7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(A) Annual Meetings of Stockholders. (1) Nominations of persons
for election to the Board of Directors of the Corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders (a) pursuant to the Corporation's notice of meeting delivered
pursuant to Section 2.4 of these Bylaws, (b) by or at the direction of the
Chairman or the
-2-
<PAGE> 6
Board of Directors or (c) by any stockholder of the Corporation who is entitled
to vote at the meeting, who complied with the notice procedures set forth in
clauses (2) and (3) of this paragraph (A) and this Bylaw and who was a
stockholder of record at the time such notice is delivered to the Secretary of
the Corporation.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of this Bylaw, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to the Secretary at the principal executive offices
of the Corporation not less than seventy days nor more than ninety days prior
to the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced by
more than twenty days, or delayed by more than seventy days, from such
anniversary date, notice by the stockholder to be timely must be so delivered
not earlier than the ninetieth day prior to such annual meeting and not later
than the close of business on the later of the seventieth day prior to such
annual meeting or the tenth day following the day on which public announcement
of the date of such meeting is first made. Such stockholder's notice shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected; (b) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest
in such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the stockholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or proposal is
made (i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and number
of shares of the Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner. Notwithstanding anything to the
contrary in this paragraph of this Bylaw, nothing shall require the Corporation
to include any such stockholder nominations or other business in any proxy or
proxy statement unless such nomination or business is required to be included
pursuant to rules under Regulation 14A of the Exchange Act.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this Bylaw to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the Corporation
at least eighty days prior to the first anniversary of the preceding year's
annual meeting, a stockholder's notice required by this Bylaw shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to
-3-
<PAGE> 7
the Secretary at the principal executive offices of the Corporation not later
than the close of business on the tenth day following the day on which such
public announcement is first made by the Corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting pursuant to
Section 2.4 of these Bylaws. Nominations of persons for election to the Board
of Directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the Corporation's notice of meeting (a)
by or at the direction of the Board of Directors or (b) by any stockholder of
the Corporation who is entitled to vote at the meeting, who complies with the
notice procedures set forth in this Bylaw and who is a stockholder of record at
the time such notice is delivered to the Secretary of the Corporation.
Nominations by stockholders of persons for election to the Board of Directors
may be made at such a special meeting of stockholders if the stockholder's
notice as required by paragraph (A)(2) of this Bylaw shall be delivered to the
Secretary at the principal executive offices of the Corporation not earlier
than the ninetieth day prior to such special meeting and not later than the
close of business on the later of the seventieth day prior to such special
meeting or the tenth day following the day on which public announcement is
first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting.
(C) General. (1) Only persons who are nominated in accordance
with the procedures set forth in this Bylaw shall be eligible to serve as
director and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Bylaw. Except as otherwise provided by law, the Restated
Certificate of Incorporation or these Bylaws, the chairman of the meeting shall
have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made in accordance with the
procedures set forth in this Bylaw and, if any proposed nomination or business
is not in compliance with this Bylaw, to declare that such defective proposal
or nomination shall be disregarded.
(2) For purposes of this Bylaw, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant
to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
-4-
<PAGE> 8
SECTION 2.8. PROCEDURE FOR ELECTION OF DIRECTORS. Election of
directors at all meetings of the stockholders at which directors are to be
elected shall be by written ballot, and, except as otherwise set forth in the
Certificate of Incorporation with respect to the right of the holders of any
series of Preferred Stock or any other series or class of stock to elect
additional directors under specified circumstances, a plurality of the votes
cast thereat shall elect. Except as otherwise provided by law, the Certificate
of Incorporation or these Bylaws, all matters other than the election of
directors submitted to the stockholders at any meeting shall be decided by a
majority of the votes cast with respect thereto.
SECTION 2.9. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS.
(A) The Board of Directors by resolution shall appoint one or more
inspectors, which inspector or inspectors may include individuals who serve the
Corporation in other capacities, including, without limitation, as officers,
employees, agents or representatives of the Corporation, to act at the meeting
and make a written report thereof. One or more persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate has been appointed to act, or if all inspectors or
alternates who have been appointed are unable to act, at a meeting of
stockholders, the chairman of the meeting shall appoint one or more inspectors
to act at the meeting. Each inspector, before discharging his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his or her ability. The
inspectors shall have the duties prescribed by the General Corporation Law of
the State of Delaware.
(B) The chairman of the meeting shall fix and announce at the
meeting the date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting.
SECTION 2.10. NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Subject to
the rights of the holders of any series of Preferred Stock or any other series
or class of stock as set forth in the Certificate of Incorporation to elect
additional directors under specific circumstances, any action required or
permitted to be taken by the stockholders of the Corporation must be effected
at an annual or special meeting of stockholders of the Corporation and may not
be affected by any consent in writing by such stockholders.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors. In addition to the powers and authorities by these Bylaws expressly
conferred upon them, the Board of Directors may exercise all such powers of the
Corporation and do all such
-5-
<PAGE> 9
lawful acts and things as are not by law or by the Certificate of Incorporation
or by these Bylaws required to be exercised or done by the stockholders.
SECTION 3.2. NUMBER, TENURE AND QUALIFICATIONS. Subject to the
rights of the holders of any series of Preferred Stock, or any other series or
class of stock as set forth in the Certificate of Incorporation, to elect
directors under specified circumstances, the number of directors shall be fixed
from time to time exclusively pursuant to a resolution adopted by a majority of
the Whole Board, but shall consist of not more than seventeen nor less than
three directors. The directors, other than those who may be elected by the
holders of any series of Preferred Stock, or any other series or class of stock
as set forth in the Certificate of Incorporation, shall be divided, with
respect to the time for which they severally hold office, into three classes,
as nearly equal in number as possible, with the term of office of the first
class to expire at the 1993 annual meeting of stockholders, the term of office
of the second class to expire at the 1994 annual meeting of stockholders and
the term of office of the third class to expire at the 1995 annual meeting of
stockholders. Each director shall hold office until his or her successor shall
have been duly elected and qualified. At each annual meeting of stockholders,
commencing with the 1993 annual meeting, (i) directors elected to succeed those
directors whose terms then expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election, with each director to hold office until his or her successor shall
have been duly elected and qualified, and (ii) if authorized by a resolution of
the Board of Directors, directors may be elected to fill any vacancy on the
Board of Directors, regardless of how such vacancy shall have been created.
SECTION 3.3. REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held without other notice than this Bylaw immediately after,
and at the same place as, each annual meeting of stockholders. The Board of
Directors may, by resolution, provide the time and place for the holding of
additional regular meetings without other notice than such resolution.
SECTION 3.5. NOTICE (AMENDED 4/93). Notice of any special
meeting shall be given to each director at his business or residence in writing
or by telegram or by telephone communication. If mailed, such notice shall be
deemed adequately delivered when deposited in the United States mails so
addressed, with postage thereon prepaid, at least five days before such
meeting. If by telegram, such notice shall be deemed adequately delivered when
the telegram is delivered to the telegraph company at least twenty- four hours
before such meeting. If by facsimile transmission, such notice shall be
transmitted at least twenty-four hours before such meeting. If by telephone,
the notice shall be given at least twelve hours prior to the time set for the
meeting. If by hand delivery, the notice shall be delivered at least
twenty-four hours prior to the time set for the meeting. Neither the business
to be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice of such meeting, except for
amendments to these Bylaws as provided under Section 7.1 of Article VII hereof.
A meeting may be held at any time without notice if all the directors are
present or if those not present waive notice of the meeting in writing, either
before or after such meeting."
-6-
<PAGE> 10
SECTION 3.6. QUORUM. A whole number of directors equal to at least a
majority of the Whole Board shall constitute a quorum for the transaction of
business, but if at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of the directors present may adjourn the
meeting from time to time without further notice. The act of the majority of
the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors. The directors present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding
the withdrawal of enough directors to leave less than a quorum.
SECTION 3.7. VACANCIES. Subject to the rights of the holders of any
series of Preferred Stock, or any other series or class of stock as set forth
in the Certificate of Incorporation, to elect additional directors under
specified circumstances, and unless the Board of Directors otherwise
determines, vacancies resulting from death, resignation, retirement,
disqualification, removal from office or other cause, and newly created
directorships resulting from any increase in the authorized number of
directors, may be filled only by the affirmative vote of a majority of the
remaining directors, through less than a quorum of the Board of Directors, and
directors so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of office of the class to which they have
been elected expires and until such director's successor shall have been duly
elected and qualified. No decrease in the number of authorized directors
constituting the Whole Board shall shorten the term of any incumbent director.
SECTION 3.8. EXECUTIVE COMMITTEE. The Board of Directors,
immediately following each annual meeting of stockholders or a special meeting
of the same held in lieu of the annual meeting for the election of directors,
shall meet and shall appoint from its number an Executive Committee of such
number of members as from time to time may be selected by the Board, to serve
until the next annual or special meeting at which a majority of directors is
elected or until the respective successor of each is duly appointed. The
Executive Committee shall possess and may exercise all the powers and authority
of the Board of Directors in the management and direction of the business and
affairs of the Corporation, except as limited by law and except for the power
to change the membership or to fill vacancies in the Board or said Committee.
The Board shall have the power at any time to change the membership of said
Committee, to fill vacancies in it or to make rules for the conduct of its
business.
SECTION 3.9. REMOVAL. Subject to the rights of the holders of any
series of Preferred Stock, or any other series or class of stock as set forth
in the Certificate of Incorporation, to elect additional directors under
specified circumstances, any director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the affirmative
vote of the holders of at least 80 percent of the voting power of the then
outstanding Voting Stock, voting together as a single class.
-7-
<PAGE> 11
ARTICLE IV
OFFICERS
SECTION 4.1. ELECTED OFFICERS. The elected officers of the
Corporation shall be a Chairman of the Board, a President, a Secretary, a
Treasurer, and such other officers as the Board of Directors from time to time
may deem proper. The Chairman of the Board shall be chosen from the directors.
All officers chosen by the Board of Directors shall each have such powers and
duties as generally pertain to their respective offices, subject to the
specific provisions of this Article IV. Such officers shall also have powers
and duties as from time to time may be conferred by the Board of Directors or
any committee thereof.
SECTION 4.2. ELECTION AND TERM OF OFFICE. The elected officers of
the Corporation shall be elected annually by the Board of Directors at the
regular meeting of the Board of Directors held after each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as convenient. Subject to
Section 4.7 of these Bylaws, each officer shall hold office until his successor
shall have been duly elected and shall have qualified or until his death or
until he shall resign.
SECTION 4.3. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
preside at all meetings of the stockholders and of the Board of Directors. The
Chairman of the Board shall be responsible for the general management of the
affairs of the Corporation and shall perform all duties incidental to his
office which may be required by law and all such other duties as are properly
required of him by the Board of Directors. Except where by law the signature
of the President is required, the Chairman of the Board shall possess the same
power as the President to sign all certificates, contracts, and other
instruments of the Corporation which may be authorized by the Board of
Directors. He shall make reports to the Board of Directors and the
stockholders, and shall perform all such other duties as are properly required
of him by the Board of Directors. He shall see that all orders and resolutions
of the Board of Directors and of any committee thereof are carried into effect.
SECTION 4.4. PRESIDENT. The President shall act in a general
executive capacity and shall assist the Chairman of the Board in the
administration and operation of the Corporation's business and general
supervision of its policies and affairs. The President shall, in the absence
of or because of the inability to act of the Chairman of the Board, perform all
duties of the Chairman of the Board and preside at all meetings of stockholders
and the Board of Directors. The President may sign, alone or with the
Secretary, or an Assistant Secretary, or any other proper officer of the
Corporation authorized by the Board of Directors, certificates, contracts, and
other instruments of the Corporation as authorized by the Board of Directors.
SECTION 4.5. SECRETARY. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and Directors and all other
notices required by law or by these Bylaws, and in case of his absence or
refusal or neglect so to do,
-8-
<PAGE> 12
any such notice may be given by any person thereunto directed by the Chairman
of the Board or the President, or by the Board of Directors, upon whose request
the meeting is called as provided in these Bylaws. He shall record all the
proceedings of the meetings of the Board of Directors, any committees thereof
and the stockholders of the Corporation in a book to be kept for that purpose,
and shall perform such other duties as may be assigned to him by the Board of
Directors, the Chairman of the Board or the President. He shall have the
custody of the seal of the Corporation and shall affix the same to all
instruments requiring it, when authorized by the Board of Directors, the
Chairman of the Board or the President, and attest to the same.
SECTION 4.6. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the Corporation. The
Treasurer shall deposit all moneys and other valuables in the name and to the
credit of the Corporation in such depositaries as may be designated by the
Board of Directors. The Treasurer shall disburse the funds of the Corporation
as may be ordered by the Board of Directors, the Chairman of the Board, or the
President, taking proper vouchers for such disbursements. The Treasurer shall
render to the Chairman of the Board, the President and the Board of Directors,
whenever requested, an account of all his transactions as Treasurer and of the
financial condition of the Corporation. If required by the Board of Directors,
the Treasurer shall give the Corporation a bond for the faithful discharge of
his duties in such amount and with such surety as the Board of Directors shall
prescribe.
SECTION 4.7. REMOVAL. Any officer elected by the Board of Directors
may be removed by a majority of the members of the Whole Board whenever, in
their judgment, the best interests of the Corporation would be served thereby.
No elected officer shall have any contractual rights against the Corporation
for compensation by virtue of such election beyond the date of the election of
his successor, his death, his resignation or his removal, whichever event shall
first occur, except as otherwise provided in an employment contract or an
employee plan.
SECTION 4.8. VACANCIES. A newly created office and a vacancy in any
office because of death, resignation, or removal may be filled by the Board of
Directors for the unexpired portion of the term at any meeting of the Board of
Directors.
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
SECTION 5.1. STOCK CERTIFICATES AND TRANSFERS.
(A) The interest of each stockholder of the Corporation shall be
evidenced by certificates for shares of stock in such form as the appropriate
officers of the Corporation may from time to time prescribe. The shares of the
stock of the
-9-
<PAGE> 13
Corporation shall be transferred on the books of the Corporation by the holder
thereof in person or by his attorney, upon surrender for cancellation of
certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, with such proof
of the authenticity of the signature as the Corporation or its agents may
reasonably require or upon satisfaction of the requirements of subsection (C)
below.
(B) The certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution
prescribe, which resolution may permit all or any of the signatures on such
certificates to be in facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer, transfer agent or registrar at the date of
issue.
(C) In the event of the loss, theft, or destruction of any
certificates representing shares of the Corporation or of any predecessor
corporation, the Corporation may issue (or, in the case of any such shares as
to which a transfer agent and/or registrar have been appointed, may direct such
transfer agent and/or registrar to countersign, register and issue) a new
certificate, and cause the same to be delivered to the owner of the shares
represented thereby, provided that the owner shall have submitted such evidence
showing, or an affidavit reciting, the circumstances of the alleged loss,
theft, or destruction, and his ownership of the certificate, as the Corporation
considers satisfactory, together with any other facts that the Corporation
considers pertinent, and further provided that a bond of indemnity, with or
without surety, shall have been provided in form and amount satisfactory to the
Corporation (and to its transfer agent and/or registrar, if applicable), unless
the shares represented by the certificate lost, stolen, or destroyed have at
the time of the issuance of the new certificate a market value of $500 or less
(as determined by the Corporation on the basis of such information as it may
select), in which case the requirement of a bond may be waived in the
Corporation's discretion. The Corporation may act through its Chief Executive
Officer, President, any Vice President, its Secretary or any Assistant
Secretary, or its Treasurer or any Assistant Treasurer for any purpose of this
Section 5.1(C), and it may delegate all or any discretion or duties hereunder
to a transfer agent and/or registrar.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1. FISCAL YEAR. The fiscal year of the Corporation shall
begin on the first day of January and end on the thirty-first day of December
of each year.
-10-
<PAGE> 14
SECTION 6.2. DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in
the manner and upon the terms and conditions provided by law and its Restated
Certificate of Incorporation.
SECTION 6.3. SEAL. The corporate seal may bear in the center of the
emblem of some object, and shall have inscribed thereunder the words "Corporate
Seal" and around the margin thereof the words "The FINOVA Group Inc. --
Delaware 1991".
SECTION 6.4. WAIVER OF NOTICE. Whenever any notice is required to be
given to any stockholder or director of the Corporation under the provisions of
the General Corporation Law of the State of Delaware, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at, nor the
purpose of, any annual or special meeting of the stockholders of the Board of
Directors need be specified in any waiver of notice of such meeting.
SECTION 6.5. AUDITS. The accounts, books and records of the
Corporation shall be audited upon the conclusion of each fiscal year by an
independent certified public accountant selected by the Board of Directors, and
it shall be the duty of the Board of Directors to cause such audit to be made
annually.
SECTION 6.6. RESIGNATIONS. Any director or any officer, whether
elected or appointed, may resign at any time by serving written notice of such
resignation on the Chairman of the Board, the President or the Secretary, and
such resignation shall be deemed to be effective as of the close of business on
the date said notice is received by the Chairman of the Board, the President,
or the Secretary or at such later date as is stated therein. No formal action
shall be required of the Board of Directors or the stockholders to make any
such resignation effective.
SECTION 6.7. INDEMNIFICATION AND INSURANCE. (A) Each person who was
or is made a party or is threatened to be made a party to or is involved in any
action, suit, or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she or a person of whom he or she is the legal representative is or was a
director, officer or employee of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of any
other corporation or a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a director,
officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the General Corporation Law
of the State of Delaware as the same exists or may hereafter be amended (but,
in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and
-11-
<PAGE> 15
loss (including, without limitation, attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that except as provided in
paragraph (B) of this Bylaw with respect to proceedings seeking to enforce
rights to indemnification, the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation.
(B) If a claim under paragraph (A) of this Bylaw is not paid in full
by the Corporation within thirty days after a written claim has been received
by the Corporation, the claimant may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the General
Corporation Law of the State of Delaware for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall
be on the Corporation. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel or stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the General Corporation Law of the
State of Delaware, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel or stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
(C) Following any "change in control" of the Corporation of the type
required to be reported under Item 1 of Form 8-K promulgated under the Exchange
Act, any determination as to entitlement to indemnification shall be made by
independent legal counsel selected by the claimant, which independent legal
counsel shall be retained by the Board of Directors on behalf of the
Corporation.
(D) The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in this
Bylaw shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise.
-12-
<PAGE> 16
(E) The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of the State of Delaware.
(F) The Corporation may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification, and rights to be
paid by the Corporation the expenses incurred in defending any proceeding in
advance of its final disposition, to any agent of the Corporation to the
fullest extent of the provisions of this Bylaw with respect to the
indemnification and advancement of expenses of directors, officers and
employees of the Corporation.
(G) The right to indemnification conferred in this Bylaw shall be a
contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that if the General Corporation Law of the
State of Delaware requires, the payment of such expenses incurred by a director
or officer in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such person while a
director or officer, including, with limitation, service to an employee benefit
plan) in advance of the final disposition of a proceeding, shall be made only
upon delivery to the Corporation of an undertaking by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified
under this Bylaw or otherwise.
(H) Any amendment or repeal of this Article VI shall not adversely
affect any right or protection existing hereunder in respect of any act or
omission occurring prior to such amendment or repeal.
SECTION 6.8. CONTROL SHARE ACQUISITION. This Corporation elects not
to be subject to Title 10, Chapter 23, Article 2 of the Arizona Revised
Statutes, relating to "Control Share Acquisitions."
-13-
<PAGE> 17
ARTICLE VII
AMENDMENTS
SECTION 7.1. AMENDMENTS. These Bylaws may be amended, added to,
rescinded or repealed at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the notice of
the meeting and, in the case of a meeting of the Board of Directors, in a
notice given no less than twenty-four hours prior to the meeting; provided,
however, that, in the case of amendments by stockholders, notwithstanding any
other provisions of these Bylaws or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the stock required by law, the
Certificate of Incorporation or these Bylaws, the affirmative vote of the
holders of at least 80 percent of the voting power of the then outstanding
Voting Stock, voting together as a single class, shall be required to alter,
amend or repeal any provision of these Bylaws.
Dated as of , 1996
/s/ WILLIAM J. HALLINAN
_____________________________________
William J. Hallinan, Secretary
-14-
<PAGE> 1
EXHIBIT 4.I
The FINOVA Group Inc.
1992 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of the Plan is to give the Company a significant advantage
in attracting, retaining and motivating officers, employees and directors and to
provide the Company and its subsidiaries with the ability to provide incentives
more directly linked to the profitability of the Company's businesses and
increases in stockholder value.
For purposes of the Plan, the following terms are defined as set forth
below:
a. "Affiliate" means a corporation or other entity controlled by the
Company and designated by the Committee as such.
b. "Award" means a Stock Appreciation Right, Stock Option or Restricted
Stock.
c. "Board" means the Board of Directors of the Company.
d. "Cause" has the meaning set forth in Section 5(i).
e. "Change in Control" and "Change in Control Price" have the meanings
set forth in Sections 8(b) and (c), respectively.
f. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
g. "Commission" means the Securities and Exchange Commission or any
successor agency.
h. "Committee" means the Committee referred to in Section 2.
i. "Common Stock" means common stock, par value $.01 per share, of the
Company.
j. "Company" means The FINOVA Group Inc., a Delaware corporation.
k. "Disability" means permanent and total disability as determined
under the Company's existing policies which may be amended by the Committee.
l. "Disinterested Person" shall mean a member of the Board who
qualifies as a disinterested person as defined in Rule 16b-3(c)(2), as
promulgated by the Commission under the Exchange Act, or any successor
definition adopted by the Commission.
m. "Distribution" means the distribution of shares of Common Stock to
the holders of common stock of The Dial Corp.
n. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
o. "Fair Market Value" means, except as provided in Sections 5(j) and
6(b)(ii)(2), as of any given date, the mean between the highest and lowest
reported sales prices of the Stock on the New York Stock Exchange Composite Tape
or, if not listed on such exchange, on any other national exchange on
<PAGE> 2
which the Stock is listed or on NASDAQ. If there is no regular public trading
market for such Stock, the Fair Market Value of the Stock shall be determined by
the Committee in good faith.
p. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
q. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
r. "Plan" means The FINOVA Group Inc. 1992 Stock Incentive Plan, as set
forth herein and as hereinafter amended from time to time.
s. "Preferred Stock" means preferred stock, par value $.01, of the
Company.
t. "Restricted Stock" means an award granted under Section 7.
u. "Retirement" means retirement from active employment under a pension
plan of the Company, any subsidiary or Affiliate, or under an employment
contract with any of them, or termination of employment at or after age 55 under
circumstances which the Committee, in its sole discretion, deems equivalent to
retirement.
v. "Rule 16b-3" means Rule 16b-3, as promulgated by the Commission
under Section 16(b) of the Exchange Act, as amended from time to time.
w. "Stock" means the Common Stock or Preferred Stock.
x. "Stock Appreciation Right" means a right granted under Section 6.
y. "Stock Option" means an option granted under Section 5.
z. "Termination of Employment" means the termination of the
participant's employment with the Company and any subsidiary or Affiliate. A
participant employed by a subsidiary or an Affiliate shall also be deemed to
incur a Termination of Employment if the subsidiary or Affiliate ceases to be
such a subsidiary or Affiliate, as the case may be, and the participant does not
immediately thereafter become an employee of the Company or another subsidiary
or Affiliate.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Executive Compensation Committee
of the Board or such other committee of the Board, composed of not less than two
Disinterested Persons, each of whom shall be appointed by and serve at the
pleasure of the Board. If at any time no Committee shall be in office, the
functions of the Committee specified in the Plan shall be exercised by the
Board.
The Committee shall have plenary authority to grant Awards pursuant to
the terms of the Plan to officers, employees and directors of the Company and
its subsidiaries and Affiliates.
Among other things, the Committee shall have the authority, subject to
the terms of the Plan:
2
<PAGE> 3
(a) to select the officers, employees and directors to whom Awards may
from time to time be granted; provided that Awards to non-employee directors may
be made only in accordance with Section 13 hereof;
(b) to determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights and Restricted Stock or
any combination thereof are to be granted hereunder;
(c) to determine the number of shares of Stock to be covered by each
Award granted hereunder;
(d) to determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the option price (subject to Section
5(a)), any vesting restriction or limitation and any vesting acceleration or
forfeiture waiver regarding any Award and the shares of Stock relating thereto,
based on such factors as the Committee shall determine);
(e) to adjust the terms and conditions, at any time or from time to
time, of any Award, including with respect to performance goals and measurements
applicable to performance-based Awards pursuant to the terms of the Plan;
(f) to determine to what extent and under what circumstances Stock and
other amounts payable with respect to an Award shall be deferred; and
(g) to determine under what circumstances a Stock Option may be settled
in cash or Stock under Section 5(j).
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any agreement relating thereto)
and to otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then in office,
except that the members thereof may (i) delegate to an officer of the Company
the authority to make decisions pursuant to paragraphs (c), (f), (g), (h) and
(i) of Section 5 (provided that no such delegation may be made that would cause
Awards or other transactions under the Plan to cease to be exempt from Section
16(b) of the Exchange Act) and (ii) authorize any one or more of their number or
any officer of the Company to execute and deliver documents on behalf of the
Committee.
Any determination made by the Committee or pursuant to delegated
authority pursuant to the provisions of the Plan with respect to any Award shall
be made in the sole discretion of the Committee or such delegate at the time of
the grant of the Award or, unless in contravention of any express term of the
Plan, at any time thereafter. All decisions made by the Committee or any
appropriately delegated officer pursuant to the provisions of the Plan shall be
final and binding on all persons, including the Company and Plan participants.
SECTION 3. STOCK SUBJECT TO PLAN.
Subject to adjustment as provided herein, the total number of shares of
Common Stock of the Company available for grant under the Plan in each calendar
year (including partial calendar years) during which the Plan is in effect shall
be equal to two and one-half percent (2.5%) of the total number of shares of
Common Stock of the Company outstanding as of the first day of each such year
for which the Plan is in effect; (a) provided that any shares available for
grant in a particular calendar year (or partial calendar year) which are not, in
fact, granted in such year shall only be added to the shares
3
<PAGE> 4
available for grant in any subsequent calendar year to the extent such shares
are applied to initial Awards granted to new officers and employees in
connection with the merger or consolidation with or the acquisition of all or
substantially all of the stock or assets of another corporation or other entity
by the Company or any of its subsidiaries, so long as all persons ("Section 16
Persons") subject to Section 16 of the Exchange Act shall not be entitled in the
aggregate to any portion of Awards granted pursuant to this subsection (a) or
subsection (c) below equal to or in excess of 10% of available Shares remaining
under the Plan; (b) provided further that, an additional amount of shares shall
be available in 1992 equal to the number of shares of Common Stock necessary to
provide new Awards to employees of the Company in exchange for outstanding
awards in connection with the Distribution (it being understood that such
additional number of shares shall not exceed 2,000,000); and (c) provided
further that an additional amount of Shares shall be available in 1994 equal to
the number of shares of Common Stock necessary in the aggregate to provide new
Awards to officers and employees of TriCon Capital Corporation following its
acquisition by Greyhound Financial Corporation, (now known as FINOVA Capital
Corporation) ("FINOVA Capital"), as provided for such officers and employees
pursuant to the Stock Purchase Agreement between FINOVA Capital and Bell
Atlantic TriCon Leasing Corporation dated as of March 4, 1994, and to provide
all officers and employees of TriCon with stock options to purchase 100 shares
at the fair market value of the common stock on the date of grant, for those
employees who are governed by the United States Department of Labor's overtime
wage regulations, and options to purchase up to 500 shares at such price for
those employees who are exempt from such overtime wage regulations (it being
understood that such additional number of shares shall not exceed 500,000 in the
aggregate). In addition to the limitation set forth above with respect to the
number of shares available for grant in any single calendar-year, no more than
2,500,000 shares of Common Stock shall be cumulatively available for the grant
of incentive options over the life of the Plan. Shares subject to an option or
award under the Plan may be authorized and unissued shares or may be "treasury
shares."
The total number of shares of Preferred Stock reserved and available
for distribution pursuant to Awards under the Plan shall be 250,000.
Subject to Section 7(c)(iii), if any shares of Restricted Stock are
forfeited for which the participant did not receive any benefits of ownership,
or if any Stock Option (and related Stock Appreciation Right, if any) terminates
without being exercised, or if any Stock Appreciation Right is exercised for
cash, shares subject to such Awards shall again be available for distribution in
connection with Awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, extraordinary distribution with
respect to the Stock or other change in corporate structure affecting the Stock,
such substitution or adjustments shall be made in the aggregate number of shares
reserved for issuance under the Plan, in the number and option price of shares
subject to outstanding Stock Options and Stock Appreciation Rights, and in the
number of shares subject to other outstanding Awards granted under the Plan as
may be determined to be appropriate by the Committee or the Board, in its sole
discretion; provided, however, that the number of shares subject to any Award
shall always be a whole number. Such adjusted option price shall also be used to
determine the amount payable by the Company upon the exercise of any Stock
Appreciation Right associated with any Stock Option.
SECTION 4. ELIGIBILITY.
Officers, employees and directors of the Company, its subsidiaries and
Affiliates who are responsible for or contribute to the management, growth and
profitability of the business of the Company, its subsidiaries and Affiliates
are eligible to be granted Awards under the Plan. Except as expressly authorized
by Section 13 of the Plan, however, no grant shall be made to a director who is
not an officer or a salaried employee.
4
<PAGE> 5
SECTION 5. STOCK OPTIONS.
Stock Options may be granted alone or in addition to other Awards
granted under the Plan and may be of two types: Incentive Stock Options and
Non-Qualified Stock Options. Any Stock Option granted under the Plan shall be in
such form as the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options or both types of Stock Options (in
each case with or without Stock Appreciation Rights). Incentive Stock Options
may be granted only to employees of the Company and its subsidiaries (within the
meaning of Section 424(f) of the Code). To the extent that any Stock Option is
not designated as an Incentive Stock Option or even if so designated does not
qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock
Option.
Stock Options shall be evidenced by option agreements, the terms and
provisions of which may differ. An option agreement shall indicate on its face
whether it is an agreement for an Incentive Stock Option or a Non-Qualified
Stock Option. The grant of a Stock Option shall occur on the date the Committee
by resolution selects an individual to be a participant in any grant of a Stock
Option, determines the number of shares of Stock to be subject to such Stock
Option to be granted to such individual and specifies the terms and provisions
of the Stock Option. The Company shall notify a participant of any grant of a
Stock Option, and a written option agreement or agreements shall be duly
executed and delivered by the Company to the participant.
Anything in the Plan to the contrary notwithstanding, no term of the
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered nor shall any discretion or authority granted under the Plan be
exercised so as to disqualify the Plan under Section 422 of the Code or, without
the consent of the optionee affected, to disqualify any Incentive Stock Option
under such Section 422.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions as
the Committee shall deem desirable:
(a) Option Price. The option price per share of Stock purchasable under
a Stock Option shall be determined by the Committee and set forth in the option
agreement, and shall not be less than the Fair Market Value of the Stock subject
to the Stock Option on the date of grant; provided, however, that the exercise
price for each Stock Option issued in connection with the Distribution shall be
set pursuant to a formula set forth in the agreement providing for the
Distribution.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than 10 years after the
date the Stock Option is granted.
(c) Exercisability. Except as otherwise provided herein, Stock Options
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee. If the Committee provides
that any Stock Option is exercisable only in installments, the Committee may at
any time waive such installment exercise provisions, in whole or in part, based
on such factors as the Committee may determine. In addition, the Committee may
at any time accelerate the exercisability of any Stock Option.
(d) Method of Exercise. Subject to the provisions of this Section 5,
Stock Options may be exercised, in whole or in part, at any time during the
option term by giving written notice of exercise to the Company specifying the
number of shares of Stock subject to the Stock Option to be purchased.
Such notice shall be accompanied by payment in full of the purchase
price by certified or bank check or such other instrument as the Company may
accept. If approved by the Committee, payment
5
<PAGE> 6
in full or in part may also be made in the form of unrestricted Stock already
owned by the optionee of the same class as the Stock subject to the Stock Option
and, in the case of the exercise of a Non-Qualified Stock Option, Restricted
Stock subject to an Award hereunder which is of the same class as the Stock
subject to the Stock Option (based on the Fair Market Value of the Stock on the
date the Stock Option is exercised); provided, however, that, in the case of an
Incentive Stock Option, the right to make a payment in the form of already owned
shares of Stock of the same class as the Stock subject to the Stock Option may
be authorized only at the time the Stock Option is granted.
If payment of the option exercise price of a Non-Qualified Stock Option
is made in whole or in part in the form of Restricted Stock, the number of
shares of Stock to be received upon such exercise equal to the number of shares
of Restricted Stock used for payment of the option exercise price shall be
subject to the same forfeiture restrictions to which such Restricted Stock was
subject, unless otherwise determined by the Committee.
No shares of Stock shall be issued until full payment therefor has been
made. Subject to any forfeiture restrictions that may apply if a Stock Option is
exercised using Restricted Stock, an optionee shall have all of the rights of a
stockholder of the Company holding the class or series of Stock that is subject
to such Stock Option (including, if applicable, the right to vote the shares and
the right to receive dividends), when the optionee has given written notice of
exercise, has paid in full for such shares and, if requested, has given the
representation described in Section 11(a).
(e) Non-transferability of Stock Options. No Stock Option shall be
transferable by the optionee other than (i) by will or by the laws of descent
and distribution or (ii) pursuant to a domestic relations order (as defined in
the Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended or any successor provision), or the rules thereunder. All Stock Options
shall be exercisable, during the optionee's lifetime, only by the optionee or by
the guardian or legal representative of the optionee, it being understood that
the terms "holder" and "optionee" include the guardian and legal representative
of the optionee named in the option agreement and any person to whom an option
is transferred by will or the laws of descent and distribution or pursuant to a
domestic relations order.
(f) Termination by Death. If an optionee's employment terminates by
reason of death, any Stock Option held by such optionee may thereafter be
exercised, to the extent then exercisable, or on such accelerated basis as the
Committee may determine, for a period of one year (or such other period as the
Committee may specify in the option agreement) from the date of such death or
until the expiration of the stated term of such Stock Option, whichever period
is the shorter.
(g) Termination by Reason of Disability. If an optionee's employment
terminates by reason of Disability, any Stock Option held by such optionee may
thereafter be exercised by the optionee, to the extent it was exercisable at the
time of termination, or on such accelerated basis as the Committee may
determine, for a period of three years (or such shorter period as the Committee
may specify in the option agreement) from the date of such termination of
employment or until the expiration of the stated term of such Stock Option,
whichever period is the shorter; provided, however, that if the optionee dies
within such three-year period (or such shorter period), any unexercised Stock
Option held by such optionee shall, notwithstanding the expiration of such
three-year (or such shorter) period, continue to be exercisable to the extent to
which it was exercisable at the time of death for a period of 12 months from the
date of such death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter. In the event of termination of
employment by reason of Disability, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of Section
422 of the Code, such Stock Option will thereafter be treated as a Non-Qualified
Stock Option.
(h) Termination by Reason of Retirement. If an optionee's employment
terminates by reason of Retirement, any Stock Option held by such optionee may
thereafter be exercised by the optionee, to the
6
<PAGE> 7
extent it was exercisable at the time of such Retirement or on such accelerated
basis as the Committee may determine, for a period of three years (or such
shorter period as the Committee may specify in the option agreement) from the
date of such termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is the shorter; provided, however,
that if the optionee dies within such three-year (or such shorter) period any
unexercised Stock Option held by such optionee shall, notwithstanding the
expiration of such three-year (or such shorter) period, continue to be
exercisable to the extent to which it was exercisable at the time of death for a
period of 12 months from the date of such death or until the expiration of the
stated term of such Stock Option, whichever period is the shorter. In the event
of termination of employment by reason of Retirement, if an Incentive Stock
Option is exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.
(i) Other Termination. Unless otherwise determined by the Committee, if
an optionee incurs a Termination of Employment for any reason other than death,
Disability or Retirement, any Stock Option held by such optionee shall thereupon
terminate, except that such Stock Option, to the extent then exercisable, or on
such accelerated basis as the Committee may determine, may be exercised for the
lesser of three months from the date of such Termination of Employment or the
balance of such Stock Option's term if such Termination of Employment of the
optionee is involuntary and without Cause; provided, however, that if the
optionee dies within such three-month period, any unexercised Stock Option held
by such optionee shall notwithstanding the expiration of such three-month
period, continue to be exercisable to the extent to which it was exercisable at
the time of death for a period of 12 months from the date of such death or until
the expiration of the stated term of such Stock Option, whichever period is the
shorter. In the event of Termination of Employment, if an Incentive Stock Option
is exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option. Unless otherwise determined by the
Committee, for the purposes of the Plan "Cause" shall mean (1) the conviction of
the optionee for committing a felony under Federal law or the law of the state
in which such action occurred, (2) dishonesty in the course of fulfilling the
optionee's employment duties or (3) willful and deliberate failure on the part
of the optionee to perform his or her employment duties in any material respect.
(j) Cashing Out of Stock Option. On receipt of written notice of
exercise, the Committee may elect to cash out all or part of the portion of the
shares of Stock for which a Stock Option is being exercised by paying the
optionee an amount, in cash or Stock, equal to the excess of the Fair Market
Value of the Stock over the option price times the number of shares of Stock for
which the Option is being exercised on the effective date of such cash out.
Cash outs relating to options held by optionees who are actually or
potentially subject to Section 16(b) of the Exchange Act shall comply with the
"window period" provisions of Rule 16b-3, to the extent applicable, and, in the
case of cash outs of Non-Qualified Stock Options held by such optionees, the
Committee may determine Fair Market Value under the pricing rule set forth in
Section 6(b)(ii)(2).
(k) Notwithstanding any other provision of the Plan, during the 60-day
period from and after a Change in Control (the "Exercise Period"), unless the
Committee shall determine otherwise at the time of grant, an optionee shall have
the right, whether or not the Stock Option is fully exercisable and in lieu of
the payment of the exercise price for the shares of Stock being purchased under
the Stock Option and by giving notice to the Company, to elect (within the
Exercise Period) to surrender all or part of the Stock Option to the Company and
to receive cash, within 30 days of such notice, in an amount equal to the amount
by which the Change in Control Price per share of Stock on the date of such
election shall exceed the exercise price per share of Stock under the Stock
Option (the "Spread") multiplied by the number of shares of Stock granted under
the Stock Option as to which the right granted under this Section 5(k) shall
have been exercised; provided, however, that if the Change in Control is within
six months of the date of grant of a particular Stock Option held by an optionee
who is an officer or director
7
<PAGE> 8
of the Company and is subject to Section 16(b) of the Exchange Act, no such
election shall be made by such optionee with respect to such Stock Option prior
to six months from the date of grant. Notwithstanding any other provision
hereof, if the end of such 60-day period from and after a Change in Control is
within six months of the date of grant of a Stock Option held by an optionee who
is an officer or director of the Company and is subject to Section 16(b) of the
Exchange Act, such Stock Option shall be cancelled in exchange for a cash
payment to the optionee, effected on the day which is six months and one day
after the date of grant of such Option, equal to the Spread multiplied by the
number of shares of Stock granted under the Stock Option.
SECTION 6. STOCK APPRECIATION RIGHTS.
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of grant of such Stock Option. In the case of an Incentive Stock
Option, such rights may be granted only at the time of grant of such Stock
Option. A Stock Appreciation Right shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option.
A Stock Appreciation Right may be exercised by an optionee in
accordance with Section 6(b) by surrendering the applicable portion of the
related Stock Option in accordance with procedures established by the Committee.
Upon such exercise and surrender, the optionee shall be entitled to receive an
amount determined in the manner prescribed in Section 6(b). Stock Options which
have been so surrendered shall no longer be exercisable to the extent the
related Stock Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions as shall be determined by the Committee, including the
following:
(i) Stock Appreciation Rights shall be exercisable only at
such time or times and to the extent that the Stock Options to which
they relate are exercisable in accordance with the provisions of
Section 5 and this Section 6; provided, however, that a Stock
Appreciation Right shall not be exercisable during the first six months
of its term by an optionee who is subject to Section 16(b) of the
Exchange Act, except that this limitation shall not apply in the event
of death or Disability of the optionee prior to the expiration of the
six-month period.
(ii) Upon the exercise of a Stock Appreciation Right, an
optionee shall be entitled to receive an amount in cash, shares of
Stock or both equal in value to the excess of the Fair Market Value of
one share of Stock over the option price per share specified in the
related Stock Option multiplied by the number of shares in respect of
which the Stock Appreciation Right shall have been exercised, with the
Committee having the right to determine the form of payment.
In the case of Stock Appreciation Rights relating to Stock
Options held by optionees who are actually or potentially subject to
Section 16(b) of the Exchange Act, the Committee:
(1) may require that such Stock Appreciation Rights be
exercised only in accordance with the applicable "window period"
provisions of Rule 16b-3; and
(2) in the case of Stock Appreciation Rights relating to Non-
Qualified Stock Options, may provide that the amount to be paid upon
exercise of such Stock Appreciation Rights during a Rule 16b-3 "window
period" shall be based on the highest mean sales price of the Stock on
the New York Stock Exchange on any day during such "window period."
8
<PAGE> 9
(iii) Stock Appreciation Rights shall be transferable only to
permitted transferees of the underlying Stock Option in accordance with
Section 5(e).
SECTION 7. RESTRICTED STOCK.
(a) Administration. Shares of Restricted Stock may be awarded either
alone or in addition to other Awards granted under the Plan. The Committee shall
determine the officers and employees to whom and the time or times at which
grants of Restricted Stock will be awarded, the number of shares to be awarded
to any participant, the time or times within which such Awards may be subject to
forfeiture and any other terms and conditions of the Awards, in addition to
those contained in Section 7(c).
The Committee may condition the grant of Restricted Stock upon the
attainment of specified performance goals of the participant and/or of the
Company or subsidiary, division or department of the Company for or within which
the participant is primarily employed or upon such other factors or criteria as
the Committee shall determine. The provisions of Restricted Stock Awards need
not be the same with respect to each recipient.
(b) Awards and Certificates. Shares of Restricted Stock shall be
evidenced in such manner as the Committee may deem appropriate, including
book-entry registration or issuance of one or more stock certificates. Any
certificate issued in respect of shares of Restricted Stock shall be registered
in the name of such participant and shall bear an appropriate legend referring
to the terms, conditions, and restrictions applicable to such Award,
substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the 1992 Stock Incentive Plan and a Restricted Stock
Agreement. Copies of such Plan and Agreement are on file at the offices
of The FINOVA Group Inc., 1850 North Central Avenue, P.O. Box 2209,
Phoenix, Arizona 85002-2209."
The Committee may require that the certificates evidencing such shares be held
in custody by the Company until the restrictions thereon shall have lapsed and
that, as a condition of any Award of Restricted Stock, the participant shall
have delivered a stock power, endorsed in blank, relating to the Stock covered
by such Award.
(c) Terms and Conditions. Shares of Restricted Stock shall be subject
to the following terms and conditions:
(i) Subject to the provisions of the Plan (including Section
5(d)) and the Restricted Stock Agreement referred to in Section
7(c)(vi), during a period set by the Committee, commencing with the
date of such Award (the "Restriction Period"), the participant shall
not be permitted to sell, assign, transfer, pledge or otherwise
encumber shares of Restricted Stock. Within these limits, the Committee
may provide for the lapse of such restrictions in installments and may
accelerate or waive such restrictions, in whole or in part, based on
service, performance of the participant or of the Company or the
subsidiary, division or department for which the participant is
employed or such other factors or criteria as the Committee may
determine.
(ii) Except as provided in this paragraph (ii) and Section
7(c)(i) and the Restricted Stock Agreement, the participant shall have,
with respect to the shares of Restricted Stock, all of the rights of a
stockholder of the Company holding the class or series of Stock that is
the subject of the Restricted Stock, including, if applicable, the
right to vote the shares and the right to receive any cash dividends.
If so determined by the Committee in the applicable Restricted Stock
9
<PAGE> 10
Agreement and subject to Section 11(f) of the Plan, (1) cash dividends
on the class or series of Stock that is the subject of the Restricted
Stock shall be automatically deferred and reinvested in additional
Restricted Stock, and (2) dividends payable in Stock shall be paid in
the form of Restricted Stock of the same class as the Stock with which
such dividend was paid.
(iii) Except to the extent otherwise provided in the
applicable Restricted Stock Agreement and Sections 7(c)(i), 7(c)(iv)
and 8(a)(ii), upon a participant's Termination of Employment for any
reason during the Restriction Period, all shares still subject to
restriction shall be forfeited by the participant.
(iv) Except to the extent otherwise provided in Section
8(a)(ii), in the event that a participant's employment is involuntarily
terminated (other than for Cause), the Committee shall have the
discretion to waive in whole or in part any or all remaining
restrictions with respect to any or all of such participant's shares of
Restricted Stock.
(v) If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such Restriction Period,
unlegended certificates for such shares shall be delivered to the
participant.
(vi) Each Award shall be confirmed by, and be subject to the
terms of, a Restricted Stock Agreement.
SECTION 8. CHANGE IN CONTROL PROVISIONS.
(a) Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, in the event of a Change in Control:
(i) Any Stock Options and Stock Appreciation Rights
outstanding as of the date such Change in Control is determined to have
occurred and not then exercisable and vested shall become fully
exercisable and vested to the full extent of the original grant,
without regard to the three month limit on exercisability imposed by
Section 5(i) of the Plan.
(ii) The restrictions applicable to any Restricted Stock shall
lapse, and such Restricted Stock shall become free of all restrictions
and become fully vested and transferable to the full extent of the
original grant, including without limitation immediate vesting and
transferability (subject to applicable securities laws) of the maximum
amount of performance-based or other variable awards as if maximum
performance conditions or payouts were achieved, as the case may be.
(b) Definition of Change in Control. For purposes of the Plan, a
"Change in Control" shall mean the happening of any of the following events:
(i) An acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (1) the
then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (2) the combined voting power of
the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); excluding, however, the following: (1) any acquisition
directly from the Company, other than an acquisition by virtue of the
exercise of a conversion privilege unless the security being so
converted was itself acquired directly from the Company, (2) any
acquisition by the Company, (3) any acquisition by any employee benefit
plan (or related trust) sponsored or
10
<PAGE> 11
maintained by the Company or any corporation controlled by the Company
or (4) any acquisition by any corporation pursuant to a transaction
which complies with clauses (1), (2) and (3) of subsection (iii) of
this Section 8(b); or
(ii) A change in the composition of the Board such that the
individuals who, as of February 28, 1992, constitute the Board (such
Board shall be hereinafter referred to as the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board;
provided, however, for purposes of this Section 8(b), that any
individual who becomes a member of the Board subsequent to February 28,
1992, whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of those
individuals who are members of the Board and who were also members of
the Incumbent Board (or deemed to be such pursuant to this proviso)
shall be considered as though such individual were a member of the
Incumbent Board; but, provided further, that any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board shall not be so considered as a member of
the Incumbent Board; or
(iii) The approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other disposition of
all or substantially all of the assets of the Company ("Corporate
Transaction"); excluding, however, such a Corporate Transaction
pursuant to which (1) all or substantially all of the individuals and
entities who are the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than 60% of,
respectively, the outstanding shares of common stock, and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the
corporation resulting from such Corporate Transaction (including,
without limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's assets
either directly or through one or more subsidiaries) in substantially
the same proportions as their ownership, immediately prior to such
Corporate Transaction, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (2) no
Person (other than the Company, any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Corporate
Transaction) will beneficially own, directly or indirectly, 20% or more
of, respectively, the outstanding shares of common stock of the
corporation resulting from such Corporate Transaction or the combined
voting power of the outstanding voting securities of such corporation
entitled to vote generally in the election of directors except to the
extent that such ownership existed prior to the Corporate Transaction
and (3) individuals who were members of the Incumbent Board will
constitute at least a majority of the members of the board of directors
of the corporation resulting from such Corporate Transaction; or
(iv) The approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(c) Change in Control Price. For purposes of the Plan, "Change in
Control Price" means the higher of (i) the highest reported sales price, regular
way, of a share of Stock in any transaction reported on the New York Stock
Exchange Composite Tape or other national exchange on which such shares are
listed or on NASDAQ during the 60-day period prior to and including the date of
a Change in Control or (ii) if the Change in Control is the result of a tender
or exchange offer or a Corporate Transaction, the highest price per share of
Stock paid in such tender or exchange offer or Corporate Transaction; provided,
however, that (x) in the case of a Stock Option which (A) is held by an optionee
who is an officer or director of the Company and is subject to Section 16(b) of
the Exchange Act and (B) was
11
<PAGE> 12
granted within 240 days of the Change in Control, then the Change in Control
Price for such Stock Option shall be the Fair Market Value of the Stock on the
date such Stock Option is exercised or deemed exercised and (y) in the case of
Incentive Stock Options and Stock Appreciation Rights relating to Incentive
Stock Options, the Change in Control Price shall be in all cases the Fair Market
Value of the Stock on the date such Incentive Stock Option or Stock Appreciation
Right is exercised. To the extent that the consideration paid in any such
transaction described above consists all or in part of securities or other
non-cash consideration, the value of such securities or other non-cash
consideration shall be determined in the sole discretion of the Board.
SECTION 9. TERM, AMENDMENT AND TERMINATION.
The Plan will terminate on December 31, 2002. Under the Plan, Awards
outstanding as of December 31, 2002 shall not be affected or impaired by the
termination of the Plan.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would (i) impair the rights of
an optionee under a Stock Option or a recipient of a Stock Appreciation Right or
Restricted Stock Award theretofore granted without the optionee's or recipient's
consent, except such an amendment made to cause the Plan to qualify for the
exemption provided by Rule 16b-3, or (ii) disqualify the Plan from the exemption
provided by Rule 16b-3. In addition, no such amendment shall be made without the
approval of the Company's stockholders to the extent such approval is required
by law or agreement.
The Committee may amend the terms of any Stock Option or other Award
theretofore granted, prospectively or retroactively, but no such amendment shall
impair the rights of any holder without the holder's consent except such an
amendment made to cause the Plan or Award to qualify for the exemption provided
by Rule 16b-3. The Committee may also substitute new Stock Options for
previously granted Stock Options, including previously granted Stock Options
having higher option prices.
Subject to the above provisions, the Board shall have authority to
amend the Plan to take into account changes in law and tax and accounting rules,
as well as other developments and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval.
SECTION 10. UNFUNDED STATUS OF PLAN.
It is presently intended that the Plan constitute an "unfunded" plan
for incentive and deferred compensation. The Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or make payments; provided, however, that, unless the
Committee otherwise determines, the existence of such trusts or other
arrangements is consistent with the "unfunded" status of the Plan.
SECTION 11. GENERAL PROVISIONS.
(a) The Committee may require each person purchasing or receiving
shares pursuant to an Award to represent to and agree with the Company in
writing that such person is acquiring the shares without a view to the
distribution thereof. The certificates for such shares may include any legend
which the Committee deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock or other securities delivered
under the Plan shall be subject to such stock transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations
and other requirements of the Commission, any stock exchange upon which the
Stock is then listed and any applicable Federal or state securities law, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
12
<PAGE> 13
(b) Nothing contained in the Plan shall prevent the Company or any
subsidiary or Affiliate from adopting other or additional compensation
arrangements for its employees.
(c) The adoption of the Plan shall not confer upon any employee any
right to continued employment nor shall it interfere in any way with the right
of the Company or any subsidiary or Affiliate to terminate the employment of any
employee at any time.
(d) No later than the date as of which an amount first becomes
includible in the gross income of the participant for Federal income tax
purposes with respect to any Award under the Plan, the participant shall pay to
the Company, or make arrangements satisfactory to the Company regarding the
payment of, any Federal, state, local or foreign taxes of any kind required by
law to be withheld with respect to such amount. Unless otherwise determined by
the Company, withholding obligations may be settled with Stock, including Stock
that is part of the Award that gives rise to the withholding requirement. The
obligations of the Company under the Plan shall be conditional on such payment
or arrangements, and the Company and its Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment
otherwise due to the participant. The Committee may establish such procedures as
it deems appropriate, including the making of irrevocable elections, for the
settlement of withholding obligations with Stock.
(e) At the time of grant, the Committee may provide in connection with
any grant made under the Plan that the shares of Stock received as a result of
such grant shall be subject to a right of first refusal pursuant to which the
participant shall be required to offer to the Company any shares that the
participant wishes to sell at the then Fair Market Value of the Stock, subject
to such other terms and conditions as the Committee may specify at the time of
grant.
(f) The reinvestment of dividends in additional Restricted Stock at the
time of any dividend payment shall only be permissible if sufficient shares of
Stock are available under Section 3 for such reinvestment (taking into account
then outstanding Stock Options and other Awards).
(g) The Committee shall establish such procedures as it deems
appropriate for a participant to designate a beneficiary to whom any amounts
payable in the event of the participant's death are to be paid.
(h) The Plan and all Awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware.
SECTION 12. EFFECTIVE DATE OF PLAN.
The Plan shall be effective on the date specified by the Board at the
time it is approved by the Board.
SECTION 13. DIRECTOR STOCK OPTIONS.
(a) Automatic Grants. Each director of the Company who is not otherwise
an employee of the Company or any Affiliate from and after February 28, 1992
shall, on the third Thursday of August during such director's term,
automatically be granted Non-Qualified Stock Options to purchase 1,500 shares of
Common Stock having an exercise price per share equal to 100% of the Fair Market
Value of the Common Stock at the date of grant of such Non-Qualified Stock
Option. Each director, upon joining the Board, shall also be awarded an initial
grant of Non-Qualified Stock Options to purchase 2000 shares of Common Stock
having an exercise price equal to 100% of the Fair Market Value of the Common
Stock as of such date.
13
<PAGE> 14
(b) A Stock Option shall be automatically granted under Section 13(a)
above only if as of each date of grant (or, in the case of any initial grant,
from and after the Distribution Payment Date) the director (i) is not otherwise
an employee of the Company or any Affiliate, (ii) has not been an employee of
the Company or any subsidiary for any part of the preceding fiscal year (or, in
the case of any initial grant, from and after the Distribution Payment Date),
and (iii) has served on the Board continuously since the commencement of his or
her term.
(c) Election for Retainer Payments. In addition to the Awards
authorized by subsection (a) above, each non-employee director may from time to
time elect, in accordance with procedures to be specified by the Committee
(which procedures may, in the Committee's discretion, provide that any such
election will not become effective until six (6) months after the date on which
such election is made and will be revocable only upon six (6) months' prior
notice), to receive in lieu of the cash retainer that would otherwise be payable
to such non-employee director, on each date on which such retainer would
otherwise be payable during the period that such election is in effect (i)
Restricted Stock with the terms described in paragraph (b) below ("Directors
Retainer Shares") with a Fair Market Value as of such payment date equal to the
amount of such retainer payment, (ii) additional Non-Qualified Stock Options to
purchase Shares with a Fair Market Value as of such payment date equal to two
and one-half times the amount of such retainer payment ("Directors Retainer
Options"), or (iii) a combination of the above; provided, however, that the
Committee may establish minimum thresholds for election of any alternative other
than cash, in its discretion.
(d) Directors Retainer Shares. Directors Retainer Shares shall be
non-transferable until the day before the annual meeting of the Company's
Stockholders next following the date of grant, and shall be forfeited to the
Company if the director shall cease to be a member of the Board prior to such
date, subject to the provisions of Section 7. Notwithstanding the foregoing, in
the event of a director's death, Disability or retirement as a director at the
end of a term or a Change in Control, his or her Directors Retainer Shares shall
thereupon vest and cease to be subject to any restrictions on transfer or risk
of forfeiture. Directors Retainer Shares shall be evidenced in such manner as
the Committee shall determine consistent with the provisions of Section 7, as
modified by this Section.
(e) Directors Retainer Options. Each Directors Retainer Option shall be
evidenced by an Award Agreement in such form as the Committee shall from time to
time approve, which agreement shall comply with and be subject to the following
terms and conditions:
(i) Directors Retainer Options may be exercised only during
the period commencing on the day before the annual meeting of the Company's
stockholders next following the date of grant and ending ten (10) years after
the date of grant, and may be exercised in whole or in part at any time during
such period unless it has theretofore expired pursuant to the other provisions
of this Section. If the director shall cease to be a member of the Board before
a Directors Retainer Option becomes exercisable, such option shall become void
and of no further force or effect. Notwithstanding the foregoing, in the event
of a Director's death, Disability or retirement as a director at the end of a
term or a Change in Control, any unexercisable Directors Retainer Options shall
immediately become exercisable in full.
(ii) The purchase price for the Shares subject to any
Directors Retainer Option shall be equal to the Fair Market Value of such Shares
as of the date of grant of such Directors Retainer Option. Such Directors
Retainer Options will be exercisable in such manner as the Committee shall
specify and as shall be set forth in the applicable Award Agreement.
(iii) Directors Retainer Options shall be subject to the
transfer restrictions and other provisions of Section 5(e) hereof.
14
<PAGE> 15
(iv) Each Directors Retainer Option which has become
exercisable pursuant to subsection (e) (i), to the extent not theretofore
exercised, shall expire on the first to occur of (i) the date which is six (6)
months after the date on which the director shall cease to be a member of the
Board and (ii) the tenth anniversary of the date of grant of such option;
provided, however, that if such director ceases serving as such a Board member
by reason of death, Disability or retirement as a director at the end of a term,
such option may be exercised for a period of two (2) years following the date on
which the director ceases serving as a member of the Board (but in no event
later than the tenth anniversary of the date of grant), and if the director
shall die within such six (6) month or two (2) year period, as the case may be,
following the date on which he or she ceases to serve as a member of the Board,
such option may be exercised at any time within the two-year period following
the date of death to the extent not theretofore exercised (but in no event later
than the tenth anniversary of the date of grant). In the event of a Change in
Control, the director shall have the exercise periods prescribed by Section 8.
(f) Each holder of a Stock Option granted pursuant to this Section 13
shall also have the rights specified in Section 5(k).
(g) In the event that the number of shares of Common Stock available
for future grant under the Plan is insufficient to make all automatic grants
required to be made on such date, then all non-employee directors entitled to a
grant on such date shall share ratably in the number of options on shares
available for grant under the Plan. In addition, no elections pursuant to
subsection (c) shall be made until all automatic grants required to be made on
such date have been awarded. If the number of shares of Common Stock available
for future grant under the Plan is sufficient to make the automatic grants
provided for by subsection (a) but insufficient to make all grants pursuant to
subsection (c), then all non-employee directors who have elected to receive all
or any portion of their retainer pursuant to that subsection shall share ratably
in the number of shares and options on shares available for grant under the
Plan.
(h) The provisions of subsections (a) and (c) of this Section 13 may
not be amended more often than once every six months. Except as expressly
provided in this Section 13, any Award granted hereunder shall be subject to the
terms and conditions of the Plan as if the grant were made pursuant to Sections
5 or 7 hereof, respectively.
15
<PAGE> 1
EXHIBIT 10.C.1
THE FINOVA GROUP INC.
EXECUTIVE SEVERANCE PLAN
(TIER 1 Employees)
1. PURPOSE: To provide management continuity by inducing selected
Executives to remain in the employ of THE FINOVA GROUP INC. ("Corporation") or
one of its subsidiaries pending a possible Change of Control of the Corporation.
2. OBJECTIVES: To ensure in the event of a possible Change of
Control of the Corporation, in addition to the Executive's regular duties, that
he or she may be available to be called upon to assist in the objective
assessment of such situations, to advise management and the Board of Directors
("Board") of the Corporation as to whether such proposals would be in the best
interests of the Corporation and its shareholders or one of its subsidiaries,
and to take such other actions as management or the Board might determine
reasonably appropriate and in the best interests of the Corporation and its
shareholders.
3. PARTICIPATION: Participation in this Plan will be limited to
selected Executives (each referred to herein as "Executive") whose importance to
the Corporation during such periods is deemed to warrant good and valuable
special consideration by the Chairman of the Corporation. Each such Executive's
participation shall be evidenced by a certificate ("Certificate") issued by the
Corporation substantially in the form attached hereto, each of which is
incorporated herein by reference as if set forth in its entirety. In the event
an Executive shall become ineligible hereunder, his or her Certificate shall be
surrendered promptly to the Corporation, but the failure to surrender the
Certificate shall not affect such ineligibility or the inapplicability of this
plan to such Executive.
4. DEFINITION OF CHANGE OF CONTROL: For purposes of this Plan, a
"Change of Control" shall mean any of the following events:
(a) the acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"))(a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Corporation (the
"Outstanding Corporation Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Corporation entitled to vote generally
in the election of directors (the "Outstanding Corporation Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Corporation other than an acquisition by virtue of the
exercise of a conversion privilege unless the security being so converted was
itself acquired directly from the Corporation, (ii) any acquisition by the
Corporation, (iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or any corporation controlled
by the Corporation or (iv) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of
this Section 4; or
(b) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Corporation's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
<PAGE> 2
(c) approval by the shareholders of the Corporation of a
reorganization, merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Corporation (a "Business Combination"),
in each case, unless, following such Business Combination, (i) all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Corporation or all or
substantially all of the Corporation's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Corporation
Common Stock and Outstanding Corporation Voting Securities, as the case may be,
(ii) no Person (excluding any employee benefit plan (or related trust) of the
Corporation or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
(d) approval by the shareholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
5. ADDITIONAL DEFINITIONS:
(a) For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Corporation
or one of its affiliates (other than any such failure resulting
from incapacity due to physical or mental illness), after a
written demand for substantial performance is delivered to the
Executive by the Board or the Chairman of the Corporation which
specifically identifies the manner in which the Board or Chairman
believes that the Executive has not substantially performed the
Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious
to the Corporation. For purposes of this provision, no act or
failure to act, on the part of the Executive, shall be considered
"willful" unless it is done, or omitted to be done, by the
Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the
Corporation. Any act, or failure to act, based upon authority
given pursuant to a resolution duly adopted by the Board or upon
the instructions of the Chairman or a senior officer of the
Corporation or based upon the advice of counsel for the
Corporation shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best
interests of the Corporation. The cessation of employment of the
Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting
of the Board called and held for such purpose (after reasonable
notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the
Executive is guilty of the conduct described in subparagraph (i)
or (ii)
2
<PAGE> 3
above, and specifying the particulars thereof in detail.
(b) For purposes of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities immediately prior to the Change of Control, or
any other action by the Corporation which results in a diminution
in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied
by the Corporation promptly after receipt of notice thereof given
by the Executive;
(ii) any reduction by the Corporation of the Executive's base
salary, annual bonus, incentive opportunities, retirement
benefits, welfare or fringe benefits below the highest level
enjoyed by the Executive during the 120-day period prior to the
Change of Control;
(iii) the Corporation's requiring the Executive to be based at
any office or location other than that at which he was based
immediately prior to the Change of Control or the Corporation's
requiring the Executive to travel on Corporation business to a
substantially greater extent than required immediately prior to
the Change of Control;
(iv) any purported termination by the Corporation of the
Executive's employment otherwise than as expressly permitted by
this Agreement; or
(v) any failure by the Corporation to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Agreement, any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(c) For purposes of this Agreement, "Window Period" means the 30-day
period following the first anniversary of the Change of Control.
6. ELIGIBILITY FOR BENEFITS: Benefits as described in Section 7
shall be paid only in the event Executive's employment with the Corporation or
any of its subsidiaries is terminated (a) involuntarily by the Corporation
without Cause or (b) by the Executive for Good Reason, in either case within
twenty-four (24) months after or as a result of a Change of Control of the
Corporation, or (c) by the Executive for any reason during the Window Period
(other than as a consequence of his death or disability, or of his retirement at
or after his normal retirement date under the Corporation's or a subsidiary's
retirement plan).
7. BENEFIT ENTITLEMENT:
(a) LUMP SUM PAYMENT: On or before the Executive's last day of
employment with the Corporation or any of its subsidiaries, the Corporation or
the applicable subsidiary will pay to the Executive as additional compensation
for services rendered a lump sum cash amount (subject to any applicable payroll
or other taxes required to be withheld) equal to the sum of (i) his highest
annual salary fixed during the period he was an employee of the Corporation or
any of its subsidiaries, plus (ii) the largest aggregate amount awarded to him
in a year, including any pro-rata payment made in connection with a Change of
Control under any currently existing and unvested plans, as cash bonus (whether
or not deferred) under the Corporation's Management Incentive Plan and any
Performance Share Incentive Plan or similar short and long term cash incentive
plans or arrangements providing for
3
<PAGE> 4
performance bonus payments during the preceding four years multiplied by:
(i) Three if the termination is involuntary without Cause or for Good
Reason, or
(ii) Two if the termination is voluntary during the Window Period.
Nothing in this section shall affect Executive's rights to receive salary,
compensation, vacation and other benefits due for work performed through
Executive's severance date.
(b) EMPLOYEE PLANS: The Executive's participation in life, accident,
health, compensation deferral, automobile, club membership, and financial
counseling plans of, and other similar benefits provided to Executive by, the
Corporation, or the applicable subsidiary, if any, provided to the Executive
prior to the Change of Control or his termination, shall be continued, or
equivalent benefits provided, by the Corporation or the applicable subsidiary at
no direct cost to the Executive for a period of:
(i) Three years if the termination is involuntary without Cause or
for Good Reason, or
(ii) Two years if the termination is voluntary during the Window
Period
from the date of termination (or until his death or normal retirement date,
whichever is sooner). The Executive's participation in any applicable qualified
or nonqualified retirement and/or pension plans and any deferred compensation or
bonus plan of the Corporation or any of its subsidiaries, if any, shall continue
only through the last day of employment. Any terminating distributions and/or
vested rights under such plans shall be governed by the terms of the respective
plans.
(c) SPECIAL RETIREMENT BENEFITS: The Executive shall receive Special
Retirement Benefits payable hereunder to the Executive or his beneficiaries
equal to the excess of the amount specified in subsection (c)(i) or subsection
(c)(ii), as the case may be, over that in subsection (c)(iii) below:
(i) If the termination is involuntary without Cause or for Good
Reason, the total retirement benefits that would be paid to the
Executive or his beneficiaries under The FINOVA Group Inc. Pension Plan
and The FINOVA Group Inc. Supplemental Pension Plan, or the applicable
subsidiary pension plans in which the Executive participates (in either
case, the "Retirement Plans"), if either (x) the three years (or the
period to his normal retirement date, if less) following his
termination, or (y) the number of years necessary to be vested under
the Retirement Plans (including any predecessor or successor or
substitute plan or plans of the Corporation or any of its
subsidiaries), whichever is greater, is counted and his final average
compensation is as determined under the Retirement Plans, in each case
using actuarial assumptions no less favorable to the Executive than
those used in the Retirement Plans immediately prior to the Change of
Control (the "Actuarial Assumptions"). For the purposes hereof, the
amount specified in Section 7(a) shall not be considered "compensation"
for purposes of calculating final average compensation under this
subsection (c)(i);
(ii) if the termination is voluntary during the Window Period, the
total retirement benefits that would be paid to the Executive or his
beneficiaries under the Retirement Plans using the Actuarial
Assumptions, if any, if two years (or the period to his normal
retirement date, if less) following his termination is added to his
credited service and his final average compensation is as determined
under the applicable Retirement Plans referred to in this subsection
(c)(ii). For the purposes hereof, the amount specified in Section 7(a)
shall not be considered "compensation" for purposes of calculating
final average compensation under this subsection (c)(ii);
(iii) the total qualified and unqualified benefits actually payable to
the Executive or his
4
<PAGE> 5
beneficiaries under the Retirement Plans.
All Special Retirement Benefits and other benefits provided for herein are
provided on an unfunded basis, are not intended to meet the qualification
requirements of Section 401 of the Internal Revenue Code, and shall be payable
solely from the general assets of the Corporation or its appropriate subsidiary.
(d) TAXES: Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Corporation to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 7(d)) (a "Payment") would be subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or
any interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes (including any
interest and penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(e) ACCELERATION OF STOCK AWARDS: Stock Options and any other rights
granted to the Executive by the Corporation under its 1992 Stock Incentive Plan
and any later or successor plan or plans (collectively, the "Stock Incentive
Plans"), will be exercisable in full for their respective specified terms,
notwithstanding a Change of Control of the Corporation or the approval by the
Corporation's shareholders of an agreement providing for a merger in which the
Corporation will not remain an independent publicly owned corporation or a
consolidation or a sale or other disposition of all or substantially all the
assets of the Corporation, provided that no option or right shall be exercisable
by the Executive within six months after the date of grant, or after the
termination date, of such option or right. In the event of a Change of Control,
the restrictions and deferral limitations applicable to any restricted or
deferred stock awarded under the Stock Incentive Plans shall lapse, and such
stock shall become free of all restrictions and become fully vested and
transferable to the full extent of the original grant, including without
limitation immediate vesting and exercisability of the maximum amount of
performance-based or other variable awards as if maximum performance conditions
or payouts were achieved.
8. INDEMNIFICATION: If litigation is brought to enforce or interpret
any provision contained herein, the Corporation or applicable subsidiary, to the
extent permitted by applicable law and the Corporation's or subsidiary's
Certificate of Incorporation, as the case may be, shall indemnify the Executive
for Executive's reasonable attorneys' fees and disbursements incurred in such
litigation, and hereby agrees to pay interest on any money judgment obtained by
the Executive calculated at the Citibank, N.A. prime interest rate in effect
from time to time from the date that payment(s) to Executive should have been
made under this Agreement until the date the payment(s) is made.
9. PAYMENT OBLIGATIONS ABSOLUTE: Except as expressly provided in
Sections 13 and 14, the Corporation's or subsidiary's obligation to pay the
Executive the benefits hereunder and to make the arrangements provided herein
shall be absolute and unconditional and shall not be affected by any
circumstances, including, without limitation, any set-off, counter-claim,
recoupment, defense or other right which the Corporation may have against
Executive or anyone else. All amounts payable by the Corporation or subsidiary
hereunder shall be paid without notice or demand. Each and every payment made
hereunder shall be paid without notice or demand. Each and every payment made
hereunder by the Corporation or subsidiary shall be final and the Corporation or
subsidiary will not seek to recover all or any part of such payment(s) from the
Executive or from whosoever may be entitled thereto, for any reason whatsoever.
The Executive shall not be obligated to seek other employment
5
<PAGE> 6
in mitigation of the amounts payable or arrangements made under any provision of
this Plan, and the obtaining of any such other employment shall in no event
effect any reduction of the Corporation's or subsidiary's obligations to make
the payments and arrangements required to be made under this Plan. The
Corporation or applicable subsidiary may at the discretion of the Chairman of
the Corporation enter into an irrevocable, third-party guarantee or similar
agreement with a bank or other institution with respect to the benefits payable
to an Executive hereunder, which would provide for the unconditional payment of
such benefits by such third-party upon presentment by an Executive of his or her
Certificate (and on such other conditions deemed necessary or desirable by the
Corporation) at some specified time after termination of employment. Such
third-party guarantor shall have no liability for improper payment if it follows
the instructions of the Corporation as provided in such Certificate and other
documents required to be presented under the agreement, unless the Corporation,
in a written notice, has previously advised such third-party guarantor of the
determination by its Board of Directors of ineligibility of the Executive in
accordance with Section 14.
10. CONTINUING OBLIGATIONS: The Executive shall retain in confidence
any confidential information known to him or her concerning the Corporation
and its subsidiaries and their respective businesses as long as such
information is not publicly disclosed, except as otherwise required by law.
11. SUCCESSORS:
(a) This Agreement is personal to the Executive and without the prior
written consent of the Corporation shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Corporation and its successors and assigns.
(c) The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place. As used in this Agreement, Corporation shall mean
the Corporation as hereinbefore defined and which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
12. SEVERABILITY: Any provision in this Plan which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. OTHER AGREEMENTS: Notwithstanding any provision herein to the
contrary, in the event the Executive's employment with the Corporation or
applicable subsidiary terminates and the Executive is entitled to receive
termination, separation or other like amounts from the Corporation or any of its
subsidiaries pursuant to any contract of employment, generally prevailing
separation pay policy, or other program of the Corporation or applicable
subsidiary, all such amounts shall be applied to and set off against the
Corporation's or applicable subsidiary's obligation set forth in Section 7 of
this Plan. Nothing in this Section 13 is intended to result in set-off of
salary, compensation, vacation and other benefits due Executive for work
performed through Executive's severance date, pension or Retirement Plan
benefits, supplemental executive retirement benefits, disability benefits,
retiree benefits, any pro-rata payment or payments made to Executive in
connection with a Change of Control under any currently existing and unvested
Management Incentive Plan or Performance Share Incentive Plan, or any payment to
Executive under the Corporation's Key Employee Value Sharing Plan, if any, or
any similar plans, or any other benefits not directly provided as termination or
separation benefits.
6
<PAGE> 7
14. TERMINATION: This Agreement shall terminate with respect to an
Executive if the Chairman of the Corporation determines that the Executive is no
longer a key executive to be provided a severance agreement and so notifies the
Executive by hand delivery, overnight courier or certified mail at least thirty
(30) days before participation in this Plan shall cease; except that such
determination shall not be made, and if made shall have no effect, (i) within
twenty-four (24) months after the Change of Control in question or (ii) during
any period of time when the Corporation has knowledge that any third person has
taken steps reasonably calculated to effect a Change of Control until such third
person has abandoned or terminated his or her efforts to effect a Change of
Control as determined by such Board in good faith, but in its sole discretion.
7
<PAGE> 1
EXHIBIT 10.C.2
THE FINOVA GROUP INC.
EXECUTIVE SEVERANCE PLAN
(TIER 2 Employees)
1. PURPOSE: To provide management continuity by inducing selected
Executives to remain in the employ of THE FINOVA GROUP INC. ("Corporation") or
one of its subsidiaries pending a possible Change of Control of the Corporation.
2. OBJECTIVES: To ensure in the event of a possible Change of
Control of the Corporation, in addition to the Executive's regular duties, that
he or she may be available to be called upon to assist in the objective
assessment of such situations, to advise management and the Board of Directors
("Board") of the Corporation as to whether such proposals would be in the best
interests of the Corporation and its shareholders or one of its subsidiaries,
and to take such other actions as management or the Board might determine
reasonably appropriate and in the best interests of the Corporation and its
shareholders.
3. PARTICIPATION: Participation in this Plan will be limited to
selected Executives (each referred to herein as "Executive") whose importance to
the Corporation during such periods is deemed to warrant good and valuable
special consideration by the Chairman of the Corporation. Each such Executive's
participation shall be evidenced by a certificate ("Certificate") issued by the
Corporation substantially in the form attached hereto, each of which is
incorporated herein by reference as if set forth in its entirety. In the event
an Executive shall become ineligible hereunder, his or her Certificate shall be
surrendered promptly to the Corporation, but the failure to surrender the
Certificate shall not affect such ineligibility or the inapplicability of this
plan to such Executive.
4. DEFINITION OF CHANGE OF CONTROL: For purposes of this Plan, a
"Change of Control" shall mean any of the following events:
(a) The acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Corporation (the
"Outstanding Corporation Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Corporation entitled to vote generally
in the election of directors (the "Outstanding Corporation Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisition shall not constitute a Change of Control: (i) any acquisition
directly from the Corporation, (ii) any acquisition by the Corporation other
than an acquisition by virtue of the exercise of a conversion privilege unless
the security being so converted was itself acquired directly from the
Corporation, (iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or any corporation controlled
by the Corporation or (iv) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of
this Section 4; or
(b) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Corporation's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
<PAGE> 2
(c) approval by the shareholders of the Corporation of a
reorganization, merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Corporation (a "Business Combination"),
in each case, unless, following such Business Combination, (i) all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Corporation or all or
substantially all of the Corporation's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Corporation
Common Stock and Outstanding Corporation Voting Securities, as the case may be,
(ii) no Person (excluding any employee benefit plan (or related trust) of the
Corporation or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
(d) Approval by the shareholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
5. ADDITIONAL DEFINITIONS:
(a) For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Corporation or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial performance
is delivered to the Executive by the Board or the Chairman of the Corporation
which specifically identifies the manner in which the Board or Chairman believes
that the Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Corporation.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Corporation. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chairman or a senior
officer of the Corporation or based upon the advice of counsel for the
Corporation shall be conclusively presumed to be done, or omitted to be done, by
the Executive in good faith and in the best interests of the Corporation. The
cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
2
<PAGE> 3
(b) For purposes of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities immediately prior
to the Change of Control, or any other action by the Corporation which results
in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Corporation promptly after
receipt of notice thereof given by the Executive;
(ii) any reduction by the Corporation of the Executive's base salary,
annual bonus, incentive opportunities, retirement benefits, welfare or fringe
benefits below the highest level enjoyed by the Executive during the 120-day
period prior to the Change of Control;
(iii) the Corporation's requiring the Executive to be based at any
office or location other than that at which he was based immediately prior to
the Change of Control or the Corporation's requiring the Executive to travel on
Corporation business to a substantially greater extent than required immediately
prior to the Change of Control;
(iv) any purported termination by the Corporation of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Corporation to comply with and satisfy Section
11(c) of this Agreement.
For purposes of this Agreement, any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
6. ELIGIBILITY FOR BENEFITS: Benefits as described in Section 7
shall be paid only in the event Executive's employment with the Corporation or
any of its subsidiaries is terminated (a) involuntarily by the Corporation
without Cause (other than as a consequence of his or her death or disability, or
of his or her retirement at or after his or her normal retirement date under the
Corporation's or a subsidiary's retirement plan), or (b) by the Executive for
Good Reason, in either case within twenty-four (24) months after or as a result
of a Change of Control of the Corporation.
7. BENEFIT ENTITLEMENT:
(a) LUMP SUM PAYMENT: On or before the Executive's last day of
employment with the Corporation or any of its subsidiaries, the Corporation or
the applicable subsidiary will pay to the Executive as additional compensation
for services rendered a lump sum cash amount (subject to any applicable payroll
or other taxes required to be withheld) equal to two times the sum of (i) his
highest annual salary fixed during the period he was an employee of the
Corporation or any of its subsidiaries, plus (ii) the largest aggregate amount
awarded to him in a year, including any pro-rata payment made in connection with
a Change of Control under any currently existing and unvested plans, as cash
bonus (whether or not deferred) under the Corporation's Management Incentive
Plan and any Performance Share Incentive Plan or similar short and long term
cash incentive plans or arrangements providing for performance bonus payments
during the preceding four years.
Nothing in this section shall affect Executive's rights to receive salary,
compensation, vacation and other benefits due for work performed through
Executive's severance date.
(b) EMPLOYEE PLANS: The Executive's participation in life, accident,
health, compensation deferral, automobile, club membership, and financial
counseling plans of, and other
3
<PAGE> 4
similar benefits provided to Executive by, the Corporation, or the applicable
subsidiary, if any, provided to the Executive prior to the Change of Control or
his termination, shall be continued, or equivalent benefits provided, by the
Corporation or the applicable subsidiary at no direct cost to the Executive for
a period of two years from the date of termination (or until his death or normal
retirement date, whichever is sooner). The Executive's participation in any
applicable qualified or nonqualified retirement and/or pension plans and any
deferred compensation or bonus plan of the Corporation or any of its
subsidiaries, if any, shall continue only through the last day of employment.
Any terminating distributions and/or vested rights under such plans shall be
governed by the terms of the respective plans.
(c) SPECIAL RETIREMENT BENEFITS: The Executive shall receive Special
Retirement Benefits payable hereunder to the Executive or his beneficiaries
equal to the excess of the amount specified in subsection (c)(i) over that in
subsection (c)(ii) below:
(i) The total retirement benefits that would be paid to the Executive
or his beneficiaries under The FINOVA Group Inc. Pension Plan and The FINOVA
Group Inc. Supplemental Pension Plan, or the applicable subsidiary pension plans
in which the Executive participates (in either case, the "Retirement Plans"), if
either (x) the two years (or the period to his normal retirement date, if less)
following his termination, or (y) the number of years necessary to be vested
under the Retirement Plans (including any predecessor or successor or substitute
plan or plans of the Corporation or any of its subsidiaries), whichever is
greater, is counted and his final average compensation is as determined under
the Retirement Plans, in each case using actuarial assumptions no less favorable
to the Executive than those used in the Retirement Plans immediately prior to
the Change of Control (the "Actuarial Assumptions"). For the purposes hereof,
the amount specified in Section 7(a) shall not be considered "compensation" for
purposes of calculating final average compensation under this subsection (c)(i);
(ii) the total and unqualified benefits actually payable to the
Executive or his beneficiaries under the Retirement Plans.
All Special Retirement Benefits and other benefits provided for herein are
provided on an unfunded basis, are not intended to meet the qualification
requirements of Section 401 of the Internal Revenue Code, and shall be payable
solely from the general assets of the Corporation or its appropriate subsidiary.
(d) TAXES: Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Corporation to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 7(d)) (a "Payment") would be subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or
any interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments.
(e) ACCELERATION OF STOCK AWARDS: Stock Options and any other rights
granted to the Executive by the Corporation under its 1992 Stock Incentive Plan
and any later or successor plan or plans (collectively, the "Stock Incentive
Plans"), will be exercisable in full for their respective specified terms,
notwithstanding a Change of Control of the Corporation or the approval by the
4
<PAGE> 5
Corporation's shareholders of an agreement providing for a merger in which the
Corporation will not remain an independent publicly owned corporation or a
consolidation or a sale or other disposition of all or substantially all the
assets of the Corporation, provided that no option or right shall be exercisable
by the Executive within six months after the date of grant, or after the
termination date, of such option or right. In the event of a Change of Control,
the restrictions and deferral limitations applicable to any restricted or
deferred stock awarded under the Stock Incentive Plans shall lapse, and such
stock shall become free of all restrictions and become fully vested and
transferable to the full extent of the original grant, including without
limitation immediate vesting and exercisability of the maximum amount of
performance-based or other variable awards as if maximum performance conditions
or payouts were achieved.
8. INDEMNIFICATION: If litigation is brought to enforce or interpret
any provision contained herein, the Corporation or applicable subsidiary, to the
extent permitted by applicable law and the Corporation's or subsidiary's
Certificate of Incorporation, as the case may be, shall indemnify the Executive
for Executive's reasonable attorneys' fees and disbursements incurred in such
litigation, and hereby agrees to pay interest on any money judgment obtained by
the Executive calculated at the Citibank, N.A. prime interest rate in effect
from time to time from the date that payment(s) to Executive should have been
made under this Agreement until the date the payment(s) is made.
9. PAYMENT OBLIGATIONS ABSOLUTE: Except as expressly provided in
Section 13 and 14, the Corporation's or subsidiary's obligation to pay the
Executive the benefits hereunder and to make the arrangements provided herein
shall be absolute and unconditional and shall not be affected by any
circumstances, including, without limitation, any set-off, counter-claim,
recoupment, defense or other right which the Corporation may have against
Executive or anyone else. All amounts payable by the Corporation or subsidiary
hereunder shall be paid without notice or demand. Each and every payment made
hereunder shall be paid without notice or demand. Each and every payment made
hereunder by the Corporation or subsidiary shall be final and the Corporation or
subsidiary will not seek to recover all or any part of such payment(s) from the
Executive or from whosoever may be entitled thereto, for any reason whatsoever.
The Executive shall not be obligated to seek other employment in mitigation of
the amounts payable or arrangements made under any provision of this Plan, and
the obtaining of any such other employment shall in no event effect any
reduction of the Corporation's or subsidiary's obligations to make the payments
and arrangements required to be made under this Plan. The Corporation or
applicable subsidiary may at the discretion of the Chairman of the Corporation
enter into an irrevocable, third-party guarantee or similar agreement with a
bank or other institution with respect to the benefits payable to an Executive
hereunder, which would provide for the unconditional payment of such benefits by
such third-party upon presentment by an Executive of his or her Certificate (and
on such other conditions deemed necessary or desirable by the Corporation) at
some specified time after termination of employment. Such third-party guarantor
shall have no liability for improper payment if it follows the instructions of
the Corporation as provided in such Certificate and other documents required to
be presented under the agreement, unless the Corporation, in a written notice,
has previously advised such third-party guarantor of the determination by its
Board of Directors of ineligibility of the Executive in accordance with Section
14.
10. CONTINUING OBLIGATIONS: The Executive shall retain in confidence
any confidential information known to him or her concerning the Corporation
and its subsidiaries and their respective businesses as long as such
information is not publicly disclosed, except as otherwise required by law.
11. SUCCESSORS:
(a) This Agreement is personal to the Executive and without the prior
written consent of the Corporation shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's
5
<PAGE> 6
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Corporation and its successors and assigns.
(c) The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place. As used in this Agreement, Corporation shall mean
the Corporation as hereinbefore defined and which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
12. SEVERABILITY: Any provision in this Plan which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
only to the extent of such prohibition or unenforceability without invalidating
or affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13. OTHER AGREEMENTS: Notwithstanding any provision herein to the
contrary, in the event the Executive's employment with the Corporation or
applicable subsidiary terminates and the Executive is entitled to receive
termination, separation or other like amounts from the Corporation or any of its
subsidiaries pursuant to any contract of employment, generally prevailing
separation pay policy, or other program of the Corporation or applicable
subsidiary, all such amounts shall be applied to and set off against the
Corporation's or applicable subsidiary's obligation set forth in Section 7 of
this plan. Nothing in this Section 13 is intended to result in set-off of
salary, compensation, vacation and other benefits due Executive for work
performed through Executive's severance date, pension or Retirement Plan
benefits, supplemental executive retirement benefits, disability benefits,
retiree benefits, any pro-rata payment or payments made to Executive in
connection with a Change of Control under any currently existing and unvested
Management Incentive Plan or Performance Share Incentive Plan, or any payment to
Executive under the Corporation's Key Employee Value Sharing Plan, if any, or
any other plan benefits not directly provided as termination or separation
benefits.
14. TERMINATION: This Agreement shall terminate with respect to an
Executive if the Chairman of the Corporation determines that the Executive is no
longer a key executive to be provided a severance agreement and so notifies the
Executive by hand delivery, overnight courier or certified mail at least thirty
(30) days before participation in this Plan shall cease; except that such
determination shall not be made, and if made shall have no effect, (i) within
twenty-four (24) months after the Change of Control in question or (ii) during
any period of time when the Corporation has knowledge that any third person has
taken steps reasonably calculated to effect a Change of Control until such third
person has abandoned or terminated his or her efforts to effect a Change of
Control as determined by such Board in good faith, but in its sole discretion.
6
<PAGE> 1
EXHIBIT 10.F.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the 16th day of March, 1996,
between. THE FINOVA GROUP INC., a Delaware corporation (the "Company"), and
SAMUEL L. EICHENFIELD (the "Executive").
W I T N E S S E T H :
WHEREAS, Executive is and since March 16, 1992, has been the Chairman
of the Board and Chief Executive Officer, and as of August 12, 1993, the
Chairman of the Board, President and Chief Executive Officer (Executive's
"Current Position"), of the Company; and
WHEREAS, Executive has agreed to continue to render services to the
Company pursuant to the terms of this Agreement; and
WHEREAS, the purpose of this Agreement is to provide a statement in
writing of the respective responsibilities and agreements of the Company and
Executive with respect to Executive's employment as Chairman of the Board and
Chief Executive Officer of the Company.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained in this Agreement, the Company and Executive agree as follows:
1. Employment and Term.
Executive shall serve as Chairman of the Board and Chief
Executive Officer of Company (and until the Board otherwise determines, as
President) at Phoenix, Arizona, or such other location as is agreeable to
Executive. The term of Executive's employment shall commence on March 16, 1996
and continue through March 15, 1999 (the "Term") and thereafter shall continue
from year to year (the "Extended Term") unless written notice of termination
shall be given by the Executive Compensation Committee of the Board (at the
direction of the Board) or Executive, effective at the end of the initial three
(3) year period or at the end of any successive one (1) year term thereafter,
not less than six (6) months prior to March 16, 1999 or six (6) months prior to
March 16 of any year thereafter, as the case may be.
2. Duties.
As Chairman of the Board and Chief Executive Officer of the
Company, Executive shall devote substantially all of his business time to such
responsibilities and shall have full authority for management of the Company and
all its operations, financial affairs, facilities and investments. Executive
shall serve as a member of the Board, if so elected, shall act as a duly
authorized representative of the Board, and shall be a member or an ex officio
member of all committees of the Board, except the Executive Compensation
Committee. Except as provided in paragraph 6 hereof, Executive shall not engage
in any other employment or consulting activities during the Term or any Extended
Term of this Agreement and shall exercise the highest degree of loyalty and the
highest standards of conduct in the performance of his duties.
3. Compensation, Benefits and Business Expenses.
The Company shall pay and provide to Executive as compensation
for his services:
(a) A base compensation ("Base Compensation") of $543,650 per
year. Base Compensation shall be subject to annual merit increases and periodic
adjustment resulting from market evaluations as determined by the Executive
Compensation Committee of the Board. Executive's Base Compensation shall be
reviewed each year, commencing August 1996, for the express purpose of
<PAGE> 2
considering increases. Base Compensation shall be payable in such installments
as are fixed for salaried employees of the Company generally.
(b) Incentive awards, options and incentive plans
participation in accordance with terms and provisions of such plans as shall be
adopted from time to time by the Executive Compensation Committee of the Board,
the Board or the stockholders of the Company including, without limitation,
participation in the Company's Management Incentive Plan ("MIP") and the
Company's Performance Share Incentive Plan ("PSIP"). Participation in the
Company's MIP shall be at a target percentage of not less than 55%, with awards
approved by the Executive Compensation Committee of the Board. Participation in
the Company's PSIP shall be at a target percentage of not less than 60% with
awards approved by the Executive Compensation Committee of the Board.
Participation in the Company's 1992 Stock Incentive Plan (restricted stock and
stock option grants) shall be at the sole discretion of the Executive
Compensation Committee.
(c) (i) Pension benefits, supplemental executive retirement
benefits, life insurance, accidental death and dismemberment benefits, vacation
time in his discretion, reimbursement of club membership expenses, perquisites
and other fringe benefits, in each case in accordance with the policies of the
Company but in any event no less favorable to Executive than those currently
provided to Executive in his Current Position; and (ii) health insurance plans,
executive medical benefits and fitness programs in accordance with the policies
of the Company but in any event in the aggregate no less favorable to Executive,
his spouse and his eligible dependents than those currently provided in
Executive's Current Position.
(d) Prompt reimbursement of Executive's, and when he deems
necessary or appropriate his spouse's, reasonable travel and business expenses
incurred in connection with Executive's employment hereunder.
(e) Adequate and appropriate liability insurance and
indemnification by the Company to fully protect Executive against any financial
loss and expense arising out of his employment as a director and officer of the
Company or any of its subsidiaries or affiliates.
(f) By reason of Sections 3(b) and (c) above, the Company
shall not be obligated to institute, maintain, or refrain from changing,
amending, or discontinuing any benefit plan, program, or perquisite, so long as
such changes are similarly applicable to executive employees generally.
4. CEO Value Sharing Plan.
Executive shall participate in a CEO Value Sharing Plan as
follows:
(a) PURPOSE. The purpose of the CEO Value Sharing Plan is to
act as a retention device by providing significant rewards for equally
significant shareholder value creation, this being accomplished by sharing a
portion of created value in the form of cash payments to Executive.
(b) PERFORMANCE OBJECTIVES. Stock price hurdles have been
established since August 10, 1995 at $55, $70 and $85 per share or their
equivalent, the first hurdle ($55) being $15 per share greater than the base
price of $40 per share, or its equivalent, with the hurdles translating into
cumulative percentage increases in the stock price of 37.5%, 75.0% and 112.5%,
respectively.
(c) MEASURING ACHIEVEMENT. A hurdle shall be considered
achieved when the average closing price of Company common stock on the New York
Stock Exchange is equal to, or greater than, the hurdle price during any 20
consecutive trading days.
(d) PAYMENT AMOUNTS. When a hurdle is achieved, Executive will
receive a cash payment according to the attached Schedule 4 (CEO Value Sharing
Plan: Stock Price Hurdles and
2
<PAGE> 3
Payments) under the column "Payment at Each Hurdle". As appropriate,
calculations of amounts due or available for distribution under this CEO Value
Sharing Plan shall be adjusted for all recapitalizations of the Company's common
stock. Amounts paid with respect to the CEO Value Sharing Plan pursuant to this
Agreement shall be deducted from any payments made to Executive under the
Company's Change in Control Chief Executive Officer Value Sharing Plan.
(e) EXCISE TAXES. Company shall gross-up any applicable excise
taxes resulting from payments under this plan.
5. Special Retirement Benefits.
In addition to the pension and retirement benefits described
in paragraph 3 above and to accomplish Executive's objective to be entitled to a
retirement package at age sixty-five (65) with the maximum years of service
while accomplishing the Company's objective to discourage early retirement by
Executive, the Company shall provide Executive the following special retirement
benefits.
(a) Executive has been credited with an additional five (5)
years of service to the Company pursuant to the terms of his initial Employment
Agreement with the Company dated as of March 16, 1992.
(b) During the Term of Executive's employment by the Company
hereunder and under his initial Employment Agreement with the Company, on each
March 16 Executive shall be credited with two years of additional service for
the service rendered to Company during the preceding year, for a total of three
(3) years of credited service each year.
(c) Executive's retirement benefits shall be subject to
actuarial reduction in accordance with the Company's customary practices and
policies at the time of Executive's retirement if Executive elects to retire
before age sixty five (65).
(d) Retirement benefits in excess of benefits provided by or
allowable under the Company's Pension Plan shall be payable under the Company's
Supplemental Pension Plan, and credited service in excess of service provided by
or allowable under the Company's Pension Plan shall be funded through a
so-called Rabbi Trust.
6. Community Service.
Executive shall be free to serve as a director or officer or
both of such not-for-profit corporations and private business corporations as he
may desire, to join and participate in such committees for community or national
affairs as he may select, and to join and serve on public business corporation
boards of directors.
7. Coordination of Agreements.
In the event of a change of control of the Company, Executive
shall participate in the Company's severance and other benefit plans providing
rights and benefits to executives upon a change of control, and, any exercise of
rights by the Executive under any such plans shall not constitute a breach or
default of this Agreement; provided, however, the exercise by Executive of any
rights to payment pursuant to any severance plan shall constitute notice of
resignation hereunder by Executive, effective upon receipt of payment to
Executive under any severance plan.
8. Default by the Company.
In the event the Company commits a breach or default under
this Agreement or does not elect Executive to the positions specified herein or
does not permit him to exercise the authority and
3
<PAGE> 4
responsibility specified herein or requests and obtains his resignation or
otherwise terminates this agreement or fails to extend or renew this Agreement,
in each case other than for Cause (as defined in paragraph 10 hereof),
retirement or Change of Control (as referred to in paragraph 7 hereof), the
Company shall, and Executive shall accept, in lieu of any other severance
payment by Company, a lump sum payment equal to the Base Compensation and the
value of all other benefits and perquisites listed on Schedule 8 attached
hereto, as such Schedule may be amended from time to time, due hereunder during
the remainder of the Term or Extended Term, but not less than an amount equal to
a payment for one year of service, plus an amount equal to the sum of the
highest MIP, PSIP, stock and other performance awards paid to Executive in
either of the preceding two (2) years. Upon retirement or Change of Control,
Executive shall be entitled only to the benefits payable to Executive under the
Company's plans in which Executive then participates, and no other severance
payment shall be payable to Executive under this Agreement.
9. Resignation.
In the event Executive wishes to resign as Chairman of the
Board and Chief Executive Officer of the Company, he may do so by providing the
Board with at least one hundred eighty (180) days' written notice of his
decision to resign, and this Agreement shall terminate as of the date specified
in the notice. In the event that such notice is given by the Executive he shall,
if requested by the Board, participate during the remainder of his employment in
the recruitment of a successor and in an orderly transition of administration of
the new Chairman of the Board and Chief Executive Officer of the Company.
10. Termination for Cause.
Nothing in this Agreement shall be construed to prevent the Board from
terminating the Executive's employment under this Agreement for "Cause".
"Cause" shall be determined by the Board in the exercise of good faith
and reasonable judgment and shall be defined as the conviction of the Executive
for the commission of an act of fraud, embezzlement, theft, or other criminal
act constituting a felony under U.S. or state laws involving moral turpitude; or
a determination that Executive has engaged in gross misconduct or the gross
negligence of the Executive in the performance of any and all material covenants
under this Agreement, for reasons other than the Executive's death, disability,
or retirement. The Board, by majority vote, shall make the determination of
whether Cause exists, after providing the Executive with notice of the reasons
the Board believes Cause may exist, and after giving the Executive the
opportunity to respond to the allegation that Cause exists. Conviction of
Executive for any act described above shall occur upon entry of a final judgment
without further right of appeal, and the right of the Company to terminate this
Agreement shall be exercisable only within ninety (90) days thereafter by notice
in writing that his termination has been approved by at least a majority of the
full Board of the Company.
11. Effect of Termination for Cause, Death, Disability or
Voluntary Termination.
Upon termination of Executive's employment (a) by the Company
for Cause, (b) as a result of the death or disability of Executive or (c)
voluntarily by Executive, the Company shall pay Executive, or his estate, his
then current Base Compensation, pro rata to the date of termination. In
addition, upon termination of Executive's employment as a result of the death or
disability of Executive, the Company shall pay to Executive's estate a pro rata
portion (calculated by taking the award for any completed full years and
prorating the award for any partial years based on the number of days in such
year preceding the date of termination in either event based on actual
performance to the date of such event) of his MIP and PUIP award, which shall be
paid at the time that MIP and PUIP awards are ordinarily paid by the Company to
participants in the MIP and PUIP generally.
4
<PAGE> 5
12. Confidentiality and Noncompetition.
(a) Executive acknowledges that the name, trade or service
marks, records and plans and other business information with respect to Company,
together with its list of customers, constitute valuable proprietary assets of
Company. Accordingly, at no time either during or after the Term or Extended
Term of this Agreement, shall Executive use the Company's name or trade or
service marks or use or disclose to others for any purpose whatsoever any of the
Company's records or plans or other business information or its list of
customers.
(b) Executive shall, at all times either during or after the
Term or Extended Term of this Agreement, unless otherwise required by law,
refrain from making any written or oral communication damaging to the Company.
(c) Without the prior written consent of the Company, during
the term of this Agreement, and for twenty-four (24) months following the
expiration or termination (other than as a result of a default by the Company
hereunder) of this Agreement, the Executive shall not, as an employee or an
officer, engage directly or indirectly in any business or enterprise which is
"in competition" with the Company or its successors or assigns. For purposes of
this Agreement, a business or enterprise will be deemed to be "in competition"
if it is engaged in any significant business activity of the Company or its
subsidiaries within the continental United States.
However, the Executive shall be allowed to purchase and hold
for investment less than five percent (5%) of the shares of any such corporation
whose shares are regularly traded on a national securities exchange or in the
over-the-counter market.
(d) During the term of this Agreement, and for a period of
twenty-four (24) months following the expiration of this Agreement, the
Executive agrees not to attempt to induce any employee of the Company to
terminate his or her employment with the Company, accept employment with any
competitor of the Company, or to interfere in a similar manner with the business
of the Company.
(e) If at any time after expiration or termination of this
Agreement other than as a result of a default by the Company hereunder, (i)
during the term of any stock option held by Executive or (ii) within two (2)
years after Executive exercises any portion of any stock option granted by the
Company, Executive engages in any activity in competition with any activity of
the Company, or inimical, contrary or harmful to the interests of the Company,
including, but not limited to: (1) conduct which would constitute a basis for
termination for cause under this Agreement, (2) accepting employment with or
serving as a consultant, advisor or in any other capacity to any person or
employer acting against the interests of the Company, or (3) participating for
the purpose of effecting or encouraging a hostile takeover attempt with respect
to the Company then (x) all options to purchase stock of the Company awarded to
Executive shall terminate effective the date on which Executive enters into such
activity, unless terminated earlier by operation of any term or condition of the
option agreement or the plan pursuant to which the option was granted and (y)
any option gain realized by Executive from exercising all or a portion of any
option shall be paid by Executive to the Company.
13. Litigation or Arbitration.
(a) The Executive shall have the right and option to elect to
have any good faith dispute or controversy arising under or in connection with
this Agreement settled by litigation or by arbitration.
If arbitration is selected, such proceeding shall be conducted
before a panel of three (3) arbitrators sitting in a location selected by the
Executive within fifty (50) miles from the location of his principal place of
employment, in accordance with the rules of the American Arbitration Association
then in effect. Judgment may be entered on the award of the arbitrators in any
court having competent jurisdiction.
5
<PAGE> 6
(b) If litigation or arbitration is brought by Executive to
enforce or interpret any provision contained herein, and if Executive prevails
as the successful party in such litigation or arbitration, or if the court or
arbitrator finds that Executive had a good faith and reasonable belief that
Executive's position was meritorious, the Company, to the extent permitted by
applicable law and the Company's Articles of Incorporation, shall indemnify
Executive for his reasonable attorneys' fees and disbursements incurred in such
litigation, and hereby agrees to pay interest on any money judgment obtained by
Executive from time to time from the date that payment(s) to him should have
been made under this Agreement until the date the payment(s) is made.
14. No Mitigation.
In the event that Executive's employment hereunder is
terminated in violation of the provisions of this Agreement, Executive shall not
be obligated to seek other employment in mitigation of amounts payable to him
under this Agreement, and the obtaining of such other employment shall in no
event affect the Company's obligations to make such payments to Executive
pursuant to this Agreement.
15. Entire Agreement.
This Agreement constitutes the entire agreement and
understanding with respect to the employment of Executive by the Company and
supersedes any and all prior agreements and understandings, whether oral or
written, relating thereto. This Agreement may be modified or amended only by
written agreement signed by Executive and by a representative of the Company
pursuant to a duly adopted resolution of its Board of Directors approving such
modification or amendment.
16. Partial Invalidity.
The invalidity, by statute, court decision or otherwise, of
any term or provision of this Agreement shall not affect the validity or
enforceability of any other term or provision hereof.
17. Governing Law.
This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Arizona.
18. Authority.
Any act to be taken or authorized hereunder by the Company, or
the Company's Board of Directors, unless otherwise expressly provided in this
Agreement, may be so taken or authorized by the Company's Board of Directors or
its Executive Compensation Committee.
19. This Agreement shall be binding upon and inure to the
benefit of the Executive and his estate, and the Company and any successor of
the Company, but neither this Agreement nor any rights arising hereunder may
be assigned or pledged by Executive, or by the Company without consent of
Executive.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have caused this Employment Agreement
to be executed as of the day and year first above written.
A T T E S T : THE FINOVA GROUP INC.
By: /s/ W.J. Hallinan By: /s/ W.C. Roche
------------------ ---------------
Secretary Senior Vice President-Human Resources
/s/ S. Eichenfield
---------------------
Samuel L. Eichenfield
7
<PAGE> 1
EXHIBIT 10.I.1
RESOLVED, that the Board of Directors hereby delegates discretionary
authority to the Chief Executive Officer of the Company and the Committee
appointed in accordance with the provisions of the GFC Financial Corporation
Retirement Income Plan and Trust (the "Defined Benefit Plan") to amend the
provisions of the Defined Benefit Plan (1) to reduce the formula for benefit
accruals beginning on or after January 1, 1995 from 1.25% of five year final
average pay plus .50% of five year final average pay less covered compensation
times a maximum of 30 years of credited service to 1.0% of five year final
average pay plus .50% of five year final average pay less covered compensation
times a maximum of 35 years of credited service, provided that no accrued
benefit of any participant shall be reduced below the accrued benefit determined
as of December 31, 1994 and (2) to provide a grandfathered benefit for all
participants who are within one year of normal retirement or early retirement
eligibility as of January 1, 1995 equal to the greater of the benefit accrued as
of December 31, 1994 plus accruals under the new formula or 1.10% of five year
final average pay plus .50% of five year final average pay less covered
compensation times a maximum of 35 years of credited service;
FURTHER RESOLVED, that the Board of Directors hereby delegates
discretionary authority to the Chief Executive Officer of the Company and the
Committee appointed in accordance with the provisions of the Defined Benefit
Plan to further amend the Defined Benefit Plan or in the alternative to provide
benefits outside the Defined Benefit Plan to any participant in the Defined
Benefit Plan who is subjected to hardship as a result of the amendment in the
rate of benefit accruals for plan years beginning on or after January 1, 1995;
FURTHER RESOLVED the Board of Directors hereby delegates discretionary
authority to the Chief Executive Officer of the Company and the Committees
appointed in accordance with provisions of the GFC Financial Corporation
Capital Accumulation Plan and Trust (the "401(k)") and the GFC Financial
Corporation Employees' Stock Ownership Plan and Trust (the "ESOP") to amend the
provisions of the 401(k) and the ESOP (1) to define compensation for purposes of
employee pre-tax deferrals and employer contributions to include Management
Incentive Plan and Sales Incentive Plan payments for all 401(k) and ESOP
participants, (2) to match 100% of employee pre-tax deferrals up to 6% of
compensation including Management Incentive Plan and Sales Incentive Plan
payments, and (3) to allow participants in the 401(k) and ESOP to direct the
investment of any employer match which exceeds 3% of compensation including
Management Incentive Plan and Sales Incentive Plan payments among any of the
investment alternatives offered under the 401(k);
FURTHER RESOLVED, that the Board of Directors hereby delegates
discretionary authority to the Chief Executive Officer of the Company and the
Committee appointed in accordance with provisions of the GFC Financial
Corporation Supplemental Pension Plan (the "SERP") to amend the provisions of
the SERP to replace the current benefit schedules with a single formula of 1.75%
of five year final average pay (including pay above any Internal Revenue Code
limitations on qualified plans) times a maximum of 35 years of credited service
less any benefit payable under the Defined Benefit Plan, subject to the terms of
any individual employment agreements with any employee of the
<PAGE> 2
Company, its subsidiaries and affiliates who is eligible to participate in the
SERP;
FURTHER RESOLVED, that the Chief Executive Officer and the Committees of
the respective Plans are hereby authorized to amend and restate each of the
Plans in its entirety to incorporate all required provisions under the Internal
Revenue Code of 1986, and any subsequent statutes or pronouncements of the
Internal Revenue Service, the Department of Labor or the Pension Benefit
Guaranty Corporation, as applicable (the "Code"), as well as the amendments
authorized by these resolutions, to issue any required notices to plan
participants, including but not limited to any notices required under Section
204(h) of the Employee Retirement Income Security Act, to make the operation of
the Plans uniform to the extent practicable, to take such steps as they deem
necessary and appropriate to effectuate these resolutions, to take any and all
actions necessary to seek Internal Revenue Service approval of the documentation
for and operation of the respective Plans as applicable, and to prepare and
execute any amendments or documents necessary to obtain such approval on behalf
of the Company and any of its subsidiaries or affiliates who have adopted the
Plans;
FURTHER RESOLVED, that all terms used in these resolutions shall have the
meanings given under the provisions of the respective Plans in operation;
FURTHER RESOLVED, that the terms of the Defined Benefit Plan, the terms of
the 401(k) Plan, the terms of the ESOP, and the terms of the SERP (sometimes
collectively referred as the Plans") shall each be amended to allow the Chief
Executive Officer of the Company and the Committees appointed under each of the
Plans acting in concert to make all plan amendments necessary on behalf of the
Company and any of its subsidiaries or affiliates who have adopted the Plans to
clarify any aspect of the Plans, to comply with tax qualification or other legal
requirements, to provide a uniform benefit structure for all employees of the
Company, its subsidiaries and affiliates as appropriate, to facilitate the
administration of each of the Plans, or to implement appropriate changes in the
design of the Plans, provided that such amendments do not significantly increase
the cost of the Plans or adversely affect their status under the Code. The
authority to make any amendments, on behalf of the Company and any of its
subsidiaries or affiliates who have adopted the Plans, which significantly
increase the cost of the Plans shall remain with the Board of Directors of the
Company.
<PAGE> 1
EXHIBIT 10.I.2
RESOLVED, that the Board of Directors hereby delegates discretionary
authority to the Chief Executive Officer of this Corporation, together with the
respective Committees appointed in accordance with The FINOVA Group Inc. Pension
Plan and Trust (the "Defined Benefit Plan"), The FINOVA Group Inc. Savings Plan
and Trust (the "401(k)"), The FINOVA Group Inc. Employee Stock Ownership Plan
and Trust (the "ESOP"), and The FINOVA Group Inc. Supplemental Executive
Retirement Plan (formerly the Supplemental Pension Plan) (the "SERP")
(collectively, the "Plans") to amend each of the Plans to provide, or to
clarify, that the Board of Directors (or its designee) retains the exclusive
authority: to terminate any of the Plans; to appoint or remove, if applicable,
the trustee or trustees, or custodian or custodians, of each of the Plans; to
appoint or remove the members, and the Chair, of the Committees under each of
the Plans; to appoint or remove the members, and the Chair, of the Investment
Committee under the Defined Benefit Plan; and to determine, if applicable,
whether the Plan will be funded on an insured or trusteed basis, or some
combination thereof;
FURTHER RESOLVED, that the Board of Directors hereby delegates
discretionary authority to the Chief Executive Officer of this Corporation,
together with the respective Committees appointed in accordance with the Defined
Benefit Plan, the 401(k), the ESOP, and the SERP to amend each of the Plans to
provide, or clarify, that the Chair shall have the authority to appoint the
Secretary of the respective Committee, and that the respective Committee shall
have the authority to appoint, remove, and monitor investment managers for the
401(k) and ESOP; to select, remove and monitor investment funds among which
participants may direct investments in the 401(k) and, when applicable, the
ESOP; to resolve ambiguities in the documentation and administration of the
Plans; to authorize payments from the Plans, including payments if the
participant or beneficiary is under legal disability; to create, adopt, approve
and administer procedures and forms to implement the terms
<PAGE> 2
of the Plans, and to delegate responsibility for such administration, including,
if applicable, the administration of qualified domestic relations orders; to
adopt and administer claims and review/appeal procedures, including deciding
claims and appeals, and to delegate the first level of claims review to a single
member of the Committee; to maintain all records, reports and information
necessary for the administration of each of the Plans; and to report to this
Corporation from time to time concerning the administration of each of the
Plans;
FURTHER RESOLVED, that the Board of Directors hereby delegates
discretionary authority to the Chief Executive Officer of this Corporation,
together with the respective Committee appointed in accordance with the Defined
Benefit Plan, the 401(k) and the ESOP to amend each of those four Plans to
provide, or clarify, that the trustee or trustees under each of those four Plans
shall act as a directed trustee under Section 403(a) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"); and that more than three
individuals may be appointed as trustees of the ESOP;
FURTHER RESOLVED, that the Board of Directors hereby delegates
discretionary authority to the Chief Executive Officer of this Corporation,
together with the Committee appointed in accordance with the Defined Benefit
Plan to amend the Defined Benefit Plan to provide, or clarify, that the Chair
shall have the authority to appoint the Secretary of the Investment Committee,
and that the Investment Committee under the Defined Benefit Plan shall have the
authority to develop a formal investment policy; to select, remove, and monitor
investment managers; to monitor the liquidity of assets to make benefit
payments; to monitor plan funding and company contributions; and to determine
and implement an appropriate allocation of assets;
FURTHER RESOLVED, that the Board of Directors hereby delegates
discretionary authority to the Chief Executive Officer, together with the
respective Committee appointed in accordance with the Defined Benefit Plan, the
401(k), the ESOP, and the SERP to amend each of the Plans to provide, or
clarify, that this Corporation, the Board of Directors, the Committee, the
Trustees and the Investment Committee (in the case of the Defined Benefit Plan)
are "named fiduciaries," within the meaning of ERISA, with respect to the
Defined Benefit Plan, the 401(k), and the ESOP; that this Corporation shall
undertake to indemnify, to the maximum extent permitted by law, the members of
the Board of Directors and of the Committees (including the Investment
Committee) of each of the Plans, and the individual company employees who serve
as trustees of the ESOP; and that this Corporation shall indemnify the
institutional trustees or custodians under any of the Plans only to the extent
that they act in good faith at the direction of this Corporation or one of the
relevant Committees (including the Investment Committee);
<PAGE> 3
FURTHER RESOLVED, that the Board of Directors hereby ratifies the current
appointment of the following individuals as members, and Chair, of the
respective Committee under the Defined Benefit Plan, the 401(k), and the ESOP:
William C. Roche, Chair; Bruno A. Marszowski, member; De Ann Clark, member; and
Debbie Inman, member;
FURTHER RESOLVED, that the Board of Directors hereby ratifies the current
appointment of the following individuals as members, and Chair, of the Committee
under the SERP: William C. Roche, Chair; Bruno A. Marszowski, member; and De Ann
Clark, member;
FURTHER RESOLVED, that the Board of Directors hereby ratifies the current
appointment of the following individuals as trustees of the ESOP: William C.
Roche, Bruno A. Marszowski, De Ann Clark, and Debbie Inman;
FURTHER RESOLVED, that the Board of Directors hereby ratifies the current
appointment of the following individuals as members, and Chair, of the
Investment Committee under the Defined Benefit Plan: Robert J. Fitzsimmons,
Chair; W. Carroll Bumpers; and Bruno A. Marszowski;
FURTHER RESOLVED, that the Board of Directors hereby delegates
discretionary authority to the Chief Executive Officer of this Corporation,
together with the respective Committee appointed in accordance with the Defined
Benefit Plan, the 401(k), the ESOP, and the SERP, to amend the terms of the
Plan, if applicable, to provide that, for a period of sixty (60) months
immediately after a Change in Control (that meets the definition in The FINOVA
Group Inc. Executive Severance Plan and that occurs without the prior approval
of the Board of Directors), no plan administration or operating expenses may be
paid from the assets of the Plans; if the Defined Benefit Plan is terminated
after such a Change of Control, any surplus assets will be allocated and
distributed to participants who were actively employed on the date of the Change
in Control; and the foregoing provisions of the Plans may not be amended after
such a Change in Control; and
FURTHER RESOLVED, that the Chief Executive Officer, together with the
Committees appointed in accordance with the Defined Benefit Plan, the 401(k),
the ESOP, and the SERP are hereby authorized to take such steps as they deem
necessary and appropriate to effectuate these resolutions.
<PAGE> 1
EXHIBIT 10.M
THE FINOVA GROUP INC.
DEFERRED COMPENSATION PLAN
1. Purpose of the Plan
The purpose of this Deferred Compensation Plan (the "Plan") is to
provide a select group of management or highly compensated employees of The
FINOVA Group Inc. (the "Company") and its subsidiaries with an opportunity to
defer the receipt of incentive compensation awarded to them under the yearly
Management Incentive Plan and certain other incentive plans of The FINOVA Group
Inc. and its subsidiaries as determined by the Committee (the "Incentive Plans")
and thereby enhance the long-range benefits and purposes of the incentive
awards.
2. Administration of the Plan
The Plan shall be administered by a committee appointed by the Chief
Executive Officer of the Company (the "Committee"). Subject to the express
provisions of the Plan, and the Incentive Plans, the Committee shall have the
authority to adopt, amend and rescind such rules and regulations, and to make
such determinations and interpretations relating to the Plan, which it deems
necessary or advisable for the administration of the Plan, but it shall not have
the power to amend, suspend or terminate the Plan. All such rules, regulations,
determinations and interpretations shall be conclusive and binding on all
parties.
3. Participation in the Plan
(a) Participation in the Plan shall be restricted to a select group of
management or highly compensated employees of the Company or one of its
subsidiaries who are participants in the Incentive Plans as determined by the
Committee and whose timely written requests to defer the receipt of all or a
portion of any incentive compensation which may be awarded to them, are honored
in whole or in part by the Committee in its sole discretion. Any individual
whose request for deferral is not accepted or honored by the Committee, whether
for failure of timely submission or for any other reason, shall not become a
participant in the Plan, and the Committee's determination in this regard shall
be conclusive and binding.
(b) If a participant in the Plan shall 1) sever his employment with
the Company or one of its subsidiaries, 2) engage in any activity in competition
with the Company or any of its subsidiaries during or following such employment,
or 3) remain in the employ of a corporation which for any reason ceases to be a
subsidiary of the Company, the Committee at any time thereafter may direct, in
its sole and exclusive discretion, that his participation in the Plan shall
terminate and he be paid in a lump
<PAGE> 2
sum the aggregate amount credited to his deferred incentive account as of the
date such participation is terminated.
4. Requests for Deferral
All requests for deferral of incentive awards must be made in writing
prior to the beginning of the year in which the participant would otherwise have
the unqualified right to receive such award, but in no event later than December
15, with respect to awards under the Management Incentive Plan, and shall be in
such form and shall contain such terms and conditions as the Committee may
determine. Each such request shall specify the dollar amount or the percentage
of any incentive award to be deferred, but in no event shall the amount to be
deferred be less than $1,000 and the period of deferral be less than one (1)
year. Each such request shall also specify 1) the date (no later than the
employee's actual retirement date) when payment of the aggregate amount credited
to the deferred incentive account is to commence, 2) whether such payment is
then to be made in a lump sum or in quarterly or annual installments, and 3) if
payment is to be made in installments, the period of time (not in excess of ten
years) over which the installments are to be paid. The Committee shall, under no
circumstances, accept any request for deferral of less than $1,000 of an
incentive award or less than one (1) year or any request which is not in writing
or which is not timely submitted.
5. Deferral of Incentive Awards
The Committee shall, prior to the beginning of the year in which the
participant would otherwise have the unqualified right to receive such award,
notify each individual who has submitted a request for deferral of an incentive
award whether or not such request has been accepted and honored. If the request
has been honored in whole or in part, the Committee shall advise the participant
of the dollar amount or percentage of his incentive compensation which the
Committee has determined to be deferred. The Committee shall further advise the
participant of its determination as to the date when payment of the aggregate
amount credited to the participant's deferred incentive account is to commence,
whether payment of the amount so credited as of that date will then be made in a
lump sum or in quarterly or annual installments, and if payment is to be made in
installments, the period of time over which the installments will be paid.
6. Modification of Deferral
Upon subsequently being advised of the existence of special
circumstances which are beyond the participant's control and which impose an
unforeseen severe financial hardship on the participant or his beneficiary, the
Committee may, in its sole and exclusive discretion, modify the deferral
arrangement established for that participant to the extent necessary to remedy
such financial hardship.
<PAGE> 3
7. Deferred Incentive Account
(a) A deferred incentive account shall be maintained by his employer for
each participant in the Plan, and there shall be credited to each participant's
account, on the date incentive compensation is awarded, the incentive award, or
portion thereof, which would have been paid to such participant on said date if
the receipt thereof had not been deferred.
(b) In addition, there shall be credited quarterly to each
participant's account, an interest credit on his deferred incentive award at the
interest rates determined by the Committee to be payable during each calendar
year, or portion thereof, prior to the termination of such participant's
deferral period or, if the amount then credited to his deferred incentive
account is to be paid in installments, prior to the termination of such
installment period. The interest credit shall be a rate equal to the yield as of
January 1, April 1, July 1 and October 1 on Merrill Lynch Taxable Bond Index -
Long Term Medium Quality (A3) Industrial Bonds, unless and until otherwise
determined.
(c) The Plan shall at all times be unfunded for tax purposes and for
purposes of Title I of ERISA. The Company shall not be required to segregate
physically any amounts of money or otherwise provide funding or security for any
amounts credited to the deferred incentive accounts of participants in the Plan.
8. Designation of Beneficiary
Each participant in the Plan shall deliver to the Committee a written
instrument, in the form provided by the Committee, designating one or more
beneficiaries to whom payment of the amount credited to his deferred incentive
account shall be made in the event of his death. Unless the Committee shall
otherwise determine, such payments shall be made in such amounts and at such
times as they would otherwise have been paid to the participant if he had
survived.
9. Nonassignability of Participation Rights
No right, interest or benefit under the Plan shall be assignable or
transferable under any circumstances other than to a participant's designated
beneficiary in the event of his death, nor shall any such right, interest or
benefit be subject to or liable for any debt, obligation, liability or default
of any participant. In the event of any attempt to assign or transfer any right,
interest or benefit under the Plan, or to subject any such right, interest, or
benefit to a debt, obligation, liability or default of a participant, his
participation in the Plan shall terminate on the date such an attempt is made,
and he shall be paid in a lump sum the aggregate amount credited to his deferred
incentive account as of that date.
<PAGE> 4
10. Rights of Participants
A participant in the Plan shall have only those rights, interests or
benefits as are expressly provided in the Plan and in the Incentive Plans. The
Plan shall be deemed to be ancillary to the Incentive Plans and the rights of
participants in the Plan shall be limited as provided in the Incentive Plans.
11. Amendment, Suspension or Termination of the Plan
The Board of Directors of the Company (the "Board") may from time to time
amend, suspend or terminate the Plan, in whole or in part, and if the plan is
suspended or terminated, the Board may reinstate any or all provisions of the
Plan, except that no amendment, suspension or termination of the Plan shall,
without the consent of a participant, adversely affect such participant's right
to receive payment of the entire amount credited to his deferred incentive
account on the date of such Board action. In the event the Plan is suspended or
terminated, the Board may, in its discretion, direct the Committee to pay to
each participant the amount credited to his account either in a lump sum or in
accordance with the Committee's prior determination regarding the method of
payment.
12. Effective Date
The Plan shall become effective on the date of its approval by the Board
or on such other date as the Board may direct, but the Plan shall become
operative with respect to a select group of management or highly compensated
employees of each subsidiary only upon the adoption of the Plan by that
subsidiary's Board of Directors.
<PAGE> 1
EXHIBIT 11
THE FINOVA GROUP INC.
COMPUTATION OF EARNINGS PER SHARE
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Primary and Fully Diluted:
Net income $ 97,629 $ 74,313 $ 37,347
Preferred dividends 1,306
----------- ----------- -----------
Net income available to common shareholders $ 97,629 $ 74,313 $ 36,041
=========== =========== ===========
Average common shares outstanding before common equivalents 27,452,000 24,998,000 20,090,000
Common equivalent stock options 380,000 309,000 242,000
----------- ----------- -----------
Average outstanding common and equivalent shares 27,832,000 25,307,000 20,332,000
=========== =========== ===========
Net income per common and equivalent share $ 3.51 $ 2.94 $ 1.77
=========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 12
THE FINOVA GROUP INC.
COMPUTATION OF RATIO OF INCOME TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1995 1994 1993 1992 1991
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income (loss) before income taxes $157,240 $123,771 $ 66,422 $ 50,593 $(37,014)
Add fixed charges:
Interest expense 366,822 222,200 123,853 136,107 157,560
One-third of rent expense 2,478 2,041 1,387 1,498 1,148
-------- -------- -------- -------- --------
Total fixed charges 369,300 224,241 125,240 137,605 158,708
-------- -------- -------- -------- --------
Net income as adjusted $526,540 $348,012 $191,662 $188,198 $121,694
-------- -------- -------- -------- --------
Ratio of income to fixed charges 1.43 1.55 1.53 1.37 --
======== ======== ======== ======== ========
Preferred stock dividends on a pre-tax basis $ $ $ 2,139 $ 2,826 $
Total combined fixed charges and
preferred stock dividends $369,300 $224,241 $127,379 $140,431 $158,708
-------- -------- -------- -------- --------
Ratio of income to combined fixed charges and
preferred stock dividends 1.43 1.55 1.50 1.34 --
======== ======== ======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 21
Subsidiaries of The FINOVA Group Inc.
(February 5, 1996)
FINOVA CAPITAL CORPORATION (Delaware)
Ambre Realty, Inc. (New York)
BATCL - 1991 - III, Inc. (Delaware)
Cactus Resort Properties, Inc. (Delaware)
Commonwealth Avenue Warehouse, Inc. (Florida)
Desert Communications I, Inc. (Delaware)
Desert Communications II, Inc. (Delaware)
Desert Communications III, Inc. (Delaware)
Desert Communications V, Inc. (Delaware)
Desert Communications VI, Inc. (Delaware)
Desert Hospitality II, Inc. (Florida)
FCS 505, Inc. (Delaware)
FCS 525, Inc. (Delaware)
FCS 517, Inc. (Delaware)
FINOVA Business Credit Corp. (Delaware)**
FINOVA Capital (Canada) Corporation (Canada)
FINOVA Capital (Canada) Resorts Corporation (Canada)
FINOVA Capital Funding, Inc. (Delaware)
FINOVA Capital Limited (United Kingdom)
Greyfin Services Limited (United Kingdom)
Greyhound Equipment Finance Limited (United Kingdom)*#
Greyhound Guaranty Limited (United Kingdom)*
Greyhound Credit Limited (United Kingdom)*
Greyhound Finance International Limited (United Kingdom)*
Greyhound Nominees Limited (United Kingdom)*
Greyhound Property Investment Limited (United Kingdom)*#
Hookgold Limited (United Kingdom)*
Secured Advances Limited (United Kingdom)
Townmead Garages Limited (United Kingdom)*
FINOVA Government Finance, Inc. (Delaware)
FINOVA Portfolio Services, Inc. (Arizona)
Greycas, Inc. (Arizona)
New Jersey Realty Corporation II (California)
New York Realty Corporation II (California)
Greyfin (Nassau) Limited (Bahamas)*
Greyfin Corporation (Liberia)*
Greyhound Shipping Corporation (Liberia)
Greyhound Real Estate Finance Company (Arizona)*
Greyhound Real Estate Investment BRB Inc. (Arizona)
Greyhound Real Estate Investment Eight Inc. (Delaware)
Greyhound Real Estate Investment Eleven Inc. (Delaware)
Greyhound Real Estate Investment Nine Inc. (Delaware)
Greyhound Real Estate Investment One Inc. (Arizona)
Greyhound Real Estate Investment S Inc. (Arizona)
Greyhound Real Estate Investment Seven Inc. (Delaware)
Greyhound Real Estate Investment Two Inc. (Arizona)
Interim Funding Corporation (Arizona)
Pine Top Insurance Company Limited (United Kingdom)#
TriContinental Leasing Corporation (Delaware)
TriContinental Leasing of Puerto Rico, Inc. (Delaware)
Wisconsin Hotel Operating Corporation (Wisconsin)
* INACTIVE
** SHELL CORPORATION
# IN LIQUIDATION
<PAGE> 1
EXHIBIT 25
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes and
appoints Samuel L. Eichenfield and Bruno A. Marszowski, and each of them
severally, as his or her attorneys-in-fact, with full power of substitution and
resubstitution, to sign and file on his or her behalf individually and in each
such capacity stated below, The FINOVA Group Inc.'s Annual Report on Form 10-K,
and any amendments thereto, to be filed with the Securities and Exchange
Commission, the New York Stock Exchange, and otherwise, as fully as such person
could do in person, hereby verifying and confirming all that said
attorneys-in-fact, or their or his substitutes or substitute, may lawfully do or
cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER
/s/ Samuel L. Eichenfield CHAIRMAN OF THE BOARD, February 8 , 1996
- ---------------------------- PRESIDENT AND CHIEF ---
Samuel L. Eichenfield EXECUTIVE OFFICER
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER
/s/ Bruno A. Marszowski SENIOR VICE PRESIDENT- February 8 , 1996
- ---------------------------- CONTROLLER AND CHIEF ---
Bruno A. Marszowski FINANCIAL OFFICER
DIRECTORS
/s/ G. Robert Durham February 8 , 1996
- ---------------------------- ---
G. Robert Durham
/s/ James L. Johnson February 8 , 1996
- ---------------------------- ---
James L. Johnson
/s/ L. Gene Lemon February 8 , 1996
- ---------------------------- ---
L. Gene Lemon
/s/ Kenneth R. Smith February 8 , 1996
- ---------------------------- ---
Kenneth R. Smith
/s/ Robert P. Straetz February 8 , 1996
- ---------------------------- ---
Robert P. Straetz
/s/ Shoshana B. Tancer February 8 , 1996
- ---------------------------- ---
Shoshana B. Tancer
/s/ John W. Teets February 8 , 1996
- ---------------------------- ---
John W. Teets
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 90,280
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 6,819,057
<ALLOWANCE> (140,333)
<TOTAL-ASSETS> 7,036,514
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 561,962
<LONG-TERM> 5,649,368
<COMMON> 284
0
0
<OTHER-SE> 824,900
<TOTAL-LIABILITIES-AND-EQUITY> 7,036,514
<INTEREST-LOAN> 761,855
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 0
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 366,822
<INTEREST-INCOME-NET> 339,815
<LOAN-LOSSES> 47,300
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 155,001
<INCOME-PRETAX> 157,240
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97,629
<EPS-PRIMARY> 3.51
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.8
<LOANS-NON> 167,872
<LOANS-PAST> 0
<LOANS-TROUBLED> 17,260
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 122,233
<CHARGE-OFFS> (35,533)
<RECOVERIES> 2,216
<ALLOWANCE-CLOSE> 140,333
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
