March 26, 1996
U. S. Securities and Exchange Commission By EDGAR and
450 Fifth St., N.W. U. S. Mail
Washington, D.C. 20549
Attn: Filing Desk
Re: The FINOVA Group Inc. 1996 Proxy Statement
Dear Ladies and Gentlemen:
Enclosed by EDGAR is the 1996 Proxy Statement and related materials for The
FINOVA Group Inc., which were first mailed to shareholders on the date hereof.
Nine copies will follow by U. S. Mail, 8 for the filing desk and 1 for Mr.
Gregory Hair, our Branch Chief.
The $125 filing fee has been wired to the Commission's account at Mellon
Bank.
Five copies of the proxy materials have also been forwarded to the New York
Stock Exchange simultaneously herewith.
The mail package will also contain eight copies of the Company's annual
report to stockholers, which is not being filed with the Commission, but is
being forwarded to it for its information, pursuant to SEC Rule 14a-3(c). Five
copies of that report have been forwarded to the NYSE as well.
Please accept these materials and contact me should you have any comments
or questions regarding these submissions.
Very truly yours,
Richard Lieberman
Assistant General Counsel
cc: William J. Hallinan, Esq.
Robert J. Hackett, Esq.
Gregory W. Hair, Branch Chief, S.E.C.
<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. ______________)
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/ / Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive proxy statment
/ / Definitive additional materials
/ / Soliciting material pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
THE FINOVA GROUP INC.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) or Schedule 14A
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
- - ----------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- - ----------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
- - ----------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- - ----------------------------------------------------------------------------
(5) Total fee paid:
- - ----------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
- - ----------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
- - ----------------------------------------------------------------------------
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
March 26, 1996
To the Holders of Common Stock of
The FINOVA Group Inc.
The Annual Meeting of Stockholders of The FINOVA Group Inc., a Delaware
corporation (the "Corporation"), will be held in the Ballroom of the Radisson
Resort Scottsdale, 7171 North Scottsdale Road, Scottsdale, Arizona, on Thursday,
May 9, 1996, at 9:00 a.m., Mountain Standard Time, for the purpose of
considering and voting upon:
1. Election of directors of the Corporation;
2. Amendment to the Corporation's 1992 Stock Incentive Plan;
3. Ratification of the appointment of Deloitte & Touche LLP to audit the
accounts of the Corporation for the year 1996; and
4. Any other matters which may properly come before the meeting and any
adjournment or adjournments thereof.
Only stockholders of record of Common Stock at the opening of business on
March 11, 1996 are entitled to receive notice of and to vote at the meeting. A
list of the stockholders entitled to vote will be available for examination at
the meeting by any stockholder for any purpose germane to the meeting. The list
will also be available on the same basis for ten days prior to the meeting at
the principal executive offices of the Corporation, 1850 North Central Avenue,
P.O. Box 2209, Phoenix, Arizona 85002-2209.
The Annual Report for the year 1995, including financial statements, and
the Proxy Statement are enclosed with this Notice of Annual Meeting.
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE VOTE, SIGN AND MAIL
THE ENCLOSED PROXY AS SOON AS POSSIBLE. A return envelope, which requires no
postage if mailed in the United States, is enclosed for that purpose. Your proxy
is being solicited on behalf of the Board of Directors.
W. J. HALLINAN
Senior Vice President --
General Counsel and Secretary
PLEASE VOTE -- YOUR VOTE IS IMPORTANT
<PAGE>
THE FINOVA GROUP INC.
1850 North Central Avenue
P.O. Box 2209
Phoenix, Arizona 85002-2209
SAMUEL L. EICHENFIELD
Chairman, President and Chief Executive Officer
Dear Stockholder:
Your are cordially invited to attend the 1996 Annual Meeting of
Stockholders. The meeting will be held on Thursday May 9, 1996 in the Ballroom
of the Radisson Resort Scottsdale, 7171 North Scottsdale Road, Scottsdale,
Arizona. As the meeting will begin promptly at 9:00a.m., please plan to arrive
earlier. The formal notice of the meeting follows on the next page. No admission
tickets or other credentials will be required for attendance at the meeting. You
may use the hotel's free parking.
Directors and officers are expected to be present before and after the
meeting to speak with stockholders. During the meeting, there will be an
opportunity for stockholder questions regarding the affairs of the Corporation
and for discussions of the business to be considered at the meeting, as
explained in the Notice and Proxy Statement which follow.
It is important that you vote, sign and return the enclosed proxy as soon
as possible, whether or not you plan to attend the meeting
Samuel L. Eichenfield
<PAGE>
PROXY STATEMENT
THE FINOVA GROUP INC.
1850 NORTH CENTRAL AVENUE
P.O. BOX 2209
PHOENIX, ARIZONA 85002-2209
GENERAL INFORMATION
The enclosed proxy is solicited on behalf of the Board of Directors of The
FINOVA Group Inc, a Delaware corporation formerly known as GFC Financial
Corporation (the "Corporation"), for use at the 1996 Annual Meeting of
Stockholders of the Corporation. The proxy, if properly executed and returned,
will be voted according to its specifications, but may be revoked at any time
before it is voted by: (a) executing and delivering to the Secretary of the
Corporation a written instrument of revocation bearing a date later than the
date of the proxy, (b) executing and delivering to the Secretary a subsequent
proxy relating to the same shares or (c) attending the meeting and voting in
person. Attendance at the meeting will not in and of itself constitute
revocation of a proxy.
Only stockholders of record of Common Stock (the "Shares") as of the
opening of business on the record date, March 11, 1996 (the "Record Date"), will
be eligible to vote at the meeting. The number of Shares then outstanding was
27,330,583. Each outstanding Share on the Record Date will be entitled to one
vote. Fractional Shares will not be voted. Cumulative voting is not permitted.
For those proposals for which no directions are given in the proxy, the proxy
will be voted (a) "for" the election of the director nominees set forth herein,
(b) "for" the proposal to amend the Corporation's 1992 Stock Incentive Plan, (c)
"for" the proposal to ratify the appointment of Deloitte & Touche LLP as the
Corporation's auditors for 1996, and (d) in accordance with the recommendations
of the Board of Directors or, if none, in the best judgment of the proxy
holders, on other proposals, if any. In the event of disqualification, refusal
or inability of any director or director nominee to serve, the proxies will be
voted for the election of such other person or persons as the proxy holders
believe will carry on the present policies of the Corporation. The approximate
date on which this Proxy Statement and accompanying materials are first sent to
stockholders is March 26, 1996.
If a stockholder is a participant in the Corporation's Savings Plan
(formerly known as the Capital Accumulation Plan), Employee Stock Ownership Plan
(formerly known as the Employees' Stock Ownership Plan) or The Dial Corp 401(k)
plans, the proxy will represent the number of Shares in the stockholder's plan
account(s) as well as Shares registered in the stockholder's name. The proxy
will serve as a voting instruction to the respective trustees of the above
referenced plans. For the Corporation's plans, if any such Shares are not voted,
the respective trustees of those plans will not vote those Shares on behalf of
the participant.
The cost of soliciting proxies will be borne by the Corporation.
Solicitation will be made primarily through the use of the mails, but employees
of the Corporation may solicit proxies personally, by telephone, telegram or
similar means, for no additional compensation. In addition, the Corporation has
retained Morrow & Co., Inc. to assist it in connection with the solicitation at
an estimated fee of $7,500 plus out-of-pocket expenses. The Corporation will
reimburse banks, brokerage firms and other custodians, nominees and fiduciaries
for reasonable expenses incurred by them in sending proxy materials to
beneficial owners of Shares.
Comments from stockholders about any aspects of the Corporation's business
are welcome, and space is provided on the proxy card for this purpose. Although
all such notes may not be answered on an individual basis, the comments help
management to assess stockholder sentiment and to determine what additional
information should be furnished to stockholders.
BOARD OF DIRECTORS AND ITS COMMITTEES
BOARD AND COMMITTEE MEETINGS
The Corporation's Board of Directors held a total of seven regular quarterly
and special meetings during 1995. During 1995, each director attended at least
75% or more of the Board and committee
<PAGE>
meetings held for all committees on which that director served. The Board has
established the following committees of certain of its members to deal with
particular areas of responsibility.
The Executive Committee held no meetings but reviewed and approved a number
of transactions by unanimous written consent during 1995. That committee
exercises all the powers of the Board in the management of the business and
affairs of the Corporation when the Board is not in session, to the extent
permitted by Delaware law. Its members consist of Mr. Eichenfield, Chairman, and
Messrs. Durham, Johnson, Straetz and Teets.
The Audit Committee, which met four times in 1995, recommends appointment
of the Corporation's independent auditors and reviews and approves audit reports
and plans, accounting policies, financial statements, internal auditing reports,
internal controls, ethics committee actions, audit fees and certain officer
expenses. All members of this committee are nonemployee directors, except that
Mr. Eichenfield is an ex-officio member who does not vote on matters considered
by the committee. Its members consist of Mr. Smith, Chairman, Mrs. Tancer, and
Messrs. Lemon, Straetz and Eichenfield.
The Executive Compensation Committee, which met four times in 1995,
exercises all the powers of the Board in the authorization and approval of the
compensation of and agreements with executive officers and employees of the
Corporation and its subsidiaries, including compensation and incentive plans.
The committee has delegated authority to the Chairman of the Board to set
compensation for nonexecutive officers, subject to the committee's supervision.
In addition, the committee reviews an independent analysis, prepared by a
leading firm of compensation consultants, of the competitiveness of the
Corporation's executive officer compensation as well as competitive data
developed by the Corporation's compensation staff and consultants. The committee
also determines awards under various incentive plans, including the
Corporation's 1992 Stock Incentive Plan. All members of this committee are
nonemployee directors. Its members consist of Mr. Durham, Chairman, and Messrs
Johnson, Straetz and Teets.
The Board does not have a nominating committee. The entire Board is
responsible for the selection of director nominees.
COMPENSATION
Directors who are not employees received an annual retainer of $25,000,
plus $1,500 for each Board, committee, or other meeting attended. Directors are
reimbursed for any expenses attendant to Board membership.
Nonemployee directors may elect to participate in the Corporation's
Directors' Deferred Compensation Plan, pursuant to which payment of part or all
of their directors' fees and retainers is deferred. The plan permits
participants to defer their compensation in the form of cash. Mr. Smith
currently participates in this Plan. Such accumulated compensation, plus
interest thereon at the Merrill Lynch Taxable Bond Index long-term medium
quality industrial bond rate of interest in effect each quarter, is payable upon
termination as a director to the director or to the director's estate or
beneficiary over such period as may be designated by the director and as
permitted by the plan.
The Corporation's 1992 Stock Incentive Plan provides for an initial grant
to new nonemployee directors of options to purchase 2,000 Shares and an annual
grant to nonemployee directors of options to purchase 1,500 Shares. The exercise
price of such options is the fair market value of the Shares on the date of
grant.
In addition, the proposed amendment to the 1992 Stock Incentive Plan would
permit nonemployee directors to elect to receive their annual retainer in the
form of cash, restricted Shares or stock options under the plan or a combination
thereof. If the proposed amendment is adopted, participating directors will be
able to elect to receive restricted stock based on fair market value equal to
the cash retainer not received, or stock options at the fair market value equal
to two and one-half times the cash retainer not received, at an exercise price
equal to that fair market value. The restricted stock would not be transferable
and options would not become exercisable until the day before the next annual
meeting after the grant date and would be forfeited to the Corporation if the
participant ceases to be a member of the Board before that date, with certain
exceptions.
Permitting directors to receive their annual retainers in the form of
awards under the 1992 Stock Incentive Plan is consistent with the Corporation's
goals of increasing directors' Share ownership. Increased Share ownership will
help further align the Board's interests with those of the stockholders. See
"Amendment to 1992 Stock Incentive Plan."
2
<PAGE>
In February 1993, the Board adopted a Directors' Retirement Benefit Plan
for nonemployee directors. That plan provides for the payment of benefits equal
to the annual retainer in effect at the retirement date. Vesting occurs upon
completion of five years of service as a director, and the director must be at
least 62 on the retirement date. Benefits are paid annually for the lesser of
life or years of service measured from the date of election to the Board.
As part of the Corporation's overall support for charitable institutions,
and to help attract directors with outstanding experience and ability, the Board
adopted in 1994 a Directors' Charitable Award Program which enables a director
to contribute $100,000 per year to a charity or foundation selected by the
director over a period of ten years upon the director's death. The program is
funded through the purchase of life insurance on the life of the director, with
the Corporation as beneficiary. The Corporation's Employee Stock Purchase
Program was also amended to permit directors to participate in that program.
Through that program, employees and directors may purchase Shares at the
then-current market price without payment of brokerage commissions, which are
paid by the Corporation.
ELECTION OF DIRECTORS
The Board of Directors of the Corporation consists of eight persons and is
divided into three classes. At each annual meeting, the term of one class of
directors expires, and persons are elected to that class for three-year terms.
The Board of Directors has nominated Mr. G. Robert Durham and Mr. Kenneth R.
Smith for election to the Board for terms expiring at the 1999 annual meeting or
until their respective successors have been elected and have qualified. Each
currently serves as a director of the Corporation, and each has consented to
being named herein and to serve if elected.
All directors have served in that capacity since February 1992, except Mr.
Straetz, whose election became effective in May 1992, and Mrs. Tancer, who was
appointed in February 1994 to fill a vacancy. All Board members other than Mrs.
Tancer were initially appointed in connection with the spin-off ("Spin-Off") of
the Corporation from The Dial Corp ("Dial") on March 18, 1992.
DIRECTOR NOMINEES
The following information regarding the director nominees has been
furnished by such nominees: For Terms Expiring at the 1999 Annual Meeting:(1)
PRINCIPAL OCCUPATION,
NAME OTHER DIRECTORSHIPS AND AGE
- - -------------------- -----------------------------------------------------------
G. Robert Durham Chairman and Chief Executive Officer or similar positions
of Walter Industries, Inc. (a homebuilding and financing,
building materials, natural resources and industrial
manufacturing company) since 1991. Prior thereto, for more
than five years, Mr . Durham was Chairman, President and
Chief Executive Officer of Phelps Dodge Corporation
(principally, a mining company); also a director of
Homestake Mining Company, Mincorp Holdings Inc., and
a trustee of Mutual Life Insurance Company of New York.
Age 67.
Kenneth R. Smith Professor of Economics for more than five years and former
Dean of the Karl Eller Graduate School of Management and
the College of Business and Public Administration from 1980
to 1995 and Vice Provost from 1992 to 1995 of the
University of Arizona; also a former director of Southwest
Gas Corporation and its subsidiary, PriMerit Bank. Age 54.
- - ----------
(1) or until their respective successors have been elected and have qualified.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE
NOMINEES LISTED ABOVE, TO SERVE FOR THE TERM INDICATED.
3
<PAGE>
DIRECTORS CONTINUING IN OFFICE
The following information regarding the directors continuing in office has
been furnished by such directors:
For Terms Expiring at the 1997 Annual Meeting:(1)
PRINCIPAL OCCUPATION,
NAME OTHER DIRECTORSHIPS AND AGE
- - ---------------------- ---------------------------------------------------------
L. Gene Lemon Vice President-Administration Since 1996 and prior thereto
Vice President and General Counsel of Dial for more than
five years. Age 55.
Robert P. Straetz Retired Chairman and Chief Executive Officer of Textron
Inc. (a diversified manufacturer of aerospace products and
provider of financial services) for more than five years;
also a director of AFC, Inc. and a former director of
Dial, Textron, Inc., Fleet/Norstar Financial Group and its
subsidiary, Fleet Mortgage Corporation. Age 74.
Shoshana B. Tancer Professor of International Studies for more than five
years and Director of the North American Free Trade
Agreement Center since 1993 for the American Graduate
School of International Management. Also, of-counsel to
the law firm of O'Connor, Cavanagh, Anderson,
Killingsworth & Beshears since 1992, and prior thereto,
was the principal of Tancer Law Offices, Ltd. for more
than five years. Former director of Mountain Bell (the
predecessor of U.S. West, Inc.) and three subsidiaries of
Merabank, a Federal Savings Bank. Age 60.
For Terms Expiring at the 1998 Annual Meeting:(1)
NAME PRINCIPAL OCCUPATION,
OTHER DIRECTORSHIPS AND AGE
- - --------------------- ----------------------------------------------------------
Samuel L. Eichenfield Chairman, President and Chief Executive Officer of the
corporation since 1992; also Chairman, President, and
Chief Executive Officer of FINOVA Capital Corporation,
formerly Greyhound Financial Corporation, the principal
operating subsidiary of the corporation ("FINOVA
capital"), for more than five years. Age 59.
James L. Johnson Chairman Emeritus and a director of GTE
Corporation (a diversified telecommunications company)
since 1993, and prior thereto was its Chairman and Chief
Executive Officer; also a trustee of Mutual Life Insurance
Company of New York, and a director of Harte/Hanks
Communications Co., Inc., Cell Star Corporation, Valero
Energy Corporation and Walter Industries, Inc. Age 68.
John W. Teets Chairman and Chief Executive Officer of Dial or similar
positions for more than five years. Age 62.
- - --------------
(1) or until their respective successors have been elected and have qualified.
OWNERSHIP OF THE CORPORATION'S SHARES
The following tables set forth certain information as of March 1, 1996
regarding the beneficial ownership (as that term is interpreted by the
Securities and Exchange Commission ("SEC")) of the Corporation's outstanding
Shares by (a) present directors and Named Executives (as defined below),
individually, and all directors and executive officers as a group and (b) the
holders of more than five percent of the Corporation's Shares. To the
Corporation's knowledge, each person, along with his or her spouse, has sole
voting and investment power of such Shares, unless otherwise noted.
4
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENTAGE
NAME POSITION(S) OWNERSHIP OF SHARES
- - --------------------------------- -------------------------- -------------- ------------
<S> <C> <C> <C>
G. Robert Durham Director 8,500(1) *
Samuel L. Eichenfield Chairman, President, and 347,538(2)(3) 1.18%
Chief Executive Officer
James L. Johnson Director 6,500(1) *
L. Gene Lemon Director 18,486(1) *
Kenneth R. Smith Director 9,000(1) *
Robert P. Straetz Director 9,000(1) *
Shoshana B. Tancer Director 5,500(1) *
John W. Teets Director 58,553(1) *
William J. Hallinan Senior Vice President --
General Counsel and 63,945(2)(3) *
Secretary
Martin G. Roth Group Vice President --
Transportation Finance/
Capital Services 29,172(2)(3) *
FINOVA Capital Corporation
Gregory C. Smalis Group Vice President --
Portfolio Management 29,049(2)(3) *
FINOVA Capital Management
Thomas C. Parrinello Group Vice President --
Factoring Services
FINOVA Capital Corporation 6,125(2)(3) *
Directors and Executive Officers, 708,110(2)(3) 2.79%
as a Group
</TABLE>
- - ----------
(1) Includes Shares with respect to which such director has a right to acquire
ownership within 60 days through the exercise of stock options granted
pursuant to the Corporation's 1992 Stock Incentive Plan in the amount of
6,500 Shares per nonemployee director, except Mr. Durham (3,500 Shares),
Mr. Johnson (1,500 Shares) and Mrs. Tancer (4,500 shares).
(2) Includes options to purchase Shares which can be exercised within 60 days
pursuant to grants of stock options by the Corporation in the amount of
217,667 Shares for Mr. Eichenfield, 42,664 Shares for Mr. Hallinan, 19,856
Shares for Mr. Roth, 17,584 Shares for Mr. Smalis, 2,735 Shares for Mr.
Parinello, and 395,791 Shares for all directors and executive officers as
a group.
(3) Includes Shares of restricted stock granted in connection with the
Spin-Off and performance- based restricted stock granted after the
Spin-Off to such persons, for which the persons have voting power but do
not yet have dispositive power, in the amounts of 41,200 Shares for Mr.
Eichenfield, 5,811 Shares for Mr. Hallinan, 4,100 Shares for Mr. Roth,
5,040 Shares for Mr. Smalis and 2,700 Shares for Mr. Parrinello. The
number of Shares to be awarded under the performance- based restricted
stock program may vary based on the performance of the Company and the
stock. The reported amounts include all vested awards and target awards
for future vestings. The reported amounts also include holdings in the
Corporation's Savings (401(k)) and Employee Stock Ownership Plans as of
February 29, 1996, according to reports of the plan administrators.
*The amount of Common Stock beneficially owned by such individual does not
exceed one percent.
5
<PAGE>
CERTAIN BENEFICIAL OWNERS
AMOUNT AND
NATURE OF BENEFICIAL PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP (1) OF SHARES
- - ----------------------------------------- -------------------- ------------
Heine Securities Corporation 3,003,100 10.99%
51 John F. Kennedy Parkway
Short Hills, NJ 07078-2708
Arnhold & S. Bleichroeder, Inc. 1,883,400 6.89%
45 Broadway
New York, NY 10006
Loomis, Sayles & Co., Inc. and Affiliates 1,845,612 6.75%
1 Financial Center
Boston, MA 02111-2660
- - ----------
(1) Pursuant to filings with the SEC, such Shares are held by the entity or
its affiliates on behalf of themselves and their respective advisory
clients and investors. The entities may disclaim that they constitute a
"group" for purposes of owning these Shares. The information is based on
reported ownership on the date of such filings.
Notwithstanding anything to the contrary set forth in any of the
Corporation's previous or future filings under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended, that might
incorporate filings, including this Proxy Statement, in whole or in part, the
following report and the performance graph shall not be incorporated by
reference into any such filings.
EXECUTIVE COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Executive Compensation Committee (the "Compensation Committee"),
comprised entirely of independent directors, exercises all of the powers of the
Board in the authorization and approval of the compensation of executive
officers of the Corporation and its subsidiaries including awards to those
officers under various incentive plans. In connection with those duties, the
Compensation Committee administers and approves awards under the Corporation's
1992 Stock Incentive Plan. The stockholders are asked to approve certain
amendments to that plan at this year's annual meeting. The Compensation
Committee makes every effort to assure that the compensation program is
consistent with the Corporation's values and furthers its business strategy.
OVERALL OBJECTIVES
The Compensation Committee has developed a compensation program for
executives and key employees designed to meet the following objectives:
o Rewarding performance that increases stockholder value.
o Attracting, retaining and motivating executives and key employees with
competitive compensation opportunities.
o Emphasizing "pay for performance" by placing a substantial portion of
compensation at risk.
o Building and encouraging ownership of Corporation Shares.
o Balancing short-term and long-term strategic goals.
o Addressing the concerns of stockholders, employees, the financial
community and the general public.
The following discussion describes how the various components of the
Corporation's executive compensation program meet these objectives.
EXECUTIVE COMPENSATION GENERALLY
The Compensation Committee reviews executive officers' salaries each year.
Salary increases depend upon individual performance, responsibilities, the
Corporation's financial performance and
6
<PAGE>
median salary levels at comparator companies, as discussed below. The
Compensation Committee's judgments of the appropriate form and level of
executive compensation were ultimately based on its assessment of the
Corporation's executive officers, the continuing demand for superior executive
talent, the Corporation's overall performance, future objectives and challenges,
and assessments of how those executives could contribute to future success of
the Corporation.
In August 1994, the Corporation's independent compensation consultant
prepared competitive studies of the Corporation's executive compensation
program, comparing the Corporation to 17 similar financial services companies.
Approximately two-thirds of those companies are included in the Standard &
Poor's Financial Index. The Corporation uses that index to set its performance
criteria for its Management Incentive Plan ("MIP") and performance-based
restricted stock awards. Because the Compensation Committee believes the
selected comparators more closely reflect the Corporation's competitors for
executive talent than do those companies appearing in the broader index, it
generally uses the comparator group in evaluating compensation levels. The
Compensation Committee was advised that compensation levels had been relatively
consistent and stable since the 1994 study, so a new study was not undertaken.
Instead, the 1994 data was adjusted for then-current market trends and the
Corporation's asset size.
TOTAL COMPENSATION
In August 1995, the Compensation Committee again set targeted total
compensation levels for the executive officers at approximately the 75th
percentile of the compensation of the comparator corporations, adjusted for size
in light of the Corporation's and executives' respective performance. A larger
percentage of the Corporation's executive officers' compensation is generally
"at risk" and in the form of long-term compensation than that for their
counterparts at the comparator companies. This helps encourage performance that
increases stockholder value. In addition, the Compensation Committee increased
target, minimum and maximum award levels for annual and long term incentive
plans in February 1995 between five and twenty percent over their respective
1994 levels. The Compensation Committee believes such increases provide
appropriate incentives to encourage future growth.
BASE SALARY
In August 1995, the Compensation Committee adjusted the base salary levels
for the Corporation's executive officers to approximately the 50th percentile of
the comparator group for executive officers, after adjusting for size
differences among the companies. Those adjustments accounted for both annual
salary adjustments and job scope adjustments. Annual salary adjustments were
based on the factors listed above. Job scope adjustments were based on changes
in responsibilities.
ANNUAL INCENTIVES
The Corporation's cash bonus plan (MIP) rewards key employees for meeting
annual goals. The Compensation Committee carefully reviews and approves
performance targets under the plan to make certain they are both challenging and
consistent with stockholder-value improvement. Individual MIP awards are set at
a target percentage of salary, generally 30-55% for Named Officers, which awards
can be adjusted for the Corporation's and individual's performance, resulting in
an award of between 0-200% of the target. The Compensation Committee has
discretion to make awards, notwithstanding performance, but did not do so for
any Named Officer in 1995. For the Corporation, performance targets related in
1995 to earnings per share from continuing operations (60%), net income from
continuing operations (30%), and total stockholder return (10%). The
Compensation Committee determines final awards after receiving recommendations
from the Chief Executive Officer. In 1995, the Corporation's overall performance
exceeded each of the maximum performance goals established.
For executive officers whose MIP awards are based in whole or in part on the
performance of FINOVA Capital, its 1995 targets focused attention more
specifically on FINOVA Capital's objectives. Targets related to after tax net
income from continuing operations (50%), the level of non-earning assets (25%)
and average funds employed (25%). FINOVA Capital's overall performance in 1995
exceeded each of the maximum performance goals established.
LONG-TERM INCENTIVES
The Corporation provides long-term incentives using stock options,
performance-based restricted stock and cash compensation awarded pursuant to
performance share incentive plans
7
<PAGE>
("PSIPs"). Through these vehicles, the Company has maximum flexibility for
focusing top management on specific long-term goals, building executive stock
ownership and encouraging continuing efforts to achieve stockholder value.
Stock options give executives an opportunity to buy an equity interest in
the Corporation. Moreover, because the options' value depends directly on the
appreciation of the Shares' value, the executives and stockholders benefit
similarly from any appreciation, and their interests are aligned. The
Compensation Committee has the authority to grant options to key executives and
makes every effort to balance the dilution and motivational effects. All options
have been issued with the exercise price at the fair market value of the Shares
on the date of grant or for a higher exercise price, as discussed more fully
below.
The Compensation Committee may also grant restricted Shares to key
executives and has chosen to grant only performance-based restricted Shares
since the Spin-Off. Like stock option grants, these grants build management
ownership and align the interests of executives with those of stockholders. In
addition, performance-based restricted Shares serve as a retention device,
because the Shares do not completely vest until after five years from the grant
date. Furthermore, annual vesting has been directly linked to the Corporation's
stock performance as compared to market performance; e.g., if the stock
underperforms the market, no vesting occurs for that year's portion for all such
grants made since August 25, 1992. The Compensation Committee has discretion to
waive performance requirements but did not do so in 1995.
Finally, PSIPs focus management on other important long-term goals in
addition to Share price appreciation. For the Corporation's 1995-1997 plan,
these goals relate to earnings per Share (50%) and net income (50%), both from
continuing operations. For executive officers whose PSIP awards are based in
whole or in part on the performance of FINOVA Capital, its 1995-97 plan goals
relate to net income (50%) and return on average equity (50%). The performance
period for PSIPs is three years. Final award sizes and eligibility are reviewed
by the Compensation Committee, which has discretion to adjust the awards within
preestablished parameters if circumstances so warrant. For business leaders and
line of business head participants in the PSIPs, their awards are dependent on
both the performance of FINOVA Capital (25%) and their respective line of
business or group (75%). In that way, their incentive compensation is both
linked to overall company performance and the strategic performance of their
business units. The Company and the participant Named Officers exceeded the
maximum performance targets for the 1993-95 PSIP, and the Compensation Committee
paid the maximum awards, as adjusted, within the parameters noted above.
Option, performance-based restricted Shares and PSIP grants in 1995 were
made after reviewing competitive data prepared by an outside consultant, past
practice with respect to the levels of compensation for those executives,
including with prior employers as appropriate, and recommendations of senior
management. In August 1995, the Compensation Committee awarded multi-year stock
option grants to key executive officers who had not received similar grants in
previous years in an effort to further align the executives' interests with
those of the stockholders. Grants were not made to those executives who received
multi-year awards in 1993 or 1994. The multi-year awards were intended to be in
lieu of future option awards anticipated for those officers during those years.
The exercise price was at the fair market value of the stock at the grant date
for the first year's grant, with a premium of 12.5% Share price increase each
year thereafter. The premium requires that management create increasing value
for all stockholders for the options to have value.
IN GENERAL
With regard to the possible disallowance of federal income tax deductions
on executive compensation in excess of $1 million per year, the Compensation
Committee believes that under the final regulations issued by the Internal
Revenue Service no compensation was paid in 1995 which would be non-deductible
as a result of those changes in the federal income tax laws. The Compensation
Committee again determined, after consultation with its independent compensation
consultants, that to the extent that long term performance plans created in 1995
or 1996 might impact the deductibility of compensation paid in future years, the
Corporation would be better served by maintaining flexibility in its ability to
adjust those plans, rather than attempting to conform them to the exemption's
requirements. Thus, the Compensation Committee decided to forego the exemption
with respect to cash compensation plans adopted in 1995 or 1996. The
Compensation Committee, however, further determined to review its position with
respect to this exemption each year.
8
<PAGE>
To help address the overall objectives noted above, the Compensation
Committee recommended to the Board, which subsequently approved in August 1993,
stock ownership guidelines for senior management and directors of the
Corporation. Persons subject to the guidelines are encouraged to assure that
over a period of four years and thereafter their ownership of the Corporation's
Shares and options reaches targeted levels based on the person's level of
responsibilities and compensation. The failure to achieve such ownership levels
could, in the Board's discretion, preclude the executive from receipt of future
awards under the 1992 Stock Incentive Plan. The Compensation Committee reviewed
current holdings of officers subject to the guidelines during 1995.
BROAD-BASED EMPLOYEE STOCK OPTION PROGRAM
In addition to the Awards under the 1992 Stock Incentive Plan granted to
executive officers, in 1995 the Corporation granted more than 314,000 stock
options (approximately 83% of the total) to about 625 other employees under that
plan. The plan, which includes grants of options to all full time employees at
the end of their first quarter with the Corporation, is a vital element of
FINOVA's drive to motivate outstanding contributions by its employees. Through
such awards, all employees, not just the executives, have an incentive to seek
appreciation in stockholder value.
CEO COMPENSATION
The Compensation Committee determined Mr. Eichenfield's total compensation
and amended and renewed his employment agreement, as noted below, based on the
Corporation's performance, his individual performance, median compensation
levels, the desire to retain him and the terms of his then-existing employment
agreement. Mr. Eichenfield's salary and the incentives granted to him reflect
the leadership he has provided since the Corporation's Spin-Off. The Corporation
reported record earnings each year since the Spin-Off, increasing income from
continuing operations in 1995 to $97.6 million from $74.8 in 1994, and earnings
per share to $3.51 from $2.97 (with an additional 2.5 million average Shares
outstanding in 1995). Stockholder return outpaced both the Standard & Poor's 500
Index and its Financial Index in 1995. The Corporation achieved a 55% return,
while the S&P 500 increased only 37% and the Financial Index increased by 54%.
The market value of the Corporation's shares has increased approximately $1
billion since the Spin-Off, from just over $435 million to more than $1.4
billion as of the Record Date.
At the same time, Mr. Eichenfield has positioned the Corporation for
continued success. New business resulted in a 20% growth in managed assets
(funds employed and securitizations) during 1995. Margins remained strong at
5.8% for 1995. Non-accruing assets declined as a percentage of managed assets,
finishing 1995 at 2.4% of managed assets. Those factors known in August 1995
were subjectively evaluated in determining to target Mr. Eichenfield's total
compensation near the 75th percentile of total compensation paid to chief
executives of comparator companies, adjusted for size. His base salary is
approximately 7% below that of other chief executive officers at comparator
companies, based on the 1994 study, as adjusted.
Approximately two-thirds of Mr. Eichenfield's targeted total compensation
is placed "at risk," by tying it to performance goals or the Corporation's Share
price. In contrast, the comparator companies' chief executives had on average
substantially less of their compensation at risk. Through the various long term
incentive plans and his employment agreement, including the addition of the CEO
value sharing plan to that agreement noted below, Mr. Eichenfield has
appropriate incentives to create additional stockholder value. See "Employment
Agreements."
The Compensation Committee believes Mr. Eichenfield will continue providing
outstanding leadership to the Corporation. It will work with him to assure that
the executive compensation program meets the strategic goals of the Corporation
as well as the overall objectives discussed above.
G. Robert Durham, Chairman
James L. Johnson
Robert P. Straetz
John W. Teets
Members, Executive Compensation Committee
9
<PAGE>
<TABLE>
<CAPTION>
PERFORMANCE GRAPH
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG THE CORPORATION,
STANDARD & POOR'S ("S&P") 500 INDEX AND S&P FINANCIAL INDEX (1)(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3-19-92 6-30-92 12-31-92 6-30-93 12-31-93 6-30-94 12-31-94 6-30-95 12-31-95
------- ------- -------- ------- -------- ------- -------- ------- --------
Corp. 100 93.89 108.73 139.54 135.98 158.24 152.24 169.81 236.33
S&P 500 100 100.38 109.38 114.01 119.65 115.64 121.27 145.70 166.64
S&P Finan. 100 103.59 120.63 134.87 133.94 135.66 129.30 163.60 198.93
</TABLE>
(1) The stock price and index performances shown in the above graph are not
necessarily indicative of future results
(2) As often occurs with newly issued securities, the initial market prices of
the Shares in the days following the Spin-Off were higher than the prices
of which the Shares traded in subsequent months
(3) Assumes $100 invested on March 19, 1992, and all dividends reinvested on
such securities
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Corporation and its subsidiaries during the
last three fiscal years to or on behalf of the Corporation's Chairman, President
and Chief Executive Officer, and each of the four other most highly compensated
executive officers of the Corporation (based on salary and MIP) as of the end of
1995 (for those years during which such persons were executive officers) (the
"Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- - ---------------------------------------------------------------- --------------------------- ------------ -----------
OTHER PERFORMANCE- SECURITIES
ANNUAL BASED UNDERLYING ALL OTHER
COMPEN- RESTRICTED OPTIONS/ COMPEN-
NAME AND SALARY BONUS SATION STOCK SARS LTIP SATION
PRINCIPAL POSITION YEAR (1) (1)(2) (3) AWARDS(4)(5) (#) (5) PAYOUTS (6)
- - ----------------------- ------- ---------- ---------- ---------- -------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Samuel L. Eichenfield 1995 $519,834 $557,522 $340,901 $697,870 $1,024,290 $9,000
Chairman, President and 1994 460,790 496,705 245,931 553,715 701,440 9,000
Chief Executive Officer 1993 417,602 420,252 177,010 369,838 175,000 657,738 8,994
William J. Hallinan 1995 254,072 190,046 87,379 85,145 378,195 9,000
Senior Vice President
-- 1994 238,850 174,513 114,347 59,278 258,560 5,544
General Counsel & 1993 223,380 163,013 57,798 77,118 22,500 5,448
Secretary
Gregory C. Smalis 1995 204,675 153,097 82,233 115,235 9,000
Group Vice President -- 1994 168,705 123,229 59,278 12,000 3,960
Portfolio Management 1993 142,247 100,856 40,952 74,479 4,200 3,664
FINOVA Capital Corp.
Martin G. Roth 1995 189,505 147,814 73,945 500 9,000
Group Vice President -- 1994 186,787 145,328 59,278 12,000 5,450
Transportation Finance/ (7)
Capital Services
FINOVA Capital Corp.
Thomas C. Parrinello 1995 210,000 105,000 58,125 9,000
Group Vice President -- 1994* 172,519 120,189 59,278 12,500
Factoring Services (7)
FINOVA Capital Corp.
</TABLE>
- - ---------
* Reported compensation is for the full fiscal year, except for Mr. Parrinello,
whose 1994 income is reported from his engagement on February 14, 1994.
10
<PAGE>
(1) Amounts shown include cash and non-cash compensation earned and received by
the Named Officers as well as amounts earned but deferred at the election
of those officers, if any.
(2) The amount of the bonuses is dependent each year on the Corporation's and
Named Officers' respective performance. No bonuses are awarded unless the
Corporation achieves specified levels of performance. The above amounts
include a bonus paid to Mr. Parrinello in 1994 of $15,000 which was paid in
connection with his commencement of employment with the Corporation and was
not dependent on his performance.
(3) Amounts listed in this column are for personal benefits paid by the
Corporation, including among other items tax gross up payments in 1995 of
$304,901 to Mr. Eichenfield and $73,094 to Mr. Hallinan.
(4) The number of Shares to be awarded and their vesting are dependent on the
Corporation's stock price and dividend performance during each of the five
years following the grant date compared to the performance of either the
Standard & Poor's 500 Index (the "S&P 500") or the Standard & Poor's
Financial Index (the "S&P FI"). The value of the performance-based
restricted stock is based on the fair market value of Shares at the grant
date (or vesting date for additional Shares awarded, as discussed more
fully below) and does not account for any diminution in value due to the
performance requirements or any other restrictions on transfer.
On April 1, 1992, each Named Officer other than Mr. Parrinello was granted
1,000 target Shares of performance-based restricted stock subject to
adjustment of the target number of Shares. Between 100 and 340 of such
Shares will vest and be awarded to those Named Officers each year during
the five years following the grant date, depending on the Corporation's
performance compared to the S&P 500. Thus, those Named Officers can receive
a minimum of 500 Shares and a maximum of 1,700 Shares pursuant to the April
1, 1992 grant. In 1993, 1994 and 1995, the maximum awards were achieved.
The remaining Shares of performance-based restricted stock underlying the
values noted were granted in August of each respective year. Between 0 and
34% of such Shares will vest and be awarded each year during the five years
following the grant date based on the Corporation's stock price and
dividend performance compared to the lesser of the S&P 500 or the S&P FI.
Thus, the Named Officers can receive between 0 Shares and a maximum of 1.7
times the number of Shares awarded. Failure to achieve the required stock
performance level results in permanent loss of that year's respective
grant. The Named Officers received the following numbers of target Shares
of performance-based restricted stock: In 1995, Mr. Eichenfield -- 15,000
Shares; Messrs. Hallinan, Roth, Smalis and Parinello -- 1,500 Shares each.
In 1994 Mr. Eichenfield -- 15,000 Shares; Messrs. Hallinan, Smalis, Roth
and Parrinello -- 1,500 Shares each. In 1993, Mr. Eichenfield -- 10,000
shares; Messrs. Hallinan and Smalis -- 2,000 shares each, and Mr. Roth --
1,000 shares. In 1993, 1994, and 1995, the maximum additional vestings were
achieved, as applicable.
The Executive Compensation Committee has retained discretion to amend the
terms of the performance-based restricted stock grants to conform to
changes in the tax laws or otherwise. The Named Officers may vote such
Shares and dividends are paid thereon to the holder prior to the
satisfaction of the vesting contingency.
(5) The aggregate number of restricted Shares held by each Named Officer, and
their value based on the Share price at the 1995 year end, were 41,200
Shares for Mr. Eichenfield ($1,987,900); 5,811 Shares for Mr. Hallinan
($280,381); 5,040 Shares for Mr. Smalis ($243,180); 4,100 Shares for Mr.
Roth ($197,825); and 2,700 Shares for Mr. Parrinello ($130,275). ((6))
Amounts listed in this column are for matching payments made by the
Corporation on behalf of the Named Officers to the Employee Stock Ownership
Plan or the Savings Plan. ((7)) Messrs. Roth and Parrinello were not
executive officers prior to 1994.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table contains information concerning the grant of stock
options and tandem stock appreciation rights ("SARs") to the Named Officers
during 1995 pursuant to the Corporation's 1992 Stock Incentive Plan. The Named
Officers received multi-year grants in prior years, so they received none this
year, except as noted. Those multi-year grants were intended to serve in lieu of
future grants to such officers through 1997 for Mr. Eichenfield and 1995 for the
other Named Officers. Mr. Roth was granted an extra award of 500 options for
achieving his performance objectives in at least three out of the past four
years. The amounts shown as potential realizable values are based on arbitrarily
assumed annualized rates of Share price appreciation since the option grant
dates of five
11
<PAGE>
and ten percent over the full ten year term of the options, without regard to
dividends paid on the Shares.
The amounts shown as potential realizable value for all stockholders
represents the corresponding increases in the market value of the outstanding
Shares held by all stockholders (other than the Corporation) assuming 28 million
Shares were outstanding on the grant date. Appreciation at five and ten percent
per year from the February 1995 grant price would increase the market value of
all outstanding Shares by approximately $583 million and $1.48 billion,
respectively.
These potential realizable values are based solely on arbitrarily assumed
rates of appreciation required by applicable SEC regulations. In assessing these
values, please note that the ultimate value will depend on actual future Share
values, and those values will depend on market conditions and the efforts of the
directors, the Named Officers and others to foster the future success of the
Corporation to the benefit of all stockholders. There can be no assurance that
potential realizable values reflected in this table will be achieved.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF SHARE PRICE
SECURITIES TOTAL APPRECIATION FOR
UNDERLYING OPTION/SARS OPTION TERM
-----------------------------
OPTIONS/SARS GRANTED TO EXERCISE OR IF STOCK AT IF STOCK AT
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION $53.96 $85.92
-------------- --------------
NAME (#) (1)(2) FISCAL YEAR ($/SHARE)(2) DATE 5% 10%
- - ----------------------- -------------- -------------- ------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
ALL STOCKHOLDERS' SHARE
APPRECIATION (3) $583,299,640 $1,479,299,600
MR. ROTH 500 .0013% 33.125 2/7/05 26,980 42,960
</TABLE>
- - ----------
(1) The options will vest 34% after 1 year and 33% each year thereafter with
full vesting on the third anniversary date. The options were granted for a
period of ten years subject to earlier termination upon events related to
termination of employment, a change in control, death or disability. No
SARs were granted in connection with these options except all options have
limited SARs that are exercisable within 60 days following a change in
control, as defined in the 1992 Stock Incentive Plan, subject to earlier
expiration upon certain events related to termination, death or
disability. The limited SARs entitle the Named Officer to elect whether to
purchase the Shares or to instead receive the difference between the
market value on the date of exercise and the exercise price. In the
aggregate, the Named Officer can exercise options or the SARs equal to the
number of options granted.
(2) The listed options are all nonqualified options. The exercise price and
tax withholding obligations, if any, related to exercise may be paid by
delivery of already owned Shares or by offset of the underlying Shares if
permitted by the Corporation.
(3) Assumes 28 million Shares outstanding.
1995 OPTION AND SAR HOLDINGS
The following table lists the number of Shares covered by both exercisable
and nonexercisable stock options and SARs as of December 31, 1995. The table
includes the values for "in-the-money" options, which represents the positive
spread between the exercise price of such options and the year-end price of the
Shares. These values have not been, and may never be, realized. Those options
might never be exercised, and the value, if any, will depend on the market value
of Shares on the exercise date. There were no option or SAR exercises by the
Named Officers in 1995.
12
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY
FISCAL YEAR-END OPTIONS/SARS AT
(#) FISCAL YEAR-END
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - --------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Mr. Eichenfield 195,537 105,000 $9,434,660 $5,066,250
Mr. Hallinan 38,164 13,500 1,841,413 651,375
Mr. Roth 19,686 10,991 949,849 530,315
Mr. Smalis 17,584 7,906 848,428 381,464
Mr. Parrinello 2,570 9,930 124,000 479,122
</TABLE>
LONG TERM INCENTIVE COMPENSATION
The Corporation adopted a performance share incentive plan ("PSIP") that is
designed to compensate participants if the Corporation achieves designated
performance goals over a sustained period and to encourage the participants'
continued efforts on the Corporation's behalf. The PSIP evaluates achievement by
measurements determined by the Board, currently consisting of increases in net
income and improvement in earnings per share, both from continuing operations,
and FINOVA Capital's net income and return on average common equity, as defined
in the PSIP. Achievement is measured based on three year averages of the
performance targets. Because payouts are tied, in part, to Share price, the PSIP
also motivates executives to help achieve Share price increases.
LONG-TERM INCENTIVE PLANS -- AWARDS
IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF PERIOD UNTIL NON STOCK PRICE-BASED PLANS
------------------------------
UNITS MATURATION OR THRESHOLD TARGET MAXIMUM
NAME (1)(2) PAYOUT (#) (#) (#)
- - --------------- ----------- --------------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Mr. Eichenfield 9,561 1997 0 9,561 19,122
Mr. Hallinan 3,506 1997 0 3,506 7,012
Mr. Parrinello 1,931 1997 0 1,931 3,862
Mr. Smalis 1,882 1997 0 1,882 3,764
Mr. Roth 1,743 1997 0 1,743 3,486
</TABLE>
- - ----------
(1) Recipients may receive none of the target awards unless performance
reaches a minimum performance level (generally 95% of the target level)
and may receive 200% of the target award if performance reaches a maximum
performance level (generally, 110%, of the target level). Intermediate
performance will be interpolated. The target number of Shares awarded is
based on the average Share price for December 1994 ($31.89). The award, if
any, will be paid as the cash equivalent of the average of the high and
low Share prices for each day during the last month of the performance
period multiplied by the number of share units awarded.
(2) The Board, or its committee administering the PSIPs, has discretion to
adjust the target and maximum awards based on performance factors and
circumstances selected by the Board or committee from time to time. The
adjusted targets can be made higher or lower within specified limits for
each of the participants, depending on the participant's grant. Because
such adjustments are within the Board's or committee's discretion, the
figures in the table do not include any such adjustment.
RETIREMENT PLANS
The following table shows the estimated annual retirement benefit payable
to participating employees, including the Named Officers, assuming retirement at
age 65, for the average annual earnings and years of service classifications
indicated, pursuant to the Corporation's retirement plans which cover officers
and other salaried employees on a non-contributory basis. The retirement plans
include both the Corporation's Pension Plan (formerly the Retirement Income
Plan) and Supplemental Executive Retirement Plan (formerly the Supplemental
Pension Plan) ("SERP") (in which only certain employees participate). The table
includes the SERP benefit formula.
13
<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFITS FOR YEARS OF SERVICE(2)(3)(4)
------------------------------------------------------------------
AVERAGE ANNUAL
COMPENSATION(1) 15 20 25 30 35(5)
- - -------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
125,000 32,810 43,750 54,690 65,630 76,560
150,000 39,380 52,500 65,630 78,750 91,880
175,000 45,940 61,250 76,560 91,880 107,190
200,000 52,500 70,000 87,500 105,000 122,500
225,000 59,060 78,750 98,440 118,130 137,810
250,000 65,630 87,500 109,380 131,250 153,130
300,000 78,750 105,000 131,250 157,500 183,750
400,000 105,000 140,000 175,000 210,000 245,000
450,000 118,130 157,500 196,880 236,250 275,630
500,000 131,250 175,000 218,750 262,500 306,250
600,000 157,500 210,000 262,500 315,000 367,500
700,000 183,750 245,000 306,250 367,500 428,750
800,000 210,000 280,000 350,000 420,000 490,000
900,000 236,250 315,000 393,750 472,500 551,250
1,000,000 262,500 350,000 437,500 525,000 612,500
1,100,000 288,750 385,000 481,250 577,500 673,750
1,200,000 315,000 420,000 525,000 630,000 735,000
1,300,000 341,250 455,000 568,750 682,500 796,250
1,400,000 367,500 490,000 612,500 735,000 857,500
1,500,000 393,750 525,000 656,250 787,500 918,750
</TABLE>
- - ----------
(1) Average annual compensation is the annual average of the employee's salary
and bonus during the 60 months preceding retirement (salary only before
1989). Salary and bonus in 1995 for the Named Officers is listed under the
columns bearing those headings in the Summary Compensation Table. For each
of the Named Officers, the current average compensation covered by the
plans is at least 10% less than the aggregate salary and bonus set forth
in the Summary Compensation Table. As of the end of 1995, average annual
compensation was $1,016,456 for Mr. Eichenfield, $375,435 for Mr.
Hallinan, $237,117 for Mr. Smalis, $289,221 for Mr.
Roth, and $256,061 for Mr. Parrinello.
(2) The approximate number of credited years of service for Messrs.
Eichenfield, Hallinan, Smalis, Roth, and Parrinello are 21, 23, 17, 27,
and 2, respectively. To permit Mr. Eichenfield to retire at age 65 with
the maximum years of service, while helping to accomplish the
Corporation's objective to discourage his early retirement, Mr.
Eichenfield was credited, upon execution of his employment agreement in
1992, discussed more fully below, with an additional five years of service
for pension benefit calculations. In addition, he is credited with two
additional years of service for each subsequent year of service he
provides, for a total of three years per year of service. To assure no
loss in retirement benefits caused by his resignation from Dial to assume
his position with the Corporation, Mr. Hallinan will receive retirement
benefits and health insurance equal to what his retirement benefits would
have been had he remained with Dial, if he is terminated (constructively
or actually) other than for cause (as defined in the agreement) prior to
March 1, 1998. Such benefits shall be reduced by any benefits to which he
is entitled pursuant to the Dial Retirement Income Plan or the
Corporation's Pension Plan.
(3) Certain provisions of the SERP become effective if there is a change in
control of the Corporation. Benefits are computed on a single-life annuity
basis. Benefits reflected in the above table are computed pursuant to the
plan formulas currently in effect. The benefits under the Pension Plan
reflect a reduction to recognize some of the Social Security benefits to
be received by the employee. The Pension Plan also provides for the
payment of benefits to an employee's surviving spouse. The amounts set
forth are before any adjustment for joint and survivorship provisions,
which would reduce the amounts shown in the table. Pension benefits vest
after five years of service. The plans are noncontributory and provide for
reduced early retirement benefits. Prior plan formulas provide for
different benefits. Employees accruing benefits pursuant to the prior or
the prior and current formulas, and participants accruing benefits under
only the Pension Plan, may receive benefits different from those listed in
the table above.
(4) The Internal Revenue Code of 1986, as amended (the "Code"), limits the
annual benefits which may be paid from a tax-qualified retirement plan. As
permitted by the Code and the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), the Corporation has established the SERP to
pay out of general funds of the Corporation any benefits which may be
above the
14
<PAGE>
limits permitted under the Code and ERISA for those officers entitled to
participate in the SERP. Certain excess benefits to be paid to designated
officers are held in a Rabbi trust.
(5) The Corporation's Pension Plan limits the years of service credited for
purposes of calculating benefits to a maximum of 35 years.
EMPLOYMENT AGREEMENTS
Three of the Named Officers, Messrs. Eichenfield, Hallinan and Parrinello,
are parties to written employment agreements with the Corporation. In addition,
the Corporation has Executive Severance Plans and Value Sharing Plans, described
more fully below.
MR. EICHENFIELD
Mr. Eichenfield has been engaged as the Chairman, President and Chief
Executive Officer of the Corporation and of FINOVA Capital. He was originally
engaged to serve for a three year term and thereafter from year to year, unless
earlier terminated pursuant to the agreement. Mr. Eichenfield's agreement was
replaced on March 15, 1996 with an amended agreement which expires on March 15,
1999. He can be terminated for cause (as defined in the agreement) at any time.
Also pursuant to the terms of the agreement, he serves as a member of the
Corporation's Board of Directors, subject to reelection by the stockholders upon
expiration of his term.
Mr. Eichenfield's base compensation currently is $543,650, subject to
adjustment by the Board of Directors or Executive Compensation Committee. He is
entitled to participate in the Corporation's incentive, retirement, health and
welfare, and other fringe benefit programs in accordance with Corporation
policy, provided that the programs and benefits awarded to him are not less
favorable than those in existence upon the date of his agreement, with specified
minimums. Many of those benefits are described or noted in the tables above. His
participation in awards under the 1992 Stock Incentive Plan is at the sole
discretion of the Executive Compensation Committee.
If Mr. Eichenfield is terminated (actually or constructively) in violation
of his agreement, he would be entitled to receive his base, incentive,
stock-based and change in control compensation and specified benefits and
perquisites during the remainder of the agreement, but not less than an amount
equal to one year of service plus the sum of the highest bonus, stock, PSIP and
other performance related payments during the two years preceding such
termination. He would be entitled to additional payments discussed more fully
below in the event of a change in control. All stock option vestings and pension
plan accruals shall continue during such periods.
Mr. Eichenfield's employment agreement was amended in August 1995 and
continues to incorporate a CEO value sharing plan designed to serve as a
retention device and incentive for creation of significant stockholder value.
Those objectives are supported by sharing a portion of the total stockholder
value created through a cash payment to Mr. Eichenfield. Upon the average share
price (for 20 consecutive trading days) reaching specified hurdles ($55, $70 and
$85 per share), Mr. Eichenfield will be paid $3.15 million, $6.3 million and
$9.45 million, respectively. Those hurdles equate to a 37.5%, 75% and 112.5%
increase in the Corporation's stock price over the base price of $40/Share
selected by the Compensation Committee. That base price was greater than the
closing price on the date the plan was adopted ($38.75). The plan would equate
to Mr. Eichenfield receiving 0.75%, 1.5% and 2.25% of the total stockholder
value created over the base price upon reaching the respective hurdles.
MR. HALLINAN
Mr. Hallinan has been engaged as Senior Vice President -- General Counsel
and Secretary of the Corporation. His employment is subject to termination at
any time, but if terminated other than for cause (as defined in the agreement),
he is entitled to retirement and insurance benefits as noted in the Pension Plan
Table above. In addition, his awards of stock, options or similar awards shall
vest and be paid to him should he be terminated other than for cause prior to
March 1, 1998. His base annual salary currently is $265,500 plus his
participation in the Corporation's incentive, retirement, health and welfare and
other fringe benefit programs in accordance with Corporation policy, provided
that the programs and benefits awarded him are not less favorable than those in
existence upon the date of the agreement. Many of those benefits are described
or noted in the tables above.
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MR. PARRINELLO
Mr. Parrinello has been engaged as Group Vice President -- Factoring
Services of FINOVA Capital for a three year term expiring in February 1997,
subject to earlier termination for cause (as defined in the agreement). His base
annual salary currently is $219,500. He is also entitled to participate in the
Corporation's retirement, health and welfare, other fringe benefit programs,
incentive awards, options and similar plans in accordance with Corporation
policy.
EXECUTIVE SEVERANCE PLANS
All Named Officers participate in one of the Corporation's Executive
Severance Plans (Tier I or Tier II). Those plans entitle participants to
immediate vesting and exercisability of restricted stock, performance based
restricted stock, and options if the Corporation incurs a change in control. The
Tier I plan also provides for Messrs. Eichenfield and Hallinan to receive a lump
sum payment of three times the officer's highest salary, bonus and PSIP payments
if the officer is discharged without cause or if specified events occur, or two
times such salary, bonus and PSIP payments if the employee voluntarily leaves
during a specified period following a change in control. The plans provide a tax
gross up feature to cover certain parachute taxes the officer must pay on
payments made pursuant to the plan. Benefits paid are reduced by other severance
benefits paid by the Corporation. The officer is also to be credited with years
of service equal to the greater of the number needed to assure vesting under the
retirement plans or the number of years of salary paid under the severance plan.
Messrs. Smalis, Roth, and Parrinello participate in the Tier II plan with the
same terms as described above, except that they shall be paid only a lump sum of
two times their highest annual salary, bonus and PSIP payments, and they do not
have the ability to get paid if they voluntarily leave following a change in
control. Assets of the Corporation have been placed in a Rabbi trust to pay
benefits for certain officers under the Executive Severance and certain other
plans.
Pursuant to his employment agreement, Mr. Hallinan is also entitled to
severance benefits if Mr. Eichenfield ceases to be the Chairman and Chief
Executive Officer of the Corporation and, as a result, Mr. Hallinan is
terminated (constructively or actually) from his current duties. In that event,
he is entitled to receive a lump sum of three times the sum of his highest
annual salary plus the largest aggregate annual incentive payments, pension and
other benefits which he has received during that measurement period.
VALUE SHARING PLANS
To recognize the significant contributions made to the Corporation and its
stockholders by executive officers and key employees, and to reward such persons
in the event of a change in control of the Corporation, as defined, the
Compensation Committee adopted two change in control Value Sharing Plans, one
for the Chief Executive Officer and one for other executives and key employees.
Both plans only provide benefits in the event of a change in control and if
certain stockholder value is created thereby. Participants other than the CEO
who are nominated by the CEO and approved by the Compensation Committee will
share in a pool equal to 2.5% of the change in control stockholder value
created, which generally is the difference between the acquisition value at the
time of the change in control and the market capitalization using the base price
of $40/Share noted above, which was in excess of the closing price on the day
the plans were adopted ($38.75). The CEO will be paid 0.75% of the change in
control stockholder value created if the change is for $55/Share or less, 1.5%
if it is for $85/Share or more, and is interpolated between those amounts for
change in control prices between those Share prices.
Payments made under both Value Sharing Plans are grossed up for certain
parachute taxes for participants who participate in the Corporation's Executive
Severance Plans discussed above. The Value Sharing Plans automatically terminate
on December 31, 2002. Per share values shall be adjusted pro rata for certain
events such as mergers, reorganizations, recapitalization, stock dividends or
splits. Payment to Mr. Eichenfield under his employment agreement value sharing
pool would be netted against those in this CEO Value Sharing Plan, so that he
would not be paid twice for the same increases in stockholder value.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
In conjunction with the Spin-Off, certain contractual arrangements were
created between Dial and the Corporation and its subsidiaries. Those
arrangements, most of which are for a limited
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duration, provide among other things for (i) the orderly separation of the
Corporation from Dial; (ii) the provision by Dial of certain interim services,
including tax services, to the Corporation (at an approximate annual cost of
$950,000 in 1995); (iii) a sublease of the space currently used by the
Corporation as its principal executive office (at an approximate annual rent
commencing April 1996 for the remainder of the term until 2001 of $1.8 million)
plus certain expenses; and (iv) the allocation of certain tax liabilities and
benefits. Two of the Corporation's directors, Messrs. Teets and Lemon, are
executive officers of Dial, and Mr. Teets is also a director of that company.
Messrs. Eichenfield and Smith serve as directors of Ventana Corporation
("Ventana"), which markets interactive computer systems software and services.
Prior to the Spin-Off, FINOVA Capital purchased shares of Ventana's preferred
stock now equal to 200,000 of such shares for $1,000,000, which constitutes all
of the outstanding preferred stock of Ventana. Such shares are convertible into
common stock of Ventana, and would constitute approximately 14% of the
outstanding common shares. In addition, FINOVA Capital has granted Ventana a
$1,000,000 principal amount line of credit, none of which was outstanding on the
Record Date. The line of credit to Ventana was granted prior to the Spin-Off. It
was made in the ordinary course of business on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons. The line of credit does not appear
to involve more than the normal risk of collectibility or present other
unfavorable features.
The law firm of O'Connor, Cavanagh, Anderson, Killingsworth & Beshears has
provided certain legal services to the Corporation on a continuing basis. Mrs.
Tancer is of counsel to that firm, but is not an equity owner thereof. The
arrangements with that firm are believed to be competitive with the terms
charged by other law firms providing services to the Corporation and its
subsidiaries.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based on a review of reports filed by the Corporation's directors,
executive officers subject to the reporting regulations under Section 16(a) of
the Exchange Act and beneficial holders of 10% or more of the Corporation's
Shares, and upon representations from such persons, all reports required to be
filed by those reporting persons during 1995 were timely made, except as noted
below. The Jeanette M. Baron and Russell S. Knapp Trust, dated August 1965 (the
"Trust") in which Mrs. Tancer serves as a co-trustee, filed its Form 3 report
approximately 22 days late. Mrs. Tancer timely reported the acquisition on her
Form 4 report. The Corporation is advised that Mrs. Tancer disclaims beneficial
ownership of any of the Shares held by the trust or any pecuniary interest
therein. The filing by the trust is the only late report involving Mrs. Tancer
or any other entity in which she has an ownership interest.
AMENDMENT TO 1992
STOCK INCENTIVE PLAN
INTRODUCTION
The stockholders are being asked to amend the 1992 Stock Incentive Plan
(the "Plan"), which was previously authorized by the stockholders, to permit
directors to receive all or a portion of their annual retainers in the form of
Awards under the Plan, at their individual election. That change will help
further align the directors' interests with those of the stockholders, to the
extent directors elect to participate in the program. As an example of how this
plan works, assuming a $55/Share price and a $25,000 annual retainer, each
director could instead elect to receive approximately 455 Shares of restricted
stock, or alternatively could receive options to purchase approximately 1,136
Shares at $55 each in lieu of the cash retainer.
The Plan was adopted by the Board and approved and ratified by the
stockholders in connection with the Spin-Off. The Board believes the Plan helps
the Corporation attract, retain and provide appropriate incentives for
directors, management and all employees. The description of the Plan set forth
herein is qualified in its entirety by reference to the text of the Plan, which
is available at no charge upon request at the address set forth above.
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The proposed resolution is as follows:
RESOLVED, that the Corporation's 1992 Stock Incentive Plan is hereby
amended to permit any non-employee director of this Corporation to elect to
receive all or a portion of that director's annual retainer for service as a
director of this Corporation in the form of cash or as an Award pursuant to the
Plan, or a combination thereof, as set forth more fully in Appendix A.
GENERAL
The Plan authorizes the granting of stock options, restricted stock and
SARs to participants selected by the Compensation Committee, which administers
the Plan. The total number of Shares available for grant in each year of the
Plan shall generally be 2 1/2 % of the total number of outstanding Shares on the
first day of each year for which the Plan is in effect, with certain exceptions
stated in the Plan. The participants include directors, officers and employees
of the Corporation and its subsidiaries and affiliates designated by the
Compensation Committee. Except through the directors' cash or stock program
under consideration through the above-noted resolution, nonemployee directors of
the Corporation only participate pursuant to automatic grants of nonqualified
options to purchase 1,500 Shares each year of service as director plus a similar
automatic grant of options to purchase 2,000 Shares upon first becoming elected
as a director. The Corporation currently has eight directors (one of whom is
also an employee) and approximately 980 employees who are eligible to
participate in the Plan.
ADMINISTRATION
The Plan requires that the Compensation Committee consist of at least two
directors who are "disinterested persons," as such term is used in SEC Rule
16b-3. To help assure that the administrators remain "disinterested," the Plan
provides that the only ways for them to participate is pursuant to an automatic
grant or a directors' cash or stock plan such as the one under consideration
with this amendment.
Subject to the limitations of the Plan, the Compensation Committee is
authorized to (i) select participants in the Plan, (ii) determine whether and to
what extent awards are to be made, (iii) determine the number of Shares to be
covered by each award, (iv) determine the terms of any award, (v) adjust the
terms of any award, (vi) determine the extent to which payments may be deferred
and (vii) determine whether awards may be settled in cash or Shares. The
Compensation Committee also has authority to adopt, alter and repeal
administrative rules, guidelines and practices and to interpret the terms of the
Plan and any award issued thereunder, to delegate certain decisions to officers
and to otherwise supervise the administration of the Plan.
AMENDMENT AND TERMINATION
The Board or Compensation Committee may amend or discontinue the Plan and
may amend outstanding awards as they deem advisable, but no such change may be
made without stockholder approval to the extent such approval is required by law
or agreement. No such change may impair the rights of participants under
outstanding awards without consent of the affected participants (except for
changes made to comply with SEC Rule 16b-3), and no such change can be made that
would disqualify the Plan from that exemption.
The Plan will terminate on December 31, 2002 unless earlier discontinued by
the Corporation. Outstanding awards on the date of termination shall not be
impaired by that termination.
OPTIONS AND SARS
The exercise price of options and SARs shall be set by the Compensation
Committee, which price shall not be less than the fair market value of the
Shares on the date of grant, except for awards granted in connection with the
Spin-Off, which were converted to preserve the then-current market values
existing in those awards. The fair market value of a Share at the closing of the
New York Stock Exchange on the Record Date (March 11, 1996) was $52.00.
SARs may be awarded, in the Compensation Committee's discretion, in tandem
with options. An SAR entitles the holder to a cash payment of the difference
between the current market value of Shares on the date of exercise and the
exercise price of the tandem options, multiplied by the number of SARs
exercised.
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The Compensation Committee has discretion to award incentive stock options
pursuant to Section 422 of the Code. No action or interpretation of the Plan or
any incentive stock option award shall be permitted if it would disqualify the
awards under that section.
EXERCISABILITY OF OPTIONS AND SARS
Options and SARs become fully exercisable upon a change in control, as
defined in the Plan (generally upon the acquisition by a person or affiliated
group of at least 20% of the Corporation's Shares or other voting power, with
certain exceptions specified in the Plan). In that event, a participant also has
a 60 day period in which to surrender options for their cash value. If a
participant's employment is terminated for cause, the option or SAR generally
terminates at that time. If employment terminates other than for cause, death,
disability or retirement, the options or SARs generally must be exercised within
three months of the termination date. For termination due to retirement or
disability, a participant generally will have three years to exercise the
options or SARs. Death generally extends exercisability for 12 months. In all
cases, these exercisability periods run no longer than the scheduled expiration
of the option or SAR, or the stated period, whichever is shorter. The
Compensation Committee has discretion generally to accelerate vesting and to
extend such expiration dates.
Participants generally may not transfer or encumber options or SARs other
than (i) by will or the laws of descent or distribution or (ii) pursuant to a
qualified domestic relations order. Options and SARs are exercisable only by the
participant during his or her lifetime or by a legal guardian or permitted
transferee.
RESTRICTED STOCK
The Compensation Committee determines the appropriate period restricting
the participant's right to sell, assign or otherwise encumber Shares of
restricted stock. Subject to those restrictions on transfer and any other
conditions imposed by the Compensation Committee, the participant enjoys all of
the other rights of a stockholder, including the right to receive dividends and
to vote the Shares. The Compensation Committee has the authority to require that
dividends on those Shares be reinvested in additional Shares until the
restricted period lapses and the Shares vest. At that time, the Shares become
freely tradable without restriction. Upon termination of employment, unvested
restricted stock generally is forfeited unless the Compensation Committee
determines otherwise. Upon a change in control, as noted above, the restrictions
lapse immediately, with full vesting of the maximum number of performanced-based
or other variable awards as if maximum performance levels were achieved.
RESTRICTIONS ON TRANSFER
Restrictions are imposed on participants subject to Section 16 of the
Securities Exchange Act of 1934 and SEC Rule 144. These restrictions include
limitations on vesting periods, the number of Shares which can be sold and
restrictions on trading in Shares within six months of certain purchases or
sales of Shares. Persons subject to such rules are urged to seek appropriate
legal guidance on compliance with such rules prior to entering into any
transactions involving Shares.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the U.S. federal income tax consequences of
the Plan, based on current statutes, regulations and interpretations. This
description is not intended to address specific tax consequences applicable to
individual participants who receive Plan benefits or special rules that may
apply to directors and executive officers of the Corporation.
Stock Options. No income will be recognized by the holder and the
Corporation will not be entitled to a deduction at the time of grant of either
nonqualified or incentive stock options.
On exercise of a nonqualified stock option, the amount by which the fair
market value of the Shares on the date of exercise exceeds the option exercise
price will be taxable to the holder as ordinary income and, subject to
satisfying applicable withholding requirements and any deduction limitation
under Section 162(m) of the Code, deductible by the Corporation. The subsequent
disposition of Shares acquired upon exercise of a nonqualified stock option will
ordinarily result in a capital gain or loss.
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On exercise of an incentive stock option, the holder generally will not
recognize any income, and the Corporation will not be entitled to a deduction.
However, for purposes of the alternative minimum tax, the exercise of an
incentive stock option may result in an alternative minimum tax liability to the
holder.
The disposition of Shares acquired on exercise of an incentive stock option
will ordinarily result in capital gain or loss. However, if the holder disposes
of those Shares within two years after the date of grant or one year after the
date of exercise (a "disqualifying disposition"), the holder will recognize
ordinary income in the amount of the excess of the fair market value of the
Shares on the exercise date over the option exercise price (or in certain
circumstances the gain on sale, if less). Any gain not treated as ordinary
income in the manner described in the preceding sentence will generally be
capital gain. Subject to any deduction limitation under Section 162(m) of the
Code, the Corporation will be entitled to a deduction equal to the amount of
ordinary income recognized by a holder.
If an option is exercised through the use of Shares previously owned by the
holder, that exercise generally will not be considered a taxable disposition of
the previously owned Shares, and thus no gain or loss will be recognized with
respect to those Shares upon exercise. Instead, there is a carryover basis in
the new Shares. Also, if the option is an incentive stock option, and the
previously owned Shares were acquired on the exercise of an incentive stock
option or other tax-qualified stock option, and the holding requirement for
those Shares is not satisfied by that time, such use will constitute a
disqualifying disposition of the previously owned Shares, resulting in the
recognition of ordinary income (but under proposed Treasury Regulations not any
additional capital gain) in the amount described above.
Stock Appreciation Rights. The amount of cash (or the fair market value of
any Shares) received on the exercise of an SAR under the Plan will be includable
in the employee's ordinary income and, subject to applicable withholding
requirements and Section 162(m), noted above, deductible by the Corporation.
Restricted Stock. Under Section 83(b) of the Code, an employee may elect to
include in ordinary income, as compensation at the time restricted stock is
first issued, the excess of the fair market value of such Shares at the time of
issuance over the amount paid, if any, by the employee for such Shares. The
employee making such an election must send a copy of the Section 83(b) election
form to the employer. Unless a Section 83(b) election is made, no taxable income
will generally be recognized by the recipient of restricted stock until the
Shares are no longer subject to the restrictions or risk of forfeiture. When
either the restrictions or risk of forfeiture lapses, the employee will
recognize ordinary income and, subject to the applicable withholding limits and
Section 162(m) limits, the Corporation will be entitled to a deduction in the
amount equal to the excess of the fair market value of the Shares on the date of
lapse over the amount paid, if any, by the employee for the Shares. Absent a
Section 83(b) election, any cash dividends or other distributions paid with
respect to the restricted stock prior to the lapse of any restrictions or risk
of forfeiture will be included in the employee's ordinary income as compensation
at the time of receipt.
Effect on Earnings. In October 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standard 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
Principals Board Opinion No. 25, "Accounting for Stock Issued to Employees",
provided pro forma disclosures are made.
PLAN BENEFITS
1992 STOCK INCENTIVE PLAN
The following table shows the awards that would have been made in 1995 to
the persons listed, assuming that the proposed amendment to the Plan was in
place at the beginning of that year and
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that each eligible director had elected to receive his or her retainer in the
form of stock options, based on the fair market value on the last day of each
quarter.
OPTIONS/ PERFORMANCE-BASED RESTRICTED
SARS STOCK(1)
NAME (#) (#)
- - --------------------------- ------------ -----------------------------------
Mr. Eichenfield 0 18,640
Mr. Hallinan 0 2,340
Mr. Smalis 0 2,249
Mr. Roth 500 1,990
Mr. Parrinello 0 1,500
All Executive Officers 23,000 37,500
All Non-Executive Directors 15,795(2) 0(2)
All Employees, Excluding 314,550 17,050
Executive Officers
- - ----------
((1)) Represents amounts awarded to such individuals in 1995 at target levels of
performance plus additional vestings from prior years above target levels.
As noted in footnote 4 to the Summary Compensation Table, the actual
amounts of Shares to be awarded can vary from 0 to 170% of the target
level, depending on the Corporation's performance.
((2)) Assuming the amendment was in place at the beginning of 1995 and that all
eligible directors had elected to instead receive restricted Shares, and
that such Shares were priced at the market value on the last day of each
quarter, such directors would have received 637 Shares each, for an
aggregate of 4,459 Shares and the number of options received by each would
have been 1,500, for an aggregate of 10,500.
The affirmative vote of a majority of the Shares voting in person or by proxy
at the meeting is required to approve the proposed amendment, provided a quorum
exists.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSED AMENDMENT TO
THE CORPORATION'S 1992 STOCK INCENTIVE PLAN.
SELECTION OF INDEPENDENT AUDITORS
The following resolution concerning the appointment of independent auditors
is expected to be offered at the meeting:
RESOLVED, that the appointment of Deloitte & Touche LLP to audit the accounts
of the Corporation and its subsidiaries for the fiscal year 1996 is hereby
ratified.
Deloitte & Touche LLP has audited the accounts of the Corporation since its
organization and of its subsidiaries for many years. That firm has been
appointed by the Board of Directors of the Corporation, upon recommendation of
the Corporation's Audit Committee, as the Corporation's independent auditors for
1996. It is expected that a representative of Deloitte & Touche LLP will attend
the meeting, respond to appropriate questions and be afforded the opportunity to
make a statement.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF
THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS THE CORPORATION'S INDEPENDENT
AUDITORS FOR 1996.
VOTING PROCEDURES
The election of directors will be effective upon receiving approval of a
plurality of the Shares present and voting in person or by proxy, provided a
quorum exists. A quorum is present if at least a majority of the outstanding
Shares on the Record Date (13,665,292 Shares) are present in person or by proxy.
All matters other than the election of directors submitted to stockholders at
the meeting shall be decided by a majority of the votes cast with respect
thereto provided a quorum exists, except as otherwise provided by law or the
Corporation's Certificate of Incorporation or Bylaws. Failures to vote and
broker non-votes will not count towards determining any required plurality or
majority or the presence of a quorum. Stockholders and brokers returning proxies
but affirmatively abstaining from voting on a proposition, and stockholders
attending the meeting but who do not vote on a proposition, will count towards
the presence of a quorum and will be counted towards determining the required
plurality or majority for approval of that proposition.
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The enclosed proxies will be voted in accordance with the instructions
thereon. Unless otherwise stated, all Shares represented by such proxy will be
voted as noted in this proxy statement. Proxies may be revoked as noted in
"General Information" above.
CORPORATE NAME CHANGE
As a reminder, the Corporation's name was changed to The FINOVA Group Inc.
on February 1, 1995. The Corporation's Shares continue to be listed on the New
York Stock Exchange and are now traded under the symbol "FNV." The Corporation's
Share price and trading information can be found in stock reports typically
under the heading "FinovaGp." Similarly, the name of the Corporation's principal
operating subsidiary, Greyhound Financial Corporation, was changed on that date
to FINOVA Capital Corporation. Its debt listed on the New York Stock Exchange
trades under the symbol "FNVA 02."
NO CHANGE TO OUTSTANDING STOCK CERTIFICATES
Even though the Corporation's name has changed, each outstanding share
certificate of the Corporation's common stock will continue to represent the
same number of Shares of The Finova Group Inc. The Corporation will continue to
honor such certificates, even though they bear the name "GFC Financial
Corporation." Accordingly, IT WILL NOT BE NECESSARY FOR STOCKHOLDERS TO EXCHANGE
THEIR EXISTING STOCK CERTIFICATES FOR ONES WITH THE NEW CORPORATE NAME. Transfer
instructions in either name will be honored.
SUBMISSION OF STOCKHOLDER PROPOSALS
From time to time, stockholders seek to present proposals which may be
proper subjects for inclusion in the Proxy Statement and form of proxy for
consideration at the Annual Meeting of Stockholders. To be included in the proxy
statement or considered at an annual or any special meeting, proposals must be
submitted on a timely basis in addition to meeting other legal requirements for
inclusion. Proposals for the 1997 Annual Meeting of Stockholders must be
received by the Corporation no later than November 18, 1996, for possible
inclusion in the proxy statement, or between February 7 and 27, 1997 for
possible consideration at the meeting, which is expected to take place on
Thursday, May 8, 1997. Any such proposals, as well as any questions related
thereto, should be directed to the Secretary of the Corporation.
OTHER BUSINESS
The Board of Directors knows of no other matters to be brought before the
meeting. If any other business should properly come before the meeting, the
persons appointed in the enclosed proxy have discretionary authority to vote in
accordance with their best judgment.
A COPY OF THE CORPORATION'S 1995 ANNUAL REPORT ON FORM 10-K TO THE SECURITIES
AND EXCHANGE COMMISSION AND THE 1992 STOCK INCENTIVE PLAN MAY BE OBTAINED BY
STOCKHOLDERS, WITHOUT CHARGE, UPON WRITTEN REQUEST TO SHAREHOLDER SERVICES, THE
FINOVA GROUP INC., 1850 NORTH CENTRAL AVENUE, P.O. BOX 2209, PHOENIX, ARIZONA
85002-2209.
By order of the Board of Directors.
W. J. HALLINAN
Senior Vice President
General Counsel and Secretary
PLEASE VOTE -- YOUR VOTE IS IMPORTANT
>
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APPENDIX A
AMENDMENT TO THE CORPORATION'S
1992 STOCK INCENTIVE PLAN
(PLEASE NOTE: ADDITIONS TO THE CURRENT EFFECTIVE PLAN ARE SHOWN IN BOLDFACE
TYPE. DELETIONS ARE SHOWN WITH A LINE THROUGH THE TEXT TO BE OMITTED.) A COPY OF
THE FULL 1992 STOCK INCENTIVE PLAN IS AVAILABLE, WITHOUT CHARGE, UPON WRITTEN
REQUEST TO SHAREHOLDER SERVICES AT THE ADDRESS LISTED ABOVE.
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.
(b) An {automatic director} A Stock Option shall be AUTOMATICALLY granted
{hereunder} 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 (D) 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
EQUAL TO TWO AND ONE-HALF TIMES THE AMOUNT OF SUCH RETAINER PAYMENT WITH A FAIR
MARKET VALUE AS OF SUCH PAYMENT DATE ("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
1
<PAGE>
BE EXERCISED IN WHOLE OR IN PART AT ANY TIME DURING SUCH PERIOD UNLESS THEY HAVE
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.
(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 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.
({e}f) Each holder of a Stock Option granted pursuant to this Section 13
shall also have the rights specified in Section 5(k).
({f}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.
({g}h) The provisions of {paragraph} 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 {stock option} 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.
2
<PAGE>
PROXY/VOTING INSTRUCTION CARD
THE FINOVA GROUP INC.
C/O HARRIS TRUST & SAVINGS BANK, P.O. BOX 830, CHICAGO, IL 60690
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Samuel L. Eichenfield, L. Gene Lemon, and
Shoshana B. Tancer, and each of them to have all the powers hereunder, including
full power of substitution, as Proxies for the undersigned to vote, as indicated
below, at the Annual Meeting of Stockholders of the FINOVA Group Inc. (the
"Corporation") to be held on Thursday, May 9, 1996, and at any adjournment or
adjournments thereof, all shares of stock which the undersigned is entitled to
vote, with all voting rights the undersigned would have if personally present.
This card also provides voting instructions (for shares of the Corporation held
for the account of the undersigned, if any) to the respective trustees of the
Corporation's Savings Plan and Employee Stock Ownership Plan and The Dial Corp
401(k) plans.
COMMENTS: (Please feel free to list any comments about any aspects of the
Corporation's business in the following space. Your comments will be reviewed,
although they may no be answered on an individual basis.)
Please complete, date and sign on reverse side and return this proxy card
promptly using the enclosed envelope
<PAGE>
Please mark vote in oval in the following manner using dark ink only.[X]
[ ]
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the meeting. This proxy when properly executed will
be voted in the manner directed herein by the undersigned stockholder. If no
marking is made, this proxy will be deemed to be a direction to vote FOR
proposals 1,2 an 3, unless otherwise determined by the Board of Directors or the
Proxies.
The Board of Directors recommends a vote FOR:
1. Election of directors whose terms expire in 1999:
FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT [ ]
G. Robert Durham Kenneth R. Smith
-----------------------------
Nominee Exception
2. Amendment of the Corporation's 1992 Stock Incentibe Plan
to permit non-employee directors to recieve their annual
retainer in the form of cash or Awards under that plan.
FOR [ ] WITHHOLD [ ] ABSTAIN [ ]
3. Ratification of the appointment of Deloite & Touche LLP
as the independent auditors of the Corporation for 1996.
FOR [ ] WITHHOLD [ ] ABSTAIN [ ]
Please sign exactly as name appears at left. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
DATED , 1996
Signature
-------------------------------------
Signature
-------------------------------------
(Please mark address changes above.)
[ ] MULTIPLE STOCKHOLDER PUBLICATIONS. Please check here to stop mailing to
stockholder publications for this account, since multiple copies come to this
address.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
