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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20594
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended December 31, 1996 Commission File Number 1-11011
THE FINOVA GROUP INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 86-0695381
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1850 North Central Ave., P. O. Box 2209
Phoenix, AZ 85002-2209
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code - 602-207-4900
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, $0.01 par value New York Stock Exchange
Junior Participating Preferred Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Registration S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. [X]
As of March 10, 1997, approximately 27,349,000 shares of Common Stock ($0.01 par
value) were outstanding, and the aggregate market value of the Common Stock
(based on its closing price per share on such date of $78-7/8) held by
nonaffiliates was approximately $2,123,209,000.
DOCUMENTS INCORPORATED BY REFERENCE
Document Part Where
- -------- Incorporated
------------
1. Proxy Statement relating to 1997 Annual Meeting of Stockholders
of The FINOVA Group Inc. (but excluding information contained
therein furnished pursuant to items 402(k) and (l) of SEC
Regulation S-K.) III
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<PAGE>
TABLE OF CONTENTS
Name of Item
------------
Item # Page
- --------------------------------------------------------------------------------
Part I
Item 1 Business:
Introduction 1
General 1
Lines of Business 2
Portfolio Composition 3
Investment in Financing Transactions 3
Cost and Use of Borrowed Funds 11
Credit Ratings 12
Residual Realization Experience 13
Business Development and Competition 14
Credit Quality 14
Risk Management 14
Portfolio Management 15
Delinquencies and Workouts 16
Governmental Regulation 16
Employees 16
Special Note Regarding Forward-Looking Statements 16
Item 2 Properties 17
Item 3 Legal Proceedings 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Optional Executive Officers of Registrant 17
Part II
Item 5 Market Price of and Dividends on the Registrant's Common
Equity & Related Stockholder Matters 19
Item 6 Selected Financial Data 20
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
Item 8 Financial Statements & Supplementary Data 21
Item 9 Changes in and Disagreements with Accountants
on Accounting & Financial Disclosure 21
Part III
Item 10 Directors & Executive Officers of the Registrant 21
Item 11 Executive Compensation 22
Item 12 Security Ownership of Certain Beneficial Owners & Management 22
Item 13 Certain Relationships & Related Transactions 22
Part IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 22
<PAGE>
PART I
ITEM 1. BUSINESS.
INTRODUCTION
The following discussion relates to The FINOVA Group Inc. and its
subsidiaries (collectively "FINOVA" or the "Company"), including FINOVA Capital
Corporation and its subsidiaries. During 1996, the Company sold its Manufacture
& Dealer Services line of business and closed FINOVA Medical Systems. Amounts
for 1995 and 1994 have been restated to reflect these operations as
discontinued.
The Company (formerly known as GFC Financial Corporation) is the
successor to the former financial services businesses of The Dial Corp ("Dial").
On March 18, 1992, Dial consummated the spin-off (the "Spin-Off") of the Company
by distributing one share of the Company's common stock (the "shares") for every
two shares of Dial common stock held by each stockholder. Prior to the Spin-Off,
Dial contributed to the Company (i) all of the common stock of FINOVA Capital
(formerly known as Greyhound Financial Corporation) representing the Company's
core operations, (ii) FINOVA Capital Limited ("FCL") (formerly known as
Greyhound European Financial Group), Dial's European commercial and consumer
finance businesses not previously managed by the Company, (iii) Greyhound BID
Holding Corp. ("Greyhound BID") and (iv) Verex Corporation and subsidiaries
("Verex"), Dial's discontinued mortgage insurance operations which had been
operated in a run-off mode by Dial since 1988. The Company sold Verex in July
1993.
GENERAL
FINOVA is a financial services company primarily engaged in providing
collateralized financing and leasing products to commercial enterprises in
focused market niches, principally in the United States. The FINOVA Group Inc.
is a holding company which operates through its direct and indirect subsidiaries
and was incorporated in Delaware in December 1991.
FINOVA's lending activities to businesses are conducted through FINOVA
Capital and its subsidiaries. FINOVA Capital was incorporated in 1965 in
Delaware and is the successor to a California corporation that commenced
operations in 1954. FINOVA Capital has conducted business continuously since
that time. Foreign financial services are provided primarily in the United
Kingdom, where FCL has provided such services since 1964. Domestic and foreign
financial operations prior to the Spin-Off had been conducted independently of
each other for many years. Following the Spin-Off they have been conducted as a
consolidated enterprise; however, subsequent to the Spin-Off, FINOVA announced
its intention to phase out the historic businesses of London-based FCL; in early
1996, this phase out was substantially completed. FCL continues to originate and
service transactions on behalf of FINOVA Capital's Transportation Finance line
of business.
FINOVA Capital extends revolving credit facilities, term loans and
equipment and real estate financing to "middle-market" businesses with financing
needs falling generally between $500,000 to $35 million. FINOVA Capital
currently operates primarily in 15 specific industry or market niches in which
its expertise in evaluating the creditworthiness of prospective customers and
its ability to provide value-added services enables it to differentiate itself
from its competitors and to command product pricing which provides a
satisfactory spread over the Company's borrowing costs.
The Company seeks to maintain a high quality portfolio and to minimize
nonaccruing assets and write-offs by using clearly defined underwriting
criteria, stringent portfolio management techniques and by diversifying its
lending activities geographically and among a range of industries, customers and
loan products. Because of the diversity of the Company's portfolio, the Company
believes it is better able to manage competitive changes in its markets and to
withstand the impact of deteriorating economic conditions on a regional or
national basis, although there can be no assurance that competitive changes,
borrowers' performance or economic conditions will not result in an adverse
impact on the Company's results of operations or financial condition.
FINOVA Capital generates interest income, other income and gains
through charges assessed on outstanding loans, loan servicing, leasing and other
fees and disposition of equipment upon termination of leases or in other
circumstances. FINOVA Capital's primary expenses are the costs of funding its
loan and lease business (including interest paid on debt), provisions for
possible credit losses, marketing expenses, salaries and employee benefits,
servicing and other operating expenses and income taxes.
<PAGE>
Lines of Business
FINOVA Capital's activities currently include the following principal
lines of business:
o Commercial Equipment Finance offers equipment leases, loans
and turnkey financing to a broad range of midsize companies.
Specialty markets include the corporate aircraft and emerging
growth technology industries, primarily biotechnology and
electronics. Typical transaction sizes range from $500,000 to
$15 million.
o Commercial Finance offers collateral-oriented revolving
credit facilities and term loans for manufacturers,
distributors, wholesalers and service companies. Typical
transaction sizes range from $500,000 to $3 million.
o Commercial Real Estate Finance provides term financing for
hotel, anchored retail, office and owner-occupied properties.
Typical transaction sizes range from $5 million to $25
million.
o Communications Finance specializes in term financing to
advertising and subscriber-supported businesses including
radio and television stations, cable TV operators, outdoor
advertising firms and publishers. Typical transaction sizes
range from $1 million to $40 million.
o Corporate Finance provides a full range of cash flow-oriented
and asset-based term and revolving loan products for
manufacturers, wholesalers, distributors, specialty retailers,
commercial and consumer service businesses. Typical
transaction sizes range from $2 million to $40 million.
o Factoring Services offers full service factoring and accounts
receivable management services for entrepreneurial and larger
firms, primarily in the textile and apparel industries, with
annual factored volume of $5 million to $25 million. This line
provides accounts receivable and inventory financing and loans
secured by equipment and real estate.
o Franchise Finance offers equipment, real estate and
acquisition financing for operators of established franchise
concepts. Typical transaction sizes range from $500,000 to $15
million.
o Government Finance provides tax-exempt term financing for
state and local governments and non-profit corporations.
Typical transaction sizes range from $100,000 to $5 million.
o Healthcare Finance offers a full range of working capital,
equipment and real-estate financing products for the U.S.
healthcare industry. Typical transaction sizes range from
$500,000 to $25 million.
o Inventory Finance provides inbound and outbound inventory
financing, combined inventory/accounts receivable lines of
credit and purchase order financing for equipment
distributors, value-added resellers and dealers nationwide.
Typical transaction sizes range from $500,000 to $30 million.
o Rediscount Finance offers revolving credit facilities to the
independent consumer finance industry including sales,
automobile, mortgage and premium finance companies. Typical
transaction sizes range from $1 million to $35 million.
o Portfolio Services provides customized receivables servicing
and collections for time share developers and other generators
of consumer receivables.
<PAGE>
o Resort Finance focuses on construction, acquisition and
receivables financing for developers of timeshare resorts
worldwide, as well as term financing for established golf
resorts and resort hotels and receivables funding for
developers of second home communities. Typical transaction
sizes range from $5 million to $35 million.
o Transportation Finance structures equipment loans, leases,
acquisition financing and leveraged lease equity investments
for commercial and cargo airlines worldwide, railroads and
operators of other transportation related equipment. Typical
transaction sizes range from $5 million to $30 million.
o FINOVA Investment Alliance provides equity and mezzanine debt
financing for midsize business in partnership with
institutional investors and selected fund sponsors. Typical
transaction sizes range from $2 million to $15 million.
Portfolio Composition
The total assets under the management of the Company consist
of the Company's net investment in financing transactions plus certain
assets that are owned by others but managed by the Company and are not
reported on the Company's balance sheet ("securitized assets"). The
Company's investment in financing transactions is primarily settled in
U.S. dollars.
Investment in Financing Transactions
The following tables detail FINOVA's investment in financing
transactions (before reserve for possible credit losses) at December
31, 1996, 1995, 1994, 1993, and 1992.
<PAGE>
INVESTMENT IN FINANCING TRANSACTIONS
BY TYPES OF FINANCING
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------------
1996 % 1995 % 1994 % 1993 % 1992 %
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, conditional sale and other
financing contracts:
Commercial $ 3,592,193 49.2 $ 3,389,363 53.4 $ 2,732,734 51.1 $ 1,397,863 49.1 $ 1,028,181 42.3
Real estate 1,713,485 23.5 1,534,177 24.1 1,237,488 23.2 945,892 33.2 891,190 36.7
Factored receivables 564,430 7.7 189,486 3.0 157,862 3.0
Operating leases 517,690 7.1 460,798 7.3 412,782 7.7 147,222 5.2 100,911 4.2
Leveraged leases 514,573 7.1 366,196 5.8 287,518 5.4 283,782 10.0 269,370 11.1
Direct financing leases 396,388 5.4 408,059 6.4 514,595 9.6 71,812 2.5 138,871 5.7
----------- ------ ----------- ------ ----------- ----- ----------- ----- ------------ -----
Total investment in financing 7,298,759 100.0 6,348,079 100.0 $ 5,342,979 100.0 $ 2,846,571 100.0 $ 2,428,523 100.0
transactions ====== ====== =========== ===== =========== ===== ============ =====
Securitized assets 300,000 200,000
----------- -----------
Total managed assets $ 7,598,759 $ 6,548,079
=========== ===========
</TABLE>
<PAGE>
INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
DECEMBER 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Revenue Accruing Nonaccruing
------------------------------------- --------------------------------
Repos- Repos- Total
Market sessed sessed Lease & Carrying
Rate (1) Impaired Assets (2) Impaired Assets Other Amount %
------------------------------------- -------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transportation Finance (3) $ 1,330,578 $ $ $ $ $ $ 1,330,578 18.2
Resort Finance 1,124,462 2,963 13,878 77 25,136 1,166,516 16.0
Commercial Real Estate Finance 700,932 30,245 46,068 6,748 9,853 940 794,786 10.9
Corporate Finance (4) 630,399 3,211 14,695 335 648,640 8.9
Commercial Equipment Finance 570,574 7,900 6,564 585,038 8.0
Communications Finance 535,701 8,796 14,129 3,095 561,721 7.7
Healthcare Finance 497,540 1,304 1,194 500,038 6.9
Rediscount Finance 421,232 245 421,477 5.8
Franchise Finance 366,202 1,104 1,985 996 370,287 5.0
Inventory Finance 314,446 1,273 315,719 4.3
Factoring Services 220,701 3,419 224,120 3.1
Commercial Finance 160,006 11,963 171,969 2.3
Government Finance 150,361 13 150,374 2.1
Other 52,998 4,498 57,496 0.8
----------- -------- -------- -------- -------- -------- ------------ -----
Total Continuing Operations (4) $ 7,076,132 $ 46,319 $ 59,946 $ 63,751 $ 38,419 $ 14,192 $ 7,298,759 100.0
=========== ======== ======== ======== ======== ============ =====
Discontinued Operations (5) 39,143
--------
TOTAL $ 53,335
========
</TABLE>
- --------------------
NOTES:
(1) Represents original or renegotiated market rate terms, excluding impaired
transactions.
(2) The Company earned income totaling $5.1 million on repossessed assets
during 1996, including $4.4 million in Commercial Real Estate Finance and
$0.7 million in Resort Finance.
(3) Transportation Finance includes $160.8 million of aircraft financing
business booked through the London office.
(4) Excludes $300 million of securitized assets which are managed by the
Company.
(5) Reflects assets retained by FINOVA subsequent to the sale of the
Manufacturer and Dealer Services' line of business.
--------------------
<PAGE>
INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
DECEMBER 31, 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Revenue Accruing Nonaccruing
--------------------------------------- ------------------------------
Repos- Repos- Total
Market sessed sessed Lease & Carrying
Rate (1) Impaired Assets (2) Impaired Assets Other Amount %
--------------------------------------- ------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transportation Finance (3) $ 929,043 $ $ $ $ $ $ 929,043 14.6
Resort Finance 943,661 2,849 12,064 2,583 26,559 987,716 15.6
Commercial Real Estate Finance 703,018 3,898 42,304 15,264 18,231 988 783,703 12.3
Corporate Finance (4) 631,295 5,274 19,592 335 656,496 10.3
Commercial Equipment Finance 345,039 69 6,079 351,187 5.5
Communications Finance 662,191 2,502 2,217 16,817 4,863 688,590 10.8
Healthcare Finance 451,503 81 1,231 452,815 7.2
Rediscount Finance 345,264 345,264 5.4
Franchise Finance 327,356 1,462 6,408 1,850 337,076 5.3
Inventory Finance 202,879 430 203,309 3.2
Factoring Services 188,892 594 189,486 3.0
Commercial Finance 200,365 12,685 213,050 3.4
Government Finance 121,956 47 122,003 1.9
Other 78,645 1,275 2,360 6,061 88,341 1.5
----------- --------- --------- -------- --------- --------- ------------ -------
Total Continuing Operations (4) $ 6,131,107 $ 17,260 $ 56,585 $ 76,883 $ 49,988 $ 16,256 $ 6,348,079 100.0
=========== ========= ========= ======== ========= ========= ============ =======
</TABLE>
- --------------------
NOTES:
(1) Represents original or renegotiated market rate terms, excluding impaired
transactions.
(2) The Company earned income totaling $4.2 million on repossessed assets
during 1995, including $3.2 million in Commercial Real Estate Finance, $0.6
million in Resort Finance and $0.4 million in Communications Finance.
(3) Transportation Finance included $144 million of aircraft financing business
booked through the London office.
(4) Excludes $200 million of securitized assets which are managed by the
Company.
--------------------
<PAGE>
INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
DECEMBER 31, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
Revenue Accruing Nonaccruing
------------------------------------- --------------------------------
Repos-
sessed Delin- Repos- Leases Total
Original Rewritten Assets quent sessed & Carrying
Rate Contracts (1) Loans Assets Other Amount %
------------------------------------- -------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transportation Finance (2) $ 706,242 $ 14,620 $ $ $ $ $ 720,862 13.5
Resort Finance 634,735 4,506 7,314 2,582 30,393 679,530 12.7
Commercial Real Estate Finance 672,522 7,237 40,510 7,622 21,519 749,410 14.0
Corporate Finance 746,671 21,275 6,952 2,674 777,572 14.5
Commercial Equipment Finance 293,609 769 7,589 301,967 5.6
Communications Finance 551,218 6,288 7,282 17,377 5,863 671 588,699 11.0
Healthcare Finance 467,131 1,719 468,850 8.8
Rediscount Finance 99,353 99,353 1.9
Franchise Finance 281,890 7,632 12,242 301,764 5.6
Inventory Finance 58,595 642 59,237 1.1
Factoring Services 157,090 772 157,862 3.0
Commercial Finance 181,741 12,003 193,744 3.6
Government Finance 93,491 144 93,635 1.8
FINOVA Capital Limited (3) 93,700 1,561 4,265 2 4,800 104,328 2.0
Other 36,951 8,918 297 46,166 0.9
------------ --------- --------- --------- --------- -------- ----------- ------
Total Continuing Operations $ 5,074,939 $ 63,888 $ 55,106 $ 73,519 $ 60,451 $ 15,076 $ 5,342,979 100.0
============ ========= ========= ========= ========= ======== =========== ======
</TABLE>
- --------------------
NOTES:
(1) The Company earned income totaling $3.3 million on repossessed assets
during 1994, including $2.0 million in Commercial Real Estate Finance, $0.8
million in Communications Finance and $0.5 million in Resort Finance.
(2) Transportation Finance included $66.9 million of aircraft finance business
booked through the London office.
(3) The FINOVA Capital Limited balance included transactions in Europe and
elsewhere (including the U.S.) originated from the Company's London office.
Also, FINOVA Capital Limited included $39.2 million of Consumer Finance
assets, of which $4.8 million were nonaccruing. Consumer Finance accounts
were generally considered nonaccruing after being 180 days delinquent.
--------------------
<PAGE>
INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
DECEMBER 31, 1993
(Dollars in Thousands)
<TABLE>
<CAPTION>
Revenue Accruing Nonaccruing
----------------------------------- -----------------------------------
Repos-
sessed Delin- Repos- Leases Total
Original Rewritten Assets quent sessed & Carrying
Rate Contracts (1) Loans Assets Other Amount %
----------------------------------- ----------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transportation Finance (2) (3) $ 604,416 $ $ $ 841 $ $ $ 605,257 21.2
Resort Finance 530,617 4,869 12,163 11,597 7,404 440 567,090 19.9
Commercial Real Estate Finance (2) 500,598 1,574 27,844 5,759 20,838 556,613 19.6
Corporate Finance (2) 397,779 27,921 4,243 5,462 386 435,791 15.3
Communications Finance 487,890 7,989 8,949 21,730 11,564 538,122 18.9
Rediscount Finance 19,439 19,439 0.7
FINOVA Capital Limited (4) 107,486 4,430 2,720 23 9,600 124,259 4.4
---------- ----------- ---------- --------- ---------- ---------- ------------ ------
$2,648,225 $ 46,783 $ 48,956 $ 46,890 $ 45,291 $ 10,426 $ 2,846,571 100.0
========== =========== ========== ========= ========== ========== ============ ======
</TABLE>
- --------------------
NOTES:
(1) The Company earned income totaling $2.7 million on repossessed accruing
assets during 1993, including $1.5 million in Commercial Real Estate
Finance, $0.6 million in Communications Finance and $0.6 million in Resort
Finance.
(2) Reclassifications (effective January 1, 1993): Approximately $169 million
of accruing assets were reclassified from Corporate Finance with $163
million going to Transportation Finance because they primarily represented
aircraft financing and $6 million to Commercial Real Estate Finance.
Additionally, $6.5 million of nonaccruing assets ($5.1 million classified
as repossessed assets and $1.4 million classified as 90 days delinquent)
were reclassified from Corporate Finance to Commercial Real Estate Finance.
(3) Transportation Finance included $31.9 million of aircraft finance business
booked through the London office.
(4) The FINOVA Capital Limited balance included transactions in Europe and
elsewhere (including the U.S.) originated from the Company's London office.
Also, FINOVA Capital Limited included $45.3 million of Consumer Finance
assets, of which $9.6 million were nonaccruing. Consumer Finance accounts
were generally considered nonaccruing after being 180 days delinquent.
--------------------
<PAGE>
INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
DECEMBER 31, 1992
(Dollars in Thousands)
<TABLE>
<CAPTION>
Revenue Accruing Nonaccruing
------------------------------------ -------------------------------
Repos- Delin- Repos- Leases Total
Original Rewritten sessed quent sessed & Carrying
Rate Contract Assets (1) Loans Assets Other Amount %
------------------------------------ ------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transportation Finance $ 328,962 $ $ $ $ $ $ 328,962 13.5
Resort Finance 488,224 1,356 6,524 7,365 635 504,104 20.8
Commercial Real Estate Finance 463,571 12,482 21,509 6,302 15,052 518,916 21.4
Corporate Finance (2) 420,006 16,081 14,436 5,111 611 456,245 18.8
Communications Finance 382,914 32,548 8,744 13,182 437,388 18.0
FINOVA Capital Limited (3) 154,609 5,839 6,000 60 16,400 182,908 7.5
------------ --------- --------- --------- --------- --------- ------------ -------
$ 2,238,286 $ 68,306 $ 21,509 $ 42,006 $ 40,770 $ 17,646 $ 2,428,523 100.0
============ ========= ========= ========= ========= ========= ============ =======
</TABLE>
- --------------------
NOTES:
(1) The Company earned income of $1.9 million on repossessed accruing assets in
Commercial Real Estate Finance during 1992.
(2) Included $5.1 million of public sector Latin American loans that were
written-down to estimated market value. During 1992, FINOVA successfully
liquidated 72% of the face value of public sector Latin American loans at
favorable market prices, which were approximately $3.1 million in excess of
the carrying amount.
(3) The FINOVA Capital Limited balance included transactions in Europe and
elsewhere (including the U.S.) originated from the Company's London office.
FINOVA Capital Limited included $57.8 million of Consumer Finance assets,
of which $16.4 million were nonaccruing. Consumer Finance accounts were
generally considered nonaccruing after being 180 days delinquent.
---------------------
<PAGE>
The Company's geographic portfolio diversification at December 31, 1996
was as follows (Dollars in Thousands):
State Total Percent
-------------------------------- ------------- ----------
California $ 1,143,936 15.1
Florida 763,109 10.0
Texas 569,841 7.5
New York 485,909 6.4
Arizona 294,603 3.9
New Jersey 289,004 3.8
Virginia 288,431 3.8
Pennsylvania 249,176 3.3
Illinois 241,706 3.2
Nevada 207,897 2.7
Michigan 199,367 2.6
Massachusetts 150,109 2.0
Other (1) 2,715,671 35.7
------------- ----------
$ 7,598,759 100.0%
============= ==========
- --------------------
NOTE:
(1) Other includes all other states which, on an individual basis, represent
less than 2% of the total and international, which represents approximately
8% of the total.
--------------------
The following is an analysis of the reserve for possible credit losses
for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 129,077 $ 110,903 $ 64,280 $ 69,291 $ 87,600
Provision for possible credit losses 41,751 37,568 10,439 5,706 6,740
Write-offs (32,017) (25,631) (28,109) (12,575) (23,661)
Recoveries 3,296 2,104 1,780 717 749
Other (including reserves related to
acquisitions) 6,586 4,133 62,513 1,141 (2,137)
----------- ----------- ---------- ---------- -----------
Balance, end of year $ 148,693 $ 129,077 $ 110,903 $ 64,280 $ 69,291
=========== =========== ========== ========== ===========
</TABLE>
--------------------
Included in the above is a specific impairment reserve of $6.2
million at December 31, 1996, which applies to $14.1 million of the $110.1
million of impaired loans. The remaining $142.5 million of the reserve for
possible credit losses is designated for general purposes and represents
management's best estimate of potential losses in the portfolio considering
delinquencies, loss experience and collateral. At December 31, 1995, the
specific impairment reserve was $16 million which applied to $35 million of the
$94.1 million of impaired loans. Additions to general and specific reserves are
reflected in current operations. Management may transfer reserves between the
general and specific reserves as appropriate.
<PAGE>
Write-offs by line of business, experienced by the Company during the
years ended December 31, were as follows:
WRITE-OFFS BY LINE OF BUSINESS
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Corporate Finance $ 9,470 $ 4,660 $ 4,233 $ 3,741 $ 1,000
Factoring Services (2) 5,098 3,728 1,148
Resort Finance 4,275 2,000 2,730
Franchise Finance (1) 3,267 3,448 2,247
Commercial Equipment Finance (1) 3,207 2,271 1,257
Communications Finance 2,994 4,037 8,300 1,488 1,500
Commercial Real Estate Finance 1,793 2,275 1,461 2,320 4,417
Healthcare Finance (1) 1,018 314 377
FINOVA Capital Limited 895 1,523 5,140 5,026 15,838
Commercial Finance (1) 452 774
Inventory Finance (1) 201 442
Other 722 906
----------- ----------- ----------- ----------- -----------
$ 32,017 $ 25,631 $ 28,109 $ 12,575 $ 23,661
=========== =========== =========== =========== ===========
Write-offs as a percentage
of managed assets 0.42% 0.39% 0.53% 0.44% 0.97%
=========== =========== =========== =========== ===========
</TABLE>
- --------------------
NOTES:
(1) Acquired April, 1994.
(2) Acquired February, 1994.
--------------------
A further breakdown of the portfolio by line of business can be found in
Notes C and D of Notes to Consolidated Financial Statements in Annex A.
Cost and Use of Borrowed Funds
FINOVA Capital relies on borrowed funds as well as internal cash flow
to finance its operations. FINOVA Capital follows a policy of relating terms
under its loans and leases to the terms on which it obtains funds so, to the
extent feasible, floating-rate assets are funded with floating-rate borrowings
and fixed-rate assets are funded with fixed-rate borrowings. For further
discussion on FINOVA Capital's debt and matched funding policy, see Notes E and
F of Notes to Consolidated Financial Statements included in Annex A.
<PAGE>
The following table reflects the approximate average pre-tax
effective cost of borrowed funds and pre-tax equivalent rate earned on accruing
assets for FINOVA Capital for each of the periods listed:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1996 1995 1994 1993 1992
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Short-term and variable rate long-term debt (1) 6.5% 7.2% 5.5% 4.7% 5.3%
Fixed-rate long-term debt (1) 7.2% 7.3% 8.1% 11.4% 10.6%
Aggregate borrowed funds (1) 6.8% 7.2% 6.3% 6.3% 7.2%
Rate earned on average earning assets (2) (3) 11.8% 12.1% 11.3% 10.9% 11.9%
Spread percentage (4) 5.8% 5.7% 5.9% 5.4% 5.1%
</TABLE>
- ---------------------
NOTES:
(1) Includes the effects of interest rate swap and hedge agreements.
(2) Earning assets are net of average nonaccruing assets and average deferred
taxes applicable to leveraged leases.
(3) Earned amounts are net of depreciation and include gains on sale of assets.
(4) Spread percentages represent interest margins earned as a percentage of
average earning assets.
--------------------
The effective costs presented above include costs of commitment fees
and related borrowing costs and do not purport to predict the costs of funds in
the future.
For further information on FINOVA Capital's cost of funds, refer to
Notes E and F of the Notes to Consolidated Financial Statements included in
Annex A.
Following are the ratios of income to combined fixed charges and
preferred stock dividends ("ratio") for each of the past five years:
Year Ended December 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
1.50 1.44 1.58 1.50 1.34
======== ======== ======== ======== ========
Variations in interest rates generally do not have a substantial impact
on the ratio because fixed-rate and floating-rate assets are generally matched
with liabilities of similar rate and term.
Income available for fixed charges, for purposes of the computation of
the ratio of income to combined fixed charges and preferred stock dividends,
consists of the sum of income from continuing operations before income taxes and
fixed charges. Combined fixed charges include interest and related debt expense
and a portion of rental expense determined to be representative of interest and
preferred stock dividends grossed up to a pre-tax basis.
Credit Ratings
FINOVA Capital currently has investment-grade credit ratings from the
following rating agencies:
Commercial Senior
Paper Debt
--------------- ----------
Duff & Phelps Credit Rating Co. D1 A
Fitch Investors Services, Inc. F1 A
Moody's Investors Service, Inc. P2 Baa1
Standard & Poor's Ratings Group A2 A-
<PAGE>
In addition, FINOVA Finance Trust, a subsidiary trust of the Company,
issued mandatory redeemable convertible preferred securities ("TOPrS") in
December 1996 having investment-grade ratings as follows:
Duff & Phelps Credit Rating Co. BBB+
Fitch Investors Services, Inc. A-
Moody's Investors Services, Inc. Baa2
Standard & Poor's Rating Group BBB+
For further information relating to the TOPrS, refer to Note G of the
Notes to Consolidated Financial Statements included in Annex A.
There can be no assurance that these ratings will be maintained. Such
ratings can be modified at any time. A credit rating is not a recommendation to
buy, sell or hold securities. Each rating should be evaluated independently of
any other rating. None of FINOVA Capital's subsidiaries have applied for credit
ratings.
Residual Realization Experience
Over the last 42 years, FINOVA Capital has realized, in the aggregate,
proceeds from the sale of assets upon lease terminations (other than
foreclosures) in excess of carrying amounts; however, there can be no assurance
that such results will be realized in future years. Proceeds actually realized
will depend on current market values for those assets at the time of sale which
are generally beyond the control of the Company, although the Company has some
discretion in the timing of subsequent dispositions of such assets. Sales
proceeds upon lease terminations in excess of carrying amounts are reported as
gains when the assets are sold.
Income from leasing activities is affected by gains from asset sales
upon lease termination and, hence, can be somewhat less predictable than income
from non-leasing activities. During the five years ended December 31, 1996, the
proceeds to FINOVA Capital from sales of assets upon early termination of leases
and at the expiration of leases have exceeded the respective carrying amounts
and estimated residual values as follows:
<TABLE>
<CAPTION>
Early Terminations (Note 1) Terminations at End of Lease Term
- --------------------------------------------------------------- -----------------------------------------------
Proceeds
Proceeds Estimated as a % of
Carrying as a % of Residual Estimated
Sales Amount Carrying Sales Value of Residual
Year Proceeds of Assets Amount Proceeds Assets Value
- --------------------------------------------------------------- -----------------------------------------------
(Dollars in Thousands) (Dollars in Thousands)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996 $ 87,311 $ 75,910 115% $ 15,634 $ 13,872 113%
1995 1,402 905 155% 44,395 37,053 120%
1994 6,477 5,865 110% 15,287 14,164 108%
1993 --- --- --- 486 248 196%
1992 20,493 17,527 117% 2,164 1,768 122%
</TABLE>
- --------------------
Notes:
(1) Excludes foreclosures for credit reasons which are immaterial.
--------------------
<PAGE>
The estimated residual value of direct finance and leveraged lease
assets in the accounts of FINOVA Capital at December 31, 1996 aggregated 30.5%
of the original cost of such assets (23.8% excluding the original costs of the
assets and residuals applicable to real estate leveraged leases, which typically
have higher residuals than other leases). The financing contracts and leases
outstanding at that date had initial terms ranging generally from one to 25
years. The average initial term weighted by carrying amount at inception and the
average remaining term weighted by remaining carrying amount of financing
contracts at December 31, 1996 for financing contracts excluding leveraged
leases were 7.2 and 4.6 years, respectively, and for leveraged leases were
approximately 18.6 and 11.9 years, respectively. The comparable average initial
term and remaining term at December 31, 1995 for financing contracts excluding
leveraged leases were 6.4 and 4.6 years, respectively, and for leveraged leases
were approximately 20 and 13 years, respectively. FINOVA Capital utilizes either
employed or outside appraisers to determine the collateral value of assets to be
leased or financed and the estimated residual or collateral value thereof at the
expiration of each lease. Actual proceeds could differ from such appraised
values.
For a discussion of accounting for lease transactions, refer to Notes A
and C of Notes to Consolidated Financial Statements included in Annex A.
Business Development and Competition
FINOVA Capital develops business primarily through direct solicitation
by its own sales force. Customers are also introduced by independent brokers and
referred by other financial institutions and other sources.
At December 31, 1996, FINOVA Capital's continuing operations consisted
of 6,923 financing contracts with 4,119 customers (including 799 contracts with
consumer finance customers), compared to 6,705 contracts with 4,207 customers
(including 881 contracts with consumer finance customers) at December 31, 1995.
FINOVA Capital is engaged in an extremely competitive activity. It
competes with banks, insurance companies, leasing companies, the credit units of
equipment manufacturers and other finance companies. Some of these competitors
have substantially greater financial resources and are able to borrow at costs
below those of FINOVA Capital. FINOVA Capital's principal means of competition
is through a combination of service, structure and innovation in transactions,
the interest rate charged for money and concentration in focused market niches.
The interest rate it charges for money is a function of its borrowing costs, its
operating costs and other factors. While many of FINOVA Capital's larger
competitors are able to offer lower interest rates based upon their lower
borrowing costs, FINOVA Capital seeks to maintain the competitiveness of the
interest rates it offers by emphasizing strict control of its operating costs.
The Company's ability to manage costs is, in part, dependent on factors beyond
the Company's control, such as the cost of funds, outside litigation expenses
and competitive salaries.
Credit Quality
As a result of the use of clearly defined underwriting standards,
portfolio management techniques, monitoring of covenant compliance and active
collections and workout efforts, FINOVA Capital seeks to maintain a high-quality
asset base.
Risk Management
FINOVA Capital generally conducts investigations of its prospective
customers through a review of historical financial statements, published credit
reports, credit references, discussions with management, analysis of location
feasibility, personal visits and collateral appraisals and inspections. In many
cases, depending upon the results of its credit investigations and the nature of
the financing being provided, FINOVA Capital obtains additional collateral or
guarantees from others.
<PAGE>
As part of its underwriting process, FINOVA Capital considers the
management, industry, financial position and level of collateral of a proposed
obligor. The purpose, term, amortization and amount of any proposed transaction
generally must be clearly defined and within established corporate guidelines.
In addition, underwriters attempt to avoid undue concentrations in any one
customer, industry or regional location.
o Management. FINOVA Capital considers the reputation, experience and
depth of management; quality of product or service; adaptability to
changing markets and demand; and prior banking, finance and trade
relationships.
o Industry. FINOVA Capital evaluates critical aspects of each industry to
which it lends, including general trend, seasonality and cyclicality;
governmental regulation; the effects of taxes; the economic value of
goods or services provided; and potential environmental or other
liability.
o Financial. FINOVA Capital's review of a prospective borrower normally
includes a thorough analysis of the borrower's financial performance.
Items considered include net worth; composition of assets and
liabilities; debt service coverage; liquidity; sales growth and earning
power; and cash flow generation and reliability.
o Collateral. FINOVA Capital regards collateral as an important factor in
a credit evaluation and has established maximum loan to value ratios,
normally ranging from 60% - 90%, for each of its lines of business.
The underwriting process includes, in addition to the analysis of the
factors set forth above, the design and implementation of transaction structures
and strategies to mitigate identified risks; a review of transaction pricing
relative to product-specific return requirements and acknowledged risk elements;
a multi-step, interdepartmental review and approval process, with varying levels
of authority based on the size of the transaction; and periodic
interdepartmental reviews and revision of underwriting guidelines.
FINOVA Capital also monitors portfolio concentrations in the areas of
aggregate exposure to a single borrower and related entities, within a given
geographical area and with respect to an industry and/or product type within an
industry. FINOVA Capital has established concentration guidelines for each line
of business. Geographic concentrations are reviewed periodically and evaluated
based on historic loan experience and prevailing market and economic conditions.
FINOVA Capital's financing contracts and leases generally require the
customer to pay taxes, license fees and insurance premiums and to perform
maintenance and repairs at the customer's expense. Contract payment rates are
based on several factors, including the cost of borrowed funds, term of
contract, creditworthiness of the prospective customer, type and nature of
collateral and other security and, in leasing transactions, the timing of tax
effects and estimated residual values. In direct finance lease transactions,
lessees generally are granted an option to purchase the equipment at the end of
the lease term at its then fair market value or, in some cases, are granted an
option to renew the lease at its then fair rental value. The extent to which
lessees exercise their options to purchase leased equipment varies from year to
year, depending on, among other factors, the state of the economy, the financial
condition of the lessee, interest rates and technological developments.
Portfolio Management
In addition to the review at the time of original underwriting, FINOVA
Capital attempts to preserve and enhance the earnings quality of its portfolio
through proactive management of its financing relationships with its clients.
This process includes the periodic appraisal or verification of the collateral
to determine loan exposure and residual values; sales of residuals and warrants
to generate supplemental income; and review and management of covenant
compliance. The Portfolio Management department or dedicated personnel within
the business units regularly review financial statements to assess customer cash
flow performance and trends; periodically confirm operations of the customer;
conduct periodic reappraisals of the underlying collateral; seek to identify
issues concerning the vulnerabilities of the customer; seek to resolve
outstanding issues with the borrower; and prepare quarterly summaries of the
aggregate portfolio quality and concentrations for management review.
Evaluation for loan impairment is performed as a part of the portfolio
management review process. When a loan is determined to be impaired, a
write-down is taken or an impairment reserve is established based on the
difference between the recorded balance of the loan ("carrying amount") and the
relevant measured value.
<PAGE>
Delinquencies and Workouts
FINOVA Capital monitors the timing of payments on all of its accounts.
For term loans, when an invoice is 10 days past due, the customer is generally
contacted, and a determination is made as to the extent of the problem, if any.
A commitment for immediate payment is pursued and the account is observed
closely. If satisfactory results are not obtained in communication with the
customer, the guarantor(s) are contacted to advise them of the situation and the
potential obligation under the guarantee agreement. If an invoice becomes 31
days past due, it is reported as delinquent. A notice of default is generally
sent prior to an invoice becoming 45 days past due and, between 60 and 90 days
past the due date, if satisfactory negotiations are not underway, outside
counsel is generally retained to help protect FINOVA Capital's rights and to
pursue its remedies.
When accounts become more than 90 days past due income recognition is
usually suspended, and FINOVA Capital vigorously pursues its legal remedies.
Foreclosed or repossessed assets are considered to be nonperforming, and are
reported as such unless such assets generate sufficient cash to result in a
reasonable rate of return. Such accounts are continually reviewed, and
write-downs are taken as deemed necessary. While pursuing collateral and
obligors, FINOVA Capital generally continues to negotiate the restructuring or
other settlement of the debt, as appropriate.
Management believes that collateral values significantly reduce loss
exposure and that the reserve for possible credit losses is adequate. For
additional information regarding the reserve for possible credit losses, see
Note D of Notes to Consolidated Financial Statements included in Annex A.
Governmental Regulation
FINOVA Capital's domestic activities, including the financing of its
operations, are subject to a variety of federal and state regulations such as
those imposed by the Federal Trade Commission, the Securities and Exchange
Commission, the Consumer Credit Protection Act, the Equal Credit Opportunity Act
and the Interstate Land Sales Full Disclosure Act. Additionally, a majority of
states have ceilings on interest rates chargeable to customers in financing
transactions. Some of FINOVA Capital's financing transactions are subject to
additional government regulation, such as aircraft leasing, which is regulated
by the Federal Aviation Authority, and communications finance, which is
regulated by the Federal Communication Commission. FINOVA Capital's
international activities are also subject to a variety of laws and regulations
promulgated by the governments and various agencies of the countries in which
the business is conducted.
EMPLOYEES
At December 31, 1996, the Company had 891 employees compared to 978 at
December 31, 1995. None of the employees were covered by collective bargaining
agreements. The Company believes its employee relations are satisfactory.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in documents incorporated herein by
reference and under the captions "Business," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in this
Form that are not historical facts, including, without limitation, statements of
future expectations, projections of results of operations and financial
condition, statements of future economic performance and other forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, are subject to known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to differ materially from those contemplated in such forward-looking statements.
In addition to the specific matters referred to herein, important factors which
may cause actual results to differ from those contemplated in such
forward-looking statements include: (1) the results of the Company's efforts to
implement its business strategy; (2) the effect of economic conditions and the
performance of borrowers; (3) actions of the Company's competitors and the
Company's ability to respond to such actions; (4) the cost of the Company's
capital, which depends in part on the Company's portfolio quality, ratings,
prospects and outlook; (5) changes in governmental regulation, tax rates and
similar matters; and (6) other risks detailed in the Company's other filings
with the Commission.
<PAGE>
ITEM 2. PROPERTIES.
The Company's principal executive offices are located in premises
leased from Viad Corp. (formerly The Dial Corp.) in Phoenix, Arizona. FINOVA
Capital operates various additional offices in the United States and one office
in Europe. All these properties are leased. Alternative office space could be
obtained without difficulty in the event leases are not renewed.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a party either as plaintiff or defendant to various
actions, proceedings and pending claims, including legal actions, some of which
involve claims for compensatory, punitive or other damages in significant
amounts. Such litigation often results from the Company's attempts to enforce
its lending agreements against borrowers and other parties to those
transactions. Litigation is subject to many uncertainties and it is possible
that some of the legal actions, proceedings or claims referred to above could be
decided against the Company. Although the ultimate amount for which the Company
may be held liable, if any, is not ascertainable, the Company believes that any
resulting liability would not materially affect the Company's financial position
or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of 1996.
OPTIONAL ITEM. EXECUTIVE OFFICERS OF REGISTRANT.
Set forth below is information with respect to those individuals who
serve as executive officers of FINOVA.
Name Age Position and Background
- -------------------------- ------- -------------------------------------------
Samuel L. Eichenfield 60 Chairman, President and Chief Executive
Officer or similar positions since 1992
and Chairman, President and Chief
Executive Officer of FINOVA Capital for
more than five years.
Robert J. Fitzsimmons 56 Senior Vice President - Treasurer of The
FINOVA Group Inc. or similar positions
since 1992; also Senior Vice President -
Treasurer or similar positions of FINOVA
Capital for more than five years and a
Director of FINOVA Capital since 1992.
William J. Hallinan 54 Senior Vice President - General Counsel
and Secretary or similar positions of
The FINOVA Group Inc. and FINOVA Capital
since 1992; prior thereto for more than
five years served as Vice President -
Taxes and Associate General Counsel or a
similar position of Dial.
Robert M. Korte 41 Senior Vice President - Strategy and
Technology since 1994 and prior thereto
was Vice President-Human and Corporate
Development of The FINOVA Group Inc.
since 1992; also Vice President - Human
and Corporate Development or in similar
positions of FINOVA Capital since 1991,
and prior thereto was Assistant Vice
President - Administration.
<PAGE>
Name Age Position and Background
- -------------------------- ------- -------------------------------------------
Bruno A. Marszowski 55 Senior Vice President - Controller and
Chief Financial Officer of The FINOVA
Group Inc. and FINOVA Capital since
1994. Prior thereto was Vice President -
Controller of The FINOVA Group Inc.
since 1992; and of FINOVA Capital for
more than five years. Director of FINOVA
Capital during 1992.
Robert E. Radway 36 Senior Vice President - Corporate
Development and Communications or
similar positions of The FINOVA Group
Inc. since 1993; prior thereto was
Manager, Corporate Finance Division of
CMS Companies (an investment
management/merchant banking firm) since
1990 and prior thereto was Vice
President, Investment Banking Division
of First Fidelity Bancorporation (a bank
holding company) since 1988.
Derek C. Bruns 37 Vice President - Internal Audit or
similar positions of The FINOVA Group
Inc. and Senior Vice President -
Internal Audit or similar positions of
FINOVA Capital since 1992; prior thereto
was Senior Manager - Audit Services or
in a similar position at Deloitte &
Touche LLP for more than five years.
John J. Bonano 54 Group Vice President or similar
positions of FINOVA Capital since 1993;
prior thereto was Senior Vice President,
Asset Based Finance Division of U.S.
Bancorp Financial, Inc. since 1988.
J. Parker Lapp 43 Group Vice President of FINOVA Capital
since 1995; prior thereto was President,
Current Asset Management Group of Heller
Financial, Inc. for five years.
Matthew M. Breyne 39 Group Vice President or similar
positions of FINOVA Capital for more
than five years.
Jack Fields, III 42 Group Vice President or similar
positions of FINOVA Capital for more
than five years.
Thomas C. Parrinello 55 Group Vice President of FINOVA Capital
since 1994; prior thereto was Executive
Vice President of Heller Financial for
more than five years.
William C. Roche 43 Senior Vice President - Human Resources
& Facilities Planning of The FINOVA
Group Inc. and FINOVA Capital
Corporation since 1994; prior thereto
was Manager-Compensation and similar
positions with AlliedSignal for seven
years.
Martin G. Roth 59 Group Vice President or similar
positions of FINOVA Capital for more
than five years.
Gregory C. Smalis 44 Group Vice President - Portfolio
Management or similar positions and a
director of FINOVA Capital since 1993;
prior thereto served as Managing
Director of FCL from 1992 and as Vice
President - Credit of FINOVA Capital
from 1987.
<PAGE>
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY & RELATED STOCKHOLDER MATTERS.
The FINOVA Group Inc.'s common stock trades on the New York Stock
Exchange. The following tables summarize the high and low market prices as
reported on the New York Stock Exchange Composite Tape and the cash dividends
declared from January 1, 1995 through December 31, 1996:
Sales Price Range of Common Stock
---------------------------------------------------
1996 1995
---------------------------------------------------
Quarters: High Low High Low
---------- --------- ---------- -----------
First $ 56 $46-1/4 $ 34 $ 30-5/8
Second 56-3/8 48 38-1/2 31-3/4
Third 60-1/2 48-1/4 45-3/4 34-7/8
Fourth 67-1/4 59-5/8 49-1/2 44-5/8
Dividends Declared on
Common Stock
-----------------------
1996 1995
--------- ---------
February $ 0.22 $ 0.20
May 0.22 0.20
August 0.24 0.22
November 0.24 0.22
--------- ---------
$ 0.92 $ 0.84
========= =========
Following the Spin-Off, quarterly dividends have been paid on the first
business day of each calendar quarter. It is anticipated that FINOVA will
continue to pay regular quarterly dividends on the first business day of
January, April, July and October. In February 1997, the Board of Directors
declared a dividend of $0.24 per share, payable April 1, 1997, for shareholders
of record on March 1, 1997. The declaration of dividends and their amounts will
be at the discretion of the Board of Directors of FINOVA, and there can be no
assurance that additional dividends will be declared.
FINOVA Capital is restricted in its ability to pay dividends to The
FINOVA Group Inc. The agreements pertaining to long-term debt of FINOVA Capital
include various restrictive covenants and require the maintenance of certain
defined financial ratios with which FINOVA Capital has complied. Under one of
these covenants, dividend payments are limited to 50 percent of accumulated
earnings after December 31, 1991.
As of March 10, 1997, there were approximately 24,200 holders of record
of The FINOVA Group Inc.'s common stock. The closing price of the common stock
on that date was $78-7/8.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes selected financial data of FINOVA which
have been derived from the audited Consolidated Financial Statements of FINOVA
for the five years ended December 31, 1996. The information set forth below
should be read in conjunction with the "Management's Discussion and Analysis of
Financial Condition and Results of Operations", the Consolidated Financial
Statements of FINOVA and the Notes thereto included in Annex A, as well as the
remainder of this Report. Prior years have been restated to exclude operations
which were discontinued in 1996; for further detail, see Note B of Notes to
Consolidated Financial Statements in Annex A of this report.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------------------------------------------------------------------
(Dollars in Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Interest earned from financing
transactions $ 797,934 $ 702,116 $ 474,200 $ 255,216 $ 243,337
Interest margins earned 369,105 309,084 227,463 124,847 104,699
Provision for possible credit losses 41,751 37,568 10,439 5,706 6,740
Gains on sale of assets 12,949 10,889 3,877 5,439 3,362
Income from continuing
operations 116,493 93,798 73,770 37,846 36,750
Net income 117,000 97,629 74,313 37,347 48,957
Earnings from continuing operations after
preferred dividends per common and
equivalent share $ 4.16 $ 3.37 $ 2.92 $ 1.80 $ 1.71
Earnings per common and equivalent
share $ 4.17 $ 3.51 $ 2.94 $ 1.77 $ 2.31
Dividends declared per common share $ 0.92 $ 0.84 $ 0.74 $ 0.68 $ 0.42
Dividend payout ratio 22.1% 23.9% 25.2% 38.4% 18.2%
Average outstanding common and
equivalent shares 28,036,000 27,832,000 25,307,000 20,332,000 20,464,000
FINANCIAL POSITION:
Investment in financing transactions $ 7,298,759 $ 6,348,079 $ 5,342,979 $ 2,846,571 $ 2,428,523
Nonaccruing assets (1) 155,505 143,127 149,046 102,607 100,422
Reserve for possible credit losses 148,693 129,077 110,903 64,280 69,291
Total assets 7,526,734 7,036,514 5,821,343 2,834,322 2,641,668
Deferred income taxes 244,208 209,512 188,887 178,972 172,727
Total debt 5,850,223 5,649,368 4,573,354 2,079,286 1,898,773
Redeemable preferred stock --- --- --- --- 25,000
Company-obligated mandatory
redeemable convertible preferred
securities of subsidiary trust solely
holding convertible debentures of the
Company 111,550 --- --- --- ---
Stockholders' equity 929,591 825,184 770,252 503,300 488,396
</TABLE>
<PAGE>
<TABLE>
December 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATIOS:
Reserve for possible credit losses/managed assets 2.0% 2.0% 2.1% 2.3% 2.9%
Nonaccruing assets/managed assets 2.0% 2.2% 2.8% 3.6% 4.1%
Total debt to equity (2) 5.6x 6.8x 5.9x 4.1x 3.9x
Return on average common equity (3) 13.3% 11.8% 11.1% 7.6% 8.5%
Return on average funds employed (3) 1.8% 1.7% 1.8% 1.4% 1.6%
Equity to assets (2) 13.8% 11.7% 13.2% 17.8% 18.5%
</TABLE>
- --------------------
NOTES:
(1) Nonaccruing assets at December 31, 1996, include nonaccruing assets
classified as discontinued operations.
(2) Equity in 1996 includes company-obligated mandatory redeemable convertible
preferred securities of subsidiary trust solely holding convertible
debentures of the Company.
(3) Return represents income from continuing operations.
--------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
See pages 2 - 6 of Annex A.
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA.
1. Financial Statements - See Item 14 hereof and Annex A.
2. Supplementary Data - See Condensed Quarterly Results included
in Supplemental Selected Financial Data of Notes to
Consolidated Financial Statements included in Annex A.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING &
FINANCIAL DISCLOSURE.
NONE.
PART III
ITEM 10. DIRECTORS & EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning the Company's directors required by this
Item is incorporated by reference from the Company's Proxy Statement issued in
connection with its 1997 Annual Meeting of Stockholders (the "Proxy Statement").
The information regarding the Company's executive officers required by
this item is found as an Optional Item in Part I, following Item 4 hereof.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from
the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT.
The information required by this item is incorporated by reference from
the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS & RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from
the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
(a) Documents filed.
1. Financial Statements.
(i) The following financial statements of FINOVA are included
in Annex A:
<TABLE>
<CAPTION>
Annex
Page
---------------------
<S> <C>
Financial Highlights 1
Management's Discussion and Analysis of Financial
Condition and Results of Operations 2 - 6
Report of Management and Independent Auditors' Report 7 - 8
Consolidated Balance Sheet 9 - 10
Statement of Consolidated Income 11
Statement of Consolidated Stockholders' Equity 12
Statement of Consolidated Cash Flows 13
Notes to Consolidated Financial Statements 14 - 34
Supplemental Selected Financial Data 35 - 36
</TABLE>
2. All Schedules have been omitted because they are not applicable
or the required information is shown in the financial statements
or notes thereto.
3. Exhibits.
Exhibit No.
-----------
(3.A) Certificate of Incorporation, as amended through
the date of this filing (incorporated by
reference from the Company's Report on Form 10-K
for the year ended December 31, 1994 (the "1994
10-K"), Exhibit 3.A).
(3.B) By-Laws, as amended through the date of this
filing (incorporated by reference from the
Company's Report on Form 10-K for the year ended
December 31, 1995 (the "1995 10-K"), Exhibit
3.B).
<PAGE>
Exhibit No.
-----------
(4.A) Instruments with respect to issues of long-term
debt have not been filed as exhibits to this
Annual Report on Form 10-K if the authorized
principal amount of the issue does not exceed 10%
of total assets of the Company and its
subsidiaries on a consolidated basis. The Company
agrees to furnish a copy of each such instrument
to the Securities and Exchange Commission upon
request.
(4.B) Form of Common Stock Certificate of the Company
(incorporated by reference from the 1994 10-K,
Exhibit 4.B).
(4.C) Relevant portions of the Company's Certificate of
Incorporation and Bylaws included in Exhibits 3.A
and 3.B above, respectively, are incorporated by
reference.
(4.D.1) Rights Agreement dated as of February 15, 1992
between the Company and the Rights Agent named
therein, as amended (incorporated by reference
from the Company's Current Report on Form 8-K
dated September 21, 1995, Exhibit 4.1).
(4.D.2) Acceptance of Successor Trustee to Appointment
under Rights Agreement noted in 4.D.1 above
(incorporated by reference from the Company's
Current Report on Form 8-K, dated November 30,
1995, Exhibit 4).
(4.E) Indenture dated as of November 1, 1990 between
FINOVA Capital and the Trustee named therein
(incorporated by reference from Greyhound
Financial Corporation's Registration Statement on
Form S-3, Registration No. 33-37743, Exhibit 4).
(4.F) Fourth Supplemental Indenture dated as of April
17, 1992 between FINOVA Capital and the Trustee
named therein, supplementing the Indenture
referenced in Exhibit 4.E above (incorporated by
reference from GFC Financial Corporation's Annual
Report on Form 10-K for the year 1992 (the "1992
10-K"), Exhibit 4.F).
(4.G) Form of Indenture dated as of September 1, 1992
between FINOVA Capital and the Trustee named
therein (incorporated by reference from the
Greyhound Financial Corporation Registration
Statement on Form S-3, Registration No. 33-51216,
Exhibit 4).
(4.H) Form of Indenture dated as of October 1, 1995
between FINOVA Capital and the Trustee named
therein (incorporated by reference from FINOVA
Capital's Report on Form 8-K dated October 25,
1995, Exhibit 4.1).
(4.I) 1992 Stock Incentive Plan of the Company as
amended through the date of this filing,
including proposed amendments being considered at
the 1997 Annual Meeting of Shareholders.*+
(4.J) Indenture, dated as of December 11, 1996, between
the Company and Fleet National Bank as trustee
(incorporated by reference from the Company's
filing on Form 8-K dated December 20, 1996, (the
"December 1996 8-K"), Exhibit 4.1).
(4.K) Amended and Restated Declaration of Trust, dated
as of December 11, 1996, among Bruno A.
Marszowski and Robert J. Fitzsimmons, as Regular
Trustees, First Union Bank of Delaware, as
Delaware Trustee, Fleet National Bank, as
Property Trustee, and the Company (incorporated
by reference from the December 1996 8-K, Exhibit
4.2).
(4.L) Preferred Security Guarantee, dated as of
December 11, 1996, between the Company and Fleet
National Bank, as trustee (incorporated by
reference from the December 1996 8-K, Exhibit
4.3).
(4.M) Form of 5 1/2% Convertible Subordinated
Debenture (incorporated by reference from the
December 1996 8-K, Exhibit 4.4).
<PAGE>
Exhibit No.
-----------
(4.N) Form of Preferred Security (incorporated by
reference from the December 1996 8-K, Exhibit
4.5).
(10.A) Sixth Amendment and Restatement dated as of May
16, 1994 of the Credit Agreement dated as of May
31, 1976 among FINOVA Capital and the lender
parties thereto, and Bank of America National
Trust and Savings Association, Bank of Montreal,
Chemical Bank, Citibank, N.A. and National
Westminster Bank USA, as agents (the "Agents")
and Citibank, N.A., as Administrative Agent
(incorporated by reference from the Corporation's
Current Report on Form 8-K dated May 23, 1994,
Exhibit 10.I).
(10.A.1) First Amendment dated as of September 30, 1994,
to the Sixth Amendment and Restatement, noted in
10.A above (incorporated by reference from the
1994 10-K, Exhibit 10.A.1).
(10.A.2) Second Amendment dated as of May 11, 1995 to the
Sixth Amendment and Restatement noted in 10.A
above (incorporated by reference from the
Company's Quarterly Report on Form 10-Q for the
period ending September 30, 1995 (the "3Q95
10-Q"), Exhibit 10.A).
(10.A.3) Third Amendment dated as of November 1, 1995 to
Sixth Amendment noted in 10.A above (incorporated
by reference from the 3Q95 10-Q, Exhibit 10.B).
(10.A.4) Fourth Amendment dated as of May 15, 1996, to
Sixth Amendment noted in 10.A above.*
(10.B) Credit Agreement (Short-Term Facility) dated as
of May 16, 1994 among FINOVA Capital, the Lender
parties thereto, the Agents and Citibank, N.A.,
as Administrative Agent (incorporated by
reference from the Company's Report on Form 8-K
dated May 23, 1994, Exhibit 10.2).
(10.B.1) First Amendment dated as of September 30, 1994 to
the Credit Agreement noted in 10.B above
(incorporated by reference from the 1994 10-K,
Exhibit 10.B.1).
(10.B.2) Second Amendment to Short-Term Facility noted in
10.B above (incorporated by reference from the
3Q95 10-Q, Exhibit 10.C).
(10.B.3) Third Amendment to Short-Term Facility noted in
10.B above (incorporated by reference from the
3Q95 10-Q, Exhibit 10.D).
(10.B.4) Fourth Amendment to Short-Term Facility noted in
10.B above.*
(10.C.1) The Company's Executive Severance Plan for Tier 1
Employees (incorporated by reference from the
Company's 1995 10-K, Exhibit 10.C.1).+
(10.C.2) The Company's Executive Severance Plan for Tier 2
Employees (incorporated by reference from the
Company's 1995 10-K, Exhibit 10.C.2).+
(10.D) The Company's 1996 Management Incentive Plan.*+
(10.E.1) The Company's 1995 - 1997 Performance Share
Incentive Plan (incorporated by reference from
the 3Q95 10-Q, Exhibit 10.H).+
(10.E.2) The Company's 1994 - 1996 Performance Share
Incentive Plan (incorporated by reference from
the 3Q95 10-Q, Exhibit 10-I).+
(10.E.3) The Company's 1996-1998 Performance Share
Incentive Plan.*+
<PAGE>
Exhibit No.
-----------
(10.F.1) Employment Agreement with Samuel L. Eichenfield
dated March 16, 1996, (incorporated by reference
from the Company's 1995 10-K, Exhibit 10.F.3).+
(10.F.2) Amendment to Employee Agreement referenced in
10.F.1 above.*+
(10.G) Employment Agreement with William J. Hallinan,
dated February 25, 1992 (incorporated by
reference from the 1992 10-K, Exhibit 10.I).+
(10.H) Employment Agreement with Thomas C. Parrinello,
dated February 14, 1994 (incorporated by
reference from the 1994 10-K, Exhibit 10.H).+
(10.I) The Company's Amended and Restated Supplemental
Pension Plan.*+
(10.J) The Company's Value Sharing Plan for Executive
Officers and Key Employees (incorporated by
reference from the 3Q95 10-Q, Exhibit 10.K).+
(10.K) The Company's Value Sharing Plan for the Chief
Executive Officer (incorporated by reference from
the 3Q95 10-Q, Exhibit 10.L).+
(10.L) The Company's Directors Deferred Compensation
Plan (incorporated by reference from the 1992
10-K, Exhibit 10.O).+
(10.M) Directors' Retirement Benefit Plan (incorporated
by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1993
(the "1993 10-K"), Exhibit 10.OO).+
(10.N) The Company's Deferred Compensation Plan
(incorporated by reference from the Company's
1995 10-K, Exhibit 10.N).+
(10.O) Form of the Company's 1992 Stock Incentive Plan
Nonqualified Stock Option Agreement (for exempt
employees) (for grants between August 25, 1992
and August 10, 1994) (various prices)
(incorporated by reference from the 1992 10-K,
Exhibit 10.FF).+
(10.P) A description of the Company's policies regarding
compensation of directors is incorporated by
reference from the Proxy Statement.+
(10.Q) Directors' Charitable Awards Program
(incorporated by reference from the 1994 10-K,
Exhibit 10.CC).+
(10.R) Interim Services Agreement dated January 28, 1992
among the Company, The Dial Corp and others
(incorporated by reference from the 1992 10-K,
Exhibit 10.JJ).
(10.S) Tax Sharing Agreement dated February 19, 1992
among the Company, The Dial Corp and others
(incorporated by reference from the 1992 10-K,
Exhibit 10.KK).
(10.T) Sublease dated as of April 1, 1991, among the
Company, The Dial Corp and others, relating to
the Company's principal office space
(incorporated by reference from the 1992 10-K,
Exhibit 10.NN).
(10.U) The Company's Executive Officer Loan Program
Policies and Procedures.*+
(10.V.1) Form of Non-Qualified Stock Option Agreements for
use with the Directors Cash or Stock Plan.*+
<PAGE>
Exhibit No.
-----------
(10.V.2) Form of Non-Qualified Stock Option Agreements for
grants between August 10, 1994, and August 7,
1996, (for non-employee directors) (various
prices) (incorporated by reference from the 1994
10-K, Exhibit 10.FF).+
(10.V.3) Form of Non-Qualified Stock Option Agreement for
Directors' automatic grants subsequent to August
7, 1996.*+
(10.V.4) Form of the Company's 1992 Stock Incentive Plan
Stock Option Agreements for grants between August
10, 1994 and August 7, 1996, (for exempt
employees) (various prices) (incorporated by
reference from the 1994 10-K, Exhibit 10.DD).+
(10.V.5) Form of Non-Qualified Stock Option Agreement for
exempt employees subsequent to August 8, 1996 to
present.*+
(10.V.6) Form of Non-Qualified Stock Option Agreement
(multi-year grants).*+
(10.W.1) Form of Restricted Stock Agreement for use with
the Directors' Cash or Stock Plan.*+
(10.W.2) Form of the Company's Restricted Stock Agreements
in effect through July 1996 (incorporated by
reference from the 1994 10-K, Exhibit 10.GG).+
(10.W.3) Form of Restricted Stock Agreement in effect
subsequent to July 1996.*+
(10.X.1) PBRS/Restricted Stock Retention Incentive Program
Policies and Procedures.*+
(10.X.2) Form of Restricted Stock Agreement for use in
Stock Retention Incentive Program noted in 10.X.1
above.*+
(11) Computation of Per Share Earnings.*
(12) Computation of Ratio of Income to Combined Fixed
Charges and Preferred Stock Dividends.*
(21) Subsidiaries of the Registrant.*
(25) Powers of Attorney.*
(27) Financial Data Schedule.*
* Filed herewith.
+ Relating to Management Compensation.
(b) Reports on Form 8-K:
A report on Form 8-K, dated December 20, 1996, was filed by Registrant
which reported under Item 7 the issuance, by FINOVA Finance Trust, of 2,300,000
5-1/2% Convertible Trust Originated Preferred Securities, guaranteed by the
Registrant to the extent provided in the Registration Statement filed on Form
S-3.
A report on Form 8-K, dated January 21, 1997, was filed by Registrant
which reported under Items 5 and 7 the revenues, net imcome and selected
financial data and ratios for the fourth quarter ended December 31, 1996
(unaudited).
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in the capacities
indicated, in Phoenix, Arizona on the 21st day of March, 1997.
THE FINOVA GROUP INC.
By: /s/ Samuel L. Eichenfield
-------------------------------------------------------
Samuel L. Eichenfield
Chairman, President and Chief Executive Officer
(Chief Executive Officer)
By: /s/ Bruno A. Marszowski
-------------------------------------------------------
Bruno A. Marszowski
Senior Vice President - Controller and Chief Financial Officer
(Chief Accounting and Financial Officer)
<PAGE>
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
* /s/ Samuel L. Eichenfield
- ------------------------------- ----------------------------------
G. Robert Durham (Director) Samuel L. Eichenfield (Chairman)
March 21, 1997 March 21, 1997
* *
- ------------------------------- ----------------------------------
James L. Johnson (Director) L. Gene Lemon (Director)
March 21, 1997 March 21, 1997
* *
- ------------------------------- ----------------------------------
Kenneth R. Smith (Director) Robert P. Straetz (Director)
March 21, 1997 March 21, 1997
* *
- ------------------------------- ----------------------------------
Shoshana B. Tancer (Director) John W. Teets (Director)
March 21, 1997 March 21, 1997
* Signed pursuant to Powers of Attorney dated February 13, 1997.
/s/ Bruno A. Marszowski
---------------------------------
Bruno A. Marszowski
Attorney-in-Fact
March 21, 1997
<PAGE>
ANNEX A
<PAGE>
THE FINOVA GROUP INC.
INDEX TO FINANCIAL STATEMENTS
Page
------
Financial Highlights 1
Management's Discussion and Analysis of Financial Condition and
Results of Operations 2 - 6
Management's Report on Responsibility for
Financial Reporting 7
Independent Auditors' Report 8
Consolidated Balance Sheet at December 31, 1996 and 1995 9 - 10
Statement of Consolidated Income for the Years Ended
December 31, 1996, 1995 and 1994 11
Statement of Consolidated Stockholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994 12
Statement of Consolidated Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 13
Notes to Consolidated Financial Statements for the Years
Ended December 31, 1996, 1995 and 1994 14 - 34
Supplemental Selected Financial Data 35 - 36
ii
<PAGE>
THE FINOVA GROUP INC.
FINANCIAL HIGHLIGHTS
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994 (1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS:
Interest margins earned $ 369,105 $ 309,084 $ 227,463
Selling, administrative and other operating expenses 154,481 131,571 98,038
Income from continuing operations 116,493 93,798 73,770
Net income 117,000 97,629 74,313
FINANCIAL POSITION:
Average managed assets (2) 6,991,257 5,833,576 4,242,880
Ending funds employed 7,298,759 6,348,079 5,342,979
Ending managed assets (3) 7,598,759 6,548,079 5,342,979
Average earning assets (4) 6,324,545 5,442,119 3,876,093
Reserve for possible credit losses 148,693 129,077 110,903
Nonaccruing assets (5) 155,505 143,127 149,046
New business 2,740,353 2,302,653 1,617,826
Factoring/floor planning volume 2,937,311 1,951,310 1,129,936
Write-offs 32,017 25,631 28,109
CAPITALIZATION:
Total debt 5,850,223 5,649,368 4,573,354
Company-obligated mandatory redeemable convertible preferred securities
of subsidiary trust solely holding convertible debentures of the Company (TOPrS) 111,550
Stockholders' equity 929,591 825,184 770,252
PORTFOLIO QUALITY:
Write-offs as a % of average managed assets 0.46% 0.44% 0.66%
Nonaccruing assets as a % of ending managed assets 2.0% 2.2% 2.8%
Reserve for possible credit losses as a % of:
Ending managed assets 2.0% 2.0% 2.1%
Nonaccruing assets 95.6% 90.2% 74.4%
As a multiple of write-offs 4.6x 5.0x 4.0x
PERFORMANCE HIGHLIGHTS:
Return from continuing operations as a % of average funds employed (6) 1.8% 1.7% 1.8%
Interest margins earned as a % of average earning assets (4) 5.8% 5.7% 5.9%
Selling, administrative and other operating expenses as a % of
interest margins earned 41.9% 42.6% 43.1%
Aggregate cost of funds 6.8% 7.2% 6.3%
Ratio of income to combined fixed charges 1.5x 1.4x 1.6x
Return from continuing operations on average equity 13.3% 11.8% 11.1%
Earnings per share from continuing operations $ 4.16 $ 3.37 $ 2.92
Earnings per share $ 4.17 $ 3.51 $ 2.94
Book value per share outstanding $ 33.77 $ 30.25 $ 27.83
Average outstanding common and equivalent shares 28,036,000 27,832,000 25,307,000
Shares outstanding 27,529,000 27,279,000 27,677,000
===================================================================================================================================
</TABLE>
NOTE: Amounts have been restated to exclude operations discontinued in 1996.
(1) Includes financial results from the date of acquisition for Ambassador
(February 14, 1994) and TriCon (April 30, 1994).
(2) Includes average securitizations of $276.9 million and $15.4 million for
1996 and 1995, respectively.
(3) Includes assets sold under securitization agreements and managed by the
Company of $300 million and $200 million at December 31, 1996 and 1995,
respectively.
(4) Average earning assets represents average funds employed excluding average
deferred taxes on leveraged leases and average nonaccruing assets.
(5) Includes nonaccruing assets classified as discontinued operations at
December 31, 1996.
(6) Average funds employed excludes average deferred taxes on leveraged leases
of $238 million, $227 million and $225 million for 1996, 1995 and 1994,
respectively.
1
<PAGE>
THE FINOVA GROUP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion relates to The FINOVA Group Inc. and its
subsidiaries (collectively, "FINOVA" or the "Company"), including FINOVA Capital
Corporation and its subsidiaries (collectively, "FINOVA Capital"). Amounts for
1995 and 1994 have been restated to reflect discontinued operations. The 1994
results include income from Ambassador Factors, acquired on February 14, 1994,
and TriCon Capital, acquired on April 30, 1994, from their acquisition dates.
Results of Operations
1996 Compared to 1995
Income from continuing operations for 1996 increased 24% to $116.5
million from $93.8 million in 1995. Continuing operations exclude the operating
results and a $6 million gain, after taxes and allocation of related costs and
expenses, resulting from the sale of the Company's Manufacturer & Dealer
Services line of business, and the operating results of FINOVA Medical Systems,
which was liquidated in 1996. See Note B of Notes to Consolidated Financial
Statements for further discussion. Net income for 1996 increased to $117.0
million from $97.6 million in 1995.
Interest Margins Earned. Interest margins earned, which represent the
difference between (a) interest and income earned from financing transactions
and operating lease income and (b) interest expense and depreciation, were
$369.1 million for 1996, compared with $309.1 million in 1995, an increase of
19%. The increase was primarily due to a 16% increase in managed assets
(investment in financing transactions plus securitizations), composed primarily
of $2.7 billion in funded new business, compared to $2.3 billion in 1995, and
$2.9 billion in fee-based volume, compared to $2.0 billion in 1995. In addition,
the Company added funds employed of approximately $318 million through
acquisitions in 1996. These increases were partially offset by the normal
amortization of the portfolio as well as significantly higher prepayments in
1996, partially due to consolidation in the communications industry resulting
from changes in regulation at the federal level.
Interest margins earned as a percentage of average earning assets (defined
as average funds employed excluding deferred taxes on leveraged leases and
nonaccruing assets) increased to 5.8% for 1996 compared to 5.7% for 1995. This
increase was the result of the Company's ability to maintain rates and fees
charged on its financing transactions while benefiting from reduced interest
expense due to generally declining interest rates, improved credit ratings and
the maturity of certain interest rate hedges.
Non-Interest Expense. The provision for possible credit losses, which
increases the reserve for possible credit losses ("reserves") increased to $41.8
million in 1996 from $37.6 million in 1995, primarily due to the increase in
managed assets. The Company's reserves remained at 2.0% of ending managed
assets, while the credit quality of the Company's portfolio continued to
improve. Reserves as a percentage of nonaccruing assets increased to 95.6% at
December 31, 1996 from 90.2% a year earlier. Nonaccruing assets as a percentage
of ending managed assets declined to 2.0% at December 31, 1996 from 2.2% at the
end of 1995. Details of write-offs and other changes in the reserve for possible
credit losses can be found in Note D of Notes to Consolidated Financial
Statements.
Selling, administrative and other operating expenses were 17% higher in
1996 than in 1995, due primarily to the growth in managed assets and incentives
related to the Company's improved results and stock performance. However, as a
percentage of interest margins earned, these expenses decreased to 41.9% in 1996
from 42.6% during 1995. See Note N of Notes to Consolidated Financial Statements
for additional detail.
Gains on Sale of Assets. Gains on sale of assets were higher in 1996 than
1995, primarily due to the amount and type of assets coming off lease during the
respective years. While the Company has consistently recognized gains on the
sale of assets it holds, the amount and timing of such gains is sporadic in
nature. There can be no assurance the Company will recognize such gains in the
future, depending, in part, on market conditions at the time of the sale.
2
<PAGE>
THE FINOVA GROUP INC.
Income Taxes. Income taxes increased during the year ended December 31,
1996, primarily due to the increase in pre-tax income, partially offset by a
lower effective tax rate. The lower tax rate, which decreased to 37.3% in 1996
from 37.8% in 1995, was primarily related to lower foreign tax effects and
increased tax exempt municipal and ESOP income. See Note J of Notes to
Consolidated Financial Statements for further discussion.
1995 Compared to 1994
Amounts for 1995 and 1994 have been restated to reflect discontinued
operations.
Net income increased 31% during 1995 to $97.6 million from $74.3 million
in 1994; income from continuing operations increased 27% to $93.8 million from
$73.8 million in 1994. The 1994 results include income from Ambassador and
TriCon from the acquisition dates.
Interest Margins Earned. Interest margins earned increased by 36% in 1995
to $309.1 million from $227.5 million in 1994. This increase was driven by a 23%
growth in managed assets. The primary source of the growth in managed assets was
new business, which totaled $2.3 billion for 1995 compared to $1.6 billion for
1994, an increase of 42%. Also contributing to the improved margins were the
fees associated with the Factoring Services business, which recorded factoring
volume of $1.1 billion in 1995 compared to $847 million in 1994 and the
Inventory Finance business, which recorded floor planning volume of $898 million
in 1995 compared to $283 million in 1994.
Interest margins earned as a percentage of average earning assets were
5.7% in 1995, compared to 5.9% in 1994. This reduction in the interest margin
percentage was expected in 1995 primarily due to the cost of hedges that the
Company entered into to lock in the spread between its lending and borrowing
rates on $1.5 billion of its floating-rate debt. Growth in interest margins
earned more than offset the higher provisions for possible credit losses and the
higher selling, administrative and other operating expenses in 1995.
Non-interest Expense. Loss provisions were greater by $27.1 million during
1995 compared to 1994 primarily due to the growth in managed assets. Management
believes that the 1995 reserve coverage was adequate at 90.2% of nonaccruing
assets (nonaccruing contracts and repossessed assets) and 2.0% of managed
assets. Details of write-offs and other changes in the reserves can be found in
Note D of Notes to Consolidated Financial Statements.
Selling, administrative and other operating expenses increased by $33.5
million in 1995 due to the growth of the Company, the large volume of new
business added and the inclusion of TriCon and Ambassador for the full year. As
a percentage of interest margins earned, these costs decreased to 42.6% in 1995
from 43.1% in the previous year. See Note N of Notes to Consolidated Financial
Statements.
Gains on Sale of Assets. Gains on sale of assets were $7.0 million higher
in 1995 compared to 1994 primarily due to the inclusion of TriCon for the full
year and the amount and type of assets coming off lease.
Income Taxes. Income taxes for 1995 increased to $57.0 million from $49.1
million in 1994. This increase was caused by the increase in pre-tax income,
partially offset by certain tax credits recognized during 1995. The 1995 overall
effective income tax rate for the Company approximated 37.8% compared to 40.0%
in 1994. The decrease in the effective rate is primarily related to lower
foreign tax effects and an increase in tax exempt municipal income. Details can
be found in Note J of Notes to Consolidated Financial Statements.
3
<PAGE>
THE FINOVA GROUP INC.
Financial Condition, Liquidity and Capital Resources
Managed assets increased by $1.1 billion to $7.6 billion at December 31,
1996 from $6.5 billion at December 31, 1995. This increase was primarily
attributable to the $2.7 billion of new business generated and $318 million of
portfolios acquired in 1996, less portfolio amortization.
The reserves increased by $19.6 million in 1996 to $148.7 million
primarily due to loss provisions of $41.8 million provided for portfolio growth,
partially offset by charges for write-offs of $32.0 million. Nonaccruing assets
increased to $155.5 million at December 31, 1996 from $143.1 million at December
31, 1995. When measured as a percent of managed assets, nonaccruing assets
declined to 2.0% at December 31, 1996 from 2.2% at December 31, 1995. For more
information on the reserves, write-offs and nonaccruing assets see Note D of
Notes to Consolidated Financial Statements.
The Company had total debt of approximately $5.9 billion or 5.6 times its
equity base (including convertible preferred securities) of $1,041.1 million at
December 31, 1996 (FINOVA Capital's leverage as of December 31, 1996 was 5.5 to
1). The Company also had deferred income taxes of $244.2 million, generally used
to reduce debt and, therefore, help finance lending activities.
Growth in funds employed is generally financed by internally generated
cash flow and additional borrowings. During 1996, FINOVA Capital issued or
acquired $796.5 million in new senior debt, which, together with general
corporate funds and net commercial paper borrowings, was used to finance new
business, acquire portfolios and redeem or retire $681 million of debt. In
addition, the Company issued $115.0 million in company-obligated mandatory
redeemable convertible preferred securities ("TOPrS") through FINOVA Finance
Trust. The Company owns all of the trust's common securities and members of the
public own the TOPrS. See Note G of Notes to Consolidated Financial Statements
for additional detail.
FINOVA satisfies a significant portion of its cash requirements from a
diversified group of worldwide funding sources and is not dependent upon any one
lender. Additionally, FINOVA relies on the issuance of commercial paper as a
major funding source. During 1996, FINOVA Capital issued $19.8 billion of
commercial paper (with an average of $2.6 billion outstanding during the year)
and raised $796.5 million, as noted above, through new long-term financing of
one to 10 year durations. At December 31, 1996 and 1995, commercial paper and
short-term bank borrowings totaling $2.5 billion and $2.4 billion, respectively,
were supported by available unused revolving credit lines which, if not renewed,
are convertible to long-term debt at FINOVA's option.
In 1995, FINOVA Capital filed a shelf registration statement with the SEC
allowing for the issuance of $1.5 billion of senior debt securities, $815
million of which remained available as of December 31, 1996. Also in 1996, the
Company, under a securitization agreement, sold an additional $100 million of
assets for a total $300 million undivided proportionate interest in a loan
portfolio totaling $626.7 million at December 31, 1996. See Note C of Notes to
Consolidated Financial Statements for further discussion of the securitization
transaction.
FINOVA Capital currently maintains a five-year revolving credit facility
with numerous lenders, in the aggregate principal amount of $1.0 billion.
Separately, FINOVA Capital also has a 364 day revolving credit facility with the
same lenders in the aggregate principal amount of $1.0 billion and has two
five-year facilities with numerous lenders for $700 million each. These $3.4
billion of credit facilities support FINOVA's outstanding commercial paper and
short-term borrowings. The Company intends to borrow under the domestic
revolving credit agreements to refinance commercial paper and short-term bank
loans if it encounters significant difficulties in rolling over its outstanding
commercial paper and short-term bank loans. The Company rarely borrows under
these facilities. The 364 day $1.0 billion revolving credit agreements will be
subject to renewal in 1997, while the two $700 million and the other $1.0
billion credit facilities are subject to renewal in 2001.
The agreements pertaining to long-term debt of FINOVA Capital include
various restrictive covenants and require the maintenance of certain defined
financial ratios with which FINOVA Capital has complied. Under one such
covenant, dividend payments are limited to 50 percent of accumulated earnings
after December 31, 1991.
4
<PAGE>
THE FINOVA GROUP INC.
FINOVA Capital's aggregate cost of funds decreased to 6.8% for 1996 from
7.2% for 1995 as a result of declining interest rates, higher credit ratings,
and the elimination of costs associated with $750 million of maturing interest
rate hedges. The Company's cost of and access to capital is dependent, in large
part, on its credit ratings. FINOVA Capital has maintained investment-grade
ratings since 1976, and received an upgrade in those ratings from Standard &
Poor's Ratings Group and Duff & Phelps Credit Rating Co. in 1996. FINOVA Capital
currently has investment-grade ratings from the following agencies:
Commercial Senior
Paper Debt
------------ ----------
Duff & Phelps Credit Rating Co. D1 A
Fitch Investors Services, Inc. F1 A
Moody's Investors Service, Inc. P2 Baa1
Standard & Poor's Ratings Group A2 A-
In addition, FINOVA Finance Trust, a subsidiary trust of the Company,
issued mandatory redeemable convertible preferred securities ("TOPrS") with
investment-grade ratings as follows:
TOPrS
-----
Duff & Phelps Credit Rating Co. BBB+
Fitch Investors Services, Inc. A-
Moody's Investors Service, Inc. Baa2
Standard & Poor's Ratings Group BBB+
None of FINOVA Capital's subsidiaries have applied for credit ratings.
The Company enters into interest rate swaps and interest rate hedge
agreements as part of its interest rate risk management policy of match funding
its assets and liabilities. The derivative instruments used are straightforward
and involve little complexity. The Company continually monitors its position
relative to derivatives and uses derivative instruments for non-trading purposes
only.
At December 31, 1996, FINOVA Capital had outstanding interest rate
conversion agreements with notional principal amounts totaling $3.1 billion.
Agreements with notional principal amounts of $825 million were arranged to
effectively convert certain floating interest rate obligations into fixed
interest rate obligations and require interest payments on the stated principal
amount at rates ranging from 6.07% to 9.10% (remaining terms of one to four
years) in return for receipts calculated on the same notional amounts at
floating interest rates. In addition, agreements with notional principal amounts
of $1,350 million were arranged to effectively convert certain fixed interest
rate obligations into floating interest rate obligations and require interest
payments on the stated principal amount at the three month or six month London
interbank offered rates ("LIBOR") (remaining terms of one to nine years) in
return for receipts calculated on the same notional amounts at fixed interest
rates of 5.51% to 7.71%. FINOVA Capital has also entered into basis swap
agreements with notional principal amounts of $878 million and remaining terms
of one to two years.
For the benefit of its customers, the Company enters into interest rate
cap agreements. The total notional amount of these agreements at December 31,
1996 was $124 million, none of which was in a pay or receive position.
At December 31, 1996, the Company was a party to a short-term foreign
currency forward exchange agreement with a notional amount of approximately $73
million to help mitigate its foreign currency risk. For further discussion of
debt and derivative financial instruments see Notes E and F of the Notes to
Consolidated Financial Statements.
The Company announced in 1992 that it intended to periodically repurchase
its securities on the open market to fund its obligations pursuant to employee
stock options, benefit plans and similar obligations. Under this program, no
shares
5
<PAGE>
THE FINOVA GROUP INC.
were acquired during the year ended December 31, 1996. During the years 1995 and
1994, 611,600 and 602,800 shares, respectively, were acquired. The program may
be discontinued at any time.
Recent Developments and Business Outlook
The Company continues to seek new business by emphasizing customer
service, providing competitive interest rates and focusing on selected market
niches. Additionally, the Company continues to evaluate potential acquisition
opportunities that it believes are consistent with its business strategies.
During 1996, the Company acquired LINC Financial Services, Inc. and Financing
for Science International, Inc. to supplement existing lines of business. In
total, these acquisitions added approximately $318 million in investment in
financing transactions.
In November 1996, the Company sold its Manufacturer & Dealer Services
business ("MDS") to Green Tree Financial Corporation for $616.4 million. MDS is
a provider of vendor-oriented sales finance programs involving small-ticket
leasing and financing products for commercial end-user customers.
In December 1996, the Company, through a subsidiary trust, issued $115.0
million of TOPrS, before transaction costs of $3.5 million. The subsidiary trust
holds solely convertible debentures of the Company. See Note G of Notes to
Consolidated Financial Statements for further detail.
New Accounting Standards
See Note O of Notes to Consolidated Financial Statements.
6
<PAGE>
THE FINOVA GROUP INC.
MANAGEMENT'S REPORT ON
RESPONSIBILITY FOR FINANCIAL REPORTING
The management of The FINOVA Group Inc. is responsible for the
preparation, integrity and objectivity of the financial statements and other
financial information included in this Annual Report. The financial statements
are presented in accordance with generally accepted accounting principles
reflecting, where applicable, management's best estimates and judgments.
Management of the Company has established and maintains a system of
internal controls to reasonably assure the fair presentation of the financial
statements, the safeguarding of the Company's assets and the prevention or
detection of fraudulent financial reporting. The internal control structure is
supported by careful selection and training of personnel, policies and
procedures and regular review by both internal auditors and the independent
auditors.
The Board of Directors, through its Audit Committee, also oversees the
financial reporting of the Company and its adherence to established procedures
and controls. Periodically, the Audit Committee meets, jointly and separately,
with management, the internal auditors and the independent auditors to review
auditing, accounting and financial reporting matters.
The Company's financial statements have been audited by Deloitte & Touche
LLP, independent auditors. Management has made available to Deloitte & Touche
LLP all of the Company's financial records and related data and has made valid
and complete written and oral representations and disclosures in connection with
the audit.
Management believes it is essential to conduct its business in accordance
with the highest ethical standards, which are characterized and set forth in the
Company's written Code of Conduct. These standards are communicated to and
acknowledged by all of the Company's employees.
/s/ Samuel L. Eichenfield
Samuel L. Eichenfield
Chairman, President and Chief Executive Officer
/s/ Bruno A. Marszowski
Bruno A. Marszowski
Senior Vice President - Controller and Chief Financial Officer
/s/ Derek C. Bruns
Derek C. Bruns
Vice President - Internal Audit
7
<PAGE>
THE FINOVA GROUP INC.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of The FINOVA Group Inc.
We have audited the accompanying consolidated balance sheet of The FINOVA
Group Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of The FINOVA Group Inc. and
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Phoenix, Arizona
February 12, 1997
8
<PAGE>
THE FINOVA GROUP INC.
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<CAPTION>
ASSETS
- -----------------------------------------------------------------------------------------------
December 31, 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 31,260 $ 90,280
Investment in financing transactions:
Loans and other financing contracts, less unearned
income of $396,247 and $338,267, respectively 5,305,678 4,923,540
Factored receivables 564,430 189,486
Operating leases 517,690 460,798
Leveraged leases 514,573 366,196
Direct financing leases 396,388 408,059
- -----------------------------------------------------------------------------------------------
7,298,759 6,348,079
Less reserve for possible credit losses (148,693) (129,077)
- -----------------------------------------------------------------------------------------------
Investment in financing transactions - net 7,150,066 6,219,002
Other assets and deferred charges 328,082 251,593
Investment in discontinued operations 17,326 475,639
- -----------------------------------------------------------------------------------------------
$ 7,526,734 $ 7,036,514
===============================================================================================
</TABLE>
See notes to consolidated financial statements.
9
<PAGE>
THE FINOVA GROUP INC.
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------
December 31, 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities:
Accounts payable and accrued expenses $ 119,991 $ 125,349
Due to clients 218,494 181,548
Interest payable 52,677 45,553
Senior debt 5,850,223 5,649,368
Deferred income taxes 244,208 209,512
- --------------------------------------------------------------------------------------------------------------------
6,485,593 6,211,330
- --------------------------------------------------------------------------------------------------------------------
Company-obligated mandatory redeemable convertible preferred securities of
subsidiary trust solely holding convertible debentures of the Company, net of
expenses (TOPrS) 111,550
Stockholders' equity:
Common stock, $0.01 par value, 100,000,000 shares
authorized, 28,422,000 shares issued 284 284
Additional capital 684,545 686,382
Retained income 276,151 184,381
Cumulative translation adjustments 1,008 (5,686)
Common stock in treasury, 893,000 and 1,143,000 shares,
respectively (32,397) (40,177)
- --------------------------------------------------------------------------------------------------------------------
929,591 825,184
- --------------------------------------------------------------------------------------------------------------------
$ 7,526,734 $ 7,036,514
====================================================================================================================
</TABLE>
See notes to consolidated financial statements.
10
<PAGE>
THE FINOVA GROUP INC.
STATEMENT OF CONSOLIDATED INCOME
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest and other income $ 640,132 $ 568,115 $ 376,845
Financing lease income 61,985 49,310 43,560
Operating lease income 95,817 84,691 53,795
- --------------------------------------------------------------------------------------------------------------------
Interest earned from financing transactions 797,934 702,116 474,200
Interest expense 366,543 337,814 210,001
Depreciation 62,286 55,218 36,736
- --------------------------------------------------------------------------------------------------------------------
Interest margins earned 369,105 309,084 227,463
Provision for possible credit losses 41,751 37,568 10,439
- --------------------------------------------------------------------------------------------------------------------
Net interest margins earned 327,354 271,516 217,024
Gains on sale of assets 12,949 10,889 3,877
- --------------------------------------------------------------------------------------------------------------------
340,303 282,405 220,901
Selling, administrative and other operating
expenses 154,481 131,571 98,038
- --------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 185,822 150,834 122,863
Income taxes 69,329 57,036 49,093
- --------------------------------------------------------------------------------------------------------------------
Income from continuing operations 116,493 93,798 73,770
Income and gain from sale of discontinued operations, net of tax 507 3,831 543
- --------------------------------------------------------------------------------------------------------------------
NET INCOME $ 117,000 $ 97,629 $ 74,313
====================================================================================================================
EARNINGS FROM CONTINUING OPERATIONS
PER COMMON AND EQUIVALENT SHARE $ 4.16 $ 3.37 $ 2.92
- --------------------------------------------------------------------------------------------------------------------
EARNINGS PER COMMON AND EQUIVALENT SHARE $ 4.17 $ 3.51 $ 2.94
====================================================================================================================
DIVIDENDS DECLARED PER COMMON SHARE $ 0.92 $ 0.84 $ 0.74
====================================================================================================================
Average outstanding common and equivalent
shares 28,036,000 27,832,000 25,307,000
====================================================================================================================
</TABLE>
See notes to consolidated financial statements.
11
<PAGE>
THE FINOVA GROUP INC.
STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK:
Balance, beginning of year $ 284 $ 284 $ 204
Issuance of common stock 80
- ------------------------------------------------------------------------------------------------------------------
Balance, end of year 284 284 284
- ------------------------------------------------------------------------------------------------------------------
ADDITIONAL CAPITAL:
Balance, beginning of year 686,382 688,042 464,487
Issuance of common stock 225,911
Net change in unamortized amount of restricted
stock (1,816) (613) (2,113)
Common stock in treasury issued in connection
with employee benefit plans (21) (1,047) (243)
- ------------------------------------------------------------------------------------------------------------------
Balance, end of year 684,545 686,382 688,042
- ------------------------------------------------------------------------------------------------------------------
RETAINED INCOME:
Balance, beginning of year 184,381 109,830 54,901
Net income 117,000 97,629 74,313
Dividends (25,230) (23,078) (19,384)
- ------------------------------------------------------------------------------------------------------------------
Balance, end of year 276,151 184,381 109,830
- ------------------------------------------------------------------------------------------------------------------
CUMULATIVE TRANSLATION ADJUSTMENTS:
Balance, beginning of year (5,686) (4,726) (7,773)
Unrealized translation gain (loss) 6,694 (960) 3,047
- ------------------------------------------------------------------------------------------------------------------
Balance, end of year 1,008 (5,686) (4,726)
- ------------------------------------------------------------------------------------------------------------------
COMMON STOCK IN TREASURY:
Balance, beginning of year (40,177) (23,178) (8,519)
Purchase of shares (23,588) (18,954)
Shares used in connection with employee
benefit plans 7,780 6,589 4,295
- ------------------------------------------------------------------------------------------------------------------
Balance, end of year (32,397) (40,177) (23,178)
- ------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY $ 929,591 $ 825,184 $ 770,252
==================================================================================================================
</TABLE>
See notes to consolidated financial statements.
12
<PAGE>
THE FINOVA GROUP INC.
STATEMENT OF CONSOLIDATED CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 117,000 $ 97,629 $ 74,313
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for possible credit losses 41,751 37,568 10,439
Depreciation and amortization 76,471 70,017 46,470
Gains on sale of assets (12,949) (10,889) (3,877)
Gains on dispositions of discontinued operations, net (3,521)
Deferred income taxes 29,356 19,285 13,834
Change in assets and liabilities, net of effects from subsidiaries purchased:
Increase in other assets and deferred charges (61,694) (53,071) (20,087)
Decrease in accounts payable and accrued expenses (16,009) (9,152) (82,694)
Increase in interest payable 5,853 7,843 14,077
Other 6,153 (1,573) (4,548)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 182,411 157,657 47,927
- --------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from sales of assets 102,945 50,028 15,048
Proceeds from sales of securitized assets 100,000 200,000
Principal collections on financing transactions 1,781,985 1,088,420 860,066
Expenditures for financing transactions (2,221,363) (1,853,330) (1,323,703)
Net change in short-term financing transactions (624,952) (442,405) (294,123)
Acquisitions, net of cash acquired (7,455) (261,868) (590,497)
Sale of discontinued operation 616,434
Other 3,296 2,104 1,898
- --------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (249,110) (1,217,051) (1,331,311)
- --------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Long-term borrowings 564,988 1,272,450 827,550
Net borrowings under commercial paper 62,156 373,566 1,508,564
Repayment of long-term borrowings (681,401) (570,002) (1,186,191)
Issuance of common stock 225,991
Proceeds from exercise of stock options 7,759 5,542 4,052
Net proceeds from sale of company-obligated mandatory redeemable convertible
preferred securities of subsidiary trust solely holding convertible
debentures of the company 111,550
Common stock purchased for treasury (23,588) (18,954)
Dividends (25,230) (23,078) (19,384)
Net change in due to clients (32,143) 64,909 (9,298)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 7,679 1,099,799 1,332,330
- --------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (59,020) 40,405 48,946
Cash and cash equivalents, beginning of year 90,280 49,875 929
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 31,260 $ 90,280 $ 49,875
==========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in Thousands in Tables)
NOTE A SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation -- The
consolidated financial statements present the financial position, results of
operations and cash flows of The FINOVA Group Inc. and its subsidiaries
(collectively, "FINOVA" or the "Company"), including FINOVA Capital Corporation
and its subsidiaries (collectively, "FINOVA Capital").
The FINOVA Group Inc. is a financial services company engaged in
providing collateralized financing products to commercial enterprises in various
market niches, principally in the United States.
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles. Described below are those accounting
policies particularly significant to FINOVA, including those selected from
acceptable alternatives.
Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash Equivalents -- The Company classifies highly liquid investments
with original maturities of three months or less from date of purchase as cash
equivalents.
At December 31, 1996, $19.4 million of cash and cash equivalents held
by a subsidiary of the Company are restricted as to use, pursuant to a secured
financing agreement.
Marketable Securities -- As more fully described in Note K, the Company
owns certain marketable securities which are considered trading securities.
Trading securities are stated at fair value with gains or losses recorded in
income in the period they occur.
Financing Transactions -- For loans and other financing contracts,
earned income is recognized over the life of the contract, using the interest
method.
For operating leases, earned income is recognized on a straight-line
basis over the lease term and depreciation is taken on a straight-line basis
over the estimated useful lives of the leased assets.
Leases that are financed by nonrecourse borrowings and meet certain
other criteria are classified as leveraged leases. For leveraged leases,
aggregate rentals receivable are reduced by the related nonrecourse debt service
obligation including interest ("net rentals receivable"). The difference between
(a) the net rentals receivable and (b) the cost of the asset less estimated
residual value at the end of the lease term is recorded as unearned income.
Earned income is recognized over the life of the lease at a constant rate of
return on the positive net investment, which includes the effects of deferred
income taxes.
For leases classified as direct financing leases, the difference
between (a) aggregate lease rentals and (b) the cost of the related assets less
estimated residual value at the end of the lease term is recorded as unearned
income. Earned income is recognized over the life of the contracts using the
interest method.
Fees received in connection with loan commitments are deferred in
accounts payable and accrued expenses until the loan is advanced and are then
recognized over the term of the loan as an adjustment of the yield. Fees on
commitments that expire unused are recognized at expiration.
Income recognition is generally suspended for leases, loans and other
financing contracts at the earlier of the date at which payments become 90 days
past due or when, in the opinion of management, a full recovery of income and
14
<PAGE>
THE FINOVA GROUP INC.
principal becomes doubtful. Income recognition is resumed when the loan becomes
contractually current and performance is demonstrated to be resumed or when
foreclosed or repossessed assets generate a reasonable rate of return.
Reserve for Possible Credit Losses -- The reserve for possible credit
losses is available to absorb credit losses. The provision for possible credit
losses is the charge to income to increase the reserve for possible credit
losses to the level that management estimates to be adequate considering
delinquencies, loss experience and collateral. Other factors considered include
changes in geographic and product diversification, size of the portfolio and
current economic conditions. Accounts are either written-off or written-down
when the loss is considered probable and determinable, after giving
consideration to the customer's financial condition and the value of the
underlying collateral, including any guarantees. Any deficiency between the
carrying amount of an asset and the net sales price of repossessed collateral is
charged to the reserve for possible credit losses. Recoveries of amounts
previously written-off as uncollectible are credited to the reserve for possible
credit losses.
Repossessed Assets -- Repossessed assets are carried at the lower of
cost or fair value less estimated selling expenses.
Residual Values -- The Company has a significant investment in residual
values in its leasing portfolios. These residual values represent estimates of
the value of leased assets at the end of the contract terms and are initially
recorded based upon appraisals and estimates. Actual residual values realized
could differ from these estimates. Residual values are periodically reviewed to
determine that recorded amounts are appropriate.
Goodwill -- The Company amortizes the excess of cost over the fair
value of net assets acquired ("goodwill") on a straight line basis primarily
over 20 years. Goodwill at December 31, 1996 is $179.5 million, net of
amortization, and is included in other assets. Amortization totaled $9.6 million
($5.7 million after-tax) and $8.2 million ($4.9 million after-tax) for the years
ended December 31, 1996 and 1995, respectively. The Company periodically
evaluates the carrying value of its intangible assets for impairment. This
evaluation is based principally on projected, undiscounted cash flows generated
by the underlying assets. At December 31, 1996, approximately $167.8 million of
goodwill is deductible for federal income tax purposes over 15 years under
Section 197 of the Internal Revenue Code.
Pension and Other Benefits -- Trusteed, noncontributory pension plans
cover substantially all employees. Benefits are based primarily on final average
salary and years of service. Funding policies provide that payments to pension
trusts shall be at least equal to the minimum funding required by applicable
regulations.
Other postretirement benefit costs are recorded during the period the
employees provide service to the Company. The Company funds its postretirement
benefit obligation as benefits are paid.
The Company records postemployment benefit costs at the time employees
leave active service. Postemployment benefits are any benefits other than
retirement benefits.
Savings Plan -- The Company maintains The FINOVA Group Inc. Savings
Plan (the "Savings Plan"), a qualified 401(k) program. The Savings Plan is
available to substantially all employees. Voluntary wage reductions may be
elected by the employee ranging from 1% to 15% of taxable compensation. The
Company's matching contributions are based on employee pre-tax salary
reductions, up to a maximum of 100% of the first 6% of salary contributions, the
first 3% of which are matched in Company stock through the Employee Stock
Ownership Plan, discussed below.
Employee Stock Ownership Plan -- Employees of the Company are eligible
to participate in the Employee Stock Ownership Plan in the month following the
first 12 consecutive month period during which they have at least 1,000 hours of
service with the Company. Company contributions are made in the form of matching
stock contributions of 100% of the first 3% of salary reduction contributions
made by participants of the Savings Plan.
15
<PAGE>
THE FINOVA GROUP INC.
Expenses under the Savings Plan and Employee Stock Ownership Plan were
$2.1 million, $1.7 million, and $0.9 million in 1996, 1995 and 1994,
respectively.
Income Taxes -- Deferred tax assets and liabilities are recognized for
the estimated future tax effects attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax law.
Earnings per Common and Equivalent Share -- Earnings per common and
equivalent share is based on net income and the weighted average number of
common shares outstanding during the year giving effect to stock options
considered to be dilutive common stock equivalents. Fully diluted earnings per
share is not materially different from primary earnings per share.
Derivative Financial Instruments - As more fully described in Note F,
the Company uses derivative financial instruments as part of its interest rate
risk management policy of match funding its assets and liabilities. The
derivative instruments used include interest rate swaps and a foreign currency
exchange agreement, all of which are accounted for using settlement or matched
swap accounting. In addition, the Company enters into a limited amount of
interest rate caps for the benefit of customers.
Each derivative used as a hedge is matched with an asset or liability
with which it has a high correlation. The swap agreements are generally held to
maturity and the Company does not use derivative financial instruments for
trading purposes. Upon early termination of the designated matched asset or
liability, the related derivative is matched to another appropriate item or
marked to fair market value.
The foreign currency exchange agreement was entered into as a hedge for
the Company's limited exposure to fluctuations from investments in financing
transactions denominated in foreign currencies.
Discontinued Operations -- As more fully described in Note B, the
Company's Manufacturer & Dealer Services line of business and FINOVA Medical
Systems are presented as discontinued operations and, accordingly, prior year
amounts have been restated.
Reclassifications -- Certain reclassifications have been made to the
1995 and 1994 financial statements to conform to the 1996 presentation.
Recent Accounting Developments -- In March 1995, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," effective for fiscal years beginning
after December 15, 1995. This statement establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held and used and long-lived assets and certain
identifiable intangibles to be disposed of. The statement requires that
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
addition, the statement requires that certain long-lived assets and intangibles
to be disposed of be reported at the lower of carrying amount or fair value less
cost to sell. The Company adopted this accounting standard effective January 1,
1996, as required. The effect on the Company's financial position and the
results of operations was not material.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," effective for transactions entered into in fiscal
years that begin after December 15, 1995. This statement establishes financial
accounting and reporting for stock-based employee compensation plans, including
stock purchase plans, stock option plans, restricted stock and stock
appreciation rights. The statement requires a fair value based method of
accounting for employee stock options or similar instruments and encourages a
similar method for all employee stock compensation plans. This method measures
compensation cost at the grant date based on the value of an award and
recognizes it over the service period, usually the vesting period. However, the
statement also allows an entity to continue measuring compensation cost for such
plans using the intrinsic value method of accounting prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock issued to Employees,"
provided pro forma disclosures are made. The
16
<PAGE>
THE FINOVA GROUP INC.
Company continues to account for its stock-based employee compensation plans
using the method of accounting prescribed by APB No. 25. For further discussion
see Note I.
NOTE B ACQUISITIONS AND DISPOSITIONS
During 1996 and 1995, FINOVA Capital, in transactions accounted for as
purchases, acquired various businesses and portfolios having initial funds
employed totaling $318 million and $262 million, respectively. In 1996, the
Company purchased LINC Financial Services, Inc. for $3.2 million in cash,
comprised of $139.9 million of assets and $136.7 million of liabilities and
acquisition costs. The Company also purchased Financing for Science
International, Inc. for $36.0 million, consisting of $226.6 million of assets
and $190.6 million in liabilities and acquisition costs.
During 1996, the company sold its Manufacturer & Dealer Services
operations for $616.4 million, recognizing a gain on sale, net of taxes, of $6.0
million after allocation of related costs and expenses. In connection with the
sale, the Company retained a small portfolio of leases relating to one vendor
program.
Also in 1996, the Company closed FINOVA Medical Systems, a
remanufacturer of medical equipment, recognizing a loss on disposal of
approximately $2.5 million, net of tax.
Income (losses) from these operations, net of tax, for the three years
ended December 31, 1996 were ($3.0 million), $3.8 million and $0.5 million,
respectively. Assumptions used to calculate these results were similar to those
used by the Company to evaluate its other lines of business and included the
allocation of interest expense based on certain leverage ratios and the
allocation of indirect operating expenses.
The consolidated financial statements and related notes have been
restated to classify these operations as discontinued.
17
<PAGE>
THE FINOVA GROUP INC.
NOTE C INVESTMENT IN FINANCING TRANSACTIONS
The Company provides secured financing to commercial and real estate
enterprises principally under financing contracts (such as loans and other
financing contracts, direct financing leases, operating leases, leveraged leases
and factored receivables). At December 31, 1996 and 1995, the carrying amount of
the investment in financing transactions, including the estimated residual value
of leased assets upon lease termination, was $7.3 and $6.3 billion (before
reserve for possible credit losses), respectively, and consisted of the
following percentage of carrying amount by line of business:
- --------------------------------------------------------------------------------
Percent of Total
Carrying Amount
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
Transportation Finance 18.2% 14.6%
Resort Finance 16.0% 15.6%
Commercial Real Estate Finance 10.9% 12.3%
Corporate Finance (1) 8.9% 10.3%
Commercial Equipment Finance 8.0% 5.5%
Communications Finance 7.7% 10.8%
Healthcare Finance 6.9% 7.2%
Rediscount Finance 5.8% 5.4%
Franchise Finance 5.0% 5.3%
Inventory Finance 4.3% 3.2%
Factoring Services 3.1% 3.0%
Commercial Finance 2.3% 3.4%
Government Finance 2.1% 1.9%
Other 0.8% 1.5%
- --------------------------------------------------------------------------------
100.0% 100.0%
================================================================================
(1) Excludes assets sold under securitization agreements of $300 million in
1996 and $200 million in 1995.
18
<PAGE>
THE FINOVA GROUP INC.
Aggregate installments on loans and other financing contracts, direct
financing leases, operating leases, leveraged leases and factored receivables at
December 31, 1996 (excluding repossessed assets of $38.4 million and estimated
residual values) are due during each of the years ending December 31, 1997 to
2001 and thereafter as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
There-
1997 1998 1999 2000 2001 after
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans and other financing
contracts:
Commercial:
Fixed interest rate $ 382,481 $ 324,871 $ 282,111 $ 281,515 $ 212,165 $ 507,594
Floating interest rate 346,152 365,149 343,933 363,891 368,243 171,207
Real Estate:
Fixed interest rate 100,518 85,895 99,664 42,683 31,826 136,590
Floating interest rate 388,468 375,637 226,982 95,623 105,240 25,068
Factored receivables 564,430
Leases, primarily at
fixed interest rates:
Operating leases 102,148 85,628 77,000 71,457 61,666 112,232
Leveraged leases 33,085 21,814 19,166 16,006 13,683 308,993
Direct financing leases 109,770 90,868 60,781 44,775 40,168 52,566
- --------------------------------------------------------------------------------------------------------------------
$2,027,052 $ 1,349,862 $ 1,109,637 $ 915,950 $ 832,991 $ 1,314,250
====================================================================================================================
</TABLE>
The investment in operating leases at December 31 consisted of the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cost of assets $ 646,918 $ 586,860
Accumulated depreciation (129,228) (126,062)
- --------------------------------------------------------------------------------------------------------------------
Investment in operating leases $ 517,690 $ 460,798
====================================================================================================================
</TABLE>
The net investment in leveraged leases at December 31 consisted of the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Rentals receivable $ 1,898,996 $ 1,454,754
Less principal and interest payable on nonrecourse debt (1,486,249) (1,157,789)
- --------------------------------------------------------------------------------------------------------------------
Net rentals receivable 412,747 296,965
Estimated residual values 479,850 344,766
Less unearned income (378,024) (275,535)
- --------------------------------------------------------------------------------------------------------------------
Investment in leveraged leases 514,573 366,196
Less deferred taxes arising from leveraged leases (246,075) (230,120)
- --------------------------------------------------------------------------------------------------------------------
Net investment in leveraged leases $ 268,498 $ 136,076
====================================================================================================================
</TABLE>
19
<PAGE>
THE FINOVA GROUP INC.
The components of income from leveraged leases, after the effects of
interest on nonrecourse debt and other related expenses, for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lease and other income $ 30,230 $ 12,080 $ 9,240
Income tax expense 11,321 4,201 3,143
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The investment in direct financing leases at December 31 consisted of
the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Rentals receivable $ 398,928 $ 443,139
Estimated residual values 100,039 73,121
Unearned income (102,579) (108,201)
- --------------------------------------------------------------------------------------------------------------------
Investment in direct financing leases $ 396,388 $ 408,059
====================================================================================================================
</TABLE>
The Company has a substantial number of loans and leases with payments
that fluctuate with changes in index rates, primarily prime interest rates and
the London interbank offered rates ("LIBOR"). The investment in loans and leases
with floating interest rates (excluding nonaccruing contracts and repossessed
assets) at December 31 was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Receivables due on financing transactions $ 3,749,575 $ 3,390,139
Less unearned income (53,075) (78,333)
- --------------------------------------------------------------------------------------------------------------------
Investment in floating-rate loans and leases $ 3,696,500 $ 3,311,806
====================================================================================================================
</TABLE>
Interest earned from financing transactions with floating interest
rates was approximately $436.0 million in 1996, $402.0 million in 1995, and
$269.0 million in 1994. The adjustments, which arise from changes in index
rates, can have a significant effect on interest earned from financing
transactions; however, the effects on interest margins earned and net income are
substantially offset by related interest expense changes on debt obligations
with floating interest rates. The Company's matched funding policy is more fully
described in Note F.
At December 31, 1996, the Company had a committed backlog of new
business of approximately $1.5 billion compared to $1.1 billion at December 31,
1995. The committed backlog includes lines of credit totaling $702.0 million and
$629.0 million for December 31, 1996 and 1995, respectively. Historically, the
Company has booked a substantial portion of its backlog, although there can be
no assurance that such trend will continue. Loan commitments and lines of credit
have generally the same credit risk as extending loans to borrowers. These
commitments are generally subject to the same credit quality and collateral
requirements involved in lending transactions. Commitments generally have a
fixed expiration and usually require payment of a fee.
Receivable Transfer Agreements ("Securitizations") -- The Company sells
receivables in transactions subject to limited recourse provisions and remains a
servicer for which it is paid a fee. Normal servicing fees are earned on a level
yield basis over the remaining terms of the related receivables sold.
20
<PAGE>
THE FINOVA GROUP INC.
During 1995, the Company, under a securitization agreement, sold a $200
million undivided proportionate interest in a loan portfolio totaling $610.5
million. Under this securitization agreement, there is recourse to the Company
based on the outstanding balance of the proportionate interest sold. In 1996,
the Company sold an additional $100 million interest, resulting in a total $300
million undivided proportionate interest in a loan portfolio totaling $626.7
million at December 31, 1996.
NOTE D RESERVE FOR POSSIBLE CREDIT LOSSES
The following is an analysis of the reserve for possible credit losses
for the years ended December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 129,077 $ 110,903 $ 64,280
Provision for possible credit losses 41,751 37,568 10,439
Write-offs (32,017) (25,631) (28,109)
Recoveries 3,296 2,104 1,780
Other (including reserves related to acquisitions) 6,586 4,133 62,513
- --------------------------------------------------------------------------------------------------------------------
Balance, end of year $ 148,693 $ 129,077 $ 110,903
====================================================================================================================
</TABLE>
21
<PAGE>
THE FINOVA GROUP INC.
Write-offs by lines of business experienced by the Company during the
years ended December 31 are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Corporate Finance $ 9,470 $ 4,660 $ 4,233
Factoring Services 5,098 3,728 1,148
Resort Finance 4,275 2,000 2,730
Franchise Finance 3,267 3,448 2,247
Commercial Equipment Finance 3,207 2,271 1,257
Communications Finance 2,994 4,037 8,300
Commercial Real Estate Finance 1,793 2,275 1,461
Healthcare Finance 1,018 314 377
FINOVA Capital Limited (UK) 895 1,523 5,140
Commercial Finance 452 774
Inventory Finance 201 442
Other 722
- --------------------------------------------------------------------------------------------------------------------
$ 32,017 $ 25,631 $ 28,109
====================================================================================================================
Write-offs as a percentage of investment in
managed assets 0.42% 0.39% 0.53%
====================================================================================================================
</TABLE>
An analysis of nonaccruing assets included in the investment in
financing transactions at December 31 is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Contracts $ 117,086 $ 93,139
Repossessed assets 38,419 49,988
- --------------------------------------------------------------------------------------------------------------------
Total nonaccruing assets $ 155,505 $ 143,127
====================================================================================================================
Nonaccruing assets as a percentage of managed assets 2.0% 2.2%
====================================================================================================================
</TABLE>
In addition to the repossessed assets included in the above table, the
Company had repossessed assets with a total carrying amount of $60.0 million and
$56.6 million at December 31, 1996 and 1995, respectively, which earned income
of $5.1 million and $4.2 million during 1996 and 1995, respectively.
22
<PAGE>
THE FINOVA GROUP INC.
At December 31, 1996, the total carrying amount of impaired loans was
$110.1 million, of which $46.3 million were revenue accruing. A reserve for
possible credit losses of $6.2 million has been established for $14.1 million of
nonaccruing impaired loans. At December 31, 1995, the total carrying amount of
impaired loans was $94.1 million, of which $17.3 million were revenue accruing.
At December 31, 1995, the reserve for possible credit losses was $16 million for
$35 million of nonaccruing impaired loans. For the years ended December 31, 1996
and 1995, the average carrying amount of impaired loans was $85.1 million and
$93.2 million, respectively. Income earned on accruing impaired loans was $4.0
million in both 1996 and 1995. Income earned on impaired loans is recognized in
the same manner as it is on other accruing loans. Cash collected on all
nonaccruing loans is applied to the carrying amount.
Had all nonaccruing assets outstanding at December 31, 1996, 1995 and
1994 remained accruing, income earned would have been increased by approximately
$19 million, $17 million, and $13 million, respectively.
NOTE E DEBT
The Company satisfies its short-term financing requirements from the
issuance of commercial paper supported by bank lines of credit, other bank loans
and public notes. The Company's commercial paper borrowings are supported by
unused long-term revolving bank credit agreements totaling $3.4 billion. FINOVA
Capital currently maintains a five-year revolving credit facility with numerous
lenders, in the aggregate principal amount of $1.0 billion. Separately, FINOVA
Capital also has a 364 day revolving credit facility with the same lenders in
the aggregate principal amount of $1.0 billion, amended in 1996, and has two
five-year facilities with numerous lenders for $700 million each. Under the
terms of these agreements, the Company has the option to periodically select
either domestic dollars or Eurodollars as the basis of borrowings. Interest is
based on the lenders' prime rate for domestic dollar advances or London
interbank offered rates ("LIBOR") for Eurodollar advances. The agreements also
provide for a commitment fee on the unused credit. The 364 day $1.0 billion
revolving credit agreement will be subject to renewal in 1997 while the two
five-year $700 million facilities and the other $1.0 billion credit facility are
subject to renewal in 2001.
The following information pertains to all short-term financing,
primarily commercial paper, issued by FINOVA Capital for the years ended
December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum amount of short-term debt outstanding
during year $ 3,087,876 $ 2,518,733 $ 2,024,441
Average short-term debt outstanding during year 2,551,316 2,210,329 1,050,358
Weighted average short-term interest rates
at end of year:
Short-term borrowings 5.4% 5.9% 6.2%
Commercial paper* 5.6% 6.0% 6.0%
Weighted average interest rate on short-term debt
outstanding during year* 5.6% 6.1% 4.8%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* Exclusive of the cost of maintaining bank lines in support of outstanding
commercial paper and the effects of interest rate conversion agreements.
23
<PAGE>
THE FINOVA GROUP INC.
Senior debt at December 31 was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial paper and short-term bank loans supported by unused long-term
bank revolving credit agreements, less unamortized discount $ 2,482,496 $ 2,398,007
Medium-term notes due to 2005, 5.4% to 10.3% 1,414,500 1,224,546
Term loans payable to banks due to 1999, 5.6% to 6.1% 180,000 180,000
Senior notes due to 2006, 6.5% to 16.0%, less unamortized discount 1,758,176 1,830,009
Nonrecourse installment notes due to 2002, 10.6% (assets of
$24,656 and $25,349, respectively, pledged as collateral) 15,051 16,806
- --------------------------------------------------------------------------------------------------------------------
Total senior debt $ 5,850,223 $ 5,649,368
====================================================================================================================
</TABLE>
Annual maturities of senior debt outstanding at December 31, 1996 due
through May 2006 (excluding the amount supported by the revolving credit
agreements expected to be renewed) approximate $742.3 million (1997), $557.0
million (1998), $532.1 million (1999), $563.7 million (2000), $457.5 million
(2001) and $515.1 million (thereafter).
The agreements pertaining to senior debt and revolving credit
agreements of FINOVA Capital include various restrictive covenants and require
the maintenance of certain defined financial ratios with which FINOVA Capital
has complied. Under one such covenant, dividend payments are limited to 50% of
accumulated earnings after December 31, 1991. As of December 31, 1996, FINOVA
Capital had $83.4 million of excess accumulated earnings available for
distribution.
Total interest paid is not significantly different from interest
expense.
NOTE F DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into interest rate swaps and interest rate hedge
agreements as part of its interest rate risk management policy of match funding
its assets and liabilities. The derivative instruments used are straightforward
and involve little complexity. The Company continually monitors its position
relative to derivatives and uses derivative instruments for non-trading purposes
only.
The Company uses derivative instruments to minimize its exposure to
fluctuations in interest rates. The Company strives to minimize its overall debt
costs while limiting the short-term variability of interest expense and funds
required for debt service. To achieve this objective, the Company diversifies
its borrowing sources (short- and long-term debt with a fixed or a variable
rate) and seeks to maintain a portfolio that is matched funded. The Company's
matched funding policy generally requires that floating-rate assets be financed
with floating-rate liabilities and fixed-rate assets be financed with fixed-rate
liabilities. The Company's matched funding policy also requires that the
difference between floating-rate liabilities and floating-rate assets, as
measured as a percent of total assets, should not vary by more than 3% for any
extended period. The amount of derivatives used is a function of this 3% gap
policy with the maturities of the derivatives being correlated to the maturities
of the assets being financed.
The notional amounts of derivatives do not represent amounts exchanged
by the parties and, thus, are not a measure of FINOVA's exposure through its use
of derivatives. The amounts exchanged are determined by reference to the
notional amounts and the other terms of the derivatives.
Under interest rate swaps, the Company agrees to exchange with the
counter party, at specified intervals, the payment streams calculated on a
specified notional amount, with at least one stream based on a floating interest
rate. Generic swap notional amounts do not change for the life of the contract.
Amortizing swap notional amounts amortize over the life of the transaction.
Basis swaps involve the exchange of floating-rate indices, such as the prime
rate, the commercial paper composite rate and LIBOR and are used primarily to
protect the Company's margins on floating-rate transactions by locking in the
spread between the Company's lending and borrowing rates.
24
<PAGE>
THE FINOVA GROUP INC.
The Company's off-balance sheet derivative instruments involve credit
and interest rate risks. The credit risk would be the nonperformance by the
counter parties to the financial instruments. All financial instruments have
been entered into with major financial institutions, which are expected to fully
perform under the terms of the agreements, thereby mitigating the credit risk
from the transactions, although there can be no assurance that any such
institution will perform under its agreement. The Company's derivative policy
stipulates that the maximum exposure to any one counter party, relative to the
derivative products, is limited on a net basis to 10% of the Company's
outstanding debt at the time of that transaction. Interest rate risks relate to
changes in interest rates and the impact on earnings. The Company mitigates
interest rate risks through its matched funding policy.
The use of derivatives increased interest expense by $3.0 million in
1996, an increase in the aggregate cost of funds of 0.05%, and $9.8 million in
1995, an increase in the aggregate cost of funds of 0.2%; whereas, the use of
derivatives decreased interest expense by $13.7 million in 1994, a reduction in
the aggregate cost of funds of 0.4%. These changes in interest expense from
off-balance sheet derivatives effectively alter on-balance sheet costs and must
be viewed as total interest rate management. There were no deferred gains or
losses associated with derivatives.
25
<PAGE>
THE FINOVA GROUP INC.
The following table provides annual maturities and weighted-average
interest rates for each significant derivative product type in place at December
31, 1996. The rates presented are as of December 31, 1996. To the extent that
rates change, variable interest information will change.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Maturities of Derivative Products
December 31, -------------------------------------------------------------------
(Dollars in Millions) 1996 1997 1998 1999 2000 2001 Thereafter
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive fixed-rate swaps:
Notional value $ 1,350 $ 275 $ 325 $ 250 $ 150 $ 150 $ 200
Weighted average receive
rate 6.84% 6.77% 6.82% 6.62% 7.24% 6.66% 7.05%
Weighted average pay rate 5.58% 5.54% 5.54% 5.57% 5.50% 5.67% 5.68%
Pay fixed-rate swaps:
Notional value $ 825 $ 275 $ 200 $ 150 $ 100 $ 100
Weighted average receive
rate 5.56% 5.55% 5.54% 5.55% 5.60% 5.57%
Weighted average pay rate 7.14% 7.15% 7.30% 7.06% 7.38% 6.70%
Basis swaps:
Notional value $ 878 $ 250 $ 628
Weighted average receive
rate 5.52% 5.51% 5.53%
Weighted average pay rate 5.86% 5.83% 5.87%
TOTAL NOTIONAL VALUE $ 3,053 $ 800 $ 1,153 $ 400 $ 250 $ 250 $ 200
====================================================================================================================
Total weighted average rates
on swaps:
Receive rate 6.12% 5.96% 5.89% 6.22% 6.59% 6.22% 7.05%
====================================================================================================================
Pay rate 6.08% 6.18% 6.02% 6.13% 6.25% 6.08% 5.68%
====================================================================================================================
</TABLE>
For the benefit of its customers, the Company enters into interest rate
cap agreements. The total notional amount of these agreements at December 31,
1996 was $124 million, none of which was in a pay or receive position. These
agreements will mature as follows: $90 million in 1997 and $34 million in 1998.
At December 31, 1996, the Company was a party to a short-term foreign
currency forward exchange agreement with a notional amount of approximately $73
million to mitigate its foreign currency risk.
26
<PAGE>
THE FINOVA GROUP INC.
Derivative product activity for the three years ended December 31, 1996
is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Pay Interest
Receive Pay Fixed-Rate Rate
Fixed-Rate Fixed-Rate Amortizing Basis Hedge
(Dollars in Millions) Swaps Swaps Swaps Swaps Agreements TOTAL
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1993 $ 1,140 $ 180 $ $ $ 750 $ 2,070
Expired (50) (50) (148) (248)
Additions 100 650 390 254 1,394
- ---------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1994 1,190 780 242 254 750 3,216
Expired (40) (30) (152) (126) (348)
Additions 150 50 5 750 955
- ---------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1995 1,300 800 95 878 750 3, 823
Expired (100) (325) (95) (750) (1,270)
Additions 150 350 500
- ---------------------------------------------------------------------------------------------------------------------
Balance,
December 31, 1996 $ 1,350 $ 825 $ -- $ 878 $ -- $ 3,053
=====================================================================================================================
</TABLE>
NOTE G COMPANY-OBLIGATED MANDATORY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF SUBSIDIARY TRUST SOLELY HOLDING CONVERTIBLE
DEBENTURES OF THE COMPANY
In December 1996, FINOVA Finance Trust, a trust sponsored and
wholly-owned by the Company, issued (a) 2,300,000 shares of convertible trust
originated preferred securities (the "Preferred Securities") to the public for
gross proceeds of $115 million (before transaction costs of $3.5 million) and
(b) 71,135 shares of common securities to the Company. The gross proceeds from
these transactions were invested by the trust in $118.6 million aggregate
principal amount of 5 1/2% convertible subordinated debentures due 2016 (the
"Debentures") newly issued by the Company. The Debentures represent all of the
assets of the trust. The proceeds from the issuance of the Debentures were
contributed by the Company to FINOVA Capital, which used the proceeds to repay
commercial paper and other indebtedness.
The Preferred Securities accrue and pay cash distributions quarterly
when declared by the Company at a rate of 5 1/2% per annum of the stated
liquidation amount of $50 per preferred security. The Company has guaranteed, on
a subordinated basis, distributions and other payments due on the Preferred
Securities (the "Guarantee"). The Guarantee, when taken together with the
Company's obligations under the Debentures, the indenture under which the
Debentures were issued and the Company's obligations under the Amended and
Restated Declaration of Trust governing the trust, provides a full and
unconditional guarantee on a subordinated basis of amounts due on the Preferred
Securities. The Company can defer making distributions on the Debentures for up
to 20 consecutive quarters, but does not anticipate doing so. The Preferred
Securities are mandatorily redeemable upon the maturity of the Debentures on
December 31, 2016, or earlier to the extent of any redemption by the Company of
any Debentures. The redemption price in either case will be $50 per share plus
accrued and unpaid distributions to the date fixed for redemption.
Prior to their maturity, the Debentures are convertible into the
Company's common stock at the election of the holders of the Preferred
Securities individually. Each debenture is convertible into 0.6387 shares of the
Company's common stock (equivalent to a conversion price of $78.28 per share),
subject to adjustment in specified circumstances. The Company can terminate the
conversion rights noted above on 30 days' notice on or after December 31, 1999
if it is
27
<PAGE>
THE FINOVA GROUP INC.
current on its payments for the Debentures and the closing prices of its common
stock trade at or above 120% of the conversion price of the preferred securities
($93.94, assuming no adjustments).
NOTE H STOCKHOLDERS' EQUITY
At December 31, 1996, 1995, and 1994, the FINOVA Group Inc. had
28,421,703 shares of common stock issued, with 27,529,081, 27,278,932, and
27,676,526 shares of common stock outstanding, respectively. Approximately
4,316,000, 4,746,000, and 5,011,000 common shares were reserved for issuance
under the 1992 Stock Incentive Plan at December 31, 1996, 1995, and 1994,
respectively.
In addition to the convertible preferred securities issued by FINOVA
Finance Trust in 1996, FINOVA has 5,000,000 shares of preferred stock
authorized, none of which was issued at December 31, 1996. The Board of
Directors is authorized to provide for the issuance of shares of preferred stock
in series, to establish the number of shares to be included in each series and
to fix the designation, powers, preferences and rights of the shares of each
series. In connection with the Company's stock incentive plan, 250,000 shares of
preferred stock are reserved for issuance of awards under that plan.
The Company announced in 1992 that it intended to periodically
repurchase its securities on the open market to fund its obligations pursuant to
employee stock options, benefit plans and similar obligations. Under this
program, no shares were acquired during the year ended December 31, 1996. During
the years ended December 31, 1995 and 1994, 611,600 and 602,800 shares,
respectively, were acquired. The program may be discontinued at any time.
NOTE I STOCK OPTIONS
During 1992, the Board of Directors of the Company adopted The FINOVA
Group Inc. 1992 Stock Incentive Plan (the "Plan") for the grant of options,
restricted stock and stock appreciation rights to officers, directors and
certain key employees. In connection with the 1992 spin-off of the Company (the
"Spin-Off") from The Dial Corp ("Dial"), shares of common stock were made
available to provide new options, restricted shares of common stock and stock
appreciation rights to employees of the Company or its subsidiaries in exchange
for awards outstanding under certain stock option and incentive plans of Dial.
Each option was adjusted so that the aggregate exercise price and the aggregate
spread before the Spin-Off was preserved at the time of the Spin-Off. For each
share of Dial restricted stock held by an employee, the employee received
replacement shares of FINOVA restricted stock with a market value intended to
compensate for the Spin-Off.
The Plan provides for the following types of awards: (a) stock options
(both incentive stock options and non-qualified stock options), (b) stock
appreciation rights, and (c) restricted stock. The Plan generally authorizes the
issuance of awards for up to 2 1/2% of the total number of shares of common
stock outstanding as of the first day of each year, with some modifications. In
addition, 250,000 shares of preferred stock are reserved for awards under the
Plan.
The stock options outstanding at December 31, 1996 were granted for
terms of 10 years and generally become exercisable between one month to five
years from the date of grant. Stock options are exercisable based on the market
value at the date of grant, unless a higher exercise price was established,
which has been the case for multi-year grants.
28
<PAGE>
THE FINOVA GROUP INC.
Information with respect to options granted and exercised for the three
years ended December 31, 1996 is as follows:
- --------------------------------------------------------------------------------
Average Option
Shares Price Per Share
- --------------------------------------------------------------------------------
Options outstanding at January 1, 1994 1,012,114 $23.04
Granted 635,766 36.18
Exercised (66,418) 17.29
Canceled (119,857) 33.54
- --------------------------------------------------------------------------------
Options outstanding at January 1, 1995 1,461,605 28.12
Granted 313,300 38.80
Exercised (168,388) 22.39
Canceled (83,008) 34.17
- --------------------------------------------------------------------------------
Options outstanding at January 1, 1996 1,523,509 30.62
Granted 505,870 58.09
Exercised (179,704) 26.73
Canceled (131,086) 40.89
- --------------------------------------------------------------------------------
Options outstanding at December 31, 1996 1,718,589 $38.33
================================================================================
At December 31, 1996, stock options with respect to 1,718,589 common
shares were outstanding at exercise prices ranging from $12.70 to $69.89 per
share.
The following table summarizes information about stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Weighted
Average
Range of Number Remaining Weighted Number Weighted
Exercise Outstanding Contractual Average Exercisable Average
Prices at 12/31/96 Life Exercise Price at 12/31/96 Exercise Price
- ------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 12.70 - $19.50 289,830 4.19 $ 16.46 289,830 $16.46
20.19 - 36.88 601,079 6.86 31.60 465,341 30.93
37.00 - 52.75 579,060 8.49 44.88 104,558 39.87
54.50 - 69.89 248,620 9.82 63.66
- ------------------------------------------------------------------------------------------------
$ 12.70 - $69.89 1,718,589 6.91 $ 38.33 859,729 $27.14
- ------------------------------------------------------------------------------------------------
</TABLE>
Since 1992, the Board of Directors has granted only performance based
restricted stock to employees other than directors. Performance based restricted
stock awards (69,080 shares in 1996, 54,550 shares in 1995, and 104,820 shares
in 1994), vest generally over periods not exceeding five years from the date of
grant. The holder of the performance based restricted stock, like restricted
stock, has the right to receive dividends and vote the target number of shares
but may not sell, assign, transfer, pledge or otherwise encumber the performance
based restricted stock. All performance based restricted stock grants since the
Spin-Off were based on Company share performance and may result in greater or
lesser numbers of shares ultimately being delivered to the holder, depending on
that performance. The target number of shares are deemed received on the grant
date. Additional vestings over the target are reported as new grants as of the
vesting dates. Vestings below target would be reported as a forfeiture of
amounts below the target number of shares.
29
<PAGE>
THE FINOVA GROUP INC.
The company applies APB Opinion 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its fixed stock option plans. The compensation cost that has been charged
against income for its performance-based plan was $2.9 million and $1.6 million
for 1996 and 1995, respectively. Had compensation cost for the Company's stock
based compensation plans been determined based on the fair value at the grant
dates for awards under those plans consistent with the method of FASB Statement
123, the effect on net income would not have been material.
NOTE J INCOME TAXES
The consolidated provision for income taxes consists of the following
for the years ended December 31:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Current:
United States:
Federal $ 30,574 $ 30,557 $ 28,853
State 7,654 7,194 6,406
Foreign 1,745
- --------------------------------------------------------------------------------
39,973 37,751 35,259
- --------------------------------------------------------------------------------
Deferred:
United States:
Federal 24,294 13,946 10,620
State 5,062 4,535 3,214
Foreign 804
- --------------------------------------------------------------------------------
29,356 19,285 13,834
- --------------------------------------------------------------------------------
Provision for income taxes $ 69,329 $ 57,036 $ 49,093
================================================================================
30
<PAGE>
THE FINOVA GROUP INC.
Income taxes paid in 1996, 1995 and 1994 amounted to approximately
$31.3 million, $47.9 million, and $41.2 million, respectively.
The significant components of deferred tax liabilities and deferred tax
assets at December 31, 1996 and 1995 consisted of the following including
discontinued operations:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Deferred income from leveraged leases $ 274,224 $ 230,120
Deferred income from lease financing 72,300 62,681
Other 16,468 6,408
- --------------------------------------------------------------------------------------------------------------------
Gross deferred tax liability 362,992 299,209
- --------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Reserve for possible credit losses 55,883 39,094
Investment in foreign subsidiary carrying value difference 23,193 23,193
Accrued expenses 5,001 5,005
Alternative minimum tax credit carryforward 15,405
Sale of discontinued operations 16,400
Other 18,307 7,000
- --------------------------------------------------------------------------------------------------------------------
Gross deferred tax asset 118,784 89,697
- --------------------------------------------------------------------------------------------------------------------
Net deferred tax liability $ 244,208 $ 209,512
====================================================================================================================
</TABLE>
The federal statutory income tax rate is reconciled to the effective
income tax rate as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income taxes 4.4% 5.1% 5.1%
Foreign tax effects (0.9%) (0.5%) 1.2%
Municipal and ESOP income (2.2%) (1.7%) (1.2%)
Other 1.0% (0.1%) (0.1%)
- --------------------------------------------------------------------------------------------------------------------
Provision for income taxes 37.3% 37.8% 40.0%
====================================================================================================================
</TABLE>
31
<PAGE>
THE FINOVA GROUP INC.
NOTE K PENSION AND OTHER BENEFITS
Net periodic pension costs were $1.7 million, $1.3 million, and $1.5
million for the years ended December 31, 1996, 1995 and 1994, respectively. The
Company's pension costs were prepaid by $0.6 million at December 31, 1996 and
$2.3 million at December 31, 1995.
Net periodic postretirement benefit costs were $0.7 million, $0.6
million, and $0.5 million for each of the years ended December 31, 1996, 1995
and 1994, respectively. The Company's accrued postretirement benefit costs were
$2.2 million at December 31, 1996 and $1.5 million at December 31, 1995.
The Company's investment of $28 million in a trust for a nonqualified
compensation plan consists of securities held for trading and is recorded at
market.
NOTE L LITIGATION AND CLAIMS
The Company is party either as plaintiff or defendant to various
actions, proceedings and pending claims, including legal actions, some of which
involve claims for compensatory, punitive or other damages in significant
amounts. Such litigation often results from the Company's attempts to enforce
its lending agreements against borrowers and other parties to those
transactions. Litigation is subject to many uncertainties and it is possible
that some of the legal actions, proceedings or claims referred to above could be
decided against the Company. Although the ultimate amount for which the Company
may be held liable, if any, is not ascertainable, the Company believes that any
resulting liability should not materially affect the Company's financial
position or results of operations.
NOTE M FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments has been determined by the Company using market information obtained
by the Company and the valuation methodologies described below. However,
considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein may not be
indicative of the amounts that the Company could realize in a current market
exchange. The use of different market assumptions or valuation methodologies may
have a material effect on the estimated fair value amounts.
32
<PAGE>
THE FINOVA GROUP INC.
The carrying amounts and estimated fair values of the Company's
financial instruments are as follows for the years ended December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance Sheet -
Financial Instruments:
Assets:
Loans and other financing contracts $ 5,143,562 $ 5,417,865 $ 4,740,085 $ 4,726,465
Liabilities:
Senior debt 5,850,223 5,952,108 5,649,368 5,729,950
Off-Balance Sheet -
Financial Instruments:
Interest rate swaps --- 1,462 --- 9,970
Interest rate hedge agreements --- --- --- (2,878)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The carrying values of cash and cash equivalents, factored receivables,
accounts payable and accrued expenses, due to clients and interest payable
(including accrued amounts related to interest rate swaps and interest rate
hedge agreements) approximate fair values due to the short-term maturity of
these items.
The methods and assumptions used to estimate the fair values of other
financial instruments are summarized as follows:
Loans and other financing contracts:
The fair value of loans and other financing contracts was
estimated by discounting expected cash flows using the current rates at
which loans of similar credit quality, size and remaining maturity
would be made as of December 31, 1996 and 1995. Management believes
that the risk factor embedded in the entry value interest rates
applicable to performing loans for which there are no known credit
concerns results in a fair valuation of such loans on an entry value
basis. As of December 31, 1996 and 1995, the fair value of nonaccruing
impaired contracts with a carrying amount of $63.8 million and $76.9
million, respectively, was not estimated because it is not practical to
reasonably assess the credit adjustment that would be applied in the
marketplace for such loans. As of December 31, 1996 and 1995, the
carrying amount of loans and other financing contracts excludes
repossessed assets with a total carrying amount of $98.4 million and
$106.6 million, respectively.
Senior debt:
The fair value of senior debt was estimated by discounting
future cash flows using rates currently available for debt of similar
terms and remaining maturities. The carrying values of commercial paper
and borrowings under revolving credit facilities, if any, were assumed
to approximate fair values due to their short maturities.
Interest rate swaps:
The fair values of interest rate swaps are based on quoted
market prices obtained from participating banks and dealers for
transactions of similar remaining duration.
33
<PAGE>
THE FINOVA GROUP INC.
Interest rate hedge agreements:
The fair values of interest rate hedge agreements in place at
December 31, 1995 are based on quoted market prices obtained from
participating banks and dealers for transactions of similar remaining
duration.
The fair value estimates presented herein were based on information
obtained by the Company as of December 31, 1996 and 1995. Although management is
not aware of any factors that would significantly affect the estimated fair
values, such values have not been updated since December 31, 1996 and 1995;
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
NOTE N SELLING, ADMINISTRATIVE AND OTHER OPERATING EXPENSES
The following represents a summary of the major components of selling,
administrative and other operating expenses for the three years ended December
31:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Salaries and employee benefits $ 94,272 $ 74,884 $ 54,875
Depreciation and amortization 14,185 14,799 9,733
Travel and entertainment 8,953 8,030 5,833
Problem account costs 7,753 7,941 11,927
Occupancy expenses 7,104 6,253 5,312
Professional services 5,738 6,121 6,813
- --------------------------------------------------------------------------------
NOTE O NEW ACCOUNTING STANDARDS
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," effective
for transactions entered into after December 31, 1996. Among other things, this
statement changes the accounting treatment of transactions subsequent to
December 31, 1996, that transfer financial assets but retain the servicing
rights, such as securitizations. The future effect on the Company's financial
position and the results of operations is not expected to be material.
34
<PAGE>
THE FINOVA GROUP INC.
SUPPLEMENTAL SELECTED FINANCIAL DATA
CONDENSED QUARTERLY RESULTS (UNAUDITED)
(Dollars in Thousands)
The following represents the condensed quarterly results for the three
years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest earned from financing transactions:
1996 $ 190,652 $ 192,635 $ 204,972 $ 209,675
1995 161,369 170,475 176,802 193,470
1994 73,961 114,798 137,473 147,968
- ---------------------------------------------------------------------------------------------------------------
Interest expense:
1996 88,224 89,718 91,629 96,972
1995 78,275 83,248 85,544 90,747
1994 33,133 50,431 61,735 64,702
- ---------------------------------------------------------------------------------------------------------------
Gains on sale of assets:
1996 6,730 1,315 397 4,507
1995 1,710 728 2,557 5,894
1994 3 390 894 2,590
- ---------------------------------------------------------------------------------------------------------------
Non-interest expenses:
1996 66,489 56,989 65,480 69,560
1995 47,581 52,832 54,605 69,339
1994 22,510 37,190 37,751 47,762
- ---------------------------------------------------------------------------------------------------------------
Income from continuing operations:
1996 26,756 28,852 30,489 30,396
1995 22,205 22,279 24,417 24,897
1994 11,389 15,721 23,309 23,351
- ---------------------------------------------------------------------------------------------------------------
Income (loss) and gain from sale of discontinued
operations:
1996 365 (731) (726) 1,599
1995 163 1,350 733 1,585
1994 1,584 (1,051) 10
- ---------------------------------------------------------------------------------------------------------------
Net income:
1996 27,121 28,121 29,763 31,995
1995 22,368 23,629 25,150 26,482
1994 11,389 17,305 22,257 23,362
================================================================================================================
</TABLE>
35
<PAGE>
THE FINOVA GROUP INC.
AVERAGE BALANCES/INTEREST MARGINS/AVERAGE ANNUAL RATES (UNAUDITED)
(Dollars in Thousands)
The following represents the breakdown of the Company's average balance sheet,
interest margins and average annual rates for the years ended December 31, 1996
and 1995:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 38,685 $ $ 44,412 $
Investment in financing transactions 6,716,996 735,648 (3) 11.6% (1) 5,815,019 646,898 (3) 11.9% (1)
Less reserve for possible credit losses (138,896) (117,337)
- ------------------------------------------------------------------------------------------------------------------------------------
Investment in financing transactions - net 6,578,100 5,697,682
Other assets and deferred charges 312,539 236,459
Investment in discontinued operations 487,915 403,034
====================================================================================================================================
$ 7,417,239 $6,381,587
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Other liabilities $ 356,704 $ 301,242
Senior debt 5,944,599 366,543 6.2% 5,084,145 337,814 6.6%
Deferred income taxes 233,606 199,141
- ------------------------------------------------------------------------------------------------------------------------------------
6,534,909 5,584,528
Company-obligated mandatory redeemable convertible
preferred securities of subsidiary trust solely holding
convertible debentures of the Company 8,581
Stockholders' equity 873,749 797,059
- ------------------------------------------------------------------------------------------------------------------------------------
$7,417,239 $6,381,587
====================================================================================================================================
Interest income/average earning assets (1) $ 735,648 11.6% $ 646,898 11.9%
Interest expense/average earning assets (1) (2) 366,543 5.8% 337,814 6.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Interest margins earned (2) $ 369,105 5.8% $ 309,084 5.7%
====================================================================================================================================
</TABLE>
(1) The average rate is calculated based on average earning assets ($6,324,545
and $5,442,119 for 1996 and 1995, respectively) which are net of average
deferred taxes on leveraged leases and average nonaccruing assets.
(2) For the year ended December 31, 1996, excluding the impact of derivatives,
interest expense would have been $363,526 or 5.7% of average earning assets
and interest margins earned would have been $372,122 or 5.9% of average
earning assets. For the year ended December 31, 1995, excluding the impact
of derivatives, interest expense would have been $328,009 or 6.0% of
average earning assets and interest margins earned would have been $318,889
or 5.9% of average earning assets.
(3) Interest income is shown net of depreciation.
36
<PAGE>
THE FINOVA GROUP INC.
COMMISSION FILE NUMBER 1-11011
EXHIBIT INDEX
DECEMBER 31, 1996 FORM 10-K
<TABLE>
<CAPTION>
Page in
Sequentially
Numbered
Exhibit No. Description Report
- ---------------- ------------------------------------------------------------ -------------
<S> <C> <C>
(3.A) Certificate of Incorporation, as amended through the date of
this filing (incorporated by reference from the Company's
Report on Form 10-K for the year ended December 31, 1994
(the "1994 10-K"), Exhibit 3.A).
(3.B) By-Laws, as amended through the date of this filing
(incorporated by reference from the Company's Report on Form
10-K for the year ended December 31, 1995 (the "1995 10-K"),
Exhibit 3.B).
(4.A) Instruments with respect to issues of long-term debt have
not been filed as exhibits to this Annual Report on Form
10-K if the authorized principal amount of the issue does
not exceed 10% of total assets of the Company and its
subsidiaries on a consolidated basis. The Company agrees to
furnish a copy of each such instrument to the Securities and
Exchange Commission upon request.
(4.B) Form of Common Stock Certificate of the Company
(incorporated by reference from the 1994 10-K, Exhibit 4.B).
(4.C) Relevant portions of the Company's Certificate of
Incorporation and Bylaws included in Exhibits 3.A and 3.B
above, respectively, are incorporated by reference.
(4.C) Relevant portions of the Company's Certificate of
Incorporation and Bylaws included in Exhibits 3.A and 3.B
above, respectively, are incorporated by reference.
(4.D.1) Rights Agreement dated as of February 15, 1992 between the
Company and the Rights Agent named therein, as amended
(incorporated by reference from the Company's Current Report
on Form 8-K dated September 21, 1995, Exhibit 4.1).
(4.D.2) Acceptance of Successor Trustee to Appointment under Rights
Agreement noted in 4.D.1 above (incorporated by reference
from the Company's Current Report on Form 8-K, dated
November 30, 1995, Exhibit 4).
(4.E) Indenture dated as of November 1, 1990 between FINOVA
Capital and the Trustee named therein (incorporated by
reference from Greyhound Financial Corporation's
Registration Statement on Form S-3, Registration No.
33-37743, Exhibit 4).
(4.F) Fourth Supplemental Indenture dated as of April 17, 1992
between FINOVA Capital and the Trustee named therein,
supplementing the Indenture referenced in Exhibit 4.E above
(incorporated by reference from GFC Financial Corporation's
Annual Report on Form 10-K for the year 1992 (the "1992
10-K"), Exhibit 4.F).
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Page in
Sequentially
Numbered
Exhibit No. Description Report
- ---------------- ------------------------------------------------------------ -------------
<S> <C> <C>
(4.G) Form of Indenture dated as of September 1, 1992 between
FINOVA Capital and the Trustee named therein (incorporated
by reference from the Greyhound Financial Corporation
Registration Statement on Form S-3, Registration No.
33-51216, Exhibit 4).
(4.H) Form of Indenture dated as of October 1, 1995 between FINOVA
Capital and the Trustee named therein (incorporated by
reference from FINOVA Capital's Report on Form 8-K dated
October 25, 1995, Exhibit 4.1).
(4.I) 1992 Stock Incentive Plan of the Company as amended through
the date of this filing, including proposed amendments being
considered at the 1997 Annual Meeting of Shareholders.*+
(4.J) Indenture, dated as of December 11, 1996, between the
Company and Fleet National Bank as trustee (incorporated by
reference from the Company's filing on Form 8-K dated
December 20, 1996, (the "December 1996 8-K"), Exhibit 4.1).
(4.K) Amended and Restated Declaration of Trust, dated as of
December 11, 1996, among Bruno A. Marszowski and Robert J.
Fitzsimmons, as Regular Trustees, First Union Bank of
Delaware, as Delaware Trustee, Fleet National Bank, as
Property Trustee, and the Company (incorporated by reference
from the December 1996 8-K, Exhibit 4.2).
(4.L) Preferred Security Guarantee, dated as of December 11, 1996,
between the Company and Fleet National Bank, as trustee
(incorporated by reference from the December 1996 8-K,
Exhibit 4.3).
(4.M) Form of 5 1/2% Convertible Subordinated Debenture
(incorporated by reference from the December 1996 8-K,
Exhibit 4.4).
(4.N) Form of Preferred Security (incorporated by reference from
the December 1996 8-K, Exhibit 4.5).
(10.A) Sixth Amendment and Restatement dated as of May 16, 1994 of
the Credit Agreement dated as of May 31, 1976 among FINOVA
Capital and the lender parties thereto, and Bank of America
National Trust and Savings Association, Bank of Montreal,
Chemical Bank, Citibank, N.A. and National Westminster Bank
USA, as agents (the "Agents") and Citibank, N.A., as
Administrative Agent (incorporated by reference from the
Corporation's Current Report on Form 8-K dated May 23, 1994,
Exhibit 10.I).
(10.A.1) First Amendment dated as of September 30, 1994, to the Sixth
Amendment and Restatement, noted in 10.A above (incorporated
by reference from the 1994 10-K, Exhibit 10.A.1).
(10.A.2) Second Amendment dated as of May 11, 1995 to the Sixth
Amendment and Restatement noted in 10.A above (incorporated
by reference from the Company's Quarterly Report on Form
10-Q for the period ending September 30, 1995 (the "3Q95
10-Q"), Exhibit 10.A).
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Page in
Sequentially
Numbered
Exhibit No. Description Report
- ---------------- ------------------------------------------------------------ -------------
<S> <C> <C>
(10.A.3) Third Amendment dated as of November 1, 1995 to Sixth
Amendment noted in 10.A above (incorporated by reference
from the 3Q95 10-Q, Exhibit 10.B).
(10.A.4) Fourth Amendment dated as of May 15, 1996, to Sixth
Amendment noted in 10.A above.*
(10.B) Credit Agreement (Short-Term Facility) dated as of May 16,
1994 among FINOVA Capital, the Lender parties thereto, the
Agents and Citibank, N.A., as Administrative Agent
(incorporated by reference from the Company's Report on Form
8-K dated May 23, 1994, Exhibit 10.2).
(10.B.1) First Amendment dated as of September 30, 1994 to the Credit
Agreement noted in 10.B above (incorporated by reference
from the 1994 10-K, Exhibit 10.B.1).
(10.B.2) Second Amendment to Short-Term Facility noted in 10.B above
(incorporated by reference from the 3Q95 10-Q, Exhibit
10.C).
(10.B.3) Third Amendment to Short-Term Facility noted in 10.B above
(incorporated by reference from the 3Q95 10-Q, Exhibit
10.D).
(10.B.4) Fourth Amendment to Short-Term Facility noted in 10.B
above.*
(10.B.4) The Company's Executive Severance Plan for Tier 1 Employees
(incorporated by reference from the Company's 1995 10-K,
Exhibit 10.C.1).+
(10.C.2) The Company's Executive Severance Plan for Tier 2 Employees
(incorporated by reference from the Company's 1995 10-K,
Exhibit 10.C.2).+
(10.D) The Company's 1996 Management Incentive Plan.*+
(10.E.1) The Company's 1995 - 1997 Performance Share Incentive Plan
(incorporated by reference from the 3Q95 10-Q, Exhibit
10.H).+
(10.E.2) The Company's 1994 - 1996 Performance Share Incentive Plan
(incorporated by reference from the 3Q95 10-Q, Exhibit
10-I).+
(10.E.3) The Company's 1996-1998 Performance Share Incentive Plan.*+
(10.F.1) Employment Agreement with Samuel L. Eichenfield dated March
16, 1996, (incorporated by reference from the Company's 1995
10-K, Exhibit 10.F.3).+
(10.F.2) Amendment to Employee Agreement referenced in 10.F.1
above.*+
10.G Employment Agreement with William J. Hallinan, dated
February 25, 1992 (incorporated by reference from the 1992
10-K, Exhibit 10.I)+
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
Page in
Sequentially
Numbered
Exhibit No. Description Report
- ---------------- ------------------------------------------------------------ -------------
<S> <C> <C>
(10.H) Employment Agreement with Thomas C. Parrinello, dated
February 14, 1994 (incorporated by reference from the 1994
10-K, Exhibit 10.H).+
(10.I) The Company's Amended and Restated Supplemental Pension
Plan.*+
(10.J) The Company's Value Sharing Plan for Executive Officers and
Key Employees (incorporated by reference from the 3Q95 10-Q,
Exhibit 10.K).+
(10.K) The Company's Value Sharing Plan for the Chief Executive
Officer (incorporated by reference from the 3Q95 10-Q,
Exhibit 10.L).+
(10.L) The Company's Directors Deferred Compensation Plan
(incorporated by reference from the 1992 10-K, Exhibit
10.O).+
(10.M) Directors' Retirement Benefit Plan (incorporated by
reference from the Company's Annual Report on Form 10-K for
the year ended December 31, 1993 (the "1993 10-K"), Exhibit
10.OO).+
(10.N) The Company's Deferred Compensation Plan (incorporated by
reference from the Company's 1995 10-K, Exhibit 10.N).+
(10.O) Form of the Company's 1992 Stock Incentive Plan Nonqualified
Stock Option Agreement (for exempt employees) (for grants
between August 25, 1992 and August 10, 1994) (various
prices) (incorporated by reference from the 1992 10-K,
Exhibit 10.FF).+
(10.P) A description of the Company's policies regarding
compensation of directors is incorporated by reference from
the Proxy Statement.+
(10.Q) Directors' Charitable Awards Program (incorporated by
reference from the 1994 10-K, Exhibit 10.CC).+
(10.R) Interim Services Agreement dated January 28, 1992 among the
Company, The Dial Corp and others (incorporated by reference
from the 1992 10-K, Exhibit 10.JJ).
(10.S) Tax Sharing Agreement dated February 19, 1992 among the
Company, The Dial Corp and others (incorporated by reference
from the 1992 10-K, Exhibit 10.KK).
(10.T) Sublease dated as of April 1, 1991, among the Company, The
Dial Corp and others, relating to the Company's principal
office space (incorporated by reference from the 1992 10-K,
Exhibit 10.NN).
(10.U) The Company's Executive Officer Loan Program Policies and
Procedures.*+
(10.V.1) Form of Non-Qualified Stock Option Agreements for use with
the Directors Cash or Stock Plan.*+
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Page in
Sequentially
Numbered
Exhibit No. Description Report
- ---------------- ------------------------------------------------------------ -------------
<S> <C> <C>
(10.V.2) Form of Non-Qualified Stock Option Agreements for grants
between August 10, 1994, and August 7, 1996, (for
non-employee directors) (various prices) (incorporated by
reference from the 1994 10-K, Exhibit 10.FF).+
(10.V.3) Form of Non-Qualified Stock Option Agreement for Directors'
automatic grants subsequent to August 7, 1996.*+
(10.V.4) Form of the Company's 1992 Stock Incentive Plan Stock Option
Agreements for grants between August 10, 1994 and August 7,
1996, (for exempt employees) (various prices) (incorporated
by reference from the 1994 10-K, Exhibit 10.DD).+
(10.V.5) Form of Non-Qualified Stock Option Agreement for exempt
employees subsequent to August 8, 1996 to present.*+
(10.V.6) Form of Non-Qualified Stock Option Agreement (multi-year
grants).*+
(10.V.6) Form of Restricted Stock Agreement for use with the
Directors' Cash or Stock Plan.*+
(10.W.2) Form of the Company's Restricted Stock Agreements in effect
through July 1996 (incorporated by reference from the 1994
10-K, Exhibit 10.GG).+
(10.W.3) Form of Restricted Stock Agreement in effect subsequent to
July 1996.*+
(10.X.1) PBRS/Restricted Stock Retention Incentive Program Policies
and Procedures.*+
(10.X.2) Form of Restricted Stock Agreement for use in Stock
Retention Incentive Program noted in 10.X.1 above.*+
(11) Computation of Per Share Earnings.*
(12) Computation of Ratio of Income to Combined Fixed Charges and
Preferred Stock Dividends.*
(21) Subsidiaries of the Registrant.*
(25) Powers of Attorney.*
(27) Financial Data Schedule.*
* Filed herewith.
+ Relating to Management Compensation.
</TABLE>
41
The FINOVA Group Inc.
1992 STOCK INCENTIVE PLAN
(INCLUDING 1997 AMENDMENTS)
Section 1. Purpose.
A. Purpose. Through this Plan, FINOVA seeks to
The Plan helps attract, retain and motivate officers,
align the interest employees and directors. The Plan's incentives
of our helps align their efforts with the
executives and profitability of the Company and increases in
shareholders. shareholder value.
B. Defined Terms. Section 11 contains a Glossary
of many defined terms used in this Plan. The
Plan defines other terms in the text as they
appear.
Section 2. Administration of the Plan.
A. Committee. The Human Resources Committee of
the Board or any other committee designated by
the Board (the "Committee") will administer
the Plan, unless otherwise determined by the
Board. The Committee must contain at least two
Outside Directors. Unless the Committee
contains only Outside Directors, it will
appoint a subcommittee to act on all Awards to
Section 16 Officers, except as otherwise
permitted by Section 162(m). Each Committee
member serves at the pleasure of the Board. If
no Committee is appointed to administer the
Plan, the Board will act in its place.
The Committee B. Powers. The Committee may grant Awards under
has broad the Plan to officers, employees and directors
powers to of the Company and its Affiliates. Among other
administer the things, and subject to the terms of the Plan,
plan. the Committee may determine in its sole
discretion:
1. The officers, employees and directors to
receive Awards, except Awards to
Non-Employee Directors can only be made as
permitted by Section 7;
2. The timing and form of each Award,
including Options (ISOs or NQs),
Restricted Stock (including PBRS), Stock
Appreciation Rights, or any combination
thereof;
3. The number of Shares underlying an Award;
4. The terms of any Award, including any
exercise price, vesting restriction
(including vesting or lapse of
restrictions in installments), forfeiture,
expiration date, or conditions for
exercise;
5. Any performance goals or conditions to be
satisfied in connection with an Award,
including goals based on the performance
of the individual, Company or any
Affiliate, division or department;
6. Whether and how to adjust the terms of any
Award at any time, in whole or in part,
including accelerating the vesting or
exercisability, changing the number of
Shares subject to the Award, changing the
performance goals or measurements for
<PAGE>
performance-based Awards, or waiving or
relaxing any term;
7. Whether and how to defer Shares and other
amounts payable on an Award;
8. Whether and how amounts due for any Award
may be settled in cash, Shares or
otherwise;
9. Whether and how an Award may be
transferred to other persons or entities,
before or after vesting; the Committee may
permit transfer of outstanding as well as
future Awards; and
10. Whether and how to cash out all or part of
an Award or its underlying Shares by
paying the holder the difference, in cash
or Stock, between the Fair Market Value
over the exercise price times the number
of Shares to be cashed out.
B. Agreements/Notice of Awards. Awards will be
evidenced by written agreements, the terms and
provisions of which may differ. The Company
will deliver a copy of the agreement promptly
following the grant. The Company may sign the
agreements by facsimile signature.
C. Administration of the Plan. The Committee will
supervise the administration of the Plan. It
may adopt, alter and repeal administrative
rules, guidelines and practices for the Plan.
It may interpret the Plan and the terms of any
Award and related agreement.
D. Committee Action/Delegation. The Committee may
act only by a majority of its then-current
The Committee members, except it may: (1) delegate to one or
may delegate more officers of the Company or its Affiliates
certain matters. the authority to make decisions permitted
under the Plan and by law, (2) authorize a
subcommittee to act in its place if consistent
with the Plan and law, and (3) authorize one
or more of its members or officers of the
Company or any Affiliate to execute and
deliver documents on behalf of the Committee
or any subcommittee. The Committee, however,
can not delegate to any officer under (1)
above decisions under the Plan with respect to
Section 16 Officers. Any other reference in
this Plan to the Committee will not preclude
any delegated authority permitted by this
section.
E. Discretion to Act. The Committee and persons
with delegated authority may act in their sole
discretion when granting an Award or, if
permitted by the Plan, after the grant. All
decisions made by the Committee or under
delegated authority will be binding on all
persons, including the Company and Plan
participants.
Section 3. Stock Subject to Plan.
A. General Authorization. For Plan years
The number of beginning on or after January 1, 1997, the
initial authorized Committee may continue to grant Awards for
shares in a year Shares in each calendar year (including
generally partial years) totaling two and one-half
remains the percent (2.5%) of the Common Stock of the
same as the Company outstanding as of the first day of
former plan. that year, subject to adjustment as provided
in the Plan. Any available Shares not granted
in a year will be available for grant in a
future
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year, but only if those Shares are Awarded to
new officers, employees or directors in
connection with the merger with or the
acquisition of all or substantially all the
stock or assets of another corporation or
other entity by the Company or its Affiliates.
The Committee may award up to 250,000 shares
of Preferred Stock under the Plan. The
Committee may issue Shares authorized and
unissued Shares or "treasury Shares" to
satisfy any Award.
B. Limitations. Subject to adjustment as provided
in the Plan, the Committee may award a maximum
of 2,500,000 shares of Common Stock as
Incentive Stock Options over the life of the
Plan, and it may grant Awards for a maximum of
500,000 Shares to any one participant in any
calendar year. Canceled and replacement Awards
for a participant will count against that
individual award limitation.
C. Adjustment in Amount. The Shares available
under the Plan will be increased by the number
of Shares (1) of Restricted Stock that are
forfeited, (2) underlying an Option (and
related SAR, if any) that terminates for any
reason without being exercised, or (3)
underlying a Stock Appreciation Right that is
exercised for cash.
D. Change in Corporate Structure. The Committee
or Board may adjust or substitute in its
discretion the Shares reserved for issuance
under the Plan, the number and exercise price
of any outstanding Options and SARs, and the
number of Shares subject to other Awards in
the event of any change in corporate structure
of the Company. Those changes include any
merger, reorganization, consolidation,
recapitalization, stock dividend, stock split,
or extraordinary distribution regarding the
Stock. The number of Shares subject to an
Award, however, must always be a whole number.
Section 4. Options.
A. Date of Grant. The grant of an Option occurs
on the day the Committee selects the person to
participate in the grant, determines the
number of Shares subject to the Option, and
specifies the terms of the Option.
Options are B. ISOs and NQs. The Committee may award
NQ's unless Incentive Stock Options only to employees of
designated as the Company and its subsidiaries (as permitted
ISO's. by Section 422). The Option agreement must
note whether the Option is an ISO or NQ. If an
Option is not designated as an ISO, or even if
so captioned it does not qualify as an ISO, it
will be a Non-Qualified Stock Option. No term
of the Plan relating to an Incentive Stock
Option can be interpreted, amended or altered,
nor can any discretion or authority granted
under the Plan be exercised so as to
disqualify the Plan under Section 422 or,
without the written consent of the option
holder, to disqualify his or her ISOs under
that section.
C. Terms. Options are subject to the following
terms, and such additional terms selected by
the Committee:
1. Price. The Committee will state in the
Option agreement the Option price (or
formula for determining the price) per
Share
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<PAGE>
purchasable under that Option. The Option
price must be no less than the Fair Market
No Options are Value of the Stock on the date of grant.
awarded at less
than fair market 2. Term. All Options expire no later than 10
value or for years after the grant date.
terms over 10
years. 3. Method of Exercise. The Plan and Option
agreement determine when holders may
exercise all or part of their options. The
holder must give the Company written
notice stating the number of Shares to be
purchased under the Option. The holder
must pay the full purchase price for the
Shares purchased at the time of exercise.
The Company may determine the permitted
forms of notice and payment. The Company
will not issue any Shares until full
payment has been made.
Full payment is
due on Option 4. Use of Stock for Payment. If approved by
exercise. the Committee, holders may pay for Options
with payment in full or unrestricted Stock
already owned by the holder of the same
class as the Stock subject to the Option.
The Committee may permit payment for an NQ
with Restricted Stock of the same class,
based on the Fair Market Value of the
Stock on the exercise date. In that case,
Shares issued under the Option equal to
the number of Restricted Shares used will
become Restricted Shares with the same
terms as the surrendered Restricted
Shares, unless the Committee determines
otherwise.
The Committee
may permit 5. Transferability/Restrictions on Transfer.
transfer of Holders may not transfer options except as
Awards. permitted by the Committee or this Plan. A
holder may transfer Options by will, the
laws of descent and distribution, or under
a domestic relations order (as defined by
the Code or by ERISA) (collectively, by
"Will"). Except as noted above, all Stock
Options are exercisable during the
optionee's lifetime only by the optionee
or his or her guardian or legal
representative. In those events, the term
"holder," "optionee," and "participant"
include the guardian and legal
representative of the optionee and any
person or entity receiving an option by
Will or permitted transfer. The Committee
cannot permit transfer of ISOs other than
by Will, unless the transfer would not
terminate ISO status.
Employees may
generally 6. Termination of Employment. After
exercise options Termination of Employment, participants
after they leave may exercise Options, to the extent then
FINOVA within exercisable or as accelerated by the
the following Committee, during the periods noted below,
periods: unless otherwise permitted by the
Committee or the Option Agreement. In no
event, however, will the Option be
exercisable after expiration of the
original Option term. An ISO exercised
Death - 1 year after the exercise periods permitted by
Disability - 3 the Code will be treated as an NQ.
years
Retirement - 3 (a) Death. One year from the date of
years death. If the optionee dies after
Termination Termination of Employment during the
for Cause- periods referenced in Section
Options expire 4.C.6(b), that period will be
Other reasons - extended to the extent necessary to
3 months permit exercise within one year from
the date of death.
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<PAGE>
(b) Disability or Retirement. Three years
from the Termination of Employment due
to Disability or Retirement.
(c) Terminations for Cause. The Option
will terminate and will not be
exercisable. "Cause" means (i)
conviction of a felony, (ii)
dishonesty in fulfilling one's
employment duties or (iii) willful and
deliberate failure to perform those
duties in any material respect.
(d) Terminations Not for Cause, Death,
Disability or Retirement. Three months
from the Termination of Employment.
7. Cash Out for Change in Control. During
the first 60 days after a Change in
Control (the "Exercise Period"), an
optionee may elect, by written notice to
the Company, to be paid in cash the
Spread for each Share underlying his or
her outstanding Options, even if not then
exercisable, in lieu of payment of the
exercise price for the Options. The
payment will be made within 30 days of
that notice. The rights under this
Section 4.C.7 supersede all other
provisions of the Plan, but will not
exist if the Committee states that at the
time of the grant. The "Spread" is the
amount the Change in Control Price per
Share on the date of election exceeds the
exercise price per Share. Section 16
Officers may not make the election
provided for by this paragraph for
Options granted within 6 months of a
Change in Control. In that case, the
Options will automatically be canceled in
exchange for a cash payment equal to the
Spread multiplied by the number of Shares
underlying the Options. That payment will
be made on the day that is 6 months and 1
day after the grant of the Options.
8. Rights as a Shareholder. The holder of an
Option will have all the rights of a
shareholder of the Company for that class
or series of Stock (including, if
applicable, the right to vote the
securities and the right to receive
dividends) when the holder gives written
notice of exercise, pays for the Shares
and, if requested, gives the
representation described in Section 10.A.
Section 5. Stock Appreciation Rights.
A. Grant and Exercise. The Committee may grant
Stock Appreciation Rights with all or part of
any Option Award, either at or after the grant
(at the time of grant only for ISOs). A Stock
Appreciation Right will terminate and not be
exercisable on the termination or exercise of
the related Option, and vice versa. To
exercise an SAR, the holder must surrender the
applicable part of the related Option and
comply with procedures established by the
Committee.
B. Terms. Stock Appreciation Rights are subject
to the following terms, and
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<PAGE>
any additional terms selected by the
Committee:
Exercise of an
SAR cancels 1. Same as Options. SARs are exercisable
the underlying only at the times and to the extent the
Option and vice related Options are exercisable.
versa.
2. Payment for SARs. Upon exercise of an
SAR, an optionee the Company will pay
cash, Shares or both equal to the amount
the Fair Market Value of each Share
exceeds the Option price of the related
Option, multiplied by the number of
Shares for which the SAR is exercised.
The Committee will determine the form of
payment.
3. Transferability of SARs. Holders may
transfer SARs only to the extent
permitted for the underlying Option.
4. Cash Out for Change in Control. The
provisions of Section 4.C.7 also apply to
SARs.
Section 6. Restricted Stock.
PBRS Awards
can base A. Section 16 Officers. Unless otherwise provided
performance on by the Committee, awards of Restricted Stock
various factors. to Section 16 Officers will only be PBRS
Awards which comply with the performance-based
compensation requirements of Section 162(m).
Unless otherwise determined by the Committee,
the performance goals for the PBRS Awards will
be based on the following factors: total
shareholder return (alone or in comparison
with one or more indices), revenues (gross or
net), earnings per share, expenses, margin
(gross or net), changes in stock price, funds
or asset turnover, market share, net income
(before or after taxes), return on assets,
equity, capital, investment or sales (actual
or pro forma), operating margin, net revenue
growth, or cash flow. The Committee may
decline to use any or all of those performance
goals and it may apply these performance
measures singly or in any combination. It may
also link them to performance of the Company,
its Affiliates or any division, department or
individual. The Committee may not forgive
satisfaction of any performance condition
specified for officers subject to Section
162(m), nor may it increase an Award to those
officers over amounts provided for by the
initial grant, unless permitted by Section
162(m). The Committee must certify attainment
of the performance results if required by
Section 162(m).
B. Awards and Certificates. The Committee may
determine the form Restricted Stock may take,
including book-entry registration or issuance
of one or more stock certificates. Restricted
Stock will be registered in the name of the
participant. Restricted Stock certificates
will bear an appropriate legend referring to
the restrictions on that Award. The legend
will read essentially:
The transferability of this certificate
and the shares of stock represented
hereby are subject to the terms
(including forfeiture) of the 1992
Stock Incentive Plan and a Restricted
Stock Agreement. Copies of the Plan and
Agreement are on file at the offices of
The FINOVA Group Inc.
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<PAGE>
The Company's most recent principal address
will also be included in the legend, but the
failure to update the address in the event of
a change will have no effect on the
restrictions on those Shares. The Company will
hold any certificates evidencing Restricted
Stock until the restrictions lapse, unless
otherwise determined by the Committee. The
Committee may also require, as a condition to
an Award, that the participant deliver one or
more stock powers and, if appropriate, SEC
Forms 144 or other applicable forms, executed
in blank, relating to the Restricted Stock.
C. Terms. Restricted Stock is subject to the
following terms and any other terms selected
by the Committee:
1. No Transfer. Except as permitted by the
Plan, Committee or Restricted Stock
agreement, the participant may not
transfer, sell, assign, pledge or
otherwise encumber the Restricted Stock
during the period set by the Committee
beginning on the date of the Award (the
"Restriction Period").
2. Rights as a Shareholder. Except as
provided by the Plan, Committee or
Restricted Stock agreement, the
participant will have all the rights of a
shareholder for the same class or series
of Stock as the Restricted Stock,
including, if applicable, the right to
vote the Shares and to receive any cash
dividends. If the Committee requires in
the Restricted Stock agreement, and
subject to Section 10.F, (a) cash
dividends on the Restricted Stock will be
automatically deferred and reinvested in
additional Restricted Stock, and (b)
Stock dividends will be paid in the form
of Restricted Stock of the same class as
the dividend.
3. Forfeiture of Restricted Stock. Except as
provided by this Plan, the Committee or
the Restricted Stock agreement, a
participant will forfeit all Shares of
Restricted Stock still subject to
restriction upon his or her Termination
of Employment.
4. Certificates Upon Vesting. Upon
expiration of the Restriction Period
without a prior forfeiture, the Company
will deliver unlegended certificates for
those Shares to the participant.
Section 7. Non-Employee Director Awards.
A. Automatic Grants. Each Non-Employee Director
who has served on the Board continuously since
the commencement of his or her term will
receive an annual (including partial years)
grant of Non-Qualified Options to purchase
1,500 Shares of Common Stock. The grant will
occur automatically on the third Thursday of
August during that director's term. Each
Non-Employee Director will also be awarded NQs
to purchase
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<PAGE>
2,000 shares of Common Stock on joining the
Board. The exercise price for those grants
will equal the Fair Market Value on the date
of grant.
B. Election for Retainer Payments. In addition to
the Awards authorized by Section 7.A, each
Non-Employee Director may from time to time
elect to receive, in lieu of all or part of
the cash retainer otherwise payable to that
director, (1) Restricted Stock ("Directors
Retainer Shares") with a Fair Market Value
equal to the amount of the retainer payment to
be paid on that date, (2) Non-Qualified
Options to purchase Common Stock with a Fair
Market Value as of that payment date equal to
two and one-half times the amount of the
retainer payment ("Directors Retainer
Options"), or (3) a combination of the above.
The Committee may establish minimum thresholds
for election of any alternative other than
cash.
C. Directors Retainer Shares. Directors Retainer
Shares are non-transferable by the director
until the day before the next annual meeting
of the Company's shareholders. Those Shares
will be forfeited to the Company if the
director ceases to be a Board member prior to
that date except as otherwise provided by this
Plan.
D. Directors Retainer Options. Except as provided
below, Directors Retainer Options may be
exercised in whole or in part commencing on
the day before the next annual meeting of
shareholders and ending ten years after the
date of grant. If the director ceases to be a
Board member before the Directors Retainer
Option becomes exercisable, the Option becomes
void, except as provided by this Plan. The
exercise price will be the Fair Market Value
of the Shares on the date of grant.
E. Death, Disability or Retirement of a Director.
If a participant ceases to be a Board member
due to death, Disability or Retirement as a
director at the end of a term or upon a Change
in Control, then any Directors Retainer Shares
and Directors Retainer Options will
immediately vest and become exercisable, as
the case may be. Any restriction on transfer
imposed by this Plan and any risk of
forfeiture will cease on any of those events.
F. Expiration of Directors Retainer Options.
Directors Retainer Options that are
exercisable but have not been exercised expire
six months after the date the director ceases
to be a Board member, except as noted below.
If the Board membership ceases due to death,
Disability or Retirement as a director at the
end of a term or upon a Change in Control,
those Options may be exercised for two years
after termination of Board membership, and if
the director dies within the six month or two
year periods noted above, the Options may be
exercised at any time within two years after
the death. Nothing in this paragraph permits
exercise of any Options beyond the original
ten year term.
G. Allocation of Shares. If the number of Shares
available for future grants under the Plan is
not sufficient to make all automatic grants
required to be made on that date, then all
Non-Employee Directors entitled to a grant on
that date will share proportionately in the
available Options. In addition, no elections
under Section 7.B can be made until all
automatic grants for that date have been made,
and the directors who have elected to receive
all or
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<PAGE>
any portion of their retainer under that
subsection will share ratably in the number of
remaining available Shares.
H. Other Terms. Except as expressly provided in
this Section 7, any Award granted under this
Section will be subject to the terms of the
Plan, including those contained in Sections 4
and 6, respectively.
Section 8. Change in Control Provisions.
A. Impact of Event. Notwithstanding any other
provision in this Plan to the contrary, if a
Change of Control occurs:
1. Options and SARs. Any unvested or
unexercisable Options and SARs
outstanding as of the date of the Change
in Control become fully vested and
exercisable to the full extent of the
original grant, without regard to the
three month limit on exercisability
imposed by Section 4.C.6(c) of the Plan.
2. Restricted Stock. The restrictions on
Restricted Stock lapse, and it will
become free of all restrictions (other
than those imposed by the securities
laws). The Restricted Stock will fully
vest immediately, including full vesting
of the maximum number of Shares or
payouts as if maximum performance
conditions or goals were achieved, as
applicable.
B. Definition of Change in Control. For purposes
of the Plan, a "Change in Control" means the
happening of any of the following events:
1. Acquisition. An acquisition by any
person, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2)
of the Exchange Act (a "Person") of
beneficial ownership (within the meaning
of SEC Rule 13d-3) of 20% or more of
either (a) the then outstanding common
stock (the "Outstanding Common Stock") or
(b) the combined voting power of the then
outstanding voting securities entitled to
vote generally in the election of
directors (the "Outstanding Voting
Securities") of the Company.
Exception. No Change of Control will have
occurred for any acquisition (i) directly
from the Company or any Affiliate, other
than one by exercise of a conversion
privilege unless the security being so
converted was itself acquired directly
from the Company or Affiliate, (ii) by
the Company or any Affiliate, (iii) by
any employee benefit plan or related
trust sponsored or maintained by the
Company or any Affiliate, or (iv) by any
corporation pursuant to a transaction
that complies with clauses (a), (b) and
(c) of the Exception contained in
subsection 3 of this Section 8.B; or
2. Change in the Board. A change in the
composition of the Board so that the
members who as of January 1, 1997
constitute the Board (the "Incumbent
Board") cease for any reason to be at
least a majority of the Board. Any person
who becomes a Board member after January
1, 1997 whose election or nomination for
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<PAGE>
election was approved by at least a
majority of the Incumbent Board will also
be a member of the Incumbent Board,
unless his or her initial assumption of
office occurs due to either an actual or
threatened election contest (as those
terms are used in SEC Rule 14a-11 or SEC
Regulation 14A) or other actual or
threatened solicitation of proxies or
consents by or on behalf of a Person
other than the Board; or
3. Corporate Transaction. The Company's
shareholders approve a reorganization,
merger, consolidation or sale or other
disposition of all or substantially all
the assets of the Company (a "Corporate
Transaction").
Exception. If all of the following apply,
the instance will not be a Corporate
Transaction: (a) all or substantially all
of the beneficial owners of the Company's
Outstanding Common Stock or Outstanding
Voting Securities, respectively,
immediately prior to the Corporate
Transaction will beneficially own,
directly or indirectly, more than 60% of,
respectively, the Outstanding Common
Stock and the Outstanding Voting
Securities of the corporation resulting
from the Corporate Transaction (including
any corporation that owns the Company or
all or substantially all of the Company's
assets directly or indirectly) in
substantially the same proportions as
their ownership immediately prior to the
Corporate Transaction, (b) no Person
(other than the Company, any employee
benefit plan -- or related trust -- of
the Company or the corporation resulting
from the Corporate Transaction) will
beneficially own, directly or indirectly,
20% or more of the Outstanding Common
Stock or Outstanding Voting Securities,
except to the extent that ownership
existed prior to the Corporate
Transaction, and (c) members of the
Incumbent Board constitute at least a
majority of the board of directors
resulting from the Corporate Transaction,
or
4. Liquidation/Dissolution of the Company.
The shareholders of the Company approve a
complete liquidation or dissolution of
the Company.
C. Change in Control Price. For purposes of this
Plan, "Change in Control Price" means the
higher of (1) the highest reported sales
price, regular way, of a Share in any
transaction reported on the NYSE Composite
Tape, on any other national exchange listing
the Shares or on NASDAQ or (2) if the Change
in Control results from a tender or exchange
offer or a Corporate Transaction, the highest
price per Share paid in that tender or
exchange offer or Corporate Transaction. For
Incentive Stock Options and Stock Appreciation
Rights relating to ISOs, the Change in Control
Price will be in all cases the Fair Market
Value of the Stock on the date the ISO or SAR
is cashed out. To the extent the consideration
paid in any Change in Control transaction
consists of all or in part securities or other
non-cash consideration, the Board will
determine the value of the securities or
non-cash consideration in its discretion.
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<PAGE>
Section 9. Effective Date/Term/Amendment/Termination.
A. Effective Date. This amended Plan will be
effective when ratified and approved by a
majority of the Company's shareholders who
vote on the matter at a meeting with a quorum
present. All Awards outstanding on the
effective date of these amendments to this
Plan will remain outstanding and will become
subject to the terms of this Plan as amended.
B. Termination. The Plan terminates on December
31, 2002. Awards outstanding as of the date
the Plan terminates will not be affected or
impaired by that termination.
C. Changes to the Plan/Restrictions. The Board
may amend, alter or discontinue the Plan,
including to incorporate changes in law, tax
and accounting rules, or other developments,
and to grant Awards that qualify for
beneficial treatment under those changes. No
change can be made, however, that would (1)
impair the rights of a participant granted
before that date without the participant's
consent, except for a change made to cause the
Plan to qualify for exemptions provided by
then-current law, including exemptions
relating to securities and taxation, or (2)
disqualify the Plan from the exemptions
provided by SEC Rule 16b-3 or for favorable
tax treatment under Sections 162(m) or 422. No
amendment can be made without approval of the
Company's shareholders if their approval is
required by law or is necessary to maintain
the exemptions under Rule 16b-3 or Sections
162(m) or 422. No term of the Plan can be
interpreted, amended or altered, nor can any
discretion or authority to act under the Plan
be exercised so as to disqualify the Plan
under Sections 162(m) or 422 or Rule 16b-3.
D. Changes to Prior Awards/Restrictions. The
Committee may amend the terms of any Award
granted before that date, prospectively or
retroactively, but no amendment can impair the
rights of any holder without the holder's
consent, except as noted in this Section 9.
The Committee may also substitute new Options
for previously granted Options, including
previously granted Options having higher
exercise prices.
Section 10. General Provisions.
A. No Intent to Transfer. The Committee may
require each person acquiring an Award or the
underlying Shares to represent to and agree
with the Company in writing that the person is
acquiring the Award or Shares without a view
to the distribution thereof. All Shares or
other securities issued under the Plan will be
subject to stop transfer orders and other
restrictions imposed by the Committee,
including restrictions imposed by law, SEC or
stock exchange rules or other restrictions.
The certificates for Shares or other Awards
may contain any legend the Committee deems
appropriate regarding any restrictions on
transfer or otherwise.
B. Other Compensation Permitted. Nothing in this
Plan will prevent the Company or any Affiliate
from adopting other or additional compensation
arrangements for their employees.
C. No Employment Rights. Nothing in this Plan or
any Award will confer on any employee any
right to continued employment, nor will either
interfere
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<PAGE>
with the right of the Company or any Affiliate
to terminate the employment of any employee at
any time.
D. Taxes. The participant must pay to the Company
or make arrangements satisfactory to the
Company regarding the payment of any Federal,
state, local and foreign taxes of any kind
required by law to be withheld regarding any
Award. The participant must satisfy that tax
obligation no later than when the amount
becomes includible in the person's gross
income for Federal income tax purposes. Unless
otherwise determined by the Company,
withholding obligations may be settled with
Stock, including Stock that is part of the
Award giving rise to the tax obligation. The
obligations of the Company under the Plan are
conditional on satisfaction of these taxes.
The Company and its Affiliates may deduct any
taxes due from any payment otherwise due the
participant if permitted by law.
E. Right of First Refusal. At the time of grant,
the Committee may require that the participant
offer to the Company the right to purchase
Shares resulting from an Award (or if the
Committee permits transfer, of the Award
itself) that the participant wishes to sell,
transfer, assign, pledge or otherwise
encumber. The Company will have the right to
purchase the Shares (or Award) at the then
Fair Market Value of the Shares, subject to
terms the Committee specifies at the time of
grant.
F. Reinvestment of Dividends Subject to
Availability. The reinvestment of dividends in
additional Restricted Stock can only occur if
sufficient Shares are available under Section
3 for that reinvestment (taking into account
then outstanding Awards).
G. Beneficiary Designation. The Committee will
establish procedures for a participant to
designate a beneficiary to whom any amounts
payable in the event of the participant's
death are to be paid.
H. Governing Law. The Plan and all Awards made
and actions taken under the Plan will be
governed by and construed in accordance with
the laws of the State of Delaware, without
regard to its conflicts of law principles.
I. Unfunded Status of Plan. The Board intends
that the Plan constitute an "unfunded" plan
for incentive and deferred compensation. The
Committee may create trusts or other
arrangements to meet the obligations created
under the Plan to deliver Stock or make
payments. Unless the Committee otherwise
determines, however, the existence of those
trusts or arrangements shall be consistent
with the unfunded status of the Plan.
Section 11. Definitions.
As used in this Plan:
"Affiliate" means a corporation or other entity
controlled by the Company and designated by the
Committee as eligible to participate in this Plan.
"Award" means an Option, Stock Appreciation Right or
Restricted Stock grant issued under the Plan.
"Board" means the Board of Directors of the Company.
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<PAGE>
"Code" means the Internal Revenue Code of 1986, as
amended, and any successor provisions. The Code
includes its related rules.
"Committee" is defined in Section 2.A.
"Common Stock" means the common stock, par value $.01
per share, of the Company.
"Company" or "FINOVA" means The FINOVA Group Inc., a
Delaware corporation.
"Disability" means permanent and total disability under
the Company's policies as they then exist. The
Committee may amend or interpret, for purposes of the
Plan, the Company's disability policies in its
discretion.
"Exchange Act" means the Securities Exchange Act of
1934, as amended, and any successor provisions. The
Exchange Act includes its related rules, as they may be
amended.
"Fair Market Value" as of any given date depends on
whether the Stock is immediately resold. The resale
price is the fair market value if the participant
resells that Stock in an arms-length transaction on the
open market on the same date the Fair Market Value is
to be determined. In all other cases, the Fair Market
Value is the average of the high and low reported sales
prices of the Stock on the given date. The reported
sales price will be determined in the following order,
as applicable: the NYSE Composite Tape, any other
national stock exchange listing the stock, NASDAQ, or
if the Stock's sales are not regularly reported by any
of the above, by the Committee in its good faith
discretion. For any day that is not a trading day on
the national securities markets, the previous trading
day will determine Fair Market Value.
"Incentive Stock Option" or "ISO" means any Option
intended to be and designated as an "incentive stock
option" within the meaning of Section 422 of the Code.
"Including" even if not capitalized, means including
without limitation.
"Non-Employee Director" means a director who is not
otherwise an employee of the Company or any Affiliate
and has not been so employed for any part of the
preceding fiscal year.
"Non-Qualified Option" or "NQ" means any Option that is
not an ISO.
"Option" means an option granted under Section 4 or 7.
"Outside Director" means a director who satisfies the
requirements of an "outside director" as defined in
Section 162(m) and who otherwise satisfies the
requirements of a "non-employee director" under Rule
16b-3.
"Plan" means this 1992 Stock Incentive Plan, as it may
be amended.
"Performance Based Restricted Stock" or "PBRS" means
Restricted Stock with performance conditions other than
the mere passage of time or continued employment or
service which satisfy the requirements as
performance-based
-13-
<PAGE>
compensation under Section 162(m).
"Preferred Stock" means preferred stock, par value
$.01, of the Company.
"Restricted Stock" means an Award granted under Section
6 or 7.C.
"Retirement" means (A) retirement from active
employment under a pension plan of the Company or an
Affiliate, (B) retirement under an employment contract
with the Company or an Affiliate, or (C) termination of
employment (or service as a non-employee director) at
or after age 55 under circumstances that the Committee
in its sole discretion deems to be retirement.
"SEC" means the Securities and Exchange Commission or
any successor.
"Section 16 Officer" means any officer (including any
employee director) subject to the insider trading and
reporting requirements of Section 16 of the Exchange
Act. Non-Employee Directors are not Section 16 Officers
for purposes of this Plan.
"Section 162(m)" means Section 162(m) of the Code.
"Section 422" means Section 422 of the Code.
"Shares" or "Stock" means the Common Stock or Preferred
Stock, as the case may be.
"Stock Appreciation Right" or "SAR" means a right
granted under Section 5.
"Termination of Employment" means the termination of
the participant's employment with the Company or an
Affiliate. It also occurs if the participant is
employed by a division, department or Affiliate that
ceases its affiliation with the Company. In any case,
the participant will not incur a Termination of
Employment if he or she immediately becomes an employee
of the Company or another Affiliate following that
event.
-14-
FINOVA CAPITAL CORPORATION
FOURTH AMENDMENT TO SIXTH AMENDMENT AND
RESTATEMENT OF CREDIT AGREEMENT DATED AS OF MAY 15, 1996
This FOURTH AMENDMENT TO SIXTH AMENDMENT AND RESTATEMENT OF CREDIT
AGREEMENT (this "Amendment") is dated as of May 15, 1996 and entered into by and
among FINOVA CAPITAL CORPORATION, a Delaware corporation (formerly, Greyhound
Financial Corporation, hereinafter the "Company"), the undersigned lenders
(collectively the "Lenders") the undersigned Agents, BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION, BANK OF MONTREAL, CHEMICAL BANK, CITIBANK, N.A.,
and FLEET BANK, N.A., individually and as agents (the "Agents") for the Lenders
hereunder, and CITIBANK, N.A., a national banking association, as administrative
agent (the "Administrative Agent") for the Lenders hereunder, and is made with
reference to that certain Sixth Amendment and Restatement dated as of May 16,
1994 of Credit Agreement dated as of May 31, 1976, by and among the Company, the
Lenders, the Agents and the Administrative Agent, as amended by a First
Amendment to Sixth Amendment and Restatement of Credit Agreement dated as of
September 30, 1994, a Second Amendment to Sixth Amendment and Restatement of
Credit Agreement dated as of May 11, 1995 and a Third Amendment to Sixth
Amendment and Restatement of Credit Agreement dated as of November 1, 1995 (as
so amended, the "Credit Agreement"). Capitalized terms used herein without
definition shall have the same meanings herein as set forth in the Credit
Agreement.
RECITALS
WHEREAS, the company has requested that the Termination Date be
extended to May 20, 2001, and that the provisions of Section 4.02(a) of the
Credit Agreement be modified;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
Section 1. AMENDMENTS TO THE CREDIT AGREEMENT
A. Amendments to Section 1.01: Definitions. The Credit Agreement is
hereby amended by deleting therefrom the definition of "Termination Date" and
substituting therefor the following:
"Termination Date shall mean May 20, 2001; provided, however,
that, if any Lender has consented to an Extension Request in accordance
with Section 2.17, with regard to the then existing Termination Date,
the then existing Termination Date as to such Lender shall be
automatically extended for one year from the then existing Termination
Date; provided, however, that, notwithstanding any other provisions of
this Agreement to the contrary, the Termination Date shall occur upon
the earlier termination in whole of the Commitments pursuant to Section
2.11 or 6.01."
<PAGE>
B. Amendment to Section 4.02(a). Section 4.02(a) of the Credit
Agreement is hereby amended and restated in its entirety as follows:
"(a) Permit the ratio of (i) an amount equal to (x) total
outstanding Indebtedness of the Company and its consolidate
subsidiaries less (y) the cash and cash equivalents of the Company and
its consolidated subsidiaries, except any funds held in escrow, to (ii)
Stockholders' Equity to be greater than 7.00 to 1.00 at any time;
provided that at such times, and only such times, as Long-term Debt is
rated so that Level 1 or Level 2 would apply to the determination of
the applicable Margin hereunder, the permitted maximum ratio shall be
7.25 to 1.00."
Section 2. COMPANY'S REPRESENTATIONS AND WARRANTIES
To induce the Lenders to enter into this Amendment and to amend the
Credit Agreement in the manner provided herein, the Company represents and
warrants to each Lender that the following statements are true, correct and
complete:
A. Corporate Power and Authority. The Company has all requisite
corporate power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement, as amended by this Amendment (the "Amended Agreement").
B. Authorization of Agreements. The execution and delivery of this
Amendment and the consummation of the Amended Agreement have been duly
authorized by all necessary corporate action on the part of the Company.
C. No Conflict. The execution and delivery by the Company of this
Amendment and the consummation by the Company of the Amended Agreement do not
and will not (i) violate any provision of any law or any governmental rule or
regulation applicable to the Company or its Subsidiaries, the certificate of
incorporation or bylaws of the Company or any order, judgment or decree of any
court or other agency of government binding on the Company or its Subsidiaries,
(ii) conflict with, result in a breach of or constitute (with due notice or
lapse of time or both) a default under any Contractual Obligation of the Company
or its Subsidiaries, (iii) result in or require the creation or imposition of
any Lien upon any of the properties or assets of stockholders or any approval or
consent of any Person under any contractual obligation of the Company or its
Subsidiaries (other than the parties hereto).
D. Governmental Consents. The execution and delivery by the Company of
this Amendment and the consummation by the Company of the Amended Agreement do
not and will not require any registration with, consent or approval of, or
notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body.
E. Binding Obligation. This Amendment has been duly executed and
delivered by the Company and this Amendment and the Amended Agreement are the
legally valid and binding obligations of the Company, enforceable against the
Company in accordance
<PAGE>
with their respective terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors'
rights generally or by principles of equity and commercial reasonableness.
F. Incorporation of Representations and Warranties From Credit
Agreement. The representations and warranties contained in Section 3.01 of the
Credit Agreement are true, correct and complete in all material respects to the
same extent as though made on and as of the date hereof, except as provided
above or to the extent such representations and warranties specifically relate
to an earlier date, in which case they were true, correct and complete in all
material respects on and as of such earlier date.
G. Absence of Default. No event has occurred and is continuing or will
result from the consummation of the transactions contemplated by this Amendment
that would, upon the giving of notice, the passage of time, or otherwise,
constitute an Event of Default.
Section 3. CONDITIONS TO EFFECTIVENESS
Section 1 of this Amendment shall become effective on the first date on
which all of the following conditions precedent shall have been satisfied (such
date being referred to herein as the "Amendment Effective Date"):
A. On or before the Amendment Effective Date, the Company shall deliver
to the Administrative Agent the following, each, unless otherwise noted, dated
the Amendment Effective Date:
1. Resolutions of its Board of Directors approving and
authorizing the execution, delivery, and performance of this Amendment,
certified as of the Amendment Effective Date by its corporate secretary
or an assistant secretary as being in full force and effect without
modification or amendment;
2. Signature and incumbency certificates of its officers
executing this Amendment; and
3. Executed copies of this Amendment.
B. On or before the Amendment Effective Date, all corporate and other
proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by the Agents, acting on behalf of the Lenders, and their counsel
shall be satisfactory in form and substance to the Agents and such counsel, and
the Agents and such counsel shall have received all such counterpart originals
or certified copies of such documents as the Agents may reasonably request.
<PAGE>
Section 4. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the Other Loan
Documents.
(i) On and after the date this Amendment becomes effective in
accordance with its terms, each reference in the Credit Agreement to
"this Agreement," "hereunder," "hereof," "herein" or words of like
import referring to the Credit Agreement, and each reference in the
Notes to the "Credit Agreement," "thereunder," "thereof" or words of
like import referring to the Credit Agreement shall mean and be a
reference to the Amended Agreement.
(ii) Except as specifically amended by this Amendment, the
Credit Agreement and the Notes shall remain in full force and effect
and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this
Amendment shall not, except as expressly provided herein, constitute a
waiver of any provision of, or operate as a waiver of, any right, power
or remedy of the Agent or any Lender under, the Credit Agreement or the
Notes.
B. Fees and Expenses. The Company acknowledges that all costs, fees and
expenses as described in Section 8.05 of the Credit Agreement incurred by the
Administrative Agent and its counsel with respect to this Amendment and the
documents and transactions contemplated hereby shall be for the account of the
Company.
C. Headings. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
D. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
E. Counterparts; Effectiveness. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document. This Amendment shall become effective as of the date hereof
upon the execution and delivery of a counterpart hereof by the Company and the
Lenders.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
The Company:
FINOVA CAPITAL CORPORATION
By /s/ Robert J. Fitzsimmons
Senior Vice President-Treasurer
By /s/ Meilee Smythe
Vice President, Assistant Treasurer
The Lenders:
CITIBANK, N.A. (Individually and as an Agent and Administrative Agent)
By /s/ Marjorie Futorinick
Vice President
BANK OF AMERICAN NATIONAL TRUST AND SAVINGS ASSOCIATION
By /s/ Robert Troutman
Managing Director
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (as an Agent)
By /s/ Robert Troutman
Managing Director
BANK OF MONTREAL (Individually and as an Agent)
By /s/ J. Donald Higgins
Managing Director
CHEMICAL BANK (Individually and as an Agent)
By /s/ George C. Johnson
Vice President
FLEET BANK, N.A. (Individually and as an Agent)
By /s/ S. H. Lee
Vice President
<PAGE>
BANK OF AMERICA ILLINOIS
By /s/ Robert Troutman
Managing Director
THE CHASE MANHATTAN BANK
(National Association)
By /s/ Susan P. Herpy
Vice President
CREDIT SUISSE
By /s/ Lori S. Jenner
Associate
By /s/ Marilou Palenzuela
Member of Senior Management
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY
By /s/ Masatake Yashiro
General Manager
NATIONSBANK OF GEORGIA, N.A.
By /s/ Betty Reed
Senior Vice Prsident
UNION BANK OF SWITZERLAND
LOS ANGELES BRANCH
By /s/ Philip A. Stephens
Vice President
By /s/ Thomas G. Jackson
Managing Director
<PAGE>
WESTDEUTSCHE LANDESBANK
GIROZENTRALE - NEW YORK BRANCH
By /s/ Raymond K. Mill
Vice President
By /s/ Laura Spichegn
Associate
CREDIT LYONNAIS - San Francisco Branch
By /s/ William J. Fischer
Vice President & Manager
FIRST INTERSTATE BANK OF ARIZONA, N.A.
By /s/ Kevin Halloran
Vice President
NATIONAL WESTMINISTER BANK PLC
By /s/ Maria Amaral-LeBlanc
Vice President
ROYAL BANK OF CANADA
By /s/ Glen D. Carter
Senior Manager
SOCIETE GENERALE
By /s/ Staley Stewart
Vice President
BANK ONE, ARIZONA, N.A.
By /s/ Cliff Payson
Vice President
<PAGE>
DESDNER BANK AG LOS ANGELES AGENCY
By /s/ Jon M. Bland
Senior Vice President
By /s/ Vitol Wiacek
Assistant Vice President
UNION BANK OF CALIFORNIA, N.A.
By /s/ Donald H. Rubin
Vice President
THE LONG-TERM CREDIT BANK OF JAPAN, LTD., LOS ANGELES AGENCY
By /s/ Morgan Edwards II
Deputy General Manager
THE MITSUBISHI TRUST AND BANKING CORPORATION, acting through its LOS
ANGELES AGENCY
By /s/ Hiroshi Koseh
Senior Vice President &
Chief Manager
ARAB BANKING CORPORATION (New York Branch)
By /s/ Richard Whelan
Vice President and Manager
Los Angeles Representative Office
THE BANK OF NOVA SCOTIA
By /s/ John Quick
Officer
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By /s/ Jane W. Workman
Senior Vice President
BANK OF AMERICA ARIZONA
By /s/ John Kinney
Vice President
<PAGE>
BANK OF HAWAII
By /s/ Joseph T. Donalson
Vice President
BANQUE NATIONALE DE PARIS
By /s/ Margaret Mudd
Vice President
COMERICA BANK
By /s/ Dick Price
Vice President
CAISSE NATIONALE de CREDIT AGRICOLE
By /s/ Dean Balice
Senior Vice President
Branch Manager
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK
By /s/ Karen A. Brinkman
Vice President
By /s/ Robert B. Herbe
Vice President
KREDIETBANK N.V.
By /s/ Robert Snauffer
Vice President
By /s/ Tod R. Angus
Vice President
NBD BANK
By /s/ David Cleifh
Authorized Agent
<PAGE>
CANADIAN IMPERIAL BANK OF COMMERCE
By /s/ Stephen D. Reynolds
Authorized Signatory
UNITED STATES NATIONAL BANK OF OREGON
By /s/ Stephen Mitchell
Vice President
ABN AMRO BANK N.V., LOS ANGELES INTERNATIONAL BRANCH
By: ABN AMRO North America Inc., as Agent
By /s/ Paul K. Stimpfl
Vice President
By /s/ John A. Miller
Group Vice President/Director
FUJI BANK, LTD.
By /s/ N. Matsuura
Joint General Manager
THE SAKURA BANK, LTD.
By /s/ Ofusa Sato
SVP and Assistant General Manager
BANQUE PARIBAS
By /s/ Lynne A. Luedors
Vice Prsident
By /s/ John Cate
Group Vice President
COMPAGNIE FINANCIERE DE
CIC ET DE L'UNION EROPEENE
By /s/ Mark Skiden
Vice President
By /s/ Nancy Nelson
Assistant Vice President
<PAGE>
DEUTSCHE BANK AG NEW YORK
AND/OR CAYMAN ISLANDS BRANCES
By /s/ Gayma Z. Shivnarain
Vice President
By /s/ Robert M. Powers
Assistant Vice President
COMMERZBANK AG,
LOS ANGELES BRANCH
By /s/ Christian Jagenberg
Senior Vice President and Manager
By /s/ Steven F. Larsen
Vice President
THE DAI-ICHI KANGYO BANK, LTD.
LOS ANGELES AGENCY
By /s/ Tomohiro Nozaki
Sr. Vice President & Joint General Manager
BANCA MONTE DEIPASCHI DI SIENA S.p.A.
By /s/ S.M. Sondak
F.V.P. & Dep. General Manager
By /s/ Brian R. Landy
Vice President
THE SUMITOMO TRUST AND BANKING CO., LTD.,
LOS ANGELES AGENCY
By /s/ Thomas Y. Benjamin
Vice President & Manager
CHIBA BANK, LTD.
By /s/ Kazuaki Kondo
General Manager
<PAGE>
DEN DANSKE BANK AKTIESELSKAB,
CAYMAN ISLANDS BRANCH
By /s/ Mogens Sondergaard
Vice President
By /s/ John A. O'Neill
Vice President
FINOVA CAPITAL CORPORATION
FOURTH AMENDMENT TO CREDIT AGREEMENT (SHORT TERM FACILITY)
DATED AS OF MAY 15, 1996
This FOURTH AMENDMENT TO CREDIT AGREEMENT (SHORT TERM
FACILITY) ("Amendment") is dated as of May 15, 1996 and entered into by and
among FINOVA CAPITAL CORPORATION, a Delaware corporation (formerly known as
Greyhound Financial Corporation, hereinafter the "Company"), the undersigned
lenders (collectively the "Lenders"), the undersigned Agents, BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, BANK OF MONTREAL, CHEMICAL BANK,
CITIBANK, N.A., and FLEET BANK, N.A., and FLEET BANK, N.A., individually and as
agents (the "Agents") for the Lenders hereunder, and CITIBANK, N.A., a national
banking association, as administrative agent (the "Administrative Agent") for
the Lenders hereunder, and is made with reference to that certain Credit
Agreement (Short Term Facility) dated as of May 16, 1994, by and among the
Company, the Lenders, the Agents and the Administrative Agent, as amended by a
First Amendment to Credit Agreement dated as of September 30, 1994, a Second
Amendment to Credit Agreement dated as of May 11, 1995, and a Third Amendment to
Credit Agreement dated as of November 1, 1995 (as so amended, the "Credit
Agreement"). Capitalized terms used herein without definition shall have the
same meanings herein as set forth in the Credit Agreement.
RECITALS
WHEREAS, the Company has requested that the Termination Date
be extended 364 days from May 21, 1996 to May 20, 1997 and that the provisions
of Section 4.02(a) of the Credit Agreement be modified;
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, the parties hereto agree
as follows:
Section 1. EXTENSION OF TERMINATION DATE
The Company hereby requests that the Termination Date be
extended for 364 days as contemplated by Section 2.15 of the Credit Agreement.
Each Lender executing this Amendment shall be deemed to have elected to consent
to such extension for the purposes of Section 2.15(b) of the Credit Agreement.
Section 2. AMENDMENTS TO SECTION 4.02(a) OF THE CREDIT
AGREEMENT
Section 4.02(a) of the Credit Agreement is hereby amended and
restated in its entirety as follows:
<PAGE>
"(a) Permit the ratio of (i) an amount equal to (x)
total outstanding Indebtedness of the Company and its
consolidated subsidiaries less (y) the cash and cash
equivalents of the Company and its consolidated subsidiaries,
except any funds held in escrow, to (ii) Stockholders' Equity
to be greater than 7.00 to 1.00 at any time; provided that at
such times, and only such times, as Long-term Debt is rated so
that Level 1 or Level 2 would apply to the determination of
the applicable Margin hereunder, the permitted maximum ration
shall be 7.25 to 1.00."
Section 3. COMPANY'S REPRESENTATIONS AND WARRANTIES
To induce the Lenders to enter into this Amendment
and to amend the Credit Agreement in the manner provided herein, the Company
represents and warrants to each Lender that the following statements are true,
correct and complete:
A. Corporate Power and Authority. The Company has all
requisite corporate power and authority to enter into this Amendment and to
carry out the transactions contemplated by, and perform its obligations under,
the Credit Agreement, as amended by this Amendment (the "Amended Agreement").
B. Authorization of Agreements. The execution and delivery of
this Amendment and the consummation of the Amended Agreement have been duly
authorized by all necessary corporate action on the part of the Company.
C. No Conflict. The execution and delivery by the Company of
this Amendment and the consummation by the Company of the Amended Agreement do
not and will not (i) violate any provision of any law or any governmental rule
or regulation applicable to the Company or its Subsidiaries, the certificate of
incorporation or bylaws of the Company or any order, judgment or decree of any
court or other agency of government binding on the Company or its Subsidiaries,
(ii) conflict with, result in a breach of or constitute (with due notice or
lapse of time or both) a default under any Contractual Obligation of the Company
or its Subsidiaries, (iii) result in or require the creation or imposition of
any Lien upon any of the properties or assets of stockholders or any approval or
consent of any Person under any contractual obligation of the Company or its
Subsidiaries (other than the parties hereto).
D. Governmental Consents. The execution and delivery by the
Company of this Amendment and the consummation by the Company of the Amended
Agreement do not and will not require any registration with, consent or approval
of, or notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body.
E. Binding Obligation. This Amendment has been duly executed
and delivered by the Company and this Amendment and the Amended Agreement are
the legally valid and binding obligations of the Company, enforceable against
the Company in accordance with their respective terms, except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or limiting creditors' rights generally or by principles of
<PAGE>
equity and commercial reasonableness.
F. Incorporation of Representations and Warranties From Credit
Agreement. The representations and warranties contained in Section 3.01 of the
Credit Agreement are true, correct and complete in all material respects to the
same extent as though made on and as of the date hereof, except as provided
above or to the extent such representations and warranties specifically relate
to an earlier date, in which case they were true, correct and complete in all
material respects on and as of such earlier date.
G. Absence of Default. No event has occurred and is continuing
or will result from the consummation of the transactions contemplated by this
Amendment that would, upon the giving of notice, the passage of time, or
otherwise, constitute an Event of Default.
Section 4. CONDITIONS TO EFFECTIVENESS
Section 2 of this Amendment shall become effective on
the first date on which all of the following conditions precedent shall have
been satisfied (such date being referred to herein as the "Amendment Effective
Date"):
A. On or before the Amendment Effective Date, the Company
shall deliver to the Administrative Agent the following, each, unless otherwise
noted, dated the Amendment Effective Date:
1. Resolutions of its Board of Directors approving and
authorizing the execution, delivery, and performance of this Amendment,
certified as of the Amendment Effective Date by its corporate secretary
or an assistant secretary as being in full force and effect without
modification or amendment;
2. Signature and incumbency certificates of its officers
executing this Amendment; and
3. Executed copies of this Amendment.
B. On or before the Amendment Effective Date, all corporate
and other proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by the Agents, acting on behalf of the Lenders, and their counsel
shall be satisfactory in form and substance to the Agents and such counsel, and
the Agents and such counsel shall have received all such counterpart originals
or certified copies of such documents as the Agents may reasonably request.
Section 5. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the
Other Loan Documents.
(i) On and after the date this Amendment becomes
effective in accordance with its
<PAGE>
terms, each reference in the Credit Agreement to "this
Agreement," "hereunder," "hereof," "herein" or words of like
import referring to the Credit Agreement, and each reference
in the Notes to the "Credit Agreement," "thereunder,"
"thereof" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Amended
Agreement.
(ii) Except as specifically amended by this
Amendment, the Credit Agreement and the Notes shall remain in
full force and effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this
Amendment shall not, except as expressly provided herein,
constitute a waiver of any provision of, or operate as a
waiver of, any right, power or remedy of the Agent or any
Lender under, the Credit Agreement or the Notes.
B. Fees and Expenses. The Company acknowledges that all costs,
fees and expenses as described in Section 8.05 of the Credit Agreement incurred
by the Administrative Agent and its counsel with respect to this Amendment and
the documents and transactions contemplated hereby shall be for the account of
the Company.
C. Headings. Section and subsection headings in this Amendment
are included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
D. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
E. Counterparts; Effectiveness. This Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document. This Amendment shall become
effective as of the date hereof upon the execution and delivery of a counterpart
hereof by the Company and the Lenders.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
The Company:
FINOVA CAPITAL CORPORATION
By /s/ Robert J. Fitzsimmons
Senior Vice President-Treasurer
By /s/ Meilee Smythe
Vice President, Assistant Treasurer
The Lenders:
CITIBANK, N.A. (Individually and as an Agent and Administrative Agent)
By /s/ Marjorie Futorinick
Vice President
BANK OF AMERICAN NATIONAL TRUST AND SAVINGS ASSOCIATION
By /s/ Robert Troutman
Managing Director
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (as an Agent)
By /s/ Robert Troutman
Managing Director
BANK OF MONTREAL (Individually and as an Agent)
By /s/ J. Donald Higgins
Managing Director
CHEMICAL BANK (Individually and as an Agent)
By /s/ George C. Johnson
Vice President
FLEET BANK, N.A. (Individually and as an Agent)
By /s/ S. H. Lee
Vice President
<PAGE>
BANK OF AMERICA ILLINOIS
By /s/ Robert Troutman
Managing Director
THE CHASE MANHATTAN BANK
(National Association)
By /s/ Susan P. Herpy
Vice President
CREDIT SUISSE
By /s/ Lori S. Jenner
Associate
By /s/ Marilou Palenzuela
Member of Senior Management
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY
By /s/ Masatake Yashiro
General Manager
NATIONSBANK OF GEORGIA, N.A.
By /s/ Betty Reed
Senior Vice Prsident
UNION BANK OF SWITZERLAND
LOS ANGELES BRANCH
By /s/ Philip A. Stephens
Vice President
By /s/ Thomas G. Jackson
Managing Director
<PAGE>
WESTDEUTSCHE LANDESBANK
GIROZENTRALE - NEW YORK BRANCH
By /s/ Raymond K. Mill
Vice President
By /s/ Laura Spichegn
Associate
CREDIT LYONNAIS - San Francisco Branch
By /s/ William J. Fischer
Vice President & Manager
FIRST INTERSTATE BANK OF ARIZONA, N.A.
By /s/ Kevin Halloran
Vice President
NATIONAL WESTMINISTER BANK PLC
By /s/ Maria Amaral-LeBlanc
Vice President
ROYAL BANK OF CANADA
By /s/ Glen D. Carter
Senior Manager
SOCIETE GENERALE
By /s/ Staley Stewart
Vice President
BANK ONE, ARIZONA, N.A.
By /s/ Cliff Payson
Vice President
<PAGE>
DESDNER BANK AG LOS ANGELES AGENCY
By /s/ Jon M. Bland
Senior Vice President
By /s/ Vitol Wiacek
Assistant Vice President
UNION BANK OF CALIFORNIA, N.A.
By /s/ Donald H. Rubin
Vice President
THE LONG-TERM CREDIT BANK OF JAPAN, LTD., LOS ANGELES AGENCY
By /s/ Morgan Edwards II
Deputy General Manager
THE MITSUBISHI TRUST AND BANKING CORPORATION, acting through its LOS
ANGELES AGENCY
By /s/ Hiroshi Koseh
Senior Vice President &
Chief Manager
ARAB BANKING CORPORATION (New York Branch)
By /s/ Richard Whelan
Vice President and Manager
Los Angeles Representative Office
THE BANK OF NOVA SCOTIA
By /s/ John Quick
Officer
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By /s/ Jane W. Workman
Senior Vice President
BANK OF AMERICA ARIZONA
By /s/ John Kinney
Vice President
<PAGE>
BANK OF HAWAII
By /s/ Joseph T. Donalson
Vice President
BANQUE NATIONALE DE PARIS
By /s/ Margaret Mudd
Vice President
COMERICA BANK
By /s/ Dick Price
Vice President
CAISSE NATIONALE de CREDIT AGRICOLE
By /s/ Dean Balice
Senior Vice President
Branch Manager
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK
By /s/ Karen A. Brinkman
Vice President
By /s/ Robert B. Herbe
Vice President
KREDIETBANK N.V.
By /s/ Robert Snauffer
Vice President
By /s/ Tod R. Angus
Vice President
NBD BANK
By /s/ David Cleifh
Authorized Agent
<PAGE>
CANADIAN IMPERIAL BANK OF COMMERCE
By /s/ Stephen D. Reynolds
Authorized Signatory
UNITED STATES NATIONAL BANK OF OREGON
By /s/ Stephen Mitchell
Vice President
ABN AMRO BANK N.V., LOS ANGELES INTERNATIONAL BRANCH
By: ABN AMRO North America Inc., as Agent
By /s/ Paul K. Stimpfl
Vice President
By /s/ John A. Miller
Group Vice President/Director
FUJI BANK, LTD.
By /s/ N. Matsuura
Joint General Manager
THE SAKURA BANK, LTD.
By /s/ Ofusa Sato
SVP and Assistant General Manager
BANQUE PARIBAS
By /s/ Lynne A. Luedors
Vice Prsident
By /s/ John Cate
Group Vice President
COMPAGNIE FINANCIERE DE
CIC ET DE L'UNION EROPEENE
By /s/ Mark Skiden
Vice President
By /s/ Nancy Nelson
Assistant Vice President
<PAGE>
DEUTSCHE BANK AG NEW YORK
AND/OR CAYMAN ISLANDS BRANCES
By /s/ Gayma Z. Shivnarain
Vice President
By /s/ Robert M. Powers
Assistant Vice President
COMMERZBANK AG,
LOS ANGELES BRANCH
By /s/ Christian Jagenberg
Senior Vice President and Manager
By /s/ Steven F. Larsen
Vice President
THE DAI-ICHI KANGYO BANK, LTD.
LOS ANGELES AGENCY
By /s/ Tomohiro Nozaki
Sr. Vice President & Joint General Manager
BANCA MONTE DEIPASCHI DI SIENA S.p.A.
By /s/ S.M. Sondak
F.V.P. & Dep. General Manager
By /s/ Brian R. Landy
Vice President
THE SUMITOMO TRUST AND BANKING CO., LTD.,
LOS ANGELES AGENCY
By /s/ Thomas Y. Benjamin
Vice President & Manager
CHIBA BANK, LTD.
By /s/ Kazuaki Kondo
General Manager
<PAGE>
DEN DANSKE BANK AKTIESELSKAB,
CAYMAN ISLANDS BRANCH
By /s/ Mogens Sondergaard
Vice President
By /s/ John A. O'Neill
Vice President
THE FINOVA GROUP INC.
1996 MANAGEMENT INCENTIVE PLAN
I. PURPOSE:
The purpose of the Management Incentive Plan ("MIP") is to give key management
employees an incentive to fully contribute to annual improvement of our
historical operating results through effective leadership and action. By
operating as efficiently and effectively as possible, The FINOVA Group Inc. and
its subsidiaries (the "Company") can continue to position itself as the
"low-cost producer" among its peers, a valuable competitive advantage.
II. PARTICIPANTS:
The Executive Compensation Committee of The FINOVA Group Inc. ("the Committee")
is provided a list of Executive Officer participants (Securities Exchange Act of
1934 Section 16(b) insiders) at its first meeting of the year (other
participants may be designated by the Chairman and Chief Executive Officer). The
list includes the proposed current year target MIP percentage, target MIP award
and estimated earnings for each participant. New hires, promotions, and
acquisitions will increase this estimate. Terminations, demotions, deaths,
retirements, disabilities, and divestitures will decrease this estimate. The
events above will generally result in pro-rata awards at the same time regular
awards are made at the beginning of the following year. Participants who resign
or are terminated may be eligible for up to 50% of their pro-rata bonus, at the
discretion of the CEO or SVP-Human Resources and provided they enter into the
standard release of liability.
The target percentage for each participant is established at the beginning of
each year. Target percentages are based on responsibilities and do not generally
change from year to year except for promotions and adjustments resulting from
market survey data.
Each participant shall prepare a list of individual objectives at the beginning
of the plan year. The objectives cover financial, task, leadership, development
and innovation goals. Each objective is weighted based on relative importance.
III. FINANCIAL OBJECTIVES:
The most critical Financial Objectives are determined by appropriate senior
managers of the Company. These Financial Objectives are then weighted. These
objective and percentage weightings are:
PERFORMANCE MEASURE FINOVA FINOVA
------------------- GROUP CAPITAL
----- -------
Earnings Per Share from Cont. Ops [Targets Omitted]
Relative Shareholder Performance
Return on Equity
Net income from Cont. Ops.
Average Funds Employed
The target, minimum and maximum performance level for each measurement are
presented to the Committee at its first meeting of the year. Minimum performance
results in 50% achievement, target performance results in 100% achievement and
maximum performance results in 187% achievement with consideration given for
over achievement of any measure. However, maximum pool may not exceed 187% of
target pool. Performance less than minimum results in zero achievement. Other
results are interpolated.
Extraordinary and unusual events will generally be excluded from results.
Accruals under this Plan are added back for earnings calculations.
<PAGE>
IV. RELATIVE SHAREHOLDER PERFORMANCE:
This measure is a comparison of the Company's total shareholder return ("TSR")
as compared to the market TSR. TSR is the dividend yield added to the share
price appreciation (depreciation). The market TSR is the lesser of the TSR for
the S&P 500 or the S&P Financial Index. The measurement is based on the average
of the daily high and low share price for December of the previous year and
December of the plan year. The minimum performance level, which results in 50%
achievement, is for the Company's TSR to [omited]. The target performance level,
100% achievement, is for the Company's TSR to [omited]. The maximum performance
level, 187% achievement, is for the Company's TSR to [omitted].
V. MIP POOLS AND AWARDS:
The target MIP Pool for the Company is the sum of each participant's target
award (earnings multiplied by target percentage). The MIP pool available for the
Company is the target MIP pool multiplied by the achievement level of all
financial objectives (0% or 50%-187%).
At the end of the plan year, each MIP participant will be reviewed to assess
their level of completion of their individual objectives. The individual
objectives performance, the individual target percentage and the financial
objective achievement are all considered when determining recommended awards.
Individual awards may not exceed 200% of their target award. The sum of all
individual awards may not exceed the MIP pool available.
An alternate MIP pool is available to The FINOVA Group Inc. participants. The
pool is 25% of subsidiary pools achieved.
VI. SPECIAL ACHIEVEMENT AWARDS AND POOLS:
Exempt Employees. Special Achievement awards are available for exempt employees
who do not have job responsibilities which allow them to be an MIP participant.
The amount of each award is based on the individual's accomplishments of their
objectives detailed at the beginning of the year and the achievement level of
the financial objectives. The awards may be up to 15% of base earnings during
the plan year for exempt employees.
Non-Exempt Employees. Special Achievement Awards are available for non-exempt
employees at the sole discretion of the Company. The amount of each award may be
up to 10% of plan year base earnings (excluding overtime pay). Although
non-exempt employee awards are generally based upon accomplishment of certain
objectives, the award is determined at the sole discretion of the Company.
Unused MIP awards are available for Special Achievement awards. However, unused
Special Achievement awards are not available for MIP awards.
VII. APPROVAL AND DISTRIBUTION:
The Committee is responsible for approving any partial or full awards to
Executive Officers (Section 16(b) insiders). The Chief Executive Officer of The
FINOVA Group Inc. is responsible for approving all other partial or full awards.
The exercise of discretion in the evaluation of executive performance and the
establishment of individual awards shall be guided by this MIP, but shall not be
fettered by the provisions hereof.
For example, the Committee may consider matters such as extensive changes in the
environment, significant increases in stockholder value while earnings are below
target, and significant excess accruals from prior years.
VIII. COMPENSATION ADVISORY COMMITTEE:
The Compensation Advisory Committee is appointed by the Chief Executive Officer
of The FINOVA Group Inc. to assist in the implementation and administration of
this MIP. The Compensation Advisory Committee shall propose administrative
guidelines to govern interpretations of this MIP and to resolve ambiguities, if
any, but will not have
<PAGE>
the power to terminate, alter, amend, or modify this MIP or any actions
hereunder in any way at any time.
IX. SPECIAL COMPENSATION STATUS:
All bonuses paid under this MIP shall be deemed to be special compensation and,
therefore, unless otherwise provided for in another plan or agreement, will not
be included in determining the earnings of the recipients for the purposes of
any pension, group insurance or other plan or agreement of the Company.
X. PLAN TERMINATION:
Subject to the provisions of section XII, this MIP shall continue in effect
until such time as it is canceled or otherwise terminated by action of the
Committee. While it is contemplated that incentive awards for the MIP will be
made, the Committee may terminate, amend, alter, or modify this MIP at any time
and from time to time. The Committee shall also have the right to alter by
addition or deletion, the participants in this MIP and their target awards.
Participation in this MIP shall create no right to participate in any future
year's plan.
XI. EMPLOYEE RIGHTS:
No participant in this MIP shall be deemed to have a right to any part or share
of this MIP, except as provided in section XII. This MIP does not create for any
employee or participant any right to be retained in service by any company, nor
affect the right of any such company to discharge any employee or participant
from employment with or without cause or for no reason at all.
XII. CHANGE OF CONTROL:
(a) Impact of Event. Notwithstanding any other provision of
this Plan to the contrary, after or as a result of a Change in Control and one
of the following events occurs:
(i) the participant is terminated (except for Cause)
during the life of the Plan,
(ii) participant's employment is terminated for Good
Reason within 24 months after or as a result of a Change in Control, or
(iii) the Plan is terminated or amended so that it is
less favorable to the participant, participant shall be paid by the
Company, within 60 days of the termination or amendment, whichever
occurs sooner, a pro rata portion of the sums to be paid under this
Plan (from January 1, 1996 to the end of the last full calendar month
on or before the termination or amendment date, as the case may be),
the greater of:
(x) participant's target award, or
(y) the actual Plan performance annualized using the
most recently available audited or unaudited financial results on or
before the payment date, including the Change in Control Price for the
Company's common stock, as applicable for each Financial Objective of
the Plan.
(b) Definitions: For purposes of this Plan, the
following terms shall have the meanings noted below, unless the context
clearly requires otherwise:
(i) Change in Control. Any of the following events
shall constitute a Change in Control:
(A) the acquisition by an individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"))(a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20%
<PAGE>
or more of either (I) the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock") or (II) the
combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (A), the following acquisitions shall not
constitute a Change of Control: (W) any acquisition directly from the
Company other than an acquisition by virtue of the exercise of a
conversion privilege unless the security being so converted was itself
acquired directly from the Company, (X) any acquisition by the Company,
(Y) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by
the Company or (Z) any acquisition by any corporation pursuant to a
transaction which complies with clauses (I), (II) and (III) of
subsection (C) of this Section XII(b)(i); or
(B) individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming
a director subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent
Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board;
or
(C) approval by the shareholders of the Company of a reorganization,
merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination"), in each case, unless, following such Business
Combination, (I) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or
all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Business Combination of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (II) no Person (excluding any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly
or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (III) at least a majority
of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of
the Board, providing for such Business Combination; or
(D) approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(ii) Change in Control Price. For purposes of this Plan, "Change in
Control Price" shall have the same meaning for such term as in effect in the
Company's 1992 Stock Incentive Plan, as amended from time to time; provided,
however, that if that plan is terminated, the definition in that plan
immediately preceding such termination shall continue to apply to this Plan;
provided, further, that no amendment of the definition of such term shall apply
to this Plan with respect to a participant if such amendment would have an
adverse impact on the aggregate benefits available to a participant in this Plan
and such amendment was made during the period from six months preceding a Change
in Control (if a Change in Control event was contemplated by the Company at that
time) to twenty four months after such an event.
<PAGE>
(iii) Cause. For purposes of this Plan, "Cause" shall mean:
(A) the willful and continued failure of the
participant to perform substantially the participant's duties
with the Company or one of its affiliates (other than any such
failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance
is delivered to the participant by the Board or the Chairman
of the Company which specifically identifies the manner in
which the Board or Chairman believes that the participant has
not substantially performed the participant's duties, or
(B) the willful engaging by the participant in
illegal conduct or gross misconduct which is materially and
demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act on
the part of the participant shall be considered "willful" unless it is
done or omitted to be done by the participant in bad faith or without
reasonable belief that the participant's action or omission was in the
best interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or
upon the instructions of the Chairman or a senior officer of the
Company or based upon the advice of counsel for the Company shall be
conclusively presumed to be done or omitted to be done by the
participant in good faith and in the best interests of the Company. The
cessation of employment of the participant shall not be deemed to be
for Cause unless and until there shall have been delivered to the
participant a copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters of the entire membership of the Board
at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the participant and the participant is
given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the
participant is guilty of the conduct described in subparagraph (I) or
(II) above, and specifying the particulars thereof in detail.
(iv) Good Reason. For purposes of this Plan, "Good Reason" shall mean:
(A) the assignment to the participant of any duties
inconsistent in any respect with the Participant's position
(including status, offices, titles and reporting
requirements), authority, duties or responsibilities
immediately prior to the Change of Control, or any other
action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for
this purpose an isolated, insubstantial and inadvertent action
not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the
Participant,
(B) any reduction by the Company of the participant's
base salary, annual bonus, incentive opportunities, retirement
benefits, welfare or fringe benefits below the highest level
enjoyed by the participant during the 120-day period prior to
the Change of Control;
(C) the Company's requiring the participant to be
based at any office or location other than that at which he
or she was based immediately prior to the Change of Control
or the Company's requiring the participant to travel on
Company business to a substantially greater extent than
required immediately prior to the Change of Control;
(D) any purported termination by the Company of the
participant's employment otherwise than as expressly permitted
by this Agreement; or
(E) any failure by the Company to comply with and
satisfy Section XII(d) of this Plan.
For purposes of this Plan, any good faith determination of "Good Reason" made by
the participant shall be conclusive.
(c). Excise Taxes. Anything in this Plan to the contrary
notwithstanding, in the event it shall be
<PAGE>
determined that any payment or distribution by the Company to or for
the benefit of the participant who also is a participant in either of
the Company's Executive Severance Plans (Tier 1 and Tier 2 Employees)
(whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, but determined without regard
to any additional payments required under this Section XII (c)) (a
"Payment") would be subject to the excise tax imposed by Section 4999
of the Internal Revenue Code of 1986, as amended, or any comparable
successor provision, or any interest or penalties are incurred by the
participant with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the participant shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the participant of all taxes
(including any interest and penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the participant retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(d). The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to
assume expressly and agree to perform this Plan in the same manner and
to the same extent that the Company would be required to perform it if
no such succession had taken place. As used in this Plan, Company shall
mean the Company as hereinbefore defined and any entity which assumes
and agrees to perform this Plan by operation of law, or otherwise.
THE FINOVA GROUP INC.
1996-1998 PERFORMANCE SHARE INCENTIVE PLAN
1. PURPOSE
The purpose of this Plan is to promote the long term interests of the Company
and its shareholders by providing (i) a means for attracting and retaining, and
(ii) a system of cash reward for the accomplishment of long term predefined
objectives by designated key officers of the Company and its Affiliates.
2. DEFINITIONS:
The following definitions are applicable to the Plan:
"Affiliate" - Any "Parent Corporation" or "Subsidiary Corporation" of
the Company as such terms are defined in Section 425 (e) and (f), or
the successor provisions, if any, respectively, of the Code (as defined
herein).
"Award" - The grant by the Board of a Performance Share or Shares as
provided in the plan.
"Board" - The Board of Directors of The FINOVA Group Inc. or a duly
authorized Committee of such Board.
"Code" - The Internal Revenue Code of 1986, as amended, or its
successor general income tax law of the United States.
"Company" - The FINOVA Group Inc.
"Company Achievement Percentage" - The actual performance of the
Financial Measures during the relevant period weighted proportionately
as determined by the Plan.
"Financial Measures" - The performance measures established by the
Board for the Plan objectives, such as return on equity, net income or
level of nonperforming assets, for example.
"Participant" - Any officer of the Company or any of its Affiliates who
is selected by the Board to receive an award.
"Performance Period" - The period of time selected by the Board for the
purpose of determining performance goals and measuring the degree of
accomplishment.
"Performance Share Award" - An Award.
"Plan" - The Performance Share Incentive Plan of the Company.
"Share" - A Performance Share shall serve as the basis for any Award
under the Plan.
"Target Company Achievement Percentage" - Company Achievement
Percentage assuming that target performance of the Financial Measures
was achieved.
3. ADMINISTRATION
The Plan shall be administered by the Board. Except as limited by the express
provisions of the Plan, the Board
<PAGE>
shall have sole and complete authority and discretion to (i) select Participants
and grant Awards; (ii) determine the number of Shares to be subject to Awards
generally, as well as to individual Awards granted under the Plan; (iii)
determine the terms and conditions upon which Awards shall be granted under the
Plan; (iv) prescribe the form and terms of instruments evidencing such grants;
and (v) establish from time to time regulations for the administration of the
Plan, interpret the Plan, and make all determinations deemed necessary or
advisable for the administration of the Plan.
4. PARTICIPATION:
The Board may select from time to time Participants for the Plan. Participants
shall be key executives of the Company or its Affiliates who, in the opinion of
the Board, contribute in a substantial measure to the successful performance of
the Company or its Affiliates. The Company shall have the authority to add new
participants on a pro rata basis if hired during the first year of a performance
period. In all cases, the Executive Compensation Committee must approve
participants with target levels greater than 30% or Securities Exchange Act of
1934 Section 16(b) individuals.
5. PERFORMANCE SHARE AWARDS:
The Chairman and Chief Executive Officer of the Company annually during the life
of the Plan will determine and recommend to the Board in writing (i) the Company
and which among its Affiliates are to participate in the Plan for that year,
(ii) the names of those key executives who should participate in the Plan for
that year, (iii) the performance measurement factors to be used in the
determination of degree of accomplishment for purposes of the Plan for that
year, and (iv) the Performance Period to be used as a basis for the measurement
of performance for Awards under the Plan for that year.
6. GENERAL TERMS AND CONDITIONS:
The Board shall have full and complete authority and discretion, except as
expressly limited by the Plan, to grant Shares and to provide the terms and
conditions (which need not be identical among Participants) thereof. No
participant or any person claiming under or through such person shall have any
right or interest, whether vested or otherwise, in the Plan or in any Award
thereunder, contingent or otherwise, unless and until all the terms, conditions,
and provisions of the Plan and its approved administrative requirements that
affect such Participant or such other person shall have been complied with.
Nothing contained in the Plan or its administrative guidelines shall (i) require
the Company to segregate cash or other property on behalf of any Participant or
(ii) affect the rights and power of the Company or its Affiliates to dismiss
and/or discharge any officer or employee at any time.
7. CALCULATION AND PAYMENT OF AWARDS:
(a) Performance Share Awards which may be payable under this Plan shall
be calculated as determined by the Board but any resulting Performance Share
Award Payable shall be subject to the following calculation: each Share payable
shall be multiplied by the average of the daily means of the market prices of
the Company's Common Stock during the last month of the Performance Period.
Performance Share Awards earned will be determined within sixty (60) days
following the close of the Performance Period and distribution of the Award will
be made within ninety (90) days following the close of the Performance Period.
(b) Performance Share Awards granted under this Plan shall be payable
during the lifetime of the Participant to whom such Award was granted and only
to such Participant; and, except as provided in (d) and (e) of this Section 7,
no such Award will be payable unless at the time of payment such Participant is
an employee of and has continuously since the grant thereof been an employee of,
the Company or an Affiliate. Neither absence on leave, if approved by the
Company, nor any transfer of employment between Affiliates or between Affiliate
and the Company shall be considered an interruption or termination of employment
for purposes of this Plan.
<PAGE>
(c) Beginning Period Target Share Units (Target Share Units) shall be
calculated for each participant at the beginning of the Performance Period by
dividing 1) the product of participant Target Percents of Salary and Base
Salaries in effect on the December 31 immediately preceding the beginning of the
Performance Period by 2) the average of the daily means of share prices of
FINOVA Common Stock for the December preceding the Performance Period.
(d) Subject to Section 11, Target Share Units represent the middle of a
Discretionary Range of Beginning Period Share Units bounded by Low End Share
Units and High End Share Units. The calculation for Low End Share Units shall be
the same as for Target Share Units (paragraph 7c, above) except the Target
Percents of Salary are reduced by 5 percentage points (e.g., from 25% to 20%).
The calculation for High End Share Units shall be the same as for Target Share
Units (paragraph 7c, above) except the Target Percents of Salary are increased
by 5 percentage points (e.g., from 25% to 30%).
(e) At the end of the Performance Period, company performance is
determined relative to the preestablished minimums, targets and maximums of the
Financial Measures. Minimum performance or less results in no awards. Target
performance results in 100% (target) awards. Maximum performance results in 200%
awards. Performance levels between Minimum and Maximum are interpolated. These
percentages are referred to as Company Achievement Percentages.
(f) Target Final Awards are calculated by multiplying all three of the
following: 1) Beginning Period Target Share Units, 2) Company Achievement
Percentage and 3) the average of the daily means of share prices of FINOVA
Common Stock for the last December in the Performance Period. As with Target
Share Units (paragraph 7.d, above), subject to Section 11, Target Final Awards
represent the middle of a Discretionary Range of Awards. The calculation for the
Low End of the Discretionary Range of Awards is the same as the calculation for
Target Final Awards except Beginning Period Low End Share Units should be
substituted for Beginning Period Target Share Units. Similarly, the calculation
for the High End of the Discretionary Range of Awards is the same as the
calculation for Target Final Awards except Beginning Period High End Share Units
should be substituted for Beginning Period Target Share Units.
(g) Subject to Section 11, notwithstanding the existence of a Low End
of a Discretionary Range, the Committee has the authority to grant awards of
less than the Low End of the Discretionary Range or no awards at all if
individual performance so warrants.
(h) At the beginning of (and for each year in) the Performance Period,
Financial Measures minimums, targets and maximums will be determined for each
business group and line of business. If FINOVA Capital Corporation achieves at
least its minimum objectives for the Performance Period, 25% of each award for
leaders of business groups and lines of business shall be based upon the FINOVA
Capital Corporation achievement level and 75% will be based on the level of
achievement of the participant's business group or line of business.
(i) Ninety (90) days before the expiration of the Performance Period,
all participants will be provided an irrevocable option to defer all or a
portion of any earned Performance Share Award, if there be one, but not less
than $1,000, in written form as prescribed by the Board under the provisions of
a deferred compensation plan for executives of the Company and its Affiliates,
if one be adopted.
(j) Subject to the provisions of Section 11, if a Participant to whom a
Performance Share Award was granted shall cease to be employed by the Company or
its Affiliate for any reason (other than death, disability, or retirement) prior
to the completion of any applicable Performance Period, said Performance Share
Award will be withdrawn and subsequent payment in any form or at any time will
not be made.
(k) If a Participant to whom a Performance Share Award was granted
shall cease to be employed by the Company or its Affiliate due to early, normal,
or deferred retirement (other than within twenty-four months of or as a result
of a Change in Control, which event shall be governed by Section 11), or in the
event of the death
<PAGE>
or disability of the Participant during the Performance Period stipulated in the
Performance Share Award, such Award shall be prorated for the period of time
from date of grant to date of retirement, disability or death, as applicable,
and become payable within ninety (90) days to the Participant or the person to
whom interest therein is transferred by will or by the laws of descent and
distribution.
(l) There shall be deducted from all payment of Awards any taxes
required to be withheld by any Federal, State, or local government and paid over
to any such government in respect to any such payment.
8. ASSIGNMENTS AND TRANSFERS:
No Award to any Participant under the provisions of the Plan may be assigned,
transferred, or otherwise encumbered except, in the event of death of a
Participant, by will or the laws of descent and distribution. Participants may
complete a beneficiary designation form in accordance with then-current Company
policies.
9. AMENDMENT OR TERMINATION:
The Board may amend, suspend, or terminate the Plan or any portion thereof at
any time provided, however, that no such amendment, suspension, or termination
shall invalidate the Awards already made to any Participant pursuant to the
Plan, without his or her consent.
10. EFFECTIVE DATE AND TERM OF PLAN:
The Plan shall be effective the first of the year indicated on the first page
hereof. No Awards shall be made under the Plan after December 31 of the tenth
year following its adoption.
11. CHANGE OF CONTROL:
(a) Impact of Event. Notwithstanding any other provision of this Plan to the
contrary, after or as a result of a Change in Control and one of the following
events occurs:
(i) the Participant is terminated (except for Cause)
during the life of the Plan;
(ii) participant's employment is terminated for Good
Reason within twenty-four months after or as a result of a
Change in Control; or
(iii) the Plan is terminated or amended so that it is
less favorable to the Participant,
Participant shall be paid by the Company, within 60 days of the termination or
amendment, whichever occurs sooner, a pro rata portion of the sums to be paid
under this Plan (from the beginning of any unpaid Performance Periods to the end
of the last full calendar month on or before the termination or amendment date,
as the case may be), the greater of:
(x) Participant's Target Final Award based on
achievement of Target Company Achievement Percentage, or
(y) Participant's Target Final Award based on actual
Company Achievement Percentage annualized using the most
recently available audited or unaudited financial results on
or before the payment date, including the higher of Change in
Control Price or actual share price, as provided in Section
7(a) for the Company's common stock, as applicable.
Actual Company Achievement Percentages shall be used in calculating Awards for
any completed years. For uncompleted years, in the event of a Change in Control,
High End Share Units shall be awarded if the Company
<PAGE>
Achievement Percentage is equal to or in excess of 50% over the Target Company
Achievement Percentage (compared to maximum Company Achievement Percentage)
level. Otherwise, Target Share Units shall be awarded, unless the Board, in its
discretion, awards greater than Target Share Units. The Board shall not have
discretion to award less than Target Share Units in the event of a Change in
Control.
(b) Definitions: For purposes of this Plan, the following terms shall have the
meanings noted below, unless the context clearly requires otherwise:
(i) Change in Control. Any of the following events shall
constitute a Change in Control:
(A) the acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"))(a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (I) the then outstanding shares of common stock
of the Company (the "Outstanding Company Common Stock") or
(II) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this
subsection (A), the following acquisitions shall not
constitute a Change of Control: (W) any acquisition directly
from the Company other than an acquisition by virtue of the
exercise of a conversion privilege unless the security being
so converted was itself acquired directly from the Company,
(X) any acquisition by the Company, (Y) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the
Company or (Z) any acquisition by any corporation pursuant to
a transaction which complies with clauses (I), (II) and (III)
of subsection (C) of this Section 11(b)(i); or
(B) individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination
for election by the Company's shareholders, was approved by a
vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(C) approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless,
following such Business Combination, (I) all or substantially
all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then
outstanding shares of common stock and the combined voting
power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation
which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may be,
(II) no Person (excluding any employee benefit plan (or
related trust) of the Company or such corporation resulting
from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of,
<PAGE>
respectively, the then outstanding shares of common stock of
the corporation resulting from such Business Combination or
the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (III)
at least a majority of the members of the board of directors
of the corporation resulting from such Business Combination
were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(D) approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(ii) Change in Control Price. For purposes of this Plan, "Change in
Control Price" shall have the same meaning for such term as in effect
in the Company's 1992 Stock Incentive Plan, as amended from time to
time; provided, however, that if that plan is terminated, the
definition in that plan immediately preceding such termination shall
continue to apply to this Plan; provided, further, that no amendment of
the definition of such term shall apply to this Plan with respect to a
participant if such amendment would have an adverse impact on the
aggregate benefits available to a participant in this Plan and such
amendment was made during the period from six months preceding a Change
in Control (if a Change in Control event was contemplated by the
Company at that time) to twenty four months after such an event.
(iii) Cause. For purposes of this Plan, "Cause" shall mean:
(A) the willful and continued failure of the
Participant to perform substantially the Participant's duties
with the Company or one of its affiliates (other than any such
failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance
is delivered to the Participant by the Board or the Chairman
of the Company which specifically identifies the manner in
which the Board or Chairman believes that the Participant has
not substantially performed the Participant's duties, or
(B) the willful engaging by the Participant in
illegal conduct or gross misconduct which is materially and
demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act on the part of
the Participant shall be considered "willful" unless it is done or
omitted to be done by the Participant in bad faith or without
reasonable belief that the Participant's action or omission was in the
best interests of the Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or
upon the instructions of the Chairman or a senior officer of the
Company or based upon the advice of counsel for the Company shall be
conclusively presumed to be done or omitted to be done by the
Participant in good faith and in the best interests of the Company. The
cessation of employment of the Participant shall not be deemed to be
for Cause unless and until there shall have been delivered to the
Participant a copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters of the entire membership of the Board
at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Participant and the Participant is
given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the
Participant is guilty of the conduct described in subparagraph (A) or
(B) above, and specifying the particulars thereof in detail.
(iv) Good Reason. For purposes of this Plan, "Good Reason" shall mean:
(A) the assignment to the Participant of any duties
inconsistent in any respect with the Participant's position
(including status, offices, titles and reporting
requirements), authority, duties or responsibilities
immediately prior to the Change of Control, or any other
action by the Company which results in a diminution in such
position, authority, duties or
<PAGE>
responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith
and which is remedied by the Company promptly after receipt of
notice thereof given by the Participant,
(B) any reduction by the Company of the Participant's
base salary, annual bonus, incentive opportunities, retirement
benefits, welfare or fringe benefits below the highest level
enjoyed by the Participant during the 120-day period prior to
the Change of Control;
(C) the Company's requiring the Participant to be
based at any office or location other than that at which he or
she was based immediately prior to the Change of Control or
the Company's requiring the Participant to travel on Company
business to a substantially greater extent than required
immediately prior to the Change of Control;
(D) any purported termination by the Company of the
Participant's employment otherwise than as expressly permitted
by this Agreement; or
(E) any failure by the Company to comply with and
satisfy Section 11(d) of this Plan.
For purposes of this Agreement, any good faith determination of "Good Reason"
made by the Participant shall be conclusive.
(c). Excise Taxes. Anything in this Plan to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Participant who also is
a participant in either of the Company's Executive Severance Plans (Tier 1 or
Tier 2 Employees) (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Section XII (c)) (a
"Payment") would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended, or any comparable successor
provision, or any interest or penalties are incurred by the Participant with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Participant shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Participant of all taxes
(including any interest and penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Participant retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
(d). The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Plan in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Plan, Company shall mean the Company as
hereinbefore defined and any entity which assumes and agrees to perform this
Plan by operation of law, or otherwise.
AMENDMENT TO EMPLOYMENT AGREEMENT
---------------------------------
THIS AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment") is entered into as
of December 31, 1996, between The FINOVA Group Inc., a Delaware corporation
("Company") and Samuel L. Eichenfield ("Executive").
WHEREAS, the Company and Executive entered into an Employment Agreement
as of the 16th day of March, 1996 ("Employment Agreement"), and
WHEREAS, Executive has requested this Amendment to the Employment
Agreement to allow deferral of future payments, if any, under the CEO Value
Sharing Plan, and
WHEREAS, on December 17, 1996, the Company's Human Resources Committee
authorized this Amendment to adopt and implement as a part of the Employment
Agreement a deferred compensation plan with respect to Executive's CEO Value
Sharing Plan on the terms hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants contained in
the Employment Agreement and this Amendment, the Company and Executive hereby
agree to amend the Employment Agreement by adding a new paragraph 4.(f) as
follows:
(f) Notwithstanding Section 4.(d) above, prior to the time
Executive earns a payment under this plan, he may elect in writing to defer all
or a portion of receipt of such payment to commence within 30 days after the
Executive's termination of employment with Company, payable in the form of a
lump sum payment or installment payments as specified by Executive in such
election. Any such deferred payment(s) shall be adjusted to reflect income or
losses during the deferral period based on the actual performance of the
investment vehicle(s) elected in advance of a deferral by Executive from the
list of investment vehicles set forth in Schedule 4.(f) attached hereto.
Executive may change the investment vehicle election prospectively no more
frequently than every 12 months. Executive may apportion deferred amounts to one
or more investment vehicles listed in Schedule 4.(f). Company may reserve for
and invest in investment vehicles selected by Executive or any other investments
as it deems appropriate in its sole discretion to provide for its obligations to
Executive under this plan. Executive shall have no interest, whatsoever, in any
such reserves or investments. No fund or trust shall be established to provide
payments under this plan it being the intent of the parties that the plan shall
be unfunded for tax purposes and for the purposes of Title I of ERISA. The
rights of Executive and any person or beneficiary claiming by or through
Executive under this plan with respect to deferred payments are those of a
general creditor only in that the plan constitutes only an unsecured promise to
pay Executive in the future. In the event Executive dies prior to receiving all
payments
<PAGE>
due, the Company, within 30 days after Executive's death, shall pay his
beneficiary, designated in writing by Executive to receive the balance of such
payments due, or his estate in the event no such designation has been made. The
rights of Executive and any person or beneficiary claiming by or through
Executive are not subject to sale, transfer, anticipation, encumbrance,
attachment, assignment, alienation, pledge or garnishment by creditors of
Executive or such other persons and beneficiaries.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed as of the day and year set forth above.
ATTEST: The FINOVA Group Inc.
By:/s/ William J. Hallinan By: /s/ William C. Roche
------------------------ -------------------------------------
Secretary Senior Vice President
/s/ Samuel L. Eichenfield
-------------------------------------
Samuel L. Eichenfield
<PAGE>
SCHEDULE 4.(f)
1. The Vanguard Index 500 Fund
2. The Vanguard Index Total Stock market
3. The Vanguard Total International Index fund
4. U.S. Treasury Instruments maturing 2005
<PAGE>
ELECTION TO DEFER COMPENSATION
------------------------------
This election to defer compensation is made pursuant to Section 4(f) of
that certain Employment Agreement, dated as of the 16th day of March, 1996 and
amended as of December 31, 1996, between The FINOVA Group Inc. and Samuel L.
Eichenfield.
The undersigned hereby elects to defer receipt of all of the second
hurdle payment ($6,300,000), if and when due, until the day following the
undersigned's termination of employment (whether by resignation, retirement,
death, disability or otherwise) by The FINOVA Group Inc. If and when payable,
such amount shall be distributed to the undersigned in a lump sum.
The undersigned further elects that such deferred payment shall be
adjusted to reflect income or loss during the deferral period based on the
actual performance of the following investment vehicles:
Percentage Allocation
Investment Vehicle of Deferred Amount
- ------------------ ---------------------
The Vanguard Index 500 Fund 10%
The Vanguard Index Total Stock market 35%
The Vanguard Total International Index fund 15%
U.S. Treasury Instruments maturing 2005 40%
Dated: January 10, 1997
/s/ S.L. Eichenfiled
--------------------
S. L. Eichenfield
WITNESS: /s/ W.J. Hallinan
-----------------
Name: W. J. Hallinan
GFC FINANCIAL CORPORATION SUPPLEMENTAL PENSION PLAN
---------------------------------------------------
(Amended and Restated Effective January 1, 1995)
and Renamed
THE FINOVA GROUP INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
--------------------------------------
(Effective February 1, 1995)
1. Purpose and Eligibility
-----------------------
(a) The purpose of the GFC Financial Corporation Supplemental Pension Plan
(renamed The FINOVA Group Inc. Supplemental Executive Retirement Plan,
effective as of February 1, 1995) (hereinafter referred to as the
"Plan") is to provide deferred compensation to Eligible Employees as
defined below, subject to all the terms and conditions hereof on and
after March 18, 1992.
(b) It is the intention of the GFC Financial Corporation (renamed The
FINOVA Group Inc., effective as of February 1, 1995) (hereinafter
referred to as the "Company") that Eligible Employees are those
employees designated pursuant to Paragraph 2. Eligible Employees shall
in all cases be part of a select group of management or highly-
compensated employees of the Company, or any of its subsidiaries or
affiliates who have adopted the Plan (hereinafter referred, to as
"Participating Employers") because it is the intention of the Company
that the Plan be eligible for exemption under Parts 1, 2, 3 and 4 of
Subtitle B of Title I of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), pursuant to ERISA Sections 3(36), 4(b)(5),
201(2), 201(7), 301(a)(3), 301(a)(9) and 401(a)(1) and U.S. Department
of Labor regulations.
(c) It is also the intention of the Company that the Plan be at all times
unfunded, that any Eligible Employee's rights under the Plan be at all
times those of a general creditor of the Company or applicable
Participating Employer only, and that there be no elections with
respect to any benefits under the Plan by Eligible Employees.
(d) Subject to rights and benefits expressly fixed by the terms hereof, the
Company also intends that the Plan may be amended or terminated and
that benefits may be reduced or eliminated as the Board of Directors of
the Company determines from time to time and that individual's rights
may be altered.
(e) The Plan and the benefits provided hereunder are in lieu of and not in
addition to any Plan of benefits formerly made available to any
Eligible Employee under any nonqualified deferred compensation plan
sponsored by or through the Dial Corp., or any of its subsidiaries,
successors or assigns.
(f) The Plan is hereby amended and restated, generally effective as of
January 1, 1995, unless otherwise stated.
<PAGE>
2. Participation
-------------
An employee of the Company (or any Participating Employer) may become eligible
to participate in the Plan (referred to herein as "Eligible Employees") when
approved by the Board of Directors of the Company (or a committee thereof), or
by the Chief Executive Officer of the Company, as specifically designated in
each Schedule of Benefits (which is attached hereto, and by this reference made
a part hereof), except that only the Board of Directors of the Company may
approve the participation of The Chairman of the Board in any list of Eligible
Employees with respect to each Schedule of Benefits, other than Schedule A,
herein. A list of Eligible Employees with respect to each Schedule of benefits
is correspondingly denominated and attached as an exhibit to the Plan (referred
to herein as "Exhibit") and each such Exhibit shall be periodically updated.
3. Funding
-------
No fund shall be established to provide for the payment of benefits under the
Plan. No trust, other than one which will not cause the Plan to be "funded"
under applicable Internal Revenue Service and U.S. Department of Labor
regulations and rules, shall be created. Any rights of an Eligible Employee or
any other person claiming by or through him or her shall be those of a general
creditor of the Company or Participating Employer only. The Company or
Participating Employer may create book reserves or take such other steps as it
deems appropriate to provide for its expected liabilities under the Plan.
4. Benefits
--------
Benefits shall be payable by the Company or Participating Employer in accordance
with the terms and conditions of the Plan and as described in the Schedule, or
Schedules, of Benefits. Except as otherwise expressly provided in the Schedule,
or Schedules, of Benefits, the Plan shall make monthly payments to an Eligible
Employee at the same time such Eligible Employee receives his or her pension
benefits under the Qualified Plan defined in the Schedule, or Schedules of
Benefits. Monthly payments under the Plan shall not begin before such Eligible
Employee has attained the age of 55 and has actually left the employ of the
Company and its subsidiaries and affiliates.
5. Optional Form
-------------
The form of benefit payment elected under the Qualified Plan shall be deemed
made under the Plan (including the beneficiary designation in connection with
such form of benefit payment, if applicable) and shall prevail for the purposes
of the Plan. Notwithstanding the foregoing, no lump sum distributions shall
occur or be permitted hereunder.
6. Survivor's Benefit
------------------
(a) If while covered by this Plan, for purposes other than a terminated
vested benefit, an Eligible Employee dies and if on the date of his or
her death such Employee, a) has 20 or more years of service, or (b) is
55 years of age or older; then his or her Eligible Spouse, as defined
in the Qualified Plan and determined by the Committee in its sole
discretion, shall be entitled to the following monthly survivor's
benefit. The survivor's
-2-
<PAGE>
benefit shall be calculated by assuming that the Eligible Employee (i)
was 55 years of age (or his actual age if older) on the date of death;
(ii) retired under the Qualified Plan on the first day of the month
following his or her death; and (iii) elected a Single Life Annuity.
The Eligible Spouse will be entitled to receive 1/2 of this benefit
which shall be further reduced by 1/6 of 1% for each month the Eligible
Spouse is more than 60 months younger than the Eligible Employee.
(b) The survivor's benefit under this Paragraph 6 shall be reduced by any
spousal survivor's benefit payable from any qualified plan (including
the Qualified Plan; but not including a Section 401(k) plan) sponsored
by the Company or any of its subsidiaries or affiliates when such
benefit becomes payable, as determined by the Committee in its sole
discretion.
7. Vesting
-------
In addition to all the terms and conditions of the Plan, no Eligible Employee or
beneficiary shall be entitled to a benefit under the Plan unless such Eligible
Employee has actually attained fully vested status in the Qualified Plan as
determined by the Committee.
8. Administration, Amendment, and Termination of the Plan
------------------------------------------------------
(a) The Board of Directors of the Company shall have the sole authority to
appoint or remove members of the Committee, and appoint or remove the
chair of the Committee. The Committee shall consist of a minimum of
three persons. All usual and reasonable expenses of the Committee shall
be paid by the Company.
(b) The Board of Directors of the Company may terminate the Plan at any
time. Any amounts accrued or vested under the plan prior to any such
termination shall continue to be subject to the terms, conditions, and
elections in effect under the Plan when the Plan was terminated.
(c) The Plan may be amended at any time or from time to time by the Board
of Directors of the Company. In addition, the Chief Executive Officer
of the Company, together with the Committee, may make amendments,
retroactively if necessary or appropriate, to permit the Plan to meet
the requirements for exemption from ERISA as described in Paragraph
1(b) or to comply with any other applicable law, as now in effect or
hereafter amended or superseded, and the regulations thereunder; to
clarify the Plan; to provide a uniform benefit structure for Eligible
Employees; to facilitate the Plan's administration, or to implement
appropriate changes in the Plan design, provided that such amendments
do not significantly increase the cost of the Plan or adversely affect
its qualification.
(d) The Committee shall have such duties and powers as may be necessary to
discharge its duties hereunder, including, but not by way of
limitation, the following:
(i) discretionary authority to construe and interpret the Plan,
resolve any ambiguities in the Plan or administration thereof,
and decide all questions as
-3-
<PAGE>
to the determination of the amount, manner and time of payment
of any benefits hereunder;
(ii) to prescribe procedures to be followed by Participants or
Beneficiaries filing applications for benefits;
(iii) to prepare and distribute, in such manner as the Committee
determines to be appropriate, information explaining the Plan;
(iv) to receive from the Company, Participating Employers and from
Participants such information as shall be necessary for the
proper administration of the Plan;
(v) to furnish the Company, upon request, such annual reports with
respect to the administration of the Plan as are reasonable
and appropriate;
(vi) to receive and review the periodic valuation of the Plan made
by the Actuary;
(vii) to appoint or employ individuals to assist in the
administration of the Plan and any other agents it deems
advisable, including legal and actuarial counsel, and delegate
such of its power and duties as it deems desirable to such
persons or agents;
(viii) to take all reasonable steps to correct any errors or
omissions that may arise in the operation of the Plan.
All decisions, interpretations, and actions of the Committee pursuant
to the Plan shall be final, conclusive and binding on all persons, and
shall be given the maximum deference allowed by law.
(e) The Committee may adopt such rules and forms as it deems necessary,
desirable, or appropriate. All rules and decisions of the Committee
shall be uniformly and consistently applied to all Participants and
Beneficiaries in similar circumstances. When making a determination or
calculation, the Committee shall be entitled to rely upon information
furnished by a Participant or Beneficiary, the Company, the
Participating Employer, the legal counsel of the Company, or the
Actuary.
(f) The Committee may act at a meeting or in writing without a meeting. The
Board of Directors of the Company shall appoint one of the members of
the Committee as its respective chair, and such chair shall appoint a
secretary, who may or may not be a Committee member. The secretary
shall keep a record of all meetings and forward all necessary
communications to the Employer or the Actuary. The Committee may adopt
such bylaws and regulations as they deem desirable for the conduct of
their affairs. All decisions of the Committees shall be made by the
vote of the majority, including actions in writing taken without a
meeting.
(g) The Committee may require a Participant or Beneficiary to complete and
file with the Committee an application for Pension and all other forms
approved by the Committee,
-4-
<PAGE>
and to furnish all pertinent information requested by the Committee.
The Committee may rely upon all such information so furnished it,
including the Participant's or Beneficiary's current mailing address.
(h) Whenever, in the opinion of the Committee, a person entitled to receive
any payment of a benefit or installment thereof hereunder is under a
legal disability or is incapacitated in any way so as to be unable to
manage his or her financial affairs, the Committee may cause payments
to be made to such person or to his or her legal representative or to a
relative or friend of such person for his or her benefit, or the
Committee may cause payment to be made for the benefit of such person
in such manner as the Committee considers advisable. Any payment of a
benefit or installment thereof in accordance with the provisions of
this section shall be a complete discharge of any liability for the
making of such payment under the provisions of the Plan.
(i) The Board of Directors of the Company, the Committee and the individual
members thereof shall be indemnified to the maximum extent permitted by
law by the Company and each Participating Employer against any and all
liabilities arising by reason of any act or failure to act made in good
faith pursuant to the provisions of the Plan, including expenses
reasonably incurred in the defense of any claim relating thereto.
(j) The Committee shall establish a reasonable claims procedure in
accordance with this Paragraph 8(j) and ERISA. The Committee or a
member of the Committee appointed by it shall make all determinations
as to the right of any person to a benefit. Claims for benefits may be
submitted to the appropriate member of the Committee, as designated by
the Committee. Any denial by the Committee or its designee of a claim
by a Participant or Beneficiary for benefits under the Plan shall be
stated in writing and delivered or mailed to the Participant or
Beneficiary at his or her last address shown in Plan records; and such
notice shall set forth the specific reasons for the denial, written in
a manner designed to be understood without legal or actuarial counsel.
In addition, the Committee shall afford a reasonable opportunity to any
Participant or Beneficiary whose claim for benefits has been denied for
a review of the decision denying the claim, and in the event of
continued disagreement, either may appeal to the Committee whose
decision shall be final.
9. Miscellaneous
-------------
The Plan, and any determination made by the Committee or the Company in
connection therewith, shall be binding upon each Eligible Employee, his or her
beneficiary or beneficiaries, heirs, executors, administrators, successors and
assigns. No benefit under the Plan may be sold, assigned, transferred, conveyed,
hypothecated, encumbered, anticipated or otherwise dispensed with, and any
attempt to do so shall be void and, except with respect to debts or liabilities
of an Eligible Employee to the Company, no such benefit payment shall be, prior
to actual receipt thereof by the Eligible Employee, or his or her beneficiary or
beneficiaries, as the case may be, in any manner subject to the debts,
contracts, liabilities or engagements of such Eligible Employee or
beneficiary(ies). The Plan shall not constitute, nor be deemed to constitute, a
contract of employment between the Company, any Participating Employer,
subsidiary or affiliate and any Eligible Employee, nor shall any provisions
hereof restrict the
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<PAGE>
right of the Company, any Participating Employer, subsidiary or affiliate to
discharge any Eligible Employee from his or her employment, with or without
cause.
Executed at Phoenix, Arizona this 15 day of January, 1997.
THE FINOVA GROUP INC.
/s/ Samuel L. Eichenfield
------------------------------------
Chief Executive Officer
THE FINOVA GROUP INC. SUPPLEMENTAL EXECUTIVE
RETIREMENT PENSION PLAN COMMITTEE
/s/ William C. Roche
-----------------------------------
William C. Roche, Chair
/s/ Bruno Marzowski
-----------------------------------
Bruno Marzowski
/s/ De Ann Clark
-----------------------------------
De Ann Clark
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<PAGE>
SCHEDULE A
----------
Employees who participate in The FINOVA Group Inc. Pension Plan (the "Qualified
Plan") become Eligible Employees under this Schedule A if their benefits under
the Qualified Plan are limited by Internal Revenue Code ss. 401(a)(17) or 415
and they have been designated by the Chief Executive Officer of the Company, in
his or her sole discretion, as eligible for benefits under this Schedule A. The
Eligible Employees under this Schedule A shall be listed on Exhibit A. Exhibit A
shall not require separate approval of the Board of Directors of the Company. It
is contemplated that Eligible Employees may become ineligible based on their
failure to meet the criteria for eligibility set forth herein at any given time,
and listing on Exhibit A at any given time does not itself vest any employee or
continue participation in the Plan.
The amount of benefit attributable to this Schedule and payable to an Eligible
Employee pursuant to Paragraph 4 of the Plan shall be equal to the excess of (A)
minus (B). For this purpose:
(A) shall equal the monthly pension based on the benefit
schedule(s) and rules of the Qualified Plan applicable to
the Eligible Employee at the time of his or her retirement
except that (i) Average Monthly Compensation shall be
determined without regard to the annual limit that applies
under the Qualified Plan pursuant to Internal Revenue Code
ss. 401(a)(17), (ii) the pension computed in this manner
shall not be reduced on account of the Internal Revenue
Code ss. 415 limitations that apply under the Qualified
Plan, (iii) for Eligible Employees who terminate their
employment with the Company and Participating Employers
after December 31, 1994, the Normal Retirement Benefit
shall be based on the following formula: the Participant's
Average Monthly Compensation multiplied by 1.75 percent,
multiplied by the Participant's Years of Service (not
exceeding 35); and (iv) for Eligible Employees who
terminate their employment after December 31, 1993, for
purposes of determining an Eligible Employee's Average
Monthly Compensation, a bonus under a short-term incentive
plan will be included in Compensation as of, and only as
of, the first Plan Year in which it otherwise would have
been paid to the Eligible Employee (even if such Plan Year
began before January 1, 1994).
(B) shall equal the Eligible Employee's monthly pension
calculated under all the terms and conditions of the
Qualified Plan.
In the case of an Eligible Employee who is a "Transferred Employee" within the
meaning of the Asset Purchase Agreement by and among Bell Atlantic TriCon
Leasing Corporation and TriCon Capital Corporation, the amount payable under
this Schedule A shall be reduced dollar
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<PAGE>
for dollar by benefits accrued as of April 30, 1994, under the qualified defined
benefit plan adopted for employees of Bell Atlantic TriCon Leasing Corporation,
as it existed on April 30, 1994 (the "Bell Atlantic Qualified Plan"). Such
reduction shall be made even if any of such benefit has already been
distributed, and shall be computed by expressing the Eligible Employee's accrued
benefit under the Bell Atlantic Qualified Plan in the same form and commencing
at the same time as the benefit paid under the Qualified Plan, using the
actuarial equivalence factors in effect under the Bell Atlantic Plan and taking
into account all subsidies for early retirement or otherwise applicable to a
particular benefit under the Bell Atlantic Qualified Plan.
Coverage of an Eligible Employee under this Schedule A neither requires nor
precludes the Eligible Employee's coverage under another Schedule. However,
coverage under this Schedule A also does not provide any duplication of benefits
for an Eligible Employee who, in addition to being covered under this Schedule
A, is covered under another Schedule. The Company may determine and communicate
an Eligible Employee's aggregate benefit under this Plan by considering this
Schedule A together with any other Schedule that happens to cover the Eligible
Employee.
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<PAGE>
SCHEDULE B
----------
Benefits are payable under this Schedule B in respect of an Eligible Employee
who is a "Transferred Employee" within the meaning of the Asset Purchase
Agreement by and among Bell Atlantic TriCon Leasing Corporation and TriCon
Capital Corporation and who was an employee who had accrued a benefit, as of
April 30, 1994, under the Bell Atlantic Senior Management Retirement Income
Plan, the Bell Atlantic Executive Management Retirement Income Plan or the Bell
Atlantic ERISA Excess Pension Plan (the "Bell Atlantic SERPs").
The amount of benefit attributable to this Schedule and payable to an Eligible
Employee pursuant to Paragraph 4 of the Plan shall be equal to the excess of (A)
minus (B). For this purpose:
(A) shall equal the monthly pension based on the benefit schedule(s)
and rules of the applicable Bell Atlantic SERP or SERPs determined as
if the Eligible Employee elected to commence receiving benefits under
the applicable Bell Atlantic SERP or SERPs in the same form and
commencing at the same time as the benefit paid under the Qualified
Plan (or the benefits paid under the Bell Atlantic Qualified Plan, if
no benefit is payable under the Qualified Plan). For this purpose, the
amount of the "Target Benefit" at age 65 shall be determined as if the
Eligible Employee terminated his or her employment with the sponsor of
the Bell Atlantic SERPs on April 30, 1994. For purposes of determining
whether an Eligible Employee was vested or was entitled to a
"Retirement Pension," rather than a "Post-Separation Pension," under
the Bell Atlantic SERP or SERPs, service with FINOVA and the
Participating Employers after April 30, 1994, shall be treated as
service with the sponsors of the Bell Atlantic SERPs. The words in
quotation marks in the preceding two sentences shall have the meaning
ascribed to them in the Bell Atlantic SERPs.
(B) shall equal the sum of (1) the Eligible Employee's monthly pension
elected by the Eligible Employee under all the terms and conditions of
the Qualified Plan and (2) the monthly pension calculated under all the
terms and conditions of the Bell Atlantic Qualified Plan in the same
form and commencing at the same time as the benefit paid under the
Qualified Plan (or in the form and commencing at the time actually
elected under the Bell Atlantic Qualified Plan, if no benefit is
payable under the Qualified Plan).
In the case of an Eligible Employee who is covered by this Schedule B and by
Schedule A, if the monthly benefit calculated under this Schedule B is less than
the amount calculated under Schedule A, no benefit shall be payable under this
Schedule B. If the amount of monthly benefit calculated under Schedule A is less
than the amount calculated under Schedule B, no benefit shall be payable under
Schedule A.
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<PAGE>
SCHEDULE C
----------
Eligible Employees who have entered into an employment, severance or other
similar agreement with the Company or a Participating Employer, which have been
authorized by the Board of Directors or Chief Executive Officer of the Company
(the "Agreement"), automatically become Eligible Employees under this Schedule C
if the Agreement provides the Employee with post-termination service accrual,
multiples of service accrual, lump sum addition to service, exemption from
reduction for early retirement, or other modification of the retirement payment
that would otherwise be payable under this Plan or the Qualified Plan. This
Schedule C also includes Eligible Employees who were covered under the Verex
Corporation Supplemental Retirement Benefit Program for Short Service
Executives.
-10-
THE FINOVA GROUP INC.
EXECUTIVE OFFICER LOAN PROGRAM
POLICIES AND PROCEDURES
I. Purpose. The Executive Officer Loan Program (the "Program") is intended to
provide one or more sources of financing (a "Loan") to eligible Executive
Officers of The FINOVA Group Inc. or its affiliates (collectively, the
"Company") to permit participants to exercise Company-issued stock options and
to pay taxes due on Awards granted to them under the Company's 1992 Stock
Incentive Plan (the "1992 Plan") as it may be amended from time to time.
Capitalized terms not defined in these policies and procedures ("Policies")
shall have the meanings ascribed to them in the 1992 Plan unless the context
otherwise requires.
II. Eligibility. The Program is available to officers of the Company who
generally are eligible to receive performance based restricted stock ("PBRS") or
restricted stock Awards (collectively, "Executive Officers" or "Participants"),
as determined from time to time in its discretion by the Board of Directors or
its Executive Compensation Committee (the "Committee").
III. Administration of Program. Unless otherwise directed by the Board of
Directors, the Program shall be administered by the Committee or its designees.
Until further notice, the Committee has delegated administration of the Program
to the Chairman, President and Chief Executive Officer, Secretary, the Senior
Vice President -- Human Resources and Senior Vice President -- Controller of The
FINOVA Group Inc. or their designees. (Each person authorized to administer the
Program is referred to hereafter as an "Administrator.") No person may act as an
Administrator with respect to his or her specific Loan, but an Administrator may
act with respect to the Program as a whole, even if doing so has an impact on
his or her Loan(s) in general.
IV. Notice of Eligibility. Upon becoming eligible to participate in the Program,
Shareholder Services shall deliver to the Executive Officer these Policies and
upon request shall make available the forms then in use for Loans. The
Administrators may change these Policies and any notices, forms, documents or
elections from time to time notwithstanding circulation of any prior documents
with differing terms.
V. Timing and Amount of Loans. Loans shall be made available concurrently with
the exercise of stock options or the vesting of restricted stock, whether
performance-based ("PBRS") or otherwise under the 1992 Plan. The Administrator
may permit use of the Program for payment of taxes on restricted stock Awards
(including PBRS) that have already vested, in its discretion. Loans shall
generally be for a one year term, subject to extension or renewal in the sole
discretion of the Company and any other Lender making a Loan under the Program
(including the Company, each a "Lender"). Loans shall be in an amount requested
by the Participant subject to the following limitations:
A. Loans shall not exceed the aggregate of the exercise price due on
any options being exercised (less the par value of the shares being exercised)
plus any income taxes due at the maximum statutory tax rates imposed by Federal
and applicable state authorities on income from the Award(s) being exercised or
vesting at that time, plus applicable FICA (OASDI), Medicare (FMHI) or similar
taxes.
B. The aggregate of all Loans under the Program to a Participant shall
not exceed any limitations imposed by the Company, from time to time, which may
differ from Participant to Participant in the Company's sole discretion. Lenders
may also impose similar restrictions. In no event shall the aggregate principal
amount of a Participant's Loans exceed 100% of Participant's annual base salary
and prior year's Management Incentive Plan award, if any, without consent of the
Committee, and unless the Participant delivers to and maintains with the Company
collateral in the form set forth in Section XII equal to 100% of the principal
balance of the Loan in excess of that amount. All share certificates shall be
kept by Shareholder Services in a secure location.
VI. Loan Request. To obtain a Loan, an Executive Officer shall deliver to
Shareholder Services at 1850 N. Central Avenue, Suite 1159, P.O. Box 2209,
Phoenix, AZ 85002-2209, telephone: (602) 207-2821, telecopier: (602) 207-4099, a
properly completed Loan Request form (which form may be incorporated in other
Company forms for the exercise
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<PAGE>
of options, tax withholdings or other matters). The Loan Request may require
disclosure of personal financial and other information. The notice shall specify
whether the Participant elects to receive the Loan from the Company or an
approved Lender. The Company reserves the right to approve or disapprove Lenders
in its sole discretion and to change that approval from time to time. The Loan
Request must be received at least 10 days prior to the exercise or vesting of
the Award, as applicable, unless otherwise permitted by the Company.
VII. Approval of Loan Requests. Upon receipt of a properly completed Loan
Request, including any required supplementary data, Shareholder Services shall
forward the request for Company and, if appropriate, Lender approval. Neither
the Company nor any Lender shall be under any obligation to make a Loan to any
Participant, which Loan may be granted in any amount, or be reduced, terminated
or denied in the Company's or Lender's sole discretion. Without limitation, a
Loan may be denied if an Administrator or Lender believes that there is a
reasonable likelihood that a Loan will not be repaid based upon relevant factors
normally considered in a commercial setting by an entity in the business of
making similar types of loans or in the event of failures to return Loan
documents in a timely manner.
VIII. Other Required Documents. Upon receipt of the required approvals as
provided above, Shareholder Services shall deliver the required documents to the
Participant, who shall execute them, cause Participant's spouse to execute them
as appropriate, and return them to Shareholder Services. All such documents
shall be in form satisfactory to the Company and the applicable Lender in their
sole discretion. Participants are required to authorize payroll or any
Administrator to adjust payroll deductions in any manner necessary to provide
for repayment within the initial term of the Loan, subject to any state law
restrictions upon the amount of payroll deductions. Administrators may but shall
not be required to adjust payroll deductions at less than an amount that would
provide for full repayment within the initial term, but doing so shall not
relieve the Participant from any obligations hereunder.
IX. Funding Procedures.
A. Upon proper completion of the appropriate documentation required by
Section VIII and provided the Loan Request satisfies the provisions of Section V
for timing and amount and receives the required approvals, Loans by the Company
shall be funded as follows:
1. If the Loan is for the exercise price of a stock option,
Accounting shall record the Loan on the Company's records and the payment to
itself of the exercise price (less the par value of the stock, which must be
paid by the Participant).
2. If the Loan is for taxes due on a non-qualified stock option,
the Company shall pay to the appropriate taxing authority, for the benefit of
Participant, the amounts included in the Loan for taxes. Alternatively, the
Participant may request that the Loan be disbursed to Participant, provided
Participant has concurrently delivered good funds in the form of a cash or a
check payable to the Company for the taxes due on the exercise of the options.
3. If the Loan is for taxes due on the vesting of restricted stock
or PBRS, the Company shall follow the procedure noted in Section A.2 above
unless Participant requests that the payment be made to Participant, in which
case Accounting shall issue a check to the order of the Executive Officer.
If the Loan is by a Lender other than the Company, the Lender shall pay the
Loan to the Company, c/o Shareholder Services, for the exercise price of a stock
option and shall pay the Company or Participant, as appropriate, that portion of
a Loan for taxes as indicated in subsections (2) or (3) above.
B. Provided all required documentation has been properly executed and
delivered for the Loan, Shareholder Services shall cause the Transfer Agent to
issue share certificates for the Shares in the name of the Participant (if not
already issued). Except as provided by these Policies, shares to be held as
security for the Loan shall be issued in the Participant's name but shall be
held by the Company, and restrictive legends shall be placed thereon. The
Company shall also direct that stop transfer orders be placed on the Shares
until foreclosure on or satisfaction of the Loan.
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<PAGE>
X. Repayment Procedures.
A. Participants are obligated to assure that the Loans are repaid when
due and shall coordinate with Accounting and/or Payroll in that process.
Regardless of whether the Loan is made by the Company or another Lender, Payroll
shall arrange for the payment to the appropriate Lender of at least the periodic
interest payments and, if selected by the Participant or required by the Company
or other Lender, for the repayment of all or any portion of the principal amount
due upon maturity. Unless otherwise agreed by Participant or directed by the
Lender or the Company, interest due under the Loans shall be deducted from
Participant's payroll issued on or about the 15th day of the month. Additional
payments may be taken out of other payrolls, if insufficient funds are available
in the 15th payroll, as otherwise deemed appropriate by the Company or as
requested by the Participant. If the Participant's net payroll is insufficient
to pay the required amounts, then Participant shall pay the Lender the remaining
amounts to be paid by cash or check on a monthly or other basis approved by an
Administrator. Accounting shall advise Participant of the amounts owed, but the
failure to so notify Participant shall not relieve Participant of his or her
obligation to make such payments.
B. The Company shall take appropriate action to cause any delinquent
Participant to repay amounts due or the Company or any Lender or both may
foreclose upon any collateral held and may take other appropriate action against
Participant, Participant's spouse and any other obligor, including without
limitation commencing legal or other action against them, taking disciplinary
action against Participant including without limitation termination of
employment, and placing a hold on or setting off against any salary, bonus,
performance award, stock option, restricted stock award, severance payment,
deferred compensation, insurance plan proceeds, retirement or other compensation
to be paid to or on behalf of Participant or Participant's spouse, if any, and
any expense reimbursements, which in any case are not protected by law from such
hold or setoff. If the Company forecloses on any Shares, the Shares shall be
credited against the amount owed based on the average of the high and low Share
price on the day of foreclosure, if the Shares are retained by the Company, or
the actual sales price, if sold by or on behalf of the Company, in its sole
discretion. The Company's rights hereunder exist regardless of whether the Loan
is made by the Company or a Lender. The Company may exercise any other rights
available to any Lender.
C. Upon full satisfaction of all outstanding Loans and, if appropriate,
execution of any required releases of liability requested by the Company,
Accounting shall notify Shareholder Services to release any Shares held as
collateral on the Loans. Shareholder Services shall direct the Company's
transfer agent to remove any restrictive legends and stop transfer orders and
issue the Shares to the order of the Participant.
D. The Company shall have the right to require that any Loan be repaid
in cash, but the Company and a Lender may, in their sole discretion, permit
repayment with vested, unencumbered Shares or other property.
E. Participants may prepay Loans to the Company without charge,
prepayment interest or penalty. Loans from a Lender may be prepaid to the extent
permitted by those Loan documents.
XI. Extension of Loan. Except to the extent otherwise provided in the Loan
documents, the Loan shall automatically be extended for the same term as the
current term on the same terms and conditions unless the Company or other Lender
sends notice of termination at least 30 days prior to maturity, which
termination shall be made or withheld in the Company's and Lender's sole
discretion. If the Loan is extended, the Company and Lender may in their
discretion request that new documentation be executed. If new documentation is
not required, the then existing documents shall continue to govern any Loans
continuing in existence, unless otherwise provided in the Loan documents. The
Loan, however, shall not automatically be extended if an event of default has
occurred at the time of such extension or if such an event would have occurred
but for the lapse of time, the giving of notice or both, regardless of whether
the Company or other Lender knows of the event or whether either of them has
given notice of extension or non-renewal to Participant.
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XII. Maintenance of Collateral.
A. Regardless of whether Participant obtains a Loan from the Company or
a Lender, Participant shall pledge and shall grant to the Company a security
interest in Shares equal to a minimum of 25% of the principal amount of the
Loan, together with any past due interest or other charges owed under the Loan,
except as provided in Section V above. Any Administrator is authorized to direct
that sufficient Shares from Participant's initial exercise of options or vesting
of restricted stock be held by the Company to secure Participant's obligations
hereunder at the required level of collateral. If the provisions of Section V
require that additional collateral be pledged, the Participant shall deposit
sufficient unencumbered unrestricted Shares to bring the value of the collateral
to at least 100% of the principal, past due interest and other charges due under
the excess portion of the Loan.
B. Accounting shall monitor the outstanding principal balance of the
Loan (including coordinating with other Lenders) and the level of collateral
based on the current fair market value for such Shares. Monitoring shall occur
in such frequencies deemed appropriate by the Administrator but not less
frequently than quarterly. If the value of the collateral is less than 20% of
the amount due under the Loan for Loans or portions thereof collateralized at
the 25% level, or 95% of the amount due under the Loan for portions of Loans
collateralized at the 100% level, Accounting shall advise Shareholder Services,
which may, in the Company's discretion, demand that the Participant deposit
additional unrestricted unencumbered Shares as additional collateral to increase
the level of collateral to the 25% or 100% levels, as the case may be (together
with stock powers executed in blank, Forms 144 and other appropriate
documentation), unless Participant pays down the amount due under the loan
sufficient to raise the level of collateral to the 25% or 100% levels, as
appropriate. Participant shall have ten business days after the date of the
Company's demand to provide such collateral to Shareholder Services or to pay
down the Loan balance. The failure to satisfy the requirements of this section
shall be deemed to constitute a material breach of the Loan documents and these
Policies.
C. Cross Collateralization. Any Shares or other collateral held as
security for a Loan shall be held to secure any other Loan under the Program or
other obligations by the Participant to the Company, except for obligations
pursuant to the Company's Savings Plan, Pension Plan or as otherwise prohibited
by law.
XIII. Termination of Employment/Disability.
A. Subject to the terms of any Loan document, if Participant incurs a
Termination of Employment (as defined in the 1992 Plan), the Loan shall
automatically become due and payable as provided in the Loan documents, but in
no event later than six months after the termination date, unless an
Administrator, in his or her sole discretion provides for an extension of the
due date. Loans shall generally provide for Loans being due six months following
Termination of Employment or Disability, with certain exceptions noted in the
Loan documents.
B. Notwithstanding subsection A but subject to the terms of any Loan
document, if Participant's employment is terminated due to Participant's
voluntary resignation (other than Retirement) or termination for Cause (as
defined in the 1992 Plan) or upon the occurrence of an event of default, the
Loan shall immediately become due and payable upon the employment termination
date, and upon Participant's death, the Loan shall become due 6 months following
the date of death or on the distribution of more than 10% of the decedent's
estate (based on aggregate market value) to any person or entity, whichever is
earlier.
XIV. Interest Rate. If approved, the Loan shall bear interest at a rate
determined by the Company or the Lender, as applicable, which rate shall be a
fixed rate, floating rate, or combination thereof and at a rate in their sole
discretion. Until further notice, the rate shall be a floating rate based on the
applicable Lender's "Prime Rate" (Citibank, N.A. Prime Rate for Loans by the
Company) less 75 basis points (0.75%). The Loan documents shall specify the
applicable default rate of interest and other charges to be applied, if any.
XV. Ownership of Stock/Dividends/Voting. Participants shall be deemed to be the
owners of any Shares held as collateral for a Loan, subject to the Company's
security interest therein, prior to the occurrence of an event of default under
the Loan documents or a breach of these Policies. Accordingly, Participant shall
be permitted to vote the Shares and be have the right to receive any dividends
or distributions on any Shares held by the Company prior to that time,
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and Participant shall be solely responsible for any taxes or other charges due
on those payments. Notwithstanding the above, any Administrator may direct that
any dividends or distributions be used to reduce amounts owed under the Loan or
be held as additional collateral, in the Company's sole discretion. The Company
may reinvest dividends or distributions in additional Shares or other
investments, in the Administrators' discretion, without liability for diminution
in value of any such investments. Until further notice, stock or cash dividends
or distributions shall not be held as additional collateral, prior to a breach
as noted above. The Company shall have the right to require that a Participant
and if applicable, Participant's spouse, execute one or more proxies in a form
acceptable to the Company to vote any securities pledged as collateral.
XVI. No Employment Rights Created. Nothing in these Policies or any Loan
document or the making of any Loan shall (a) be deemed to create a contract of
employment or to alter the nature or status of an Executive Officer's employment
with the Company; (b) entitle an Executive Officer to any formal or informal
program of counseling, probation, or other disciplinary step prior to discharge
or other action, or (c) entitle an Executive Officer to any severance or other
payments upon that person's Termination of Employment.
XVII. General Provisions.
A. Amendment to Policies/Termination. The Committee reserves the right
to suspend, withdraw, amend, modify, waive or terminate the Program and these
Policies, in whole or in part, at any time for any reason. In no event will the
Executive Officer become entitled to any vested rights under the Program or
these Policies. The Committee, the Board of Directors, or any Administrator may
amend the Program or these Policies at any time in writing. Notice of such
modifications shall be given to Executive Officers as required by law.
Amendments may also be contained in separate severance agreements, executed
pursuant to the authority granted above or for approval of severance agreements.
The Plan may be amended with respect to a single Executive Officer and different
benefits may be in effect for different Executive Officers simultaneously, in
the Company's sole discretion. These Policies shall automatically be deemed to
be modified to the extent necessary to conform to the laws of any applicable
jurisdiction. No suspension or termination of the Program shall release any
Participant from Participant's obligations under any outstanding Loan.
B. Acceptance of Policies/Conflicts. Initial and continued acceptance
of a Loan under the Program, whether through the Company or a Lender, shall be
deemed acceptance of these Policies by the Participant and Participant's present
and any future spouse, if any, including without limitation the provisions
permitting (a) suspension or termination of an Executive Officer's ability to
participate in the Program at any time, with or without cause, (b) the Company's
and Lender's rights to accelerate the amount due under a Loan as provided in
these Policies or the Loan documents, and (c) the Company's authority to amend
these Policies, even after a Loan has been made, to the extent permitted by law.
In the event of a conflict between these Policies and any Loan document, the
terms of the Loan document shall control.
C. Obligations of Participant and Spouse/TIME OF THE ESSENCE. Any Loan
made under the Program shall be the personal obligations of Participant,
Participant's spouse, their marital community and their sole and separate
property, notwithstanding any credit support provided by the Company to a
Lender. The Loan shall be Participant's and Participant's spouse's obligation
and they shall not be permitted to set off or reduce their obligations under the
Loan by an amount claimed to be owed to them by the Company or any Lender for
any reason, including without limitation any claims for severance pay, alleged
damages, retirement compensation, lender liability or otherwise, except in the
Company's sole discretion. TIME IS OF THE ESSENCE IN THESE PROCEDURES AND IN
OBLIGATIONS PERTAINING TO ANY LOANS.
D. Spouse/Substitution of New Spouse. Participants are required to have
their current and any future spouse(s) sign as obligors under any outstanding
Loan documents. In the event the status as a Participant's spouse changes, the
Participant shall notify Shareholder Services and any Lender to that Participant
within 30 days of that change. Shareholder Services will cause new Loan
documents to be issued and signed, as appropriate, unless a Lender or the
Company waives that requirement. Human Resources shall advise Shareholder
Services in the event it learns of a
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change in spouse by a Participant, but notification to Human Resources shall not
relieve a Participant from his or her obligation to also advise Shareholder
Services as noted above.
E Further Assurances. By accepting a Loan, Participant and
Participant's spouse shall be deemed to consent to provide any further
assurances, documents, information, certificates, financial records or other
items requested by the Company or a Lender in connection with any Loan or any
collateral held under a Loan. The Company and any Lender may require that an
Executive Officer execute appropriate releases from liability prior to the
granting, extension, renewal, modification or termination of any Loan or the
release of any collateral.
F. No Third Party Beneficiaries. Nothing in these Policies shall create
rights by any third party to rely upon the terms hereof without the Company's
express prior consent in a separate writing, including, rights by any Lender or
spouse. These Policies shall be binding upon an Executive Officer and any
present or future spouse and their respective heirs, personal representatives,
successors and permitted assigns. An Executive Officer shall not be permitted to
assign his or her rights hereunder or under any Loan documents without in each
instance the express prior written consent of the Company. An Executive Officer
may add a new spouse upon execution of the appropriate documentation.
G. Governing Law/JURISDICTION OF DISPUTES/WAIVER OF JURY TRIAL. These
policies shall be governed by and construed in accordance with the internal laws
of the State of Arizona, except to the extent preempted by Federal laws of the
United States. ANY DISPUTES ARISING HEREUNDER OR PURSUANT TO ANY LOAN DOCUMENTS
SHALL BE PRESENTED AND HEARD EXCLUSIVELY IN THE STATE OR FEDERAL COURTS LOCATED
IN MARICOPA COUNTY, ARIZONA, UNLESS THE PARTIES AGREE OTHERWISE IN WRITING. By
the making of any Loan, the PARTICIPANT, PARTICIPANT'S SPOUSE, THE COMPANY AND
ANY LENDER OR OTHER PARTIES EXPRESSLY WAIVE THEIR RIGHTS TO A JURY TRIAL.
XVIII. Communications with Lenders. Through the acceptance of a Loan,
Participant is deemed to authorize the Company to communicate with any Lender
for all purposes under the Program, including obtaining information regarding
amounts applied for, amounts due under, payment terms and history of, and the
review of any documentation of any Loan.
EXECUTIVE OFFICERS HAVE NO RIGHT TO RELY ON ANY EXPECTATION THAT A LOAN WILL BE
MADE OR INCREASED, EXTENDED OR RENEWED. ANY LOAN MAY BECOME DUE AND PAYABLE
BEFORE ITS SCHEDULED MATURITY DUE TO CIRCUMSTANCES BEYOND THE PARTICIPANT'S
CONTROL, INCLUDING WITHOUT LIMITATION THE LOSS OF PARTICIPANT'S EMPLOYMENT OR
THE CESSATION OF THE PROGRAM.
THESE POLICIES ARE SUBJECT TO CHANGE FROM TIME TO TIME AT THE SOLE DISCRETION OF
THE COMMITTEE, BOARD OF DIRECTORS OR ADMINISTRATORS, WHO HAVE THE DISCRETIONARY
AUTHORITY TO INTERPRET, WAIVE COMPLIANCE WITH AND CONSTRUE THE TERMS OF THESE
POLICIES, THE PROGRAM AND ANY COMPANY-GENERATED LOAN DOCUMENTS, INCLUDING
WITHOUT LIMITATION ELIGIBILITY FOR PARTICIPATION.
6
THE FINOVA GROUP INC.
1992 STOCK INCENTIVE PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
FOR DIRECTORS
(NQ)
The FINOVA Group Inc. (Company), a Delaware corporation, hereby grants
to ______(Grantee) the option (Option) to purchase from the Company, pursuant to
The FINOVA Group Inc. 1992 Stock Incentive Plan (Plan), at the price of $______
per share (Option Price) ____ shares of its Common Stock of the par value of
$.01 each (Common Stock) through the exercise of this Option in accordance with
the terms and conditions hereinafter set forth.
1. Option Period and Termination of Employment of Grantee. The period
during which this Option may be exercised (Option Period) is the period
beginning on the date hereof and ending ten (10) years from such date, subject
to paragraph 2 below, and during this period this Option may be exercised only
by the Grantee personally and while a director of the Company or an affiliate
thereof, except that:
(a) If the Grantee ceases to be a director of the Company or
any subsidiary or affiliate of the Company for any reason, excluding death,
disability, retirement and termination as a director for cause, the option
rights hereunder (as they exist on the day the Grantee ceases to be a director)
may be exercised only within a period of three (3) months thereafter, subject to
the notice requirements set forth below, or prior to the expiration of the
Option Period, whichever shall occur sooner. If Grantee is terminated for cause,
all the option rights hereunder shall expire immediately upon the giving to such
Grantee of notice of such termination.
(b) If the Grantee ceases to be a director of the Company or
any subsidiary or affiliate of the Company due to death, or dies within the
three month or three year periods referred to in Sections (a) or (c) of this
paragraph, the option rights hereunder (as they exist immediately prior to the
Grantee's death) may be exercised by the Grantee's personal representative only
during a period of twelve (12) months thereafter, subject to the notice
requirements set forth below, or prior to the expiration of the Option Period,
whichever shall occur sooner.
(c) If the Grantee ceases to be a director of the Company or
any subsidiary or affiliate of the Company by reason of disability or
retirement, the option rights hereunder (as they exist on the day the Grantee
ceases to be a director) may be exercised only within a period of three (3)
years thereafter, subject to the notice requirements set forth below, or prior
to the expiration of the Option Period, whichever shall occur sooner.
2. Method of Exercise of this Option. This Option may be exercised in
the manner
<PAGE>
hereinafter prescribed, in whole or in part, at any time or from time to time,
during the Option Period as follows:
100% of the shares hereby optioned at any time commencing on the day
before the [next] annual meeting of shareholders (which is currently scheduled
for ___________).
Notwithstanding the above, in the event the Grantee ceases to be a director of
the Company or any subsidiary or affiliate of the Company due to death,
disability or retirement at age 62 or later, the entire Option shall become
exercisable upon such occurrence.
On or before the expiration of the Option Period specified herein,
written notice of the exercise of this Option with respect to all or a part of
the Common Stock hereby optioned may be mailed or delivered to the Company by
the Grantee in substantially the form attached hereto or in such other form as
the Company may require, properly completed and among other things stating the
number of shares of Common Stock with respect to which the Option is being
exercised, and specifying the method of payment for such Common Stock. The
notice must be mailed or delivered prior to the expiration of this Option.
Before any stock certificates shall be issued, the entire purchase
price of the Common Stock purchased shall be paid to the Company. Certificates,
registered in the name of the purchaser for the Common Stock purchased, will be
issued to the purchaser as soon as practicable thereafter. Failure to pay the
purchase price for any Common Stock within the time specified in said notice
shall result in forfeiture of the Grantee's right to purchase the Common Stock
at a later date and the number of shares of Common Stock which may thereafter be
purchased hereunder shall be reduced accordingly.
The purchase price may be paid either entirely in cash or in whole or
in part with unrestricted Common Stock already owned by the Grantee. If the
Grantee elects to pay the purchase price entirely in cash, he or she will be
notified of the purchase price by the Company. If the Grantee elects to pay the
purchase price either substantially all with Common Stock or partly with Common
Stock and the balance in cash, he or she will be notified by the Company of the
fair market value of the Common Stock on the exercise date and the amount of
Common Stock or cash payable. Within three business days after the exercise
date, the Grantee shall deliver to the Company either cash or Common Stock
certificates, in negotiable form, at least equal in value to the purchase price,
or that portion thereof to be paid for with Common Stock, together with cash
sufficient to pay the full purchase price. Only full shares of Common Stock
shall be utilized for payment purposes.
To the extent permissible under applicable tax, securities, and other
laws, the Grantee may satisfy any tax withholding requirement by surrendering
Shares, including Shares to which Grantee is entitled as a result of the
exercise of this Option, in such manner as the Company shall choose in its
discretion to satisfy such requirement.
3. Non-Transferability of this Option. This Option may not be assigned,
encumbered or transferred, in whole or in part, except by the Grantee's will or
in accordance
<PAGE>
with the applicable laws of descent and distribution.
4. Adjustments for Changes in Capitalization of Company. The Common
Stock covered by this Option is, at the option of the Company, either authorized
but unissued or reacquired Common Stock. In the event of any merger,
reorganization, consolidation, recapitalization, stock dividend, stock split,
extraordinary distribution with respect to the Common Stock or other change in
corporate structure affecting the Common Stock during the Option Period, the
number of shares of Common Stock which may thereafter be purchased pursuant to
this Option and the purchase price per share, shall be appropriately adjusted,
or other appropriate substitutions shall be made, and the determination of the
Board of Directors of the Company, or the Executive Compensation Committee of
the Board of Directors, as the case may be, as to any such adjustments shall be
final, conclusive and binding upon the Grantee.
5. Effect of Change in Control.
(a) In the event of a Change in Control (as defined in the
Plan), this Option (to the extent outstanding as of the date such Change in
Control is determined to have occurred) if not then exercisable and vested shall
become fully exercisable and vested to the full extent of the original grant,
without regard to the three month limit on exercisability imposed by Section
5(i) of the Plan or any successor provisions.
(b) Notwithstanding any other provision of the Plan, during
the 60-day period from and after a Change in Control (the "Exercise Period"),
the Grantee shall have the right, whether or not this Option is fully
exercisable and in lieu of the payment of the exercise price for the shares of
Common Stock being purchased under the Option and by giving notice to the
Company, to elect (within the Exercise Period) to surrender all or part of the
Option to the Company and to receive cash, within 30 days of such notice, in an
amount equal to the amount by which the Change in Control Price (as defined in
the Plan) per share of Common Stock on the date of such election shall exceed
the exercise price per share of Common Stock under the Option (the "Spread")
multiplied by the number of shares of Common Stock granted under the Option as
to which the right granted hereunder shall have been exercised; provided,
however, that if the Change in Control is within six months of the date of grant
of a particular Option held by a Grantee who is an officer or director of the
Company and is subject to Section 16(b) of the Securities Exchange Act of 1934,
no such election shall be made by such Grantee with respect to such Option prior
to six months from the date of grant. Notwithstanding any other provision
hereof, if the end of such 60-day period from and after a Change in Control is
within six months of the date of grant of an Option held by a Grantee who is an
officer or director of the Company and is subject to Section 16(b), such Option
shall be canceled in exchange for a cash payment to the Grantee, effected on the
day which is six months and one day after the date of grant of such Option,
equal to the Spread multiplied by the number of shares of Common Stock granted
under the Option.
6. Plan and Plan Interpretations as Controlling. This Option and the
terms and conditions herein set forth are subject in all respects to the terms
and conditions of the Plan,
<PAGE>
which are controlling. The Plan provides that the Executive Compensation
Committee of the Board of Directors may from time to time make changes therein,
interpret it and establish regulations for the administration thereof; provided
that no such amendment shall impair the rights of any Grantee under an Option
without the Grantee's consent, except an amendment for purposes of compliance
with the federal securities laws. The Grantee, by acceptance of this Option,
agrees to be bound by said Plan and such Board actions.
This Option may not be exercised whenever such exercise or the issuance
of any of the optioned shares would be contrary to law or the regulations of any
governmental authority having jurisdiction.
IN WITNESS WHEREOF, THE FINOVA GROUP INC. has caused this Option to be
duly executed in its name and dated as of the date of grant hereof.
Dated:
---------------
THE FINOVA GROUP INC.
--------------------------
By: SAMUEL L. EICHENFIELD
Chairman
ATTEST:
- ----------------------------
Secretary or Assistant Secretary
THE FINOVA GROUP INC.
1992 STOCK INCENTIVE PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
FOR DIRECTORS
[Date]
(NQ)
The FINOVA Group Inc. (Company), a Delaware corporation, hereby grants
to "1" (Grantee) the option (Option) to purchase from the Company, pursuant to
The FINOVA Group Inc. 1992 Stock Incentive Plan (Plan), at the price of $____
per share (Option Price) ____ shares of its Common Stock of the par value of
$.01 each (Common Stock) through the exercise of this Option in accordance with
the terms and conditions hereinafter set forth.
1. Option Period and Termination of Employment of Grantee. The period
during which this Option may be exercised (Option Period) is the period
beginning on the date hereof and ending ten (10) years from such date, subject
to paragraph 2 below, and during this period this Option may be exercised only
by the Grantee personally and while a director of the Company or an affiliate
thereof, except that:
(a) If the Grantee ceases to be a director of the Company or
any subsidiary or affiliate of the Company for any reason, excluding death,
disability, retirement and termination as a director for cause, the option
rights hereunder (as they exist on the day the Grantee ceases to be a director)
may be exercised only within a period of three (3) months thereafter, subject to
the notice requirements set forth below, or prior to the expiration of the
Option Period, whichever shall occur sooner. If Grantee is terminated for cause,
all the option rights hereunder shall expire immediately upon the giving to such
Grantee of notice of such termination.
(b) If the Grantee ceases to be a director of the Company or
any subsidiary or affiliate of the Company due to death, or dies within the
three month or three year periods referred to in Sections (a) or (c) of this
paragraph, the option rights hereunder (as they exist immediately prior to the
Grantee's death) may be exercised by the Grantee's personal representative only
during a period of twelve (12) months thereafter, subject to the notice
requirements set forth below, or prior to the expiration of the Option Period,
whichever shall occur sooner.
(c) If the Grantee ceases to be a director of the Company or
any subsidiary or affiliate of the Company by reason of disability or
retirement, the option rights hereunder (as they exist on the day the Grantee
ceases to be a director) may be exercised only within a period of three (3)
years thereafter, subject to the notice requirements set forth below, or prior
to the expiration of the Option Period, whichever shall occur sooner.
2. Method of Exercise of this Option. This Option may be exercised in
the manner
<PAGE>
hereinafter prescribed, in whole or in part, at any time or from time to time,
during the Option Period as follows:
100% of the shares hereby optioned at any time after six (6) months
from the date hereof.
Notwithstanding the above, in the event the Grantee ceases to be a director of
the Company or any subsidiary or affiliate of the Company due to death,
disability or retirement at age 62 or later, the entire Option shall become
exercisable upon such occurrence.
On or before the expiration of the Option Period specified herein,
written notice of the exercise of this Option with respect to all or a part of
the Common Stock hereby optioned may be mailed or delivered to the Company by
the Grantee in substantially the form attached hereto or in such other form as
the Company may require, properly completed and among other things stating the
number of shares of Common Stock with respect to which the Option is being
exercised, and specifying the method of payment for such Common Stock. The
notice must be mailed or delivered prior to the expiration of this Option.
Before any stock certificates shall be issued, the entire purchase
price of the Common Stock purchased shall be paid to the Company. Certificates,
registered in the name of the purchaser for the Common Stock purchased, will be
issued to the purchaser as soon as practicable thereafter. Failure to pay the
purchase price for any Common Stock within the time specified in said notice
shall result in forfeiture of the Grantee's right to purchase the Common Stock
at a later date and the number of shares of Common Stock which may thereafter be
purchased hereunder shall be reduced accordingly.
The purchase price may be paid either entirely in cash or in whole or
in part with unrestricted Common Stock already owned by the Grantee. If the
Grantee elects to pay the purchase price entirely in cash, he or she will be
notified of the purchase price by the Company. If the Grantee elects to pay the
purchase price either substantially all with Common Stock or partly with Common
Stock and the balance in cash, he or she will be notified by the Company of the
fair market value of the Common Stock on the exercise date and the amount of
Common Stock or cash payable. Within three business days after the exercise
date, the Grantee shall deliver to the Company either cash or Common Stock
certificates, in negotiable form, at least equal in value to the purchase price,
or that portion thereof to be paid for with Common Stock, together with cash
sufficient to pay the full purchase price. Only full shares of Common Stock
shall be utilized for payment purposes.
To the extent permissible under applicable tax, securities, and other
laws, the Grantee may satisfy any tax withholding requirement by surrendering
Shares, including Shares to which Grantee is entitled as a result of the
exercise of this Option, in such manner as the Company shall choose in its
discretion to satisfy such requirement.
3. Non-Transferability of this Option. This Option may not be assigned,
encumbered or transferred, in whole or in part, except by the Grantee's will or
in accordance
<PAGE>
with the applicable laws of descent and distribution.
4. Adjustments for Changes in Capitalization of Company. The Common
Stock covered by this Option is, at the option of the Company, either authorized
but unissued or reacquired Common Stock. In the event of any merger,
reorganization, consolidation, recapitalization, stock dividend, stock split,
extraordinary distribution with respect to the Common Stock or other change in
corporate structure affecting the Common Stock during the Option Period, the
number of shares of Common Stock which may thereafter be purchased pursuant to
this Option and the purchase price per share, shall be appropriately adjusted,
or other appropriate substitutions shall be made, and the determination of the
Board of Directors of the Company, or the Executive Compensation Committee of
the Board of Directors, as the case may be, as to any such adjustments shall be
final, conclusive and binding upon the Grantee.
5. Effect of Change in Control.
(a) In the event of a Change in Control (as defined in the
Plan), this Option (to the extent outstanding as of the date such Change in
Control is determined to have occurred) if not then exercisable and vested shall
become fully exercisable and vested to the full extent of the original grant,
without regard to the three month limit on exercisability imposed by Section
5(i) of the Plan or any successor provisions.
(b) Notwithstanding any other provision of the Plan, during
the 60-day period from and after a Change in Control (the "Exercise Period"),
the Grantee shall have the right, whether or not this Option is fully
exercisable and in lieu of the payment of the exercise price for the shares of
Common Stock being purchased under the Option and by giving notice to the
Company, to elect (within the Exercise Period) to surrender all or part of the
Option to the Company and to receive cash, within 30 days of such notice, in an
amount equal to the amount by which the Change in Control Price (as defined in
the Plan) per share of Common Stock on the date of such election shall exceed
the exercise price per share of Common Stock under the Option (the "Spread")
multiplied by the number of shares of Common Stock granted under the Option as
to which the right granted hereunder shall have been exercised; provided,
however, that if the Change in Control is within six months of the date of grant
of a particular Option held by a Grantee who is an officer or director of the
Company and is subject to Section 16(b) of the Securities Exchange Act of 1934,
no such election shall be made by such Grantee with respect to such Option prior
to six months from the date of grant. Notwithstanding any other provision
hereof, if the end of such 60-day period from and after a Change in Control is
within six months of the date of grant of an Option held by a Grantee who is an
officer or director of the Company and is subject to Section 16(b), such Option
shall be canceled in exchange for a cash payment to the Grantee, effected on the
day which is six months and one day after the date of grant of such Option,
equal to the Spread multiplied by the number of shares of Common Stock granted
under the Option.
6. Plan and Plan Interpretations as Controlling. This Option and the
terms and conditions herein set forth are subject in all respects to the terms
and conditions of the Plan,
<PAGE>
which are controlling. The Plan provides that the Executive Compensation
Committee of the Board of Directors may from time to time make changes therein,
interpret it and establish regulations for the administration thereof; provided
that no such amendment shall impair the rights of any Grantee under an Option
without the Grantee's consent, except an amendment for purposes of compliance
with the federal securities laws. The Grantee, by acceptance of this Option,
agrees to be bound by said Plan and such Board actions.
This Option may not be exercised whenever such exercise or the issuance
of any of the optioned shares would be contrary to law or the regulations of any
governmental authority having jurisdiction.
IN WITNESS WHEREOF, THE FINOVA GROUP INC. has caused this Option to be
duly executed in its name and dated as of the date of grant hereof.
Dated:
--------------------- THE FINOVA GROUP INC.
-----------------------------
By: SAMUEL L. EICHENFIELD
Chairman
ATTEST:
--------------------------------
Secretary or Assistant Secretary
THE FINOVA GROUP INC.
1992 STOCK INCENTIVE PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
(NQ)
The FINOVA Group Inc. (Company), a Delaware corporation, hereby grants
to _______________ (Grantee) the option (Option) to purchase from the Company,
pursuant to The FINOVA Group Inc. 1992 Stock Incentive Plan (Plan), at the price
of $________ per share (Option Price) ________ shares of its Common Stock of the
par value of $.01 each (Common Stock) through the exercise of this Option in
accordance with the terms and conditions hereinafter set forth.
1. Option Period and Termination of Employment of Grantee. The period
during which this Option may be exercised (Option Period) is the period
beginning on the date hereof and ending ten (10) years from such date, subject
to paragraph 2 below, and during this period this Option may be exercised only
by the Grantee personally and while an employee of the Company or an affiliate
thereof, except that:
(a) If the Grantee ceases to be an employee of the Company or any
subsidiary or affiliate of the Company for any reason, excluding death,
disability, retirement and termination of employment for cause, the option
rights hereunder (as they exist on the day the Grantee ceases to be an employee)
may be exercised only within a period of three (3) months thereafter, subject to
the notice requirements set forth below, or prior to the expiration of the
Option Period, whichever shall occur sooner. If Grantee is terminated for cause,
all the option rights hereunder shall expire immediately upon the giving to such
Grantee of notice of such termination.
(b) If the Grantee ceases to be an employee of the Company or any
subsidiary or affiliate of the Company due to death, or dies within the three
month or three year periods referred to in Sections (a) or (c) of this
paragraph, the option rights hereunder (as they exist immediately prior to the
Grantee's death) may be exercised by the Grantee's personal representative only
during a period of twelve (12) months thereafter, subject to the notice
requirements set forth below, or prior to the expiration of the Option Period,
whichever shall occur sooner.
(c) If the Grantee ceases to be an employee of the Company or any
subsidiary or affiliate of the Company by reason of disability or retirement,
the option rights hereunder (as they exist on the day the
<PAGE>
Grantee ceases to be an employee) may be exercised only within a period of three
(3) years thereafter, subject to the notice requirements set forth below, or
prior to the expiration of the Option Period, whichever shall occur sooner.
2. Method of Exercise of this Option. This Option may be exercised in
the manner hereinafter prescribed, in whole or in part, at any time or from time
to time, during the Option Period as follows:
(a) 34% of the shares hereby optioned at any time after one year
from the date hereof;
(b) 33% of the shares hereby optioned at any time after two years
from the date hereof:
(c) the balance of the shares hereby optioned at any time after
three years from the date hereof;
provided that 50 shares, or the total number of shares remaining unpurchased
hereunder, if less than 50 shares, is the minimum number which may be purchased
hereunder at any one time. This Option shall not be exercisable prior to the
expiration of one year from the date of grant, except as otherwise specified in
the Plan. Notwithstanding the above, in the event the Grantee ceases to be an
employee of the Company or any subsidiary or affiliate of the Company due to
death, disability or retirement at age 65 or later, the entire Option shall
become exercisable upon such occurrence. All purchases hereunder must be
completed within the time periods prescribed herein for the exercise thereof.
On or before the expiration of the Option Period specified herein,
written notice of the exercise of this Option with respect to all or a part of
the Common Stock hereby optioned may be mailed or delivered to the Company by
the Grantee in substantially the form attached hereto or in such other form as
the Company may require, properly completed and among other things stating the
number of shares of Common Stock with respect to which the Option is being
exercised, and specifying the method of payment for such Common Stock. The
notice must be mailed or delivered prior to the expiration of this Option.
Before any stock certificates shall be issued, the entire purchase
price of the Common Stock purchased shall be paid to the Company. Certificates,
registered in the name of the purchaser for the Common Stock purchased, will be
issued to the purchaser as soon as practicable thereafter. Failure to pay the
purchase price for any Common Stock within the time specified in said notice
<PAGE>
shall result in forfeiture of the Grantee's right to purchase the Common Stock
at a later date and the number of shares of Common Stock which may thereafter be
purchased hereunder shall be reduced accordingly.
The purchase price may be paid either entirely in cash or in whole or
in part with unrestricted Common Stock already owned by the Grantee. If the
Grantee elects to pay the purchase price entirely in cash, he or she will be
notified of the purchase price by the Company. If the Grantee elects to pay the
purchase price either substantially all with Common Stock or partly with Common
Stock and the balance in cash, he or she will be notified by the Company of the
fair market value of the Common Stock on the exercise date and the amount of
Common Stock or cash payable. Within three business days after the exercise
date, the Grantee shall deliver to the Company either cash or Common Stock
certificates, in negotiable form, at least equal in value to the purchase price,
or that portion thereof to be paid for with Common Stock, together with cash
sufficient to pay the full purchase price. Only full shares of Common Stock
shall be utilized for payment purposes.
To the extent permissible under applicable tax, securities, and other
laws, the Grantee may satisfy a tax withholding requirement by surrendering
Shares, including Shares to which Grantee is entitled as a result of the
exercise of this Option, in such manner as the Company shall choose in its
discretion to satisfy such requirement.
3. Non-Transferability of this Option. This Option may not be assigned,
encumbered or transferred, in whole or in part, except by the Grantee's will or
in accordance with the applicable laws of descent and distribution, or pursuant
to a beneficiary designation effected in accordance with Company policy.
4. Adjustments for Changes in Capitalization of Company. The Common
Stock covered by this Option is, at the option of the Company, either authorized
but unissued or reacquired Common Stock. In the event of any merger,
reorganization, consolidation, recapitalization, stock dividend, stock split,
extraordinary distribution with respect to the Common Stock or other change in
corporate structure affecting the Common Stock during the Option Period, the
number of shares of Common Stock which may thereafter be purchased pursuant to
this Option and the purchase price per share, shall be appropriately adjusted,
or other appropriate substitutions shall be made, and the determination of the
Board of Directors of the Company, or the Executive Compensation Committee of
the Board of Directors, as the case may be, as to any such adjustments shall be
final, conclusive and binding upon the Grantee.
5. Effect of Change in Control. (a) In the event of a Change in Control
(as defined in the Plan), this Option (to the extent outstanding as of the date
such Change in Control is determined to have occurred) if not then exercisable
and
<PAGE>
vested shall become fully exercisable and vested to the full extent of the
original grant, without regard to the three month limit on exercisability
imposed by Section 5(i) of the Plan or any successor provision.
(b) Notwithstanding any other provision of the Plan, during the
60-day period from and after a Change in Control (the "Exercise Period"), the
Grantee shall have the right, whether or not this Option is fully exercisable
and in lieu of the payment of the exercise price for the shares of Common Stock
being purchased under the Option and by giving notice to the Company, to elect
(within the Exercise Period) to surrender all or part of the Option to the
Company and to receive cash, within 30 days of such notice, in an amount equal
to the amount by which the Change in Control Price (as defined in the Plan) per
share of Common Stock on the date of such election shall exceed the exercise
price per share of Common Stock under the Option (the "Spread") multiplied by
the number of shares of Common Stock granted under the Option as to which the
right granted hereunder shall have been exercised; provided, however, that if
the Change in Control is within six months of the date of grant of a particular
Option held by a Grantee who is an officer or director of the Company and is
subject to Section 16(b) of the Securities Exchange Act of 1934 no such election
shall be made by such Grantee with respect to such Option prior to six months
from the date of grant. Notwithstanding any other provision hereof, if the end
of such 60-day period from and after a Change in Control is within six months of
the date of grant of an Option held by a Grantee who is an officer or director
of the Company and is subject to Section 16(b), such Option shall be canceled in
exchange for a cash payment to the Grantee, effected on the day which is six
months and one day after the date of grant of such Option, equal to the Spread
multiplied by the number of shares of Common Stock granted under the Option.
6. Plan and Plan Interpretations as Controlling. This Option and the
terms and conditions herein set forth are subject in all respects to the terms
and conditions of the Plan, which are controlling. The Plan provides that the
Executive Compensation Committee of the Board of Directors may from time to time
make changes therein, interpret it and establish regulations for the
administration thereof; provided that no such amendment shall impair the rights
of any Grantee under an Option without the Grantee's consent, except an
amendment for purposes of compliance with the federal securities laws. The
Grantee, by acceptance of this Option, agrees to be bound by said Plan and such
Board actions.
This Option may not be exercised whenever such exercise or the issuance
of any of the optioned shares would be contrary to law or the regulations of any
governmental authority having jurisdiction.
IN WITNESS WHEREOF, THE FINOVA GROUP INC. has caused this Option to be
duly executed in its name and dated as of the date of grant hereof.
Dated: THE FINOVA GROUP INC.
------------------------
------------------------------
By: S. EICHENFIELD
Chairman
ATTEST:
- ------------------------
Secretary or Assistant Secretary
THE FINOVA GROUP INC.
1992 STOCK INCENTIVE PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
[Date]
(NQ)
The FINOVA Group Inc. (Company), a Delaware corporation, hereby grants to
_________ (Grantee) the option (Option) to purchase from the Company, pursuant
to The FINOVA Group Inc. 1992 Stock Incentive Plan (Plan), at the prices stated
below (Option Price) ________ shares of its Common Stock of the par value of
$.01 each (Common Stock) through the exercise of this Option in accordance with
the terms and conditions hereinafter set forth.
Number of Options Exercise Price Vesting Date
- ----------------- -------------- ------------
- ----------------- -------------- ------------
- ----------------- -------------- ------------
- ----------------- -------------- ------------
1. Option Period and Termination of Employment of Grantee. The period
during which this Option may be exercised (Option Period) is the period
beginning on the date hereof and ending ten (10) years from such date, subject
to paragraph 2 below, and during this period this Option may be exercised only
by the Grantee personally and while an employee of the Company or an affiliate
thereof, except that:
(a) If the Grantee ceases to be an employee of the Company or any
subsidiary or affiliate of the Company for any reason, excluding death,
disability, retirement and termination of employment for cause, the option
rights hereunder (as they exist on the day the Grantee ceases to be such an
employee) may be exercised only within a period of three (3) months thereafter,
subject to the notice requirements set forth below, or prior to the expiration
of the Option Period, whichever shall occur sooner. If Grantee is terminated for
cause, all the option rights hereunder shall expire immediately upon the giving
to such Grantee of notice of such termination.
(b) If the Grantee ceases to be an employee of the Company or any
subsidiary or affiliate of the Company due to death, or dies within the three
month or three year periods referred to in Sections (a) or (c) of this
paragraph, the option rights hereunder (as they exist immediately prior to the
Grantee's death) may be exercised by the Grantee's personal representative only
during a period of twelve (12) months thereafter, subject to the notice
requirements set forth below, or prior to the expiration of the Option Period,
whichever shall occur sooner.
(c) If the Grantee ceases to be an employee of the Company or any
subsidiary or affiliate of the Company by reason of disability or retirement,
the option rights hereunder (as they exist on the day the Grantee ceases to be
an employee) may be exercised only within a period of
1
<PAGE>
three (3) years thereafter, subject to the notice requirements set forth below,
or prior to the expiration of the Option Period, whichever shall occur sooner.
2. Method of Exercise of this Option. This Option may be exercised in the
manner hereinafter prescribed, in whole or in part, at any time or from time to
time, during the Option Period as follows:
(a) 34% of the shares hereby optioned at any time after one year
from the date hereof;
(b) 33% of the shares hereby optioned at any time after two years
from the date hereof:
(c) the balance of the shares hereby optioned at any time after
three years from the date hereof;
provided that 50 shares, or the total number of shares remaining unpurchased
hereunder, if less than 50 shares, is the minimum number which may be purchased
hereunder at any one time. This Option shall not be exercisable prior to the
expiration of one year from the date of grant, except as otherwise specified in
the Plan. Notwithstanding the above, in the event the Grantee ceases to be an
employee of the Company or any subsidiary or affiliate of the Company due to
death, disability or retirement at age 65 or later, the entire Option shall
become exercisable upon such occurrence. All purchases hereunder must be
completed within the time periods prescribed herein for the exercise thereof.
Options shall vest in increasing price order, as noted above.
On or before the expiration of the Option Period specified herein, written
notice of the exercise of this Option with respect to all or a part of the
Common Stock hereby optioned may be mailed or delivered to the Company by the
Grantee in substantially the form attached hereto or in such other form as the
Company may require, properly completed and among other things stating the
number of shares of Common Stock with respect to which the Option is being
exercised, and specifying the method of payment for such Common Stock. The
notice must be mailed or delivered prior to the expiration of this Option.
Before any stock certificates shall be issued, the entire purchase price of
the Common Stock purchased shall be paid to the Company. Certificates,
registered in the name of the purchaser for the Common Stock purchased, will be
issued to the purchaser as soon as practicable thereafter. Failure to pay the
purchase price for any Common Stock within the time specified in said notice
shall result in forfeiture of the Grantee's right to purchase the Common Stock
at a later date and the number of shares of Common Stock which may thereafter be
purchased hereunder shall be reduced accordingly.
The purchase price may be paid either entirely in cash or in whole or in
part with unrestricted Common Stock already owned by the Grantee. If the Grantee
elects to pay the purchase price entirely in cash, he or she will be notified of
the purchase price by the Company. If the Grantee elects to pay the purchase
price either substantially all with Common Stock or partly with Common Stock and
the balance in cash, he or she will be notified by the Company of the fair
market value of
2
<PAGE>
the Common Stock on the exercise date and the amount of Common Stock or cash
payable. Within three business days after the exercise date, the Grantee shall
deliver to the Company either cash or Common Stock certificates, in negotiable
form, at least equal in value to the purchase price, or that portion thereof to
be paid for with Common Stock, together with cash sufficient to pay the full
purchase price. Only full shares of Common Stock shall be utilized for payment
purposes.
To the extent permissible under applicable tax, securities, and other laws,
the Grantee may satisfy a tax withholding requirement by surrendering Shares,
including Shares to which Grantee is entitled as a result of the exercise of
this Option, in such manner as the Company shall choose in its discretion to
satisfy such requirement.
3. Non-Transferability of this Option. This Option may not be assigned,
encumbered or transferred, in whole or in part, except by the Grantee's will or
in accordance with the applicable laws of descent and distribution, or pursuant
to a beneficiary designation effected in accordance with Company policy.
4. Adjustments for Changes in Capitalization of Company. The Common Stock
covered by this Option is, at the option of the Company, either authorized but
unissued or reacquired Common Stock. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split, extraordinary
distribution with respect to the Common Stock or other change in corporate
structure affecting the Common Stock during the Option Period, the number of
shares of Common Stock which may thereafter be purchased pursuant to this Option
and the purchase price per share, shall be appropriately adjusted, or other
appropriate substitutions shall be made, and the determination of the Board of
Directors of the Company, or the Executive Compensation Committee of the Board
of Directors, as the case may be, as to any such adjustments shall be final,
conclusive and binding upon the Grantee.
5. Effect of Change in Control. (a) In the event of a Change in Control (as
defined in the Plan), this Option (to the extent outstanding as of the date such
Change in Control is determined to have occurred) if not then exercisable and
vested shall become fully exercisable and vested to the full extent of the
original grant, without regard to the three month limit on exercisability
imposed by Section 5(i) of the Plan or any successor provision.
(b) Notwithstanding any other provision of the Plan, during the
60-day period from and after a Change in Control (the "Exercise Period"), the
Grantee shall have the right, whether or not this Option is fully exercisable
and in lieu of the payment of the exercise price for the shares of Common Stock
being purchased under the Option and by giving notice to the Company, to elect
(within the Exercise Period) to surrender all or part of the Option to the
Company and to receive cash, within 30 days of such notice, in an amount equal
to the amount by which the Change in Control Price (as defined in the Plan) per
share of Common Stock on the date of such election shall exceed the exercise
price per share of Common Stock under the Option (the "Spread") multiplied by
the number of shares of Common Stock granted under the Option as to which the
right granted hereunder shall have been exercised; provided, however, that if
the Change in Control is within six months of the date of grant of a particular
Option held by a Grantee who is an officer or director of
3
<PAGE>
the Company and is subject to Section 16(b) of the Securities Exchange Act of
1934, no such election shall be made by such Grantee with respect to such Option
prior to six months from the date of grant. Notwithstanding any other provision
hereof, if the end of such 60-day period from and after a Change in Control is
within six months of the date of grant of an Option held by a Grantee who is an
officer or director of the Company and is subject to Section 16(b), such Option
shall be canceled in exchange for a cash payment to the Grantee, effected on the
day which is six months and one day after the date of grant of such Option,
equal to the Spread multiplied by the number of shares of Common Stock granted
under the Option.
6. Plan and Plan Interpretations as Controlling. This Option and the terms
and conditions herein set forth are subject in all respects to the terms and
conditions of the Plan, which are controlling. The Plan provides that the
Executive Compensation Committee of the Board of Directors may from time to time
make changes therein, interpret it and establish regulations for the
administration thereof; provided that no such amendment shall impair the rights
of any Grantee under an Option without the Grantee's consent, except an
amendment for purposes of compliance with the federal securities laws. The
Grantee, by acceptance of this Option, agrees to be bound by said Plan and such
Board actions.
This Option may not be exercised whenever such exercise or the issuance
of any of the optioned shares would be contrary to law or the regulations of any
governmental authority having jurisdiction.
IN WITNESS WHEREOF, THE FINOVA GROUP INC. has caused this Option to be
duly executed in its name and dated as of the date of grant hereof.
Dated: THE FINOVA GROUP INC.
------------------------
By: S. EICHENFIELD
ATTEST: Chairman
--------------------------------
Secretary or Assistant Secretary
THE FINOVA GROUP INC.
1992 STOCK INCENTIVE PLAN
DIRECTORS RESTRICTED STOCK AGREEMENT
Shares of Restricted Stock are hereby awarded by The FINOVA Group Inc.
(Company), a Delaware corporation, to ____________ (Director) in accordance with
the following terms and conditions:
1. Share Award. The Company hereby awards the Director 39 shares
(Shares) of Common Stock, par value $.01 per share (Common Stock) of the Company
pursuant to The FINOVA Group Inc. 1992 Stock Incentive Plan (Plan), upon the
terms and conditions and subject to the restrictions therein and hereinafter set
forth.
2. Restrictions on Transfer and Restriction Period. During the period
(Restriction Period) commencing on the date hereof (Commencement Date) and
terminating on the day preceding the [next] annual meeting of shareholders
(which meeting is currently scheduled for ___________), the Shares may not be
sold, assigned, transferred, pledged, or otherwise encumbered by the Director,
except as hereinafter provided.
The Shares shall be forfeited to the Company if the Director shall cease to be a
member of the Board prior to the end of the Restriction Period, subject to the
provisions of the Plan. Notwithstanding the foregoing, in the event of
Director's death, Disability or retirement as a director at the end of a term or
a Change in Control, his or her Shares shall thereupon vest and cease to be
subject to any restrictions on transfer or risk of forfeiture.
To the extent permitted by the Plan, the Executive Compensation Committee of the
Board of Directors (Committee) shall have the authority, in its discretion, to
accelerate the time at which any or all of the restrictions shall lapse with
respect to any Shares, prior to the expiration of the Restriction Period with
respect thereto, or to remove any or all of such restrictions, whenever the
Committee may determine that such action is appropriate by reason of change in
applicable tax or other law, or other change in circumstances.
3. Certificates for the Shares. The Company shall issue one or more
certificates in respect of the Shares in the name of the Director which shall
equal the amount of the award specified herein, and shall hold each such
certificate on deposit for the account of the Director until the expiration of
the restrictions set forth in paragraph 2 above with respect to the Shares
represented thereby. Each such certificate shall bear the following legend:
The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) contained in The FINOVA Group Inc. 1992 Stock Incentive Plan and a
Restricted Stock Agreement dated _________________. Copies of such Plan and
Agreement are on file at the offices of The FINOVA Group Inc., 1850 N. Central
Avenue, P.O. Box 2209, Phoenix, Arizona 85002-2209.
The Director further agrees that simultaneously with the acceptance of
this Agreement, the Director shall execute one stock power covering such award
endorsed in blank for each such certificate and shall promptly deliver such
stock power's to the Company.
<PAGE>
4. Director's Rights. Except as otherwise provided herein, the
Director, as owner of the Shares, shall have all rights of a stockholder,
including, but not limited to, the right to vote the Shares and receive any cash
or other dividends.
5. Expiration of Restriction Period. Upon the lapse or expiration of
the Restriction Period with respect to any Shares, the Company shall remove the
restrictions provided for herein and shall issue and deliver a certificate to
the Director in the amount of the vested Shares. The Shares as to which the
Restriction Period shall have lapsed or expired and which are represented by
such certificate shall be free of the restrictions referred to in paragraph 2
above and such certificate shall not bear thereafter the legend provided for in
paragraph 3 above. The remaining certificates, if any, shall be held on deposit
by the Company for the account of the Director pursuant to paragraph 3 above.
To the extent permissible under applicable tax, securities, and other
laws, the Director may satisfy any tax withholding requirement by surrendering
Shares, including Shares to which the Director is entitled as a result of the
award or vesting of Shares, in such manner as the Company shall choose in its
discretion to satisfy such requirement.
6. Adjustments for Changes in Capitalization of Company. In the event
of any merger, reorganization, consolidation, recapitalization, stock dividend,
stock split, extraordinary distribution with respect to Common Stock or other
change in corporate structure affecting the Common Stock, during the Restriction
Period, the number of shares of Common Stock subject to restrictions as set
forth herein shall be appropriately adjusted and the determination of the Board
of Directors of the Company, or the Committee, as the case may be, as to any
such adjustments shall be final, conclusive and binding upon the Director. Any
shares of Common Stock or other securities received as a result of the foregoing
by the Director with respect to Shares subject to the restrictions contained in
paragraph 2 above also shall be subject to such restrictions and the
certificate(s) or other instruments representing or evidencing such shares or
securities shall be legended and deposited with the Company, along with an
executed stock power, in the manner provided in paragraph 3 above.
7. Effect of Change in Control. In the event of a Change in Control (as
defined in the Plan), the restrictions applicable to any Shares awarded hereby
shall lapse, and such Shares shall be free of all restrictions and become fully
vested and transferable to the full extent of the original grant, including
without limitation immediate vesting and transferability (subject to applicable
securities laws) of the maximum amount of Shares permitted hereunder, as if
maximum performance conditions or payouts were achieved.
8. Plan and Plan Interpretations as Controlling. The Shares hereby
awarded and the terms and conditions herein set forth are subject in all
respects to the terms and conditions of the Plan, which are controlling. The
Plan provides that the Committee may from time to time make changes therein,
interpret it and establish regulations for the administration thereof; provided
that no such amendment shall impair the rights of the Director under this award
without the Director's consent, except an amendment for purposes of compliance
with the federal securities laws.
Shares may not be issued hereunder, delivered or redelivered, whenever
such issuance, delivery or redelivery would be contrary to law or the
regulations of any governmental authority having jurisdiction.
<PAGE>
Shares may not be issued hereunder, delivered or redelivered, whenever
such issuance, delivery or redelivery would be contrary to law or the
regulations of any governmental authority having jurisdiction.
IN WITNESS WHEREOF, the parties have caused this Restricted Stock
Agreement to be duly executed.
Dated: ______________ THE FINOVA GROUP INC.
----------------------------------
ACCEPTED: By: SAMUEL L. EICHENFIELD, Chairman
ATTEST:
- ----------------------
Employee ----------------------------------
Secretary or Assistant Secretary
THE FINOVA GROUP INC.
1992 STOCK INCENTIVE PLAN
PERFORMANCE-BASED RESTRICTED STOCK AGREEMENT
THE FINOVA GROUP INC.
Shares of Restricted Stock are hereby awarded by The FINOVA Group Inc.
(Company), a Delaware corporation, to {1} (Employee) in accordance with the
following terms and conditions:
1. Share Award. The Company hereby awards the Employee _____ shares
(Shares) (subject to adjustment of between 0 and _____ shares, as provided
below) of Common Stock, par value $.01 per share (Common Stock) of the Company
pursuant to The FINOVA Group Inc. 1992 Stock Incentive Plan (Plan), and upon the
terms and conditions, and subject to the restrictions therein and hereinafter
set forth.
2. Restrictions on Transfer and Restriction Period. During the period
(Restriction Period) commencing on the date hereof (Commencement Date) and
terminating _______________, the Shares may not be sold, assigned, transferred,
pledged, or otherwise encumbered by the Employee, except as hereinafter
provided. The Restriction Period shall lapse as to successive installments as
follows:
On January 1 of each of the five years beginning January 1, ____, 0 to
34% of the Shares awarded in this Agreement will vest and be issued based upon
the annual performance of the Common Stock relative to the lesser of the annual
performance of the Standard & Poor's 500 Index (S&P 500), or annual performance
of the Standard & Poor's Financial Index (S&P FI), calculated as follows:
1) The Share Price is the average of the daily averages of the high and
low trading price on the New York Stock Exchange for each trading day in the
month of December of that year. The Total Annual Return (TAR) is the Share Price
percentage change for the calendar year plus the dividend yield. The TAR is
calculated each year for the Company, the S&P 500 and the S&P FI.
2) The lesser of the TAR for the S&P 500 or the S&P FI is subtracted
from the TAR for the Company (Relative Performance).
3) Shares will vest on each vesting date in accordance with the table
below:
Relative
--------
Performance (RP) No. of Shares to Vest
---------------- ---------------------
Less than 0 0
0 20% of the Shares
.0001 - .0150 20% of the Shares + [RP/.015 x (14% of the
Shares)]
Greater than .0150 34% of the Shares
If no shares vest on a vesting date, 20% of the Shares shall be forfeited and
returned to the Company.
The Executive Compensation Committee of the Board of Directors (Committee) shall
have the authority, in its discretion, to accelerate the time at which any or
all of the restrictions shall lapse with respect to any Shares, prior to the
expiration of the Restriction Period with respect thereto, or to remove any or
all of such restrictions, whenever the Committee may determine that such action
is appropriate by reason of change in applicable tax or other law, or other
change in circumstances.
3. Termination of Employment. (a) Except as provided in subparagraph 3(b)
and paragraph 8
<PAGE>
below, if the Employee ceases to be an employee of the Company or any subsidiary
or affiliate of the Company for any reason (including, but not limited to,
death, disability, or retirement), all Shares which at the time of such
termination of employment are subject to the restrictions imposed by paragraph 2
above shall upon such termination of employment be forfeited and returned to the
Company.
(b) Notwithstanding subparagraph 3(a) above, if the Employee ceases to
be an employee of the Company or any subsidiary or affiliate of the Company due
to retirement on or after age 65, then the Restriction Period shall lapse on
that portion of the Shares still subject to such restrictions equal to two
years' installments of such Shares at the target level (as if the RP = 0) or
such lesser amount of Shares remaining under the Award if less than two years
remain on the Restriction Period. Shares subject to the Restriction Period
scheduled to vest beyond the two year period referenced above shall not vest and
shall be forfeited to the Company, except as otherwise provided in the Plan.
4. Certificates for the Shares. The Company shall issue one or more
certificates in respect of the Shares in the name of the Employee which shall
equal the amount of the award specified herein, and shall hold each such
certificate on deposit for the account of the Employee until the expiration of
the restrictions set forth in paragraph 2 above with respect to the Shares
represented thereby. Each such certificate shall bear the following legend:
The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) contained in The FINOVA Group Inc. 1992 Stock Incentive Plan and a
Restricted Stock Agreement dated ________________. Copies of such Plan and
Agreement are on file at the offices of The FINOVA Group Inc., 1850 N. Central,
P.O. Box 2209, Phoenix, Arizona 85002-2209.
The Employee further agrees that simultaneously with his/her acceptance
of this Agreement, he/she shall execute one stock power covering such award
endorsed in blank for each such certificate and that he/she shall promptly
deliver such stock power to the Company.
5. Employee's Rights. Except as otherwise provided herein, the
Employee, as owner of the Shares, shall have all rights of a stockholder,
including, but not limited to, the right to vote the Shares and receive any cash
or other dividends.
6. Expiration of Restriction Period. Upon the lapse or expiration of
the Restriction Period with respect to any Shares, the Company shall remove the
restrictions provided for herein and shall issue and deliver a certificate to
the Employee in the amount of the vested Shares. The Shares as to which the
Restriction Period shall have lapsed or expired and which are represented by
such certificate shall be free of the restrictions referred to in paragraph 2
above and such certificate shall not bear thereafter the legend provided for in
paragraph 4 above. The remaining certificates shall be held on deposit by the
Company for the account of the Employee pursuant to paragraph 4 above, provided
however, that sale of vested Shares prior to cessation of employment may result
in ineligibility to receive any further awards.
To the extent permissible under applicable tax, securities, and other
laws, the Employee may satisfy any tax withholding requirement by surrendering
Shares, including Shares to which the Employee is entitled as a result of the
award or vesting of Shares, in such manner as the Company shall choose in its
discretion to satisfy such requirement.
7. Adjustments for Changes in Capitalization of Company. In the event
of any merger, reorganization, consolidation, recapitalization, stock dividend,
stock split, extraordinary distribution with respect to Common Stock or other
change in corporate structure affecting the Common Stock, during the Restriction
Period, the number of shares of Common Stock subject to restrictions as set
forth herein shall
<PAGE>
be appropriately adjusted and the determination of the Board of Directors of the
Company, or the Committee, as the case may be, as to any such adjustments shall
be final, conclusive and binding upon the Employee. Any shares of Common Stock
or other securities received, as a result of the foregoing, by the Employee with
respect to Shares subject to the restrictions contained in paragraph 2 above
also shall be subject to such restrictions and the certificate(s) or other
instruments representing or evidencing such shares or securities shall be
legended and deposited with the Company, along with an executed stock power, in
the manner provided in paragraph 4 above.
8. Effect of Change in Control. In the event of a Change in Control (as
defined in the Plan), the restrictions applicable to any Shares awarded hereby
shall lapse, and such Shares shall be free of all restrictions and become fully
vested and transferable to the full extent of the original grant, including
without limitation immediate vesting and transferability (subject to applicable
securities laws) of the maximum amount of Shares permitted hereunder, as if
maximum performance conditions or payouts were achieved.
9. Plan and Plan Interpretations as Controlling. The Shares hereby
awarded and the terms and conditions herein set forth are subject in all
respects to the terms and conditions of the Plan, which are controlling. The
Plan provides that the Committee may from time to time make changes therein,
interpret it and establish regulations for the administration thereof; provided
that no such amendment shall impair the rights of any Employee under this award
without the Employee's consent, except an amendment for purposes of compliance
with the federal securities laws. The Employee, by acceptance of this Agreement,
agrees to be bound by said Plan and such Board actions.
<PAGE>
IN WITNESS WHEREOF, The FINOVA Group Inc. has caused this Restricted
Stock Agreement to be duly executed.
Dated: _______________
THE FINOVA GROUP INC.
----------------------------------------
By: SAMUEL L. EICHENFIELD, Chairman
ATTEST:
----------------------------------------
Secretary or Assistant Secretary
THE FINOVA GROUP INC.
PBRS/RESTRICTED STOCK RETENTION INCENTIVE PROGRAM
July 21, 1996
1. Establishment. The Executive Compensation Committee of the Board of
Directors (the Committee) has established this PBRS/Restricted Stock Retention
Incentive Program (the Program). The Program shall be governed by the following
policies and procedures, as they may be modified from time to time by the
Committee or its designee(s). Capitalized terms not defined in this Program
shall have the meanings ascribed to them in the Plan, unless the context clearly
requires otherwise.
2. Purpose. To encourage executives who receive performance based
restricted stock or restricted stock (collectively, PBRS) Awards under the
Company's 1992 Stock Incentive Plan (the Plan) to retain such Awards, rather
than to use some or all of those Awards or other shares of FINOVA common stock
(Shares) to pay taxes due upon the vesting of the PBRS Awards.
3. Effective Date. The Program shall be effective as of January 1,
1996.
4. Eligibility. Executives of The FINOVA Group Inc. and its
subsidiaries participating in this Program (the Company) who receive PBRS Awards
from time to time under the Plan who do not surrender, trade in or sell Shares
directly or indirectly to pay taxes due in connection with the vesting of any
PBRS Awards during the then-current Incentive Period (as defined below)
(Participants), regardless of whether the surrender, trade in or sale of such
Shares was made during the Incentive Period or otherwise. The Committee may
establish additional eligibility requirements from time to time, whether before,
during or after an Incentive Period.
5. Incentive Period. The initial Incentive Period shall be January 1,
1996 through August 7, 1996. Thereafter, the Incentive Period is that period
commencing with the previous meeting of the Committee at which PBRS Awards were
awarded to executives generally (historically at the August meeting of the
Committee and excluding special grants such as in connection with an
acquisition) through the then-current meeting of the Committee at which it makes
such Awards, if any, or such other date which the Committee designates for its
principal general grant of PBRS Awards to executives generally.
6. Incentive Program. Participants who receive vestings of PBRS Awards
during the then-current Incentive Period who meet the eligibility requirements
noted above shall receive upon the conclusion of that Incentive Period an
aggregate of 120% of the PBRS Award as would otherwise have been granted to that
Participant by the Committee on that date, as determined by the Committee in its
sole discretion. Awards shall not be compounded under this Program.
Example: To clarify how the Program works, if the Committee would have
granted a base Award (the "Base Award") to an executive of 100 PBRS shares in
August 1996, and the executive was an eligible Participant because he or she did
not surrender, trade in or sell Shares to pay taxes due on the PBRS Awards that
vested during the 1996 Incentive Period (1/1/96 through 8/7/96) and the
Committee determined the executive was otherwise eligible, the Participant will
be awarded 120 PBRS shares in August 1996. For the 1997 grant, assuming the
Participant continues to remain eligible for the Program, and assuming the
executive would generally again have been awarded 100 PBRS Base Award shares
absent this Program, the Participant would again receive 120 PBRS Award shares,
not 120% of 120 PBRS Award shares. Similarly, if the executive does not meet the
Program eligibility requirements during the 1996-97 Incentive Period, the
executive would continue to be eligible for consideration to receive a regular
annual Award of 100 PBRS shares. PBRS Award recipients who receive no vestings
during an Incentive Period shall not receive additional Shares under this
Program for that Incentive Period.
7. Gross Up Payment. The Company shall gross up income taxes payable by
Participants with respect to the additional PBRS Awards granted pursuant to this
Program over the Base Award. In the above example, the gross up payment would
apply to the additional 20 PBRS shares. The gross up payments shall
<PAGE>
be made at the highest marginal tax rate applicable to the Participant's
anticipated compensation from the Company for that year.
8. No Entitlements. Nothing in this Program shall entitle a Participant
to any PBRS Award or continued employment, and the Committee has sole discretion
whether to make any Awards to Participants and to determine the appropriate
amount. The Committee reserves the right to suspend, modify or terminate the
Program at any time, whether before, during or after completion of any Incentive
Period. Because the Committee has sole discretion to make Awards under the Plan,
Participants may not receive an increase in PBRS Awards, even if they otherwise
would have been eligible Participants. The Committee reserves the right to
suspend or terminate the participation of any Participant at any time,
regardless of whether other executives remain eligible for the Program.
Notwithstanding anything in this Program to the contrary, the right to gross up
payments noted in Section 7 shall vest upon the granting of any PBRS Awards over
the Base Award to a Participant under this Program.
9. Termination of Employment. Except as otherwise determined by the
Committee, Participants who terminate employment prior to the conclusion of an
Incentive Period, whether by reason of death, disability, retirement or
otherwise, shall have no right to a prorated portion of any Incentive Award
under the Program, but shall be entitled to the gross up payments provided for
by Section 7 to the extent any Shares in excess of the Base Amount granted under
the Program vest. Payments by the Company in cash or other forms of
consideration in lieu of vesting shall not entitle the Participant to such gross
up payments, unless the Company expressly consents in writing or upon the
occurrence of a Change in Control.
10. Provisions of Plan Apply. The provisions of the Plan and any Award
agreements apply to all Awards granted pursuant to this Program. The provisions
of Sections 2, 3, 10 and 11th of the Plan (or successor provisions) are hereby
incorporated into this Program by reference, with references to the Plan meaning
this Program where the context so permits.
11. Certification of Eligibility. The Committee and its designees are
authorized to require each executive who wishes to participate in the Program to
establish that the executive is so eligible. Without limitation, the executives
may be required to certify that they are eligible for the Program on a periodic
basis and upon request to provide other evidence of such compliance.
12. Evasion of Program Requirements. The Committee and its designees
reserve discretion to suspend or terminate participation of any Participant from
this Program who engages in transactions designed to permit the executive to
remain a Participant but to evade the Program's intent. Such actions would
include without limitation: (a) transactions such as equity swap or hedging
transactions to effectively sell the executives interest in such Shares, or (b)
selling, trading in or surrendering Shares to satisfy taxes due upon a vesting
after conclusion of an Incentive Period or certification to the Committee of
eligibility for the Program for that period.
1992 STOCK INCENTIVE PLAN
PERFORMANCE-BASED RESTRICTED STOCK AGREEMENT
PBRS/RESTRICTED STOCK RETENTION AWARD
Shares of Restricted Stock are hereby awarded by The FINOVA Group Inc.
(Company), a Delaware corporation, to {1} (Employee) pursuant to the Company's
PBRS/Restricted Stock Retention Incentive Program, in accordance with the
following terms and conditions:
1. Share Award. The Company hereby awards the Employee _____ shares
(Shares) (subject to adjustment of between 0 and _____ shares, as provided
below) of Common Stock, par value $.01 per share (Common Stock) of the Company
pursuant to The FINOVA Group Inc. 1992 Stock Incentive Plan (Plan), and upon the
terms and conditions, and subject to the restrictions therein and hereinafter
set forth.
2. Restrictions on Transfer and Restriction Period. During the period
(Restriction Period) commencing on the date hereof (Commencement Date) and
terminating _______________, the Shares may not be sold, assigned, transferred,
pledged, or otherwise encumbered by the Employee, except as hereinafter
provided. The Restriction Period shall lapse as to successive installments as
follows:
On January 1 of each of the five years beginning January 1, ____, 0 to
34% of the Shares awarded in this Agreement will vest and be issued based upon
the annual performance of the Common Stock relative to the lesser of the annual
performance of the Standard & Poor's 500 Index (S&P 500), or annual performance
of the Standard & Poor's Financial Index (S&P FI), calculated as follows:
1) The Share Price is the average of the daily averages of the high and
low trading price on the New York Stock Exchange for each trading day in the
month of December of that year. The Total Annual Return (TAR) is the Share Price
percentage change for the calendar year plus the dividend yield. The TAR is
calculated each year for the Company, the S&P 500 and the S&P FI.
2) The lesser of the TAR for the S&P 500 or the S&P FI is subtracted
from the TAR for the Company (Relative Performance).
3) Shares will vest on each vesting date in accordance with the table
below:
Relative
--------
Performance (RP) No. of Shares to Vest
---------------- ---------------------
Less than 0 0
0 20% of the Shares
.0001 - .0150 20% of the Shares + [RP/.015 x (14% of the
Shares)]
Greater than .0150 34% of the Shares
If no shares vest on a vesting date, 20% of the Shares shall be forfeited and
returned to the Company.
The Executive Compensation Committee of the Board of Directors (Committee) shall
have the
<PAGE>
authority, in its discretion, to accelerate the time at which any or all of the
restrictions shall lapse with respect to any Shares, prior to the expiration of
the Restriction Period with respect thereto, or to remove any or all of such
restrictions, whenever the Committee may determine that such action is
appropriate by reason of change in applicable tax or other law, or other change
in circumstances.
3. Termination of Employment. (a) Except as provided in subparagraph
3(b) and paragraph 8 below, if the Employee ceases to be an employee of the
Company or any subsidiary or affiliate of the Company for any reason (including,
but not limited to, death, disability, or retirement), all Shares which at the
time of such termination of employment are subject to the restrictions imposed
by paragraph 2 above shall upon such termination of employment be forfeited and
returned to the Company.
(b) Notwithstanding subparagraph 3(a) above, if the Employee ceases to
be an employee of the Company or any subsidiary or affiliate of the Company due
to retirement on or after age 65, then the Restriction Period shall lapse on
that portion of the Shares still subject to such restrictions equal to two
years' installments of such Shares at the target level (as if the RP = 0) or
such lesser amount of Shares remaining under the Award if less than two years
remain on the Restriction Period. Shares subject to the Restriction Period
scheduled to vest beyond the two year period referenced above shall not vest and
shall be forfeited to the Company, except as otherwise provided in the Plan.
4. Certificates for the Shares. The Company shall issue one or more
certificates in respect of the Shares in the name of the Employee which shall
equal the amount of the award specified herein, and shall hold each such
certificate on deposit for the account of the Employee until the expiration of
the restrictions set forth in paragraph 2 above with respect to the Shares
represented thereby. Each such certificate shall bear the following legend:
The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) contained in The FINOVA Group Inc. 1992 Stock Incentive Plan and a
Restricted Stock Agreement dated ________________. Copies of such Plan and
Agreement are on file at the offices of The FINOVA Group Inc., 1850 N. Central,
P.O. Box 2209, Phoenix, Arizona 85002-2209.
The Employee further agrees that simultaneously with his/her acceptance
of this Agreement, he/she shall execute one stock power covering such award
endorsed in blank for each such certificate and that he/she shall promptly
deliver such stock power to the Company.
5. Employee's Rights. Except as otherwise provided herein, the
Employee, as owner of the Shares, shall have all rights of a stockholder,
including, but not limited to, the right to vote the Shares and receive any cash
or other dividends.
6. Expiration of Restriction Period. Upon the lapse or expiration of
the Restriction Period with respect to any Shares, the Company shall remove the
restrictions provided for herein and shall issue and deliver a certificate to
the Employee in the amount of the vested Shares. The Shares as to which the
Restriction Period shall have lapsed or expired and which are represented by
such certificate shall be free of the restrictions referred to in paragraph 2
above and such certificate shall not bear thereafter the legend provided for in
paragraph 4 above. The remaining certificates shall be held on deposit by the
Company for the account of the Employee pursuant to paragraph 4 above, provided
however, that sale of vested Shares prior to cessation of employment may result
in ineligibility to receive any further awards.
<PAGE>
To the extent permissible under applicable tax, securities, and other
laws, the Company shall gross up and satisfy Employee's income tax liability
imposed by applicable federal, state and local authorities at the highest
marginal tax rate applicable to the Employee's anticipated compensation from the
Company for the year in which such Shares become taxable.
7. Adjustments for Changes in Capitalization of Company. In the event
of any merger, reorganization, consolidation, recapitalization, stock dividend,
stock split, extraordinary distribution with respect to Common Stock or other
change in corporate structure affecting the Common Stock, during the Restriction
Period, the number of shares of Common Stock subject to restrictions as set
forth herein shall be appropriately adjusted and the determination of the Board
of Directors of the Company, or the Committee, as the case may be, as to any
such adjustments shall be final, conclusive and binding upon the Employee. Any
shares of Common Stock or other securities received, as a result of the
foregoing, by the Employee with respect to Shares subject to the restrictions
contained in paragraph 2 above also shall be subject to such restrictions and
the certificate(s) or other instruments representing or evidencing such shares
or securities shall be legended and deposited with the Company, along with an
executed stock power, in the manner provided in paragraph 4 above.
8. Effect of Change in Control. In the event of a Change in Control (as
defined in the Plan), the restrictions applicable to any Shares awarded hereby
shall lapse, and such Shares shall be free of all restrictions and become fully
vested and transferable to the full extent of the original grant, including
without limitation immediate vesting and transferability (subject to applicable
securities laws) of the maximum amount of Shares permitted hereunder, as if
maximum performance conditions or payouts were achieved.
9. Plan and Plan Interpretations as Controlling. The Shares hereby
awarded and the terms and conditions herein set forth are subject in all
respects to the terms and conditions of the Plan, which are controlling. The
Plan provides that the Committee may from time to time make changes therein,
interpret it and establish regulations for the administration thereof; provided
that no such amendment shall impair the rights of any Employee under this award
without the Employee's consent, except an amendment for purposes of compliance
with the federal securities laws. The Employee, by acceptance of this Agreement,
agrees to be bound by said Plan and such Board actions.
<PAGE>
Shares may not be issued hereunder, delivered or redelivered, whenever
such issuance, delivery or redelivery would be contrary to law or the
regulations of any governmental authority having jurisdiction.
IN WITNESS WHEREOF, the parties have caused this Restricted Stock
Agreement to be duly executed.
Dated: ______________ THE FINOVA GROUP INC.
------------------------------
ACCEPTED: By: SAMUEL L. EICHENFIELD, Chairman
ATTEST:
- -----------------
Employee ------------------------------
Secretary or Assistant Secretary
EXHIBIT 11
THE FINOVA GROUP
COMPUTATION OF EARNINGS PER SHARE
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1996 1995 1994
---------------------------------------------
<S> <C> <C> <C>
Primary and Fully Diluted
Income from continuing operations $ 116,493 $ 93,798 $ 73,770
============ ============ ============
Net income $ 117,000 $ 97,629 $ 74,313
============ ============ ============
Average common shares outstanding before common equivalents 27,408,000 27,452,000 24,998,000
Common equivalent stock options 628,000 380,000 309,000
------------ ------------ ------------
Average outstanding common and equivalent shares 28,036,000 27,832,000 25,307,000
============ ============ ============
Income from continuing operations
per common & equivalent share $ 4.16 $ 3.37 $ 2.92
============ ============ ============
Net income per common and equivalent share $ 4.17 $ 3.51 $ 2.94
============ ============ ============
</TABLE>
42
EXHIBIT 12
THE FINOVA GROUP
COMPUTATION OF RATIO OF INCOME TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1996 1995 1994 1993 1992
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income from continuing operations before
income taxes $185,822 $150,834 $122,863 $ 66,422 $ 50,593
Add fixed charges:
Interest expense 366,543 337,814 210,001 123,853 136,107
One-third of rent expense 2,368 2,084 2,053 1,387 1,498
-------- -------- -------- -------- --------
Total fixed charges 368,911 339,898 212,054 125,240 137,605
-------- -------- -------- -------- --------
Income as adjusted $554,733 $490,732 $334,917 $191,662 $188,198
-------- -------- -------- -------- --------
Ratio of income to fixed charges 1.50 1.44 1.58 1.53 1.37
======== ======== ======== ======== ========
Preferred stock dividends on a pre-tax
basis $ $ $ $ 2,139 $ 2,826
Total combined fixed charges and
preferred stock dividends $368,911 $339,898 $212,054 $127,379 $140,431
-------- -------- -------- -------- --------
Ratio of income to combined fixed charges
and preferred stock dividends 1.50 1.44 1.58 1.50 1.34
======== ======== ======== ======== ========
</TABLE>
43
Subsidiaries of The FINOVA Group Inc.
(January 1, 1997)
FINOVA Capital Corporation (Delaware)
Ambre Realty, Inc. (New York)
BATCL - 1991 - III, Inc. (Delaware)
Cactus Resort Properties, Inc. (Delaware)
Commonwealth Avenue Warehouse, Inc. (Florida)
Desert Communications I, Inc. (Delaware)
Desert Communications II, Inc. (Delaware)
Desert Communications III, Inc. (Delaware)
Desert Communications V, Inc. (Delaware)
Desert Communications VI, Inc. (Delaware)
Desert Hospitality II, Inc. (Florida)
FCS 505, Inc. (Delaware)
FCS 525, Inc. (Delaware)
FCS 517, Inc. (Delaware)
FINOVA Capital (Canada) Corporation (Canada)
FINOVA Capital (Canada) Resorts Corporation (Canada)
FINOVA Capital Funding, Inc. (Delaware)
FINOVA Capital Limited (United Kingdom)
Greyfin Services Limited (United Kingdom)
Greyhound Equipment Finance Limited (United Kingdom)*#
Greyhound Guaranty Limited (United Kingdom)*
Greyhound Credit Limited (United Kingdom)*
Greyhound Finance International Limited (United Kingdom)*
Greyhound Nominees Limited (United Kingdom)*
Greyhound Property Investment Limited (United Kingdom)*#
Hookgold Limited (United Kingdom)*
Secured Advances Limited (United Kingdom)
Townmead Garages Limited (United Kingdom)*
FINOVA Fund Investments, Inc. (Delaware)
FINOVA Government Finance, Inc. (Delaware)
FINOVA Portfolio Services, Inc. (Arizona)
FINOVA Technology Finance, Inc. (Delaware)
Denton Imaging, Inc. (Texas)
F S & I (UK) Limited (United Kingdom)
FSI Funding Corp. I (Delaware)
FSI Funding Corp. II (Delaware)
Highland Park Medical Imaging, Inc. (Texas)
Melville Holding Co., Inc. (Delaware)
Greycas, Inc. (Arizona)
New Jersey Realty Corporation II (California)
New York Realty Corporation II (California)
Greyfin (Nassau) Limited (Bahamas)*
Greyfin Corporation (Liberia)*
Greyhound Shipping Corporation (Liberia)
Greyhound Real Estate Finance Company (Arizona)*
Greyhound Real Estate Investment BRB Inc. (Arizona)
Greyhound Real Estate Investment Eight Inc. (Delaware)
Greyhound Real Estate Investment Eleven Inc. (Delaware)
Greyhound Real Estate Investment Nine Inc. (Delaware)
Greyhound Real Estate Investment One Inc. (Arizona)
Greyhound Real Estate Investment S Inc. (Arizona)
Greyhound Real Estate Investment Seven Inc. (Delaware)
Greyhound Real Estate Investment Two Inc. (Arizona)
Interim Funding Corporation (Arizona)
Pine Top Insurance Company Limited (United Kingdom)#
TriContinental Leasing Corporation (Delaware)
TriContinental Leasing of Puerto Rico, Inc. (Delaware)
Wisconsin Hotel Operating Corporation (Wisconsin)
* INACTIVE
** SHELL CORPORATION
# IN LIQUIDATION
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes and
appoints Samuel L. Eichenfield and Bruno A. Marszowski, and each of them
severally, as his or her attorneys-in-fact, with full power of substitution and
resubstitution, to sign and file on his or her behalf individually and in each
such capacity stated below, The FINOVA Group Inc.'s Annual Report on Form 10-K,
and any amendments thereto, to be filed with the Securities and Exchange
Commission, the New York Stock Exchange, and otherwise, as fully as such person
could do in person, hereby verifying and confirming all that said
attorneys-in-fact, or their or his substitutes or substitute, may lawfully do or
cause to be done by virtue hereof.
Signatures Title Date
---------- ----- ----
Principal Executive Officer
/s/ Samuel L. Eichenfield Chairman of the Board, February 13, 1997
- -------------------------------- President and Chief
Samuel L. Eichenfield Executive Officer
Principal Financial and Accounting
Officer
/s/ Bruno A. Marszowski Senior Vice President- February 13, 1997
- -------------------------------- Controller and Chief
Bruno A. Marszowski Financial Officer
Directors
/s/ G. Robert Durham February 13, 1997
- --------------------------------
G. Robert Durham
/s/ James L. Johnson February 13, 1997
- --------------------------------
James L. Johnson
/s/ L. Gene Lemon February 13, 1997
- --------------------------------
L. Gene Lemon
/s/ Kenneth R. Smith February 13, 1997
- --------------------------------
Kenneth R. Smith
/s/ Robert P. Straetz February 13, 1997
- --------------------------------
Robert P. Straetz
/s/ Shoshana B. Tancer February 13, 1997
- --------------------------------
Shoshana B. Tancer
/s/ John W. Teets February 13, 1997
- --------------------------------
John W. Teets
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 31,260
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 7,298,759
<ALLOWANCE> (148,696)
<TOTAL-ASSETS> 7,526,734
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 635,370
<LONG-TERM> 5,850,223
111,550
0
<COMMON> 284
<OTHER-SE> 929,307
<TOTAL-LIABILITIES-AND-EQUITY> 7,526,734
<INTEREST-LOAN> 797,934
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 366,543
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 369,105
<LOAN-LOSSES> 41,751
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 154,481
<INCOME-PRETAX> 185,822
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 117,000
<EPS-PRIMARY> 4.17
<EPS-DILUTED> 0
<YIELD-ACTUAL> 5.8
<LOANS-NON> 155,505
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 129,077
<CHARGE-OFFS> (32,017)
<RECOVERIES> 3,296
<ALLOWANCE-CLOSE> 148,693
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
