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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20594
--------------------
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, 1997 Commission File Number 1-11011
THE FINOVA GROUP INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 86-0695381
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1850 North Central Ave., P. O. Box 2209
Phoenix, AZ 85002-2209
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code - 602-207-4900
--------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, $0.01 par value New York Stock Exchange
Junior Participating Preferred Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Registration S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10K or any amendment of this
Form 10-K.|_|
As of March 13, 1998, approximately 56,456,000 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 $57-15/16) held by
nonaffiliates was approximately $3,211,172,000.
DOCUMENTS INCORPORATED BY REFERENCE
Document Part Where
- -------- Incorporated
------------
1. Proxy Statement relating to 1998 Annual Meeting of Shareowners
of The FINOVA Group Inc. (but excluding information contained
therein furnished pursuant to items 402(k) and (l) of SEC III
Regulation S-K).
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<PAGE>
TABLE OF CONTENTS
Name of Item
------------
Item # Page
- --------------------------------------------------------------------------------
Part I
Item 1 Business:
Introduction 1
General 1
Business Groups 1
Portfolio Composition 3
Investment in Financing Transactions 3
Cost and Use of Borrowed Funds 11
Matched Funding Policy 12
Credit Ratings 13
Residual Realization Experience 13
Business Development and Competition 14
Credit Quality 15
Risk Management 15
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 18
Optional Executive Officers of Registrant 18
Part II
Item 5 Market Price of and Dividends on the Registrant's Common
Equity & Related Shareowner 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 ("FINOVA Capital").
GENERAL
The FINOVA Group Inc. is a financial services holding company. Through
its principal subsidiary, FINOVA Capital, the Company provides a broad range of
financing and capital market products to midsize businesses. FINOVA Capital has
been in operation for over 43 years.
FINOVA extends revolving credit facilities, term loans and equipment
and real estate financing primarily to "middle-market" businesses with financing
needs falling generally between $500,000 and $35 million. FINOVA operates in 16
specific industry or market niches under three market groups. FINOVA selected
these groups because its expertise in evaluating the creditworthiness of
prospective customers and its ability to provide value-added services enables
the Company to differentiate itself from its competitors. That expertise and
ability also enables FINOVA to command pricing that provides a satisfactory
spread over its borrowing costs.
FINOVA seeks to maintain a high quality portfolio and to minimize
non-earning assets and write-offs. FINOVA uses clearly defined underwriting
criteria and stringent portfolio management techniques. The Company diversifies
its lending activities geographically and among a range of industries, customers
and financing products.
Due to the diversity of FINOVA'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.
There can be no assurance, however, that competitive changes, borrowers'
performance, economic conditions or other factors will not result in an adverse
impact on FINOVA's results of operations or financial condition.
FINOVA generates interest income, leasing income, fees and other income
through charges assessed on outstanding loans, loan servicing, leasing,
brokerage and other activities. FINOVA's primary expenses are the costs of
funding the loan and lease business, including interest paid on debt, provisions
for credit losses, marketing expenses, salaries and employee benefits, servicing
and other operating expenses and income taxes.
FINOVA is headquartered in Phoenix, Arizona with business development
offices throughout the U.S. and in London, U.K. and Toronto, Canada.
Business Groups
FINOVA operates the following principal lines of business under three
market groups:
Commercial Finance
o Business Credit 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 Corporate Finance provides a full range of cash
flow-oriented and asset-based term and revolving loan
products for manufacturers, wholesalers, distributors,
specialty retailers and commercial and consumer service
businesses. Typical transaction sizes range from $2 million
to $35 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.
Transaction sizes generally range from $500,000 to $30
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. The annual factored volume of these companies is
generally between $5 million and $25 million.
1
<PAGE>
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.
Specialty Finance
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 Specialty Real Estate Finance focuses on first mortgage
loans for hotel and resort properties and equity investments
in real estate sale-leasebacks. Typical transaction sizes
range from $5 million to $30 million.
o Communications Finance specializes in term financing to
advertising and subscriber-supported businesses, including
radio and television stations, cable operators, outdoor
advertising firms and publishers. Typical transaction sizes
range from $1 million to $40 million.
o Franchise Finance offers equipment, real estate and
acquisition financing for operators of established franchise
concepts. Transaction sizes generally range from $500,000 to
$15 million.
o Healthcare Finance offers a full range of working capital,
equipment and real estate financing products for the U.S.
healthcare industry. Transaction sizes typically range from
$500,000 to $25 million.
o Public Finance provides tax-exempt term financing to state
and local governments, non-profit corporations and entities
using Industrial Revenue and Industrial Development Bonds.
Typical transaction sizes range from $100,000 to $5 million.
o Portfolio Services provides customized receivable servicing
and collections for timeshare developers and other
generators of consumer receivables.
o Resort Finance focuses on construction, acquisition and
receivables financing of timeshare resorts worldwide as well
as term financing for established golf 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.
Through FINOVA Aircraft Investors, LLC, FINOVA also seeks to
use its market expertise and industry presence to purchase,
upgrade and resell used commercial aircraft.
Capital Markets
o FINOVA Realty Capital specializes in providing capital
markets-funded commercial real estate financing products and
commercial mortgage banking services. Typical transaction
sizes range from $1 million to $5 million.
o FINOVA Investment Alliance provides equity and debt
financing for midsize businesses in partnership with
institutional investors and selected fund sponsors. Typical
transaction sizes range from $2 million to $15 million.
FINOVA is a Delaware corporation. The Company was incorporated in 1991
to serve as the successor to The Dial Corp's financial services businesses. In
March 1992, Dial transferred those businesses to FINOVA in a spin-off. Since
that time, FINOVA has increased its total assets from about $2.6 billion at
December 31, 1992 to $8.7 billion at December 31, 1997. Income from continuing
operations increased from $36.8 million in 1992 to $139.1 million in 1997.
Management believes FINOVA ranks among the largest independent commercial
finance companies in the U.S., based on total assets. FINOVA's common stock is
traded on the New York Stock Exchange.
2
<PAGE>
Portfolio Composition
The total assets under management of the Company consist of FINOVA'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 and participations sold). 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 credit losses) at December 31, 1997, 1996, 1995, 1994, and
1993.
3
<PAGE>
INVESTMENT IN FINANCING TRANSACTIONS
BY TYPES OF FINANCING
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------------------
1997 % 1996 % 1995 % 1994 % 1993 %
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, conditional sale and
other financing contracts:
Commercial $ 4,299,909 51.2 $ 3,592,193 49.2 $ 3,389,363 53.4 $ 2,732,734 51.1 $ 1,397,863 49.1
Real estate 1,656,075 19.7 1,713,485 23.5 1,534,177 24.1 1,237,488 23.2 945,892 33.2
Factored receivables 750,399 8.9 564,430 7.7 189,486 3.0 157,862 3.0
Operating leases 712,927 8.5 517,690 7.1 460,798 7.3 412,782 7.7 147,222 5.2
Leveraged leases 619,557 7.4 514,573 7.1 366,196 5.8 287,518 5.4 283,782 10.0
Direct financing leases 360,589 4.3 396,388 5.4 408,059 6.4 514,595 9.6 71,812 2.5
----------- ------ ------------ ------ ------------ ------ ----------- ------ ----------- -----
Total investment in
financing transactions 8,399,456 100.0 7,298,759 100.0 6,348,079 100.0 5,342,979 100.0 2,846,571 100.0
====== ====== ====== ====== =====
Securitized assets 336,607 300,000 200,000 -- --
Participations sold 121,360 64,546 -- -- --
----------- ------------ ------------ ---------- -----------
Total managed assets $ 8,857,423 $ 7,663,305 $ 6,548,079 $5,342,979 $ 2,846,571
=========== ============ ============ ========== ===========
</TABLE>
4
<PAGE>
INVESTMENT IN FINANCING TRANSACTIONS
BY LINE OF BUSINESS
DECEMBER 31, 1997
(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) (4) $ 1,631,685 $ $ $ $ $ $ 1,631,685 19.4%
Resort Finance (4) 1,166,199 14,450 3,974 26,240 1,210,863 14.4%
Corporate Finance (4) 791,733 981 26,888 819,602 9.8%
Specialty Real Estate Finance 610,711 24,120 38,055 7,648 10,853 196 691,583 8.2%
Communications Finance (4) 628,947 8,724 24,452 662,123 7.9%
Commercial Equipment Finance 614,712 1,816 11,802 4,030 632,360 7.5%
Rediscount Finance (4) 609,641 993 610,634 7.3%
Inventory Finance(4) 544,108 4,333 548,441 6.5%
Healthcare Finance 525,846 1,515 666 528,027 6.3%
Franchise Finance(4) 430,651 808 2,171 305 433,935 5.2%
Factoring Services 196,843 30,205 227,048 2.7%
Business Credit 195,897 7,559 203,456 2.4%
Public Finance 135,826 135,826 1.6%
Other (5) 40,347 23,526 63,873 0.8%
------------ ---------- ---------- --------- -------- -------- ------------ -----
TOTAL(4) $ 8,123,146 $ 36,449 $ 52,505 $ 121,540 $ 37,093 $ 28,723 $ 8,399,456 100.0%
============ ========== ========== ========= ======== ======== ============ =====
</TABLE>
- --------------------
NOTES:
(1) Represents original or renegotiated market rate terms, excluding impaired
transactions.
(2) The Company earned income totaling $4.1 million on repossessed assets
during 1997, including $3.1 million in Specialty Real Estate Finance and
$1.0 million in Resort Finance.
(3) Transportation Finance includes $302.9 million of aircraft financing
business booked through the London office.
(4) Excludes assets securitized and participations sold which the Company
manages, including securitizations of $300.0 million in Corporate Finance
and $36.6 million in Franchise Finance and participations of $40.2 million
in Corporate Finance, $61.0 million in Communications Finance, $8.5 in
Transportation Finance, $4.6 million in Rediscount Finance, $5.1 million in
Resort Finance, and $1.9 million in Inventory Finance.
(5) Primarily includes London-based FINOVA Capital Limited and assets retained
subsequent to the sale of the Manufacturer and Dealer Services line of
business which occurred in November 1996.
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5
<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) Assets Impaired Other Amount %
------------------------------------- --------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Transportation Finance (3) $ 1,330,578 $ $ $ $ $ $ 1,330,578 18.2
Resort Finance (4) 1,124,462 2,963 13,878 77 25,136 1,166,516 16.0
Corporate Finance (4) 630,399 3,211 14,695 335 648,640 8.9
Specialty Real Estate Finance 700,932 30,245 46,068 6,748 9,853 940 794,786 10.9
Communications Finance (4) 535,701 8,796 14,129 3,095 561,721 7.7
Commercial Equipment Finance 570,574 7,900 6,564 585,038 8.0
Rediscount Finance (4) 421,232 245 421,477 5.8
Inventory Finance (4) 314,446 1,273 315,719 4.3
Healthcare Finance 497,540 1,304 1,194 500,038 6.9
Franchise Finance 366,202 1,104 1,985 996 370,287 5.0
Factoring Services 220,701 3,419 224,120 3.1
Business Credit 160,006 11,963 171,969 2.3
Public 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
============= ========== ========== ========= ========= 39,143 ============ =====
Discontinued Operations (5) ---------
$ 53,335
TOTAL =========
</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 Specialty 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 assets securitized and participations sold which the Company
manages, including securitizations of $300.0 million in Corporate Finance
and participations of $24.6 million in Corporate Finance, $27.5 million in
Communications Finance, $4.8 million in Rediscount Finance, $4.4 million in
Resort Finance and $3.2 million in Inventory Finance.
(5) Reflects assets retained by FINOVA subsequent to the sale of the
Manufacturer and Dealer Services' line of business.
--------------------
6
<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
Corporate Finance (4) 631,295 5,274 19,592 335 656,496 10.3
Specialty Real Estate Finance 703,018 3,898 42,304 15,264 18,231 988 783,703 12.3
Communications Finance 662,191 2,502 2,217 16,817 4,863 688,590 10.8
Commercial Equipment Finance 345,039 69 6,079 351,187 5.5
Rediscount Finance 345,264 345,264 5.4
Inventory Finance 202,879 430 203,309 3.2
Healthcare Finance 451,503 81 1,231 452,815 7.2
Franchise Finance 327,356 1,462 6,408 1,850 337,076 5.3
Factoring Services 188,892 594 189,486 3.0
Business Credit 200,365 12,685 213,050 3.4
Public 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 Specialty 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.
--------------------
7
<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
Corporate Finance 746,671 21,275 6,952 2,674 777,572 14.5
Specialty Real Estate Finance 672,522 7,237 40,510 7,622 21,519 749,410 14.0
Communications Finance 551,218 6,288 7,282 17,377 5,863 671 588,699 11.0
Commercial Equipment Finance 293,609 769 7,589 301,967 5.6
Rediscount Finance 99,353 99,353 1.9
Inventory Finance 58,595 642 59,237 1.1
Healthcare Finance 467,131 1,719 468,850 8.8
Franchise Finance 281,890 7,632 12,242 301,764 5.6
Factoring Services 157,090 772 157,862 3.0
Business Credit 181,741 12,003 193,744 3.6
Public 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 Specialty 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) Includes transactions in Europe and elsewhere (including the U.S.)
originated from the Company's London office. Also includes $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.
--------------------
8
<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) $ 604,416 $ $ $ 841 $ $ $ 605,257 21.2
Resort Finance 530,617 4,869 12,163 11,597 7,404 440 567,090 19.9
Corporate Finance 397,779 27,921 4,243 5,462 386 435,791 15.3
Specialty Real Estate Finance 500,598 1,574 27,844 5,759 20,838 556,613 19.6
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 (3) 107,486 4,430 2,720 23 9,600 124,259 4.4
---------- ---------- --------- --------- ---------- --------- ------------ ------
TOTAL $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 Specialty Real Estate
Finance, $0.6 million in Communications Finance and $0.6 million in Resort
Finance.
(2) Transportation Finance included $31.9 million of aircraft finance business
booked through the London office.
(3) Includes transactions in Europe and elsewhere (including the U.S.)
originated from the Company's London office. Also includes $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.
--------------------
9
<PAGE>
The Company's geographic portfolio diversification at December 31, 1997
was as follows:
GEOGRAPHIC PORTFOLIO DIVERSIFICATION
December 31, 1997
(Dollars in thousands)
State Total Percent
------------------------- ---------------- ------------
California $ 1,386,337 15.7%
Florida 928,459 10.5
Texas 713,368 8.1
New York 617,428 7.0
Arizona 304,706 4.6
New Jersey 320,502 3.6
Illinois 308,994 3.5
Virginia 286,399 3.2
Pennsylvania 253,255 2.9
Nevada 245,830 2.8
Massachusetts 214,617 2.4
Georgia 174,778 2.0
Other (1) 3,102,750 33.7
------------- ---------
$ 8,857,423 100.0%
============ =========
- --------------------
NOTE:
(1) Other includes all other states which, on an individual basis, represent
less than 2% of the total and international, which represents approximately
6% of the total.
--------------------
The following is an analysis of the reserve for credit losses for the
years ended December 31:
RESERVE FOR CREDIT LOSSES
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, beginning of year $ 148,693 $ 129,077 $ 110,903 $ 64,280 $ 69,291
Provision for credit losses 69,200 41,751 37,568 10,439 5,706
Write-offs (45,487) (32,017) (25,631) (28,109) (12,575)
Recoveries 2,287 3,296 2,104 1,780 717
Other (including reserves related to
acquisitions) 2,395 6,586 4,133 62,513 1,141
---------- ---------- ---------- ---------- ---------
Balance, end of year $ 177,088 $ 148,693 $ 129,077 $ 110,903 $ 64,280
========== ========== ========== ========== =========
</TABLE>
--------------------
Included above is a specific impairment reserve of $24.5 million at
December 31, 1997, which applies to $158.0 million of impaired loans. The
remaining $152.6 million of the reserve for 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, 1996, the specific impairment reserve was $6.2 million, which
applied to $110.1 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.
10
<PAGE>
Write-offs by line of business during the years ended December 31, were
as follows:
WRITE-OFFS BY LINE OF BUSINESS
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Factoring Services (1) $ 24,382 $ 5,098 $ 3,728 $ 1,148 $
Corporate Finance 6,577 9,470 4,660 4,233 3,741
Commercial Equipment Finance (1) 3,722 3,207 2,271 1,257
Resort Finance 2,700 4,275 2,000 2,730
Specialty Real Estate Finance 2,106 1,793 2,275 1,461 2,320
Healthcare Finance (1) 1,798 1,018 314 377
Inventory Finance (1) 1,777 201 442
Communications Finance 750 2,994 4,037 8,300 1,488
Franchise Finance (1) 696 3,267 3,448 2,247
FINOVA Capital Limited (UK) 47 895 1,523 5,140 5,026
Business Credit (1) 452 774
Other 932 722
--------- --------- --------- --------- ---------
$ 45,487 $ 32,017 $ 25,631 $ 28,109 $ 12,575
========= ========= ========= ========= =========
Write-offs as a percentage
of average managed assets (2) 0.56% 0.46% 0.44% 0.66% 0.48%
========= ========= ========= ========= =========
</TABLE>
- --------------------
NOTES:
(1) Acquired in 1994.
(2) Excludes participations sold in which FINOVA has transferred credit risk.
--------------------
A further breakdown of the portfolio by line of business can be found in
Annex A, Notes C and D.
Cost and Use of Borrowed Funds
FINOVA Capital relies on borrowed funds as well as internal cash flow
to finance its operations. It has also raised funds through the sale or
securitization of assets, but does not rely on those methods as a primary source
of capital.
11
<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,
------------------------------------------------
1997 1996 1995 1994 1993
------------------------------------------------
<S> <C> <C> <C> <C> <C>
Short-term and variable rate long-term debt (1) 6.4% 6.5% 7.2% 5.5% 4.7%
Fixed-rate long-term debt (1) 7.1% 7.2% 7.3% 8.1% 11.4%
Aggregate borrowed funds (1) 6.6% 6.8% 7.2% 6.3% 6.3%
Rate earned on average earning assets (2) (3) 12.3% 11.8% 12.1% 11.3% 10.9%
Spread percentage (4) 6.2% 5.8% 5.7% 5.9% 5.4%
</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. They do not necessarily predict future costs of
funds. For further information on FINOVA Capital's cost of funds, refer to Annex
A, Notes E and F.
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,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- ---------- ---------- ---------- ----------
1.52 1.50 1.44 1.58 1.50
========= ========== ========== ========== ==========
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 above ratio, consists 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 representing interest and preferred
stock dividends grossed up to a pre-tax basis.
Matched Funding Policy
FINOVA Capital follows a "matched funding" policy. Under that policy,
it funds its floating-rate assets (loans and leases to FINOVA's borrowers) with
floating rate liabilities (FINOVA's debt) and fixed-rate assets with fixed rate
liabilities, to the extent feasible. This policy helps protect FINOVA from
changes in interest rates. For further discussion on FINOVA Capital's debt and
matched funding policy, see Annex A, Notes E and F.
12
<PAGE>
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-
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 Ratings Group BBB+
For further information relating to the TOPrS, refer to Annex A, Note
G.
There can be no assurance that these ratings will be maintained. The
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
Each year since its inception, FINOVA Capital and its predecessors have
earned total proceeds from the sale of assets upon lease terminations (other
than foreclosures) in excess of carrying amounts. There can be no assurance,
however, that those results can be achieved in future years. Actual proceeds
will depend on current market values for those assets at the time of sale. While
market values are generally beyond the control of FINOVA, the Company has some
discretion in the timing of sales of the assets. Sales proceeds on lease
terminations in excess of carrying amounts are reported as gains on sale of
assets when the assets are sold.
13
<PAGE>
Income from leasing transactions is affected by gains from asset sales
on lease termination and, hence, can be somewhat less predictable than income
from non-leasing activities. During the five years ended December 31, 1997, the
proceeds to FINOVA Capital from sales of assets on early termination of leases
and at the expiration of leases have exceeded the carrying amounts and estimated
residual values as follows:
PROCEEDS FROM SALES OF LEASED ASSETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Early Terminations (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
- -------------------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 $ 114,680 $ 96,656 119% $ 63,733 $ 58,127 110%
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%
</TABLE>
- --------------------
NOTE:
(1) Excludes foreclosures for credit reasons, which are immaterial.
--------------------
The estimated residual value of direct finance and leveraged lease
assets in the accounts of FINOVA Capital at December 31, 1997 was 31.2% of the
original cost of those assets (27.1% 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, 1997 for financing contracts excluding leveraged
leases were 7.6 and 5.1 years, respectively, and for leveraged leases were
approximately 17.5 and 11.9 years, respectively. The comparable average initial
term and remaining term 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. FINOVA Capital uses 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 those appraised
values.
For a discussion of accounting for lease transactions, refer to Annex
A, Notes A and C.
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.
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 FINOVA Capital 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. FINOVA'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.
14
<PAGE>
Credit Quality
FINOVA Capital has maintained a high-quality asset base through the use
of clearly defined underwriting standards, portfolio management techniques,
monitoring of covenant compliance and active collections and workout efforts.
Risk Management
FINOVA Capital generally investigates 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. As part of its underwriting process, FINOVA Capital
considers the management, industry, financial position and collateral being
provided by a proposed borrower or lessee. The purpose, term, amortization and
amount of any proposed transaction generally must be clearly defined and within
established corporate guidelines. In addition, FINOVA attempts to avoid undue
concentrations in any one customer, industry or geographic region.
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
liabilities.
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, for collateral dependent transactions, 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 noted 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
total 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, credit-worthiness 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
15
<PAGE>
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 periodic 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
fair value of the asset.
Delinquencies and Workouts
FINOVA Capital monitors the timing of payments on its accounts. For
term loans and leases, 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 the assets generate sufficient cash to result in a
reasonable rate of return. Those 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 credit losses is adequate. For additional
information regarding the reserve for credit losses, see Annex A, Note D.
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 and mortgage
broker activities are subject to additional government regulation. For example,
aircraft leasing is regulated by the Federal Aviation Authority, and
communications finance is regulated by the Federal Communication Commission.
FINOVA Capital's international activities are also subject to a variety of laws
and regulations of the countries in which the business is conducted.
EMPLOYEES
At December 31, 1997, the Company had 958 employees compared to 891 at
December 31, 1996. None of the employees were covered by collective bargaining
agreements. FINOVA believes its employee relations are satisfactory.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this report are "forward-looking," in that they
do not discuss historical fact but instead note future expectations,
projections, intentions or other items relating to the future. These
forward-looking statements include matters in the sections of this report
captioned "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." They are also made in documents
incorporated in this report by reference, or in which this report may be
incorporated, such as a prospectus.
Forward-looking statements are subject to known and unknown risks, uncertainties
and other factors that may cause FINOVA's actual results or performance to
differ materially from those contemplated by the forward-looking statements.
Many of those factors are noted in conjunction with the forward-looking
statements in the text. Other important factors that could cause actual results
to differ include:
16
<PAGE>
o The results of FINOVA's efforts to implement its business strategy.
Failure to fully implement its business strategy might result in
decreased market penetration, adverse effects on results of operations
and other adverse results.
o The effect of economic conditions and the performance of FINOVA's
borrowers. Economic conditions in general or in particular market
segments could impact the ability of FINOVA's borrowers to operate or
expand their businesses, which might result in decreased performance
for repayment of their obligations or reduce demand for additional
financing needs.
o Actions of FINOVA's competitors and FINOVA's ability to respond to
those actions. As noted in "Business Development and Competition,"
FINOVA seeks to remain competitive without sacrificing prudent lending
standards. Doing business under those standards becomes more difficult,
however, when competitors offer financing with less stringent criteria.
FINOVA seeks to maintain credit quality at the risk of growth in
assets, if necessary.
o The cost of FINOVA's capital. That cost depends on many factors, some
of which are beyond FINOVA's control, such as its portfolio quality,
ratings, prospects and outlook.
o Changes in government regulations, tax rates and similar matters. For
example, government regulations could significantly increase the cost
of doing business or could eliminate certain tax advantages of some of
FINOVA's financing products.
o Other risks detailed in FINOVA's other SEC reports or filings.
ITEM 2. PROPERTIES.
FINOVA'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, one in Canada and one
in Europe. All these properties are leased. Alternative office space could be
obtained without difficulties in the event leases are not renewed. FINOVA has
entered into a lease agreement for new executive offices which are presently
under construction. Those facilities are expected to be completed in 1999.
ITEM 3. LEGAL PROCEEDINGS.
FINOVA 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.
Litigation often results from the FINOVA'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 could be decided against FINOVA. Although the
ultimate amount for which FINOVA may be held liable, if any, is not
ascertainable, FINOVA believes that any resulting liability would not materially
affect its financial position or results of operations.
17
<PAGE>
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 1997.
OPTIONAL ITEM. EXECUTIVE OFFICERS OF REGISTRANT.
Set forth below is information with respect to those individuals who
serve as executive officers of FINOVA.
<TABLE>
<CAPTION>
Name Age Position and Background
- -------------------------- ------- ----------------------------------------------------------------
<S> <C> <C>
Samuel L. Eichenfield 61 Chairman, President and Chief Executive Officer of FINOVA and
FINOVA Capital for more than five years.
Matthew M. Breyne 40 Executive Vice President of FINOVA since 1998. Before that he
was Group Vice President - Communications Finance or similar
positions of FINOVA Capital for more than five years.
Derek C. Bruns 38 Senior Vice President - Internal Audit or similar positions of
FINOVA for more than five years.
Robert J. Fitzsimmons 57 Senior Vice President - Treasurer of FINOVA and FINOVA Capital
or similar positions and director of FINOVA Capital for more
than five years.
William J. Hallinan 55 Senior Vice President - General Counsel and Secretary or
similar positions of FINOVA and FINOVA Capital for more than
five years.
Robert M. Korte 42 Senior Vice President - Strategy and Technology of FINOVA since
1994. Before that he was Vice President-Human and Corporate
Development of FINOVA and FINOVA Capital since 1991.
Bruno A. Marszowski 56 Senior Vice President - Controller and Chief Financial Officer
of FINOVA and FINOVA Capital since 1994. Before that he was Vice
President - Controller of FINOVA since 1992, and of FINOVA
Capital for more than five years.
William C. Roche 44 Senior Vice President - Human Resources & Facilities Planning
of FINOVA and FINOVA Capital since 1994. Before that he was
Manager-Compensation and similar positions with AlliedSignal for
seven years.
John J. Bonano 55 Executive Vice President or similar positions of FINOVA Capital
for more than five years.
Jack Fields, III 43 Executive Vice President or similar positions of FINOVA Capital
for more than five years.
Robert E. Radway 37 Executive Vice President of FINOVA Capital since 1997. Before
that he was Senior Vice President - Corporate Development and
Communications of FINOVA since 1993.
Gregory C. Smalis 45 Executive Vice President - Portfolio Management or similar
positions and a director of FINOVA Capital since 1993.
</TABLE>
18
<PAGE>
PART II
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY & RELATED SHAREOWNER 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, 1996 through December 31, 1997. Amounts have been
restated to give effect to a stock split effective October 1, 1997.
Sales Price Range of Common Stock
----------------------------------------------------
1997 1996
----------------------------------------------------
Quarters: High Low High Low
---------- ---------- ---------- ----------
First $ 39-1/2 $ 31-7/8 $ 28 $ 23-1/8
Second 38-7/8 32-1/16 28-3/16 24
Third 48-1/4 37-7/8 30-1/4 24-1/8
Fourth 50 40-1/4 33-5/8 29-13/16
Dividends Declared on
Common Stock
----------------------
1997 1996
--------- ---------
February $ 0.12 $ 0.11
May 0.12 0.11
August 0.14 0.12
November 0.14 0.12
--------- ---------
$ 0.52 $ 0.46
========= =========
Quarterly dividends have been paid on the first business day of each
calendar quarter. FINOVA anticipates it will continue to pay regular quarterly
dividends on the first business day of January, April, July and October. In
February 1998, the Board of Directors declared a dividend of $0.14 per share,
payable April 1, 1998, for shareowners of record on February 27, 1998. The
declaration of dividends and their amounts are 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 include various
restrictive covenants and require the maintenance of certain defined financial
ratios with which FINOVA and FINOVA Capital have complied. Under one of these
covenants, dividend payments from FINOVA Capital to FINOVA Group are limited to
50 percent of accumulated earnings after December 31, 1991.
As of March 13, 1998, there were approximately 22,200 holders of record
of The FINOVA Group Inc.'s common stock. The closing price of the common stock
on that date was $57 15/16.
19
<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, 1997. The information set forth below
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Consolidated Financial
Statements of FINOVA and the Notes 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 and to reflect a two-for-one stock split in 1997; for
further detail, see Annex A, Notes B and H.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------------------------
(Dollars in Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Income earned from financing
transactions $ 944,724 $ 797,934 $ 702,116 $ 474,200 $ 255,216
Interest margins earned 455,642 369,105 309,084 227,463 124,847
Provision for credit losses 69,200 41,751 37,568 10,439 5,706
Gains on sale of assets 30,261 12,949 10,889 3,877 5,439
Income from continuing
operations 139,098 116,493 93,798 73,770 37,846
Net income 139,098 117,000 97,629 74,313 37,347
Basic earnings from continuing
operations per share 2.56 2.14 1.72 1.48 0.96
Basic earnings per share 2.56 2.15 1.79 1.49 0.95
Basic adjusted weighted average
outstanding shares 54,405,000 54,508,000 54,633,000 49,765,000 39,277,000
Diluted earnings from continuing
operations per share 2.42 2.08 1.69 1.46 0.90
Diluted earnings per share 2.42 2.09 1.76 1.47 0.89
Diluted adjusted weighted average
shares 59,161,000 56,051,000 55,469,000 50,436,000 40,552,000
Dividends declared per common share $ 0.52 $ 0.46 $ 0.42 $ 0.37 $ 0.34
Dividend payout ratio 20.5% 21.7% 24.6% 26.3% 39.6%
FINANCIAL POSITION:
Investment in financing transactions $ 8,399,456 $ 7,298,759 $ 6,348,079 $ 5,342,979 $ 2,846,571
Nonaccruing assets 187,356 155,505 143,127 149,046 102,607
Reserve for credit losses 177,088 148,693 129,077 110,903 64,280
Total assets 8,719,840 7,526,734 7,036,514 5,821,343 2,834,322
Deferred income taxes 274,761 244,208 209,512 188,887 178,972
Total debt 6,764,581 5,850,223 5,649,368 4,573,354 2,079,286
Company-obligated mandatory
redeemable convertible preferred
securities of subsidiary trust solely
holding convertible debentures of
FINOVA ("TOPrS") 111,550 111,550 --- --- ---
Shareowners' equity 1,090,454 929,591 825,184 770,252 503,300
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1997 1996 1995 1994 1993
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATIOS:
Reserve for credit losses/managed assets 2.0% 2.0% 2.0% 2.1% 2.3%
Nonaccruing assets/managed assets 2.1% 2.0% 2.2% 2.8% 3.6%
Total debt to equity (1) 5.6x 5.6x 6.8x 5.9x 4.1x
Return on average common equity (2) 14.3% 13.3% 11.8% 11.1% 7.6%
Return on average funds employed (2) 1.8% 1.8% 1.7% 1.8% 1.4%
Equity to assets (1) 13.8% 13.8% 11.7% 13.2% 17.8%
</TABLE>
- --------------------
NOTES:
(1) Equity in 1997 and 1996 includes the TOPrS noted above.
(2) Return represents income from continuing operations.
--------------------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
See pages 2 - 7 of Annex A.
ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTARY DATA.
1. Financial Statements - See Item 14 hereof and Annex A.
2. Supplementary Data - See Condensed Quarterly Results included
in Supplemental Selected Financial Data of Notes to
Consolidated Financial Statements included in Annex A.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING &
FINANCIAL DISCLOSURE.
NONE.
PART III
ITEM 10. DIRECTORS & EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning FINOVA's directors is incorporated by
reference from FINOVA's Proxy Statement issued in connection with its 1998
Annual Meeting of Shareowners (the "Proxy Statement").
For information regarding FINOVA's executive officers, see the Optional
Item in Part I, following Item 4.
21
<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:
Annex
Page
------------
Financial Highlights 1
Management's Discussion and Analysis of Financial
Condition and Results of Operations 2 - 7
Report of Management and Independent Auditors' Report 8 - 9
Consolidated Balance Sheet 10 - 11
Statement of Consolidated Income 12
Statement of Consolidated Shareowners' Equity 13
Statement of Consolidated Cash Flows 14
Notes to Consolidated Financial Statements 15 - 33
Supplemental Selected Financial Data 34 - 35
2. All Schedules have been omitted because they are not applicable or
the required information is shown in the financial statements or
related notes.
3. Exhibits.
Exhibit No.
-----------
(3.A) Certificate of Incorporation, as amended through the
date of this filing (incorporated by reference from
FINOVA's report on Form 10-K for the year ended
December 31, 1994 (the "1994 10-K"), Exhibit 3.A).
(3.B) Bylaws, as amended through the date of this filing
(incorporated by reference from FINOVA's report on
Form 10-K for the year ended December 31, 1995 (the
"1995 10-K") Exhibit 3.B).
(4.A) Form of FINOVA's Common Stock Certificate
(incorporated by reference from the 1994 10-K,
Exhibit 4.B).
22
<PAGE>
Exhibit No.
-----------
(4.B) Relevant portions of FINOVA's Certificate of
Incorporation and Bylaws included in Exhibits 3.A and
3.B above are incorporated by reference.
(4.C) Rights Agreement dated as of February 15, 1992
between FINOVA and the Rights Agent named therein, as
amended (incorporated by reference from FINOVA's
report on Form 8-K dated September 21, 1995, Exhibit
4.1).
(4.C.1) Acceptance of Successor Trustee to Appointment under
Rights Agreement noted in 4.C above (incorporated by
reference from FINOVA's report on Form 8-K, dated
November 30, 1995, Exhibit 4).
(4.D) Long-term debt instruments with principal amounts not
exceeding 10% of FINOVA's total consolidated assets
are not filed as exhibits to this report. FINOVA will
furnish a copy of those agreements to the SEC upon
its request.
(4.E) 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.F) 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.G) Indenture, dated as of December 11, 1996, between
FINOVA and Fleet National Bank as trustee
(incorporated by reference from FINOVA's report on
Form 8-K dated December 20, 1996, (the "December 1996
8-K"), Exhibit 4.1).
(4.G.1) 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 FINOVA
(incorporated by reference from the December 1996
8-K, Exhibit 4.2).
(4.G.2) Preferred Security Guarantee, dated as of December
11, 1996, between FINOVA and Fleet National Bank, as
trustee (incorporated by reference from the December
1996 8-K, Exhibit 4.3).
(4.G.3) Form of 5 1/2% Convertible Subordinated Debenture
(incorporated by reference from the December 1996
8-K, Exhibit 4.4).
(4.G.4) Form of Preferred Security (TOPrS) (incorporated by
reference from the December 1996 8-K, Exhibit 4.5).
(4.H) Form of Indenture between FINOVA, FINOVA Capital and
The First National Bank of Chicago as Trustee
(incorporated by reference from FINOVA and FINOVA
Capital's registration statement on Form S-3,
Registration No. 333-38171, Exhibit 4.8).
(4.I) Announcement of 2-for-1 Stock Split (incorporated by
reference from FINOVA's August 14, 1997 8-K, Exhibit
28).
(4.I.1) Letter to shareowners regarding FINOVA's 2-for-1
Stock Split (incorporated by reference from FINOVA's
October 1, 1997 8-K, Exhibit 28.A).
23
<PAGE>
Exhibit No.
-----------
(4.I.2) Letter to holders of Preferred Securities regarding
the 2-for-1 common stock split and resulting
adjustment in conversion price applicable, to the
Convertible Trust Originated Preferred Securities of
FINOVA Finance Trust (incorporated by reference from
FINOVA's October 1, 1997 8-K, Exhibit 28.B).
(4.J) 1992 Stock Incentive Plan, as amended through the
date of this filing.*+
(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 Westminister Bank USA, as
agents (the "Agents") and Citibank, N.A., as
Administrative Agent (incorporated by reference from
FINOVA's report on Form 8-K dated May 23, 1994,
Exhibit 10.1).
(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 FINOVA'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 (incorporated by
reference from the 1996 10-K, Exhibit 10.A.4).
(10.A.5) Fifth Amendment dated as of May 20, 1997 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
FINOVA'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 (incorporated by reference from 1996 10-K,
Exhibit B.4).
(10.B.5) Fifth Amendment to Short-Term Facility noted in 10.B
above.*
(10.C) 1997 Management Incentive Plan.*+
(10.D) 1998 Management Incentive Plan.*+
24
<PAGE>
Exhibit No.
-----------
(10.E.1) 1995 - 1997 Performance Share Incentive Plan
(incorporated by reference from the 3Q95 10-Q,
Exhibit 10.H).+
(10.E.2) 1996 - 1998 Performance Share Incentive Plan
(incorporated by reference from 1996 10-K, Exhibit
10.E.3).+
(10.E.3) 1997 - 1999 Performance Share Incentive Plan.*+
(10.E.4) 1998 - 2000 Performance Share Incentive Plan.*+
(10.F) Employment Agreement with Samuel L. Eichenfield dated
March 16, 1996 (incorporated by reference from the
1995 10-K, Exhibit 10.F.3).+
(10.F.1) Amendment to Employment Agreement referenced in 10.F
above (incorporated by reference from the 1996 10-K,
Exhibit 10.F.2).+
(10.F.2) Second Amendment to Employment Agreement referenced
in 10.F above (incorporated by reference from the
2Q97 10-Q, Exhibit 10).+
(10.G) Employment Agreement with William J. Hallinan, dated
February 25, 1992 (incorporated by reference from the
1992 10-K, Exhibit 10.1).+
(10.H) Amended and Restated Supplemental Pension Plan,
(incorporated by reference from the 1996 10-K,
Exhibit 10.1).+
(10.I) A description of FINOVA's policies regarding
compensation of directors is incorporated by
reference from the 1998 Proxy Statement.+
(10.J) Directors Deferred Compensation Plan (incorporated
by reference from the 1992 10-K, Exhibit 10.O).+
(10.K) Directors' Retirement Benefit Plan (incorporated by
reference from FINOVA's report on Form 10-K for the
year ended December 31, 1993 (the "1993 10-K"),
Exhibit 10.OO).+
(10.L) Directors' Charitable Awards Program (incorporated
by reference from the 1994 10-K, Exhibit 10.CC).+
(10.M) Deferred Compensation Plan (incorporated by reference
from the 1995 10-K, Exhibit 10.N).+
(10.N) Bonus KEYSOP Plan.*+
(10.N.1) Bonus KEYSOP Trust Agreement.*+
(10.O) FINOVA's Executive Officer Loan Program Policies and
Procedures, (incorporated by reference from the 1996
10-K, Exhibit 10.U).+
(10.P.1) FINOVA's Executive Severance Plan for Tier 1
Employees (incorporated by reference from the 1995
10-K, Exhibit 10.C.1).+
(10.P.2) FINOVA's Executive Severance Plan for Tier 2
Employees (incorporated by reference from the 1995
10-K, Exhibit 10.C.2).+
25
<PAGE>
Exhibit No.
-----------
(10.Q.1) Value Sharing Plan for the Chief Executive Officer
(incorporated by reference from the 3Q95 10-Q,
Exhibit 10.L).+
(10.Q.2) Value Sharing Plan for Executive Officers and Key
Employees (incorporated by reference from the 3Q95
10-Q, Exhibit 10.K).+
(10.R) Tax Sharing Agreement dated February 19, 1992 among
FINOVA, The Dial Corp and others (incorporated by
reference from the 1992 10-K, Exhibit 10.KK).
(10.S) 1992 Stock Incentive Plan (filed in Exhibit 4.J to
this report).+
(12) Computation of Ratio of Income to Combined Fixed
Charges and Preferred Stock Dividends.*
(21) Subsidiaries.*
(23) Independent Auditors' Consent.*
(24) Powers of Attorney.*
(27.1) Financial Data Schedule for the year ended December
31, 1997.*
(27.2) Restated Financial Data Schedule for the Quarters
ended September 30, 1997, June 30, 1997 and March 31,
1997.*
(27.3) Restated Financial Data Schedule for the Quarters
ended September 30, 1996, June 30, 1996 and March 31,
1996.*
(27.4) Restated Financial Data Schedule for the years ended
December 31, 1996 and 1995.*
*Filed with this report.
+Relating to management compensation
(b) Reports on Form 8-K
A report on Form 8-K, dated January 19, 1998, was filed by FINOVA which
reported under Item 5 and 7 the revenues, net income and selected financial data
and ratios for the fourth quarter and year ended December 31, 1997 (unaudited).
26
<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 17th day of March, 1998.
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)
27
<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:
* *
------------------------------- ---------------------------
Robert H. Clark, Jr. (Director) G. Robert Durham (Director)
March 17, 1998 March 17, 1998
/s/ Samuel L. Eichenfield *
- -------------------------------- ---------------------------
Samuel L. Eichenfield (Chairman) James L. Johnson (Director)
March 17, 1998 March 17, 1998
* *
------------------------------- -----------------------------
Kenneth R. Smith (Director) Shoshana B. Tancer (Director)
March 17, 1998 March 17, 1998
*
-------------------------------
John W. Teets (Director)
March 17, 1998
* Signed pursuant to Powers of Attorney dated February 12, 1998.
/s/ Bruno A. Marszowski
-----------------------------------
Bruno A. Marszowski
Attorney-in-Fact
March 17, 1998
28
<PAGE>
ANNEX A
<PAGE>
THE FINOVA GROUP INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Highlights...................................................................................1
Management's Discussion and Analysis of Financial Condition and Results of Operations..................2
Management's Report on Responsibility for Financial Reporting..........................................8
Independent Auditors' Report...........................................................................9
Consolidated Balance Sheet............................................................................10
Statement of Consolidated Income......................................................................12
Statement of Consolidated Shareowners' Equity.........................................................13
Statement of Consolidated Cash Flows..................................................................14
Notes to Consolidated Financial Statements............................................................15
Supplemental Selected Financial Data..................................................................34
</TABLE>
<PAGE>
THE FINOVA GROUP INC.
FINANCIAL HIGHLIGHTS
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS:
Interest margins earned $ 455,642 $ 369,105 $ 309,084
Selling, administrative and other operating expenses 190,525 154,481 131,571
Income from continuing operations 139,098 116,493 93,798
Net income 139,098 117,000 97,629
FINANCIAL POSITION:
Average managed assets (1) 8,153,076 7,041,708 5,833,576
Ending funds employed 8,399,456 7,298,759 6,348,079
Ending managed assets (2) 8,857,423 7,663,305 6,548,079
Average earning assets (3) 7,356,845 6,324,545 5,442,119
Reserve for credit losses 177,088 148,693 129,077
Nonaccruing assets (4) 187,356 155,505 143,127
Funded new business 3,311,105 2,740,353 2,302,653
Fee based volume 4,532,494 2,937,311 1,951,310
Write-offs 45,487 32,017 25,631
CAPITALIZATION:
Total debt 6,764,581 5,850,223 5,649,368
Company-obligated mandatory redeemable convertible preferred securities
of subsidiary trust solely holding convertible debentures of FINOVA (TOPrS) 111,550 111,550
Shareowners' equity 1,090,454 929,591 825,184
PORTFOLIO QUALITY:
Write-offs as a % of average managed assets (5) 0.56% 0.46% 0.44%
Nonaccruing assets as a % of ending managed assets (5) 2.1% 2.0% 2.2%
Reserve for credit losses as a % of:
Ending managed assets (5) 2.0% 2.0% 2.0%
Nonaccruing assets 94.5% 95.6% 90.2%
As a multiple of write-offs 3.9x 4.6x 5.0x
PERFORMANCE HIGHLIGHTS:
Return from continuing operations as a % of average funds employed (6) 1.8% 1.8% 1.7%
Interest margins earned as a % of average earning assets (3) 6.2% 5.8% 5.7%
Selling, administrative and other operating expenses as a % of
interest margins earned 41.8% 41.9% 42.6%
Aggregate cost of funds 6.6% 6.8% 7.2%
Ratio of income to combined fixed charges 1.54x 1.50x 1.44x
Return from continuing operations on average equity 14.3% 13.3% 11.8%
Basic earnings per common share:
Continuing operations $ 2.56 $ 2.14 $ 1.72
Net income $ 2.56 $ 2.15 $ 1.79
Adjusted weighted average shares 54,405,000 54,508,000 54,633,000
Diluted earnings per share (7):
Continuing operations $ 2.42 $ 2.08 $ 1.69
Net income $ 2.42 $ 2.09 $ 1.76
Adjusted weighted average shares 59,161,000 56,051,000 55,469,000
Book value per share outstanding $ 19.37 $ 16.88 $ 15.12
Shares outstanding 56,282,000 55,058,000 54,558,000
===============================================================================================================================
</TABLE>
(1) Includes average securitizations and participations of $388.9 million,
$327.4 million and $15.4 million for 1997, 1996 and 1995, respectively.
(2) Includes assets sold under securitization and participation agreements and
managed by the Company.
(3) Represents average funds employed excluding average deferred taxes on
leveraged leases and average nonaccruing assets.
(4) Includes nonaccruing assets classified as discontinued operations at
December 31, 1996.
(5) Excludes participations sold of $121.4 million, $64.5 million and $0
million for 1997, 1996 and 1995, respectively, in which the Company has
transferred credit risk.
(6) Average funds employed excludes average deferred taxes on leveraged leases
of $234 million, $238 million and $227 million for 1997, 1996 and 1995,
respectively.
(7) Diluted earnings per share give effect to the dilutive potential of
options, restricted stock and convertible preferred stock.
1
<PAGE>
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").
Results of Operations
The following table summarizes FINOVA's operating results for the years
ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
For the Year Ended December 31, For the Year Ended December 31,
Percent Percent
(Dollars in millions) 1997 1996 Change 1996 1995 Change
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest margins earned $ 455.6 $ 369.1 23% $ 369.1 $ 309.1 19%
Provision for credit losses (69.2) (41.8) 66% (41.8) (37.6) 11%
Gains on sale of assets 30.3 12.9 134% 12.9 10.9 19%
Selling, administrative and
other operating expenses (190.5) (154.5) 23% (154.5) (131.6) 17%
Income taxes (83.1) (69.3) 20% (69.3) (57.0) 22%
Preferred dividends, net (4.0) -- n/a -- -- n/a
-------- -------- -------- --------
Income from continuing
operations 139.1 116.5 19% 116.5 93.8 24%
Income and gain from
discontinued operations -- 0.5 n/a 0.5 3.8 n/a
-------- -------- -------- --------
Net Income $ 139.1 $ 117.0 19% $ 117.0 $ 97.6 20%
======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
1997 Compared to 1996
Net income for 1997 increased 19% to $139.1 million from $117.0 million
in 1996. The increase reflected growth in managed assets, increased fee-related
business, higher gains on sale of assets and a lower effective income tax rate,
partially offset by higher provisions for credit losses and increased operating
expenses. Income from continuing operations for 1997 increased to $139.1 million
from $116.5 million in 1996. Continuing operations in 1996 excluded the
operating results of FINOVA's discontinued Manufacturer & Dealer Services line
of business ("MDS") and FINOVA Medical Systems and a $6 million gain resulting
from the sale of MDS. See Note B of Notes to Consolidated Financial Statements
for further discussion.
Interest Margins Earned. Interest margins earned, which represent the
difference between (a) interest, fee and other income earned from financing
transactions and operating lease income and (b) interest expense and operating
lease depreciation, increased 23% to $455.6 million in 1997 from $369.1 million
in 1996 due primarily to a higher level of average earnings assets and the
expansion of the fee-based businesses.
Average earning assets, which represent FINOVA's investment in
financing transactions less nonaccruing assets and deferred taxes related to
leveraged leases, increased 16% to $7.36 billion in 1997 from $6.32 billion a
year earlier. This increase primarily resulted from a 21% increase in funded new
business of $3.31 billion compared to $2.74 billion in 1996, and, to a lesser
extent, from portfolios purchased during 1997 (totaling $122 million). These
increases were partially offset by the normal amortization of the portfolio and
prepayments during the year.
The Company's interest margins earned as a percentage of average
earning assets ("spread") also increased during 1997, to 6.2% from 5.8%. A
portion of the increase in spread was due to a 54% growth in fee-based business
(to $4.53 billion from $2.94 billion in 1996), which provides interest, fee and
other income while requiring less investment in earning assets than term loans
and leases. Contributing to the increase in fee-based business was FINOVA Realty
2
<PAGE>
THE FINOVA GROUP INC.
Capital ("FRC," formerly Belgravia Capital Corporation), a commercial mortgage
banking organization which was acquired in October 1997 (and which has
historically had its highest volume in the fourth quarter). Excluding the impact
of the FRC acquisition, FINOVA's spread improved to 6.1% in 1997. The increase
in interest margins earned was also partially attributable to lower aggregate
borrowing costs and lower debt leverage during 1997 compared to 1996.
Provision for Credit Losses. The provision for credit losses increased
66% to $69.2 million in 1997 compared to $41.8 million in 1996. In addition to
growth in FINOVA's managed assets, the increase in the provision for credit
losses primarily resulted from an increase in write-offs to $45.5 million in
1997 from $32.0 million in 1996. The higher write-offs in 1997 were primarily
attributable to FINOVA's Factoring Services line of business, due to credit
problems experienced among the line of business' wholesale textile customers.
Currently, Factoring Services is refocusing its portfolio toward retail
businesses and new industries. Total write-offs for FINOVA's other lines of
business were lower in 1997 than in 1996.
FINOVA's total write-offs during 1997 represented 0.56% of average
managed assets (excluding participations) compared to 0.46% in 1996. Details of
write-offs and other changes in the reserve for credit losses can be found in
Note D of Notes to Consolidated Financial Statements.
Gains on Sale of Assets. Gains on sale of assets totaled $30.3 million
in 1997, higher than the $12.9 million in 1996. In addition to the sale of
assets coming off lease, FINOVA recognized a significant gain from the early
termination of a real estate leveraged lease transaction in 1997. While FINOVA
has consistently recognized gains on the sale of assets it holds, the gains are
sporadic in their timing and amount. There can be no assurance FINOVA will
recognize such gains in the future, depending, in part, on market conditions at
the time of sale.
Selling, Administrative and Other Operating Expenses. Selling,
administrative and other operating expenses ("operating expenses") were higher
in 1997 than in 1996, primarily as a result of increased costs necessary to
manage FINOVA's larger portfolio. Also contributing to the increase in operating
expenses were incentives paid to employees based on performance criteria such as
new business, profitability and the increased value of FINOVA's stock (which
increased by 54.7% to $49.69 per share at year-end). The Company also incurred
additional costs in administering problem loan accounts in 1997, including an
increase with respect to the Factoring Services line of business.
As a percentage of interest margins earned, operating expenses declined
slightly to 41.8% in 1997 from 41.9% in 1996. FINOVA's acquisition of FRC in the
fourth quarter of 1997 is expected to increase operating expenses as a
percentage of interest margins earned in future periods. See Note O of Notes to
Consolidated Financial Statements for further detail of operating expenses.
Income Taxes. Income taxes were higher in 1997 than in 1996 due to the
increase in pre-tax income. Partially offsetting the increase was a lower
effective tax rate in 1997 of 36.7% compared to 37.3% in 1996, principally
caused by FINOVA's ability to use certain capital loss carryforwards in 1997.
See Note J of Notes to Consolidated Financial Statements for further discussion
of income taxes.
Preferred Dividends. During 1997, a subsidiary trust sponsored and
wholly owned by FINOVA had $111.6 million (net of transaction costs) outstanding
of Company-obligated mandatory redeemable convertible preferred securities
(TOPrS). FINOVA paid dividends of $4.0 million, after tax, on these securities
during 1997.
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 FINOVA's Manufacturer & Dealer Services line of
business, and the operating results of FINOVA Medical Systems, which was
liquidated in 1996. Net income for 1996 increased to $117.0 million from $97.6
million in 1995.
3
<PAGE>
THE FINOVA GROUP INC.
Interest Margins Earned. Interest margins earned were $369.1 million for
1996, compared with $309.1 million in 1995, an increase of 19%. The increase was
primarily due to a 17% increase in managed assets (investment in financing
transactions plus securitizations and participations sold), resulting primarily
from $2.7 billion in funded new business in 1996, up from $2.3 billion in 1995,
and $2.9 billion in fee-based volume in 1996, compared to $2.0 billion in 1995.
In addition, FINOVA 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
increased to 5.8% for 1996 compared to 5.7% for 1995. This increase was the
result of FINOVA'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.
Provision for Credit Losses. The provision for credit losses increased to
$41.8 million in 1996 from $37.6 million in 1995, primarily due to the increase
in managed assets. FINOVA's reserves remained at 2.0% of ending managed assets
(excluding participations), while the credit quality of the 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 (excluding participations) 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 credit losses can be found in Note D of Notes to Consolidated
Financial Statements.
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.
Selling, Administrative and Other Operating Expenses. 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
FINOVA'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 O of Notes to Consolidated Financial Statements for
additional detail.
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 of income taxes.
Financial Condition, Liquidity and Capital Resources
Managed assets at December 31, 1997 increased 16% to $8.86 billion from
$7.66 billion at December 31, 1996. The increase was the result of a 21%
increase in funded new business of $3.31 billion in 1997 compared to $2.74
billion in 1996, partially offset by normal loan and lease amortization and
approximately $0.7 billion in prepayments during 1997. In addition, an early
termination of a leveraged lease occurred in the Specialty Real Estate line of
business, which experienced a reduction in managed assets of approximately $103
million. The major causes of this reduction were the sale of this leveraged
lease combined with the business decision not to aggressively pursue new deals
at the cost of compromising rate and/or underwriting standards.
FINOVA recorded $4.53 billion in fee-based volume during 1997 compared
to $2.94 billion in 1996. The 54% increase in fee-based volume was due to growth
in FINOVA's on-going fee-based lines of business and the addition of FRC in the
fourth quarter of 1997.
FINOVA's reserve for credit losses increased to $177.1 million at
December 31, 1997 compared to $148.7 million at year-end 1996 primarily due to a
provision for credit losses of $69.2 million during the year, partially offset
by write-offs
4
<PAGE>
THE FINOVA GROUP INC.
totaling $45.5 million. At December 31, 1997 the reserve represents 2.0% of
managed assets (excluding participations sold), the same level as one year ago.
Nonaccruing assets have increased to $187.4 million at December 31, 1997 which
represents 2.1% of ending managed assets compared to $155.5 million in
nonaccruing assets as of December 31, 1996 which constituted 2.0% of ending
managed assets. At December 31, 1997, the reserve represents 94.5% of
nonaccruing assets compared to 95.6% at December 31, 1996. The increase in
nonaccruing assets is primarily in the Factoring Services line of business. See
Note D of Notes to Consolidated Financial Statements for more information on the
reserves, write-offs and nonaccruing assets.
The Company had total debt outstanding of $6.76 billion at December 31,
1997 or 5.63 times its equity base (shareowners' equity plus convertible
preferred securities) of $1.20 billion (FINOVA Capital's leverage as of December
31, 1997 was 5.37 to 1). At December 31, 1996, the Company had comparable debt
leverage of $5.85 billion debt outstanding and $1.04 billion of equity. The
Company also had $274.8 million in deferred taxes at year-end 1997 compared to
$244.2 million at year-end 1996.
Growth in managed assets is generally financed by internally generated
cash flow and borrowings. During 1997, FINOVA Capital issued $1.1 billion in new
senior debt and increased its commercial paper and other short-term borrowings
by $650 million. These funds were used to finance new business, redeem or retire
$818 million of debt and acquire a $122 million inventory finance portfolio.
During 1997, the Company also issued approximately 1.7 million shares of its
common stock as the primary consideration for the acquisition of FRC (see Note B
of Notes to Consolidated Financial Statements for further detail). In December
1996, the Company issued $111.6 million (net of transaction costs) in
company-obligated mandatory redeemable convertible preferred securities
("TOPrS") through FINOVA Finance Trust; see Note G of Notes to Consolidated
Financial Statements for additional discussion.
FINOVA satisfies a significant portion of its cash requirements from a
diversified group of worldwide funding sources and is not dependent on any one
lender. FINOVA also relies on the issuance of commercial paper as a major
funding source. During 1997, FINOVA Capital issued $15.1 billion of commercial
paper (with an average of $2.9 billion outstanding during the year) and raised
$1.1 billion, as noted above, through new long-term financing of one to 10 year
durations. At December 31, 1997 and 1996, commercial paper and short-term bank
borrowings totaled $3.1 billion and $2.5 billion, respectively, and were
supported by available unused revolving credit lines which, if not renewed, are
convertible to long-term debt at FINOVA's option.
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, two five-year
facilities with numerous lenders for $700 million each and one 364-day facility
with one lender for $200 million. These $3.6 billion of credit facilities
support FINOVA's outstanding commercial paper and short-term borrowings. FINOVA
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. FINOVA rarely borrows under these facilities. The 364 day $1.0
billion and $200 million revolving credit agreements will be subject to renewal
in 1998, while the two $700 million and the other $1.0 billion credit facilities
are subject to renewal in 2002. In addition to the above, The FINOVA Group Inc.
has a 364-day revolving credit facility with one lender for $25 million, which
is subject to renewal in 1998.
FINOVA, through one of its subsidiaries, maintains a five-year
multi-currency facility with a group of lenders for $100 million. Through
another subsidiary, FINOVA maintains two five-year revolving credit facilities
with two separate lenders in Canada for $25 million Canadian each. FINOVA
Capital is the guarantor of these credit facilities, which are subject to
renewal in 2002. The Company also maintains one $10 million Canadian 364-day
revolving credit facility with a lender. That agreement will be subject to
renewal in 1998.
In 1997, FINOVA and FINOVA Capital jointly filed a universal shelf
registration statement with the SEC allowing for the issuance of $2 billion of
senior debt securities, common stock, preferred stock, depositary shares and
warrants to purchase common stock or debt securities, all of which remained
available as of December 31, 1997.
5
<PAGE>
THE FINOVA GROUP INC.
The agreements pertaining to long-term debt include various restrictive
covenants and require the maintenance of certain defined financial ratios with
which FINOVA and FINOVA Capital have complied. Under one such covenant, dividend
payments by FINOVA Capital to FINOVA are limited to 50 percent of accumulated
earnings after December 31, 1991.
FINOVA Capital's aggregate cost of funds decreased to 6.6% for 1997 from
6.8% for 1996 as a result of declining interest rates, higher credit ratings and
the elimination of costs associated with $250 million of maturing interest rate
hedges. FINOVA'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. 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 FINOVA, has
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.
FINOVA periodically repurchases its securities on the open market to fund
its obligations pursuant to employee stock options, benefit plans and similar
obligations. During the years 1997 and 1995, FINOVA repurchased 1,035,800 and
1,223,200 shares, respectively. No shares were acquired in 1996. This program
may be discontinued at any time.
Derivative Financial Instruments
FINOVA enters into interest rate and basis swap agreements as part of its
interest rate risk management policy of match funding its assets and
liabilities. The derivative instruments used are straightforward. FINOVA
continually monitors its derivative position and uses derivative instruments for
non-trading and non-speculative purposes only.
At December 31, 1997, FINOVA Capital had outstanding interest rate
conversion agreements with notional principal amounts totaling $2.6 billion.
Agreements with notional principal amounts of $550 million were arranged to
effectively convert certain floating interest rate obligations into fixed
interest rate obligations. These agreements require interest payments on the
stated principal amount at rates ranging from 6.21% 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 $1.4 billion were arranged to effectively convert certain
fixed interest rate obligations into floating interest rate obligations. They
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 $628 million and
remaining terms of one year. See Note F of Notes to Consolidated Financial
Statements for further discussion of FINOVA's derivatives.
6
<PAGE>
THE FINOVA GROUP INC.
Year 2000 Date Conversion
FINOVA continues to implement changes necessary to assure accurate date
recognition and data processing with respect to the year 2000. Primary internal
activities related to this issue are modifications to existing computer programs
and conversions to new programs. The Company is also communicating with software
vendors, financial institutions, clients and others with whom it conducts
business to determine the nature of any impact on FINOVA. If needed
modifications and conversions are not accomplished in a timely manner, this
issue could have a material effect on the operations of FINOVA. As of this time,
however, management believes that necessary corrections will be achieved on
time. Costs related to this issue, which have been immaterial to date, are being
expensed as incurred and are not expected to have a material impact on FINOVA's
financial position.
Recent Developments and Business Outlook
FINOVA continues to seek new business by emphasizing customer service,
providing competitive interest rates and focusing on selected market niches.
Additionally, FINOVA continues to evaluate potential acquisition opportunities
that it believes are consistent with its business strategies.
In October 1997, FINOVA acquired Belgravia Capital Corporation, a
commercial mortgage banking organization headquartered in Irvine, California.
Consideration for the acquisition included approximately 1.7 million shares of
the Company's common stock, $10 million in cash and the agreement to pay
additional amounts up to approximately $30 million per year for the next three
years, based on future results of the operations. Historically, Belgravia
originated mid-size commercial mortgage loans which were funded by third parties
who typically sold or securitized the loans.
In October 1997, FINOVA also announced the reorganization of its
businesses into three operating groups. The Commercial Finance Group comprises
FINOVA's asset-based lending businesses such as Business Credit, Corporate
Finance, Factoring Services, Inventory Finance and Rediscount Finance. The
Specialty Finance Group contains FINOVA's Commercial Equipment Finance,
Specialty Real Estate Finance, Communications Finance, Franchise Finance,
Healthcare Finance, Portfolio Services, Public Finance, Resort Finance and
Transportation Finance businesses. The new Capital Markets Group consists of
FINOVA Realty Capital and the bridge financing, mezzanine debt and equity funds
formed under the FINOVA Investment Alliance program.
In February 1998, FINOVA announced the formation of a $125 million
investment alliance with Credit Suisse First Boston PTG known as FINOVA Aircraft
Investors, LLC. The alliance will use FINOVA's market expertise and industry
presence to purchase, upgrade and resell used commercial aircraft.
New Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting
Comprehensive Income," which is effective for fiscal years beginning after
December 15, 1997. The statement changes the reporting of certain items
currently reported in the shareowners' equity section of the balance sheet and
establishes standards for reporting of comprehensive income and its components
in a full set of general purpose financial statements. Adoption of this standard
will require additional disclosure only. FINOVA will adopt this standard
effective January 1, 1998, as required.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which is effective for
fiscal years beginning after December 15, 1997. This standard requires certain
information regarding segments of a business enterprise to be reported based on
the way management organizes and evaluates segments within the company. The
standard also requires disclosures regarding products and services, geographical
areas and major customers. Adoption of this standard will require FINOVA to
include additional detail in its disclosures, including certain disaggregated
operating information. FINOVA will adopt this standard in 1998, as required, but
is not currently planning to elect early adoption for interim financial periods
during the year. At this time, management anticipates that FINOVA's reported
segments will be composed of its three operating groups: Specialty Finance,
Commercial Finance and Capital Markets.
7
<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.
FINOVA's management has established and maintains a system of internal
controls to reasonably assure the fair presentation of the financial statements,
the safeguarding of FINOVA'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 FINOVA 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.
FINOVA's financial statements have been audited by Deloitte & Touche LLP,
independent auditors. Management has made available to Deloitte & Touche LLP all
of FINOVA'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
FINOVA's written Code of Conduct. These standards are communicated to and
acknowledged by all of FINOVA'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
Senior Vice President - Internal Audit
8
<PAGE>
THE FINOVA GROUP INC.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareowners of The FINOVA Group Inc.
We have audited the accompanying consolidated balance sheet of The FINOVA
Group Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, shareowners' equity and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of FINOVA'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, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Phoenix, Arizona
February 11, 1998
9
<PAGE>
THE FINOVA GROUP INC.
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<CAPTION>
ASSETS
- ------------------------------------------------------------------------------------------------------
December 31, 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 33,190 $ 31,260
Investment in financing transactions:
Loans and other financing contracts 5,955,984 5,305,678
Factored receivables 750,399 564,430
Operating leases 712,927 517,690
Leveraged leases 619,557 514,573
Direct financing leases 360,589 396,388
- ------------------------------------------------------------------------------------------------------
8,399,456 7,298,759
Less reserve for credit losses (177,088) (148,693)
- ------------------------------------------------------------------------------------------------------
Investment in financing transactions - net 8,222,368 7,150,066
Goodwill and other assets 464,282 345,408
- ------------------------------------------------------------------------------------------------------
$ 8,719,840 $ 7,526,734
======================================================================================================
</TABLE>
See notes to consolidated financial statements.
10
<PAGE>
THE FINOVA GROUP INC.
<TABLE>
<CAPTION>
LIABILITIES AND SHAREOWNERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------
December 31, 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Liabilities:
Accounts payable and accrued expenses $ 147,280 $ 119,991
Due to clients 278,571 218,494
Interest payable 52,643 52,677
Senior debt 6,764,581 5,850,223
Deferred income taxes 274,761 244,208
- ------------------------------------------------------------------------------------------------------------------
7,517,836 6,485,593
- ------------------------------------------------------------------------------------------------------------------
Company-obligated mandatory redeemable convertible preferred securities of
subsidiary trust solely holding convertible debentures of FINOVA, net of
expenses (TOPrS) 111,550 111,550
Shareowners' equity:
Common stock, $0.01 par value, 100,000,000 shares
authorized, 58,555,000 and 56,844,000 shares issued, respectively 585 568
Additional capital 764,525 684,261
Retained income 386,665 276,151
Cumulative translation adjustments (10) 1,008
Common stock in treasury, 2,273,000 and 1,786,000 shares,
respectively (61,311) (32,397)
- ------------------------------------------------------------------------------------------------------------------
1,090,454 929,591
- ------------------------------------------------------------------------------------------------------------------
$ 8,719,840 $ 7,526,734
==================================================================================================================
</TABLE>
See notes to consolidated financial statements.
11
<PAGE>
THE FINOVA GROUP INC.
STATEMENT OF CONSOLIDATED INCOME
(Dollars in Thousands, except per share data)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest, fees and other income $ 750,755 $ 640,132 $ 568,115
Financing lease income 77,049 61,985 49,310
Operating lease income 116,920 95,817 84,691
- -----------------------------------------------------------------------------------------------------------------
Income earned from financing transaction 944,724 797,934 702,116
Interest expense 416,093 366,543 337,814
Operating lease depreciation 72,989 62,286 55,218
- -----------------------------------------------------------------------------------------------------------------
Interest margins earned 455,642 369,105 309,084
Provision for credit losses 69,200 41,751 37,568
- -----------------------------------------------------------------------------------------------------------------
Net interest margins earned 386,442 327,354 271,516
Gains on sale of assets 30,261 12,949 10,889
- -----------------------------------------------------------------------------------------------------------------
416,703 340,303 282,405
Selling, administrative and other operating
expenses 190,525 154,481 131,571
- -----------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 226,178 185,822 150,834
Income taxes 83,088 69,329 57,036
- -----------------------------------------------------------------------------------------------------------------
Income from continuing operations before preferred dividends 143,090 116,493 93,798
Preferred dividends, net of tax 3,992
- -----------------------------------------------------------------------------------------------------------------
Income from continuing operations 139,098 116,493 93,798
Income and gain from sale of discontinued operations, net of tax 507 3,831
- -----------------------------------------------------------------------------------------------------------------
NET INCOME $ 139,098 $ 117,000 $ 97,629
=================================================================================================================
Basic earnings per share:
Income from continuing operations $ 2.56 $ 2.14 $ 1.72
Income and gain from discontinued operations .01 .07
- -----------------------------------------------------------------------------------------------------------------
Net income $ 2.56 $ 2.15 $ 1.79
=================================================================================================================
Adjusted weighted average shares outstanding 54,405,000 54,508,000 54,633,000
=================================================================================================================
Diluted earnings per share:
Income from continuing operations $ 2.42 $ 2.08 $ 1.69
Income and gain from discontinued operations .01 .07
- -----------------------------------------------------------------------------------------------------------------
Net income $ 2.42 $ 2.09 $ 1.76
=================================================================================================================
Adjusted weighted average shares outstanding 59,161,000 56,051,000 55,469,000
=================================================================================================================
Dividends per common share $ .52 $ .46 $ .42
=================================================================================================================
</TABLE>
See notes to consolidated financial statements.
12
<PAGE>
THE FINOVA GROUP INC.
STATEMENT OF CONSOLIDATED SHAREOWNERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK:
Balance, beginning of year $ 568 $ 568 $ 568
Issuance of common stock 17
- ---------------------------------------------------------------------------------------------------------------
Balance, end of year 585 568 568
- ---------------------------------------------------------------------------------------------------------------
ADDITIONAL CAPITAL:
Balance, beginning of year 684,261 686,098 687,758
Issuance of common stock 77,521
Net change in unamortized amount of restricted
stock (1,558) (1,816) (613)
Common stock in treasury issued in connection
with employee benefit plans 4,301 (21) (1,047)
- ---------------------------------------------------------------------------------------------------------------
Balance, end of year 764,525 684,261 686,098
- ---------------------------------------------------------------------------------------------------------------
RETAINED INCOME:
Balance, beginning of year 276,151 184,381 109,830
Net income 139,098 117,000 97,629
Dividends (28,584) (25,230) (23,078)
- ---------------------------------------------------------------------------------------------------------------
Balance, end of year 386,665 276,151 184,381
- ---------------------------------------------------------------------------------------------------------------
CUMULATIVE TRANSLATION ADJUSTMENTS:
Balance, beginning of year 1,008 (5,686) (4,726)
Unrealized translation (loss) gain (1,018) 6,694 (960)
- ---------------------------------------------------------------------------------------------------------------
Balance, end of year (10) 1,008 (5,686)
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCK IN TREASURY:
Balance, beginning of year (32,397) (40,177) (23,178)
Purchase of shares (37,296) (23,588)
Shares used in connection with employee
benefit plans 8,382 7,780 6,589
- ---------------------------------------------------------------------------------------------------------------
Balance, end of year (61,311) (32,397) (40,177)
- ---------------------------------------------------------------------------------------------------------------
SHAREOWNERS' EQUITY $ 1,090,454 $ 929,591 $ 825,184
===============================================================================================================
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
THE FINOVA GROUP INC.
STATEMENT OF CONSOLIDATED CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 139,098 $ 117,000 $ 97,629
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for credit losses 69,200 41,751 37,568
Depreciation and amortization 90,396 76,471 70,017
Gains on sale of assets (30,261) (12,949) (10,889)
Gains on dispositions of discontinued operations, net (3,521)
Deferred income taxes 30,553 29,356 19,285
Change in assets and liabilities, net of effects from subsidiaries purchased:
Increase in other assets (48,610) (61,694) (53,071)
Increase (decrease) in accounts payable and accrued expenses 20,800 (16,009) (9,152)
(Decrease) increase in interest payable (34) 5,853 7,843
Other (603) 6,153 (1,573)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 270,539 182,411 157,657
- ------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Proceeds from sales of assets 178,413 102,945 50,028
Proceeds from sales of securitized assets 36,565 100,000 200,000
Principal collections on financing transactions 2,087,619 1,781,985 1,088,420
Expenditures for financing transactions (2,507,822) (2,221,363) (1,853,330)
Net change in short-term financing transactions (844,584) (624,952) (442,405)
Acquisitions, net of cash acquired (120,883) (7,455) (261,868)
Sale of discontinued operation 616,434
Other 2,399 3,296 2,104
- ------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (1,168,293) (249,110) (1,217,051)
- ------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Net borrowings under commercial paper and short-term loans 649,653 62,156 373,566
Long-term borrowings 1,080,625 564,988 1,272,450
Repayment of long-term borrowings (817,892) (681,401) (570,002)
Proceeds from exercise of stock options 12,683 7,759 5,542
Net proceeds from sale of company-obligated mandatory redeemable convertible
preferred securities of subsidiary trust solely holding convertible 111,550
debentures of FINOVA (TOPrS)
Common stock purchased for treasury (37,296) (23,588)
Dividends (28,584) (25,230) (23,078)
Net change in due to clients 40,495 (32,143) 64,909
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 899,684 7,679 1,099,799
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 1,930 (59,020) 40,405
Cash and cash equivalents, beginning of year 31,260 90,280 49,875
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 33,190 $ 31,260 $ 90,280
========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
14
<PAGE>
THE FINOVA GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
(Dollars in Thousands in Tables, except per share data)
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 capital and collateralized financing products to commercial
enterprises focusing on mid-size businesses 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.
Revenue Recognition -- 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
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.
Cash Equivalents -- FINOVA classifies highly liquid investments with
original maturities of three months or less from date of purchase as cash
equivalents.
Marketable Securities -- As discussed in Note K, FINOVA 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.
15
<PAGE>
THE FINOVA GROUP INC.
Reserve for Credit Losses -- The reserve for credit losses is available
to absorb credit losses. The provision for credit losses is the charge to income
to increase the reserve for 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 credit losses. Recoveries
of amounts previously written-off as uncollectible are credited to the reserve
for credit losses.
Repossessed Assets -- Repossessed assets are carried at the lower of
cost or fair value less estimated selling expenses.
Residual Values -- FINOVA 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 -- FINOVA amortizes the excess of cost over the fair value of
net assets acquired ("goodwill") on a straight-line basis primarily over 20 to
25 years. Goodwill at December 31, 1997 and 1996 was $288.2 million and $179.5
million (net of amortization), respectively. Amortization totaled $10.1 million
($6.3 million after-tax), $9.6 million ($5.7 million after-tax) and $8.2 million
($4.9 million after-tax) for the years ended December 31, 1997, 1996 and 1995,
respectively. FINOVA 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,
1997, approximately $272.0 million of goodwill was 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 FINOVA. FINOVA funds its postretirement benefit
obligation as benefits are paid.
FINOVA records postemployment benefit costs at the time employees leave
active service. Postemployment benefits are any benefits other than retirement
benefits.
Savings Plan -- FINOVA 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 0% 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 FINOVA stock through the Employee Stock Ownership Plan, discussed
below.
Employee Stock Ownership Plan -- Employees of FINOVA 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 FINOVA. 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.
16
<PAGE>
THE FINOVA GROUP INC.
Expenses under the Savings Plan and Employee Stock Ownership Plan were
$2.5 million, $2.1 million and $1.7 million in 1997, 1996 and 1995,
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 Share -- For the year ended December 31, 1997, FINOVA
adopted the provisions of Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share." This statement specifies the presentation and
disclosure of earnings per share for entities with publicly held common stock or
potential common stock. The statement also requires the calculation of two
earnings per share measures, basic and diluted. Basic earnings per share exclude
the effects of dilution and are computed by dividing income available to common
shareowners by the weighted average amount of common stock outstanding for the
period. Diluted earnings per share reflect the potential dilution that could
occur if options, convertible preferred stock or other contracts to issue stock
were exercised or converted into common stock. These calculations are presented
for the years ended December 31, 1997, 1996 and 1995 on the Statement of
Consolidated Income and are more fully discussed in Note L.
Derivative Financial Instruments -- As more fully described in Note F,
FINOVA 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 which are accounted for using
settlement or matched swap accounting.
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 FINOVA does not use derivative financial instruments for trading or
speculative 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.
Securitizations -- Effective January 1, 1997, FINOVA adopted the
provisions of SFAS No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" which requires receivable transfers
occurring after December 31, 1996 to be accounted for as sales when legal and
effective control over the transferred receivables is surrendered.
Reclassifications -- Certain reclassifications have been made to the
1996 and 1995 financial statements to conform to the 1997 presentation,
including a two-for-one stock split effected in October 1997.
NOTE B ACQUISITIONS AND DISPOSITIONS
During 1997 and 1996, FINOVA Capital, in transactions accounted for as
purchases, acquired various businesses and portfolios having initial funds
employed totaling $122 million and $318 million, respectively. In October 1997,
FINOVA also purchased Belgravia Capital Corporation, a commercial mortgage
banking organization, for $77.5 million of the Company's common stock (1.7
million shares), $10.0 million in cash and an agreement to pay additional
amounts up to approximately $30 million per year for the next three years,
contingent upon future results of the operations. The acquisition was comprised
of $91.5 million in assets, including $88.0 million in goodwill and $4.0 million
in liabilities and acquisition costs. The results of these operations have been
included in FINOVA's results since the date of acquisition. Goodwill related to
this transaction is being amortized over 25 years.
In 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 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 two years ended
December 31, 1996 and 1995 were ($3.0 million) and $3.8 million, respectively.
Assumptions used to calculate these results were similar to those used by FINOVA
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. Results for 1995 have been restated to classify these
operations as discontinued.
NOTE C INVESTMENT IN FINANCING TRANSACTIONS
17
<PAGE>
THE FINOVA GROUP INC.
FINOVA 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, 1997 and 1996, the carrying amount of
the investment in financing transactions, including the estimated residual value
of leased assets upon lease termination, was $8.4 billion and $7.3 billion
(before reserve for credit losses), respectively, and consisted of the following
percentage of carrying amount by line of business:
- --------------------------------------------------------------------------------
Percent of Total
Carrying Amount
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
Transportation Finance 19.4% 18.2%
Resort Finance 14.4 16.0
Corporate Finance 9.8 8.9
Specialty Real Estate Finance 8.2 10.9
Communications Finance 7.9 7.7
Commercial Equipment Finance 7.5 8.0
Rediscount Finance 7.3 5.8
Inventory Finance 6.5 4.3
Healthcare Finance 6.3 6.9
Franchise Finance 5.2 5.0
Factoring Services 2.7 3.1
Business Credit 2.4 2.3
Public Finance 1.6 2.1
Other 0.8 0.8
- --------------------------------------------------------------------------------
100.0% 100.0%
================================================================================
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, 1997 (excluding repossessed assets of $37.1 million and estimated
residual values) are contractually due during each of the years ending December
31, 1998 to 2002 and thereafter as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
There-
1998 1999 2000 2001 2002 after
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans and other financing
contracts:
Commercial:
Fixed interest rate $ 332,773 $ 376,445 $ 270,568 $ 306,517 $ 150,631 $ 405,615
Floating interest rate 640,324 538,160 545,215 417,486 220,807 95,437
Real estate:
Fixed interest rate 90,091 93,535 40,530 50,152 31,311 130,954
Floating interest rate 447,377 349,907 132,069 144,931 37,301 70,755
Factored receivables 750,399
Leases, primarily at
fixed interest rates:
Operating leases 127,053 143,946 103,196 71,510 39,513 112,453
Leveraged leases 31,582 25,456 15,859 13,010 8,073 402,266
Direct financing leases 100,174 74,040 48,073 33,378 23,401 88,714
- --------------------------------------------------------------------------------------------------------
$ 2,519,773 $ 1,601,489 $ 1,155,510 $1,036,984 $ 511,037 $ 1,306,194
========================================================================================================
</TABLE>
The investment in operating leases at December 31 consisted of the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cost of assets $ 855,670 $ 646,918
Accumulated depreciation (142,743) (129,228)
- --------------------------------------------------------------------------------------------------------
Investment in operating leases $ 712,927 $ 517,690
========================================================================================================
</TABLE>
The net investment in leveraged leases at December 31 consisted of the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Rentals receivable $ 2,287,233 $ 1,898,996
Less principal and interest payable on nonrecourse debt (1,790,987) (1,486,249)
- --------------------------------------------------------------------------------------------------------
Net rentals receivable 496,246 412,747
Estimated residual values 575,234 479,850
Less unearned income (451,923) (378,024)
- --------------------------------------------------------------------------------------------------------
Investment in leveraged leases 619,557 514,573
Less deferred taxes arising from leveraged leases (249,710) (246,075)
- --------------------------------------------------------------------------------------------------------
Net investment in leveraged leases $ 369,847 $ 268,498
========================================================================================================
</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>
- --------------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lease and other income, net $ 41,605 $ 30,230 $ 12,080
Income tax expense 19,476 11,321 4,201
- --------------------------------------------------------------------------------------------------------
</TABLE>
The investment in direct financing leases at December 31 consisted of
the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Rentals receivable $ 367,780 $ 398,928
Estimated residual values 120,020 100,039
Unearned income (127,211) (102,579)
- --------------------------------------------------------------------------------------------------------
Investment in direct financing leases $ 360,589 $ 396,388
========================================================================================================
</TABLE>
FINOVA 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) was $4.34 billion and $3.70 billion at December 31, 1997 and 1996,
respectively.
Interest earned from financing transactions with floating interest
rates was approximately $491 million in 1997, $436 million in 1996 and $402
million in 1995. 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. FINOVA's matched funding policy is more fully described in Note
F.
At December 31, 1997, FINOVA had a committed backlog of new business of
approximately $1.6 billion compared to $1.5 billion at December 31, 1996. The
committed backlog includes lines of credit totaling $666 million and $702
million at December 31, 1997 and 1996, respectively. Historically, FINOVA has
booked a substantial portion of its backlog, although there can be no assurance
that the 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.
Securitizations - On a limited basis, FINOVA 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.
In 1996 and 1995, FINOVA, under a securitization agreement, sold a
total of $300 million in undivided proportionate interests in a revolving loan
portfolio totaling approximately $736.2 million as of December 31, 1997. Under
this agreement, there is recourse to FINOVA based on the outstanding balance of
the proportionate interest sold. In 1997, under a separate securitization
agreement, FINOVA sold $36.6 million of loan receivables with limited recourse.
FINOVA will service these loan contracts for the transferee and has deferred a
portion of the proceeds to be recognized as service fee income over the term of
the agreements.
20
<PAGE>
THE FINOVA GROUP INC.
NOTE D RESERVE FOR CREDIT LOSSES
The following is an analysis of the reserve for credit losses for the
years ended December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 148,693 $ 129,077 $ 110,903
Provision for credit losses 69,200 41,751 37,568
Write-offs (45,487) (32,017) (25,631)
Recoveries 2,287 3,296 2,104
Other (including reserves related to acquisitions) 2,395 6,586 4,133
- --------------------------------------------------------------------------------------------------------
Balance, end of year $ 177,088 $ 148,693 $ 129,077
========================================================================================================
</TABLE>
Write-offs by lines of business during the years ended December 31 are
as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Factoring Services $ 24,382 $ 5,098 $ 3,728
Corporate Finance 6,577 9,470 4,660
Commercial Equipment Finance 3,722 3,207 2,271
Resort Finance 2,700 4,275 2,000
Specialty Real Estate Finance 2,106 1,793 2,275
Healthcare Finance 1,798 1,018 314
Inventory Finance 1,777 201
Communications Finance 750 2,994 4,037
Franchise Finance 696 3,267 3,448
FINOVA Capital Limited (UK) 47 895 1,523
Business Credit 452
Other 932 722
- --------------------------------------------------------------------------------------------------------
$ 45,487 $ 32,017 $ 25,631
========================================================================================================
Write-offs as a percentage of average managed assets (excluding
participations) 0.56% 0.46% 0.44%
========================================================================================================
</TABLE>
An analysis of nonaccruing assets included in the investment in
financing transactions at December 31 is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Contracts $ 150,263 $ 117,086
Repossessed assets 37,093 38,419
- --------------------------------------------------------------------------------------------------------
Total nonaccruing assets $ 187,356 $ 155,505
========================================================================================================
Nonaccruing assets as a percentage of managed assets (excluding participations) 2.1% 2.0%
========================================================================================================
</TABLE>
In addition to the repossessed assets included in the above table,
FINOVA had repossessed assets with a total carrying amount of $52.5 million and
$60.0 million at December 31, 1997 and 1996, respectively, which earned income
of $4.1 million and $5.1 million during 1997 and 1996, respectively.
21
<PAGE>
THE FINOVA GROUP INC.
At December 31, 1997, the total carrying amount of impaired loans was
$158.0 million, of which $36.4 million were revenue accruing. A reserve for
credit losses of $24.5 million has been established for $39.0 million of
nonaccruing impaired loans. At December 31, 1996, the total carrying amount of
impaired loans was $110.1 million, of which $46.3 million were revenue accruing.
At December 31, 1996, a reserve for credit losses of $6.2 million was
established for $14.1 million of nonaccruing impaired loans. For the three years
ended December 31, 1997, 1996 and 1995, the average carrying amount of impaired
loans was $130.3 million, $85.1 million and $93.2 million, respectively. Income
earned on accruing impaired loans was approximately $4.0 million in all three
years. 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, 1997, 1996 and
1995 remained accruing, income earned would have increased by approximately $22
million, $19 million and $17 million, respectively.
NOTE E DEBT
FINOVA satisfies its short-term financing requirements from the
issuance of commercial paper supported by bank lines of credit, other bank loans
and public notes. FINOVA's commercial paper borrowings are supported by unused
long-term revolving bank credit agreements totaling $3.6 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, two five-year facilities with
numerous lenders for $700 million each and one 364-day facility with one lender
for $200 million. FINOVA 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. FINOVA rarely borrows under these facilities.
Under the terms of these agreements, FINOVA 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
and $200 million revolving credit agreements will be subject to renewal in 1998,
while the two $700 million and the other $1.0 billion credit facilities are
subject to renewal in 2002. In addition to the above, The FINOVA Group Inc. has
a 364-day revolving credit facility with one lender for $25 million, which is
subject to renewal in 1998.
FINOVA, through one of its subsidiaries, maintains a five-year
multi-currency facility with a small group of lenders for $100 million. Under
the terms of this agreement, the subsidiary has the option to periodically
select multiple currencies as the basis of borrowings. Interest is based on the
Eurocurrency rate per annum for deposits in the relevant designated currency.
Through another subsidiary, FINOVA maintains two five-year revolving credit
facilities with two separate lenders in Canada for $25 million Canadian each.
Under the terms of these agreements, the subsidiary has the option to borrow
Canadian dollars through either bankers' acceptances or prime rate advances.
Interest is based on the lenders' bankers' acceptance rates or prime rate for
prime advances. FINOVA Capital is the guarantor of these credit facilities,
which are subject to renewal in 2002. FINOVA also maintains one $10 million
Canadian 364-day revolving credit facility with one lender. That credit
agreement will be subject to renewal in 1998.
22
<PAGE>
THE FINOVA GROUP INC.
The following information pertains to all short-term financing,
primarily commercial paper, issued by FINOVA Capital for the years ended
December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum amount of short-term debt outstanding
during year $ 3,284,118 $ 3,087,876 $ 2,518,733
Average short-term debt outstanding during year 2,886,668 2,551,316 2,210,329
Weighted average short-term interest rates
at end of year:
Short-term borrowings 5.6% 5.4% 5.9%
Commercial paper* 5.7% 5.6% 6.0%
Weighted average interest rate on short-term debt
outstanding during year* 5.7% 5.6% 6.1%
- --------------------------------------------------------------------------------------------------------
</TABLE>
* Exclusive of the cost of maintaining bank lines in support of outstanding
commercial paper and the effects of interest rate conversion agreements.
Senior debt at December 31 was as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial paper and short-term bank loans supported by unused long-term
bank revolving credit agreements, less unamortized discount $ 3,132,109 $ 2,482,496
Medium-term notes due to 2005, 6.1% to 10.3% 1,343,148 1,414,500
Term loans payable to banks due to 1999, 6.0% 190,000 180,000
Senior notes due to 2007, 6.1% to 16.0%, less unamortized discount 2,083,761 1,758,176
Nonrecourse installment notes due to 2002, 10.6% (assets of
$58,064 and $24,656, respectively, pledged as collateral) 15,563 15,051
- ----------------------------------------------------------------------------------------------------------------
Total senior debt $ 6,764,581 $ 5,850,223
================================================================================================================
</TABLE>
Annual maturities of senior debt outstanding at December 31, 1997 due
through June 2007 (excluding the amount supported by the revolving credit
agreements expected to be renewed) approximate $687.3 million (1998), $707.8
million (1999), $721.8 million (2000), $476.2 million (2001), $539.7 million
(2002) and $499.7 million (thereafter).
The agreements pertaining to senior debt and revolving credit
agreements include various restrictive covenants and require the maintenance of
certain defined financial ratios with which FINOVA and FINOVA Capital have
complied. Under one such covenant, dividend payments by FINOVA Capital are
limited to 50% of accumulated earnings after December 31, 1991. As of December
31, 1997, FINOVA Capital had $126.4 million of excess accumulated earnings
available for distribution.
Total interest paid is not significantly different from interest
expense.
NOTE F DERIVATIVE FINANCIAL INSTRUMENTS
FINOVA enters into interest rate and basis swap agreements as part of
its interest rate risk management policy of match funding its assets and
liabilities. The derivative instruments used are straightforward. The Company
continually monitors its derivative position and uses derivative instruments for
non-trading and non-speculative purposes only.
FINOVA uses derivative instruments to minimize its exposure to
fluctuations in interest rates. FINOVA 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, FINOVA diversifies its
borrowing sources (short- and long-term debt with a fixed or a variable rate)
and seeks to maintain
23
<PAGE>
THE FINOVA GROUP INC.
a portfolio that is matched funded. FINOVA'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. FINOVA's matched
funding policy also requires that the difference between floating-rate
liabilities and floating-rate assets, 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, FINOVA agrees to exchange with the other
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. 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
FINOVA's margins on floating-rate transactions by locking in the spread between
FINOVA's lending and borrowing rates.
FINOVA's off-balance sheet derivative instruments involve credit and
interest rate risks. The credit risk would be the nonperformance by the other
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. FINOVA'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 FINOVA's outstanding
debt at the time of that transaction. Interest rate risks relate to changes in
interest rates and the impact on earnings. FINOVA mitigates interest rate risks
through its matched funding policy.
The use of derivatives decreased interest expense by $1.0 million in
1997, a decrease in the aggregate cost of funds of 0.03%, whereas 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%. 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.
24
<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, 1997. The rates presented are as of December 31, 1997. To the extent that
rates change, variable interest information will change:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Maturities of Derivative Products
December 31, --------------------------------------------------------
(Dollars in Millions) 1997 1998 1999 2000 2001 2002 Thereafter
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive fixed-rate swaps:
Notional value $ 1,402 $ 325 $ 377 $ 150 $ 150 $ 200 $ 200
Weighted average receive rate 6.77% 6.82% 6.45% 7.24% 6.66% 6.51% 7.26%
Weighted average pay rate 5.82% 5.78% 5.79% 5.78% 5.83% 5.80% 5.98%
Pay fixed-rate swaps:
Notional value $ 550 $ 200 $ 150 $ 100 $ 100
Weighted average receive rate 5.81% 5.86% 5.80% 5.74% 5.77%
Weighted average pay rate 7.14% 7.30% 7.06% 7.38% 6.70%
Basis swaps:
Notional value $ 628 $ 628
Weighted average receive rate 5.75% 5.75%
Weighted average pay rate 6.04% 6.04%
-------------------------------------------------------------------------------------------------------
TOTAL NOTIONAL VALUE $ 2,580 $ 1,153 $ 527 $ 250 $ 250 $ 200 $ 200
=======================================================================================================
Total weighted average rates
on swaps:
Receive rate 6.32% 6.07% 6.26% 6.64% 6.30% 6.51% 7.26%
=======================================================================================================
Pay rate 6.15% 6.19% 6.15% 6.42% 6.18% 5.80% 5.98%
=======================================================================================================
</TABLE>
For the benefit of its customers, FINOVA enters into interest rate cap
agreements. The total notional amount of these agreements at December 31, 1997
was $41.9 million, none of which was in a pay or receive position. These
agreements will mature as follows: $16.9 million in 1998, $15.9 million in 1999,
$1.5 million in 2000 and $7.6 million in 2001.
At December 31, 1996, FINOVA 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. The exchange agreement expired in
1997.
25
<PAGE>
THE FINOVA GROUP INC.
Derivative product activity for the three years ended December 31, 1997
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, January 1, 1995 $ 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
Expired (275) (275) (250) (800)
Additions 327 327
- --------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $ 1,402 $ 550 $ -- $ 628 $ -- $ 2,580
========================================================================================================
</TABLE>
NOTE G COMPANY-OBLIGATED MANDATORY REDEEMABLE CONVERTIBLE PREFERRED
SECURITIES OF SUBSIDIARY TRUST SOLELY HOLDING CONVERTIBLE
DEBENTURES OF FINOVA
In December 1996, FINOVA Finance Trust, a subsidiary trust sponsored
and wholly-owned by FINOVA, issued (a) 2,300,000 shares of convertible trust
originated preferred securities (the "Preferred Securities" or "TOPrS") 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 FINOVA. 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 FINOVA. The Debentures represent all of
the assets of the trust. The proceeds from the issuance of the Debentures were
contributed by FINOVA 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 FINOVA at a rate of 5 1/2% per annum of the stated liquidation
amount of $50 per preferred security. FINOVA has guaranteed, on a subordinated
basis, distributions and other payments due on the Preferred Securities (the
"Guarantee"). The Guarantee, when taken together with FINOVA's obligations under
the Debentures, the indenture under which the Debentures were issued and
FINOVA'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. FINOVA 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 FINOVA 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 FINOVA's
common stock at the election of the holders of the Preferred Securities
individually. Each debenture is convertible into 1.2774 shares of FINOVA's
common stock (equivalent to a conversion price of $39.14 per share), subject to
adjustment in specified circumstances. FINOVA can terminate the conversion
rights noted above on 30 days notice on or after December 31, 1999 if it is
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
($46.97, assuming no adjustments).
NOTE H SHAREOWNERS' EQUITY
On August 14, 1997, the Board of Directors declared a two-for-one stock
split of FINOVA's common stock effected as a stock distribution on October 1,
1997 to shareowners of record as of September 1, 1997. All share and per share
data has been restated to reflect the split.
26
<PAGE>
THE FINOVA GROUP INC.
At December 31, 1997, 1996 and 1995, The FINOVA Group Inc. had
58,555,000, 56,844,000 and 56,844,000 shares of common stock issued, with
56,282,000, 55,058,000 and 54,558,000 shares of common stock outstanding,
respectively. Approximately 7,972,000, 8,632,000 and 9,492,000 common shares
were reserved for issuance under the 1992 Stock Incentive Plan at December 31,
1997, 1996 and 1995, 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, 1997. 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 FINOVA's stock incentive plan, 250,000 shares of
preferred stock are reserved for issuance of awards under that plan.
Each outstanding share of FINOVA's common stock has a tandem junior
participating preferred stock purchase right ("Right") attached to it. The
Rights contain provisions to protect shareowners in the event of an unsolicited
acquisition or attempted acquisition of 20% or more of FINOVA's common stock
which is not believed by the Board of Directors to be in the best interest of
shareowners. The Rights are represented by the common share certificates and are
not exercisable or transferable apart from the common stock until such a
situation arises. The Rights may be redeemable by FINOVA at $0.01 per Right
prior to the time any person or group has acquired 20% or more of FINOVA's
shares. FINOVA has reserved 600,000 shares of Junior Participating Preferred
Stock for issuance in connection with the Rights.
FINOVA periodically repurchases its securities on the open market to
fund its obligations pursuant to employee stock options, benefit plans and
similar obligations. During the years ended December 31, 1997 and 1995, FINOVA
repurchased 1,035,800 and 1,223,200 shares, respectively. No shares were
acquired during the year ended December 31, 1996. The program may be
discontinued at any time.
NOTE I STOCK OPTIONS
During 1992, the Board of Directors of FINOVA 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. 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, 1997 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 issued at market value at the
date of grant, unless a higher exercise price was established, which has been
the case for multi-year grants.
27
<PAGE>
THE FINOVA GROUP INC.
Information with respect to options granted and exercised for the three
years ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Average Option
Shares Price Per Share
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at January 1, 1995 2,923,210 $ 14.06
Granted 626,600 19.40
Exercised (336,776) 11.20
Canceled (166,016) 17.09
- --------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1995 3,047,018 15.31
Granted 1,011,740 29.05
Exercised (359,408) 13.37
Canceled (262,172) 20.45
- --------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1996 3,437,178 19.17
Granted 781,108 43.57
Exercised (442,049) 15.57
Canceled (191,094) 28.05
- --------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1997 3,585,143 $ 24.45
========================================================================================================
</TABLE>
At December 31, 1997, stock options with respect to 3,585,143 common
shares were outstanding at exercise prices ranging from $6.35 to $55.49 per
share.
The following table summarizes information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Weighted
Average
Range of Number Remaining Weighted Number Weighted
Exercise Outstanding Contractual Average Exercisable Average
Prices at 12/31/97 Life Exercise Price at 12/31/97 Exercise Price
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$6.35 - $15.25 909,454 4.34 $ 11.07 909,454 $ 11.07
15.34 - 20.74 980,892 6.61 18.35 818,014 18.32
20.83 - 26.38 544,289 7.80 24.84 142,937 25.59
27.25 - 42.75 857,752 9.20 36.63 181,156 31.81
43.50 - 55.49 292,756 9.66 49.96 -- --
================================================================================================
$6.35 - $55.49 3,585,143 7.09 $ 24.45 2,051,561 $ 16.80
================================================================================================
</TABLE>
Since 1992, the Board of Directors has only granted performance based
restricted stock to employees. Performance based restricted stock awards (90,100
shares in 1997, 138,160 shares in 1996 and 109,100 shares in 1995), vest
generally over 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 1992 were based on FINOVA
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.
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 $7.9 million, $2.9 million and
$1.6 million for 1997, 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, FINOVA's net income would have been $135.6
28
<PAGE>
THE FINOVA GROUP INC.
million, $115.0 million and $97.0 million for 1997, 1996 and 1995, respectively.
Basic earnings per share would have been $2.49, $2.11 and $1.78 and diluted
earnings per share would have been $2.36 , $2.05 and $1.75 for 1997, 1996 and
1995, respectively.
The fair value of the options was estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995: dividend yield of 1.92%,
expected volatility of 43%, risk-free interest rates of 6.2% and expected lives
of five to seven years.
NOTE J INCOME TAXES
The consolidated provision for income taxes consists of the following
for the years ended December 31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
United States:
Federal $ 34,936 $ 30,574 $ 30,557
State 13,973 7,654 7,194
Foreign 3,626 1,745
- --------------------------------------------------------------------------------------------------------
52,535 39,973 37,751
- --------------------------------------------------------------------------------------------------------
Deferred:
United States:
Federal 31,051 24,294 13,946
State (498) 5,062 4,535
Foreign 804
- --------------------------------------------------------------------------------------------------------
30,553 29,356 19,285
- --------------------------------------------------------------------------------------------------------
Provision for income taxes $ 83,088 $ 69,329 $ 57,036
========================================================================================================
</TABLE>
29
<PAGE>
THE FINOVA GROUP INC.
Income taxes paid in 1997, 1996 and 1995 amounted to approximately
$30.3 million, $31.3 million and $47.9 million, respectively.
The significant components of deferred tax liabilities and deferred tax
assets at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Deferred income from leveraged leases $ 308,465 $ 274,224
Deferred income from lease financing 89,196 68,542
Goodwill 24,343 10,776
Other 3,498 9,450
- --------------------------------------------------------------------------------------------------------
Gross deferred tax liability 425,502 362,992
- --------------------------------------------------------------------------------------------------------
Deferred tax assets:
Reserve for credit losses 75,670 61,083
Foreign 16,802 24,159
Alternative minimum tax 26,153
Accrued expenses 9,739 19,299
Net operating loss carryforward 4,875
Other 17,502 14,243
- --------------------------------------------------------------------------------------------------------
Gross deferred tax asset 150,741 118,784
- --------------------------------------------------------------------------------------------------------
Net deferred tax liability $ 274,761 $ 244,208
========================================================================================================
</TABLE>
The federal statutory income tax rate is reconciled to the effective
income tax rate as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income taxes 2.6 4.4 5.1
Foreign tax effects (0.1) (0.9) (0.5)
Municipal and ESOP income (2.0) (2.2) (1.7)
Other 1.2 1.0 (0.1)
- --------------------------------------------------------------------------------------------------------
Provision for income taxes 36.7% 37.3% 37.8%
========================================================================================================
</TABLE>
NOTE K PENSION AND OTHER BENEFITS
Net periodic pension costs were $1.9 million, $1.7 million and $1.3
million for the years ended December 31, 1997, 1996 and 1995, respectively.
FINOVA's pension costs were accrued at $2.8 million at December 31, 1997 and
prepaid by $0.6 million at December 31, 1996.
Net periodic postretirement benefit costs were $0.5 million, $0.7
million and $0.6 million for each of the years ended December 31, 1997, 1996 and
1995, respectively. FINOVA's accrued postretirement benefit costs were $2.8
million at December 31, 1997 and $2.2 million at December 31, 1996.
FINOVA's investment of $47 million in trust for nonqualified
compensation plans consists of securities held for trading and is recorded at
market.
30
<PAGE>
THE FINOVA GROUP INC.
NOTE L EARNINGS PER SHARE
For the year ended December 31, 1997, FINOVA adopted the provisions of
SFAS No. 128, "Earnings Per Share." This statement specifies the presentation
and disclosure of earnings per share for entities with publicly held common
stock or potential common stock. The statement also requires the calculation of
two earnings per share measures, basic and diluted. Basic earnings per share
exclude the effects of dilution and are computed by dividing income available to
common shareowners by the weighted average amount of common stock outstanding
for the period. Diluted earnings per share reflect the potential dilution that
could occur if options, convertible preferred stock or other contracts to issue
stock were exercised or converted into common stock. These calculations are
presented for the years ended December 31, 1997, 1996 and 1995 on the Statement
of Consolidated Income and are detailed below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic Earnings Per Share Computation:
Income from continuing operations $ 139,098 $ 116,493 $ 93,798
========================================================================================================
Net income $ 139,098 $ 117,000 $ 97,629
========================================================================================================
Weighted average shares outstanding 54,748,000 54,816,000 54,905,000
Contingently issued shares (343,000) (308,000) (272,000)
- --------------------------------------------------------------------------------------------------------
Adjusted weighted average shares 54,405,000 54,508,000 54,633,000
========================================================================================================
Earnings from continuing operations per share $ 2.56 $ 2.14 $ 1.72
========================================================================================================
Net income per share $ 2.56 $ 2.15 $ 1.79
========================================================================================================
Diluted Earnings Per Share Computation:
Income from continuing operations $ 139,098 $ 116,493 $ 93,798
Preferred dividends, net of tax 3,992 - -
- --------------------------------------------------------------------------------------------------------
Income from continuing operations available to
common shareowners $ 143,090 $ 116,493 $ 93,798
========================================================================================================
Net income $ 139,098 $ 117,000 $ 97,629
Preferred dividends, net of tax 3,992 - -
- --------------------------------------------------------------------------------------------------------
Net income available to common shareowners $ 143,090 $ 117,000 $ 97,629
========================================================================================================
Weighted average shares outstanding 54,748,000 54,816,000 54,905,000
Contingently issued shares (184,000) (183,000) (195,000)
Incremental shares from assumed conversions:
Stock options 1,659,000 1,257,000 759,000
Convertible preferred securities 2,938,000 161,000 -
- --------------------------------------------------------------------------------------------------------
Total potential dilutive common shares 4,597,000 1,418,000 759,000
- --------------------------------------------------------------------------------------------------------
Adjusted weighted average shares 59,161,000 56,051,000 55,469,000
========================================================================================================
Earnings from continuing operations per share $ 2.42 $ 2.08 $ 1.69
========================================================================================================
Earnings per share $ 2.42 $ 2.09 $ 1.76
========================================================================================================
</TABLE>
31
<PAGE>
THE FINOVA GROUP INC.
NOTE M LITIGATION AND CLAIMS
FINOVA 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 FINOVA'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
FINOVA. Although the ultimate amount for which FINOVA may be held liable, if
any, is not ascertainable, FINOVA believes that any resulting liability should
not materially affect FINOVA's financial position or results of operations.
NOTE N FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments has been determined by FINOVA using market information obtained by
FINOVA 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 FINOVA could realize in a current market exchange. The use of
different market assumptions or valuation methodologies may have a material
effect on the estimated fair value amounts.
The carrying amounts and estimated fair values of FINOVA's financial
instruments are as follows for the years ended December 31:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------
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 $ 5,744,846 $ 5,872,082 $ 5,143,562 $ 5,417,865
Liabilities:
Senior debt 6,764,581 6,832,327 5,850,223 5,952,108
Off-Balance Sheet -
Financial Instruments:
Interest rate swaps --- 15,893 --- 1,462
- -------------------------------------------------------------------------------------------------------
</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, 1997 and 1996. 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, 1997 and 1996, the fair value of nonaccruing
impaired contracts with a carrying amount of $121.5 million and $63.8
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, 1997 and 1996, the
carrying amount of loans and other financing contracts excludes
repossessed assets with a total carrying amount of $89.6 million and
$98.4 million, respectively.
32
<PAGE>
THE FINOVA GROUP INC.
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.
The fair value estimates presented herein were based on information
obtained by FINOVA as of December 31, 1997 and 1996. 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, 1997 and 1996. Therefore,
current estimates of fair value may differ significantly from the amounts
presented herein.
NOTE O SELLING, ADMINISTRATIVE AND OTHER OPERATING EXPENSES
The following represents a summary of the major components of selling,
administrative and other operating expenses for the three years ended December
31:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $ 112,980 $ 94,272 $ 74,884
Depreciation and amortization 17,407 14,185 14,799
Travel and entertainment 11,917 8,953 8,030
Problem account costs 11,586 7,753 7,941
Occupancy expenses 8,368 7,104 6,253
Professional services 7,654 5,738 6,121
- --------------------------------------------------------------------------------------------------------
</TABLE>
NOTE P NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income," which is effective for fiscal
years beginning after December 15, 1997. The statement changes the reporting of
certain items currently reported in the shareowners' equity section of the
balance sheet and establishes standards for reporting of comprehensive income
and its components in a full set of general purpose financial statements.
Adoption of this standard will require additional disclosure only. FINOVA will
adopt this standard effective January 1, 1998, as required.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which is effective for
fiscal years beginning after December 15, 1997. This standard requires certain
information regarding segments of a business enterprise to be reported based on
the way management organizes and evaluates segments within FINOVA. The standard
also requires disclosures regarding products and services, geographical areas
and major customers. Adoption of this standard will require FINOVA to include
additional detail in its disclosures, including certain disaggregated operating
information. FINOVA will adopt this standard in 1998, as required, but is not
currently planning to elect early adoption for interim financial periods during
the year. At this time, management anticipates that FINOVA's reported segments
will be composed of its three operating groups: Specialty Finance, Commercial
Finance and Capital Markets.
33
<PAGE>
THE FINOVA GROUP INC.
SUPPLEMENTAL SELECTED FINANCIAL DATA
CONDENSED QUARTERLY RESULTS (UNAUDITED)
(Dollars in Thousands, except per share data)
The following represents the condensed quarterly results for the three
years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest earned from financing transactions:
1997 $ 217,077 $ 228,487 $ 237,356 $ 261,804
1996 190,652 192,635 204,972 209,675
1995 161,369 170,475 176,802 193,470
- --------------------------------------------------------------------------------------------------------
Interest expense:
1997 97,172 101,883 105,592 111,446
1996 88,224 89,718 91,629 96,972
1995 78,275 83,248 85,544 90,747
- --------------------------------------------------------------------------------------------------------
Gains on sale of assets:
1997 3,233 10,468 8,706 7,854
1996 6,730 1,315 397 4,507
1995 1,710 728 2,557 5,894
- --------------------------------------------------------------------------------------------------------
Non-interest expenses:
1997 70,327 82,522 84,500 95,365
1996 66,489 56,989 65,480 69,560
1995 47,581 52,832 54,605 69,339
- --------------------------------------------------------------------------------------------------------
Income from continuing operations:
1997 31,658 33,751 34,921 38,768
1996 26,756 28,852 30,489 30,396
1995 22,205 22,279 24,417 24,897
- --------------------------------------------------------------------------------------------------------
Net income:
1997 31,658 33,751 34,921 38,768
1996 27,121 28,121 29,763 31,995
1995 22,368 23,629 25,150 26,482
-------------------------------------------------------------------------------------------------------
Basic earnings per share:
1997 $0.59 $0.62 $0.65 $0.70
1996 $0.50 $0.52 $0.54 $0.59
1995 $0.41 $0.43 $0.46 $0.49
-------------------------------------------------------------------------------------------------------
Diluted earnings per share:
1997 $0.56 $0.59 $0.61 $0.66
1996 $0.49 $0.51 $0.53 $0.56
1995 $0.40 $0.43 $0.45 $0.48
</TABLE>
34
<PAGE>
THE FINOVA GROUP INC.
AVERAGE BALANCES/INTEREST MARGINS/AVERAGE ANNUAL RATES (UNAUDITED) (1)
(Dollars in Thousands)
The following represents the breakdown of FINOVA's average balance sheet,
interest margins and average annual rates for the years ended December 31, 1997
and 1996:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 36,873 $ $ 38,685 $
Investment in financing transactions 7,764,224 871,735 (4) 11.85% (2) 6,716,996 735,648 (4) 11.63% (2)
Less reserve for credit losses (160,241) (138,896)
- -----------------------------------------------------------------------------------------------------------------------------------
Investment in financing transactions - net 7,603,983 6,578,100
Goodwill and other assets 365,885 312,539
Investment in discontinued operations 2,703 487,915
- -----------------------------------------------------------------------------------------------------------------------------------
$8,009,444 $7,417,239
====================================================================================================================================
LIABILITIES AND SHAREOWNERS' EQUITY
Liabilities:
Other liabilities $ 408,640 $ $ 356,704 $
Senior debt 6,253,588 416,093 6.65% 5,944,599 366,543 (5) 6.17% (5)
Deferred income taxes 260,027 233,606
- ------------------------------------------------------------------------------------------------------------------------------------
$6,922,255 $6,534,909
Company-obligated mandatory redeemable convertible
preferred securities of subsidiary trust solely holding
convertible debentures of FINOVA 111,550 8,581
Shareowners' equity 975,639 873,749
- ------------------------------------------------------------------------------------------------------------------------------------
$8,009,444 $7,417,239
====================================================================================================================================
Interest income/average earning assets (2) $871,735 11.85% $735,648 11.63%
Interest expense/average earning assets (2) (3) 416,093 5.66% 366,543 5.80%
- ------------------------------------------------------------------------------------------------------------------------------------
Interest margins earned (3) $455,642 6.19% $369,105 5.83%
====================================================================================================================================
</TABLE>
(1) Averages are calculated based on monthly balances.
(2) The average rate is calculated based on average earning assets ($7,356,845
and $ 6,324,545 for 1997 and 1996, respectively) which are net of average
deferred taxes on leveraged leases and average nonaccruing assets.
(3) For the year ended December 31, 1997, excluding the impact of derivatives,
interest expense would have been $417,140 or 5.67% of average earning
assets and interest margins earned would have been $454,595 or 6.18% of
average earning assets. For the year ended December 31, 1996, excluding the
impact of derivatives, interest expense would have been $363,526 or 5.75%
of average earning assets and interest margins earned would have been
$372,122 or 5.88% of average earning assets.
(4) Interest income is shown net of operating lease depreciation.
(5) Interest expense for 1996 excludes expense related to MDS which was
classified as discontinued operations. The average rate would have been
6.77% if the expense had not been reclassified.
35
<PAGE>
THE FINOVA GROUP INC.
COMMISSION FILE NUMBER 1-11011
EXHIBIT INDEX
DECEMBER 31, 1997 FORM 10-K
Exhibit No.
-----------
(3.A) Certificate of Incorporation, as amended through the
date of this filing (incorporated by reference from
FINOVA's report on Form 10-K for the year ended
December 31, 1994 (the "1994 10-K"), Exhibit 3.A).
(3.B) Bylaws, as amended through the date of this filing
(incorporated by reference from FINOVA's report on
Form 10-K for the year ended December 31, 1995 (the
"1995 10-K,") Exhibit 3.B).
(4.A) Form of FINOVA's Common Stock Certificate
(incorporated by reference from the 1994 10-K,
Exhibit 4.B).
(4.B) Relevant portions of FINOVA's Certificate of
Incorporation and Bylaws included in Exhibits 3.A and
3.B above are incorporated by reference.
(4.C) Rights Agreement dated as of February 15, 1992
between FINOVA and the Rights Agent named therein, as
amended (incorporated by reference from FINOVA's
report on Form 8-K dated September 21, 1995, Exhibit
4.1).
(4.C.1) Acceptance of Successor Trustee to Appointment under
Rights Agreement noted in 4.C above (incorporated by
reference from FINOVA's current report on Form 8-K,
dated November 30, 1995, Exhibit 4).
(4.D) Long-term debt instruments with principal amounts not
exceeding 10% of FINOVA's total consolidated assets
are not filed as exhibits to this report. FINOVA will
furnish a copy of those agreements to the SEC upon
its request.
(4.E) 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.F) 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.G) Indenture, dated as of December 11, 1996, between
FINOVA and Fleet National Bank as trustee
(incorporated by reference from FINOVA's report on
Form 8-K dated December 20, 1996, (the "December 1996
8-K"), Exhibit 4.1).
(4.G.1) 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 FINOVA
(incorporated by reference from the December 1996
8-K, Exhibit 4.2).
(4.G.2) Preferred Security Guarantee, dated as of December
11, 1996, between FINOVA and Fleet National Bank, as
trustee (incorporated by reference from the December
1996 8-K, Exhibit 4.3).
36
<PAGE>
Exhibit No.
-----------
(4.G.3) Form of 5 1/2% Convertible Subordinated Debenture
(incorporated by reference from the December 1996
8-K, Exhibit 4.4).
(4.G.4) Form of Preferred Security (TOPrS) (incorporated by
reference from the December 1996 8-K, Exhibit 4.5).
(4.H) Form of Indenture between FINOVA, FINOVA Capital and
The First National Bank of Chicago as Trustee
(incorporated by reference from FINOVA and FINOVA
Capital's registration statement on Form S-3,
Registration No. 333-38171, Exhibit 4.8).
(4.I) Announcement of 2-for-1 Stock Split (incorporated by
reference from the August 14, 1997 8-K, Exhibit 28).
(4.I.1) Letter to shareowners regarding FINOVA's 2-for-1
Stock Split (incorporated by reference from October
1, 1997 8-K, Exhibit 28.A).
(4.I.2) Letter to holders of Preferred Securities regarding
the 2-for-1 common stock split and resulting
adjustment in conversion price applicable, to the
Convertible Trust Originated Preferred Securities of
FINOVA Finance Trust (incorporated by reference from
October 1, 1997 8-K, Exhibit 28.B).
(4.J) 1992 Stock Incentive Plan, as amended through the
date of this filing.*+
(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 Westminister Bank USA, as
agents (the "Agents") and Citibank, N.A., as
Administrative Agent (incorporated by reference from
FINOVA's report on Form 8-K dated May 23, 1994,
Exhibit 10.1).
(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 FINOVA'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 (incorporated by
reference from the 1996 10-K, Exhibit 10.A.4).
(10.A.5) Fifth Amendment dated as of May 20, 1997 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
FINOVA's report on Form 8-K dated May 23, 1994,
Exhibit 10.2).
37
<PAGE>
Exhibit No.
-----------
(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 (incorporated by reference from 1996 10-K,
Exhibit B.4).
(10.B.5) Fifth Amendment to Short-Term Facility noted in 10.B
above.*
(10.C) 1997 Management Incentive Plan.*+
(10.D) 1998 Management Incentive Plan.*+
(10.E.1) 1995 - 1997 Performance Share Incentive Plan
(incorporated by reference from the 3Q95 10-Q,
Exhibit 10.H).+
(10.E.2) 1996 - 1998 Performance Share Incentive Plan
(incorporated by reference from 1996 10-K, Exhibit
10.E.3).+
(10.E.3) 1997 - 1999 Performance Share Incentive Plan.*+
(10.E.4) 1998 - 2000 Performance Share Incentive Plan.*+
(10.F) Employment Agreement with Samuel L. Eichenfield dated
March 16, 1996 (incorporated by reference from the
1995 10-K, Exhibit 10.F.3).+
(10.F.1) Amendment to Employment Agreement referenced in 10.F
above (incorporated by reference from the 1996 10-K,
Exhibit 10.F.2).+
(10.F.2) Second Amendment to Employment Agreement referenced
in 10.F above (incorporated by reference from the
2Q97 10-Q, Exhibit 10).+
(10.G) Employment Agreement with William J. Hallinan, dated
February 25, 1992 (incorporated by reference from the
1992 10-K, Exhibit 10.1).+
(10.H) Amended and Restated Supplemental Pension Plan,
(incorporated by reference from the 1996 10-K,
Exhibit 10.1).+
(10.I) A description of FINOVA's policies regarding
compensation of directors is incorporated by
reference from the 1998 Proxy Statement.+
(10.J) Directors Deferred Compensation Plan (incorporated
by reference from the 1992 10-K, Exhibit 10.O).+
(10.K) Directors' Retirement Benefit Plan (incorporated by
reference from FINOVA's report on
38
<PAGE>
Exhibit No.
-----------
Form 10-K for the year ended December 31, 1993 (the
"1993 10-K"), Exhibit 10.OO).+
(10.L) Directors' Charitable Awards Program (incorporated
by reference from the 1994 10-K, Exhibit 10.CC).+
(10.M) Deferred Compensation Plan (incorporated by reference
from the 1995 10-K, Exhibit 10.N).+
(10.N) Bonus KEYSOP Plan.*+
(10.N.1) Bonus KEYSOP Trust Agreement.*+
(10.O) FINOVA's Executive Officer Loan Program Policies and
Procedures, (incorporated by reference from the 1996
10-K, Exhibit 10.U).+
(10.P.1) FINOVA's Executive Severance Plan for Tier 1
Employees (incorporated by reference from the 1995
10-K, Exhibit 10.C.1).+
(10.P.2) FINOVA's Executive Severance Plan for Tier 2
Employees (incorporated by reference from the 1995
10-K, Exhibit 10.C.2).+
(10.Q.1) Value Sharing Plan for the Chief Executive Officer
(incorporated by reference from the 3Q95 10-Q,
Exhibit 10.L).+
(10.Q.2) Value Sharing Plan for Executive Officers and Key
Employees (incorporated by reference from the 3Q95
10-Q, Exhibit 10.K).+
(10.R) Tax Sharing Agreement dated February 19, 1992 among
FINOVA, The Dial Corp and others (incorporated by
reference from the 1992 10-K, Exhibit 10.KK).
(10.S) 1992 Stock Incentive Plan (filed in Exhibit 4.J to
this report).+
(12) Computation of Ratio of Income to Combine Fixed
Charges and Preferred Stock Dividends.*
(21) Subsidiaries.*
(23) Independent Auditor's Consent.*
(24) Powers of Attorney.*
(27.1) Financial Data Schedule for the year ended December
31, 1997.*
(27.2) Restated Financial Data Schedule for the Quarters
ended September 30, 1997, June 30, 1997 and March 31,
1997.*
(27.3) Restated Financial Data Schedule for the Quarters
ended September 30, 1996, June 30, 1996 and March 31,
1996.*
(27.4) Restated Financial Data Schedule for the years ended
December 31, 1996 and 1995.*
*Filed with this report.
+Relating to management compensation
39
Exhibit 4.J
& 10.U (cross-referenced)
The FINOVA Group Inc.
1992 STOCK INCENTIVE PLAN
(INCLUDING 1997 AMENDMENTS)
Section 1. Purpose.
A. Purpose. Through this Plan, FINOVA seeks to attract,
The Plan retain and motivate officers, employees and directors.
helps align the The Plan's incentives helps align their efforts with
interest of our the profitability of the Company and increases in
executives shareholder value.
and
shareholders. 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 B. Powers. The Committee may grant Awards under the Plan
Committee to officers, employees and directors of the Company and
has broad its Affiliates. Among other things, and subject to the
powers to terms of the Plan, the Committee may determine in its
administer the sole discretion:
Plan.
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
<PAGE>
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 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.
The
Committee D. Committee Action/Delegation. The Committee may act only
may delegate by a majority of its then-current members, except it
certain matters. may: (1) delegate to one or more officers of the
Company or its Affiliates 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.
-2-
<PAGE>
Section 3. Stock Subject to Plan.
The number of A. General Authorization. For Plan years beginning on or
initial after January 1, 1997, the Committee may continue to
authorized grant Awards for Shares in each calendar year
Shares in a (including partial years) totaling two and one-half
year generally percent (2.5%) of the Common Stock of the Company
remains the outstanding as of the first day of that year, subject
same as the to adjustment as provided in the Plan. Any available
former Plan. Shares not granted in a year will be available for
grant in a future 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 500,000
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 5,000,000
shares of Common Stock as Incentive Stock Options over
the life of the Plan, and it may grant Awards for a
maximum of 1,000,000 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
Forfeited, unused Restricted Stock that are forfeited, (2) underlying an
or cashed-out Option (and related SAR, if any) that terminates for
Shares can be any reason without being exercised, or (3) underlying a
reused. 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
NQ's unless B. ISOs and NQs. The Committee may award Incentive Stock
designated as Options only to employees of the Company and its
ISO's. subsidiaries (as permitted 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
-3-
<PAGE>
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 purchasable under
No Options that Option. The Option price must be no less than
are awarded the Fair Market Value of the Stock on the date of
at less than grant.
fair market
value or for 2. Term. All Options expire no later than 10 years
terms over 10 after the grant date.
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 4. Use of Stock for Payment. If approved by the
is due on Committee, holders may pay for Options with
Option payment in full or unrestricted Stock already
exercise. 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 5. Transferability/Restrictions on Transfer. Holders
Committee may not transfer options except as permitted by
may permit the Committee or this Plan. A holder may transfer
transfer of Options by will, the laws of descent and
Awards. 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.
-4-
<PAGE>
6. Termination of Employment. After Termination of
Employment, participants may exercise Options, to
Employees the extent then exercisable or as accelerated by
may generally the Committee, during the periods noted below,
exercise unless otherwise permitted by the Committee or the
Options after Option Agreement. In no event, however, will the
they leave Option be exercisable after expiration of the
FINOVA within original Option term. An ISO exercised after the
the following exercise periods permitted by the Code will be
periods: treated as an NQ.
Death - 1 year (a) Death. One year from the date of death. If
Disability - 3 the optionee dies after Termination of
years Employment during the periods referenced in
Retirement - 3 Section 4.C.6(b), that period will be
years extended to the extent necessary to permit
Termination exercise within one year from the date of
for Cause - death.
Options expire
Other reasons (b) Disability or Retirement. Three years from
- - 3 months 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
-5-
<PAGE>
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 any additional terms selected by
the Committee:
1. Same as Options. SARs are exercisable only at the
times and to the extent the related Options are
exercisable.
Exercise of an
SAR cancels 2. Payment for SARs. Upon exercise of an SAR, an
the underlying optionee the Company will pay cash, Shares or both
Option and equal to the amount the Fair Market Value of each
vice versa. 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.
A. Section 16 Officers. Unless otherwise provided by the
Committee, awards of Restricted Stock to Section 16
PBRS Awards Officers will only be PBRS Awards which comply with the
can base performance-based compensation requirements of Section
performance 162(m). Unless otherwise determined by the Committee,
on various the performance goals for the PBRS Awards will be based
factors. 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
-6-
<PAGE>
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.
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
Restricted Stock participant will have all the rights of a
can not be shareholder for the same class or series of Stock
transferred as the Restricted Stock, including, if applicable,
during the the right to vote the Shares and to receive any
Restriction cash dividends. If the Committee requires in the
Period, with Restricted Stock agreement, and subject to Section
limited 10.F, (a) cash dividends on the Restricted Stock
exceptions. 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.
-7-
<PAGE>
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
Non-Employee of his or her term will receive an annual (including
Directors receive partial years) grant of Non-Qualified Options to
Options for 4,000 purchase 3,000 Shares of Common Stock. The grant will
Shares on occur automatically on the third Thursday of August
election and during that director's term. Each Non-Employee Director
3,000 Shares each will also be awarded NQs to purchase 4,000 shares of
year of service. 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
Directors may equal to the amount of the retainer payment to be paid
elect to receive on that date, (2) Non-Qualified Options to purchase
all or part of Common Stock with a Fair Market Value as of that
their annual payment date equal to two and one-half times the amount
retainer in of the retainer payment ("Directors Retainer Options"),
Restricted Stock or (3) a combination of the above. The Committee may
or Options. establish minimum thresholds for election of any
alternative other than cash.
C. Directors Retainer Shares. Except as permitted by the
Plan, Committee or Restricted Stock Agreement,
Directors may not transfer Retainer Shares 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.
-8-
<PAGE>
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, 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 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, 6 and 8, as appropriate.
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:
Awards vest and 1. Options and SARs. Any unvested or unexercisable
can be exercised Options and SARs outstanding as of the date of the
if a Change in Change in Control become fully vested and
Control occurs. exercisable to the full extent of the original
grant, without regard to the three month limit on
exercisability imposed by Section 4.C.6(d) 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
-9-
<PAGE>
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 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
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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.
Section 9. Effective Date/Term/Amendment/Termination.
A. Effective Date. This amended Plan is effective upon
approval by the Board. Those changes necessary for
The Board may qualification under Section 162(m) or Section 422 will
amend the Plan not be effective until those changes are ratified and
but may not approved by a majority of the Company's shareholders
adversely impact who vote on the matter at a meeting with a quorum
existing Awards, present. All Awards outstanding on the effective date
with certain of these amendments to this Plan will remain
exceptions. 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
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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 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
Holders must includible in the person's gross income for Federal
pay taxes due income tax purposes. Unless otherwise determined by the
on Awards. 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
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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.
"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.
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"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
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 as
defined in a pension plan of the Company or an Affiliate,
(B) retirement under an employment contract
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<PAGE>
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.
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FINOVA CAPITAL CORPORATION
FIFTH AMENDMENT TO SIXTH AMENDMENT AND
RESTATEMENT OF CREDIT AGREEMENT DATED AS OF MAY 20, 1997
This FIFTH AMENDMENT TO SIXTH AMENDMENT AND RESTATEMENT OF CREDIT
AGREEMENT (this "Amendment") is dated as of May 20, 1997 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, THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION), and CITIBANK, 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, a Third
Amendment to Sixth Amendment and Restatement of Credit Agreement dated as of
November 1, 1995, and a Fourth Amendment to Sixth Amendment and Restatement of
Credit Agreement dated as of May 15, 1996 (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, 2002, and that certain provisions 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.
(1) 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, 2002; provided,
however, that, if any Lender has consented to an Extension Request in
accordance with Section 2.17, with
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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."
(2) The Credit Agreement is hereby amended by deleting
therefrom the definition of "Eligible Assignee" and substituting therefor the
following:
"Eligible Assignee" means (a) any financial institution or
entity engaged in the business of extending revolving credit
and having consolidated assets of $500,000,000 or more;
excluding, however, any insurance companies or commercial
finance companies; and (b) any entity engaged in the business
of lending that is an affiliate of a Lender or of a Person of
which a Lender is a subsidiary, excluding, however, any
insurance companies or commercial finance companies.
(3) The definition of "Exposure" in Section 1.01 of the Credit
Agreement is hereby amended and restated in its entirety as follows:
"'Exposure' shall mean the aggregate Carrying Value
of all transactions in respect of (a) any Person which is a
customer of the Company or any Subsidiary, and (b) (if and to
the extent of the amount guaranteed by such Person) (i) any
subsidiary or other affiliate of such Person and (ii) any
other Person."
B. Amendment to Section 2.17.
Section 2.17 of the Credit Agreement is hereby
amended by deleting the phrase "twenty-seven months" in the
first sentence of such Section and inserting in lieu thereof
the phrase "fifty-one (51) months".
C. Amendment to Section 4.01(b). Section 4.01 (b) of the Credit
Agreement is hereby amended and restated in its entirety as follows:
"(b) Furnish to each Lender (i) promptly upon becoming aware
of the occurrence of any (A) Termination Event, or (B) "prohibited
transaction," as such term is defined in Section 4975 of the Code, or
Section 406 of ERISA, in connection with any Plan or any trust created
thereunder, a written notice specifying the nature thereof, what action
the Company has taken, is taking or proposes to take with respect
thereto, and, when known, any action taken or threatened by the
Internal Revenue Service, the Department of Labor, or the PBGC with
respect thereto and (ii) with reasonable promptness, copies of (A) all
notices received by the Company or any of its ERISA Affiliates of the
PBGC's intent to
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terminate any Plan or to have a trustee appointed to administer any
Plan; and (B) all notices received by the Company or any of its ERISA
Affiliates from a multiemployer plan sponsor concerning the imposition
or amount of withdrawal liability pursuant to Section 4202 of ERISA."
D. Amendment to Section 4.01 (h). Section 4.01(h) of the Credit
Agreement is hereby amended and restated in its entirety as follows:
"(h) Perform and comply, and cause the Subsidiaries to perform
and comply, with all material obligations of the Company and the
Subsidiaries under all laws applicable to the Company or the
Subsidiaries and all material indentures, agreements or other
instruments to which the Company or any of the Subsidiaries is a party
or by which the Company or any of the Subsidiaries or any of its or
their properties is bound."
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 the Company or its
Subsidiaries, or (iv) require any approval 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
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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 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 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
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<PAGE>
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 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 LAWS 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
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<PAGE>
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]
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<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
Title Senior Vice President - Treasurer
By /s/ Meilee Smythe
Title Vice President-Deputy Treasurer
The Lenders:
------------
CITIBANK, N.A. (Individually and as an
Agent and Administrative Agent)
By /s/ Marjorie Futornick
Title Vice President
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
(as an Agent)
By /s/ Robert Troutman
Title Managing Director
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By /s/ Robert Troutman
Title Managing Director
BANK OF MONTREAL (Individually and
as an Agent)
By /s/ J. Donald Higgins
Title Managing Director
S-1
<PAGE>
FLEET BANK , N.A.
By /s/ Andria H. Lee
Title Vice President
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
(Individually and as an Agent)
By /s/ P. R. Parker
Title Vice President
CREDIT SUISSE
By /s/ Byrne
Title Director
By /s/ Jay Chall
Title Director
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY
By /s/ Vicente L. Timiraos
Title SVP & Sr. Manager
NATIONSBANK, (SOUTH) N.A.
By /s/ Betty Reed
Title Senior Vice President
S-2
<PAGE>
UNION BANK OF SWITZERLAND
New York Branch
By /s/ Robert Mendeles
Title Vice President
By /s/ Dider Magloire
Title Vice President
WESTDEUTSCHE LANDESBANK
GIROZENTRALE - NEW YORK AND
CAYMAN ISLANDS BRANCHES
By /s/ Raymond K. Miller
Title Vice President
By /s/ Patrice Griffin
Title Associate
CREDIT LYONNAIS
SAN FRANCISCO BRANCH
By /s/ Edward W. Leong
Title Vice President & Manager
WELLS FARGO BANK
By /s/ Senior Vice President
NATIONAL WESTMINSTER BANK
PLC
By /s/ David Rowley
Title Vice President
ROYAL BANK OF CANADA
By /s/ Preston D. Jones
Title Senior Manager
Corporate Banking
S-3
<PAGE>
SOCIETE GENERALE
By /s/ J. Staley Stewart
Title Vice President
BANK ONE, ARIZONA, NA
By /s/ Vice President
DRESDNER BANK AG
NEW YORK BRANCH
And GRAND CAYMAN BRANCH
By /s/ John W. Sweeney
Title Assistant Vice President
By /s/ Christopher E. Sarisky
Title Assistant Treasurer
UNION BANK of CALIFORNIA, N.A.
By /s/ Donald H. Rubin
Title Vice President
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., LOS ANGELES AGENCY
By /s/ T. Morgan Edwards II
Title Deputy General Manager
By /s/ Bryan Read
Title Vice President
THE MITSUBISHI TRUST AND
BANKING CORPORATION, acting
through its LOS ANGELES AGENCY
By /s/ Yasushi Satomi
Title Senior Vice President
S-4
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ARAB BANKING CORPORATION
By /s/ Richard Whelan
Title V. P & Manager
Los Angeles Representative Office
THE BANK OF NOVA SCOTIA
By /s/ John Quick
Title Officer
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By /s/ A. Kimbell Collins
Title Vice President
BANK OF HAWAII
By /s/ Joseph T. Donalson
Title Vice President
BANQUE NATIONALE DE PARIS
By /s/ Senior Vice President
By /s/ Margaret Mudd
Title Vice President
COMERICA BANK
By /s/ Emmanuel M. Skerrl
Title Corporate Baning Officer
CREDIT AGRICOLE
By /s/ Senior Vice President
S-5
<PAGE>
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK
By /s/ Karen A. Brinkman
Title Vice President
KREDIETBANK N.V.
By /s/ Robert Stauffer
Title Vice President
By /s/ Tod R. Angus
Title Vice President
NBD BANK
By /s/ Andrew H Heinecke
Title First Vice President
UNITED STATES NATIONAL BANK
OF OREGON
By /s/ Fiza Noordiu
Title
ABN AMRO BANK N.V.,
LOS ANGELES INTERNATIONAL
BRANCH
By /s/ Ellen M. Coleman
Title Vice President/Director
By /s/ Heather F. Brandt
Title Vice President
THE SAKURA BANK, LTD.
By /s/ Orusa Sato
Title Senior Vice President
Assistant General Manager
S-6
<PAGE>
BANQUE PARIBAS
By /s/ Lynne A. Lueders
Title Vice President
By /s/ Stanley P. Berkman
Title General Manager
Western Region
COMPAGNIE FINANCIERE DE
CIC ET DE L'UNION EUROPEENNE
By /s/ Mark Skiden
Title Vice President
By /s/ Nancy Nelson
Title Assistant Vice President
DEUTSCHE BANK AG NEW YORK
AND/OR CAYMAN ISLANDS
BRANCHES
By /s/ Gayman Z. Shivnarain
Title Vice President
By /s/ Dale F. Oberst
Title Associate
THE DAI-ICHI KANGYO BANK, LTD.
LOS ANGELES AGENCY
By /s/ Masatsugu Morishita
Title Sr. Vice President &
Joint General Manager
BANCA MONTE DEI PASCHI DI
SIENA S.p.A.
By /s/ S. M. Sondak
Title S.V.P. & Dept. General Manager
By /s/ Brian R. Landy
Title Vice President
S-7
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THE SUMITOMO TRUST AND
BANKING CO., LTD.,
LOS ANGELES AGENCY
By /s/ Ninoos Y. Benjamin
Title Vice President & Manager
CHIBA BANK, LTD.
By /s/ Kazuaki Kondo
Title General Manager
DEN DANSKE BANK AKTIESELSKAB,
CAYMAN ISLANDS BRANCH
By /s/ Mogens Sondergaard
Title Vice President
By /s/ John A. O'Neill
Title Vice President
CIBC Inc.
By /s/ Director, CIBC Wood Gundy
Title Securities Corp., As Agent
COMMERZBANK AG,
LOS ANGELES BRANCH
By /s/ Christian Jagenberg
Title Senior Vice President and Manager
By /s/ Steven Fl Larsen
Title Vice President
THE FUJI BANK, LIMITED,
LOS ANGELES AGENCY
By /s/ Nobuhiro Umemura
Title Joint General Manager
S-8
FINOVA CAPITAL CORPORATION
FIFTH AMENDMENT TO CREDIT AGREEMENT
(SHORT TERM FACILITY) DATED AS OF MAY 20, 1997
This FIFTH AMENDMENT TO CREDIT AGREEMENT (SHORT TERM FACILITY) (this
"Amendment") is dated as of May 20, 1997 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, THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION), and CITIBANK, 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, a Third Amendment to Credit
Agreement dated as of November 1, 1995 and a Fourth Amendment to Credit
Agreement dated as of May 15, 1996 (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 20, 1997 to May 19, 1998 and that certain provisions
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 THE CREDIT AGREEMENT
A. Amendments to Section 1.01.
-1-
<PAGE>
(1) The definition of "Exposure" in Section 1.01 of the Credit
Agreement is hereby amended and restated in its entirety as follows:
"'Exposure' shall mean the aggregate Carrying Value of all
transactions in respect of (a) any Person which is a customer
of the Company or any Subsidiary, and (b) (if and to the
extent of the amount guaranteed by such Person) (i) any
subsidiary or other affiliate of such Person and (ii) any
other Person."
(2) The Credit Agreement is hereby amended by deleting
therefrom the definition of "Eligible Assignee" and substituting therefor the
following:
"Eligible Assignee" means (a) any financial institution or
entity engaged in the business of extending revolving credit
and having consolidated assets of $500,000,000 or more;
excluding, however, any insurance companies or commercial
finance companies; and (b) any entity engaged in the business
of lending that is an affiliate of a Lender or of a Person of
which a Lender is a subsidiary, excluding, however, any
insurance companies or commercial finance companies.
B. Amendment to Section 4.01(b). Section 4.01 (b) of the Credit
Agreement is hereby amended and restated in its entirety as follows:
"(b) Furnish to each Lender (i) promptly upon becoming aware
of the occurrence of any (A) Termination Event, or (B) "prohibited
transaction," as such term is defined in Section 4975 of the Code, or
Section 406 of ERISA, in connection with any Plan or any trust created
thereunder, a written notice specifying the nature thereof, what action
the Company has taken, is taking or proposes to take with respect
thereto, and, when known, any action taken or threatened by the
Internal Revenue Service, the Department of Labor, or the PBGC with
respect thereto and (ii) with reasonable promptness, copies of (A) all
notices received by the Company or any of its ERISA Affiliates of the
PBGC's intent to terminate any Plan or to have a trustee appointed to
administer any Plan; and (B) all notices received by the Company or any
of its ERISA Affiliates from a multiemployer plan sponsor concerning
the imposition or amount of withdrawal liability pursuant to Section
4202 of ERISA."
C. Amendment to Section 4.01 (h). Section 4.01(h) of the Credit
Agreement is hereby amended and restated in its entirety as follows:
"(h) Perform and comply, and cause the Subsidiaries to perform
and comply, with all material obligations of the Company and the
Subsidiaries under all laws applicable to the Company or the
Subsidiaries and all material indentures, agreements or other
instruments to which the Company or any of the Subsidiaries is a party
or by which the Company or any of the Subsidiaries or any of its or
their properties is bound."
-2-
<PAGE>
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 the Company or its
Subsidiaries, or (iv) require any approval 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 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 to the extent
such representations and warranties
-3-
<PAGE>
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 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.
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 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
-4-
<PAGE>
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 LAWS 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]
-5-
<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
Title Senior Vice President - Treasurer
By /s/ Meilee Smythe
Title Vice President-Deputy Treasurer
The Lenders:
------------
CITIBANK, N.A. (Individually and as an
Agent and Administrative Agent)
By /s/ Marjorie Futornick
Title Vice President
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
(as an Agent)
By /s/ Robert Troutman
Title Managing Director
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION
By /s/ Robert Troutman
Title Managing Director
BANK OF MONTREAL (Individually and
as an Agent)
By /s/ J. Donald Higgins
Title Managing Director
- -6-
<PAGE>
FLEET BANK , N.A.
By /s/ Andria H. Lee
Title Vice President
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
(Individually and as an Agent)
By /s/ P. R. Parker
Title Vice President
CREDIT SUISSE
By /s/ Byrne
Title Director
By /s/ Jay Chall
Title Director
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY
By /s/ Vicente L. Timiraos
Title SVP & Sr. Manager
NATIONSBANK, (SOUTH) N.A.
By /s/ Betty Reed
Title Senior Vice President
-7-
<PAGE>
UNION BANK OF SWITZERLAND
New York Branch
By /s/ Robert Mendeles
Title Vice President
By /s/ Dider Magloire
Title Vice President
WESTDEUTSCHE LANDESBANK
GIROZENTRALE - NEW YORK AND
CAYMAN ISLANDS BRANCHES
By /s/ Raymond K. Miller
Title Vice President
By /s/ Patrice Griffin
Title Associate
CREDIT LYONNAIS
SAN FRANCISCO BRANCH
By /s/ Edward W. Leong
Title Vice President & Manager
WELLS FARGO BANK
By /s/ Senior Vice President
NATIONAL WESTMINSTER BANK
PLC
By /s/ David Rowley
Title Vice President
ROYAL BANK OF CANADA
By /s/ Preston D. Jones
Title Senior Manager
Corporate Banking
-8-
<PAGE>
SOCIETE GENERALE
By /s/ J. Staley Stewart
Title Vice President
BANK ONE, ARIZONA, NA
By /s/ Vice President
DRESDNER BANK AG
NEW YORK BRANCH
And GRAND CAYMAN BRANCH
By /s/ John W. Sweeney
Title Assistant Vice President
By /s/ Christopher E. Sarisky
Title Assistant Treasurer
UNION BANK of CALIFORNIA, N.A.
By /s/ Donald H. Rubin
Title Vice President
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., LOS ANGELES AGENCY
By /s/ T. Morgan Edwards II
Title Deputy General Manager
By /s/ Bryan Read
Title Vice President
THE MITSUBISHI TRUST AND
BANKING CORPORATION, acting
through its LOS ANGELES AGENCY
By /s/ Yasushi Satomi
Title Senior Vice President
-9-
<PAGE>
ARAB BANKING CORPORATION
By /s/ Richard Whelan
Title V. P & Manager
Los Angeles Representative Office
THE BANK OF NOVA SCOTIA
By /s/ John Quick
Title Officer
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By /s/ A. Kimbell Collins
Title Vice President
BANK OF HAWAII
By /s/ Joseph T. Donalson
Title Vice President
BANQUE NATIONALE DE PARIS
By /s/ Senior Vice President
By /s/ Margaret Mudd
Title Vice President
COMERICA BANK
By /s/ Emmanuel M. Skerrl
Title Corporate Baning Officer
CREDIT AGRICOLE
By /s/ Senior Vice President
-10-
<PAGE>
DG BANK DEUTSCHE
GENOSSENSCHAFTSBANK
By /s/ Karen A. Brinkman
Title Vice President
KREDIETBANK N.V.
By /s/ Robert Stauffer
Title Vice President
By /s/ Tod R. Angus
Title Vice President
NBD BANK
By /s/ Andrew H Heinecke
Title First Vice President
UNITED STATES NATIONAL BANK
OF OREGON
By /s/ Fiza Noordiu
Title
ABN AMRO BANK N.V.,
LOS ANGELES INTERNATIONAL
BRANCH
By /s/ Ellen M. Coleman
Title Vice President/Director
By /s/ Heather F. Brandt
Title Vice President
THE SAKURA BANK, LTD.
By /s/ Orusa Sato
Title Senior Vice President
Assistant General Manager
-11-
<PAGE>
BANQUE PARIBAS
By /s/ Lynne A. Lueders
Title Vice President
By /s/ Stanley P. Berkman
Title General Manager
Western Region
COMPAGNIE FINANCIERE DE
CIC ET DE L'UNION EUROPEENNE
By /s/ Mark Skiden
Title Vice President
By /s/ Nancy Nelson
Title Assistant Vice President
DEUTSCHE BANK AG NEW YORK
AND/OR CAYMAN ISLANDS
BRANCHES
By /s/ Gayman Z. Shivnarain
Title Vice President
By /s/ Dale F. Oberst
Title Associate
THE DAI-ICHI KANGYO BANK, LTD.
LOS ANGELES AGENCY
By /s/ Masatsugu Morishita
Title Sr. Vice President &
Joint General Manager
BANCA MONTE DEI PASCHI DI
SIENA S.p.A.
By /s/ S. M. Sondak
Title S.V.P. & Dept. General Manager
By /s/ Brian R. Landy
Title Vice President
-12-
<PAGE>
THE SUMITOMO TRUST AND
BANKING CO., LTD.,
LOS ANGELES AGENCY
By /s/ Ninoos Y. Benjamin
Title Vice President & Manager
CHIBA BANK, LTD.
By /s/ Kazuaki Kondo
Title General Manager
DEN DANSKE BANK AKTIESELSKAB,
CAYMAN ISLANDS BRANCH
By /s/ Mogens Sondergaard
Title Vice President
By /s/ John A. O'Neill
Title Vice President
CIBC Inc.
By /s/ Director, CIBC Wood Gundy
Title Securities Corp., As Agent
COMMERZBANK AG,
LOS ANGELES BRANCH
By /s/ Christian Jagenberg
Title Senior Vice President and Manager
By /s/ Steven Fl Larsen
Title Vice President
THE FUJI BANK, LIMITED,
LOS ANGELES AGENCY
By /s/ Nobuhiro Umemura
Title Joint General Manager
-13-
THE FINOVA GROUP INC.
1997 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 Human Resources 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. Some of
these events may result in pro-rata awards at the same time regular awards are
made at the beginning of the following year.
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:
---------------------
Critical financial objectives are determined by appropriate senior managers of
the Company. These financial objectives are then weighted.
For 1997 these objective and percentage weightings are:
Performance Measure FINOVA FINOVA
------------------- ------ ------
Group Capital
----- -------
Earnings Per Share from Cont. Ops. 30%
Relative Shareholder Performance 10%
Net income from Cont. Ops. 30% 40%
Return on Average Equity 30% 40%
Average Managed Assets 20%
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.
<PAGE>
Extraordinary and unusual events will generally be excluded from results.
Accruals under this Plan are added back for earnings calculations.
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 equal the market TSR. The target
performance level, 100% achievement, is for the Company's TSR to exceed the
market TSR by 2%. The maximum performance level, 187% achievement, is for the
Company's TSR to exceed the market TSR by 5% (e.g. the Company's TSR = 20%;
Market TSR = 15%).
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.
<PAGE>
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 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:
-----------------
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. 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.
THE FINOVA GROUP INC.
1998 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 Human Resources 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. Some of
these events may result in pro-rata awards at the same time regular awards are
made at the beginning of the following year.
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:
---------------------
Critical financial objectives are determined by appropriate senior managers of
the Company. These financial objectives are then weighted.
For 1998 these objective and percentage weightings are:
Performance Measure FINOVA FINOVA
------------------- ------ ------
Group Capital
----- -------
Earnings Per Share from Cont. Ops.. 30%
Relative Shareholder Performance 10%
Net income from Cont. Ops. 30% 40%
Return on Average Equity 30% 40%
Average Managed Assets 20%
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 equal the market TSR. The target
performance level, 100% achievement, is for the Company's TSR to exceed the
market TSR by 2%. The maximum performance level, 187% achievement, is for the
Company's TSR to exceed the market TSR by 5% (e.g. the Company's TSR = 20%;
Market TSR = 15%).
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.
<PAGE>
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 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:
-----------------
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. 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.
THE FINOVA GROUP INC.
1997-1999 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 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
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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 prorata basis if hired during the first year of a performance
period. In all cases, the Human Resources 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.
(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.
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(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 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.
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<PAGE>
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 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
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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, 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
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<PAGE>
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 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.
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(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.
7
THE FINOVA GROUP INC.
1998-2000 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 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
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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 prorata basis if hired during the first year of a performance
period. In all cases, the Human Resources 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.
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(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 or disability of the Participant during the Performance
Period stipulated in the Performance Share
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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 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
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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, 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
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<PAGE>
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 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,
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<PAGE>
(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.
7
THE FINOVA GROUP INC.
BONUS KEYSOP(TM) PLAN
Effective Date: November 1, 1997
<PAGE>
THE FINOVA GROUP INC.
BONUS KEYSOP(TM) PLAN
Table of Contents
Article Page
Preamble 1
I Definitions 1
II Award of Options 3
III Exercise of Options 4
IV Amendment or Termination of Plan 8
V Administration 8
VI Trust Provisions 10
VII Miscellaneous 10
<PAGE>
THE FINOVA GROUP INC.
BONUS KEYSOP(TM) PLAN
Preamble
The FINOVA Group Inc., (the "Employer") hereby establishes The FINOVA
Group Inc. Bonus KEYSOP(TM) Plan (the "Plan"), effective as of the date
specified herein.
The purpose of the Plan is to provide a vehicle for the payment of
compensation (directors fees, salaries, or bonuses) otherwise payable to the
participating key employees or non-employee directors of the Employer and
commensurate with their contributions to the success of the Employer's business,
in a form that will provide incentives and rewards for meritorious performance
and encourage the recipients' continued contributions to the Employer's success.
ARTICLE I
Definitions
As used in this Plan, the following capitalized words and phrases have
the meanings indicated, unless the context requires a different meaning:
1.1 "Affiliate" means a corporation or other entity controlled by the
Employer and designated by the Committee as eligible to participate in this
Plan.
1.2 "Beneficiary" means the person or persons designated by a
Participant, or otherwise entitled, to exercise Options after a Participant's
death.
1.3 "Board of Directors" or "Board" means the board of directors of the
Employer.
1.4 "Business Day" means any regularly scheduled day of business of the
Employer, as defined in the Employer's employee manual or handbook.
1.5 "Code" means the Internal Revenue Code of 1986, any amendments
thereto, or its successor general income tax law of the United States.
1.6 "Committee" means the committee designated in Section 5.1 to
determine awards of Options and to administer the Plan.
1.7 "Designated Property" means shares of regulated investment
companies or any other property (not including cash or cash equivalents)
designated by the Committee as subject to purchase through the exercise of an
Option.
1.8 "Director" means any currently sitting member of the Board of
Directors.
1.9 "Disability" means permanent and total disability under the
Employer'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.
1.10 "Effective Date" means November 1, 1997.
1.11 "Employee" means any individual who is employed by the Employer
1.12 "Employer" means The FINOVA Group Inc. and any successor thereto,
including any Affiliate(s) of said Employer, as defined herein. Also referred to
herein as the "Company".
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1.13 "ERISA" means the Employee Retirement Income Security Act of 1974,
any amendments thereto, and any regulations or rulings issued thereunder.
1.14 "Exercise Date" means the date on which the Participant exercises
his or her Option(s) as prescribed in Section 3.2 of this Plan document.
1.15 "Exercise Price" means the price that a Participant must pay to
exercise an Option. Said price is established pursuant to Section 2.3 herein.
1.16 "Fair Market Value" (or "FMV") means the prior Business Day's
closing share price of the Designated Property, as reported in the Wall Street
Journal (or a reasonable substitute if not available) on any particular day.
Therefore, the total "FMV" of a particular Option on a particular day would be
determined by multiplying the total number of shares subject to the particular
Option in question, by the prior Business Day's closing FMV.
1.17 "Grant Date" means, with respect to any Option, the date on which
the Option Agreement is executed by the Employer and the Participant, unless
otherwise specified in the Option Agreement.
1.18 "Option" means the right of a Participant, granted by the Employer
in accordance with the terms of this Plan, to purchase Designated Property from
the Employer at the Exercise Price established under Section 2.3, herein.
1.19 "Option Agreement" means an agreement executed by the Employer and
by a Participant to whom Options have been awarded, acknowledging the issuance
of the Options and setting forth any specific terms in addition to those
contained herein.
1.20 "Participant" means any individual who has received an award of
Options in accordance with Section 2.2 and whose Options have not been
completely exercised.
1.21 "Plan" means The FINOVA Group Inc. Bonus KEYSOP(TM) Plan, as set
forth herein and as amended from time to time.
1.22 "Plan Year" means the operating year of the Plan, which ends each
December 31.
1.23 "Retirement" means (a) retirement from active employment as
defined under a pension plan of the Employer, (b) retirement under an employment
or service contract with the Employer, or (c) termination of employment or
service at or after age 55 under circumstances that the Committee in its sole
discretion deems to be retirement.
1.24 "Termination Date" means the date on which this Plan will
terminate by its own terms, and is hereby set as December 31, 2007. Said
Termination Date may be amended at the discretion of the Committee.
1.25 "Termination of Employment" means a Participant's separation from
the service of the Employer by reason of his or her resignation, retirement,
disability, discharge or death. It also occurs if the Participant is employed by
a division, department or Affiliate that ceases its affiliation with the
Employer. In any case, the Participant will not incur a Termination of
Employment if he or she immediately (i.e. within two weeks) becomes an Employee
of the Employer following that event.
1.26 "Trust" means the trust that shall be established pursuant to
Article VI to hold the Designated Property that is subject to purchase through
the exercise of an Option.
1.27 "Trust Agreement" means an agreement setting forth the terms of
the Trust established pursuant to Article VI.
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<PAGE>
1.28 "Trust Fund" means the Designated Property that is held in the
Trust and is subject to Options, pursuant to this plan.
1.29 "Trustee" means the person(s) or institution acting as trustee of
the Trust.
1.30 Rules of construction
1.30.1 Governing law. The construction and operation of this Plan are
governed by the laws of the State of Delaware.
1.30.2 Headings. The headings of Articles, Sections and Subsections are
for reference only and are not to be used in construing the Plan.
1.30.3 Gender. Unless clearly inappropriate, all pronouns of whatever
gender refer indifferently to persons or objects of any gender.
1.30.4 Singular and plural. Unless clearly inappropriate, singular
terms refer also to the plural number and vice versa.
1.30.5 Severability. If any provision of this Plan is held to be
illegal or invalid for any reason, the remaining provisions are to remain in
full force and effect and to be construed and enforced in accordance with the
purposes of the Plan as if the illegal or invalid provision did not exist.
ARTICLE II
Award of Options
2.1 Eligibility for awards. Awards of Options may be made to any
Employees or Directors selected by the Committee, who occupy a senior managerial
or professional position and who have the capacity of making a substantial
contribution to the success of the Employer. In making this selection and in
determining the form and amount of Options, the Committee shall consider any
factors it deems relevant, including the individual's functions,
responsibilities, value of services to the Employer and past and potential
contributions to the Employer's profitability and growth.
2.2 Procedure for awarding Options. The eligible recipients of Options
are determined from time to time by the Committee. The terms of the Options will
be governed by the Option Agreement(s) and this Plan, and the amounts eligible
for awards as Options will be the amounts determined pursuant to the terms of
the relevant bonus or compensation plan of the Employer (e.g., the Performance
Share Incentive Plan, the Management Incentive Plan, or Directors'
compensation). While a Committee member may also be a member of a class of
individuals deemed eligible to participate in the Plan, no Committee member will
take part in determining the specific amount eligible for an award to himself.
Option awards are granted in accordance with elections made by eligible
individuals. Said elections are made on a written Option Election Form prior to
the beginning of the year in which the Participant would otherwise have the
unqualified right to receive the compensation, and in no event later than
December 1st of such preceding year, except as noted below. Non-employee
Directors may make elections under the Plan no later than 15 days prior to
earning the right to receive the compensation. In exchange for some or all of
the projected cash compensation, the Participant can elect to receive a
prospective right to receive property at a discounted price.
Option awards become effective upon the Grant Date. Option awards may be made at
any time on or after the Plan's Effective Date and prior to the Termination Date
of the Plan.
2.3 Selection of Designated Property and Establishment of Exercise
Price. When an Option is awarded, the Committee will specify the Designated
Property that may be purchased by exercise of the
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<PAGE>
Option and will establish the Exercise Price. At the Grant Date of the Option,
the Designated property must be readily tradable on an established market, or
consist wholly of interests in property that is readily tradable on an
established market.
Unless otherwise specified in a particular Option Agreement, the Exercise Price
will equal the greater of: twenty-five percent (25%) of the FMV of the Option on
the Grant Date, or twenty-five percent (25%) of the FMV of the Option on the
Exercise Date.
2.4 Effect of dividends and distributions with respect to Designated
Property. The Employer agrees, whenever any dividend or other distribution is
paid on the Designated Property, to reinvest all said dividends and
distributions in additional property of the same kind (or as nearly the same
kind as feasible, if property of the same kind is not available). Any property
acquired through this investment or reinvestment will immediately be subject to
the same Option as the underlying property from which the dividends or
distributions arose. As the number of shares subject to the Option varies with
these reinvestments, the Exercise Price on said Option will be automatically
adjusted so as to bear the same relationship to the revised total Fair Market
Value of the Option, as it did to the original total Fair Market Value of the
Option at Grant Date, e.g., 25% of total FMV.
2.5 Held in Trust. Upon the grant of an Option, the Employer shall
acquire the Designated Property in an amount equal to the total FMV of the
Option, less the Exercise Price at the Grant Date, and contribute it to the
Trust as soon as practicable after the Grant Date or, in the alternative, make a
contribution to the Trust in an amount sufficient to acquire the Designated
Property and instruct the Trustee to purchase such property. At the time
contributed to the Trust, the Designated Property shall not be subject to any
security interest, whether or not perfected, or to any option or contract under
which any other person may acquire any interest in it, except as otherwise
provided in Section 6.2
2.6 Substitution of other property for Designated Property. At any time
after the grant of an Option, the Committee may, in its sole discretion but
after consultation with the Participant, substitute other property of equal
value for Designated Property subject to that Option.
ARTICLE III
Exercise of Options
3.1 Period for exercise of Options. Options may generally not be
exercised by a Participant at any time prior to the six month anniversary of the
Grant Date of that particular Option. On or after the sixth month anniversary of
the Grant Date, an Option may be exercised at any time until the occurrence of
the twentieth annual anniversary of the particular Option, at which time the
Option will expire pursuant to its own terms. This standard exercise period will
be automatically modified in accordance with the following terms, upon the
occurrence of any of the specifically delineated extraordinary events. In the
event of:
a) Death of the Participant: The exercise period of all outstanding
Options held by the Participant at that time will expire one year
from the date of the Participant's death. If the Participant dies
after Termination of Employment but during the period described in
Section (b), immediately below, that period will be extended to
the extent necessary to permit exercise within one year from the
date of death. In no event will an Option's exercise period extend
beyond the twentieth annual anniversary of the Grant Date of any
particular Option;
b) Disability or Retirement of the Participant: The exercise period
of all outstanding Options held by the Participant at that time
will expire three years from the date of Termination of Employment
due to Disability or Retirement, but in no event will it extend
beyond the twentieth annual anniversary of the Grant Date of any
particular Option;
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<PAGE>
c) Terminations not for Death, Disability or Retirement: In the event
of Termination of Employment of the Participant for reasons other
than (a) or (b) above, the Option's exercise period will expire
three months from the date of Termination of Employment. Where
necessary to accommodate this limited exercise period, the
Option's original six month holding period will be automatically
waived to permit exercise within this limited three month period;
or
d) Change in Control of the Employer: In the event of a Change in
Control of the Employer, the six month holding period will be
automatically waived upon the delivery of an election to exercise
from the Participant to the Committee, pursuant to Section 3.2,
below.
1) Change in Control: For purposes of this Plan, 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 3.1(d)(1);
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,
5
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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.
After a Participant's death, or in the event of an assignment in accordance with
Section 3.5 hereof, a Participant's Beneficiary or assignee may exercise any
Options that remain outstanding, within the above described time frames. Any
Option not properly exercised pursuant to Section 3.2, within the applicable
exercise period stated above, shall expire. In the event of confusion or
disagreement concerning the exercise period of an Option, the Committee shall
have discretionary authority to determine such exercise period in accordance
with the fundamental concepts of fairness, including excusable neglect by the
Option holder, or factors beyond the Option holder's control.
3.2 Procedure for exercising Option. A Participant may exercise an
Option by giving written notice to the Committee or its designated third party
administrator (`TPA'). The Exercise Date of an Option shall be the first
Business Day on which the Committee or its designated TPA is able to process the
exercise after actual receipt of the election to exercise by the Committee or
its designated TPA. The election to exercise shall be mailed or delivered to the
Committee in such form as the Committee may require, properly completed and
including an attached copy of the first page of the underlying Option Agreement
for each identified Option to be exercised. Thereafter, the Committee will
promptly notify the Participant of the Exercise Price applicable to each Option
identified in the election to exercise. The Exercise Price must be paid in full
before delivery of the Designated Property.
3.3 Exercisable Amounts. Participants may exercise outstanding Options
in any combinations or amounts, subject to the timing restrictions set forth in
Section 3.1, above, and the restrictions on amounts contained in this Section,
3.3. In no instance may a Participant exercise part of an Option.
The total value of Options that may be exercised, as measured by the total FMV
at the Exercise Date, by any participant in any one calendar year is limited to
that amount which when combined with all other compensation from the Employer
for the year, will result in taxable income to the participant that does not
exceed the individual compensation limit that may be deducted by the Employer,
as set forth in Code Section 162(m) and its applicable regulations, as hereafter
amended or otherwise modified, and as that Section exists in the calendar year
of exercise. Provided, however, that this exercise restriction will not apply to
any outstanding Option to the extent that the Participant's original foregone
compensation that yielded the subject Option would not have been deductible to
the Employer had said compensation been actually received by the participant in
the calendar year in which the Option was granted, due to the fact that said
compensation would have exceeded the individual compensation limit that could
have been
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deducted by the Employer, as set forth in Code Section 162(m) as it existed in
the calendar year in which the subject Option was granted.
3.4 Inalienability of Options. Except as otherwise provided in Section
3.5, no Option granted under this Plan may be transferred, assigned or
alienated, except as provided herein, and no Option shall be subject to
execution, attachment or similar process. An Option may be exercised only by the
Participant to whom it was granted, by his permitted assignee, or by his
Beneficiary after his death.
3.5 Permitted Transfers. A Participant may at any time prior to death,
assign all of an Option to the trustee of a trust for the primary benefit of the
Participant. A court may require the transfer of all or a portion of a
Participant's Options pursuant to a domestic relations order. Any such
assignment will be permitted only if an assignment is expressly permitted in the
Option Agreement, or approved in writing by the Committee, and the Participant
receives no consideration for the assignment. Any such assignment will be
evidenced by an appropriate written document executed by the Participant, and
delivered to the Committee on or before the effective date of the assignment. In
the event of such assignment, the assignee will be entitled to all of the rights
of the Participant with respect to the assigned Option, and such Option, will
continue to be subject to all of the terms, conditions and restrictions
applicable to the Option, including vesting and exercisability restrictions
being dependent on the status of the Participant, not the assignee, as set forth
in the Plan and the Option Agreement.
The Participants' ability to transfer Options may be modified by the Committee,
pursuant to the powers vested in the Committee as defined in Section 5.2 of this
Plan.
3.6 Delivery of Designated Property. On the date of exercise, or as
soon as practicable thereafter (but in no event later than three Business Days
after the date of payment in full of the Exercise Price), the Employer will
deliver or cause to be delivered to the Participant (the Participant's
Beneficiary pursuant to Section 3.8, or the Participant's assignee pursuant to
Section 3.5), the Designated Property subject to the Option being exercised. In
the event that the listing, registration, or qualification of the Option or the
Designated Property on any securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory body, is
necessary as a condition of, or in connection with, the exercise of the Option,
then the Option will not be exercised until such listing, registration,
qualification, consent or approval has been effected or obtained.
3.7 Tax Withholding. Whenever Designated Property is to be delivered
upon exercise of an Option under the Plan, the Employer will require as a
condition of such delivery (a) the cash payment by the Participant of an amount
sufficient to satisfy all federal, state and local tax withholding requirements
related thereto, (b) the withholding of such amount from any Designated Property
to be delivered to the Participant, (c) the withholding of such amount from
compensation otherwise due to the Participant, or (d) any combination of the
foregoing, at the election of the Participant with the consent of the Employer.
Such election will be made before the date on which the amount of tax to be
withheld is determined by the Employer, and such election will be irrevocable.
With the consent of the Employer, the Participant may elect a greater amount of
withholding, not to exceed the estimated amount of the Participant's total tax
liability with respect to the delivery of Designated Property under the Plan.
Such election will be made at the same time and in the same manner as provided
above.
3.8 Election of Beneficiary.
3.8.1 Designation or Change of Beneficiary by Participant. When Options
are first awarded to a Participant, the Committee will provide a Beneficiary
designation form, on which the Participant may designate a Beneficiary and a
contingent Beneficiary. A Participant may change a Beneficiary designation at
any time by filing the prescribed form with the Committee. The consent of the
Participant's current Beneficiary is not required for a change of Beneficiary,
and no Beneficiary has any rights under this Plan except as are provided by its
terms. The rights of a Beneficiary who predeceases the Participant who
designated him immediately terminate, unless the Participant has specified
otherwise.
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3.8.2 Beneficiary if no election is made. Unless a different
Beneficiary has been elected in accordance with Section 3.8.1, the Beneficiary
of any Participant who is lawfully married on the date of death is his or her
surviving spouse. The Beneficiary of any other Participant who dies without
having designated a Beneficiary is his or her estate.
ARTICLE IV
Amendment or Termination of the Plan
4.1 Employer's right to amend or terminate Plan. The Board may, at any
time and from time to time, amend, in whole or in part, any of the provisions of
this Plan or may terminate it as a whole or with respect to any Participant or
group of Participants. Any such amendment is binding upon all Participants and
Beneficiaries, the Committee and all other parties in interest. No such
amendment may impair any Options in existence at the time of the amendment,
without the consent of all detrimentally affected Participants, except for
amendments made pursuant to sections 4.3(a) and 4.3(c), below, in which case
consent is not required.
4.2 When amendments take effect. A resolution amending or terminating
the Plan becomes effective as of the date specified therein, unless another date
is specified in the resolution.
4.3 Amendment of Options. An Option Agreement may be amended by the
Committee at any time if the Committee determines that an amendment is necessary
or advisable as a result of:
a) any addition to or change in the Code or ERISA, a federal or
state securities law or any other law or regulation, which
occurs after the Grant Date and by its terms applies to the
Option,
b) any substitutions of property held in trust pursuant to Section
2.6,
c) any Plan amendment or termination pursuant to Section 4.1,
provided that the amendment does not adversely (to the
Participants) and materially affect the terms, conditions and
restrictions applicable to the Option, or
d) any circumstances not specified in the immediately preceding
paragraphs (a), (b), (c), with the consent of the Participant.
ARTICLE V
Administration
5.1 The Committee. The Plan will be administered by the Employer's
Compensation Committee, unless and until a different Employer committee is
substituted for the Committee relative to the Plan. Said substitution will be
made at the discretion of the Board. The Committee will act by a majority of its
members at the time in office and may take action either by vote at a meeting or
by consent in writing without a meeting. The creation, make-up, and ongoing
existence of the Employer's Compensation Committee is determined by, and subject
to, the consent and direction of the Board of Directors, and its Human Resources
Committee.
5.2 Powers of the Committee. In carrying out its duties with respect to
the general administration of the Plan, the Committee will have, in addition to
any other powers conferred by the Plan or by law, the following powers:
a) to determine eligibility to participate in the Plan and
eligibility to receive Options;
b) to grant Options, and to determine the form, amount and timing
of such Options;
8
<PAGE>
c) to determine the terms and provisions of the Option Agreements
(including but not limited to the Exercise Price and the
exercise period of an Option as provided in Sections 2.3, 3.1,
and 3.2), and to modify such Option Agreements as provided in
Section 4.3;
d) to substitute property held in Trust as provided in Section
2.6;
e) to maintain all records necessary for the administration of the
Plan;
f) to prescribe, amend, and rescind rules for the administration
of the Plan to the extent not inconsistent with the terms
thereof;
g) to appoint such individuals and subcommittees as it deems
desirable to conduct its affairs, administer the Plan, and
otherwise satisfy its obligations pursuant to the Plan;
h) to employ counsel, accountants and other consultants to aid in
exercising its powers and carrying out its duties under the
Plan;
i) to perform any other acts necessary and proper for the conduct
of its affairs and the administration of the Plan, except those
reserved by the Board; and
j) to expressly authorize transfers of Options in addition to
those provided for in Section 3.5 of the Plan, by modifying
either the Plan or the specific Option Agreement in question,
provided that such modification be limited to permit transfers
to only:
1) the Participant's spouse or lineal descendants,
2) the trustee of a trust for the primary benefit of the
Participant's spouse or lineal descendants,
3) a partnership of which the Participant's spouse and lineal
descendants are the only partners, or
4) a tax exempt organization as described in Section 501(c)(3)
of the Code.
5.3 Determinations by the Committee. The Committee will interpret and
construe the Plan and the Option Agreements, and its interpretations and
determinations will be conclusive and binding on all Participants,
Beneficiaries, and any other persons claiming an interest under the Plan or any
Option Agreement, unless otherwise required by the Board or its Human Resources
Committee, either of which may review decisions of the Committee in its sole
discretion.
5.4 Indemnification of the Committee. The Employer will indemnify and
hold harmless each member of the Committee against any and all expenses and
liabilities arising out of such member's action or failure to act in such
capacity, excepting only expenses and liabilities arising out of such member's
own willful misconduct or gross negligence.
(a) Expenses and liabilities against which a member of the
Committee is indemnified hereunder will include, without
limitation, the amount of any settlement or judgment, costs,
counsel fees and related charges reasonably incurred in
connection with a claim asserted or a proceeding brought
against him or the settlement thereof.
(b) This right of indemnification will be in addition to any other
rights to which any member of the Committee may be entitled.
(c) The Employer may, at its own expense, settle any claim
asserted or proceeding brought against any member of the
Committee when such settlement appears to be in the best
interesets of the Employer, provided that the Employer will
not confess to or consent to the entry of any judgment against
a member of the Committee personally without the consent of
that member.
5.5 Expenses of the Committee. The members of the Committee will serve
without compensation for services as such. All expenses of the Committee will be
paid by the Employer.
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ARTICLE VI
Trust Provisions
6.1 Establishment of the Trust. A trust may be established to hold all
Designated Property contributed by the Employer pursuant to Section 2.5. Except
as otherwise provided in Section 6.2 of this document, and Section 12 of the
Trust Agreement, the Trust will be irrevocable and no portion of the Trust Fund
will be used for any purpose other than the delivery of Designated Property
pursuant to the exercise of an Option, and the payment of expenses of the Plan
and Trust.
6.2 Trust Status. The Trust is intended to be a grantor trust, within
the meaning of section 671 of the Code, of which the Employer is the grantor,
and this Plan is to be construed in accordance with that intention.
Notwithstanding any other provision of this Plan, the Trust Fund will remain the
property of the Employer and will be subject to the claims of its creditors in
the event of its bankruptcy. No Participant will have any priority claim on the
Trust Fund or any security interest or other right superior to the rights of a
general creditor of the Employer, relative to said Trust Fund.
ARTICLE VII
Miscellaneous Provisions
7.1 No Rights of Shareholder. Neither the Participant, a Beneficiary
nor any assignee will be, or will have any of the rights and privileges of, a
stockholder with respect to any Designated Property purchasable or issuable upon
the exercise of an Option, prior to the date of exercise of such Option.
7.2 No Right to Continued Employment. Nothing contained in the Plan
will be deemed to give any person the right to be retained in the employ of the
Employer, or to interfere with the right of the Employer to discharge any person
at any time without regard to the effect that such discharge will have upon such
person's rights or potential rights, if any, under the Plan. The provisions of
the Plan are in addition to, and not a limitation on, any rights that a
Participant may have against the Employer by reason of any employment or other
agreement with the Employer.
7.3 Notices. Unless otherwise specified in an Option Agreement, any
notice to be provided under the Plan to the Committee will be mailed (by
certified mail, postage prepaid) or delivered to the Committee in care of the
Employer at its executive offices, and any notice to the Participant will be
mailed (by certified mail, postage prepaid) or delivered to the Participant at
the current address shown on the payroll records of the Employer or to the
Participant's office at the Employer. No notice will be binding on the Committee
until received by the Committee, and no notice shall be binding on the
Participant until received by the Participant.
IN WITNESS WHEREOF, adoption of this Plan on behalf of The FINOVA Group
Inc. is evidenced by the signature of its duly authorized officer, as authorized
by its Board of Directors.
The FINOVA Group Inc.
By:__________________________________
Title:_______________________________
Date: As of November 1, 1997
10
THE FINOVA GROUP INC. BONUS KEYSOP(TM) TRUST
EFFECTIVE DATE: NOVEMBER 1, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE PAGE
SECTION 1
ESTABLISHMENT OF TRUST...........................................2
SECTION 2
PAYMENTS TO PARTICIPANTS AND BENEFICIARIES.......................2
SECTION 3
TRUSTEE RESPONSIBILITY WHEN THE EMPLOYER IS INSOLVENT............3
SECTION 4
PAYMENTS TO THE EMPLOYER.........................................4
SECTION 5
INVESTMENT AUTHORITY.............................................4
SECTION 6
DISPOSITION OF INCOME............................................5
SECTION 7
ACCOUNTING BY THE TRUSTEE........................................5
SECTION 8
RESPONSIBILITY OF THE TRUSTEE....................................5
SECTION 9
COMPENSATION AND EXPENSES OF THE TRUSTEE.........................6
SECTION 10
RESIGNATION AND REMOVAL OF TRUSTEE...............................6
SECTION 11
APPOINTMENT OF SUCCESSOR.........................................7
SECTION 12
AMENDMENT OR TERMINATION.........................................7
SECTION 13
MISCELLANEOUS....................................................8
SECTION 14
EFFECTIVE DATE...................................................8
<PAGE>
THE FINOVA GROUP INC. KEYSOP(TM) TRUST
PREAMBLE
THIS AGREEMENT, made this November 1, 1997 by and between The FINOVA Group Inc.
(the "Employer") and The FINOVA Group Inc. Compensation Committee (the
"Trustee");
WHEREAS, the Employer has adopted The FINOVA Group Inc. Bonus Keysop(TM)
Plan (the "Plan").
WHEREAS, the Employer has incurred or expects to incur liability under
the terms of such Plan with respect to the individuals participating in such
Plan;
WHEREAS, the Employer wishes to establish a trust (the "Trust") and to
contribute to the Trust, assets to be held therein subject to the claims of the
Employer's creditors in the event of the Employer's Insolvency, as herein
defined, until paid to the Plan Participants or their Beneficiaries in such
manner and at such times as specified in the Plan;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded Plan for purposes of Title I of the Employee Retirement Income
Security Act of 1974, as amended;
WHEREAS, it is the intention of the Employer to make contributions to the
Trust to provide a source of funds to assist it in meeting its liabilities under
the Plan; and
NOW, THEREFORE, the parties hereby establish the Trust and agree that the
Trust shall be comprised, held and disposed of as follows:
Version as of 02/27/98
<PAGE>
SECTION 1
ESTABLISHMENT OF TRUST
(a) The Employer shall make contributions of principal to the Trust to be
held, administered and disposed of by the Trustee as provided in this Trust
Agreement.
(b) The Trust hereby established shall be irrevocable.
(c) The Trust is intended to be a grantor trust, of which the Employer is
the grantor, within the meaning of Subpart E, Part I, Subchapter J, Chapter 1,
Subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of the Employer and shall be used
exclusively for the uses and purposes of Plan Participants and general creditors
as herein set forth. The Plan Participants and their Beneficiaries shall have no
preferred claim on, or any beneficial ownership interest in, any assets of the
Trust. Any rights created under the Plan and this Trust Agreement shall be mere
unsecured contractual rights of the Plan Participants and their Beneficiaries
against the Employer. Any assets held by the Trust will be subject to the claims
of the Employer's general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) herein.
(e) The Employer, in its sole discretion, may at any time, or from time
to time, make additional deposits of cash or other property in trust with the
Trustee to augment the principal to be held, administered and disposed of by the
Trustee as provided in this Trust Agreement. Neither the Trustee nor any of the
Plan Participants or Beneficiaries shall have any right to compel such
additional deposits.
SECTION 2
PAYMENTS TO PARTICIPANTS AND BENEFICIARIES
(a) The Employer shall provide instructions acceptable to the Trustee for
determining the amount of Designated Property and the time for payment. Except
as otherwise provided herein, the Trustee shall make payments to the Plan
Participants and their Beneficiaries in accordance with such instructions.
(b) The Employer shall make provision for the reporting and withholding
of any federal, state or local taxes that may be required to be withheld with
respect to the payment of benefits pursuant to the terms of the Plan and shall
pay amounts withheld to the appropriate taxing authorities or determine that
such amounts have been reported, withheld and paid by the Employer.
2 Version as of 02/27/98
<PAGE>
(c) The entitlement of a Plan Participants or their Beneficiaries to
benefits under the Plan shall be subject to the terms of the Plan, and any claim
for such benefits shall be considered and reviewed under the procedures set
forth in the Plan. Any assets of the trust not necessary to fund the future
payments to participants may be returned to the Employer.
(d) The Employer may make payment of Plan benefits directly to Plan
Participants or their Beneficiaries as they become due under the terms of the
Plan. The Employer shall notify the Trustee of its decision to make payment of
Plan benefits directly prior to the time amounts are payable to Participants or
their Beneficiaries. In addition, if the principal of the Trust, and any
earnings thereon, are not sufficient to make payments of benefits in accordance
with the terms of the Plan, the Employer shall make the balance of each such
payment as it becomes due. The Trustee shall notify the Employer when such
principal and earnings are not sufficient for payment of benefits under the
Plan.
SECTION 3
TRUSTEE RESPONSIBILITY WHEN THE EMPLOYER IS BANKRUPT
(a) The Trustee shall cease payment of benefits to Plan Participants and
their Beneficiaries if the Employer is Bankrupt. The Employer shall be
considered "Bankrupt" for purposes of this Trust Agreement if the Employer is
subject to a pending proceeding as a debtor under the United States Bankruptcy
Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(d) hereof, the principal and income of the Trust shall be subject to
claims of general creditors of the Employer under federal and state law as set
forth below.
(1) The Board of Directors and the highest ranking officer of the
Employer shall have the duty to inform the Trustee in writing of the
Employer's Bankruptcy. If a person claiming to be a creditor of the
Employer alleges in writing to the Trustee that the Employer is Bankrupt,
the Trustee shall determine whether the Employer is Bankrupt and, pending
such determination, the Trustee shall discontinue payment of benefits to
Plan Participants or their Beneficiaries.
(2) Unless the Trustee has actual knowledge of the Employer's
Bankruptcy, or has received notice from the Employer or a person claiming
to be a creditor alleging that the Employer is Bankrupt, the Trustee
shall have no duty to inquire whether the Employer is Bankrupt.
(3) If at any time the Trustee has determined that the Employer is
Bankrupt, the Trustee shall discontinue payments to Plan Participants or
their Beneficiaries and hold the assets of the Trust for the benefit of
the Employer's general creditors. Nothing in this Trust Agreement shall
in any way diminish any rights of Plan
3 Version as of 02/27/98
<PAGE>
Participants or their Beneficiaries to pursue their rights as general
creditors of the Employer with respect to benefits due under the Plan or
otherwise.
(4) The Trustee shall resume the payment of benefits to Plan
Participants or their Beneficiaries in accordance with Section 2 of this
Trust Agreement only after the Trustee has determined that the Employer
is not Bankrupt (or is no longer Bankrupt).
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant to Section 3(b)
hereof and subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
Participants or their Beneficiaries under the terms of the Plan for the period
of such discontinuance, less the aggregate amount of any payments made to Plan
Participants or their Beneficiaries by the Employer in lieu of the payments
provided for hereunder during any such period of discontinuance.
SECTION 4
PAYMENTS TO THE EMPLOYER
Except as otherwise provided in Section 12(d) herein, the Employer shall
have no right or power to direct the Trustee to return to the Employer or to
divert to others any of the Trust assets before all payment of benefits have
been made to Plan Participants and their Beneficiaries pursuant to the terms of
the Plan.
SECTION 5
INVESTMENT AUTHORITY
(a) The Trustee may invest in securities. All rights associated with
assets of the Trust shall be exercised by the Trustee or the person designated
by the Trustee, and shall in no event be exercisable by or rest with the Plan
Participants.
(b) The Employer shall have the right at anytime, and from time to time
in its sole discretion, to substitute assets of equal fair market value for any
asset held by the Trust. This right is exercisable by the Employer in a
nonfiduciary capacity without the approval or consent of any person in a
fiduciary capacity.
4 Version as of 02/27/98
<PAGE>
SECTION 6
DISPOSITION OF INCOME
During the term of this Trust, all income received by the Trust shall be
accumulated and reinvested.
SECTION 7
ACCOUNTING BY THE TRUSTEE
The Trustee shall keep accurate and detailed records of all investments,
receipts, disbursements, and all other transactions required to be made,
including such specific records as shall be required by the Employer or as are
agreed upon in writing between the Employer and the Trustee. Within 60 days
following the close of each calendar year and within sixty (60) days after the
removal or resignation of the Trustee, the Trustee shall deliver to the Employer
a written account of its administration of the Trust during such year or during
the period from the close of the last preceding year to the date of such removal
or resignation, setting forth all investments, receipts, disbursements and other
transactions affected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as the case may be.
SECTION 8
RESPONSIBILITY OF THE TRUSTEE
(a) The Trustee shall act with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent person acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims; provided, however, that the
Trustee shall incur no liability to any person for any action taken pursuant to
a direction, request or approval given by the Employer which is contemplated by,
and in conformity with, the terms of the Plan or this Trust and is given in
writing by the Employer. In the event of a dispute between the Employer and a
party, the Trustee may apply to a court of competent jurisdiction to resolve the
dispute and may deposit the disputed assets with the court for disposition.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Employer agrees to indemnify the Trustee, except
to the extent caused by the willful misconduct or substantial negligence of the
Trustee, against the Trustee's costs, expenses and liabilities (including,
without limitation, attorneys' fees and expenses) relating thereto and to be
primarily liable for such payments. If the Employer does not
5
<PAGE>
pay such costs, expenses and liabilities in a reasonably timely manner, the
Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be counsel
for the Employer generally) with respect to any of its duties or obligations
hereunder.
(d) The Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
(e) The Trustee shall have, without exclusion, all powers conferred on
the Trustee by applicable law, unless expressly provided otherwise herein.
(f) Notwithstanding any powers granted to the Trustee pursuant to this
Trust Agreement or to applicable law, the Trustee shall not have any power that
could give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
SECTION 9
COMPENSATION AND EXPENSES OF THE TRUSTEE
The Employer shall pay all administrative and Trustee's fees and
expenses, except as provided in this Agreement. If not so paid, the fees and
expenses shall be paid from the Trust.
SECTION 10
RESIGNATION AND REMOVAL OF TRUSTEE
(a) The Trustee may resign at any time by written notice to the Employer,
which shall be effective 60 days after receipt of such notice unless the
Employer and the Trustee agree otherwise.
(b) The Trustee may be removed by the Employer on 30 days notice or upon
shorter notice accepted by the Trustee.
(c) Upon resignation or removal of the Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within 60 days after receipt of notice
of resignation, removal or transfer, unless the Employer extends the time limit.
(d) If the Trustee resigns or is removed, a successor shall be appointed,
in accordance with Section 11 hereof, by the effective date of resignation or
removal under paragraphs (a) or (b) of this Section. If no such appointment has
been made, the Trustee
6
<PAGE>
may apply to a court of competent jurisdiction for appointment of a successor or
for instructions. All reasonable expenses of the Trustee in connection with the
proceeding shall be allowed as administrative expenses of the Trust.
SECTION 11
APPOINTMENT OF SUCCESSOR
(a) If the Trustee resigns or is removed in accordance with Section 10(a)
or (b) hereof, the Employer may appoint any third party, such as a bank trust
department or other party that may be granted corporate trustee powers under
state law, as a successor to replace the Trustee upon resignation or removal.
The appointment shall be effective when accepted in writing by the new Trustee,
who shall have all of the rights and powers of the former Trustee, including
ownership rights in the Trust assets. The former Trustee shall execute any
instrument necessary or reasonably requested by the Employer or the successor
Trustee to evidence the transfer.
(b) The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Sections 7 and 8 hereof. The successor Trustee shall not be responsible for and
the Employer shall indemnify and defend the successor Trustee from any claim or
liability resulting from any action or inaction of any prior Trustee or from any
other past event, or any condition existing at the time it becomes successor
Trustee.
SECTION 12
AMENDMENT OR TERMINATION
(a) This Trust Agreement may be amended by a written instrument executed
by the Trustee and the Employer. Notwithstanding the foregoing, no such
amendment shall conflict with the terms of the Plan or make the Trust revocable.
(b) The Trust shall not terminate until the date on which Plan
Participants and their Beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plan. Upon termination of the Trust any assets remaining in
the Trust shall be returned to the Employer.
(c) Upon written approval of Participants or Beneficiaries entitled to
payment of benefits pursuant to the terms of the Plan, the Employer may
terminate this Trust prior to the time all benefit payments under the Plan have
been made. All assets in the Trust at termination shall be returned to the
Employer.
(d) In the event that a Plan Participant fails to exercise an option
within the exercise period pursuant to the terms of the Plan, any assets
remaining in the Trust attributable to such option shall be returned to the
Employer.
7
<PAGE>
SECTION 13
MISCELLANEOUS
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan Participants and their Beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment,
levy, execution or other legal or equitable process.
(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, excluding its choice of laws principles.
SECTION 14
EFFECTIVE DATE
The effective date of this Trust Agreement shall be November 1, 1997.
IN WITNESS WHEREOF, this Trust Agreement has been duly executed by the
parties hereto, effective as of the day and year first above written.
The FINOVA Group Inc., Employer ATTEST/WITNESS
By:_______________________________ _________________________________
Printed Name:_____________________ Printed Name:____________________
The Compensation Committee , Trustee
By:_______________________________ By:______________________________
Printed Name:_____________________ Printed Name:____________________
By:_______________________________ By:______________________________
Printed Name:_____________________ Printed Name:____________________
By:_______________________________ By:______________________________
Printed Name:_____________________ Printed Name:____________________
8 Version as of 02/27/98
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,
- -------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income from continuing operations before
income taxes $ 226,178 $ 185,822 $ 150,834 $ 122,863 $ 66,422
Add fixed charges:
Interest expense 416,093 366,543 337,814 210,001 123,853
One-third of rent expense 2,789 2,368 2,084 2,053 1,387
- -------------------------------------------------------------------------------------------------------
Total fixed charges 418,882 368,911 339,898 212,054 125,240
- -------------------------------------------------------------------------------------------------------
Income as adjusted $ 645,060 $ 554,733 $ 490,732 $ 334,917 $ 191,662
- -------------------------------------------------------------------------------------------------------
Ratio of income to fixed charges 1.54 1.50 1.44 1.58 1.53
=======================================================================================================
Preferred stock dividends on a pre-tax
basis $ 6,676 $ $ $ $ 2,139
Total combined fixed charges and
preferred stock dividends $ 425,558 $ 368,911 $ 339,898 $ 212,054 $ 127,379
- -------------------------------------------------------------------------------------------------------
Ratio of income to combined fixed charges
and preferred stock dividends 1.52 1.50 1.44 1.58 1.50
=======================================================================================================
</TABLE>
Subsidiaries of The FINOVA Group Inc.
(December 16, 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 Communications VII, Inc. (Delaware)
Desert Island Capital Corporation (Delaware)
Desert Hospitality II, Inc. (Florida)
FCS 505, Inc. (Delaware)
FCS 525, Inc. (Delaware)
FCS 517, Inc. (Delaware)
FINOVA Acquisition III, Inc. (Delaware)**
FINOVA Aircraft Investors, LLC@
FINOVA Aircraft Management, Inc. (Delaware)
The FINOVA (Canada) Group Inc. (Canada)
FINOVA (Canada) Capital Corporation (Canada)
FINOVA Capital Funding, Inc. (Delaware)
FINOVA Capital Funding, L.P. (Delaware)
FINOVA Capital Funding (II) Corporation (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 Fund Investments II, Inc. (Delaware)
FINOVA Public Finance, Inc. (Delaware)
FINOVA Portfolio Services, Inc. (Arizona)
FINOVA Realty Capital Inc. (Delaware)
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)#
Resort Capital Corporation (Delaware)
TriContinental Leasing Corporation (Delaware)
TriContinental Leasing of Puerto Rico, Inc. (Delaware)
Wisconsin Hotel Operating Corporation (Wisconsin)
* INACTIVE
** SHELL CORPORATION
# IN LIQUIDATION
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-38171 and 333-39383 of The FINOVA Group Inc. on Form S-3 of our report dated
February 11, 1998, appearing in this Annual Report on Form 10-K of The FINOVA
Group Inc. for the year ended December 31, 1997.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 17, 1998
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
---------- ----- ----
/s/ Samuel L. Eichenfield Principal Executive Officer February 12, 1998
- ------------------------- Chairman of the Board,
Samuel L. Eichenfield President and Chief
Executive Officer
/s/ Bruno A. Marszowski Principal Financial and February 12, 1998
- ------------------------- Accounting Officer
Bruno A. Marszowski Senior Vice President-
Controller and Chief
Financial Officer
/s/ Robert H. Clark, Jr. Directors February 12, 1998
- -------------------------
Robert H. Clark, Jr.
/s/ Robert Durham February 12, 1998
- -------------------------
G. Robert Durham
/s/ James L. Johnson February 12, 1998
- -------------------------
James L. Johnson
/s/ Kenneth R. Smith February 12, 1998
- -------------------------
Kenneth R. Smith
/s/ Shoshana B. Tancer February 12, 1998
- -------------------------
Shoshana B. Tancer
/s/ John W. Teets February 12, 1998
- -------------------------
John W. Teets
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 33,190
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 8,399,456
<ALLOWANCE> (177,088)
<TOTAL-ASSETS> 8,719,840
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 753,255
<LONG-TERM> 6,764,581
111,550
0
<COMMON> 585
<OTHER-SE> 1,089,869
<TOTAL-LIABILITIES-AND-EQUITY> 8,719,840
<INTEREST-LOAN> 944,724
<INTEREST-INVEST> 0
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 416,093
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 455,642
<LOAN-LOSSES> 69,200
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 190,525
<INCOME-PRETAX> 226,178
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 139,098
<EPS-PRIMARY> 2.56
<EPS-DILUTED> 2.42
<YIELD-ACTUAL> 6.2
<LOANS-NON> 187,356
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 148,693
<CHARGE-OFFS> (45,487)
<RECOVERIES> 2,287
<ALLOWANCE-CLOSE> 177,088
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
RESTATED FINANCIAL DATA SCHEDULE FOR THE QUARTERS ENDED SEPTEMBER 30, 1997, JUNE
30,1997 AND MARCH 31,1997.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollars
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 JUN-30-1997 MAR-31-1997
<EXCHANGE-RATE> 1 1 1
<CASH> 42,567 49,587 67,439
<INT-BEARING-DEPOSITS> 0 0 0
<FED-FUNDS-SOLD> 0 0 0
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 0 0
<INVESTMENTS-CARRYING> 0 0 0
<INVESTMENTS-MARKET> 0 0 0
<LOANS> 8,075,600 7,826,196 7,479,373
<ALLOWANCE> 167,754 159,747 152,545
<TOTAL-ASSETS> 8,307,720 8,060,403 7,734,844
<DEPOSITS> 0 0 0
<SHORT-TERM> 0 0 0
<LIABILITIES-OTHER> 715,737 662,136 686,719
<LONG-TERM> 6,502,512 6,338,122 6,010,987
111,550 111,550 111,550
0 0 0
<COMMON> 568 568 568
<OTHER-SE> 977,353 948,027 925,020
<TOTAL-LIABILITIES-AND-EQUITY> 8,307,720 8,060,403 7,734,844
<INTEREST-LOAN> 682,920 445,564 217,077
<INTEREST-INVEST> 0 0 0
<INTEREST-OTHER> 0 0 0
<INTEREST-TOTAL> 0 0 0
<INTEREST-DEPOSIT> 0 0 0
<INTEREST-EXPENSE> 304,647 199,055 97,172
<INTEREST-INCOME-NET> 326,487 212,450 103,456
<LOAN-LOSSES> 48,300 26,300 8,000
<SECURITIES-GAINS> 0 0 0
<EXPENSE-OTHER> 137,263 92,490 45,878
<INCOME-PRETAX> 163,331 107,361 52,811
<INCOME-PRE-EXTRAORDINARY> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 100,330 65,409 31,658
<EPS-PRIMARY> 1.86 1.21 .59
<EPS-DILUTED> 1.76 1.15 .56
<YIELD-ACTUAL> .06 .06 .059
<LOANS-NON> 173,390 165,885 158,255
<LOANS-PAST> 0 0 0
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 148,693 148,693 148,693
<CHARGE-OFFS> 31,263 16,858 5,300
<RECOVERIES> 2,098 1,634 1,211
<ALLOWANCE-CLOSE> 167,754 159,747 152,545
<ALLOWANCE-DOMESTIC> 0 0 0
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
RESTATED FINANCIAL DATA SCHEDULE FOR THE QUARTERS ENDED SEPTEMBER 30, 1996, JUNE
30,1996 AND MARCH 31,1996.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollars
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 JUN-30-1996 MAR-31-1996
<EXCHANGE-RATE> 1 1 1
<CASH> 56,852 23,252 21,596
<INT-BEARING-DEPOSITS> 0 0 0
<FED-FUNDS-SOLD> 0 0 0
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 0 0
<INVESTMENTS-CARRYING> 0 0 0
<INVESTMENTS-MARKET> 0 0 0
<LOANS> 7,058,306 6,697,013 6,442,945
<ALLOWANCE> 144,293 136,917 (133,403)
<TOTAL-ASSETS> 7,875,848 7,439,995 7,123,496
<DEPOSITS> 0 0 0
<SHORT-TERM> 0 0 0
<LIABILITIES-OTHER> 629,224 597,883 539,979
<LONG-TERM> 6,350,043 5,970,459 5,736,159
0 0 0
0 0 0
<COMMON> 568 568 568
<OTHER-SE> 896,013 871,085 846,790
<TOTAL-LIABILITIES-AND-EQUITY> 7,875,848 7,439,995 7,123,496
<INTEREST-LOAN> 588,259 383,287 190,652
<INTEREST-INVEST> 0 0 0
<INTEREST-OTHER> 0 0 0
<INTEREST-TOTAL> 0 0 0
<INTEREST-DEPOSIT> 0 0 0
<INTEREST-EXPENSE> 269,571 177,942 88,224
<INTEREST-INCOME-NET> 271,538 173,442 85,150
<LOAN-LOSSES> 31,164 19,500 11,624
<SECURITIES-GAINS> 0 0 0
<EXPENSE-OTHER> 110,644 72,075 37,587
<INCOME-PRETAX> 138,172 89,912 42,669
<INCOME-PRE-EXTRAORDINARY> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 85,005 55,242 27,121
<EPS-PRIMARY> 1.56 1.02 .50
<EPS-DILUTED> 1.53 1.00 .49
<YIELD-ACTUAL> 5.9 5.8 5.8
<LOANS-NON> 172,766 174,859 167,454
<LOANS-PAST> 0 0 0
<LOANS-TROUBLED> 38,775 22,523 22,031
<LOANS-PROBLEM> 0 0 0
<ALLOWANCE-OPEN> 129,077 129,077 129,077
<CHARGE-OFFS> (24,018) (15,240) (7,858)
<RECOVERIES> 1,918 1,482 581
<ALLOWANCE-CLOSE> 144,293 136,917 133,403
<ALLOWANCE-DOMESTIC> 0 0 0
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
RESTATED FINANCIAL DATA SCHEDULE FOR THE YEARS ENDED DECEMBER 31, 1996, AND
1995.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollars
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<EXCHANGE-RATE> 1 1
<CASH> 31,260 90,280
<INT-BEARING-DEPOSITS> 0 0
<FED-FUNDS-SOLD> 0 0
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 0
<INVESTMENTS-CARRYING> 0 0
<INVESTMENTS-MARKET> 0 0
<LOANS> 7,298,759 6,348,079
<ALLOWANCE> (148,696) 129,077
<TOTAL-ASSETS> 7,526,734 7,036,514
<DEPOSITS> 0 0
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 635,370 561,962
<LONG-TERM> 5,850,223 5,649,368
111,550 0
0 0
<COMMON> 568 568
<OTHER-SE> 929,023 824,616
<TOTAL-LIABILITIES-AND-EQUITY> 7,526,734 7,036,514
<INTEREST-LOAN> 797,934 702,116
<INTEREST-INVEST> 0 0
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 0 0
<INTEREST-DEPOSIT> 0 0
<INTEREST-EXPENSE> 366,543 337,814
<INTEREST-INCOME-NET> 369,105 309,084
<LOAN-LOSSES> 41,751 37,568
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 154,481 131,571
<INCOME-PRETAX> 185,822 150,834
<INCOME-PRE-EXTRAORDINARY> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 117,000 97,629
<EPS-PRIMARY> 2.15 1.79
<EPS-DILUTED> 2.09 1.76
<YIELD-ACTUAL> 5.8 5.7
<LOANS-NON> 155,505 143,127
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 17,260
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 129,077 110,903
<CHARGE-OFFS> (32,017) 25,631
<RECOVERIES> 3,296 2,104
<ALLOWANCE-CLOSE> 148,693 129,077
<ALLOWANCE-DOMESTIC> 0 0
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
