SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
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Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
THE FINOVA GROUP INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
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1) Title of each class of securities to which transaction applies:
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previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
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The FINOVA Group Inc.
1850 N. Central Avenue
P.O. Box 2209
Phoenix, Arizona 85002-2209
SAMUEL L. EICHENFIELD
Chairman, President
and Chief Executive Officer
Dear Shareowners:
You are cordially invited to attend the 1998 Annual Shareowners Meeting.
The meeting will be held on Thursday, May 14, 1998, at the Orpheum Theatre, 203
West Adams Street, Phoenix, Arizona. As the meeting will begin promptly at 9:00
a.m., please plan to arrive earlier.
The formal notice of the meeting follows on the next page. No admission
tickets or other credentials will be required for attendance at the meeting.
Directors and officers are expected to be available before and after the
meeting to speak with you. During the meeting, we will answer your questions
regarding our business affairs and will consider the matters explained in the
notice and proxy statement that follow.
Please vote, sign and return the enclosed proxy as soon as possible,
whether or not you plan to attend the meeting. Your vote is important.
Sincerely,
/s/ Samuel L. Eichenfield
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NOTICE OF ANNUAL SHAREOWNERS MEETING
March 26, 1998
To the Holders of Common Stock of
The FINOVA Group Inc.
We will hold the Annual Shareowners Meeting of The FINOVA Group Inc., a
Delaware corporation ("FINOVA") at the Orpheum Theatre, 203 West Adams Street,
Phoenix, Arizona, 85003, on Thursday, May 14, 1998, at 9:00 a.m., Mountain
Standard Time. The meeting's purpose is to:
1. Elect 3 directors;
2. Ratify Deloitte & Touche LLP as FINOVA's independent auditors for
1998; and
3. Consider any other matters which properly come before the meeting
and any adjournments.
Only shareowners of record of common stock at the opening of business on
March 16, 1998 are entitled to receive notice of and to vote at the meeting. A
list of the shareowners entitled to vote will be available for examination at
the meeting by any shareowner for any purpose germane to the meeting. The list
will also be available on the same basis for ten days prior to the meeting at
our principal executive office, 1850 Central Avenue, P.O. Box 2209, Phoenix,
Arizona 85002-2209.
We have enclosed the 1997 annual report, including financial statements,
and the proxy statement with this notice of annual meeting.
To assure your representation at the meeting, please vote, sign and mail
the enclosed proxy as soon as possible. We have enclosed a return envelope,
which requires no postage if mailed in the United States, for that purpose.
Your proxy is being solicited by the Board of Directors.
W.J. HALLINAN
Senior Vice President --
General Counsel and Secretary
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PLEASE VOTE -- YOUR VOTE IS IMPORTANT
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The FINOVA Group Inc.
1850 N. Central Avenue
P. O. Box 2209
Phoenix, Arizona 85002-2209
ANNUAL SHAREOWNERS MEETING
PROXY STATEMENT
Annual May 14, 1998 Orpheum Theatre
Meeting: 9:00 a.m., MST 203 West Adams Street
Phoenix, Arizona 85003
This meeting is in
Phoenix, AZ this
year.
Record Date: 8:00 a.m., EDT, March 16, 1998. If you were a
shareowner at that time, you may vote at the meeting.
Each share is entitled to one vote. You may not
cumulate votes. On the record date, we had 56,455,904
shares of our common stock outstanding.
Agenda: 1. Elect 3 directors.
2. Ratify the selection of Deloitte & Touche LLP as our
independent auditors for 1998.
3. Any other proper business.
Proxies: Unless you tell us on the proxy card to vote
differently, we will vote signed returned proxies "for"
We will follow your the Board's nominees and "for" agenda item 2. The Board
voting instructions. or proxy holders will use their discretion on other
If none, we will vote matters. If a nominee cannot or will not serve as a
signed proxies for the director, the Board or proxy holders will vote for a
proposals. person whom they believe will carry on our present
policies.
Proxies The Board of Directors.
Solicited By:
First Mailing We anticipate first mailing this proxy statement on
Date: March 27, 1998.
Revoking You may revoke your proxy before it is voted at the
Your Proxy: meeting. To revoke, follow the procedures listed on
page 22 under "Voting Procedures/Revoking Your Proxy."
Note on We split our common stock on a 2-for-1 basis on October
Stock Split: 1, 1997, for shareowners of record on September 1,
1997. All shares, share prices and related figures are
restated in this proxy statement to reflect the stock
split.
Your Your comments about any aspects of our business are
Comments: welcome. You may use the space provided on the proxy
card for this purpose, if desired. Although we may not
respond on an individual basis, your comments help us
We welcome your to measure your satisfaction, and we may benefit from
comments. The proxy your suggestions.
card has room for
them.
PLEASE VOTE - YOUR VOTE IS IMPORTANT
Prompt return of your proxy will help reduce the costs of resolicitation.
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CONTENTS
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General Information ............................................ 1
*Election of Directors ......................................... 2
Human Resources Committee Report on Executive Compensation(1) .. 5
Performance Graph(1) ........................................... 10
*We expect to vote Executive Compensation and Other Information ................... 11
on these items at Employment Agreements .......................................... 16
the meeting. Compensation Committee Interlocks and Insider Participation .... 18
Section 16(a) Beneficial Ownership Reporting Compliance ........ 19
*Selection of Independent Auditors ............................. 19
FINOVA Share Ownership ......................................... 20
Voting Procedures/Revoking Your Proxy .......................... 21
Submission of Shareowner Proposals ............................. 22
Other Business ................................................. 22
</TABLE>
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(1) The Human Resources Committee report and the performance
graph will not be incorporated by reference into any present
or future filings we make with the SEC, even if those reports
incorporate all or any part of this proxy statement.
ELECTION OF DIRECTORS
Board The Board has seven members. The directors are divided
Structure: into three classes. At each annual meeting, the term of
one class expires. Directors in each class serve for
three year terms.
BOARD NOMINEES
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Terms Expire Samuel L. Eichenfield Chairman, President and Chief Executive Officer of
at the 2001 FINOVA for more than five years. Also, Chairman,
Annual President and Chief Executive Officer of FINOVA Capital
Meeting: [PHOTO] Corporation, the principal operating subsidiary of FINOVA,
for more than five years. Board member since 1992.
We will elect 3 Age 61.
directors this year.
James L. Johnson Chairman Emeritus and a director of GTE Corporation (a
We urge you to diversified telecommunications company) since 1993.
vote for Messrs. Before that he was its Chairman and Chief Executive
Eichenfield, [PHOTO] Officer. Trustee of Mutual Life Insurance Company of New
Johnson and York and a director of Harte/Hanks Communications Co.,
Teets. Inc., Cell Star Corporation, Valero Energy Corporation and
Walter Industries, Inc. Board member since 1992. Age 70.
John W. Teets Chairman and Chief Executive Officer of J.W. Teets
Enterprises, L.L.C. since 1997. Before that he was the
Chairman and Chief Executive Officer or similar positions
[PHOTO] of Viad Corp, formerly The Dial Corp, for more than 5
years. Board member since 1992. Age 64.
</TABLE>
The board recommends that you vote "FOR" these nominees.
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CONTINUING DIRECTORS
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Terms Expire G. Robert Durham Retired Chairman and Chief Executive Officer of Walter
at the 1999 Industries, Inc. (a homebuilding and financing, building
Annual materials, natural resources and industrial manufacturing
Meeting: [PHOTO] company) since 1996. He served as Chairman and Chief
Executive Officer from 1991 to 1996. Former Chairman,
President and Chief Executive Officer of Phelps Dodge
Corporation (a mining company). Director of Amphenol
Corporation and Homestake Mining Company, and a
trustee of Mutual Life Insurance Company of New York.
Board member since 1992. Age 69.
Kenneth R. Smith Professor of Economics since 1980, Dean of the Karl Eller
Graduate School of Management and the College of
Business and Public Administration from 1980 to 1995,
[PHOTO] and Vice Provost from 1992 to 1995 of The University of
Arizona. Former director of Southwest Gas Corporation.
Board member since 1992. Age 55.
Terms Expire Robert H. Clark, Jr. Chief Executive Officer since 1993, President since 1983
at the 1999 and a director since 1968 of Case, Pomeroy & Company,
Annual Inc. (a mining, oil & gas and real estate company). Also a
Meeting: [PHOTO] director of Homestake Mining Company. Board member
since 1997. Age 57.
Shoshana B. Tancer Professor of International Studies for more than five years
and Director of the North American Free Trade Agreement
Center since 1993 of the American Graduate School of
[PHOTO] International Management. Also, of-counsel to the law firm
of O'Connor, Cavanagh, Anderson, Killingsworth &
Beshears since 1992. Previously operated Tancer Law
Offices for more than five years. Former director of
Mountain Bell (the predecessor of U.S. West, Inc.) and
three subsidiaries of Merabank, a Federal Savings Bank.
Board member since 1994. Age 62.
</TABLE>
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BOARD INFORMATION
Board In 1997, the Board held a total of five regular
Meetings: quarterly and special meetings. Each
director attended at least 75% of his or her Board and
committee meetings.
Board The Executive Committee exercises all the powers of the
Committees: Board when the Board is
not in session, as permitted by law. The Executive
Committee held no meetings but reviewed a number of
transactions without a meeting last year. Members: Mr.
Eichenfield, Chairman, and Messrs. Durham, Johnson and
Smith.
The Audit Committee recommends appointment of the
Company's independent auditors. It also approves audit
reports and plans, accounting policies, financial
statements, internal audit reports, internal controls,
Ethics Committee actions, audit fees and certain other
expenses. The Audit Committee held four meetings in
1997. All members are non-employee directors, except
Mr. Eichenfield, who does not vote on Audit Committee
matters. Members: Ms. Tancer, Chairman and Messrs.
Clark and Teets. Mr. Eichenfield (non-voting).
The Human Resources Committee manages executive officer
compensation. It also administers our compensation and
incentive plans, including the 1992 Stock Incentive
Plan. The committee delegated to Mr. Eichenfield the
authority to set compensation for non-executive
officers, subject to the committee's supervision. The
committee evaluates the competitiveness of FINOVA's
compensation and the performance of the Chief Executive
Officer. It held five regular and special meetings in
1997. All members of the committee are non-employee
directors. Members: Mr. Smith, Chairman, and Messrs.
Clark, Durham, Johnson and Teets.
The Board does not have a nominating committee. The
entire Board performs those duties.
BOARD COMPENSATION
Retainer Non-employee directors receive a $25,000 annual
And Fees: retainer, which will increase to $30,000 as of
July 1, 1998. To encourage directors to
own our shares, they may elect to receive their
Directors may elect retainer in cash, restricted stock or stock options.
to receive their The director generally cannot sell or transfer the
retainer in cash, restricted stock and the options do not vest (become
stock or options. exercisable) until the day before the next annual
meeting of shareowners. If the director stops being a
Board member before that date, the director forfeits
the shares or options, with certain exceptions.
Directors also receive $1,500 for each Board, committee
or other meeting attended. Board members receive $100
for each matter considered without a meeting. We
reimburse directors for any expenses related to their
Board service.
Option Non-employee directors receive options to purchase
Grants: 4,000 shares when they become directors and another
3,000 each year of their term. The exercise price
of the options is the fair market value of our shares
on the grant date.
Deferred Non-employee directors may defer all or part of their
Compensation retainer and fees under the Directors' Deferred
Plans: Compensation Plan. Deferred amounts earn interest at a
long-term medium quality industrial bond rate in effect
each quarter. The director may generally determine when
the funds are to be paid.
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Directors may also defer receipt of their cash
compensation from FINOVA through our Bonus KEYSOP
Program. Officers who are eligible to receive FINOVA
restricted stock also may participate in that program.
The KEYSOP program allows its participants to receive
the taxable income anytime between 6 months and 20
years after deferring it, with certain exceptions, such
as termination of employment.
The compensation that is deferred under the KEYSOP
program is deposited into a trust, which invests the
compensation until the participant elects to receive
it, adjusted for any income or loss on those
investments. The KEYSOP accounts are invested in up to
nine designated mutual funds. Dividends in the KEYSOP
are reinvested in the funds selected by the
participant.
To exercise a KEYSOP option, the participant must pay
25% of the option's fair market value on the option
grant date or the exercise date, whichever is greater.
We grant KEYSOP options for 25% more than the deferred
compensation to cover the initial exercise price, so
that the participants are not unduly disadvantaged by
participating in that program. This mark-up in KEYSOP
option grants results in no greater compensation to the
participant than would have occurred had he or she not
elected to participate in the program. However,
participants could receive less compensation if the
accounts lose value, since the exercise price is always
no less than 25% of the fair market value on the grant
date. When the KEYSOP options are exercised, the
participant receives the securities relating to his or
her account.
Retirement Non-employee directors participate in the Directors'
Plan: Retirement Benefit Plan. If a director is at least 62
on his or her retirement date and has at least five
years of service on the Board, we will pay the director
a pension equal to the retainer in effect on the
retirement date. That pension will continue during the
life of the director for up to the number of years the
director served on the Board.
Charitable As part of our overall support for charities, and to
Awards help attract directors with outstanding experience and
Programs: ability, the Board implemented the Directors'
Charitable Awards Program. It enables each director to
contribute $100,000 per year for ten years to a charity
or foundation selected by the director upon his or her
death. To fund the program, we purchase, at minimal
cost, life insurance on each eligible director, payable
to FINOVA as beneficiary.
HUMAN RESOURCES COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The The Human Resources Committee is comprised only of
Committee: independent directors as defined by the SEC and IRS.
The committee exercises the Board's powers in
compensating executive officers of FINOVA and its
subsidiaries. We administer FINOVA's incentive plans,
including the 1992 Stock Incentive Plan. Our
compensation program helps us to attract, retain and
motivate all of our employees and to align their
efforts with increases in shareowner value and FINOVA's
profitability. We make every effort to assure our
compensation program is consistent with FINOVA's values
and furthers its business strategy.
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Overall We have developed a compensation program for executives
Objectives: and key employees designed to meet the following goals.
Our compensation * Reward performance that increases the value of
programs seek to your stock.
fulfill these * Attract, retain and motivate executives and key
objectives. employees with competitive compensation
opportunities.
* Emphasize "pay for performance" by placing a large
portion of pay at risk.
* Build and encourage ownership of our shares.
* Balance short-term and long-term strategic goals.
* Address the concerns of shareowners, employees,
the financial community and the general public.
To meet these objectives, we studied competitive
compensation data and implemented the base salary and
annual and long-term incentive programs discussed
below.
Executive We review executives' pay each year. Compensation
Compensation depends on many factors, including individual
Generally: performance and responsibilities, future challenges and
objectives and how the executive might contribute to
our future success. We also look at FINOVA's financial
performance and the compensation levels at comparable
companies.
Our independent compensation consultants, Hewitt
Associates LLC, prepared competitive studies of our
executive compensation program. They compared FINOVA to
17 similar financial services companies. The Standard &
Poor's Financial Index includes slightly over one-third
of those companies or their parent corporations. We use
that index to set our performance criteria for our
Management Incentive Plan and performance-based
restricted stock awards. We used the 17 companies for
our salary comparisons, rather than the broader index,
because we believe the 17 more closely reflect our
competitors for executive talent.
Total We established total compensation levels for the
Compensation: executives at or above the top 25% of the compensation
at the other similar companies, adjusted in light of
FINOVA's and the executive's performance. Our primary
We tie a large % objective is to place more of compensation at risk in
our pay to the form of short-term and long-term compensation than
performance, such our competitors, on average. Doing so helps encourage
as increasing performance that increases the value of your shares. As
share price. a result, maximum performance warrants additional
rewards.
In each of the past five years, we set the target,
minimum and maximum performance levels for our annual
Each year we have and long-term incentive plans substantially above not
substantially only the prior year's target goals, but also above the
increased prior year's actual performance, which exceeded those
performance targets. Doing so motivates the officers to encourage
targets. future growth and keeps the goals challenging. FINOVA
has repeatedly exceeded our aggressive increases in
performance objectives and 1997 was no exception.
Base Salary: We adjusted the base salary levels for our executives,
other than Mr. Eichenfield, to just over the average
base salary of the other companies. We set Mr.
Eichenfield's base salary at the top 25% level. We set
those levels after considering the factors noted above.
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Management In October 1997, we reorganized management to reflect
Reorganization: the restructuring of FINOVA Capital into three
operating groups: Commercial Finance, Specialty Finance
and Capital Markets. In so doing, we were also able to
provide platforms for several of our executives and
senior managers for further leadership development.
Five officers were promoted to the newly-created
position of Executive Vice President -- one to head
each of the three operating units -- along with the
chief credit officer and the head of corporate
development and communications. Each of those officers
received an increase in base salary to reflect his new
duties.
Annual Incentives: Our annual cash bonus plans, the Management Incentive
Plans ("MIPs"), reward key employees for meeting
challenging annual goals. We establish MIP target
awards for each participant as a percentage of salary,
generally 40-55% for the executives whose names appear
in this proxy statement's Summary Compensation Table.
We can adjust those awards based on individual and
corporate performance, resulting in an award of between
0-200% of the target. We retain discretion to make
awards regardless of performance.
In 1997, despite reaching maximum overall performance
in our MIPs, we accepted management's recommendation to
We did not pay the voluntarily reduce the awards under the MIPs, since
maximum bonus in several lines of business performed above target, but
1997, generally, below maximum, and our factoring unit experienced
despite achieving increased levels of loan losses. We authorized awards
maximum targets. for those plans at 180% of target, although some
executives were paid at higher individual levels based
on their performance and that of their divisions.
For employees of the parent company, FINOVA, the 1997
performance goals and their relative importance for
plan purposes were earnings per share (30%), net income
(30%), return on equity (30%) and relative shareowner
performance (10%). We determined final awards after
receiving recommendations from Mr. Eichenfield. In
1997, FINOVA's overall performance exceeded each of the
maximum performance targets established.
Annual bonuses for most of our employees are based on
FINOVA Capital's performance. Those goals for 1997 were
net income (40%), return on equity (40%) and average
funds employed (20%). FINOVA Capital's overall
performance in 1997 exceeded each of the maximum
performance targets.
Long-Term We provide long-term incentives through stock options,
Incentives: performance-based restricted stock, the Performance
Share Incentive Plans and the CEO Value Sharing Plan,
discussed below. These plans help focus top management
We grant options on specific long-term goals and link their incentives
only at or above to increases in our share price. Options give
the current market executives an opportunity to buy our shares. We grant
price of our shares. options under the 1992 Stock Incentive Plan only at or
above the current market price on the grant date. As a
result, the options have value only to the extent the
share price increases. The options to employees exempt
from the overtime pay laws generally vest over at least
three years from the grant date. We make every effort
to balance the dilution to shareowners with the
motivation for the employees.
We awarded premium-priced option grants to some of our
key officers in 1997. The exercise price of the first
portion is at the fair market value on the grant date.
The second portion's exercise price is 12 1/2% over the
grant date price. The final portion's exercise price is
26 1/2% over the grant date price. Those premiums
require management to create increasing value for your
shares before they can
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realize any value from their options. We anticipate
that those options will be their only grants during the
three years after the grant date, although we have
discretion to make additional grants during that time.
Restricted stock Although we could grant restricted stock to executives
grants to that, for example, might vest with the mere passage of
employees require time or continued employment, we have chosen instead
that we equal or since mid-1992 to grant only performance-based
outperform the restricted shares that have more stringent performance
market or the goals. Those goals require that FINOVA perform at least
shares are as well as the market (as measured by the S&P 500 or
forfeited. S&P Financial indices) before that year's portion of
the award vests. Because those grants vest over five
years, the awards help retain and motivate executives
during that period and so long as they hold those
shares afterwards. While we have discretion to waive
performance requirements, we did not do so in 1997.
The Performance Share Incentive Plans ("PSIPs") focus
management on long-term goals other than share
appreciation. For the 1997-99 and 1998-2000 FINOVA
PSIP, those goals relate to net income from continuing
operations (35%), earnings per share (35%) and return
on average equity (30%). FINOVA Capital's 1997-99 and
1998-2000 PSIP goals are net income (35%), return on
average equity (35%) and economic profit (30%). PSIPs
measure performance over three years.
The number of PSIP share units awarded to participants
is based on percentages of their salaries (between 30%
and 60% for the officers identified in the Summary
Compensation Table). Those percentages are divided by
the December average share price immediately preceding
the beginning of the PSIP plan. Final awards are paid
at the December average share price at the end of the
PSIP plan, creating an incentive to seek further
increases in our share price. We review final award
sizes and eligibility and can adjust payments within
specified amounts if we believe circumstances warrant a
change.
Awards to those who manage our operating divisions
depend on both the performance of FINOVA Capital (25%)
and their particular business unit (75%). In that way,
we link their incentive compensation to overall and
divisional performance. FINOVA, FINOVA Capital and the
officers named in this proxy statement exceeded the
maximum performance targets for the 1995-97 PSIP.
We established the long-term grants noted above after
reviewing competitive data supplied by Hewitt
Associates LLC, our past practice, the terms of
employment agreements and recommendations of senior
management.
Stock To help address the overall objectives of our
Ownership compensation program, in 1993 the Board adopted FINOVA
Guidelines: stock ownership guidelines for senior management and
directors. Persons subject to the guidelines are
encouraged to assure that their ownership of our shares
We encourage our and options reaches and remains at or above targeted
directors and levels. The amounts depend on the person's level of
senior responsibility and compensation. If the person violates
management to the guidelines, we have discretion to withhold or
own our shares reduce future stock or option awards to the executive.
through these We reviewed current holdings of the executives during
guidelines. 1997. All of the officers named in proxy statement were
at or above their individual targets under the
guidelines based on their position and length of
service.
Tax Code Section 162(m) of the Internal Revenue Code disallows
Concerns: the corporate income tax deduction on executive
compensation paid to certain executives in excess of
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$1 million per year, unless that income meets permitted
exceptions. One exception is if the pay is based on
performance, under stringent tests established by that
section. Last year, you approved amendments to the 1992
Stock Incentive Plan continuing that plan's
qualification under Section 162(m). Therefore, we
expect to receive a tax deduction on those awards.
For our other short- and long-term performance plans,
compliance with Section 162(m) would eliminate our
flexibility to adjust the plans if FINOVA's business
incurred a significant change. Section 162(m) prohibits
adjustment of performance goals after the first part of
the year. Our experience since FINOVA became
independently owned, however, demonstrates the
advantages of having that flexibility to continue to
motivate and reward our key personnel. In past years,
we have adjusted performance goals later in the year,
in light of unusual changes in our business or
acquisitions or dispositions that have occurred. Those
adjustments would not have been allowed under Section
162(m). Thus, FINOVA will forego the exemption to the
extent compensation paid under those plans exceeds the
threshold. We will review our position from time to
time in the future.
To further the ability of directors and senior officers
to defer receipt of compensation and to save for
retirement, we implemented the Bonus KEYSOP program
discussed on pages 4 and 5 of this proxy statement
under "Deferred Compensation Plans."
Stock Option FINOVA has been a leader in granting stock options to
Program: all of its employees since 1992. Each new full time
employee, including employees of acquired companies,
receives options during his or her first quarter with
All of our full time FINOVA. In addition, we grant awards from time to time
employees receive to all employees. Non-executive officer employees
stock options. received options to purchase a total of 466,864 shares
These grants help in 1997. Those grants constituted about 61% of the
motivate all options granted last year. These grants help motivate
employees. outstanding performance by all our employees, and
encourage everyone at FINOVA, not just executives, to
increase the value of FINOVA shares.
CEO We set Mr. Eichenfield's total compensation based on
Compensation: FINOVA's outstanding performance, his individual
performance, compensation levels at other companies,
the desire to retain him and the terms of his
Mr. Eichenfield's employment agreement. His salary and incentives reflect
pay reflects the the leadership, vision and focus he has provided prior
leadership, vision to and since we became independently owned. FINOVA's
and focus he has earnings have reached new records each year since that
provided. time. Net income increased to $139.1 million in 1997
from $117 million in 1996. Basic earnings per share
increased to $2.56 from $2.15 during that time. The
market value of our shares increased to more than $2.8
billion from just over $435 million when we became
independently owned, providing a more than 50% annual
return in both 1996 and 1997.
At the same time, Mr. Eichenfield has positioned FINOVA
for future success. New business from continuing
operations during 1997 resulted in a 15.6% growth in
our managed assets (our financing contracts plus those
we manage for others). Non-performing assets from
continuing operations were at 2.1% of managed assets at
the end of 1997, which is better than our target range.
We reviewed the above factors, to the extent known at
the time of our determination, when we decided to
target Mr. Eichenfield's total compensation
substantially above the top 25% level of chief
executives of the other companies. His base salary is
at the top 25% level of his peers.
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Most of his pay is As discussed above, the majority of Mr. Eichenfield's
tied to compensation is placed at risk because it is tied to
performance, so it performance goals, including our share price. His peers
is at "risk." generally have less pay at risk. During 1997, Mr.
Eichenfield earned but deferred the second payment
under the CEO Value Sharing Plan contained in his
amended employment agreement, discussed more fully on
page 16 below. Under that plan, he was to receive a
portion of increases in the value of your shares when
FINOVA's share price reached certain hurdles. Before
the third hurdle ($42.50/share) was reached, Mr.
Eichenfield again agreed to amend his employment
agreement to provide that he would not receive that
payment unless he continues with FINOVA until he
reaches 65, with certain exceptions. This serves as a
strong retention device. The third hurdle was reached
in 1997 as well. The plan was intended to provide
incentives over seven years, but was fulfilled in about
one-quarter of the time due to the significant
increases in the value of your shares.
Conclusion: We believe Mr. Eichenfield and his executive team have
provided outstanding service to FINOVA. We will work to
assure the executive compensation programs continue to
meet our strategic goals as well as the overall
objectives discussed above.
Kenneth R. Smith, Chairman
Robert H. Clark, Jr.
G. Robert Durham
James L. Johnson
John W. Teets
Members, Human Resources Committee
PERFORMANCE GRAPH
Comparison of Cumulative Total Return Among
FINOVA, Standard & Poor's 500 Index and S&P Financial Index(1)
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
<S> <C> <C> <C> <C> <C> <C>
The FINOVA Group Inc. $ 100.00 $ 124.31 $ 139.27 $ 215.34 $ 290.85 $ 454.57
S&P Financial Index $ 100.00 $ 110.71 $ 106.81 $ 163.69 $ 220.47 $ 325.56
S&P 500 Index $ 100.00 $ 109.92 $ 111.34 $ 152.66 $ 187.28 $ 249.28
</TABLE>
- - -----------
(1) Assumes $100 invested on December 31, 1992 and dividends reinvested.
Historical performance does not necessarily predict future results.
10
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of The following table summarizes the compensation we paid
Compensation: the Chairman, President and Chief Executive Officer and
each of the four other most highly compensated
1997 pay reflects executive officers as of the end of 1997, based on
FINOVA's strong salary and Management Incentive Plan bonus.
performance.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------- ----------------------------------------
Awards Payouts
--------------------------- ------------
Performance- Securities
Other Based Underlying All
Annual Restricted Options/ Other
Name and Compen- Stock SARS LTIP Compen-
Principal Position Year Salary(1) Bonus(1)(2) sation(3) Awards(4)(5) (#)(6)(7) Payouts(1) sation(8)
- - ---------------------------- ------ ----------- ------------- ----------- -------------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Samuel L. Eichenfield 1997 $582,333 $ 576,510 $165,155 $1,114,954 $8,276,965 $9,500
Chairman, President and 1996 553,500 547,965 178,193 906,044 4,355,750 9,000
Chief Executive Officer 1995 519,834 557,522 340,901 697,870 1,024,290 9,000
William J. Hallinan 1997 281,667 202,800 203,821 20,000 669,168 9,500
Senior Vice President -- 1996 269,500 194,040 53,099 177,455 5,800 445,198 9,000
General Counsel & 1995 254,072 190,046 87,379 85,145 378,195 9,000
Secretary
Gregory C. Smalis 1997 230,667 166,080 223,681 24,000 419,136 9,000
Executive Vice President 1996 217,333 156,480 173,144 235,256 9,000
FINOVA Capital Corp. 1995 204,675 153,097 82,233 115,235 9,000
Jack Fields III 1997 205,333 182,532 185,080 25,000 320,536 9,500
Executive Vice President 1996 184,833 141,213 141,624 1,000 223,795 9,000
FINOVA Capital Corp. 1995 174,000 132,936 75,788 1,000 9,000
Martin G. Roth 1997 210,167 163,930 207,203 25,000 388,217 9,500
Group Vice President -- 1996 201,000 160,800 160,874 1,000 275,772 9,000
Transportation Finance/ 1995 189,505 147,814 73,945 1,000 9,000
Capital Services
FINOVA Capital Corp.
(Retired March 1998)
</TABLE>
(1) Includes deferred compensation, if any.
(2) Bonus payments depend on both FINOVA's and individual performance. No
bonus is paid under the Management Incentive Plan unless we achieve
set performance levels. A portion of Mr. Fields' bonus was in
recognition of his extensive efforts in connection with arranging for
our future headquarters building.
(3) Includes personal benefits we paid, including tax gross-up payments
of $83,489 on behalf of Mr. Eichenfield in 1997.
(4) The number of shares to vest depends on our share price and dividend
performance during each of the five years after the grant date,
compared to either the S&P 500 or S&P Financial indices.
Performance-based restricted stock ("PBRS") awards are valued in the
table at the fair market value of our unrestricted shares at the
grant date (for initial grants) and vesting date (for shares vesting
above target). Those values have not been reduced for any performance
requirements or transfer restrictions. On April 1, 1992, each officer
named above received 2,000 target shares of PBRS, which vested over
five years. If we matched the performance of the S&P 500 Index, the
target award for that year (400 shares) vested. If we did not, then
only 200 shares vested. If we outperformed that index, then the
executives received up to 1.7 times that target award for the year.
We achieved maximum performance in each year of that grant. FINOVA
paid the taxes due on the vesting of those awards for Messrs.
Eichenfield and Hallinan.
11
<PAGE>
All remaining shares of PBRS granted by FINOVA vest over five years.
If our performance equals the lesser of the S&P 500 or S&P Financial
indices, the target amount vests for that year. If we do not at least
match one of those, then the person forfeits to FINOVA that year's
award of 20% of the shares. Performance in excess of the lower index
results in vestings of up to 1.7 times that year's target award. Mr.
Eichenfield received the following PBRS target grants in 1997, 1996,
and 1995: 14,400, 24,000, and 30,000 shares, respectively. In those
years, the other officers named above each received 3,480, 4,800, and
3,000 shares of PBRS, except that Mr. Hallinan received 2,880 shares
in 1997 and Mr. Fields received 2,900 shares in 1997 and 4,000 shares
in 1996. FINOVA achieved maximum performance levels under the PBRS
awards reflected in the table, due to our shares' performance, so the
maximum additional vestings occurred.
Of the 1997 PBRS awards noted above, those grants included 2,400
"premium" PBRS shares granted to Mr. Eichenfield, 480 shares to Mr.
Hallinan and 580 shares to the other officers named above as part of
our Stock Retention Incentive Program. That program encourages
executives to increase their share ownership by not selling shares to
pay the taxes due when PBRS shares vest. If the participant does not
sell any shares to pay the taxes, we will increase the next year's
grant to the person by 20% over the amount we would otherwise have
given. FINOVA will also pay the taxes due on the vesting of those
premium shares.
The directors have discretion to amend the terms of the PBRS grants
to conform to changes in the tax laws or otherwise. Holders of PBRS
receive dividends on and may vote the target shares before they vest.
(5) The total number of target restricted shares held by each officer
named above, all of which are PBRS, and their value based on our
share price at December 31, 1997, were: Mr. Eichenfield -- 94,400
($4,690,500); Mr. Hallinan -- 14,680 ($729,413); Mr. Smalis -- 15,020
($746,306); Mr. Fields -- 12,620 ($627,056); and Mr. Roth -- 13,880
($689,663).
(6) For the 1997 grants, the exercise price of the options for the
portion vesting in years two and three are 12.5% and 26.5% higher
than the grant price of the first year's vesting, as described in the
next section below, except for 1,000 of the options for Messrs.
Fields and Roth.
(7) Options have been adjusted for the 2-for-1 stock split in October
1997, which occurred after the options were granted.
(8) Matching payments made by FINOVA under the Employee Stock Ownership
Plan or Savings Plan.
Stock The following table lists our grants during 1997 of
Options and stock options and tandem stock appreciation rights
Stock ("SARs") to the officers named in the Summary
Appreciation Compensation Table. The amounts shown as potential
Rights: realizable values rely on arbitrarily assumed rates of
share price appreciation prescribed by the SEC. In
assessing those values, please note that the ultimate
value of the options, as well as your shares, depends
on actual future share values. Market conditions and
the efforts of the directors, the officers and others
to foster the future success of FINOVA can influence
those future share values.
Options only have The potential realizable values for all shareowners
value if our share represent the corresponding increases in the value of
price increases. outstanding shares, assuming 56.3 million shares were
outstanding. Annual appreciation at 5% from the grant
date would increase the market value of all outstanding
shares by more than $1.2 billion, and 10% annual
appreciation would increase it by more than $3 billion
over the 10-year option term.
12
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------
Percent of
Number of Total Potential Realizable Value at
Securities Option/SARs Assumed Annual Rates of Share Price
Underlying Granted to Exercise or Appreciation for Option Term
Options/SARs Employees in Base Price Expiration -----------------------------------------
Name Granted(1)(2) Fiscal Year ($/Share)(2) Date 5% 10%
- - ---------------------- --------------- -------------- -------------- ------------ ----------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
February Grant:
All Shareowners'
Share If Shares at $58.03: If at $92.40:
Appreciation $ 1,261,365,800 $3,196,549,000
Mr. Fields 1,000 .1318 $ 35.6250 2/12/07 22,342 56,584
Mr. Roth 1,000 .1318 35.6250 2/12/07 22,342 56,584
August Grant:
All Shareowners'
Share If Shares at $69.64: If at $110.88:
Appreciation $ 1,513,907,000 $3,835,719,000
Mr. Hallinan 6,666 .8787 42.7500 8/13/07 179,155 453,978
6,668 .8790 48.0938 8/13/07 143,576 418,482
6,666 .8787 54.0788 8/13/07 103,638 378,461
Mr. Smalis 7,920 1.0440 42.7500 8/13/07 212,857 539,380
8,160 1.0757 48.0938 8/13/07 175,703 512,120
7,920 1.0440 54.0788 8/13/07 123,134 449,656
Mr. Fields 7,920 1.0440 42.7500 8/13/07 212,857 539,380
8,160 1.0757 48.0938 8/13/07 175,703 512,120
7,920 1.0440 54.0788 8/13/07 123,134 449,656
Mr. Roth 7,920 1.0440 42.7500 8/13/07 212,857 539,380
8,160 1.0757 48.0938 8/13/07 175,703 512,120
7,920 1.0440 54.0788 8/13/07 123,134 449,656
</TABLE>
(1) The options vest 34% after 1 year and 33% after each of years 2 and
3. All options have limited stock appreciation rights exercisable
within 60 days after a change in control, subject to earlier
expiration upon certain events. The limited SARs entitle the person
to receive, if desired, the difference between the then-current
market value and the exercise price. In the aggregate, the option
holders can exercise options or SARs equal to the number of options
granted.
(2) The listed options are all non-qualified options. The holder can pay
the exercise price and tax withholding obligations with already owned
shares or with shares vesting at that time.
1997 Option The following table lists the number of shares acquired
and SAR and the value realized as a result of option exercises
Holdings: during 1997 for the listed officers. It also includes
the number and value of their exercisable and
non-exercisable options and SARs as of December 31,
1997. The table contains values for "in the money"
options, meaning a positive spread between the year-end
share price of $49.6875 and the exercise price. These
values have not been, and may never be, realized. The
options might never be exercised, and the value, if
any, will depend on the share price on the exercise
date.
13
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Under- Value of Unexercised
lying Unexercised Option/ In-the-Money Options/
Shares SARs at Fiscal Year-End SARs at Fiscal Year-End
Acquired on Value ------------------------------- ------------------------------
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
- - ------------------- -------------- ------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Eichenfield 26,770 $1,182,063 478,564 70,000 $23,778,648 $3,478,125
Mr. Hallinan 32,188 1,194,546 59,782 32,828 2,970,418 1,631,141
Mr. Smalis 4,538 183,306 40,922 29,520 2,033,312 1,466,775
Mr. Fields 6,142 219,579 44,598 35,590 2,215,963 1,768,378
Mr. Roth 4,064 157,685 43,700 35,590 2,171,344 1,768,378
</TABLE>
Long-Term As noted above in the Human Resources Committee's
Incentive report, the Performance Share Incentive Plans ("PSIPs")
Compensation: compensate executives for helping us achieve sustained
performance goals and encourage their continued efforts
on our behalf. FINOVA's 1997-99 and 1998-00 PSIPs
measure increases in net income from continuing
The long-term operations, earnings per share and return on average
plans encourage equity. FINOVA Capital's 1997-99 and 1998-00 PSIPs
sustained measure return on average equity, economic profit and
performance. net income. Achievement is based on three year average
performance. Because payouts are tied, in part, to
share price, the PSIPs also encourage participants to
seek share price appreciation.
LONG-TERM INCENTIVE PLANS -- AWARDS
IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Estimated Future Payouts Under
Performance Non-Stock Price-Based Plans
Period Until ---------------------------------
Number of Maturation Threshold Target Maximum
Name Units(1) or Payout (#) (#)(2) (#)(2)
- - ------------------- ----------- -------------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
1997-99 Performance Incentive Plan
Mr. Eichenfield 10,930 1999 0 10,930 21,860
Mr. Hallinan 3,526 1999 0 3,526 7,052
Mr. Smalis 2,134 1999 0 2,134 4,268
Mr. Fields 1,816 1999 0 1,816 3,632
Mr. Roth 1,972 1999 0 1,972 3,944
1998-00 Performance Incentive Plan
Mr. Eichenfield 7,544 2000 0 7,544 15,088
Mr. Hallinan 2,431 2000 0 2,431 4,862
Mr. Smalis 2,096 2000 0 2,096 4,192
Mr. Fields 2,096 2000 0 2,096 4,192
Mr. Roth 1,361 2000 0 1,361 2,722
</TABLE>
(1) Recipients forfeit the awards unless performance reaches a minimum
level, generally 95% of the target. They may receive up to 200% of
the target for maximum performance, generally 110% of the target.
Intermediate performance is prorated. We based the target shares
awarded on the average share price for the preceding December of
$31.49 for the 1997-99 PSIP and $47.72 for the 1998-00 PSIP. The
award, if any, is paid in cash at the average share price each day of
the last month of the performance period multiplied by the number of
share units awarded.
(2) The Human Resources Committee has discretion to adjust the target and
maximum awards based on performance factors and circumstances it
selects. The targets can be adjusted up or down within set limits for
each participant. Because adjustments are within the committee's
discretion, the table disregards that possibility.
14
<PAGE>
Retirement Plans: The following table shows the estimated annual
retirement benefit payable to participants, including
the officers named in this proxy statement, for the
average annual earnings and years of service indicated.
It assumes retirement at age 65. We pay the retirement
benefits under FINOVA's Pension Plan and the
Supplemental Executive Retirement Plan -- participants
do not pay for those benefits. Only certain senior
employees participate in the supplemental plan. The
table includes the supplemental benefit formula.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Estimated Annual Retirement Benefits for Years of
Service(2)(3)(4)
Average Annual --------------------------------------------------------------
Compensation(1) 15 20 25 30 35(5)
- - ----------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 125,000 $ 32,810 $ 43,750 $ 54,690 $ 65,630 $ 76,560
150,000 39,380 52,500 65,630 78,750 91,880
175,000 45,940 61,250 76,560 91,880 107,190
200,000 52,500 70,000 87,500 105,000 122,500
225,000 59,060 78,750 98,440 118,130 137,810
250,000 65,630 87,500 109,380 131,250 153,130
300,000 78,750 105,000 131,250 157,500 183,750
400,000 105,000 140,000 175,000 210,000 245,000
450,000 118,130 157,500 196,880 236,250 275,630
500,000 131,250 175,000 218,750 262,500 306,250
750,000 196,880 262,500 328,130 393,750 459,380
1,000,000 262,500 350,000 437,500 525,000 612,500
1,250,000 328,130 437,500 546,880 656,250 765,630
</TABLE>
(1) Consists of the employee's average salary and bonus during the 60
months before retirement. Salary and bonus for 1995-97 for the
officers named in the Summary Compensation Table is listed in that
table. At year-end, the current average compensation for plan
purposes was $976,063 for Mr. Eichenfield, $409,322 for Mr. Hallinan,
$308,679 for Mr. Smalis, $294,229 for Mr. Fields and $325,958 for Mr.
Roth.
(2) Years of credited service: Mr. Eichenfield (27), Mr. Hallinan (25),
Mr. Smalis (20), Mr. Fields (15) and Mr. Roth (29). To permit Mr.
Eichenfield to retire at age 65 with the maximum years of service, he
received five additional years of credited service in 1992 and
receives three years of service each year thereafter.
(3) Benefits are computed on a single-life annuity basis. The benefits
under the plan reflect a reduction to recognize some of the Social
Security benefits expected to be received by the employee. The plans
also provide for the payment of benefits to an employee's surviving
spouse. The table excludes adjustments for joint and survivorship
provisions, which would reduce the amounts shown. Benefits generally
vest after five years of service. The plans provide for reduced early
retirement benefits. Prior plan formulas provide for different
benefits. Employees accruing benefits under the prior or the prior
and current formulas, and participants accruing benefits under only
the Pension Plan, may receive benefits different from those listed in
the table above.
(4) Federal law limits the annual benefits that can be paid from a
tax-qualified retirement plan. As permitted by that law, the
supplemental plan pays benefits above the permitted limits. Some of
those excess benefits are held in a trust, the assets of which are
available to FINOVA's creditors.
(5) The Pension Plan and the normal supplemental plan benefit formula
limit the years of service for plan purposes to a maximum of 35
years.
15
<PAGE>
EMPLOYMENT AGREEMENTS
Mr. Eichenfield: Mr. Eichenfield has been engaged as the Chairman,
President and Chief Executive Officer of FINOVA and of
FINOVA Capital. His employment agreement employs him to
He is hired for at serve for a three year term and thereafter from year to
least 3 years. We year, unless earlier terminated. The initial term
can terminate him expires on March 15, 1999. The Board can terminate him
for cause at any for cause, as defined in the agreement, at any time. He
time. serves as a member of the Board, per his agreement,
subject to reelection by the shareowners as
appropriate.
Mr. Eichenfield's base salary currently is $600,000,
subject to adjustment by the Board or the Human
Resources Committee. He participates in our incentive,
retirement, health, and other fringe benefit programs,
as long as those benefits are at least as favorable as
specified minimums. His participation in awards under
the 1992 Stock Incentive Plan is at the sole discretion
of the Human Resources Committee.
If Mr. Eichenfield is terminated, actually or
constructively, in violation of his agreement, he would
be entitled to receive his base, incentive, stock-based
and change in control compensation and specified
benefits during the remainder of the agreement, but not
less than an amount equal to one year of service plus
the sum of the highest bonus, stock, Performance Share
Incentive Plan and other performance related payments
during the two years before that termination. He would
be entitled to additional payments discussed below if a
change-in-control occurs. All stock option vestings and
pension plan accruals will continue during those
periods.
Mr. Eichenfield's employment agreement incorporates a
CEO Value Sharing Plan designed to serve as a retention
device and an incentive for creating significant
shareowner value. Those objectives are supported by
sharing with him a portion of the total shareowner
value created. If the average closing share price for
20 consecutive trading days reached the hurdles noted
below, Mr. Eichenfield was to be paid the specified
amounts. Those hurdles equate to the percentage
increases in FINOVA's share price over the base price
of $20/share selected by the Human Resources Committee.
That base price was greater than the closing price of
$19.38 on the date the plan was adopted.
<TABLE>
<CAPTION>
% Increase % of Total
Share Price Payment Over Base Price Shareowner Value
Hurdles ($Millions) of FINOVA Shares Created Paid to CEO
------------- ------------- ------------------ --------------------
<S> <C> <C> <C>
$ 27.50 $ 3.15 37.5% 0.75%
35.00 6.30 75.0% 1.50%
42.50 9.45 112.5% 2.25%
</TABLE>
Mr. Eichenfield earned the first payout under that plan
in 1996 and the second in 1997. He deferred amounts to
be paid upon reaching the second ($35/share) threshold.
Before reaching the third hurdle ($42.50/share) later
in 1997, we amended Mr. Eichenfield's employment
agreement to provide that he would not be paid the
third hurdle payment unless he continues with FINOVA
until he turns 65, except for a change in control,
death or disability.
Mr. Eichenfield will earn income on the second and
third hurdle payments based on the performance of
specified investment funds. We have assured him a
minimum return of not less than 10% a year on the third
hurdle payment, except for portions invested in fixed
income funds selected by Mr. Eichenfield, if any.
16
<PAGE>
Mr. Hallinan: Mr. Hallinan has been engaged as Senior Vice President
-- General Counsel and Secretary. His employment is
subject to termination at any time, but if terminated
other than for cause, as defined in the agreement, he
is entitled to retirement and insurance benefits
described in the Pension Plan Table above. His base
annual salary currently is $290,000. He participates in
our incentive, retirement, health and other fringe
benefit programs, as long as the benefits are at least
as favorable as on the date of the agreement.
Mr. Hallinan is also entitled to severance benefits if
Mr. Eichenfield ceases to be the Chairman and Chief
Executive Officer of FINOVA and, as a result, Mr.
Hallinan is terminated, constructively or actually,
from his current duties. In that event, he will be paid
a lump sum of three times his highest annual salary
plus the largest aggregate annual incentive payments,
pension and other benefits that he has received during
the measurement period.
Executive Severance All officers named in this proxy statement participate
Plans: in one of FINOVA's Executive Severance Plans (Tier I or
Tier II). Those plans entitle participants to immediate
vesting of restricted stock and performance-based
restricted stock, and vesting and exercisability of
options if we incur a change in control. The Tier I
plan includes Messrs. Eichenfield and Hallinan. It
entitles them to receive a lump sum payment of three
times their highest salary, bonus and Performance Share
Incentive Plan payments if they are discharged without
cause. If specified events occur, they would receive
two times their salary, bonus and PSIP payments if they
voluntarily leave during a period following a change in
control. The plans provide a tax gross up feature to
cover certain taxes the officer may have to pay
resulting from the plan. Benefits paid are reduced by
other severance benefits paid by FINOVA. The officer is
also credited with enough years of service to assure
vesting under the retirement plans or the number of
years of salary paid under the severance plan,
whichever is less.
Messrs. Smalis, Fields and Roth along with others,
participate in the Tier II plan, which has the same
terms as the Tier I plan, except as noted below. Tier
II participants would be paid a lump sum of two times
their highest annual salary, bonus and PSIP payments,
and they cannot require payment if they voluntarily
leave following a change in control.
We placed funds in a trust to pay benefits to certain
officers under the Executive Severance and other plans.
Value Sharing Plans: To recognize the significant contributions made to
FINOVA and its shareowners by executive officers and
key employees, and to reward them in the event of a
change in control, the Human Resources Committee
adopted two change in control Value Sharing Plans. One
plan is for the Chief Executive Officer and one for the
other executive officers and key employees. Both plans
provide benefits only if a change in control occurs and
if shareowner value is created. Participants other than
the CEO will share in a pool equal to 2.5% of the
change in control shareowner value created. That value
generally is the difference between the acquisition
value at the time of the change in control and the
market capitalization using a base price of $20/share,
which was in excess of the closing price of $19.38 on
the day the plans were adopted.
The CEO will be paid 0.75% of the change in control
shareowner value created if the change is for
$27.50/share or less, 1.5% if it is for $42.50/share or
more, and is
17
<PAGE>
prorated between those amounts for change in control
prices between those share prices. Initial payments
credited to Mr. Eichenfield under his employment
agreement Value Sharing Plan will be deducted from any
to be made under this change-in- control CEO Value
Sharing Plan, so that he would not be paid twice for
the same increases in shareowner value. Payments made
under both Value Sharing Plans will be grossed up for
certain taxes incurred by participants who participate
in FINOVA's Executive Severance Plans. Per share values
have been and will be adjusted for certain events such
as stock dividends or splits, mergers, reorganizations
or recapitalizations.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Dial/Viad: To facilitate the spin-off of FINOVA from The Dial
Corp, we entered into certain contracts with Dial.
Those contracts, most of which are for a limited
duration, provide among other things for the orderly
separation from Dial; the provision by Dial of certain
interim services, including tax, communications and
pension-related services of approximately $1.2 million
in 1997; a sublease of the space currently used by
FINOVA as its principal executive office, at an
approximate annual rent for the remainder of the term
until 2001 of $1.9 million including certain expenses;
and the allocation of certain tax liabilities and
benefits. In 1996, Dial underwent another spin-off and
changed its name to Viad Corp. Viad retained the
obligations under the arrangements noted above. One of
our directors, Mr. Teets, was a director of Viad during
1997.
Ventana Corporation: Mr. Smith serves as a director of Ventana Corporation,
which markets interactive computer systems software and
services. FINOVA Capital owns 200,000 shares of
Ventana's common stock, purchased before we separated
from Dial. Those shares constitute about 16% of its
common stock. In addition, FINOVA Capital has granted
Ventana a $1,000,000 line of credit, none of which was
outstanding on the Record Date. The line of credit to
Ventana was granted before we separated from Dial. It
was made in the ordinary course of business on
substantially the same terms, including interest rate
and collateral, as those prevailing at the time for
comparable transactions with other persons. The line of
credit does not appear to involve more than the normal
risk of collectibility or present other unfavorable
features.
O'Connor Cavanagh: The law firm of O'Connor, Cavanagh, Anderson,
Killingsworth & Beshears has provided certain legal
services to FINOVA on a continuing basis. Ms. Tancer is
of counsel to, but is not an equity owner of, that
firm. The arrangements with that firm are believed to
be competitive with those of other law firms serving
us.
Putnam Investments: Putnam Investments, Inc. is one of our largest
shareowners. Its ownership interest is reported on page
21 under "FINOVA Share Ownership -- Certain Beneficial
Owners." Putnam is owned by Marsh & McClennan, which
acquired J & H Marsh & McClennan, Inc. in 1997. J & H
Marsh & McClennan is FINOVA's primary insurance broker.
FINOVA paid it approximately $3.7 million during 1997,
most of which was used to purchase the underlying
insurance. We believe those transactions were at rates
competitive with others available from other brokers.
Management To assist officers and key employees in increasing
Indebtedness: their share ownership, we implemented an Executive
Officer Loan Program. Under that program, FINOVA will
loan or will guarantee a loan from an approved bank to
the officer for amounts needed to exercise stock
options and to pay taxes due on those options or other
18
<PAGE>
awards under the 1992 Stock Incentive Plan. The loans
carry a variable rate of interest at the prime rate
less 3/4 of 1%. Interest is due monthly, and the
principal is due in one year, subject to extension or
acceleration at FINOVA's discretion. Smaller loans are
secured with FINOVA shares worth at least 25% of the
value of the loan. Loans above the officer's salary and
prior year's bonus must be secured 100% with FINOVA
shares. Robert M. Korte, an executive officer of
FINOVA, has borrowed $523,248 from FINOVA under this
program. Jack Fields, III, an executive officer, has
borrowed $71,042 under this program. In connection with
his relocation to California to lead our capital
markets division, we loaned Robert E. Radway $800,000
to assist with the purchase of a residence. FINOVA
charges no interest on that 30-year loan, provided Mr.
Radway remains an employee. The principal balance is
approximately $633,075 as of March 1, 1998, and he
makes monthly principal payments on the loan. The loan
is secured by a mortgage on the home.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on a review of reports filed by our directors,
executive officers and beneficial holders of 10% or
more of our shares, and upon representations from those
persons, all SEC stock ownership reports required to be
filed by those reporting persons during 1997 were
timely made, except as noted below. Robert J.
Fitzsimmons inadvertently failed to file Forms 5 for
1995 and 1996 regarding four transactions each year
where he transferred shares into a family living trust.
In August 1996, the SEC discontinued the requirement to
report transactions like these that only involve a
change in beneficial ownership and do not affect a
reporting person's financial interest in the shares.
Mr. Fitzsimmons also inadvertently reported a sale of
500 shares, rather than 1400 shares, in his Form 4 for
April 1996. He filed an amended Form 4 during 1997 to
report the correct number.
SELECTION OF INDEPENDENT AUDITORS
We ask that you approve the following resolution on the
appointment of our independent auditors:
RESOLVED, that the shareowners ratify the
appointment of Deloitte & Touche LLP to audit the
accounts of FINOVA and its subsidiaries for the fiscal
year 1998.
Deloitte & Touche LLP has audited our accounts since
our incorporation and those of our subsidiaries for
many years. The Board appointed them as our independent
auditors for 1998, upon recommendation of the Audit
Committee. We expect a representative of Deloitte &
Touche LLP to attend the meeting, respond to
appropriate questions and be given an opportunity to
speak.
The Board recommends that you vote "FOR" the
ratification of the appointment of Deloitte & Touche
LLP as FINOVA's independent auditors for 1998.
19
<PAGE>
FINOVA SHARE OWNERSHIP
The following tables list our share ownership for the
persons or groups specified. Ownership includes direct
and indirect (beneficial) ownership, as defined by SEC
rules. To our knowledge, each person, along with his or
her spouse, has sole voting and investment power over
the shares unless otherwise noted. Information in the
first table is as of March 10, 1998. Information in the
second table is as of the latest reports by those
entities received by us. That table lists the
beneficial owners of at least 5% of our shares.
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percentage of
Name Position(s) Ownership Outstanding Shares
- - --------------------------- ------------------------------------------ ------------------------ -------------------
<S> <C> <C> <C>
Robert H. Clark, Jr. Director 36,636 (1)(2) *
G. Robert Durham Director 25,588 *
Samuel L. Eichenfield Chairman, President, and Chief 900,199 (3)(4) 1.59%
Executive Officer
James L. Johnson Director 19,000 *
Kenneth R. Smith Director 27,088 *
Shoshana B. Tancer Director 18,964 *
John W. Teets Director 124,346 (2) *
William J. Hallinan Senior Vice President -- General 142,726 (3)(4) *
Counsel and Secretary
Martin G. Roth Group Vice President -- 84,344 (3)(4) *
Transportation Finance/Capital Services
FINOVA Capital Corporation (Retired 3/98)
Gregory C. Smalis Executive Vice President 82,475 *
FINOVA Capital Corporation
Jack Fields III Executive Vice President 80,238 (3)(4) *
FINOVA Capital Corporation
Directors and Executive 2,063,855 3.66%
Officers, as a group
</TABLE>
* Less than one percent.
(1) Includes shares owned by Case Pomeroy & Company, Inc., of which Mr.
Clark is President and Chief Executive Officer, a director and, with
members of his family, a principal shareholder.
(2) Includes shares the director has a right to acquire within 60 days
through the exercise of options: Mr. Clark - 8,636 shares, Mr. Durham
- 15,588 shares, Mr. Johnson - 3,000 shares, Mr. Smith - 21,588
shares, Ms. Tancer - 16,552 shares, and Mr. Teets - 19,000 shares.
(3) Includes options to purchase shares that can be exercised within 60
days of 548,564 shares for Mr. Eichenfield, 68,782 shares for Mr.
Hallinan, 44,700 shares for Mr. Roth, 40,922 shares for Mr. Smalis,
45,598 shares for Mr. Fields, and 1,032,708 shares for all directors
and executive officers as a group.
(4) Includes performance-based restricted shares owned by those persons,
for which they have voting power but do not yet have dispositive
power, in the amounts of 67,600 shares for Mr. Eichenfield, 10,520
shares for Mr. Hallinan, 10,720 shares for Mr. Roth, 11,120 shares
for Mr. Smalis, and 9,500 shares for Mr. Fields. The number of shares
to be awarded under the PBRS grants may vary based on FINOVA's stock
performance. Reported amounts include all vested awards and target
awards for future vestings. Reported amounts also include holdings in
FINOVA's Savings and Employee Stock Ownership Plans as of February
28, 1998, according to reports of the plan administrators.
20
<PAGE>
CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
Amount and
Nature of Beneficial Percentage
Name and Address of Beneficial Owner Ownership(1) Of Shares
- - ------------------------------------------- ---------------------- -----------
<S> <C> <C>
Putnam Investments, Inc. and affiliates 6,841,400 9.18%
One Post Office Square
Boston, MA 02109
Iridian Asset Management LLC and
affiliates 3,655,200 6.49%
276 Post Road West
Westport, CT 06880-4704
(1) The information is based on reported ownership on the date of SEC
filings. The owners report they hold the shares for themselves and
their affiliates, advisory clients and investors. The entities may
disclaim that they constitute a "group" for purposes of owning these
shares.
</TABLE>
VOTING PROCEDURES / REVOKING YOUR PROXY
To be elected, directors must receive a plurality of
the shares present and voting in person or by proxy,
provided a quorum exists. A plurality means receiving
the largest number of votes, regardless of whether that
is a majority. A quorum is present if at least a
majority of the outstanding shares on the Record Date
(28,227,953 shares) are present in person or by proxy.
All matters other than the election of directors
submitted to you at the meeting will be decided by a
majority of the votes cast on the matter, provided a
quorum exists, except as otherwise provided by law or
our Certificate of Incorporation or Bylaws.
Those who fail to return a proxy or attend the meeting
will not count towards determining any required
plurality, majority or quorum. Shareowners and brokers
returning proxies or attending the meeting who abstain
from voting on a proposition will count towards
determining a quorum, plurality or majority for that
proposition.
If you are a participant in our Savings Plan, Employee
Stock Ownership Plan or The Dial Corporation or Viad
Corp's 401(k) plans, the proxy will represent the
number of shares in your plan account(s) as well as
shares registered in your name. The proxy will also
serve as a voting instruction to the trustees of those
plans for the plan shares. For our plans, if you do not
vote your shares, the trustees of those plans will not
vote them on your behalf.
The enclosed proxies will be voted in accordance with
the instructions you place on the proxy card. Unless
otherwise stated, all shares represented by your
returned, signed proxy will be voted as noted on the
first page of this proxy statement.
21
<PAGE>
Proxies may be revoked if you:
* Deliver a signed, written revocation letter, dated
later than the proxy, to W.J. Hallinan, Secretary,
at 1850 N. Central Ave., #1159, P. O. Box 2209,
You can change Phoenix AZ 85002-2209;
your mind after
sending in a proxy, * Deliver a signed proxy, dated later than the first
until the meeting, one, to Harris Trust & Savings Bank, 311 W. Monroe
by following these St., P.O. Box A3800, Chicago, IL 60690-9608; or
procedures.
* Attend the meeting and vote in person or by proxy.
Attending the meeting alone will not revoke your
proxy.
Proxy Beacon Hill Partners, Inc. will help us solicit proxies
Solicitation: at a cost to FINOVA of $3,500 plus expenses. Our
employees may also solicit proxies for no additional
compensation. We will reimburse banks, brokers,
custodians, nominees and fiduciaries for reasonable
expenses they incur in sending these proxy materials to
you if you are a beneficial holder of our shares.
SUBMISSION OF SHAREOWNER PROPOSALS
From time to time, shareowners seek to nominate
directors or present proposals for inclusion in the
proxy statement and form of proxy for consideration at
the annual meeting. To be included in the proxy
statement or considered at an annual or any special
meeting, you must timely submit nominations of
directors or proposals, in addition to meeting other
legal requirements. We must receive proposals for the
1999 annual meeting no later than November 27, 1998,
for possible inclusion in the proxy statement, or
between February 13 and March 5, 1999, for possible
consideration at the meeting, which is expected to take
place on Thursday, May 13, 1999. Direct any proposals,
as well as related questions to the undersigned.
OTHER BUSINESS
The Board of Directors knows of no other matters for
consideration at the meeting. If any other business
should properly arise, the persons appointed in the
enclosed proxy have discretionary authority to vote in
accordance with their best judgment.
A copy of FINOVA's 1997 Annual Report on form 10-K to
the Securities and Exchange Commission may be obtained
by shareowners, without charge, upon written request to
Shareowner Services, The FINOVA Group Inc., 1850 North
Central Avenue, Mail Station 1159, P.O. Box 2209,
Phoenix, Arizona 85002-2209. You may also obtain our
SEC filings through the internet at www.sec.gov.
By order of the Board of Directors.
W.J. Hallinan
Senior Vice President -- General Counsel and Secretary
PLEASE VOTE -- YOUR VOTE IS IMPORTANT
22
<PAGE>
PROXY/VOTING INSTRUCTION CARD
THE FINOVA GROUP INC. (R)
c/o Harris Trust & Savings Bank, P.O. Box A3800, Chicago, IL 60690-9608
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
I (whether one or more of us) appoint G. Robert Durham, Kenneth R. Smith and
Shoshana B. Tancer, and each of them, to be my Proxies. The Proxies may vote on
my behalf, in accordance with my instructions, all of my shares entitled to vote
at the Annual Shareholders Meeting of The FINOVA Group Inc. ("FINOVA"). The
meeting is scheduled for May 14, 1998, but this proxy includes any
adjournment(s) of that meeting. The Proxies may vote on my behalf as if I were
personally at the meeting. This card also provides voting instructions (for
shares held in my account(s), if any) to the trustees of FINOVA's Savings Plan
and Employee Stock Ownership Plan and Viad Corp and The Dial Corporation's
401(k) plans.
Comments: (Please feel free to comment on any aspects of FINOVA's business in
the following space. Your comments will be reviewed, although we may not respond
on an individual basis.)
PLEASE COMPLETE, DATE AND SIGN ON REVERSE SIDE AND
RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE
- - --------------------------------------------------------------------------------
^ DETACH HERE BEFORE MAILING TOP PORTION ^
<PAGE>
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY ()
[ ]
In their discretion, the Proxies may vote on any other business that properly
comes before the meeting. This proxy when properly executed will be voted as
instructed below by the undersigned stockholder. If no marking is made, this
proxy will be deemed to be direction to vote FOR proposals 1 and 2, unless
otherwise determined by the Board of Directors or the Proxies.
<TABLE>
<CAPTION>
The Board of Directors recommends a vote FOR:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR ALL
FOR WITHHOLD EXCEPT* FOR AGAINST ABSTAIN
1. Election of directors whose () () () 2. Ratify the appointment of Deloitte & Touche LLP () () ()
terms expire in 2001: as FINOVA's independant auditors for 1998
Samuel L. Eichenfield James L. Johnson
John W. Teets
*
-------------------------
Nominee Exemption
Please sign exactly as name appears at the left. When
Shares are held by joint tenants, both should sign.
When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by
president or other authorized officer. If a part-
nership, please sign in partnership name by autho-
rized person. Please date the proxy.
Dated__________________________________________________
(Please mark address changes above.) Signed_________________________________________________________
[ ] MULTIPLE SHAREHOLDER PUBLICATIONS.
Please check here to stop mailing of
shareholder publications for this Signed_________________________________________________________
account, since multiple copies come
to this address.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
