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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by Rule 14a-6(e)(2)) to Rule 14a-11(c) or Rule 14a-12
THE FINOVA GROUP INC.
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THE FINOVA GROUP INC.(R)
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 1999 Annual Shareowners Meeting. The
meeting will be held on Thursday, May 13, 1999, at The Phoenician Resort, 6000
East Camelback Road, Scottsdale, 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
<PAGE>
NOTICE OF ANNUAL SHAREOWNERS MEETING
MARCH 23, 1999
TO THE HOLDERS OF COMMON STOCK OF
THE FINOVA GROUP INC.
We will hold the Annual Shareowners Meeting of The FINOVA Group Inc.
("FINOVA") at the Phoenician Resort, 6000 East Camelback Road, Scottsdale,
Arizona 85251, on Thursday, May 13, 1999, at 9:00 a.m., Mountain Standard Time.
The meeting's purpose is to:
1. Elect 3 directors;
2. Increase the number of authorized shares under FINOVA's Certificate of
Incorporation;
3. Ratify Deloitte & Touche LLP as FINOVA's independent auditors for
1999; and
4. 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, 8:00
a.m., EST, on March 15, 1999 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 also will be available on the same basis for ten days prior to
the meeting at our principal executive office, 1850 N. Central Avenue, P.O. Box
2209, Phoenix, Arizona 85002-2209.
We have enclosed the 1998 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. You may
also vote through the telephone or the internet, as explained on the enclosed
proxy card. Your proxy is being solicited by the Board of Directors.
W.J. HALLINAN
Senior Vice President -
General Counsel and Secretary
PLEASE VOTE - YOUR VOTE IS IMPORTANT
<PAGE>
THE FINOVA GROUP INC.(R)
1850 N. Central Avenue
P. O. Box 2209
Phoenix, Arizona 85002-2209
ANNUAL SHAREOWNERS MEETING
PROXY STATEMENT
ANNUAL MEETING:
May 13, 1999
9:00 a.m., MST
The Phoenician Resort
6000 East Camelback Road
Scottsdale, Arizona 85251
RECORD DATE:
8:00 a.m., EST, March 15, 1999. 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 [56,045,276] shares of our common stock
outstanding.
AGENDA:
1. Elect 3 directors.
2. Increase the number of authorized shares under our Certificate of
Incorporation.
3. Ratify the selection of Deloitte & Touche LLP as our independent
auditors for 1999.
4. Any other proper business.
PROXIES:
We will follow your voting
instructions. If none, we will vote
signed proxies for the proposals.
Unless you tell us on the proxy card to vote differently, we will vote signed
returned proxies "for" the Board's nominees and "for" agenda items 2 and 3. The
Board or proxy holders will use their discretion on other matters. If a nominee
cannot or will not serve as a director, the Board or proxy holders will vote for
a person whom they believe will carry on our present policies.
PROXIES SOLICITED BY:
The Board of Directors.
FIRST MAILING DATE:
We anticipate first mailing this proxy statement on March 24, 1999.
REVOKING YOUR PROXY:
You may revoke your proxy before it is voted at the meeting. To revoke, follow
the procedures listed on page 22 under "Voting Procedures / Revoking Your
Proxy."
NOTE ON STOCK SPLIT:
We split our common stock on a 2-for-1 basis on October 1, 1997. All shares,
share prices and related figures in this proxy statement are restated to reflect
the stock split.
YOUR COMMENTS:
We welcome your comments. The proxy
card has room for them.
Your comments about any aspects of our business are 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 to measure your
satisfaction, and we may benefit from your suggestions.
PLEASE VOTE - YOUR VOTE IS IMPORTANT
PROMPT RETURN OF YOUR PROXY WILL HELP REDUCE THE COSTS OF RESOLICITATION.
<PAGE>
* We expect to vote on these items at the meeting.
CONTENTS
General Information....................................................... 1
*Election of Directors..................................................... 2
*Increase of Authorized Shares............................................. 4
*Selection of Independent Auditors......................................... 6
Board Information......................................................... 6
Human Resources Committee Report on Executive Compensation (1)............ 8
Performance Graph (1)..................................................... 12
Executive Compensation and Other Information.............................. 12
Employment Agreements..................................................... 17
Compensation Committee Interlocks and Insider Participation............... 18
Section 16(a) Beneficial Ownership Reporting Compliance................... 19
FINOVA Share Ownership.................................................... 19
Voting Procedures/Revoking Your Proxy..................................... 21
Submission of Shareowner Proposals........................................ 22
Other Business............................................................ 22
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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.
PROPOSAL ONE: ELECTION OF DIRECTORS
BOARD STRUCTURE:
The Board has eight members. The directors are divided into three classes. At
each annual meeting, the term of one class expires. Directors in each class
serve for three year terms.
BOARD NOMINEES TERMS EXPIRE AT THE 2002 ANNUAL MEETING:
We will elect 3 Directors this year.
We urge you to Vote for Ms. Curran, Mr. Durham and Mr. Smith.
Constance R. Curran
[PHOTO]
President and Chief Executive Officer of CurranCARE, Inc. (a nationwide
healthcare management company) since 1995. Vice Chairman and National Director
of APM, Patient Care Services from 1990-1995. Formerly Vice President of the
American Hospital Association and Dean, the Medical College of Wisconsin. Editor
of NURSING ECONOMICS$ since 1990. Director of Allegiance Corporation since 1996.
Age 51.
G. Robert Durham
[PHOTO]
Retired Chairman and Chief Executive Officer of Walter Industries, Inc. (a
homebuilding and financing, building materials, natural resources and industrial
manufacturing 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 Homestake
Mining Company, The MONY Group Inc. (formerly Mutual Life Insurance Company of
New York) and Amphenol Corp. Board member since 1992. Age 70.
Kenneth R. Smith
[PHOTO]
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, and Vice Provost from 1992 to 1995 of The University of Arizona. Chairman
since 1996 and Director since 1990 of Apache Nitrogen Products, Inc. Former
director of Southwest Gas Corporation. Board member since 1992. Age 56.
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THESE NOMINEES.
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CONTINUING DIRECTORS
TERMS EXPIRE AT THE 2000 ANNUAL MEETING:
Robert H. Clark, Jr.
[PHOTO]
Chief Executive Officer since 1993, President since 1983 and a director since
1968 of Case, Pomeroy & Company, Inc. (a mining, oil & gas and real estate
company). Also a director of Homestake Mining Company. Board member since 1997.
Age 58.
Shoshana B. Tancer
[PHOTO]
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 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 63.
TERMS EXPIRE AT THE 2001 ANNUAL MEETING:
Samuel L. Eichenfield
[PHOTO]
Chairman, President and Chief Executive Officer of FINOVA for more than five
years. Also, Chairman, President and Chief Executive Officer of FINOVA Capital
Corporation, the principal operating subsidiary of FINOVA, for more than five
years. Board member since 1992. Age 62.
James L. Johnson
[PHOTO]
Chairman Emeritus and a director of GTE Corporation (a diversified
telecommunications company) since 1993. Before that he was its Chairman and
Chief Executive Officer. Director of The MONY Group Inc. (formerly Mutual Life
Insurance Company of New York), Harte/Hanks Communications Co., Inc., Cell Star
Corporation, Valero Energy Corporation and Walter Industries, Inc. Board member
since 1992. Age 71.
John W. Teets
[PHOTO]
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 of Viad Corp, formerly The Dial Corp, for more than 5 years. Board
member since 1992. Age 65.
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PROPOSAL TWO: INCREASE IN AUTHORIZED SHARES
The Board believes it is in FINOVA's best interest to approve a proposal to
amend our Certificate of Incorporation (the "Certificate") to increase the
number of shares of common stock FINOVA is authorized to issue from 100 million
to 400 million and the number of preferred shares from 5 million to 20 million.
We ask that you approve the following resolution to increase the number of
authorized shares by amending our Certificate of Incorporation:
PROPOSED RESOLUTION:
RESOLVED, that the first paragraph of Article IV of this Corporation's
Certificate of Incorporation is amended to read as follows:
The total number of shares of stock which the Corporation shall have
authority to issue is Four Hundred Twenty Million (420,000,000), consisting
of Twenty Million (20,000,000) shares of Preferred Stock, par value $.01
per share (hereinafter referred to as "Preferred Stock"), and Four Hundred
Million (400,000,000) shares of Common Stock, par value $.01 per share
(hereinafter referred to as "Common Stock").
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE AMENDMENT OF THE CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES.
REASONS FOR THE PROPOSAL:
Approval of the proposal will give us continued flexibility to:
+ Split Our Stock
+ Fulfill Our Contractual Obligations
+ Pursue Growth Opportunities
+ Raise Needed Equity Capital
+ Compensate Our Employees
FUTURE STOCK SPLITS: During 1997, we split our common stock on a 2-for-1 basis,
following a significant increase in the market price for our shares from the
time we became an independent company. We cannot effect another stock split
without an amendment to the Certificate, due to the number of shares currently
outstanding and those reserved for issuance, as noted below. We cannot assure
that our stock price will continue to increase or that the Board will declare
another stock split at any price or at all. Approval of this proposal, though,
will give FINOVA flexibility to maintain a reasonable stock price by permitting
future stock splits, if the Board deems it appropriate. Approval of the proposed
amendment at this time will help avoid the expense and delay of a special
shareowner meeting or having to wait for the next annual meeting if the Board
decided to enact a future stock split.
CONTRACTUAL OBLIGATIONS: FINOVA has issued approximately 56 million of its
common shares and none of its preferred shares, as of March 15, 1999. Of the
remaining 44 million shares of common stock, we have existing contractual
obligations to issue approximately 15.8 million shares in the future:
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Obligation: Approximate Number of Shares Reserved:
----------- --------------------------------------
Stock Based Incentive Plans 4 million
Convertible Trust Originated 2.9 million
Preferred Securities
Belgravia Capital Corporation 2.2 million
Acquisition Earn Out (based
on an assumed stock price)
Sirrom Capital Corporation Acquisition 6.7 million
(including options) - (Pending)
------------
Total: 15.8 million
We presently do not have any agreements or understandings to issue more than the
number of shares of stock than are currently authorized.
PURSUE OUR GROWTH STRATEGY: Approval of the proposed amendment also will assist
FINOVA's growth strategy. Since we became an independent company in 1992, FINOVA
has acquired a number of companies to broaden our product line, add critical
mass to our operations, expand our geographic market presence, add expertise and
further enhance our competitive position. We have paid for some of those
acquisitions with FINOVA shares, including the pending acquisition of Sirrom
Capital Corporation, noted above. Our strategy includes evaluation of future
acquisition proposals as they arise, some of which may be significant. Approval
of the proposal will give us continued flexibility in deciding how to pay for
acquisitions, such as through common or preferred stock, cash, or other means.
RAISE NEEDED EQUITY: Increasing the number of authorized shares will help enable
us raise needed equity to assist our ongoing business, facilitate potential
future acquisitions and fulfill other needs. In addition, we need to keep our
debt-to-equity ratios at acceptable levels to maintain investment-grade ratings
on our debt and as required by our debt agreements. Inability to raise
additional equity could constrain our future growth.
EMPLOYEE INCENTIVE COMPENSATION: Approval of the proposed amendment will allow
us to continue to offer stock-based incentive compensation to our employees and
directors. That form of compensation has helped align their interests with
yours, by tying a significant portion of their pay to increases in the stock's
value. Stock-based compensation is an important element of FINOVA's employee
compensation program, and is one we believe is a competitive advantage for
FINOVA due to its historic performance.
NO FURTHER APPROVAL BEFORE ISSUANCE AND NO PROPORTIONATE SUBSCRIPTION RIGHTS:
If this proposal is approved, the Board can issue any of those shares without
your further approval, unless that approval is required by law or stock exchange
rules. For example, NYSE rules currently require us to obtain your approval if
we seek to issue more than 20% of our outstanding shares other than in a public
offering for cash.
In addition, you will not have any rights to subscribe to any of the shares on a
proportionate basis. As a result, the issuance of those shares could reduce your
proportionate ownership share of FINOVA.
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ANTI-TAKEOVER IMPACT:
We have not proposed the increase in the number of authorized shares with the
intention of using the additional shares for anti-takeover purposes. We could,
however, use those shares to make more difficult or to discourage an attempt to
gain control of FINOVA. Doing so might discourage an attempted change-in-control
that could result in a higher price for your shares.
SUMMARY:
Approval of this proposal will assist FINOVA in its attempts to maintain a
reasonable stock price, grow our business, raise needed equity, fulfill our
existing contractual obligations and compensate our employees in a way that
helps align their interests with yours.
PROPOSAL THREE: 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
1999.
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 1999, 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 1999.
BOARD INFORMATION
BOARD MEETINGS:
In 1998, the Board held a total of 8 regular quarterly and special meetings.
Each director attended at least 75% of his or her Board and committee meetings.
BOARD COMMITTEES:
THE EXECUTIVE COMMITTEE exercises all the powers of the Board when the Board is
not in session, except as limited by law. The Executive Committee held no
meetings but reviewed a number of transactions by unanimous written action
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. It supervises our
corporate compliance program and the Ethics Committee. The Audit Committee held
6 meetings in 1998. All members are non-employee directors, except Mr.
Eichenfield, who does not vote on Audit Committee matters. Members: Ms. Tancer,
Chairman, Ms. Curran, Mr. Clark and Mr. Teets. Mr. Eichenfield (non-voting).
THE HUMAN RESOURCES COMMITTEE authorizes and approves executive succession plans
and 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 5 regular and special meetings in 1998. 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.
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BOARD COMPENSATION
RETAINER AND FEES
Directors may elect to receive their
retainer in cash, shares or options.
Non-employee directors received a $25,000 annual retainer which was increased to
$30,000 as of July 1, 1998. To encourage directors to own our shares, they may
elect to receive their retainer in cash, restricted stock or stock options. The
director generally cannot sell or transfer the restricted stock and the options
do not vest (become 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 GRANTS:
Non-employee directors receive options to purchase 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 COMPENSATION PLANS:
Non-employee directors may defer all or part of their retainer and fees under
the Directors' Deferred Compensation Plan. Deferred amounts earn interest at an
industrial bond rate in effect each quarter. The director may generally
determine when the funds are to be paid.
Directors also may 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. The trust 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 PLAN:
Non-employee directors participate in the Directors' 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 AWARDS PROGRAMS:
As part of our overall support for charities, and to help attract directors with
outstanding experience and 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.
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HUMAN RESOURCES COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
THE COMMITTEE:
The Human Resources Committee is comprised only of 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 also
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.
OVERALL OBJECTIVES:
We have developed a compensation program for executives and key employees
designed to meet the following goals.
Our compensation programs seek to fulfill these objectives.
+ Reward performance that increases the value of your stock.
+ Attract, retain and motivate executives and key 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 COMPENSATION GENERALLY:
We review executives' pay each year. Compensation depends on many factors,
including individual 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 15 similar financial services companies. The Standard & Poor's Financial
Index includes 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 15 companies for our
salary comparisons, rather than the broader index, because we believe the 15
more closely reflect our competitors for executive talent.
TOTAL COMPENSATION:
We tie a large % of our pay performance, such as increasing share price.
We have targeted total compensation levels for the 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. The compensation study indicated that
some of the executives were targeted substantially below that level. We adjusted
their compensation to partially close to that gap. Our primary objective is to
place more of compensation at risk in the form of short-term and long-term
compensation than our competitors, on average. Doing so helps encourage
performance that increases the value of your shares. As a result, maximum
performance warrants additional rewards.
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Each year we have substantially increased performance targets.
In each of the past five years, we set the target, minimum and maximum
performance levels for our annual and long-term incentive plans substantially
above not only the prior year's target goals, but also above the prior year's
actual performance, which exceeded those targets. Doing so motivates the
officers to encourage future growth and keeps the goals challenging. FINOVA has
repeatedly exceeded our aggressive increases in performance objectives. 1998 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.
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.
We did not pay the full bonus achieved at FINOVA Capital, despite
achieving higher performance.
In 1998, FINOVA achieved 176% of target and FINOVA Capital achieved 183% of
target. We accepted management's recommendation to voluntarily reduce the awards
under the FINOVA Capital MIPs, since several lines of business performed above
target, but below maximum, and our factoring unit experienced unacceptable
levels of loan losses. We authorized awards for those plans at 176% 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 1998 performance goals and
their relative importance for plan purposes were earnings per share (30%), net
income from continuing operations (30%), return on equity (30%) and relative
shareowner performance (10%). We determined final awards after receiving
recommendations from Mr. Eichenfield. In 1998, FINOVA's overall performance
exceeded each of the maximum performance targets established, except relative
shareowner performance exceeded the minimum target by 20% of the range.
Annual bonuses for most of our employees are based on FINOVA Capital's
performance. Those goals for 1998 were net income from continuing operations
(40%), return on equity (40%) and average managed assets (20%).
LONG-TERM INCENTIVES:
We grant options only at or above the current market price of our shares.
We provide long-term incentives through stock options, performance-based
restricted stock and the Performance Share Incentive Plans discussed below.
These plans help focus top management on specific long-term goals and link their
incentives to increases in our share price. Options give executives an
opportunity to buy our shares. We grant 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 1998. The
exercise price of the first portion is at the fair market value on the grant
date. The exercise price of portions that vest in later years carry one or more
higher exercise prices. Those premiums require management to create increasing
value for your shares before they can realize any value from their options. We
anticipate that those options will be their only option grants during the years
those options vest, although we have discretion to make additional grants during
that time.
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Restricted stock grants to employees require that we equal or
outperform the market or the shares are forfeited.
Although we could grant restricted stock to executives that, for example, might
vest with the mere passage of time or continued employment, we have chosen
instead since mid-1992 to grant only performance-based restricted shares that
have more stringent performance goals. Those goals require that FINOVA perform
at least as well as the market (as measured by the S&P 500 or 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 1998.
The Performance Share Incentive Plans ("PSIPs") focus management on long-term
goals other than share appreciation. For the 1998-2000 and 1999-2001 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
1998-2000 and 1999-2001 PSIP goals are net income from continuing operations
(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 of salary are divided by the
December average share price before the beginning of the PSIP plan, to result in
the number of PSIP shares awarded to that participant. 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 1996-98 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 OWNERSHIP GUIDELINES:
We encourage our directors and senior management to own our
shares through these guidelines.
To help address the overall objectives of our compensation program, in 1993 the
Board adopted FINOVA stock ownership guidelines for senior management and
directors. Persons subject to the guidelines are encouraged to assure that their
ownership of our shares and options reaches and remains at or above targeted
levels. The amounts depend on the person's level of responsibility and
compensation. If the person violates the guidelines, we have discretion to
withhold or reduce future stock or option awards to the executive. We reviewed
current holdings of the executives during 1998. 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 CONCERNS:
Section 162(m) of the Internal Revenue Code disallows the corporate income tax
deduction on executive compensation paid to senior executives in excess of $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. You approved amendments in 1997 to the 1992 Stock Incentive Plan
continuing that plan's qualification under Section 162(m). Therefore, we expect
to receive a tax deduction for compensation under those awards.
10
<PAGE>
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 page 5 of this proxy statement under "Deferred Compensation Plans."
STOCK OPTION PROGRAM:
All of our full time employees receive stock options. These
grants help motivate all employees.
FINOVA has been a leader in granting stock options to 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 FINOVA. In
addition, we grant awards from time to time to all employees. Non-executive
officer employees received options to purchase a total of 883,560 shares in
1998. Those grants constituted about 75% of the options granted last year. These
grants help motivate outstanding performance by all our employees, and encourage
everyone at FINOVA, not just executives, to increase the value of FINOVA shares.
CEO COMPENSATION:
Mr. Eichenfield's pay reflects the leadership, vision and focus
he has provided.
We set Mr. Eichenfield's total compensation based on FINOVA's outstanding
performance, his individual performance, compensation levels at other companies,
the desire to retain him and the terms of his employment agreement. His salary
and incentives reflect the leadership, vision and focus he has provided prior to
and since we became independently owned. FINOVA's earnings have reached new
records each year since that time. Net income increased to $169.7 million in
1998 from $139.1 million in 1997. Diluted earnings per share increased to $2.86
from $2.42 during that time. The market value of our shares increased to about
$3 billion from just over $435 million when we became independently owned.
At the same time, Mr. Eichenfield has positioned FINOVA for future success. New
business from continuing operations during 1998 resulted in a 19% growth in our
managed assets (our financing contracts plus those we manage for others).
Non-performing assets from continuing operations were at 2.0% of managed assets
at the end of 1998, 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 at
the top 25% level of chief executives of the other companies. His base salary
and total compensation are at the top 25% level of his peers.
As discussed above, the majority of Mr. Eichenfield's compensation is placed at
risk because it is tied to performance goals, including our share price. His
peers generally have less pay at risk.
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
11
<PAGE>
PERFORMANCE GRAPH
Comparison of Cumulative Total Return Among
FINOVA, Standard & Poor's 500 Index and S&P Financial Index(1)
- - ----------
(1) Assumes $100 invested on December 31, 1993 and dividends reinvested.
Historical performance does not necessarily predict future results.
December 31:
--------------------------------------------------------------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
FINOVA $100.00 $112.07 $173.97 $235.46 $368.80 $405.05
S&P Financial 100.00 96.35 148.34 200.54 297.03 330.99
S&P 500 100.00 101.32 139.34 171.32 228.46 293.74
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF COMPENSATION:
1998 pay refllects FINOVA's strong performance.
The following table summarizes the compensation we paid the Chairman, President
and Chief Executive Officer and each of the four other most highly compensated
executive officers as of the end of 1998, based on salary and Management
Incentive Plan bonus.
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 1998 $609,000 $589,512 $157,854 $1,586,936 250,000 $1,559,390 $9,600
Chairman, President and 1997 582,333 576,510 165,155 1,114,954 8,276,965 9,500
Chief Executive Officer 1996 553,500 547,965 178,193 906,044 4,355,750 9,000
William J. Hallinan 1998 294,333 207,211 281,044 100 527,345 9,600
Senior Vice President- 1997 281,667 202,800 203,821 20,000 669,168 9,500
General Counsel & Secretary 1996 269,500 194,040 53,099 177,455 5,000 445,198 9,000
Jack Fields III 1998 266,667 224,400 380,998 500 307,704 9,600
Executive Vice President 1997 205,333 182,532 185,080 25,000 320,536 9,500
FINOVA Capital Corp. 1996 184,833 141,213 141,624 1,000 223,795 9,000
Matthew M Breyne
Executive Vice President
FINOVA Capitl 1998 266,667 211,200 266,148 500 297,560 9,600
Executive Vice President 1997 199,604 155,691 56,842 145,389 21,000 314,027 3,800
FINOVA Capital Corp. 1996 179,333 101,289 138,207 1,000 186,895 7,850
John J. Bonano 1998 266,667 204,000 55,068 415,965 230,778 9,600
Executive Vice President 1997 203,958 101,979 140,935 20,000 222,595 8,143
FINOVA Capital Corp. 1996 184,833 132,707 134,891 214,350 9,000
</TABLE>
12
<PAGE>
(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.
(3) Includes personal benefits we paid, including tax gross-up payments in 1998
of $102,926 on behalf of Mr. Eichenfield and $29,728 on behalf of Mr.
Bonano.
(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.
The 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.
The named officers received the following awards of PBRS:
1998 1997 1996
---- ---- ----
Mr. Eichenfield 12,000 14,400 24,000
Mr. Hallinan 2,500 2,880 4,800
Mr. Fields 5,000 2,900 4,000
Mr. Breyne 3,000 2,880 4,800
Mr. Bonano 6,000 2,880 4,800
Of the 1998 PBRS awards noted above, those grants included 2,000 "premium"
PBRS shares granted to Mr. Eichenfield, 500 shares to Mr. Breyne and 1,000
shares to Mr. Bonano 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. We suspended that program in 1998, so future awards are not
anticipated, although existing awards will continue to vest if performance
targets are achieved.
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, 1998, were: Mr. Eichenfield - 79,600 ($4,293,425); Mr.
Hallinan - 13,020 ($702,266); Mr. Fields - 14,500 ($782,094); Mr. Breyne -
13,120 ($707,660); and Mr. Bonano - 16,120 ($869,473).
(6) For the 1998 grants, the exercise price of Mr. Eichenfield's options for
the portions vesting in later years are higher than the grant price of the
initial vesting, as described in the next section below.
(7) Options have been adjusted for the 2-for-1 stock split in October 1997.
(8) Matching payments made by FINOVA under the Employee Stock Ownership Plan or
Savings Plan.
13
<PAGE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS:
The following table lists our grants during 1998 of stock options and tandem
stock appreciation rights ("SARs") to the officers named in the Summary
Compensation Table. The amounts shown as potential realizable values rely on
arbitrarily assumed increases in value required by the SEC. In assessing those
amounts, please note that the ultimate value of the options, as well as your
shares, depends on actual future share prices. 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 value if our share price increases.
The potential realizable values for all shareowners represent the corresponding
increases in the value of outstanding shares, assuming 56 million shares were
outstanding. Annual appreciation at 5% from the grant date would increase the
market value of all outstanding shares by more than $1.75 billion, and 10%
annual appreciation would increase it by more than $4.4 billion over the 10-year
option term.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO POTENTIAL REALIZABLE VALUE AT ASSUMED
OPTIONS/SARS EMPLOYEES EXERCISE OR ANNUAL RATES OF SHARE PRICE APPRECIATION
GRANTED IN FISCAL BASE PRICE EXPIRATION FOR OPTION TERRM
NAME (2)(1) YEAR ($/SHARE)(2) DATE 5% 10%
---- ------------ ----------- ----------- ---------- -------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
FEBRUARY GRANT:
All Shareowners'
Share If Shares at $80.63: If at $128.39:
Appreciation $1,743,280,000 $4,417,840,000
Mr. Breyne 500 .0437 49.50 2/11/08 15,560 39,428
Mr. Fields 500 .0437 49.50 2/11/08 15,560 39,428
AUGUST GRANT:
All Shareowners'
Share If Shares at $88.73: If at $141.28:
Appreciation $1,918,560,060 $4,861,360,000
Mr. Hallinan 100 .0087 54.4688 8/12/08 3,426 8,681
Mr. Eichenfield 31,250 2.7339 54.4688 8/12/08 1,070,470 2,712,785
62,500 5.4679 61.2774 8/12/08 1,715,406 5,000,032
62,500 5.4679 68.9371 8/12/08 1,236,672 4,521,301
62,500 5.4679 77.5542 8/12/08 698,103 3,982,732
31,250 2.7339 83.2092 8/12/08 172,333 1,814,647
</TABLE>
(1) Mr. Eichenfield's options: The first portion of Mr. Eichenfield's options
vested on the grant date. The next three portions vest evenly over the next
three years. The final portion vests on February 28, 2002. If he has not
yet retired and if FINOVA's stock price reaches $83.2092 before March 13,
2002 (his normal retirement date), Mr. Eichenfield will be able to exercise
the options until the expiration date, even if he later retires.
The remaining 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 termination of employment. The limited SARs entitle the person to
receive, if desired, the difference between the then-current market value
and the exercise price. In total, 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.
14
<PAGE>
1998 OPTION AND SAR HOLDINGS:
The long-term plans encourage sustained performance.
The following table lists the number of shares acquired and the value realized
as a result of option exercises during 1998 for the listed officers. It also
includes the number and value of their exercisable and non-exercisable options
and SARs as of December 31, 1998. The table contains values for "in the money"
options, meaning a positive spread between the year-end share price of $53.9375
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.
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 82,100 $3,556,478 497,714 218,750 $18,748,408 $ 0
Mr. Hallinan 70,696 2,014 2,855,667 39,377
Mr. Fields 4,900 248,388 50,298 25,490 1,829,337 253,031
Mr. Breyne 4,800 249,054 35,748 24,066 1,254,986 259,112
Mr. Bonano 1,000 42,719 27,600 20,800 863,629 215,739
</TABLE>
LONG-TERM INCENTIVE COMPENSATION:
As noted above in the Human Resources Committee's report, the Performance Share
Incentive Plans ("PSIPs") compensate executives for helping us achieve sustained
performance goals and encourage their continued efforts on our behalf. FINOVA's
1999-2001 PSIP measures increases in net income from continuing operations,
earnings per share and return on average equity. FINOVA Capital's 1999-2001 PSIP
measures return on average equity, economic profit and net income from
continuing operations. 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
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)
---- -------- --------- --- ------ ------
Mr. Eichenfield 7,177 2001 0 7,177 14,354
Mr. Hallinan 2,312 2001 0 2,312 4,624
Mr. Fields 2,289 2001 0 2,289 4,578
Mr. Breyne 2,289 2001 0 2,289 4,578
Mr. Bonano 2,289 2001 0 2,289 4,578
(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 $52.42 for the 1999-2001 PSIP. The award, if
any, is paid in cash at the average of the average share price for 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.
15
<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
ESTIMATED ANNUAL RETIREMENT BENEFITS
FOR YEARS OF SERVICE(2)(3)(4)
AVERAGE ANNUAL ---------------------------------------------------------
COMPENSATION(1) 15 20 25 30 35(5)
--------------- ------- ------- ------- ------- -------
$ $ $ $ $ $
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
1,500,000 393,750 525,000 656,250 787,500 918,750
(1) Consists of the employee's average salary and bonus during the 60 months
before retirement. Salary and bonus for 1996-98 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 $1,045,523 for Mr.
Eichenfield, $429,046 for Mr. Hallinan; $328,994 for Mr. Fields; $320,895
for Mr. Breyne; and $304,749 for Mr. Bonano.
(2) Years of credited service: Mr. Eichenfield (30), Mr. Hallinan (26), Mr.
Fields (16), Mr. Breyne (12) and Mr. Bonano (9). 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.
16
<PAGE>
EMPLOYMENT AGREEMENTS
MR. EICHENFIELD:
He is hired for at least 1 year. We can terminate for for cause
at any time.
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
serve for a three year term and thereafter from year to year, unless earlier
terminated. The initial term expired on him March 15, 1999, so it has been
extended until March 15, 2000. The Board can terminate him cause, as defined in
the agreement, at any He serves as a member of the Board, per his time.
agreement, subject to reelection by the shareowners as appropriate.
Mr. Eichenfield's base salary currently is $627,000, 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. HALLINAN:
Mr. Hallinan has been engaged as Senior Vice President - General Counsel and
Secretary. His base annual salary currently is $303,000. 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 subject to termination at any time. However, he also is 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 PLANS:
All officers named in this proxy statement participate 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.
17
<PAGE>
Messrs. Fields, Breyne and Bonano 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 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 discussed in the 1998 Proxy Statement 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
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 Mr. Smith became a member of our board.
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 also granted
before Mr. Smith became a member of our board. 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.
18
<PAGE>
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 $3.5 million during 1998, 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 INDEBTEDNESS:
To assist officers and key employees in increasing 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
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, unless extended or accelerated 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. The following executive officers have
borrowed under this program: Robert M. Korte: $523,248; Jack Fields: $88,194;
and Matthew M. Breyne: $74,426.
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 1998 were timely made except Meilee Smythe, Senior Vice
President-Treasurer, inadvertently filed her initial Form 3 one day late due to
a miscalculation of days available for filing with an intervening holiday.
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 February 24, 1999. 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.
19
<PAGE>
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 39,636 *
Constance R. Curran Director 4,000 *
G. Robert Durham Director 28,588 *
Samuel L. Eichenfield Chairman, President, and Chief
Executive Officer 919,415 1.64%
James L. Johnson Director 22,000 *
Kenneth R. Smith Director 31,088 *
Shoshana B. Tancer Director 21,685 *
John W. Teets Director 130,867 *
William J. Hallinan Senior Vice President - General
Counsel and Secretary 146,265 *
Executive Vice President
Jack Fields III FINOVA Capital Corporation 88,680 *
Executive Vice President
Matthew M. Breyne FINOVA Capital Corporation 71,915 *
Executive Vice President
John J. Bonano FINOVA Capital Corporation 56,842 *
Directors and Executive
Officers, as a group 1,964,810 3.51%
</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 - 11,636 shares, Ms. Curran - 4,000
shares, Mr. Durham - 18,588 shares, Mr. Johnson - 3,000 shares, Mr. Smith -
24,588 shares, Ms. Tancer - 19,552 shares, and Mr. Teets - 22,000 shares.
(3) Includes options to purchase shares that can be exercised within 60 days of
497,714 shares for Mr. Eichenfield, 72,920 shares for Mr. Hallinan, 44,544
share for Mr. Fields, 28,264 shares for Mr. Breyne, 25,824 shares for Mr.
Bonano, and 925,856 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 55,920 shares for Mr. Eichenfield, 9,484 shares for Mr. Hallinan,
11,520 shares for Mr. Fields, 9,984 shares for Mr. Breyne, and 12,984 shares
for Mr. Bonano. 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
AMOUNT AND
NATURE OF BENEFICIAL PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) OF SHARES
------------------------------------ ------------ ---------
Iridian Asset Management LLC and affiliates 3,842,000 6.88%
276 Post Road West
WestPort, CT 06880-4704
Putnam Investments, Inc. and affiliates 3,260,603 5.83%
One Post Office Square
Boston, MA 02109
American Express 2,815,000 5.03%
IDS Tower 10
Minneapolis, MN 55440-0010
(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.
VOTING PROCEDURES / REVOKING YOUR PROXY
You can vote by telephone, the internet, mail, or in person. We
encourage you to vote by telephone or the internet to help save money.
You can vote your shares by telephone, the internet, mail or in person at the
meeting. Your proxy card contains instructions for voting by telephone or the
internet. Voting by internet or telephone are the least expensive and fastest
methods of voting.
To vote by mail, complete and sign your proxy card - or your broker's voting
instruction card if your shares are held by your broker - and return it in the
enclosed business-reply envelope.
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 ([28,022,639] shares) are present in person or by proxy. Proposal
Two, to increase the number of authorized shares, must be approved by a majority
of all the shareholders. All other matters 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 for that matter, and their
proxies will not affect determination of a plurality. Those abstentions,
however, will not count towards achievement of a majority.
If you are a participant in our Savings Plan or Employee Stock Ownership Plan,
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>
You can change your mind after sending in a proxy, until the meeting
by following these procedures.
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, Phoenix, AZ 85002-2209;
+ Deliver a signed proxy, dated later than the first one, to Harris
Trust & Savings Bank, 311 W. Monroe St., P.O. Box A3800, Chicago, IL
60690-9608; or
+ Vote your shares by telephone or the internet differently than you did
originally, using the same procedures for those methods.
+ Attend the meeting and vote in person or by proxy. Attending the
meeting alone will not revoke your proxy.
PROXY SOLICITATION:
Beacon Hill Partners, Inc. will help us solicit proxies 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 2000 annual meeting no later than December 2, 1999, for
possible inclusion in the proxy statement, or between February 11 and March 2,
2000, for possible consideration at the meeting, which is expected to take place
on Thursday, May 11, 2000. 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 1998 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
<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 Samuel L. Eichenfield, James L. Johnson
and John W. Teets, 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 13, 1999, but this proxy includes any
adjournment(s) of that meeting. The Proxies may vote on my behalf as if I were
personally present 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.
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]
[INSET MAP TO MEETING HERE]
<PAGE>
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
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, 2 and 3 unless
otherwise determined by the Board of Directors or the Proxies.
FOR AGAINST FOR ALL
EXCEPT*
The Board of Directors recommends a vote FOR: [ ] [ ] [ ]
1. Election of directors whose terms expire
in 2001:
Constance R. Curran G. Robert Durham
Kenneth R. Smith
*___________________________
Nominee Exception
FOR AGAINST ABSTAIN
2. Increase of Authorized Shares by [ ] [ ] [ ]
Amending the Certificate of
incorporation.
FOR AGAINST ABSTAIN
3. Ratify the appointment of Deloitte & [ ] [ ] [ ]
Touche LLP as FINOVA's independent
auditors for 1999.
Please sign exactly as name appears at
left. When shares are held by joint
tenants, both should sign. When signing
as attorney, executor, administrator,
trustee or guardian, please give full
title as such. If a corporation, please
sign in full corporate name by president
or other authorized officer. If a
partnership, please sign in partnership
name by authorized person. Please date
the proxy.
Dated:
----------------------------------
Signed
----------------------------------------------
Signed
----------------------------------------------
(Please mark address changes above.)
MULTIPLE SHAREHOLDER PUBLICATIONS.
Please check here to stop mailing of
shareholder publications for this account,
since multiple copies come to this address.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
- - --------------------------------------------------------------------------------
CONTROL NUMBER: DETACH PROXY CARD HERE
XXXXXX
TWO NEW WAYS TO VOTE
VOTE BY TELEPHONE VOTE BY INTERNET
- - --------------------------------------------------------------------------------
It's fast, convenient, and your vote It's fast, convenient, and your vote
is immediately confirmed and posted. is immediately confirmed and posted.
Just follow these 4 easy steps: Just follow these 4 easy steps:
1. Read the accompanying Proxy 1. Read the accompanying Proxy
Statement and voting instruction Statement and voting instruction
form. form.
2. Call 1-888-XXX-XXXX in the United 2. Go to the following website:
States or Canada any time on a
touch tone telephone. There is NO www.harrisbank.com/wproxy
CHARGE to you for the call.
3. Enter your 6-DIGIT CONTROL 3. Enter the information requested
NUMBER located above. on your computer screen, including
your 6-DIGIT CONTROL NUMBER
located above.
4. Follow the simple recorded 4. Follow the simple instructions on
instructions. You will have the screen.
two options:
OPTION 1: To vote as the Board of Directors
recommends on All Proposals: Press 1.
When asked, please confirm your vote
by pressing 1.
OPTION 2: If you choose to vote on each proposal
separately, press 0 and follow the
simple recorded instructions.
YOUR VOTE IS IMPORTANT! YOUR VOTE IS IMPORTANT!
DO NOT RETURN VOTING FORM IF YOU ARE VOTING BY TELEPHONE OR INTERNET
